[Federal Register Volume 69, Number 176 (Monday, September 13, 2004)]
[Notices]
[Pages 55204-55206]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-2164]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50319; File No. SR-PCX-2004-75]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Pacific Exchange, Inc. 
Relating to Minimum Terms for Equity Linked Notes (``ELNs'')

September 7, 2004.
    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 4, 2004, the Pacific Exchange, Inc. (``PCX''

[[Page 55205]]

or ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the self-regulatory 
organization. The Exchange has designated the proposed rule change as 
constituting a ``non-controversial'' rule change under subparagraph 
(f)(6) of Rule 19b-4 under the Act,\3\ which renders the proposal 
effective upon receipt of this filing by the Commission.\4\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).
    \4\ As required by 17 CFR 240.19b-4(f)(6), the Exchange has 
represented that the proposed rule change will not significantly 
affect the protection of investors or the public interest, nor will 
it impose any significant burden on competition. The Exchange also 
fulfilled its obligation to provide at least five-business days 
notice to the Commission of its intent to file this proposed rule 
change by notice on July 29, 2004. The Exchange's proposed rule 
changes are similar to the rules regarding the terms of equity-
linked debt securities for the American Stock Exchange LLC 
(``Amex''), the Chicago Stock Exchange, Inc. (``CHX''), and the New 
York Stock Exchange, Inc. (``NYSE'').
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange, through its wholly owned subsidiary PCX Equities, 
Inc. (``PCXE''), proposes to modify the listing requirement related to 
the minimum and maximum terms to list Equity Linked Notes (``ELNs'') on 
PCXE and traded on the Archipelago Exchange (``ArcaEx''), a facility of 
the PCXE. The PCX proposes to modify the two to seven year term 
requirement in PCXE Rule 5.2(j)(2) to a minimum one-year term 
requirement. The PCX also proposes to eliminate the maximum term for 
ELNs.
    Below is the text of the proposed rule change. Proposed new 
language is italicized; proposed deletions are in brackets.
* * * * *

Rules of PCX Equities, Inc.

Rule 5
Listings
* * * * *
Equity Linked Notes (``ELNs'')
Rule 5.2(j)(2)(A)--No Change.
(B) ELN Listing Standards
    (i)(a)-(c)--No change.
    (d) [a term of two to seven years] a minimum term of one year [, 
provided that if the issuer of the underlying security is a non-U.S. 
company, or if the underlying security is a sponsored ADR, the issue 
may not have a term of more than three years].
(C)-(E)--No change.
* * * * *

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 self-regulatory organization 
included statements concerning the purpose of and basis for the 
proposed modifications to the fee schedule. The text of these 
statements may be examined at the places specified in Item IV below. 
The self-regulatory organization 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
    ELNs are non-convertible debt of an issuer, whose value is based, 
at least in part, on the value of another issuer's common stock or non-
convertible preferred stock. PCXE Rule 5.2(j)(2) sets forth the listing 
criteria applicable to ELNs. PCXE Rule 5.2(j)(2)(B)(i)(d) requires that 
ELNs have, among other things, a term of two to seven years to be 
eligible for listing, provided that if the issuer of the underlying 
security is a non-U.S. company, or if the underlying security is a 
sponsored American Depositary Receipts, the issue may not have a term 
of more than three years. The Exchange initially adopted this term 
requirement as a conservative measure to help ensure that the trading 
of ELNs did not have an adverse effect on the liquidity of the 
underlying stock and were not used in a manipulative manner.\5\
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    \5\ The Amex and the NYSE initially adopted similar term limits 
for equity-linked debt securities listed on their exchanges. See 
Securities Exchange Act Release No. 32343 (May 20, 1993), 58 FR 
30833 (May 27, 1993) and Securities Exchange Act Release No. 33468 
(January 13, 1994), 59 FR 3387 (January 21, 1994), respectively.
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    The Exchange proposes to modify the term requirements in Rule 
5.2(j)(2)(B)(i)(d) to reduce the minimum term of ELNs, whether the ELN 
is based on U.S. or non-U.S. securities, to one year, and eliminate the 
maximum term requirement.\6\ All other requirements in Rule 5.2(j)(2) 
would remain the same.
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    \6\ The Exchange represents that it will notify the Commission 
in advance if the Exchange intends to list ELNs of a non-U.S. 
company issuer and the issue has a term of more than three years.
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    In recent years, several other self-regulatory organizations that 
have listing criteria for equity linked debt securities have reduced 
the minimum term requirement for such securities to one year.\7\ The 
Exchange seeks to make the same modifications in order to provide ELN 
issuers with a greater choice of listing venues and remove the 
impediment to listing created by the current stringent term 
requirements. These modifications would also allow ArcaEx to compete 
more effectively with other listing venues for listings of ELNs.
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    \7\ See Securities Exchange Act Release No. 42313 (January 4, 
2000), 65 FR 2205 (January 13, 2000) (CHX reduced the minimum term 
of eligible equity linked debt securities from two years to one and 
eliminated maximum term requirement); Securities Exchange Act 
Release No. 42110 (November 5, 1999), 64 FR 61677 (November 12, 
1999) (Amex reduced the minimum term of eligible equity linked debt 
securities from two years to one and eliminated maximum term 
requirement); and Securities Exchange Act Release No. 41992 (October 
7, 1999), 64 FR 56007 (Oct. 15, 1999) (NYSE reduced the minimum term 
of eligible equity linked debt securities from two years to one and 
eliminated maximum term requirement).
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    The Exchange represents that it has sufficient resources and 
comprehensive surveillance procedures to identify and deter 
manipulative and other illicit trading activity in ELNs and securities 
linked to them. In conducting its surveillance procedures, the Exchange 
has not found any adverse effects as a result of the trading of ELNs 
and the securities to which ELNs are linked. Finally, the Exchange 
notes that NYSE, Amex, and the CHX have similar rules that reduce the 
minimum terms for their equity-linked debt instruments to one year and 
eliminate the maximum term.\8\ Accordingly, the Exchange believes it is 
appropriate to relax the more stringent term requirements set forth in 
PCXE Rule 5.2(j)(2) by reducing the minimum term for ELNs to one year 
and eliminating the maximum term limit.
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    \8\ See supra note 7.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) \9\ of the Act, in general, and furthers the objectives of 
Section 6(b)(5) \10\ in particular in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principals of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanisms of a free and open 
market and a national market system.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 10 15 U.S.C. 78f(b)(5).

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[[Page 55206]]

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 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 on the proposed rule change were neither solicited 
nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The PCX has designated the proposed rule change as one that: (i) 
Does not significantly affect the protection of investors or the public 
interest; (ii) does not impose any significant burden on competition; 
and (iii) does not become operative for 30 days from the date on which 
it was filed, or such shorter time as the Commission may designate if 
consistent with the protection of investors and the public interest. 
The Exchange has provided the Commission with written notice of its 
intent to file the proposed rule change, at least five business days 
prior to the filing date. Therefore, the foregoing rule change has 
become effective pursuant to Section 19(b)(3)(A) of the Act \11\ and 
Rule 19b-4(f)(6) thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
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    Pursuant to Rule 19b-4(f)(6)(iii) under the Act,\13\ the proposal 
does not become operative for 30 days after the date of its filing, or 
such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest. The PCX has 
requested that the Commission waive the 30-day operative delay so that 
the proposed rule change will become immediately effective upon filing 
on the basis that such rule changes are necessary for the Exchange to 
compete effectively with other listing venues for listing ELNs. The 
Exchange has fulfilled its obligation to provide the five-business days 
notice to the Commission of its intent to file this proposed rule 
change by notice on July 29, 2004. Therefore, the Commission believes 
that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest because it conforms the 
listing criteria for ELNs to those of the Amex, the CHX and the 
NYSE.\14\ Therefore, the Commission has determined to allow the 
proposed rule change to become effective and operative as of the date 
of filing with the Commission.\15\
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    \13\ 17 CFR 240.19b-4(f)(6)(iii).
    \14\ See supra note 7.
    \15\ For purposes only of waiving the operative date of this 
proposal, 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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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate the rule change if it 
appears to the Commission that the action is necessary or appropriate 
in the public interest, for the protection of investors, or would 
otherwise further the purposes of the Act.

IV. 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. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File No. SR-PCX-2004-75 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File No. SR-PCX-2004-75. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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, 450 Fifth Street, 
NW., Washington, DC 20549. Copies of such filing will also be available 
for inspection and copying at the principal office of the PCX. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to file number SR-PCX-2004-75 and should be 
submitted on or before October 4, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
 [FR Doc. E4-2164 Filed 9-10-04; 8:45 am]
BILLING CODE 8010-01-P