[Federal Register Volume 62, Number 127 (Wednesday, July 2, 1997)]
[Notices]
[Pages 35866-35870]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-17316]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38777; File No. SR-CHX-97-6]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Stock Exchange, Inc. Relating to Listing and 
Trading Standards for Portfolio Depository Receipts

June 26, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on March 
17, 1997,\1\

[[Page 35867]]

the Chicago Stock Exchange, Inc. (``CHX'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I, II, and III below, which Items 
have been prepared by the self-regulatory organization. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
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    \1\ On June 4, 1997, the Exchange filed Amendment No. 1 to this 
rule filing. Amendment No. 1 serves to supersede entirely the 
Exchange's rule filing. Therefore, this notice incorporates 
Amendment No. 1 in its entirety. On June 17, 1997 and June 24, 1997, 
the Exchange filed Amendment Nos. 2 and 3 respectively; Amendment 
No. 3 replaces Amendment No. 2 in its entirety and the substance of 
Amendment No. 3 is incorporated into this notice, See letter from J. 
Craig Long, Attorney, Foley & Lardner, to Ivette Lopez, Assistant 
Director, Market Regulation, Commission, dated May 27, 1997 
(``Amendment No. 1'') and letters from David T. Rusoff, Attorney, 
Foley & Lardner, to Sharon Lawson, Senior Special Counsel, Market 
Regulation, Commission, dated June 13, 1997 (``Amendment No. 2'') 
and June 18, 1997 (``Amendment No. 3'') respectively.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to add Rule 25 to Article XXVIII of CHX's 
rules relating to the listing and trading of Portfolio Depositary 
Receipts (``PDRs'').

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 self-regulatory organization 
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 self-regulatory organization 
has prepared summaries, set forth in Sections A, B, and C below, of the 
most significant aspects of such statements.

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

1. Purpose
    The Exchange proposes to adopt new Rule 25 under Article XXVIII to 
accommodate the trading of PDRs, securities which are interests in a 
unit investment trust (``Trust'') holding a portfolio of securities 
linked to an index, Each Trust will provide investors with an 
instrument that (i) closely tracks the underlying portfolio of 
securities, (ii) trades like a share of common stock, and (iii) pays 
holders of the instrument periodic dividends proportionate to those 
paid with respect to the underlying portfolio of securities, less 
certain expenses (as described in the Trust prospectus).
    Under the proposal, the Exchange may list and trade, or trade 
pursuant to unlisted trading privileges, PDRs based on one or more 
stock indexes or securities portfolios. PDRs based on each particular 
stock index or portfolio shall be designated as a separate series and 
identified by a unique symbol. The stocks that are included in an index 
or portfolio on which PDRs are based shall be selected by the Exchange, 
or by such other person as shall have a proprietary interest in and 
authorized use of such index or portfolio, and may be revised as deemed 
necessary or appropriate to maintain the quality and character of the 
index or portfolio.
    In connection with an initial listing, the Exchange proposes that, 
for each Trust of PDRs, the Exchange will establish a minimum number of 
PDRs required to be outstanding at the time of commencement of Exchange 
trading, and such minimum number will be filed with the Commission in 
connection with any required submission under Rule 19b-4 for each 
Trust. If the Exchange trades a particular PDR pursuant to unlisted 
trading privileges, the Exchange will follow the listing exchange's 
determination of the appropriate minimum number.
    Because the Trust operates on an open-end type basis, and because 
the number of PDR holders is subject to substantial fluctuations 
depending on market conditions, the Exchange believes it would be 
inappropriate and burdensome on PDR holders to consider suspending 
trading in or delisting a series of PDRs, with the consequent 
termination of the Trust, unless the number of holders remains severely 
depressed during an extended time period. Therefore, twelve months 
after the formation of a Trust and commencement of Exchange trading, 
the Exchange will consider suspension of trading in, or removal from 
listing of, a Trust when, in its opinion, further dealing in such 
securities appears unwarranted under the following circumstances:
    (a) If the Trust on which the PDRs are based has more than 60 days 
remaining until termination and there have been fewer than 50 record 
and/or beneficial holders of the PDRs for 30 or more consecutive 
trading days; or
    (b) If the index on which the Trust is based is no longer 
calculated; 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.
    A Trust shall terminate upon removal from Exchange listing and its 
PDRs will be redeemed in accordance with provisions of the Trust 
prospectus. A Trust may also terminate under such other conditions as 
may be set forth in the trust prospectus. For example, the sponsor of 
the trust (``Sponsor''), following notice to PDR holders, shall have 
discretion to direct that the Trust be terminated if the value of 
securities in such Trust falls below a specified amount.
    Trading of PDRs. Dealings in PDRs on the Exchange will be conducted 
pursuant to the Exchange's general agency-auction trading rules. The 
Exchange's general dealing and settlement rules will apply, including 
its rules on clearance and settlement of securities transactions and 
its equity margin rules. Other generally applicable Exchange equity 
rules and procedures will also apply, including, among others, rules 
governing the priority, parity and precedence of orders and the 
responsibilities of specialists.
    With respect to trading halts, the trading of PDRs will be halted, 
along with the trading of all other listed or traded stocks, in the 
event the ``circuit breaker'' thresholds of CHX Article IX, Rule 10A 
are reached. In addition, for PDRs tied to an index, the triggering of 
futures price limits for the S&P 500 Composite Price Index (``S&P 500 
Index''), S&P 100 Composite Price Stock Index (``S&P 100 Index''), or 
Major Market Index (``MMI'') futures contracts will not, in itself, 
result in a halt in PDR trading or a delayed opening. However, the 
Exchange could consider such an event, along with other factors, such 
as a halt in trading in S&P 100 Index Options (``OEX''), S&P 500 Index 
Options (``SPX''), or MMI Options (``XMI''), in deciding whether to 
halt trading in PDRs.
    Under the proposed rule change, 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 Article XXXVI, Rule 19, the Exchange's rule 
governing trading halts for Basket trading (except that the term 
``Basket'' shall be replaced by ``stock index'') in exercising its 
discretion to halt or suspend trading. For a PDR based on an index, 
these factors would include 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 whether other unusual conditions or circumstances detrimental 
to the maintenance of a fair and orderly market are present.
    Disclosure. Proposed Rule 25 of Article XXVIII requires that 
members and member organizations provide to all

[[Page 35868]]

purchasers of each series of PDRs a written description of the terms 
and characteristics of such securities, in a form approved by the 
Exchange, not later than the time a confirmation of the first 
transaction in such series of PDRs is delivered to such purchaser. In 
this regard, a member or member organization carrying an omnibus 
account for a non-member broker-dealer will be required to inform such 
non-member that execution of an order to purchase PDRs for such omnibus 
account will be deemed to constitute an agreement by the non-member to 
make such written description available to its customers on the same 
terms as are directly applicable to member and member organizations. 
The written description must be included with any sales material on 
that series of PDRs that a member provides to customers or the public. 
Moreover, other written materials provided by a member or member 
organization to customers or the public making specific reference to a 
series of PDRs as an investment vehicle must include a statement in 
substantially the following form: ``A circular describing the terms and 
characteristics of [the series of PDRs] is available from your broker. 
It is recommended that you obtain and review such circular before 
purchasing [the series of PDRs]. In addition, upon request you may 
obtain from your broker a prospectus for [the series of PDRs].'' 
Additionally, as noted above, the Exchange requires that members and 
member organizations provide customers with a copy of the prospectus 
for a series of PDRs upon request.
    Two existing PDRs, Standard & Poor's Depositary Receipts 
(``SPDRs'') and Standard & Poor's MidCap 400 Depositary Receipts 
(``MidCap SPDRs''), are traded on the American Stock Exchange 
(``Amex'').\2\ CHX is not asking for permission to list SPDRs or MidCap 
SPDRs at this time, but rather will trade SPDRs and MidCap SPDRs 
pursuant to unlisted trading privileges once the generic listing 
standards set forth herein are approved. Pursuant to SEC Rule 12f-5, in 
order to trade a particular class or type of security pursuant to 
unlisted trading privileges, CHX must have rules providing for 
transactions in such class or type of security. The Amex has enacted 
listing standards for PDRs, and CHX's proposed rule change is designed 
to create similar standards for PDR listing and/or trading on CHX. As 
stated above, CHX proposes to trade SPDRs and MidCap SPDRs pursuant to 
unlisted trading privileges upon approval of this rule filing.
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    \2\ SPDRs and MidCap SPDRs are defined and discussed more fully 
below.
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    If at a later time CHX and the issuer of the product desire to list 
SPDRs and MidCap SPDRs or any other PDRs on the Exchange, the Exchange 
will request SEC approval for that listing in a separate proposed rule 
change filed pursuant to Section 19(b) of the Act. Additionally, in the 
event a new PDR is listed on another exchange using listing standards 
that are different than current CHX listing standards or the CHX 
listing standards proposed in this filing, the CHX will file a proposed 
rule change pursuant to Section 19(b) of the Act to adopt the listing 
standard before it trades that PDR pursuant to unlisted trading 
privileges.
    Notwithstanding the foregoing discussion concerning the 
applicability of the Exchange's equity trading rules to PDRs generally, 
the Intermarket Trading System (``ITS'') rules will not be applicable 
to SPDRs and MidCap SPDRs traded on the CHX pursuant to unlisted 
trading privileges until SPDRs and MidCap SPDRs are designated as ITS 
Securities. Currently, ITS cannot accommodate trading in a minimum 
variation of \1/64\ and ITS has not made a determination that ITS is 
applicable to securities trading in \1/64\ths. When such changes are 
made, the CHX intends to request that SPDRs and MidCap SPDRs be 
designated as ITS Securities. At such time, the ITS rules will apply to 
trading in SPDRs and MidCap SPDRs.
    The current inapplicability of the ITS rules means, among other 
things, that the ITS trade-through rule will not apply. However, the 
CHX's BEST Rule, Article XX, Rule 37(a), will still be applicable to 
SPDRs and MidCap SPDRs, thereby guaranteeing the execution of certain 
agency orders on the basis of the size and price associated with the 
best bid (for a sell order) or best offer (for a buy order) among the 
American, Boston, Cincinnati, Chicago, New York, Pacific, Philadelphia 
and the Intermarket Trading System/Computer Assisted Execution System 
quote, which quote is defined in SR-CHX-97-9 as the ``ITS BBO.'' \3\ 
Because SPDRs and MidCap SPDRs are not trade in all of these market 
centers, for purposes of this filing only, the ITS BBO is limited to 
those market centers listed above that trade SPDRs and MidCap SPDRs.\4\ 
For example, if a CHX specialist receives an agency limit order for a 
SPDR, so long as all of the eligibility requirements of the BEST Rule 
are met, the specialist will be required to execute that order if there 
has been a price penetration in the primary market. In addition, if the 
Amex specialist is disseminating the best quote for SPDRs, the CHX 
specialist will be required to execute eligible agency market orders 
for SPDRs at the price quoted on the Amex, even if the CHX specialist 
is not, himself, quoting at that price. The CHX SPDR and MidCap SPDR 
specialist will have the ability to monitor the current quotations 
being disseminated by the Amex specialist on a real-time basis. The 
quotations for SPDRs and MidCap SPDRs are disseminated through the 
Consolidated Quotation System and are available for viewing by the CHX 
specialist at his or her post. Finally, the CHX specialist will have 
access to the Amex through the Amex's PER System (albeit through a 
correspondent firm). This will enable the CHX specialist to place limit 
orders on the Amex specialist's book or send market orders to the Amex 
specialist for execution against the Amex specialist's quote. These 
factors should minimize the possibility that a CHX originated trade-
through will occur.
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    \3\ The Commission notes that SR-CHX-97-9, as amended to remove 
the phrase ``size and price associated with the'' from the filing, 
has become effective. See Securities Exchange Act Release No. 38772 
(June 25, 1997). In addition, CHX represents that it will submit a 
separate rule filing pursuant to Section 19(b)(2) of the Act further 
amending the BEST Rule to add size and price to the definition of 
the ITS/BBO. Phone conversation between David Rusoff, Attorney, 
Foley & Lardner, and David Sieradzki, Attorney, Market Regulation, 
Commission, on June 17, 1997.
    \4\ Under the BEST Rule, Exchange specialists are required to 
guarantee executions of all agency market and limit orders for Dual 
Trading System issues from 100 up to and including 2099 shares. 
Subject to the requirements of the short sale rule, the specialist 
must fill all agency market orders at a price equal to or better 
than the ITS BBO. For all agency limit orders in Dual Trading System 
issues, the specialist must fill the order if: (1) the ITS BBO at 
the limit price has been exhausted in the primary market; (2) there 
has been a price penetration of the limit in the primary market 
(generally known as a trade-through of a CHX limit order); or (3) 
the issue is trading at the limit price on the primary market unless 
it can be demonstrated that the order would not have been executed 
if it had been transmitted to the primary market or the broker and 
specialist agree to a specific volume related to, or other criteria 
for, requiring a fill.
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    With respect to the above discussion concerning disclosure issues, 
because SPDRs and MidCap SPDRs will be traded pursuant to unlisted 
trading privileges and will not be listed on the CHX at this time, the 
CHX does not intend to create its own product description to satisfy 
the requirements of proposed Rule 25(c) of Article XXVIII, which 
requires members to provide to purchasers, a written description of the 
terms and characteristics of SPDRs and MidCap SPDRs in a form approved 
by the Exchange. Instead, the CHX will deem a member or member 
organization to be

[[Page 35869]]

in compliance with this requirement if the member delivers either (i) 
the current product description produced by the Amex from time to time, 
or (ii) the current prospectus for the SPDR or MidCap SPDR, as the case 
may be. It will be the member's responsibility to obtain these 
materials directly from the Amex and/or the distributor of the SPDR and 
MidCap SPDR for forwarding to purchasers in the time frames prescribed 
by CHX and SEC rules. The CHX will notify members and member 
organizations of this requirement in a notice to members.
    The remainder of this section of the filing merely provides 
background information on SPDRs and MidCap SPDRs. The information, 
taken mostly from SR-AMEX-94-52 and SR-AMEX-92-18, describes the 
structure and mechanics of SPDRs and MidCap SPDRs, but is not critical 
for the SEC's approval of the generic listing standards.
    SPDRs and MidCap SPDRs Generally. On December 11, 1992, the 
Commission approved Amex Rules 1000 et seq.\5\ to accommodate trading 
on the Amex of PDRs generally. The Sponsor of each series of PDRs 
traded on the Amex is PDR Services Corporation, a wholly-owned 
subsidiary of the Amex. The PDRs are issued by a Trust in a specified 
minimum aggregate quantity (``Creation Unit'') in return for a deposit 
consisting of specific numbers of shares of stock plus a cash amount.
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    \5\ See Securities Exchange Act Release No. 31591 (December 11, 
1992), 57 FR 60253 (December 18, 1992).
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    The first Trust to be formed in connection with the issuance of 
PDRs was based on the S&P 500 Index, known as Standard & Poor's 
Depositary Receipts (``SPDRs''). SPDRs have been trading on the Amex 
since January 29, 1993. The second Trust to be formed in connection 
with the issuance of PDRs was based on the S&P MidCap 400 Index,\6\ 
known as Standard & Poor's Midcap 400 Depository Receipts (``Midcap 
SPDRs'').\7\ The Sponsor of the two Trusts has entered into trust 
agreements with a trustee in accordance with Section 26 of the 
Investment Company Act of 1940. PDR Distributors, Inc. 
(``Distributor'') acts as underwriter of both SPDRs and MidCap SPDRs on 
an agency basis. The Distributor is a registered broker-dealer, a 
member of the National Association of Securities Dealers, Inc., and a 
wholly-owned subsidiary of Signature Financial Group, Inc.
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    \6\ The S&P MidCap 400 Index is a capitalization-weighted index 
of 400 actively traded securities that includes issues selected from 
a population of 1,700 securities, each with a year-end market-value 
capitalization of between $200 million and $5 billion. The issues 
included in the Index cover a broad range of major industry groups, 
including industrials, transportation, utilities, and financials.
    \7\ See Securities Exchange Act Release No. 35534 (March 24, 
1995), 60 FR 16686 (March 31, 1995).
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    SPDRs. The Trustee of the SPDR Trust will have the right to vote 
any of the voting stocks held by the Trust, and will vote such stocks 
of each issuer in the same proportion as well other voting shares of 
that issuer voted.\8\ Therefore, SPDR holders will not be able to 
directly vote the shares of the issuers underlying the SPDRs.
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    \8\ The Trustees will abstain from voting if the stocks held by 
the Trust cannot be voted in proportion as all other shares of the 
securities are voted.
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    The Trust will issue SPDRs in exchange for ``Portfolio Deposits'' 
of all of the S&P 500 Index securities, weighted according to their 
representation in the Index.\9\ An investor making a Portfolio Deposit 
into the Trust will receive a ``Creation Unit'' composed of 50,000 
SPDRs.\10\ The price of SPDRs will be based on a current bid/offer 
market. Amex has designated \1/64\ths as the minimum fraction for 
trading in SPDRs. The CHX has proposed this same minimum variation for 
the trading of SPDRs on the CHX. SPDRs will not be redeemable 
individually, but may be redeemed in Creation Unit size (i.e., 50,000 
SPDRs). Specifically, a Creation Unit may be redeemed for an in-kind 
distribution of securities identical to a Portfolio Deposit.\11\ PDR 
Distribution Services, Inc., a registered broker-dealer, will act as 
underwriter of SPDRs on an agency basis.
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    \9\ A Portfolio Deposit also will include a cash payment equal 
to a pro rata portion of the dividends accrued on the Trust's 
portfolio securities since the last dividend payment by the Trust, 
plus or minus an amount designed to compensate for any difference 
between the net asset value of the Portfolio Deposit and the S&P 500 
Index caused by, among other things, the fact that a Portfolio 
Deposit cannot contain fractional shares.
    \10\ The Trust is structured so that the net asset value of an 
individual SPDR should equal one-tenth of the value of the S&P 500 
Index.
    \11\ An investor redeeming a Creation Unit will receive Index 
securities and cash identical to the Portfolio Deposit required of 
an investor wishing to purchase a Creation Unit on that particular 
day. Since the Trust will redeem in kind rather than for cash, the 
Trustee will not be forced to maintain cash reserves for 
redemptions. This should allow the Trust's resources to be committed 
as fully as possible to tracking the S&P 500 Index, enabling the 
Trust to track the Index more closely than other basket products 
that must allocate a portion of their assets for cash redemptions.
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    MidCap SPDRs. All orders to create MidCap SPDRs in Creation Unit 
size aggregations, which has been set at 25,000, must be placed with 
the Distributor, and it will be the responsibility of the Distributor 
to transmit such orders to the Trustee.
    To be eligible to place orders to create MidCap SPDRs as described 
below, an entity or person either must be a participant in the 
Continuous Net Settlement (``CNS'') system of the National Securities 
Clearing Corporation (``NSCC'') or a Depository Trust Company (``DTC'') 
participant. Upon acceptance of an order to create MidCap SPDRs, the 
Distributor will instruct the Trustee to initiate the book-entry 
movement of the appropriate number of MidCap SPDRs to the account of 
the entity placing the order. MidCap SPDRs will be maintained in book-
entry form at DTC.
    Payment with respect to creation orders placed through the 
Distributor will be made by (1) the ``in-kind'' deposit with the 
Trustee of a specified portfolio of securities that is formulated to 
mirror, to the extent practicable, the component securities of the 
underlying index or portfolio, and (2) a cash payment sufficient to 
enable the Trustee to make a distribution to the holders of beneficial 
interests in the Trust on the next dividend payment date as if all the 
securities had been held for the entire accumulation period for the 
distribution (``Dividend Equivalent Payment''), subject to certain 
specified adjustments. The securities and cash accepted by the Trustee 
are referred to, in the aggregate, as a ``Portfolio Deposit.'' The 
Exchange anticipates that the term of the MidCap SPDR Trust will be 25 
years.
    Issuance of MidCap SPDRs. Upon receipt of a Portfolio Deposit in 
payment for a creation order placed through the Distributor as 
described above, the Trustee will issue a specified number of MidCap 
SPDRs, which aggregate number is referred to as a ``Creation Unit.'' 
The Exchange anticipates that a Creation Unit will be made up of 25,000 
MidCap SPDRs.\12\ Individual MidCap SPDRs can then be traded in the 
secondary market like other equity securities. Portfolio Deposits are 
expected to be made primarily by institutional investors, arbitragers, 
and the Exchange specialist.
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    \12\ PDRs may be created in other than Creation Unit size 
aggregations in connection with the DTC Dividend Reinvestment 
Service (``DRS'').
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    The Trustee or Sponsor will make available (1) on a daily basis, a 
list of the names and required number of shares for each of the 
securities in the current Portfolio Deposit; (2) on a minute-by-minute 
basis throughout the day, a number representing the value (on a per 
MidCap SPDR basis) of the securities portion of a Portfolio Deposit in 
effect on such day; and (3) on a daily basis, the accumulated 
dividends, less

[[Page 35870]]

expenses, per outstanding MidCap SPDR.
    The Amex has set the minimum fractional trading variation for 
MidCap SPDRs at \1/64\ of $1.00. The CHX has proposed this same minimum 
variation for MidCap SPDRs.
    Redemption of MidCap SPDRs. MidCap SPDRs in Creation Unit size 
aggregations will be redeemable in kind by tendering them to the 
Trustee. While holders may sell MidCap SPDRs in the secondary market at 
any time, they must accumulate at least 25,000 (or multiples thereof) 
to redeem them through the Trust. MidCap SPDRs will remain outstanding 
until redeemed or until the termination of the Trust. Creation Units 
will be redeemable on any business day in exchange for a portfolio of 
the securities held by the Trust identical in weighting and composition 
to the securities portion of a Portfolio Deposit in effect on the date 
a request is made for redemption, together with a ``Cash Component'' 
(as defined in the Trust prospectus), including accumulated dividends, 
less expenses, through the date of redemption. The number of shares of 
each of the securities transferred to the redeeming holder will be the 
number of shares of each of the component stocks in a Portfolio Deposit 
on the day a redemption notice is received by the Trustee, multiplied 
by the number of Creation Units being redeemed. Nominal service fees 
may be charged in connection with the creation and redemption of 
Creation Units. The Trustee will cancel all tendered Creation Units 
upon redemption.
    Distributions for MidCap SPDRs. The MidCap SPDR Trust will pay 
dividends quarterly. The regular quarterly ex-dividend date for MidCap 
SPDRs will be the third Friday in March, June, September, and December, 
unless that day is a New York Stock Exchange holiday, in which case the 
ex-dividend date will be the preceding Thursday. Holders of MidCap 
SPDRs on the business day preceding the ex-dividend date will be 
entitled to receive an amount representing dividends accumulated 
through the quarterly dividend period preceding such ex-dividend date 
net of fees and expenses for such period. The payment of dividends will 
be made on the last Exchange business day in the calendar month 
following the ex-dividend date (``Dividend Payment Date''). On the 
Dividend Payment Date, dividends payable for those securities with ex-
dividend dates falling within the period from the ex-dividend date most 
recently preceding the current ex-dividend date will be distributed. 
The Trustee will compute on a daily basis the dividends accumulated 
within each quarterly dividend period. Dividend payments will be made 
through DTC and its participants to all such holders with funds 
received from the Trustee.
    The MidCap SPDR Trust intends to make the DTC DRS available for use 
by MidCap SPDR holders through DTC participant brokers for reinvestment 
of their cash proceeds. The DTC DRS is also available to holders of 
SPDRs. Because some brokers may choose not to offer the DTC DRS, an 
interested investor would have to consult his or her broker to 
ascertain the availability of dividend reinvestment through that 
broker. The Trustee will use the cash proceeds of MidCap SPDR holders 
participating in the reinvestment to obtain the Index securities 
necessary to create the requisite number of SPDRs.\13\ Any cash 
remaining will be distributed pro rata to participants in the dividend 
reinvestment.
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    \13\ The creation of PDRs in connection with the DTC DRS 
represents the only circumstances under which PDRs can be created in 
other than Creation Unit size aggregations.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b)(5) of the Act \14\ in that the proposal fosters 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, removes impediments to and 
perfects the mechanism of a free and open market and a national market 
system and protects investors and the public interest.
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    \14\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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 either solicited or received.

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

    Within 35 days of the 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 the 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 at the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
Exchange. All submissions should refer to File No. SR-CHX-97-6 and 
should be submitted by July 23, 1997.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-17316 Filed 7-1-97; 8:45 am]
BILLING CODE 8010-01-M