[Federal Register Volume 65, Number 60 (Tuesday, March 28, 2000)]
[Notices]
[Pages 16437-16440]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-7534]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42542; File No. SR-Amex-00-14]


Self-Regulatory Organization; Notice of Filing of Proposed Rule 
Change by the American Stock Exchange LLC Relating to Generic Standards 
Applicable to Listing Portfolio Depositary Receipts and Index Fund 
Shares Pursuant to Rule 19b-4(e)

March 17, 2000.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\\ notice is hereby given that 
on March 6, 2000, 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, II, and III 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 Amex proposes to add new Commentary .03 to Amex Rule 1000 
(Portfolio Depositary Receipts) and New Commentary .02 to Amex Rule 
1000A (Index Fund Shares) to provide standards to permit listing and 
trading of Portfolio Depositary Receipts (``PDR'') and Index Fund 
Shares pursuant to Rule 19b-4(e) under the Act.\3\ Below is the text of 
the proposed rule change. Proposed new language is in italics.
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    \3\ 17 CFR 240.19b-4(e).
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Portfolio Depositary Receipts

Rule 1000   No change.
* * * Commentary
    .01  No change.
    .02  No change.
     .03  The Exchange may approve a series of Portfolio Depositary 
Receipts for listing and trading pursuant to Rule 19b-4(e) under the 
Securities Exchange Act of 1934 provided each of the following criteria 
is satisfied:
    (a) Eligibility Criteria for Index Components. Upon the initial 
listing of a series of Portfolio Depositary Receipts on the Exchange, 
the component stocks of an index or portfolio underlying such series of 
Portfolio Depositary Receipts shall meet the following criteria:
    (1) Component stocks that in the aggregate account for at least 90% 
of the weight of the index or portfolio shall have a minimum market 
value of at least $75 million;
    (2) The component stocks shall have a minimum monthly trading 
volume during each of the last six months of at least 250,000 shares 
for stocks representing at least 90% of the weight of the index or 
portfolio;
    (3) The most heavily weighted component stock cannot exceed 25% of 
the weight of the index or portfolio, and the five most heavily 
weighted component stocks cannot exceed 65% of the weight of the index 
or portfolio;
    (4) The underlying index or portfolio must include a minimum of 13 
stocks; and
    (5) All securities in an underlying index or portfolio must be 
listed on a national securities exchange or The Nasdaq Stock Market 
(including the Nasdaq SmallCap Market).
    (b) Index Methodology and Calculation. (i) The index underlying a 
series of Portfolio Depository Receipts will be calculate based on 
either the market capitalization, modified market capitalization, 
price, equal-dollar or modified equal-dollar weighting methodology; 
(ii) If the index is maintained by a broker-dealer, the broker-dealer 
shall erect a ``fire wall'' around the personnel who have access to 
information concerning changes and adjustments to the index and the 
index shall be calculated by a third party who is not a broker-dealer; 
and (iii) The current index value will be disseminated every 15 seconds 
over the Consolidated Tape Association's Network B.
    (c) Disseminated Information. The Reporting Authority will 
disseminate for each series of Portfolio Depositary Receipts an 
estimate, undated every 15 seconds, of the value of a share of each 
series. This may be based, for example, upon current information 
regarding the required deposit of securities and cash amount to permit 
creation of new shares of the series or upon the index value.
    (d) Initial Shares Outstanding. A minimum of 100,000 shares of a 
series of Portfolio Depositary Receipts is required to be outstanding 
at start-up of trading.
    (e) Trading Increment. The minimum trading increment for a series 
of Portfolio Depositary Receipts shall be 1/64 of $1.00.
    (f) Listing Fees. The original listing fee is $5,000 for each 
series of Portfolio Depositary Receipts. The annual listing fee under 
Section 141 of the Amex Company Guide will be based upon the number of 
a series of Portfolio Depositary Receipts outstanding at the end of 
each calendar year.
    (g) Surveillance Procedures. The Exchange will implement written 
surveillance procedures for Portfolio Depositary Receipts.
    (h) Applicability of Other Rules. The provisions of Rules 1000 et 
seq. will apply to all series of Portfolio Depositary Receipts.
* * * * *

Index Fund Shares

Rule 1000A  No change.
* * * Commentary
    .01  No change.
    .02  The Exchange may approve a series of Index Fund Shares of 
listing pursuant to Rule 19b-4(e) under the Securities Exchange Act of 
1934 provided each of the following criteria is satisfied:
    (a) Eligibility Criteria for Index Components. Upon the initial 
listing of a series of Index Fund Shares each component of an index or 
portfolio underlying a series of Index Fund Shares shall meet the 
following criteria:
    (1) Component stocks that in the aggregate account for at least 90% 
of the weight of the index or portfolio shall have a minimum market 
value of at least $75 million;
    (2) The component stocks shall have a minimum monthly trading 
volume during each of the last six months of at least 250,000 shares 
for stocks representing at least 90% of the weight of the index or 
portfolio;
    (3) The most heavily weighted component stock cannot exceed 25% of 
the weight of the index or portfolio, and the five most heavily 
weighted component stocks cannot exceed 65% of the weight of the index 
or portfolio;
    (4) The underlying index or portfolio must include a minimum of 13 
stocks; and
    (5) All securities in an underlying index or portfolio must be 
listed on a national securities exchange or The Nasdaq Stock Market 
(including the Nasdaq SmallCap Market.)
    (b) Index Methodology and Calculation. (i) The index underlying a

[[Page 16438]]

series of Index Fund Shares will be calculated based on either the 
market capitalization, modified market capitalization, price, equal-
dollar or modified equal-dollar weighting methodology; (ii) If the 
index is maintained by a broker-dealer, the broker-dealer shall erect a 
``fire wall'' around the personnel who have access to information 
concerning changes and adjustments to the index and the index shall be 
calculated by a third party who is not a broker-dealer; and (iii) The 
current index value will be disseminated every 15 seconds over the 
Consolidated Tape Association's Network B.
    (c) Disseminated Information. The Reporting Authority will 
disseminate for each series of Index Fund Shares an estimate, updated 
every 15 seconds, of the value of a share of each series. This may be 
based, for example, upon current information regarding the required 
deposit of securities and cash amount to permit creation of new shares 
of the series or upon the index value.
    (d) Initial Shares Outstanding. A minimum of 100,000 shares of a 
series of Index Fund Shares is required to be outstanding at start-up 
of trading.
    (e) Trading Increment. The trading increment may vary among 
different series of Index Fund Shares but will be set at \1/16\, \1/32\ 
or \1/64\ of $1.00.
    (f) Hours of Trading. Trading will occur between 9:30 a.m. and 
either 4:00 p.m. or 4:15 p.m. for each series of Index Fund Shares, as 
specified by the Exchange.
    (g) Listing Fees. The original listing fee is $5,000 for each 
series of Index Fund Shares. The annual listing fee under Section 144 
of the Amex Company Guide will be based upon the number of shares of a 
series of Index Fund Shares outstanding at the end of each calendar 
year. For multiple series of Index Fund Shares issued by an opened 
management investment company, the annual listing fee will be based on 
the aggregate number of shares in all series outstanding at the end of 
each calendar year.
    (h) Surveillance Procedures. The Exchange will implement written 
surveillance procedures for Index Fund Shares.
    (i) Applicability of Other Rules. The provisions of Rules 1000A et 
seq. will apply to all series of Index Fund Shares.

II. Self-Regulatory Organization's Statement of Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
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 self-regulatory organization 
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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On December 11, 1992, the Commission approved Amex Rules 1000 et 
seq. to accommodate trading on the Exchange of PDR securities, which 
represent interests in an unit investment trust (``Trust'') that 
operates on an open-end basis and holds a portfolio of securities. \4\ 
Each Trust is intended to provide investors with an instrument that 
closely tracks the underlying securities portfolio that trades like a 
share of common stock, and that pays to PDR holders periodic dividends 
proportionate to those paid with respect to the underlying portfolio of 
securities, less certain expenses, as described in the applicable Trust 
prospectus. The first Trust be formed in connection with the issuance 
of PDR was based on the Standard & Poor's 500 Index, known as Standard 
& Poor's Depositary Receipts  (``SPDRs'' ), which 
have been trading on the Exchange since January 29, 1993. \5\ In 1995, 
the Commission approved Amex's listing and trading of PDR based on the 
Standard & Poor's MidCap 400 Index TM (``MidCap SPDRs 
TM''). \6\ In January 1998, the Commission approved the 
listing and trading of PDR based on the Dow Jones Insustrial Average 
SM (``DIAMONDs SM''). \7\ Most recently, on 
February 26, 1999, the Commission approved Nasdaq-100 Shares 
TM, which are PDR based on the Nasdaq-100  Index. 
\8\ The Commission first approved Amex's listing and trading of Index 
Fund Shares under Amex Rules 100A et seq. in 1996. \9\ Index Fund 
Shares are shares issued by an open-end management investment company 
that seeks to provide investment results that correspond generally to 
the price and yield performance of specified foreign or domestic equity 
index. The Exchange currently lists under Amex Rules 1000A et set. 
seventeen series of World Equity Benchmark Shares SM (``WEBS 
TM'') based on Morgan Stanley Capital International foreign 
stock indices; \10\ and nine series of Select Sector SPDRs  
based on Select Indexes comprised of stocks representing various 
industry sectors and included in the S&P 500 Index. \11\
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    \4\ Securities Exchange Act Release No. 31591 (December 11, 
1992), 57 FR 60253 (December 18, 1992). ``PDRs'' us a service mark 
of PDR Services LLC, a wholly-owned subsidiary of the Exchange.
    \5\ Securities Exchange Act Release No. 31591 (December 11, 
1992), 57 FR 60253 (December 18, 1992).
    \6\ Securities Exchange Act Release No. 35534 (March 24, 1995), 
60 FR 16686 (March 31, 1995). ``Standard & Poor's 500,'' ``Standard 
& Poor's MidCap 400 Index,'' ``Standard & Poor's Depositary 
Receipts,'' ``SPDRs ,'' ``Standard & Poor's 
MidCap 400 Depositary Receipts'' and ``MidCap SPDRs'' are trademarks 
of the McGraw-Hill Companies, Inc.
    \7\ Securities Exchange Act Release No. 39525 (January 8, 1998), 
63 FR 2438 (January 15, 1998). ``Dow Jones Industrial Average 
SM,'' ``DJIASM'' ``Dow Jones SM'' 
and ``DIAMONDS'' are each trademarks and service marks of Dow Jones 
& Company, Inc.
    \8\ Securities Exchange Act Release No. 41119 (February 26, 
1999), 64 FR 11510 (March 9, 1999). The ``Nasdaq-100 Index 
,'' ``Nasdaq-100 ,'' ``Nasdaq , ``and 
``The Nasdaq Stock Market '' are trademarks of Nasdaq and 
have been licensed for use for certain purpose by Investment Product 
Services, Inc. pursuant to a License Agreement with Nasdaq.
    \9\ Securities Exchange Act Release No. 36947 (March 8, 1996), 
61 FR 10606 (March 14, 1996).
    \10\ See Securities Exchange Act Release No. 41983 (October 6, 
1999), 64 FR 56008 (October 15, 1999). ``World Equity Benchmark 
Shares'' and ``WEBS'' are service marks or Morgan Stanley Group, 
Inc.
    \11\ See Securities Exchange Act Release No. 40479 (December 4, 
1998), 63 FR 68483 (December 11, 1998) ``Select Sector SPDR'' is a 
service mark of The McGraw-Hill Companies, Inc.
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    The Exchange proposes to amend Amex Rules 1000 and 1000A to provide 
standards to permit listing and trading of PDR and Index Fund Shares 
pursuant to Rule 19b-4(e) under the Act. Rule 19b-4(e) provides that 
the listing and trading of a new derivative securities product by a 
self-regulatory organization shall not be deemed a proposed rule 
change, pursuant to paragraph (c)(1) of Rule 19b-4, if the Commission 
has approved, pursuant to Section 19(b) of the Exchange Act, the self-
regulatory organization's trading rules, procedures and listing 
standards for the product class that would include the new derivative 
securities product and the self-regulatory organization has a 
surveillance program for the product class.\12\
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    \12\ See Securities Exchange Act Release No. 40761 (December 8, 
1998), 63 FR 70952 (December 22, 1998).
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    As noted above, the Commission has previously approved Amex Rules 
1000 et seq. and 1000A et seq. to permit listing and trading of PDR and 
Index Fund Shares. In approving these securities for Exchange trading, 
the Commission thoroughly considered the structure of these securities, 
their usefulness to investors and to the markets, and the Amex rules 
that govern their trading. Moreover, the Exchange has separately filed 
proposed rule changes pursuant to Rule 19b-4 for each

[[Page 16439]]

series of PDR or Index Fund Shares currently trading on the Exchange. 
The Exchange believes that application of Rule 19b-4e to such 
securities will further the intent of that rule by facilitating 
commencement of trading in these securities, subject to the proposed 
generic standards for PDR and Index Fund Shares, discussed below, 
without the need for notice and comment and Commission approval under 
Section 19(b) of the Act. This has the potential to reduce the time 
frame for bringing such securities to market.
    The Exchange is proposing that PDR and Index Fund Shares listed 
pursuant to Rule 19b-4(e) be subject to specific generic criteria as 
set forth in proposed Amex Rule 1000, Commentary .03 (for PDR) and Amex 
Rule 1000A, Commentary .02 (for Index Fund Shares). The Exchange notes 
that all other provisions of Amex Rules 1000 et seq. and 1000A et seq. 
will continue to apply to such securities.
    The Exchange is proposing to implement generic listing criteria 
that are intended to ensure that a substantial portion of the weight of 
an index or portfolio is accounted for by stocks with substantial 
market capitalization and trading volume. Proposed Amex Rule 1000, 
Commentary .03 and Amex Rule 1000A, Commentary .02 would both provide 
that, upon the initial listing of a series of PDR or Index Fund Shares 
under Rule 19b-4(e), component stocks that in the aggregate account for 
at least 90% of the weight of the index or portfolio must have minimum 
market value of at least $75 million. In addition, the component stocks 
in the index must have a minimum monthly trading volume during each of 
the last six months of at least 250,000 shares for stocks representing 
at least 90% of the weight of the index or portfolio.
    The most heavily weighted component stock in an underlying index 
cannot exceed 25% of the weight of the index or portfolio, and the five 
most heavily weighted component stocks cannot exceed 65% of the weight 
of the index or portfolio. The underlying index or portfolio must 
include a minimum of 13 stocks, which is the minimum number to permit 
qualification as a regulated investment company under Subchapter M of 
the Internal Revenue Code.\13\ All securities in an underlying index or 
portfolio must be listed on a national securities exchange or The 
Nasdaq Stock Market (including the Nasdaq SmallCap Market).
    Proposed Amex Rule 1000, Commentary .03 and Amex Rule 1000A, 
Commentary .02 provide that the underlying index will be calculated 
based on either the market capitalization, modified market 
capitalization, price, equal-dollar or modified equal-dollar weighting 
methodology. In addition, if the index is maintained by a broker-
dealer, the broker-dealer must erect a ``fire wall'' around the 
personnel who have access to information concerning changes and 
adjustments to the index and the index shall be calculated by a third 
party who is not a broker-dealer. The current index value will be 
disseminated every 15 seconds over the Consolidated Tape Association's 
Network B.
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    \13\ Under Subchapter M of the Internal Revenue Code, for a fund 
to qualify as a regulated investment company the securities of a 
single issuer can account for no more than 25% of a fund's total 
assets, and at least 50% of a fund's total assets must be comprised 
of cash (including government securities) and securities of single 
issuers whose securities account for less than 5% of such fund's 
total assets.
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    The Reporting Authority will disseminate for each series of PDR and 
Index Fund Shares an estimate, updated every 15 seconds, of the value 
of a share of each series. This may be based, for example, upon current 
information regarding the required deposit of securities and cash 
amount to permit creation of new shares of the series or upon the index 
value.
    A minimum of 100,000 shares of a series of PDR or index Fund Shares 
will be required to be outstanding at start-up of trading. The Exchange 
believes this minimum number is sufficient to establish a liquid 
Exchange market at the start of trading.
    The minimum trading increment for a series of PDR will be \1/64\ of 
$1.00, and for Index Fund Shares will be \1/16\, \1/32\ or \1/64\ of 
$1.00, as determined by the Exchange for a specific series.
    The original listing fee for each series of PDR and Index Fund 
Shares will be $5,000. The annual listing fee under Section 141 of the 
Amex Company Guide will be based upon the number of shares of a series 
of PDR outstanding at the end of each calendar year. For funds with 
multiple series of Index Fund Shares, shares in all series outstanding 
at year end will be aggregated for purposes of the annual listing fee 
under Section 141 of the Amex Company Guide.
    The Exchange will implement written surveillance procedures for PDR 
and Index Fund Shares. In addition, the Exchange will comply with all 
recordkeeping requirements of Rule 19b-4(e). The Exchange will file 
Form 19b-4(e) for each series of PDR or Index Fund Shares listed under 
Rule 19b-4(e) within five business days of commencement of trading.\14\
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    \14\ 17 CFR 240.19b-4(e).
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    The provisions of Amex Rules 1000 et seq. or 1000A et seq. will 
apply to all series of PDR and Index Fund Shares listed under Rule 19b-
4(e). In addition to the requirements of proposed Amex Rule 1000, 
Commentary .03 and Amex Rule 1000A, Commentary .02, PDR and Index Fund 
Shares will be subject to Exchange procedures and rules, discussed 
below, comparable to those applied to existing PDR and Index Fund 
Shares.
    Amex Rule 154. Amex Rule 154, Commentary .04(c) provides that stop 
and stop limit orders to buy or sell a security (other than an option, 
which is covered by Amex Rule 950(f) and Commentary thereto), the price 
of which is derivatively priced based upon another security or index of 
securities, may, with the prior approval of a Floor Official, be 
elected by a quotation, as set forth in Commentary. 04(c)(i-v). PDR and 
Index Fund Shares listed under Rule 19b-4(e) will be eligible for this 
treatment.\15\
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    \15\ See Securities Exchange Act Release No. 29063, note 9 
(April 10, 1991), 56 FR 15652 (April 17, 1991) regarding Exchange 
designation of equity derivative securities as eligible for such 
treatment under Rule 154, Commentary .04(c).
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    Trading Halts. In addition to other factors that may be relevant, 
the Exchange may consider factors such as those set forth in Amex Rule 
918C(b) in exercising its discretion to halt or suspend trading in PDR 
and Index Fund Shares. These factors would include (1) the extent to 
which trading is not occurring in stocks underlying the index; or (2) 
whether other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present. Trading in these 
securities will also be halted in the event that market-wide ``circuit 
breaker'' parameters of Amex Rule 117 are triggered.
    Amex Rule 190, Commentary .04. Amex Rule 190, Commentary .04 will 
apply to PDR and Index Fund Shares listed under Rule 19b-4(e). This 
Commentary provides that the prohibition in Amex Rule 190(a) against a 
specialist or the specialist's member organization effecting any 
business transactions with a company in which stock the specialist is 
registered does not restrict a specialist registered in a series of PDR 
or Index Fund Shares from purchasing and redeeming the applicable 
series from the issuer to facilitate the maintenance of a fair and 
orderly market.
    Notice to Members. The Exchange will issue a Notice to Members for 
each

[[Page 16440]]

series to be listed pursuant to Rule 19b-4(e). The notice will describe 
the characteristics of the securities and will inform members of any 
obligation to deliver a written product description or prospectus, as 
applicable, to purchasers of PDR or Index Fund Shares. In addition, the 
notice will inform members of their responsibilities under Amex Rule 
411 (Duty to Know and Approve Customers) in connection with customer 
transactions in these securities.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the Act 
\16\ in general and furthers the objectives of Section 6(b)(5) \17\ in 
particular in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, and, in general to protect investors and the public 
interest.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change will impose no 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 such 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, N.W., Washington, D.C. 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 in the 
Commission's Public Reference Room in Washington, D.C. Copies of such 
filing will also be available for inspection and copying at the 
principal office of the Amex. All submissions should refer to the file 
number SR-AMEX-00-14 and should be submitted by April 18, 2000.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-7534 Filed 3-27-00; 8:45 am]
BILLING CODE 8010-01-M