[Federal Register Volume 61, Number 51 (Thursday, March 14, 1996)]
[Notices]
[Pages 10606-10614]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-6089]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36947; International Series Release No. 949; File No. 
SR-AMEX-95-43]


Self-Regulatory Organizations; Order Approving and Notice of 
Filing and Order Granting Accelerated Approval of Amendment Nos. 2 and 
3 to Proposed Rule Change by the American Stock Exchange, Inc. Relating 
to Index Fund Shares

March 8, 1996.

I. Introduction and Background

    On October 26, 1995, the American Stock Exchange, Inc. (``Amex'' or 
``Exchange'') submitted to the Securities and Exchange Commission 
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to list and trade Index Fund 
Shares. On November 14, 1995, the Amex filed Amendment No. 1 to its 
proposal.\3\ Notice of the proposal appeared in the Federal Register on 
December 6, 1995.\4\ On March 6, 1996, the Amex filed Amendment No. 2 
to its proposal.\5\ On March 7, 1996, the Amex filed Amendment No. 3 to 
its proposal.\6\ No comments were received on the proposed rule change 
set forth in the Notice. This order approves the Exchange's proposal

    \1\ 15 U.S.C. 78s(b)(1) (1988).
    \2\ 17 CFR 240.19b-4 (1994).
    \3\ In Amendment No. 1, the Amex states that any broker-dealer 
handling transactions for customers in ``World Equity Benchmark 
Securities'' (or ``WEBS'') will have an obligation to deliver to 
such customers a prospectus regarding WEBS pursuant to the 
requirements of the Securities Act of 1933. Amendment No. 1 also 
states that prior to listing series of Index Fund Shares for indices 
other than those described in the present rule filing, it will make 
an appropriate filing pursuant to Rule 19b-4 under the Act. Letter 
from James F. Duffy, Executive Vice President and General Counsel, 
Legal and Regulatory Policy, Amex, to Michael Walinskas, Branch 
Chief, Office of Market Supervision (``OMS''), Division of Market 
Regulation (``Division''), Commission, dated November 14, 1995 
(``Amendment No. 1'').
    \4\ Securities Exchange Act Release No. 36527, (November 29, 
1995), 60 FR 62513.
    \5\ Amendment No. 2 provides additional information regarding 
the structure of Index Fund Shares, and revises the minimum number 
of such shares that must be outstanding prior to the commencement of 
trading. Amendment No.2 also includes criteria fro initial listing, 
a description of the dissemination of portfolio information, a 
provision for original and annual listing fees, a modification 
affecting stop and stop limit orders, a modification of minimum 
fractional changes, an Amendment to Amex Rule 190 (Specialist's 
Transactions with Public Customers), and effects a technical change 
to proposed Amex Rule 1000A. Letter from James F. Duffy, Executive 
Vice President and General Counsel, Legal & Regulatory Policy, Amex, 
to Michael Walinskas, Branch Chief, OMS, Division, Commission, dated 
March 6, 1996 (``Amendment No. 2'').
    \6\ Amendment No. 3 clarifies that WEBS will trade until 4:00 
p.m., not 4:15 p.m. as originally proposed; revises the proposal 
with respect to trading halts; and provides information regarding 
the dissemination of net asset values (``NAVs''). Letter from James 
F. Duffy, Executive Vice President and General Counsel, Legal & 
Regulatory Policy, Amex, to Michael Walinskas, Branch Chief, OMS, 
Division, Commission, dated March 7, 1996 (``Amendment No. 3'').
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II. Description of the Proposal

A. Index Fund Shares

    The Amex proposes to list and trade under Rules 1000A et seq. 
securities issued by an open-end management investment company 
(``Fund'') that seeks to provide investment results that correspond 
generally to the price and yield performance of a specified foreign or 
domestic equity market index (``Index Fund Shares'' or ``Fund 
Shares''). Index Fund Shares will be issued by an entity registered 
with the Commission as an open-end management investment company, and 
which may be organized as a series fund providing for the creation of 
separate series of securities, each with a portfolio consisting of some 
or all of the component securities of a specified securities index. A 
Fund may establish tracking tolerances which will be disclosed in the 
prospectus for a particular Fund or series thereof, as discussed in 
greater detail below.
    Issuances of Index Fund Shares by a Fund will be made only in 
minimum size aggregations or multiplies thereof (``Creation Units''). 
The size of the applicable Creation Unit size aggregation will be set 
forth in the Fund's prospectus, and will vary from one series of Index 
Fund Shares to another, but generally will be of substantial size 
(e.g., value in excess of $450,000 per Creation Unit). It is expected 
that a Fund will issue and sell Index Fund Shares through a principal 
underwriter (``Distributor'') on a continuous basis at the net asset 
value per share next determined after an order to purchase Index Fund 
Shares in Creation Unit size aggregations is received in proper form. 
Following issuance, Index Fund Shares would be traded on the Exchange 
like other equity securities, and Amex equity trading rules would apply 
to the trading of Index Fund Shares.
    The Exchange expects that Creation Unit size aggregations of Index 
Fund Shares generally will be issued in exchange for the ``in kind'' 
deposit of a specified portfolio of securities (``Deposit 
Securities''), together with a cash payment representing, in part, the 
amount of dividends accrued up to the time of issuance. The Exchange 
anticipates that such deposits will be made primarily by institutional 
investors, arbitragers, and the Exchange specialist. Redemption of 
Index Fund Shares generally will be made ``in kind,'' with a portfolio 
of securities and cash exchanged for Index Fund Shares that have been 
tendered for redemption. Issuances or redemptions also could occur for 
cash under specified circumstances (e.g., if it is not possible to 
effect delivery of securities underlying the specific series in a 
particular foreign country) and at other times in the discretion of the 
Fund.
    The Amex expects that a Fund will make available on a daily basis a 
list of the names and the required number of shares of each of the 
securities to be deposited in connection with issuance of Index Fund 
Shares of a particular series in Creation Unit size aggregations, as 
well as information relating to the required cash payment representing, 
in part, the amount of accrued dividends.

[[Page 10607]]

    A Fund may make periodic distributions of dividends from net 
investment income, including net foreign currency gains, if any, in an 
amount approximately equal to accumulated dividends on securities held 
by the Fund during the applicable period, net a expenses and 
liabilities for such period.
    Index Fund Shares will be registered in book entry form through The 
Depository Trust Company. Trading in Index Fund Shares on the Exchange 
may be effected until 4:15 p.m. (New York time) each business day.
    The Exchange's proposal seeks specifically to list Index Fund 
Shares that will be series of World Equity Benchmark Shares (``WEBS'') 
issued by Foreign Fund, Inc., and based on the following seventeen 
Morgan Stanley Capital International (``MSCI'') Indices (each 
individually an ``MSCI Index'' or ``Index'' and collectively ``MSCI 
Indices'' or ``Indices''): MSCI Australia Index; MSCI Austria Index; 
MSCI Belgium Index; MSCI Canada Index; MSCI France Index; MSCI Germany 
Index; MSCI Hong Kong Index; MSCI Italy Index; MSCI Japan Index; MSCI 
Malaysia Index; MSCI Mexico Index; MSCI Netherlands Index; MSCI 
Singapore (Free) Index; MSCI Spain Index; MSCI Sweden Index; MSCI 
Switzerland Index; and MSCI United Kingdom Index (Each a ``WEBS 
series'' or ``Index Series'').\7\

    \7\ The Exchange has stated that it will make an appropriate 
filing pursuant of Rule 19b-4 under the Act prior to listing series 
of Index Fund Shares for indices other than those described in the 
present proposal. Amendment No. 1, supra note 3.
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    Foreign Fund, Inc. will issue and redeem WEBS of each Index Series 
only in aggregations of shares specified for each Index Series. The 
following table sets forth the number of shares of an Index Series that 
it is anticipated will constitute a Creation Unit for such Index 
Series:

------------------------------------------------------------------------
                                                              Shares per
                        Index series                           creation 
                                                                 unit   
------------------------------------------------------------------------
Australia Index Series......................................     200,000
Austria Index Series........................................     100,000
Belgium Index Series........................................      40,000
Canada Index Series.........................................     100,000
France Index Series.........................................     200,000
Germany Index Series........................................     300,000
Hong Kong Index Series......................................      75,000
Italy Index Series..........................................     150,000
Japan Index Series..........................................     600,000
Malaysia Index Series.......................................      75,000
Mexico Index Series.........................................     100,000
Netherlands Index Series....................................      50,000
Singapore (Free) Index Series...............................     100,000
Spain Index Series..........................................      75,000
Sweden Index Series.........................................      75,000
Switzerland Index Series....................................     125,000
United Kingdom Index Series.................................     200,000
------------------------------------------------------------------------

    The Exchange anticipates that the value of a Creation Unit at the 
start of trading will range from $450,000 to $10,000,000, and the NAV 
of an individual WEBS will range from $10 to $20.\8\

    \8\ See Amendment No. 2, supra note 5. The Commission notes that 
if in the future the number of shares per Creation Unit of a WEBS 
series were to be changed, or the value of a Creation Unit were to 
fall significantly, such a change could require the filing of a 
proposed rule change by the Exchange pursuant to Section 19(b) of 
the Act.
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    As noted in the Foreign Fund, Inc. preliminary prospectus,\9\ the 
investment objective of each WEBS series is to seek to provide 
investment results that correspond generally to the price and yield 
performance of public securities traded in the aggregate in particular 
markets, as represented by specific MSCI Indices. Each WEBS series will 
use a ``passive'' or indexing investment approach which attempts to 
approximate the investment performance of its benchmark index through 
quantitative analytical procedures.\10\

    \9\ See Form N-1A Registration Statement submitted under the 
Securities Act of 1933 and the Investment Company Act of 1940, 
Registration Nos. 33-97598; 811-9102.
    \10\ Amendment No. 2, supra note 5.
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    A WEBS series normally will invest at least 95% of its total assets 
in stocks that are represented in the relevant MSCI Index and will at 
all times invest at least 90% of its total assets in such stocks. A 
WEBS series will not hold all of the issues that comprise the subject 
MSCI Index, but will attempt to hold a representative sample of the 
securities in the Index in a technique known as ``portfolio sampling.'' 
\11\ Nevertheless, each WEBS series currently is expected to have an 
approximate weighted capitalization relative to the capitalization of 
its benchmark MSCI Index, ranging from 82.6% for the Mexico (Free) 
series, to 98.5% for the Sweden series.\12\

    \11\ Id.
    \12\ Letter from Donald R. Crawshaw, Sullivan & Cromwell, on 
behalf of Foreign Fund, Inc., to Nancy J. Sanow, Assistant Director, 
Office of Trading Practices, Automation & International Markets, 
Commission, dated March 1, 1996 (data as of February 26, 1996).
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    It is expected that, over time, the ``expected tracking error'' of 
a WEBS series relative to the performance of the relevant MSCI Index 
will be less than 5%. An expected tracking error of 5% means that there 
is a 68% probability that the net asset value for the WEBS series will 
be between 95% and 105% of the subject MSCI Index after one year 
without rebalancing the portfolio composition, While no particular 
level of tracking error is assured, the Fund advisor, BZW Global Fund 
Advisors, will monitor the tracking error of each WEBS series on an 
ongoing basis and will seek to minimize tracking error to the maximum 
extent possible. Semi-annual and annual reports of the Fund will 
disclose tracking error over the previous six month periods, and in the 
event that tracking error exceeds 5%, the Fund board of directors will 
consider what action might be appropriate.\13\

    \13\ Amendment No. 2, supra note 5.
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B. The MSCI Indices \14\

1. General
    MSCI generally seeks to have 60% of the capitalization of a 
country's stock market reflected in the MSCI Index for such country. 
Thus, the MSCI Indices seek to balance the inclusiveness of an ``all 
share'' index against the replicability of a ``blue chip'' index. MSCI 
applies the same criteria and calculation methodology across all 
markets for all indices, developed and emerging.

    \14\ Information regarding the MSCI Indices was furnished by 
Foreign Fund, Inc.
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2. Weighting
    All single-country MSCI Indices are market capitalization weighted, 
i.e., companies are included in the indices at their full market value 
(total number of shares issued and paid up, multiplied by price). For 
countries that restrict foreign ownership, MSCI calculates two Indices. 
The additional Indices are called ``free'' Indices, and they exclude 
companies and share classes not purchasable by foreigners. Free Indices 
currently are calculated for Singapore, Mexico, the Philippines, and 
Venezuela, and for those regional and international indices which 
include such markets. The Mexico and Singapore WEBS series will be 
based on the free Indices for those countries. There are no WEBS series 
corresponding to the Philippines and Venezuela MSCI Indices.\15\

    \15\ See Form N-1A, supra note 9.
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3. Selection Criteria
    The constituents of a country index are selected from the full 
range of securities available in the market, excluding issues which are 
either small or highly illiquid. Non-domiciled companies and investment 
trusts are also excluded from consideration. After the index 
constituents are chosen, they are reclassified using MSCI's schema of

[[Page 10608]]
38 industries and eight economic sectors to facilitate cross-country 
comparisons.
    The process of choosing index constituents from the universe of 
available securities is consistent among indices. Determining the 
constituents of an index is an optimization process which involves 
maximizing float and liquidity, reflecting accurately the market's size 
and industry profiles, and minimizing cross-ownership.
    To reflect accurately country-wide performance, MSCI aims to 
capture 60% of total market capitalization at both the country and 
industry level. To reflect local market performance, an index should 
contain a percentage of the market's overall capitalization sufficient 
to achieve a high level of tracking. The greater the coverage, however, 
the greater the risk of including securities which are illiquid or have 
restricted float. MSCI's 60% coverage target seeks to balance these 
considerations.
    MSCI attempts to meet its 60% coverage target by including a 
representative sample of large, medium and small capitalization stocks, 
to capture the sometimes disparate performance of these sectors. In the 
emerging markets, the liquidity of smaller issues can be a constraint. 
At the same time, properly representing the lower capitalization end of 
the market risks overwhelming the index with components. Within these 
constraints, MSCI strives to include smaller capitalization stocks, 
provided they exhibit sufficient liquidity.
4. Calculation Methodology
    All MSCI Indices are calculated daily using Laspeyres' concept of a 
weighted arithmetic average together with the concept of ``chain-
linking,'' a classical method of calculating stock market indices. The 
Laspeyres method weights stocks in an index by their beginning-of-
period market capitalization. Share prices are ``swept clean'' daily 
and adjusted for any rights issues, stock dividends or splits. The MSCI 
Indices currently are calculated in local currency and in U.S. dollars, 
without dividends and with gross dividends reinvested (e.g., before 
withholding taxes).
5. Price and Exchange Rates
    Prices used to calculate the MSCI Indices are the official exchange 
closing prices. All prices are taken from the dominant exchange in each 
market. In countries where there are foreign ownership limits, MSCI 
uses the price quoted on the official exchange, regardless of whether 
the limit has been reached.
    To calculate the applicable foreign currency exchange rate, MSCI 
uses WM/Reuters Closing Spot Rates for all developed and emerging 
markets except those in Latin America. The WM/Reuters Closing Spot 
Rates were established by a committee of investment managers and data 
providers, including MSCI, whose object was to standardize foreign 
currency exchange rates used by the investment community. Exchange 
rates are taken daily at 4 p.m. London time by the WM Company and are 
sourced whenever possible from multi-contributor quotes on Reuters. 
Representative rates are selected for each currency based on a number 
of ``snapshots'' of the latest contributed quotations taken from the 
Reuters service at short intervals around 4 p.m. WM/Reuters provides 
closing bid and offer rates. MSCI uses these to calculate the mid-point 
to 5 decimal places. Because of the high volatility of currencies in 
some Latin American countries, MSCI continues to use its own timing and 
source for these markets. MSCI continues to monitor exchange rates 
independently and may, under exceptional circumstances, elect to use an 
alternative exchange rate if the WM/Reuters rate is believed not to be 
representative for a given currency on a particular day.
6. Changes to the Indices
    In changing the constituents of the Indices, MSCI attempts to 
balance representativeness versus undue turnover. An Index must 
represent the current state of an evolving marketplace, yet minimize 
turnover, which is costly as well as inconvenient for managers.
    There are two broad categories of changes to the MSCI Indices. The 
first consists of market-driven changes such as mergers, acquisitions, 
and bankruptcies. These are announced and implemented as they occur. 
The second category consists of structural changes to reflect the 
evolution of a market, including changes in industry composition or 
regulations. Structural changes may occur only on four dates during the 
year: the first business days of March, June, September and December. 
They are preannounced at least two weeks in advance.
    Restructuring an Index involves a balancing of additions and 
deletions. To maintain continuity and minimize turnover, MSCI is 
reluctant to delete Index constituents, and its approach to additions 
is correspondingly stringent. As markets grow because of 
privatizations, investor interest, or the relaxation of regulations, 
Index additions (with or without corresponding deletions) may be needed 
to bring industry representations up to the 60% target. Companies are 
considered not only with respect to their broad industry, but also with 
respect to their subsector, so as to reflect if possible a broader 
range of economic activity. Beyond industry representativeness, new 
constituents are selected based on the criteria discussed above, i.e. 
float, liquidity, cross-ownership, etc.
    In general, new issues are not eligible for immediate inclusion in 
the MSCI Indices because their liquidity remains unproven. Usually, new 
issues undergo a ``seasoning'' period of one year to 18 months between 
index restructurings until a trading pattern and volume are 
established. After that time, they are eligible for inclusion, subject 
to the criteria discussed above.
    Companies may be deleted because they have diversified away from 
their industry classification, because the industry has evolved in a 
different direction from the company's thrust, or because a better 
industry representative exists (either a new issue or an existing 
company). In addition, in order not to exceed the 60% target coverage 
of industries and countries, adding new Index companies may entail 
corresponding deletions. Usually such deletions take place within the 
same industry, but there are occasional exceptions.
7. Dissemination
    Each MSCI Index on which a WEBS series is based is calculated by 
MSCI for each trading day in the applicable foreign exchange market 
based on official closing prices in such exchange market. For each 
trading day, MSCI publicly disseminates each Index value for the 
previous day's close. MSCI Indices are reported periodically in major 
financial publications and also are available through vendors of 
financial information.\16\

    \16\ Amendment No. 2, supra note 5.
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    Foreign Fund, Inc. also will cause to be made available daily the 
names and required number of shares of each of the securities to be 
deposited in connection with the issuance of WEBS in Creation Unit size 
aggregations for each WEBS series, as well as information relating to 
the required cash payment representing, in part, the amount of accrued 
dividends applicable to such WEBS series. This information will be made 
available by the Fund Advisor to any National Securities Clearing 
Corporation (``NSCC'') participant requesting such information. In 
addition, other investors can request such information directly

[[Page 10609]]
from the Fund distributor, Funds Distributor, Inc. The NAV for each 
WEBS series will be calculated daily by the Fund administrator, PFPC 
Inc.\17\

    \17\ Id. NAVs will be made available to the public from the Fund 
distributor by means of a toll-free number, and also will be 
available to NSCC participants through data made available from 
NSCC. Amendment No. 3, supra note 6.
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    To provide current WEBS pricing information for use by investors, 
professionals, and persons wishing to create or redeem WEBS, the 
Exchange anticipates it will disseminate through the facilities of the 
Consolidated Tape Association an updated ``indicative optimized 
portfolio value'' (``Value'') for each WEBS series as calculated by 
Bloomberg, L.P. (``Bloomberg''). The Value will be disseminated on a 
per WEBS basis every 15 seconds during regular Amex trading hours of 
9:30 a.m. and 4:00 p.m. New York time. The equity securities value that 
will be included in the Value will be the values of the Deposit 
Securities constituting an optimized representation of the benchmark 
MSCI Index for each WEBS series, which is the same as the portfolio 
that generally will be used in connection with creations and 
redemptions of WEBS in Creation Unit size aggregations on that day. The 
equity securities included in the Value will reflect the same market 
capitalization weighting as the Deposit Securities in the optimized 
portfolio for the particular WEBS series. In addition to the value of 
the Deposit Securities for each WEBS series, the Value will include a 
cash component consisting of estimated accrued dividend and other 
income, less expenses. The Value also will reflect changes in currency 
exchange rates between the U.S. dollar and the applicable home foreign 
currency.\18\

    \18\ Amendment No. 2, supra note. 5.
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    The Value likely will not reflect the value of all securities 
included in the applicable benchmark MSCI Index. In addition, the Value 
will not necessarily reflect the precise composition of the current 
portfolio of securities held by the Fund for each WEBS series at a 
particular moment. Therefore, the Value on a per WEBS basis 
disseminated during Amex trading hours should not be viewed as a real 
time update of the net asset value of the Fund, which is calculated 
only once a day. While the Value disseminated by the Amex at 9:30 a.m. 
is expected to be very close to the most recently calculated Fund net 
asset value on a per WEBS basis,\19\ it is possible that the value of 
the portfolio of securities held by the Fund for a particular WEBS 
series may diverge from the Deposit Securities values during any 
trading day. In such case, the Value will not precisely reflect the 
value of the Fund portfolio. Following calculation of NAV by the Fund 
administrator as of 4:00 p.m. New York time, it is expected that the 
Value on a per WEBS basis would be the same as the NAV of the Fund on a 
per WEBS basis. It is expected, however, that during the trading day, 
the Value will closely approximate the value per WEBS share of the 
portfolio of securities for each WEBS series except under unusual 
circumstances (e.g., in the case of extensive rebalancing of multiple 
securities in a WEBS series at the same time by the Fund advisor).\20\

    \19\ A slight difference between the Value disseminated at 9:30 
and the most recently calculated Fund NAV can be expected because 
the Value will include an estimated cash amount consisting 
principally of any dividend accruals for the Deposit Securities 
going ``ex-dividend'' on that day.
    \20\ Amendment No. 2, supra note 5.
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    The Exchange believes that dissemination of the Value based on the 
Deposit Securities will provide additional information regarding each 
WEBS series that is not otherwise available to the public and that will 
be useful to professionals and investors in connection with WEBS 
trading on the Exchange or the creation or redemption of WEBS.\21\

    \21\ Id.
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    For Australia, Japan, Malaysia, Hong Kong, and Singapore (Free) 
WEBS series, there is no overlap in trading hours between the foreign 
markets and the Amex. Therefore, for each of these WEBS series, the 
disseminated Value will be based upon closing prices, denominated in 
the applicable foreign currency price, in the principal foreign market 
for securities in the WEBS portfolio, and converted to U.S. dollars. 
This value will be updated every 15 seconds during Amex trading hours 
to reflect changes in currency exchange rates between the U.S. dollar 
and the applicable foreign currency. The estimated portfolio value also 
will include the applicable estimated cash component for each WEBS 
series.\22\

    \22\ Id.
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    For the Europe, Canada, and Mexico WEBS series where there is an 
overlap in the trading hours between the foreign market and the Amex, 
the disseminated Value will be updated every 15 seconds and will 
reflect price changes in the principal foreign market, converted into 
U.S. dollars based on the current currency exchange rate. When the 
foreign market is closed but the Amex is open, the Value will be 
updated every 15 seconds to reflect changes in currency exchange rates 
after the foreign market closes. The estimated portfolio value also 
will include the applicable estimated cash component.\23\

    \23\ Id.
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C. Criteria for Initial and Continued Listing

    In connection with initial listing, the Exchange will establish a 
minimum number of Index Fund Shares required to be outstanding at the 
time of commencement of Exchange trading. For the Japan series, a 
minimum of the equivalent of one Creation Unit will be required to be 
outstanding at the start of trading. For each of the other series of 
Index Fund shares, the Exchange anticipates that a minimum of two 
Creation Units in Fund Shares would be required to be outstanding 
before trading could begin.\24\

    \24\ Cf., supra note 8.
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    Each series of Index Fund Shares will be subject to the initial and 
continued listing criteria of proposed Amex Rule 1002A(b) which 
provides that following the initial twelve month period following 
commencement of Exchange trading of a series of Index Fund Shares, the 
Exchange will consider suspension of trading in, or removal from 
listing of, such series under any of the following circumstances:
    (a) if there are fewer than 50 beneficial holders of the series of 
Index Fund Shares for 30 or more consecutive trading days; or
    (b) if the value of the index or portfolio of securities on which 
the series of Index Fund Shares is based is no longer calculated or 
available; 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.\25\

    \25\ The Commission notes that the preliminary prospectus states 
that each WEBS series will at all times invest at least 90% of its 
total assets in securities that are represented in the relevant MSCI 
Index, and normally will invest 95% of its total assets in such 
securities. In addition, each WEBS series has a policy to 
concentrate its investments in an industry or industries if, and to 
the extent that, its corresponding MSCI Index concentrates in such 
industry or industries, except where the concentration is the result 
of a single security. See Form N-1A, supra note 9. While the 
Commission believes these requirements should help to reduce 
concerns that the WEBS could become a surrogate for trading in a 
single or a few unregistered stocks, in the event that a series of 
WEBS were to become such a surrogate, the Commission would expect 
the Amex to take action immediately to delist the securities to 
ensure compliance with the Act.
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    The Exchange will require that Index Fund Shares be removed from 
listing upon termination of the Fund that issued such shares.

[[Page 10610]]


D. Specialists

    Amex Rule 190(a) provides that a specialist may not directly or 
indirectly effect any business transaction with a company or any 
officer, director or 10% stockholder of a company in which stock the 
specialist is registered. To clarify its interpretation of Rule 190(a) 
with respect to specialist creation and redemption activity in such 
listed securities as Index Fund Shares, as well as Portfolio Depositary 
Receipts listed under Amex Rule 1000, the Exchange proposes to add 
Commentary .04 to Rule 190. Proposed Commentary .04 would provide that 
nothing under the provisions Amex Rule 190(a) will be deemed to 
restrict a specialist registered in a security issued by an investment 
company from purchasing and redeeming the listed security, or 
securities that can be subdivided or converted into the listed 
security, from the issuer as appropriate to facilitate the maintenance 
of a fair and orderly market in the subject security. In addition, the 
specialist, will be able to engage in creations and redemptions of WEBS 
only according to the same terms and conditions as every other investor 
at net asset value, in accordance with the terms of the Fund prospectus 
and statement of additional information. The Amex believes that this 
will minimize the potential for abuse.\26\

    \26\ Amendment No. 2, supra note 5.
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E. Disclosure

    With respect to investor disclosure, the Exchange notes that, 
pursuant to the requirements of the Securities Act of 1933, as amended 
(``1933 Act''), all investors in Index Fund Shares, including WEBS, 
will receive a prospectus. Because the Units will be in continuous 
distribution, the prospectus delivery requirements of the 1933 Act will 
apply to all investors in Index Fund Shares, including secondary market 
purchases on the Amex in WEBS. The prospectus and all marketing 
material will refer to WEBS by using the term ``investment company.'' 
The term ``mutual fund'' will not be used at any time. The term ``open-
end investment company'' will be used in the prospectus only to the 
extent required by Item 4 of Investment Company Act Form N-1A. In 
addition, the cover page of the prospectus will include a distinct 
paragraph stating that WEBS will not be individually redeemable.\27\

    \27\ See Form N-1A, supra note 9.
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    Prior to commencement of trading of a series of Index Fund Shares, 
the Exchange will distribute to Exchange members and member 
organizations an Information Circular calling attention to 
characteristics of the specific series and to applicable Exchange 
rules. That circular will inform member organizations of their 
responsibilities under Exchange Rule 411 (``know your customer rule'') 
with respect to transactions in such Index Fund Shares. The circular 
will inform member organizations of their responsibility to deliver a 
prospectus to all investors purchasing WEBS. The Amex has stated that 
any broker-dealer handling transactions for customers in WEBS will have 
an obligation to delivery to such customers a prospectus regarding WEBS 
pursuant to the requirements of the Securities Act of 1933.\28\ The 
circular also will note that WEBS are not individually redeemable; they 
may be redeemed in Creation Unit size aggregations only.

    \28\ Amendment No. 1, supra note 3. The Exchange states that it 
may, in the future, seek to obtain an exemption from the prospectus 
delivery requirement, either with respect to WEBS or other series of 
Index Fund Shares listed on the Exchange. Id. In the event it 
obtains such an exemption, the Exchange will discuss with Commission 
staff the appropriate level of disclosure that should be required 
with respect to the Index Fund Shares being listed, and will file 
any necessary rule change to provide for such disclosure.
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F. Trading Halts

    Prior to commencement of trading in Index Fund Shares, 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: (1) 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; or (2) 
whether other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present.\29\

    \29\ Amendment No. 3, supra  note 6.
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G. Listing Fees

    The Amex proposes an original listing fee for WEBS of $5,000 per 
series (i.e., $85,000 for the seventeen WEBS series herein described). 
In addition, the annual listing fee applicable to WEBS series under 
Section 141f the Amex Company Guide will be based upon the year-end 
aggregate number of outstanding WEBS in all series, except that no 
annual listing fee will be assessed for calendar year 1996.\30\

    \30\ Amendment No. 2, supra note 5.
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H. Stop and Stop Limit Orders

    Amex Rule 154, Commentary .04(c) provides that stop and stop limit 
orders to buy or sell a security (other than an option, which is 
covered by Rule 950(f) and Commentary thereto) the price of which is 
derivatively priced based upon another security or index of securities, 
may, with the prior approval of a Floor Official, be elected by a 
quotation, as set forth in Rule 154, Commentary .04(c)(i-iv). The 
Exchange proposes to designate Index Fund Shares, including WEBS, as 
eligible for this treatment.\31\

    \31\ Id.
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I. Minimum Fractional Change

    Under Amex Rule 127, the minimum fractional change for securities 
traded on the Amex is \1/16\ of $1.00 for securities selling at $10.00 
and over. The Exchange proposes to add Commentary .02 to Rule 127 to 
provide that, for Index Fund Shares that would be listed under proposed 
Rule 1000A et seq., including WEBS, the minimum fractional change will 
be \1/16\ of $1.00. Thus, proposed Commentary .02 would accommodate 
trading in sixteenths for shares of WEBS series selling at $10.00 and 
over, as well as under $10.00. The Intermarket Trading System (``ITS'') 
accommodates trading in sixteenths only for Amex securities priced 
below $10.00. In the event another ITS participant market seeks to 
initiate WEBS trading through ITS, the Exchange would discuss with the 
ITS Operating Committee appropriate modifications to ITS to permit 
trading of Index Fund Shares, including WEBS, in sixteenths for shares 
priced above $10.00, and would make reasonable efforts to address 
issues raised by such prospective trading.\32\

    \32\ Id.
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III. Discussion

    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 6(b)(5) of the Act.\33\ The 
Commission believes that the Exchange's proposal to list and trade 
Index Fund Shares, and specifically WEBS, will provide investors with a 
convenient way of participating in foreign securities markets. The 
Exchange's proposal should help to provide investors with increased 
flexibility in satisfying their investment needs by allowing them to 
purchase and sell securities at negotiated prices throughout the 
business day that

[[Page 10611]]
replicate the performance of several portfolios of stocks.\34\ 
Accordingly, the Commission finds that the Exchange's proposal will 
facilitate transactions in securities, remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, protect investors and the public interest, and 
is not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.\35\

    \33\ 15 U.S.C. 78f(b)(5) (1988).
    \34\ The Commission notes that unlike typical open-end 
investment companies, where investors have the right to redeem their 
fund shares on a daily basis, investors in Index Fund Shares, 
including WEBS, could redeem them in Creation Unit size aggregations 
only.
    \35\ Pursuant to Section 6(b)(5) of the Act, the Commission must 
predicate approval of exchange 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 
functions, 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.
---------------------------------------------------------------------------

    The estimated cost of an individual WEBS, approximately $10 to $20, 
should make it attractive to individual retail investors who wish to 
hold a security replicating the performance of a portfolio of foreign 
stocks. Moreover, the Commission believes that WEBS will provide 
investors with several advantages over standard open-end investment 
companies specializing in such stocks. In particular, investors will be 
able to trade WEBS continuously throughout the business day in 
secondary market transactions at negotiated prices.\36\ In contrast, 
Investment Company Rule 22c-1 \37\ limits holders and prospective 
holders of open-end investment company shares to purchasing or 
redeeming securities of the fund based on the net asset value of the 
securities held by the fund as designated by the board of directors. 
Accordingly, WEBS should allow investors to: (1) Respond quickly to 
market changes through intra-day trading opportunities; (2) engage in 
hedging strategies not currently available to retail investors; and (3) 
reduce transaction costs for trading a portfolio of securities.

    \36\ Because of potential arbitrage opportunities, the 
Commission believes that WEBS will not trade at a material discount 
or premium in relation to their net asset value. The mere potential 
for arbitrage should keep the market price of WEBS comparable to 
their net asset values; therefore, arbitrage activity likely will 
not be significant. In addition, the Fund will redeem in-kind, 
thereby enabling the Fund to invest virtually all of its assets in 
securities comprising the MSCI Indices.
    \37\ 17 CFR 270.22c-1 (1994). Investment Company Act Rule 22c-1 
generally provides that a registered investment company issuing a 
redeemable security, its principal underwriter, and dealers in that 
security may sell, redeem, or repurchase the security only at a 
price based on the net asset value next computed after receipt of an 
investor's request to purchase, redeem, or resell. The net asset 
value of an open-end investment company generally is computed once 
daily Monday through Friday as designated by the investment 
company's board of directors. The Commission granted WEBS an 
exemption from this provision to allow them to trade in the 
secondary market at negotiated prices. See  Investment Company Act 
Release No. 21803; International Series Release No. 944, March 5, 
1996.
---------------------------------------------------------------------------

    Although the value of WEBS will be based on the value of the 
securities and cash held in the Fund, WEBS are not leveraged 
instruments.\38\ In essence, WEBS are equity securities that represent 
an interest in a portfolio of stocks designed to reflect substantially 
the applicable MSCI Index. Accordingly, it is appropriate to regulate 
WEBS in a manner similar to other equity securities. Nevertheless, the 
Commission believes that the unique nature of WEBS raise certain 
product design, disclosure, trading, and other issues that must be 
addressed.

    \38\ In contrast, proposals to list exchange-traded derivative 
products that contain a built-in leverage feature or component raise 
additional regulatory issues, including heightened concerns 
regarding manipulation, market impact, and customer suitability. See 
e.g., Securities Exchange Act Release No. 36165 (August 29, 1995), 
60 FR 46653 (relating to the establishment of uniform listing and 
trading guidelines for stock index, currency, and currency index 
warrants).
---------------------------------------------------------------------------

A. WEBS Generally

    The Commission believes that the proposed WEBS are reasonably 
designed to provide investors with an investment vehicle that 
substantially reflects in value the index it is based upon, and, in 
turn, the performance of the specified foreign equities market. In this 
regard, the Commission notes that MSCI imposes specific criteria in the 
selection of Index components. MSCI generally seeks to have 60% of a 
market's capitalization reflected in that market's corresponding Index. 
In selecting components for a given Index, MSCI excludes issues that 
are either small or highly illiquid. Index constituents are selected on 
the basis of seeking to maximize float and liquidity, reflecting a 
market's size and industry profiles, and minimizing cross-ownership.
    The aim of this component selection process is to make Index 
components highly representative of the over-all economic sector make-
up and market capitalization of a given market. At the same time, 
securities that are illiquid or that have a restricted float are 
avoided. The Commission believes that these criteria should serve to 
ensure that the underlying securities of these Indices are well 
capitalized and actively traded.
    The Commission also notes that the WEBS' investment policies 
require that at all times at least 90% of a given series total assets 
must be invested in stocks that are represented in the relevant MSCI 
Index. Moreover, a WEBS series normally will invest at least 95% of its 
total assets in such stocks. In addition, stocks are selected for 
inclusion in a WEBS series in order to have aggregated investment 
characteristics (based on market capitalization and industry 
weightings), fundamental characteristics (such as return variability, 
earnings valuation and yield) and liquidity measures similar to those 
of the subject MSCI Index taken in its entirety. Hence, the Fund 
Advisor will seek to construct the portfolio of each WEBS series so 
that, in the aggregate, its capitalization, industry, and fundamental 
investment characteristics perform like those of the subject MSCI 
Index.\39\

    \39\ See Form N-1A, supra note 9.
---------------------------------------------------------------------------

    As noted above, to comply with these investment policies, a WEBS 
series will not hold all of the securities that comprise the subject 
MSCI Index, but will attempt to hold a representative selection of such 
securities by means of ``portfolio sampling.'' Nevertheless, each WEBS 
series currently is expected to have an approximate weighted 
capitalization relative to the capitalization of its benchmark MSCI 
Index, ranging from 82.6% for the Mexico (Free) series, to 98.5% for 
the Sweden series.\40\ Moreover, no WEBS series currently is expected 
to have fewer than seventeen of the component securities of the 
corresponding MSCI Index.\41\ The Commission believes that taken 
together, the foregoing are adequate to characterize WEBS as bona fide 
index funds. The Commission would be concerned, however, if the 
capitalization percentages or minimum number of WEBS component 
securities were to fall to a level such that the WEBS portfolios no 
longer would substantially reflect their corresponding WEBS 
Indices.\42\

    \40\ Letter from Donald R. Crawshaw, supra note 12.
    \41\ Id.
    \42\ Among other issues that may arise under the federal 
securities laws, such an occurrence could raise the issue of whether 
WEBS trading would remain consistent with Amex listing standards for 
Index Fund Shares, as well as the surrogate trading issue noted 
above. See supra note 25.
---------------------------------------------------------------------------

B. Disclosure

    The Commission believes that the Exchange's proposal should ensure 
that investors have information that will allow them to be adequately 
apprised of the terms, characteristics, and risks of trading Index Fund 
Shares, including

[[Page 10612]]
WEBS.\43\ As noted above, all Fund Share investors will receive a 
prospectus regarding the product. Because Index Fund Shares, including 
WEBS, will be in continuous distribution, the prospectus delivery 
requirements of the Securities Act of 1933 will apply both to initial 
investors, and to all investors purchasing such securities in secondary 
market transactions on the Amex. The prospectus will address the 
special characteristics of a particular Index Fund Share series, 
including a statement regarding its redeemability and method of 
creation. With respect to WEBS, the prospectus will state specifically 
that WEBS individually are not redeemable.

    \43\ The Exchange states that it may, in the future, seek to 
obtain an exemption from the prospectus delivery requirement, either 
with respect to WEBS or other Index Fund Shares listed on the 
Exchange. In the event it obtains such an exemption, the Exchange 
will discuss with Commission staff the appropriate level of 
disclosure that should be required with respect to the Index Fund 
Shares being listed, and will file any necessary rule change to 
provide for such disclosure.
---------------------------------------------------------------------------

    The Commission also notes that upon the initial listing of any 
class of Index Fund Shares, including WEBS, the Exchange will issue a 
circular to its members explaining the unique characteristics and risks 
of this type of security. The circular also will note Exchange members' 
responsibilities under Exchange Rule 411 (``know your customer rule'') 
regarding transactions in such Index Fund Shares. Exchange Rule 411 
generally requires that members use due diligence to learn the 
essential facts relative to every customer, every order or account 
accepted.\44\ The circular also will address members' responsibility to 
deliver a prospectus to all investors as well as highlight the 
characteristics of purchases in Index Fund Shares, including WEBS, 
including that they only are redeemable in Creation Unit size 
aggregations.

    \44\ Amex Rule 411.
---------------------------------------------------------------------------

C. Trading of WEBS

    The Commission finds that adequate rules and procedures exist to 
govern the trading of Index Fund Shares, including WEBS. Index Fund 
Shares will be deemed equity securities subject to Amex rules governing 
the trading of equity securities.\45\ These rules include: General and 
Floor Rules, such as priority, parity, and precedence of orders, market 
volatility related trading halt provisions pursuant to Rule 117, 
members dealing for their own accounts, specialists, odd-lot brokers, 
and registered traders, and handling of orders and reports; \46\ Office 
Rules, such as conduct of accounts, margin rules, and advertising; \47\ 
and Contracts in Securities, such as duty to report transactions, 
comparisons of transactions, marking to the market, delivery of 
securities, dividends and interest, closing of contracts, and money and 
security loans.\48\ The Amex also will consider halting trading in any 
series of Index Funds Shares under certain other circumstances 
including those set forth in Amex Rule 918C(b)(4) regarding the 
presence of other unusual conditions or circumstances detrimental to 
the maintenance of a fair and orderly market.\49\

    \45\ Telephone Conversation between Michael Cavalier, Assistant 
General Counsel, Amex, and Francois Mazur, Attorney, OMS, Division, 
Commission, on March 4, 1996.
    \46\ Amex Rules 1-236.
    \47\ Amex Rules 300-590.
    \48\ Amex Rules 700-891.
    \49\ See supra note 29, and accompanying text.
---------------------------------------------------------------------------

    The Commission is satisfied with the Amex's development of specific 
listing and delisting criteria for Index Fund Shares. These criteria 
should help to ensure that a minimum level of liquidity will exist in 
each series of Index Fund Shares to allow for the maintenance of fair 
and orderly markets. The delisting criteria also allows the Exchange to 
consider the suspension of trading and the delisting of a series of 
Index Fund Shares, including WEBS, if an event were to occur that made 
further dealings in such securities inadvisable. This will give the 
Exchange flexibility to delist Index Fund Shares, including WEBS, if 
circumstances warrant such action. For example, as noted above, in the 
event that WEBS became a surrogate for trading a single or few 
unregistered securities, such an event could raise issues that would 
require delisting of WEBS so as to ensure compliance with the Act.\50\ 
Accordingly, the Commission believes that the rules governing the 
trading of Index Fund Shares provide adequate safeguards to prevent 
manipulative acts and practices and to protect investors and the public 
interest.

    \50\ See supra note 25.
---------------------------------------------------------------------------

D. Dissemination of WEBS Portfolio Information

    The Commission believes that the Values the Exchange proposes to 
have disseminated for the seventeen WEBS series will provide investors 
with timely and useful information concerning the value of WEBS on a 
per WEBS basis. The Exchange represents that the information will be 
disseminated through the facilities of the CTA and will reflect 
currently-available information concerning the value of the assets 
comprising the Deposit Securities. This information will be 
disseminated every 15 seconds during regular Amex trading hours of 9:30 
a.m. to 4:00 p.m., New York time. In addition, since it is expected 
that the Value will closely track the applicable WEBS series, the 
Commission believes that the Values will provide investors with 
adequate information to determine the intra-day value of a given WEBS 
series.\51\ The Commission expects that the Amex will monitor the 
disseminated Value, and if the Amex were to determine that the Value 
does not closely track applicable WEBS series, it would arrange to 
disseminate an adequate alternative value.

    \51\ In addition, the statement of additional information to the 
preliminary prospectus states that each series will calculate its 
NAV per share at the close of the regular trading session for the 
New York Stock Exchange, Inc. on each day that the Exchange is open 
for business. NAV generally will be based on the last quoted sales 
price on the exchange where the security primarily is traded. Form 
N-1A, supra note 9. See also note 17, supra, discussing availability 
of NAV.
---------------------------------------------------------------------------

E. Specialists

    The Commission finds that it is consistent with the Act to allow a 
specialist registered in a security issued by an Investment Company to 
purchase or redeem the listed security from the issuer as appropriate 
to facilitate the maintenance of a fair and orderly market in that 
security. The Commission believes that such market activities should 
enhance liquidity in such securities and facilitate a specialist's 
market-making responsibilities. In addition, because the specialist 
only will be able to purchase and redeem Units on the same terms and 
conditions as any other investor at NAV in accordance with the terms of 
the Fund prospectus and statement of additional information, the 
Commission believes that concerns regarding potential abuse are 
minimized. The Exchange's existing surveillance procedures also should 
ensure that such purchases are only for the purpose of maintaining fair 
and orderly markets, and not for any other improper or speculative 
purposes. Finally, the Commission notes that its approval of this 
aspect of the Exchange's rule proposal does not address any other 
requirements or obligations under the federal securities laws that may 
be applicable.\52\

    \52\ Broker dealers and other persons will be cautioned in the 
prospectus and/or the Fund's statement of additional information 
that some activities on their part may, depending on the 
circumstances, result in their being deemed statutory underwriters 
and subject them to the prospectus delivery and liability provisions 
of the Securities Act of 1933.

[[Page 10613]]

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F. Surveillance

    The Commission believes that the surveillance procedures developed 
by the Amex for WEBS are adequate to address concerns associated with 
the listing and trading of such securities, including any concerns 
associated with purchasing and redeeming Creation Units.
    The Commission also notes that certain concerns are raised when a 
broker-dealer, such as Morgan Stanley & Co. Incorporated (``Morgan 
Stanley''), is involved in the development and maintenance of a stock 
index upon which a product such as Index Fund Shares, in this case 
WEBS, is based. The Indices were created by MSCI, which also is 
responsible for making substitutions and other adjustments to the 
Indices. Responsibility for making substitutions and other adjustments 
to the Indices has been delegated to Capital International S.C. 
(``CIPSA''), which in turn is a subsidiary of Capital International 
S.A. (``CISA''), itself a subsidiary of The Capital Group. Morgan 
Stanley represents that the individuals employed by CIPSA are not 
involved in sales and trading for Morgan Stanley or in equity research. 
Information provided by CIPSA concerning the Indices is made available 
to MSCI and Morgan Stanley at the same time it becomes available to 
other market participants. Moreover, as discussed above, WEBS series 
will not hold all the securities underlying a corresponding MSCI Index, 
holding instead a representative sampling of such securities. In 
addition, Morgan Stanley, CISA, and CIPSA each have procedures in place 
to prevent the misuse of material, non-public information regarding 
changes to component stocks in an MSCI Index.\53\ The Commission 
believes that these provisions should help to address concerns raised 
by Morgan Stanley's involvement in the management of the Indices.

    \53\ Letter from Rachel Ascher, Vice President and Counsel, 
Morgan Stanley, to Michael Walinskas, Branch Chief, OMS, Division, 
Commission, dated March 6, 1996.
---------------------------------------------------------------------------

G. Stop and Stop Limit Orders

    The Commission believes that the Amex's proposal to designate Index 
Fund Shares, including WEBS, as eligible for election by quotation with 
the prior approval of a Floor Official is consistent with the Act. Amex 
Rule 154, Commentary .04(c) generally provides that stop and stop limit 
orders to buy or sell a security or index of securities may with the 
prior approval of a Floor Official, be elected by a quotation, as set 
forth in Rule 154, Commentary .04(c)(1-v). Rule 154, Commentary 
.04(c)(v) states that election by quotation only is available for such 
derivative securities as are designated by the Exchange as eligible for 
such treatment. The Exchange's proposal would so designate Index Fund 
Shares.
    The Commission believes that to allow stop and stop limit orders in 
Index Fund Shares to be elected by quotation, a rule typically used in 
the options context, is appropriate because, as a result of their 
derivative nature, Index Fund Shares are in effect equity securities 
that have a pricing and trading relationship to the underlying 
securities similar to the relationship between options and their 
underlying securities.\54\

    \54\ See generally Securities Exchange Act Release No. 29063 
(April 10, 1991), 56 FR 15652 (approving Amex proposal relating to 
stop and stop limit orders in certain equity securities).
---------------------------------------------------------------------------

H. Minimum Fractional Changes

    The Commission believes that the Exchange's propsoal to add 
Commentary .02 to its Rule 127 to provide that Index Fund Shares, 
including WEBS, are tradeable in minimum fractional changes of \1/16\ 
of $1.00 is consistent with the Act. In initially approving the trading 
of Portfolio Depositary Receipts (``PDRs'') in minimum fractional 
changes of \1/32\ of $1.00, the Commission stated that such trading 
should enhance market liquidity, and should promote more accurate 
pricing, tighter quotations, and reduced price fluctuations.\55\ The 
Commission also stated that such trading should allow customers to 
receive the best possible execution of their transactions in PDRs.\56\ 
The Commission believes that this reasoning equally is applicable to 
Index Fund Shares, including WEBS.

    \55\ See Securities Exchange Act Release No. 31794 (January 29, 
1993), 58 FR 7272 (order approving Amex proposal relating to minimum 
fractions of trading).
    \56\ Id.
---------------------------------------------------------------------------

    Although Index Fund Shares, and specifically WEBS, initially will 
be listed on the Amex, the Commission notes that it is conceivable that 
other national securities exchanges or the National Association of 
Securities Dealers, Inc. could apply for authority to list and trade 
such products. Currently, however, the Intermarket Trading System 
(``ITS'') is not capable of accommodating quotes in \1/16\th of $1.00 
for securities priced over $10 (although ITS does accommodate quotes in 
\1/16\th of $1.00 for securities priced below $10).\57\ The Amex states 
that in the event another ITS participant market seeks to initiate WEBS 
trading through ITS, the Exchange will discuss with the ITS Operating 
Committee appropriate modifications to ITS to permit trading Index Fund 
Shares in \1/16\ of $1.00 increments for shares priced at or above $10, 
and would make reasonable efforts to address issues raised by such 
prospective trading.\58\ The Commission expects the Amex to work with 
ITS and other market participants in a timely manner to accommodate 
trading in sixteenths through ITS should other ITS participants seek to 
initiate WEBS trading.

    \57\ Amendment No. 2, supra note 5.
    \58\ Id.
---------------------------------------------------------------------------

I. Scope of the Commission's Order

    The Commission is approving in general the Exchange's proposed 
listing standards for Index Fund Shares, and specifically the seventeen 
series of WEBS described herein. Other similarly structured products, 
including WEBS based on MSCI Indices not described herein, would 
require review by the Commission pursuant to Section 19(b) of the Act 
prior to being traded on the Exchange.

J. Accelerated Approval of Amendment Nos. 2 and 3

    The Commission finds good cause for approving Amendment Nos. 2 and 
3 prior to the thirtieth day after the date of publication of notice of 
filing thereof in the Federal Register. Amendment No. 2 provides 
additional information regarding the structure of Index Fund Shares. 
Amendment No. 2 also includes changes to the criteria for initial 
listing, a description of the dissemination of portfolio information, a 
provision for original and annual listing fees, a modification 
affecting stop and stop limit orders, a modification of minimum 
fractional changes, an Amendment to Amex Rule 190 (Specialist's 
Transactions with Public Customers), and effects a technical change to 
proposed Amex Rule 1000A. Amendment No. 3 clarifies that WEBS will 
trade until 4:00 p.m., not 4:15 p.m. as originally proposed; revises 
its proposal with respect to trading halts; and provides information 
regarding the dissemination of NAVs.
    The Commission believes that the information presented by Amendment 
No. 2 concerning the criteria for initial listing is generally 
consistent with the Exchange's original proposal. The provision 
regarding WEBS portfolio compositions and the dissemination of 
portfolio compositions and the dissemination of portfolio values should 
strengthen the Exchange's proposal by

[[Page 10614]]
providing investors with additional information. The technical change 
to proposed Amex Rule 1000A does not represent a material change. The 
Commission believes that the proposed original listing fee is 
reasonable and notes that no annual listing fees will be assessed for 
calendar year 1996. Finally, the other aspects of Amendment No. 2 
concern issues that have been raised in prior Exchange proposals that 
have been the subject of a full comment period pursuant to Section 
19(b) of the Act. The Commission believes that the trading hour 
provision of Amendment No. 3 does not represent a material change to 
the Exchange's original proposal and conforms WEBS trading hours to the 
Amex's regular trading hours. Amendment No. 3's trading halt provision 
clarifies the Exchange's proposal and makes it consistent with existing 
Exchange rules. Finally, the explanation regarding the dissemination of 
NAV clarifies what information will be made available to the public. 
For the foregoing reasons, the Commission believes there is good cause, 
consistent with Sections 6(b)(5) and 19(b)(2) of the Act,59 to 
approve Amendment Nos. 2 and 3 to the proposal on an accelerated basis.

    \59\ 15 U.S.C. 78f(b)(5) and 78s(b)(2) (1988).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment Nos. 2 and 3. 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 Amex. All 
submissions should refer to File No. SR-Amex-95-43 and should be 
submitted by April 14, 1996.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (SR-Amex-95-43), as amended, is approved.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\60\

    \60\ 17 CFR Sec. 200.30-3(a)(12) (1994).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-6089 Filed 3-13-96; 8:45 am]
BILLING CODE 8010-01-M