[Federal Register Volume 59, Number 168 (Wednesday, August 31, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-21474]


[[Page Unknown]]

[Federal Register: August 31, 1994]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34597; File No. SR-Amex-94-27]

 

Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 to the Proposed Rule Change by the American 
Stock Exchange, Inc. Relating to the Listing and Trading of Indexed 
Term Notes

August 25, 1994.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on August 
8, 1994, the American Stock Exchange, Inc. (``Amex'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the Amex. On August 24, 1994, the Exchange 
submitted Amendment No. 1 to the proposed rule change.\1\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\In Amendment No. 1 to the proposed rule change, the Exchange 
proposes to: (1) provide that at maturity, holders of the indexed 
term notes will receive a minimum of 90% of the principal amount of 
the indexed term notes; and (2) amend the listing standards 
regarding foreign securities and American Depository Receipts 
(``ADRs'') represented in the index underlying the indexed term 
notes. See Letter from Benjamin Krause, Senior Vice President, 
Capital Markets Group, Amex, to Michael Walinskas, Branch Chief, 
Office of Market Supervision, Division of Market Regulation, 
Commission, dated August 24, 1994 (``Amendment No. 1'').
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to approve for listing and trading under 
Section 107A of the Amex Company Guide (``Guide''), Indexed Term Notes 
(``Notes''), the return on which is based in whole or in part on 
changes in the value of ten or more equity securities representing 
industrial companies (``Index''). The text of the proposed rule change 
is available at the Office of the Secretary, the Amex, and at the 
Commission.

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 Amex 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 the 
Statutory Basis for, the Proposed Rule Change

    Under Section 107 of the Guide, the Exchange may approve for 
listing and trading securities which cannot be readily categorized 
under the listing criteria for common and preferred stocks, bonds, 
debentures, or warrants.\2\ The Amex now proposes to list for trading, 
under Section 107A of the Guide, Notes whose value is based in whole or 
in part on a static index composed of ten or more actively-traded 
equity securities. The securities to be included in the Index will 
include the stocks of companies in basic industries such as chemicals, 
metals, steel, aluminum, paper and oil. The specific composition of the 
Index will be determined by the issuer, Lehman Brothers, Inc., based on 
its market research and investment strategy, prior to approval of the 
proposed rule change.
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    \2\See Securities and Exchange Act Release No. 27753 (March 1, 
1990), 55 FR 8626 (March 8, 1990).
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    The Notes will be non-convertible debt securities and will conform 
to the listing guidelines under Section 107A of the Guide.\3\ Although 
the specific maturity date will not be established until immediately 
prior to the time of the offering, the Notes will provide for maturity 
within a period of not less than one nor more than seven years from the 
date of issue. Notes may provide for periodic payments and/or payments 
at maturity based on whole or in part or in part on changes in the 
value of the Index and may feature a ``cap'' on the maximum amount to 
be paid either periodically or at maturity. Additionally, the Notes 
shall provide that at maturity, holders will receive not less than 90% 
of the principal amount of the Notes.\4\ Prior to the commencement of 
listing and trading of the Notes, the Exchange shall distribute a 
circular to its membership providing guidance with regard to member 
firm compliance responsibilities, including appropriate suitability 
criteria and/or guidelines.
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    \3\Specifically, the Notes must have: (1) a minimum public 
distribution of one million trading units; (2) a minimum of 400 
holders; (3) an aggregate market value of at least $20 million; and 
(4) a term of at least one year. Additionally, the issuer of the 
Notes (i.e., Lehman Brothers, Inc.) must have assets of at least 100 
million, stockholders' equity of at least $10 million and pre-tax 
income of at least $750,000 in the last fiscal year or in two of the 
three prior fiscal years. As an alternative to these financial 
criteria, the issuer may have either: (1) assets in excess of $200 
million and stockholders' equity in excess of $10 million; or (2) 
assets in excess of $100 million of and stockholders' equity in 
excess of $20 million.
    \4\See Amendment No. 1, supra note 1.
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Eligibility Standards for Index Components

    The Components of the Index shall meet the following criteria: (1) 
a minimum market capitalization of $75 million, except that up to 10% 
of the component securities may have a market capitalization of not 
less than $50 million; (2) trading volume in each of the six months 
prior to the offering of the Notes of not less than one million shares, 
except that up to 10% of the component securities may have a trading 
volume in each of the six months prior to the offering of the Notes of 
not less than 500,000 shares; (3) at least 90% of the weight of the 
Index and at least 80% of the total number of components will meet the 
then current criteria for standardized options trading set forth in 
Exchange Rule 915; (4) all components of the Index will be listed on 
the Amex on the New York Stock Exchange, or will be listed on the Amex 
or the New York Stock Exchange, or will be National Market securities 
traded through NASDAQ; (5) all components of the Index will be subject 
to last sale reporting pursuant to Rule 11Aa3-1 of the Act; and (6) no 
more than 20% of the weight of the Index shall be represented by 
foreign securities or ADRs for which the Exchange does not have in 
place a comprehensive surveillance sharing agreement with the 
appropriate regulatory organization(s) in such country(ies).\5\
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    \5\Id.
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Index Calculation

    The Index will be calculated using an ``equal dollar-weighting'' 
methodology designed to ensure that each of the component securities is 
represented in an approximately equal dollar amount in the Index. To 
create the Index, a portfolio of equity securities will be established 
by the issuer representing an investment of a specified dollar amount 
in each component security (rounded to the nearest whole share). The 
value of the Index will equal the current market value of the sum of 
the assigned number of shares of each of the component securities 
divided by the current Index divisor. The Index divisor will initially 
be set to provide a benchmark value of 100.00 at the close of trading 
on the day preceding the establishment of the Index.
    The number of shares of each component stock in the Index will 
remain fixed except in the event of certain types of corporate actions 
such as the payment of a dividend (other than an ordinary cash 
dividend), a stock distribution, stock split, reverse stock split, 
rights offering, distribution, reorganization, recapitalization, or 
similar event with respect to the component securities. The number of 
shares of each component security may also be adjusted, if necessary, 
in the event of a merger, consolidation, dissolution, or liquidation of 
an issuer or in certain other events such as the distribution of 
property by an issuer to shareholders, the expropriation or 
nationalization of a foreign issuer or the imposition of certain 
foreign taxes on shareholders of a foreign issuer. Shares of a 
component security may be replaced (or supplemented) with other 
securities under certain circumstances, such as the conversion of a 
component stock into another class of security, the termination of a 
depositary receipt program, or the spin-off of a subsidiary. If the 
security remains in the Index, the number of shares of that security 
may be adjusted, to the nearest whole share, to maintain the 
component's relative weight in the Index at the level immediately prior 
to the corporate action.\6\ In all cases, the divisor will be adjusted, 
if necessary, to ensure continuity of the value of the Index.
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    \6\Lehman Brothers, Inc. will not attempt to find a replacement 
stock or compensate for the extinction of a security due to 
bankruptcy or a similar event.
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    The value of the Index will be calculated continuously by the Amex 
and disseminated every 15 seconds over the Consolidated Tape 
Association's Network B.
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act, in general, and furthers the objectives 
of 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 foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and national market system.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    The Amex 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 in the 
Commission's Public Reference Section, 450 Fifth Street, N.W., 
Washington, D.C. Copies of such filing will also be available for 
inspection and copying at the principal office of the Amex. All 
submissions should refer to File No. SR-Amex-94-27 and should be 
submitted by September 21, 1994.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-21474 Filed 8-30-94; 8:45 am]
BILLING CODE 8010-01-M