[Federal Register Volume 68, Number 104 (Friday, May 30, 2003)]
[Notices]
[Pages 32558-32561]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-13497]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47911; File No. SR-Amex-2003-46]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the American 
Stock Exchange LLC Relating to the Listing and Trading of Notes Linked 
to the Performance of the Standard & Poor's 500 Stock Index

May 22, 2003.
    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 May 19, 2003, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(l).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to list and trade under Section 107A of the 
Amex Company Guide (``Company Guide''), notes linked to the performance 
of the Standard & Poor's 500 Index (``Index'').

[[Page 32559]]

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.\3\ The Amex proposes to list for trading under 
Section 107A of the Company Guide notes, the performance of which is 
linked to the Index (the ``Targeted Efficient Equity Securities'' or 
``Notes'').\4\ The Index is determined, calculated and maintained 
solely by S&P.\5\ The Notes will provide for a multiplier of any 
positive performance of the Index during such term subject to a maximum 
payment amount or ceiling.
---------------------------------------------------------------------------

    \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\ Wachovia Corporation (``Wachovia'') and Standard & Poor's 
Corporation (``S&P'') have entered into a non-exclusive license 
agreement providing for the use of the Index by Wachovia and certain 
affiliates and subsidiaries in connection with certain securities 
including these Notes. S&P is not responsible and will not 
participate in the issuance and creation of the Notes.
    The Exchange stated that the Index value will be disseminated at 
least once every fifteen seconds throughout the trading day. 
Telephone conversation between Jeffrey P. Burns, Associate General 
Counsel, Amex and Hong-Ahn Tran, Special Counsel, Division of Market 
Regulation (``Division''), Commission, dated May 22, 2003.
    \5\ The Index is a broad-based stock index, which provides an 
indication of the performance of the U.S. equity market. The Index 
is a capitalization-weighted index reflecting the total market value 
of 500 widely held component stocks relative to a particular base 
period. The Index is computed by dividing the total market value of 
the 500 stocks by an Index divisor. The Index Divisor keeps the 
Index comparable over time to its base period of 1941-1943 and is 
the reference point for all maintenance adjustments. The securities 
included in the Index are listed on the Amex, New York Stock 
Exchange, Inc. (``NYSE'') or traded through the Nasdaq Stock Market, 
Inc. (``Nasdaq''). The Index reflects the price of the common stocks 
of 500 companies without taking into account the value of the 
dividend paid on such stocks.
---------------------------------------------------------------------------

    The Notes will initially conform to the listing guidelines under 
Section 107A \6\ and continued listing guidelines under Sections 1001-
1003 \7\ of the Company Guide. The Notes are senior non-convertible 
debt securities of Wachovia. The Notes will have a term of not less 
than one, nor more than ten years. Wachovia will issue the Notes in 
denominations of whole units (a ``Unit''), with each Unit representing 
a single Note. The original public offering price will be $10 per Unit. 
The Notes will entitle the owner at maturity to receive an amount based 
upon the percentage change of the Index. At maturity, if the value of 
the Index has increased over the term of the Notes, a beneficial owner 
will be entitled to receive a payment on the Notes equal to three (3) 
times the amount of that percentage increase, not to exceed a maximum 
payment (the ``Capped Amount'') to be determined at the time of 
issuance of the Notes. The Notes will not have a minimum principal 
amount that will be repaid, and accordingly, payment on the Notes prior 
to or at maturity may be less than the original issue price of the 
Notes. Accordingly, the Notes are not ``principal protected,'' and are 
fully exposed to any decline in the level of the Index.\8\ The Notes 
are also not callable by the Issuer.
---------------------------------------------------------------------------

    \6\ The initial listing standards for the 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 has 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.
    \7\ 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 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.
    \8\ A negative return of the Index will reduce the redemption 
amount at maturity with the potential that the holder of the Note 
could lose his entire investment.
---------------------------------------------------------------------------

    The payment that a holder or investor of a Note will be entitled to 
receive (the ``Redemption Amount'') depends entirely on the relation of 
the average of the values of the Index at the close of the market on 
five (5) business days shortly before maturity of the Notes (the 
``Final Level'') and the closing value of the Index on the date the 
Notes are priced for initial sale to the public (the ``Initial 
Level'').
    If the Final Level is greater than the Initial Level, the 
Redemption Amount per Unit will equal:
[GRAPHIC][TIFF OMITTED]TN30MY03.004

    If the Final Level is less than the Initial Level, the Redemption 
Amount per Unit will equal:
[GRAPHIC][TIFF OMITTED]TN30MY03.005

    The Notes are cash-settled in U.S. dollars and do not give the 
holder any right to receive a portfolio security, dividend payments or 
any other ownership right or interest in the portfolio or index of 
securities comprising the Index. The Notes are designed for investors 
who want to participate or gain exposure to the Index, subject to a 
cap, and who are willing to forego market interest payments on the 
Notes during such term. The Commission has previously approved the 
listing of options on, and securities the performance of which have 
been linked to or based on, the Index.\9\
---------------------------------------------------------------------------

    \9\ See Securities Exchange Act Release Nos. 19907 (June 24, 
1983), 48 FR 30814 (July 5, 1983) (approving the listing and trading 
of options on the Index); 31591 (December 18, 1992), 57 FR 60253 
(December 18, 1992) (approving the listing and trading of Portfolio 
Depositary Receipts based on the Index); 27382 (October 26, 1989), 
54 FR 45834 (October 31, 1989) (approving the listing and trading of 
Exchange Stock Portfolios based on the value of the Index); 30394 
(February 21, 1992), 57 FR 7409 (March 2, 1992) (approving the 
listing and trading of a unit investment trust linked to the Index); 
45160 (December 17, 2001) 66 FR 66485 (December 26, 2001) (approving 
the listing and trading of notes based on the Balanced Strategy 
Index); and 46882 (November 21, 2002), 67 FR 71219 (November 29, 
2002) (approving the listing and trading of notes based on the 
Select Fifty Index).

---------------------------------------------------------------------------

[[Page 32560]]

    As of May 12, 2003, the market capitalization of the securities 
included in the Index ranged from a high of $289.537 billion to a low 
of $0.353 billion. The average daily trading volume for these same 
securities for the last six (6) months ranged from a high of 64.214 
million shares to a low of 7.503 million shares and from a high of 
3.446 million shares to a low of 0.046 million shares, respectively.
    Because the Notes are issued in $10 denominations, the Amex's 
existing equity floor trading rules will apply to the trading of the 
Notes.\10\ 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.\11\ Second, the Notes will be subject to the equity margin rules 
of the Exchange.\12\ 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. In addition, Wachovia will deliver a prospectus in 
connection with the initial sales of the Notes.
---------------------------------------------------------------------------

    \10\ Telephone conversation between Jeffrey P. Burns, Associate 
General Counsel, Amex, and Hong-Anh Tran, Special Counsel, Division, 
Commission, dated May 20, 2003.
    \11\ 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.
    \12\ See Amex Rule 462.
---------------------------------------------------------------------------

    The Exchange represents that its surveillance procedures are 
adequate to properly monitor the trading of the Notes. Specifically, 
the Exchange 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(b) of the Act \13\ 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.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 the File No. SR-Amex-2003-46 
and should be submitted by June 20, 2003.

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.\15\ The Commission finds that this proposal is similar to 
several approved instruments currently listed and traded on the 
Amex.\16\ Accordingly, the Commission finds that the listing and 
trading of the Notes based on the 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.\17\
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78f(b)(5).
    \16\ See Securities Exchange Act Release Nos. 46883 (November 
21, 2002), 67 FR 71216 (November 29, 2002) (approving the listing 
and trading of non-principal protected notes linked to the DJIA); 
46882 (November 21, 2002), 67 FR 71219 (November 29, 2002) 
(approving the listing and trading of non-principal protected notes 
linked to the Select Fifty Index); 45160 (December 17, 2001), 66 FR 
66485 (December 26, 2001) (approving the listing and trading of non-
principal protected exchangeable notes linked to the Balanced 
Strategy Index); and 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).
    \17\ 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).
---------------------------------------------------------------------------

    As described more fully above, at maturity, the holder of a Note 
will receive an amount based upon the percentage change of the Index. 
Specifically, at maturity, the holder of a Note will be entitled to 
receive a payment equal to three times the amount of that percentage 
increase, not to exceed a certain maximum payment, if the value of the 
Index has increased over the term of such Note. The Notes will provide 
investors who are willing to forego market interest payments during the 
term of the Notes with a means to participate or gain exposure to the 
Index, subject to a cap.
    The Commission notes that the Notes are not-leveraged, non-
principal protected instruments. The Notes are debt instruments whose 
price will be derived and based upon the value of the Index. The Notes 
do not have a minimum principal amount that will be repaid at maturity, 
and the payments of

[[Page 32561]]

the Notes prior to or at maturity may be less than the original issue 
price of the Notes. Thus, if the value of the Index has declined at 
maturity, the holder of the Note will receive 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 and based 
upon the performance of an index of securities, because the Notes are 
debt instruments that do not guarantee a return of principal, and 
because investors' potential return is limited by the Capped Amount, if 
the value of the Index has increased over the term of such Note, there 
are several issues regarding the trading of this type of product. 
However, for the reasons discussed below, the Commission believes that 
the Exchange's proposal adequately addresses the concerns raised by 
this type of product.
    First, 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 that 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 the Notes. The 
Commission also notes that Wachovia will deliver a prospectus in 
connection with the initial sale of the Notes. In addition, the 
Commission notes that Amex will incorporate and rely upon its existing 
surveillance procedure governing equities, which have been deemed 
adequate under the Act. Moreover, the Commission also notes that the 
Exchange has a general policy that prohibits the distribution of 
material, non-public information by its employees.
    In approving the product, the Commission recognizes that the Index 
is a capitalization-weighted index of 500 companies listed on Nasdaq, 
the NYSE, and the Amex. The Commission notes that the Index is 
determined, calculated, and maintained by S&P. As of May 12, 2003, the 
market capitalization of the securities included in the Index ranged 
from a high of $289.537 billion to a low of $0.353 billion. The average 
daily trading volume for these same securities for the last six (6) 
months ranged from a high of 64.214 million shares to a low of 7.503 
million shares and from a high of 3.446 million shares to a low of 
0.046 million shares, respectively.
    Given the large trading volume and capitalization of the 
compositions of the stocks underlying the Index, the Commission 
believes that the listing and trading of the Notes that are linked to 
the Index, should not unduly impact the market for the underlying 
securities comprising the Index or raise manipulative concerns. As 
discussed more fully above, the underlying stocks comprising the Index 
are well-capitalized, highly liquid stocks. Moreover, the issuers of 
the underlying securities comprising the Index, are subject to 
reporting requirements under the Act, and all of the component stocks 
are either listed or traded on, or traded through the facilities of, 
U.S. securities markets. Additionally, the Amex's surveillance 
procedures will serve to deter as well as detect any potential 
manipulation.
    Furthermore, the Commission notes that the Notes are depending upon 
the individual credit of the issuer, Wachovia. 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 a market value of at 
least $4 million.\18\ In any event, financial information regarding 
Wachovia, in addition to the information on the 500 common stocks 
comprising the Index, will be publicly available.\19\
---------------------------------------------------------------------------

    \18\ See Company Guide Section 107A.
    \19\ The Commission notes that the 500 component stocks that 
comprise the Index are reporting companies under the Act, and the 
Notes will be registered under section 12 of the Act.
---------------------------------------------------------------------------

    The Commission also has a systemic concern, however, that a broker-
dealer such as Wachovia, or a subsidiary 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,\20\ the Commission believes that this concern 
is minimal given the size of the Notes issuance in relation to the net 
worth of Wachovia.
---------------------------------------------------------------------------

    \20\ See 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).
---------------------------------------------------------------------------

    Finally, the Commission notes that the value of the 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 
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 the 
notice of filing thereof in the Federal Register. The Exchange has 
requested accelerated approval because this product is similar to 
several other instruments currently listed and traded on the Amex.\21\ 
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 the 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 there is good cause, consistent with 
section 6(b)(5) and 19(b)(2) of the Act,\22\ to approve the proposal on 
an accelerated basis.
---------------------------------------------------------------------------

    \21\ See supra note 16.
    \22\ 15 U.S.C. 78f(b)(5) and 78s(b)(2).
---------------------------------------------------------------------------

V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\23\ that the proposed rule change (SR-Amex-2003-46), is hereby 
approved on an accelerated basis.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78s(b)(2).

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\24\
---------------------------------------------------------------------------

    \24\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-13497 Filed 5-29-03; 8:45 am]
BILLING CODE 8010-01-P