[Federal Register Volume 60, Number 17 (Thursday, January 26, 1995)]
[Notices]
[Pages 5236-5237]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-1980]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35249; International Series Release No. 775 File No. 
SR-Amex-94-55]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change By the American Stock Exchange, Inc. Relating to the Listing of 
Warrants Based on the Deutscher Aktienindex (DAX)

January 19, 1995.
    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 December 
5, 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.

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 106 of the Amex Company Guide (``Guide'') warrants based on the 
Deutscher Aktienindex (``DAX Index'' or ``Index''), a capitalization-
weighted index of 30 German stocks trading on the Frankfurt Stock 
Exchange (``FSE''). 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 Propose 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 106 (Currency and Index Warrants) of the Guide, the 
Exchange may approve for listing index warrants based on established 
foreign and domestic market indexes.\1\ The Amex is currently trading a 
number of issues of index warrants pursuant to Section 106.\2\

    \1\The Commission notes that the Exchange has filed a proposed 
rule change that would, among other things, revise the criteria 
pursuant to Rule 106 for listing stock index and currency warrants. 
These new standards will apply to Index warrants issued following 
approval of that proposal rule change. See Securities Exchange Act 
Release No. 35086 (December 12, 1994), 59 FR 65561 (December 20, 
1994) (notice of File No. SR-Amex-94-38).
    \2\See Securities Exchange Act Release Nos. 33036 (October 8, 
1993), 58 FR 53588 (October 15, 1993) (approval for index warrants 
on the Amex Hong Kong 30 Index), 31016 (August 11, 1992), 57 FR 
37012 (August 17, 1992) (approval for index warrants on the Japan 
Index), and 30462 (March 11, 1992), 57 FR 9290 (March 17, 1992) 
(approval for index warrants and index options on FT-SE Eurotrack 
200 Index).
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    The Amex is proposing to list index warrants based on the DAX 
Index, an internationally-recognized, capitalization-weighted\3\ index 
of 30 highly capitalized German stocks trading on the FSE.\4\ The DAX 
Index is calculated by the FSE and is updated on a continuous basis. 
The stocks included in the Index are among the largest German 
corporations and their shares are among the most actively traded of 
German issuers. The DAX Index is composed of ten broad industry groups 
including chemicals, automobile manufacturers, banks, and insurance 
companies.

    \3\The capitalization of a particular stock in the DAX Index is 
calculated by multiplying the price of the stock by the ``listed 
capital.'' Listed capital includes common and preferred shares and 
shares held in the corporate treasury. The Amex represents that this 
weighting method differs from the method used in calculating 
domestic capitalization-weighted indexes, which are calculated by 
multiplying the price of the stock only by the number of common 
shares.
    \4\The components of the Index are as follows: Allianz AG 
Holdings; BASF AG; Bayer AG; Bayer Hypo/Wech; BMW; Bayer Vereinsbank 
AG; Commerzbank AG; Continental AG; Daimler-Benz AG; Deutsche 
Babcock AG; Deutsche Bank AG; Degussa AG; Dresdner Bank AG; Henkel 
KGAA-Pfd; Hoechst AG; Karstadt AG; Kaufhof Holdings AG; Lufthansa 
AG; Linde AG; Man AG; Metallgesellsch; Mannesmann AG; Preussag AG; 
RWE AG; Schering AG; Siemens AG; Thyssen AG; Veba AG; Viag AG; and 
Volkswagen AG.
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    The median capitalization of the companies in the Index as of 
December 2, 1994, was US$6.52 billion.\5\ The average market 
capitalization of these companies was US$8.78 billion as of that date. 
The market capitalizations of the individual companies in the Index 
ranged from US$740.51 million to US$32.02 billion as of December 2, 
1994. The largest component, Allianz AG Holdings, accounted for 12.5% 
of the total weighting of the DAX Index, while the smallest, Deutsche 
Babcock AG, accounted for 0.28% of the weight of the Index. The five 
highest weighted components of the Index on that date accounted for 
43.69% of the total weight of the Index. Average daily volume in the 
component securities for the period from June 1994, through November 
1994, ranged from a low of approximately 59,408 shares to a high of 
1.04 million shares, with an average trading volume for all components 
of the Index of approximately 338,449 shares per day. The Index had a 
closing value of 2,038.5 on December 2, 1994.

    \5\Based on the exchange rate of DM 1 = US$1.58 prevailing on 
December 2, 1994.
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    The DAX Index is maintained by the FSE in conjunction which the 
Borsen-Zeitung (an industry newspaper). The value of the Index is 
calculated every minute by the FSE from 10:30 a.m. to 1:30 p.m. 
Frankfurt time (4:30 a.m. to 7:30 a.m. New York time)\6\ and is 
disseminated over Reuters News Service, among others. In addition, the 
composition of the DAX Index is reviewed periodically by the FSE. The 
FSE will not alter the composition of the DAX Index unless a stock 
fails to meet certain criteria, e.g., market capitalization and trading 
volume. Replacement stocks are usually selected from a list of 
substitute stocks. If possible, a replacement stock will be selected by 
the FSE from the same industry as the stock that it is replacing.

    \6\Telephone conversation between Claire McGrath, Managing 
Director and Special Counsel, Derivative Securities, Amex, and Brad 
Ritter, Senior Counsel, Office of Market Supervision, Division of 
Market Regulation, Commission, on January 5, 1995.
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    The Exchange represents that warrant issues on the DAX Index will 
conform [[Page 5237]] to the listing guidelines under Section 106 of 
the Guide, which provide, among other things, that: (1) the issuer 
shall have tangible net worth of at last US$150 million and otherwise 
substantially exceed size and earnings requirements in Section 101(A) 
of the Guide; (2) the term of the warrants shall be for a period 
ranging from one to five years from the date of issuance; and (3) the 
minimum public distribution of such issues shall be one million 
warrants, together with a minimum of 400 public holders, and an 
aggregate market value of at least US$4 million.
    DAX Index warrants will be direct obligations of their issuer 
subject to cash-settlement during their term. Index warrants will 
either be exercisable throughout their life (i.e., American-style) or 
exercisable only during a specified period immediately prior to the 
expiration date (i.e., European-style). Upon exercise, the holder of a 
warrant structured as a ``put'' will receive payment in U.S. dollars to 
the extent that the DAX Index has declined below a cash settlement 
value specified at the time of issuance. Conversely, upon exercise, 
holders of an Index warrant structured as a ``call'' will receive 
payment in U.S. dollars to the extent that the DAX Index has increased 
above a cash settlement value specified at the time of issuance. Index 
warrants that are ``out-of-the-money'' at the time of expiration will 
expire worthless.
    The Amex has adopted suitability standards applicable to 
recommendations to purchasers of Index warrants and transactions in 
customer accounts. Amex Rule 411, Commentary .02 applies the options 
suitability standard in Amex Rule 923 to recommendations regarding 
Index warrants; and the Amex requires that Index warrants be sold only 
to accounts approved for the trading of options. Amex Rule 421, 
Commentary .02 requires a Senior Registered Options Principal or a 
Registered Options Principal to approve and initial a discretionary 
order in Index warrants on the day the order is entered. In addition, 
the Amex, prior to the commencement of trading of Index warrants, will 
distribute a circular to its membership calling attention to specific 
risks associated with warrants on the DAX Index.\7\

    \7\The Commission notes that the Amex will be required to submit 
a draft of the circular to the Commission staff for approval prior 
to distribution to members.
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    In its order approving listing standards for foreign currency and 
index warrants, the Commission noted that, with respect to foreign 
index warrants, there should be an adequate mechanism for sharing 
surveillance information with respect to an index's component 
securities.\8\ In this regard, the Amex represents that it has entered 
into discussions with representatives of the FSE and has reached 
preliminary agreement with respect to establishing an appropriate means 
to accomplish such information sharing.

    \8\See Securities Exchange Act Release No. 26152 (October 3, 
1988), 53 FR 39832 (October 12, 1988).
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    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act, in general, and furthers the objections 
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, and is not designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers.

(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-94-55 and should be 
submitted by February 16, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\

    \9\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-1980 Filed 1-25-95; 8:45 am]
BILLING CODE 8010-01-M