[Federal Register Volume 59, Number 248 (Wednesday, December 28, 1994)]
[Unknown Section]
[Page ]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-31881]


[Federal Register: December 28, 1994]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-35127; File No. SR-Amex-94-52]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the American Stock Exchange, Inc. Relating to S&P MidCap 400 
Depositary Receipts

December 20, 1994
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on November 22, 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. 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) (1982).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Amex proposes to list and trade under Amex Rules 1000 et seq. 
Standard & Poor's (``S&P'') MidCap 400 Depositary Receipts. In 
addition, the Exchange proposes to amend Amex Rule 1000 (b)(1) to 
include reference to the alternative reinvestment of periodic cash 
payments to holders, and to amend Amex Rule 1004 to extend it to the 
S&P MidCap 400 Index.
    The text of the proposed rule change is available at the Office of 
the Secretary, 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 self-regulatory organization 
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 self-regulatory organization 
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

1. Portfolio Depositary Receipts
    On December 11, 1992, the Commission approved Amex Rules 1000 et 
seq.\2\ to accommodate trading on the Exchange of Portfolio Depositary 
Receipts (``PDRs''). PDRs are securities that represent interests in a 
unit investment trust (``Trust'') operating on an open-end basis and 
holding a portfolio of securities. The Trust sponsor (``Sponsor'') of 
each series of PDRs is PDR Services Corporation, a wholly-owned 
subsidiary of the Amex.\3\ Each Trust is intended to provide investors 
with an instrument that closely tracks the underlying securities 
portfolio, that trades like a share of common stock, and that pays to 
PDR holders periodic dividends proportionate to those paid with respect 
to the underlying portfolio of securities, less certain expenses, as 
described in the applicable Trust prospectus. The first Trust to be 
formed in connection with the issuance of PDRS was based on the S&P 500 
Index (``S&P Index''), known as Standard & Poor's Depositary Receipts 
(``SPDRs''). SPDRs have been trading on the Exchange since January 29, 
1993.
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    \2\See Securities Exchange Act Release No. 31591 (December 11, 
1992), 57 FR 60253.
    \3\Portfolio Depositary Receipts and PDRs are service marks of 
PDR Services Corporation.
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    The Exchange now proposes to list and trade under Rules 1000 et 
seq.  Standard & Poor's Midcap 400 Depositary Receipts (``MidCap 
SPDRs'').\4\ The Sponsor will enter into a trust agreement with a 
trustee in accordance with Section 26 of the Investment Company Act of 
1940. PDR Distributors, Inc. (``Distributor'') will act as underwriter 
of MidCap SPDRs on an agency basis. All orders to create MidCap SPDRs 
in Creation Unit size aggregations must be placed with the Distributor, 
and it will be the responsibility of the Distributor to transmit such 
orders to the Trustee. The Distributor is a registered broker-dealer, a 
member of the National Association of Securities Dealers, Inc., and a 
wholly-owned subsidiary of Signature Financial Group, Inc.
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    \4\``Standard & Poor's 500,'' ``Standard & Poor's MidCap 400 
Index,'' ``Standard & Poor's Depositary Receipts,'' ``SPDRs,'' 
``Standard & Poor's MidCap 400 Depositary Receipts,'' and ``MidCap 
SPDRs'' are trademarks of McGraw-Hill, Inc., and are being used by 
the Exchange and the Sponsor under license among Standard & Poor's, 
a division of McGraw-Hill, Inc., the Exchange, and the Sponsor.
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    To be eligible to place orders to create MidCap SPDRs as described 
below, an entity or person either must be a participant in the 
Continuous Net Settlement (``CNS'') system of the National Securities 
Clearing Corporation (``NSCC'') or a Depository Trust Company (``DTC'') 
participant. Upon acceptance of an order to create MidCap SPDRs, the 
Distributor will instruct the Trustee to initiate the book-entry 
movement of the appropriate number of MidCap SPDRs to the account of 
the entity placing the order. MidCap SPDRs will be registered in book-
entry only, which records will be kept by DTC.
    Payment with respect to creation orders placed through the 
Distributor will be made by (1) the ``in-kind'' deposit with the 
Trustee of a specified portfolio of securities that is formulated to 
mirror, to the extent practicable, the component securities of the 
underlying index or portfolio, and (2) a cash payment sufficient to 
enable the Trustee to make a distribution to the holders of beneficial 
interests in the Trust on the next dividend payment date as if all the 
securities had been held for the entire accumulation period for the 
distribution (``Dividend Equivalent Payment''), subject to certain 
specified adjustments.\5\ The securities and cash accepted by the 
Trustee are referred to, in the aggregate, as a ``Portfolio Deposit.''
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    \5\See ``Distributions,'' infra.
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    It is anticipated that the term of the MidCap SPDR Trust will be 25 
years.
2. Issuance of MidCap SPDRs
    Upon receipt of a Portfolio Deposit in payment for a creation order 
placed through the Distributor as described above, the Trustee will 
issue a specified number of MidCap SPDRs, which aggregate number is 
referred to as a ``Creation Unit.'' The Exchange anticipates that, with 
respect to MidCap SPDRs, a Creation Unit will be made up of 25,000 
MidCap SPDRs. Individual MidCap SPDRs can then be traded in the 
secondary market like other equity securities. It is expected that 
Portfolio Deposits will be made primarily by institutional investors, 
arbitragers, and the Exchange specialist. As of November 17, 1994, it 
is estimated that the value of an individual MidCap SPDR would be 
approximately $34.37.
    It is expected that the Trustee or Sponsor will make available (a) 
on a daily basis, a list of the names and required number of shares for 
each of the securities in the current Portfolio Deposit; (b) on a 
minute-by-minute basis throughout the day, a number representing the 
value (on a per MidCap SPDR basis) of the securities portion of a 
Portfolio Deposit in effect on such day; and (c) on a daily basis, the 
accumulated dividends, less expenses per outstanding MidCap SPDR.
    Transactions in MidCap SPDRs may be effected on the Exchange until 
4:15 p.m. New York time each business day. The minimum fractional 
change for MidCap SPDRs shall be \1/32\ of $1.00.
3. Redemption
    MidCap SPDRs in Creation Unit size aggregations will be redeemable 
in kind by tendering them to the Trustee. While holders may sell MidCap 
SPDRs in the secondary market at any time, they must accumulate at 
least 25,000 (or multiples thereof) to redeem them through the Trust. 
MidCap SPDRs will remain outstanding until redeemed or until the 
termination of the Trust. Creation Units will be redeemable on any 
business day in exchange for a portfolio of the securities held by the 
Trust identical in weighting and composition to the securities portion 
of a Portfolio Deposit in effect on the date request is made for 
redemption, together with a ``Cash Component'' (as defined in the Trust 
prospectus), including accumulated dividends, less expenses, through 
the date of redemption. The number of shares of each of the securities 
transferred to the redeeming holder will be the number of shares of 
each of the component stocks in a Portfolio Deposit on the day a 
redemption notice is received by the Trustee, multiplied by the number 
of Creation Units being redeemed. Nominal service fees may be charged 
in connection with the creation and redemption of Creation Units. The 
Trustee will cancel all tendered Creation Units upon redemption.
4. Distributions
    The MidCap SPDR Trust will pay dividends quarterly. The regular 
quarterly ex-dividend date for MidCap SPDRs will be the third Friday in 
March, June, September, and December, unless such day is a New York 
Stock Exchange holiday, in which case the ex-dividend date will be the 
preceding Thursday (the ``ex-dividend date''). Holders of MidCap SPDRs 
on the business day preceding the ex-dividend date will be entitled to 
receive an amount representing dividends accumulated through the 
quarterly dividend period preceding such ex-dividend date net of fees 
and expenses for such period. The payment of dividends will be made on 
the last Exchange business day in the calendar month following the ex-
dividend date (``Dividend Payment Date''). On the Dividend Payment 
Date, dividends payable for those securities with ex-dividend dates 
falling within the period from the ex-dividend date most recently 
preceding the current ex-dividend date through the business day 
preceding the current ex-dividend date will be distributed. The Trustee 
will compute on a daily basis the dividends accumulated within each 
quarterly dividend period. Dividend payments will be made through DTC 
and its participants to all such holders with funds received from the 
Trustee. The MidCap SPDR Trust intends to make the DTC Dividend 
Reinvestment Service available for use by MidCap SPDR holders through 
DTC Participant brokers for reinvestment of their cash proceeds. An 
interested investor would have to commit his or her broker to ascertain 
the availability of dividend reinvestment through such broker.
5. Criteria for Initial and Continued Listing
    Because of the open-end nature of the Trust upon which a series of 
PDRs is based, the Exchange believes it is necessary to maintain 
appropriate flexibility in connection with listing a specific Trust. In 
connection with initial listing, the Exchange establishes a minimum 
number of PDRs required to be outstanding at the time of commencement 
of Exchange trading. For MidCap SPDR, it is anticipated that a minimum 
of 75,000 MidCap SPDR (i.e., three Creation Units of 25,000 MidCap SPDR 
each), will be required to be outstanding when trading begins.
    The MidCap SPD Trust will be subject to the initial and continued 
listing criteria of Rule 1002(b). Rule 1002(b) provides that, following 
twelve months from the formation of a Trust and commencement of 
Exchange trading, the Exchange will consider suspension of trading in, 
or removal from listing of, a Trust when, in its opinion, further 
dealing in such securities appears unwarranted under the following 
circumstances:
    (a) If the Trust on which the PDRs are based has more than 60 days 
remaining until termination and there have been fewer than 50 record 
and/or beneficial holders of the PDRs for 30 or more consecutive 
trading days; or
    (b) If the index on which the Trust is based is no longer 
calculated; or
    (c) If such other event shall occur or condition exists which in 
the opinion of the Exchange, makes further dealings on the Exchange 
inadvisable.
    A Trust shall terminate upon removal from Exchange listing and its 
PDRs redeemed in accordance with provisions of the Trust prospectus. A 
Trust may also terminate under such other conditions as may be set 
forth in the Trust prospectus. For example, the Sponsor, following 
notice to PDR holders, shall have discretion to direct that the Trust 
be terminated if the value of securities in such Trust falls below a 
specified amount.\6\ The MidCap SPD Trust will also terminate if the 
license agreement with S&P terminates.
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    \6\With respect to the MidCap SPDR Trust, the Sponsor has the 
discretionary right to terminate the Trust if the value of Trust 
Securities (as defined in the Trust registration statement) falls 
below $25,000,000 at any time after six months following, and prior 
to three years following, inception of the Trust. Following such 
time, the Sponsor has the discretionary right to terminate if Trust 
Securities fall below $100,000,000 in value, adjusted annually for 
inflation.
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6. Trading Halts
    Prior to commencement of trading in MidCap SPDRs, the Exchange will 
issue a circular to members informing them of exchange policies 
regarding trading halts in such securities. The circular will make 
clear that, in addition to other factors that may be relevant, the 
Exchange may consider factors such as those set forth in Rule 918C(b) 
in exercising its discretion to halt or suspend trading. These factors 
would include whether trading has been halted or suspended in the 
primary market(s) for any combination of underlying stocks accounting 
for 20% or more of the applicable current index group value;\7\ or 
whether other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present.\8\
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    \7\Amex Rule 918C(b)(3).
    \8\Amex Rule 918C(b)(4).
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7. Terms and Characteristics
    Under Amex Rule 1000, Commentary .01, Amex members and member 
organizations are required to provide to all purchasers of MidCap SPDRs 
a written description of the terms and characteristics of such 
securities, in a form prepared by the Exchange, not later than the time 
a confirmation of the fist transaction in each series is delivered to 
such purchaser. The Exchange also requires that such a description be 
included with any sales material on MidCap SPDRs that is provided to 
customers or the public. In addition, the Exchange requires that 
members and member organizations provide customers the prospectus for 
MidCap SPDRs upon request.
    A member or member organization carrying an omnibus account for a 
non-member broker-dealer is required to inform such non-member that 
execution of an order to purchase MidCap SPDRs for that omnibus account 
will be deemed to constitute agreement by the non-member to make the 
written description available to its customers on the same terms as are 
directly applicable to members and member organizations.
    Prior to commencement of trading MidCap SPDRs, the Exchange will 
distribute to exchange members and member organizations an Information 
Circular calling attention to characteristics of the MidCaps SPDR Trust 
and to applicable Exchange rules.
8. Amendments to Rules 1000(b) and 1004
    The Exchange proposes to amend the definition of Portfolio 
Depositary Receipt in Rule 1000(b) to add a reference to the possible 
provision by a Trust of reinvestment of periodic cash proceeds 
corresponding to the regular cash dividends or declarations declared 
with respect to the underlying stock index securities or portfolio of 
securities.
    The Exchange proposes to amend Rule 1004, S&P 500 Index, to add 
appropriate references to the S&P MidCap 400 Index.
9. Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act. Specifically, the Exchange believes that 
its proposal is consistent with the objectives of Section 6(b)(5) of 
the Act 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 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in, securities, and in general to protect 
investors and the public interest. The Exchange believes that Portfolio 
Depositary Receipts, generally, and SPDRs and MidCap SPDRs 
specifically, have the potential to benefit the markets by providing an 
alternate trading instrument, such as those encouraged by the Division 
of Market Regulation in its report, The October 1987 Market Break, that 
may help temper market volatility and reduce stress on individual index 
component stocks during unusual market conditions.

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

    The Amex believes that the proposed rule change will not impose any 
burden on competition.

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

    Written comments on the proposed rule change were neither solicited 
nor received.

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, 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. Copies of such filing will also be available for 
inspection and copying at the principal office of the above-mentioned 
self-regulatory organization. All submissions should refer to File No. 
SR-Amex-94-52 and should be submitted by January 17, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-31881 Filed 12-27-94; 8:45 am]
BILLING CODE 8010-01-M