[Federal Register Volume 61, Number 198 (Thursday, October 10, 1996)]
[Notices]
[Page 53246]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-26063]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-37783; File Nos. SR-Amex-96-31]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Changes by the American Stock Exchange, Inc., Relating to Listing 
Criteria for Equity Linked Notes

October 4, 1996.

I. Introduction

    On August 14, 1996, the American Stock Exchange, Inc. (``Amex''), 
filed proposed rule changes with 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\ to amend their respective issuer listing standards for 
Equity Linked Notes (``ELNs'') \3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ ELNs are non-convertible debt securities of an issuer which 
are linked, in whole or in part, to the market performance of a 
common stock or a non-convertible preferred stock.
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    Notice of the proposal was published for comment and appeared in 
the Federal Register on August 27, 1996.\4\ No comment letters were 
received on the proposed rule change. This order approves the Exchange 
proposal.
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    \4\ See Securities Exchange Act Release No. 37587 (August 20, 
1996), 61 FR 44097.
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II. Description of the Proposal

    ELNs are non-convertible debt securities of an issuer which are 
linked, in whole or in part, to the market performance of a common 
stock or a non-convertible preferred stock (the ``underlying 
security''). The Exchange's listing standards currently permit the 
listing of ELNs if, among other things, (i) the issuer has minimum 
tangible net worth of $150 million and (ii) the original issue price of 
the ELNs, combined with all the issuer's other publicly-traded ELNs, 
does not exceed 25 percent of the issuer's net worth (the ``net worth 
standard'').\5\
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    \5\ See Amex Company Guide Section 107B.
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    The Exchange proposes to add an alternative net worth standard to 
its ELNs issuer listing standards. Under the new test, an issuer with 
tangible net worth of at least $250 million would be able to issue ELNs 
without being subject to the limit that the ELNs be no more than 25 
percent of the issuer's net worth. Issuers with tangible net worth of 
at least $150 million, but less than $250 million, will still be 
subject to the 25 percent limit.\6\ This will provide the largest 
issuers with increased flexibility in their financing and 
capitalization planning.
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    \6\ The Commission notes that under the ELNs standards, issuers 
must have a minimum net worth of at least $150 million.
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III. Commission Finding and Conclusions

    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.\7\ 
Specifically, the Commission finds that the Exchange's proposal strikes 
a reasonable balance between the Commission's mandates under Section 
6(b)(5) to remove impediments to and perfect the mechanism of a free 
and open market and a national market system, while protecting 
investors and the public interest. In particular, the Commission 
believes that the trading of ELNs permits investors to more closely 
approximate their desired investment objectives through, for example, 
shifting some of the opportunity for upside gain in return for 
additional income.
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    \7\ 15 U.S.C. 78f(b)(5).
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    ELNs, unlike standardized options, however, do not have a 
clearinghouse guarantee but are instead dependent upon the individual 
credit of the issuer. This heightens the possibility that a holder of 
an ELN may not be able to receive full cash settlement at maturity. The 
Commission believes that the Exchange's proposed alternate ELNs issuer 
listing standard requiring issuers to have at least $250 million 
tangible net worth (without the issuance being limited to 25% of the 
issuer's net worth), in addition to the existing size and earnings 
requirements,\8\ reasonably addresses this additional credit risk, and 
to some extent minimize this risk. The Commission also notes that the 
revised standard is identical to that approved for other issuer-based 
products, including index, currency, and currency index warrants.\9\
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    \8\ See Amex Company Guide Section 101(A).
    \9\ See Securities Exchange Act Release No. 36168 (August 29, 
1995), 61 FR 46637 (September 7, 1996) (SR-Amex-94-38).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (File No. SR-Amex-96-31) is 
approved.

    \10\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-26063 Filed 10-9-96; 8:45 am]
BILLING CODE 8010-01-M