[Federal Register Volume 65, Number 164 (Wednesday, August 23, 2000)]
[Notices]
[Pages 51374-51376]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-21431]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43162; File No. SR-Amex 00-37]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by American Stock 
Exchange LLC Relating to Trading of Convertible Bond Linked Medium Term 
Notes

August 16, 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 July 17, 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. On August 14, 2000, the Exchange filed Amendment No. 1 to the 
proposed rule change.\3\ The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons 
and to grant accelerated approval of the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange modified its proposed 
change to Section 107B of the Amex Company Guide. The modification 
clarified certain matters relating to the application of the listing 
standards in Section 107B to underlying linked securities.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to list and trade convertible bond linked 
notes (``Notes'') and revise Section 107B of the Amex Company Guide 
(``Company Guide'') concerning the listing standards for the listing of 
equity linked notes. The revision permits the Exchange to list and 
trade Notes linked to securities that are convertible into common stock 
satisfying the criteria set forth in Section 107B of the Company Guide. 
Additions to the rule are in italics. Bracketing indicates text to be 
deleted.
* * * * *
Other Securities
Section 107
    The Exchange will consider listing any security not otherwise 
covered by the criteria of Sections 101 through 106, provided the issue 
is otherwise suited for auction market trading. Such issues will be 
evaluated for listing against the following criteria:
A. General Criteria
    (a)-(c) No change.
B. Equity Linked Term Notes
    Income instruments which are linked, in whole or in part, to the 
market performance of one or more common stock, [or] non-convertible 
preferred stocks, or other equity security(ies), as defined by Section 
3(a)(11) of the Securities Exchange Act of 1934 (``equity security''), 
will be considered for listing provided:
    (a)-(d) No change.
    (e) Each underlying linked stock to which the instrument relates, 
or stock into which an equity security(ies) is convertible, (each 
hereinafter referred to as an ``underlying linked security''), may not 
exceed 5% of the total outstanding common shares of such entity, 
provided however, if any underlying linked [stock] security is a non-
U.S. underlying linked security represented by ADSs, common shares, or 
otherwise, then for each such underlying linked security the instrument 
may not exceed (i) 2% of the total shares outstanding worldwide 
provided at least 20% of the worldwide trading volume in each non-U.S. 
underlying linked security and related non-U.S. underlying linked 
security during the six month period preceding the date of listing 
occurs in the U.S. market; (ii) 3% of the total worldwide shares 
outstanding provided at least 50% of the worldwide trading volume in 
each non-U.S. underlying linked security and related non-U.S. 
underlying linked securities during the six month period preceding the 
date of listing occurs in the U.S. market; and (iii) 5% of the total 
shares outstanding worldwide provided at least 70% of the worldwide 
trading volume in each non-U.S. underlying linked security and related 
non-U.S. securities during the six month period preceding the date of 
listing occurs in the U.S. market. If any non-U.S. underlying linked 
security and related securities has less than 20% of the worldwide 
trading volume occurring in the U.S. market during the six month period 
preceding the date of listing, then the instrument may not be linked to 
that non-U.S. underlying linked security.
    If an issuer proposes to list an Equity Linked Term Note that 
relates to more than the allowable percentages set forth above, the 
Exchange, with the concurrence of the staff of the Division of Market 
Regulation of the Securities and Exchange Commission, will evaluate the 
maximum percentage of Equity Linked Term Notes that may be issued on a 
case-by-case basis.
    (f) Equity Linked Term Notes will be treated as equity instruments.
    (g) If any underlying linked security [to which the instrument is 
to be linked] is [the stock] an equity security of a non-U.S. company 
which is traded in the U.S. market as a sponsored ADS, ordinary shares 
or otherwise, then the minimum number of holders of such underlying 
linked equity security shall be 2,000.
* * * * *

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Amex 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 list and trade Notes linked to securities 
that are convertible not common stock satisfying the criteria set forth 
in Section 107B of the Company Guide. Under Section 107 of the Company 
Guide, the Exchange may approve for listing and trading securities 
which cannot be readily categorized under the listing criteria for 
common and preferred stocks, bonds, debentures and warrants. The Amex 
now proposes to list for trading under Section 107B of the Company 
Guide

[[Page 51375]]

convertible bond linked medium term Notes. The proposed issue will meet 
the size and distribution requirements of Section 107A. The issuer of 
such securities also will be qualified under Section 107A.
    Holders of the Notes generally will receive interest on the face 
value of their Notes in an amount to be determined at the time of 
issuance of the Notes. The amount of interest will be disclosed to 
investors and reflective of prevailing interest rates and other 
factors. It is anticipated that the Notes will make coupon payments on 
a quarterly or semi-annual basis. At maturity, each Note will 
automatically exchange for a number of underlying convertible linked 
bonds based on an Exchange Factor set forth in the prospectus to 
investors. The Notes are not principal protected; accordingly, the 
value of the linked convertible bonds at maturity of the Notes may be 
more or less than the original principal amount of the Notes.
    Values for the purpose of determining the payment to holders at 
maturity will be determined by an Exchange Factor with reference to 
prices for the linked convertible bonds and/or the common stock 
underlying the linked convertible bonds on a business day shortly prior 
to maturity. The Notes will have a term of not less than one year and 
will be subject to the equity margin and trading rules of the Exchange 
except that, where the Notes are traded in thousand dollar 
denominations as debt, they will be traded subject to the Exchange's 
debt trading rules.
    In structure, the proposed bond indexed debt securities are in part 
similar to previously approved commodity preferred securities,\4\ stock 
index linked term notes,\5\ as well as ordinary equity linked notes \6\ 
and basket linked notes,\7\ however, the proposed Notes are linked to 
convertible bonds as opposed to commodity futures, equity securities 
indices, an individual stock or a basket of stocks. Accordingly, the 
Exchange proposes to provide for the listing and trading of the 
convertible bond linked term Notes provided the linked convertible 
bonds convert into common stock satisfying the criteria set forth in 
Section 107B of the Company Guide.
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 39402 (December 4, 
1997), 62 FR 65459 (December 12, 1997) (granting immediate 
effectiveness to an Exchange proposal to list and trade commodity 
preferred securities (ComPS)).
    \5\ See Securities Exchange Act Release No. 38940 (August 15, 
1997), 62 FR 44735 (August 22, 1997) (approving an Exchange proposal 
to list and trade indexed term notes linked to the Major 11 
International Index).
    \6\ See Securities and Exchange Act Release No. 32343 (May 20, 
1993), 58 FR 30833 (May 27, 1993) (approving an Exchange proposal to 
list and trade notes linked to a single equity security).
    \7\ See Securities Exchange Act Release No. 42582 (March 27, 
2000), 65 FR 17685 (April 4, 2000) (granting accelerated approval of 
an Exchange proposal to list and trade notes linked to a basket of 
equity securities). The Commission's approval order capped at 20 the 
number of equity securities that may be contained in a basket.
---------------------------------------------------------------------------

    Section 107B of the Company Guide details the Exchange's listing 
standards for equity linked notes (``ELNs''). Specifically, Section 
107B requires, among other things, that securities linked to ELNs (i) 
have a minimum market capitalization of $3 billion and during the 12 
months preceding listing are shown to have traded at least 2.5 million 
shares; (ii) have a minimum market capitalization of $1.5 billion and 
during the 12 months preceding listing are shown to have traded at 
least 10 million shares; or (iii) have a minimum market capitalization 
of $500 million and during the 12 months preceding listing are shown to 
have traded at least 15 million shares.
    The Exchange believes that linking to securities which are 
convertible into shares of common stock is appropriate provided that 
the common stock into which the security is convertible meets the 
standards for linked securities set forth in Section 107B. The Exchange 
represents that the common stock into which the securities linked to 
the Notes is convertible exceeds all of the ELN listing standards set 
forth in Section 107B. Accordingly, the Exchange also proposes to amend 
the text of Section 107B to clarify that ELNs may be linked to equity 
securities, which includes convertible securities, as defined by 
Section 3(a)(11) of the Act.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) \8\ of the Act in general and furthers the objectives 
of Section 6(b)(5) \9\ in particular in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of change, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition.

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

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

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

    The Amex requests that the proposed rule change be given expedited 
review and accelerated effectiveness pursuant to Section 19(b)(2) of 
the Act.

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

    After careful consideration, the Commission finds, for the reasons 
set forth below, that the proposal is consistent with the requirements 
of the Act and the rules and regulations thereunder.\10\ Specifically, 
the Commission finds that the proposal is consistent with Section 
6(b)(5) of the Act \11\ because it is designed to promote just and 
equitable principles of trade, facilitate transactions in securities, 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and protect investors and the 
public interest. In this regard, the Commission notes that the Amex has 
represented that the common stock into which the convertible bonds may 
be converted will satisfy the listing criteria set forth in Section 
107B of the Company Guide. The Commission believes that this 
requirement will strengthen the integrity of both the Notes and the 
underlying convertible bonds, and will decrease the possibility of 
market manipulation, thereby protecting investors and the public 
interest.
---------------------------------------------------------------------------

    \10\ In approving this rule, the Commission has considered its 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
    \11\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the date of publication of the 
notice of filing thereof in the Federal Register as the proposal raises 
no new regulatory issues, is substantially similar to proposals to list 
and trade equity linked notes and basket linked notes previously 
reviewed and approved by the Commission, and will permit the timely 
issuance of the proposed Notes. Because of the safeguards built into 
this proposal (noted above), the Commission believes that investors 
should be permitted to trade this new product as expeditiously as 
possible. Accordingly,

[[Page 51376]]

the Commission finds that it is consistent with Sections 6(b)(5) and 
19(b)(2) of the Act to approve the proposal on an accelerated basis.
    It is Therefore Ordered, pursuant to Section 19(b)(2) of the Act 
\12\ that the proposed rule change (SR-Amex 00-37) is hereby approved 
on an accelerated basis.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78f(b)(2)

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-21431 Filed 8-22-00; 8:45 am]
BILLING CODE 8010-01-M