[Federal Register Volume 67, Number 17 (Friday, January 25, 2002)]
[Notices]
[Pages 3753-3757]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-1905]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45305;File No. SR-Amex-2001-108]


Self Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of a Proposed Rule Change by the American 
Stock Exchange LLC Relating to the Listing and Trading of Biotech-
Pharmaceutical Notes

January 17, 2002.
    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 December 20, 2001, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I 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 and is approving the 
proposal on an accelerated basis.
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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 Amex proposes to list and trade notes, the return on which is 
based upon the Biotech-Pharmaceutical Index. The Biotech-Pharmaceutical 
Index is based upon the blended performance of the Amex Biotechnology 
index (the ``Biotech Index'') and the Amex Pharmaceutical Index (the 
``Pharmaceutical Index'') (each, an ``Underlying Index'' and together, 
the ``Underlying Indices''), discussed more fully below. Initially, the 
Underlying Indices will each have a weighting of 50% of the Biotech-
Pharmaceutical Index, and the Biotech-Pharmaceutical Index will be 
rebalanced annually to reset the weighting of the Underlying Indices to 
50% each.

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 Amex 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 Amex has prepared summaries, set forth in

[[Page 3754]]

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 Section 107A of the Amex Company Guide (``Company Guide''), 
the Exchange may approve for listing and trading securities which 
cannot be readily categorized under the listing criteria for common and 
preferred stocks, bonds, debentures, or warrants.\3\ The Amex proposes 
to list for trading under Section 107A of the Company Guide notes based 
on the Biotech-Pharmaceutical Index (the ``Notes''). The Biotech-
Pharmaceutical Index will be determined, calculated, and maintained 
solely by the Amex.\4\
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    \3\ See Securities Exchange Act Release No. 27753 (March 1, 
1990), 55 FR 8626 (March 8, 1990) (order approving File No. SR-Amex-
89-29).
    \4\ Subject to the criteria described in the prospectus 
supplement regarding the construction of the Biotech-Pharmaceutical 
Index, the Exchange has sole discretion regarding changes to the 
Biotech-Pharmaceutical Index.
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    The Notes will conform to the initial listing guidelines under 
Section 107 \5\ and continued listing guidelines under Sections 1001-
1003 \6\ of the Company Guide. The Notes are senior non-convertible 
debt securities of Merrill Lynch & Co., Inc. (``Merrill Lynch'') that 
provide for single payment at maturity. The Notes will have a term of 
not less than one nor more than ten years and will entitle the owner at 
maturity to receive an amount based upon the percentage change between 
the ``Starting Index Value'' and the ``Ending Index Value'' (the 
``Redemption Amount''). The ``Starting Index Value'' is the value of 
the Biotech-Pharmaceutical Index on the date on which the issuer prices 
the Notes issue for the initial offering to the public. The ``Ending 
Index Value'' is the value of the Biotech-Pharmaceutical Index over a 
period shortly prior to the expiration of the Notes. The Ending Index 
Value will be used in calculating the amount owners will receive upon 
maturity. The Notes will not have a minimum principal amount that will 
be repaid and, accordingly, payments on the Notes prior to or at 
maturity may be less than the original issue price of the Notes. During 
a two-week period in the designated month each year, the investors will 
have the right to require the issuer to repurchase the Notes at a 
redemption amount based on the value of the Biotech-Pharmaceutical 
Index at such repurchase date. The Notes are not callable by the 
issuer.
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    \5\ The initial listing standards for Industrial 15 Notes 
require: (1) A minimum public distribution of one million units; (2) 
a minimum of 400 shareholders; (3) a market value of at least $4 
million; and (4) a term of at least one year. In addition, the 
listing guidelines provide that the issuer have assets in excess of 
$100 million, stockholder's equity of at least $10 million, and pre-
tax income of at least $750,000 in the last fiscal year or in two of 
the three prior fiscal years. In the case of an issuer which is 
unable to satisfy the earning criteria stated in Section 101 of the 
Company Guide, the Exchange will require the issuer to have the 
following: (1) Assets in excess of $200 million and stockholders' 
equity of at least $10 million; or (2) assets in excess of $100 
million and stockholders' equity of at least $20 million.
    \6\ The Exchange's continued listing guidelines are set forth in 
Sections 1001 through 1003 of Part 10 to the Exchange's Company 
Guide. Section 1002(b) of the Company Guide states that the Exchange 
will consider removing from listing any security where, in the 
opinion of the Exchange, it appears that the extent of public 
distribution or aggregate market value has become so reduced to make 
further dealings on the Exchange inadvisable. With respect to 
continued listing guidelines for distribution of the Industrial 15 
Notes, the Exchange will rely, in part, on the guidelines for bonds 
in Section 1003(b)(iv). Section 1003(b)(iv)(A) provides that the 
Exchange will normally consider suspending dealings in, or removing 
from the list, a security if the aggregate market value or the 
principal amount of bonds publicly held is less than $400,000.
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    The Notes are cash-settled in U.S. dollars. The holder of a Note 
does not have any right to receive any of the securities comprising the 
Underlying Indices or any other ownership right or interest in these 
securities. The Notes are designed for investors who want to 
participate or gain exposure to the U.S. biotechnology and 
pharmaceutical industries and who are willing to forgo market interest 
payments on the Notes during such term.
    The Biotech-Pharmaceutical Index is based upon the combined 
performance of the Biotech Index and the Pharmaceutical Index. The 
Biotech Index is designed to measure the performance of a cross section 
of companies in the biotechnology industry that are primarily involved 
in the use of biological processes to develop products or provide 
services. The Biotech Index is an equal-dollar weighted index, designed 
to ensure that each of its component securities is represented in 
approximate equal dollar value. Equal-dollar weighting was established 
by designating the number of shares of each component security that 
represented approximately $10,000 in market value, based on closing 
prices on October 18, 1991.\7\ The aggregate value of the stocks was 
reduced by a divisor\8\ to establish a Biotech Index benchmark value of 
200.00. To ensure that each component stock continues to represent 
approximate equal market value, adjustments are made quarterly after 
the close of trading on the third Friday of January, April, July and 
October. As of December 13, 2001, the market capitalization of the 
securities included in the Biotech Index ranged from a high of $59.3 
billion to a low of $1.7 million. The average daily trading volume for 
these same securities for the last six (6) months, as of the same date, 
ranged from a high of 8.9 million shares to a low of .531 million 
shares.\9\ The Commission has previously approved the listing and 
trading of options on the Biotech Index.\10\
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    \7\ For example, a stock that closed at $20 per share would be 
represented in the Biotech Index by 500 shares for a total market 
value of $10,000.
    \8\ The divisor for the Biotech Index was initially set to 
750.1506 on October 18, 1991.
    \9\ As of December 13, 2001, the Biotech Index was composed of 
shares of the following companies: Affymetrix, Inc. (AFFX); Amgen 
Inc. (AMGN); Applera Corporation (CRA); Biogen, Inc. (BGEN); 
Cephalon, Inc. (CEPH); Chiron Corporation (CHIR); COR Therapeutics, 
Inc. (CORR); Genentech Inc. (DNA); Genzyme Corporation (GENZ); 
Gilead Sciences Inc. (GILD); Human Genome Sciences, Inc. (HGSI); 
IDEC Pharmaceuticals Corporation (IDPH); Immunex Corporation (IMNX); 
Medimmune Inc. (MEDI); Millennium Pharmaceuticals, Inc. (MLNM); 
Protein Design Labs, Inc. (PDLI) and Vertex Pharmaceuticals 
Incorporated (VRTX).
    \10\ See Securities Exchange Act Release No. 31245 (September 
28, 1992), 57 FR 45844 (October 5, 1992) (approving the listing and 
trading of long-term options (``LEAPS'') based on the Biotech Index 
and a reduced value Biotech Index) (``Biotech LEAPS Order'').
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    The Pharmaceutical Index is designed to represent a cross section 
of widely held, highly capitalized companies involved in various phases 
of the pharmaceutical industry. The Pharmaceutical Index is a market-
value (capitalization) weighted index reflecting the total market value 
of fifteen stocks.\11\ The Pharmaceutical Index was developed with a 
base value of 200.00 as of July 31, 1999. A 2-for-1 split of the 
Pharmaceutical Index occurred on March 23, 1999. The securities 
included in the Pharmaceutical Index are listed on the Amex, New York 
Stock Exchange, Inc. or traded through the facilities of the National 
Association of Securities Dealers, Inc. Automated Quotation System 
(``Nasdaq'') and reported National Market System securities. As of 
December 13, 2001, the market capitalization of the securities included 
in the Pharmaceutical Index ranged from a high of $247.7 billion to a 
low of $3.9 billion. The average daily trading

[[Page 3755]]

volume for these same securities for the last six (6) months, as of the 
same date, ranged from a high of 10.6 million shares to a low of .458 
million shares. The Commission has previously approved the listing and 
trading of options on the Pharmaceutical Index.\12\
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    \11\ As of December 13, 2001, the Pharmaceutical Index was 
composed of shares of the following companies: Abbott Laboratories 
(ABT); American Home Products Corporation (AHP); Amgen, Inc. (AMGN); 
AstraZeneca PLC (AZN); Bristol-Myers Squibb Company (BMY); Forest 
Laboratories Inc. (FRX); Glaxo Smith Kline Plc (GSK); IVAX 
Corporation (IVX); Johnson & Johnson (JNJ); King Pharmaceuticals, 
Inc. (KG); Lilly (Eli) & Company (LLY); Merck & Company, Inc. (MRK); 
Pfizer, Inc. (PFE); Pharmacia Corporation (PHA) and Schering-Plough 
Corporation (SGP).
    \12\ See Securities Exchange Act Release No. 30830 (June 18, 
1992), 57 FR 28221 (June 24, 1992) (approving the listing and 
trading of long-term options (``LEAPS'') based on the Pharmaceutical 
Index and a reduced value Pharmaceutical Index) (``Pharmaceutical 
LEAPS Order'').
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    At the outset, the Underlying Indices will each represent 50% of 
the Starting Index Value. Specifically, both the Biotech Index and 
Pharmaceutical Index will be assigned a multiplier on the date of 
issuance so that each Underlying Index represents an equal percentage 
of the value of the Biotech-Pharmaceutical Index on the date the Notes 
are priced for initial sale to the public. The multiplier indicates the 
percentage of the Underlying Index, given its current value, to be 
included in the calculation of the Biotech-Pharmaceutical Index. The 
Biotech-Pharmaceutical Index will initially be set to provide a 
benchmark value of 100.00 at the close of trading on the day the Notes 
are priced for initial sale to the public.
    The value of the Biotech-Pharmaceutical Index at any time will 
equal: (1) The sum of the values of each Underlying Index multiplied by 
their respective multiplier, plus (2) an amount reflecting current 
calendar quarter dividends, and less (3) a pro rata portion of the 
annual index adjustment factor.\13\ Current quarter dividends for any 
day will be determined by the Amex and will equal the sum of each 
dividend paid by an issuer represented in the Underlying Indices, 
multiplied by the number of shares of stock in the respective 
Underlying Index on the 
ex-dividend date, divided by the index divisor applicable to such 
Underlying Index, multiplied by the multiplier applicable to such 
Underlying Index on the ex-dividend date.
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    \13\ At the end of each day, the Biotech-Pharmaceutical Index 
will be reduced by a pro rata portion of the annual index adjustment 
factor, expected to be 1.5% (i.e., 1.5%/365 days = 0.0041% daily). 
This reduction to the value of the Biotech-Pharmaceutical Index will 
reduce the total return to investors upon the exchange or at 
maturity. The Amex represents that an explanation of this deduction 
will be included in any marketing materials, fact sheets, or any 
other materials circulated to investors regarding the trading of 
this product.
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    As of the first day of the start of each calendar quarter, the Amex 
will allocate the current quarter dividends as of the end of the 
immediately preceding calendar quarter to each respective Underlying 
Index in the Biotech-Pharmaceutical Index. Thus, the value of the 
dividends is allocated to each respective Underlying Index. The share 
multiplier of each Underlying Index will be adjusted to reflect a 
reinvestment of such current quarter dividends into each Underlying 
Index based on the closing market price of the Underlying Index on the 
last day in the immediate preceding calendar quarter.
    As of the close of business on each anniversary date (anniversary 
of the day the Biotech-Pharmaceutical Index was initially calculated 
and set to 100) the Biotech-Pharmaceutical Index will be rebalanced so 
that each Underlying Index will represent approximately 50% of the 
value of the Biotech-Pharmaceutical Index. To effectuate this, the 
multiplier for each Underlying Index will be determined by the Amex and 
will indicate the percentage for each index, given the closing value of 
each index on the anniversary date, so that each index represents an 
equal percentage of the Biotech-Pharmaceutical Index value at the close 
of business on such anniversary date. For example, if the Biotech-
Pharmaceutical Index value at the close of business on an anniversary 
date was 200, then each of the Underlying Indices would be allocated a 
portion of the value of the Biotech-Pharmaceutical Index equal to 100, 
and if the closing market price of one Underlying Index on the 
anniversary date was 160, the applicable share multiplier would be 
reset to 0.625. Conversely, if the Biotech-Pharmaceutical Index value 
was 80, then each of the Underlying Indices would be allocated a 
portion of the value of the Biotech-Pharmaceutical Index equal to 40 
and if the closing market price of one Underlying Index on the 
anniversary date was 20, the applicable share multiplier would be reset 
to 2.
    The Exchange will calculate the Biotech-Pharmaceutical Index and, 
similar to other stock index values published by the Exchange, the 
value of the Biotech-Pharmaceutical Index will be calculated 
continuously and disseminated every fifteen seconds over the 
Consolidated Tape Association's Network B.
    Because the Notes are linked to equity indices, the Amex's existing 
equity floor trading rules will apply to the trading of the Notes. 
First, pursuant to Amex Rule 411, 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 the Notes.\14\ 
Second, the Notes will be subject to the equity margin rules of the 
Exchange.\15\ Third, the Exchange will, prior to trading the Notes, 
distribute a circular to the membership providing guidance with regard 
to member firm compliance responsibilities (including suitability 
recommendations) when handling transactions in the Notes and 
highlighting the special risks and characteristics of the Notes. With 
respect to suitability recommendations and risks, the Exchange will 
require members, member organizations and employees thereof 
recommending a transaction in the Notes: (1) To determine that such 
transaction is suitable for the customer, and (2) to have a reasonable 
basis for believing that the customer can evaluate the special 
characteristics of, and is able to bear the financial risks of such 
transaction. Furthermore, Merrill Lynch will deliver a prospectus in 
connection with the initial purchase of the Notes. The procedure for 
the delivery of a prospectus will be the same as Merrill Lynch's 
current procedure involving primary offerings.\16\
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    \14\ Amex Rule 411 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 accounted accepted.
    \15\ See Amex Rule 462 and Section 107B of the Company Guide.
    \16\ Telephone conversation between Jeffrey P. Burns, Assistant 
General Counsel, Amex, and Sapna C. Patel, Attorney, Division of 
Market Regulation, Commission, on January 8, 2002.
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    The Exchange represents that its surveillance procedures are 
adequate to properly monitor the trading of the Notes. Specifically, 
the Amex will rely on its existing surveillance procedures governing 
equities, which have been deemed adequate under the Act. In addition, 
the Exchange also has a general policy which prohibits the distribution 
of material, non-public information by its employees.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act \17\ in general and furthers the objectives 
of Section 6(b)(5) \18\ in particular in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).

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[[Page 3756]]

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

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

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

    The Exchange did not receive any written comments on 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 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 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-Amex-2001-108 and 
should be submitted by February 15, 2002.

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

    After careful consideration, the Commission finds that the proposed 
rule change 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) 
of the Act.\19\ The Commission finds that this proposal is similar to 
several approved instruments currently listed and traded on the 
Amex.\20\ Accordingly, the Commission finds that the listing and 
trading of the Notes based on the Biotech-Pharmaceutical Index is 
consistent with the Act and 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.\21\
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    \19\ Id.
    \20\ See Securities Exchange Act Release Nos. 45160 (December 
17, 2001), 66 FR 66485 (December 26, 2001) (approving the listing 
and trading of non-principal protected notes linked to the Balanced 
Strategy Index) (File No. SR-Amex-2001-91); 44483 (June 27, 2001), 
66 FR 35677 (July 6, 2001) (approving the listing and trading of 
non-principal protected notes linked to the Institutional Holdings 
Index) (File No. SR-Amex-2001-40); 44437 (June 18, 2001), 66 FR 
33585 (June 22, 2001) (approving the listing and trading of non-
principal protected notes linked to the Industrial 15 Index) (File 
No. SR-Amex-2001-39); 44342 (May 23, 2001), 66 FR 29613 (May 31, 
2001), (accelerated approval order for the listing and trading of 
Select Ten Notes) (File No. SR-Amex-2001-28); 42582 (March 27, 
2000), 65 FR 17685 (April 4, 2000), (accelerated approval order for 
the listing and trading of notes linked to a basket of no more than 
twenty equity securities) (File No. SR-Amex-99-42); 41546 (June 22, 
1999), 64 FR 35222 (June 30, 1999) (accelerated approval order for 
the listing and trading of notes linked to a narrow based index with 
a non-principal protected put option) (File No. SR-Amex-99-15); 
39402 (December 4, 1997), 62 FR 65459 (December 12, 1997) (notice of 
immediate effectiveness for the listing and trading non-principal 
protected commodity preferred securities linked to certain 
commodities indices) (File No. SR-Amex-97-47); 37533 (August 7, 
1996), 61 FR 42075 (August 13, 1996) (accelerated approval order for 
the listing and trading of the Top Ten Yield Market Index Target 
Term Securities (``MITTS'')) (File No. SR-Amex-96-28); 33495 
(January 19, 1994), 59 FR 3883 (January 27, 1994) (accelerated 
approval order for the listing and trading of Stock Upside Note 
Securities) (File No. SR-Amex-93-40); and 32343 (May 20, 1993), 58 
FR 30833 (May 27, 1993) (accelerated approval order for the listing 
and trading of non-principal protected notes linked to a single 
equity security) (File No. SR-Amex-92-42).
    \21\ 15 U.S.C. 78F(b)(5). 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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    As described more fully above, at maturity, or upon redemption, the 
holder of a Note will receive an amount based upon the percentage 
change in the value of the Biotech-Pharmaceutical Index, less the index 
adjustment factor. The Notes will provide investors who are willing to 
forego market interest payments during the term of the Notes with a 
means to participate in the U.S. biotechnology and pharmaceutical 
industries. As described by the Amex, the value of the dividends is 
allocated to each respective Underlying Index.
    The Notes are not leveraged, non-principal protected instruments. 
The Notes are debt instruments whose price will still be derived and 
based upon the value of the Biotech-Pharmaceutical Index. The Notes do 
not have a minimum principal amount that will be repaid at maturity and 
the payments on the Notes prior to or at maturity may be less than the 
original issue price of the Notes.\22\ Thus, if the Biotech-
Pharmaceutical Index has declined at maturity, the holder of the Note 
may receive significantly less than the original public offering price 
of the Note. Accordingly, the level of risk involved in the purchase or 
sale of the Notes is similar to the risk involved in the purchase or 
sale of traditional common stock. Because the final rate of return of 
the Notes is derivatively priced, based on the performance of the 
Underlying Indices, and because the Notes are instruments that do not 
guarantee a return of principal, there are several issues regarding the 
trading of this type of product.
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    \22\ The Commission recognizes that during a two-week period in 
the designated month investors will have the right to require the 
issuer to repurchase the Notes at a redemption amount based on the 
value of the Biotech-Pharmaceutical Index at such repurchase date.
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    The Commission notes that the Exchange's rules and procedures that 
address the special concerns attendant to the trading of hybrid 
securities will be applicable to the Notes. In particular, by imposing 
the hybrid listing standards, suitability, disclosure, and compliance 
requirements noted above, the Commission believes the Exchange has 
addressed adequately the potential problems that could arise from the 
hybrid nature of the Notes. Moreover, the Commission notes that the 
Exchange will distribute a circular to its membership calling attention 
to the specific risks associated with Notes. The Commission also notes 
that Merrill Lynch will deliver a prospectus in connection with the 
initial purchase of the Notes.
    The Commission notes that the Notes are dependent upon the 
individual credit of the issuer, Merrill Lynch. To some extent this 
credit risk is minimized by the Exchange's listing standards in Section 
107A of the Company Guide which provide the only issuers satisfying 
substantial asset and equity requirements may issue securities such as 
the Notes. In addition, the Exchange's ``Other Securities'' listing 
standards further require that the Notes have at least $4 million in 
market value.\23\ In any event, financial information regarding Merrill 
Lynch, in addition to the information on the Underlying Indices 
comprising the Biotech-Pharmaceutical Index, will be publicly 
available.\24\
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    \23\ See Company Guide Section 107A.
    \24\ The companies that comprise the Biotech-Pharmaceutical 
Index are reporting companies under the Act, and the Notes will be 
registered under Section 12 of the Act.
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    The Commission also has a systemic concern, however, that a broker-
dealer, such as Merrill Lynch, or a subsidiary

[[Page 3757]]

providing a hedge for the issuer will incur position exposure. However, 
as the Commission has concluded in previous approval orders for other 
hybrid instruments issued by broker-dealers,\25\ the Commission 
believes that this concern is minimal given the size of the Notes 
issuance in relation to the net worth of Merrill Lynch.
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    \25\ See, e.g., Securities Exchange Act Release Nos. 44913 
(October 9, 2001), 66 FR 52469 (October 15, 2001) (order approving 
the listing and trading of notes whose return is based on the 
performance of the Nasdaq-100 Index) (File No. SR-NASD-2001-73); 
44483 (June 27, 2001), 66 FR 35677 (July 6, 2001) (order approving 
the listing and trading of notes whose return is based on a 
portfolio of 20 securities selected from the Amex Institutional 
Index) (File No. SR-Amex-2001-40); and 37744 (September 27, 1996), 
61 FR 52480 (October 7, 1996) (order approving the listing and 
trading of notes whose return is based on a weighted portfolio of 
healthcare/biotechnology industry securities) (File No. SR-Amex-96-
27).
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    The Commission also believes that the listing and trading of the 
Notes should not unduly impact the market for the component securities 
of the Underlying Indices of the Biotech-Pharmaceutical Index or raise 
manipulative concerns. As discussed more fully above, the Biotech-
Pharmaceutical Index is based upon the return of the Underlying 
Indices. Each of the Underlying Indices will have a weighting of 50% of 
the weight of the Biotech-Pharmaceutical Index, initially, and 
immediately following each annual rebalancing of the Biotech-
Pharmaceutical Index. In addition, the Biotech Index's equal-dollar 
weighting and the Pharmaceutical Index's market-value (capitalization) 
weighting methodologies are commonly applied index calculation methods. 
Moreover, Amex's listing and trading of other products on both of the 
Underlying Indices have been previously approved by the Commission.\26\ 
In approving the listing and trading of these other products on the 
Underlying Indices, the Commission noted in its approval orders that 
the Amex has developed several composition and maintenance criteria for 
the Underlying Indices that the Commission believes will minimize the 
potential for manipulation of the Underlying Indices.\27\ In addition, 
the Amex's surveillance procedures will serve to deter as well as 
detect any potential manipulation.
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    \26\ See Biotech LEAPS Order, supra note 10; and Pharmaceutical 
LEAPS Order, supra note 12.
    \27\ Among other things, the Amex would be required to submit a 
rule filing with the Commission pursuant to Section 19(b) of the Act 
prior to expanding either of the Underlying Indices to greater than 
twenty stocks or reducing either of the Underlying Indices to less 
than ten stock. The Commission finds that this requirement will 
protect against the design of the Underlying Indices from being 
materially changed without Commission review and approval, and that 
it is unlikely that attempted manipulations of prices of the issues 
in the Underlying Indices would affect significantly the Underlying 
Indices' value. See Biotech LEAPS Order, supra note 10; and 
Pharmaceutical LEAPS Order, supra note 12.
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    Finally, the Commission notes that the value of the Biotech-
Pharmaceutical Index will be disseminated at least once every fifteen 
seconds throughout the trading day. The Commission believes that 
providing access to the value of the Biotech-Pharmaceutical Index at 
least once every fifteen seconds throughout the trading day is 
extremely important and will provide benefits to investors in the 
product.
    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. The Amex has requested 
accelerated approval because this product is similar to several other 
instruments currently listed and traded on the Amex.\28\ The Commission 
believes that the Notes will provide investors with an additional 
investment choice and that accelerated approval of the proposal will 
allow investors to begin trading Notes promptly. Additionally, the 
Notes will be listed pursuant to Amex's existing hybrid security 
listing standards as described above. Based on the above, the 
Commission believes that there is good cause, consistent with Sections 
6(b)(5) and 19(b)(2) of the Act \29\ to approve the proposal on an 
accelerated basis.
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    \28\ See supra note 20.
    \29\ 15 U.S.C. 78f(b)(5) and 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\30\ that the proposed rule change (SR-Amex-2001-108), is 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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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 02-1905 Filed 1-24-02; 8:45 am]
BILLING CODE 8010-01-M