[Federal Register: December 19, 2006 (Volume 71, Number 243)]
[Notices]
[Page 76008-76017]
[DOCID:fr19de06-99]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54916; File No. SR-NYSE-2006-70]

Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Order Granting Accelerated Approval of Proposed
Rule Change and Amendment Nos. 1 and 2 Thereto Relating to
iShares[supreg] Lehman Bond Funds

December 11, 2006.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ 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 and
II below, which Items have been prepared by the Exchange. The Exchange
submitted Amendment No. 1 to the proposed rule change on November 6,
2006.\4\ The Exchange submitted Amendment No. 1 to the proposed rule
change on December 6, 2006.\5\ The Commission is publishing this notice
to solicit comments on the proposed rule change, as amended, from
interested persons and is approving the proposal on an accelerated
basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ In Amendment No. 1, which supplemented the proposed rule
change as filed, the Exchange, among other things, represented that
less than 1% of the market value of the underlying indices consisted
of Rule 144A securities; addressed the firewall procedures used by
Lehman Brothers Inc.; explained why an independent calculation agent
is not required for the covered products; provided the top-ten
component weightings for each index; and clarified the applicability
of trade halts.
    \5\ In Amendment No. 2, which supplemented the proposed rule
change as filed, the Exchange added disclosure to the purpose
section of the filing and Exhibit 1 thereto (a) to note that the
Funds (defined below) must comply with the federal securities laws,
including that the securities accepted for deposit and those used to
satisfy redemption requests are sold in transactions that would be
exempt from the Securities Act of 1933 (``Securities Act'') and in
compliance with the conditions of Rule 144A thereunder; and (b) to
clarify how market capitalization is calculated for the Underlying
Index (defined below) of each Fund.
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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 shares (``Shares'' or
``iShares'') of the following eight series of the iShares Trust
(collectively, the ``Funds''): (1) iShares[supreg] Lehman Short
Treasury Bond Fund; (2) iShares Lehman 3-7 Year Treasury Bond Fund; (3)
iShares Lehman 10-20 Year Treasury Bond Fund; (4) iShares Lehman 1-3
Year Credit Bond Fund; (5) iShares Lehman Intermediate Credit Bond
Fund; (6) iShares Lehman Credit Bond Fund; (7) iShares Lehman
Intermediate Government/Credit Bond Fund; and (8) iShares Lehman
Government/Credit Bond Fund.

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, as
amended. The text of those statements may be examined at the places
specified in Item III below. The Exchange has prepared summaries, set
forth in Sections A, B, and C below, of the most significant aspects of
such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange has adopted listing standards applicable to Investment
Company Units (``ICUs'') and trading standards pursuant to which the
Exchange may either list and trade ICUs or trade such ICUs on the
Exchange on an unlisted trading privileges (``UTP'') basis.\6\
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    \6\ In 1996, the Commission approved Section 703.16 of the NYSE
Manual, which sets forth general the rules related to the listing of
ICUs. See Securities Exchange Act Release No. 36923 (March 5, 1996),
61 FR 10410 (March 13, 1996) (SR-NYSE-95-23). In 2000, the
Commission also approved the Exchange's generic listing standards
pursuant to Rule 19b-4(e) of the Act for listing and trading, or the
trading pursuant to UTP, of ICUs under Section 703.16 of the Manual
and NYSE Rule 1100. See Securities Exchange Act Release No. 43679
(December 5, 2000), 65 FR 77949 (December 13, 2000) (SR-NYSE-00-46).
Such standards, however, did not contemplate ICUs that are based on
indexes containing fixed income securities, and thus the Exchange
has filed this proposal to accommodate the products that are the
subject of this proposal.
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    The Exchange now proposes to list and trade the following series of
the iShares[supreg] Trust (the ``Trust'') \7\ under Section 703.16 of
the NYSE Listed Company Manual (the ``Manual'') and the Exchange's
Rules 1100 et seq.: (1) iShares \8\ Lehman Short Treasury Bond Fund;
(2) iShares Lehman 3-7 Year Treasury Bond Fund; (3) iShares Lehman 10-
20 Year Treasury Bond Fund; (4) iShares Lehman 1-3 Year Credit Bond
Fund; (5) iShares Lehman Intermediate Credit Bond Fund; (6) iShares
Lehman Credit Bond Fund; (7) iShares Lehman Intermediate Government/
Credit Bond Fund; and (8) iShares Lehman Government/Credit Bond Fund.
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    \7\ The Trust is registered under the Investment Company Act of
1940 (the ``Investment Company Act''). 15 U.S.C. 80a. On July 19,
2006, the Trust filed with the Commission a Registration Statement
for the Funds on Form N-1A under the Securities Act, 15 U.S.C. 77a,
and under the Investment Company Act relating to the Funds (File
Nos. 333-92935 and 811-09729) (the ``Registration Statement'').
    The Commission has issued orders granting relief requested by
the Trust in its Applications for Orders under Sections 6(c) and
17(b) of the Investment Company Act for the purpose of exempting the
Funds from various provisions of the Investment Company Act. See In
the Matter of Barclays Global Fund Advisors, et al., Investment
Company Act Release No. 25622 (June 22, 2002); In the Matter of
Barclays Global Fund Advisors, et al., Investment Company Act
Release No. 26175 (September 8, 2003); and In the Matter of Barclays
Global Fund Advisors, et al., Investment Company Act Release No.
27417 (June 13, 2006).
    \8\ iShares is a registered trademark of Barclays Global
Investors, N.A.
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    The Funds will be based on the following indexes, respectively: (1)
Lehman Brothers Short U.S. Treasury Index; (2) Lehman Brothers 3-7 Year
U.S. Treasury Index; (3) Lehman Brothers 10-20 Year U.S. Treasury
Index; (4) Lehman Brothers 1-3 Year U.S. Credit Index; (5) Lehman
Brothers Intermediate U.S. Credit Index; (6) Lehman Brothers U.S.
Credit Index; (7)

Lehman Brothers Intermediate U.S. Government/Credit Index; and (8)
Lehman Brothers U.S. Government/Credit Index. The indexes are referred
to herein collectively as ``Indexes'' or ``Underlying Indexes.''
    Operation of the Funds.\9\
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    \9\ The Exchange notes that the information provided herein is
based on information included in the Registration Statement. While
the Adviser (defined above) would manage the Funds, the Funds' Board
of Directors would have overall responsibility for the Funds'
operations. Further, the composition of the Board is, and would be,
in compliance with the requirements of Section 10 of the Investment
Company Act. The Funds are subject to and must comply with Section
303A.06 of the Manual, which requires that the Funds have an audit
committee that complies with Rule 10A-3 under the Act.
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    Each Fund is an ``index fund'' that seeks investment results that
correspond generally to the price and yield performance, before fees
and expenses, of a particular index (its ``Underlying Index'')
developed by Lehman.
    Barclays Global Fund Advisors (``BGFA''), the investment adviser to
each Fund (``Adviser''), is a subsidiary of Barclays Global Investors,
N.A. (``BGI''). BGFA and its affiliates are not affiliated with the
Index Provider. Investors Bank & Trust Company (``Investors Bank'' or
``IBT'') is the administrator, custodian and transfer agent for each
Fund. SEI Investments Distribution Co. (``SEI'') serves as the
Distributor of Creation Units (as described below) for each Fund on an
agency basis. The Exchange states that SEI does not maintain a
secondary market in shares of the Funds. The Exchange also notes that
SEI has no role in determining the policies of any Fund or the
securities that are purchased or sold by any Fund. Lehman Brothers,
Inc. (``Lehman Brothers'') is the Index Provider. Lehman Brothers is
not affiliated with the Trust, BGI, BGFA, Investors Bank, the
Distributor, or the NYSE.
    The Exchange states that BGFA uses a ``passive'' or indexing
approach to try to achieve each Fund's investment objective. Unlike
many investment companies, the Funds do not try to ``beat'' the indexes
they track and do not seek temporary defensive positions when markets
decline or appear overvalued.
    Each of the iShares Lehman Short Treasury Bond Fund, iShares Lehman
3-7 Year Treasury Bond Fund, and iShares Lehman 10-20 Year Treasury
Bond Fund (the ``Treasury Funds'') generally will invest at least 90%
of its assets in the bonds of its Underlying Index and at least 95% of
its assets in U.S. government bonds. Each Treasury Fund also may invest
up to 10% of its assets in U.S. government bonds not included in its
Underlying Index, but which BGFA believes will help the Fund track its
Underlying Index. For example, a Treasury Fund may invest in bonds not
included in its Underlying Index in order to reflect changes in its
Underlying Index (such as reconstitutions, additions, and deletions).
Each Treasury Fund also may invest up to 5% of its assets in repurchase
agreements collateralized by U.S. government obligations and in cash
and cash equivalents, including shares of money market funds affiliated
with BGFA.
    Each of the iShares Lehman 1-3 Year Credit Bond Fund, iShares
Lehman Intermediate Credit Bond Fund, and iShares Lehman Credit Bond
Fund (the ``Credit Bond Funds''), and iShares Lehman Intermediate
Government/Credit Bond Fund and iShares Lehman Government/Credit Bond
Fund (the ``Government/Credit Bond Funds'') will invest at least 90% of
its assets in the securities of its Underlying Index. Each Credit Bond
Fund and Government/Credit Bond Fund may invest the remainder of its
assets in securities not included in its Underlying Index, but which
BGFA believes will help the Fund track its Underlying Index. For
example, a Credit Bond Fund or Government/Credit Bond Fund may invest
in bonds not included in its Underlying Index in order to reflect
changes in its Underlying Index (such as reconstitutions, additions and
deletions). Each Credit Bond Fund or Government/Credit Bond Fund also
may invest its other assets in futures, options and swap contracts,
cash and cash equivalents, including money market funds advised by
BGFA.
    BGFA uses a Representative Sampling indexing strategy.
``Representative Sampling'' involves investing in a representative
sample of bonds in the relevant Underlying Index, which has a similar
investment profile as the relevant Underlying Index. Bonds selected
have aggregate investment characteristics (based on market
capitalization and industry weightings), fundamental characteristics
(such as return variability, earnings valuation, duration, maturity, or
credit ratings and yield) and liquidity measures similar to those of
the relevant Underlying Index. Funds that use Representative Sampling
generally do not hold all of the bonds that are included in the
relevant Underlying Index.
    BGFA expects that, over time, the correlation between each Fund's
performance and that of its Underlying Index, before fees and expenses,
will be 95% or better. A correlation percentage of 100% would indicate
perfect correlation. Any correlation percentage of less than 100% is
called ``tracking error.'' The Exchange states that a Fund using a
Representative Sampling indexing strategy can be expected to have a
greater tracking error than a Fund using a Replication indexing
strategy.\10\
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    \10\ Replication is an indexing strategy in which a Fund invests
in substantially all of the securities in its Underlying Index in
approximately the same proportions as in the Underlying Index.
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    A Fund will not concentrate its investments (i.e., hold 25% or more
of its total assets), in a particular industry or group of industries,
except that a Fund will concentrate its investments to approximately
the same extent that its Underlying Index is so concentrated. For
purposes of this limitation, securities of the U.S. government
(including its agencies and instrumentalities), repurchase agreements
collateralized by U.S. government securities, and securities of state
or municipal governments and their political subdivisions are not
considered to be issued by members of any industry.
    From time to time, adjustments may be made in the portfolio of the
Funds in accordance with changes in the composition of the Underlying
Indexes or to maintain compliance with requirements applicable to a
regulated investment company (``RIC'') under the Internal Revenue Code
(``Code'').\11\ For

example, if at the end of a calendar quarter a Fund would not comply
with the RIC diversification tests, the Adviser would make adjustments
to the portfolio to ensure continued RIC status.
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    \11\ In order for the Funds to qualify for tax treatment as a
RIC, they must meet several requirements under the Code. Among these
is a requirement that, at the close of each quarter of the Funds'
taxable year, (1) at least 50% of the market value of the Funds'
total assets must be represented by cash items, U.S. government
securities, securities of other RICs and other securities, with such
other securities limited for the purpose of this calculation with
respect to any one issuer to an amount not greater than 5% of the
value of the Funds' assets and not greater than 10% of the
outstanding voting securities of such issuer; and (2) not more than
25% of the value of their total assets may be invested in securities
of any one issuer, or two or more issuers that are controlled by the
Funds (within the meaning of Section 851(b)(4)(B) of the Code) and
that are engaged in the same or similar trades or business (other
than U.S. government securities of other RICs).
    Other securities'' of an issuer are considered qualifying assets
only if they meet the following conditions:
    The entire amount of the securities of the issuer owned by the
company is not greater in value than 5% of the value of the total
assets of the company; and the entire amount of the securities of
such issuer owned by the company does not represent more than 10% of
the outstanding voting securities of such issuer.
    Under the second diversification requirement, the ``25%
diversification limitation,'' a company may not invest more than 25%
of the value of its assets in any one issuer or two issuers or more
that the taxpayer controls.
    Compliance with the above referenced RIC asset diversification
requirements are monitored by the Adviser and any necessary
adjustments to portfolio issuer weights will be made on a quarterly
basis or as necessary to ensure compliance with RIC requirements.
When a Fund's Underlying Index itself is not RIC compliant, the
Adviser generally employs a representative sampling indexing
strategy (as described in the Funds' prospectus) in order to achieve
the Fund's investment objective. The Funds' prospectus also gives
the Funds additional flexibility to comply with the requirements of
the Code and other regulatory requirements and to manage future
corporate actions and index changes in smaller markets by investing
a percentage of fund assets in securities that are not included in
the Fund's Underlying Index.
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    The Exchange states that an index is a theoretical financial
calculation, while each Fund is an actual investment portfolio. The
performance of the Funds and the Underlying Indexes will vary somewhat
due to transaction costs, market impact, corporate actions (such as
mergers and spin-offs), and timing variances. The Funds' investment
objectives, policies, and investment strategies will be fully disclosed
in their prospectus and statement of additional information (``SAI'').
    Description of the Funds and the Underlying Indexes.\12\
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    \12\ For each of the Funds, a Fund's investment objective and
its Underlying Index may be changed without shareholder approval. In
such case, the Exchange would be obligated to file for approval of
listing and trading such derivative product pursuant to Section
19(b)(1) of the Act (15 U.S.C. 78s(b)(1)) as a proposed rule change,
which must be approved by the Commission, to permit continued
listing and trading of the derivative product. See Telephone
conference between Florence Harmon, Senior Special Counsel, Division
of Market Regulation, Commission, and Michael Cavalier, Assistant
General Counsel, NYSE, on November 17, 2006.
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    The iShares Lehman Short Treasury Bond Fund seeks investment
results that correspond generally to the price and yield performance,
before fees and expenses, of the short-term sector of the U.S. Treasury
market as defined by the Lehman Brothers Short U.S. Treasury Index.
This Index measures the performance of public obligations of the U.S.
Treasury that have a remaining maturity of between 1 and 12 months, are
rated investment grade, and have more than $250 million or more of
outstanding face value. In addition, the securities must be denominated
in U.S. dollars and must be fixed rate and non-convertible. Excluded
from the Index are certain special issues, such as flower bonds,
targeted investor notes (``TINs''), and state and local government
series bonds (``SLGs''), and coupon issues that have been stripped from
assets that are already included in the Index. As of May 31, 2006,
there were 43 issues included in the Index. The Index, as for each of
the Underlying Indexes, is market capitalization weighted,\13\ and the
securities in the Index are updated (as described below) on the last
calendar day of each month.
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    \13\ The Exchange states that the market capitalization of each
Underlying Index's bond component is calculated by multiplying the
price of the bond (accounting for accrued interest) by the par
amount outstanding. For investment grade corporate debt, Lehman
utilizes trader marked prices and a multi-dealer pricing matrix. For
U.S. Treasuries and certain government related bonds, Lehman marks
the bonds on a daily basis. For both categories of bonds, multiple
pricing sources are also used to verify pricing determinations. See
Amendment No. 2, supra note 5.
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    The iShares Lehman 3-7 Year Treasury Bond Fund seeks investment
results that correspond generally to the price and yield performance,
before fees and expenses, of the intermediate-term sector of the U.S.
Treasury market as defined by the Lehman Brothers 3-7 Year U.S.
Treasury Index. This Index measures the performance of public
obligations of the U.S. Treasury that have a remaining maturity of
greater than or equal to 3 years and less than 7 years, are rated
investment grade, and have $250 million or more of outstanding face
value. In addition, the securities must be denominated in U.S. dollars
and must be fixed rate and non-convertible. Excluded from the Index are
certain special issues, such as flower bonds, TINs, and SLGs, and
coupon issues that have been stripped from assets that are already
included in the Index. As of May 31, 2006, there were 36 issues
included in the Index.
    The iShares Lehman 10-20 Year Treasury Bond Fund seeks investment
results that correspond generally to the price and yield performance,
before fees and expenses, of the long-term sector of the U.S. Treasury
market as defined by the Lehman Brothers 10-20 Year U.S. Treasury
Index. This Index measures the performance of public obligations of the
U.S. Treasury that have a remaining maturity of greater than or equal
to 10 years and less than 20 years, are rated investment grade, and
have $250 million or more of outstanding face value. In addition, the
securities must be denominated in U.S. dollars and must be fixed rate
and non-convertible. Excluded from the Index are certain special
issues, such as flower bonds, TINs, and SLGs, and coupon issues that
have been stripped from assets that are already included in the Index.
As of May 31, 2006, there were 22 issues included in the Index.
    The iShares Lehman 1-3 Year Credit Bond Fund seeks investment
results that correspond generally to the price and yield performance,
before fees and expenses, of the investment-grade credit sector of the
U.S. bond market as defined by the Lehman Brothers 1-3 Year U.S. Credit
Index. This Index measures the performance of investment-grade
corporate debt and sovereign, supranational, local authority, and non-
U.S. agency bonds \14\ that are U.S. dollar denominated and have a
remaining maturity of greater than or equal to 1 year and less than 3
years, are rated investment grade, and have more than $250 million or
more of outstanding face value. In addition, the securities must be
denominated in U.S. dollars and must be fixed rate and non-convertible.
Excluded from the Index are structured notes with embedded swaps or
other special features, private placements, floating rate securities,
and Eurobonds. As of May 31, 2006, there were 601 issues included in
the Index.\15\
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    \14\ ``Local authority'' bonds are U.S. municipal securities.
``Non-U.S. agency bonds'' are issued by foreign government sponsored
entities from developed nations but are not backed by the full faith
and credit of the foreign government. See Telephone conference
between Florence Harmon, Senior Special Counsel, Division of Market
Regulation, Commission, and Michael Cavalier, Assistant General
Counsel, NYSE, on November 20, 2006 (``November 20 Telephone
Conference'').
    \15\ Regarding the top ten holdings in the Lehman Brothers 1-3
Year U.S. Credit Index, the top ten holdings constitute 8.3% of the
Index, with the largest holding constituting 1%. See Amendment No.
1, supra note 4.
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    The iShares Lehman Intermediate Credit Bond Fund seeks investment
results that correspond generally to the price and yield performance,
before fees and expenses, of the investment-grade credit sector of the
U.S. bond market as defined by the Lehman Brothers Intermediate U.S.
Credit Index. This Index measures the performance of investment-grade
corporate debt and sovereign, supranational, local authority, and non-
U.S. agency bonds that are U.S. dollar denominated and have a remaining
maturity of greater than or equal to 1 year and less than 10 years, are
rated investment grade, and have more than $250 million or more of
outstanding face value. In addition, the securities must be denominated
in U.S. dollars and must be fixed rate and non-convertible. Excluded
from the Index are structured notes with embedded swaps or other
special features, private placements, floating rate securities, and
Eurobonds. As of May 31, 2006, there were 2,193 issues included in the
Index.\16\
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    \16\ Regarding the top ten holdings in the Lehman Brothers
Intermediate U.S. Credit Index, the top ten holdings constitute 2.6%
of the Index, with the largest holding constituting 0.3%. See
Amendment No. 1, supra note 4.

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    The iShares Lehman Intermediate Government/Credit Bond Fund seeks
investment results that correspond generally to the price and yield
performance, before fees and expenses, of the investment-grade credit
sector of the U.S. bond market and the total U.S. Treasury market as
defined by the Lehman Brothers Intermediate U.S. Government/Credit
Index. This Index measures the performance of U.S. dollar denominated
U.S. Treasuries, investment-grade government-related (i.e., U.S. and
foreign agencies, sovereign, supranational, and local authority) debt,
and investment-grade U.S. corporate securities that have a remaining
maturity of greater than or equal to 1 year and less than 10 years, are
rated investment grade, and have more than $250 million or more of
outstanding face value. In addition, the securities must be denominated
in U.S. dollars and must be fixed rate and non-convertible. Excluded
from the Index are certain special issues, such as flower bonds, TINs,
and SLGs, and coupon issues that have been stripped from assets that
are already included in the Index. Also excluded from the Index are
structured notes with embedded swaps or other special features, private
placements, floating rate securities, and Eurobonds. As of May 31,
2006, there were 3,021 issues included in the Index.\17\
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    \17\ Regarding the top ten holdings in the Lehman Brothers
Intermediate U.S. Government/Credit Index, the top ten holdings
constitute 6.9% of the Index, with the largest holding constituting
1.1%. See Amendment No. 1, supra note 4.
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    The iShares Lehman Credit Bond Fund seeks investment results that
correspond generally to the price and yield performance, before fees
and expenses, of the investment-grade credit sector of the U.S. bond
market as defined by the Lehman Brothers U.S. Credit Index. This Index
measures the performance of investment-grade corporate debt and
sovereign, supranational, local authority, and non-U.S. agency bonds
that are U.S. dollar denominated and have a remaining maturity of
greater than or equal to 1 year, are rated investment grade, and have
more than $250 million or more of outstanding face value. In addition,
the securities must be denominated in U.S. dollars and must be fixed
rate and non-convertible. Excluded from the Index are structured notes
with embedded swaps or other special features, private placements,
floating rate securities, and Eurobonds. As of May 31, 2006, there were
2,996 issues included in the Index.\18\
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    \18\ Regarding the top ten holdings in the Lehman Brothers U.S.
Credit Index, the top ten holdings constitute 2.3% of the Index,
with the largest holding constituting 0.4%. See Amendment No. 1,
supra note 4.
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    The iShares Lehman Government/Credit Bond Fund seeks investment
results that correspond generally to the price and yield performance,
before fees and expenses, of the investment-grade U.S. government and
U.S corporate securities of the U.S. bond market as defined by the
Lehman Brothers U.S. Government/Credit Index. This Index measures the
performance of U.S. dollar denominated U.S. Treasuries, investment-
grade government-related (i.e., U.S. and foreign agencies, sovereign,
supranational and local authority) debt, and investment-grade U.S.
corporate securities that have a remaining maturity of greater than or
equal to 1 year, are rated investment grade, and have more than $250
million or more of outstanding face value. In addition, the securities
must be denominated in U.S. dollars and must be fixed rate and non-
convertible. Excluded from the index are certain special issues, such
as flower bonds, TINs, and SLGs, and coupon issues that have been
stripped from assets that are already included in the index. Also
excluded from the index are structured notes with embedded swaps or
other special features, private placements, floating rate securities,
and Eurobonds. As of May 31, 2006 there were 3,935 issues included in
the Index.\19\
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    \19\ Regarding the top ten holdings in the Lehman Brothers U.S.
Government/Credit Index, the top ten holdings constitute 5.7% of the
Index, with the largest holding constituting 0.8%. See Amendment No.
1, supra note 4.
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    The Exchange represents that, as of September 29, 2006, less than
one percent of the market value of the Underlying Indexes for each of
the Funds consisted of Rule 144A securities, and no Rule 144A
securities were included in the Lehman Short Treasury Index; Lehman 3-7
Year Treasury Index; and Lehman 10-20 Year Treasury Index.\20\
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    \20\ See Amendment No. 1, supra note 4. Rule 144A(b) under the
Securities Act provides that ``[a]ny dealer who offers or sells
securities in compliance with the conditions set forth in paragraph
(d) of this section shall be deemed not to be a participant in a
distribution of such securities within the meaning of section
4(3)(C) of the Act and not to be an underwriter of such securities
within the meaning of section 2(11) of the Act, and such securities
shall be deemed not to have been offered to the public within the
meaning of section 4(3)(A) of the Act.'' 17 CFR 230.144A. Among the
conditions to be met in paragraph (d) is that the ``securities are
offered or sold only to a qualified institutional buyer or to an
offeree or purchaser that the seller and any person acting on behalf
of the seller reasonably believe is a qualified institutional
buyer.'' Id.
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Index Provider

    The Index Provider for each Fund, Lehman Brothers, is a broker-
dealer. Therefore, appropriate firewalls must exist around the
personnel who have access to information concerning changes and
adjustments to an index and the trading personnel of the broker-dealer.
Lehman Brothers has represented to the Exchange that it will (1)
implement and maintain procedures designed to prevent the misuse and
dissemination, in violation of applicable laws, rules and regulations,
of material non-public information relating to the Indexes licensed by
BGI; and (2) periodically check the application of such procedures,
including the application of such procedures as they relate to those
persons directly responsible for changes in the composition or
calculation of the relevant Index.\21\
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    \21\ See November 20 Telephone Conference, supra note 14.
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    The Exchange notes that, while there is not an independent
calculation agent for the Indexes, the securities included in the
Indexes are U.S. government, U.S. credit and investment-grade corporate
debt issues that are traded in highly liquid, transparent markets and
subject to multiple pricing sources, as described below.\22\
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    \22\ See Amendment No. 1, supra note 4.
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    For each of the Indexes, the applicable Index constituents are
reset on the last business day of each month and remain static
throughout the month. The universe of Index constituents adjust for
securities that become ineligible for inclusion in an Index during the
month (e.g., because of downgrades or called bonds) or for issues that
are newly eligible (e.g., up-grades or newly issued bonds) on the last
business day of each month. The Indexes are valued using end of day bid
side prices, as marked by Lehman Brothers. Intra-month cash flows
contribute to monthly returns, but they are not reinvested during the
month and do not earn a reinvestment return. Total returns are
calculated based on the sum of price changes, gain/loss on repayments
of principal, and coupon received or accrued, expressed as a percentage
of beginning market value. The Indexes are calculated once a day and
are available from major data vendors.
    The Exchange states that Lehman Brothers has represented to BGI
that, in calculating the Indexes, it utilizes multiple contributor
sources to verify bond prices.\23\ The primary price for

each security is analyzed and compared to other third-party pricing
sources through both statistical routines and scrutiny by the Lehman
Brothers research staff. Significant discrepancies are researched and
corrected, as necessary.
---------------------------------------------------------------------------

    \23\ See id.
---------------------------------------------------------------------------

Net Asset Value

    The Exchange states that, as with other open-end investment
companies, iShares will be issued at the net asset value (``NAV'') per
share next determined after an order in proper form is received.
Investors Bank calculates the NAV for each Fund once daily Monday
through Friday generally as of the regularly scheduled close of
business of the NYSE (normally 4 p.m., Eastern Time) on each day that
the NYSE is open for trading, based on prices at the time of closing,
provided that (a) any assets or liabilities denominated in currencies
other than the U.S. dollar shall be translated into U.S. dollars at the
prevailing market rates on the date of valuation, as quoted by one or
more major banks or dealers that makes a two-way market in such
currencies (or a data service provider based on quotations received
from such banks or dealers); and (b) U.S. fixed-income assets may be
valued as of the announced closing time for trading in fixed-income
instruments on any day that the Bond Market Association announces an
early closing time. The NAV of each Fund is calculated by dividing the
value of the net assets of such Fund (i.e., the value of its total
assets less total liabilities) by the total number of outstanding
shares of the Fund, generally rounded to the nearest cent. In
calculating a Fund's NAV, a Fund's investments are generally valued
using market valuations. In the event that current market valuations
are not readily available or such valuations do not reflect current
market values, the affected investments will be valued using fair value
pricing pursuant to the pricing policy and procedures approved by the
Trust's Board of Trustees. The frequency with which a Fund's
investments are valued using fair value pricing is primarily a function
of the types of securities and other assets in which the Fund invests
pursuant to its investment objective, strategies and limitations.
    Investments that may be valued using fair value pricing include,
but are not limited to: (i) An unlisted security related to corporate
actions; (ii) a restricted security (i.e., one that may not be publicly
sold without registration under the Securities Act); (iii) a security
whose trading has been suspended or which has been delisted from its
primary trading exchange; (iv) a security that is thinly traded; (v) a
security in default or bankruptcy proceedings for which there is no
current market quotation; (vi) a security affected by currency controls
or restrictions; and (vii) a security affected by a significant event
(i.e., an event that occurs after the close of the markets on which the
security is traded but before the time as of which the Fund's NAV is
computed and that may materially affect the value of the Fund's
investments). Examples of events that may be ``significant events'' are
government actions, natural disasters, armed conflict, acts of
terrorism, and significant market fluctuations.

Continuous Distribution

    Shares of the Funds will be issued on a continuous offering basis
in groups of 50,000 to 100,000 iShares (as specified for each Fund), or
multiples thereof. These ``groups'' of shares are called ``Creation
Unit Aggregations'' (also, ``Creation Units''). The anticipated price
at which the iShares will initially trade is approximately $100. The
Funds will issue and redeem iShares only in Creation Unit
Aggregations.\24\
---------------------------------------------------------------------------

    \24\ A Creation Unit Aggregation of 50,000 iShares would have an
estimated initial value of approximately $5,000,000.
---------------------------------------------------------------------------

    The Shares that trade in the secondary market are ``created'' at
NAV by market makers, large investors, and institutions (known as
``Authorized Participants'') only in Creation Unit Aggregations. Each
``creator'' enters into an authorized participant agreement
(``Participant Agreement'') with SEI, the Funds'' distributor, which is
subject to acceptance by the transfer agent, and then deposits into the
applicable Fund a portfolio of bonds closely approximating the holdings
of the Fund and a specified amount of cash in exchange for a specified
number of Creation Units.
    Similarly, Shares can only be redeemed in a specified number of
Creation Units, principally in-kind for a portfolio of bonds held by a
Fund and a specified amount of cash. Except when aggregated in Creation
Units, shares are not redeemable. The prices at which creations and
redemptions occur are based on the next calculation of NAV after an
order is received in a form described in the Participant Agreement.
    Creations and redemptions must be made through a firm that is a
Depository Trust Company (``DTC'') participant and has the ability to
clear through the Federal Reserve System. Information about the
procedures regarding creation and redemption of Creation Units
(including the cut-off times for receipt of creation and redemption
orders) is included in the SAI. Each Fund will impose a purchase
transaction fee and a redemption transaction fee to offset transfer and
other transaction costs associated with the issuance and redemption of
Creation Units of shares.
    All orders to purchase and redeem iShares in Creation Unit
Aggregations must be placed through an Authorized Participant. An
Authorized Participant must be either a ``Participating Party,'' i.e.,
a broker-dealer or other participant in the clearing process through
the National Securities Clearing Corporation (``NSCC'') Continuous Net
Settlement System (the ``Clearing Process''), a clearing agency that is
registered with the Commission, or a DTC participant, and in each case,
must enter into a Participant Agreement.\25\
---------------------------------------------------------------------------

    \25\ Such participant, if not registered as a broker-dealer,
must be exempt from being (or otherwise not required to be)
registered as a broker-dealer. See November 20 Telephone Conference,
supra note 14.
---------------------------------------------------------------------------

Issuance of Creation Unit Aggregations

    The Trust issues and sells Shares of each Fund only in Creation
Unit Aggregations on a continuous basis through the Distributor,
without a sales load, at the NAV next determined after receipt, on any
business day (any day the NYSE is open for trading), of an order in
proper form.
    The consideration for purchase of Creation Unit Aggregations of a
Fund generally consists of the in-kind deposit of a designated
portfolio of securities (the ``Deposit Securities''), which constitutes
a substantial replication, or a portfolio sampling representation, of
the securities involved in the relevant Fund's Underlying Index (``Fund
Securities'') and an amount of cash (the ``Cash Component'') computed
as described below. Together, the Deposit Securities and the Cash
Component constitute the ``Fund Deposit,'' which represents the minimum
initial and subsequent investment amount for a Creation Unit
Aggregation of any Fund.
    The Cash Component is sometimes also referred to as the ``Balancing
Amount.'' The function of the cash component is to compensate for any
differences between the NAV per Creation Unit Aggregation and the
Deposit Amount (as defined below). The Cash Component is an amount
equal to the difference between the NAV of the shares (per Creation
Unit Aggregation) and the ``Deposit Amount'' is an amount equal to the
market value of the Deposit Securities. If the Cash Component is a
positive number (i.e., the NAV per Creation Unit Aggregation exceeds
the

Deposit Amount), the creator will deliver the Cash Component. If the
Cash Component is a negative number (i.e., the NAV per Creation Unit
Aggregation is less than the Deposit Amount), the creator will receive
the Cash Component. Computation of the Cash Component excludes any
stamp duty or other similar fees and expenses payable upon transfer of
beneficial ownership of the Deposit Securities, which are the sole
responsibility of the Authorized Participant.
    BGFA, through the NSCC, makes available on each business day, prior
to the opening of business on the Exchange (currently 9:30 a.m.,
Eastern Time), the list of the names and the required number of shares
(subject to possible amendments or corrections) of each Deposit
Security to be included in the current Fund Deposit (based on
information at the end of the previous business day) for each Fund.
    Such Deposit Securities are applicable, subject to any adjustments
as described below, in order to effect creations of Creation Unit
Aggregations of a given Fund until such time as the next-announced
composition of the Deposit Securities is made available. The identity
and number of shares of the Deposit Securities required for a Fund
Deposit for each Fund changes as rebalancing adjustments, corporate
action events, and interest payments on underlying bonds are reflected
from time to time by BGFA with a view to the investment objective of
the relevant Fund. The composition of the Deposit Securities may also
change in response to adjustments to the weighting or composition of
the component securities of the relevant Underlying Index.
    In addition, the Trust reserves the right to permit or require the
substitution of an amount of cash (a ``cash in lieu'' amount) to be
added to the Cash Component to replace any Deposit Security that may
not be available in sufficient quantity for delivery or that may not be
eligible for transfer through the systems of DTC for corporate bonds or
the Federal Reserve System for U.S. Treasury securities. The Trust also
reserves the right to permit or require a ``cash in lieu'' amount where
the delivery of the Deposit Security by the Authorized Participant
would be restricted under the securities laws or where the delivery of
the Deposit Security to the Authorized Participant would result in the
disposition of the Deposit Security by the Authorized Participant
becoming restricted under the securities laws, or in certain other
situations. The adjustments described above will reflect changes known
to BGFA on the date of announcement to be in effect by the time of
delivery of the Fund Deposit, in the composition of the Underlying
Index being tracked by the relevant Fund or resulting from certain
corporate actions.
    Fund Deposits must be delivered through the Federal Reserve System
(for cash and government securities) and through DTC (for corporate
securities) by an Authorized Participant. The Fund Deposit transfer
must be ordered by the DTC Participant in a timely fashion so as to
ensure the delivery of the requisite number of Deposit Securities
through DTC to the account of the Fund by no later than 3 p.m., Eastern
Time, on the Settlement Date. The ``Settlement Date'' for all Funds is
generally the third business day after the Transmittal Date.
    A purchase transaction fee is imposed for the transfer and other
transaction costs of the Funds associated with the issuance of Creation
Units of shares. The fee is a single charge and will be the same
regardless of the number of Creation Units purchased by an investor on
the same day in the amount specified in the Funds' prospectus or SAI.

Redemptions of Creation Unit Aggregations

    Shares may be redeemed only in Creation Unit Aggregations at their
NAV next determined after receipt of a redemption request in proper
form by a Fund only on a business day. A Fund will not redeem shares in
amounts less than Creation Unit Aggregations. Beneficial owners must
accumulate enough shares in the secondary market to constitute a
Creation Unit Aggregation in order to have such shares redeemed by the
Trust.
    With respect to each Fund, BGFA, through the NSCC, makes available
immediately prior to the opening of business on the NYSE (currently
9:30 a.m., Eastern Time) on each business day, the identity of the fund
securities that will be applicable (subject to possible amendment or
correction) to redemption requests received in proper form on that day.
Fund Securities received on redemption may not be identical to Deposit
Securities that are applicable to creations of Creation Unit
Aggregations.
    Unless cash redemptions are available or specified for a Fund, the
redemption proceeds for a Creation Unit Aggregation generally consist
of Fund Securities--as announced on the business day of the request for
redemption received in proper form--plus cash in an amount equal to the
difference between the NAV of the shares being redeemed, as next
determined after a receipt of a request in proper form, and the value
of the Fund Securities (the ``Cash Redemption Amount''), less a
redemption transaction fee. A redemption transaction fee is imposed to
offset transfer and other transaction costs that may be incurred by the
Funds. The fee is a single charge and will be as set forth in the
Funds' prospectus and SAI, and is the same regardless of the number of
Creation Units redeemed by an investor on the same day. Investors will
also bear the costs of transferring the Fund Securities from the Trust
to their account or on their order. Investors who use the services of a
broker or other such intermediary may be charged a fee for such
services. The standard creation and redemption fee for each Fund is
$500; however, as stated in the Fund's Registration Statement, if a
Creation Unit is purchased or redeemed outside the usual process
through NSCC or for cash, a variable fee may be charged up to four
times the standard creation or redemption fee.

Compliance With Securities Laws--Creations and Redemptions; Rule 144A
Securities \26\

    The Exchange represents that the statutory prospectus for the Funds
will state that the Funds must comply with the federal securities laws
in accepting securities for deposits and satisfying redemptions with
redemption securities, including that the securities accepted for
deposits and the securities used to satisfy redemption requests are
sold in transactions that would be exempt from registration under the
Securities Act.
---------------------------------------------------------------------------

    \26\ See Amendment No. 2, supra note 5.
---------------------------------------------------------------------------

    The Exchange further represents that the Funds must comply with the
federal securities laws in accepting Deposit Securities and satisfying
redemptions with Fund Securities, including that the Deposit Securities
and Fund Securities are sold in transactions that would be exempt from
registration under the Securities Act. In accepting Deposit Securities
and satisfying redemptions with Fund Securities that are restricted
securities eligible for resale pursuant to Rule 144A under the
Securities Act, the Funds will comply with the conditions of Rule 144A,
including in satisfying redemptions with such Rule 144A eligible
restricted Fund Securities. The prospectus for the Funds will also
state that ``An Authorized Participant that is not a Qualified
Institutional Buyer (``QIB'') will not be able to receive Fund
Securities that are restricted securities eligible for resale under
Rule 144A.''

Availability of Information Regarding iShares and Each Underlying Index

    As stated above, on each business day, the list of names and amount
of each security constituting the current Deposit Securities of the
Fund Deposit and the Balancing Amount effective as of the previous
business day will be made available. An amount per iShare representing
the sum of the estimated Balancing Amount effective through and
including the previous business day, plus the current value of the
Deposit Securities in U.S. dollars, on a per iShare basis (the
``Intraday Optimized Portfolio Value'' or ``IOPV'') will be calculated
by an independent third party that is a major market data vendor (the
``Value Calculator''), such as Bloomberg L.P., at least every 15
seconds \27\ during the Exchange's regular trading hours and
disseminated at least every 15 seconds on the Consolidated Tape.
---------------------------------------------------------------------------

    \27\ See November 20 Telephone Conference, supra note 14.
---------------------------------------------------------------------------

    Because the Funds will utilize a representative sampling strategy,
the Exchange states that the IOPV may not reflect the value of all
securities included in the Underlying Indexes. In addition, the IOPV
does not necessarily reflect the precise composition of the current
portfolio of securities held by the Funds at a particular point in
time. Therefore, the Exchange states that the IOPV on a per Fund share
basis disseminated during the Exchange's trading hours should not be
viewed as a real time update of the NAV of the Funds, which is
calculated only once a day. While the IOPV disseminated by the Exchange
at 9:30 a.m. is expected to be generally very close to the most
recently calculated Fund NAV on a per Fund share basis, it is possible
that the value of the portfolio of securities held by each Fund may
diverge from the Deposit Securities values during any trading day. In
such case, the IOPV will not precisely reflect the value of each Fund's
portfolio. However, during the trading day, the IOPV can be expected to
closely approximate the value per Fund share of the portfolio of
securities for each Fund except under unusual circumstances (e.g., in
the case of extensive rebalancing of multiple securities in a Fund at
the same time by the Adviser).
    The IOPV will be updated throughout the day to reflect changing
bond prices, using multiple prices from independent third party pricing
sources. Information about the intra-day prices for the Deposit
Securities of each Fund is readily available to the marketplace.\28\
The Exchange represents that the Adviser has represented that: (1) IOPV
will be calculated by an independent third party; (2) IOPV will be
calculated using prices obtained from multiple independent third-party
pricing sources (such as broker-dealers) throughout the day; and (3)
IOPV will be calculated in accordance with pre-determined criteria and
set parameters so that an individual bond ``price'' based on an
analysis of multiple pricing sources is obtained for each security in
the Portfolio Deposit.\29\ The Exchange states that closing prices of
the Funds' Deposit Securities are readily available from published or
other public sources, such as the NYSE's Automated Bond System
(ABS[supreg]), the Trace Reporting and Compliance Engine (``TRACE''),
or on-line client-based information services provided by Credit Suisse,
Goldman Sachs, Lehman Brothers, IDC, Merrill Lynch, Reuters, Bloomberg,
TradeWeb, and other pricing services commonly used by bond mutual
funds.\30\
---------------------------------------------------------------------------

    \28\ The Exchange states that Authorized Participants and other
market participants have a variety of ways to access the intra-day
security prices that form the basis of the Funds' IOPV calculation.
For example, intra-day prices for treasury securities and agency
securities are available from Bloomberg, TradeWeb, ABS[supreg] and
TRACE. Intra-day prices of callable agency securities are available
from TradeWeb. Intra-day prices of corporate bonds are available
from ABS[supreg] and TRACE. In addition, intra-day prices for each
of these securities are available by subscription or otherwise to
Authorized Participants and clients of major U.S. broker-dealers
(such as Credit Suisse, Goldman Sachs, and Lehman Brothers).
    \29\ For example, the Exchange states that Bloomberg Generic
Prices could be used. Bloomberg Generic Prices are current prices on
individual bonds as determined by Bloomberg using a proprietary
automated pricing program that analyzes multiple bond prices
contributed to Bloomberg by third-party price contributors (such as
broker-dealers).
    \30\ The Exchange understands that Credit Suisse, Goldman Sachs,
Lehman Brothers, Merrill Lynch, IDC, Reuters, Bloomberg, and
TradeWeb provide prices for each type of Deposit Security.
ABS[supreg] and TRACE provide prices for corporate bonds. See also
Telephone conference between Florence Harmon, Senior Special
Counsel, Division of Market Regulation, Commission, and Michael
Cavalier, Assistant General Counsel, NYSE, on November 21, 2006
(authorizing removal from this proposed rule change of language in
which the Funds disclaim responsibility for IOPV calculation).
---------------------------------------------------------------------------

    The Exchange also intends to disseminate a variety of data with
respect to each Fund on a daily basis by means of CTA and CQ High Speed
Lines; information with respect to recent NAV, shares outstanding,
estimated cash amount, and total cash amount per Creation Unit
Aggregation will be made available prior to the opening of the
Exchange.
    In addition, there will be disseminated, through major market data
vendors, a value for the Underlying Indexes once each trading day,
based on closing prices in the relevant market. The NAV for each Fund
will be calculated and disseminated daily. The Funds' NAV will be
calculated by IBT. IBT will disseminate the information to BGI, SEI,
and others. The Funds' NAV will be published in a number of places,
including http://www.iShares.com and on the Consolidated Tape.

    In addition, the Web site for the Trust, which will be publicly
accessible at no charge, will contain the following information, on a
per iShare basis, for each Fund: (a) The prior business day's NAV and
the mid-point of the 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 Exchange states that the
Adviser for the Funds has represented to the Exchange that the Funds
will make the NAV for the Fund Shares available to all market
participants at the same time.\31\
---------------------------------------------------------------------------

    \31\ See November 20 Telephone Conference, supra note 14.
---------------------------------------------------------------------------

Dividends and Distributions

    Dividends will be paid out to investors at least monthly by the
Funds and may be paid out on a more frequent basis. Distributions of
net capital gains, if any, will be distributed to investors annually.
Dividends and other distributions on iShares of the Funds will be
distributed on a pro rata basis to beneficial owners of such iShares.
Dividend payments will be made through the Depository and to the DTC
Participants to beneficial owners then of record with amounts received
from the Fund.
    The Exchange represents that the Trust currently does not intend to
make the DTC book-entry Dividend Reinvestment Service (the ``Service'')
available for use by beneficial owners for reinvestment of their cash
proceeds, but certain individual brokers may make the Service available
to their clients. The SAI will inform investors of this fact and direct
interested investors to contact such investor's broker to ascertain the
availability and a description of the Service through such broker. The
SAI will also caution interested beneficial owners that they should
note that each broker may require investors to adhere to specific
procedures and timetables in order to participate in the Service, and
such investors should ascertain from their

broker such necessary details. The Shares acquired pursuant to the
Service will be held by the beneficial owners in the same manner and
subject to the same terms and conditions, as for original ownership of
the Funds.
    Beneficial owners of the Funds will receive all of the statements,
notices, and reports required under the Investment Company Act and
other applicable laws. They will receive, for example, annual and semi-
annual reports, written statements accompanying dividend payments,
proxy statements, annual notifications detailing the tax status of
distributions, and IRS Form 1099-DIVs. Because the Trust's records
reflect ownership of iShares by DTC only, the Trust will make available
applicable statements, notices, and reports to the DTC Participants
who, in turn, will be responsible for distributing them to the
beneficial owners.

Other Issues

    (a) Criteria for Initial and Continued Listing. The Shares are
subject to the criteria for initial and continued listing of ICUs in
Section 703.16 of the Manual. A minimum of 100,000 iShares for each
Fund will be required to be outstanding at the start of trading. This
minimum number of shares of each Fund required to be outstanding at the
start of trading will be comparable to requirements that have been
applied to previously traded series of ICUs. The Exchange believes that
the proposed minimum number of shares of each Fund outstanding at the
start of trading is sufficient to provide market liquidity and to
further the Funds' investment objective to seek to provide investment
results that correspond generally to the price and yield performance of
the Underlying Index.
    (b) Original and Annual Listing Fees. The original listing fees
applicable to the Shares of the Funds for listing on the Exchange is
$5,000 for each Fund, and the continuing fees would be $2,000 for each
Fund.
    (c) Stop and Stop Limit Orders. Commentary .30 to NYSE Rule 13
provides that stop and stop limit orders in an ICU shall be elected by
a quotation, but specifies that if the electing bid on an offer is more
than 0.10 points away from the last sale and is for the specialist's
dealer account, prior Floor Official approval is required for the
election to be effective. This rule applies to ICUs generally.
    (d) NYSE Rule 460.10. NYSE Rule 460.10 generally precludes certain
business relationships between an issuer and the specialist in the
issuer's securities. Exceptions in the Rule permit specialists in Fund
shares to enter into Creation Unit transactions through the Distributor
to facilitate the maintenance of a fair and orderly market. A
specialist Creation Unit transaction may only be effected on the same
terms and conditions as any other investor, and only at the net asset
value of the Fund shares. A specialist may acquire a position in excess
of 10% of the outstanding issue of a Fund's Shares, provided, however,
that a specialist registered in a security issued by an investment
company may purchase and redeem the ICU or securities that can be
subdivided or converted into such unit, from the investment company as
appropriate to facilitate the maintenance of a fair and orderly market
in the subject security.
    (e) Prospectus Delivery.\32\ The Commission has granted the Trust
an exemption from certain prospectus delivery requirements under
Section 24(d) of the Investment Company Act.\33\ The Exchange states
that any product description used in reliance on a Section 24(d)
exemptive order will comply with all representations made therein and
all conditions thereto. The Exchange, in an Information Memo to
Exchange members and member organizations, will inform members and
member organizations, prior to commencement of trading of the Shares,
of the prospectus or product description delivery requirements
applicable to the Shares of the Funds and will refer members and member
organizations to NYSE Rule 1100(b), which requires that members and
member organizations provide to purchasers a written description of the
terms and characteristics of the securities not later than the time of
a confirmation of the first transaction is delivered to the purchaser.
There is not currently a product description available for the Funds.
Therefore, the Information Memo will also advise members and member
organizations that delivery of a prospectus to customers in lieu of a
product description would satisfy the requirements of NYSE Rule
1100(b).
---------------------------------------------------------------------------

    \32\ See Amendment No. 1, supra note 4.
    \33\ See In the Matter of iShares, Inc., et al., Investment
Company Act Release No. 25623 (June 25, 2002).
---------------------------------------------------------------------------

    (f) Information Memo. The Exchange will distribute an Information
Memo to its members in connection with the trading of the iShares. The
Memo will discuss the special characteristics and risks of trading this
type of security. Specifically, the Information Memo, among other
things, will discuss what the Funds are, how the Funds' shares are
created and redeemed, prospectus or Product Description delivery
requirements applicable to the Funds, applicable NYSE rules,
dissemination information, trading information and the applicability of
suitability rules (including NYSE Rule 405). The Information Memo will
also discuss exemptive, no-action and interpretive relief granted by
the Commission from Section 11(d)(1) and certain rules under the Act,
including Rule 10a-1, Regulation SHO, Rule 10b-10, Rule 14e-5, Rule
10b-17, Rule 11d1-2, Rules 15c1-5 and 15c1-6, and Rules 101 and 102 of
Regulation M under the Act.
    (g) Trading Halts. In order to halt the trading of the Shares of
the Funds, the Exchange may consider, among other things, factors such
as the extent to which trading is not occurring in underlying
security(s) and whether other unusual conditions or circumstances
detrimental to the maintenance of a fair and orderly market are
present. In addition, trading in the Funds' shares is subject to
trading halts caused by extraordinary market volatility pursuant to
NYSE Rule 80B. If the end-of-day Index value or the intraday IOPV \34\
applicable to a Fund is not being disseminated as required, the
Exchange may halt trading during the day in which the interruption to
the dissemination of the Index value or IOPV occurs. If the
interruption to the dissemination of the Index value or intraday IOPV
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.\35 \
---------------------------------------------------------------------------

    \34\ See November 20 Telephone Conference, supra note 14.
    \35\ See Amendment No. 1, supra note 4.
---------------------------------------------------------------------------

    (h) Due Diligence. The Exchange represents that the Information
Memo to members will note, for example, Exchange responsibilities
including that before an Exchange member, member organization, or
employee thereof recommends a transaction in the Funds, a determination
must be made that the recommendation is in compliance with all
applicable Exchange and federal rules and regulations, including due
diligence obligations under NYSE Rule 405.
    (i) Purchases and Redemptions in Creation Unit Size. In the Memo
referenced above, members and member organizations will be informed
that procedures for purchases and redemptions of shares of the Funds in
Creation Unit Size are described in the Funds' prospectus and SAI, and
that shares of the Funds are not individually redeemable but are
redeemable only in

Creation Unit Size aggregations or multiples thereof.
    (j) Surveillance. Exchange surveillance procedures applicable to
trading in the proposed iShares are comparable to those applicable to
other ICUs currently trading on the Exchange. The Exchange represents
that its surveillance procedures are adequate to properly monitor the
trading of the Shares of the Funds.
    (k) Hours of Trading/Minimum Price Variation. The Funds will trade
on the Exchange until 4:15 p.m. (Eastern Time). The minimum price
variation for quoting will be $.01.
2. Statutory Basis
    NYSE believes that the proposed rule change is consistent with
Section 6(b)(5) of the Act \36\ requiring that an exchange have rules
that are designed, among other things, 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.
---------------------------------------------------------------------------

    \36\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change, as
amended, 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, as amended.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change, as amended, 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 e-mail to<EMAIL_ADDRESS>Please include File

Number SR-NYSE-2006-70 on the subject line.

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-2006-70. 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 such
filing will also be available for inspection and copying at the
principal office of the NYSE. 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-2006-70 and should be submitted on or before
January 9, 2007.

IV. Commission's Findings and Order Granting Accelerated Approval of
the Proposed Rule Change

    After careful consideration, the Commission finds that the proposed
rule change, as amended, is consistent with the requirements of the Act
and the rules and regulations thereunder applicable to a national
securities exchange.\37\ In particular, the Commission finds that the
proposed rule change, as amended, is consistent with the requirements
of Section 6(b)(5) of the Act,\38\ which requires, among other things,
that the rules of an exchange be 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 a national market system, and, in
general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \37\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
    \38\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

A. Surveillance

    The NYSE has represented that it has appropriate surveillance
procedures in place that are designed to monitor the trading of the
proposed Shares. The Exchange represents that these surveillance
procedures applicable to trading in the proposed Shares are comparable
to those applicable to other ICUs currently trading on the Exchange,
and provide the Exchange with the means to detect and deter
manipulation of the Shares.\39\ The Commission also notes that certain
concerns are raised when a broker-dealer, such as Lehman Brothers, is
involved in the development, maintenance, and calculation of an index
upon which an exchange traded fund is based. The Exchange has
represented that Lehman Brothers has represented that it has in place
procedures to prevent the misuse of material, non-public information
relating to the Indexes. The Commission believes that these procedures
should help to minimize concerns raised by Lehman Brothers' involvement
in the management of the Indexes.
---------------------------------------------------------------------------

    \39\ The Commission notes that NYSE specialists are required to
provide daily trading information to the Exchange on Form 81. See
NYSE Rule 104A.50.
---------------------------------------------------------------------------

B. Dissemination of Information

    The Commission believes that sufficient venues exist for obtaining
reliable information so that investors in the Funds can monitor the
value of the Underlying Indexes and securities held by each Fund.
    A value for the Underlying Indexes will be disseminated once each
trading day, based on closing prices in the relevant market.\40\ In
addition, the NAV for each Fund will be calculated and disseminated
daily, and will be published in a number of places, including
http://www.iShares.com and on the Consolidated Tape. The Commission notes that

the Exchange will receive a representation from the Advisor to the
Funds that the NAV will be calculated and made available to all market
participants at the same time.
---------------------------------------------------------------------------

    \40\ Closing prices of the Funds' Deposit Securities are
available from sources such as ABS[supreg], TRACE, and online
client-based information services provided by broker-dealers and
other information providers.
---------------------------------------------------------------------------

    Further, an IOPV, calculated by an independent third party, will be
updated and disseminated throughout the day on the Consolidated Tape to
reflect changing bond prices. Additionally, information about the
intra-day prices for the Deposit Securities of each Fund is available.
For

example, intra-day prices for treasury securities and agency securities
are available from Bloomberg, TradeWeb, ABS[supreg] and TRACE. Intra-
day prices of callable agency securities are available from TradeWeb.
Intra-day prices of corporate bonds are available from ABS[supreg], and
TRACE. In addition, intra-day prices for these securities are available
by subscription or otherwise to Authorized Participants and clients of
major U.S. broker-dealers. If the Underlying Index values or IOPV is
not disseminated as described, the Exchange may halt trading during the
day in which the interruption occurs. If the interruption 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.
The Commission believes that the trading halt rules, together with the
NAV dissemination requirements, will facilitate transparency, reduce
the potential for an unfair informational advantage with respect to the
Shares, and diminish the potential for manipulation.

C. Listing and Trading

    The Commission finds that the Exchange's rules and procedures for
the listing and trading of the Shares are consistent with the Act. The
Shares will be subject to NYSE rules governing the trading of equity
securities, including, among others, rules governing trading halts,
customer suitability requirements, and the election of stop and stop
limit orders. In addition, the Shares are subject to the criteria for
initial and continued listing of ICUs in Section 703.16 of the NYSE
Manual. The Commission believes that the listing and delisting criteria
for the Shares of the Funds should help to maintain a minimum level of
liquidity and, therefore, minimize the potential for manipulation of
the Shares. Finally, the Commission notes that the Information Memo
will inform members about the terms, characteristics, and risks in
trading the Shares, including their prospectus delivery obligations.
Accelerated Approval
    NYSE has requested that the Commission find good cause for
approving the proposed rule change, as amended, prior to the thirtieth
day after the date of publication of notice thereof in the Federal
Register. The Commission notes that the proposal is consistent with the
NYSE's listing and trading standards, and the Commission has previously
approved similar products.\41\ Based on the above, the Commission finds
good cause to accelerate approval of the proposed rule change, as
amended.
---------------------------------------------------------------------------

    \41\ See Securities Exchange Act Release Nos. 48881 (December 4,
2003), 68 FR 69739 (December 15, 2003) (SR-NYSE-2003-39) (relating
to the iShares Lehman U.S. Aggregate Bond Fund and iShares Lehman
TIPS Bond Fund); and 46299 (August 1, 2002), 67 FR 51907 (August 9,
2002) (SR-NYSE-2002-26) (relating to the iShares 1-3 Year Treasury
Index Fund, iShares 7-10 Year Treasury Index Fund, iShares 20+ Year
Treasury Index Fund, iShares Treasury Index Fund, iShares
Government/Credit Index Fund, iShares Lehman Corporate Bond Fund,
and iShares Goldman Sachs Corporate Bond Fund).
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\42\ that the proposed rule change, as amended, (SR-NYSE-2006-70) is
hereby approved on an accelerated basis.
---------------------------------------------------------------------------

    \42\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\43\
Nancy M. Morris,
Secretary.
---------------------------------------------------------------------------

    \43\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

 [FR Doc. E6-21585 Filed 12-18-06; 8:45 am]

BILLING CODE 8011-01-P


[Federal Register Volume 84, Number 101 (Friday, May 24, 2019)]
[Proposed Rules]
[Pages 24059-24061]
[FR Doc No: 2019-10888]

=======================================================================
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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

33 CFR Part 165

[Docket Number USCG-2019-0323]
RIN 1625-AA00

Safety Zone; Columbia River, Fireworks Kennewick, WA

AGENCY: Coast Guard, DHS.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Coast Guard is proposing to establish a temporary safety
zone for certain waters of the Columbia River near Kennewick, WA. This
action is necessary to provide for the safety of life on these
navigable waters during a fireworks display on July 4, 2019. This
proposed rulemaking would prohibit persons and vessels from being in
the safety zone unless authorized by the Captain of the Port Columbia
River or a designated representative. We invite your comments on this
proposed rulemaking.

DATES: Comments and related material must be received by the Coast
Guard on or before June 10, 2019.

ADDRESSES: You may submit comments identified by docket number USCG-
2019-0323 using the Federal eRulemaking Portal at https://www.regulations.gov. See the ``Public Participation and Request for
Comments'' portion of the SUPPLEMENTARY INFORMATION section for further
instructions on submitting comments.

FOR FURTHER INFORMATION CONTACT: If you have questions about this
proposed rulemaking, call or email LCDR Dixon Whitley, Waterways
Management Division, Marine Safety Unit Portland, U.S. Coast Guard;
telephone<PHONE_NUMBER>, email<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION:

I. Table of Abbreviations

CFR Code of Federal Regulations
DHS Department of Homeland Security
FR Federal Register
NPRM Notice of proposed rulemaking
Sec.  Section
U.S.C. United States Code

II. Background, Purpose, and Legal Basis

    Western Display notified the Coast Guard that it will be conducting
a fireworks display from 10 p.m. to 10:30 p.m. on July 4, 2019, to
commemorate Independence Day. The fireworks will launch from a site
over the Columbia River in Kennewick, WA. Hazards from firework
displays include accidental discharge of fireworks, dangerous
projectiles, and falling hot embers or other debris. The Captain of the
Port Columbia River has determined that potential hazards associated
with the fireworks in this display are a safety concern for anyone
within a 450-yard radius of the discharge site.
    The purpose of this rulemaking is to ensure the safety of vessels
and the navigable waters within a 450-yard radius of the fireworks
barge before, during, and after the scheduled event. The Coast Guard is
proposing this rulemaking under authority in 46 U.S.C. 70034
(previously 33 U.S.C. 1231).

III. Discussion of Proposed Rule

    The Captain of the Port Columbia River proposes to establish a
safety zone from 9 p.m. to 11:30 p.m. on July 4, 2019. The safety zone
would cover all navigable waters of the Columbia River within 450-yards
of the discharge site located at 46[deg]13'22'' N, 119[deg]9'17'' W, in
vicinity of Kennewick, WA. The duration of the zone is intended to
ensure the safety of vessels and these navigable waters before, during,
and after the scheduled 10 p.m. to 10:30 p.m. fireworks display. No
vessel or person would be permitted to enter the safety zone without
obtaining permission from the COTP or a designated representative. The
regulatory text we are proposing appears at the end of this document.
If we issue a final rule in this rulemaking, because of the closeness
of the event, we may need to make it effective less than 30 days after
publication in the Federal Register. If we do that, we would explain
our good cause for doing so in the final rule, as required by 5 U.S.C.
553(d)(3).

IV. Regulatory Analyses

    We developed this proposed rule after considering numerous statutes
and Executive orders related to rulemaking. Below we summarize our
analyses based on a number of these statutes and Executive orders and
we discuss First Amendment rights of protestors.

A. Regulatory Planning and Review

    Executive Orders 12866 and 13563 direct agencies to assess the
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits. Executive Order 13771 directs agencies to control
regulatory costs through a budgeting process. This NPRM has not been
designated a ``significant regulatory action,'' under Executive Order
12866. Accordingly, the NPRM

has not been reviewed by the Office of Management and Budget (OMB), and
pursuant to OMB guidance it is exempt from the requirements of
Executive Order 13771.
    This regulatory action determination is based on the size,
location, duration, and time-of-day of the safety zone. Vessel traffic
would be able to safely transit around this safety zone which would
impact a small designated area of the Columbia River for approximately
two hours during the evening when vessel traffic is normally low.
Moreover, the Coast Guard would issue a Broadcast Notice to Mariners
via VHF-FM marine channel 16 about the zone, and the rule would allow
vessels to seek permission to enter the zone.

B. Impact on Small Entities

    The Regulatory Flexibility Act of 1980, 5 U.S.C. 601-612, as
amended, requires Federal agencies to consider the potential impact of
regulations on small entities during rulemaking. The term ``small
entities'' comprises small businesses, not-for-profit organizations
that are independently owned and operated and are not dominant in their
fields, and governmental jurisdictions with populations of less than
50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this
proposed rule would not have a significant economic impact on a
substantial number of small entities.
    While some owners or operators of vessels intending to transit the
safety zone may be small entities, for the reasons stated in section
IV.A above, this proposed rule would not have a significant economic
impact on any vessel owner or operator.
    If you think that your business, organization, or governmental
jurisdiction qualifies as a small entity and that this rule would have
a significant economic impact on it, please submit a comment (see
ADDRESSES) explaining why you think it qualifies and how and to what
degree this rule would economically affect it.
    Under section 213(a) of the Small Business Regulatory Enforcement
Fairness Act of 1996 (Public Law 104-121), we want to assist small
entities in understanding this proposed rule. If the rule would affect
your small business, organization, or governmental jurisdiction and you
have questions concerning its provisions or options for compliance,
please contact the person listed in the FOR FURTHER INFORMATION CONTACT
section. The Coast Guard will not retaliate against small entities that
question or complain about this proposed rule or any policy or action
of the Coast Guard.

C. Collection of Information

    This proposed rule would not call for a new collection of
information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-
3520).

D. Federalism and Indian Tribal Governments

    A rule has implications for federalism under Executive Order 13132,
Federalism, if it has a substantial direct effect on the States, on the
relationship between the national government and the States, or on the
distribution of power and responsibilities among the various levels of
government. We have analyzed this proposed rule under that Order and
have determined that it is consistent with the fundamental federalism
principles and preemption requirements described in Executive Order
13132.
    Also, this proposed rule does not have tribal implications under
Executive Order 13175, Consultation and Coordination with Indian Tribal
Governments, because it would not have a substantial direct effect on
one or more Indian tribes, on the relationship between the Federal
Government and Indian tribes, or on the distribution of power and
responsibilities between the Federal Government and Indian tribes. If
you believe this proposed rule has implications for federalism or
Indian tribes, please contact the person listed in the FOR FURTHER
INFORMATION CONTACT section.

E. Unfunded Mandates Reform Act

    The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538)
requires Federal agencies to assess the effects of their discretionary
regulatory actions. In particular, the Act addresses actions that may
result in the expenditure by a State, local, or tribal government, in
the aggregate, or by the private sector of $100,000,000 (adjusted for
inflation) or more in any one year. Though this proposed rule would not
result in such an expenditure, we do discuss the effects of this rule
elsewhere in this preamble.

F. Environment

    We have analyzed this proposed rule under Department of Homeland
Security Directive 023-01 and Commandant Instruction M16475.1D, which
guide the Coast Guard in complying with the National Environmental
Policy Act of 1969 (42 U.S.C. 4321-4370f), and have made a preliminary
determination that this action is one of a category of actions that do
not individually or cumulatively have a significant effect on the human
environment. This proposed rule involves a safety zone lasting less
than two and a half hours that would prohibit entry within 450 yards of
the fireworks discharge site. Normally such actions are categorically
excluded from further review under paragraph L60(a) of Appendix A,
Table 1 of DHS Instruction Manual 023-01-001-01, Rev. 01. A preliminary
Record of Environmental Consideration supporting this determination is
available in the docket where indicated under ADDRESSES. We seek any
comments or information that may lead to the discovery of a significant
environmental impact from this proposed rule.

G. Protest Activities

    The Coast Guard respects the First Amendment rights of protesters.
Protesters are asked to contact the person listed in the FOR FURTHER
INFORMATION CONTACT section to coordinate protest activities so that
your message can be received without jeopardizing the safety or
security of people, places, or vessels.

V. Public Participation and Request for Comments

    We view public participation as essential to effective rulemaking,
and will consider all comments and material received during the comment
period. Your comment can help shape the outcome of this rulemaking. If
you submit a comment, please include the docket number for this
rulemaking, indicate the specific section of this document to which
each comment applies, and provide a reason for each suggestion or
recommendation.
    We encourage you to submit comments through the Federal eRulemaking
Portal at http://www.regulations.gov. If your material cannot be
submitted using http://www.regulations.gov, contact the person in the
FOR FURTHER INFORMATION CONTACT section of this document for alternate
instructions.
    We accept anonymous comments. All comments received will be posted
without change to https://www.regulations.gov and will include any
personal information you have provided. For more about privacy and the
docket, visit https://www.regulations.gov/privacyNotice.
    Documents mentioned in this NPRM as being available in the docket,
and all public comments, will be in our online docket at https://www.regulations.gov and can be viewed by following that website's
instructions. Additionally, if you go to the online docket and sign up
for email alerts, you will be notified

when comments are posted or a final rule is published.

List of Subjects in 33 CFR Part 165

    Harbors, Marine safety, Navigation (water), Reporting and record
keeping requirements, Security measures, Waterways.

    For the reasons discussed in the preamble, the Coast Guard proposes
to amend 33 CFR part 165 as follows:

PART 165--REGULATED NAVIGATION AREAS AND LIMITED ACCESS AREAS

0
1. The authority citation for part 165 continues to read as follows:

    Authority:  46 U.S.C. 70034, 70051; 33 CFR 1.05-1, 6.04-1, 6.04-
6, and 160.5; Department of Homeland Security Delegation No. 0170.1.

0
2. Add Sec.  165.T13-0323 to read as follows:

Sec.  165.T13-0323   Safety Zone; Columbia River, Fireworks Kennewick,
WA.

    (a) Safety zone. The following area is designated a safety zone:
Waters of the Columbia River, within a 450-yard radius of the fireworks
discharge site located at 46[deg]13'22'' N, 119[deg]9'17'' W in
vicinity of Kennewick, WA.
    (b) Regulations. Under the general safety zone regulations in
subpart C of this part, you may not enter the safety zone described in
paragraph (a) of this section unless authorized by the Captain of the
Port Columbia River or his designated representative. Also in
accordance with Sec.  165.23, no person may bring into, or allow to
remain in this safety zone any vehicle, vessel, or object unless
authorized by the Captain of the Port Columbia River or his designated
representative.
    (c) Enforcement period. This section will be enforced from 9 p.m.
to 11:30 p.m. on July 4, 2019.

    Dated: May 20, 2019.
J.C. Smith,
Captain, U.S. Coast Guard, Captain of the Port, Sector Columbia River.
[FR Doc. 2019-10888 Filed 5-23-19; 8:45 am]
 BILLING CODE 9110-04-P