[Federal Register Volume 59, Number 154 (Thursday, August 11, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-19565]
[[Page Unknown]]
[Federal Register: August 11, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34492; File No. SR-NYSE-94-28]
Self-Regulatory organizations; Filing of Proposed Rule Change by
the New York Stock Exchange, Inc. Relating to Real Estate Investment
Trusts (``REITs'') Portfolio Market Index Target-Term Securities.
August 5, 1994.
Pursuant to Section 19(b)(1) of the Securities and Exchange Act of
1934 (``Act''),\1\ notice is hereby given that on July 15, 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. Sec. 78s(b)(1) (1982).
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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''),\2\ the return on which is based upon a
portfolio (``REIT Portfolio'') of securities of U.S. Real estate
investment trusts (``REITs''). Initially, the REIT Portfolio will
contain the securities of 20 REITs that are traded in the United States
on the NYSE or on the American Stock Exchange (``Amex'').\3\
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\2\``MITTS'' is a registered service mark and ``Market Index
Target-Term Securities'' is a service mark of Merrill Lynch & Co.,
Inc. (``Merrill Lynch'').
\3\The REITs represented in the REIT Portfolio are: Carr Realty
Corporation; Duke Realty Investments, Inc.; Federal Realty
Investment Trust; Gables Residential Trust; Health Care Property
Investors Inc.; Health and Rehabilitation Properties Trust; JP
Realty, Inc.; Kimco Realty Corporation; Nationwide Health
Properties, Inc.; New Plan Realty Trust; Simon Property Group, Inc.;
Trinet Corporate Realty Trust, Inc.; Urban Shopping Centers, Inc.;
Excel Realty Trust, Inc.; Weingarten Realty Investors; General
Growth Properties, Inc.; Taubman Centers, Inc.; Burnham Pacific
Properties, Inc.; Western Investment & Real Estate Trust; and
Wellsford Residential Property Trust.
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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 for trading MITTS on the REIT Portfolio (``REIT Portfolio MITTS'')
issued by Merrill Lynch. 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.
REIT 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 REITs and the dividend stream related to the components of
that portfolio. The REIT Portfolio MITTS will provide that at least 90%
of the principal amount thereof will be repaid at maturity.
The Security
REIT Portfolio MITTS will entitle the owner at maturity to receive
an amount in cash based upon the ``Total Return Portfolio Value;''
provided, however, that the amount payable at maturity will not be less
than $9 for each $10 principal amount of the REIT Portfolio MITTS. The
``Total Return Portfolio Value'' will be an amount based upon the
change in the ``Original Portfolio Value'' and the value of the REIT
Portfolio at maturity, plus the aggregate dollar amount of dividends
paid on the components of the REIT Portfolio after the issuance of the
REIT Portfolio MITTS and prior to maturity. The Original Portfolio
Value will equal $10, i.e., the value of the REIT Portfolio on the date
the REIT Portfolio MITTS are priced by the issuer for initial offering
to the public. The value of the REIT Portfolio at maturity will be
based on the average of the closing prices for the components of the
REIT Portfolio for a specified number of days immediately prior to
maturity date of the REIT Portfolio MITTS.\4\
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\4\In particular, the Total Return Portfolio Value will be based
on the average of the REIT Portfolio values for the first 45 NYSE
trading days of the Calculation Period. The Calculation Period is
defined as the period from and including the ninetieth scheduled
NYSE trading day prior to the maturity date to and including the
fourth scheduled NYSE trading date prior to the maturity date.
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If the market value of the REIT Portfolio plus the cumulative value
of the dividends paid on the component REITs has declined below the
Original Portfolio Value, the holder will receive not less than a
specified percentage of the principal amount of the security. For
example, if the Total Return Portfolio Value has declined more than 10%
below the Original Portfolio Value, the owners of the REIT 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 REIT
Portfolio and the payment of dividends on the securities that comprise
the REIT Portfolio.
As with other MITTS, REIT Portfolio MITTS may not be redeemed prior
to maturity and are not callable by the issuer.\5\ 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 REIT Portfolio and also on other factors, including
dividend rates, the levels of interest rates, the volatility of the
value of the REIT Portfolio, the time remaining to maturity, and the
creditworthiness of the issuer, Merrill Lynch.
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\5\See, e.g., Securities Exchange Act Release No. 32840
(September 2, 1993), 58 FR 47485 (September 9, 1993) (approval order
for Global Telecommunications Portfolio MITTS).
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The Exchange will only list for trading this issue of REIT
Portfolio MITTS if there are at least one million outstanding
securities, at least 400 holders, a minimum life of one year, a market
value of at least $4 million, and the issue is in compliance with the
Exchange's initial listing criteria. In addition, the Exchange will
monitor the issue to verify that it complies with the Exchange's
continued listing criteria.\6\
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\6\See Section 703.19 of the Manual.
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Merrill Lynch will deposit registered securities representing REIT
Portfolio MITTS with a depository, The Depository Trust Company
(``DTC''), so as to permit book-entry settlement of transactions by
participants in DTC.
The Portfolio
The REIT Portfolio consists of the common stock of 20 highly
capitalized REITs. As of June 6, 1994, the market capitalizations
(i.e., the market price multiplied by the number of shares outstanding)
of the 20 companies range from a high of $2.3 billion to a low of $216
million. Also on that date, the market prices of their common stocks
ranged from a high of $40.25 to a low of $11.25.
The common stocks of 19 of the 20 component REITs are listed on the
Exchange. The common stock of the other component REIT is traded on the
Amex. The initial weighings of the components of the REIT Portfolio
will be based upon that stock's relative liquidity (i.e., relative
trading volume in dollars) in the United States.
To determine relative liquidity, Merrill Lynch will compare the
average daily consolidated dollar volume of the stock over the 90 day
period immediately preceding the date on which the REIT Portfolio MITTS
are priced for issuance to the average daily consolidated dollar volume
for all of the stocks in the REIT Portfolio for that 90 day period. As
of June 6, 1994, the highest weighting for any stock in the REIT
Portfolio was 10.22% and the weighting for the five components with the
highest relative liquidity was 42.64%. Also as of that date, the lowest
weighting for any stock in the REIT Portfolio was 1.58% and the
weighting for the five components with the lowest relative liquidity
was 9.88%.
Except for certain multiplier adjustments discussed below, once the
initial weighings have been determined, the multipliers will remain
constant throughout the term of the REIT Portfolio MITTS. The value of
the REIT Portfolio MITTS at any point in time will equal the aggregate
for the components of the price of each component times the multiplier
for that component plus the cumulative dividends paid on that component
since issue date for the REIT Portfolio MITTS. The multipliers assigned
to the component REITs will be adjusted for certain events such as
stock splits, reverse stock splits, or stock dividends, and the value
of the common stock of the component REITs 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 REIT 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 such 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 REIT Portfolio MITTS.\7\
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\7\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 upon the reported prices of the common stock of the component
REITs, an independent third party will calculate and disseminate the
value of the REIT Portfolio no less frequently than once every minute
through the trading day.
The Issuer
The Exchange has determined that the issuer of the REIT 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 Commision 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. Sec. 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-94-28 and shoud be
submitted by September 1, 1994.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\8\
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\8\17 CFR 200.30-3(a)(12) (1993).
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Jonathan G. Katz,
Secretary.
[FR Doc. 94-19565 Filed 8-10-94; 8:45 am]
BILLING CODE 5010-01-M