[Federal Register Volume 67, Number 225 (Thursday, November 21, 2002)]
[Notices]
[Pages 70271-70275]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-29539]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46835; File No. SR-Amex-2002-70]


Self Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of a Proposed Rule Change and Amendment 
No. 1 Thereto by the American Stock Exchange LLC Relating to Trust 
Certificates Linked to a Basket of Investment Grade Corporate Debt

November 14, 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 August 28, 2002, 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. 
On October 16, 2002, the Amex filed Amendment No. 1 to the proposed 
rule change.\3\ The Commission is publishing this notice to solicit 
comments on the proposed rule change, as amended, 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.
    \3\ See letter from Jeffrey P. Burns, Assistant General Counsel, 
Amex, to Nancy Sanow, Assistant Director, Division of Market 
Regulation (``Division''), Commission, dated October 15, 2002 
(``Amendment No. 1''). Amendment No. 1 replaces Amex's original 
proposal in its entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to approve for listing and trading under 
Section 107A of the Amex Company Guide (``Company Guide''), trust 
certificates linked to a basket of investment grade fixed income 
corporate debt instruments.

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 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 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.\4\ The Amex proposes to list for trading under 
section 107A of the Company Guide, asset-backed securities (the ``ABS 
Securities'') representing ownership interests in the Select Income 
Trust 2002-1 (the ``Trust''), a special purpose entity to be formed by 
Structured Obligations Corporation (``SOC''),\5\ and the trustee of the 
Trust pursuant to a trust agreement, which will be entered into on the 
date that the ABS Securities are issued. The assets of the Trust will 
consist primarily of a basket or portfolio of up to approximately 
twenty-five investment-grade fixed-income securities (the ``Underlying 
Corporate Bonds'').
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    \4\ See Securities Exchange Act Release No. 27753 (March 1, 
1990), 55 FR 8626 (March 8, 1990) (order approving File No. SR-Amex-
89-29).
    \5\ SOC is a wholly-owned special purpose entity of J.P. Morgan 
Securities Holdings Inc. and the registrant under the form S-3 
Registration Statement (No. 333-70730) under which the securities 
will be issued.
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    The issuance of the ABS Securities will be a repackaging of the 
Underlying Corporate Bonds with the obligation of the Trust to make 
distributions to holders of the ABS Securities depending solely on the 
amount of distributions received by the Trust in the Underlying 
Corporate Bonds. At the time of issuance, the ABS Securities will 
receive an investment grade rating from a nationally recognized 
securities rating organization (an ``NRSRO''). Due to the pass-through 
and passive nature of the ABS Securities, the Exchange intends to

[[Page 70272]]

rely on the assets and stockholder equity of the Underlying Corporate 
Bonds rather than the Trust to meet the requirement in section 107A of 
the Company Guide. The distribution and principal amount/aggregate 
market value requirements found in sections 107A(b) and (c), 
respectively, will otherwise be met by the Trust as issuer of the ABS 
Securities.\6\ Thus, the ABS Securities will conform to the initial 
listing guidelines under section 107A \7\ and continued listing 
guidelines under sections 1001-1003\8\ of the Company Guide, except for 
the assets and stockholder equity characteristics of the Trust.
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    \6\ Telephone Conversation between Jeff P. Burns, Assistant 
General Counsel, Amex, and Florence Harmon, Senior Special Counsel, 
Division, Commission, on November 13, 2002.
    \7\ The initial listing standards for the ABS Securities 
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. However, if traded in 
thousand dollar denominations, then there is no minimum holder 
requirement. 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.
    \8\ 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 ABS Securities, 
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 basket of Underlying Corporate Bonds will not be managed and 
will generally remain static over the term of the ABS Securities. Each 
of the Underlying Corporate Bonds provides for the payment of interest 
on a semi-annual basis, but the ABS Securities will provide for monthly 
or quarterly distributions of interest. The Exchange represents that, 
to alleviate this cash flow timing issue, the Trust will enter into an 
interest distribution agreement (the ``Interest Distribution 
Agreement'') as described in the prospectus supplement related to the 
ABS Securities (the ``Prospectus Supplement'').\9\ Principal 
distributions on the ABS Securities are expected to be made on dates 
that correspond to the maturity dates of the Underlying Corporate 
Bonds. However, some of the Underlying Corporate Bonds may have 
redemption provisions and in the event of an early redemption or other 
liquidation (e.g. upon an event of default) of the Underlying Corporate 
Bonds, the proceeds from such redemption (including any make-whole 
premium associated with such redemption) or liquidation will be 
distributed pro rata to the holders of the ABS Securities. Each 
Underlying Corporate Bond will be issued by a corporate issuer and 
purchased in the secondary market.
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    \9\ Pursuant to the Interest Distribution Agreement, shortfalls 
in the amounts available to pay monthly or quarterly interest to 
holders of the ABS Securities due to the Underlying Corporate Bonds 
paying interest semi-annually will be made to the Trust by JP Morgan 
Chase Bank or one of its affiliates and will be repaid out of future 
cash flow received by the Trust from the Underlying Corporate Bonds.
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    Holders of the ABS Securities generally will receive interest on 
the face value in an amount to be determined at the time of issuance of 
the ABS Securities and disclosed to investors. The rate of interest 
payments will be based upon prevailing interest rates at the time of 
issuance and made to the extent that coupon payments are received from 
the Underlying Corporate Bonds. Distributions of interest will be made 
monthly or quarterly. Investors will also be entitled to be repaid the 
principal of their ABS Securities from the proceeds of the principal 
payments on the Underlying Corporate Bonds. The payout or return to 
investors on the ABS Securities will not be leveraged.
    The ABS Securities will mature on the latest maturity date of the 
Underlying Corporate Bonds. Holders of the ABS Securities will have no 
direct ability to exercise any of the rights of a holder of the 
Underlying Corporate Bonds; however, holders of the ABS Securities as a 
group will have the right to direct the Trust in its exercise of its 
rights as holder of the Underlying Corporate Bonds.
    The Exchanges states that the proposed ABS Securities are similar 
to equity linked notes (``ELNs''), previously approved by the 
Commission, except that the cash flow from the proposed ABS Securities 
will come from a basket of investment-grade corporate bonds as compared 
to a single equity, basket of equity securities or equity index in the 
case of an ELN.\10\ In addition, ELNs may or may not pay interest while 
the ABS Securities will pay interest monthly or quarterly based on the 
pass-through nature of the structure. Also, publicly issued asset-
backed securities that repackage a single underlying corporate debt 
obligation are currently listed and traded on the New York Stock 
Exchange, Inc. (``NYSE'').\11\ The proposed ABS Securities are similar 
to those repackaging transactions, except that the Trust will own more 
than one corporate debt obligation and, in the single repackaging 
transactions, there is no need for an Interest Distribution Agreement 
because the timing of the payment of interest on the underlying debt 
obligation matches the obligation to distribute interest on the 
repackaged securities. Accordingly, the Exchange proposes to provide 
for the listing and trading of the ABS Securities where the Underlying 
Corporate Bonds meet the Exchange's Bond and Debenture Listing 
Standards set forth in section 104 of the Amex Company Guide. The 
Exchange represents that all of the Underlying Corporate Bonds in the 
proposed basket will meet or exceed these listing standards.
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    \10\ See, e.g., Securities Exchange Act Release Nos. 44483 (June 
27, 2001) 66 FR35677 (July 6, 2001) (approving the listing and 
trading of non-principal protected exchangeable notes linked to the 
Institutional Holdings Index); 44437 (June 18, 2001), 66 FR 33585 
(June 22, 2001) (approving the listing and trading of non-principal 
protected exchangeable notes linked to the Industrial 15 Index); 
44342 (May 23, 2001), 66 FR 29613 (May 31, 2001) (approving the 
listing and trading of non-principal protected exchangeable notes 
linked to the Select Ten Index); 42582 (March 27, 2000), 65 FR 17685 
(April 4, 2000) (approving the listing and trading of notes linked 
to a basket of no more than twenty equity securities); 40956 
(January 20, 1999), 64 FR 4480 (January 28, 1999) (approving the 
listing and trading of notes linked to Select Sector SPDRs); 37533 
(August 7, 1996), 61 FR 42075 (August 13, 1996) (approving the 
listing and trading of the Top Ten Yield MITTS); and 32343 (May 20, 
1993), 58 FR 30833 (May 27, 1993) (listing and trading of equity 
linked securities). See also Securities Exchange Act Release No. 
41334 (April 27, 1999), 64 FR 23883 (May 4, 1999) (Bond Index Term 
Notes).
    \11\ See, e.g., Structured Asset Trust Unit Repackagings 
(SATURNS), CSFB USA Debenture Backed Series 2002-10, 1,330,000 of 
7.00% Class A Callable Units, dated August 15, 2002, and trading 
under the symbol ``MKK'; 1,380,000 PreferredPlus 8.375% Trust 
Certificates, underlying 7.05% Debentures of Citizens Communications 
Company, dated August 24, 2001, and trading under the symbol ``PIY'; 
and 1,980,000 Corporate Backed Trust Certificates, Royal & Sun 
Alliance Bond Backed Series 2002-2, underlying securities 8.95% 
subordinated guaranteed bonds issued by Royal & Sun Alliance 
Insurance Group plc, dated February 11, 2002, and trading under the 
symbol ``CCS.''
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    The Exchange's Bond and Debenture Listing Standards in section 104 
of the Company Guide provide for the listing of individual bond or 
debenture issuances provided the issue has an aggregate market value or 
principal amount of at least $5 million and any of: (1) The issuer of 
the debt security has equity securities listed on the Exchange (or on 
the NYSE or on the Nasdaq

[[Page 70273]]

National Market (``Nasdaq'') \12\); (2) an issuer of equity securities 
listed on the Exchange (or on the NYSE or on Nasdaq) directly or 
indirectly owns a majority interest in, or is under common control 
with, the issuer of the debt security; (3) an issuer of equity 
securities listed on the Exchange (or on the NYSE or on Nasdaq) has 
guaranteed the debt security; (4) a NRSRO has assigned a current rating 
to the debt security that is no lower than an S&P Corporation ``B'' 
rating or equivalent rating by another NRSRO; or (5) or if no NRSRO has 
assigned a rating to the issue, an NRSRO has currently assigned (i) an 
investment grade rating to an immediately senior issue or (ii) a rating 
that is no lower than a Standard & Poor's Corporation (``S&P'') ``B'' 
rating or an equivalent rating by another NRSRO to a pari passu or 
junior issue.
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    \12\ The Exchange inadvertently omitted the reference to Nasdaq 
in its description of Amex's section 104 Bond and Debenture Listing 
Standards. Telephone Conversation between Jeff P. Burns, Assistant 
General Counsel, Amex, and Sapna C. Patel, Attorney, Division, 
Commission, on November 4, 2002.
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    In addition to the Exchange's Bond and Debenture Listing Standards, 
an Underlying Corporate Bond must also be of investment grade quality 
as rated by a NRSRO and at least 75% of the underlying basket is 
required to contain Underlying Corporate Bonds from issuances of $100 
million or more. The maturity of each Underlying Corporate Bond is 
expected to match the payment of principal of the ABS Securities with 
the maturity date of the ABS Securities being the latest maturity date 
of the Underlying Corporate Bonds. Amortization of the ABS Securities 
will be based on: (1) The respective maturities of the Underlying 
Corporate Bonds; (2) principal payout amounts reflecting the pro-rata 
principal amount of maturing Underlying Corporate Bonds; and (3) any 
early redemption or liquidation of the Underlying Corporate Bonds.
    Investors will be able to obtain the prices for the Underlying 
Corporate Bonds through Bloomberg L.P. or other market vendors, 
including the broker dealer through whom the investor purchased the ABS 
Securities. In addition, the Bond Market Association provides links to 
price and other bond information sources on its investor Web site at 
http:\\www.investinginbonds.com. Transaction prices and volume data for 
the most actively-traded bonds on the exchanges are also published 
daily in newspapers and on a variety of financial websites. The 
National Association of Securities Dealers, Inc. (``NASD'') Trade 
Reporting and Compliance Engine (``TRACE'') will also help investors 
obtain transaction information for most corporate debt securities, such 
as investment grade corporate bonds.\13\ For a fee, investors can have 
access to intra-day bellwether quotes.\14\ Price quotes are also 
available to institutional investors via proprietary systems such as 
Bloomberg, Reuters and Dow Jones Telerate. Valuation prices \15\ and 
analytical data may be obtained through vendors such as Bridge 
Information Systems, Muller Data, Capital Management Sciences, 
Interactive Data Corporation and Barra.
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    \13\ See Securities Exchange Act Release No. 43873 (January 23, 
2001), 66 FR 8131 (January 29, 2001). Investors are able to access 
TRACE information at http://www.nasdbondinfo.com/.
    \14\ Corporate prices are available at 20-minute intervals from 
Capital Management Services at http://www.bondvu.com/.
    \15\ ``Valuation Prices'' refer to an estimated price that has 
been determined based on an analytical evaluation of a bond in 
relation to similar bonds that have traded. Valuation prices are 
based on bond characteristics, market performance, changes in the 
level of interest rates, market expectations and other factors that 
influence a bond's value.
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    The prices of the Underlying Corporate Bonds generally will be 
determined by one or more market makers in accordance with applicable 
statutory rules, self-regulatory organization rules and generally 
accepted accounting principles regarding the valuation of securities.
    The ABS Securities will be listed in $1,000 denominations with the 
Exchange's existing debt floor trading rules applying to trading. 
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 ABS 
Securities.\16\ Second, the ABS Securities will be subject to the debt 
margin rules of the Exchange.\17\ Third, the Exchange will, prior to 
trading the ABS Securities, distribute a circular to the membership 
providing guidance with regard to member firm compliance 
responsibilities (including suitability recommendations) when handling 
transactions in the ABS Securities and highlighting the special risks 
and characteristics of the ABS Securities. With respect to suitability 
recommendations and risks, the Exchange will require members, member 
organizations and employees thereof recommending a transaction in the 
ABS Securities: (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.
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    \16\ 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 account accepted.
    \17\ See Amex rule 462.
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    The Exchange represents that its surveillance procedures are 
adequate to properly monitor the trading of the ABS Securities. 
Specifically, the Amex will rely on its existing surveillance 
procedures governing debt, 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, a amended, is 
consistent with section 6 of the Act \18\ in general and furthers the 
objectives of section 6(b)(5)\19\ in particular in that it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, 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.
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    \18\ 15 U.S.C. 78f(b).
    \19\ 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 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, 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

[[Page 70274]]

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-2002-70 and should be submitted by December 12, 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.\20\ The Commission finds that this proposal is similar to 
several approved equity-linked instruments currently listed and traded 
on the Amex,\21\ as well as to asset-backed securities listed and 
traded on the NYSE.\22\ Accordingly, the Commission finds that the 
listing and trading of the ABS Securites 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.\23\
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    \20\ Id.
    \21\ 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).
    \22\ See, e.g., supra note 11.
    \23\ 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, the ABS securities are asset-backed 
securities and represent a repackaging of the Underlying Corporate 
Bonds, subject to certain distribution of interest obligations of the 
Trust. The ABS Securities are not leveraged instruments. The ABS 
Securities are debt instruments whose price will still be derived and 
based upon the value of the Underlying Corporate Bonds. The Exchange 
represents that the value of the Underlying Corporate Bonds will be 
determined by one or more market makers, in accordance with Exchange 
rules and generally accepted principles of accounting regarding the 
valuation of securities. Investors are guaranteed at least the 
principal amount that they paid for the Underlying Corporate Bonds. In 
addition, each Underlying Corporate Bond will pay interest on a semi-
annual basis, while the ABS securities themselves will pay interest on 
a monthly or quarterly basis, pursuant to the Interest Distribution 
Agreement. In addition, the ABS securities will mature on the latest 
maturity date of the Underlying Corporate Bonds.\24\ However, due to 
the pass-through nature of the ABS Securities, the level of risk 
involved in the purchase or sale of the ABS Securites is similar to the 
risk involved in the purchase or sale of traditional common stock. The 
Commission notes that asset-backed securities that repackage a single 
underlying debt instrument are currently listed and traded on the NYSE. 
However, because the ABS Securities are asset-backed securities that 
repackage a basket of Underlying Corporate Bonds, instead of a single 
underlying corporate bond, there are several issues regarding the 
trading of this type of product that the Exchange must address.
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    \24\ The Commission notes, however, that the Exchange has 
represented that the Underlying Corporate Bonds may drop out of the 
basket upon maturity or upon payment default or acceleration of the 
maturity date for any default other than payment default. See 
Prospectus for a schedule of the distribution of interest and of the 
principal upon maturity of each Underlying Corporate Bond and for a 
description of payment default and acceleration of the maturity 
date. Telephone Conversation between Jeff P. Burns, Assistant 
General Counsel, Amex, and Sapna C. Patel, Attorney, Division, 
Commission, on November 4, 2002.
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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 ABS Securities. 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 ABS Securites. Moreover, the 
Commission notes that the Exchange will distribute a circular to its 
membership calling attention to the specific risks associated with the 
ABS Securities.
    The Commission notes that the ABS Securities are dependent upon the 
individual credit of the issuers of the Underlying Corporate Bonds. To 
some extent this credit risk is minimized by the Exchange's listing 
standards in section 107A of the Company Guide which provide that only 
issuers satisfying asset and equity requirements may issue securities 
such as the ABS Securites. In addition, the Exchange's ``Other 
Securities'' listing standards further provide that there is no minimum 
holder requirement if the securities are traded in thousand dollar 
denominations.\25\ The Commission notes that the Exchange has 
represented that the ABS Securities will be listed in $1000 
denominations with its existing debt floor trading rules applying to 
the trading. In any event, financial information regarding the issuers 
of the Underlying Corporate Bonds will be publicly available.\26\
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    \25\ See Company Guide section 107A.
    \26\ The ABS Securities will be registered under section 12 of 
the Act.
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    Due to the pass-through and passive nature of the ABS Securities, 
the Commission does not object to the Exchange's reliance on the assets 
and stockholder equity of the Underlying Corporate Bonds rather than 
the Trust to meet the requirement in section 107A of the Company Guide. 
The Commission notes that the distribution and principal amount/
aggregate market value requirements found in sections 107A(b) and (c), 
respectively, will otherwise be met by the Trust as issuer of the ABS 
Securities. Thus, the ABS Securities will conform to the initial 
listing guidelines under section 107A and continued listing guidelines 
under sections 1001-1003 of the Company Guide, except for the assets 
and stockholder equity characteristics of the Trust. At the time of 
issuance, the Commission also notes that the ABS

[[Page 70275]]

Securities will receive an investment grade rating from a nationally 
recognized securities rating organization (an ``NRSRO'').
    The Commission also believes that the listing and trading of the 
ABS Securites should not unduly impact the market for the Underlying 
Corporate Bonds or raise manipulative concerns. As discussed more fully 
above, the Exchange represents that, in addition to requiring the 
issuers of the Underlying Corporate Bonds meet the Exchange's section 
107A listing requirements, the Underlying Corporate Bonds will be 
required to meet or exceed the Exchange's Bond and Debenture Listing 
Standards pursuant to section 104 of the Amex's Company Guide, which 
among other things, requires that underlying debt instrument receive at 
least an investment grade rating of ``B'' or equivalent from am NRSRO. 
Furthermore, at least 75% of the basket is required to contain 
Underlying Corporate Bonds from issuances of $100 million or more. The 
Amex has also represents that the basket of Underlying Corporate Bonds 
will not be managed and will remain static over the term of the ABS 
securities. In addition, the Amex's surveillance procedures will serve 
to deter as well as detect any potential manipulation.
    The Commission notes that the investors may obtain price 
information on the Underlying Corporate Bonds through market venders 
such Bloomberg, L.P., or though Web sites such as http://www.investinbonds.com.
    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. The Amex has 
requested accelerated approval because this product is similar to 
several other equity-linked instruments currently listed and traded on 
the Amex,\27\ and other asset-backed securities currently listed and 
traded on the NYSE.\28\ The Commission believes that the ABS Securites 
will provide investors with an additional investment choice and that 
accelerated approval of the proposal will allow investors to begin 
trading the ABS Securites promptly. Additionally, the ABS Securites 
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, as amended, on an 
accelerated basis.
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    \27\ See supra note 21.
    \28\ See, e.g., supra note 11.
    \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-2002-70), as amended, 
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. 02-29539 Filed 11-20-02; 8:45 am]
BILLING CODE 8010-01-P