[Federal Register Volume 61, Number 60 (Wednesday, March 27, 1996)]
[Notices]
[Pages 13547-13548]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-7395]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36989; File No. AR-Amex-95-48]


Self-Regulatory Organizations; American Stock Exchange, Inc.; 
Order Approving Proposed Rule Change Relating to Revised Listing 
Standards for Equity Linked Notes

March 20, 1996.
    On December 5, 1995, the American Stock Exchange, Inc. (``Amex'' or 
``Exchange'') submitted to the Securities and Exchange Commission 
(``SEC'' or ``Commission''), pursuant to Section 19(b) of the 
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to revise the trading volume 
requirement for securities underlying Equity Linked Notes (``ELNs'').

    \1\ 15 U.S.C. 78s(b)(1) (1988 & Supp. V 1993).
    \2\ 17 CFR Sec. 240.19b-4 (1994).
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    Notice of the proposed rule change was published for comment and 
appeared in the Federal Register on December 20, 1995.\3\ No comments 
were received on the proposal. This order approves the proposal.

    \3\ See Securities Exchange Act Release No. 36578 (Dec. 13, 
1995).
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I. Description of the Proposal

    On May 20, 1993 and December 13, 1993, the SEC approved amendments 
to Section 107 of the Amex Company Guide (``Section 107'') to provide 
for the

[[Page 13548]]
listing and trading of ELNs.\4\ ELNs are intermediate term, 
nonconvertible, hybrid debt instruments, the value of which is linked 
to the performance of a highly capitalized, actively traded U.S. common 
stock or non-convertible preferred stock (``linked security''). In 
order to list an ELNs product, Section 107B currently requires the 
linked security to meet one of the following criteria:

    \4\ See Securities Exchange Act Release Nos. 32345 (May 20, 
1993) and 33328 (Dec. 13, 1993).

Market Capitalization and Annual Trading Volume
    $3 billion and 2.5 million shares.
    $1.5 billion and 20 million shares.
    $500 million and 80 million shares.

    Amex now proposes to amend Section 107(B) to provide for greater 
flexibility in the listing criteria for ELNs. The proposed rule change 
will lower the trading volume requirements criteria for underlying 
linked stocks meeting the capitalization requirements of $1.5 billion 
and $500 million. Under the revised criteria, a linked stock with 
market capitalization of $1.5 billion would now need an annual trading 
volume of 10 million shares, as opposed to the current trading volume 
requirement of 20 million shares. Securities with a market 
capitalization in excess of $500 million also would be eligible for 
ELNs listing if they have annual trading volume of 15 million shares, 
as opposed to the 80 million shares under the current rule.\5\ The 
proposal will also delete the current provision of the rule that allows 
the Exchange to list ELNs that do not meet the market capitalization 
and trading volume criteria if the Division of Market Regulation of the 
SEC concurs.

    \5\ Under the rule, as amended by this proposal, ELNs could be 
listed where the linked security met any of the following criteria:
    Market capitalization and Annual Trading Volume
    $3 billion and 2.5 million shares.
    $1.5 billion and 10 million shares.
    $500 million and 15 million shares.
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    The Exchange believes these revisions strike an appropriate balance 
between the Exchange's responsiveness to innovations in the securities 
markets and its need to ensure the protection of investors and the 
maintenance of fair and orderly markets. Moreover, the Exchange 
believes that these changes will not have an adverse impact on the 
markets for the underlying linked security since the requirements will 
continue to ensure that the linked security has a large minimum market 
capitalization and a significant amount of trading volume over the 
preceding twelve months. The Exchange will continue to require that the 
issuer have a minimum tangible net worth of $150 million and that the 
total issue price of the ELNs combined with all of the issuer's other 
listed ELNs shall not be greater than 25% of the issuer's tangible net 
worth at the time of issuance.

II. 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).\6\ In particular, the 
Commission believes the proposal is consistent with the Section 6(b)(5) 
requirement that the rules of an exchange be designed to promote just 
and equitable principles of trade and not to permit unfair 
discrimination between customers, issuers, brokers, and dealers.

    \6\ 15 U.S.C. 78f(b)(5) (1982).
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    The Commission finds that the proposal to reduce the trading volume 
requirement for eligible linked securities will expand the number of 
securities that can be linked on ELNs while maintaining the requirement 
that the linked security be an actively traded, highly capitalized 
common stock or ADR. While the proposal reduces the trading volume 
criteria for securities with market capitalizations in the $1.5 billion 
and $500 million tiers to 10 million and 15 million shares, 
respectively (from 20 and 80 million shares, respectively), the 
Commission nevertheless believes that, together, the applicable 
capitalization and new trading volume requirements will continue to 
help ensure that ELNs are only issued on highly liquid securities of 
broadly capitalized companies. Accordingly, the Commission believes 
that these requirements will continue to help reduce the likelihood of 
any adverse market impact on the securities underlying ELNs.
    Finally, the Commission notes that the Exchange has deleted the 
provision that allows it to list ELNs on securities not meeting the 
market capitalization and trading volume criteria if the Division of 
Market Regulation of the SEC concurs. The revised criteria will expand 
the number of securities eligible for ELNs trading. The increased 
flexibility in the ELNs listing criteria should effectively reduce or 
eliminate the need for additional discretion in this area, in addition 
to providing issuers and the Exchange with specific and clear guidance 
on the applicable listing criteria for a security to be eligible to 
underlie an ELN.
    It therefore is ordered, pursuant to Section 19(b)(2) of the 
Act,\7\ that the proposed rule change (SR-Amex-95-48) is approved.

    \7\ 15 U.S.C. 78s(b)(2) (1988).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\

    \8\ 17 CFR Sec. 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-7395 Filed 3-26-96; 8:45 am]
BILLING CODE 8010-01-M