[Federal Register Volume 62, Number 183 (Monday, September 22, 1997)]
[Notices]
[Pages 49543-49547]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-25025]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39079; International Series Release No. 1099, File No.
SR-Amex-96-38]
Self-Regulatory Organizations; Order Approving Proposed Rule
Change and Notice of Filing and Order Granting Accelerated Approval of
Amendment Nos. 1, 2, and 3 Thereto by the American Stock Exchange,
Inc., Relating to the Listing and Trading of Warrants on the ING
Barings Securities Limited BEMI Latin America Index
September 15, 1997.
I. Introduction
On October 15, 1996, the American Stock Exchange, Inc. (``Amex'' or
``Exchange'') submitted to 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\ the proposed rule change to list and trade warrants on
the ING Barings Securities Limited BEMI Latin America Index
(``Index'').\3\ A notice appeared in the Federal Register on November
21, 1996.\4\ No comment letters were received concerning the proposed
rule change. On December 24, 1996, March 3, 1997 and June 3, 1997, the
Exchange filed Amendment Nos. 1, 2 and 3, respectively, to the proposed
rule change.\5\ This order approves the Amex's proposal, as amended.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1)
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 37960 (November 15,
1996).
\4\ See 61 FR 59261.
\5\ See Letters from Claire P. McGrath, Managing Director &
Special Counsel, Derivative Securities, Amex, to Ivette Lopez,
Assistant Director, Division of Market Regulation (``Division''),
SEC, dated December 23, 1996 (``Amendment No. 1''), February 28,
1997 (``Amendment No. 2''), and June 3, 1997 (``Amendment No. 3''),
respectively. Amendment No. 1, sets forth, among other things, the
definition of ``available capitalization,'' the calculation formula
for the Index and the foreign stock exchanges with which the Amex
has comprehensive surveillance sharing agreements. In Amendment No.
2, the Amex provides for each Index component, the average daily
trading volume for the six month period ending December 31, 1996 and
their weights in the Index. In Amendment No. 3, the Amex provides
Index maintenance standards.
---------------------------------------------------------------------------
II. Description of the Proposal
The purpose of the proposed rule change is to permit the Exchange
to list and trade, under Section 106 of the Amex Company Guide, cash-
settled index warrants based on the Index.
A. Design of the Index
The Exchange represents that the Index is a market capitalization-
weighted broad-based index developed by ING Barings Securities Limited
(``Barings'') comprised of 122 stocks from 112 companies from the
following seven Latin American countries: Argentina; Brazil; Chile;
Colombia; Mexico; Peru; and Venezuela.\6\ In addition, the stocks
represent eleven different industry groups. As of June 30, 1997, the
number of stocks and weightings in the Index was as follows: Argentina
22 stocks/12.63% weighting; Brazil 22 stocks/46.84% weighting; Chile 21
stocks/11.20% weighting; Columbia 12 stocks/1.50% weighting; Mexico 26
stocks/21.76% weighting; Peru 12 stocks/3.90% weighting; and Venezuela
7 stocks/2.16% weighting. As of the same date, the largest stock
accounted for 10.95% of the Index weight, while the smallest accounted
for 0.016%. The top five stocks in the Index by weight accounted for
32.15%.
---------------------------------------------------------------------------
\6\ The Index is a sub-index of the Barings Emerging Markets
Index (``BEMI'').
---------------------------------------------------------------------------
The total available market capitalization of the Index was
$158,437,566,290 billion on that date.\7\ The average available market
capitalization of these companies was $1,298,668,576 billion. The
individual available market capitalization of the companies ranged from
$25,050,774 million to $17,343,762,504 billion.
---------------------------------------------------------------------------
\7\ A company's ``available capitalization'' is defined as the
lower of (i) the company's ``free float'' or (ii) the legally
available capitalization of the company. A company's ``free float''
is defined as the percentage of shares which could reasonably be
expected to trade on the open market. Generally, government
holdings, corporate cross-ownership and other strategic holdings are
not considered freely floating.
---------------------------------------------------------------------------
B. Maintenance of the Index
The Index is maintained by 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 Recomposition Committee implements changes or fixes standards as
appropriate and oversees the security environment of the Index and its
record-keeping. The quarterly 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
publicly disclosed on Reuters the day after a meeting. Actual
implementation of any changes to the composition of the Index occurs on
the last day of the month that the meeting is held. This is
approximately two
[[Page 49544]]
weeks after the Recomposition Committee has met and the changes to the
Index have been publicly announced.
Exceptionally, in the case of new issues, privatizations and
takeovers, a stock can be introduced to or deleted from the Index
without waiting for the next quarterly meeting. In these cases, the
decision to include or remove a stock is taken by an ad hoc meeting of
members of the Recomposition Committee in accordance with established
rules. New companies resulting from a spin-off of a component company
will be put into the Index and remain in the Index until the next
quarterly recomposition meeting. The Amex notes that Barings will
adjust the Index divisor, if necessary, in order to ensure Index
continuity.\8\
---------------------------------------------------------------------------
\8\ See Amendment No. 1, supra note 5.
---------------------------------------------------------------------------
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 classes 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 Barings database for that country; minimum free float of 10%;\9\
and 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 Barings
database for that country and meet the normal free-float and daily
trading value rules.
---------------------------------------------------------------------------
\9\ See note 7 supra for a definition of free float.
---------------------------------------------------------------------------
The Amex notes that Barings will maintain the Index to ensure that
no more than 10% of the index weight is represented by stocks that do
not have a minimum average daily trading value, on a rolling four
quarter basis, of US$200,000.\10\ In addition, no more than 5% of the
index weight will be represented by stocks that fall below US$100,000
average daily trading value on a semi-annual basis.\11\ If the Index
fails to meet either of these standards, the Index will be rebalanced
by removing the requisite stocks.
---------------------------------------------------------------------------
\10\ A ``rolling four quarter basis'' is defined to mean that a
stock will be reviewed each quarter to determine if it has
maintained an average daily trading value of US$200,000 for the
combined previous four quarters. For example, a security is reviewed
at the beginning of the third quarter of 1997 and it maintained an
average daily trading value of US$200,000 during the second and
first quarters of 1997 and the fourth quarter of 1996 but it did not
maintain such an average during the third quarter of 1996. The
security may be removed if the figures from the third quarter of
1996 reduce the average daily trading value below US$200,000 for the
combined four quarter period.
\11\ In contrast to a rolling four quarter review, component
securities will be reviewed twice a year to determine if they meet
this standard.
---------------------------------------------------------------------------
In addition, Barings maintains the Index to ensure that no single
stock comprises more than 20% of the Index weight and no five stocks
comprise more than 50% of the Index weight. If the Index fails to
satisfy this maintenance requirement, the Exchange will apply margin
requirements for stock index industry group warrants.\12\
---------------------------------------------------------------------------
\12\ See Amex Rule 462.
---------------------------------------------------------------------------
Barings has created special procedures to prevent material non-
public information from being improperly used by its research, sales
and trading divisions in connection with the maintenance of the Index.
Specifically, membership of the Recomposition Committee is regulated by
a ``Fire Wall.'' All members are isolated from sales, trading and
corporate finance functions. Members are drawn from Index research,
calculation, legal and compliance departments of Barings. To ensure
impartiality and good practice, the committee has retained Russell
Systems Limited (``Russell''), part of the Frank Russell Group, to
attend all meetings and to provide an audit of attendance and
appropriateness of the agenda. Russell also provides advice on good
practice in indexation and on how to ensure the use of the best
available information on emerging markets.
C. Trading of the Index Warrants
Currently, the Amex is seeking authority to list and trade only a
single issuance of warrants on the Index which have a term of less than
five years.\13\ The 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 exercisable
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 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 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.
---------------------------------------------------------------------------
\13\See note 22 infra.
---------------------------------------------------------------------------
In addition, the Amex has adopted account approval standards
covering transactions in customer accounts as the suitability standards
applicable to recommendations to purchasers of index warrants. 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 suitability
requirements under Amex Rule 923 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. Under these requirements, the person recommending a purchase
of the Index warrants should have a reasonable basis for believing that
the customer has such knowledge and experience in financial matters
that he may reasonably be expected to be capable of evaluating the
risks of the recommended transaction and is financially able to bear
the risks of the position in the option contract. 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.
D. Calculation and Dissemination of the Value of the Index
The Index was first calculated on January 7, 1992 with a benchmark
value of 100. As of June 30, 1997 the Index had a value of 203.825. The
Amex disseminates the Index value every 15 seconds throughout the
trading day over the Consolidated Tape Association's Tape B. The Amex,
however, does not have real-time data feeds from the exchange that
trade the component securities in Colombia, Peru and Venezuela. As a
result, for those component securities that trade in Colombia, Peru and
Venezuela, the previous day's last sale price, converted into U.S.
dollars using Reuters 4 p.m. EST exchange rates, is used to calculate
the Index value. If a security from a non-real-time reporting country,
however, has options eligible American Depositary Receipts (``ADRs'')
that trade on the New York Stock Exchange (``NYSE''), the ADR's real-
time NYSE price is used to calculate the Index value.
As a result, the Index value is calculated so that stocks
representing no more than 7% of the Index weight
[[Page 49545]]
report non-real-time prices.\14\ If the Index fails to meet this
standard, the Index will be rebalanced at the quarterly Recomposition
Committee meeting by removing the requisite stocks to permit the Index
to meet this standard. In the event a component security in the Index
does not open for trading, however, the most recent closing value for
that component will be used in the Index's calculation.
---------------------------------------------------------------------------
\14\ The Commission believes that the most current last sale
prices for each component stock should be used in calculating the
Index value. Nevertheless, because of the difficulty in receiving
timely information from the three countries noted above, the
Commission has decided to permit the use of the previous day's
closing price for a number of Index components as long as their
weight remains relatively minor and in no case more than 7% of the
Index weight. The Commission notes that a proposal to list and trade
derivative instruments overlying an index that had more than 7% of
its component securities reporting non-real-time prices would raise
questions regarding whether that particular index and any derivative
instruments overlying it would be susceptible to manipulation.
---------------------------------------------------------------------------
In the event of certain types of corporate actions such as the
payment of a dividend other than an ordinary cash dividend, stock
distribution, stock split, reverse stock split, rights offering,
reorganization, recapitalization or similar event with respect to the
component stocks, the Index divisor will be adjusted, if necessary, to
ensure Index continuity.\15\
---------------------------------------------------------------------------
\15\ See Amendment No. 1, supra note 5.
---------------------------------------------------------------------------
E. Warrant Listing Standards and Customer Safeguards
The Exchange represents that the listing and trading of warrants
based on the Index will comply in all respects with the Amex warrant
listing standards. Under Section 106 of the Amex Company Guide, the
Exchange may approve for listing index warrants based on foreign and
domestic market indices. In addition, 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.
As discussed below, these standards govern issuer eligibility, position
and exercise limits, reportable positions, settlement, automatic
exercise, margin and trading halts and suspensions.\16\
---------------------------------------------------------------------------
\16\ See Amex Rules 1109 and 918(c) for the regulations
regarding trading halts and suspensions.
---------------------------------------------------------------------------
Under Section 106(a) of the Amex Company Guide, issuers are
required to have minimum tangible net worth in excess of $250 million
or, in the alternative, to have a minimum tangible net worth in excess
of $150 million, provided that the issuer has not, including as a
result of the proposed issuance, issued outstanding warrants where the
aggregate original issue price of all such warrant offerings, combined
with offerings by its affiliates, listed on a national securities
exchange or traded through the facilities of Nasdaq exceeds 25% of the
warrant issuer's net worth. In addition, Sections 106(b) and 106(c) of
the Amex Company Guide require that warrant issues have a term of one
to five years and have a minimum public distribution of one million
warrants together with a minimum of 400 public holders and an aggregate
market value of $4 million.
Under Amex Rule 1107, no member can hold or control an aggregate
position in a stock index warrant issue, or in all warrants issued on
the same stock index, whether long or short, on the same side of the
market, in excess of 15 million warrants with an original issue price
of ten dollars or less. Stock index warrants with an original issue
price greater than ten dollars will be weighted more heavily in
calculating position limits. Amex Rule 1108 established exercise limits
on stock index warrants analogous to those found on stock index
options. Accordingly, no member, acting alone or in concert with
others, directly or indirectly, may exercise a long position in
warrants within five consecutive business days in excess of the
permissible position limit. In addition, such limits are separate and
distinct from any exercise limits that may be imposed by the issuers of
stock index warrants.
Under Amex Rule 1110, members are required to file a report with
the Exchange whenever any account in which the member has an interest
has established an aggregate position, whether long or short, of
100,000 warrants overlying the same index, currency, or currency index.
Under Section 106(d) of the Amex Company Guide, currency and index
warrants must be cash-settled in U.S. dollars. The procedures for
determining the cash settlement value for the warrants have not yet
been determined by Barings.\17\ Once those procedures have been
determined by Barings, they will be fully set forth in the prospectus
and in the Information Circular distributed by the Exchange to its
membership prior to the commencement of trading the warrant.
---------------------------------------------------------------------------
\17\ The Amex notes that the procedures for determining the cash
settlement value of the warrants will be in accordance with its
listing criteria for warrants. In the event that such procedures do
not comport with established requirements, the Amex will notify the
Commission, prior to implementing such procedures, in order to
determine the proper regulatory response.
---------------------------------------------------------------------------
Under Section 106(f) of the Amex Company Guide, all unexercised
warrants that are in-the-money will be automatically exercised on their
expiration date or on or promptly following the date on which the
warrants are delisted by the Exchange, provided that such warrant issue
has not been listed on another organized securities market in the
United States.
In general, the margin requirements for long and short positions in
stock index warrants are the same as the margin requirements for long
and short positions in stock index options. Accordingly, the purchase
of a stock index warrant will require payment in full and the short
sale of a stock index warrant will require margin of 100% of the
current value of the warrant plus 15% of the current value of the
underlying index less the amount by which the warrant is out-of-the-
money, but not less than 10% of the index value.\18\
---------------------------------------------------------------------------
\18\ See Amex Rule 462, supra note 12.
---------------------------------------------------------------------------
F. Surveillance
The Amex notes that although it does not have comprehensive
surveillance sharing agreements (``CSSAs'') with all seven countries
represented in the Index, it does comply with section 106(g) of the
Amex Company Guide. Section 106(g) of the Company Guide states that
foreign country securities or ADRs thereon that are not subject to a
CSSA, 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. The Commission has Memoranda of
Understanding with government authorities in Argentina, Brazil, Chile
and Mexico. The Exchange has CSSAs with the securities markets and/or
self-regulators in Argentina, Brazil and Chile. The Amex notes that 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.\19\
---------------------------------------------------------------------------
\19\ As of June 30, 1997, component securities from these four
countries comprised 92.44% of the Index weight.
---------------------------------------------------------------------------
III. Commission Findings and Conclusions
The Commission finds that the proposed rule change by the Exchange
is consistent with the requirements of the Act and the rules and
regulations
[[Page 49546]]
thereunder applicable to a national securities exchange, and in
particular, the requirements of Section 6(b)(5) of the Act.\20\
Specifically, the Commission finds that the listing and trading of
warrants based on the Index will serve to promote the public interest
and help to remove impediments to a free and open securities market by
providing investors with a means to hedge exposure to market risk
associated with the Latin American equity markets \21\ and promote
efficiency, competition, and capital formation.\22\
---------------------------------------------------------------------------
\20\ 15 U.S.C. 78f(b)(5).
\21\ Pursuant to Section 6(b)(5) of the Act, the Commission must
predicate approval of any new securities product upon a finding that
the introduction of such product is in the public interest. Such a
finding would be difficult with respect to a warrant that served no
hedging or other economic function, because any benefits that might
be derived by market participants likely would be outweighed by the
potential for manipulation, diminished public confidence in the
integrity of the markets, and other valid regulatory concerns.
\22\ 15 U.S.C. 78c(f).
---------------------------------------------------------------------------
Nevertheless, the trading of warrants on the Index raises several
concerns related to the design and maintenance of the Index, customer
protection, surveillance and market impact. The Commission believes,
however, for the reasons discussed below, that the Amex has adequately
addressed these concerns.\23\
---------------------------------------------------------------------------
\23\ The Commission also notes that the Amex presently is only
seeking the authority to list and trade a single issuance of
warrants on the Index and that if the Exchange proposes to list and
trade other products based on the Index, including other Index
warrants, the Exchange will advise the Commission in order to
determine whether a rule filing pursuant to Section 19(b) of the Act
will be necessary and appropriate.
---------------------------------------------------------------------------
A. Design and Maintenance of the Index
The Commission finds that it is appropriate and consistent with the
Act for the Amex to designate the Index as Broad-based for warrant
trading. First, the Index is composed of 112 companies from 11 industry
groups including: consumer goods, energy, capital equipment, basic
materials, agriculture/food and financial services. Second, no
particular stock or group of stocks dominates the Index. Specifically,
as of June 30, 1997, the largest stock accounted for 10.95% of the
Index weight, while the smallest accounted for 0.016%. The top five
stocks in the Index by weight accounted for 32.15%. Accordingly, the
Commission believes that it is appropriate to classify the Index as
broad-based so that the Exchange may list warrants for trading pursuant
to the Amex warrant listing standards for broad-based indices.
The Commission notes that with respect to the maintenance of the
Index, Barings has implemented several safeguards in connection with
the listing and trading of the index warrants that will serve to ensure
that the Index is a highly capitalized, diversified and actively-traded
index. In this regard, Barings will maintain the Index so that: (1) No
single stock may comprise more than 20% of the Index weight and no five
stocks may comprise more than 50% of the Index weight; (2) no more than
7% of the Index weight may report non-real-time prices in calculating
the Index value (in addition, NYSE prices will be used for options
eligible ADRs for securities from non-real-time reporting countries);
(3) no more than 10% of the index weight may be represented by stocks
that do not have a minimum average daily trading value, on a rolling
four quarter basis, of US$200,000 \24\ and (4) no more than 5% of the
Index weight may be represented by stocks that fall below US$100,000
average daily trading value on a semi-annual basis. If the 20% single
stock, 50% top five stock standard is not maintained, then the Exchange
will re-classify the Index as narrow-based and would, among other
things, impose minimum margin requirements for stock index industry
group warrants.
---------------------------------------------------------------------------
\24\ See note 10 supra.
---------------------------------------------------------------------------
In particular, the Commission believes that the real-time reporting
of simultaneously traded index component securities that underlie an
exchange-traded index component securities that underlie an exchange-
traded derivatives product is an important element for the intra-day
pricing of derivatives products, the reduction of potential market
manipulation and other trading abuses. While not all of the Index's
component securities report real-time prices, the Commission believes
that the Exchange has reasonably addressed this concern by noting that
no more than 7% of the Index weight, a de minimis amount, may report
non-real-time prices. The Commission notes that if the Index fails to
satisfy the 7% non-real time price reporting requirement or the minimum
trading value requirements, Barings immediately will rebalance the
Index by removing the requisite stocks.\25\
---------------------------------------------------------------------------
\25\ See note 14 supra.
---------------------------------------------------------------------------
In addition, the Commission notes that Barings has adopted
appropriate procedures to be followed by those responsible for
maintaining the Index in order to help prevent and deter the misuse of
any informational advantages with respect to changes in the composition
of the Index. Such procedures include, for example, informational
barriers.
B. Customer Protection
The Commission notes that the rules and procedures of the Exchange
adequately address the special concerns attendant to the trading of
index warrants. Specifically, the applicable suitability, account
approval, disclosure and compliance requirements of the Amex warrant
listing standards satisfactorily address potential public concerns.
Moreover, the Amex plans to distribute a circular to its membership
calling attention to specific risks associated with warrants on the
Index. Pursuant to the Exchange's listing guidelines, only companies
capable of meeting the Amex's index warrant issuer standards will be
eligible to issue Index warrants. In addition, the Amex presently is
seeking authority to list and trade only a single issuance of warrants
on the Index which have a term of less than five years.
C. Surveillance
In evaluating new derivative instruments, the Commission,
consistent with the protection of investors, considers the degree to
which the derivative instrument is susceptible to manipulation. The
ability to obtain information necessary to detect and deter market
manipulation and other trading abuses is a critical factor in the
Commission's evaluation. It is for this reason that the Commission
requires that there be a CSSA in place between an exchange listing or
trading a derivative product and the exchanges trading the stocks
underlying the derivative contract that specifically enables officials
to survey trading in the derivative product and its underlying
stocks.\26\ Such agreements provide a necessary deterrent to
manipulation because they facilitate the availability of information
needed to fully investigate a potential manipulation if it were to
occur. For foreign stock index derivative products, these agreements
are especially important to facilitate the collection of necessary
regulatory, surveillance and other information from foreign
jurisdictions.
---------------------------------------------------------------------------
\26\ The Commission believes that the ability to obtain relevant
surveillance information, including, among other things, the
identity of the ultimate purchasers and sellers of securities, is an
essential and necessary component of a CSSA. A CSSA should provide
the parties thereto with the ability to obtain information necessary
to detect and deter market manipulation and other trading abuses.
Consequently, the Commission generally requires that a CSSA require
that the parties to the agreement provide each other, upon request,
information about market trading activity, clearing activity and
customer identity. See Securities Exchange Act Release No. 31529
(November 27, 1992).
---------------------------------------------------------------------------
[[Page 49547]]
In order to address the above noted concerns and to comply with
Section 106(g) of the Amex Company Guide, the Amex has entered into
information sharing arrangements with the Buenos Aires Stock Exchange
in Argentina, the Sao Paolo Stock Exchange in Brazil, and the Santiago
Stock Exchange in Chile. In addition, the SEC has memoranda of
understanding with: the Comision Nacional de Valores in Argentina; the
Comissao de Valores Mobiliarios in Brazil; the Superintendencia de
Valores y Seguros in Chile; and the Comision Nacional Bancaria y de
Valores in Mexico. As of June 30, 1997, stocks from Argentina, Brazil,
Chile, and Mexico represent 92.44% of the Index weight. As a result, no
single uncovered country represents more than 3.90% of the Index weight
and not two uncovered countries represent more than 6.06% of the Index
weight.
D. Market Impact
The Commission believes that the listing and trading of Index
warrants on the Amex should not adversely impact the securities markets
in the U.S. or Latin America. First, the existing index warrant
surveillance procedures of the Amex will apply to warrants based on the
Index. Second, the Commission notes that the Index is broad-based and
diversified and includes highly capitalized securities that are
actively traded in their home markets.\27\ Accordingly, the Commission
does not believe that the introduction of Index warrants on the Amex
will have a significant effect on the underlying Latin American
securities markets.
---------------------------------------------------------------------------
\27\ As the Amex notes, while some of the stocks in the Index
have relatively low trading volume, they account for only a small
percentage of the Index weighting.
---------------------------------------------------------------------------
For the reasons described above, the Commission finds good cause to
approve Amendment Nos. 1, 2 and 3, prior to the thirtieth day after the
date of publication of notice of filing thereof in the Federal
Register. Specifically, Amendment No. 1 provides, among other things,
the definition of ``available capitalization,'' the calculation formula
for the Index and the foreign stock exchange with which the Amex has
surveillance sharing agreements. Amendment No. 2 provides the average
daily trading volume for the six month period ending December 31, 1996
and the weights of the Index components. Lastly, Amendment No. 3 adds
several maintenance standards that the Commission believes strengthen
the Amex proposal by ensuring that the Index remains broad-based and is
comprised of relatively well-capitalized and liquid securities. No
single stock may comprise more than 20% of the Index weight and no five
stocks may comprise more than 50% of the Index weight. In addition, no
more than 7% of the Index weight may report non-real-time prices in
calculating the Index value. NYSE prices will be used for options
eligible ADRs for securities from non-real-time reporting countries.
The Commission believes that this standard will ensure that a
substantial portion of the Index value will be calculated using current
prices.\28\
---------------------------------------------------------------------------
\28\ See note 14 supra.
---------------------------------------------------------------------------
Accordingly, the Commission believes that it is consistent with
Sections 6(b)(5) and 19(b)(2) \29\ of the Act, to find that good cause
exists to approve Amendments Nos. 1, 2 and 3, on an accelerated basis.
---------------------------------------------------------------------------
\29\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
IV. Solicitation of Comments and Conclusion
Interested persons are invited to submit written data, views and
arguments concerning Amendments Nos. 1, 2 and 3. 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 Room in Washington, D.C.
Copies of such filing will also be available for inspection and copying
at the principal office of the Amex. All submissions should refer to
the File No. SR-Amex-96-38 and should be submitted by October 14, 1997.
For the foregoing reasons, the Commission finds that the Amex's
proposal to list and trade warrants based on the Barings BEMI Latin
America Index is consistent with the requirements of the Act and the
rules and regulations thereunder.
It is therefore ordered, pursuant to Section 19(b) (2) of the Act,
that the proposed rule change (SR-Amex-96-38), as amended, is approved.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\30\
---------------------------------------------------------------------------
\30\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-25025 Filed 9-19-97; 8:45 am]
BILLING CODE 8010-01-M