[Federal Register Volume 65, Number 233 (Monday, December 4, 2000)]
[Notices]
[Pages 75746-75749]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-30770]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43604; File No. SR-CSE-00-05]


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

November 21, 2000.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on October 13, 2000, the Cincinnati Stock Exchange, Inc. (``CSE'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been substantially prepared by the Exchange. 
On November 17, 2000, the CSE filed Amendment No. 1 to the proposed 
rule change.\3\ The Commission is publishing this notice to solicit 
comments on the proposed rule change and Amendment No. 1 from 
interested persons, and to grant accelerated approval of the proposed 
rule change and Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the CSE requested accelerated 
effectiveness of the proposed rule change and provided reasons 
therefore. See Letter from James M. Flynn, Staff Attorney, CSE, to 
Michael Gaw, Attorney-Advisor, Division of Market Regulation, 
Commission (November 16, 2000). The CSE in fact meant to request 
accelerated approval of the proposal in Amendment No. 1. Telephone 
conversation between James M. Flynn, Staff Attorney, CSE, and 
Michael Gaw, Attorney-Adviser, Division of Market Regulation, 
Commission, on November 21, 2000. Amendment No. 1 also corrected a 
typographical error in the proposed rule text.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The CSE proposes to amend its listing standards for Trust Issued 
Receipts (``TIRs'') to establish generic standards that permit listing 
and trading, or trading pursuant to unlisted trading privileges 
(``UTP''), of TIRs pursuant to Rule 19b-4(e) under the Act.\4\ The text 
of the proposed rule change is available at the principal office of the 
CSE and at the Commission.
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    \4\ 17 CFR 240.19b-4(e).

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[[Page 75747]]

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 CSE 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 proposes to amend CSE Chapter XI, Rule 11.9(w) (Trust 
Issued Receipts), to establish generic standards that permit listing 
and trading, or trading pursuant to UTP, of TIRs pursuant to Rule 19b-
4(e) under the Act.
    On July 17, 2000, the Commission approved a CSE proposal to adopt 
certain listing standards for TIRs and to trade two kinds of TIR--
Internet HOLDRs and Biotech HOLDRs--pursuant to UTP.\5\ This proposal 
included new rules stating that the CSE may trade, whether by listing 
or pursuant to UTP, TIRs based on one or more securities.\6\ In 
addition, the new rules provided that the Exchange's Constitution and 
all other rules and policies of the Board of Trustees apply to the 
trading of TIRs on the Exchange.\7\ For each trust, the CSE will 
establish a minimum number of TIRs required to be outstanding at the 
time of commencement of trading on the Exchange.\8\ In addition, 
following the initial 12-month period after formation of a trust and 
commencement of trading on the Exchange, the CSE will consider the 
suspension of trading in, or removal from listing of a trust upon which 
a series of TIRs is based, under any of the following circumstances: 
(1) The trust has more than 60 days remaining until termination and 
there are fewer than 50 record and/or beneficial holders of TIRs for 30 
or more consecutive trading days; (2) the Trust has more 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) if any other 
event shall occur or condition exists which, in the opinion of the 
Exchange, makes further dealings on the Exchange inadvisable.\9\
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    \5\ See Exchange Act Release No. 43024 (July 17, 2000), 65 FR 
45640 (July 24, 2000).
    \6\ See CSE Chapter XI, Rule 11.9(w)(3).
    \7\ See CSE Chapter XI, Rule 11.9(w)(1). However, exceptions 
exist where a trading rule is inconsistent with the TIR listing 
standards or where the context otherwise requires. See id.
    \8\ See CSE Chapter XI, Rule 11.9(w)(4)(a).
    \9\ See CSE Chapter XI, Rule 11.9(w)(4)(b).
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    The CSE now intends to trade additional TIR products (e.g., 
Pharmaceutical HOLDRs and Telecommunications HOLDRs) that currently are 
listed on other exchanges and that are developed from time to time. To 
accommodate the efficient listing or trading, or trading pursuant to 
UTP, of additional TIRs, the CSE proposes to add a new Interpretation 
to the Exchange's existing rules that would establish generic standards 
for the listing and trading of TIRs pursuant to Rule 19b-4(e). Under 
the new Interpretation, the Exchange could list or trade, pursuant to 
Rule 19b-4(e), any TIRs that meet the following additional criteria: 
(1) Each security underlying the TIR must be registered under Section 
12 of the Act; \10\ (2) each company whose securities are underlying 
securities for the TIR must have a minimum public float of at least 
$150 million; (3) each security underlying the TIR 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 TIR must have an average 
daily trading volume of at least 100,000 shares during the preceding 
60-day trading period; (5) each company whose securities are underlying 
securities for the TIR must have an average daily dollar value of 
shares traded of at least $1 million; and (6) the most heavily weighted 
security in the TIR cannot initially represent more than 20 percent of 
the overall value of the TIR.
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    \10\ 15 U.S.C. 78l.
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    The CSE believes that these additional criteria will ensure that no 
security included as an underlying security in a TIR product will be 
readily susceptible to manipulation, while at the same time permitting 
sufficient flexibility in the construction of various TIRs to meet 
investors' needs. The CSE also believes that these criteria will ensure 
sufficient liquidity for those investors seeking to purchase and 
deposit the underlying securities with the trustee to create a new TIR.
2. Statutory Basis
    The CSE believes that the proposed rule change is consistent with 
Section 6(b) of the Act \11\ in general, and furthers the objectives of 
Sections 6(b)(5) \12\ in particular, 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 the public interest.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The CSE does not believe that the proposed rule would impose any 
inappropriate burden on competition. The CSE believes that the proposed 
rule would encourage competition among markets by allowing more than 
one exchange to list and trade TIRs pursuant to Rule 19b-4(e) under the 
Act.\13\
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    \13\ 17 CFR 240.19b-4(e).
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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 in connection with 
the proposed rule change.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change and Amendment No. 1 are 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, 
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-CSE-00-05 and should be submitted by December 26, 2000.

IV. Commission's Findings and Order Granting Accelerated Approval 
of Proposed Rule Change and Amendment No. 1

    The Commission finds that the proposed rule change and Amendment 
No. 1 are consistent with the

[[Page 75748]]

requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange and, in particular, with 
the requirements of Section 6(b)(5).\14\ Specifically, the Commission 
finds that establishing generic standards to permit listing and trading 
of TIRs pursuant to Rule 19b-4(e) will further the intent of that rule 
by facilitating commencement of trading in these securities without the 
need for notice and comment and Commission approval under Section 19(b) 
of the Act.\15\ By establishing generic standards, the proposal should 
reduce the CSE's regulatory burden, as well as benefit the public 
interest, by enabling the Exchange to bring qualifying products to the 
market more quickly. Accordingly, the Commission finds that the CSE's 
proposal will promote just and equitable principles of trade; foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities; and, in general, protect 
investors and the public interest consistent with Section 6(b)(5) of 
the Act.\16\ Furthermore, the Commission notes that it has previously 
approved similar proposals by the Chicago Stock Exchange (``CHX'') and 
the American Stock Exchange (``Amex'') to establish generic listing 
standards for TIRs.\17\
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    \14\ 15 U.S.C. 78f(b)(5).
    \15\ 15 U.S.C. 78s(b).
    \16\ 15 U.S.C. 78f(b)(5). In approving these rules, the 
Commission notes that is has considered the proposed rules' impact 
on efficiency, completion, and capital formation. See 15 U.S.C. 
78c(f).
    \17\ See Exchange Act Release No. 43396 (September 29, 2000), 65 
FR 60230 (October 10, 2000).
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    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, 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 SRO 
has a surveillance program for the product class.\18\ The Commission's 
approval of the proposed generic listing standards for TIRs and the CSE 
will allow TIRs that meet those standards to start trading pursuant to 
Rule 19b-4(e) without the need for notice an comment and Commission 
approval. The Exchange's ability to rely on Rule 19b-4(e) for these 
products potentially reduces the time frame for bringing these 
securities to the market and thus enhances investors' opportunities. 
The Commission notes that, while the proposal reduces the Exchange's 
regulatory burden, the Commission maintains regulatory oversight over 
any TIRs listed under the generic standards through regular 
inspections.
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    \18\ See Exchange Act Release No. 40761 (December 8, 1998), 63 
FR 70952 (December 22, 1998) (adopting release for Rule 19b-4(e))..
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    The Commission has previously approved a CSE proposal to establish 
certain listing standards for TIRs and to trade two series of TIRs 
(Internet HOLDRs and Biotech HOLDRs) pursuant to UTP.\19\ In approving 
these securities for trading, the Commission considered their 
structure, their usefulness to investors and the markets, and the CSE's 
rules and surveillance programs that govern their trading, and 
determined that the CSE proposal was consistent with Section 6(b)(5) of 
the Act.\20\ The Commission also believes that additional TIRs, that 
satisfy the proposed generic standards and thus can be listed or traded 
pursuant to Rule 19b-4(e) without prior Commission approval, should 
produce the same benefits to the CSE and to investors. As the 
Commission noted in the prior approval, trading of these products will 
be subject to the full panoply of rules and procedures that govern the 
trading of securities on the CSE, including, among others, rules and 
procedures governing trading halts, disclosures to members, 
responsibilities of the specialist, account opening and customer 
suitability requirements, the election of a stop or limit order, and 
margin.\21\
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    \19\ See Exchange Act Release No. 43042 (July 17, 2000), 65 FR 
45640 (July 24, 2000).
    \20\ 15 U.S.C. 78f(b)(5).
    \21\ See 65 FR at 45643.
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    The Commission further finds that: (1) By requiring that the 
underlying securities in a TIR be registered under Section 12 of the 
Act and listed on a national securities exchange or Nasdaq; and (2) by 
establishing minimum values for the number of outstanding receipts, 
average daily trading volume, average daily dollar volume, and public 
float, the Exchange's proposed listing criteria will help to ensure 
that a minimum level of liquidity will exist to allow for the 
maintenance of fair and orderly markets for those trust issued receipt 
products listed and traded pursuant to Rule 19b-4(e). The Commission 
believes that these listing criteria will help to ensure that no 
security underlying a TIR will be readily susceptible to manipulation, 
while permitting sufficient flexibility in the construction of various 
TIRs to meet investors' needs. The Commission further believes that 
these criteria should help to ensure that the securities underlying 
such TIRs are well capitalized and actively traded, which will help 
ensure that U.S. securities markets are not adversely affected by the 
listing and trading of new TIRs under Rule 19b-4(e). Accordingly, the 
Commission finds that these criteria are consistent with Section 
6(b)(5) of the Act because they serve to prevent fraudulent or 
manipulative acts, 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 to protect investors and the 
public interest.\22\
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    \22\ 15 U.S.C. 78f(b)(5).
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    The Commission further notes that, in connection with its previous 
review and approval of the trading of two series of TIRs on the CSE, it 
approved the Exchange's surveillance procedures and disclosure and 
prospectus delivery requirements for TIRs.\23\ In accord with these 
previous findings, the Commission believes that these rules, which will 
govern the trading of TIRs pursuant to Rule 19b-4(e), will provide 
adequate safeguards to prevent manipulative acts and practices and to 
protect investors and the public interest.
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    \23\ See 65 FR 45643-44.
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    Finally, the Commission notes that the CSE, when trading a new 
derivative securities product under Rule 19b-4(e), must comply with 
certain recordkeeping requirements pertaining to each such product and 
must file Form 19b-4(e) \24\ with the Commission within five business 
days after commencement of trading a new TIR under the generic 
standards.\25\
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    \24\ 17 CFR 249.820.
    \25\ See 17 CFR 19b-4(e)(2).
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    In conclusion, the Commission believes that the CSE's proposed 
rules governing the listing and trading of TIRs pursuant to Rule 19b-
4(e) will provide adequate safeguards to prevent manipulative acts and 
practices and to protect investors and the public interest, consistent 
with Section 6(b)(5) of the Act.\26\
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    \26\ 15 U.S.C. 78f(b)(5).
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    The Commission finds good cause for approving the proposed rule 
change and Amendment No. 1 thereto prior to the thirtieth day after the 
date of publication of notice in the Federal Register, pursuant to 
Section 19(b)(2) of the Act. The Commission notes that the generic 
listing standards for TIRs at the CSE will be substantially similar to 
the listing standards at the Amex and CHX that the Commission has 
approved in the past.\27\ The Commission also observes that the 
proposal concerns issues that previously have been the

[[Page 75749]]

subject of a full comment period pursuant to Section 19(b) of the 
Act.\28\ The Commission does not believe that the proposal raises novel 
regulatory issues that were not addressed in the previous filings. 
Accordingly, the Commission finds that there is good cause, consistent 
with Section 6(b)(5) of the Act,\29\ to approve the proposed rule 
change and Amendment No. 1 on an accelerated basis.
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    \27\ See supra note 17.
    \28\ 15 U.S.C. 78s(b). See supra note 17.
    \29\ 15 U.S.C. 78f(b)(5).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\30\ that the proposed rule change (SR-CSE-00-05) and Amendment No. 
1 thereto are hereby approved on an accelerated basis.
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    \30\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\31\
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    \31\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-30770 Filed 12-1-00; 8:45 am]
BILLING CODE 8010-01-M