[Federal Register Volume 64, Number 131 (Friday, July 9, 1999)]
[Notices]
[Pages 37178-37180]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-17464]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41593; File No. SR-AMEX-99-20]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the American Stock Exchange LLC Relating to the Listing and 
Trading of Trust Issued Receipts

July 1, 1999.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 28, 1999, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the Exchange. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to adopt Rules 1200, 1201 and 1202 relating 
to the listing and trading of Trust Issued Receipts. The text of the 
proposed rule change follows. [Bracketing] indicates text to be deleted 
and italics indicate text to be added.
Rules of General Applicability

TRUST ISSUED RECEIPTS

Rule 1200

    (a) Applicability. The Rules in this Chapter (Trading of Trust 
Issued Receipts) are applicable only to Trust Issued Receipts. Except 
to the extent that specific Rules in this Chapter govern, or unless the 
context otherwise requires, the provisions of the Constitution and all 
other rules and policies of the Board of Governors shall be applicable 
to the trading on the Exchange of such securities. Pursuant to the 
provisions of Article 1, Section 3(i) of the Constitution, Trust Issued 
Receipts are included within the definition of ``security'' or 
``securities'' as such terms are used in the Constitution and Rules of 
the Exchange.
    (b) Definitions. The following terms as used in the Rules shall, 
unless the context otherwise requires, have the meanings herein 
specified:
    Trust Issued Receipts. The term ``Trust Issued Receipt'' means a 
security (a) that is issued by a trust (``Trust'') which holds 
specified securities deposited with the Trust; (b) that, when 
aggregated in some specified minimum number, may be canceled by the 
beneficial owner to receive the securities; and (c) that pays 
beneficial owners dividends and other distributions on the deposited 
securities, if any are declared and paid to the trustee by an issuer of 
the deposited securities.

Commentary

    .01  The Exchange requires that members and member organizations 
provide to all purchasers of newly issued Trust Issued Receipts a 
prospectus for the series of Trust Issued Receipts
    .02  Transactions in Trust Issued Receipts may be effected until 
4:00 pm each business day.

Designation

Rule 1201

    The Exchange may list and trade Trust Issued Receipts based on one 
or more securities. The Trust Issued Receipts based on particular 
securities shall be designated as a separate series and shall be 
identified by a unique symbol. The securities that are included in a 
series of Trust Issued Receipts shall be selected by the Exchange or 
its agent, a wholly-owned subsidiary of the Exchange, or by such other 
person as shall have a proprietary interest in such Trust Issued 
Receipts, and may be revised from time to time.

Initial and Continued Listing

Rule 1202

    Trust Issued Receipts will be listed and traded on the Exchange 
subject to application of the following criteria .
    (a) Initial Listing--For each Trust, the Exchange will establish a 
minimum number of Trust Issued Receipts required to be outstanding at 
the time of commencement of trading on the Exchange.
    (b) Continued Listing--Following the initial twelve month period 
following formation of a Trust and commencement of trading on the 
Exchange, the Exchange will consider the suspension of trading in or 
removal from listing of a Trust upon which a series of Trust Issued 
Receipts is based

[[Page 37179]]

under any of the following circumstances:
    (i) if the Trust has more than 60 days remaining until termination 
and there are fewer than 50 record and/or beneficial holders of Trust 
Issued Receipts for 30 or more consecutive trading days; or
    (ii) if such other event shall occur or condition exists which in 
the opinion of the Exchange, makes further dealings on the Exchange 
inadvisable.
    Upon termination of a Trust, the Exchange requires that Trust 
Issued Receipts issued in connection with such Trust be removed from 
Exchange listing. A Trust may terminate in accordance with the 
provisions of the Trust prospectus, which may provide for termination 
if the value of securities in the Trust falls below a specified amount.
    (c) Term--The stated term of the Trust shall be as stated in the 
Trust prospectus. However, a Trust may be terminated under such earlier 
circumstances as may be specified in the Trust prospectus.
    (d) Trustee--The requirements of paragraph (a) of Section #811 of 
the Exchange Company Guide apply.
    (e) Voting--Voting rights shall be as set forth in the Trust 
prospectus.
* * * * *

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 Exchange 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 exchange 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 Amex proposes to add Rules 1200, 1201 and 1202 to accommodate 
the trading of trust issued receipts that are intended to provide 
investors with a flexible, cost-effective way of purchasing, holding 
and transferring the securities of one or more specified companies. 
Since trust issued receipts have many of the same features and 
characteristics of Portfolio Depositary Receipts (``PDRs'') that have 
been listed on the Exchange since 1993, the Exchange is proposing that 
trust issued receipts have similar listing standards and rules as are 
currently in place for PDRs. In addition, the Exchange proposes to 
trade standardized options on the trust receipts using the listing 
standards for exchange-traded fund shares.

Trust Issued Receipts

    Trust issued receipts are negotiable receipts which are issued by a 
Trust representing securities of issuers that have been deposited and 
are held on behalf of the holders of the trust issued receipts. Trust 
issued receipts are designed to allow investors to hold certain 
securities investments in a single, exchange-listed and traded 
instrument representing their beneficial ownership in the deposited 
securities. Holders of trust issued receipts maintain beneficial 
ownership of each of the deposited securities evidenced by trust issued 
receipts. Holders may cancel their trust issued receipts at any time to 
receive the deposited securities.
    The proposed initial trust issued receipts will be formed under a 
depositary trust agreement between a qualified trustee, as trustee, and 
Merrill Lynch, Pierce, Fenner & Smith Incorporated, as the initial 
depositor. A trust will issue trust issued receipts under a depositary 
agreement. After the initial offering, a trust may issue additional 
receipts on a continuous basis when an investor deposits the requisite 
securities with the trust.
    A round-lot of 100 trust issued receipts represents a holder's 
individual and undivided ownership interest in a whole number of 
securities of one or more specified companies in a specified industry. 
Trust issued receipts may be acquired, held or transferred only in 
round-lot amounts (or round-lot multiples) of 100 receipts. Orders for 
less than a round-lot will be rejected, while orders for greater than a 
round-lot, but not a round-lot, but not a round-lot multiple will be 
executed to the extent of the largest round lot multiple, rejecting the 
remaining odd-lot (e.g., orders for 50 trust issued receipts will be 
rejected, and for orders of 1050 trust issued receipts, 1000 will be 
executed and 50 will be rejected). The initial offering price for a 
trust issued receipt will be established on the data the receipts are 
priced for sale to the public.
    Except when a reconstruction event occurs, as described below, the 
securities represented in a trust issued receipt will not change. Under 
no circumstances will a new security be added to the list of securities 
after a particular receipt program is established. An investor in trust 
issued receipts will be permitted to withdraw its deposited securities 
upon delivery to the trustee of one or more round-lots of 100 trust 
issued receipts and to deposit such securities to receive trust issued 
receipts.
    The amounts of deposited securities for each round-lot of 100 trust 
issued receipts will be determined on the pricing date and will be 
disclosed in the prospectus to investors.

Maintenance of Trust Issued Receipts

    The amounts of deposited securities specified in the prospectus 
will not change, except for changes due to certain corporate events 
such as stock splits or reverse stock splits on the deposited 
securities. The relative weighings among the deposited securities will 
change based on the current market price of the deposited securities. 
Once established, the component securities held by the trust and 
represented by trust issued receipts will not change unless an event 
described below occurs.
    The trust agreement provides for the automatic distribution of 
specified deposited securities to the beneficial owner of such receipts 
in three circumstances referred to in the prospectus as 
``reconstitution events.'' A reconstitution event occurs if:
    (1) A company with deposited securities evidenced by a trust issued 
receipt no longer has a class of common stock registered under Section 
12 of the Securities Exchange Act of 1934. In such instance, its 
securities will no longer be a deposited security and the trustee will 
distribute the securities of that company to the owners of the trust 
receipts;
    (2) The Commission finds that a company with deposited securities 
evidenced by the trust issued receipts is a company that should be 
registered as an investment company under the Investment Company Act of 
1940, and the trustee has actual knowledge of the Commission's finding. 
In this situation, the trustee will distribute the securities of that 
company to the owners of the trust issued receipts; and
    (3) The deposited securities of a company evidenced by a trust 
issued receipt are no longer outstanding because the securities were 
acquired by another company. Under this scenario, the trustee will 
distribute the consideration paid by and received from the acquiring 
company to the beneficial owners of trust issued receipts, unless the 
consideration is additional deposited securities (i.e., the acquiring 
company's securities are already included in the trust issued receipt 
as

[[Page 37180]]

deposited securities), in which case such additional securities will be 
deposited into the trust.
    If the trustee removes a deposited security from the trust due to 
the occurrence of one of the reconstitution events described above, the 
trustee will deliver the deposited security to the investor within 
three calendar days from the occurrence of the reconstitution event. 
Investors in the trust issued receipts will receive dividends and other 
distributions paid in respect of the deposited securities.
    The trust will issue and cancel, and an investor may obtain, hold, 
trade or surrender, receipts only in a round-lot of 100 trust issued 
receipts and round-lot multiples. While investors will only be able to 
acquire, hold, transfer and surrender the receipts in round-lots of 100 
trust issued receipts, the bid and asked prices will be quoted on a per 
receipt basis.\3\ The trust will issue additional receipts on a 
continuous basis when an investor deposits the required securities with 
the trust.
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    \3\ The per share amount will be disseminated by the Amex every 
15 seconds over the Consolidated Tape Association's Network B.
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    An investor may obtain trust issued receipts by delivering to the 
trust the requisite securities evidencing a trust issued receipt, the 
trustee will charge an issuance fee of up to $10.00 per 100 trust 
issued receipts. If an investor wants to cancel trust issued receipts 
and withdraw the deposited securities, the trustee will charge a 
cancellation fee of up to $10.00 per 100 trust issued receipts.

Criteria for Initial and Continued Listing

    Because of the continuous issuance and cancellation of trust issued 
receipts, the Exchange believes it is necessary to maintain appropriate 
flexibility in connection with listing a specific trust. In connection 
with initial listing, the Exchange proposes that, for each trust, the 
Exchange will establish a minimum number of receipts 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. It is anticipated 
that a minimum of 150,000 receipts will be required to be outstanding 
when trading begins.
    Because of the continuous issuance and cancellation of trust issued 
receipts, and because the number of holders is subject to substantial 
fluctuations depending on market conditions, the Exchange believes it 
would be inappropriate and burdensome on trust issued receipt holders 
to consider suspending trading in or delisting a series of receipts 
with the consequent termination of the trust, unless the number of 
holders remains severely depressed over an extended time period. 
Therefore, after twelve months from 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 has more than 60 days remaining until termination 
and there have been fewer than 50 record and/or beneficial holders of 
the trust issued receipts for 30 or more consecutive trading days; or
    (b) if such other event shall occur or condition exists which in 
the opinion of the Exchange, makes further dealings on the Exchange 
inadvisable.

Exchange Rules Applicable to the Trading of Trust Issued Receipts

    Trust issued receipts will be deemed equity securities subject to 
all Amex rules governing the trading of equity securities, including, 
among others, rules governing priority, parity and precedence of 
orders, market volatility related trading halt provisions pursuant to 
Amex Rule 117, and responsibilities of the specialist. Exchange equity 
margin rules and the regular equity trading hours of 9:30 a.m. to 4 
p.m. will apply to transactions in trust issued receipts. However, 
trading rules pertaining to the availability of odd-lot trading in Amex 
equities will not apply to the trading of trust issued receipts, since 
they can only be traded in round-lots.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the Act 
\4\ in general and furthers the objectives of Section 6(b)(5) \5\ in 
particular in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, remove impediments to and perfect the mechanism of 
a free and open market and a national market system, and, in general, 
protect investors and the public interest.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 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 burden on competition.

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

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

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) by order approve 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, including whether the proposed rule 
change is consistent with the Act. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 
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-AMEX-99-20 and 
should be submitted by July 30, 1999.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-17464 Filed 7-9-99; 8:45 am]
BILLING CODE 8010-01-M