[Federal Register Volume 69, Number 181 (Monday, September 20, 2004)]
[Notices]
[Pages 56252-56257]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-2245]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50355; File No. SR-Amex-2004-23]


Self-Regulatory Organizations; Order Granting Approval of 
Proposed Rule Change and Amendment No. 1 Thereto and Notice of Filing 
and Order Granting Accelerated Approval of Amendment Nos. 2 and 3 to 
the Proposed Rule Change by the American Stock Exchange LLC Relating to 
Generic Listing Standards for Trust Certificate Securities Linked to a 
Portfolio of Investment Grade Securities

September 13, 2004.

I. Introduction

    On April 19, 2004, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to provide generic listing 
standards for qualified trust certificate securities (``Trust 
Securities'') pursuant to Rule 19b-4(e) under the Act. On May 12, 2004, 
the Exchange filed Amendment No. 1 to the proposed rule change.\3\ 
Notice of the proposed rule change, as amended, was published for 
comment in the Federal Register on June 17, 2004.\4\ The Commission 
received no comments regarding the proposal. On August 31, 2004, the 
Exchange filed Amendment No. 2 to the proposed rule change.\5\ On 
September 9, 2004, the Exchange filed Amendment No. 3 to the proposed 
rule change.\6\ This order approves the proposed rule change, as 
amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Jeffrey P. Burns, Associate General Counsel, 
Amex, to Nancy Sanow, Assistant Director, Division of Market 
Regulation, Commission, dated May 12, 2004. In Amendment No. 1, Amex 
made technical changes to its proposed rule change.
    \4\ See Securities Exchange Act Release No. 49840 (June 9, 
2004), 69 FR 33958.
    \5\ See letter from Jeffrey P. Burns, Associate General Counsel, 
Amex, to Nancy Sanow, Assistant Director, Division of Market 
Regulation, Commission, dated August 30, 2004. In Amendment No. 2, 
Amex removed the words ``at the end of the term'' from Section 
107E(a)(vii).
    \6\ See letter from Jeffrey P. Burns, Associate General Counsel, 
Amex, to Nancy Sanow, Assistant Director, Division of Market 
Regulation, Commission, dated September 9, 2004. In Amendment No. 3, 
Amex added the words ``including pursuant to unlisted trading 
privileges'' to Section 107E(a).
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II. Description

    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.\7\ The Amex is now proposing to amend Section 
107 to add Section 107E to provide additional criteria for certain 
trust certificate securities that serve as pass-through vehicles for a 
portfolio of investment-grade fixed income and/or floating rate 
securities.\8\
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    \7\ See Securities Exchange Act Release No. 27753 (March 1, 
1990); 55 FR 8626 (March 8, 1990) (order approving File No. SR-Amex-
89-29).
    \8\ ``Investment grade'' is a current rating that is no lower 
than an S&P Corporation ``B'' rating or equivalent rating by another 
nationally recognized securities rating organization (``NRSRO'').
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    Below is the text of the proposed rule change. Proposed new 
language is italicized.
* * * * *
Section 107. Other Securities
    The Exchange will consider listing any security not otherwise 
covered by the criteria of Sections 101 through 106, provided the issue 
is otherwise suited for auction market trading. Such issues

[[Page 56253]]

will be evaluated for listing against the following criteria:
    A-C. No Change

D. Reserved

E. Trust Certificate Securities

    (a) Initial Listing. Trust certificate securities representing an 
ownership interest in a special purpose trust created pursuant to a 
trust agreement, the assets of which consists primarily of a basket or 
portfolio of up to thirty (30) investment-grade fixed income or 
floating rate securities will be considered for listing and trading, 
including pursuant to unlisted trading privileges, on the Exchange 
pursuant to Rule 19b-4(e) under the Securities Exchange Act of 1934, 
provided:
    i. The trust certificates meet the requirements under the 
Securities Act of 1933 in connection with asset-backed securities.
    ii. The underlying portfolio securities consist solely of 
investment-grade corporate debt or debentures (the ``Underlying 
Bonds''), U.S. Department of the Treasury securities (``Treasury 
Securities'') and government-sponsored entity securities (the ``GSE 
Securities'').
    iii. Each issuer of an Underlying Bond and GSE Security meets the 
criteria set forth above in Section 107A(a) under ``General Criteria.''
    iv. The trust meets the criteria set forth above in Section 107A 
under ``General Criteria,'' except for the asset/equity tests of 
Section 107A(a).
    v. Each Underlying Security will meet the Exchange's Bond and 
Debenture Listing Standards set forth in Section 104 of the Company 
Guide and be rated by a nationally recognized securities rating 
organization (an ``NRSRO'') that is no lower than an S&P Corporation 
``B'' rating or equivalent rating by another NRSRO.
    vi. Up to 15% of the underlying component securities at issuance 
may consist of Treasury Securities and GSE Securities.
    vii. The trust certificates will provide for the repayment of the 
original principal investment amount.
    viii. The trust certificates will provide for the pass-through of 
periodic payments of interest and principal of the underlying 
securities.
    ix. The trust certificates have a minimum term of five years.
    x. At least 75% of the component securities of the underlying 
portfolio must be from issuances of $100 million or more.
    Prior to commencement of the trading of trust certificate 
securities admitted to listing under this section, the Exchange will 
evaluate the nature and complexity of the issue and, if appropriate, 
distribute a circular to the membership providing guidance regarding 
member firm compliance responsibilities when handling transactions in 
such securities.
    (b) Continued Listing. Trust certificate securities listed and 
traded under this section will be subject to the continued listing 
guidelines for bonds set forth in Section 1003(b)(iv). Under Section 
1003(b)(iv), the Exchange will normally consider suspending or 
delisting a security if the aggregate market value or the principal 
amount of bonds publicly held is less than $400,000 or the issuer is 
not able to meet its obligations on the listed securities.
    (c) Trust certificate securities traded in thousand dollar 
denominations or multiples thereof will be treated as a debt instrument 
and will be subject to the debt trading rules of the Exchange. Trust 
certificate securities traded in other than thousand dollar 
denominations or multiples thereof will be treated as an equity 
instrument and subject to the equity trading rules of the Exchange.
* * * * *
    The Exchange's proposal to add new Section 107E to the Amex Company 
Guide is to provide generic listing standards to permit the listing and 
trading of qualified Trust Securities pursuant to Rule 19b-4(e) under 
the Act.\9\
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    \9\ 17 CFR 19b-4(e). See Securities Exchange Act Release No. 
40761 (December 8, 1998), 63 FR 70952 (December 22, 1998) (''New 
Product Release'').
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A. Generic Listing Standards

    Rule 19b-4(e) provides that the listing and trading of a new 
derivative securities product by a self-regulatory organization shall 
not be deemed a proposed rule change, pursuant to paragraph (c)(1) of 
Rule 19b-4, if the Commission has approved, pursuant to Section 19(b) 
of the Act, the self-regulatory organization's trading rules, 
procedures and listing standards for the product class that would 
include the new derivative securities product, and the self-regulatory 
organization has a surveillance program for the product class.\10\ 
Hence, Amex is proposing generic listing standards in Section 107E of 
the Amex Guide, for this product class, under which it will be able to 
list and trade (including pursuant to unlisted trading privileges) 
Trust Securities without individual Commission approval of each product 
as a proposed rule change. Instead, Amex is proposing that within five 
(5) business days after commencement of trading the new derivative 
products that satisfy the requirements of Section 107E of the Amex 
Guide, Amex will file a Form 19b-4(e).\11\ Amex represents that any 
securities it lists and/or trades pursuant to Section 107E will satisfy 
the standards set forth in Section 107E of the Amex Company Guide. In 
addition, the Exchange also represents that its surveillance procedures 
are adequate to properly monitor the trading of the Trust Securities.
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    \10\ See New Product Release.
    \11\ 17 CFR 249.820.
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    In its filing the Exchange represented that adopting generic 
listing standards for Trust Securities should fulfill the objective of 
Rule 19b-4(e) by allowing those Trust Securities that satisfy the 
proposed generic listing standards to start trading, without the need 
for public notice and comment and Commission approval, thus potentially 
reducing the time frame for bringing Trust Securities to market and 
thereby reducing the burdens on issuers, other market participants and 
the Commission staff.

B. Trust Securities

    Trust Securities represent an ownership interest in a special 
purpose trust created pursuant to a Trust.\12\ The assets of such Trust 
may consist of a basket or portfolio of up to thirty (30) investment-
grade corporate securities (``Underlying Bonds''), securities issued by 
the United States Department of the Treasury (``Treasury Securities''), 
and/or government-sponsored entity securities (``GSE Securities''). The 
issuance of Trust Securities will generally consist of a repackaging of 
the Underlying Corporate Bonds. Other qualifying securities of the 
underlying portfolio may also consist of Treasury Securities and/or GSE 
Securities; \13\ however, such securities will be limited to up to 15% 
of the underlying portfolio at the time of issuance. The Trust is 
required to make distributions to holders of Trust Securities depending 
on the amount of distributions received by such Trust on the Underlying 
Securities. The principal amount invested is protected as the

[[Page 56254]]

investor will receive back the initial amount he invested.
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    \12\ A qualified Trust Security is required to meet the 
requirements for asset-backed securities as set forth in the 
Securities Act of 1933 (``Securities Act'').
    \13\ A GSE Security is a security that is issued by a 
government-sponsored entity such as Federal National Mortgage 
Association (``Fannie Mae''), Federal Home Loan Mortgage Corporation 
(``Freddie Mac''), Student Loan Marketing Association (``Sallie 
Mae''), the Federal Home Loan Banks and the Federal Farm Credit 
Banks. All GSE debt is sponsored but not guaranteed by the federal 
government, whereas government agencies such as Government National 
Mortgage Association (``Ginnie Mae'') are divisions of the U.S. 
government whose securities are backed by the full faith and credit 
of the U.S. government.
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    Due to the pass-through and passive nature of the Trust Securities, 
the Exchange will rely on the assets and stockholder equity of the 
issuers of the Underlying Bonds and GSE Securities to meet the 
requirement in Section 107A(a) of the Company Guide. For purposes of 
including Treasury Securities, the Exchange will rely on the fact that 
the issuer is the U.S. Government rather than the asset and stockholder 
tests found in Section 107A(a). The distribution and aggregate 
principal amount/aggregate market value standards found in Sections 
107A(b) and (c), respectively, will otherwise be met by the Trust as 
issuer of the Trust Securities.
    Therefore, the listing guidelines provide that the issuer of the 
Underlying Bonds and GSE Securities have assets in excess of $100 
million, stockholders' 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 of the Underlying 
Bonds and GSE Securities 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.
    These initial listing standards for the Trust Securities require: 
(1) A minimum public distribution of one million units; (2) a minimum 
of 400 shareholders; (3) a market value of at least $4 million; and (4) 
a term of at least one year. However, if traded in thousand dollar 
denominations, then the minimum public distribution requirement of 400 
holders does not apply.
    The basket of Underlying Securities will not be managed and will 
generally remain static over the term of the Trust Securities. Each of 
the Underlying Securities will generally provide for the payment of 
interest which may be on a different schedule than the distributions of 
interest by the Trust Securities. To alleviate potential cash flow 
timing issues that may exist, the Trust may enter into an interest 
distribution agreement.\14\ Principal distributions on the Trust 
Securities are expected to be made on dates that correspond to the 
maturity dates of the Underlying Securities. However, some of the 
Underlying Securities may have redemption provisions and in the event 
of an early redemption or other liquidation (e.g.,, upon an event of 
default) of the Underlying Securities, the proceeds from such 
redemption (including any make-whole premium associated with such 
redemption) or liquidation will be distributed pro rata to the holders 
of the Trust Securities. Each Underlying Bond is expected to be issued 
by a corporate issuer and either purchased at the time of the initial 
issuance or in the secondary market. However, with respect to Treasury 
Securities and/or GSE Securities, the Trust will either purchase the 
securities directly from primary dealers or in the secondary market 
which consists of primary dealers, non-primary dealers, customers, 
financial institutions, non-financial institutions and individuals.
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    \14\ In this manner, any shortfall in the amounts available to 
pay interest to holders of the Trust Securities due to varying 
interest payment schedules will be made to such Trust by a third 
party (typically a bank) and will be repaid out of future cash flow 
received by the Trust from the Underlying Securities.
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    Holders of Trust Securities generally will receive interest on the 
face value in an amount to be determined at the time of issuance of the 
Trust Securities and disclosed to investors. The rate of interest 
payments will be based upon prevailing interest rates at the time of 
issuance and made to the extent received from the Underlying 
Securities. Distributions of interest may be made monthly, quarterly or 
semi-annually. Investors will also be entitled to be repaid the 
principal of their Trust Securities from the proceeds of the principal 
payments on the Underlying Securities.\15\ The payout or return to 
investors on the Trust Securities will not be leveraged.
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    \15\ The Underlying Securities may drop out of the basket upon 
maturity or upon payment default or acceleration of the maturity 
date for any default other than payment default. The Prospectus for 
each Trust Security transaction will provide a schedule of the 
distribution of interest and of the principal upon maturity for each 
Underlying Security. In addition, such Prospectus will also disclose 
a description of payment default and acceleration of the maturity 
date.
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    The Trust Securities will mature on the latest maturity date of the 
Underlying Securities. Holders of the Trust Securities will have no 
direct ability to exercise any of the rights of a holder of an 
Underlying Bond; however, holders of the Trust Securities as a group 
will have the right to direct the Trust in its exercise of its rights 
as holder of the Underlying Securities. The Exchange currently lists 
and trades several Trust Securities under the names of ``Select Notes'' 
and ``TRACERS.'' \16\
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    \16\ See Securities Exchange Act Release Nos. 49315 (February 
24, 2004) 69 FR 9882 (March 2, 2004) (File No. SR-Amex-2004-08); 
49136 (January 28, 2004) 69 FR 6345 (February 10, 2004) (File No. 
SR-Amex-2003-99); 48791 (November 17, 2003) 68 FR 65750 (November 
21, 2003) (File No. SR-Amex-2003-92); 47730 (April 24, 2003) 68 FR 
23340 (May 1, 2003) (File No. SR-Amex-2003-25); 47884 (May 16, 2003) 
68 FR 28305 (May 23, 2003) (File No. SR-Amex-2003-37); 48312 (August 
8, 2003) 68 FR 48970 (August 15, 2003) (File No. SR-Amex-2003-69); 
46835 (November 14, 2002) 67 FR 70271 (November 21, 2002) (File No. 
SR-Amex-2002-70); and 46923 (November 27, 2002), 67 FR 72247 
(December 4, 2002) (File No. SR-Amex-2002-92). In some cases, the 
Trust Securities are also generically known as ``ABS Securities.''
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    In addition, the Underlying Securities must meet the Exchange's 
Bond and Debenture Listing Standards set forth in Section 104 of the 
Company Guide. The Exchange's Bond and Debenture Listing Standards in 
Section 104 of the Company Guide provide for the listing of individual 
bond or debenture issuances provided the issue has an aggregate market 
value or principal amount of at least $5 million and any of: (1) The 
issuer of the debt security has equity securities listed on the 
Exchange (or on the New York Stock Exchange, Inc. (``NYSE'') or on the 
Nasdaq National Market); (2) an issuer of equity securities listed on 
the Exchange (or on the NYSE or on the Nasdaq National Market) directly 
or indirectly owns a majority interest in, or is under common control 
with, the issuer of the debt security; (3) an issuer of equity 
securities listed on the Exchange (or on the NYSE or on the Nasdaq 
National Market) has guaranteed the debt security; (4) an NRSRO has 
assigned a current rating to the debt security that is no lower than an 
Standard & Poor's Corporation (``S&P'') ``B'' rating or equivalent 
rating by another NRSRO; or (5) or if no NRSRO has assigned a rating to 
the issue, an NRSRO has currently assigned (i) an investment grade 
rating to an immediately senior issue or (ii) a rating that is no lower 
than a S&P ``B'' rating or an equivalent rating by another NRSRO to a 
pari passu or junior issue.\17\
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    \17\ This final provision of Section 104 would not apply because 
the Underlying Bonds and GSE Securities must have an investment 
grade rating. Telephone conference between Jeffrey Burns, Associate 
General Counsel, and Florence Harmon, Senior Special Counsel, on 
September 10, 2004.
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    In addition to the Exchange's Bond and Debenture Listing Standards, 
the Amex proposes that each Underlying Security must also be of 
investment grade quality as rated by a NRSRO and at least 75% of the 
underlying basket or portfolio contain Underlying Securities from 
issuances of $100 million or more. The maturity of each Underlying 
Security is expected to match the payment of principal of the Trust 
Securities with the maturity date of the Trust Securities being the 
latest maturity date of the Underlying Securities. Amortization of the 
Trust

[[Page 56255]]

Securities will be based on (1) the respective maturities of the 
Underlying Securities; (2) principal payout amounts reflecting the pro-
rata principal amount of maturing Underlying Securities; and (3) any 
early redemption or liquidation of the Underlying Securities. Investors 
will be able to obtain the prices for the Underlying Securities through 
Bloomberg L.P. or other market vendors, including the broker-dealer 
through whom the investor purchased the Trust Securities. In addition, 
the Bond Market Association provides links to price and other bond 
information sources on its investor Web site at http://www.investingbonds.com. Transaction prices and volume data for the most 
actively-traded bonds on the exchanges are also published daily in 
newspapers and on a variety of financial websites. The National 
Association of Securities Dealers, Inc. (``NASD'') Trade Reporting and 
Compliance Engine (``TRACE'') will also aid investors in obtaining 
transaction information for most corporate debt securities, such as 
investment grade corporate bonds.\18\ For a fee, investors can have 
access to intra-day bellwether quotes.\19\
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    \18\ See Securities Exchange Act Release No. 43873 (January 23, 
2001) 66 FR 8131 (January 29, 2001). Investors are able to access 
TRACE information at http://www.nasdbondinfo.com/.
    \19\ Corporate prices are available at 20-minute intervals from 
Capital Management Services at http://www.bondvu.com.
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    Price and transaction information for Treasury Securities and GSE 
Securities may also be obtained at http://www.publicdebt.treas.gov and 
http://www.govpx.com, respectively. Price quotes are also available to 
investors via proprietary systems such as Bloomberg, Reuters and Dow 
Jones Telerate. Valuation prices \20\ and analytical data may be 
obtained through vendors such as Bridge Information Systems, Muller 
Data, Capital Management Sciences, Interactive Data Corporation and 
Barra.
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    \20\ ``Valuation Prices'' refer to an estimated price that has 
been determined based on an analytical evaluation of a bond in 
relation to similar bonds that have traded. Valuation prices are 
based on bond characteristics, market performance, changes in the 
level of interest rates, market expectations and other factors that 
influence a bond's value.
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    The Trust Securities will conform to the Exchange's continued 
listing guidelines, which 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 
Trust Securities, the Exchange will rely 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 or the issuer is not able 
to meet its obligations on the listed debt securities, including 
repayment of the original principal investment.
    The Trust Securities generally will be listed in $1,000 
denominations (or multiples thereof) with the Exchange's existing debt 
floor trading rules applying to trading. However, Trust Securities may 
be listed in face amounts in other than $1,000 denominations (or 
multiples thereof) whereby the Exchange's existing equity floor trading 
rules would apply. The Trust Securities will also be subject to the 
debt margin rules of the Exchange.\21\ In all cases, 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 Trust Securities.\22\ With respect to 
suitability recommendations and risks, the Exchange will require 
members, member organizations and employees thereof recommending a 
transaction in the Trust Securities: (1) To determine that such 
transaction is suitable for the customer, and (2) to have a reasonable 
basis for believing that the customer can evaluate the special 
characteristics of, and is able to bear the financial risks of such 
transaction.
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    \21\ See Amex Rule 462.
    \22\ 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.
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    The Exchange represents that its surveillance procedures are 
adequate to properly monitor the trading of the Trust Securities. In 
addition, the Exchange also has a general policy that prohibits the 
distribution of material, non-public information by its employees. 
Prior to commencement of the trading, the generic listing standards 
also require the Exchange to evaluate the nature and complexity of the 
issue and, if appropriate, distribute a circular to the membership 
providing guidance regarding member firm compliance responsibilities 
(including suitability recommendations) when handling transactions in 
such securities and highlighting the special risks and characteristics 
of the Trust Securities.

III. Discussion

    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.\23\ The Commission finds that this proposal is similar to 
several approved Trust Securities products currently listed and traded 
on the Amex.\24\ Accordingly, the Commission finds that the listing and 
trading of the Trust Securities under the generic listing standards set 
forth in Section 107E of the Amex Company Guide 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.\25\
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    \23\ Id.
    \24\ See supra note 16.
    \25\ 15 U.S.C. 78f(b)(5). In approving this rule, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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    As described more fully above, the Trust Securities are asset-
backed securities and represent a repackaging of the Underlying 
Corporate Bonds together with the addition of Treasury Securities and/
or GSE Securities, subject to certain distribution of interest 
obligations of the Trust. The Treasury Securities and/or GSE Securities 
are limited to up to 15% of the underlying portfolio at the time of 
issuance. The Trust Securities are not leveraged instruments. The Trust 
Securities are debt instruments whose price will still be derived and 
based upon the value of the Underlying Securities. Investors are 
guaranteed at least the principal amount that they paid for the 
Underlying Securities. Each of the Underlying Securities will generally 
provide for the payment of interest which may be on a different 
schedule than the distributions of interest by the Trust Securities. To 
alleviate potential cash flow timing issues that may exist, the Trust 
may enter into an interest distribution agreement described in Part II 
of this Order. In addition, the Trust Securities will mature on the 
latest maturity date of the Underlying Securities. However, due to the 
pass-through nature of the Trust Securities, the level of risk involved 
in the purchase or sale of the Trust Securities is similar to the risk

[[Page 56256]]

involved in the purchase or sale of traditional common stock.
    The Commission notes that the Trust Securities are dependent upon 
the individual credit of the issuers of the Underlying Securities. To 
some extent this credit risk is minimized by the Exchange's listing 
standards in Section 107A of the Company Guide which provide that only 
issuers satisfying asset and equity requirements may issue securities 
such as the Trust Securities. In addition, the Exchange's listing 
standards further provide that there is no minimum holder requirement 
if the securities are traded in thousand dollar denominations.\26\ The 
Commission notes that the Exchange has represented that Trust 
Securities traded in thousand dollar denominations or multiples thereof 
will be treated as a debt instrument and will be subject to the debt 
trading rules of the Exchange; trust certificate securities traded in 
other than thousand dollar denominations or multiples thereof will be 
treated as an equity instrument and subject to the equity trading rules 
of the Exchange. In any event, financial information regarding the 
issuers of the Underlying Securities will be publicly available.\27\
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    \26\ See Company Guide Section 107A.
    \27\ A qualified Trust Security is required to meet the 
requirements for asset-backed securities as set forth in the 
Securities Act.
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    Due to the pass-through and passive nature of the Trust Securities, 
the Commission does not object to the Exchange's reliance on the assets 
and stockholder equity of the Underlying Securities rather than the 
Trust to meet the requirement in Section 107A of the Company Guide. The 
Commission notes that the distribution and principal amount/aggregate 
market value requirements found in Sections 107A(b) and (c), 
respectively, will otherwise be met by the Trust as issuer of the Trust 
Securities. Thus, the generic listing standards in Section 107E for 
Trust Securities will conform to the initial listing guidelines under 
Section 107A and continued listing guidelines under Sections 1001-1003 
of the Company Guide, except for the assets and stockholder equity 
characteristics of the Trust. At the time of issuance, the Commission 
also notes that the Underlying Securities of the Trust Securities will 
receive an investment grade rating from an NRSRO.
    The Commission also believes that the listing and trading of the 
Trust Securities should not unduly impact the market for the Underlying 
Securities or raise manipulative concerns. As discussed more fully 
above, the Exchange represents that, in addition to requiring that 
issuers of the Underlying Securities meet the Exchange's Section 107A 
listing requirements (in the case of Treasury securities, the Exchange 
will rely on the fact that the issuer is the United States Government 
rather than the asset and stockholder tests found in Section 107A), the 
Underlying Securities will be required to meet or exceed the Exchange's 
Bond and Debenture Listing Standards pursuant to Section 104 of the 
Amex's Company Guide, which among other things, requires that 
underlying debt instrument receive at least an investment grade rating 
of ``B'' or equivalent from an NRSRO. Furthermore, at least 75% of the 
basket is required to contain Underlying Securities from issuances of 
$100 million or more. The Amex also represents that the basket of 
Underlying Securities will not be managed and will remain static over 
the term of the ABS securities. In addition, the Amex's surveillance 
procedures will serve to deter as well as detect any potential 
manipulation.
    The Commission notes that the investors may obtain price 
information on the Underlying Securities through market venders such as 
Bloomberg, or though Web sites such as http://www.investinginbonds.com 
(for Underlying Corporate Bonds) and http://publicdebt.treas.gov and 
http://www.govpx.com (for Treasury Securities and GSE Securities, 
respectively). The National Association of Securities Dealers, Inc. 
(``NASD'') Trade Reporting and Compliance Engine (``TRACE'') will also 
aid investors in obtaining transaction information for most corporate 
debt securities, such as investment grade corporate bonds.\28\
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    \28\ See Securities Exchange Act Release No. 43873 (January 23, 
2001), 66 FR 8131 (January 29, 2001). Investors are able to access 
TRACE information at http://www.nasdbondinfo.com/.
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    Finally, the Commission believes that, by adopting generic listing 
standards for Trust Securities, this proposal should fulfill the 
intended objective of Rule 19b-4(e) by allowing Trust Securities that 
satisfy the proposed generic listing standards to start trading, 
without the need for public notice and comment and Commission approval, 
because the Exchange's generic listing standards address the listing, 
trading, surveillance issues for this product class. The Commission 
believes that these generic listing standards have the potential to 
reduce the time frame for bringing Trust Securities to market, thus 
reducing the burdens of issuers, other market participants, and the 
Commission.
    The Commission finds good cause for approving Amendment Nos. 2 and 
3 prior to the thirtieth day after the date of publication of notice 
thereof in the Federal Register. Amendment No. 2 deletes the words ``at 
the end of the term'' from Section 107E(a)(vii), thus clarifying that 
Trust Securities may return to the investor the original principal 
amount of his/her investment at any time during the life of the Trust 
Security, not merely at the end of the term. Amendment No. 3 adds the 
words ``including pursuant to unlisted trading privileges'' to Section 
107E(a). This Amendment is designed to protect investors and the Amex 
by highlighting the need for other self-regulatory organizations to 
have Commission-approved generic listing standards in place before 
trading the Trust Securities pursuant to unlisted trading 
privileges.\29\ The Commission believes that the Trust Securities will 
provide investors with an additional investment choice and that 
accelerated approval of these amendments will allow investors to begin 
trading the Trust Securities promptly. Additionally, the Trust 
Securities will be listed pursuant to Amex's existing hybrid security 
listing standards as described above. Based on the above, the 
Commission believes that there is good cause, consistent with Sections 
6(b)(5) and 19(b)(2) of the Act \30\ to approve Amendment Nos. 2 and 3.
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    \29\ See New Product Release.
    \30\ 15 U.S.C. 78f(b)(5) and 78s(b)(2).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment Nos. 2 and 3, including whether the 
proposed amendments are 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 Number SR-Amex-2004-23 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 Number SR-Amex-2004-23. This 
file number should be included on the

[[Page 56257]]

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 Commissions 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 Section, 450 Fifth Street, NW., Washington, DC 20549. Copies 
of such filing also will be available for inspection and copying at the 
principal office of the Amex. 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-Amex-2004-23 and should be submitted on or before 
October 11, 2004.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\31\ that the proposed rule change (SR-Amex-2004-23) and Amendment 
No. 1 thereto, are hereby approved, and Amendment Nos. 2 and 3 thereto 
are hereby approved on an accelerated basis.
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    \31\ 15 U.S.C. 78o-3(b)(6) and 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\32\
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    \32\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
 [FR Doc. E4-2245 Filed 9-17-04; 8:45 am]
BILLING CODE 8010-01-P