[Federal Register Volume 65, Number 247 (Friday, December 22, 2000)]
[Notices]
[Pages 80976-80980]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-32653]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43717; File No. SR-Phlx-00-54]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of a Proposed Rule Change and Amendment 
Nos. 1 and 2 Thereto by the Philadelphia Stock Exchange, Inc. Relating 
to the Listing and Trading of Trust Shares

December 13, 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 June 19, 2000, the Philadelphia Stock Exchange, Inc. (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Phlx. On August 
30, 2000, the Exchange submitted Amendment No. 1 to the proposed rule 
change.\3\ On December 12, 2000, the Exchange submitted Amendment No. 2 
to the proposed rule change.\4\ 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, 
as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Phlx clarified references to Trust 
Shares series in the text of the Exchange's proposed rule. See 
Letter to Nancy Sanow, Assistant Director, Division of Market 
Regulation, Commission, from Nandita Yagnik, Attorney, Phlx (August 
29, 2000).
    \4\ In Amendment No. 2, the Phlx proposed: trading Nasdaq-100 
Index Tracking Stock until 4:15 p.m.; establishing conditions for a 
specialist to provide automatic price improvement in Nasdaq-100 
Index Tracking Stock on the Philadelphia Stock Exchange Automated 
Communication and Execution (``PACE'') System; renumbering and 
retitling a new rule governing trading halts; and clarifying that 
transactions in Nasdaq-100 Index Tracking Stock would be reported to 
the Exchange's consolidated tape, Amendment No. 2 also indicated 
that securities now know as ``Nasdaq-100 Index Tracking Stock'' were 
formerly called ``Nasdaq-100 Shares;'' substituted ``Nasdaq 
Investment Product Services, Inc.'' for ``Nasdaq-Amex Investment 
Product Services, Inc.'' as sponsor; and made a technical change to 
the text of the proposed rule change. See Letter to Nancy Sanow, 
Assistant Director, Division of Market Regulation, Commission, from 
Carla Behnfeldt, Counsel, Phlx (December 12, 2000).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Phlx proposes to amend its rules to permit the listing and 
trading, or the trading pursuant to unlisted trading privileges 
(``UTP''), of Trust Shares. New Section (i) of Phlx Rule 803 provides 
listing standards for Trust Shares, which represent interests in a unit 
investment trust operating on an open-end basis and holding a portfolio 
of securities. In conjunction with Rule 803(i), the Exchange is also: 
amending its ``Hours of Business'' Rule (Rule 101) to address Trust 
Shares; making conforming changes to its PACE Rule (Rule 229) regarding 
automatic price improvement; and adopting new Rule 136 regarding 
trading halts in Trust Shares. The Exchange is also proposing to trade 
shares of the Nasdaq-100 Trust (``Nasdaq-100 Index Tracking Stock'') on 
a UTP basis. The text of the proposed rule change is set forth below. 
Proposed new language is in italics; proposed deletions are in 
brackets.
* * * * *

Rule 101 Dealings Upon the Exchange Hours of Business

* * * * *

Supplementary Material

* * * * *
    .02 [Post-Primary Session] Equity Trading Hours. Trading in any 
equity security on the Exchange's equity trading floor shall 
commence at 9:30 a.m. and end at 4 p.m. each business day, unless 
otherwise announced by the Exchange, except that:
    (i) the Post-Primary Session (``PPS'') will operate from 4 to 
4:15 p.m. for PPS-designated orders pursuant to Rule 232(b)[, and]
    (ii) the after hours trading facility for GTX orders will 
operate pursuant to Rule 232(c), and
    (iii) Transactions in Nasdaq-100 Index Tracking Stock may be 
effected on the Exchange until 4:15 p.m. each business day as well 
as pursuant to Rule 232(c).

Rule 229. Philadelphia Stock exchange Automated Communication and 
Execution System (PACE)

* * * * *

Supplementary Material

* * * * *

.07

(c) Price Improvement for PACE Orders

    (i) Automatic Price Improvement--Where the specialist 
voluntarily agrees to provide automatic price improvement to all 
customers and all eligible market orders in a security, 
automatically executable market and marketable limit orders in New 
York Stock Exchange and American Stock Exchange listed securities 
received through PACE for 599 shares or less shall be provided with 
automatic price improvement of \1/6\ (or \1/64\ in the case of 
Nasdaq-100 Index Tracking Stock) for equities trading in fractions, 
or .01 for equities trading in decimals from the PACE Quote where 
received beginning at 9:30 a.m., except where:
    (A) a buy order would be improved to a price less than the last 
sale or a sell order would be improved to a price higher than the 
last sale (except as provided in (E) below);
    or
    (B) a buy order would be improved to the last sale which is a 
downtick or a sell order would be improved to the last sale price 
which is an uptick (except as provided in (E) below). The PACE 
System will determine whether the last sale price is a downtick or 
an uptick. The PACE System does not recognize changes from the 
previous day's close.
    In these situations, the order is not eligible for automatic 
price improvement, and is, instead, automatically executed at the 
PACE Quote. A specialist may voluntarily agree to provide automatic 
price improvement to larger orders in a particular security to all 
customers under this provision. A specialist may choose to provide 
automatic price improvement for equities trading in fractions where 
the PACE Quote is (I) \3/16\ or greater, [or] (II) \1/8\ or greater, 
or (III) solely with respect to Nasdaq-100 Index Tracking Stock, \1/
16\ or greater. [for equities trading in fractions, or] A specialist 
may choose to provide automatic price improvement where the PACE 
Quote is .03 or greater or .05 or greater for equities trading in 
decimals.
* * * * *
    .17 Except for transactions in Nasdaq--100 Index Tracking Stock: 
(a) Orders received by 4:00 p.m. Eastern Time as determined 
electronically by the PACE system are eligible for execution[.] (b) 
Orders received after such time will be rejected and returned to 
order entry firm[.], and (c) From 4 to 4:15 p.m., Eastern Standard 
Time, PACE may be used as a routing system for PPS eligible orders. 
Orders in Nasdaq-100 Index Tracking Stock received by 4:15 p.m. 
Eastern Time as determined electronically by the PACE system are 
eligible for execution.

Rule 136. Trading Halts in Certain Exchange Traded Funds

    Rule 1047A(c) shall apply to the trading of Trust shares listed 
pursuant to the terms of Rule 803(i). The term ``option'' as used 
therein shall be deemed for the purposes of this rule only to 
include a Trust Share.

Rule 803. Criteria for Listing--Tier I

* * * * *
(i) Trust Shares

    (1) Definitions.
    (i) Trust Shares. The term ``Trust Share'' means a security (a) 
that is based on a unit investment trust (``Trust'') which holds the 
securities which comprise an index or portfolio underlying a series 
of Trust Shares;

[[Page 80977]]

(b) that is issued by the Trust in a specified aggregate minimum 
number in return for a ``Portfolio Deposit'' consisting of specified 
numbers of shares of stock plus a cash amount; (c) that, when 
aggregated in the same specified minimum number, may be redeemed 
from the Trust which will pay to the redeeming holder the stock and 
cash then comprising the ``Portfolio Deposit''; and (d) that pays 
holders a periodic cash payment corresponding to the regular cash 
dividends or distributions declared with respect to the component 
securities of the stock index or portfolio of securities underlying 
the Trust Shares, less certain expenses and other charges as set 
forth in the Trust prospectus.
    (ii) Reporting Authority. The term ``Reporting Authority'' in 
respect of a particular series of Trust Shares means the Exchange, a 
wholly-owned subsidiary of the Exchange, an institution (including 
the Trustee for Trust Shares), or a reporting service designated by 
the Exchange or its subsidiary or by the exchange that lists a 
particular series of Trust Shares (if the Exchange is trading such 
series pursuant to unlisted trading privileges) as the official 
source for calculating and reporting information relating to such 
series, including, but not limited to, any current index or 
portfolio value; the current value of the portfolio of securities 
required to be deposited to the Trust in connection with issuance of 
Trust Shares; the amount of any dividend equivalent payment or cash 
distribution to holders of Trust Shares, net asset value, or other 
information relating to the creation, redemption or trading of Trust 
Shares.
    (2) Applicability. This Rule is applicable only to Trust Shares. 
Except to the extent inconsistent with this Rule, or unless the 
context otherwise requires, the provisions of the By-Laws and all 
other rules and policies of the Board of Governors shall be 
applicable to the trading on the Exchange of such securities. Trust 
Shares are included within the definition of ``security'' or 
``securities'' as such terms are used in the By-Laws and Rules of 
the Exchange.
    (3) Disclosure Requirements. Members and member organizations 
shall provide to all purchasers of a series of Trust Shares a 
written description of the terms and characteristics of such 
securities, in a form approved by the Exchange, not later than the 
time a confirmation of the first transaction in such series is 
delivered to such purchaser. In addition, members and member 
organizations shall include such a written description with any 
sales material relating to a series of Trust Shares that is provided 
to customers or the public. Any other written materials provided by 
a member or member organization to customers or the public making 
specific reference to a series of Trust Shares as an investment 
vehicle must include a statement in substantially the following 
form: ``A circular describing the terms and characteristics of (the 
series of Trust Shares) is available from your broker. It is 
recommended that you obtain and review such circular before 
purchasing (the series of Trust Shares). In addition, upon request 
you may obtain from your broker a prospectus for (the series of 
Trust Shares).''
    A member or member organization carrying an omnibus account for 
a non-member broker-dealer is required to inform such non-member 
that execution of an order to purchase a series of Trust Shares for 
such omnibus account will be deemed to constitute agreement by the 
non-member to make such written description available to its 
customers on the same terms as are directly applicable to members 
and member organizations under this rule.
    Upon request of a customer, a member or member organization 
shall also provide a prospectus for the particular series of Trust 
Shares.
    (4) Designation of an Index or Portfolio. The trading of Trust 
Shares based on one or more stock indexes or securities portfolios, 
whether by listing or pursuant to unlisted trading privileges, shall 
be considered on a case by case basis. The Trust Shares based on 
each particular stock index or portfolio shall be identified as a 
separate series and shall be identified by unique symbol. The stocks 
that are included in an index or portfolio on which Trust Shares are 
based shall be selected by the Exchange or its agent, a wholly-owned 
subsidiary of the Exchange, or by such other person as shall have a 
proprietary interest in and authorized use of such index or 
portfolio, and may be revised from time to time as may be deemed 
necessary or appropriate to maintain the quality and character of 
the index or portfolio.
    (5) Initial and Continued Listing and/or Trading. A Trust upon 
which a series of Trust Shares are based will be traded on the 
Exchange, whether by listing or pursuant to unlisted trading 
privileges, subject to application of the criteria:
    (A) Commencement of Trading--For each Trust, the Exchange will 
establish a minimum number of Trust Shares required to be 
outstanding at time of commencement of trading on the Exchange.
    (B) Continued Trading--Following the initial twelve month period 
following formation of trust and commencement of trading on the 
Exchange, the Exchange will consider the suspension of trading in or 
removal from listing of or termination of unlisted trading 
privileges for a Trust upon which a series of Trust Shares are based 
under any of the following circumstances:
    (i) if the Trust has more than 60 days remaining until 
termination and there are fewer than 50 record and/or beneficial 
holders of Trust Shares for 30 or more consecutive trading days; or
    (ii) if the value of the index or portfolio of securities on 
which the Trust is based is no longer calculated or available; or
    (iii) if such other event shall occur or condition exists which 
in the opinion of the Exchange, makes further dealings on the 
Exchange inadvisable.
    (C) Termination of Trust--Upon termination of a Trust, the 
Exchange requires that Trust Shares issued in connection with such 
Trust be removed from Exchange listing or have their unlisted 
trading privileges terminated. A Trust may terminate in accordance 
with the provisions of the Trust prospectus, which may provide for 
termination if the value of securities in the Trust falls below a 
specified amount.
    (6) Term. The stated term of the Trust shall be as stated in the 
Trust prospectus. However, a Trust may be terminated under such 
earlier circumstances as may be specified in the Trust prospectus.
    (7) Trustee. The trustee must be a trust company or banking 
institution having substantial capital and surplus and the 
experience and facilities for handling corporate trust business. In 
cases where, for any reason, an individual has been appointed as 
trustee, a qualified trust company or banking institution must be 
appointed co-trustee.
    (8) Voting. Voting rights shall be as set forth in the Trust 
prospectus. The Trustee of a Trust may have the right to vote all of 
the voting securities of such Trust.
    (9) Limitation of Exchange Liability. Neither the Exchange, the 
Reporting Authority nor any agent of the Exchange shall have any 
liability for damages, claims, losses or expenses caused by any 
errors, omissions, or delays in calculating or disseminating any 
current index or portfolio value; the current value of the portfolio 
of securities required to be deposited to the Trust; the amount of 
any dividend equivalent payment or cash distribution to holders of 
Trust Shares; net asset value; or other information relating to the 
creation, redemption or trading of Trust Shares, resulting from any 
negligent act or omission by the Exchange, or the Reporting 
Authority, or any agent of the Exchange, or any act, condition or 
cause beyond the reasonable control of the Exchange or its agent, or 
the Reporting Authority, including, but not limited to, an act of 
God; fire; flood; extraordinary weather conditions; war; 
insurrection; riot; strike; accident; action of government; 
communications or power failure; equipment or software malfunction; 
or any error, omission or delay in the reports of transactions in 
one or more underlying securities. The Exchange makes no warranty, 
express or implied, as to results to be obtained by any person or 
entity from the use of Trust Shares or any underlying index or data 
included therein and the Exchange makes no express or implied 
warranties, and disclaims all warranties of merchantability or 
fitness for a particular purpose with respect to Trust Shares or any 
underlying index or data included therein. This limitation of 
liability shall be in addition to any other limitation contained in 
the Exchange's Articles of Incorporation or By-Laws or elsewhere in 
the Rules.
    (10) Listing Fees and Other Rules. The Exchange may, in its 
discretion, waive listing fees for any issuer of any particular 
series of Trust Shares listed on the Exchange pursuant to Rule 
803(i). The provisions of Rules 847, 849, 850 and 851 do not apply 
to unit investment trusts issuing Trust Shares listed on the 
Exchange pursuant to Rule 803(i), or to the trustees or the sponsors 
thereof. In addition, consideration of the suspension of trading in 
or removal from listing of any Trust Shares pursuant to Rule 810 
will be make pursuant to the criteria set forth in section 5(B) of 
this Rule 803(i) rather than the specific criteria set forth in 
subsections (1) through (5) of Rule 810(a).

[[Page 80978]]

Commentary

    01 The Nasdaq Stock Market, Inc. (``Nasdaq'') has licensed the 
use of the Nasdaq-100 Index for certain purposes in connection with 
trading in a particular series of Trust Shares on the Exchange. 
Nasdaq and its affiliates do not guarantee the accuracy and/or 
completeness of the Nasdaq-100 Index or any data included therein. 
Nasdaq, the Exchange and their affiliates make no warranty, express 
or implied, as to results to be obtained by any person or entity 
from the use of the Nasdaq-100 Index or any data included therein in 
connection with the rights licensed or for any other use. Nasdaq, 
the Exchange and their affiliates make no express or implied 
warranties, and disclaim all warranties of merchantability or 
fitness for a particular purpose with respect to the Nasdaq-100 
Index or any data included therein. Without limiting any of the 
foregoing, in no event shall Nasdaq, the Exchange and their 
affiliates have any liability for any lost profits or special, 
punitive, incidental, indirect, or consequential damages, even if 
notified of the possibility of such damages. In addition, Nasdaq, 
the Exchange and their affiliates shall have no liability for any 
damages, claims, losses or expenses caused by any errors or delays 
in calculating or disseminating the Nasdaq-100 Index.
* * * * *

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 Phlx 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 V 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
    Trust Shares Listing Standards. The Exchange proposes to adopt new 
rules and rule amendments to accommodate the trading of Trust Shares, 
i.e., securities that are interests in a unit investment trust 
(``Trust'') holding a portfolio of securities linked to an index. Each 
Trust would provide investors with an instrument that: (1) Closely 
tracks the underlying portfolio of securities; (2) trades like a share 
of common stock; and (3) pays holders of the instrument periodic 
dividends proportionate to those paid with respect to the underlying 
portfolio of securities, less certain expenses (as described in the 
Trust prospectus).\5\
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    \5\ The listing standards for Trust Shares set forth in proposed 
new Section (i) of Rule 803 are substantially similar to existing 
rules of the American Stock Exchange (``Amex'') applicable to 
Portfolio Depository Receipts (``PDRs'') and of the Chicago Board 
Options Exchange (``CBOE'') applicable to Index Portfolio Receipts 
(``IPRs''). See Amex Rules 1000-1003; see also CBOE Rule 1.1, 
Interpretations and Policies Section .02, and Rules 30.54, 31.5.L 
and 31.94.F.
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    Listing standards for Trust Shares are established in Rule 803(i) 
(``Rule''). Under the Rule, the Exchange may list and trade, or trade 
pursuant to UTP, Trust Shares based on one or more stock indexes or 
securities portfolios.\6\ Trust Shares based on each particular stock 
index or portfolio will be designated as a separate series and 
identified by a unique symbol. The stocks that are included in an index 
or portfolio on which Trust Shares are based will be selected by the 
Exchange or its agent, a wholly-owned subsidiary of the Exchange, or by 
another person having a proprietary interest in and authorized use of 
such index or portfolio, and may be revised as may be deemed necessary 
or appropriate to maintain the quality and character of the index or 
portfolio.\7\
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    \6\ As explained more fully below, Phlx intends to trade Trust 
Shares on the Nasdaq-100 Index pursuant to UTP under the listing 
standards approved herein. If Phlx intends to trade, pursuant to 
UTP, Trust Shares listed on another exchange by using listing 
standards that are different from current Phlx listing standards or 
the listing standards set forth in its proposed rule change, the 
Phlx represents that it will file a rule change proposal pursuant to 
Section 19(b)(1) of the Act and Rule 19b-4 thereunder to adopt the 
different listing standards before the Phlx trades those Trust 
Shares.
    \7\ The Exchange represents that its proposal would result in 
Trust Shares being listed as Tier I securities and therefore 
``covered securities'' for purposes of Section 18 of the Securities 
Act of 1933. 15 U.S.C. 77r. (The Exchange has established Tier I 
listing criteria and Tier II listing criteria for companies listing 
on the Phlx. Tier I listing requires a company to meet certain 
higher numerical listing criteria than are required for Tier II 
listing. Tier II listing standards are intended to accommodate 
smaller companies.) The Exchange believes that, as ``covered 
securities,'' Trust Shares would be exempt from state securities 
registration requirements.
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    In connection with an initial listing, the Exchange proposes that, 
for each listing of Trust Shares, the Exchange will establish a minimum 
number of Trust Shares required to be outstanding at the time of 
commencement of Exchange trading. If the Exchange trades a particular 
Trust Share pursuant to UTP, the Exchange will follow the listing 
exchange's determination of the appropriate minimum number of 
securities included in the Trust.
    Because the Trust operates on an open-end type basis, and because 
the number of Trust Share holders is subject to substantial 
fluctuations depending on market conditions, the Exchange believes that 
it would be inappropriate and burdensome on Trust Share holders to 
consider suspending trading in or delisting a series of Trust Shares, 
with the consequent termination of the Trust, unless the number of 
holders remains severely depressed during an extended time period. 
Therefore, following twelve months after the formation of a Trust and 
commencement of Exchange trading, the Exchange will consider suspension 
of trading in, or removal from listing of, a Trust when, in the 
Exchange's determination, further dealing in such securities appears 
unwarranted under the following circumstances:
    (a) If the Trust on which the Trust Shares are based has more than 
60 days remaining until termination and there have been fewer than 50 
record and/or beneficial holders of the Trust Shares for 30 or more 
consecutive trading days;
    (b) if the index on which the Trust is based is no longer 
calculated; or
    (c) if such other event occurs or condition exists, which, in the 
opinion of the Exchange, makes further dealings in such securities on 
the Exchange inadvisable.\8\
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    \8\ Proposed Phlx Rule 803(i)(10) would provide that a 
determination to delist or suspend Trust Shares shall be based upon 
the criteria set forth in proposed Rule 803(i)(5)(B), applicable 
specifically to Trust Shares. Therefore, those criteria would apply 
rather than the criteria set forth in subsections (1) through (5) of 
Rule 810(a), which are applicable generally to securities other than 
Trust Shares. However, Exchange Rule 810(c), which provides that the 
Exchange may at any time suspend dealings in any security from 
listed or unlisted trading privileges, would continue to apply. 
Telephone conversations between Carla Behnfeldt, Counsel, Phlx and 
Gordon Fuller, Special Counsel, Division of Market Regulation 
(``Division''), Commission, and Steven Johnston, Special Counsel, 
Division, Commission (October 11, 2000).
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    The stated term of the Trust will be set forth in the Trust 
prospectus. A Trust may also terminate under such conditions as may be 
set forth in the Trust prospectus. For example, the sponsor of the 
Trust, following notice to Trust Share holders, will have discretion to 
direct that the Trust be terminated if the value of securities in such 
Trust falls below a specified amount.
    Rule 803(i)(3) requires that members and member organizations 
provide to all purchasers of each series of Trust Shares a written 
description of the terms and characteristics of such securities, in a 
form approved by the Exchange, not later than the time a confirmation 
of the first transaction in such series of Trust Shares is delivered to 
such purchaser. In this regard, a member or member organization 
carrying an omnibus account for a non-member broker-dealer

[[Page 80979]]

will be required to inform such non-member that execution of an order 
to purchase Trust Shares for such omnibus account will be deemed to 
constitute an agreement by the non-member to make such written 
description available to its customers on the same terms as are 
directly applicable to member or member organizations. The written 
description must be included with any sales material on that series of 
Trust Shares that a member provides to the public. Moreover, other 
written materials provided by a member or member organization to the 
public making specific reference to a series of Trust Shares as an 
investment vehicle must include a statement in substantially the 
following form: ``A circular describing the terms and characteristics 
of [the Trust Shares] is available from your broker. It is recommended 
that you obtain and review such circular before purchasing [the Trust 
Shares]. In addition, upon request you may obtain from your broker a 
prospectus for [the Trust Shares].'' Additionally, the Exchange would 
require that members and member organizations provide customers with a 
copy of the prospectus for a series of Trust Shares upon request.
    Finally, Rule 803(i)(10) provides the Exchange with the discretion, 
in its business judgment, not to charge a listing fee for a particular 
series of Trust Shares. it also clarifies that certain of the listing 
rules designed for application to other kinds of securities will not 
apply to Trust Shares.\9\
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    \9\ Rules 847 (Annual Meetings), 849 (Audit Committee/Conflict 
of Interest), 850 (Shareholder Approval Policy) and 851 (Independent 
Directors) all contemplate a corporate governance structure that has 
no meaning in the context of Trust Shares.
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    Trading of Trust Shares. Dealings in Trust Shares on the Exchange 
would be conducted pursuant to the Exchange's general agency-auction 
trading rules. The general dealing and settlement rules of the Phlx 
would apply, including its rules on clearance and settlement of 
securities transactions and its equity margin rules. Transactions on 
the Exchange in Nasdaq-100 Index Tracking Stock will be reported to the 
consolidated tape.\10\ Other generally applicable Exchange equity rules 
and procedures would also apply, including, among others, rules 
governing the priority, parity and precedence of orders and the 
responsibilities of specialists.\11\
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    \10\ See Amendment No. 2.
    \11\ In SR-Phlx-99-41, which is pending before the Commission, 
the Phlx proposed new rules and rule amendments to accommodate the 
listing and trading of certain Trust Shares. As noted before, the 
Phlx intends to trade Trust Shares on the Nasdaq-100 Index pursuant 
to UTP under the listing standards approved in this Order.
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    The Exchange is proposing procedures to govern the application of 
trading halts in Trust Shares. Phlx Rule 1047A currently governs 
trading rotations, halts and suspensions with respect to index option 
contracts. New Rule 136 provides that trading in Trust Shares will be 
halted on the same basis as trading in index options, as provided in 
Rule 1047A(c). Specifically, Rule 136 provides that trading on the 
Exchange in Trust Shares may be halted with the approval of two Floor 
Officials, with the concurrence of a Phlx Market Regulation officer, 
whenever trading on the primary market in underlying securities 
representing more than 10 percent of the current index value is halted 
or suspended. Trading would be required to be halted whenever two Floor 
Officials, with the concurrence of a Phlx Market Regulation officer, 
deem such action appropriate in the interests of a fair and orderly 
market and to protect investors. Among the factors that could be 
considered are: (1) Whether trading has been halted or suspended in the 
market that is the primary market for a plurality of underlying stocks; 
(2) whether the current calculation of the index derived from the 
current market prices of the stocks is not available; or (3) other 
unusual conditions or circumstances detrimental to the maintenance of a 
fair and orderly market are present. Additionally, the trading of Trust 
Shares would be halted, along with the trading of all other listed or 
traded stocks, if ``circuit breaker'' thresholds are reached.\12\ The 
Exchange would issue a circular to its members and member organizations 
informing them of Exchange policies regarding trading halts in such 
securities.
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    \12\ See Phlx Rule 133 (``Trading Halts Due to Extraordinary 
Market Volatility'') and Securities and Exchange Act Release No. 
39846 (April 9, 1998), 63 FR 18477 (April 15, 1998) (establishing 
uniform market-wide ``circuit breaker'' thresholds among all 
domestic securities exchanges, and approving SR-Phlx-98-15).
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    UTP Trading of Nasdaq-100 Index Tracking Stock. As noted above, 
pursuant to Rule 12f-5 under the Act,\13\ the Exchange proposes to 
trade Nasdaq-100 Index Tracking Stock on a UTP basis under the proposed 
Trust Share rules discussed above. The Nasdaq-100 Trust is a unit 
investment trust sponsored by Nasdaq Investment Product Service, Inc. 
with a portfolio based on the component stocks of the Nasdaq-100 Index. 
The Exchange proposes to permit dealings in Nasdaq-100 Tracking Stock 
in increments of \1/64\ of $1.00.
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    \13\ 17 CFR 240.12f-5.
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    These shares are currently traded on the American Stock Exchange 
(``Amex'') in increments of \1/64\ of $1.00 and, thus, the Exchange 
believes it is appropriate to trade these securities on the Exchange 
with the same minimum increment.\14\
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    \14\ See Securities Exchange Act Release No. 41119 (February 26, 
1999), 64 FR 11510 (March 9, 1999), Nasdaq-100 Index Tracking Stock 
are also traded on a UTP basis by the Chicago Stock Exchange 
(``CHX''), the Boston Stock Exchange (``BSE'') and the Pacific 
Exchange (``PCX'') in increments of \1/64\ of $1.00. See Securities 
Exchange Act Release No. 41605 (July 7, 1999), 64 FR 38060 (July 14, 
1999); Securities Exchange Act Release No. 41664 (July 27, 1999), 64 
FR 42424 (August 4, 1999); and Securities Exchange Act Release No. 
41712 (August 5, 1999), 64 FR 44072.
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    Additionally, in connection with the Exchange's license agreement 
with the Nasdaq Stock Market (``Nasdaq'') relating to, among other 
things, the use of the name ``Nasdaq-100 Index Tracking Stock,'' and 
the disclaimers of liability relating to the Nasdaq-100 Index, the 
Exchange is proposing to adopt Commentary .01 to proposed Rule 803(i) 
to codify a rule governing disclaimers of liability relating to the 
Nasdaq-100 Index.\15\
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    \15\ The Phlx represents that the language of the disclaimer 
rule is substantially similar to BSE Chapter XXIV, Section 7, CHX 
Article XXVIII, Rule 25 and PCX Rule 8.300(g). The Phlx also 
represents that the language of the disclaimer rule is nearly 
identical to that adopted by Amex and approved in Securities 
Exchange Act Release No. 41119 (February 26, 1999), 64 FR 11510; and 
Securities Exchange Act Release No. 41562 (June 25, 1999), 64 FR 
36057 (July 2, 1999).
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2. Statutory Basis
    The Exchange believes that 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 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, 
and is not designed to permit unfair discrimination between customers, 
issuers, brokers or dealers. Specifically, the proposed rule change 
would increase competition in unit investment trust share markets by 
permitting Exchange members to compete for unit investment trust share 
order flow. The Exchange represents that the adoption of the proposed 
rule change would

[[Page 80980]]

result in increased efficiency and price competition in those markets.
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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 Phlx does not believe that the proposed rule change would 
impose any inappropriate 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 either solicited or received.

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

    The Phlx has requested that the proposed rule change, as amended, 
be given 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 that the proposed 
rule change, as amended, is consistent with the 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).\18\
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    \18\ 15 U.S.C. 78f(b)(5).
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    A Trust Share is an interest in a Trust holding a portfolio of 
securities linked to an index. Each Trust is intended to provide 
investors with an instrument that closely tracks the underlying 
securities index or portfolio, trades like a share of common stock, and 
pays holders a periodic cash payment proportionate to the dividends 
paid on the underlying portfolio of securities.\19\ The definition of 
Trust Share is therefore substantively identical to the definition of 
PDRs or IPRs as those definitions appear in the previously approved 
rules of the Amex and CBOE, respectively.\20\ The Phlx rule change 
proposal itself is also substantively identical to proposals filed by 
CBOE, BSE, CHX, and PCX, and approved by the Commission.\21\ Therefore, 
this proposal raises no new regulatory issues.
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    \19\ In approving this rule, the Commission has considered the 
proposed rule change's impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).
    \20\ See Securities Exchange Act Release No. 31591 (December 11, 
1992), 57 FR 60253 (December 18, 1992) (approving Amex Rules 1000 et 
seq. regarding listing standards for PDRs); Securities Exchange Act 
Release No. 39581 (January 26, 1998), 63 FR 5579 (February 3, 1998) 
(approving CBOE rules regarding listing standards for IPRs).
    \21\ See Securities Exchange Act Release No. 39581 (January 26, 
1998), 63 FR 5579 (February 3, 1998) (approving CBOE rules regarding 
listing and trading standards for IPRs); Securities Exchange Act 
Release No. 39660 (February 12, 1998), 63 FR 9026 (February 23, 
1998) (approving BSE rules regarding listing and trading standards 
for PDRs); Securities Exchange Act Release No. 39076 (September 15, 
1997), 62 FR 49270 (September 19, 1997) (approving CSE rules 
regarding listing and trading standards for PDRs); and Securities 
Exchange Act Release No. 39461 (December 17, 1997), 62 FR 67674 
(December 29, 1997) (approving PCX rules relating to listing and 
trading standards for PDRs).
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    Moreover, the Commission believes that Amendment Nos. 1 and 2 are 
reasonable. Specifically, the new rule language regarding hours of 
trading, and the undertaking by Phlx to report transactions in Trust 
Shares to the Phlx consolidated tape, brings the proposal into 
conformity with the Amex's listing standards for PDRs, which the 
Commission previously approved.\22\ In addition, the Commission 
believes that it is reasonable for the Phlx to amend its PACE rule to 
provide automatic price improvement for trades in Nasdaq-100 Index 
Tracking Stock in increments of \1/64\ (instead of \1/16\) where the 
Pace Quote \23\ is \1/16\ (instead of \3/16\ to \1/8\) or greater. 
These changes are appropriate because Nasdaq-100 Index Tracking Stock 
currently trades in increments of \1/64\ instead of \1/16\.
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    \22\ See supra note 20.
    \23\ Phlx Rule 229 defines the PACE Quote as the best bid/ask 
quote among the American, Boston, Cincinnati, Chicago, New York, 
Pacific or Philadelphia Stock Exchanges, or the Intermarket Trading 
System/Computer Assisted Execution System (``ITS/CAES'') quote, as 
appropriate.
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    The Commission emphasizes that this Order only approves the trading 
of Nasdaq-100 Index Tracking Stock under the listing standards approved 
herein. If the Phlx wishes to list and trade additional series of Trust 
Shares, it may be required to file a proposed rule change with the 
Commission under Section 19(b)(1) of the Act.\24\
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    \24\ 15 U.S.C. 78s(b)(2).
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    The Commission finds good cause for approving the proposed rule 
change, as amended, prior to the thirtieth day after the date of 
publication of notice thereof in the Federal Register pursuant to 
Section 19(b)(2) of the Act \25\ in order to expand investor choice and 
encourage competition among exchanges for order flow related to 
essential identical securities products.

V. 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 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 Phlx. All submissions should refer to File No. 
SR-Phlx-00-54 and should be submitted by January 12, 2001.

VI. Conclusion

    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the Act 
\26\ that SR-Phlx-00-54 is hereby approved on an accelerated basis.
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    \25\ Id.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-32653 Filed 12-21-00; 8:45 am]
BILLING CODE 8010-010-M