[Federal Register Volume 61, Number 26 (Wednesday, February 7, 1996)]
[Notices]
[Pages 4695-4697]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-2540]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36794 File No. SR-Amex-95-56]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 Thereto by the American Stock Exchange, 
Inc., Relating to the Listing and Trading of Warrants on the Emerging 
Markets Debt Index

January 31, 1996.
    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 
26, 1995, 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 January 16, 1996 the Amex 
filed Amendment No. 1 to the proposed rule change.\1\ The Commission is 
publishing this notice and Amendment No. 1 to solicit comments on the 
proposed rule change from interested persons.

    \1\ In Amendment No. 1, the Amex states that it will list EMDX 
warrants under Section 107 of the Amex Company Guide (``Other 
Securities'') rather than under Section 106 (``Currency and Index 
Warrants''). However, the account opening, trading, advertising, 
suitability and other provisions of Part VII of the Exchange's rules 
(Rules 1100 through 1110) applicable to broad based stock index 
warrants will apply to EMDX warrants. See Letter from William Floyd-
Jones, Jr., Assistant General Counsel, Legal and Regulatory Policy, 
Amex, to Michael Walinskas, Branch Chief, Office of Market 
Supervision (``OMS''), Division of Market Regulation (``Division''), 
Commission, dated January 11, 1996 (``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 list and trade warrants based on the 
Emerging Markets Debt Index (``EMDX''sm).\2\

    \2\ EMDX is a servicemark of the New York Cotton Exchange.
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    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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Pursuant to Section 107 of the Amex Company Guide, the Exchange is 
proposing to list index warrants on the EMDX. Futures contracts and 
futures options on the EMDX currently trade on the FINEX division of 
the New York Cotton Exchange (``NYCE''). The Commission recently 
provided to the Commodity Futures Trading Commission (``CFTC'') a non-
objection letter regarding the trading of EMDX futures and futures 
options.\3\

    \3\See letter from Jonathan G. Katz, Secretary, Commission, to 
Elisse B. Walter, General Counsel, CFTC, dated October 10, 1995 
(``non-objection letter'').
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Index Description

    The EMDX is an index of U.S. dollar-denominated, Brady par bonds\4\ 
of four major Latin American countries. The Index is calculated by 
multiplying the market price of the Brady par bonds of Mexico, 
Argentina, Brazil and Venezuela by their corresponding bond weight and 
summing their products. According to the Exchange, these Brady par 
bonds are the most liquid and 

[[Page 4696]]
actively traded of all Brady bonds, making the EMDX a significant 
market benchmark.

    \4\Brady bonds are issued pursuant to the plan proposed by 
former Secretary of the Department of the Treasury, Nicholas Brady, 
which allows developing countries to restructure their commercial 
bank debt by issuing long-term dollar denominated bonds. There are 
several types of Brady bonds, but ``par Bradys'' and ``discount 
Bradys'' represent the great majority of issues in the Brady bond 
market. In general, both par Bradys and discount Bradys are secured 
as to principal at maturity by U.S. Treasury zero-coupon bonds. 
Additionally, usually 12 to 18 months of interest payments are also 
secured in the form of a cash collateral account, which is 
maintained to pay interest in the event that the sovereign debtor 
misses an interest payment.
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    The weighted percentages by country of the Brady par bonds in the 
EMDX as of May, 1994 were: Mexico 36.2%; Argentina 28.9%. Brazil 19.5% 
and Venezuela 15.4%. The Index consists of the following U.S. dollar-
denominated bonds:
    (1) United Mexican States Par Bonds, Series A or B, due December 
31, 2019, with all unexpired Value Recovery Rights attached;
    (2) Republic of Argentina par Bonds, Series L, due March 31, 2023;
    (3) Republic of Venezuela Par Bonds, Series A or B, due March 31, 
2020, with all unexpired Oil Obligations attached; and
    (4) Federative Republic of Brazil Par Bonds, Series Y-L-3 or Y-L-4, 
due April 15, 2024. Effective October 15, 1995 or on such other date as 
determined by the Federative Republic of Brazil for the phase in of 
collateral for the Series Y-L-3, the eries Y-L-3 shall be replaced by 
Series Z-L Par Bonds and Series Y-L-4. The weights of the Series Z-L 
and the remaining Series Y-L-4 Par Bonds shall be .097 and .098, 
respectively. Effective April 15, 1996 or on such other date as 
determined by the Federative Republic of Brazil for the phase in of 
collateral for the Series Y-L-4, the bond weight of the Series Z-L Par 
bonds shall be increased to .195, and the Series Y-L-4 Par Bonds shall 
be deleted from the Index.
    The EMDX is calculated by multiplying the market price of a bond 
(the dollar price per $100 face value) by its corresponding bond weight 
and summing these products for all bonds in the EMDX. Thus, the formula 
for calculating the EMDX is as follows:

EMDX = MXc*.362 + ARc*.289 + BRc*.195 + VZc*.154

    Where: ``c'' refers to the current par bond price. The EMDX was 
designed to have a base value of 50 as of May 3, 1994. As of December 
21, 1995 it had a value of 57.20.
    At the time the Commission issued its non-objection letter for EMDX 
futures and futures options trading, the EMDX represented an 
approximate face amount of $47.6 billion in U.S. dollar-denominated 
Brady bonds. Reported 1994 inter-dealer trading volume in the component 
bonds of the Index was approximately $408 billion on about 135,000 
trades. Thus, the average trade size in the Brady Par Bonds represented 
in the Index was approximately $3.02 million and average daily trading 
volume was 519 transactions. The Exchange represents that the bonds 
included in the EMDX are the most actively traded and liquid issues of 
all Brady Par Bonds.
    The FINEX calculates and disseminates the EMDX continuously during 
trading hours on a real time basis using last trade prices for the 
subject Brady bonds from the screens of the leading interdealer 
brokers. The NYCE has agreements with Euro Brokers Capital Markets, 
Inc., Chapdelaine Corporate Securities, RMJ Securities, Tullet & Tokyo 
Ltd. and Tradition, Inc. to provide this information.5

    \5\ All of these brokers are members of the National Association 
of Securities Dealers (``NASD''). Accordingly, the Amex would be 
able to obtain information relative to transactions in the 
securities underlying the EMDX pursuant to its information sharing 
arrangements with the NASD under the Intermarket Surveillance Group 
(``ISG'') Agreement. See Letter from William Floyd-Jones, Assistant 
General Counsel, Legal and Regulatory Policy Division, Amex, to 
Michael Walinskas, Branch Chief, OMS, Division, Commission, dated 
January 19, 1996.
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Warrant Description and Regulatory Framework

    Although the warrants will be listed pursuant to Section 107 of the 
Company Guide, the Exchange proposes to apply certain rules applicable 
to stock index warrants to the proposal EMDX warrants. Thus, the 
listing standards of Section 106 of the Company Guide will apply to the 
EMDX warrants,6 and the account opening, trading, advertising, 
suitability and other provisions of Part VII of the Exchange's rules 
(Rules 1100 through 1110) applicable to stock index warrants also will 
apply to EMDX warrants. EMDX warrants also will be subject to the 
customer margin rules applicable to stock index warrants.

    \6\ Section 106(e), however, requires issuers to use opening 
prices for stocks traded primarily in the U.S. during the two 
business days prior to the determination of final settlement value 
to determine settlement value. The Exchange does not propose to 
extend this ``opening price'' requirement to the proposed EMDX 
warrants as the Exchange believes that the volatility concerns with 
respect to listed stocks have not been extended to debt instruments 
such as Brady bonds.
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    The proposed warrants may be exercised by holders prior to 
expiration, i.e., they will be ``American style.'' At expiration, or 
upon early exercise, warrant holders will receive a payment per warrant 
from the issuer equal to the greater of zero or $1 times the value of 
the EMDX at exercise minus the strike price. (The underwriter 
anticipates that the strike price will be set at the level of the EMDX 
at the time of warrant issuance). The warrants, accordingly, will be 
structured as a call on the EMDX.
    The issuer will determine the value of the EMDX at expiration, or 
upon early exercise, in the following manners. In the event of early 
exercise, a calculation agent will determine the bid price for the 
constituent bonds. This price will be the higher of the bid prices of 
the calculation agent and one reference bank for each of the subject 
bonds. The calculation agent will then determine the value of the EMDX 
using the bid prices so derived for each bond in the Index. At 
expiration, the prices for the relevant bonds will be the higher of the 
bid prices obtained by polling two reference banks. Each reference bank 
will be a leading market maker in the relevant bonds.
2. Basis
    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 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.

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 

[[Page 4697]]
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-95-56 and should 
be submitted by February 28, 1996.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\

    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-2540 Filed 2-6-96; 8:45 am]
BILLING CODE 8010-01-M