[Federal Register Volume 61, Number 226 (Thursday, November 21, 1996)]
[Notices]
[Pages 59261-59263]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-29789]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37960; International Series Release No. 1028; File No. 
SR-Amex-96-38]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by American Stock Exchange, Inc., Relating to the Listing and 
Trading of Index Warrants Based on the BEMI Latin America Index

November 15, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on October 15, 1996, the American Stock Exchange, Inc. (``Amex'' or 
``Exchange'') filed with

[[Page 59262]]

the Securities and Exchange Commission the proposed rule change as 
described in Items I, II, and III below, which Items have been prepared 
by the Amex. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b) (1)
    \2\ CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Amex, pursuant to Rule 19b-4 of the Act proposes to approve for 
listing and trading under Section 106 of the Amex Company Guide index 
warrants based on the BEMI Latin America Index (``Index''), a market 
capitalization-weighted broad-based index developed by ING Barings 
Securities Limited comprised of companies from seven Latin American 
countries representing eleven different industry groups.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Amex included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Amex has prepared summaries, set forth in sections 
A, B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Under Section 106 (Currency and Index Warrants) of the Amex Company 
Guide, the Exchange may approve for listing index warrants based on 
foreign and domestic market indices. The Amex has received approval to 
trade a number of index warrant products pursuant to Section 106.\3\ 
The Amex represents that the listing and trading of warrants on the 
Index will comply in all respects to Exchange Rules 1100 through 1110 
for the trading of stock index and currency warrants.
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    \3\ See Securities Exchange Act Release No. 36070 (August 9, 
1995), 60 FR 42205 (August 14, 1996) (approval for index warrants on 
the Deutscher Aktienindex); Securities Exchange Act Release No. 
33036 (October 8, 1993), 58 FR 53588 (October 15, 1993) (approval 
for index warrants on the Amex Hong Kong 30 Index); and Securities 
Exchange Act Releases No. 31016 (August 11, 1992), 57 FR 37012 
(August 17, 1992) (approval for index warrants on the Japan Index).
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    Warrant issues on the Index will conform to the listing guidelines 
under Section 106, which provide, among other things, that (1) the 
issuer shall have tangible net worth in excess of $250,000,000 and 
otherwise substantially exceed earnings requirements in Section 101(A) 
of the Company Guide or meet the alternate guideline in paragraph (a); 
(2) the term of the warrants shall be for a period ranging from one to 
three years from date of issuance; and (3) the minimum public 
distribution of such issues shall be 1,000,000 warrants, together with 
a minimum of 400 public holders, and have an aggregate market value of 
$4,000,000.
    Index warrants will be direct obligations of their issuer subject 
to cash-settlement during their term, and either exercisable throughout 
their life (i.e., American style) or exerciseable only on their 
expiration date (i.e., European style). Upon exercise, or at the 
warrant expiration date (if not exercisable prior to such date), the 
holder of a warrant structured as a ``put'' would receive payment in 
U.S. dollars to the extent that the Index has declined below a pre-
stated cash settlement value. Conversely, holders of a warrant 
structured as a ``call'' would, upon exercise or at expiration, receive 
payment in U.S. dollars to the extent that the Index has increased 
above the pre-stated cash settlement value. If ``out-of-the-money'' at 
the time of expiration, the warrants would expire worthless.
    The Amex has adopted suitability standards applicable to 
recommendations to purchasers of Index warrants and transactions in 
customer accounts. Amex Rule 411, Commentary .02 recommends that index 
warrants under Section 106 of the Company Guide be sold only to 
investors whose accounts have been approved for options trading 
pursuant to Rule 921. The requirements under Rule 923 (Suitability) 
shall apply to recommendations in index warrants both with respect to 
customer accounts that have been approved for options trading and 
customer accounts that have not been so approved. Amex Rule 421, 
Commentary .02 requires a Senior Registered Options Principal or a 
Registered Options Principal to approve and initial a discretionary 
order in Index warrants on the day the order is entered. In addition, 
the Amex, prior to the commencement of trading of Index warrants, will 
distribute a circular to its membership calling attention to specific 
risks associated with warrants on the Index.
    The Amex is proposing to list index warrants based on the Index, an 
internationally-recognized capitalization-weighted index representing a 
broad-based portfolio of 119 large, actively traded stocks from seven 
Latin American countries.\4\ The total market capitalization of the 
Index was $237.4 billion on September 30, 1996. The total available 
market capitalization \5\ of the Index was $104.5 billion on September 
30, 1996. The median available capitalization of the companies in the 
Index on that date was $429 million and the average available market 
capitalization of these companies was $878 million. The individual 
available market capitalization of the companies ranged from $15.9 
million to $8.8 billion.
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    \4\ The list of the component securities and their respective 
weights in the Index were attached to the proposed rule filing as 
Exhibit A, and are available for examination at the Amex or at the 
Commission as specified in Item IV.
    \5\ Available market capitalization refers to market 
capitalization that is available to foreign investors and that 
reflects the restrictions in place in many emerging markets where 
large and variably defined portions of a company's market 
capitalization are not available to foreign investors.
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    The Index was designed by and is maintained by ING Barings. The 
stocks selected for inclusion in the Index were chosen on the basis of 
both country and company criteria. To be included in the Index a 
country must have a minimum Gross Domestic Product per capita of $400 
and a minimum market trading value of $2 billion per year, in at least 
one of the last three years. The companies included in the Index are 
drawn from a database of stock entities, which may represent individual 
companies in their entirety, or separate lines of stock, e.g. A shares 
and B shares, of the same company. The criteria for stock entities to 
be included are: Capitalization value greater than 1% of the ING 
Barings database for that country, minimum free-float of 10%, minimum 
average daily trading value of $100,000. In addition shares that rank 
first or second in their industry sector may be included if they have a 
minimum capitalization of 0.5% of the ING Baring database for that 
country and meet the normal free-float and daily trading value rules.
    The number of stocks and weighting in the Index as of 9/30/96 is as 
follows: Argentina 22 stocks/12.71% weighting, Brazil 23 stocks/39.36% 
weighting, Chile 16 stocks/12.30% weighting, Columbia 13 stocks/1.94% 
weighting, Mexico 27 stocks/25.35% weighting, Peru 12 stocks/7.13% 
weighting, and Venezuela 6 stocks/1.19% weighting. The Index is 
composed of companies from 11 industry groups including: consumer 
goods, energy, capital equipment, basic materials, agriculture/food and 
financial. The largest stock accounts for 8.43% of the Index, while

[[Page 59263]]

the smallest accounts for 0.015%. The top five stocks in the Index by 
weight account for 29.62%. The Exchange believes that the Index is a 
Stock Index Group and a Broad Stock Index Group pursuant to Rule 
1100(b).
    The Exchange also believes that the proposed Index complies with 
the information sharing standards of Section 106(g) of the Company 
Guide.\6\ In this regard, the Commission previously has permitted U.S. 
derivatives markets to list derivatives on securities where the home 
market for such securities is located in Argentina, Brazil, Chile and 
Mexico based upon the Commission's and the Exchange's information 
sharing arrangements with the appropriate government or self-regulatory 
authorities in such countries. (The Commission has Memoranda of 
Understanding with government authorities in Argentina, Brazil, Chile 
and Mexico; the Exchange has information sharing agreements with the 
securities markets and/or self-regulators in Argentina, Brazil and 
Chile.) Because Argentinean, Brazilian, Chilean, and Mexican securities 
comprise 89.73% of the value of the Index, the Exchange represents that 
the Index meets the information sharing standards of Section 106(g) of 
the Company Guide.
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    \6\ Section 106(g) of the Company Guide states that foreign 
country securities or American Depository Receipts thereon that are 
not subject to a comprehensive surveillance agreement, and have less 
than 50% of their global trading volume in dollar value within the 
United States, shall not in the aggregate, represent more than 20% 
of the weight of an index, unless such index is otherwise approved 
for warrant or option trading.
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    The Index is capitalization-weighted and based on available 
capitalization. The Index is quoted in U.S. dollars and disseminated 
daily shortly after 4 p.m. New York time using local market closing 
prices and Reuters 4 p.m. exchange rates. The Index was first 
calculated on January 7, 1992 with a benchmark value of 100.
    The Index is maintained by ING Barings Recomposition Committee. The 
Recomposition Committee, established at the time of the launch of the 
Index, reviews on a quarterly basis the Index rules and composition. 
The committee implements changes or fixes standards as appropriate and 
oversees the security environment of the Index and its record-keeping. 
The quarterly recomposition meeting is normally held in the second week 
of the last month of the quarter. The date of these meetings is posted 
at least two months in advance on Reuters and the results are posted on 
Reuters the day after a committee meeting. Any changes in the 
composition of the Index are implemented on the last day of the month 
that the committee meeting is held. This is approximately two weeks 
after the committee meeting.
    According to the Exchange, membership of the committee is regulated 
by a ``Fire Wall.'' All members are isolated from sales, trading 
functions and corporate finance functions. Members are drawn from Index 
research, calculations group, and the legal department of ING Barings. 
To ensure impartiality and good practice, the committee has retained 
Russell Systems Limited (Part of the Frank Russell Group) to attend all 
meetings and to provide an audit of attendance and appropriateness of 
the agenda. Russell Systems Limited also provides advice on good 
practice in indexation and on how to ensure the use of the best 
available information on emerging markets.
2. Basis
    The Amex 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 \7\ in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, and is not designed to permit unfair 
discrimination between customers, issuers, brokers or dealers.
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    \7\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Amex does not believe that the proposed rule change will impose 
any inappropriate burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Within 35 days of the 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 
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. 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-96-38 and should be 
submitted by December 12, 1996.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-29789 Filed 11-20-96; 8:45 am]
BILLING CODE 8010-01-M