[Federal Register Volume 71, Number 227 (Monday, November 27, 2006)]
[Notices]
[Pages 68645-68652]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-19978]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54790; File No. SR-Amex-2006-01]


Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing and Order Granting Accelerated Approval to Proposed 
Rule Change and Amendments No. 1, 2, and 3 Thereto Relating to the 
Listing and Trading of Principal Protected Notes Linked to the Dow 
Jones-AIG ExEnergy Sub-Index

 November 20, 2006.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on January 3, 2006, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the Exchange. 
On March 21, Amex submitted Amendment No. 1 to the proposed rule 
change.\3\ On May 24, 2006, Amex submitted Amendment No. 2 to the 
proposed rule change.\4\ On November 13, 2006, Amex submitted Amendment 
No. 3 to the proposed rule change.\5\ The Commission is publishing this 
notice and order to solicit comments on the proposed rule change, as 
amended, from interested persons and to approve the proposal on an 
accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 superseded and replaced the original filing 
in its entirety.
    \4\ In Amendment No. 2, the Exchange makes representations 
regarding specialist prohibitions and accounts and clarifies certain 
aspects of the index methodology.
    \5\ Amendment No. 3 supersedes and replaces the original filing, 
Amendment No. 1, and Amendment No. 2 in its entirety.
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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, principal protected notes, 
linked to the performance of the Dow Jones-AIG ExEnergy Sub-Index (the 
``DJAIG ExEnergy Index'' or the ``Index'').
    The text of the proposed rule change is available on Amex's Web 
site at http://www.amex.com, at Amex's principal office, and at the 
Commission's Public Reference Room.

[[Page 68646]]

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 Exchange 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 Exchange 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
The Notes
    Under Section 107A of the Amex Company Guide (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.\6\ The 
Amex proposes to list for trading under Section 107A of the Company 
Guide principal protected notes linked to the performance of the Index 
(the ``Notes'').\7\ Merrill Lynch will issue the Notes under the name 
``Market Index Target-Term Securities'' or ``MITTS.'' The Notes will 
provide for participation in the positive performance of the Index 
during their term while reducing the risk exposure to investors through 
principal protection.
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    \6\ See Securities Exchange Act Release No. 27753 (March 1, 
1990), 55 FR 8626 (March 8, 1990) (approving File No. SR-Amex-89-
29).
    \7\ Merrill Lynch & Co. (``Merrill Lynch''), Dow Jones & 
Company, Inc. (``Dow Jones'') and AIG International, Inc. (``AIGI'') 
have entered into a non-exclusive license agreement providing for 
the use of the Dow Jones-AIG ExEnergy Sub-Index by Merrill Lynch and 
certain affiliates and subsidiaries in connection with certain 
securities including the Notes. Dow Jones and AIGI are not 
responsible and will not participate in the issuance and creation of 
the Notes.
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    The Notes will conform to the initial listing guidelines under 
Section 107A \8\ and continued listing guidelines under Sections 1001-
1003 \9\ of the Company Guide. The Notes are senior non-convertible 
debt securities of Merrill Lynch. The Notes will have a term of no more 
than ten (10) years. Merrill Lynch will issue the Notes in 
denominations of whole units, with each unit representing a single 
Note. The original public offering price was $10 per Note \10\ and thus 
the notes are currently trading over-the-counter but are not listed on 
any national securities exchange.\11\ At a minimum, the Notes will 
entitle the owner at maturity to receive at least 100% of the principal 
investment amount. At maturity, the holder would receive the full 
principal investment amount of each Note plus a supplemental redemption 
amount (the ``Supplemental Redemption Amount'') based on the percentage 
change or performance of the Index over the term of the Note. The 
performance of the Index will be based on an arithmetic average of the 
levels of the Index at the close of market on five (5) business days 
shortly prior to the maturity of the Notes. The Notes are not callable 
by Merrill Lynch.
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    \8\ The initial listing standards for the Notes require: (i) A 
market value of at least $4 million and (ii) a minimum public 
distribution requirement of one million trading units with a minimum 
of 400 public shareholders. In addition, the listing guidelines 
provide that the issuer has assets in excess of $100 million and 
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 that 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: 
(i) assets in excess of $200 million and stockholders' equity of at 
least $10 million; or (ii) assets in excess of $100 million and 
stockholders' equity of at least $20 million.
    \9\ The Exchange's continued listing guidelines are set forth in 
Sections 1001 through 1003 of Part 10 to the Exchange's Company 
Guide. Section 1002(b) of the Company Guide states that the Exchange 
will consider removing from listing any security where, in the 
opinion of the Exchange, it appears that the extent of public 
distribution or aggregate market value has become so reduced to make 
further dealings on the Exchange inadvisable. With respect to 
continued listing guidelines for distribution of the Notes, the 
Exchange will rely, in part, on the guidelines for bonds in Section 
1003(b)(iv). Section 1003(b)(iv)(A) provides that the Exchange will 
normally consider suspending dealings in, or removing from the list, 
a security if the aggregate market value or the principal amount of 
bonds publicly held is less than $400,000.
    \10\ Telephone conference among Florence Harmon, Senior Special 
Counsel, Commission, Kristie Diemer, Special Counsel, Commission, 
Jeffrey P. Burns, Vice President and Associate General Counsel, 
Amex, and Sudhir C. Bhattacharyya, Assistant General Counsel, Amex 
on November 16, 2006 (``November 16 Telephone Conference'').
    \11\ Telephone conference between Kristie Diemer, Special 
Counsel, Commission and Sudhir C. Bhattacharyya, Assistant General 
Counsel, Amex on November 20, 2006.
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    The Supplemental Redemption Amount that a holder of a Note will be 
entitled to receive is defined as the greater of zero or the product of 
$10, the performance of the Index and the Participation Rate (which is 
106.92%). The performance of the Index will be determined at maturity 
based on the relation of the ``Ending Value'' \12\ to the ``Starting 
Value'' of the Index. The ``Ending Value'' is generally equal to the 
average of the closing levels of the Index, determined on five (5) 
separate calculation days. The ``Starting Value'' is the closing level 
of the Index on the date the Notes are priced for initial sale to the 
public. The Ending Value may be calculated by reference to fewer than 
five or even a single day's closing level if, during the period shortly 
before the maturity date of the Notes, there is a disruption in the 
trading of a sufficient number of commodity futures included in the 
Index or certain futures or option contracts relating to the Index.\13\
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    \12\ The ``Ending Value'' is equal to the average of the closing 
levels of the Index, determined on each of the five calculation days 
shortly prior to maturity (i.e., the calculation period). If there 
are fewer than five calculation days during the calculation period, 
due to a market disruption event, then the Ending Value will equal 
the average of the closing levels of the Index on those calculation 
days. If there is only one calculation day during the calculation 
period, then the Ending Value will equal the closing level of the 
Index on that calculation day. If no calculation days occur during 
the calculation period, then the Ending Value will equal the closing 
level of the Index determined on the last scheduled Index business 
day in the calculation period, regardless of the occurrence of a 
market disruption event on that scheduled Index business day.
    \13\ A ``market disruption event'' means any of the following 
events as determined by the calculation agent: (i) The suspension of 
or material limitation on trading for more than two hours of 
trading, or during the one-half hour period preceding the close of 
trading, on the applicable exchange (without taking into account any 
extended or after-hours trading session), in any futures contract 
used in the calculation of the Index or any successor index; (ii) 
the suspension of or material limitation on trading, in each case, 
for more than two hours of trading, or during the one-half hour 
period preceding the close of trading, on the applicable exchange 
(without taking into account any extended or after-hours trading 
session), whether by reason of movements in price otherwise 
exceeding levels permitted by the relevant exchange or otherwise, in 
option contracts or futures contracts related to the Index, or any 
successor index, which are traded on any major U.S. exchange; or 
(iii) the failure on any day of the applicable exchange to publish 
the official daily settlement prices for that day for any futures 
contract used in the calculation of the Index.
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    At maturity, a holder will receive a maturity payment amount per 
Note equal to:
[GRAPHIC] [TIFF OMITTED] TN27NO06.000


[[Page 68647]]


    The Supplemental Redemption Amount may not be less than zero. If 
the Ending Value is less than the Starting Value, the amount paid at 
maturity will be 100% of the Principal Amount. The amount paid at 
maturity per Note will never be less than the Principal Amount.
Dow Jones-AIG ExEnergy Sub-Index
    The Dow Jones-AIG Commodity Index and the DJAIG ExEnergy Index are 
proprietary indexes that AIGI International Inc. (``AIGI'') developed, 
that each year are determined by ``AIG-Financial Products Corp. (``AIG-
FP'') \14\, subject to oversight and approval of the Oversight 
Committee (defined below), and that Dow Jones calculates. The Index is 
designed to track rolling futures positions in a diversified basket of 
fifteen commodity futures (each, an ``Index Component'') which, plus 
energy commodities, comprise the Dow Jones-AIG Commodity Index.
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    \14\ AIG-FP is not a broker-dealer or futures commission 
merchant; however, AIG-FP may have such affiliates. Therefore, AIG-
FP (i) implemented and agrees to maintain procedures reasonably 
designed to prevent the use and dissemination by relevant employees 
of AIG-FP, in violation of applicable laws, rules and regulations, 
of material non-public information relating to changes in the 
composition or method of computation or calculation of the Index or 
the Dow Jones-AIG Commodity Index and (ii) agrees to periodically 
check the application of such procedures as they relate to personnel 
of AIG-FP responsible for such changes. Dow Jones has informed the 
Exchange that they do not have any affiliates engaged in the 
securities or commodities trading businesses and, as such, do not 
believe that such firewall procedures are necessary in its case. In 
addition, the Oversight Committee is subject to written policies 
that acknowledge their obligations with respect to material non-
public information.
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    The DJAIG ExEnergy Index tracks what is known as a rolling futures 
position, which is a position where, on a periodic basis, futures 
contracts on physical commodities specifying delivery on a nearby date 
must be sold and futures contracts on physical commodities that have 
not yet reached the delivery period must be purchased. An investor with 
a rolling futures position is able to avoid delivering underlying 
physical commodities while maintaining exposure to those commodities. 
The rollover for each Index Component occurs over a period of five Dow 
Jones-AIG business days each month according to a pre-determined 
schedule. Currently, Dow Jones calculates and disseminates the DJAIG 
ExEnergy Index level at least 15-second intervals from 8 a.m. to 3 
p.m., Eastern time (``ET''),\15\ and publishes a daily settlement price 
for the Index at approximately 5 p.m., ET each day the Amex is open for 
trading. Any disseminated value of the Index after 3 p.m. is static.
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    \15\ November 16 Telephone Conference.
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    The fifteen commodities for 2006 that comprise the DJAIG ExEnergy 
Index are (weightings as of November 15, 2006 noted in parentheses): 
aluminum (9.31%); coffee (3.49%); copper (10.24%); corn (11.87%); 
cotton (3.48%); gold (8.41%); lean hogs (5.03%); live cattle (6.58%); 
nickel (6.54%); silver (3.33%); soybeans (9.81%); soybean oil (4.03%); 
sugar (2.73%); wheat (8.43%); and zinc (6.73%).\16\
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    \16\ E-mail from Sudhir C. Bhattacharyya, Assistant General 
Counsel, Amex, to Florence Harmon, Senior Special Counsel, 
Commission, dated November 17, 2006.
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Dow Jones-AIG Commodity Index.
    The calculation of the DJAIG ExEnergy Index follows the same rules 
as the calculation of the Dow Jones-AIG Commodity Index; provided that 
the daily value of the DJAIG ExEnergy Index is determined by summing 
the product of the prices of the Index Components and their respective 
CIMs (as defined below).
    The Dow Jones-AIG Commodity Index was created by Dow Jones and AIGI 
to provide a liquid and diversified benchmark for commodities. The Dow 
Jones-AIG Commodity Index was established on July 14, 1998 and is 
currently comprised of futures contracts on nineteen physical 
commodities.\17\
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    \17\ A futures contract is an agreement that provides for the 
purchase and sale of a specified type and quantity of a commodity 
during a stated delivery month for a fixed price.
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    The nineteen commodities for 2006 that comprise the Dow Jones-AIG 
Commodity Index (the ``Dow Jones-AIG Commodity Index Commodities'') are 
(weightings as of November 15, 2006 noted in parentheses): aluminum 
(6.90%); coffee (2.59%); copper (7.59%); corn (8.80%); cotton (2.58%); 
crude oil (10.30%); gold (6.24%); heating oil (3.16%); lean hogs 
(3.73%); live cattle (4.88%); natural gas (9.34%); nickel (4.85%); 
silver (2.47%); soybeans (7.27%); soybean oil (2.99%); sugar (2.03%); 
unleaded gasoline (3.06%); wheat (6.25%); and zinc (4.99%).\18\ Futures 
contracts on the Dow Jones-AIG Commodity Index are currently listed for 
trading on the Chicago Board of Trade (the ``CBOT''). The Dow Jones-AIG 
Commodity Index commodities currently trade on United States exchanges, 
with the exception of aluminum, nickel and zinc, which trade on the 
London Metal Exchange (the ``LME'').
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    \18\ November 16 Telephone Conference.
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    The Index was created using the following four main principles:
     Economic significance. The Dow Jones-AIG Commodity Index 
is designed to reflect the importance of a diversified group of 
physical commodities to the world economy. To achieve a fair 
representation, the Dow Jones-AIG Commodity Index uses both liquidity 
data and dollar-adjusted production data in determining the relative 
quantities of the commodities. The Dow Jones-AIG Commodity Index 
primarily relies on the liquidity of a particular commodity (i.e., the 
relative amount of trading activity of a particular commodity), as an 
important indicator of the value placed on that commodity by financial 
and physical market participants. In addition, production data is also 
identified to measure the importance of a commodity to the world 
economy. Production data alone would underestimate the economic 
significance of storable commodities, such as gold, relative to non-
storable commodities, such as livestock. Production data alone also may 
underestimate the value that the financial community places on certain 
commodities and/or the amount of commercial activity related to various 
commodities. The Dow Jones-AIG Commodity Index accordingly relies on 
both futures market liquidity of commodities and production in 
determining relative weightings.
     Diversification. The Dow Jones-AIG Commodity Index is 
designed to provide diversified exposure to commodities as an asset 
class. Disproportionate weightings of any particular commodity or 
sector may increase the volatility and negate the concept of a broad-
based commodity index. As described further below, diversification 
rules have been established and are applied annually. Additionally, the 
Dow Jones-AIG Commodity Index is re-balanced annually on a price-
percentage basis in order to maintain diversified commodities exposure 
over time.
     Continuity. The Dow Jones-AIG Commodity Index is designed 
to be responsive to the changing nature of the commodity markets in a 
manner that does not completely reshape the character of the Dow Jones-
AIG Commodity Index from year to year. The Dow Jones-AIG Commodity 
Index is intended to provide a stable benchmark, so that end-users may 
be reasonably confident that historical performance data is based on a 
structure that bears some resemblance to both the current and future 
composition of the Dow Jones-AIG Commodity Index.
     Liquidity. The Dow Jones-AIG Commodity Index is designed 
to provide a highly liquid index. Liquidity

[[Page 68648]]

as a weighting factor helps to ensure that the Dow Jones-AIG Commodity 
Index can accommodate substantial investment flows. The liquidity of an 
index affects transaction costs associated with current investments and 
may also affect the reliability of historical price performance data.
Designated Contracts for Each Dow Jones-AIG Commodity Index Commodity
    A futures contract, known as a Designated Contract, is selected by 
the Dow Jones-AIG Oversight Committee (the ``Oversight Committee'') 
\19\ for each Dow Jones-AIG Commodity Index Commodity. The Oversight 
Committee was established by Dow Jones and AIGI to assist with the 
operation of the Dow Jones-AIG Commodity Index. The Exchange states 
that the Oversight Committee includes prominent members of the 
financial, academic and legal communities selected by AIGI and meets 
annually to consider any changes to be made to the Dow Jones-AIG 
Commodity Index for the coming year. The Oversight Committee may also 
meet at such other times as may be necessary.
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    \19\ The Exchange has been informed by Merrill Lynch that none 
of the members of the Oversight Committee are officers, directors or 
employees of Merrill Lynch.
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    With the exception of several LME contracts, where the Oversight 
Committee believes that there exists more than one futures contract 
with sufficient liquidity to be chosen as a Designated Contract for a 
Dow Jones-AIG Commodity Index Commodity, the Oversight Committee 
selects the futures contract that is traded in the U.S. and denominated 
in U.S. dollars. If more than one of those contracts exists, the 
Oversight Committee will select the most actively traded contract. Data 
concerning this Designated Contract will be used to calculate the Dow 
Jones-AIG Commodity Index. If a Designated Contract were to be 
terminated or replaced, a comparable futures contract would be 
selected, if available, to replace that Designated Contract.\20\
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    \20\ The Oversight Committee may exclude any otherwise eligible 
contract from the Dow Jones-AIG Commodity Index if it determines 
that it has an inadequate trading window. The Dow Jones-AIG 
Commodity Index currently includes contracts traded on the London 
Metal Exchange (``LME''), which is located in London. During the 
hours where the LME is closed, Dow Jones uses the last price and 
uses the settlement price once it is available in order to publish 
the Dow Jones-AIG Commodity Index value through the end of the 
trading day. The Dow Jones-AIG Commodity Index value does not 
reflect any after-hours or overnight trading in contracts traded on 
the LME.
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    The Designated Contracts for the Dow Jones-AIG Commodity Index 
Commodities included in the Dow Jones-AIG Commodity Index for 2006 are 
traded on the LME, the CBOT, the New York Board of Trade (the 
``NYBOT''), the Chicago Mercantile Exchange, Inc. (the ``CME'') and the 
New York Mercantile Exchange (the ``NYMEX'').\21\ The particular 
commodities futures exchange for each futures contract with Web site 
information is as follows: (i) Aluminum, nickel and zinc--LME at http://www.lme.com; (ii) corn, soybeans, soybean oil and wheat--CBOT at 
http://www.cbot.com; (iii) live cattle and lean hogs--CME at http://www.cme.com; (iv) coffee and sugar--NYBOT at http://www.nybot.com and 
(v) copper, crude oil, gold, heating oil, natural gas, silver and 
unleaded gasoline--NYMEX at http://www.nymex.com. In addition, various 
market data vendors and financial news publications publish futures 
prices and data. The Exchange represents that futures quotes and last 
sale information for the commodities underlying the Index are widely 
disseminated through a variety of major market data vendors worldwide, 
including Bloomberg and Reuters. In addition, the Exchange further 
represents that complete real-time data for such futures is available 
by subscription from Reuters and Bloomberg. The CBOT, LME and NYMEX 
also provide delayed futures information on current and past trading 
sessions and market news free of charge on their respective Web sites, 
and for a fee, will provide real-time futures data. The specific 
contract specifications for the futures contracts are also available 
from the futures exchanges on their Web sites, as well as other 
financial informational sources.
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    \21\ November 16 Telephone Conference (confirming designated 
contracts for 2005 and 2006 are traded on same exchanges).
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Annual Reweighting and Rebalancing of the Dow Jones-AIG Commodity 
Index.
    The Dow Jones-AIG Commodity Index is reweighted and rebalanced each 
year in January on a price percentage basis. The annual weightings for 
the Dow Jones-AIG Commodity Index are determined each year in June or 
July by AIGI under the supervision of the Oversight Committee. The 
annual weightings are announced in July and implemented the following 
January. The weightings for 2006, as listed below, have been approved 
and became effective in January 2006.
    The relative weightings of the component commodities included in 
the Dow Jones-AIG Commodity Index are determined annually according to 
both liquidity and dollar-adjusted production data. Each June, for each 
commodity designated for potential inclusion in the Dow Jones-AIG 
Commodity Index, liquidity is measured by the commodity liquidity 
percentage (the ``CLP'') and production by the commodity production 
percentage (the ``CPP''). The CLP for each commodity is determined by 
taking a five-year average of the product of the trading volume and the 
historic dollar value of the Designated Contract for that commodity, 
and dividing the result by the sum of the products for all commodities 
that were designated for potential inclusion in the Dow Jones-AIG 
Commodity Index. The CPP is determined for each commodity by taking a 
five-year average of annual world production figures, adjusted by the 
historic dollar value of the Designated Contract, and dividing the 
result by the sum of the production figures for all the commodities 
that were designated for potential inclusion in the Dow Jones-AIG 
Commodity Index. The CLP and CPP are then combined (using a ratio of 
2:1) to establish the Commodity Dow Jones-AIG Commodity Index 
Percentage (the ``CIP'') for each commodity. The CIP is then adjusted 
in accordance with the diversification rules described below to 
determine the commodities to be included in the Dow Jones-AIG Commodity 
Index and their respective percentage weights.
    To ensure that no single commodity or commodity sector dominates 
the Dow Jones-AIG Commodity Index, the following diversification rules 
are applied to the annual reweighting and rebalancing of the Dow Jones-
AIG Commodity Index, as of January of the applicable year:
     No related group of commodities designated as a Commodity 
Group (e.g., energy, precious metals, livestock or grains) may 
constitute more than 33% of the Dow Jones-AIG Commodity Index;
     No single commodity may constitute more than 15% of the 
Dow Jones-AIG Commodity Index;
     No single commodity, together with its derivatives (e.g., 
crude oil, together with heating oil and unleaded gasoline), may 
constitute more than 25% of the Dow Jones-AIG Commodity Index; and
     No single commodity in the Dow Jones-AIG Commodity Index 
may constitute less than 2% of the Dow Jones-AIG Commodity Index.
    Following the annual reweighting and rebalancing of the Dow Jones-
AIG Commodity Index in January, the percentage of any single commodity 
or group of commodities at any time prior to the next reweighting or 
rebalancing

[[Page 68649]]

will fluctuate and may exceed or be less than the percentage set forth 
above.\22\
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    \22\ The Exchange represents and clarifies that the weightings 
of the components of the DJAIG ExEnergy Index are determined in 
conjunction with the annual reweighting and rebalancing of the Dow 
Jones-AIG Commodity Index by assigning weightings of zero to the 
energy commodities included in the Dow Jones-AIG Commodity Index and 
proportionally increasing the weightings of the remaining 
commodities. For example, assume the Dow Jones-AIG Commodity Index 
includes five equally weighted (20%) commodities, including an 
energy commodity. If the energy component were assigned a weight of 
0%, the weightings of the remaining four non-energy components 
comprising the DJAIG ExEnergy Index would be increased pro rata and 
assigned equal weightings of 25%.
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    Following application of the diversification rules discussed above, 
CIPs are incorporated into the Dow Jones-AIG Commodity Index by 
calculating the new unit weights for each Dow Jones-AIG Commodity Index 
commodity. Near the beginning of each new calendar year (the ``CIM 
Determination Date''), the CIPs, along with the settlement prices on 
that date for Designated Contracts included in the Dow Jones-AIG 
Commodity Index, are used to determine a Commodity Index Multiplier 
(``CIM'') for each Dow Jones-AIG Commodity Index commodity. This CIM is 
used to achieve the percentage weightings of the Dow Jones-AIG 
Commodity Index commodities, in dollar terms, indicated by their 
respective CIPs. After the CIMs are calculated, they remain fixed 
throughout the year. As a result, the observed price percentage of each 
Dow Jones-AIG Commodity Index commodity will float throughout the year, 
until the CIMs are reset the following year based on new CIPs.
    To avoid delivering the underlying physical commodities and to 
maintain exposure to the underlying physical commodities, periodically 
futures contracts on physical commodities specifying delivery on a 
nearby date must be sold and futures contracts on physical commodities 
that have not yet reached the delivery period must be purchased. The 
rollover for each contract occurs over a period of five DJ-AIG Business 
Days \23\ each month according to a pre-determined schedule. This 
process is known as ``rolling'' a futures position. The Dow Jones-AIG 
Commodity Index is a ``rolling index.''
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    \23\ A DJ-AIG Business Day (``DJ-AIG Business Day'') is a day on 
which the sum of the CIPs for the Dow Jones-AIG Commodity Index 
commodities that are available to trade is greater than 50%.
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    The Dow Jones AIG-Commodity Index is calculated by Dow Jones by 
applying the impact of the changes to the futures prices of commodities 
included in the Dow Jones-AIG Commodity Index (based on the 
commodities' relative weightings). Once the CIMs are determined as 
discussed above, the calculation of the Dow Jones-AIG Commodity Index 
is a mathematical process whereby the CIMs for the Dow Jones-AIG 
Commodity Index commodities are multiplied by the daily settlement 
prices in U.S. dollars for the applicable Designated Contracts. These 
products are then summed. During the rollover period, the sum includes 
both nearby and deferred contracts weighted according to the specified 
roll percentage. The percentage change in this sum from the prior day 
is then applied to the prior Dow Jones-AIG Commodity Index value. 
Finally, the value of one day's interest is added, calculated using the 
most recent (lagged by one day) 91-Day U.S. Treasury Bill Auction High 
Rate to arrive at the current Dow Jones-AIG Commodity Index value.
Dow Jones-AIG Commodity Index Calculation Disruption Events.
    From time to time, the Exchange states that disruptions can occur 
in trading futures contracts on various commodity futures exchanges. 
The daily calculation of the Dow Jones-AIG Commodity Index and the 
Index will be adjusted in the event that AIGI determines that any of 
the following index calculation disruption events exists: (i) The 
termination or suspension of, or material limitation or disruption in 
the trading of any futures contract used in the calculation of the Dow 
Jones-AIG Commodity Index on that day; (ii) the settlement price of any 
futures contract used in the calculation of the Dow Jones-AIG Commodity 
Index reflects the maximum permitted price change from the previous 
day's settlement price; (iii) the failure of an exchange to publish 
official settlement prices for any futures contract used in the 
calculation of the Dow Jones-AIG Commodity Index; or (iv) with respect 
to any futures contract used in the calculation of the Dow Jones-AIG 
Commodity Index that trades on the LME, a business day on which the LME 
is not open for trading. In the case of a temporary disruption in 
connection with the trading of the futures contracts of the commodities 
comprising the Index, the Exchange believes that it is unnecessary for 
a filing pursuant to Section 19(b) under the Act \24\ to be submitted 
to the Commission. The Exchange submits that for a temporary disruption 
of said futures contracts, AIGI will typically use the prior day's 
price for an Index commodity or commodities. In exceptional cases, AIGI 
may employ a ``fair value'' price. However, the Exchange represents 
that if the use of a prior day's price or ``fair value'' pricing for an 
Index commodity or commodities is more than of a temporary nature, a 
rule filing will be submitted pursuant to Section 19(b) of the Act \25\ 
seeking approval to continue trading the Notes. Unless such approval is 
received, the Exchange will commence delisting the Notes.
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    \24\ 15 U.S.C. 78s(b).
    \25\ Id.
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Exchange Rules Applicable to the Notes
    The Notes are cash-settled in U.S. dollars and do not give the 
holder any right or other ownership interest in the Index or 
commodities comprising the Index. The Notes are designed for investors 
who desire to participate in, or gain exposure to, an index composed of 
a basket of actively-traded commodities, are willing to hold the 
investment to maturity, and who want to limit risk exposure by 
receiving principal protection of their investment amount.
    The Notes will trade as equity securities subject to the Amex 
equity trading rules including, among others, rules governing priority, 
parity and precedence of orders, specialist responsibilities, account 
opening, and customer suitability requirements. In addition, the Notes 
will be subject to the equity margin rules of the Exchange.\26\ 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: (i) To determine that such transaction is suitable for the 
customer, and (ii) 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, Merrill 
Lynch will deliver a prospectus in connection with the initial sales of 
the Notes. The circular will also reference that the Commission has no 
jurisdiction over the trading of the physical commodities or the 
futures contracts or on such commodities upon which the value of the 
Notes is based.\27\
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    \26\ See Amex Rule 462.
    \27\ November 16 Telephone Conference.

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[[Page 68650]]

Criteria for Initial and Continued Listing
    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.\28\ The Exchange also has a general policy that 
prohibits the distribution of material, non-public information by its 
employees. The Notes will be subject to the criteria in Section 107D of 
the Company Guide for initial and continued listing. The continued 
listing criteria provides for the delisting or removal from listing of 
the Notes under any of the following circumstances:
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    \28\ See Rule 10A-3(c)(1), 17 CFR 240.10A-3(c)(1).
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     If the aggregate market value or the principal amount of 
the Notes publicly held is less than $400,000;
     If the value of the Index is no longer calculated or 
widely disseminated by a major market data vendor on at least a 15-
second basis during the time the Notes trade on the Exchange; or
     If such other event shall occur or condition exists which 
in the opinion of the Exchange makes further dealings on the Exchange 
inadvisable.
    Additionally, the Exchange represents that it will file a proposed 
rule change pursuant to Rule 19b-4 under the Act,\29\ seeking approval 
to continue trading the Notes and unless approved, the Exchange will 
commence delisting the Notes if:
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    \29\ 17 CFR 240.19b-4.
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     Dow Jones and AIG-FP substantially change either the index 
component selection methodology or the weighting methodology;
     If a new component is added to the Index (or pricing 
information is used for a new or existing component) that constitutes 
more than 10% of the weight of the Index with whose principal trading 
market the Exchange does not have a comprehensive surveillance sharing 
agreement; or
     If a successor or substitute index is used in connection 
with the Notes. The filing will address, among other things the listing 
and trading characteristics of the successor or substitute index and 
the Exchange's surveillance procedures applicable thereto.
Trading Halts
    The Exchange will halt trading in the Notes if the circuit breaker 
parameters of Exchange Rule 117 have been reached. In exercising its 
discretion to halt or suspend trading in the Notes, the Exchange may 
consider factors such as those set forth in Exchange Rule 918C(b), in 
addition to other factors that may be relevant. In particular, if the 
Dow Jones-AIG Commodity Index value is not being disseminated as 
required, the Exchange may halt trading during the day in which the 
interruption to the dissemination of the Dow Jones-AIG Commodity Index 
value occurs. If the interruption to the dissemination of the Dow 
Jones-AIG Commodity Index value persists past the trading day in which 
it occurred, the Exchange will halt trading no later than the beginning 
of the trading day following the interruption.\30\
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    \30\ November 16 Telephone Conference. The Exchange deleted 
inconsistent language regarding trading halts.
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Specialist Prohibitions
    The Exchange submits that current Rule 1203A will be applicable to 
the Notes. In connection with the Notes, Rule 1203A provides that the 
prohibitions in Rule 175(c) apply to a specialist in the Notes, so that 
the specialist or affiliated person may not act or function as a market 
maker in the underlying commodities, related futures contracts or 
options, or any other related commodity derivative. Consistent with 
Rule 193, an affiliated person of the specialist may be afforded an 
exemption to act in a market making capacity, other than as a 
specialist in the Notes on another market center, in the underlying 
commodities, related futures or options, or any other related commodity 
derivative. In particular, Rule 1203A provides that an approved person 
of the specialist that has established and obtained Exchange approval 
for procedures restricting the flow of material, non-public market 
information between itself and the specialist member organization, and 
any member, officer, or employee associated therewith, may act in a 
market making capacity, other than as a specialist in the Notes on 
another market center, in the underlying commodity, related commodity 
futures or options on commodity futures, or any other related commodity 
derivatives.
    Additionally, the Exchange further submits that Rule 1204A will be 
applicable to the Notes. Rule 1204A was adopted to ensure that 
specialists provide the Exchange with all the necessary information 
relating to their trading in physical commodities and related futures 
contracts and options thereon or any other related commodities 
derivative. This Rule further reminds members that, in connection with 
trading the physical asset or commodities, futures or options on 
futures, or any other related derivatives, the use of material, non-
public information received from any person associated with a member, 
member organization or employee of such person regarding trading by 
such person or employee in the physical asset or commodities, futures 
or options on futures, or any other related derivatives is prohibited 
by the Exchange.
Surveillance
    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 
exchange-traded funds, trust issued receipts (including the iShares 
Comex Gold Trust, streetTRACKS Gold Trust and DB Commodity Index 
Tracking Fund) and index-linked securities.\31\ With regard to the 
Index Components, the Exchange currently has in place a comprehensive 
surveillance sharing arrangement with the NYMEX and the LME, for the 
purpose of providing information in connection with trading in or 
related to futures contracts traded on their respective exchanges 
comprising the Index. The Exchange also notes that the CBOT, CME, and 
NYBOT are members of the Intermarket Surveillance Group (``ISG''). As a 
result, the Exchange asserts that it can obtain market surveillance 
information, including customer identity information, from the CBOT, 
CME, LME, NYBOT, and NYMEX, if necessary, due to regulatory concerns 
that may arise in connection with the futures contracts.
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    \31\ The Commission requested, and the Exchange agreed, to 
remove the phrase ``which have been deemed adequate under the Act'' 
at the end of this sentence. November 16 Telephone Conference.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act,\32\ in general, and furthers the objectives 
of Section 6(b)(5) of the Act,\33\ 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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    \32\ 15 U.S.C. 78f.
    \33\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change does not impose 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

[[Page 68651]]

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

    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, as amended, 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-2006-01 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-Amex-2006-01. 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 Section, 100 F Street, 
NE., Washington, DC 20549. Copies of such filing also will be available 
for inspection and copying at the principal office of 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-2006-01 and should be 
submitted on or before December 18, 2006.

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

    The Commission finds that the proposed rule change, as amended, is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\34\ In particular, the Commission believes that the proposal 
is consistent with Section 6(b)(5) of the Act,\35\ which requires that 
the rules of an exchange be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market and a national market system, and in general 
to protect investors and the public interest.
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    \34\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. See 15 
U.S.C. 78c(f).
    \35\ 15 U.S.C. 78f(b)(5).
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A. Surveillance

    Information sharing agreements with primary markets are an 
important part of a self-regulatory organization's ability to monitor 
for trading abuses with respect to derivative securities. The 
Commission believes that Amex's comprehensive surveillance sharing 
agreements with the NYMEX and the LME for the purpose of providing 
information in connection with the Notes create the basis for Amex to 
monitor for fraudulent and manipulative practices in the trading of the 
Notes.
    Moreover, Amex Rules, including Rule 1204A, give Amex the authority 
to request information to monitor for fraudulent and manipulative 
trading facilities. The Commission believes that these rules provide 
the Amex with the tools necessary to adequately surveil trading in the 
Notes.

B. Dissemination of Information

    The Commission believes that sufficient venues for obtaining 
reliable information exist so that investors in the Notes can monitor 
the underlying Index Components, the Dow Jones-AIG Commodity Index, and 
the Index. There is a considerable amount of information about the 
Index Components, the Dow Jones-AIG Commodity Index, and the Index 
available through public Web sites, and real time intraday prices and 
daily closing prices for the Index Components are available by 
subscription from major market vendors.
    The Commission notes that the amount paid at maturity, per Note, 
will be based on the percentage change or performance of the Index over 
the term of the Note. As more specifically described herein, the amount 
paid at maturity, per Note, will consist of at least 100% of the 
Principal Amount, plus a Supplemental Redemption Amount, but it will 
never be less than the Principal Amount.
    The Commission believes that the wide availability of such 
information will facilitate transparency and reduce the potential of 
unfair informational advantage with respect to the Notes and, when 
coupled with the principal-protected nature of the Notes, will diminish 
the risk of manipulation.

C. Listing and Trading

    The Commission finds that the Exchange's proposed rules and 
procedures for the listing and trading of the Notes are consistent with 
the Act. The Notes will trade as equity securities subject to the Amex 
equity trading rules including, among others, rules governing priority, 
parity and precedence of orders, specialist responsibilities, account 
opening, and customer suitability requirements. In addition, the Notes 
will be subject to the equity margin rules of the Exchange, set forth 
in Amex Rule 462. The Commission believes that the listing and 
delisting criteria for the Notes should help to maintain a minimum 
level of liquidity and therefore minimize the potential for 
manipulation of the Notes.
    The Commission notes that prior to trading the Notes, Amex will 
distribute a circular to the membership providing guidance with regard 
to member firm compliance responsibilities and highlighting the special 
risks and characteristics of the Notes. Specifically, the Exchange will 
require those recommending a transaction in the Notes to determine that 
such transaction is suitable for the customer, and to have a reasonable 
basis for believing that the customer can evaluate the special 
characteristics of, and bear the financial risks of, such transaction. 
The Commission believes that the information circular will inform 
members about the terms, characteristics and risks in trading the 
Notes.

D. Accelerated Approval

    The Commission finds good cause for approving this proposed rule 
change, as amended, before the thirtieth day after the publication of 
notice thereof in the Federal Register. The Commission notes that this 
principal protected product is similar to other products already

[[Page 68652]]

approved by the Commission.\36\ Therefore, accelerating approval of 
this proposed rule change should benefit investors who desire to 
participate in an index composed of a basket of actively-traded 
commodities, who are willing to hold the investment to maturity, and 
who want to limit risk exposure, by creating, without undue delay, 
opportunities for such investments.
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    \36\ See e.g., Securities Exchange Act Release No. 54731 
(November 9, 2006), 71 FR 66814 (notice and order granting 
accelerated approval to the New York Stock Exchange LLC to list and 
trade two series of principal protected, commodity-linked 
securities); Securities Exchange Act Release No. 54033 (June 22, 
2006), 71 FR 37131 (June 29, 2006) (order approving the listing and 
trading of principal protected notes linked to the Metals-China 
basket on Amex).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\37\ that the proposed rule change, as amended (SR-Amex-2006-01), 
is hereby approved on an accelerated basis.
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    \37\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\38\
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    \38\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-19978 Filed 11-24-06; 8:45 am]
BILLING CODE 8011-01-P