[Federal Register: April 4, 2007 (Volume 72, Number 64)]
[Notices]
[Page 16392-16395]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04ap07-97]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-55548; File No. SR-NYSE-2006-71]
Self-Regulatory Organizations; New York Stock Exchange LLC; Order
Granting Accelerated Approval of Proposed Rule Change as Modified by
Amendment No. 1 To List and Trade Nine Series of Exchange-Traded Notes
of Barclays Bank PLC Linked to the Performance of Sub-Indices of the
Dow Jones--AIG Commodity Index \SM\
March 28, 2007.
On August 24, 2006, the New York Stock Exchange LLC (``Exchange''
or
[[Page 16393]]
``NYSE'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to list and trade notes linked to the performance
of sub-indices of the Dow Jones--AIG Commodity IndexSM. On
February 20, 2007, the Exchange submitted Amendment No. 1.\3\ The
proposed rule change was published for comment in the Federal Register
on March 2, 2007.\4\ The Commission received no comments on the
proposal. This order approves the proposed rule change, as modified by
Amendment No. 1, on an accelerated basis.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Amendment No. 1 replaced and superseded the Exchange's
original filing in its entirety.
\4\ See Securities Exchange Act Release No. 55352 (February 26,
2007), 72 FR 9599 (``Notice'').
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Under Section 703.19 of NYSE's Listed Company Manual (the
``Manual''),\5\ the Exchange proposes to list and trade nine series of
notes (``Notes'') issued by Barclays Bank PLC (``Barclays'' or
``Issuer''), which are linked to the performance of the following sub-
indices (each sub-index herein referred to as the ``Index'' with
respect to the corresponding series of Notes) of the Dow Jones--AIG
Commodity IndexSM: the Dow Jones--AIG Petroleum Total Return
Sub-IndexSM; the Dow Jones--AIG Livestock Total Return Sub-
IndexSM; the Dow Jones--AIG Agriculture Total Return Sub-
IndexSM; the Dow Jones--AIG Grains Total Return Sub-
IndexSM; the Dow Jones--AIG Energy Total Return Sub-
IndexSM; the Dow Jones--AIG Precious Metals Total Return
Sub-IndexSM; the Dow Jones--AIG ExEnergy Total Return Sub-
IndexSM; the Dow Jones--AIG Industrial Metals Total Return
Sub-IndexSM; and the Dow Jones--AIG Softs Total Return Sub-
IndexSM. Barclays intends to issue the Notes under the name
``iPathSM Exchange-Traded Notes.''
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\5\ Section 703.19 of the Manual provides that the Exchange may
approve for listing and trading securities not otherwise covered by
the criteria of Sections 1 and 7 of the Manual, provided the issue
is suited for auction market trading.
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The Indexes
Each Index is comprised of constituents making up the Dow Jones--
AIG Commodity IndexSM, which the Commission has previously
reviewed in connection with the listing of exchange-traded notes.\6\
Each Index is comprised of commodity contracts relating to a specific
industry or sector.\7\ For example, the Dow Jones--AIG Petroleum Total
Return Sub-IndexSM includes those contracts in the Dow
Jones--AIG Commodity IndexSM that relate to petroleum-
related commodities: crude oil, heating oil and unleaded gasoline. Each
Index is determined annually by AIG-FP and calculated daily by Dow
Jones. The weightings of each Index component are a function of their
weighting in the Dow Jones--AIG Commodity IndexSM, which, in
turn, derives from liquidity and world production data.
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\6\ See Securities Exchange Act Release No. 53876 (May 25,
2006), 71 FR 32158 (June 2, 2006) (SR-NYSE-2006-16). As set out in
that filing, the Dow Jones--AIG Commodity IndexSM is
designed to be a diversified benchmark for commodities as an asset
class and reflects the returns that are potentially available
through an unleveraged investment in the futures contracts on
physical commodities comprising the Index plus the rate of interest
that could be earned on cash collateral invested Treasury Bills. The
Dow Jones--AIG Commodity IndexSM was developed by AIGI
International Inc., each year is determined by AIG Financial
Products Corp. (``AIG-FP''), and is calculated by Dow Jones. The
relative weightings of each component commodity is determined
annually according to liquidity and dollar adjusted production data
in \2/3\ and \1/3\ shares, respectively.
\7\ See Notice, supra note 4, 72 FR at 9602-9604.
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Dow Jones disseminates the Index value of each sub-index every 15
seconds (assuming the Index value has changed within such 15 second
interval) from 8 a.m. to 3 p.m. ET and publishes a daily Index value at
approximately 4 p.m. ET on each day on which the Index is calculated.
The sub-index values can still be retrieved after 3 p.m. until the end
of the Exchange trading day but their values are generally static after
3 p.m., although they may change if settlement values for Index
components become available after that time.
The Notes
The Notes will offer investors exposure to specific commodity
sectors. The Notes are debt securities of Barclays with a term of 30
years that provide for a cash payment at maturity or upon earlier
exchange at the holder's option, based on the performance of the
relevant Index according to a formula set forth in the notice of NYSE's
proposal.\8\ Unlike traditional debt securities, the Notes would not
have a minimum principal amount that would be repaid prior to or at
maturity. Accordingly, the return could be less than the original issue
price. Also, holders of the Notes will not receive any interest
payments from the Notes. Prior to maturity, Notes may be redeemed in
large aggregations as described further in the notice of NYSE's
proposal.
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\8\ See Notice, supra note 4, 72 FR at 9601.
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Because the Notes will be debt securities of Barclays, the Notes
are dependent upon its creditworthiness. This credit risk is addressed
by the listing standards in Sec. 703.19(1) of NYSE's Manual, which
provide that a security may not be listed on the Exchange unless its
issuer satisfies certain financial requirements.
Section 703.19(2) of NYSE's Manual requires a market value of $4
million for initial listing of debt securities. In addition, the Notes
would have to comply with continued listing standards in Section
802.01D of NYSE's Manual. The Exchange would remove from listing any
security where the public distribution or aggregate market value has
fallen below the specified thresholds or become so reduced to make
further dealings on the Exchange inadvisable, or where such other event
shall occur or condition exists which in the opinion of the Exchange
makes further dealings on the Exchange inadvisable.
Pricing Information
An intraday Indicative Value meant to approximate the intrinsic
economic value of the Notes will be calculated and published via the
facilities of the Consolidated Tape Association (``CTA'') every 15
seconds throughout the NYSE trading day on each day on which the Notes
are traded on the Exchange. Additionally, Barclays or an affiliate will
calculate and publish the closing Indicative Value of the Notes on each
trading day at http://www.ipathetn.com. The last sale price of the
Notes will also be disseminated over the consolidated tape, subject to
a 20-minute delay.\9\
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\9\ As described in the notice of the NYSE's proposal, the
Indicative Value will not reflect price changes to the price of an
underlying commodity between the close of trading of the futures
contract at the relevant futures exchange and the close of trading
on the NYSE at 4 p.m. ET. While the market for futures trading for
each of the Index commodities is open, the Indicative Value can be
expected to closely approximate the redemption value of the Notes.
However, during NYSE trading hours when the futures contracts have
ceased trading, spreads and resulting premiums or discounts may
widen, and therefore, increase the difference between the price of
the Notes and their redemption value.
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Trading Rules
The Notes will trade as equity securities, subject to NYSE rules
governing, among other things, priority, parity, and precedence of
orders; specialist responsibilities; margin; \10\ and customer
suitability requirements. The Notes will trade between the hours of
9:30 a.m. and 4 p.m. ET. The Exchange would halt trading in the
Securities if the circuit breaker parameters of Exchange Rule 80B have
been reached and may halt trading pursuant to Exchange Rule 123D
[[Page 16394]]
pending the dissemination of material news with respect to the issuer.
If the Index value or the Indicative Value is not being disseminated as
required, the Exchange may halt trading during the day on which the
interruption to the dissemination of the Index value or the Indicative
Value first occurs. If the interruption to the dissemination of the
Index value or the Indicative Value persists past the trading day in
which it occurred, the Exchange will halt trading no later than the
beginning of the trading day following the interruption.
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\10\ See NYSE Rule 431.
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Surveillance
The NYSE has represented that it would rely on its existing
surveillance procedures governing equities, which it represented are
adequate to monitor trading of the Notes. Through information sharing
agreements and its membership in the Intermarket Surveillance Group,
the Exchange stated that it has access to all relevant trading
information in connection with commodity futures comprising each Index.
Further, the Exchange stated that it currently has the authority under
NYSE Rule 476 to request the Exchange specialist in the Notes to
provide NYSE Regulation with information that the specialist uses in
connection with pricing the Notes on the Exchange, including specialist
proprietary or other information regarding securities, commodities,
futures, options on futures or other derivative instruments. The
Exchange believes it also has authority to request any other
information from its members--including floor brokers, specialists and
``upstairs'' firms--to fulfill its regulatory obligations.
Suitability
Pursuant to Exchange Rule 405, the Exchange will impose a duty of
due diligence on its members and member firms to learn the essential
facts relating to every customer prior to trading the Notes.\11\ With
respect to suitability recommendations and risks, the Exchange will
require members, member organizations and employees thereof
recommending a transaction in the Notes: (1) To determine that such
transaction is suitable for the customer, and (2) to have a reasonable
basis for believing that the customer can evaluate the special
characteristics of, and is able to bear the financial risks of, such
transaction.
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\11\ NYSE Rule 405 requires that every member, member firm or
member corporation use due diligence to learn the essential facts
relative to every customer and to every order or account accepted.
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Discussion and Commission Findings
After careful consideration, the Commission finds that the proposed
rule change is consistent with the requirements of the Act and the
rules and regulations thereunder applicable to a national securities
exchange.\12\ In particular the Commission finds that the proposed rule
change is consistent with the requirements of Section 6(b)(5) of the
Act,\13\ which requires among other things, that the Exchange's rules
be designed to promote just and equitable principles of trade, to
facilitate transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, to protect investors and the public interest.
The Commission notes that it has previously approved the listing and
trading of other index-linked securities that have a structure similar
to the Notes.\14\
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\12\ In approving the rule, the Commission notes that it has
considered the proposed rule's impact on efficiency, competition and
capital formation. See 15 U.S.C. 78c(f).
\13\ 15 U.S.C. 78f(b)(5).
\14\ See, e.g., Securities Exchange Act Release Nos. 54177 (July
19, 2006), 71 FR 54177 (July 27, 2006) (SR-NYSE-2006-19) (relating
to the trading of the Index-Linked Securities of Barclays Bank PLC
linked to the Performance of the Goldman Sachs Crude Oil Total
Return IndexTM); 53876 (May 25, 2006), 71 FR 32158 (June
2, 2006) (SR-NYSE-2006-16) (relating to the trading of the Index-
Linked Securities of Barclays Bank PLC linked to the performance of
the Dow Jones--AIG Commodity Index Total Return); and 53849 (May 22,
2006), 71 FR 30706 (May 30, 2006) (SR-NYSE-2006-20) (relating to the
trading of the Index-Linked Securities of Barclays Bank PLC linked
to the performance of the GSCI[supreg] Total Return Index).
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The Commission further believes that the proposal is consistent
with Section 11A(a)(1)(C)(iii) of the Act,\15\ which sets forth
Congress' finding that it is in the public interest and appropriate for
the protection of investors and the maintenance of fair and orderly
markets to assure the availability to brokers, dealers, and investors
of information with respect to quotations for and transactions in
securities. Quotations for and last-sale information regarding the
Notes will be disseminated through the facilities of the Consolidated
Tape Association (``CTA''). The value of each Index is calculated and
disseminated daily and, because the composition of each Index is public
and pricing of the constituents is transparent, it may be verified by a
number of independent sources. In addition, an intraday Indicative
Value for each Note series will be available through the CTA.
Furthermore, financial information regarding the Issuer is publicly
available, allowing investors to evaluate the creditworthiness of the
Issuer. The Commission also believes that sufficient venues exist for
obtaining reliable information so that holders of the Notes can track
the value of their investment. Accordingly, the Commission finds that
NYSE's proposal is reasonably designed to promote transparency in the
pricing of the Notes, and to prevent trading when a reasonable degree
of transparency cannot be assured.
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\15\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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The proposal also appears reasonably designed to prevent conveyance
of inside information from the Index Calculator to market participants
who may trade the Notes.
In support of this proposal, the Exchange has made the following
representations:
(1) NYSE has received a representation from AIG-FP, the Index
Sponsor, that it will
(a) Implement and maintain procedures reasonably designed to
prevent the use and dissemination by relevant employees of AIG-FP, in
violation of applicable laws, rules and regulations, of material non-
public information relating to changes in the composition or method of
computation or calculation of the Index and (b) periodically check the
application of such procedures as they relate to officers and directors
of AIG-FP directly responsible for such changes.\16\
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\16\ AIG-FP is a wholly-owned guaranteed subsidiary of American
International Group, Inc. It is not a broker-dealer or futures
commission merchant; however, AIG-FP may have such affiliates. The
Exchange has stated that Dow Jones does not have any affiliates
engaged in the securities or commodities trading businesses and, as
such, Dow Jones does not believe that such firewall procedures are
necessary in its case. Dow Jones and the Dow Jones--AIG Commodity
IndexSM Oversight Committee will adopt and maintain
policies that acknowledge their obligations with respect to material
non-public information. See supra note 6, 71 FR at 32159-32160
nn.10,15.
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(2) NYSE will, prior to trading the Notes, distribute an
information memorandum to the membership providing guidance with regard
to member firm compliance responsibilities (including suitability
recommendations) when handling transactions in the Notes and
highlighting the special risks and characteristics of the Notes. In
addition, during the initial distribution of the Notes and during any
subsequent distribution of the Notes, NYSE member organizations will
deliver a prospectus to investors purchasing Notes from distributors.
(3) NYSE will rely on its existing surveillance procedures
governing equities with regard to surveillance of the Notes, which are
adequate to properly monitor trading of the Notes
[[Page 16395]]
and detect violations of Exchange rules, thereby deterring
manipulation.
(4) With regard to the Index components, the Exchange can obtain
market all relevant trading information, including customer identity
information, with respect to transactions through agreements with
futures exchanges and participation in the Intermarket Surveillance
Group.
(5) NYSE prohibits the initial and/or continued listing of any
security that is not in compliance with Rule 10A-3 under the Act.\17\
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\17\ See 17 CFR 240.10A-3.
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This order is conditioned on NYSE's adherence to these
representations.
Under the proposal, the Exchange will delist any series of the
Notes under the following circumstances:
(1) (a) If, following the initial twelve month period from the date
of commencement of trading of the Notes, the Notes have more than 60
days remaining until maturity and there are fewer than 50 beneficial
holders of the Notes for 30 or more consecutive trading days; (b) if
fewer than 100,000 Notes remain issued and outstanding; or (c) if the
market value of all outstanding Notes is less than $1,000,000.
(2) If the Index value ceases to be calculated or available during
the time the Notes trade on the Exchange on at least a 15 second basis
through one or more major market data vendors or the sponsors of the
Index.
(3) If, during the time the Notes trade on the Exchange, the
Indicative Value ceases to be available on a 15 second delayed basis.
In addition, NYSE has represented that it would delist the Notes
(unless the Commission approved a proposed rule change submitted
pursuant to Rule 19b-4 under the Act) if: (1) Dow Jones and AIG-FP
substantially change either the Index component selection methodology
or the weighting methodology; (2) a new component is added to the Index
(or pricing information is used for a new or existing component) that
constitutes more than 10% of the weight of the Index with whose
principal trading market the Exchange does not have a comprehensive
surveillance sharing agreement; or (3) a successor or substitute index
is used in connection with the Notes. The Commission believes that each
of these circumstances represents material changes to the
characteristics of the Index described herein and on which the
Commission is basing its findings. Under these circumstances, the
Exchange could not rely on this approval to list and trade the Notes.
Acceleration
The Commission finds good cause to approve the proposal, as
amended, prior to the thirtieth day after the amended proposal was
published for comment in the Federal Register. Accelerating approval of
the proposal should benefit investors who desire to participate in the
designated Indexes by expediting the listing and trading of the Notes
by the Exchange. The Commission also notes that the proposal is similar
to others previously approved by the Commission, and does not appear to
raise any new regulatory issues. Thus, the Commission finds good cause,
consistent with Section 19(b)(2) of the Act,\18\ to grant accelerated
approval of the proposed rule change, as amended.
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\18\ 15 U.S.C. 78s(b)(2).
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It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (SR-NYSE-2006-71), as modified by
Amendment No. 1, be, and it hereby is, approved on an accelerated
basis.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E7-6189 Filed 4-3-07; 8:45 am]
BILLING CODE 8010-01-P