[Federal Register Volume 64, Number 229 (Tuesday, November 30, 1999)]
[Notices]
[Pages 66947-66952]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-30977]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42159; File No. SR-Amex-99-46]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change and Amendment No. 
1 by the American Stock Exchange LLC Relating to the Listing and 
Trading of Biotech HOLDRs

November 19, 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 October 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 and I and II below, which Items have been prepared by the 
Exchange. The proposal was amended on November 1, 1999.\3\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change and Amendment No. 1 from interested persons and to 
grant accelerated approval to the proposed rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Scott Van Hatten, Legal Counsel, Derivative 
Securities, Exchange to Nancy Sanow, Senior Special Counsel, 
Division of Market Regulation, Commission dated November 1, 1999 
(``Amendment No. 1'').
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to trade Biotechnology HOLDRs (``Biotech 
HOLDRs''), a trust issued receipt. The text of the proposed rule change 
is available at the Office of the Secretary, Amex, and at the 
Commission.

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 III 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 Propose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Amex proposes to list for trading, pursuant to Rules 1200 et 
seq., 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. Trust issued 
receipts are unleveraged instruments, and therefore do not possess many 
of the attributes of stock index options.
    Except for the composition of basket of securities deposited in the 
trust, the proposed Biotech HOLDERs are structurally identical to the 
Internet HOLDRs trust issued receipts previously approved for listing 
and trading on the Exchange.\4\ The newly proposed trust issued 
receipts will evidence beneficial ownership of the specific deposited 
securities represented by the receipts. The Exchange belives that the 
level risk and sale of trust/issue receipts is almost identical to the 
risk involved in the purchase or sale of the common stocks represented 
by the receipt. Under this proposal the Exchange anticipates listing 
trust issued receipts on one or more groups of securities. The Exchange 
notes that it will be required to submit a proposal, pursuant to 
Section 19(b) of the Exchange Act, before it lists a trust issued 
receipt on a new group of securities.
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    \1\ Securities Exchange Act Release No. 41892 (September 21, 
1999), 64 FR 52559 (September 29, 1999).
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(a) Description of Trust Issued Receipts
    The Exchange expects that this issuance of trust issued receipts 
will represent 20 companies involved in various segments of the 
biotechnology industry. The proposed companies and their specific share 
amounts for each round-lot of 100 trust issued receipts are set forth 
in the chart below and were determined as of October 25, 1999, so that 
the initial weightings of each underlying security included in the 
trust approximated the relative market capitalizations of the specified 
companies, subject to a maximum weight of 20%, as of that date. Because 
these weightings are a function of market prices, they are expected to 
change substantially over time, including during the period between the 
date of this proposed rule change and the date the trust issued 
receipts are issued to the public.

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                                                                               Initial
            Name of company                     Symbol             Share      weighting   Primary trading market
                                                                  amounts     (percent)
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Amgen Inc.............................  AMGN                             20        19.58  Nasdaq.
Genetech, Inc.........................  DNA                              11        18.62  NYSE.
Biogen, Inc...........................  BGEN                             13        11.61  Nasdaq
Immunex Corporation...................  IMNX                             13         9.87  Nasdaq.
PE Corp-PE Biosystems Group...........  PEB                               8         6.33  NYSE.
Chiron Corporation....................  CHIR                             18         5.77  Nasdaq.
Medlmmune, Inc........................  MEDI                              4         5.10  Nasdaq.
Genzyme Corporation...................  GENZ                              9         4.20  Nasdaq.
BioChem Pharma Inc....................  BCHE                              9         2.55  Nasdaq.
Millennium Pharmaceuticals, Inc.......  MLNM                              3         2.81  Nasdaq.
Affymetric, Inc.......................  AFFX                              2         2.36  Nasdaq.
QLT Photo Therapeutics Inc............  QLTI                              2         2.01  Nasdaq.

[[Page 66948]]

 
Gilead Sciences, Inc..................  GILD                              3         2.34  Nasdaq.
Sepracor Inc..........................  SEPR                              2         1.73  Nasdaq.
IDEC Pharmaceuticals Corporation......  IDPH                              2         2.41  Nasdaq.
Human Genome Sciences, Inc............  HGSI                              2         1.97  Nasdaq.
ICOS Corporation......................  ICOS                              3         1.05  Nasdaq.
Enzon, Inc............................  ENZN                              3         1.00  Nasdaq.
Celera Genomics.......................  CRA                               2         0.80  Nasdaq.
ImClone Systems Incorporated..........  IMCL                              3         0.89  Nasdaq.
----------------------------------------------------------------------------------------------------------------

    The companies represented in the Biotech HOLDRs meet the following 
minimum criteria, which are set forth in Amex Rule 1200: (1) The 
companies' common stocks are registered under Section 12 of the Act; 
(2) the minimum public float of each company included in the portfolio 
is at least $150,000,000; (3) each stock is either listed on a national 
securities exchange or traded through the facilities of Nasdaq and is a 
reported national market system security; (4) the average daily trading 
volume for each stock was at least one hundred thousand shares during 
the preceding 60-day trading period; (5) the average daily dollar value 
of the shares traded during the preceding 60-day trading period was at 
lest $1 million; and (6) the initial weighting of each stock in the 
receipt was based on market capitalization, however, if on the date 
such weighting is determined, a stock represented more than 20% of the 
overall value of the receipt, then the amount of such stock was reduced 
to no more than 20% of the receipt value. Once initially set, the 
securities represented by a receipt will not change, except in 
accordance with the reconstitution events described below.

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.
    Benefical owners of the receipts will have the same rights, 
privileges and obligations as they would have if they beneficially 
owned the deposited securities outside of the trust issued receipt 
program. Holders of the receipts have the right to instruct the trustee 
to vote the deposited securities evidenced by the receipts, will 
receive reports, proxies and other information distributed by the 
issuers of the deposited securities to their security holders, and will 
receive dividends and other distributions declared and paid by the 
issuers of the deposited securities to the trustee.
    The trust will issue trust issued receipts under the depositary 
trust agreement, among The Bank of New York, as trustee, Merrill Lynch 
Pierce Fenner & Smith Incorporated, other depositors and the owners of 
the trust issued receipts. 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 beneficial ownership interest in the whole 
number of securities represented by the receipt. Trust issued receipts 
may be acquired, held or transferred only in round-lot amounts (or 
round-lot multiples) of 100 receipts. The amounts of deposited 
securities for each round-lot of 100 trust issued receipts will be 
determined at the beginning of the marketing period and will be 
disclosed in the prospectus to investors. An investor in trust issued 
receipts will be permitted to withdraw his or her 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. Orders for less than a round-lot will be rejected, while 
orders for greater than 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 date the receipts are 
priced for sale to the public.
    Based upon the potential for arbitrage opportunities, the Exchange 
believes that trust issued receipts will not trade at a material 
discount or premium to the assets held by the issuing trust. The 
arbitrage process, which provides the opportunity to profit from 
differences in prices of the same or similar securities (e.g., the 
trust issued receipts and the portfolio of deposited securities), 
increases the efficiency of the markets and serves to prevent 
potentially manipulative efforts. If the price of the trust issued 
receipts deviate enough from the portfolio of deposited securities to 
create a material discount or premium, an arbitrage opportunity is 
created allowing the arbitrageur to either buy the trust issued 
receipts at a discount, immediately cancel them in exchange for the 
deposited securities and sell the shares in the cash market at a 
profit, or sell the trust issued receipts short at a premium and buy 
the securities represented by the receipts to deposit in exchange for 
the trust issued receipts to deliver against the short position. In 
both instances the arbitrageur locks in a profit and the markets move 
back into line.
    Trust issued receipts will be deemed ``Eligible Securities,'' as 
defined in Amex Rule 230, for purposes of the Intermarket Trading 
System (``ITS'') Plan and therefore will be subject to the trade 
through provisions of Amex Rule 236, which require that Amex members 
avoid initiating trade-throughs for ITS securities. Further, specialist 
transactions with the trust issued receipts' trade made in connection 
with the creation and redemption of trust issued receipts will not be 
subject to the prohibitions of Rule 190.\5\
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    \5\ Amex Rule 190 prohibits, among other things, any business 
transaction between a specialist and the company in which stock the 
specialist is registered.
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Minimum Fractional Change

    Trust issued receipts will trade in minimum fractional increments 
pursuant to Amex Rule 127. Application of Rule 127 will result in a 
minimum fractional change of \1/16\th of $1.00 for

[[Page 66949]]

those trust issued receipts selling at or above $0.25 and \1/32\nd of 
$1.00 for those selling below $0.25.

Maintenance of Trust Issued Receipts

    Except when a reconstitution event occurs, as described below, the 
securities represented in a trust issued receipt will not change.\6\ 
Additionally, the number of each security represented in a receipt will 
not change except for changes due to certain corporate events such as 
stock splits or reverse stock splits on the deposited securities or 
when a reconstitution event occurs. Under no circumstances will a new 
security be added to the list of securities after a particular receipt 
program is established.
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    \6\ The Amex will consult with the Commission to confirm the 
appropriateness of the continued listing of trust issued receipts 
should the portfolio of securities held by the trust become fewer 
than nine.
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    The relative weightings among the deposited securities will change 
based on the current market price of the deposited securities and upon 
the reconstitution events discussed below. Once established, the 
component securities held by the trust and represented by trust issued 
receipts will not change unless an event described below occurs.

Reconstitution Events

    The trust agreement provides for the automatic distribution of 
specified deposited securities to the beneficial owner of such receipts 
in the circumstances referred to in the prospectus as ``reconstitution 
events'': (1) If 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, then 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) if 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, then the trustee will distribute the securities 
of that company to the owners of the trust issued receipts; (3) if the 
deposited securities of a company evidenced by a trust issued receipt 
are no longer outstanding because the securities were acquired by 
another company, 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 deposited securities), in which 
case such additional securities will be deposited into the trust; and 
(4) if an underlying issuer's deposited securities are delisted from 
trading on their primary exchange or market and not listed for trading 
on another national securities exchange or through Nasdaq within five 
business days from the date the deposited securities are delisted.\7\ 
If the trustee removes a deposited security from the trust due to the 
occurrence of one of the reconstitution events described above, the 
trustee, in accordance with the depositary trust agreement, will 
deliver the deposited security to the investor as promptly as 
practicable after the date that the trustee has knowledge of the 
occurrence of a reconstitution event.
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    \7\ This provision is designed for the purpose of permitting a 
deposited security to move its listing between, for example, the 
Amex and Nasdaq without requiring the automatic distribution of the 
deposited security to beneficial owners of the receipts. Should 
deposited securities be delisted to a market other than a national 
securities exchange or Nasdaq (e.g., the OTC Bulletin Board), such 
securities will be automatically distributed to the beneficial 
owners of the receipts.
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    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 or round-lot multiples. While investors will be able to 
acquire, hold, transfer and surrender a round-lot of 100 trust issued 
receipts, the bid and asked prices will be quoted on a per receipt 
basis.\8\ The trust will issue additional receipts on a continuous 
basis when an investor deposits the required securities with the trust.
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    \8\ The receipt amount will be disseminated by the Amex every 15 
seconds over the Consolidated Tape Association's Network B.
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    A holder may obtain trust issued receipts by either purchasing them 
on the Exchange or delivering to the trust during its normal business 
hours 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 a holder wants to cancel trust issued receipts and 
withdraw the deposited securities, the holder may do so by surrendering 
the receipts to the trust during normal business hours. The trustee 
will charge a cancellation fee of up to $10.00 per 100 trust issued 
receipts. The holder should receive the deposited securities no later 
than the business day after the trustee receives the request.

Termination of the Trust

    The trust shall terminate upon the earlier of: (i) The removal of 
the receipts from Amex listing if they are not listed for trading on 
another national securities exchange or through the facilities of 
Nasdaq within five business days from the date the receipts are 
delisted; (ii) the trustee resigns and no successor trustee is 
appointed within 60 days from the date the trustee provides notice to 
the initial depositor of its intent to resign; (iii) 75 percent of 
beneficial owners of outstanding trust issued receipts vote to dissolve 
and liquidate the trust; or (iv) December 31, 2039. If a termination 
event occurs, the trustee will distribute the underlying securities to 
the investor as promptly as practicable after the termination event.
(b) Criteria for Initial and Continued Listing
    Because of the continuous issuance and cancellation of trust issued 
receipts, the Exchange believes that 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 under the Act 
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 that 
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, the Exchange will consider suspending or delisting a 
trust from trading when, in its opinion, further dealing in such 
securities appears unwarranted under the following circumstances:
    (i) 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;

[[Page 66950]]

    (ii) if the aggregate number of trust issued receipts outstanding 
is less than 50,000;
    (iii) if the aggregate market value of trust issued receipts 
publicly held is less than $1,000,000; or
    (iv) if such other event shall occur or condition exists which in 
the opinion of the Exchange, makes further dealings on the Exchange 
inadvisable.
    However, the Exchange will not be required to suspend or delist 
from trading, based on the above factors, any trust issued receipts for 
a period of one year after the initial listing of such trust issued 
receipts for trading on the Exchange.
(c) 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, responsibilities of the specialist, account opening and 
customer suitability (Amex Rule 411), and the election, with the prior 
approval of a floor official, of a stop or limit order by a quotation 
(Amex Rule 154, Commentary .04(c)). Initial Exchange equity margin 
requirements of 50 percent and the regular equity trading hours of 9:30 
am to 4:00 pm 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, because they can only be traded in round-lots. The Amex 
applied for exemption from the short sale rate, Rule 10a-1 under the 
Act,\9\ for Internet HOLDRs, which was granted on November 3, 1999.\10\ 
This exemption applies to Biotech HOLDRs as well. The Exchange will 
issue a notice to its members detailing the terms of the exemption. 
Amex's surveillance procedures for trust issued receipts will be 
similar to those used for portfolio depositary receipts and will 
incorporate and rely upon existing Amex surveillance procedures 
governing options and equities.
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    \9\ 17 CFR 240.10a-1.
    \10\ See Letter to Claire P. McGrath, Vice President and Special 
Counsel Derivative Securities, from James A. Brigagliano, Assistant 
Director, Division of Market Regulation, SEC, dated November 3, 
1999.
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    With respect to investor disclosure, the Exchange notes that all 
investors is trust issued receipts who purchase in the initial offering 
will receive a prospectus. In addition, anyone purchasing a trust 
issued receipt directly from the trust (by delivering the underlying 
securities to the trust) will also receive a prospectus. Finally, all 
Amex members purchasing trust issued receipts from the trust for resale 
to customers will deliver a prospectus to such customers.
    Prior to the commencement of trading in trust issued receipts, the 
Exchange will issue a circular to members informing them of, among 
other things, Exchange policies regarding trading halts in such 
securities. First, the circular will advise that trading will be halted 
in the event the market volatility trading halt parameters set forth in 
Rule 117 have been reached. Second, the circular will advise that, in 
addition to other factors that may be relevant, the Exchange may 
consider factors such as the extent to which trading is not occurring 
in a deposited share(s) and whether other unusual conditions or 
circumstances detrimental to the maintenance of a fair and orderly 
market are present.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b)(5) \11\ of 
the Act in that it is designed to promote just and equitable principles 
of trade, to remove impediments to and perfect the mechanism of a free 
and open market and a national market system, and, in general, to 
protect investors and the public interest.
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    \11\ 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 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. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, 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-99-46 and should be submitted by December 21, 1999.

IV. Commission's Findings and Order Granting Accelerated Approval 
of Proposed Rule Change

A. Generally

    The Commission finds that the proposed rule change, as amended, is 
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).\12\ 
Specifically, the Commission finds, as it did in the Amex order 
approving the listing and trading of trust issued receipts generally, 
and Internet HOLDRs specifically, that the proposal to list and trade 
Biotech HOLDRs will provide investors with a convenient and less 
expensive way of participating in the securities markets. The 
Exchange's proposal should advance the public interest by providing 
investors with increased flexibility in satisfying their investment 
needs by allowing them to purchase and sell a single security 
replicating the performance of a broad portfolio of stocks at 
negotiated prices throughout the business day. Accordingly, the 
Commission finds that the Exchange's proposal will facilitate 
transactions in securities, 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, and is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.\13\
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    \12\ 15 U.S.C. 78f(b)(5).
    \13\ 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 believes that trust issued receipts will provide 
investors with an alternative to trading a broad range of securities on 
an individual basis, and will give investors the ability to trade trust 
issued receipts representing a portfolio of securities continuously 
throughout the business day in secondary market transactions at 
negotiated prices. Trust issued receipts will allow investors to: (1) 
Respond quickly to changes in the overall securities markets generally 
and for the

[[Page 66951]]

industry represented by a particular trust; (2) trade, at a price 
disseminated on a continuous basis, a single security representing a 
portfolio of securities that the investor owns beneficially; (3) engage 
in hedging strategies similar to those used by institutional investors; 
(4) reduce transaction costs for trading a portfolio of securities; and 
(5) retain beneficial ownership of the securities underlying the trust 
issued receipts.
    Although trust issued receipts are not leveraged instruments, and, 
therefore, do not possess many of the attributes of stock index 
options, their prices will be derived and based upon the securities 
held in their respective trusts. Accordingly, the level of risk 
involved in the purchase or sale of trust issued receipts is similar to 
the risk involved in the purchase or sale of traditional common stock, 
with the exception that the pricing mechanism for trust issued receipts 
is based on a basket of securities.\14\ Nevertheless, the Commission 
believes that the unique nature of trust issued receipts raises certain 
product design, disclosure, trading, and other issues that must be 
addressed.
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    \14\ The Commission has concerns about continued listing of the 
trust issued receipts if the number of component securities falls to 
a level below nine securities, because the receipts may no longer 
adequately reflect a cross section of the selected industry. 
Accordingly, the Amex has agreed to consult the Commission, once the 
trust has fewer than nine component securities, and for each 
subsequent loss of a security thereafter.
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B. Listing and Trading of Trust Issued Receipts

    The Commission finds that the Amex's proposal, as amended, to trade 
Biotech HOLDRs meets all of the specific criteria and listing standards 
that were approved in the Amex order approving the listing and trading 
of Internet HOLDRs.\15\ Biotech HOLDRs are equity securities that will 
be subject to the full panoply of Amex rules governing the trading of 
equity securities on the Amex, including, among others, rules governing 
the priority, parity and precedence of orders, responsibilities of the 
specialist, account opening and customer suitability requirements, and 
the election of a stop or limit order.\16\
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    \15\ See supra, note 3.
    \16\ Trading rules pertaining to the availability of odd-lot 
trading do not apply because trust issued receipts only can be 
traded in round-lots.
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    Moreover, in approving this proposal, the Commission notes the 
Exchange's representation that Biotech HOLDRs will not trade at a 
material discount or premium in relation to the overall value of the 
trusts' assets because of potential arbitrage opportunities. The 
Exchange represents that the potential for arbitrage should keep the 
market price of a trust issued receipt comparable to the overall value 
of the deposited securities.
    Furthermore, the Commission believes that the Exchange's proposal 
to trade Biotech HOLDRs in minimum fractional increments of \1/16\th of 
$1.00 is consistent with the Act. The Commission believes that such 
trading should enhance market liquidity, and should promote more 
accurate pricing, tighter quotations, and reduced price fluctuations. 
The Commission also believes that such trading should allow customers 
to receive the best possible execution of their transactions in trust 
issued receipts.
    Finally, the Amex has developed surveillance procedures for trust 
issued receipts that incorporate and rely upon existing Amex 
surveillance procedures governing equities. The Commission believes 
that these surveillance procedures are adequate to address concerns 
associated with listing and trading of Biotech HOLDRs, including any 
concerns associated with purchasing and redeeming round-lots of 100 
receipts. Accordingly, the Commission believes that the rules governing 
the trading of trust issued receipts provide adequate safeguards to 
prevent manipulative acts and practices and to protect investors and 
the public interest.

C. Disclosure and Dissemination of Information

    The Commission believes that the Exchange's proposal, as amended, 
will ensure that investors have information that will allow them to be 
adequately apprised of the terms, characteristics, and risks of trading 
trust issued receipts. The prospectus will address the special 
characteristics of Biotech HOLDRs, including a statement regarding 
their redeemability and method of creation. The Commission notes that 
all investors in Biotech HOLDRs who purchase in the initial offering 
will receive a prospectus. In addition, anyone purchasing Biotech 
HOLDRs directly from the trust (by delivering the underlying securities 
to the trust) will also receive a prospectus. Finally, all Amex member 
firms who purchase Biotech HOLDRs from the trust for resale to 
customers must deliver a prospectus to such customers.
    The Commission also notes that upon the initial listing of any 
trust issued receipts, the Exchange will issue a circular to its 
members explaining the unique characteristics and risks or this type of 
security. The circular will note the Exchange members' prospectus 
delivery requirements, and highlight the characteristics of Biotech 
HOLDRs. The circular will inform members of Exchange policies regarding 
trading halts in Biotech HOLDRs.

D. Accelerated Approval

    Amex has requested that the Commission find good cause for 
approving the proposed rule change prior to the thirtieth day after the 
date of publication of notice in the Federal Register. The Commission 
believes that the Exchange's proposal to trade Biotech HOLDRS, will 
provide investors with a convenient and less expensive way of 
participating in the securities markets. Specifically, the Commission 
believes that by increasing the availability of trust issued receipts, 
and in particular Biotech HOLDRs, as an investment tool, the Amex's 
proposal should help provide investors with increased flexibility in 
satisfying their investment needs. This is achieved by allowing 
investors to purchase and sell a single security replicating the 
performance of a broad portfolio of stocks at negotiated prices 
throughout the business day. The Commission notes however, that, 
notwithstanding approval of the listing of Biotech HOLDRs, other 
similarly structured products, including trust issued receipts based on 
other industries, will require review by the Commission prior to being 
listed and traded on the Exchange. Moreover, additional series cannot 
be listed prior to the Exchange contacting Division staff. Finally, the 
Amex may be required to submit a rule filing prior to listing and 
trading a new issue or series of trust issued receipts on the Exchange.
    The Commission believes that the trading of this product raises no 
new regulatory issues and, except for the composition of securities 
deposited in trust, the Biotech HOLDRs are structurally the same as the 
Internet HOLDRs trust receipts previously approved by the Commission 
for listing and trading on the Amex. Accordingly, the Commission finds 
good cause for approving the proposed rule change, as amended, prior to 
the thirtieth day after the date of publication of the notice of filing 
thereof in the Federal Register.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\17\ that the proposed rule change (SR-Amex-99-46), as amended, us 
hereby approved on an accelerated basis.

    \17\ 15 U.S.C. 78s(b)(2).


[[Page 66952]]


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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-30977 Filed 11-29-99; 8:45 am]
BILLING CODE 8010-01-M