[Federal Register Volume 61, Number 15 (Tuesday, January 23, 1996)]
[Notices]
[Pages 1799-1801]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-834]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36721; File No. SR-Amex-95-58]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the American Stock Exchange, Inc., Relating to Listing and 
Trading of Warrants Based on the Undervalued Market Basket

January 16, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on January 2, 1996, 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.

    \1\ 15 U.S.C. Sec. 78s(b)(1)(1988).
    \2\ 17 CFR 240.19b-4 (1994).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Amex, pursuant to Rule 19b-4 of the Act, proposes to approve 
for listing and trading, under Section 106 of the Amex Company Guide, 
index warrants based on the undervalued market basket index 
(``Index''). The Index is an equal-dollar weighted broad-based index 
developed by the Exchange and is comprised of stocks which are traded 
on the Amex, the New York Stock Exchange, Inc. (``NYSE''), or through 
the facilities of the National Association of Securities Dealers 
Automated Quotation system and are reported national market system 
securities (``NASDAQ/NMS'').
    The text of the proposed rule change is available at the Office of 
the Secretary, the Amex, and 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 Amex 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Under Section 106 of the Amex Company Guide, the Exchange may 
approve for listing index warrants based on foreign and domestic market 
indices. While the Exchange currently lists and trades warrants on a 
number of foreign market indices, it currently proposes to list and 
trade warrants on a domestic market index. The listing and trading of 
warrants on the undervalued market basket index will comply in all 
respects with Exchange Rules 1100 through 1110 for the trading of stock 
index and currency warrants.
    Warrant issues on the Index will conform to the listing guidelines 
under Section 106, which provide, among other things, that: (1) the 
issuer shall have tangible net worth in excess of $250,000,000 and 
otherwise substantially exceed size and earnings requirements in 
Section 101(A) of the Company Guide or meet the alternate guideline in 
paragraph (a); (2) the term of the warrants shall be for a period 
ranging from one to three years from the date of issuance; and (3) the 
minimum public distribution of such issues shall be 1,000,000 warrants, 
together with a minimum of 400 public holders, and have an aggregate 
market value of $4,000,000.
    Index warrants will be direct obligations of their issuer subject 
to cash-settlement during their term, and either exercisable throughout 
their life (i.e., American style) or exercisable only on their 
expiration date (i.e., European style). Upon exercise, or at the 
warrant expiration date (if not exercisable prior to such date), the 
holder of a warrant structured as a ``put'' would receive payment in 
U.S. dollars to the extent that the Index has declined below a pre-
stated cash settlement value. Conversely, holders of a warrant 
structured as a ``call'' would, upon exercise or at expiration, receive 
payment in U.S. dollars to the extent that the Index has increased 
above the pre-stated cash settlement value. If ``out-of-the-money'' at 
the time of expiration, the warrants would expire worthless. In 
addition, the Amex, prior to the 

[[Page 1800]]
commencement of trading, will distribute a circular to its membership 
calling attention to specific risks associated with warrants on the 
Index.
    The Amex is proposing to list index warrants based on the 
undervalued market basket index, an equal-dollar weighted index. The 
Index represents a broad-based portfolio of large, actively traded 
stocks from various industries. The total market capitalization of the 
Index was $344,658,060,000 on December 22, 1995. The median 
capitalization of the companies in the Index on that date was 
approximately $3.2 billion and the average market capitalization of 
these companies was approximately $8 billion. The individual market 
capitalization of the companies ranged from approximately $126 million 
to approximately $48.5 billion. During the six month period from June 
1995 through November 1995, the average monthly trading volume of the 
stocks in the Index ranged from 500,000 shares to 188.5 million 
shares.\3\

    \3\ Two of the component securities, Patriot Am. Hospitality and 
Pharmacia & Upjohn, Inc., have been trading for less than six 
months. Patriot Am. Hospitality began trading on September 27, 1995 
as an initial public offering and has had an average monthly trading 
volume for the months of October and November of 2.7 million shares. 
Pharmacia & Upjohn was the result of a merger between Pharmacia 
Aktiebolag and The Upjohn Company and began trading on November 3, 
1995. Pharmacia & Upjohn traded 47.5 million shares during the month 
of November.
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    The Index is calculated using an ``equal-dollar weighting'' 
methodology that is designed to ensure that each of the component 
securities is represented in an approximately ``equal'' dollar amount 
in the Index. The following is a description of how the equal-dollar 
weighting calculation method works. Initially, each of the securities 
in the Index will have equal representation. Specifically, each 
security included in the Index will be assigned a multiplier on the 
date of issuance of the warrant so that each component represents an 
equal percentage of the value of the Index on the date of issuance. The 
multiplier indicates the number of shares of a security (or the 
fraction of one share), given its market price on an exchange or 
through NASDAQ, to be included in the calculation of the Index. 
Accordingly, each of the 43 companies included in the Index will 
represent approximately 2.32 percent of the weight of the Index at the 
time of issuance of the warrant. The Index multipliers will be 
determined to yield the benchmark value of 100.00 on the date the 
warrant is priced for initial offering to the public.
    As noted above, the multiplier of each component stock in the Index 
portfolio remains fixed except in the event of certain types of 
corporate actions such as the payment of a dividend other than an 
ordinary cash dividend, stock distribution, stock split, reverse stock 
split, rights offering, distribution, reorganization, recapitalization, 
or similar event. The multiplier of each component stock 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 stock 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 
stock remains in the Index, the multiplier of that security may be 
adjusted to maintain the component's relative weight in the Index at 
the level immediately prior to the corporate action. In the event that 
a security in the Index is removed due to a corporate consolidation and 
the holders of such security receive cash, the cash value of such 
security will be included in the Index and will accrue interest at 
Labor to term, compounded daily.
    Similar to other stock index values published by the Exchange, the 
value of the Index will be calculated continuously and disseminated 
every fifteen seconds over the Consolidated Tape Association's Network 
B.
    The Exchange believes that it is appropriate to seek broad-based 
index classification for warrant trading on the undervalued market 
basket index since the Index represents a broad spectrum of companies 
across various industries. The industry breakdown, as classified by the 
Office of Management and Budget in their Standard Industry 
Classifications, includes computers, aircraft, retain, banking, 
cellular telecommunications, pharmaceutical, petroleum products, 
medical supplies, hotel/motels, toys, and retail stationary. Further, 
the Index meets and exceeds the following criteria: (1) Each component 
security has an average daily trading volume of at least 40,000 shares 
during the preceding six months (to remain in the Index, each component 
will have to maintain an average daily trading volume of at least 
20,000 shares); (2) no more than 20% of the total weighting of the 
Index is represented by underlying securities that have an average 
daily trading volume less than 75,000 shares in the preceding six 
months; (3) no underlying security represents more than 10% of the 
total weight of the Index; (4) the five most heavily weighted 
securities in the Index do not represent more than 30% of the total 
weight of the Index; (5) the Index is comprised of at least ten 
industry sectors represented by no less than 43 component securities; 
and (6) at least 75% of the total capitalization of the Index is 
represented by component securities that meet the Exchange's criteria 
for standardized options trading which is set forth in Exchange Rule 
915. In addition, the Index meets and exceeds the Designation Criteria 
for Futures Contracts Involving Non-Diversified Stock Indexes.\4\

    \4\ See Securities and Exchange Commission and Commodity Futures 
Trading Commission Joint Statement of Policy, Release No. 20578 
(January 18, 1984), 49 FR 2884.
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2. Statutory Basis
    The Amex believes that the proposed rule change is consistent with 
Section 6(b) of the Act in general, and with Section 6(b)(5) in 
particular,\5\ 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.

    \5\ 15 U.S.C. Sec. 78f(b)(5) (1988).
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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 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 Amex consents, the Commission will:
    A. by order approve the proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be disapproved.

[[Page 1801]]


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. Sec. 552, will be available for inspection and copying at 
the Commission's Public Reference Section, 450 Fifth Street, NW., 
Washington, DC 20549. Copies of such filing also will be available for 
inspection and copying at the principal office of the Amex. All 
submissions should refer to File No. SR-Amex-95-58 and should be 
submitted by February 13, 1996.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\

    \6\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-834 Filed 1-22-96; 8:45 am]
BILLING CODE 8010-01-M