[Federal Register Volume 59, Number 193 (Thursday, October 6, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-24795]


[[Page Unknown]]

[Federal Register: October 6, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34758; File No. SR-NASD-94-49]

 

Self-Regulatory Organizations; Filing and Order Granting 
Accelerated Approval of a Proposed Rule Change and Amendment Nos. 1 and 
2 to the Proposed Rule Change by the National Association of Securities 
Dealers, Inc., Relating to Listing Standards for Selected Equity-Linked 
Debt Securities (``SEEDS'').

September 30, 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 
31, 1994, the National Association of Securities Dealers, Inc. 
(``NASD'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the NASD. The 
NASD filed Amendment No. 1 to the proposed rule change on September 2, 
1994, and Amendment No. 2 on September 9, 1994.\1\ The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as amended, from interested persons.
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    \1\In Amendment Nos. 1 and 2, the NASD proposed to make certain 
clarifying amendments to the proposed rule language, as more fully 
discussed herein, to more closely conform the listing standards for 
SEEDS to the listing standards for equity-linked debt in place on 
the New York Stock Exchange (``NYSE'') and the American Stock 
Exchange (``Amex''). Amendment No. 1 also eliminates the minimum 
holder requirement for securities that are listed pursuant to 
Article III, Section 2 of the NASD Rules of Fair Practice but which 
are traded in thousand dollar denominations. See Letter from Robert 
Aber, Vice President and General Counsel, NASD, to Brad Ritter, 
Attorney, Office of Market Supervision (``OMS''), Division of Market 
Regulation (``Division''), Commission, dated September 2, 1994 
(``Amendment No. 1''); and Letter from Robert Aber, Vice President 
and General Counsel, NASD, to Brad Ritter, Attorney, OMS, Division, 
Commission, dated September 9, 1994 (``Amendment No. 2'').
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The NASD is proposing amendments to Schedule D of the NASD By-Laws 
to provide listing standards for the designation of Selected Equity-
Linked Debt Securities (``SEEDS'')\2\ as Nasdaq National Market 
securities. The NASD also proposes to amend the Policy of the NASD 
Board of Governors issued under Article III, section 2, of the NASD 
Rules of Fair Practice to highlight members' obligations to deal fairly 
with their customers when making recommendations or accepting orders 
concerning SEEDS. The text of the proposed rule change is available at 
the Office of the Secretary, NASD, and at the Commission.
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    \2\``SEEDS'' and ``Selected Equity-Linked Debt Securities'' are 
service marks of the NASD.
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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 NASD 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 NASD 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 2(e) of Part III of Schedule D to the NASD By-Laws, 
the NASD may designate as Nasdaq National Market securities financial 
instruments which can not be readily categorized under traditional 
listing guidelines for, among other instruments, common and preferred 
stock, bonds, debentures, and warrants.\3\ The NASD is now proposing to 
amend Section 2 of Part III of Schedule D to the NASD By-Laws to 
provide listing standards for SEEDS, a specific type of hybrid 
security. As with the more general hybrid product listing standards, 
all SEEDS will be designated as Nasdaq National Market securities.\4\ 
In addition, SEEDS will be treated as equity instruments for, among 
other purposes, margin requirements.
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    \3\See Securities Exchange Act Release No. 32988 (September 29, 
1993), 58 FR 52124 (October 6, 1993).
    \4\The NASD notes that the Commission already has approved 
comparable listing standards for Equity-Linked Debt Securities 
(``ELDS'') listed and traded on the New York Stock Exchange 
(``NYSE'') and Equity-Linked Term Notes (``ELNs'') listed and traded 
on the American Stock Exchange (``Amex''). The NASD states that with 
two exceptions, as discussed herein, the NASD's proposed standards 
are virtually identical to the NYSE's and Amex's listing standards 
for ELDS and ELNs, respectively. See Securities Exchange Act Release 
Nos. 32343 (May 20, 1993), 58 FR 30833 (May 27, 1993) (order 
originally approving the listing of ELNs); 33328 (December 13, 
1993), 58 FR 66041 (December 17, 1993) (order approving revised 
market capitalization and trading volume requirements for the 
listing of ELNs); 33468 (January 13, 1994), 59 FR 3387 (January 21, 
1994) (order originally approving the listing of ELDS); 33841 (March 
31, 1994), 59 FR 16671 (April 7, 1994) (order approving revised 
market capitalization and trading volume requirements for the 
listing of ELDS); 34545 (August 18, 1994), 59 FR 43877 (August 25, 
1994) (order approving the listing of ELDS linked to securities 
issued by non-U.S. companies) (``Exchange Act Release No. 34545''); 
and 34549 (August 18, 1994), 59 FR 43873 (August 25, 1994) (order 
approving the listing of ELNs linked to securities issued by non-
U.S. companies) (``Exchange Act Release No. 34549'') (collectively, 
``Equity-Linked Note Approval Orders'').
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    SEEDS are intermediate-term, hybrid securities, the value of which 
is based, at least in part, on the value of another issuer's common 
stock, non-convertible preferred stock, or certain sponsored American 
Depositary Receipts (``ADRs''). SEEDS may pay periodic interest or may 
be issued as zero-coupon instruments with no payments to holders prior 
to maturity. SEEDS may be subject to a ``cap'' on the maximum principal 
amount to be repaid to holders upon maturity, and they may feature a 
``floor'' on the minimum principal amount paid to holders upon 
maturity. A specific issue of SEEDS, for example, may provide holders 
with a fixed semi-annual interest payment, while capping the maximum 
amount to be repaid upon maturity at 135% of the issuance price, with 
no minimum floor guarantee on the principal to be repaid at maturity. 
Another issue of SEEDS might offer lower semi-annual payments based 
upon a floating interest rate\5\ with a minimum floor for the repayment 
of principal of 75% of the issuance price. According to the NASD the 
flexibility available to an issuer of SEEDS permits the creation of 
securities which offer issuers and investors the opportunity to more 
precisely focus on a specific investment strategy.
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    \5\The NASD will notify the Commission if an issue of SEEDS 
provides for periodic interest payments to holders based on a 
floating rate. The Commission, at that time, may require the NASD to 
submit a rule filing pursuant to section 19(b) of the Act prior to 
permitting Nasdaq to list SEEDS with such terms.
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    The NASD generally believes that the level of risk involved in the 
purchase or sale of a SEEDS is similar to the risk involved in the 
purchase or sale of traditional common stock. Nevertheless, the unique 
nature and characteristics of SEEDS raises several concerns: (1) 
Investor protection concerns; (2) dependence on the creditworthiness of 
the issuer of a SEEDS to meet its obligations under the instruments; 
(3) systemic concerns regarding the position exposure of issues with 
partially hedged or dynamically hedged positions; and (4) the impact on 
the market for the underlying linked security. The NASD believes its 
proposal adequately addresses these concerns.
    Specifically, there are four components to the NASD's proposed 
listing standards for SEEDS: (1) Standards applicable to issuers of 
SEEDS; (2) standards applicable to the SEEDS offerings themselves; (3) 
standards applicable to the underlying linked security; and (4) 
limitations on the size of a particular SEEDS offering.
Issuer Listing Standards
    The proposal provides that an issuer of a SEEDS must be a entity 
that is listed on Nasdaq or the NYSE, or an affiliate of a company 
listed on Nasdaq or the NYSE.\6\ Each issuer of a SEEDS must also have 
a minimum net worth of $150 million. In addition, the market value of a 
SEEDS offering, when combined with the market value of all other SEEDS 
offerings previously completed by the issuer and traded through Nasdaq 
or on a national securities exchange, may not be greater that 25% of 
the issuer's net worth at the time of issuance.
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    \6\For the numerical listing criteria for securities eligible to 
be listed as Nasdaq National Market securities, see Section 2 of 
Part III of Schedule D to the NASD By-Laws. For the numerical 
listing criteria for securities eligible to be listed on the NYSE 
see sections 102.01-102.03 and 103.01-103.05 of the NYSE's Listed 
Company Manual.
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Standard Applicable to SEEDS Offerings
    In order to ensure adequate liquidity in the markets for SEEDS each 
issuance of a SEEDS must have: (1) A minimum public distribution of one 
million SEEDS; (2) a minimum of 400 holders of the SEEDS; (3) a minimum 
market value of $4 million; and (4) a term of two to seven years 
(although a SEEDS on a sponsored ADR can not have a term longer than 
three years).
Standards Applicable to the Underlying Linked Security
    In order to help ensure that SEEDS will not have a disruptive 
effect on the markets for the securities underlying the SEEDS, the NASD 
proposes that the securities underlying SEEDS must have sufficiently 
large market capitalizations and high trading volumes. Specifically, a 
security underlying a SEEDS must have: (1) A market capitalization of 
at least $3 billion and a trading volume in the United States of at 
least 2.5 million shares in the one-year period preceding the listing 
of the SEEDS; or (2) a market capitalization of at least $1.5 billion 
and a trading volume in the United States of at least 20 million shares 
in the one-year period preceding the listing of the SEEDS; or (3) a 
market capitalization of at least $500 million and a trading volume in 
the United States of at least 80 million shares in the one-year period 
preceding the listing of the SEEDS. In addition, if an issuer proposes 
to issue SEEDS on a security that does not meet the market 
capitalization and trading volume standards set forth above, the NASD, 
with the concurrence of the staff of the Commission, may evaluate the 
trading volume, public float, and market capitalization of that 
security, as well as other relevant factors, and determine on a case-
by-case basis that it is appropriate to list SEEDS overlying that 
security.\7\
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    \7\See Amendment No. 1, supra note 1. Depending on the proposed 
facts, the Commission may require the NASD to submit a rule filing 
to the Commission pursuant to section 19(b) of the Act to address 
the regulatory issues raised by any proposed offering of SEEDS that 
does not satisfy the market capitalization and/or trading volume 
requirements discussed above. In this connection, the Commission 
notes that any proposal to list a SEEDS linked to a security with a 
market capitalization of less than $500 million would raise 
significant regulatory concerns for which a section 19(b) rule 
filing would be required.
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    The NASD believes that the $500 million market capitalization/80 
million share trading volume standard and the flexibility, with the 
concurrence of the Commission, to list issues of SEEDS that do not 
satisfy the market capitalization and trading volume requirements, are 
the only significant modifications to the SEEDS listing standards from 
those currently in place for the listing of ELDS at the NYSE and for 
the listing of ELNs at the Amex.\8\ The additional tier for trading 
volume and market capitalization is warranted, the NASD believes, 
because trading volume is a better barometer for market liquidity than 
market capitalization. Accordingly, the NASD believes imposing a higher 
trading volume standard and a lower market capitalization standard will 
not jeopardize the integrity of the market for the linked security. 
Moreover, the NASD notes that the minimum market capitalization 
requirement will still be $500 million, assuring that the linked 
security is issued by a sufficiently large company capable of 
underlying SEEDS without any disruption to the market for its common 
stock. The NASD also believes that the flexibility to list issues of 
SEEDS not satisfying the objective criteria is appropriate for those 
cases where the NASD, with the concurrence of the staff of the 
Commission, determines, based on factors including, among others, 
public float and affiliations between the issuer of the SEEDS and the 
issuer of the linked security, in addition to market capitalization and 
trading volume, that the listing of the SEEDS does not raise any 
material market manipulation or investor protection concerns.
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    \8\See Equity-Linked Note Approval Orders, supra note 4.
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    In addition to the market capitalization and trading volume 
requirements, the issuer of the linked security must be a reporting 
company under the Act. The underlying linked security also must be 
traded through Nasdaq or on a national securities exchange and be 
subject to last sale reporting pursuant to Rule 11Aa3-1 under the Act. 
In addition, consistent with the Amex and NYSE proposals recently 
approved by the Commission,\9\ the NASD proposes to permit SEEDS on 
certain non-U.S. companies\10\ subject to reporting requirements under 
the Act whose securities are traded in the United States either as 
ordinary shares or sponsored ADRs, provided there are at least 2,000 
holders of the underlying linked security.\11\
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    \9\See Exchange Act Release Nos. 34545 and 34549, supra note 4.
    \10\The NASD defines a non-U.S. company as any company formed or 
incorporated outside of the U.S.
    \11\Specifically, a SEEDS could be listed on a non-U.S. company 
that is subject to reporting requirements in the U.S. when ordinary 
shares or sponsored ADRs representing that company are traded in the 
United States if: (1) The NASD has a comprehensive surveillance 
sharing agreement in place with the primary exchange in the country 
where the security is primarily traded (in the case of an ADR, the 
primary exchange on which the security underlying the ADR is 
traded); or (2) the combined trading volume of the underlying 
security and other related securities occurring in the U.S. market 
represents (on a share equivalent basis for any ADRs) at least 50% 
of the combined worldwide trading volume in the underlying security, 
other related securities, and other classes of common stock related 
to the underlying security over the six-month period preceding the 
date of designation. See Exchange Act Release Nos. 34545 and 34549, 
supra note 4; and Amendment No. 1, supra note 1.
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Limitations of the Size of Particular SEEDS Offerings
    Without the approval of the Commission, the issuance of SEEDS 
relating to any underlying U.S. security may not exceed five percent of 
the total outstanding shares of such underlying security. Without the 
approval of the Commission, the issuance of SEEDS relating to any 
security (including sponsored ADRs) that is traded in the United States 
and is issued by a non-U.S. company subject to U.S. reporting 
requirements may not exceed: (A) Two percent of the total shares 
outstanding worldwide if at least 30 percent of the worldwide trading 
volume in the underlying security occurs in the U.S. market during the 
six-month period preceding the date of designation; (B) three percent 
of the total shares outstanding worldwide if at least 50 percent of the 
worldwide trading volume in the underlying security occurs in the U.S. 
market during the six-month period preceding the date of designation; 
or (C) five percent of the total shares outstanding worldwide if at 
least 70 percent of the worldwide trading volume in the underlying 
security occurs in the U.S. market during the six-month period 
preceding the date of designation.\12\ If an issuer proposes to issue 
SEEDS that relate to more than the allowable percentages of the 
underlying security specified above, however, then the NASD, with the 
concurrence of the staff of the Commission, will evaluate, on a case-
by-case basis, the maximum percentage of SEEDS that may be issued.\13\
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    \12\In no event may a SEEDS be linked to a security issued by a 
non-U.S. company (including a sponsored ADR) subject to reporting 
requirements under the Act where less than 30 percent of the 
worldwide trading volume in the underlying security and all related 
securities occurs in the U.S. market. See Amendment No. 2, supra 
note 1. As with the market capitalization and trading volume 
requirements, the Commission notes that based on the proposed facts, 
the NASD may be required to submit a rule filing to the Commission 
pursuant to section 19(b) of the Act to address regulatory issues 
raised by any NASD proposal to list a SEEDS related to more than the 
allowable percentages of outstanding shares of the underlying 
security.
    \13\See Amendment No. 1, supra note 1.
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    Finally, because SEEDS are linked to price movements in another 
security, the NASD proposes three safeguards that are designed to 
satisfy the investor protection concerns raised by the trading of 
SEEDS. First, for each SEEDS, the NASD will distribute a circular to 
the membership providing guidance concerning member firm compliance 
responsibilities (including suitability recommendations and account 
approval) when handling transactions in SEEDS. Second, the NASD 
reiterates that, pursuant to the NASD's customer suitability rule found 
at Section 2, Article III of the NASD Rules of Fair Practice, members 
will have a duty of due diligence to learn the essential facts relating 
to every customer trading SEEDS prior to their first SEEDS transaction. 
In addition, consistent with Section 2, Article III, of the NASD Rules 
of Fair Practice, the NASD will require that a member specifically 
approve a customers's account for trading SEEDS prior to, or promptly 
after, the completion of its first SEEDS transaction. In this 
connection the NASD has also proposed to amend the Policy of the NASD 
Board of Governors issued under Article III, section 2 of the NASD 
Rules of Fair Practice to highlight members' obligations to deal fairly 
with their customers when making recommendations or accepting orders 
concerning SEEDS.
    Therefore, the NASD believes the proposed rule change is consistent 
with section 15A(b)(6) of the Act. Section 15A(b)(6) requires that the 
rules of a national securities association be 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 regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, 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. Specifically, the NASD 
believes the proposal strikes an appropriate balance between the NASD's 
need to adapt and respond to innovations in the securities markets and 
the NASD's concomitant need to ensure the protection of investors and 
the maintenance of fair and orderly markets. The NASD believes the 
proposed numerical, quantitative listing standards should ensure that 
only substantial companies capable of meeting their contingent 
obligations created by SEEDS are able to list such products on Nasdaq. 
Similarly, by providing for the distribution of circulars to the 
membership concerning member firm compliance responsibilities and 
requirements, the NASD believes the proposal addresses any potential 
sales practice concerns that may arise in connection with SEEDS. The 
NASD also believes that the trading of SEEDS will provide investors 
with important investment and hedging benefits that will serve to 
satisfy better their investment and portfolio management needs. 
Moreover, the NASD believes that SEEDS represent innovative financing 
techniques that provide issuers with increased flexibility to raise 
capital at potentially lower costs, in return for assuming some market 
volatility risk. Finally, the NASD believes that listing SEEDS on 
Nasdaq will also facilitate members and investors desiring to trade 
SEEDS in a dealer environment.

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

    The NASD does not believe that the proposed rule change will impose 
any 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 either solicited or received with respect 
to the proposed rule change.

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

    The NASD has requested that the proposed rule changes be given 
accelerated effectiveness pursuant to Section 19(b)(2) of the Act.
    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange, and, in 
particular, the requirements of section 15A(b)(6) of the Act.\14\ 
Specifically, the Commission believes that providing for the listing 
and trading of SEEDS will offer a new and innovative means of 
participating in the securities markets. In particular, the Commission 
believes that the availability of SEEDS will permit investors to more 
closely approximate their desired investment objectives through, for 
example, shifting some of the opportunity for upside gain in return for 
additional income.\15\ Accordingly, for these reasons, as well as the 
reasons stated in the Commission's Equity-Linked Note Approval 
Orders,\16\ the Commission finds that the NASD standards for the 
listing and trading of SEEDS are consistent with the Act and that the 
listing and trading of SEEDS is in the public interest.
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    \14\15 U.S.C. 78o(b)(6) (1982).
    \15\Pursuant to section 15A(b) of the Act the Commission must 
predicate approval of trading for new products upon a finding that 
the introduction of the product is in the public interest. Such a 
finding would be difficult with respect to a product that served no 
investment, hedging, or other economic function, because any 
benefits that might be derived by market participants would likely 
be outweighed by the potential for manipulation, diminished public 
confidence in the integrity of the markets, and other valid 
regulatory concerns.
    \16\See Equity-Linked Note Approval Orders, supra note 4. The 
discussions articulated in the Equity-Linked Note Approval Orders 
are incorporated herein.
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    As with ELNs and ELDS, SEEDS are not leveraged instruments. Their 
price, however, will still be derived and based upon the underlying 
linked security. Accordingly, the level of risk involved in the 
purchase or sale of a SEEDS is similar to the risk involved in the 
purchase or sale of traditional common stock. Nonetheless, in 
considering the Amex's and the NYSE's respective proposals to list and 
trade ELNs and ELDS, the Commission had several specific concerns with 
this type of product because the final rate of return of an ELN is 
derivatively priced, based on the performance of the underlying 
security. The concerns included: (1) Investor protection concerns, (2) 
dependence on the credit of the issuer of the instrument, (3) systemic 
concerns regarding position exposure of issuers with partially hedged 
positions or dynamically hedged positions, and (4) the impact on the 
market for the underlying linked security.\17\ The Commission 
concluded, however, that the Amex and the NYSE proposals adequately 
addressed each of these issues such that the Commission's regulatory 
concerns were adequately minimized.\18\ Similarly, in this proposal, 
the NASD has proposed safeguards, as described above, which the 
Commission finds to be equivalent to those approved for the trading of 
ELNs and ELDS. In particular, by imposing the listing standards, 
suitability, disclosure, and compliance requirements noted above, the 
NASD has adequately addressed the potential public customer concerns 
that could arise from the hybrid nature of SEEDS. Further, the 
Commission believes that the listing standards and issuance 
restrictions should help to reduce the likelihood of any adverse market 
impact on the securities underlying SEEDS.
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    \17\Id.
    \18\Id.
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    Except in two respects, the Commission finds that the proposal and 
Amendment Nos. 1 and 2 to the proposal are substantially identical to 
rule changes already approved by the Commission with respect to the 
listing and trading of ELNs on the Amex and ELDS on the NYSE.\19\ The 
two new items included in this proposal are: (1) The new requirement 
that allows the listing of SEEDS linked to an underlying security with 
a minimum market capitalization of $500 million and a trading volume in 
the year prior to listing of at least 80 million shares; and (2) 
allowing flexibility for the NASD, with the concurrence of the staff of 
the Commission, to determine on a case-by-case basis to list SEEDS that 
do not satisfy one of the three objective listing tiers with respect to 
market capitalization and trading volume. The Commission believes that 
neither of these proposals raises any significant regulatory issues 
that were not addressed in the Equity-Linked Note Approval Orders. The 
Commission finds that the proposal to add an additional market 
capitalization and trading volume requirement for eligible linked 
securities will expand the number of securities that can be linked to 
these equity-linked products while maintaining the requirement that the 
linked security be an actively traded common stock issued by a highly 
capitalized issuer. While the proposal introduces a third alternative 
for ELN eligibility that reduces the minimum market capitalization 
requirement for the linked security, the stock of such an issuer (or 
sponsored ADR related thereto) could only be linked to a SEEDS issue if 
its trading volume for the prior one-year period is at least 80 million 
shares, which is four times higher than the current minimum trading 
volume for these products as currently allowed on the Amex and the 
NYSE. Moreover, in recently approving proposals by the NYSE and the 
Amex to list and trade ELDS and ELNs, respectively, linked to 
securities (including sponsored ADRs) issued by non-U.S. companies 
subject to reporting requirements under the Act, the NYSE and the Amex 
represented to the Commission that no problems had been reported to 
either exchange regarding the listing and trading of these 
products.\20\ Furthermore, the Commission believes that together, the 
new capitalization and trading volume requirements will continue to 
ensure that SEEDS are only issued on highly liquid securities of 
broadly capitalized companies and that these requirements should help 
to reduce the likelihood of any adverse market impact on the securities 
underlying SEEDS.
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    \19\Id.
    \20\See Exchange Act Release Nos. 34545 and 34549, supra note 4.
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    Additionally, allowing the NASD, with the concurrence of the staff 
of the Commission, to approve, on a case-by-case basis, an issue of 
SEEDS that does not satisfy one of the existing requirements regarding 
market capitalization and trading volume,\21\ or that exceeds the 
maximum allowable percentage of shares of the underlying security,\22\ 
merely adds flexibility to the proposed rule change. The Commission 
believes that this portion of the proposal does not raise any 
regulatory concerns, particularly given the requirement of obtaining 
the concurrence of the staff of the Commission prior to listing.\23\
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    \21\See supra note 7.
    \22\See supra note 12.
    \23\If the NASD proposed a SEEDS that raised unique or 
significant regulatory concerns, the staff of the Commission would 
require the NASD to submit a rule filing to the Commission pursuant 
to section 19(b) of the Act.
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    Finally, the NASD represents that a number of issuers, including 
Nasdaq listed companies, have expressed an interest in listing SEEDS on 
Nasdaq. In light of the Commission's approval of the listing of ELNs on 
the Amex and ELDS on the NYSE, accelerating approval of this proposal 
will ensure that the NASD is allowed to compete on an equal basis with 
the Amex and NYSE with regard to these equity-linked products.
    The Commission finds good cause for approving the proposed rule 
change and Amendment Nos. 1 and 2 to the proposed rule change prior to 
the thirtieth day after the date of publication of notice thereof in 
the Federal Register in order to allow the NASD to begin listing SEEDS 
without delay. As discussed above, except for two aspects the proposal 
merely provides the NASD with the ability to list equity-linked debt 
securities on the same basis as the NYSE and the Amex. Moreover, the 
Commission notes that the proposals by the NYSE and the Amex to list 
and trade equity-linked debt securities were published by the 
Commission for the full comment period without any comments being 
received by the Commission. With respect to the two aspects of the 
SEEDS proposal which expand on the standards previously approved for 
the NYSE and the Amex, for the reasons discussed above, the Commission 
believes that no significant regulatory issues are raised that were not 
adequately address in the Equity-Linked Note Approval Orders.\24\
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    \24\See Equity-Linked Note Approval Orders, supra note 4.
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    Finally, Amendment No. 1 to the proposal also eliminates the 
minimum holder requirement for securities which are listed pursuant to 
Article III, Section 2 of the NASD Rules of Fair Practice but which 
trade in thousand dollar denominations. The Commission notes that this 
amendment merely conforms the NASD's rules to those of the NYSE which 
do not contain a minimum holder requirement for hybrid debt 
securities.\25\ Accordingly, the Commission believes that this 
amendment does not raise any significant regulatory issues.
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    \25\See section 703.19 of the NYSE Listed Company Manual.
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    For the above reasons, the Commission believes it is consistent 
with section 15A(b)(6)\26\ and 19(b)(2)\27\ of the Act to approve the 
proposed rule change and Amendment Nos. 1 and 2 to the proposal on an 
accelerated basis.
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    \26\15 U.S.C. 78o-3(b)(6) (1988).
    \27\15 U.S.C. 78s(b)(2) (1988).
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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, NW., Washington, DC 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, NW., 
Washington, DC. 20549. Copies of such filing will also be available for 
inspection and copying at the principal office of the NASD. All 
submissions should refer to File Number SR-NASD-94-49 and should be 
submitted by October 27, 1994.
    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\28\ that the proposed rule change (SR-NASD-94-49), as amended, is 
approved.

    \28\15 U.S.C. 78s(b)(2) (1982).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\29\
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    \29\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-24795 Filed 10-5-94; 8:45 am]
BILLING CODE 8010-01-M