[Federal Register: February 5, 2007 (Volume 72, Number 23)]
[Notices]
[Page 5310-5314]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05fe07-75]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-55188; File No. SR-NYSE-2006-66]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of a Proposed Rule Change and Amendments No. 1 and 2
Thereto To List and Trade Exchange-Traded Notes of Barclays Bank PLC
Linked to the Performance of the Euro/U.S. Dollar Exchange Rate
January 29, 2007.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on August 24, 2006 the New York Stock Exchange LLC (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. On
December 26, 2006, the Exchange submitted Amendment No. 1.\3\ On
January 23, 2007, the Exchange submitted Amendment No. 2.\4\ The
Commission is publishing this notice to solicit comments on the
proposed rule change, as amended, from interested persons.
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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\3\ Amendment No. 1 replaced and superseded the Exchange's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 submission in its entirety.
\4\ Amendment No. 2 replaced and superseded Amendment No. 1 in
its entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade exchange-traded notes
(``Notes'') of Barclays Bank PLC (``Barclays'') linked to the
performance of the euro/U.S. dollar exchange rate (the ``EUR/USD
exchange rate'').
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The NYSE has prepared summaries, set forth in Sections
A, B, and C below, of the most significant aspects of such statements.
[[Page 5311]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Notes
Under Section 703.19 of the Listed Company Manual (the ``Manual''),
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. The Exchange
proposes to list and trade, under Section 703.19 of the Manual, the
Notes, which are linked to the performance of the EUR/USD exchange
rate. Barclays intends to issue the Notes under the name
``iPathSM Exchange Traded Notes.''
The Exchange believes that the Notes will conform to the initial
listing standards for equity securities under Section 703.19, as
Barclays is an affiliate of Barclays PLC, which is a listed company in
good standing. The Notes will have a minimum life of one year, the
minimum public market value of the Notes at the time of issuance will
exceed $4 million, there will be at least one million Notes
outstanding, and there will be at least 400 holders at the time of
issuance. The Notes are a series of medium-term debt securities of
Barclays that provide for a cash payment at maturity or upon earlier
redemption at the holder's option, based on the performance of the EUR/
USD exchange rate subject to the adjustments described below. The
original issue price of each Note will be $25. The Notes will trade on
the Exchange's equity trading floor, and the Exchange's existing equity
trading rules will apply to trading in the Notes.
The EUR/USD exchange rate is a foreign exchange spot rate that
measures the relative values of two currencies, the euro and the U.S.
dollar. When the euro appreciates relative to the U.S. dollar, the EUR/
USD exchange rate (and the value of the Notes) increases; when the euro
depreciates relative to the U.S. dollar, the EUR/USD exchange rate (and
the value of the Notes) decreases. The EUR/USD exchange rate is
expressed as a rate that reflects the number of U.S. dollars that can
be exchanged for one euro in the interbank market for settlement in two
days, as reported each day shortly after 10 a.m. Eastern Time (``ET'')
on Reuters page 1FED or any successor page.
The Notes will not have a minimum principal amount that will be
repaid and, accordingly, payment on the Notes prior to or at maturity
may be less than the original issue price of the Notes. In fact, the
EUR/USD exchange rate must increase for the investor to receive at
least the $25 original issue price per Note at maturity or upon
redemption. If the EUR/USD exchange rate decreases or does not increase
sufficiently to offset any negative effect of the adjustment factor
(described below), the investor will receive less, and possibly
significantly less, than the $25 original issue price per Note. In
addition, holders of the Notes will not receive any interest payments
from the Notes. The Notes will have a term of 30 years. The Notes are
not callable.
If the Notes are held to maturity, the holder will receive a cash
payment at maturity that is linked to the percentage change in the EUR/
USD exchange rate between the inception date and the final valuation
date. The cash payment at maturity will be equal to (1) the reference
currency amount times (2) the EUR/USD exchange rate on the final
valuation date times (3) the adjustment factor as determined on the
final valuation date. The reference currency amount is the original
issue price of the Notes divided by the EUR/USD exchange rate on the
inception date.
The adjustment factor will be calculated on a daily basis in the
following manner: The adjustment factor on the inception date will
equal one. On each subsequent business day until the final valuation
date, the adjustment factor will equal (1) the adjustment factor on the
immediately preceding business day times (2) the sum of one plus (a)
the European Overnight Index Average, as reported on Reuters page EONIA
or any successor page on the immediately preceding business day (the
``EONIA'') minus (b) 0.27% minus (c) the investor fee times (3) the
relevant daycount fraction. The EONIA is the effective overnight
reference rate for the euro. It is computed as a weighted average of
all overnight unsecured lending transactions undertaken in the
interbank market, initiated within the euro area by the contributing
banks. The investor fee is equal to 0.40% of the reference currency
amount per year and is the only fee payable by investors in connection
with an investment in the Notes. The daycount fraction on any business
day will be the number of calendar days that have elapsed since the
immediately preceding business day divided by 365. If the maturity date
is not a business day, the maturity date will be the next following
business day. If the fifth business day before this day does not
qualify as a valuation date (as described below), then the maturity
date will be the fifth business day following the final valuation date.
In such event penalty interest will not accrue or be payable with
respect to that deferred payment.
Prior to maturity, holders may, subject to certain restrictions,
choose to redeem their Notes on any redemption date during the term of
the Notes provided that they present at least 100,000 Notes for
redemption. Holders may also act through a broker or other financial
intermediary (such as a bank or other financial institution not
required to register as a broker-dealer to engage in securities
transactions) that is willing to bundle their Notes for redemption with
other investors' securities. Barclays may from time to time in its sole
discretion reduce, in part or in whole, the minimum redemption amount
of 100,000 Notes. Any such reduction will be applied on a consistent
basis for all holders of the Notes at the time the reduction becomes
effective. If holders redeem their Notes on a particular redemption
date, they will receive a cash payment on such date in an amount equal
to the weekly redemption value, which equals (1) the reference currency
amount times (2) the EUR/USD exchange rate on the applicable valuation
date times (3) the adjustment factor as determined on the applicable
valuation date. Holders must redeem at least 100,000 Notes at one time
in order to exercise their right to redeem their Notes on any
redemption date. Barclays may from time to time in its sole discretion
reduce, in part or in whole, the minimum redemption amount of 100,000
Notes. Any such reduction will be applied on a consistent basis for all
holders of Notes at the time the reduction becomes effective. A
valuation date is each Thursday from the first Thursday after issuance
of the Notes until the last Thursday before maturity of the Notes (the
``final valuation date'') inclusive or, if such date is not a trading
day, the next succeeding trading day, not to exceed five business days.
A redemption date is the second business day following a valuation date
(other than the final valuation date). The final redemption date will
be the second business day following the valuation date immediately
prior to the final valuation date.
To redeem their Notes, Holders must instruct their broker or other
person with whom they hold their Notes to take the following steps:
Deliver a notice of redemption to Barclays via email by no
later than 11 a.m. ET on the business day prior to the applicable
valuation date. If Barclays receives notice by the time specified in
the preceding sentence, it will respond
[[Page 5312]]
by sending a form of confirmation of redemption;
Deliver the signed confirmation of redemption to Barclays
via facsimile in the specified form by 4 p.m. ET on the same day.
Barclays or its affiliate must acknowledge receipt in order for
confirmation to be effective;
Instruct their DTC custodian to book a delivery vs.
payment trade with respect to their Notes on the valuation date at a
price equal to the applicable Weekly Redemption Value, facing Barclays
Capital DTC 5101; and
Cause their DTC custodian to deliver the trade as booked
for settlement via DTC at or prior to 10 a.m. ET on the applicable
redemption date (the third business day following the valuation date).
If holders elect to redeem their Notes, Barclays may request that
Barclays Capital Inc. (a broker-dealer) purchase the Notes for the cash
amount that would otherwise have been payable by Barclays upon
redemption. In this case, Barclays will remain obligated to redeem the
Notes if Barclays Capital Inc. fails to purchase the Notes. Any Notes
purchased by Barclays Capital Inc. may remain outstanding.
If an event of default occurs and the maturity of the Notes is
accelerated, Barclays will pay the default amount in respect of the
principal of the Notes at maturity. The default amount for the Notes on
any day will be an amount, determined by the calculation agent in its
sole discretion, equal to the cost of having a qualified financial
institution, of the kind and selected as described below, expressly
assume all Barclays' payment and other obligations with respect to the
Notes as of that day and as if no default or acceleration had occurred,
or to undertake other obligations providing substantially equivalent
economic value to the holders of the Notes with respect to the Notes.
That cost will equal:
The lowest amount that a qualified financial institution
would charge to effect this assumption or undertaking, plus
The reasonable expenses, including reasonable attorneys'
fees, incurred by the holders of the Notes in preparing any
documentation necessary for this assumption or undertaking.
During the default quotation period for the Notes (described
below), the holders of the Notes and/or Barclays may request a
qualified financial institution to provide a quotation of the amount it
would charge to effect this assumption or undertaking. If either party
obtains a quotation, it must notify the other party in writing of the
quotation. The amount referred to in the first bullet point above will
equal the lowest--or, if there is only one, the only--quotation
obtained, and as to which notice is so given, during the default
quotation period. With respect to any quotation, however, the party not
obtaining the quotation may object, on reasonable and significant
grounds, to the assumption or undertaking by the qualified financial
institution providing the quotation and notify the other party in
writing of those grounds within two business days after the last day of
the default quotation period, in which case that quotation will be
disregarded in determining the default amount. The default quotation
period is the period beginning on the day the default amount first
becomes due and ending on the third business day after that day,
unless:
No quotation of the kind referred to above is obtained, or
Every quotation of that kind obtained is objected to
within five business days after the due date as described above.
If either of these two events occurs, the default quotation period
will continue until the third business day after the first business day
on which prompt notice of a quotation is given as described above. If
that quotation is objected to as described above within five business
days after that first business day, however, the default quotation
period will continue as described in the prior sentence and this
sentence.
In any event, if the default quotation period and the subsequent
two business day objection period have not ended before the final
valuation date, then the default amount will equal the stated principal
amount of the Notes.
Indicative Value
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.
In connection with the Notes, the term ``Indicative Value'' refers to
the value at a given time determined based on the following equation:
Indicative Value = Reference Currency Amount x Current EUR/USD Exchange
Rate x Current Adjustment Factor
Where:
Current EUR/USD Exchange Rate = The exchange rate as reported on
that day.
The Current EUR/USD Exchange Rate used for the calculation of the
Indicative Value will be the EUR/USD exchange rate disseminated by
Bloomberg L.P. during the course of the trading day on a 15 second
delayed basis.
Continued Listing Criteria
The Exchange prohibits the initial and/or continued listing of any
security that is not in compliance with Rule 10A-3 under the Act.
The Exchange will delist the Notes:
If, following the initial twelve month period from the
date of commencement of trading of the Notes, (i) 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; (ii) if fewer than 100,000 Notes remain issued and outstanding;
or (iii) if the market value of all outstanding Notes is less than
$1,000,000.
If, during the time the Notes trade on the Exchange, the
Indicative Value ceases to be available on a 15 second delayed basis.
If, during the time the Notes trade on the Exchange, the
EUR/USD exchange rate ceases to be calculated or available on at least
a 15 second delayed basis from one or more major market data vendors.
If such other event shall occur or condition exists which
in the opinion of the Exchange makes further dealings on the Exchange
inadvisable.
Trading Halts
If the Exchange Rate 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 Exchange Rate or
the Indicative Value first occurs. If the interruption to the
dissemination of the Exchange Rate 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.
Rules Applicable to Specialists in Currency-Related Securities
The Exchange has filed proposed Supplementary Material .10 to Rules
1300A and 1301A, which will apply the provisions of Rule 1300A(b) and
Rule 1301A to certain securities listed on the Exchange pursuant to
Section 703.19 (``Other Securities'') of the Exchange's
[[Page 5313]]
Listed Company Manual.\5\ Specifically, Rules 1300A(b) and 1301A will
apply to securities listed under Section 703.19 where the price of such
securities is based in whole or part on the price of (a) a non-U.S.
currency or currencies, (b) any futures contracts or other derivatives
based on a non-U.S. currency or currencies, or (c) any index based on
either (a) or (b) above. As a result of application of Rule 1300A(b),
the specialist in the Notes, the specialist's member organization and
other specified persons will be prohibited under paragraph (m) of
Exchange Rule 105 Guidelines from acting as market maker or functioning
in any capacity involving market-making responsibilities in the euro,
options, futures or options on futures on the euro, or any other
derivatives based on the euro (collectively, ``derivative
instruments''). If the member organization acting as specialist in the
Notes is entitled to an exemption under NYSE Rule 98 from paragraph (m)
of NYSE Rule 105 Guidelines, then that member organization could act in
a market making capacity in the euro or derivative instruments based on
the euro, other than as a specialist in the Notes themselves, in
another market center.
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\5\ See SR-NYSE-2006-68.
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Under Rule 1301A(a), the member organization acting as specialist
in the Notes (1) will be obligated to conduct all trading in the Notes
in its specialist account, (subject only to the ability to have one or
more investment accounts, all of which must be reported to the
Exchange), (2) will be required to file with the Exchange and keep
current a list identifying all accounts for trading in the euro or
derivative instruments based on the euro, which the member organization
acting as specialist may have or over which it may exercise investment
discretion, and (3) will be prohibited from trading in the euro or
derivative instruments based on the euro, in an account in which a
member organization acting as specialist, controls trading activities
which have not been reported to the Exchange as required by Rule 1301.
Under Rule 1301A(b), the member organization acting as specialist
in the Notes will be required to make available to the Exchange such
books, records or other information pertaining to transactions by the
member organization and other specified persons for its or their own
accounts in the euro or derivative instruments based on the euro, as
may be requested by the Exchange. This requirement is in addition to
existing obligations under Exchange rules regarding the production of
books and records.
Under Rule 1301A(c), in connection with trading the euro or
derivative instruments based on the euro, the specialist could not use
any material nonpublic information received from any person associated
with a member or employee of such person regarding trading by such
person or employee in the euro or derivative instruments based on the
euro.
Surveillance
The Exchange's surveillance procedures will incorporate and rely
upon existing Exchange surveillance procedures governing equities with
respect to surveillance of the Notes. The Exchange believes that these
procedures are adequate to monitor Exchange trading of the Notes and to
detect violations of Exchange rules, thereby deterring manipulation. In
this regard, the Exchange 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, currencies, 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.
The Exchange's current trading surveillances focus on detecting
securities trading outside normal patterns. When such situations are
detected, surveillance analysis follows and investigations are opened,
where appropriate, to review the behavior of all relevant parties for
all relevant trading violations.
The Exchange is able to obtain information regarding trading in the
Notes, euro options and euro futures through NYSE members, in
connection with such members' proprietary or customer trades which they
effect on any relevant market. In addition, the Exchange may obtain
trading information via the Intermarket Surveillance Group (``ISG'')
from other exchanges who are members or affiliates of the ISG.
Specifically, the NYSE can obtain such information from the
Philadelphia Stock Exchange (the ``Phlx'') in connection with euro
options trading on the Phlx and from the Chicago Mercantile Exchange
(the ``CME'') and the Euronext.Liffe Exchange (the ``LIFFE'') in
connection with euro futures trading on the CME and the LIFFE
respectively.\6\ These markets are the primary trading markets in the
world for exchange-traded futures, options and options on futures on
the exchange rate between the dollar and the euro. The Exchange also
lists and trades CurrencyShares based on the euro and can therefore
surveil the trading of those CurrencyShares on the Exchange and on NYSE
Arca.
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\6\ The Phlx is a full member and the CME and the LIFFE are
affiliate members of the ISG.
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Trading Rules
The Exchange's existing trading rules will apply to trading of the
Notes. The Notes will trade between the hours of 9:30 a.m. and 4 p.m.
ET and will be subject to the equity margin rules of the Exchange.
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. 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.
Information Memorandum
The Exchange 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. The
information memorandum will note to members language in the prospectus
used by Barclays in connection with the sale of the Notes regarding
prospectus delivery requirements for the Notes. In the initial
distribution of the Notes, and during any subsequent distribution of
the Notes, NYSE member organizations will deliver a prospectus to
investors purchasing from such distributors.
The information memorandum will discuss the special characteristics
and risks of trading this type of security. Specifically, the
information memorandum, among other things, will discuss what the Notes
are, how the Notes are redeemed, applicable Exchange rules,
dissemination of information regarding the Indicative
[[Page 5314]]
Value, the EUR/USD exchange rate, trading information and applicable
suitability rules.
The information memorandum will also notify members and member
organizations about the procedures for redemptions of Notes and that
Notes are not individually redeemable but are redeemable only in
aggregations of at least 100,000 Notes. The information memorandum will
also discuss any relief, if granted, by the Commission or the staff
from any rules under the Act. The information memorandum will also
reference that there is no regulated source of last sale information
regarding currency exchange rates and that the Commission has no
jurisdiction over the trading of currencies on which the value of the
Notes is based.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Act,\7\ in general, and furthers the objectives of Section 6(b)(5),\8\
in particular, in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to remove impediments to, and perfect the
mechanism of a free and open market and, in general, to protect
investors and the public interest.
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which NYSE consents, the Commission will:
(A) By order approve such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
NYSE has requested accelerated approval of this proposed rule
change prior to the 30th day after the date of publication of the
notice of the filing thereof. The Commission has determined that a 15-
day comment period is appropriate in this case.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NYSE-2006-66.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSE-2006-66. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site http://www.sec.gov/rules/sro.shtml
). Copies of the submission, all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for inspection
and copying in the Commission's Public Reference Room. Copies of the
filing also will be available for inspection and copying at the
principal office of the Exchange. All comments received will be posted
without change; the Commission does not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File Number SR-NYSE-2006-66 and should be submitted on or before
February 20, 2007.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E7-1781 Filed 2-2-07; 8:45 am]
BILLING CODE 8011-01-P