iShares COMEX Gold Trust : No-action Letter dated January 27, 2005

Mr. David Yeres, Esq.
Clifford Chance US LLP
31 West 52nd Street
New York, NY 10019

In your letter dated January 27, 2005, you request on behalf of iShares COMEX Gold Trust (the "Trust"), the American Stock Exchange LLC (the "Amex") and persons or entities engaging in transactions in shares of the Trust (the "Shares") exemptions from, or interpretive or no-action advice regarding, Section 11(d)(1) of the Securities Exchange Act of 1934 (the "Exchange Act"), Rules 10a-1 and 11d1-2 under the Exchange Act, Rule 200(g) of Regulation SHO, and Rules 101 and 102 of Regulation M in respect of trading of the Shares on the Amex or any other national securities exchange or national securities association.

The Trust is governed by the provisions of the Depositary Trust Agreement executed under New York law by Barclays Global Investors, N.A., as Sponsor, and The Bank of New York, as Trustee, on January 19, 2005. The Trust Agreement sets out the rights of depositors of gold and registered holders of Shares and the rights and obligations of the Sponsor and the Trustee. The purpose of the Trust is to own gold transferred to the Trust in exchange for Shares issued by the Trust. Each Share represents a fractional undivided beneficial interest in the net assets of the Trust. The Trust issues Shares only in aggregations of 50,000, or integral multiples thereof, and only in transactions with registered broker-dealers with whom the Trustee has entered into a contractual arrangement governing the terms and conditions under which Baskets of Shares may be issued and redeemed. Baskets of Shares will be redeemed by the Trust in exchange for an amount of gold equal to their pro rata share of all gold that remains in the Trust after giving effect to all Trust liabilities, sales made to cover Trust expenses, and any losses that may have occurred. The Trust is not a registered investment company under the Investment Company Act of 1940.

This response is attached to the enclosed photocopy of your correspondence. Each defined term in this letter has the same meaning as defined in your letter, unless otherwise noted herein.

Rule 10a-1

Rule 200(a) of Regulation SHO defines "short sale." Rule 10a-1(a) under the Exchange Act covers transactions in any security registered on a national securities exchange, if trades in such security are reported in the consolidated transaction reporting system, and prohibits short sales with respect to these securities unless such sales occur on a "plus tick," (that is, a price above the price at which the immediately preceding sale was effected), or "zero-plus tick," (that is, at the last sale price if it was higher than the last different price). Rule 10a-1 is designed to prevent the market price of a stock or other "reported security," as defined in Rule 11Aa3-1(a)(4) under the Exchange Act, from being manipulated downward by unrestricted short selling.

On the basis of your representations and the facts presented, in particular the derivative nature of the Shares, it would not appear that trading in the Shares would be susceptible to the practices that Rule 10a-1 is designed to prevent. In particular, the Trust anticipates that the market value of the Shares will rise or fall based on changes in the underlying gold. Moreover, the short sale rule does not apply to analogous derivative products such as index options and index futures contracts. Accordingly, the Commission hereby grants an exemption from Rule 10a-1 to permit sales of Shares without regard to the "tick" requirements of Rule 10a-1.

Rule 200(g) of Regulation SHO

Rule 200(g) of Regulation SHO provides that a broker-dealer must mark all sell orders of any equity security as "long," "short," or "short exempt." Rule 200(g)(2) requires that a short sale order must be marked "short exempt" if the seller is relying on an exception from the tick test of Rule 10a-1 of the Exchange Act or any short sale price test of any exchange or national securities association.

Accordingly, in conjunction with the exemption granted above to permit sales of Shares without regard to the "tick" requirements of Rule 10a-1, on the basis of your representations and the facts presented, and without necessarily concurring in your analysis, the staff of the Division of Market Regulation ("Staff") will not recommend to the Commission enforcement action under Rule 200(g) of Regulation SHO if a broker-dealer marks "short," rather than "short exempt," a short sale that is effected in the Shares, subject to the following conditions:

Regulation M

Rule 101 of Regulation M

Generally, Rule 101 of Regulation M is an anti-manipulation regulation that, subject to certain exemptions, prohibits any "distribution participant" and its "affiliated purchasers" from bidding for, purchasing, or attempting to induce any person to bid for or purchase, any security which is the subject of a distribution until after the applicable restricted period, except as specifically permitted in the Regulation. The provisions of Rule 101 of Regulation M apply to underwriters, prospective underwriters, brokers, dealers, and other persons who have agreed to participate or are participating in a distribution of securities, and affiliated purchasers of such persons.

On the basis of your representations and the facts presented, particularly that the Trust will continuously redeem at net asset value Baskets of Shares and that the secondary market price of Shares should not vary substantially from the value of gold represented by the Shares, the Commission hereby grants an exemption under paragraph (d) of Rule 101 of Regulation M thus permitting persons who may be deemed to be participating in a distribution of Shares to bid for or purchase Shares during their participation in such distribution.

Rule 102 of Regulation M

Rule 102 of Regulation M prohibits issuers, selling security holders, or any affiliated purchaser of such person from bidding for, purchasing, or attempting to induce any person to bid for or purchase a covered security during the applicable restricted period in connection with a distribution of securities effected by or on behalf of an issuer or selling security holder. Rule 100 of Regulation M defines "distribution" to mean any offering of securities that is distinguished from ordinary trading transactions by the magnitude of the offering and the presence of special selling efforts and selling methods.

On the basis of your representations and the facts presented, particularly that the Trust will continuously redeem at net asset value Baskets of Shares, the Commission hereby grants an exemption under paragraph (e) of Rule 102 of Regulation M thus permitting the Trust and affiliated purchasers to redeem Shares during the continuous offering of the Shares.

Section 11(d)(1) and Rule 11d1-2

On the basis of your representations and the facts presented, the Staff will not recommend enforcement action to the Commission under Section 11(d)(1) of the Exchange Act if broker-dealers that do not create or redeem Shares but engage in both proprietary and customer transactions in Shares exclusively in the secondary market extend or maintain or arrange for the extension or maintenance of credit on Shares in connection with such secondary market transactions. In this regard, we note in particular your representation that no broker-dealer or any natural person associated with such broker-dealer, directly or indirectly (including through any affiliate of such broker-dealer), receives from the Trust complex¹ any payment, compensation or other economic incentive to promote or sell Shares to persons outside of the Trust complex, other than non-cash compensation permitted under NASD Rule 2830(l)(5)(A), (B), or (C).²

In addition, on the basis of your representations and the facts presented, the Staff will not recommend enforcement action to the Commission under Section 11(d)(1) of the Exchange Act if broker-dealers treat Shares, for the purposes of Rule 11d1-2 under the Exchange Act, as "securities issued by a registered ... open-end investment company as defined in the Investment Company Act of 1940" and thereby extend or maintain or arrange for the extension or maintenance of credit on Shares that have been owned by the persons to whom credit is provided for more than 30 days, in reliance on the exemption contained in the rule. We note in this regard your representation that Authorized Participants will not extend, maintain, or arrange for the extension or maintenance of credit on Shares other than to the extent such extension, maintenance, or arranging is otherwise permitted under Exchange Act Rule 11d1-1 or, pursuant to the relief granted in this letter, under Rule 11d1-2. In addition, we note your representation that the Initial Depositor, as an Authorized Participant, will not extend, maintain or arrange for the extension or maintenance of credit on Shares during the distribution period for the initial Baskets, except as otherwise permitted under Rule 11d1-1, and that thereafter, the Initial Depositor, as an Authorized Participant, will not extend, maintain, or arrange for the extension or maintenance of credit on Shares other than to the extent permitted under Rule 11d1-1 or, pursuant to the relief granted in this letter, under Rule 11d1-2.

The foregoing exemptions from Rule 10a-1, Rules 101 and 102 of Regulation M, and no-action positions taken under Section 11(d)(1), Rule 11d1-2, and Rule 200(g) of Regulation SHO are based solely on your representations and the facts presented, and are strictly limited to the application of those rules to transactions involving Shares under the circumstances described above and in your letter. Such transactions should be discontinued, pending presentation of the facts for our consideration, in the event that any material change occurs with respect to any of those facts or representations. Moreover, the foregoing exemptions from Rule 10a-1 and Rules 101 and 102 of Regulation M and no-action positions taken under Section 11(d)(1), Rule 11d1-2, and Rule 200(g) of Regulation SHO are subject to the condition that such transactions in Shares or any related securities are not made for the purpose of creating actual, or apparent, active trading in or raising or otherwise affecting the price of such securities.

The foregoing exemptions are subject to modification or revocation if at any time the Commission determines that such action is necessary or appropriate in furtherance of the purposes of the Exchange Act. Moreover, the foregoing no-action positions are subject to modification or revocation as necessary or appropriate. In addition, persons relying on these exemptions and no-action positions are directed to the anti-fraud and anti-manipulation provisions of the Exchange Act, particularly Sections 9(a), 10(b), and Rule 10b-5 thereunder. Responsibility for compliance with these and other provisions of the federal or state securities laws must rest with persons relying on these exemptions and no-action positions. The Staff expresses no view with respect to other questions that the proposed transactions may raise, including, but not limited to, the adequacy of disclosure concerning, and the applicability of other federal or state laws or rules or regulations of any self-regulatory organizations to, the proposed transactions.

For the Commission, by the Division of Market
Regulation, pursuant to delegated authority,

James A. Brigagliano
Assistant Director
Office of Trading Practices
Division of Market Regulation

Endnotes

¹ As you note in your letter, the "Trust complex" includes the Trust, the Sponsor, the Trustee, the Custodian, Barclays Capital, Inc. (the "Initial Depositor"), the issuer of any other trust or any investment company, unit investment trust, or fund that holds itself out to investors as a related entity for purposes of investment or investor services, any investment adviser or marketing agent (or person performing a similar function) for any such issuer, and any "affiliated person" (as defined in the 1940 Act) of any such person.

² Consistent with the approach in Letter re: streetTracks Gold Trust® (Nov. 17, 2004), the Staff interprets the reference to "non-cash compensation permitted under NASD Rule 2830(l)(5)(A), (B), or (C)" in this context to mean that the only non-cash compensation a broker-dealer (or any natural person associated with such broker-dealer) relying on this relief may receive from the Trust complex to promote or sell Shares to persons outside of the Trust complex is that which would be permitted under Rule 2830(l)(5)(A), (B), or (C) if the Trust were a registered investment company.