[Federal Register Volume 68, Number 208 (Tuesday, October 28, 2003)]
[Notices]
[Pages 61524-61528]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-27091]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48677; File No. SR-NASD-2003-155]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the National 
Association of Securities Dealers, Inc. Relating to the Listing and 
Trading of Accelerated Return Notes Linked to the S&P 
500[reg] Index

October 21, 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 October 9, 2003, the National Association of Securities Dealers, 
Inc. (``NASD'' or ``Association''), through its subsidiary, The Nasdaq 
Stock Market, Inc. (``Nasdaq''), filed with the Securities and Exchange 
Commission (``Commission'' or ``SEC'') the proposed rule change as 
described in Items I and II below, which Items have been prepared by 
Nasdaq. 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 the 
Substance of the Proposed Rule Change

    Nasdaq proposes to list and trade Accelerated Return Notes Linked 
to the S&P 500[reg] Index (``Notes'') issued by Merrill 
Lynch & Co., Inc. (``Merrill Lynch'').

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, Nasdaq 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. Nasdaq has prepared summaries, set forth in Sections A, 
B, and C below, of the most significant aspects of such statements.

[[Page 61525]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Nasdaq proposes to list and trade notes, the return on which is 
based upon the S&P 500[reg] Index (``Index'').\3\
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    \3\ The Index is published by Standard & Poor's, a division of 
The McGraw-Hill Companies, Inc. (``Standard & Poor's'' or S&P'') and 
is intended to provide an indication of the pattern of common stock 
price movement. The Index is a capitalization-weighted index, with 
each stock's weight in the Index proportionate to its market value. 
The value of the Index is based on the relative value of the 
aggregate market value of the common stocks of 500 companies as of a 
particular time compared to the aggregate average market value of 
the common stocks of 500 similar companies during the base period of 
the years 1941 through 1943. The market value for the common stock 
of a company is the product of the market price per share of the 
common stock and the number of outstanding shares of common stock. 
As of August 29, 2003, 424 companies, or 83.6% of the market 
capitalization of the Index, traded on the New York Stock Exchange 
(``NYSE''); 74 companies, or 16.2% of the market capitalization of 
the Index, traded on Nasdaq; and 2 companies, or 0.2% of the market 
capitalization of the Index, traded on the American Stock Exchange 
(``AMEX''). As of August 29, 2003, the aggregate market value of the 
500 companies included in the Index represented approximately 77% of 
the aggregate market value of stocks included in the Standard & 
Poor's Stock Guidance Database of domestic common stocks traded in 
the U.S., excluding American depositary receipts, limited 
partnerships and mutual funds. Standard & Poor's chooses companies 
for inclusion in the Index with the aim of achieving a distribution 
by broad industry groupings that approximates the distribution of 
these groupings in the common stock population of the Standard & 
Poor's Stock Guide Database, which Standard & Poor's uses as an 
assumed model for the composition of the total market. Relevant 
criteria employed by Standard & Poor's include the viability of the 
particular company, the extent to which that company represents the 
industry group to which it is assigned, the extent to which the 
market price of that company's common stock is generally responsive 
to changes in the affairs of the respective industry and the market 
value and trading activity of the common stock of that company. Ten 
main groups of companies comprise the Index with the percentage 
weight of the companies included in each group indicated in 
parentheses: Consumer Discretionary (11.4%), Consumer Staples 
(11.4%), Energy (5.8%), Financials (20.5%), Health Care (13.6%), 
Industrials (10.8%), Information Technology (17.4%), Materials 
(2.9%), Telecommunication Services (3.5%), and Utilities (2.8%). 
Standard & Poor's may from time to time, in its sole discretion, add 
companies to, or delete companies from, the Index to achieve the 
objectives stated above.
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    Under NASD Rule 4420(f), Nasdaq may approve for listing and trading 
innovative securities that cannot be readily categorized under 
traditional listing guidelines.\4\ Nasdaq proposes to list for trading 
the, as described below, under NASD Rule 4420(f).
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    \4\ See Securities Exchange Act Release No. 32988 (September 29, 
1993); 58 FR 52124 (October 6, 1993), (``1993 Order'').
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Description of the Notes

    The Notes are a series of senior non-convertible debt securities 
that will be issued by Merrill Lynch and will not be secured by 
collateral. The Notes will have a term of not less than one and not 
more than four years. The Notes will be issued in denominations of 
whole units (``Unit''), with each Unit representing a single Note. The 
original public offering price will be $10 per Unit. The Notes will not 
pay interest and are not subject to redemption by Merrill Lynch or at 
the option of any beneficial owner before maturity in 2005.\5\
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    \5\ The actual maturity date will be determined on the day the 
Notes are priced for initial sale to the public.
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    At maturity, if the value of the Index has increased, a beneficial 
owner will be entitled to receive a payment on the Notes based on 
triple the amount of that percentage increase, not to exceed a maximum 
payment per Unit (the ``Capped Value'') that is expected to be between 
$11.60 and $12.00.\6\ Thus, the Notes provide investors the opportunity 
to obtain leveraged returns based on the Index subject to a cap that is 
expected to represent an appreciation of 16% to 20% over the original 
public offering price of the Notes. Unlike ordinary debt securities, 
the Notes do not guarantee any return of principal at maturity. 
Therefore, if the value of the Index has declined at maturity, a 
beneficial owner will receive less, and possibly significantly less, 
than the original public offering price of $10 per Unit.\7\
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    \6\ The actual Capped Value will be determined at the time of 
issuance of the Notes.
    \7\ Any amount the beneficial owner would receive at maturity 
(which is less than the original offering price) would correspond to 
any decline in value of the Index. Telephone conversation between 
John D. Nachmann, Senior Attorney, Nasdaq, and Hong-Anh Tran, 
Special Counsel, Division of Market Regulation (``Division''), 
Commission, on October 15, 2003.
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    The payment that a beneficial owner 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 
business days shortly before the maturity of the Notes (the ``Ending 
Value'') and the closing value of the Index on the date the Notes are 
priced for initial sale to the public (the ``Starting Value'').
    If the Ending Value is less than or equal to the Starting Value, 
the Redemption Amount per Unit will equal:
[GRAPHIC] [TIFF OMITTED] TN28OC03.000

    If the Ending Value is greater than the Starting Value, the 
Redemption Amount per Unit will equal:
[GRAPHIC] [TIFF OMITTED] TN28OC03.001

provided, however, the Redemption Amount cannot exceed the Capped 
Value.
    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.\8\
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    \8\ See Securities Exchange Act Release No. 47464 (March 7, 
2003), 68 FR 12116 (March 13, 2003) (approving the listing and 
trading of Market Recovery Notes Linked to the S&P 500 [reg] Index); 
Securities Exchange Act Release No. 30394 (February 21, 1992), 57 FR 
7409 (March 2, 1992) (approving the listing and trading of a unit 
investment trust linked to the S&P 500 [reg] Index); Securities 
Exchange Act Release No. 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 S&P 500 [reg] Index); 
Securities Exchange Act Release No. 31591 (December 11, 1992), 57 
60253 (December 18, 1992) (approving the listing and trading of 
Portfolio Depository Receipts based on the S&P 500 [reg] Index); and 
Securities Exchange Act Release No. 19907 (June 24, 1983), 48 FR 
30814 (July 5, 1983) (approving the listing and trading of options 
on the S&P 500 [reg] Index).
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Criteria for Initial and Continued Listing

    The Notes, which will be registered under Section 12 of the Act, 
will initially be subject to Nasdaq's listing criteria for other 
securities under NASD Rule 4420(f). Specifically, under NASD Rule 
4420(f)(1):
    (A) The issuer shall have assets in excess of $100 million and 
stockholders' equity of at least $10 million.\9\ In the case of an 
issuer which is unable to satisfy the income criteria set forth in 
paragraph (a)(1), Nasdaq generally will require the issuer to have the 
following: (i) assets in excess of $200 million and stockholders' 
equity of at least $10 million; or (ii) assets in excess of $100 
million and stockholders' equity of at least $20 million;
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    \9\ Merrill Lynch satisfies this listing criterion.
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    (B) There must be a minimum of 400 holders of the security, 
provided, however, that if the instrument is traded in $1,000 
denominations, there must be a minimum of 100 holders;

[[Page 61526]]

    (C) For equity securities designated pursuant to this paragraph, 
there must be a minimum public distribution of 1,000,000 trading units;
    (D) The aggregate market value/principal amount of the security 
will be at least $4 million.
    In addition, Nasdaq notes that Merrill Lynch satisfies the listed 
marketplace requirement set forth in NASD Rule 4420(f)(2).\10\ Lastly, 
pursuant to NASD Rule 4420(f)(3), prior to the commencement of trading 
of the Notes, Nasdaq will distribute a circular to members providing 
guidance regarding member firm compliance responsibilities and 
requirements, including suitability recommendations, and highlighting 
the special risks and characteristics of the Notes. In particular, 
Nasdaq will advise members recommending a transaction in the Notes to 
have reasonable grounds for believing that the recommendation is 
suitable for such customer upon the basis of the facts, if any, 
disclosed by such customer as to his other security holdings and as to 
his financial situation and needs. In addition, pursuant to NASD Rule 
2310(b), prior to the execution of a transaction in the Notes that has 
been recommended to a non-institutional customer, a member shall make 
reasonable efforts to obtain information concerning: (1) The customer's 
financial status; (2) the customer's tax status; (3) the customer's 
investment objectives; and (4) such other information used or 
considered to be reasonable by such member in making recommendations to 
the customer.
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    \10\ NASD Rule 4420(f)(2) generally requires that issuers of 
securities designated pursuant to this paragraph [sic] to be listed 
on The Nasdaq National Market or the NYSE or be an affiliate of a 
company listed on The Nasdaq National Market or the NYSE; provided, 
however, that the provisions of NASD Rule 4450 will be applied to 
sovereign issuers of ``other'' securities on a case-by-case basis. 
The Commission notes that there is a typographical error in NASD 
Rule 4420(f)(2), which the NASD, through its subsidiary, Nasdaq, 
will have to submit a filing, pursuant to the provisions of Section 
19(b) under the Act, to delete any reference to paragraph (e) under 
this Rule.
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    The Notes will be subject to Nasdaq's continued listing criterion 
for other securities pursuant to NASD Rule 4450(c). Under this 
criterion, the aggregate market value or principal amount of publicly-
held units must be at least $1 million. The Notes also must have at 
least two registered and active market makers as required by NASD Rule 
4310(c)(1). Nasdaq will also consider prohibiting the continued listing 
of the Notes if Merrill Lynch is not able to meet its obligations on 
the Notes.

Rules Applicable to the Trading of the Notes

    Since the Notes will be deemed equity securities for the purpose of 
NASD Rule 4420(f), the NASD and Nasdaq's existing equity trading rules 
will apply to the Notes. First, pursuant to NASD Rule 2310, 
``Recommendations to Customers (Suitability),'' and NASD IM-2310-2, 
``Fair Dealing with Customers,'' NASD members must have reasonable 
grounds for believing that a recommendation to a customer regarding the 
purchase, sale or exchange of any security is suitable for such 
customer upon the basis of the facts, if any, disclosed by such 
customer as to his other security holdings and as to his financial 
situation and needs.\11\ In addition, as previously described, Nasdaq 
will distribute a circular to members providing guidance regarding 
compliance responsibilities and requirements, including suitability 
recommendations, and highlighting the special risks and characteristics 
of the Notes. Furthermore, the Notes will be subject to the equity 
margin rules. Lastly, the regular equity trading hours of 9:30 am to 
4:00 pm will apply to transactions in the Notes.
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    \11\ Rule 2310(b) requires members to make reasonable efforts to 
obtain information concerning a customer's financial status, a 
customer's tax status, the customer's investment objectives, and 
such other information used or considered to be reasonable by such 
member or registered representative in making recommendations to the 
customer.
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    Nasdaq represents that NASD's surveillance procedures are adequate 
to properly monitor the trading of the Notes. Specifically, NASD will 
rely on its current surveillance procedures governing equity 
securities, and will include additional monitoring on key pricing 
dates.

Disclosure and Dissemination of Information

    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. In addition, Nasdaq will issue a circular 
to NASD members explaining the unique characteristics and risks of the 
Notes.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A of the Act,\12\ in general, and with 
Section 15A(b)(6) of the Act,\13\ in particular, in that the proposal 
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. Specifically, 
the proposed rule change will provide investors with another investment 
vehicle based on the Index.
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    \12\ 15 U.S.C. 78o-3.
    \13\ 15 U.S.C. 78o-3(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq does not believe that the proposed rule change will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

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

    Written comments were neither solicited nor received.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is 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 in the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
NASD. All submissions should refer to file number SR-NASD-2003-155 and 
should be submitted by November 18, 2003.

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

    Nasdaq has asked the Commission to approve the proposal, on an 
accelerated basis to accommodate the timetable for listing the Notes. 
The Commission notes that it has previously approved the listing of 
options on, and securities the performance of which have been linked

[[Page 61527]]

to or based on, the Index.\14\ The Commission has also previously 
approved the listing of securities with a structure identical to that 
of the Notes.\15\
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    \14\ See note 8, supra.
    \15\ See Securities Exchange Act Release Nos. 47983 (June 4, 
2003), 68 FR 35032 (June 11, 2003) (approving the listing and 
trading of Market Recovery Notes linked to the S&P 500[reg] Index); 
47464 (March 7, 2003), 68 FR 12116 (March 13, 2003) (approving the 
listing and trading of Market Recovery Notes Linked to the S&P 
500[reg] Index); 47009 (December 16, 2002), 67 FR 78540 (December 
24, 2002) (approving the listing and trading of Market Recovery 
Notes linked to the Nasdaq-100 Index); and 46883 (November 21, 
2002), 67 FR 71216 (November 29, 2002) (approving the listing and 
trading of Market Recovery Notes linked to the Dow Jones Industrial 
Average).
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    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 
association, and, in particular, with the requirements of Section 
15A(b)(6) of the Act \16\ in that it is designed 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.\17\ The Commission believes that the 
Notes will provide investors with a means to participate in any 
percentage increase in the Index that exist at the maturity of the 
Notes, subject to the Capped Value. Specifically, as described more 
fully above, if the value of the Index has increased, a beneficial 
owner will be entitled to receive at maturity a payment of the Notes 
based on triple the amount of any percentage increase in the Index, not 
to exceed the Capped Value.
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    \16\ 15 U.S.C. 78o-3(b)(6).
    \17\ In approving the proposed rule, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
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    The Notes are leveraged debts instruments whose price will be 
derived from and based upon the value of the Index. In addition, as 
discussed more fully above, the Notes do not guarantee any return of 
principal at maturity. Thus, if the Index has declined at maturity, a 
beneficial owner may receive significantly less than the original 
public offering price of the Notes.\18\ 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 on 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 Value, 
there are several issues regarding trading of this type of product. For 
the reasons discussed below, the Commission believes that Nasdaq's 
proposal adequately addresses the concerns raised by this type of 
product.
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    \18\ Any amount the beneficial owner would receive at maturity 
(which is less than the original offering price) would correspond to 
any decline in value of the Index. Telephone conversation between 
John D. Nachmann, Senior Attorney, Nasdaq, and Hong-Anh Tran, 
Special Counsel, Division, Commission, on October 15, 2003.
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    First, the Commission notes that the protections of NASD Rule 
4420(f) were designed to address the concerns attendant to the trading 
of hybrid securities like the Notes.\19\ In particular, by imposing the 
hybrid listing standards, heightened suitability for 
recommendations,\20\ and compliance requirements, noted above, the 
Commission believes that Nasdaq has adequately addressed the potential 
problems that could arise from the hybrid nature of the Notes. The 
Commission notes that Nasdaq will distribute a circular to its 
membership that provides guidance regarding member firm compliance 
responsibilities and requirements, including suitability 
recommendations, and highlights the special risks and characteristics 
associated with the Notes. Specifically, among other things, the 
circular will indicate that the Notes do not guarantee any return of 
principal at maturity, that the maximum return on the Notes is limited 
to $11.60 and $12 per unit,\21\ that the Notes will not pay interest, 
and that the Notes will provide exposure in the Index. Distribution of 
the circular should help to ensure that only customers with an 
understanding of the risks attendant to the trading of the Notes and 
who are able to bear the financial risks associated with transactions 
in the Notes will trade the Notes. In addition, the Commission notes 
that Merrill Lynch will deliver a prospectus in connection with the 
initial purchase of the Notes.
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    \19\ See 1993 Order, supra note 4.
    \20\ As discussed above, Nasdaq will advise members recommending 
a transaction in the Notes to: (1) Determine that the transaction is 
suitable for the customer; and (2) have a reasonable basis for 
believing that the customer can evaluate the special characteristics 
of, and is able to bear the financial risks of, the transaction.
    \21\ The actual Capped Value will be determined at the time of 
issuance of the Notes.
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    Second, the Commission notes that the final rate of return on the 
Notes depends, in part, upon the individual credit of the issuer, 
Merrill Lynch. To some extent this credit risk is minimized by the 
NASD's listing standards in NASD Rule 4420(f), which provide that only 
issuers satisfying substantial asset and equity requirements may issue 
these types of hybrid securities. In addition, the NASD's hybrid 
listing standards further require that the Notes have at least $4 
million in market value. Financial information regarding Merrill Lynch, 
in addition to information concerning the issuers of the securities 
comprising the Index, will be publicly available.\22\
    Third, the Notes will be registered under Section 12 of the Act. As 
noted above, the NASD's and Nasdaq's existing equity trading rules will 
apply to the Notes, which will be subject to equity margin rules and 
will trade during the regular equity trading hours of 9:30 a.m. to 4:00 
p.m. NASD Regulation's surveillance procedures for the Notes will be 
the same as its current surveillance procedures for equity securities, 
and will include additional monitoring on key pricing dates. Nasdaq 
represents that its surveillance procedures are adequate to monitor 
properly the grading of the Notes.
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    \22\ The companies comprising the Index are reporting companies 
under the Act.
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    Fourth, the Commission has a systemic concern that a broker-dealer, 
such as Merrill Lynch, or a subsidiary providing a hedge for the issuer 
will incur position exposure. However, as the Commission has concluded 
in previous approval orders for the hybrid instruments issued by 
broker-dealers,\23\ 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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    \23\ See, e.g., Securities Exchange Act Release Nos. 44913 
(October 9, 2001), 66 FR 52469 (October 15, 2001) (approving the 
listing and trading of notes issued by Morgan Stanley Dean Witter & 
Co. whose return is based on the performance of the Nasdaq-100 
Index); 44483 (June 27, 2001), 66 FR 35677 (July 6, 2001) (approving 
the listing and trading of notes issued by Merrill Lynch whose 
return is based on a portfolio of 20 securities selected from the 
Amex Institutional Index); and 37744 (September 27, 1996), 61 FR 
52480 (October 7, 1996) (approving the listing and trading of notes 
issued by Merrill Lynch whose return is based on a weighted 
portfolio of the Healthcare/Biotechnology industry securities).
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    Finally, the Commission believes that the listing and trading of 
the proposed Notes should not unduly impact the market for the 
securities underlying the Index or raise manipulative concerns. 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, 
composed, and calculated by Standard & Poor's. As of October 7, 2003, 
the market capitalization of the securities included in the Index 
ranged from a high of $313.8 billion to a low of $568.4

[[Page 61528]]

million. The average monthly trading volume for the last six months, as 
of the same date, ranged from a high of 60.0 million shares to a low of 
138.7 thousand shares. As of August 29, 2003, the aggregate market 
value of the 500 companies included in the Index represented 
approximately 77% of the aggregate market value of stocks included in 
the Standard & Poor's Stock Guidance Database of domestic common stocks 
traded in the U.S., excluding American depositary receipts, limited 
partnerships and mutual funds. Standard & Poor's chooses companies for 
inclusion in the Index with the aim of achieving a distribution by 
broad industry groupings that approximates the distribution of these 
groupings in the common stock population of the Standard & Poor's Stock 
Guide Database. Furthermore, as of August 29, 2003, ten main groups of 
companies comprise the Index with the percentage weight of the 
companies included in each group indicated in parentheses: Consumer 
Discretionary (11.4%), Consumer Staples (11.4%), Energy (5.8%), 
Financials (20.5%), Health Care (13.6%), Industrials (10.8%), 
Information Technology (17.4%), Materials (2.9%), Telecommunication 
Services (3.5%), and Utilities (2.8%).
    Given the large diversification, capitalization, and relative 
percentage weightings of the companies included in each group of 
companies comprising the Index, the Commission continues to believe, as 
it has concluded previously, that the listing and trading of securities 
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 Commission also believes 
that the relative percentage weightings of the ten groups of companies 
comprising the Index should ensure that no one stock or group of stocks 
significantly minimize the potential for manipulation of the Index. 
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 with listed on Nasdaq, the NYSE, or the AMEX. 
In addition, Nasdaq's surveillance procedures should serve to deter as 
well as detect any potential manipulation.
    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 of filing thereof in the Federal Register. 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. In 
addition, the Commission notes that it has previously approved the 
listing and trading of similar Notes and other hybrid securities based 
on the Index.\24\ Accordingly, the Commission believes that there is 
good cause, consistent with Sections 15A(b)(6) and 19(b)(2) of the 
Act,\25\ to approve the proposal, on an accelerated basis.
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    \24\ See note 15, supra.
    \25\ 15 U.S.C. 78o-3(b)(6) and 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\26\ that the proposed rule change (SR-NASD-2003-155) is hereby 
approved on an accelerated basis.
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    \26\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-27091 Filed 10-27-03; 8:45 am]
BILLING CODE 8010-01-P