[Federal Register Volume 59, Number 81 (Thursday, April 28, 1994)]
[Unknown Section]
[Page ]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-10088]


[Federal Register: April 28, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33934; File No. SR-NYSE-94-15]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange, Inc., Relating to Restructuring 
Companies Portfolio Market Index Target-Term Securities

April 20, 1994.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ Notice is hereby given that 
on April 12, 1994, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I, II, and III below, which items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\17 CFR 240.19b-4 (1991).
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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 for trading Market Index Target-Term 
Securities (``MITTS''),\3\ the return on which is based upon a 
portfolio of securities of U.S. companies that have restructured or are 
in the process of restructuring (``Restructuring Companies 
Portfolio''). Initially, the Restructuring Companies Portfolio will 
contain the securities of 17 restructuring companies that are traded in 
the United States on the NYSE or are National Market System securities 
traded through the facilities of the National Association of Securities 
Dealers Automated Quotation System (``NASDAQ'').\4\
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    \3\``MITTS'' and ``Market Index Target-Term Securities'' are 
service marks of Merrill Lynch & Co., Inc. (``Merrill Lynch'').
    \4\The companies represented in the Restructuring Companies 
Portfolio are: Allied-Signal Inc.; American Express Company; Arkla, 
Inc.; Ceridian Corporation; Citicorp; The Columbia Gas System, Inc.; 
Eastman Kodak Company; General Motors Corporation; Harnischfeger 
Industries, Inc.; International Business Machines Corporation; ITT 
Corporation; Midlantic Corporation; Sears, Roebuck and Co.; Texas 
Instruments Inc.; UAL Corporation; Unisys Corporation; and 
Westinghouse Electric Corporation.
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The NYSE has prepared summaries, set forth in Sections 
A, B, and C below, of the most significant aspects of such statements.

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

    Pursuant to the listing criteria set forth in Section 703.19 of the 
Exchange's Listed Company Manual (``Manual''), the Exchange proposes to 
list and trade MITTS. MITTS are securities that entitle the holder to 
receive from the issuer upon maturity an amount based upon the change 
in the market value of a stock index or portfolio, provided that a 
minimum amount (90% of the principal amount) will be repaid. The 
Exchange is submitting the proposed rule change specifically to enable 
the Exchange to list for trading MITTS on the Restructuring Companies 
Portfolio (``Restructuring Companies Portfolio MITTS'') issued by 
Merrill Lynch.
    Restructuring Companies Portfolio MITTS will allow investors to 
combine protection of a substantial portion of the principal amount of 
the MITTS with potential additional payments based on a portfolio of 
securities of selected restructuring companies. The Restructuring 
Companies Portfolio MITTS will provide that at least 90% of the 
principal amount thereof will be repaid at maturity.

The Security

    Restructuring Companies Portfolio MITTS will entitle the owner at 
maturity to receive an amount based upon the percentage change between 
the ``Original Portfolio Value'' and the ``Ending Average Portfolio 
Value,'' subject to a minimum repayment amount. The ``Original 
Portfolio Value'' is the value of the Restructuring Companies Portfolio 
on the date on which the issuer prices the Restructuring Companies 
Portfolio MITTS issue for the initial offering to the public. The 
``Ending Average Portfolio Value'' is the average of the values of the 
Restructuring Companies Portfolio at the end of the five calendar 
quarters preceding the expiration of the Restructuring Companies 
Portfolio MITTS on December 31, 1999.\5\ The Ending Average Portfolio 
Value will be used in calculating the amount owners will receive upon 
maturity.\6\
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    \5\Specifically, the Ending Average Portfolio Value will equal 
the average of the quarterly values of the Restructuring Companies 
Portfolio beginning in the calendar quarter ending December 31, 
1998. The quarterly value for each of the first four of the final 
five calendar quarters shall be the Restructuring Companies 
Portfolio value on the last scheduled Exchange trading day on which 
there is no market disruption event. The quarterly value for the 
final calendar quarter shall be the Restructuring Companies 
Portfolio Value on the seventh scheduled Exchange trading day 
preceding maturity of the Restructuring Companies Portfolio MITTS 
unless there is a market disruption event in which case the sixth 
trading day preceding maturity shall be used.
    \6\The Restructuring Companies Portfolio MITTS will entitle a 
holder at maturity to receive for each $10 principal amount of MITTS 
an amount equal to the Ending Average Portfolio Value of the 
Restructuring Companies Portfolio divided by 10, but in any event no 
less than $9 per each $10 principal amount of Restructuring 
Companies Portfolio MITTS.
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    If the market value of the portfolio has declined, the owner will 
receive not less than a specified percentage of the principal amount of 
the security. (For instance, if the market value of the portfolio used 
to calculate the amount payable at maturity has declined more than 10%, 
the owners of the Restructuring Companies Portfolio MITTS will receive 
90% of the principal amount of the securities.) The payment at maturity 
is based on changes in the value of the portfolio, but does not reflect 
the payment of dividends on the securities that comprise the portfolio.
    As with other MITTS, Restructuring Companies Portfolio MITTS may 
not be redeemed prior to maturity and are not callable by the issuer. 
Owners may sell the security on the Exchange. The Exchange anticipates 
that the trading value of the security in the secondary market will 
depend in large part on the value of the Restructuring Companies 
Portfolio and also on other factors, including the level of interest 
rates, the volatility of the value of the Restructuring Companies 
Portfolio, the time remaining to maturity, dividend rates, and the 
creditworthiness of the issuer.
    The Exchange will only list for trading Restructuring Companies 
Portfolio MITTS issues that have at least one million outstanding 
securities, at least 400 owners, a minimum life of one year and at 
least a $4 million market value, and that otherwise comply with the 
Exchange's initial listing criteria. In addition, the Exchange will 
monitor each issue to verify that it complies with the Exchange's 
continued listing criteria.\7\
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    \7\See Section 703.19 of the Manual.
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    Merrill Lynch will deposit registered securities representing 
Restructuring Companies Portfolio MITTS with its depository, the 
Depository Trust Company (``DTC''), so as to permit book-entry 
settlement of transactions by participants in DTC.

The Portfolio

    The Restructuring Companies Portfolio consists of the common stock 
of 17 highly capitalized ``restructuring companies.'' Restructuring 
companies are companies that are generally perceived to have recently 
experienced declines in earnings as compared to historical levels and/
or other adverse developments which have required some form of 
restructuring by such companies. Such restructuring may include 
reducing the company's work force, writing off obsolete or unused plant 
and equipment, retiring debt, and investing in more efficient means of 
production.
    Among the companies whose shares compose the Restructuring 
Companies Portfolio are companies at various stages of the 
restructuring process; some have completed their intended 
restructuring, others are currently in the process of restructuring, 
and others are perceived to be beginning such a process. The term 
``restructuring'' does not refer to any particular legal definition. 
The companies in the Restructuring Companies Portfolio are not specific 
to any industry segment and include a wide array of industry sectors 
such as retailing, computer manufacturing, transportation, the 
manufacture of consumer goods, and financial services.
    The common stock of the 17 companies initially will be equally 
weighted within the portfolio on the pricing date. The public float 
(i.e., the market price multiplied by the number of shares outstanding) 
of the 17 companies differ significantly (from a high of $44 billion 
(General Motors Corp.) to a low of $328 million (Arkla, Inc.)), as do 
the market prices of their common stock (from a high $128.375 (UAL 
Corporation) to a low of $7.625 (Arkla, Inc.)).\8\
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    \8\Prices specified in this paragraph, and prices and exchange 
rates used to calculate public float specified in this paragraph, 
are as of March 7, 1994.
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    The common stock of 16 and 17 component companies is listed on the 
Exchange. The common stock of the other component company is traded 
through NASDAQ. At the outset, the common stock of each of the 
companies represented in the Restructuring Companies Portfolio will 
have equal representation. That is, the common stock of each company 
included in the portfolio shall be assigned a multiplier on the pricing 
date such that all component companies represent an equal percentage of 
the value of the entire portfolio on such date. The multiplier 
indicates the number of shares of common stock (or fraction of one 
share) included in the calculation of the portfolio. Thus, each of the 
17 companies represented shall represent 5.88% of the total portfolio 
on the pricing date.
    The multiplier assigned to the component companies will be adjusted 
for certain events such as stock splits, reverse stock splits, or stock 
dividends, and the value of the component securities will also be 
adjusted for certain events including a liquidation, bankruptcy, 
insolvency, merger, or consolidation involving the issuer of the 
underlying shares. For example, if the issuer of the shares underlying 
a component company has been subject to a merger or a consolidation and 
is not the surviving entity, then a value for such common stock will be 
determined at the time issuer is merged or consolidated and will equal 
the last available market price for such common stock and that value 
will be constant for the remaining term of the Restructuring Companies 
Portfolio MITTS.\9\
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    \9\Merrill Lynch will not attempt to find a replacement stock or 
to compensate for the extinction of a security due to bankruptcy or 
a similar event.
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    Based the reported prices of the common stock, a Merrill Lynch 
affiliate or an independent third party will calculate the value of the 
Restructuring Companies Portfolio on at least a daily basis and make 
those values available to investors.

The Issuer

    The Exchange has determined that the issuer of the Restructuring 
Companies Portfolio MITTS, Merrill Lynch, meets the listing criteria 
set forth in Section 703.19 of the Manual. The Exchange states that 
Merrill Lynch is an Exchange-listed company in good standing and has 
sufficient assets to justify the issuance of MITTS offerings of the 
size contemplated by the proposed rule change.
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act, in general, and with Section 6(b)(5), in 
particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market and a national market system, and, in 
general, to protect investors and the public interest.

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

    The NYSE does not believe that the proposed rule change will impose 
any inappropriate burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received from Members, Participants or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. 
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 at the 
Commission's Public Reference Section, 450 Fifth Street, N.W., 
Washington, D.C. 20549. Copies of such filing will also be available 
for inspection and copying at the principal office of the NYSE. All 
submissions should refer to File No. SR-NYSE-94-15 and should be 
submitted by May 19, 1994.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\17 CFR 200.30-3(a)(12) (1993).
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[FR Doc. 94-10088 Filed 4-26-94; 8:45 am]
BILLING CODE 8010-01-M