[Federal Register Volume 65, Number 131 (Friday, July 7, 2000)]
[Notices]
[Pages 42049-42051]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-17147]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42986; File No. SR-CHX-00-16]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 by the Chicago Stock Exchange, Inc. Relating 
to the Listing and Trading of Trust Issued Receipts

June 28, 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 May 5, 2000, the Chicago Stock Exchange, Incorporated (``CHX'' 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. On June 7, 2000, the Exchange filed Amendment No. 1 to the 
proposal.\3\ 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.
    \3\ In Amendment No. 1, which has been incorporated into the 
proposed rule change, the Exchange replaced a reference to ``trust 
issued receipts'' with a reference to ``a series of HOLDRs'' in the 
text of proposed Interpretation and Policy .01 to CHX Rule 27. See 
Letter from Ellen J. Neely, Vice President and General Counsel, CHX, 
to Andrew Shipe, Attorney, Division of Market Regulation, SEC, dated 
June 6, 2000.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to amend its listing standards for Trust 
Issued Receipts (CHX Article XXVIII, Rule 27) to provide standards that 
permit listing and trading, or trading pursuant to unlisted trading 
privileges, of Holding company Depositary Receipts (``HOLDRs'') \4\ 
pursuant to Rule 19b-4(e) under the Act.\5\ The text of the proposed 
rule change follows. Italics indicate text to be added.
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    \4\ ``HOLDRs'' and ``HOLding Company Depositary Receipts'' are 
service marks of Merrill Lynch & Co.
    \5\ Rule 19b-4(e) provides that the listing and trading of a new 
derivative securities product by a self-regulatory organization 
(``SRO'') 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 Act, the SRO's trading rules, 
procedures and listing standards for the product class that include 
the new derivative securities product and the self-regulatory 
organization has a surveillance program for the product class. 17 
CFR 240.19b-4(e).
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Article XXVIII

Listed Securities

* * * * *

Trust Issued Receipts

Rule 27. No change to Text

* * * Interpretations and Policies
.01 The Exchange may approve a series of HOLDRs for trading, whether 
by listing or pursuant to unlisted trading privileges, pursuant to 
Rule 19b-4(e) under the Securities Exchange Act of 1934, provided 
that the following criteria are satisfied:
    (a) Each security underlying the HOLDR must be registered under 
Section 12 of the Exchange Act;
    (b) Each company whose securities are underlying securities for 
the HOLDR must have a minimum public float of at least $150 million;
    (c) Each security underlying the HOLDR must be listed on a 
national securities exchange or traded through the facilities of 
Nasdaq as a reported national market system security;
    (d) Each company whose securities are underlying securities for 
the HOLDR must have an average daily trading volume of at least 
100,000 shares during the preceding sixty-day trading period;
    (e) Each company whose securities are underlying securities for 
the HOLDR must have an average daily dollar value of shares traded 
during the preceding sixty-day trading period of at least $1 
million; and
    (f) The most heavily weighted security in the HOLDR cannot 
initially represent more than 20% of the overall value of the HOLDR.

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 regarding the proposed rule change. 
The text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    The Exchange proposes to amend CHX Article XXVIII, Rule 27 (Trust 
Issued Receipts) to provide standards

[[Page 42050]]

that permit listing and trading, or trading pursuant to unlisted 
trading privileges, of HOLDRs pursuant to Exchange Act Rule 19b-4(e).
    On October 22, 1999, the Exchange received Commission approval for 
a new rule that permits the trading of Trust Issued Receipts.\6\ Since 
that time, the Exchange has begun trading, pursuant to unlisted trading 
privileges, several different Trust Issued Receipts, including Internet 
HOLDRs, Biotech HOLDRs, Pharmaceutical HOLDRs, Telecommunications 
HOLDRs and Broadband HOLDRs.\7\ The Exchange believes that it will want 
the opportunity to similarly trade additional HOLDRs products that are 
developed from time to time.
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    \6\ See Securities Exchange Act Release No. 42056 (October 22, 
1999), 64 FR 58870 (November 1, 1999).
    \7\ See, e.g., Securities Exchange Act Release No. 42056 
(October 22, 1999), 64 FR 58870 (November 1, 1999) (Internet 
HOLDRs); Securities Exchange Act Release No. 42348 (January 18, 
2000), 65 FR 5006 (February 2, 2000) (Biotech HOLDRs).
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    To accommodate the efficient listing and trading, or trading 
pursuant to unlisted trading privileges, of additional HOLDRs, the 
Exchange proposes to add a new Interpretation to its existing rule to 
permit the listing and trading of HOLDRs pursuant to Rule 19b-4(e). 
Rule 19b-4(e) provides that the listing and trading of a new derivative 
securities product by an SRO shall not be deemed a proposed rule change 
under the Act, if the Commission has approved, pursuant to Section 
19(b) of the Act, the SRO's trading rules, procedures and listing 
standards for the product class that include the new derivative 
securities product and the SRO has a surveillance program for the 
product class.\8\
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    \8\ 17 CFR 240.19b-4(e).
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    As described above, the Commission has previously approved rules 
that permit the listing and trading of individual HOLDRs. In approving 
these securities for trading, the Commission considered the structure 
of these securities, their usefulness to investors and to the markets, 
and the Exchange rules and surveillance programs that govern their 
trading. Indeed, each of the Exchange's proposals to trade these 
products was set forth in a separate Form 19b-4 and published in the 
Federal Register, thus providing interested parties an opportunity to 
comment on the proposals. No comments were received.
    CHX Article XXVIII, Rule 27 subjects HOLDRs to all of the 
Exchange's trading rules by expressly providing that the provisions of 
the Exchange's Constitution and all other rules and policies of the 
Board of Governors apply to the trading of HOLDRs by the Exchange.\9\ 
Further structure is added to the listing or trading of these products 
through the initial and continued listing standards established for 
this product class. These standards confirm that, for each Trust, the 
Exchange will establish a minimum number of Trust Issued Receipts 
required to be outstanding at the time trading begins on the 
Exchange.\10\ These standards also confirm that, following the initial 
twelve month period after trading begins, the Exchange will consider 
the suspension of trading in, or removal from listing of a Trust Issued 
Receipt if: (1) The Trust has more than 60 days remaining until 
termination and there are fewer than 50 record or beneficial holders of 
Trust Issued Receipts for 30 or more consecutive days; (2) the Trust 
has fewer than 50,000 receipts issued and outstanding; (3) the market 
value of all receipts issued and outstanding is less than $1,000,000; 
or (4) any other event occurs or condition exists which, in the opinion 
of the Exchange, makes further dealings on the Exchange 
inadvisable.\11\
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    \9\ Exceptions exist where a trading rule is inconsistent with 
the Trust Issued Receipt listing standard or where the context 
otherwise requires. CHX Article XXVIII, Rule 27(e).
    \10\ See CHX Article XXVIII, Rule 27(c)(1)
    \11\ See CHX Article XXVIII, Rule 27(c)(2).
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    Under the new Interpretation proposed by the Exchange, the Exchange 
could list or trade, pursuant to Rule 19b-4(e), any HOLDRs that met the 
following additional criteria: (1) The common stock of each company 
included as an underlying security in the HOLDR must be registered 
under Section 12 of the Act; (2) each company whose securities are 
underlying securities for the HOLDR must have a minimum public float of 
at least $150 million; (3) each security included as an underlying 
security must be listed on a national securities exchange or traded 
through the facilities of Nasdaq as a reported national market system 
security; (4) each company whose securities are underlying securities 
for the HOLDR must have an average daily trading volume of at least 
100,000 shares during the preceding sixty-day trading period; and (5) 
each company whose securities are underlying securities for the HOLDR 
must have an average daily dollar value of shares traded during the 
preceding sixty-day trading period of at least $1 million. Finally, no 
security included as an underlying security may initially represent 
more than 20% of the overall value of the receipt.\12\
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    \12\ Each HOLDR product approved by the Commission to date has 
met these criteria. See supra, note 7.
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    The Exchange believes that these additional criteria will ensure 
that no security included as an underlying security in a HOLDRs product 
will be readily susceptible to manipulation, while permitting 
sufficient flexibility in the construction of various HOLDRs to meet 
investors' needs. These criteria also will ensure sufficient liquidity 
for those investors seeking to purchase and deposit the underlying 
securities with the trustee to create a new HOLDR.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b)(5) of the 
Act \13\ 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 teh public interest.
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    \13\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement of Burden on Competition

    The Exchange believes that no burden will be placed on competition 
as a result of the proposed rule change. Indeed, the rule change 
encourages competition among markets by allowing more than one exchange 
to list and trade the products described in this proposal pursuant to 
Rule 19b-4(e).

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

    No written comments were either solicited or received.

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 upon 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.

[[Page 42051]]

IV. 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-CHX-00-16 and should be submitted by July 28, 2000.
    For the Commission, by the Division of Market Regulation, pursuant 
to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-17147 Filed 7-6-00; 8:45 am]
BILLING CODE 8010-01-M