[Federal Register Volume 68, Number 112 (Wednesday, June 11, 2003)]
[Notices]
[Pages 35032-35035]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-14646]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47983; File No. SR-Amex-2003-45]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change and Amendment 
Nos. 1 and 2 Thereto 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

June 4, 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 14, 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. 
On May 28, 2003, the Exchange filed Amendment No. 1 to the proposed 
rule change.\3\ On May 30, 2003, the Exchange filed Amendment No. 2 to 
the proposed rule change.\4\ 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)(l).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Jeffrey P. Burns, Associate General Counsel, 
Amex, to Nancy Sanow, Assistant Director, Division of Market 
Regulation (``Division''), Commission, dated May 27, 2003. Amendment 
No. 1, corrects the formulas for determining payment at maturity of 
the Notes.
    \4\ See letter from Jeffrey P. Burns, Associate General Counsel, 
Amex, to Nancy Sanow, Assistant Director, Division, Commission, 
dated May 28, 2003. Amendment No. 2, replaces in its entirety 
Amendment No. 1.
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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'').

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.\5\ The Amex proposes to list for trading under 
Section 107A of the Company Guide notes, the performance which is 
linked to the Index (the ``Accelerated Return Notes'' or ``Notes'').\6\ 
The Index is determined, calculated and maintained solely by S&P.\7\ 
The Notes will provide for a multiplier of any positive performance

[[Page 35033]]

of the Index during such term subject to a maximum payment amount or 
ceiling.
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    \5\ See Securities Exchange Act Release No. 27753 (March 1, 
1990), 55 FR 8626 (March 8, 1990) (order approving File No. SR-Amex-
89-29).
    \6\ Credit Suisse First Boston (USA), Inc. (``CSFB'') and 
Standard & Poor's Corporation (``S&P'') have entered into a non-
exclusive license agreement providing for the use of the S&P 500 by 
CSFB 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-Anh Tran, Special Counsel, Division, 
Commission, dated May 27, 2003.
    \7\ 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.
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    The Notes initially conform to the listing guidelines under Section 
107A \8\ and continued listing guidelines under Sections 1001-1003 \9\ 
of the Company Guide. The Notes are senior non-convertible debt 
securities of CSFB. The Notes will have a term of not less than one, 
nor more than ten years. CSFB 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 $1000 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.\10\ The Notes are also not callable 
by the Issuer.
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    \8\ The initial listing standards for the Notes require: (1) A 
market value of at least $4 million; and (2) a term of at least one 
year. Because the Notes will be issued in $1,000 denominations, the 
minimum public distribution requirement of one million units and the 
minimum holder requirement of 400 shareholders do not apply. 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.
    \9\ 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.
    \10\ 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.
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    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:
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    \11\ See Amendment No. 2, supra note 4.
    [GRAPHIC] [TIFF OMITTED] TN11JN03.000
    
    If the Final Level is less than the Initial Level, the Redemption 
Amount per Unit will equal:
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    \12\ See Amendment No. 2, supra note 4.
    [GRAPHIC] [TIFF OMITTED] TN11JN03.001
    
    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.\13\
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    \13\ 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.
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    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 \14\ and from a high of 
3.446 million shares to a low of 0.046 million shares respectively.
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    \14\ Telephone conversation between Jeffrey P. Burns, Associate 
General Counsel, Amex, to Hong-Anh Tran, Special Counsel, Division, 
Commission, dated May 27, 2003.
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    Because the Notes are issued in $1,000 denominations, the Amex's 
existing 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.\15\ 
Second, even though the Exchange's debt trading rules apply, the Notes 
will be subject to the equity margin rules of the Exchange.\16\ 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, CSFB will 
deliver a prospectus in connection with the initial sales of the Notes.
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    \15\ 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.
    \16\ See Amex Rule 462.

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[[Page 35034]]

    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 \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 remove impediments 
to and perfect the mechanism of a free and open market and, in general, 
to protect investors and the public interest.
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    \17\ 15 U.S.C. 78f(b).
    \18\ 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 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-2003-45 and should be submitted by July 2, 2003.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change and Amendment Nos. 1 and 2 Thereto

    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 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\ 15 U.S.C. 78f(b)(5).
    \20\ 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).
    \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, 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 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. The Exchange will require 
members, member organizations and employees thereof recommending a 
transaction in the Securities to: (1) determine that such transaction 
is suitable for the customer; and (2) have a reasonable basis for 
believing that the customer can evaluate the special characteristics, 
and bear the financial risks, of such transaction. 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 CSFB 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

[[Page 35035]]

material, non-public information by it 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 Exchange equity margin rules 
and debt trading rules will apply to the Securities. The Commission 
believes that the application of these rules should strengthen the 
integrity of the Notes. The Commission also believes that the Exchange 
has appropriate surveillance procedures in place to detect and deter 
potential manipulation for similar index-linked products. By applying 
these procedures to the Notes, the Commission believes that the 
potential from manipulation of the underlying securities is minimal, 
thereby protecting investors and the public interest. The Commission 
further notes that the Index is managed by the S&P, an entity 
independent of both the Exchange and the Issuer, and thus, a factor 
which the Commission believes should act to minimize the possibility of 
manipulation.
    Furthermore, the Commission notes that the Notes are depending upon 
the individual credit of the issuer, CSFB. 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.\22\ In any event, financial information regarding 
CSFB, in addition to the information on the 500 common stocks 
comprising the Index, will be publicly available.\23\
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    \22\ See Company Guide Section 107A.
    \23\ 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.
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    The Commission also has a systemic concern, however, that a broker-
dealer such as CSFB, 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,\24\ the Commission believes that this concern is 
minimal given the size of the Notes issuance in relation to the net 
worth of CSFB.
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    \24\ 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).
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    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, as amended, 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.\25\ 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,\26\ to approve the proposal, 
as amended, on an accelerated basis.
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    \25\ See supra note 20.
    \26\ 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,\27\ that the proposed rule change (SR-Amex-2003-45), as amended, 
is hereby approved on an accelerated basis.
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    \27\ 15 U.S.C. 78s(b)(2).

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 03-14646 Filed 6-10-03; 8:45 am]
BILLING CODE 8010-01-P