[Federal Register Volume 62, Number 133 (Friday, July 11, 1997)]
[Notices]
[Pages 37320-37323]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-18225]



[[Page 37320]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38819; File No. SR-Amex-97-19]


Self-Regulatory Organizations; Order Granting Approval to 
Proposed Rule Change and Notice of Filing and Order Granting 
Accelerated Approval to Amendment Nos. 1 and 2 to Proposed Rule Change 
by the American Stock Exchange, Inc., Relating to the Listing and 
Trading of Indexed Term Notes

July 7, 1997.

I. Introduction

    On April 30, 1997, the American Stock Exchange, Inc. (``Amex'' or 
``Exchange'') submitted to the Securities and Exchange Commission 
(``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 approve for listing and trading under Section 
107A of the Amex Company guide market index target-term securities 
(``MITTS''),\3\ the return of which is based in whole or in part on 
changes in the value of the Major 8 European Index (``the Major 8 
European Index'').
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ ``MITTS'' and ``Market Index Target-Term Securities'' are 
service marks of Merrill Lynch & Co., Inc. (``Merrill Lynch'').
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    The proposed rule change, together with the substance of the 
proposal, was published for comment in Securities Exchange Act Release 
No. 38664 (May 21, 1997) 62 FR 28910 (May 28, 1997). No comment letters 
were received in response to the proposal. The Exchange subsequently 
filed Amendment Nos. 1 and 2 to the proposed rule change on June 11, 
1997,\4\ and June 27, 1997,\5\ respectively. This order approves the 
proposed rule change, as amended.
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    \4\ Amendment No. 1 states that the Exchange's equity trading 
rules will apply to the trading of indexed term notes linked to the 
Major 8 European Index, including Rule 411, which requires members 
to use due diligence to learn essential facts relative to every 
customer and to every order or account accepted, and Rule 462, which 
requires the application of equity margin rules to the trading of 
indexed term notes. Amendment No. 1 also states that the continued 
listing guidelines set forth in Section 1001 through 1003 of the 
Amex Company Guide will apply to the proposed indexed term notes; 
that the exchange will, prior to trading the proposed indexed term 
notes, distribute an Information Circular to members providing 
guidance with regard to member firm compliance responsibilities, 
including suitability recommendations, when handling transactions in 
the indexed term notes, and highlighting their special risks and 
characteristics; that the Exchange will maintain the Index and it 
will be the Exchange's responsibility to determine, if necessary, 
whether to replace a sub-index with a substitute or successor index 
or undertake to publish the sub-index if it ceases to be published. 
See letter from Claire P. McGrath, Vice-President and Special 
Counsel, Amex, to Ivette Lopez, Assistant Director, Market 
Supervision, Commission, dated June 10, 1997 (``Amendment No. 1'').
    \5\ Amendment No. 2 further clarifies Amendment No. 1 by stating 
that Section 1003(b) of the Company Guide in particular will apply 
to the proposed indexed term notes, and attaches a copy of a draft 
information circular that Amex will distribute to its members. 
Amendment No. 2 also states that the shares of a sub-index will 
remain fixed, except in the case of a significant event, such as a 
split in the value of the sub-index a change in the method of 
calculation, or if the sub-index ceases to be published. Amendment 
No. 2 gives an example of what would happen to the Index calculation 
if a sub-index were to split in value. Also, if the sub-index ceases 
to be published, Amex could choose to replace it with a substitute 
index (another index currently being published that correlates 
highly with the sub-index being replaced), a successor index (an 
index intended by the publisher as a replacement to the original 
sub-index), or undertake to publish the sub-index using the same 
procedures last used to calculate the sub-index prior to its 
discontinuance. In addition, Amendment No. 2 states that if the 
marketplace for the securities underlying any one of the sub-indices 
that constitute the Major 8 European Index is closed on any given 
business day, due to natural disaster or holiday observed in the 
foreign country, Amex will use the previous closing value in the 
calculation. See letter from Claire P. McGrath, Vice-President and 
Special Counsel, Derivates Securities, Amex, to Ivette Lopez, 
Assistant Director, Market Regulation, Commission, dated June 26, 
1997 (``Amendment No. 2'').
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II Background and Description

    Under Section 107A of the Amex Company Guide, the Exchange may 
approve for listing and trading securities which cannot be readily 
categorized under the listing criteria for common and preferred stocks, 
bonds, debentures, or warrants.\6\ The Amex now proposes to list for 
trading under Section 107A of the Company Guide indexed term notes 
whose value in whole or in part will be based upon an index consisting 
of the major market indices of eight European countries (``Major 8 
European Index Notes'' or ``Index Notes'').\7\
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    \6\ See Securities Exchange Act Release No. 27753 (March 1, 
1990), 55 FR 8626 (March 8, 1990).
    \7\ The Commission has previously approved the listing and 
trading of MITTS or hybrid securities similar to MITTS based upon 
portfolios or securities. See e.g., Securities Exchange Act Release 
Nos. 32840 (September 2, 1993), 58 FR 47485 (September 9, 1993); 
33368 (December 22, 1993), 58 FR 68975 (December 29, 1993); 33495 
(January 19, 1994), 59 FR 3883 (January 27, 1994); 34692 (September 
20, 1994), 59 FR 49267 (September 27, 1994); 37533 (August 7, 1996), 
61 FR 42075 (August 13, 1996); and 37744 (September 27, 1996), 61 FR 
52480 (October 7, 1996) (``Term Notes Approval Orders''). Although 
certain aspects of the Major 8 European Index Notes are similar to 
those MITTS previously approved by the Commission, this is the first 
time the Commission has reviewed a MITTS product that is an index of 
several indices rather than a portfolio of individual securities.
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    The Index Notes will be non-convertible debt securities and will 
conform to the initial listing guidelines under Section 107A of the 
Company Guide \8\ and the continued listing guidelines under Sections 
1001 to 1003 of the Company Guide.\9\ although a specific maturity date 
will not be established until the time of the offering, the Index Notes 
will provide for maturity within a period of not less than one nor more 
than ten years from the date of issue. Indexed term notes generally 
provide for payments at maturity based in whole or in part on changes 
in the value of the index. At maturity, holders of the Major 8 European 
Index Notes will receive not less than 90% of the initial issue price, 
plus an amount, called the ``Supplemental Redemption Amount,'' based on 
the percentage increase, if any, up to a specific amount, over the 
starting index value in the Major 8

[[Page 37321]]

European Index.\10\ The notes will not be callable or redeemable prior 
to maturity and will be cash settled in U.S. currency.
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    \8\ Specifically, the notes must have: (1) A minimum 
distribution of one million trading units; (2) a minimum of 400 
holders; (3) an aggregate market value of at least $4 million; and 
(4) a term of at least one year. Additionally, the issuer of the 
notes must have assets of at least $100 million, stockholders' 
equity of at least $10 million, and pre-tax income of at least 
$750,000 in the last fiscal year or in tow of the three prior fiscal 
years. As an alternative to these financial criteria, the issue must 
have either: (1) assets in excess of $200 million and stockholders' 
equity in excess of $10 million; or (2) assets in excess of $100 
million and stockholders' equity of at least $20 million.
    \9\ The Exchange's continued listing guidelines are set forth in 
Sections 1001 through 1003 of the Exchange's Company Guide. Section 
1002(b) states that the Exchange will consider removing from listing 
any security where, in the opinion of the Exchange, it appears that 
the extent of public distribution or aggregate market value has 
become so reduced to make further dealings on the Exchange 
inadvisable. With respect to the continued listing guidelines for 
distribution of the indexed term notes on the Major 8 European 
Index, the Exchange will rely, in part, on the guidelines in Section 
1003(b), which discuss suspensions and delistings with respect to 
limited distribution and reduced market value. See Amendment No. 2, 
supra note 5.
    \10\ See Amendment No. 2, supra note 5. In no event will the 
Supplemental Redemption Amount be less than zero. The Supplemental 
Redemption Amount will equal:
    Principal  x  (Ending Index Value-Starting Index Value)  
Starting Index Value  x  Participation Rate
    The Participation Rate will equal a factor between 110% and 
120%. Investors will only be able to participate in appreciation of 
the indexed term notes up to the established Participation Rate. For 
example, assuming a 120% Participation Rate, if the Major 8 European 
Index appreciates 30% over its starting value, investors would only 
be able to receive at expiration their initial investment plus 20% 
of the appreciation in the Major 8 European Index value. See 
Amendment No. 2, supra note 5.
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    Consistent with other structured products, the Exchange will 
distribute a circular to its membership, prior to the commencement of 
trading, providing guidance with regard to member firm compliance 
responsibilities, including appropriate suitability criteria and/or 
guidelines, and highlighting the special risks and characteristics of 
the proposed Major 8 European Index Notes.\11\ The Exchange's equity 
trading rules will apply to the trading of the indexed term notes 
linked to the Major 8 European Index, including Rules 411 and 462.\12\ 
Specifically, Rule 411 will impose a duty of due diligence on Amex's 
members and member firms to learn the essential facts relating to every 
customer prior to trading Major 8 European Index Notes. In addition, 
for this particular MITTS product, the Exchange will require members 
and member firms to make a determination that the proposed index term 
note is suitable for the customer, and the person making the 
recommendation should have a reasonable basis for believing at the time 
of making the recommendation that the customer has the knowledge and 
experience in financial matters that they may be capable of evaluating 
the risks and the special characteristics of the recommended 
transaction, and is financially able to bear the risks of the 
recommended transaction.\13\
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    \11\ See Amendment Nos. 1 and 2, supra notes 4 and 5.
    \12\ Rule 411 requires the Exchange's members to use due 
diligence to learn the essential facts relative to every customer 
and to every order or account accepted. Rule 462 requires the 
application of equity margin rules to the trading of indexed term 
notes. See Amendment No. 1, supra note 4.
    \13\ See Amendment No. 2, supra note 5, attached Draft 
Information Circular.
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    According to Amex, the eight indices (``sub-indices'' or 
individually ``sub-index'') that form the Major 8 European Index are 
comprised of a total of 341 of the largest and most liquid securities 
from each of the eight European markets they represent. Initial 
weightings will be assigned to each sub-index at the close of trading 
on the day immediately prior to the listing of the Index Notes and 
based upon the index's market capitalization. Based on market data as 
of April 3, 1997, the UK's Financial Times SE 100 Index (``FT-SE 100'') 
would have an assigned weight of approximately 38.36%; the Deutscher 
Aktienindex (``DAX'') would have an assigned weight of approximately 
14.50%; the Compagnie des Agents de Change 40 Index (``CAC 40'') would 
have an assigned weight of approximately 11.82%; the Swiss Market Index 
(``SMI'') would have an assigned weight of approximately 10.28%; the 
Amsterdam European Options Exchange Index (``AEX'') would have an 
assigned weight of approximately 5.94%; the Milano Italia Borsa 30 
Index (``MIB 30'') would have an assigned weight of approximately 
9.42%; the Stockholm Options Market Index (``OMX'') would have an 
assigned weight of approximately 4.60%; and the IBEX 35 would have an 
assigned weight of approximately 5.08%.\14\ Amex represents that it has 
in place surveillance sharing agreements with the appropriate 
regulatory organizations in each country represented in the Major 8 
European Index, except Sweden and Switzerland, which together 
represented 14.88% of the Major 8 European Index as of April 3, 1997.
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    \14\ A brief description of each of the sub-indices is set forth 
in detail in the notices release. See Securities Exchange Act 
Release No. 38664 (May 21, 1997), 62 FR 28910 (May 28, 1997).
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    The Major 8 European Index will be calculated using a 
``capitalization-weighted'' methodology. As noted above, each sub-index 
will be given its assigned weighting at the close of trading on the day 
immediately prior to the listing of the Index Note. The number of 
shares in each sub-index will be fixed on that day and will equal its 
weighting in the Index times 100 divided by the sub-index level. There 
will be no periodic rebalancing of the Major 8 European Index to 
reflect changes in relative market capitalizations among the sub-
indices. The initial sub-index value used in the Major 8 European Index 
calculation will equal the product of the number of shares in the sub-
index times its representative sub-index level. The Major 8 European 
Index will initially be set to provide a benchmark value of 100.00 at 
the close of trading on the day preceding the listing of the Index 
Note. The Exchange will calculate the Major 8 European Index and, 
similar to other stock index values published by the Exchange, the 
value of the Major 8 European Index will be calculated continuously and 
disseminated every 15 seconds over the Consolidated Tape Association's 
Network B each trading day until the last individual sub-index ceases 
updating in its home market. The Exchange will then disseminate the 
Major 8 European Index based on the closing values for each sub-index.
    Because index term notes are generally meant to be a one time 
issuance, providing investors with a percentage of the appreciation in 
the index as measured over a specified period of time, and are 
essentially a passive investment, the Major 8 European Index will not 
be actively maintained like other derivatively based index products, 
except as discussed below. The shares for each sub-index will remain 
fixed during the life of the note, except in the event of a significant 
action taken by the publisher of the sub-index such as a split of the 
value of the sub-index or a change in he method of calculation. For 
example, if the publisher of one of the sub-indices were to split that 
index, Amex would double the shares represented by that sub-index in 
the Major 8 European Index.\15\ Further, if a sub-index ceases to be 
published, the Exchange may determine to replace it with a substitute 
index (another index currently being published that correlates highly 
with he sub-index being replaced), a successor index (an index intended 
by the publisher as a replacement to the original sub-index), or may 
undertake to publish the sub-index using the same procedures last used 
to calculate the sub-index prior to its discontinuance.\16\ For 
example, Amex states that if the CAC-40 should cease to be published by 
SBF-Paris Bourse, Amex may undertake to publish a capitalization-
weighted index of 40 of the most liquid and highly capitalized stocks 
traded on the Paris Bourse.\17\ Finally, the Commission notes that Amex 
has sole authority to determine whether to

[[Page 37322]]

replace a sub-index that has ceased to be published and, if so, the 
choice of replacement. The issuer of the Major 8 European Index Notes 
has no role in these determinations.
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    \15\ See Amendment No. 2, supra note 5.
    \16\ See Amendments Nos. 1 and 2, supra notes 4 and 5.
    \17\ See Amendment No. 2, supra note 5. The Commission notes 
that this replacement process is a slightly different approach than 
in other MITTS-like products. Generally, when portfolio securities 
cease to exist during the term of the note due to a merger, 
acquisition, or similar type corporate transaction, a value equal to 
the security's final value will be assigned, to the stock. If the 
issuer of a component stock is in the process of liquidation or 
subject to a bankruptcy proceeding, insolvency, or other similar 
adjudication, the security will continue to be included in the index 
as long as a market price for the security is available. If a market 
price is no longer available for an index stock due to circumstances 
including, but not limited to, liquidation, bankruptcy, insolvency, 
or any other similar proceeding, then the security is assigned a 
value of zero for index calculation purposes.
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    If the marketplace for the securities underlying any of the sub-
indices that constitute the major 8 European Index is closed on any 
given business day in the U.S., such as in the event of a market 
disruption due to a natural disaster or in the more likely event that 
the marketplace is closed for a holiday celebrated in the foreign 
country, Amex will use the previous closing value in the calculation of 
the Major 8 European Index.\18\
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    \18\ See Amendment No. 2, supra note 5.
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III. Discussion

    The Commission finds that the proposed rule changes are consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange, and, in 
particular, with the requirements of Section 6(b)(5).\19\ Specifically, 
the Commission believes providing for exchange-trading of the Major 8 
European Index Notes will offer a new and innovative means of 
participating in the market for foreign securities. In particular, the 
Commission believes that the proposed Index Notes will permit investors 
to gain equity exposure in securities trading in eight foreign markets 
while at the same time limiting the downside risk of the original 
investment as a result of the principal guarantee. Accordingly, for the 
reasons discussed below as well as the same reasons as discussed in the 
Term Notes Approval Orders,\20\ the Commission finds that the rule 
proposal is consistent with the requirements of Section 6(b)(5) of the 
Act that the rules of an exchange are designed to prevent fraudulent 
and manipulative acts and practices, to facilitate transactions in 
securities and to protect investors and the public interest.\21\
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    \19\ 15 U.S.C. 78f(b)(5).
    \20\ See Term Notes Approval Orders, supra note 7.
    \21\ In approving this rule, the Commission notes that it has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
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    The Commission notes that the Major 8 European Index Notes are not 
leveraged instruments; however, their price will still be derived from 
and based upon the performance of securities in eight European markets 
as reflected by the underlying sub-indices. As noted in the Term Notes 
Approval Orders, the level of risk involved in the purchase and sale of 
a MITTS is generally similar to the risk involved in the purchase or 
sale of traditional common stock, except for the fact that the products 
are derivatively priced from a portfolio of securities. MITTS on the 
Major 8 European Index, however, raise an additional level of risk 
because the final rate of return of the Index Notes is derivatively 
priced, based upon the performance of a portfolio of eight different 
sub-indices, whose performance is also derivatively priced based upon 
the performance of a portfolio of securities trading in each of these 
eight market centers.\22\ Accordingly, the Commission has specific 
concerns regarding this type of product. For the reasons discussed 
below, the Commission believes Amex's proposal adequately addresses 
these concerns.
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    \22\ As noted above, supra note 7, this is the first time the 
Commission has reviewed a MITTS product that is an index of several 
indices.
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    First, the Commission notes that Amex's rules and procedures 
addressing the special concerns attendant to the trading of hybrid 
securities will be applicable to the proposed Index Notes. In 
particular, by imposing the hybrid listing standards, heightened 
suitability for recommendations in Index Notes, disclosure, and 
compliance requirements noted above, the Commission believes that the 
Exchange has adequately addressed the potential problems that could 
arise from the hybrid nature of the proposed Index Notes. In addition, 
Amex will distribute a circular to its membership calling attention to 
the specific risks associated with the Major 8 European Index 
Notes.\23\
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    \23\ See Amendment Nos. 1 and 2, supra notes 4 and 5.
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    Second, the Major 8 European Index Notes remain a non-leveraged 
product with the issuer guaranteeing no less than 90% of principal 
return. The Commission realizes that the final payout on the Major 8 
European Index Notes is dependent in part upon the individual credit of 
the issuer. To some extent this credit risk is minimized by the 
Exchange's listing standards in Section 107A of the Company Guide which 
provide that only issuers satisfying substantial asset and equity 
requirements may issue securities such as MITTS. In addition, the 
Exchange's hybrid listing standards further require that the proposed 
indexed term notes have at least $4 million in market value.\24\ In any 
event, financial information regarding the issuer, in addition to 
information on the underlying sub-indices, will be publically available 
to investors.
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    \24\ See Amex Company Guide Sec. 107A.
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    Third, each of the sub-indices represent securities from eight 
major markets. Both the history and performance of these indices, as 
well as current pricing trends, should be readily available through a 
variety of public sources. Further, the Commission notes that although 
the value of each sub-index should be available, Amex has committed to 
disseminating the value of the Major 8 European Index on a real-time 
basis at least once every 15 seconds throughout the trading day. As 
noted above, current values for each individual sub-index, for as long 
as they are available during Amex's trading hours. The Commission 
believes that this information will be extremely useful and beneficial 
for investors in the Index Notes.
    Fourth, the Commission also has a systematic concern that a broker-
dealer or a subsidiary providing a hedge for the issuer will incur 
position exposure. As discussed in the Term Notes Approval Orders, the 
Commission believes this concern is minimal given the size of the 
proposed Index Notes issuance in relation to the net worth of the 
issuer.\25\
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    \25\ See Term Notes Approval Orders, supra note 7.
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    Finally, the Commission also believes that the listing and trading 
of the proposed Index Notes should not unduly impact the market for the 
securities underlying the sub-indices or raise manipulation concerns. 
The Commission notes that all of the sub-indices that make up the Major 
8 European Index are established indices.\26\ The Commission has 
previously reviewed or approved six of the eight sub-indices, 
representing 83.78% of the value of the Major 8 European Index as of 
April 3, 1997,\27\ in the context of either warrant trading, options 
trading, or while issuing non-objection letters to the Commodity

[[Page 37323]]

Futures Trading Commission (``CFTC'') regarding offers and sales to 
U.S. citizens of futures and options on futures on those sub-indices. 
In these previous reviews, the Commission evaluated each of the 
individual sub-indices noted above and found that they were broad-based 
indices comprised of highly capitalized stocks with high trading 
volumes that were not readily susceptible to manipulation.
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    \26\ The Commission notes that the Major 8 European Index Notes 
are not quite equivalent to other MITTS in that the Major 8 European 
Index is based upon a group of sub-indices, all of which have not 
been approved by the Commission for trading. The Commission notes 
that by approving this proposed rule change the Commission is not 
approving either the Major 8 European Index or the underlying sub-
indices for options, warrants, and/or futures trading. The 
Commission further notes that if the sub-indices that have not been 
approved were to equal more than 20% of the Major 8 European Index 
value, the Commission would find it necessary to evaluate those sub-
indices like other index products before approving the MITT. The 
decision to allow a MITTS to be priced partly off of non-approved 
indices is related to the fact that the Index Notes are a limited 
issuance, at least 90% principal guaranteed, non-leveraged 
investment, and that the non-approved indices comprise only 16.22% 
of the Major 8 European Index value. Any changes in these factors 
would alter the Commission's determination.
    \27\ The sub-indices that have been previously reviewed or 
approved in one of these contexts are the FT-SE 100, DAX, CAC 40, 
MIB 30, OMX, and the IBEX 35. The other two sub-indices in the Major 
8 European Index are SMI and AEX.
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    Specifically, in the letters to the CFTC, the Commission found that 
certain of the sub-indices are not readily susceptible to manipulation 
because of the representative nature of the various industry segments 
included in the individual index, the relative weighted value of the 
index's component stocks, and the substantial capitalization and 
trading volume of the component stocks.\28\ In Commission orders 
previously approving the FT-SE 100 for warrant and reduced-value 
options trading, the CAC 40 for warrant trading, and the DAX for 
warrant trading, the Commission made similar findings that the index 
was a broad-based index of actively traded, well capitalized 
stocks.\29\ Additionally, Amex's surveillance procedures should serve 
to deter as well as detect any potential manipulation.\30\
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    \28\ The Commission has issued these non-objection letters 
relating to the offer and sale of futures and/or options on futures 
on the FT-SE 100, the DAX, the CAC 40, the MIB 30, the OMX, and the 
IBEX 35.
    \29\ See Securities Exchange Act Release Nos. 27769 (March 6, 
1990), 55 FR 9380 (March 13, 1990) (FT-SE-100 Warrants); 28544 
(October 17, 1990), 55 FR 42792 (October 23, 1990) (CAC 40 
Warrants); 28587 (October 30, 1990), 55 FR 46595 (November 5, 1990) 
(CAC 40 Warrants); 29722 (September 23, 1991), 56 FR 49807 (October 
1, 1991) (FT-SE 100 Reduced-Value Index Options); and 36070 (August 
9, 1995), 60 FR 42205 (August 15, 1995 (DAX Warrants).
    \30\ As noted above, Amex represents that it has in place 
surveillance sharing agreements with the appropriate regulatory 
organizations in each country in the Major 8 European Index, except 
Sweden and Switzerland. These two countries together represented 
only 14.88% of the Major 8 European Index as of April 3, 1997.
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    The Commission finds good cause to approve Amendment Nos. 1 and 2 
to the proposed rule change prior to the thirtieth day after the date 
of publication of notice of filing thereof in the Federal Register. As 
noted above, Amendment No. 1 states that the Exchange's equity rules, 
including the equity margin rule and the suitability rule, will apply 
to the trading of the proposed Index Notes. The Draft Information 
Circular included in Amendment No. 2 also adopts heightened suitability 
standards, as described above, for this particular MITTS product. In 
addition, Amendment No. 1 clarifies that the Exchange will distribute 
to its membership, prior to trading the proposed Index Notes, a 
circular providing guidance with regard to member and member firm 
compliance responsibilities, including suitability recommendations, 
when handling transactions in the proposed Index Notes and highlighting 
their special risks and characteristics.
    Amendment No. 1 also states that the continued listing standards 
set forth in Sections 1001-1003 of the Amex Company Guide will apply to 
the trading of the proposed Index Notes, and Amendment No. 2 further 
clarifies this by stating that Section 1003(b), in particular, will 
apply. Finally, Amendment Nos. 1 and 2, collectively, state that the 
shares for each sub-index will remain fixed, except in the event of a 
significant action taken by the publisher, such as a split in the sub-
index value, a change in the calculation of the sub-index, or if the 
sub-index ceases to be published. Amendment No. 2 gives an example of 
how a split in the value of the sub-index would affect the Major 8 
European Index, and clarifies the alternatives available to Amex if a 
sub-index ceased to be published. Amendment No. 2 also states how Amex 
would calculate the major 8 European Index if the marketplace of a sub-
index was closed on any given business day in the U.S., such as if a 
market disruption occurred due to a natural disaster or a foreign 
holiday.
    The Commission believes that Amendment Nos. 1 and 2, as described 
herein, clarify and strengthen the Exchange's proposal by, among other 
things, providing the specific continued listing standards that will 
apply, which should help ensure a minimal level of depth and liquidity 
for continued trading of the product on Amex, identifying which trading 
rules will apply to the trading of Index Notes, and adopting a 
heightened suitability standard for recommendations concerning the 
Index Notes. Amendments Nos. 1 and 2 also refine the original proposal 
by specifying in further detail how the Exchange will be responsible 
for determining any changes in the sub-indices due to a significant 
event, and the terms of the Information Circular to members and 
members, firms. Additionally, the Exchange's proposal to list and trade 
the proposed indexed term notes was noticed for the full comment period 
and no comment letters were received. Accordingly, the Commission 
believes that it is consistent with Section 6(b)(5) of the Act to 
approve Amendment Nos. 1 and 2 to the proposal on an accelerated basis.
    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment Nos. 1 and 2 to the rule proposal. 
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 also will be available for 
inspection and copying at the principal office of the Exchange. All 
submissions should refer to File No. SR-Amex-97- 19 and should be 
submitted by August 1, 1997.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\31\ that the proposed rule change (SR-Amex-97-19), including 
Amendment Nos. 1 and 2, is approved.

    \31\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\32\
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    \32\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-18225 Filed 7-10-97; 8:45 am]
BILLING CODE 8010-01-M