[Federal Register Volume 65, Number 18 (Thursday, January 27, 2000)]
[Notices]
[Pages 4451-4455]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-1972]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42347; File No. SR-BSE-99-15]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the Boston 
Stock Exchange, Inc., Relating to Listing Standards for Trust Issued 
Receipts

January 13, 2000.
    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 November 22, 1999, the Boston Stock Exchange, Inc. (``BSE'' 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 and to grant accelerated 
approval to the proposed rule change.
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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 seeks to adopt listing standards for trust issued 
receipts. Once these listing standards have been approved, the Exchange 
intends to trade Internet Holding Company Depository Receipts 
(``Internet HOLDRs''), a trust issued receipt, pursuant to unlisted 
trading privilege (``UTP''). The text of the proposed rule change is 
available at the Office of the Secretary, BSE 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 Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is proposing to add a new rule to Chapter XXIV-A et 
seq., of the Exchange's rules to adopt new listing standards to allow 
the Exchange to list trust issued receipts, and to trade Internet 
HOLDRs, a type of trust issued receipt, pursuant to UTP.
a. Trust Issued Receipts Generally
    Description. 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 
securities investments from a variety of companies throughout a 
particular industry in a single, exchange-listed and traded instrument 
that represents 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.
    Beneficial 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.
    Creation of a Trust. Trust issued receipts will be issued by a 
trust created pursuant to a depository trust agreement. After the 
initial offering, the trust may issue additional receipts on a 
continuous basis when an investor deposits the requisite securities 
with the trust. 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.
b. Criteria for Initial and Continued Listing
    The Exchange believes that the listing criteria proposed in its new 
rule are generally consistent with the listing standards for ``Hybrid 
Securities,'' currently found in Article XXVII of the Exchange Rules, 
as well as the trust issued receipt listing criteria currently used by 
the American Stock Exchange (``Amex''). \3\
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    \3\ The Amex listing criteria were approved by the Commission on 
September 21, 1999. See Securities Exchange Act Release No. 41892 
(September 21, 1999), 64 FR 52559 (September 29, 1999)
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    Initial Listing. If trust issued receipts are to be listed on 
Exchange, the Exchange will establish a minimum number of receipts that 
must be outstanding at the time trading commences on the Exchange, and 
such minimum number will be included in any required submission to the 
Commission.
    Continued Listing. In connection with continued listing, 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 when any of the following circumstances arise: (1) 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; (2) if the trust has 
fewer than 50,000 receipts issued and outstanding; (3) if the market 
value of all receipts issued and outstanding is less than $1 million; 
or (4) if such other event occurs or conditions exists which, in the 
opinion of the Exchange, makes further dealings on the Exchange 
inadvisable. These flexible criteria allow the Exchange to avoid 
delisting trust issued receipts (leading to a possible termination of 
the trust) because of relatively brief fluctuations in market 
conditions that may cause the number of holders to vary.
    The Exchange will not, however, be required to suspend or delist 
from trading, based on the above factors, any trust issued receipts for 
a period of one

[[Page 4452]]

year after the initial listing of such trust issued receipts for 
trading on the Exchange. In addition, if the number of companies 
represented by the deposited securities drops to less than nine, and 
each time thereafter the number of companies is reduced, the Exchange 
will consult with the Commission to confirm the appropriateness of 
continued listing of the trust issued receipts.
c. Exchange Rules Applicable to the Trading of Trust Issued Receipts
    Trust issued receipts are considered ``securities'' under the Rules 
of the Exchange and are subject to all applicable trading rules, 
including the provisions of Chapter XXXI, Section 4, Trade-Throughs and 
Locked Markets, which prohibit Exchange members from initiating trade-
throughs for ITS securities, as well as rules governing priority, 
parity and precedence of orders, market volatility-related trading halt 
provisions and responsibilities of the assigned specialist firm \4\ 
Exchange equity margin rules will apply.
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    \4\ There are two possible exceptions to this general rule. 
First, if trust issued receipts are traded only in round lots (or 
round-lot multiples), the Exchange's rules relating to odd-lot 
executions will not apply. Additionally, the Exchange understands 
that the Commission has provided an exemption from the short sale 
rule, Rule 10a-1 under the Act, for transactions in Internet HOLDRs. 
17 CFR 240. 10a-1. The Exchange will issue a notice to its members 
detailing the terms of the exemption.
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    Trust issued receipts are currently traded on the Amex at a minimum 
variation of \1/16th\ of $1.00 for trust issued receipts selling at or 
above $.25, and \1/32nd\ of $1.00 for those selling below $.25. Thus, 
the Exchange is proposing the same minimum fractional increments for 
the trading of trust issued receipts on the Exchange, until such time 
as decimal increments are approved. It is anticipated that some time 
after July, 2000, the industry minimum-price variations will be 
converted from fractions to decimals.
    The Exchange's surveillance procedure for trust issued receipts 
will be similar to the procedures used for portfolio depository 
receipts and will incorporate and rely upon existing BSE surveillance 
systems.
    Prior to the commencement of trading in trust issued receipts, the 
Exchange will issue a circular to members highlighting the 
characteristics of trust issued receipts including that trust issued 
receipts are not individually redeemable. In addition, the circular 
will inform members of Exchange policies about 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 
BSE Chapter II, Section 34 B 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 an underlying security(s) and whether other unusual 
conditions or circumstances detrimental to the maintenance of a fair 
and orderly market are present.
d. Disclosure to Customers
    The Exchange will require its members to provide all purchasers of 
newly issued trust issued receipts with a prospectus for that series of 
trust issued receipts.
e. Trading of Internet HOLDRs
    As mentioned above, upon approval of the BSE's listing standards 
for trust issued receipts, the Exchange intends to begin trading a 
particular series of trust issued receipts, Internet HOLDRs pursuant to 
UTP privileges. The following section of this submission contains 
information about Internet HOLDRs. This information is based on upon 
descriptions included in the Internet HOLDRs prospectus, the Amex 
submissions relating to its trust issued receipt listing proposal, and 
the Commission's order approving the Amex proposal.\5\
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    \5\ See supra, note 3.
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    Creation of Internet HOLDRs. The Internet HOLDRs are being issued 
by the Internet HOLDRs trust, which was created pursuant to a 
depository trust agreement dated September 2, 1999, among The Bank of 
New York, as trustee, Merrill Lynch Pierce Fenner & Smith Incorporated, 
other depositors and the owners of the Internet HOLDRs. As of September 
22, 1999, the date of the prospectus, 3,766,700 Internet HOLDRs were 
sold by the Trust.
    As of September 22, 1999, the deposited securities underlying 
Internet HOLDRs were: American Online (AOL), Yahoo Inc. (YAHOO), 
Amazon.com Inc. (AMZN), EBay Inc. (EBAY), At Home Corp. (ATHM), 
Priceline.Com.Inc (PCLN), CMGI Inc. (CMGI), Inktomi Corporation (INKT), 
RealNetworks, Inc. (RNWK), Exodus Corporation, Inc. (EXDS), E*TRADE 
Group Inc. (EGRP), DoubleClick Inc. (DCLK), Ameritrade Holding Corp. 
(AMTD), Lycos Inc. (LCOS), CNET, Inc. (CNET), PSINet Inc. (PSIX), 
Network Associates, Inc. (NETA), Earthlink Network, Inc. (ELNK), 
MindSpring Enterprises, Inc. (MSPG), and Go2Net, Inc. (GNET).
    The twenty companies represented by the securities in the portfolio 
underlying the Internet HOLDRs trust were required to meet the 
following minimum criteria when they were selected on August 31, 1999: 
(1) The companies' common stock must have been registered under Section 
12 of the Exchange Act; (2) the minimum public float of each company 
included in the portfolio must have been at least $150 million; (3) 
each security was either listed on a national securities exchange or 
traded through the facilities of Nasdaq and be a reported national 
market system security; (4) the average daily trading volume for each 
security was at least 100,000 shares during the preceding sixty-day 
trading period; and (5) the average daily dollar value of the shares 
traded during the preceding sixty-day trading period was at least $1 
million. The initial weighting of each security in the portfolio was 
based on its market capitalization; however, if on the date such 
weighting was determined, a security represented more than 20% of the 
overall value of the receipt, then the amount of such security was to 
be reduced to no more than 20% of the receipt value. The Exchange 
anticipates that 150,000 trust issued receipts will be issued in 
connection with the initial distribution of the Internet HOLDRs.
    In addition, each of the companies whose common stock is included 
in the Internet HOLDRs also met the following criteria: (1) The market 
capitalization for each company was equal to or greater than $1 
billion; (2) the average daily trading volume for each security was at 
least 1.2 million shares over the 60 trading days prior to August 31, 
1999; (3) the average daily dollar volume of the shares traded for each 
company during the sixty-day trading period prior to August 31, 1999 
was at least $60 million; and (4) each company was traded on a national 
securities exchange or Nasdaq/National Market for at least ninety days 
prior to August 31, 1999.
    Trading Issues. 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. The amount 
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. 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 multiple, will be executed to the extent of the largest

[[Page 4453]]

round-lot multiple, rejecting the remaining odd-lot.\6\
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    \6\ For example, an order for 50 trust issued receipts will be 
rejected, while an order for 1,050 trust issued receipts, will be 
executed in part (1,000) and rejected in part (50).
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    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 exchange represents that 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--should promote 
correlative pricing between the trust issued receipts and the deposited 
securities. If the price of the trust issued receipt deviates 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 receipt 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.
    Maintenance of the Internet HOLDRs Portfolio. Except when a 
reconstitution event occurs, as described below, the securities 
represented by a trust issued receipt will not change.\7\ According to 
the Internet HOLDRs prospectus, under no circumstances will a new 
company be added to the group of issuers of the underlying securities 
and weightings of component securities will not be adjusted after they 
are initially set.
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    \7\ Even if a reconstitution event does not occur, the number of 
each security represented in a receipt may change due to certain 
corporate events such as stock splits or reverse stock splits on the 
deposited securities and the relative weightings among the deposited 
securities may change based on the current market price of the 
deposited securities.
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    Reconstitution Events. As described in the Internet HOLDRs 
prospectus, the securities underlying the trust issued receipts will be 
automatically distributed to the beneficial owners of the receipts in 
four circumstances:
    (1) If the issuer of the underlying securities no longer has a 
class of common stock registered under Section 12 of the Act, then its 
securities will no longer be an underlying security and the trustee 
will distribute the securities of that company to the owners of the 
trust issued receipts;
    (2) If the Commission finds that an issuer of underlying securities 
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 shares of 
that company to the owners of the trust issued receipts;
    (3) If the underlying securities of an issuer cease to be 
outstanding as a result of a merger, consolidation or other corporate 
combination, the trustee will distribute the consideration paid by and 
received from the acquiring company to the beneficial owners of the 
trust issued receipts, unless 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 issuer's underlying securities are delisted \8\ from 
trading on a national securities exchange or Nasdaq and are not listed 
for trading on another national securities exchange or through Nasdaq 
within five business days from the date the deposited securities are 
delisted.
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    \8\ This provision is designed for the purpose of permitting a 
deposited security to move its listing between, e.g.,  the Amex and 
Nasdaq, without requiring the automatic distribution of the 
deposited security to beneficial owners of the receipts. Should 
deposited securities be moved 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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    As described in the prospectus, if a reconstitution event occurs, 
the trustee 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.
    Issuance and Cancellation of Internet HOLDRs. The trust will issue 
and cancel, and an investor may obtain, hold, trade or surrender, 
Internet HOLDRs only in a round-lot of 100 trust issued receipts and 
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. The trust 
will issue additional receipts on a continuous basis when an investor 
deposits the required securities with the trust.
    An investor may obtain trust issued receipts by either purchasing 
them on an exchange or by delivering to the trustee the underlying 
securities evidencing a round lot of trust issued receipts. The trustee 
will charge an issuance fee of up to $10.00 per 100 trust issued 
receipts. An investor may cancel trust issued receipts and withdraw the 
deposited securities by delivering a round lot or round-lot multiple of 
the trust issued receipts to the trustee, during normal business hours. 
The trustee will charge a cancellation fee of up to $10.00 per 100 
trust issued receipts. Lower charges may be assigned for bulk issuances 
and cancellations. According to the prospectus, the trustee expects 
that, in most cases, it will deliver the deposited securities within 
one business day of the withdrawal request.
    Termination of the Trust. The trust shall terminate upon the 
earlier of: (1) the removal of the receipts from amex listing if they 
are not listed for trading on another national securities exchange or 
through Nasdaq within five business days from the date the receipts are 
delisted; (2) 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; (3) 75% of the beneficial owners of 
outstanding trust issued receipts (other than Merrill Lynch, Pierce, 
Fenner & Smith Incorporated) vote to dissolve and liquidate the trust; 
or (4) December 31, 2039. If a termination event occurs, the trustee 
will distribute the underlying securities to the beneficial owners as 
promptly as practicable after the termination event.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b)(5) \9\ of 
the Act in that is it 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.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule will impose 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

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

[[Page 4454]]

arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Persons making written submissions 
should file six copies 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-BSE-99-15 and should be 
submitted by February 17, 2000.
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    \9\ 15 U.S.C. 78f(b)(5).
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IV. Commission's Findings and Order Granting Accelerated Approval 
of Proposed Rule Change

A. Generally

    The Commission finds that the proposed rule change is consistent 
with the requirements of Section 6(b)(5) of the Act \10\ and the rules 
and regulations thereunder applicable to a national securities 
exchange. Specifically, the Commission finds, as it did in the Amex and 
CHX orders approving the listing and trading of trust issued receipts 
and Internet HOLDRs,\11\ that the proposal establishing listing 
standards for trust issued receipts and to trade Internet HOLDRs will 
provide investors with a convenient and less expensive way of 
participating in the securities markets. The 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 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, to protect investors and the public interest, and is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.\12\
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    \10\ 15 U.S.C. 78f(b)(5)
    \11\ See Securities Exchange Act Release No. 41892 (September 
21, 1999), 64 FR 52559 ( September 29, 1999) (approving listing and 
trading of trust issued receipts and Internet HOLDRs on the Amex) 
and Securities Exchange Act Release No. 42056 (October 22, 1999), 64 
FR 58870 (November 1, 1999) (approving listing and trading of trust 
issued receipts and Internet HOLDRs on the CHX pursuant to UTP).
    \12\ In approving this rule, the Commission notes that it has 
also considered the proposed rule's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
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    As noted in the Amex approval order, 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 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 any 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.\13\ Nevertheless, the Commission believes 
that the unique nature of trust issued receipts raises certain product 
design, disclosure, trading, and other issues.
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    \13\ The Commission has concerns about continued trading of the 
trust issued receipts whether listed or pursuant to UTP, 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 BSE has 
agreed to consult the Commission concerning continued trading, once 
the trust has fewer than nine component securities, and for each 
subsequent loss of a security thereafter.
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B. Trading of Trust Issued Receipts--Listing and UTP

    The Commission finds that the BSE's proposal contains adequate 
rules and procedures to govern the trading of trust issued receipts 
whether by listing or pursuant to UTP. Trust issued receipts are equity 
securities that will be subject to the full panoply of BSE rules 
governing the trading of equity securities on the BSE, 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.\14\
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    \14\ 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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    In addition, the BSE has developed specific listing and delisting 
criteria for trust issued receipts that will help to ensure that a 
minimum level of liquidity will exist for trust issued receipts to 
allow for the maintenance of fair and orderly markets. The delisting 
criteria also allows the BSE to consider the suspension of trading and 
the delisting of a trust issued receipt if an event occurred that made 
further dealings in such securities inadvisable. This will give the BSE 
flexibility to delist trust issued receipts if circumstances warrant 
such action. BSE's proposal also provides procedures to halt trading in 
trust issued receipts in certain enumerated circumstances.
    Moreover, in approving this proposal, the Commission notes the 
Exchange's belief that trust issued receipts 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 trust issued receipts 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 BSE will apply surveillance procedures for trust 
issued receipts that will be similar to the procedures used for 
portfolio depositary receipts and will incorporate and rely upon 
existing BSE surveillance procedures governing equities. The Commission 
believes that these surveillance procedures are adequate to address 
concerns associated with listing

[[Page 4455]]

and trading trust issued receipts, 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 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 a particular trust issued receipt basket, including 
a statement regarding its redeemability and method of creation. The 
Commission notes that all investors in 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 BSE member firms who purchase trust 
issued receipts 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 of this type of 
security. The circular also will note the Exchange members' prospectus 
delivery requirements, and highlight the characteristics of purchases 
in trust issued receipts. The circular also will inform members of 
Exchange policies regarding trading halts in trust issued receipts.

D. Accelerated Approval

    BSE 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 trust issued receipts, and 
specifically Internet HOLDRs pursuant to UTP privileges, will provide 
investors with a convenient and less expensive way of participating in 
the securities markets. The Commission believes that the proposed rule 
change could produce added benefits to investors through the increased 
competition between other market centers trading the product. 
Specifically, the Commission believes that by increasing the 
availability of trust issued receipts, and in particular Internet 
HOLDRs, as an investment tool, the BSE's proposal should help provide 
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. The Commission notes, 
however, that notwithstanding approval of the listing standards for 
trust issued receipts, other similarly structured products, including 
trust issued receipts based on other industries, will require review by 
the Commission prior to being traded on the Exchange. Additional series 
cannot be listed by the Exchange prior to contacting Division staff. In 
addition, the BSE may be required to submit a rule filing prior to 
trading a new issue or series on the Exchange.
    As noted above, the Commission has approved the listing and trading 
of trust issued receipts, including Internet HOLDRs, at the Amex, under 
rules that are substantially similar to BSE Chapter XXIV-A. The trading 
requirements of trust issued receipts at the BSE will be substantially 
similar to the trading requirements of trust issued receipts at the 
Amex and the CHX. The Commission published those rules in the Federal 
Register for the full notice and comment period. No comments were 
received on the proposed rules, and the Commission found them 
consistent with the Act \15\ The Commission does not believe that 
trading of this product raises novel regulatory issues that were not 
addressed in the previous filing. Accordingly, the Commission finds 
good cause for approving the proposed rule change prior to the 
thirtieth day after the date of publication of notice in the Federal 
Register.
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    \15\ See supra, note 11.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\16\ that the proposed rule change (SR-BSE-99-15), is hereby 
approved on an accelerated basis.
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    \16\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-1972 Filed 1-26-00; 8:45 am]
BILLING CODE 8010-01-M