[Federal Register Volume 70, Number 87 (Friday, May 6, 2005)]
[Notices]
[Pages 24138-24143]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-2213]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51634; File No. SR-Amex-2005-036]


Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing and Order Granting Accelerated Approval of a Proposed 
Rule Change Relating to the Listing and Trading of Notes Linked to the 
Performance of the CBOE S&P 500 BuyWrite Index(sm)

April 29, 2005.
    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 March 25, 2005, the American Stock Exchange LLC (``Amex'' 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 Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons and is approving the 
proposal on an accelerated basis.
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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 Substance 
of the Proposed Rule Change

    The Exchange proposes to list and trade notes, the performance of 
which is linked to the S&P 500 BuyWrite Index(sm) (the ``BXM Index'' or 
``Index''). The text of the proposed rule change is available on the 
Amex's Web site (http://www.amex.com), at the principal offices of the 
Amex, and at the Commission's Public Reference Room.

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 Amex Company Guide (``Company Guide''), 
the Exchange may approve for listing and trading securities that cannot 
be readily categorized under the listing criteria for common and 
preferred stocks, bonds, debentures, or warrants.\3\ The Amex proposes 
to list for trading under Section 107A of the Company Guide notes 
linked to the performance of the BXM Index (the ``Notes''). The BXM 
Index is determined, calculated and maintained solely by the Chicago 
Board Options Exchange, Inc. (``CBOE'').\4\ Wachovia Corporation

[[Page 24139]]

(``Wachovia'') will issue the Notes under the name ``Portfolio Tracking 
Securities.'' \5\
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    \3\ See Securities Exchange Act Release No. 27753 (Mar. 1, 
1990), 55 FR 8626 (Mar. 8, 1990) (order approving File No. SR-Amex-
89-29).
    \4\ If the CBOE discontinues publication of the Index and the 
CBOE or another entity publishes a successor or substitute index 
that the calculation agent determines, in its sole discretion, to be 
comparable to the Index (a ``Successor Index''), then the 
calculation agent shall substitute the Successor Index as calculated 
by the CBOE or any other entity for the Index and calculate the 
Redemption Amount (as defined below) by reference to the Successor 
Index. Telephone conversation between Jeffrey P. Burns, Associate 
General Counsel, Amex, Florence Harmon, Senior Special Counsel, 
Division of Market Regulation (``Division''), Commission, and David 
Liu, Attorney, Division, Commission, on April 26, 2005. In the event 
that the CBOE discontinues publication of the Index and (a) the 
calculation agent does not select or approve a Successor Index or 
(b) the Successor Index is no longer published on any of the 
relevant scheduled trading days, the calculation agent will compute 
a substitute level for the Index in accordance with the procedures 
last used to calculate the level of the Index before any 
discontinuation but using only those securities that comprised the 
Index prior to such discontinuation. If a Successor Index is 
selected or the calculation agent calculates a level as a substitute 
for the Index, the Successor Index or level will be used as a 
substitute for the Index for all purposes going forward even if CBOE 
elects to begin republishing the Index, unless the calculation agent 
decides to use the republished Index. If the CBOE discontinues 
publication of the Index and the calculation agent determines that 
no Successor Index is available at that time, then on each scheduled 
trading day until the earlier to occur of (a) the determination of 
the Redemption Amount or (b) a determination by the calculation 
agent that a Successor Index is available, the calculation agent 
will determine the level that would be used in computing the 
Redemption Amount as if that day were a scheduled trading day. See 
also infra note 22.
    First Union Securities, Inc. has been appointed as the initial 
calculation agent. Telephone conversation between Jeffrey P. Burns, 
Associate General Counsel, Amex, Florence Harmon, Senior Special 
Counsel, Division, Commission, and David Liu, Attorney, Division, 
Commission, on April 26, 2005.
    \5\ Wachovia and Standard & Poor's (``S&P''), a division of the 
McGraw-Hill Companies, Inc. have entered into a non-exclusive 
license agreement providing for the use of the BXM Index by Wachovia 
in connection with certain securities including the Notes. S&P is 
not responsible for and will not participate in the issuance and 
creation of the Notes. Telephone conversation between Jeffrey P. 
Burns, Associate General Counsel, Amex, Florence Harmon, Senior 
Special Counsel, Division, Commission, and David Liu, Attorney, 
Division, Commission, on April 26, 2005.
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    The Notes will conform to the initial listing guidelines under 
Section 107A \6\ and continued listing guidelines under Sections 1001-
1003 \7\ of the Company Guide. The Notes are a series of medium-term 
debt securities of Wachovia that provide for a cash payment at maturity 
or upon earlier exchange at the holder's option, based on the 
performance of the BXM Index as adjusted by the Adjustment Factor (as 
defined below).\8\ The principal amount of each Note is expected to be 
$1,000. 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. In fact, the 
value of the BXM Index must increase for the investor to receive at 
least the $1,000 principal amount per security at maturity or upon 
exchange or redemption.\9\ If the value of the BXM Index decreases or 
does not increase sufficiently, the investor will receive less, and 
possibly significantly less, than the $1,000 principal amount per 
security.\10\ In addition, holders of the Notes will not receive any 
interest payments from the Notes. The Notes will have a term of at 
least one (1) but no more than ten years.\11\ Commencing May 2006 and 
continuing on an annual basis, during the first fifteen calendar days 
of May, holders of the Notes will have the right to exchange the Notes 
for a cash amount equal to the Redemption Amount (as defined below) on 
the Exchange Valuation Date (as defined below) for such exchange.\12\ 
The Notes are not callable by the issuer.
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    \6\ The initial listing standards for the Notes require: (1) A 
minimum public distribution of one million units; (2) a minimum of 
400 shareholders; (3) a market value of at least $4 million; and (4) 
a term of at least one year. 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 holders 
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.
    \7\ The Exchange's continued listing guidelines are set forth in 
Sections 1001 through 1003 of Part 10 to the Exchange's Company 
Guide. Section 1002(b) of the Company Guide states that the Exchange 
will consider removing from listing any security where, in the 
opinion of the Exchange, it appears that the extent of public 
distribution or aggregate market value has become so reduced to make 
further dealings on the Exchange inadvisable. With respect to 
continued listing guidelines for distribution of the Notes, the 
Exchange will rely, in part, on the guidelines for bonds in Section 
1003(b)(iv). Section 1003(b)(iv)(A) provides that the Exchange will 
normally consider suspending dealings in, or removing from the list, 
a security if the aggregate market value or the principal amount of 
bonds publicly held is less than $400,000.
    \8\ The Adjustment Factor is an annual fee that accrues daily 
over the term of the Notes and is equal to 1.5% per annum, 
compounded daily on an actual/365 day count. Telephone conversation 
between Jeffrey P. Burns, Associate General Counsel, Amex, Florence 
Harmon, Senior Special Counsel, Division, Commission, and David Liu, 
Attorney, Division, Commission, on April 26, 2005.
    \9\ The Notes are also subject to a 1.00% up-front fee, as well 
as a 1.50% annual fee, compounded daily. Telephone conversation 
between Jeffrey P. Burns, Associate General Counsel, Amex, Florence 
Harmon, Senior Special Counsel, Division, Commission, and David Liu, 
Attorney, Division, Commission, on April 26, 2005.
    \10\ Telephone conversation between Jeffrey P. Burns, Associate 
General Counsel, Amex, Florence Harmon, Senior Special Counsel, 
Division, Commission, and David Liu, Attorney, Division, Commission, 
on April 26, 2005.
    \11\ The term of the Notes is expected to be five years and will 
be disclosed in the prospectus supplement.
    \12\ The ``Exchange Valuation Date'' is the second scheduled 
trading day following the end of each exchange period, provided that 
if such day is not a trading day or if a market disruption event 
occurs on such day, the Exchange Valuation Date will be the next 
following scheduled trading day on which no market disruption event 
has occurred. There is no minimum number of Notes required for an 
exchange. Telephone conversation between Jeffrey P. Burns, Associate 
General Counsel, Amex, Florence Harmon, Senior Special Counsel, 
Division, Commission, and David Liu, Attorney, Division, Commission, 
on April 26, 2005.
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    The payment that a holder of a Note will receive at maturity or 
exchange (the ``Redemption Amount'') will depend on the relation of the 
Index ending level (the ``Index Ending Level'') to the closing level of 
the Index on the pricing date (the ``Index Starting Level'') of the BXM 
Index, as adjusted by the Adjustment Factor (as defined below). The 
Index Ending Level, for Notes held to maturity, will equal the 
arithmetic average of the products of the closing levels of the Index 
on each Valuation Date (as defined below). For Notes exchanged pursuant 
to the exchange right, the Index Ending Level will equal the closing 
level of the Index on the applicable Exchange Valuation Date (as 
defined below). For purposes of determining the amount payable at 
maturity of the Notes, the Redemption Amount will be determined on each 
of the five scheduled trading days immediately prior to the maturity 
date (each a ``Valuation Date'' and collectively, the ``Valuation 
Dates''). In connection with an exchange, the Redemption Amount will be 
determined on the second scheduled trading day after the end of each 
exchange period (the ``Exchange Valuation Date''). In the event that a 
Valuation Date or an Exchange Valuation Date occurs on a non-scheduled 
trading day or if the calculation agent determines\13\ that a market 
disruption event \14\ occurs on

[[Page 24140]]

such date, the Valuation Date or the Exchange Valuation Date, as 
applicable, will be postponed to the next scheduled trading day on 
which no market disruption event occurs.
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    \13\ Telephone conversation between Jeffrey P. Burns, Associate 
General Counsel, Amex, Florence Harmon, Senior Special Counsel, 
Division, Commission, and David Liu, Attorney, Division, Commission, 
on April 26, 2005.
    \14\ A ``market disruption event'' is defined as the failure of 
the primary market or related markets to open for trading during 
regular trading hours or the occurrence or existence of any of the 
following events: (i) A trading disruption, if material, at any time 
during the one hour period that ends at the close of trading for the 
applicable exchange; (ii) an exchange disruption, if material, at 
any time during the one hour period that ends at the close of 
trading for the applicable exchange; or (iii) an early closure. A 
``trading disruption'' generally means any suspension of, or 
limitation, imposed on trading by the primary exchange or related 
exchange or otherwise, whether by reason of movements in price 
exceeding limits permitted by the relevant exchange or related 
exchange or otherwise (i) relating to securities that comprise 20% 
or more of the level of the S&P 500[reg] Index (the ``S&P 500'') or 
(ii) in options contracts or futures contracts relating to the Index 
or the S&P 500 on any relevant related exchange. An ``exchange 
disruption'' means any event (other than a scheduled early closure) 
that disrupts or impairs the ability of market participants in 
general to (i) effect transactions in, or obtain market values on, 
any primary exchange or related exchange in securities that comprise 
20% or more of the level of the S&P 500 or (ii) effect transactions 
in options contracts or futures contracts relating to the Index or 
the S&P 500 on any relevant related exchange. A ``related exchange'' 
is an exchange or quotation system on which futures or options 
contracts relating to the Index or the S&P 500 are traded.
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    The Adjustment Factor will begin at 100% and will be reduced by the 
fee rate of 1.5% per annum, compounded daily on an actual/365 day 
count. On any calendar day, the adjustment factor is equal to:
[GRAPHIC] [TIFF OMITTED] TN06MY05.002

where ``n'' is the number of days from but excluding the pricing date 
to and including such calendar day.
    A holder or investor on the maturity date or applicable exchange 
date will receive a Redemption Amount equal to:
[GRAPHIC] [TIFF OMITTED] TN06MY05.003

    The Adjusted Index Ending Level for Notes held to maturity is equal 
to the average of the products of the Index Ending Level and the 
Adjustment Factor on each Valuation Date. In the case of an exchange, 
the Adjusted Index Ending Level is equal to the product of the Index 
Ending Level and the Adjustment Factor on the applicable Exchange 
Valuation Date.
    The Notes are cash-settled in U.S dollars and do not give the 
holder any right to receive any of the component securities, dividend 
payments, or any other ownership right or interest in the securities 
comprising the BXM Index.\15\ The Notes are designed for investors who 
want to participate in the exposure to the S&P 500 that the BXM Index 
provides while limiting downside risk, and who are willing to forego 
interest payments and principal protection on the Notes during their 
term.
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    \15\ Telephone conversation between Jeffrey P. Burns, Associate 
General Counsel, Amex, Florence Harmon, Senior Special Counsel, 
Division, Commission, and David Liu, Attorney, Division, Commission, 
on April 26, 2005.
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    The Exchange notes that the Commission has previously approved the 
listing on the Amex of securities with structures similar to that of 
the proposed Notes.\16\ Description of the Index. The BXM Index is a 
benchmark index designed to measure the performance of a hypothetical 
``buy-write'' \17\ strategy on the S&P 500. Developed by the CBOE in 
cooperation with S&P, the Index was initially announced in April 
2002.\18\ The Exchange states that the CBOE developed the BXM Index in 
response to several factors, including the repeated requests by options 
portfolio managers that the CBOE provide an objective benchmark for 
evaluating the performance of buy-write strategies, one of the most 
popular option trading strategies. Further, the CBOE developed the BXM 
Index to provide investors with a relatively straightforward indicator 
of the risk-reducing character of options that otherwise may seem 
complicated and inordinately risky.
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    \16\ See Securities Exchange Act Release Nos. 50719 (Nov. 22, 
2004), 69 FR 69644 (Nov. 30, 2004) (approving the listing and 
trading of non-principal protected notes linked to the BXM Index) 
(File No. SR-Amex-2004-55).
    \17\ A ``buy-write'' is a conservative options strategy in which 
an investor buys a stock or portfolio and writes call options on the 
stock or portfolio. This strategy is also known as a ``covered 
call'' strategy. A buy-write strategy provides option premium income 
to cushion decreases in the value of an equity portfolio, but will 
underperform stocks in a rising market. A buy-write strategy tends 
to lessen overall volatility in a portfolio.
    \18\ The BXM Index consists of a long position in the component 
securities of the S&P 500 and options on the S&P 500. The Exchange 
notes that the Commission has approved the listing of numerous 
securities linked to the performance of the S&P 500 as well as 
options on the S&P 500. See, e.g., Securities Exchange Act Release 
Nos. 19907 (June 24, 1983), 48 FR 30814 (July 5, 1983) (approving 
the listing and trading of options on the S&P 500) (File No. SR-
CBOE-83-8); 47911 (May 22, 2003), 68 FR 32558 (May 30, 2003) 
(approving the listing and trading of notes (Wachovia TEES) linked 
to the S&P 500) (File No. SR-Amex-2003-46); 47983 (June 4, 2003), 68 
FR 35032 (June 11, 2003) (approving the listing and trading of a 
CSFB Accelerated Return Notes linked to the S&P 500) (File No. SR-
Amex-2003-45); 48152 (July 10, 2003), 68 FR 42435 (July 17, 2003) 
(approving the listing and trading of a UBS Partial Protection Note 
linked to the S&P 500) (File No. SR-Amex-2003-62); and 48486 (Sept. 
11, 2003), 68 FR 54758 (Sept. 18, 2003) (approving the listing and 
trading of CSFB Contingent Principal Protection Notes on the S&P 
500) (File No. SR-Amex-2003-74). In addition, the Commission 
previously approved the listing and trading of a packaged buy-write 
option strategy known as ``BOUNDS.'' See Securities Exchange Act 
Release No. 36710 (Jan. 11, 1996), 61 FR 1791 (Jan. 23, 1996) (File 
Nos. SR-Amex-94-56, SR-CBOE-95-14, and SR-PSE-95-01).
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    The BXM Index is a passive total return index based on (1) buying a 
portfolio consisting of the component stocks of the S&P 500, and (2) 
``writing'' (or selling) near-term S&P 500 call options (SPX), 
generally on the third Friday of each month. This strategy consists of 
a hypothetical portfolio consisting of a ``long'' position indexed to 
the S&P 500 on which are deemed sold a succession of one-month, at-the-
money call options on the S&P 500 (SPX) listed on the CBOE. Dividends 
paid on the component stocks underlying the S&P 500 and the dollar 
value of option premium deemed received from the sold call options are 
functionally ``re-invested'' in the covered S&P 500 portfolio.
    The value of the BXM Index on any given date will equal the value 
of the BXM Index on the previous day multiplied by the daily rate of 
return \19\ on the covered S&P 500 portfolio on that date. Thus, the 
daily change in the BXM Index reflects the daily changes in value of 
the covered S&P 500 portfolio, which consists of the S&P 500 (including 
dividends) and the component S&P 500 option (SPX). The daily closing 
price of the BXM Index is calculated and disseminated by the CBOE on 
its Web site at http://www.cboe.com and via the Options Pricing and 
Reporting Authority (``OPRA'') at the end of each trading day.\20\ The 
value of the S&P 500 is widely disseminated at least once every fifteen 
(15) seconds throughout the scheduled trading day. The Exchange 
believes that the intraday dissemination of the S&P 500, along with the 
ability of investors to obtain real time, intraday S&P 500 call option 
pricing provides sufficient transparency regarding the BXM Index.\21\ 
In addition,

[[Page 24141]]

as indicated above, the value of the BXM Index is calculated once every 
scheduled trading day, thereby, providing investors with a daily value 
of such ``hypothetical'' buy-write options strategy on the S&P 500.
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    \19\ The daily rate of return on the covered S&P 500 portfolio 
is based on (a) the change in the closing value of the stocks in the 
S&P 500 portfolio, (b) the value of ordinary cash dividends on the 
stocks underlying the S&P 500, and (c) the change in the market 
price of the call option. The daily rate of return will also include 
the value of ordinary cash dividends distributed on the stocks 
underlying the S&P 500 that are trading ``ex-dividend'' on that date 
(that is, when transactions in the stock on an organized securities 
exchange or trading system no longer carry the right to receive that 
dividend or distribution) as measured from the close in trading on 
the previous day.
    \20\ The Exchange notes that the Commission, in connection with 
Bond Index Term Notes and the Merrill Lynch EuroFund Market Index 
Target Term Securities, has previously approved the listing and 
trading of these products where the dissemination of the value of 
the underlying index occurred once per trading day. See Securities 
Exchange Act Release Nos. 41334 (Apr. 27, 1999), 64 FR 23883 (May 4, 
1999) (approving the listing and trading of Bond Indexed Term Notes) 
(File No. SR-Amex-99-03) and 40367 (Aug. 26, 1998), 63 FR 47052 
(Sept. 3, 1998) (approving the listing and trading of Merrill Lynch 
EuroFund Market Index Target Term Securities) (File No. SR-Amex-98-
24).
    \21\ Call options on the S&P 500 (SPX) are traded on the CBOE, 
and both last sale and quotation information for the call options 
are disseminated in real time through OPRA. The value of the BXM can 
be readily approximated as a function of observable market prices 
throughout the trading day. In particular, such a calculation would 
require information on the current price of the S&P 500 index and 
specific nearest-to-expiration call and put options on that index. 
These components trade in highly liquid markets, and real-time 
prices are available continuously throughout the trading day from a 
number of sources including Bloomberg and CBOE. The ``Indicative 
Value'' (as discussed below) may be a more accurate indicator of the 
valuation of the Notes because it reflects the fees associated with 
the Notes (e.g., on the initial principal amount and the Adjustment 
Amount); however, the ``Indicative Value'' is also not adjusted 
intraday. Telephone conversation between Jeffrey P. Burns, Associate 
General Counsel, Amex, Florence Harmon, Senior Special Counsel, 
Division, Commission, and David Liu, Attorney, Division, Commission, 
on April 26, 2005.
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    The Exchange states that the CBOE has represented that the BXM 
Index value will be calculated and disseminated by the CBOE once every 
scheduled trading day after the close. The daily change in the BXM 
Index reflects the daily changes in the S&P 500 and related options 
positions. The Exchange states that Wachovia has represented that it 
will seek to arrange to have the BXM Index calculated and disseminated 
on a daily basis through a third party if the CBOE ceases to calculate 
and disseminate the Index.\22\ If, however, Wachovia is unable to 
arrange the calculation and dissemination of the BXM Index as indicated 
above, the Exchange will undertake to delist the Notes.\23\
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    \22\ Prior to such change in the manner in which the BXM Index 
is calculated, or in the event of any Index substitution, the 
Exchange will file a proposed rule change pursuant to Rule 19b-4, 
which must be approved by the Commission prior to continued listing 
and trading in the Notes. Telephone conversation between Jeffrey P. 
Burns, Associate General Counsel, Amex, Florence Harmon, Senior 
Special Counsel, Division, Commission, and David Liu, Attorney, 
Division, Commission, on April 26, 2005.
    \23\ See supra note 4 (regarding discontinuation of the 
calculation and dissemination of the Notes).
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    In order to provide an updated value of the daily Redemption Amount 
for use by investors, the Exchange will disseminate over the 
Consolidated Tape Association's Network B, a daily indicative 
Redemption Amount (the ``Indicative Value''). The Indicative Value will 
be calculated by the Amex after the close of trading and after the CBOE 
calculates the BXM Index for use by investors the next scheduled 
trading day. It is designed to provide investors with a daily reference 
value of the Index. The Indicative Value may not reflect the precise 
value of the current Redemption Amount or amount payable upon exchange 
or maturity. Therefore, the Indicative Value disseminated by the Amex 
during trading hours should not be viewed as a real time update of the 
BXM Index, which is calculated only once a day. While the Indicative 
Value that will be disseminated by the Amex is expected to be close to 
the current BXM Index value, the values of the Indicative Value and the 
BXM Index will diverge due to the application of the Adjustment Factor.
    From June 30, 1988 through March 18, 2005, the annualized returns 
for the BXM Index and the S&P 500 were 11.91% and 11.70%, respectively, 
with the annualized standard deviation of the daily returns during the 
same time period of 10.92% and 16.06%, respectively. As the chart in 
attached Exhibit 3 to the Exchange's Form 19b-4 indicates, the BXM 
Index will closely track the S&P 500 except in those cases where the 
market is significantly rising or decreasing. In the case of a fast 
rising market, the BXM Index will trail the S&P 500 due to the limited 
upside potential of the Index because of the ``buy-write'' strategy. 
Due to the cushioning effect of the ``buy-write'' strategy, the BXM 
Index has in the past exhibited negative returns that are less than the 
S&P 500 during a down market. The Exchange expects the BXM Index to 
continue to display these characteristics.
    The call options included in the value of the BXM Index have 
successive terms of approximately one month. Each day that an option 
expires, which day is referred to as a ``roll'' date, that option's 
value at expiration is taken into account in the value of the BXM 
Index. At expiration, the call option is settled against the ``Special 
Opening Quotation,'' a special calculation of the S&P 500. The final 
settlement price of the call option at expiration is equal to the 
difference between the Special Opening Quotation and the strike price 
of the expired call option, or zero, whichever is greater, and is 
removed from the value of the BXM Index. Subsequent to the settlement 
of the expired call option, a new, ``short'' or sold at-the-money call 
option is included in the value of the BXM Index.\24\ The initial value 
of the new call option is calculated by the CBOE and is based on the 
volume-weighted average of all the transaction prices of the new call 
option during a designated time period on the day the strike price is 
determined.\25\
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    \24\ Like the expired call option, the new call option will 
expire approximately one month after the date of sale.
    \25\ For this purpose, the CBOE excludes from the calculation 
those call options identified as having been executed as part of a 
spread (i.e., a position taken in two or more options in order to 
profit through changes in the relative prices of those options).
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    As of March 18, 2005, the market capitalization of the securities 
included in the S&P 500 ranged from a high of $400.4 billion to a low 
of $579.04 million. The average daily trading volume for these same 
securities for the last six (6) months ranged from a high of 38.90 
million shares to a low of 180,857 shares.
    The Exchange represents that it prohibits the initial and/or 
continued listing of any security that is not in compliance with Rule 
10A-3 under the Act.\26\
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    \26\ See 17 CFR 240.10A-3.
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    Because the Notes are issued in $1,000 denominations, the Amex's 
existing debt 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.\27\ Second, even though the Exchange's debt trading rules apply, 
the Notes will be subject to the equity margin rules of the 
Exchange.\28\ 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,\29\ and (2) to have a 
reasonable basis for believing that the customer can evaluate the 
special characteristics of, and is able to bear the financial risks of 
such transaction. In addition, Wachovia will deliver a prospectus in 
connection with its sales of the Notes.
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    \27\ Amex Rule 411 requires, among other things, that every 
member or member organization use due diligence to learn the 
essential facts, relative to every customer and to every order or 
account accepted.
    \28\ See Amex Rule 462 and Section 107B of the Company Guide.
    \29\ See Amex Rule 411.
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    The Exchange represents that its surveillance procedures are 
adequate to properly monitor the trading of the Notes. Specifically, 
the Amex will rely on its existing surveillance procedures governing 
equities and options that include additional monitoring on key pricing 
dates,\30\ which the Exchange states have been deemed adequate under 
the Act. In addition, the Exchange also has a general policy which 
prohibits the distribution of material,

[[Page 24142]]

non-public information by its employees.
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    \30\ Telephone conversation between Jeffrey P. Burns, Associate 
General Counsel, Amex, Florence Harmon, Senior Special Counsel, 
Division, Commission, and David Liu, Attorney, Division, Commission, 
on April 26, 2005.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \31\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \32\ in particular, in that it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, and to remove impediments to and perfect 
the mechanism of a free and open market and a national market system.
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    \31\ 15 U.S.C. 78f(b).
    \32\ 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 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

    The Exchange states that no written comments were solicited or 
received with respect to the proposed rule change.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. 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-2005-036 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-Amex-2005-036. 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. Copies of the 
filing also will be available for inspection and copying at the 
principal office of the Exchange. 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 No. SR-Amex-2005-036 and should be submitted on or before May 27, 
2005.

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

    Amex has asked the Commission to approve the proposal on an 
accelerated basis to accommodate the timetable for listing the Notes. 
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.\33\ The Commission finds that this proposal is similar to 
several approved instruments currently listed and traded on the 
Amex.\34\ Accordingly, the Commission finds that the listing and 
trading of the Notes based on the BXM 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 consistent with Section 6(b)(5) 
of the Act.\35\
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    \33\ 15 U.S.C. 78f(b)(5).
    \34\ See, e.g., Securities Exchange Act Release Nos. 51426 (Mar. 
23, 2005), 70 FR 16315 (Mar. 30, 2005) (approving the listing and 
trading of notes linked to the performance of the CBOE S&P 500 
BuyWrite Index(sm)) (File No. SR-Amex-2005-022); 50719 (Nov. 22, 
2004), 69 FR 69644 (Nov. 30, 2004) (approving the listing and 
trading of notes linked to the performance of the CBOE S&P 500 
BuyWrite Index(sm)) (File No. SR-Amex-2004-55); 48486 (Sept. 11, 
2003), 68 FR 54758 (Sept. 18, 2003) (approving the listing and 
trading of CSFB Contingent Principal Protected Notes on the S&P 500) 
(File No. SR-Amex-2003-74); 48152 (July 10, 2003), 68 FR 42435 (July 
17, 2003) (approving the listing and trading of UBS Partial 
Principal Protected Notes linked to the S&P 500) (File No. SR-Amex-
2003-62); 47983 (June 4, 2003), 68 FR 35032 (June 11, 2003) 
(approving the listing and trading of CSFB Accelerated Return Notes 
linked to S&P 500) (File No. SR-Amex-2003-45); 47911 (May 22, 2003), 
68 FR 32558 (May 30, 2003) (approving the listing and trading of 
notes (Wachovia TEES) linked to the S&P 500) (File No. SR-Amex-2003-
46); and 36710 (Jan. 11, 1996), 61 FR 1791 (Jan. 23, 1996) 
(approving the listing and trading of BOUNDS) (File Nos. SR-Amex-94-
56, SR-CBOE-95-14, and SR-PSE-95-01).
    \35\ 15 U.S.C. 78f(b)(5). In approving the proposed rule, the 
Commission has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
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    The requirements of Section 107A of the Company Guide were designed 
to address the concerns attendant to the trading of hybrid securities, 
like the Notes. For example, Section 107A of the Company Guide provides 
that 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.\36\ In any event, financial 
information regarding Wachovia, in addition to the information on the 
component stocks, which are reporting companies under the Act, and the 
Notes, which will be registered under Section 12 of the Act, will be 
available.
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    \36\ See Company Guide Section 107A(c).
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    In approving the product, the Commission recognizes that the Index 
is a passive total return index based on (1) buying a portfolio 
consisting of the component stocks of the S&P 500, and (2) ``writing'' 
(or selling) near-term S&P 500 call options (SPX), generally on the 
third Friday of each month. Given the large trading volume and 
capitalization of the compositions of the stocks underlying the S&P 
500, the Commission believes that the listing and trading of the Notes 
that are linked to the BXM Index should not unduly impact the market 
for the underlying securities compromising the S&P 500 or raise 
manipulative concerns.\37\ Moreover, the issuers of the underlying 
securities comprising the S&P 500 are subject to reporting requirements 
under

[[Page 24143]]

the Act, and all of the component stocks are either listed or traded 
on, or traded through the facilities of, U.S. securities markets.
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    \37\ The issuer, Wachovia, disclosed in the prospectus and 
prospectus supplement that the hedging activities of it and its 
affiliates, including taking positions in the stocks underlying the 
Index and selling call options on the Index, which could adversely 
affect the market value of the Notes from time to time and the 
redemption amount holders of the Notes would receive on the Notes. 
Such hedging activity must, of course, be conducted in accordance 
with applicable regulatory requirements.
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    The Commission also believes that any concerns that a broker-
dealer, such as Wachovia, or a subsidiary providing a hedge for the 
issuer, will incur undue position exposure are minimized by the size of 
the Notes issuance in relation to the net worth of Wachovia.\38\
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    \38\ See Securities Exchange Act Release Nos. 44913 (Oct. 9, 
2001), 66 FR 52469 (Oct. 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 (Sept. 27, 1996), 61 FR 52480 (Oct. 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 
calculated and disseminated by the CBOE once every trading day after 
the close of trading. However, the Commission notes that the value of 
the S&P 500 will be widely disseminated at least once every fifteen 
seconds throughout the trading day and that investors are able to 
obtain real-time call option pricing on the S&P 500 during the trading 
day. Further, the Indicative Value, which will be calculated by the 
Amex after the close of trading and after the CBOE calculates the BXM 
Index for use by investors the next trading day, is designed to provide 
investors with a daily reference value of the adjusted Index. The 
Commission notes that Wachovia has agreed to arrange to have the BXM 
Index calculated and disseminated on a daily basis through a third 
party in the event that the CBOE discontinues calculating and 
disseminating the Index. In such event, the Exchange agrees to obtain 
Commission approval, pursuant to filing the appropriate Form 19b-4, 
prior to the substitution of the CBOE BXM Index. Further, the 
Commission notes that the Exchange has agreed to undertake to delist 
the Notes in the event that the CBOE ceases to calculate and 
disseminate the Index, and Wachovia is unable to arrange to have the 
BXM Index calculated and widely disseminated through a third party.
    The Commission finds good cause for approving the proposed rule 
change prior to the 30th 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.\39\ 
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. Therefore, the 
Commission finds good cause, consistent with Section 19(b)(2) of the 
Act,\40\ to approve the proposal on an accelerated basis.
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    \39\ See supra notes 16 (citing previous approvals of securities 
with structures similar to that of the proposed Notes); and 18 
(citing previous approvals of securities linked to the performance 
of the S&P 500 as well as options on the S&P 500).
    \40\ 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,\41\ that the proposed rule change (File No. SR-Amex-2005-036) is 
hereby approved on an accelerated basis.
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    \41\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\42\
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    \42\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-2213 Filed 5-5-05; 8:45 am]
BILLING CODE 8010-01-P