U.S. Securities & Exchange Commission
SEC Seal
Home | Previous Page
U.S. Securities and Exchange Commission

November 22, 2005

Joanne T. Medero, Esq.
Managing Director and General Counsel
Barclays Global Investors, N.A.
45 Fremont Street
San Francisco, CA 94105

Re: Modification of Prior No-Action Relief with respect to iShares, Inc. MSCI Index Funds

Dear Ms. Medero:

By letter dated October 26, 2001, the staff of the Division of Market Regulation (“Staff”), among other things, granted no-action relief from Section 11(d)(1) of the Securities Exchange Act of 1934 to broker-dealers that do not create shares (“iShares”) of seven new series of securities (each such series, “New Index Fund” and collectively, “New Index Funds”) issued by iShares, Inc. (“Company”), but engage in both proprietary and customer transactions in iShares exclusively in the secondary market (“Non-AP Broker-Dealers”). Specifically, the Staff confirmed that it would not recommend enforcement action to the Commission under Section 11(d)(1) if Non-AP Broker-Dealers extend or maintain or arrange for the extension or maintenance of credit on iShares in connection with secondary market transactions in iShares.

In the letter requesting relief (“iShares Request for Relief”), counsel stated, “The only compensation a broker-dealer will receive for representing a customer in purchasing iShares is the commission charged to that customer – most likely the same compensation the broker-dealer would receive in connection with any stock purchase by a customer. There is no special financial incentive to a broker-dealer, other than the broker-dealer’s regular commission, to engage in secondary-market transactions in iShares, whether as principal or agent.” Counsel also explained that the “Company has adopted a plan under Rule 12b-1 under the 1940 Act (the ‘12b-1 Plan’) in respect of the New Index Funds, pursuant to which the Company may pay for any activities or expenses primarily intended to result in or required for the sale of iShares of the New Index Funds . . . .” In addition, counsel indicated, “It is contemplated that the Distributor will use a portion of the payments made under the Rule 12b-1 Plan to make continuing payments to selected broker-dealers that provide distribution assistance and/or shareholder services.”

Recently, in letters regarding exchange-traded funds (“ETFs”) similar to the New Index Funds, the Staff specifically has excluded from the scope of no-action relief from Section 11(d)(1) Non-AP Broker-Dealers that receive 12b-1 fees. See Letters re: PowerShares Lux Nanotech Portfolio (Oct. 26, 2005), at n. 8; PowerShares WilderHill Clean Energy Portfolio (Mar. 2, 2005), at n. 8. In addition, the Staff recently made clear in a letter dated November 21, 2005 (a copy of which is enclosed), that the Section 11(d)(1) relief for Non-AP Broker-Dealers in prior letters involving ETFs, including the October 26, 2001 letter regarding iShares, Inc. MSCI Index Funds, is limited to Non-AP Broker-Dealers that do not (and whose associated persons who are natural persons do not), directly or indirectly (including through any affiliate of such Non-AP Broker-Dealer), receive from the fund complex (as defined in the November 21, 2005 letter) any payment, compensation or other economic incentive to promote or sell the shares of the ETF to persons outside the fund complex, other than non-cash compensation permitted under NASD Rule 2830(l)(5)(A), (B), or (C). See Letter re: Exemptive Relief Regarding Exchange-Traded Funds (Nov. 21, 2005).

Accordingly, a Non-AP Broker-Dealer that receives compensation from the Distributor (as defined in the iShares Request for Relief) pursuant to the Company’s Rule 12b-1 Plan (as defined in the iShares Request for Relief) in respect of a New Index Fund would not be able to extend or maintain or arrange for the extension or maintenance of credit on iShares of such New Index Fund in reliance on the October 26, 2001 letter. However, the Staff will not recommend enforcement action for 120 days from the date of this letter against Non-AP Broker-Dealers that extend or maintain or arrange for the extension or maintenance of credit on iShares in connection with secondary market transactions in such iShares in reliance on the October 26, 2001 letter, but that do not satisfy the Staff’s no-action position as articulated in the Staff’s November 21, 2005 letter based on existing arrangements.


Brian A. Bussey
Assistant Chief Counsel


cc: W. John McGuire, Esq.
Morgan, Lewis & Bockius LLP
1111 Pennsylvania Ave., NW
Washington, DC 20004

Donald R. Crawshaw, Esq.
Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004



Modified: 11/30/2005