Self-Regulatory Organizations; Proposed Rule Changes:
Federal Register: November 12, 2010 (Volume 75, Number 218)
Notices
Page 69494-69501
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
DOCID:fr12no10-122
SECURITIES AND EXCHANGE COMMISSION
Release No. 34-63267; File No. SR-NYSEArca-2010-95
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change To List and Trade Shares of the ETFS Asian Gold
Trust
November 8, 2010.
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 October 25, 2010, NYSE Arca, Inc. (``NYSE Arca'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to
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solicit comments on the proposed rule change from interested persons.
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The Exchange proposes to list and trade shares of the ETFS Asian
Gold Trust (the ``Trust'') pursuant to NYSE Arca Equities Rule 8.201.
The text of the proposed rule change is available at the Exchange, the
Commission's Public Reference Room, and http://www.nyse.com.
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Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization 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 those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
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Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change 1. Purpose
The Exchange proposes to list and trade ETFS Physical Asian Gold
Shares (``Shares'') of the Trust under NYSE Arca Equities Rule 8.201.
Under NYSE Arca Equities Rule 8.201, the Exchange may propose to list and/or trade pursuant to unlisted trading privileges (``UTP'')
``Commodity-Based Trust Shares.'' \3\ The Commission has previously approved listing on the Exchange under NYSE Arca Equities Rule 8.201 shares of the ETFS Gold Trust,\4\ ETFS Platinum Trust \5\ and ETFS
Palladium Trust (collectively, the ``ETFS Trusts'').\6\ In addition, the Commission has approved listing on the Exchange of streetTRACKS
Gold Trust and iShares COMEX Gold Trust.\7\ Prior to their listing on the Exchange, the Commission approved listing of the streetTRACKS Gold
Trust on the New York Stock Exchange (``NYSE'') and listing of iShares
COMEX Gold Trust on the American Stock Exchange LLC.\8\ In addition, the Commission has approved trading of the streetTRACKS Gold Trust and iShares Silver Trust and on the Exchange pursuant to UTP.\9\ The
Commission also has approved listing of the iShares Silver Trust on the
Exchange \10\ and, previously, listing of the iShares Silver Trust on the American Stock Exchange LLC (now known as ``NYSE Amex LLC'').\11\
\3\ Commodity-Based Trust Shares are securities issued by a trust that represent investors' discrete identifiable and undivided beneficial ownership interest in the commodities deposited into the
Trust.
\4\ Securities Exchange Act Release No. 59895 (May 8, 2009), 74
FR 22993 (May 15, 2009) (SR-NYSEArca-2009-40).
\5\ Securities Exchange Act Release No. 61219 (December 22, 2009), 74 FR 68886 (December 29, 2009) (SR-NYSEArca-2009-95).
\6\ Securities Exchange Act Release No. 61220 (December 22, 2009), 74 FR 68895 (December 29, 2009) (SR-NYSEArca-2009-94).
\7\ See Securities Exchange Act Release No. 56224 (August 8, 2007), 72 FR 45850 (August 15, 2007) (SR-NYSEArca-2007-76)
(approving listing on the Exchange of the streetTRACKS Gold Trust);
Securities Exchange Act Release No. 56041 (July 11, 2007), 72 FR 39114 (July 17, 2007) (SR-NYSEArca-2007-43) (order approving listing on the Exchange of iShares COMEX Gold Trust).
\8\ See Securities Exchange Act Release Nos. 50603 (October 28, 2004), 69 FR 64614 (November 5, 2004) (SR-NYSE-2004-22) (order approving listing of streetTRACKS Gold Trust on NYSE); 51058
(January 19, 2005), 70 FR 3749 (January 26, 2005) (SR-Amex-2004-38)
(order approving listing of iShares COMEX Gold Trust on the American
Stock Exchange LLC).
\9\ See Securities Exchange Act Release Nos. 53520 (March 20, 2006), 71 FR 14977 (March 24, 2006) (SR-PCX-2005-117) (approving trading on the Exchange pursuant to UTP of the iShares Silver
Trust); 51245 (February 23, 2005), 70 FR 10731 (March 4, 2005) (SR-
PCX-2004-117) (approving trading on the Exchange of the streetTRACKS
Gold Trust pursuant to UTP).
\10\ See Securities Exchange Act Release No. 58956 (November 14, 2008), 73 FR 71074 (November 24, 2008) (SR-NYSEArca-2008-124)
(approving listing on the Exchange of the iShares Silver Trust).
\11\ See Securities Exchange Act Release No. 53521 (March 20, 2006), 71 FR 14967 (March 24, 2006) (SR-Amex-2005-72) (approving listing on the American Stock Exchange LLC of the iShares Silver
Trust).
The Trust will issue Shares which represent units of fractional undivided beneficial interest in and ownership of the Trust. The investment objective of the Trust is for the Shares to reflect the performance of the price of gold bullion, less the expenses of the
Trust's operations.\12\ ETFS Securities USA LLC is the sponsor of the
Trust (``Sponsor''), The Bank of New York Mellon is the trustee of the
Trust (``Trustee''),\13\ and JPMorgan Chase Bank, N.A. is the custodian of the Trust (``Custodian'').\14\
\12\ See the Registration Statement for the Trust on Form S-1, filed with the Commission on July 22, 2010 (No. 333-168277)
(``Registration Statement''). The descriptions of the Trust, the
Shares and the gold market contained herein are based on the
Registration Statement.
\13\ The Trustee is generally responsible for the day-to-day administration of the Trust. This includes (1) transferring the
Trust's gold as needed to pay the Sponsor's fee in gold (gold transfers are expected to occur approximately monthly in the ordinary course); (2) calculating the net asset value (``NAV'') of the Trust and the NAV per Share; (3) receiving and processing orders from Authorized Participants to create and redeem Baskets and coordinating the processing of such orders with the Custodian and
The Depository Trust Company (``DTC''); and (4) selling the Trust's gold as needed to pay any extraordinary Trust expenses that are not assumed by the Sponsor.
\14\ The Custodian is responsible for the safekeeping of the
Trust's gold deposited with it by Authorized Participants in connection with the creation of Baskets. The Custodian also facilitates the transfer of gold in and out of the Trust through gold accounts it will maintain for Authorized Participants and the
Trust. The Custodian is a market maker, clearer and approved weigher under the rules of the London Bullion Market Association (``LBMA'').
The Custodian will hold the Trust's allocated gold at the
Custodian's Singapore vaulting premises on a segregated basis.
The Exchange represents that the Shares satisfy the requirements of
NYSE Arca Equities Rule 8.201 and thereby qualify for listing on the
Exchange.\15\
\15\ With respect to application of Rule 10A-3 (17 CFR 240.10A- 3) under the Securities Exchange of 1934 (``Act'') (15 U.S.C. 78a), the Trust relies on the exemption contained in Rule 10A-3(c)(7).
Operation of the Gold Bullion Market
According to the Registration Statement, the global trade in gold consists of Over-the-Counter (``OTC'') transactions in spot, forwards, and options and other derivatives, together with exchange-traded futures and options. The OTC market trades on a 24-hour per day continuous basis and accounts for most global gold trading.
Market makers, as well as others in the OTC market, trade with each other and with their clients on a principal-to-principal basis. All risks and issues of credit are between the parties directly involved in the transaction. Market makers include the market-making members of the
LBMA, the trade association that acts as the coordinator for activities conducted on behalf of its members and other participants in the London bullion market. The nine market-making members of the LBMA are:
Barclays Bank plc, Deutsche Bank AG, HSBC Bank USA, N.A. (through its
London branch), Goldman Sachs International, JPMorgan Chase Bank,
ScotiaMocatta (a division of the Bank of Nova Scotia),
Soci[eacute]t[eacute] G[eacute]n[eacute]rale, Mitsui & Co Precious
Metals Inc, and UBS AG. The OTC market provides a relatively flexible market in terms of quotes, price, size, destinations for delivery and other factors. Bullion dealers customize transactions to meet clients' requirements. The OTC market has no formal structure and no open-outcry meeting place.
The main centers of the OTC market are London and New York. Mining companies, central banks, manufacturers of jewelry and industrial products, together with investors and speculators, tend to transact their
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business through one of these market centers. Centers such as Dubai and several cities in the Far East also transact substantial OTC market business, typically involving jewelry and small bars (1 kilogram or less) and will hedge their exposure by selling into one of these main
OTC centers. Bullion dealers have offices around the world and most of the world's major bullion dealers are either members or associate members of the LBMA. Of the nine market-making members of the LBMA, six offer clearing services. There are a further 59 full members, plus a number of associate members around the world.
In the OTC market, the standard size of gold trades between market makers ranges between 5,000 and 10,000 ounces. Bid-offer spreads are typically 50 U.S. cents per ounce. Certain dealers are willing to offer clients competitive prices for much larger volumes, including trades over 100,000 ounces, although this will vary according to the dealer, the client and market conditions, as transaction costs in the OTC market are negotiable between the parties and therefore vary widely.
Cost indicators can be obtained from various information service providers as well as dealers.
According to the Registration Statement, liquidity in the OTC market can vary from time to time during the course of the 24-hour trading day. Fluctuations in liquidity are reflected in adjustments to dealing spreads--the differential between a dealer's ``buy'' and
``sell'' prices. The period of greatest liquidity in the gold market generally occurs at the time of day when trading in the European time zones overlaps with trading in the United States, which is when OTC market trading in London, New York and other centers coincides with futures and options trading on the COMEX. This period lasts for approximately four hours each New York business day morning.
The London Bullion Market
According to the Registration Statement, although the market for physical gold is distributed globally, most OTC market trades are cleared through London. In addition to coordinating market activities, the LBMA acts as the principal point of contact between the market and its regulators. A primary function of the LBMA is its involvement in the promotion of refining standards by maintenance of the ``London Good
Delivery Lists,'' which are the lists of LBMA accredited melters and assayers of gold. The LBMA also coordinates market clearing and vaulting, promotes good trading practices and develops standard documentation.\16\
\16\ Terms relating to the Trust and the Shares referred to, but not defined, herein are defined in the Registration Statement.
The terms ``loco London'' gold and ``loco Singapore'' gold refer to gold physically held in London and Singapore, respectively, that meets the specifications for weight, dimensions, fineness (or purity), identifying marks (including the assay stamp of a LBMA acceptable refiner) and appearance set forth in ``The Good Delivery Rules for Gold and Silver Bars'' published by the LBMA. Gold bars meeting these requirements are described in the Trust's prospectus from time to time as ``London Good Delivery Bars.'' The unit of trade in London is the troy ounce, whose conversion between grams is: 1,000 grams = 32.1507465 troy ounces and 1 troy ounce = 31.1034768 grams. A London Good Delivery
Bar is acceptable for delivery in settlement of a transaction on the
OTC market. Typically referred to as 400-ounce bars, a London Good
Delivery Bar must contain between 350 and 430 fine troy ounces of gold, with a minimum fineness (or purity) of 995 parts per 1,000 (99.5%), be of good appearance and be easy to handle and stack. The fine gold content of a gold bar is calculated by multiplying the gross weight of the bar (expressed in units of 0.025 troy ounces) by the fineness of the bar. A London Good Delivery Bar must also bear the stamp of one of the melters and assayers who are on the LBMA approved list. Unless otherwise specified, the gold spot price always refers to that of a
London Good Delivery Bar. Business is generally conducted over the phone and through electronic dealing systems.
Twice daily during London trading hours there is a fix which provides reference gold prices for that day's trading. Many long-term contracts will be priced on the basis of either the morning (AM) or afternoon (PM) London fix, and market participants will usually refer to one or the other of these prices when looking for a basis for valuations. The London fix is the most widely used benchmark for daily gold prices and is quoted by various financial information sources.
Formal participation in the London fix is traditionally limited to five members, each of which is a bullion dealer and a member of the
LBMA. The chairmanship now rotates annually among the five member firms. The morning session of the fix starts at 10:30 a.m. London time and the afternoon session starts at 3 p.m. London time. The members of the gold fixing are currently The Bank of Nova Scotia--ScotiaMocatta,
Deutsche Bank AG, HSBC Bank USA, N.A., Soci[eacute]t[eacute]
G[eacute]n[eacute]rale and Barclays Bank plc. Any other market participant wishing to participate in the trading on the fix is required to do so through one of the five gold fixing members.
Orders are placed either with one of the five fixing members or with another bullion dealer who will then be in contact with a fixing member during the fixing. The fixing members net-off all orders when communicating their net interest at the fixing. The fix begins with the fixing chairman suggesting a ``trying price,'' reflecting the market price prevailing at the opening of the fix. This is relayed by the fixing members to their dealing rooms which have direct communication with all interested parties. Any market participant may enter the fixing process at any time, or adjust or withdraw his order. The gold price is adjusted up or down until all the buy and sell orders are matched, at which time the price is declared fixed. All fixing orders are transacted on the basis of this fixed price, which is instantly relayed to the market through various media. The London fix is widely viewed as a full and fair representation of all market interest at the time of the fix.
The Singapore Bullion Market
After London and Zurich, Singapore is one of the key regional cities for physical gold trading and one of the largest gold trading centers in Asia. In 2010, the Singapore Mercantile Exchange launched the first locally settled gold futures contract, and Singapore opened its first free-trade zone for the custody and storage of precious metals.
Futures Exchanges
According to the Registration Statement, the most significant gold futures exchanges are the COMEX and the Tokyo Commodity Exchange
(``TOCOM''). The COMEX is the largest exchange in the world for trading precious metals futures and options and has been trading gold since 1974. The TOCOM has been trading gold since 1982. Trading on these exchanges is based on fixed delivery dates and transaction sizes for the futures and options contracts traded. Trading costs are negotiable.
As a matter of practice, only a small percentage of the futures market turnover ever comes to physical delivery of the gold represented by the contracts traded. Both exchanges permit trading on margin. Margin trading can add to the speculative risk involved
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given the potential for margin calls if the price moves against the contract holder. The COMEX operates through a central clearance system.
On June 6, 2003, TOCOM adopted a similar clearance system. In each case, the exchange acts as a counterparty for each member for clearing purposes.
Other Exchanges
There are other gold exchange markets, such as the Istanbul Gold
Exchange (trading gold since 1995), the Shanghai Gold Exchange (trading gold since October 2002), the Hong Kong Chinese Gold & Silver Exchange
Society (trading gold since 1918) and the Singapore Mercantile Exchange
(trading gold since 2010).
Market Regulation
The global gold markets are overseen and regulated by both governmental and self-regulatory organizations. In addition, certain trade associations have established rules and protocols for market practices and participants. In the United Kingdom, responsibility for the regulation of the financial market participants, including the major participating members of the LBMA, falls under the authority of the Financial Services Authority (``FSA'') as provided by the Financial
Services and Markets Act 2000 (``FSM Act''). Under this act, all UK- based banks, together with other investment firms, are subject to a range of requirements, including fitness and properness, capital adequacy, liquidity, and systems and controls.
The FSA is responsible for regulating investment products, including derivatives, and those who deal in investment products.
Regulation of spot, commercial forwards, and deposits of gold and silver not covered by the FSM Act is provided for by The London Code of
Conduct for Non-Investment Products, which was established by market participants in conjunction with the Bank of England.
The TOCOM has authority to perform financial and operational surveillance on its members' trading activities, scrutinize positions held by members and large-scale customers, and monitor the price movements of futures markets by comparing them with cash and other derivative markets' prices. To act as a Futures Commission Merchant
Broker, a broker must obtain a license from Japan's Ministry of
Economy, Trade and Industry, the regulatory authority that oversees the operations of the TOCOM.
The Trust will not trade in gold futures contracts on the COMEX or on any other futures exchange. The Trust will take delivery of physical gold that complies with the LBMA gold delivery rules. Because the Trust will not trade in gold futures contracts on any futures exchange, the
Trust will not be regulated by the Commodity Futures Trading Commission
(``CFTC'') under the Commodity Exchange Act (``CEA'') \17\ as a
``commodity pool,'' and will not be operated by a CFTC-regulated commodity pool operator. Investors in the Trust will not receive the regulatory protections afforded to investors in regulated commodity pools, nor may the COMEX or any futures exchange enforce its rules with respect to the Trust's activities. In addition, investors in the Trust will not benefit from the protections afforded to investors in gold futures contracts on regulated futures exchanges.
\17\ 7 U.S.C. 1 et seq.
The activities of the Trust will be limited to (1) issuing baskets in exchange for the gold deposited (``Basket'') with the Custodian as consideration, (2) delivering gold as necessary to cover the Sponsor's
Fee and selling gold as necessary to pay Trust expenses not assumed by the Sponsor and other liabilities and (3) delivering gold in exchange for Baskets surrendered for redemption. The Trust will not be actively managed. It will not engage in any activities designed to obtain a profit from, or to ameliorate losses caused by, changes in the price of gold.
Custody of the gold bullion deposited with and held by the Trust will be provided by the Custodian at its Singapore vaults, and by other subcustodians on a temporary basis. The Custodian is a market maker, clearer and approved weigher under the rules of the LBMA.
According to the Registration Statement, the investment objective of the Trust is for the Shares to reflect the performance of the price of gold bullion, less the Trust's expenses. The Shares are intended to constitute a simple and cost-effective means of making an investment similar to an investment in gold. An investment in physical gold requires expensive and sometimes complicated arrangements in connection with the assay, transportation, warehousing and insurance of the metal.
Although the Shares will not be the exact equivalent of an investment in gold, they provide investors with an alternative that allows a level of participation in the gold market through the securities market.
According to the Registration Statement, the Trust is not registered as an investment company under the Investment Company Act of 1940 \18\ and is not required to register under such act.
\18\ 15 U.S.C. 80a.
Secondary Market Trading
While the Trust's investment objective is for the Shares to reflect the performance of gold bullion, less the expenses of the Trust, the
Shares may trade in the secondary market on NYSE Arca at prices that are lower or higher relative to their net asset value (``NAV'') per
Share. The amount of the discount or premium in the trading price relative to the NAV per Share may be influenced by non-concurrent trading hours between the NYSE Arca and the COMEX, London, Zurich and
Singapore. While the Shares will trade on NYSE Arca until 8 p.m.,
Eastern Time (``E.T.''), liquidity in the global gold market will be reduced after the close of the COMEX at 1:30 p.m., E.T. As a result, during this time, trading spreads, and the resulting premium or discount, on the Shares may widen.
Trust Expenses
The Trust's only ordinary recurring charge is expected to be the remuneration due to the Sponsor (``Sponsor's Fee''). In exchange for the Sponsor's Fee, the Sponsor has agreed to assume the ordinary administrative and marketing expenses that the Trust is expected to incur. The Sponsor will also pay the costs of the Trust's organization and the initial sale of the Shares, including the applicable SEC registration fees.
The Sponsor's Fee will accrue daily and will be payable monthly in arrears. The Sponsor, from time to time, may temporarily waive all or a portion of the Sponsor's Fee at its discretion for a stated period of time.
The Sponsor's Fee shall be paid by delivery of gold to an account maintained by the Custodian for the Sponsor on an unallocated basis, monthly on the first business day of the month in respect of fees payable for the prior month. The delivery shall be of that number of ounces of gold which equals the daily accrual of the Sponsor's Fee for such prior month calculated at the London PM Fix.
The Trustee will, when directed by the Sponsor, and, in the absence of such direction, may, in its discretion, sell gold in such quantity and at such times as may be necessary to permit payment in cash of
Trust expenses not assumed by the Sponsor. The Trustee is authorized to sell gold at such times and in the smallest amounts required to permit such payments as they become due, it being the intention to avoid or minimize the Trust's holdings of assets other than gold.
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Creation and Redemption of Shares
The Trust will create and redeem Shares daily, but only in one or more Baskets (a Basket equals a block of 50,000 Shares). The creation and redemption of Baskets will only be made in exchange for the delivery to the Trust or the distribution by the Trust of the amount of gold and any cash represented by the Baskets being created or redeemed, the amount of which will be based on the combined NAV of the number of
Shares included in the Baskets being created or redeemed determined on the day the order to create or redeem Baskets is properly received.
Authorized Participants are the only persons that may place orders to create and redeem Baskets. Authorized Participants must be (1) registered broker-dealers or other securities market participants, such as banks and other financial institutions, which are not required to register as broker-dealers to engage in securities transactions, and
(2) participants in DTC. To become an Authorized Participant, a person must enter into an Authorized Participant Agreement with the Sponsor and the Trustee. The Authorized Participant Agreement provides the procedures for the creation and redemption of Baskets and for the delivery of the gold and any cash required for such creations and redemptions.
All gold will be delivered to the Trust and distributed by the
Trust in unallocated form through credits and debits between authorized participant unallocated accounts (``Authorized Participant Unallocated
Accounts'') and the trust unallocated account (``Trust Unallocated
Account'') (as further described in the Registration Statement). Gold transferred from an Authorized Participant Unallocated Account to the
Trust in unallocated form will first be credited to the Trust
Unallocated Account. Thereafter, the Custodian will allocate specific bars of gold representing the amount of gold credited to the Trust
Unallocated Account (to the extent such amount is representable by whole gold bars) to the Trust Allocated Account. The movement of gold is reversed for the distribution of gold to an Authorized Participant in connection with the redemption of Baskets.
All gold bullion represented by a credit to any Authorized
Participant Unallocated Account and to the Trust Unallocated Account and all gold bullion held in the Trust Allocated Account with the
Custodian must be of at least a minimum fineness (or purity) of 995 parts per 1,000 (99.5%) and otherwise conform to the rules, regulations, practices and customs of the LBMA, including the specifications for a London Good Delivery Bar.
Authorized Participants can elect to deliver gold loco London or loco Singapore in connection with the creation of a Basket. Authorized
Participants can elect to receive delivery gold loco London or loco
Singapore in connection with the redemption of a Basket.
Creation Procedures
On any business day, an Authorized Participant may place an order with the Trustee to create one or more Baskets. Creation and redemption orders will be accepted on ``business days'' the NYSE Arca is open for regular trading. Settlements of such orders requiring receipt or delivery, or confirmation of receipt or delivery, of gold in the United
Kingdom, Singapore or another jurisdiction will occur on ``business days'' when (1) banks in the United Kingdom, Singapore or such other jurisdiction and (2) the London or Singapore gold markets are regularly open for business. If such banks or the London or Singapore gold markets are not open for regular business for a full day, such a day will only be a ``business day'' for settlement purposes if the settlement procedures can be completed by the end of such day.
Redemption settlements involving gold deliveries loco London may be delayed longer than three business days following the redemption order date. Settlement of orders requiring receipt or delivery, or confirmation of receipt or delivery, of Shares will occur, after confirmation of the applicable gold delivery, on ``business days'' when the NYSE Arca is open for regular trading. Purchase orders must be placed no later than 3:59:59 p.m. (E.T.) on each business day the NYSE
Arca is open for regular trading. The day on which the Trustee receives a valid purchase order is the purchase order date.
By placing a purchase order, an Authorized Participant agrees to deposit gold with the Trust, as described below. Prior to the delivery of Baskets for a purchase order, the Authorized Participant must also have wired to the Trustee the non-refundable transaction fee due for the purchase order.
The amount of the required gold deposit is determined by dividing the number of ounces of gold held by the Trust by the number of Baskets outstanding, as adjusted for the amount of gold constituting estimated accrued but unpaid fees and expenses of the Trust. Fractions of a fine ounce of gold smaller than 0.001 of a fine ounce which are included in the gold deposit amount are disregarded in the foregoing calculation.
All questions as to the composition of a Creation Basket Deposit will be finally determined by the Trustee. The Trustee's determination of the Creation Basket Deposit shall be final and binding on all persons interested in the Trust.
An Authorized Participant who places a purchase order is responsible for crediting its Authorized Participant Unallocated
Account with the required gold deposit amount by the third business day in London or Singapore following the purchase order date. Upon receipt of the gold deposit amount, the Custodian, after receiving appropriate instructions from the Authorized Participant and the Trustee, will transfer on the third business day following the purchase order date the gold deposit amount from the Authorized Participant Unallocated
Account to the Trust Unallocated Account and the Trustee will direct
DTC to credit the number of Baskets ordered to the Authorized
Participant's DTC account. If gold is to be delivered other than as described above, the Sponsor is authorized to establish such procedures and to appoint such custodians and establish such custody accounts in addition to those described in the Registration Statement, as the
Sponsor determines to be desirable.
Redemption Procedures
The procedures by which an Authorized Participant can redeem one or more Baskets will mirror the procedures for the creation of Baskets. On any business day, an Authorized Participant may place an order with the
Trustee to redeem one or more Baskets. Redemption orders must be placed no later than 3:59:59 p.m. (E.T.) on each business day NYSE Arca is open for regular trading. A redemption order so received is effective on the date it is received in satisfactory form by the Trustee. The redemption procedures allow Authorized Participants to redeem Baskets and do not entitle an individual Shareholder to redeem any Shares in an amount less than a Basket, or to redeem Baskets other than through an
Authorized Participant.
By placing a redemption order, an Authorized Participant agrees to deliver the Baskets to be redeemed through DTC's book-entry system to the Trust not later than the third business day following the effective date of the redemption order. Prior to the delivery of the redemption distribution for a redemption order, the Authorized Participant must also have wired to the Trustee the non-refundable transaction
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fee due for the redemption order. The redemption distribution from the
Trust will consist of a credit to the redeeming Authorized
Participant's Authorized Participant Unallocated Account representing the amount of the gold held by the Trust evidenced by the Shares being redeemed.
Authorized Participants can elect to deliver gold loco London or loco Singapore in connection with the creation of a Basket. Authorized
Participants can also elect to receive delivery of gold loco London or loco Singapore in connection with the redemption of a Basket. A Basket creation order that elects a loco London delivery of gold will cause the Custodian to effect a transfer of gold to Singapore from the Trust
Unallocated Account maintained by the Custodian in London to the Trust
Unallocated Account maintained by the Custodian in Singapore. Likewise, a Basket redemption order that elects a loco London delivery of gold will cause the Custodian to effect a transfer of gold from the Trust
Unallocated Account maintained by the Custodian in Singapore to the
Authorized Participant Unallocated Account maintained in London.
Termination Events
The Trustee will terminate and liquidate the Trust if the aggregate market capitalization of the Trust, based on the closing price for the
Shares, was less than $350 million (as adjusted for inflation) at any time after the first anniversary after the Trust's formation and the
Trustee receives, within six months after the last of those trading days, notice from the Sponsor of its decision to terminate the Trust.
The Trustee will terminate the Trust if the CFTC determines that the
Trust is a commodities pool under the CEA. The Trustee may also terminate the Trust upon the agreement of the owners of beneficial interests in the Shares owning at least 75% of the outstanding Shares.
Additional information regarding the Shares and the operation of the Trust, including termination events, risks, and creation and redemption procedures, are described in the Registration Statement.
Valuation of Gold, Definition of Net Asset Value and Adjusted Net Asset
Value (``ANAV'')
On each day that NYSE Arca is open for regular trading, as promptly as practicable after 4 p.m. (E.T.), on such day (``Evaluation Time''), the Trustee will evaluate the gold held by the Trust and determine both the ANAV and the NAV of the Trust.
At the Evaluation Time, the Trustee will value the Trust's gold on the basis of that day's London PM Fix or, if no London PM Fix is made on such day or has not been announced by the Evaluation Time, the next most recent London gold price fix (AM or PM) determined prior to the
Evaluation Time will be used, unless the Sponsor determines that such price is inappropriate as a basis for evaluation. In the event the
Sponsor determines that the London PM Fix or such other publicly available price as the Sponsor may deem fairly represents the commercial value of the Trust's gold is not an appropriate basis for evaluation of the Trust's gold, it shall identify an alternative basis for such evaluation to be employed by the Trustee. Neither the Trustee nor the Sponsor shall be liable to any person for the determination that the London PM Fix or such other publicly available price is not appropriate as a basis for evaluation of the Trust's gold or for any determination as to the alternative basis for such evaluation provided that such determination is made in good faith.
Once the value of the gold has been determined, the Trustee will subtract all estimated accrued but unpaid fees (other than the fees accruing for such day on which the valuation takes place computed by reference to the value of the Trust or its assets), expenses and other liabilities of the Trust from the total value of the gold and all other assets of the Trust (other than any amounts credited to the Trust's reserve account, if established). The resulting figure is the ANAV of the Trust. The ANAV of the Trust is used to compute the Sponsor's Fee.
All fees accruing for the day on which the valuation takes place computed by reference to the value of the Trust or its assets shall be calculated using the ANAV calculated for such day on which the valuation takes place. The Trustee shall subtract from the ANAV the amount of accrued fees so computed for such day and the resulting figure is the NAV of the Trust. The Trustee will also determine the NAV per Share by dividing the NAV of the Trust by the number of the Shares outstanding as of the close of trading on the NYSE Arca (which includes the net number of any Shares created or redeemed on such evaluation day).
The Shares will be book-entry only and individual certificates will not be issued for the Shares.
Liquidity
According to the Registration Statement, the Shares may trade at, above or below the NAV per Share. The NAV per Share will fluctuate with changes in the market value of the Trust's assets. The trading price of the Shares will fluctuate in accordance with changes in the NAV per
Share as well as market supply and demand. The amount of the discount or premium in the trading price relative to the NAV per Share may be influenced by non-concurrent trading hours between the NYSE Arca and the major gold markets. While the Shares will trade on the NYSE Arca until 8 p.m. (E.T.), liquidity in the market for gold will be reduced after the close of the major world gold markets, including London and the COMEX. As a result, during this time, trading spreads, and the resulting premium or discount, on the Shares may widen.
Availability of Information Regarding Gold Prices
Currently, the Consolidated Tape Plan does not provide for dissemination of the spot price of a commodity, such as gold, over the
Consolidated Tape. However, there will be disseminated over the
Consolidated Tape the last sale price for the Shares, as is the case for all equity securities traded on the Exchange (including exchange- traded funds). In addition, there is a considerable amount of gold price and gold market information available on public Web sites and through professional and subscription services.
Investors may obtain on a 24-hour basis gold pricing information based on the spot price for an ounce of gold from various financial information service providers, such as Reuters and Bloomberg. Reuters and Bloomberg provide at no charge on their Web sites delayed information regarding the spot price of gold and last sale prices of gold futures, as well as information about news and developments in the gold market. Reuters and Bloomberg also offer a professional service to subscribers for a fee that provides information on gold prices directly from market participants. An organization named EBS provides an electronic trading platform to institutions such as bullion banks and dealers for the trading of spot gold, as well as a feed of live streaming prices to Reuters and Moneyline Telerate subscribers.
Complete real-time data for gold futures and options prices traded on the COMEX are available by subscription from Reuters and Bloomberg. The
NYMEX also provides delayed futures and options information on current and past trading sessions and market news free of charge on its Web site. There are a variety of other public Web sites providing information on gold, ranging
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from those specializing in precious metals to sites maintained by major newspapers, such as The Wall Street Journal. In addition, the London AM
Fix and London PM Fix are publicly available at no charge at or http:// www.thebulliondesk.com.
The Trust Web site will provide an intraday indicative value
(``IIV'') per share for the Shares updated every 15 seconds, as calculated by the Exchange or a third party financial data provider during the Exchange's Core Trading Session (9:30 a.m. to 4 p.m.,
(E.T.). The IIV will be calculated based on the amount of gold required for creations and redemptions and a price of gold derived from updated bids and offers indicative of the spot price of gold.\19\ The Trust Web site will also provide the Creation Basket Deposit and the NAV of the
Trust as calculated each business day by the Sponsor. In addition, the
Web site for the Trust will contain the following information, on a per
Share basis, for the Trust: (a) The mid-point of the bid-ask price \20\ at the close of trading in relation to the NAV as of the time the NAV is calculated (``Bid/Ask Price''), and a calculation of the premium or discount of such price against such NAV; and (b) data in chart format displaying the frequency distribution of discounts and premiums of the
Bid/Ask Price against the NAV, within appropriate ranges, for each of the four previous calendar quarters. The Web site for the Trust will also provide the Trust's prospectus, as well as the two most recent reports to stockholders. Finally, the Trust Web site will provide the last sale price of the Shares as traded in the US market. The Exchange will provide on its Web site (http://www.nyx.com) a link to the Trust's
Web site. In addition, the Exchange will make available over the
Consolidated Tape quotation information, trading volume, closing prices and NAV for the Shares from the previous day.
\19\ The IIV on a per Share basis disseminated during the Core
Trading Session should not be viewed as a real-time update of the
NAV, which is calculated once a day.
\20\ The bid-ask price of the Trust is determined using the highest bid and lowest offer on the Consolidated Tape as of the time of calculation of the closing day NAV.
Criteria for Initial and Continued Listing
The Trust will be subject to the criteria in NYSE Arca Equities
Rule 8.201(e) for initial and continued listing of the Shares.
It is anticipated that a minimum of 100,000 Shares will be required to be outstanding at the start of trading. The minimum number of shares required to be outstanding is comparable to requirements that have been applied to previously listed shares of the ETFS Trusts, streetTRACKS
Gold Trust, the iShares COMEX Gold Trust, the iShares Silver Trust and exchange-traded funds. The Exchange believes that the anticipated minimum number of Shares outstanding at the start of trading is sufficient to provide adequate market liquidity.
Trading Rules
The Exchange deems the Shares to be equity securities, thus rendering trading in the Fund subject to the Exchange's existing rules governing the trading of equity securities. Trading in the Shares on the Exchange will occur in accordance with NYSE Arca Equities Rule 7.34(a). The Exchange has appropriate rules to facilitate transactions in the Shares during all trading sessions. As provided in NYSE Arca
Equities Rule 7.6, Commentary .03, the minimum price variation
(``MPV'') for quoting and entry of orders in equity securities traded on the NYSE Arca Marketplace is $0.01, with the exception of securities that are priced less than $1.00 for which the MPV for order entry is
$0.0001.
Further, NYSE Arca Equities Rule 8.201 sets forth certain restrictions on ETP Holders acting as registered Market Makers in the
Shares to facilitate surveillance. Pursuant to NYSE Arca Equities Rule 8.201(g), an ETP Holder acting as a registered Market Maker in the
Shares is required to provide the Exchange with information relating to its trading in the underlying gold, related futures or options on futures, or any other related derivatives. Commentary .04 of NYSE Arca
Equities Rule 6.3 requires an ETP Holder acting as a registered Market
Maker, and its affiliates, in the Shares to establish, maintain and enforce written policies and procedures reasonably designed to prevent the misuse of any material nonpublic information with respect to such products, any components of the related products, any physical asset or commodity underlying the product, applicable currencies, underlying indexes, related futures or options on futures, and any related derivative instruments (including the Shares).
As a general matter, the Exchange has regulatory jurisdiction over its ETP Holders and their associated persons, which include any person or entity controlling an ETP Holder. A subsidiary or affiliate of an
ETP Holder that does business only in commodities or futures contracts would not be subject to Exchange jurisdiction, but the Exchange could obtain information regarding the activities of such subsidiary or affiliate through surveillance sharing agreements with regulatory organizations of which such subsidiary or affiliate is a member.
With respect to trading halts, the Exchange may consider all relevant factors in exercising its discretion to halt or suspend trading in the Shares. Trading on the Exchange in the Shares may be halted because of market conditions or for reasons that, in the view of the Exchange, make trading in the Shares inadvisable. These may include: (1) The extent to which conditions in the underlying gold market have caused disruptions and/or lack of trading, or (2) whether other unusual conditions or circumstances detrimental to the maintenance of a fair and orderly market are present. In addition, trading in Shares will be subject to trading halts caused by extraordinary market volatility pursuant to the Exchange's ``circuit breaker'' rule.\21\
\21\ See NYSE Arca Equities Rule 7.12.
Surveillance
The Exchange intends to utilize its existing surveillance procedures applicable to derivative products (including Commodity-Based
Trust Shares) to monitor trading in the Shares. The Exchange represents that these procedures are adequate to properly monitor Exchange trading of the Shares in all trading sessions and to deter and detect violations of Exchange rules and applicable Federal securities laws.
The Exchange's current trading surveillance focuses on detecting securities trading outside their 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. Also, pursuant to NYSE
Arca Equities Rule 8.201(g), the Exchange is able to obtain information regarding trading in the Shares and the underlying gold, gold futures contracts, options on gold futures, or any other gold derivative, through ETP Holders acting as registered Market Makers, in connection with such ETP Holders' proprietary or customer trades through ETP
Holders 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 of the ISG.\22\ COMEX and Hong Kong
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Exchanges and Clearing Limited are members of ISG.
\22\ A list of ISG members is available at http:// www.isgportal.org. The Exchange notes that the Hong Kong Chinese
Gold & Silver Exchange Society, Shanghai Gold Exchange, Shanghai
Futures Exchange, Singapore Mercantile Exchange, and TOCOM are not members of ISG and the Exchange does not have in place a comprehensive surveillance sharing agreement with such markets.
Information Bulletin
Prior to the commencement of trading, the Exchange will inform its
ETP Holders in an Information Bulletin of the special characteristics and risks associated with trading the Shares. Specifically, the
Information Bulletin will discuss the following: (1) The procedures for purchases and redemptions of Shares in Baskets (including noting that
Shares are not individually redeemable); (2) NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence on its ETP Holders to learn the essential facts relating to every customer prior to trading the Shares; (3) how information regarding the ITV is disseminated; (4) the requirement that ETP Holders deliver a prospectus to investors purchasing newly issued Shares prior to or concurrently with the confirmation of a transaction; (5) the possibility that trading spreads and the resulting premium or discount on the Shares may widen as a result of reduced liquidity of gold trading during the Core and Late
Trading Sessions after the close of the major world gold markets; and
(6) trading information. For example, the Information Bulletin will advise ETP Holders, prior to the commencement of trading, of the prospectus delivery requirements applicable to the Trust. The Exchange notes that investors purchasing Shares directly from the Trust (by delivery of the Creation Basket Deposit) will receive a prospectus. ETP
Holders purchasing Shares from the Trust for resale to investors will deliver a prospectus to such investors.
In addition, the Information Bulletin will reference that the Trust is subject to various fees and expenses described in the Registration
Statement. The Information Bulletin will also reference the fact that there is no regulated source of last sale information regarding physical gold, that the Commission has no jurisdiction over the trading of gold as a physical commodity, and that the CFTC has regulatory jurisdiction over the trading of gold futures contracts and options on gold futures contracts.
The Information Bulletin will also discuss any relief, if granted, by the Commission or the staff from any rules under the Act. 2. Statutory Basis
The Exchange believes that the proposed rule change is consistent with Section 6(b) \23\ of the Act, in general, and furthers the objectives of Section 6(b)(5),\24\ in particular, because it is designed to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, and to remove impediments and perfect the mechanisms of a free and open market and to protect investors and the public interest. The Exchange believes that the proposed rule change will facilitate the listing and trading of an additional type of commodity-based product that will enhance competition among market participants, to the benefit of investors and the marketplace.
\23\ 15 U.S.C. 78f(b).
\24\ 15 U.S.C. 78f(b)(5).
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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.
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Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No written comments were solicited or received with respect to the proposed rule change.
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Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule change should be disapproved.
The Exchange has requested accelerated approval of the proposed rule change. The Commission is considering granting accelerated approval of the proposal at the end of a 15-day comment period.
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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-NYSEArca-2010-95 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2010-95. 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 Web site viewing and printing in the Commission's Public Reference Room, 100 F
Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. 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-
NYSEArca-2010-95 and should be submitted on or before November 29, 2010.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\25\
\25\ 17 CFR 200.30-3(a)(12).
Florence E. Harmon,
Deputy Secretary.
FR Doc. 2010-28514 Filed 11-10-10; 8:45 am
BILLING CODE 8011-01-P
