[Federal Register Volume 65, Number 214 (Friday, November 3, 2000)]
[Notices]
[Pages 66271-66274]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-28221]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43483; File No. SR-CHX-00-33]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Stock Exchange; 
Incorporated Relating to the Trading of the street TracksSM 
Dow Jones Global Titans Index Fund

October 25, 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 October 16, 2000, the Chicago Stock Exchange, Incorporated 
(``Exchange'' or ``CHX'') 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 CHX. 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 CHX proposes to trade, pursuant to unlisted trading privileges, 
shares of the streetTRACKSSM Dow Jones Global Titans 
IndexTM Fund,\3\ using the procedures outlines in Rule 19b-
4(e) of the Act.
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    \3\ ``streetTRACKS'' is a registered service mark of the State 
Street Corporation. ``Dow Jones Global Titans Index'' is a trademark 
of the Dow Jones & Co., Inc.
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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 CHX 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 CHX 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
    On August 21, 1996, the Commission approved a new listing standard, 
Article XXVIII, Rule 24, which allowed the Exchange to list and trade 
Investment Company Units.\4\ In general, Investment Company Units 
represent an interest in a registered investment company that holds 
securities based on, or representing an interest in, an index or 
portfolio of securities.
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    \4\ See Securities Exchange Act Release No. 37589 (August 21, 
1996), 61 FR 44370 (August 28, 1996) (SR-CHX-96-12).
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    Over time, the Commission has approved amendments to Article 
XXVIII, Rule 24, to permit the trading, pursuant to unlisted trading 
privileges, of investment company lists based on certain Morgan Stanley 
Capital International Indices (``WEBSSM,'' now called 
``iSharesSM MSCI Index Fund SeriesSM'') and nine 
series of Select Sector SPDRsSM.\5\
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    \5\ See Securities Exchange Act Release Nos. 39117 (September 
22, 1997), 62 FR 50973 (September 29, 1997) (SR-CHX-96-14) (WEBS); 
and 40950 (January 15, 1999), 64 FR 3730 (January 25, 1999) (SR-CHX-
98-31) (Select Sector SPDRs). ``WEBBS'' was a service mark of the 
Morgan Stanley Group, Inc. ``iShares'' is a service mark of the 
Barclays Global Investors. ``MSCI Index Fund'' is a trademark of the 
Morgan Stanley Capital International. ``Select Sector SPDR'' is a 
service mark of The McGraw-Hill Companies, Inc.
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    On June 22, 2000, the Commission approved a proposed rule change 
that added a new interpretation to the CHX's Investment Company Units 
listing standard.\6\ This new provision permits the Exchange to list or 
trade Investment Company Units udder the expedited procedures described 
in Rule 19b-4(e) under the Act, so long as those securities meet 
specific standards. The Exchange has used these procedures to trade, 
pursuant to unlisted trading privileges, several Investment Company 
Units, including series of the iShares Trust based on domestic stock 
indices.
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    \6\ See Securities Exchange Act Release No. 42975 (June 22, 
2000), 65 FR 40712 (June 30, 2000) (SR-CHX-00-14).
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    Through this filing, the Exchange proposes to trade, pursuant to 
unlisted trading privileges, shares of the streetTRACKS (``Shares'') 
Dow Jones Global Titans Index Fund (the ``Fund''). The Fund is a series 
of the streetTRACKS Series Trust (the ``Trust''), which is an open-end 
investment company.\7\ As described below, these Investment Company 
Units are structurally similar to the Investment Company Units already 
approved for trading on the Exchange.
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    \7\ State Street Bank and Trust Company, through its State 
Street Global Advisors division, (``State Street'') is the adviser 
to the Trust and responsible for management of the Fund. State 
Street is also the administrator, custodian and transfer agent for 
the Fund and may act as a lending agent for the Trust. State Street 
Capital Markets, LLC is the distributor of the Fund's Shares. The 
Depository Trust Company (``DTC'') acts an securities depositary for 
the Shares.
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    The Exchange has prepared the following information about the Fund 
based on the streetTRACKS Trust Prospectus (the ``Prospectus'') and 
Statement of Additional Information dated September 25, 2000, as well 
as a submission by the American Stock Exchange, LLC (``Amex''), in 
which it sought approval to list and trade these securities (the ``Amex 
Submission'').\8\
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    \8\ See Securities Exchange Act Release No. 43338 (September 25, 
2000), 65 FR 59235 (October 4, 2000) (SR-Amex-00-53).
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    a. The Dow Jones Global Titans Index. The Dow Jones Global Titans 
Index (the ``Index'') is composed of 50 common stocks, which are chosen 
by the Dow Jones and Company (the ``Dow''). As described in the 
Prospectus, a stock

[[Page 66272]]

must, in the opinion of the Dow, meet all four of the following 
criteria to qualify as a candidate for the Index: (1) It must be a well 
established company with a solid financial situation and a broad client 
base; (2) it must be well known to global investors for either its long 
history of success or its widely used products or services; (3) it must 
be a market leader in its industry with either a dominant position or a 
competitive advantage; and (4) it must be among the largest of blue-
chip companies in the global arena.
    According to the Prospectus, in constructing the Global Titans 
Index, a multi-factor methodology is adopted. First, the 3,000 stocks 
of the Dow Jones Global Indexes are used as the Initial Pool to ensure 
that all candidates are investable, liquid and representative of the 
global markets. Market capitalization is then used as the first screen 
to create the Final Pool by selecting the top 100 companies. According 
to the Amex's filing, the Dow's rationale for this step is that market 
value is a universal measurement across industries, and also that its 
use is most appropriate for an index built for investment purposes. 
Every company in the final pool of 100 musts derive some revenue from 
outside its home country. This screen is instituted to ensure that all 
stocks in the Index selected are truly global companies.
    The Prospectus notes that the next step in Index construction is to 
combine the Final Pool components' market capitalization rankings with 
their rankings according to four other indicators of size and 
leadership. These four indicators, two from the balance sheet and two 
from the income statement, are assets, book value, sales/revenue, and 
net profit. The combined rankings of these four fundamental factors 
determine the fundamental rank of each company. The fundamental rank 
and the market capitalization rank are used equally as the basis for 
selecting the Index components.\9\
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    \9\ As described in the Amex Submission, the Index methodology 
described above is subject to an annual review. A three-month 
window--March through June--is used for stock evaluation. The steps 
described above are repeated to build the Final Pool and to 
calculate the final ranking with respect to the four fundamental 
measures and weighted average market value. Any non-components that 
fall into the top 25 of the new final ranking are added to the Index 
automatically, replacing the lowest ranked components. A 20% buffer 
zone rule is applied, meaning that any component stocks ranked 
higher than 20% above the Index's target number of stocks are 
retained, while those ranked lower than 20% above the target number 
are replaced by the top ranked non-component stocks.
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    For purposes of calculation of the Index value, securities for 
which the primary market is outside of the United States are valued 
based on the last sale price on the primary market. During periods when 
the primary market is closed, these securities are valued based on the 
last sale price, if any, of any corresponding American Depositary 
Receipt (``ADR'').
    b. The streetTRACKS Dow Jones Global Titans Index Fund. According 
to the Prospectus, the Fund's investment objective is to replicate as 
closely as possible, before expenses, the performance of the Index. The 
Fund uses a passive management strategy designed to track the 
performance of the Index. The Fund, using an ``indexing'' investment 
approach, attempts to replicate, before expenses, the performance of 
the Index. The Adviser seeks a correlation of 0.95 or better between 
the Fund's performance and the performance of the Index; a figure of 
1.00 would represent perfect correlation. The Fund generally will 
invest in all of the stocks comprising the Index in proportion to their 
weighings in the Index. However, under various circumstances, it may 
not be possible or practicable to purchase all of those stocks in those 
weighings. In those circumstances, the Fund may purchase a sample of 
the stocks in the Index in proportions expected by the Adviser to 
replicate generally the performance of the Index as a whole. There may 
also be instances in which the Adviser may choose to overweight another 
stock in the Index, purchase securities not in the Index which the 
Adviser believes are appropriate to substitute for the Index 
Securities, or utilize various combination of other available 
investment techniques, in seeking to track accurately the Index. The 
Fund may sell stocks that are represented in the Index, or purchase 
stocks that are not yet represented in the Index, in anticipation of 
their removal from or addition to the Index. The Fund will normally 
invest at least 95% of its total assets in common stocks that comprise 
the Index.
    The Prospectus confirms that the Fund will invest in foreign 
securities, including non-U.S. dollar-denominated securities traded 
outside of the United States and dollar-denominated securities of 
foreign issuers traded in the United States. Foreign securities also 
include investments such as ADRs, which are U.S. dollar-denominated 
receipts representing shares of foreign-based corporations. ADRs are 
issued by U.S. banks or trust companies, and entitle the holder to all 
dividends and capital gains that are paid out on the underlying foreign 
shares.
    As described in the Amex Submission, as of August 31, 2000, the 
Index included 27 U.S. companies, 20 Western European companies and 3 
Japanese companies, representing 68.17%, 27.45% and 4.38% of the Index 
weight, respectively. Forty-four Index components, representing 94.36% 
of the Index weight, are listed on the New York Stock Exchange, Inc. 
(``NYSE'') or on the National Association of Securities Dealers 
Automated Quotations System (``Nasdaq''). Seventeen of the 23 non-U.S. 
companies in the Index have ADRs listed and traded on the NYSE. The 
following five non-U.S. companies in the Index, with a combined Index 
weight of 5.07%, have ADRs traded in the United States in the over-the-
counter ``Pink Sheet'' market: Credit Suisse Group, Lloyds/TSB Group 
PLC, Nestle S.A., Roche Holding AG, and Siemens AG. ADRs for one non-
U.S. company in the Index, Allianz AG Holding, are not currently 
available.
    c. Creation and Redemption of Fund Shares. The Fund will issue and 
redeem Shares only in Creation Unit size aggregations, with 50,000 
Shares in each Creation Unit. The Fund will issue and sell Shares 
through the distributor on a continuous basis at their net asset value. 
Following issuance, Shares are traded on the Exchange and on other 
exchanges like other equity securities by professionals, as well as 
retail and institutional investors.
    In order to create (i.e., purchase) Creation Units of the Fund, an 
investor must generally deposit a designated portfolio of equity 
securities constituting a substantial replication, or a representation, 
of the stocks included in the Index (the ``Deposit Securities'') and 
generally make a small cash payment referred to as the ``Cash 
Component.'' The list of the names and the number of shares of the 
Deposit Securities is made available by the custodian through the 
facilities of the National Securities Clearing Corporation (``NSCC'') 
immediately prior to the opening of business on the Amex. The Cash 
Component represents the difference between the net asset value of a 
Creation Unit and the market value of the Deposit Securities.
    Orders must be placed in proper form by or through either (1) a 
``Participating Party,'' i.e., a broker-dealer or other participant in 
the clearing process of the Continuous Net Settlement System of the 
NSCC; or (2) a DTC Participant, that, in either case, has entered into 
an agreement with the Trust, the distributor and the transfer agent, 
with

[[Page 66273]]

respect to creations and redemptions of Creation Units. All orders must 
be placed for one or more whole Creation Units of Shares of the Fund 
and must be received by the distributor in proper form no later than 
the close of regular trading on the NYSE (ordinarily 4 p.m., New York 
time) in order to receive that day's closing net asset value per Share.
    Shares may be redeemed only in Creation Units at their net value 
and only on a day the NYSE is open for business. The custodian makes 
available immediately prior to the opening of business on the Amex, 
through the facilities of the NSCC, the list of names and the number of 
Shares of the Fund's portfolio securities that will be applicable that 
day to redemption requests in proper form (``Fund Securities''). Fund 
Securities received on redemption may not be identical to Deposit 
Securities which are applicable to creations of Creation Units. Unless 
cash redemptions are available or specified for the Funds, the 
redemption proceeds consist of the Fund Securities, plus cash in an 
amount equal to the difference between the net asset value (``NAV'') of 
the Shares being redeemed as next determined after receipt by the 
transfer agent of a redemption request in proper form, and the value of 
the Fund Securities (the ``Cash Redemption Amount''), less the 
applicable redemption fee.
    Shares cannot be redeemed individually but must be redeemed in 
Creation Units.
    d. Availability of Information Regarding Fund Shares and the Index. 
The Exchange understands that Amex, the primary exchange for these 
products, intends to disseminate, every 15 seconds during regular Amex 
trading hours, through the facilities of the Consolidated Tape 
Association (``CTA''), an updated value for Shares on a per Share 
basis. Amex has represented that this value will be based on last sale 
price disseminated by United States and applicable foreign exchange 
markets, the price of foreign issues being converted into U.S. dollars 
based on current currency exchange rates and/or reported ADR prices in 
the United States (in U.S. dollars).
    The Exchange also understands that additional information will be 
available to the public, including the Shares outstanding and the Cash 
Component per Creation Unit size aggregation (which will be made 
available prior to the opening on the Amex) and the closing prices of 
the Fund's Deposit Securities (which is available from a variety of 
market data vendors). Moreover, as described above, the Fund will make 
available on a daily basis the names and required number of shares of 
each of the Deposit Securities in a Creation Unit Aggregation, as well 
as information regarding the cash balancing amount. Finally, the 
Exchange understands that the NAV for each Fund will be calculated and 
disseminated daily.
    e. Other Characteristics of the Fund. Income dividend 
distributions, if any, are distributed to shareholders quarterly. Net 
capital gains are distributed at least annually. The Trust may declare 
and paid dividends more frequently to improve Index tracking or to 
comply with Internal Revenue Code distribution requirements. 
Distributions in cash may be invested automatically in additional whole 
Shares if the broker through which the investor purchased the Shares 
makes this option available.
    Broker-dealers may make available the DTC book-entry Dividend 
Reinvestment Service for use by beneficial owners of the Fund through 
DTC participants for reinvestment of their dividend distributions. If 
this service is available and used, dividend distributions of both 
income and realized gains will be automatically reinvested in 
additional whole Shares issued by the Fund based on a payable date NAV.
    f. Trading of Fund Shares on the Exchange. Fund Shares are subject 
to the criteria for initial and continued listing of Investment Company 
Units described in Article XXVIII, Rule 24.
    The Exchange will require that a minimum of 100,000 Shares be 
outstanding when trading begins at the CHX. This number of Shares is 
comparable to the number of shares outstanding when other Investment 
Company Units or Portfolio Depositary Receipts began trading on the 
Exchange. The Exchange believes that the proposed minimum number of 
Shares required to be outstanding when trading begins on the Exchange 
is sufficient to provide market liquidity and to further the Fund's 
objective to seek to provide investment results that correspond 
generally to the price and yield performance of the Index. The Exchange 
understands that 150,000 Shares were outstanding when trading began on 
the Amex on September 29, 2000.
    The minimum trading variation for the Fund will be \1/64\ of $1.00, 
until this security is converted to decimal pricing in accordance with 
the Decimals Implementation Plan for the Equities and Options Market 
submitted to the Commission in July, 2000.
    Fund Shares are considered ``securities'' under the Rules of the 
Exchange and are subject to all applicable trading rules, including the 
provisions of Article XX, Rule 40 (``ITS'' `Trade-Throughs' and `Locked 
Markets' ''), which prohibit CHX 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. Exchange equity 
margin rules will apply.
    Funds Shares are also subject to the Exchange's rules relating to 
trading halts due to extraordinary market volatility (Article IX, Rule 
10A) and the Exchange's rule which allows Exchange officials to halt 
trading in specific securities, under certain circumstances (Article 
IX, Rule 10(b)). In exercising the discretion described in Article IX, 
Rule 10(b), appropriate Exchange officials may consider a variety of 
factors, including the extent to which trading is not occurring in a 
stock underlying the index or portfolio and whether other unusual 
conditions or circumstances detrimental to the maintenance of a fair 
and orderly market are present.
    The Exchange's surveillance procedures for Fund Shares will be 
similar to the procedures used for other Investment Company Units and 
will incorporate and rely upon existing CHX surveillance systems.
    The Exchange will issue a circular to its members and member 
organizations, prior to the commencement of trading, alerting them to 
the characteristics of Fund Shares, including the fact that Shares are 
not individually redeemable, but are redeemable only in Creation Units. 
The circular with also confirm that investors purchasing Fund Shares 
will be required to receive a prospectus prior to or concurrently with 
the confirmation of a transaction in the Shares; will inform members 
that the procedures for purchases and redemptions of Shares in Creation 
Unit size are described in the Trust Prospectus; and will confirm for 
members that the Fund Shares are subject to existing Exchange rules 
relating to trading halts. Finally, the circular will inform members 
that before a member, member organization, or person associated with a 
member organization undertakes to recommend a transaction in the Fund, 
the member or member organization should make a determination that the 
Fund is suitable for the customer and the person making the 
recommendation should have a reasonable basis for believing, at the 
time of making the recommendation, that the customer has such knowledge 
and experience in financial matters that he may reasonably be expected 
to be capable of evaluating the risks and the

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special characteristics of the recommended transaction and is 
financially able to bear the risks of the recommended transaction.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b)(5) \10\ of the Act, which requires that an exchange 
have rules that are 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, to remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest.
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    \10\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change does not impose 
any burden on competition that is not necessary or appropriate in 
furtherance of the purpose of the Act. The CHX seeks to trade issues 
already trading on another exchange and believes that this increased 
competition among markets can benefit investors.

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

    Because the foregoing proposed rule change: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) does not become operative for 30 days from the date of filing, 
or such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest; provided that the 
CHX has given written notice of its intent to file the proposed rule 
change, along with a brief description and text of the proposed rule 
change, at least five business days prior to the date of filing the 
rule change, or such shorter time as designated by the Commission, the 
proposed rule change has become effective pursuant to Section 
19(b)(3)(A) \11\ of the Act and Rule 19b-4(f)(6) \12\ thereunder.\13\
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    \11\ 15 U.S.C 78s(b)(30(A).
    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ As required under Rule 19b-4(f)(6)(iii), the Exchange 
provided the Commission with written notice of its intent to file 
the proposed rule change.
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    A proposed rule change filed under Rule 19b-4(f)(6) may not become 
operative prior to 30 days after the date of filing. However, Rule 19b-
4(f)(6)(iii) permits the Commission to designate a shorter time if such 
action is consistent with the protection of investors and the public 
interest. The CHX seeks to have the proposed rule change become 
operative on October 16, 2000, in order to allow the CHX to immediately 
trade, pursuant to unlisted trading privileges, shares of streetTRACKS 
Dow Jones Global Titans Index Fund. The Shares are already being traded 
on the Amex.
    The Commission believes that it is consistent with the protection 
of investors and the public interest that the proposed rule change 
become operative immediately as of October 16, 2000.\14\ At any time 
within 60 days of the filing of the proposed rule change, the 
Commission may summarily abrogate such rule change if it appears to the 
Commission that such action is necessary or appropriate in the public 
interest, for the protection of investors, or otherwise in furtherance 
of the purposes of the Act.
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    \14\ For pusposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
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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, NW., Washington, DC 20549-0609. 
Copies of the submission, all subsequent amendments, all written 
statement 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. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
CHX. All submissions should refer to File No. SR-CHX-00-33 and should 
be submitted by November 24, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-28221 Filed 11-2-00; 8:45 am]
BILLING CODE 8010-01-M