[Federal Register Volume 66, Number 174 (Friday, September 7, 2001)]
[Notices]
[Pages 46855-46860]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-22510]



[[Page 46855]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44757; File No. SR-NYSE-2001-35]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the New York 
Stock Exchange, Inc. Regarding Listing and Trading CP HOLDRS on the 
Exchange

August 30, 2001.
    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 August 30, 2001, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the Exchange. 
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 NYSE proposes to list under Paragraph 703.19 of the Listed 
Company Manual (the ``Manual'') \3\ CP HOLDRS issued pursuant to the 
deposit agreement among Merrill Lynch Canada Inc., as initial depositor 
and coordinator (``Merrill Lynch''), BNY Trust Company of Canada, as 
depositary, the owners and beneficial owners from time to time of CP 
HOLDES, and depositors from time to time of the underlying securities 
represented by CP HOLDRS. CP HOLDRS are depositary receipts initially 
representing ownership in deposited common back stock of Canadian 
Pacific Limited (``CP'') and subsequently representing ownership of the 
shares of common stock of CP's successor companies that are expected to 
result from CP's plan of reorganization.\4\ The value of CP HOLDRS 
directly relates to the value of the underlying securities.\5\
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    \3\ Footnote 80 of the Securities Exchange Act Release No. 40761 
(December 8, 1998) notes that an ``other security'' listing standard 
(such as Paragraph 703.19) is not intended to accommodate the 
listing of securities that raise significant regulatory issues 
without a specific separate filing with the Commission pursuant to 
Rule 19b-4 under the Act.
    \4\ CP has announced a plan to split into five separate public 
successor companies--PanCanadian Petroleum Limited, Canadian Pacific 
Railway Company, Fording Inc., CP it is anticipated that current 
holders of CP Shares will hold the equity securities of each of 
these successor companies.
    \5\ The shares of common stock of the successor companies that 
are held under the deposit agreement at any point in time (together 
with other securities that may be represented by CP HOLDRS in the 
future) are collectively referred herein as the ``underlying 
securities.''
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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 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 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
    Under Paragraph 703.19 of the Manual, the Exchange may approve for 
listing securities which can not be readily categorized under the 
listing criteria for common and preferred stocks, bonds, debentures, 
and warrants.\6\ The Exchange is now proposing to list CP HOLDRS, as 
below described, pursuant to Paragraph 703.19 of the Manual.
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    \6\ See Securities Exchange Act Release No. 28217 (July 18, 
1990) (``July 18, 1990 Release''), 55 FR 30056 (July 24, 1990); 
Securities Exchange Act Release No. 29229 (May 23, 1991), 56 FR 
24852 (May 31, 1991).
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    Description of CP HOLDRS. CP HOLDRS are depositary receipts 
designed by Merrill Lynch to provide current holders of shares of 
common stock issued by CP (``CP Shares'') with a single exchange traded 
instrument representing shares of common stock of the five successor 
companies that are expected to result from CP's announced plan of 
reorganization.\7\ CP HOLDRS have been designed without regard for the 
value, price performance, volatility or investment merit of CP 
historically or the successor companies prospectively.
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    \7\ For the detailed description of CP HOLDRS, see the 
registration statement on Form F-1 filed by Merrill Lynch with the 
Commission (File No. 333-63924) (the ``Registration Statement'').
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    CP HOLDRS will be issued by the CP HOLDRS Deposit Facility created 
by the deposit agreement among BNY Trust Company of Canada, as 
depositary, Merrill Lynch Canada Inc., as initial depositor and 
coordinator, the owners and beneficial owners from time to time of CP 
HOLDRS, and depositors from time to time of underlying securities. The 
deposit agreement will govern the terms of CP HOLDRS.\8\
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    \8\ For the description of the deposit agreement, see the 
Registration Statement.
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    Merrill Lynch, as initial depositor, will be deemed the ``issuer'' 
of CP HOLDRS for purposes of the Securities Act of 1933, as amended, 
and the Act. The depositary will deliver CP HOLDRS issued by the CP 
HOLDRS Deposit Facility created by the deposit agreement. The CP HOLDRS 
Deposit Facility created by the deposit agreement is not a registered 
investment company under the Investment Company Act of 1940 (the ``1940 
Act'').
    Under the deposit agreement, its plan of reorganization, CP HOLDRS 
will represent shares of the successor companies resulting from the 
reorganization of CP and received in exchange for CP Shares.
    CP HOLDRS will be delivered by the depositary to depositing holders 
of CP Shares pursuant to the deposit agreement. Prior to the 
reorganization of CP, holders of CP Shares must deposit their CP Shares 
in order to receive CP HOLDRS. One CP HOLDRS will be issued for each CP 
Share deposited. The depositary will deliver additional CP HOLDRS on a 
continuous basis to depositing holders of CP Shares (or, following the 
completion of CP's reorganization, to depositors of the underlying 
securities).
    As discussed more fully herein in ``Cancellation of CP HOLDRS,'' 
the deposit agreement entities holders of CP HOLDRS to surrender CP 
HOLDRS to the depository and receive the underlying securities 
represented by those CP HOLDRS. Although a beneficial owner of CP 
Shares will not receive cash in lieu of fractional interests of the 
successor companies at the time of the reorganization of CP, when a 
beneficial owner of CP HOLDRS surrenders his or her CP HOLDRS to 
receive the underlying securities, the depositary will deliver cash to 
the holder in lieu of fractional interests in the underlying securities 
based on the most recent closing price of the security (i.e., the 
closing price for the common stock of the underlying security on the 
trading day before the holder surrenders his or her CP HOLDRS). The 
depositary will reflect that transaction on the books and records of 
the CP HOLDRS Deposit Facility accordingly. A holder of CP HOLDRS will 
not have to wait for the depositary to sell the aggregate of such 
fractions and distribute the proceeds to such holder, but will receive 
cash in

[[Page 46856]]

lieu of fractional interests at the time such holder surrenders his or 
her CP HOLDRS.
    CP HOLDRS will present an investor's undivided beneficial ownership 
of the underlying securities. According to the Registration Statement, 
owners of CP HOLDRS will have the same rights and privileges as they 
would have if they owned the underlying securities outside of CP 
HOLDRS. These include the right to instruct the depositary to vote the 
underlying securities, to receive any dividends and other distribution 
on the underlying securities that are declared and paid to the 
depositary by an issuer of an underlying security, the right to receive 
reports and other information required to be distributed by the issuer 
in respect of the underlying securities, the right to pledge CP HOLDRS 
and the right to surrender CP HOLDRS to receive the underlying 
securities. Investors will retain the right to receive any reports and 
communications that the issuers of underlying securities are required 
to send to beneficial owners of their securities. As such, investors 
will receive such reports and communications in the same manner as if 
such investors beneficially owned their underlying securities outside 
of CP HOLDRS from the broker through which they hold their CP HOLDRS. 
These reports currently include annual reports, audited financial 
statements (including management's discussion and analysis of financial 
condition and results of operations) and management proxy circulars.
    Stock splits and reverse splits of any of the underlying securities 
will not affect the weighings of the underlying securities. Rather, the 
share amounts will be adjusted to reflect such splits so that there is 
no change in weighting solely due to a split. Weighings will change 
with the relative price changes of the underlying securities. 
Securities will not be added other than in accordance with stock 
distributions or reorganizations events outlined in the prospectus. As 
a result, if an underlying security distributes shares of stock or if a 
security is acquired by another company, the new shares will remain in 
CP HOLDRS so long as they are registered under Section 12 of the 
Exchange Act, are issued by a reporting issuer under Canadian 
securities laws and are listed for trading on a national securities 
exchange in Canada and on either a national securities exchange in the 
United States or the NASDAQ National Market System. (See 
``Reconstitution Events'' below).
    The deposit agreement entitles investors to receive, subject to 
certain limitations and net of any fees of the depositary, any 
distributions of cash (including dividends), securities or property 
made with respect to the underlying securities. The depositary will not 
distribute a fraction of one cent but will round to the nearest whole 
cent before distribution. Distributions will be made by the depositary 
as soon as is practicable following receipt by the depositary of such 
distributions. There may be a delay (which is expected not to exceed 
one day) between the time any cash or other distribution is received by 
the depositary with respect to the underlying securities and the time 
such cash or other distributions are distributed to holders of CP 
HOLDRS due to the need for the depositary to process the flow of funds. 
Events beyond the control of the depositary, such as computer failures 
and other disruptions of banking systems generally may also result in a 
delay in distributions to holders of CP HOLDRS. Holders of CP HOLDRS 
will not be entitled to any interest on any distribution by reason of 
any delay in distribution by the depositary. If any tax or other 
governmental charge becomes due with respect to CP HOLDRS or any 
underlying securities, holders of CP HOLDRS will be responsible for 
paying that tax or governmental charge. Holders of CP HOLDRS may elect 
to receive dividends with respect to underlying securities in either 
Canadian or U.S. dollars by following the procedures established by the 
broker through which they hold their CP HOLDRS.
    The value of CP HOLDRS directly relates to the value of the 
underlying securities. Although it is possible that CP HOLDRS may trade 
at either a discount or a premium to the aggregate value of the 
underlying securities, historically, HOLDRS products currently listed 
on the American Stock Exchange LLC and the Exchange have traded at 
values reflecting the aggregate value of the underlying securities 
represented by CP HOLDRS. Merrill Lynch believes that this trading 
equivalency results from the ability to cancel HOLDRS products and 
receive the underlying securities at any time. As such, arbitrageurs 
can quickly move between HOLDRS and the underlying securities thereby 
limiting any such premiums or discounts. Based on the foregoing, the 
Exchange believes that it is reasonable to expect that CP HOLDRS will 
not trade at a material discount or premium to the underlying 
securities. The Exchange believes that the arbitrage process--which 
provides the opportunity to profit from differences in prices of the 
same or similar securities (e.g., CP HOLDRS and the underlying 
securities)--increases the efficiency of the markets and should promote 
correlative pricing between CP HOLDRS and the underlying securities.
    CP HOLDRS will be issued in ``book-entry only'' form and will be 
represented by one or more global certificates registered in the name 
of CDS & CO., the nominee of The Canadian Depositary for Securities 
Limited (``CDS''), and deposited with CDS. U.S. holders of CP HOLDRS 
will hold their interests in the global certificates indirectly through 
the Depository Trust Company (``DTC''). DTC is, in turn, a participant 
in CDS. All interests of Canadian and U.S. holders of CP HOLDRS in the 
global certificates, including those held through DTC, will be subject 
to the procedures and requirements of CDS. Those interests held through 
DTC may also be subject to the procedures and requirements of DTC. 
Investors will not be able to hold CP HOLDRS in individually registered 
positions, but rather can only hold these positions through a broker-
dealer in street name, except as otherwise required by applicable law 
or if CDS or DTC advises the depositary that it is no longer willing or 
able to act as a depositary for CP HOLDRS or the depositary is unable 
to find a successor.
    CP HOLDRS will be issued to investors in certificated form only if: 
(i) That action is required under applicable law; (ii) CDS or DTC 
advises BNY Trust Company of Canada or its successor that either CDS or 
DTC is no longer willing or able to properly discharge its 
responsibilities as depositary with respect to CP HOLDRS and BNY Trust 
Company of Canada or its successor is unable to locate a qualified 
successor; or (iii) CDS ceases to be a clearing agency or otherwise 
ceases to be eligible to be a depositary and BNY Trust Company of 
Canada or its successor is unable to locate a qualified successor.
    Investors wishing to receive registered shares may surrender their 
CP HOLDRS at any time (and pay any applicable fees) and receive the 
underlying securities represented by their CP HOLDRS, and then follow 
the procedures established by the issuers of each of the underlying 
securities to become the registered owner of those securities.
    Reconstitution Events. The deposit agreement provides for 
distribution of the underlying securities as promptly as possible to 
investors in CP HOLDRS in the circumstances referred to in the 
Registration Statement as ``reconstitution events.'' The reconstitution 
events will occur under the following circumstances:

[[Page 46857]]

    (1) If any class of underlying securities ceases to be outstanding 
as a result of, or is surrendered by the depositary in connection with, 
a merger, consolidation or other corporate combination of its issuer, 
the depositary will distribute any securities received as consideration 
from the acquiring company unless the securities received are 
registered under Section 12 of the Act, are issued by a reporting 
issuer under Canadian securities laws, and are listed for trading on a 
national securities exchange in Canada and on either a national 
securities exchange in the United States or the NASDAQ National Market 
System. In that case, the securities received will be treated as 
additional underlying securities and shall be added to the classes and 
quantities of securities that must be deposited for issuance of CP 
HOLDRS.
    (2) If any class of underlying securities is delisted from trading 
on its primary exchange or market in either the United States or Canada 
and is not listed for trading, as the case may be, on another national 
securities exchange in Canada or on either a national securities 
exchange in the United States or the NASDAQ National Market System, 
within five business days from the date of such delisting, the 
depositary will, to the extent lawful and feasible, distribute those 
underlying securities to the owners in proportion to their ownership of 
CP HOLDRS.
    (3) If any class of underlying securities is no longer registered 
under Section 12 of the Act or if an issuer of underlying securities is 
no longer a reporting issuer under the Canadian securities laws, the 
depositary will, to the extent lawful and practicable, distribute the 
underlying securities of the company to the owners.
    (4) If the Commission determines that an issuer of an underlying 
security is an investment company under the 1940 Act, and the 
depositary has actual knowledge of such Commission determination, then 
the depositary will, to the extent lawful and practicable, distribute 
the underlying securities of such issuer to the owners in proportion to 
their ownership of CP HOLDRS.
    (5) If there is any other change in nominal value, change in par 
value, split-up, consolidation or any other reclassification of any 
underlying securities, or any recapitalization, reorganization, merger 
or consolidation or sale of assets affecting the issuer of any 
underlying securities in connection with which the depositary receives 
securities that are not registered under Section 12 of the Act, are not 
issued by a reporting issuer under Canadian securities laws and are not 
listed on a national securities exchange in Canada and either a 
national securities exchange in the United States or through the NASDAQ 
National Market in connection with such event, the depositary will, to 
the extent lawful and practicable, distribute any securities so 
received by the depositary to the owners in proportion to their 
ownership of CP HOLDRS.
    Cancellation of CP HOLDRS. The deposit agreement entitles holders 
of CP HOLDRS to surrender CP HOLDRS to the depositary and receive the 
underlying securities represented by those CP HOLDRS. The depositary 
will deliver the underlying securities to surrendering owners of CP 
HOLDRS as promptly as practicable. Merrill Lynch expects, absent 
unforeseeable difficulties or difficulties outside of the depositary's 
control, that the depositary will delivery the underlying securities to 
surrendering owners of CP HOLDRS within one business day of the 
business day they surrender their CP HOLDRS. In addition, if any 
fractional interests in underyling securities are represented by CP 
HOLDRS at the time of the surrender of CP HOLDRS, the depositary will 
deliver cash in lieu of such fractional interests, as described herein 
under ``Description of CP HOLDRS.''
    Withdrawal of underlying securities upon surrender of CP HOLDRS is 
also subject to the payment of applicable fees (including the payment 
to the depository of a cancellation fee of up to $0.10 per CP HOLDR 
surrendered), taxes or governmental charges, if any. Cancellation fees 
will be rounded up to the nearest 100 CP HOLDRS cancelled.
    Termination of the Depository. The depositary will terminate the 
deposit agreement by mailing notice of termination to the owners of CP 
HOLDRS if: (i) The depositary is notified that CP HOLDRS are no longer 
listed on a national securities exchange in Canada and either a 
national securities exchange in the United States or the NASDAQ 
National Market System and CP HOLDRS are not approved for listing on 
another national securities exchange in Canada and either a national 
securities exchange in the United States or the NASDAQ National Market 
System within five business days of their delisting; (ii) 60 days have 
passed after the depositary has delivered to Merrill Lynch a written 
notice of its election to resign and no successor has been 
appropriately appointed; or (iii) 75% of the owners of outstanding CP 
HOLDRS (other than Merrill Lynch or its affiliates) notify the 
depositary that they elect to terminate the deposit agreement.
    Registration under the Act. To be included in CP HOLDRS, the 
underlying securities must always be registered under Section 12 of the 
Act; must be issued by a reporting issuer under Canadian securities 
laws; and each underlying security must be listed for trading on a 
national securities exchange in Canada and either a national securities 
exchange in the United States or the NASDAQ National Market System.
    CP Shares are currently listed on the Exchange and The Toronto 
Stock Exchange (the ``TSE'') under the symbol ``CP.''
    Full and complete information regarding CP HOLDRS, including risks 
associated with investing in CP HOLDRS, is provided in the Registration 
Statement.
    Criteria for Initial and Continued Listing. CP HOLDRS will be 
subject to the Exchange's listing criteria for equities under Paragraph 
703.19 of the Manual.
    Merrill Lynch represented to the Exchange that CP HOLDRS will 
comply with the listing standards for equities set forth in Paragraph 
703.19 of the Manual. Specifically:
    (i) There will be one million CP HOLDRS outstanding;
    (ii) There will be at least 400 holders of CP HOLDRS;
    (iii) CP HOLDRS will have a minimum life of one year; and
    (iv) CP HOLDRS will have a minimum market value of at least U.S. $4 
million.
    CP HOLDRS will be subject to the Exchange's continued listing 
criteria for specialized securities pursuant to Paragraph 802.01D of 
the Manual. Accordingly, the Exchange will consider suspending and 
delisting CP HOLDRS from trading under the following circumstances:
    (i) If the number of publicly-held CP HOLDRS is less than 100,000;
    (ii) If the number of holders of CP HOLDRS is less than 100;
    (iii) If CP HOLDRS will have the aggregate market value of less 
than U.S. $1 million;
    (iv) The issuer of any underlying security is no longer subject to 
the reporting obligations of the Exchange Act; or
    (v) If any underlying security no longer trades in a market in 
which there is last sale reporting.
    As noted above, each underlying security will be registered under 
Section 12 of the Act. Each of the successor companies is expected to 
be listed on the Exchange and the TSE. As such, information regarding 
the trading history of these companies will be

[[Page 46858]]

available to the same extent as any other equity security that is 
listed on a national securities exchange and registered under Section 
12 of the Act. Going forward, trading history on CP HOLDRS will be 
available on a similar basis as any other exchange-traded security 
(e.g., Bloomberg, Reuters, ILX).
    Because the listing of CP HOLDRS is expected to precede listing of 
the underlying securities, it is impossible to provide historical 
information relating to average daily trading volume or the average 
U.S. dollar value of trading in each underlying security. However, 
information is available in respect of CP Shares (which, as described 
above, will initially be represented by CP HOLDRS) indicating that 
there is a broad and liquid market for CP Shares.\9\ In addition, 
PanCanadian Petroleum Limited, one of the successor companies to CP, 
currently is listed on the TSE under the symbol ``PCP.'' Information 
available from the TSE indicates that there is also a broad and liquid 
market for PanCanadian Petroleum Limited.\10\ Based on this 
information, the Exchange anticipates that each of the underlying 
securities will have an average daily trading volume and U.S. dollar 
value of shares traded adequate to support listing and trading in CP 
HOLDRS.
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    \9\ During the sixty-day trading period of June 4, 2001 to 
August 27, 2001, the average daily trading volume of CP Shares was 
767,832 shares (on the NYSE) and 1,393,024 shares (on the TSE), 
while the average daily U.S. dollar value of CP Shares traded was 
U.S. $29,661,350.16 (on the NYSE) and U.S. $53,911,421.82 (on the 
TSE).
    \10\ During the sixty-day trading period of June 1, 2001 to 
August 27, 2001, the average daily trading volume on the TSE of PCP 
was 609,249 shares, while the average daily U.s. dollar value of PCP 
traded was U.S. $17,688,326.17.
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    The Exchange will, prior to trading CP HOLDRS, distribute a 
circular to the membership, as described herein under ``Disclosure and 
Dissemination of Information.''
    Exchange Rules Applicable to Trading of CP HOLDRS. Since CP HOLDRS 
will be deemed equity securities for the purpose of Paragraph 703.19 of 
the Manual, the NYSE's existing equity floor trading rules will apply 
to the trading of CP HOLDRS. First, pursuant to NYSE Rule 405, the 
Exchange will impose a duty of due diligence on its members and member 
firms to learn the essential facts relating to every customer prior to 
trading CP HOLDRS.\11\ Second, CP HOLDRS will be subject to the equity 
margin rules of the Exchange. Third, the regular equity trading hours 
of 9:30 a.m. to 4 p.m. will apply to transactions in CP HOLDRS. Fourth, 
the Exchange's surveillance procedures for CP HOLDRS will be similar to 
those used for investment company units and will incorporate and rely 
upon existing NYSE surveillance procedures governing equities.
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    \11\ NYSE Rule 405 requires that every member, member firm or 
member corporation use due diligence to learn the essential facts 
relative to every customer and to every order or account accepted.
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    Disclosure and Dissemination of Information. Merrill Lynch will 
deliver a prospectus to each holder of CP Shares in connection with the 
solicitation for deposits of CP Shares in connection with the initial 
issuance of CP HOLDRS. After the initial issuance of CP HOLDRS, the 
depositary will deliver a prospectus, and any applicable supplements, 
to depositors of CP Shares or the shares of the successor companies 
upon such depositor's surrender of the requisite amount of CP Shares or 
shares of the successor companies to create CP HOLDRS. The Exchange 
will note in its circular to membership (as described below) that the 
Commission staff takes the position that under the Securities Act of 
1933 and rules thereunder,\12\ member organizations that acquire CP 
HOLDRS from the depositary for resale to customers must deliver a 
prospectus to such customers.
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    \12\ See 15 U.S.C. 77e; 17 CFR 230.174.
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    Pursuant to Paragraph 703.19, the Exchange will, prior to trading 
CP HOLDRS, distribute a circular to the membership providing guidance 
with regard to member firm compliance responsibilities (including 
suitability recommendations) with handling transactions in CP HOLDRS 
and highlighting the unique characteristics and risks of CP HOLDRS. In 
addition, the circular will advise members of Exchange about policies 
relating to trading halts in CP HOLDRS. Specifically, the circular will 
inform that the Exchange may consider factors such as the extent to 
which trading is not occurring in underlying security(s) and whether 
other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present.
    Based on the foregoing, the Exchange finds it appropriate to 
approve CP HOLDRS for listing and trading on the Exchange.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) \13\ of the Act, in general, and furthers the 
objectives of Section 6(b)(5),\14\ in particular, in that it is 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to remove impediments 
to, and perfect the mechanism of a free and open market and, in 
general, to protect investors and the public interest.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
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

    Written comments were neither solicited nor received.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consisted 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 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-NYSE-2001-35 and 
should be submitted by September 28, 2001.

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

A. Generally

    The Commission finds that the proposed rule change in 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).\15\ Specifically, 
the Commission finds that the proposal to list and trade CP HOLDRS will 
provide investors with a convenient and less expensive way of 
participating in the securities markets. The Exchange's proposal should

[[Page 46859]]

advance the public interest by providing investors with increased 
flexibility in satisfying their investment needs by providing current 
holders of CP Shares with a single exchange traded instrument 
representing shares of common stock of the five successor companies 
that are expected to result from CP's announced plan of reorganization, 
and allowing subsequent investors to purchase and sell such instruments 
in the secondary market. Accordingly, the Commission finds that the 
Exchange's proposal will facilitate transactions in securities, remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, protect investors and the 
public interest, and is not designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers.\16\
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    \15\ 15 U.S.C. 78f(b)(5).
    \16\ In approving this rule, the Commission notes that it has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
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    The Commission believes that CP HOLDRS will provide investors with 
an alternative to trading, on an individual basis, shares of common 
stock of the five successor companies that are expected to result from 
CP's announced plan of reorganization, and will give investors the 
ability to trade a single exchange traded instrument representing these 
companies' common stock continuously throughout the business day in 
secondary market transactions at negotiated prices. CP HOLDRS will 
allow investors to: (i) Respond quickly to changes in the overall 
securities markets generally and for the industry represented by the 
underlying securities; (ii) trade, at a price disseminated on a 
continuous basis, a single security representing five securities that 
the investor owns beneficially; (iii) engage in hedging strategies 
similar to those used by institutional investors; (iv) reduce 
transaction costs for trading a portfolio of securities; and (v) retain 
beneficial ownership of the securities underlying the CP HOLDR.
    Although CP HOLDRS are not leveraged instruments, and, therefore, 
do not possess any of the attributes of stock index options, their 
prices will be derived from and based upon the value of the underlying 
securities. Accordingly, the level of risk involved in the purchase or 
sale of CP HOLDRS is similar to the risk involved in the purchase or 
sale of traditional common stock, with the exception that the pricing 
mechanism for CP HOLDRS is based upon the aggregate value of the five 
underlying securities represented by CP HOLDRS. Nevertheless, the 
Commission believes that the unique nature of CP HOLDRS, related to, 
among other things, the lack of historical information relating to 
average daily trading volume or the average U.S. dollar value of 
trading in each underlying security, raises, certain product design, 
disclosure, trading, and other issues that must be addressed.

B. Characteristics of CP HOLDRS

    The Exchange has represented that each underlying security will be 
registered under Section 12 of the Exchange Act. Each of the successor 
companies is expected to be listed on the Exchange and the TSE. 
Consequently, information regarding the trading history of these 
companies will be available to the same extent as any other equity 
security that is listed on a national securities exchange and 
registered under Section 12 of the Exchange Act and, going forward, 
trading history on CP HOLDRS will be available on a similar basis as 
any other exchange-traded security (e.g., Bloomberg, Reuters, ILX).
    Additionally, the Exchange has represented and the Commission notes 
that, because the listing of CP HOLDRS is expected to precede listing 
of the underlying securities, it is impossible to provide historical 
information relating to average daily trading volume or the average 
U.S. dollar value of trading in each underlying security. The available 
information regarding CP Shares (which is the only security that will 
initially be represented by CP HOLDRS) shows that there is a broad and 
liquid market for CP Shares.\17\ In addition, the Exchange has 
highlighted the breadth and liquidity of the market for Pan Canadian 
Petroleum Limited, one of the successor companies to CP, currently is 
listed on the TSE under the symbol ``PCP.'' \18\ Based on this 
information and the Exchange's assertion that it anticipates that each 
of the underlying securities will have an average daily trading volume 
and U.S. dollar value of shares traded adequate to support listing and 
trading in CP HOLDRS, the Commission believes that this information 
about the liquidity of the CP Shares market is a sufficient proxy for 
the expected liquidity of the future market for CP HOLDRS.
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    \17\ See supra, footnote 9.
    \18\ See supra, footnote 10.
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    As represented by the Exchange above, CP HOLDRS will represent an 
investor's undivided beneficial ownership of the underlying securities. 
Owners of CP HOLDRS will have the same rights and privileges as they 
would have if they owned the underlying securities outside of CP 
HOLDRS. These include the right to instruct the depositary to vote the 
underlying securities, to receive any dividends and other distributions 
on the underlying securities that are declared and paid to the 
depositary by an issuer of an underlying security, the right to receive 
reports and other information distributed by the issuer in respect of 
the underlying securities, the right to pledge CP HOLDRS and the right 
to surrender CP HOLDRS to receive the underlying securities. As 
beneficial holders of the underlying securities, investors will receive 
reports and communications, including management proxy circulars, in 
the same manner as if such investors beneficially owned their 
underlying securities outside of CP HOLDRS from the broker through 
which they hold their CP HOLDRS. CP HOLDRS also are subject to certain 
reconstitution events that are set out in the depositary agreement.

C. Listing and Trading of CP HOLDRS

    The Commission finds that the NYSE's proposal contains adequate 
rules and procedures to govern the trading of CP HOLDRS. CP HOLDRS are 
equity securities that will be subject to the full panoply of NYSE 
rules governing the trading of equity securities on the NYSE, 
including, among others, rules governing the priority, parity and 
precedence of orders, responsibilities of the specialist, account 
opening and customer suitability requirements, and the election of a 
stop or limit order.
    In addition, the NYSE has developed specific listing and delisting 
criteria for CP HOLDRS that will help to ensure that a minimum level of 
liquidity will exist for CP HOLDRS to allow for the maintenance of fair 
and orderly markets. The delisting criteria also allows the NYSE to 
consider the suspension of trading and the delisting of a CP HOLDR if 
an event occurred that made further dealings in such securities 
inadvisable. This will give the NYSE flexibility to delist CP HOLDRS if 
circumstances warrant such action.
    Moreover, in approving this approval, the Commission notes the 
Exchange's belief that CP HOLDRS will not trade at a material discount 
or premium in relation to the overall value of the trusts' assets 
because of potential arbitrage opportunities. The Exchange represents 
that the potential for arbitrage should keep the market price of a CP 
HOLDR comparable to the overall value of the deposited securities.
    Finally, the NYSE has developed surveillance procedures for CP 
HOLDRS

[[Page 46860]]

that incorporate and rely upon existing NYSE surveillance procedures 
governing equities. The Commission believes that these surveillance 
procedures are adequate to address concerns associated with listing and 
CP HOLDRS. Accordingly, the Commission believes that the rules 
governing the trading of CP HOLDRS provide adequate safeguards to 
prevent manipulative acts and practices and to protect investors and 
the public interest.

D. Disclosure and Dissemination of Information

    The Commission believes that the Exchange's proposal will ensure 
that investors have information that will allow them to be adequately 
apprised of the terms, characteristics, and risks of trading CP HOLDRS. 
The prospectus will address the special characteristics of CP HOLDRS, 
including a statement regarding its redeemability and method of 
creation. The Commission notes that all original investors in CP HOLDRS 
who obtain CP HOLDRS by surrendering their CP Shares will receive a 
prospectus. Finally, the Securities Act of 1933 and rules thereunder 
\19\ require all broker-dealers who acquire CP HOLDRS from the 
depositary for resale to customers to deliver a prospectus to such 
customers.
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    \19\ See supra, footnote 12.
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    The Commission also notes that upon the initial listing of CP 
HOLDRS, the Exchange will issue a circular to its members explaining 
the unique characteristics and risks of this type of security. The 
circular also will note the Exchange members' prospectus delivery 
requirements, and highlight the characteristics of purchases in CP 
HOLDRS. The circular also will inform members of Exchange policies 
regarding trading halts in CP HOLDRS.

E. Scope of the Commission's Order

    The Commission is approving in general the NYSE's proposed listing 
standards for CP HOLDRS and, specifically, the listing of the CP HOLDRS 
described herein. The Exchange has represented that the unique nature 
of its proposed CP HOLDRS product makes the promulgation of generic 
listing standards impractical. The Commission specifically notes that 
CP HOLDRS arise from a corporate reorganization, that there is a broad 
and liquid market for CP shares, and that the five underlying 
securities that result from this corporate reorganization are 
registered under Section 12 of the Act. Consequently, the Exchange has 
incorporated the listing standards for equities set forth in Paragraph 
703.19 of the Manual, as well as the continued listing criteria for 
specialized securities pursuant to Paragraph 802.01D of the Manual, as 
the appropriate listing standards for CP HOLDRS. Although the 
Commission finds that these standards satisfy Section 6(b)(5) of the 
Act with respect to CP HOLDRS, the Commission specifically notes that 
this approval order, which incorporates the listing standards for 
equities in Paragraph 703.19, is limited to this unique product. Other 
similarly structured products will require separate review by the 
Commission prior to being traded on the Exchange.

F. Accelerated Approval

    The Commission finds good cause for approving the proposed rule 
change 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.\20\ The Commission does not believe that the proposed rule 
change raises novel regulatory issues that were not addressed in the 
NYSE filing. Accordingly, the Commission believes it is appropriate to 
permit investors to benefit from the flexibility and convenience 
afforded by this new instrument by listing and trading them as soon as 
possible. The Commission notes that the Exchange has indicated that it 
will have adequate surveillance procedures in place to monitor the 
trading of this new HOLDRS product. Accordingly, the Commission finds 
that there is good cause, consistent with Section 6(b)(5) of the 
Act,\21\ to approve the proposal on an accelerated basis.
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    \20\ 15 U.S.C. 78s(b)(2).
    \21\ 15 U.S.C. 78f(b)(5).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\22\ that the proposed rule change (SR-NYSE-2001-35) is hereby 
approved on an accelerated basis.
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    \22\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-22510 Filed 9-6-01 8:45 am]
BILLING CODE 8010-01-M