[Federal Register Volume 73, Number 14 (Tuesday, January 22, 2008)]
[Notices]
[Pages 3762-3765]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-995]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57148; File No. SR-Amex-2007-137]


Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing and Order Granting Accelerated Approval of a Proposed 
Rule Change, as Modified by Amendment No. 1 Thereto, To Amend Section 
107D of the Amex Company Guide

January 15, 2008.
    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 December 14, 2007, the American Stock Exchange LLC (``Exchange'' or 
``Amex'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which items have been substantially prepared by the Amex. On 
January 8, 2008, the Exchange filed Amendment No. 1 to the proposed 
rule change. The Commission is publishing this notice to solicit 
comments on the proposed rule change, as amended, from interested 
persons and is approving the proposed rule change on an accelerated 
basis.
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    \1\ 15 U.S.C. 78s(b)(l).
    \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 amend section 107D of the Amex Company 
Guide (``Company Guide'') to: (i) Eliminate the requirement that an 
eligible index for index-linked securities (``Index Securities'') be 
calculated and weighted following a specified methodology; (ii) provide 
that indexes based on the equal-dollar or modified equal-dollar 
weighting methods be rebalanced semi-annually rather than quarterly, as 
is currently the case; and (iii) eliminate the continued listing 
requirement prohibiting an index from increasing or decreasing by more 
than 33\1/3\% from the number of index components initially listed.
    The text of the proposed rule change is available at the Amex, at 
the Commission's Public Reference Room, and at http://www.amex.com.

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, its 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend section 107D of the Company Guide 
to: (i) Eliminate the requirement that an eligible index for Index 
Securities be calculated and weighted following a specified 
methodology; (ii) provide that indexes based on the equal-dollar or 
modified equal-dollar weighting methods be rebalanced semi-annually 
rather than quarterly, as is currently the case; and (iii) eliminate 
the continued listing requirement prohibiting an index from increasing 
or decreasing by more than 33\1/3\% from the number of index components 
initially listed.

Generic Listing Standards--Index Weighting Methodologies

    Section 107D of the Company Guide sets forth the generic listing 
standards for Index Securities. The generic listing standards permit 
the listing and trading of various qualifying Index Securities, subject 
to the procedures contained in Rule 19b-4(e) under the Act.\3\ The 
existence of generic listing standards allows qualifying Index 
Securities to list or trade without the need to file a rule change for 
each security under Rule 19b-4 under the Act. By amending its generic 
listing standards for Index Securities, the Exchange intends to reduce 
the timeframe for listing Index Securities and thereby reduce the 
burdens on issuers and other market participants.
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    \3\ 17 CFR 240.19b-4(e).
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    The generic listing standards for Index Securities in section 
107D(i)(i) of the Company Guide currently provide that eligible indexes 
must be calculated based on either a capitalization,\4\ modified 
capitalization,\5\ price,\6\ equal-

[[Page 3763]]

dollar \7\ or modified equal-dollar \8\ weighting methodology. The 
indexes potentially underlying an issue of Index Securities may differ 
based on various criteria such as broad-based market measures and 
narrow-based or industry-specific market measures. Ultimately, it is 
the diversity of the underlying securities as well as their market 
coverage that determine whether an index is broad-based or narrow-
based. Further, indexes can be calculated using different methodologies 
and, thus, even where indexes are based on the same underlying 
securities, they may measure the relevant market differently because of 
differences in their calculation methodology. The methodologies 
currently permitted under section 107D(i)(i) of the Company Guide for 
Index Securities are not all-inclusive and there are other calculation 
methodologies that are not currently permitted under the Exchange's 
generic listing standards.\9\ The Amex proposes to eliminate the 
current limitations in the generic listing standards for Index 
Securities relating to index calculation methodologies, thereby 
reducing the time-frame for listing Index Securities based on other 
index calculation methodologies and promoting competition. The Exchange 
believes that the proposal will further alleviate unnecessary burdens 
on issuers and other market participants without compromising investor 
protection.
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    \4\ A ``capitalization-weighted'' index is constructed so that 
weightings are biased toward the securities of larger companies. In 
calculating the index value, the market price of each component 
security is multiplied by the total number of shares outstanding to 
determine the market capitalization for each company in the index. 
The sum of the market capitalizations of all components determines 
the total capitalization for the index. The total market 
capitalization is then divided by an index divisor to scale the 
index to a desired reference level, e.g. 100, to establish a 
baseline for gauging future performance of the index. This will 
allow a security's size and capitalization to have a greater impact 
on the value of the index.
    \5\ A ``modified capitalization-weighted'' index is weighted 
using criteria other than the total, actual number of shares 
outstanding.
    \6\ In a ``price-weighted'' index, the component securities are 
included based on their price. The value of the price-weighted index 
is calculated by adding together the last transaction price for each 
security in the index and dividing the resulting sum by an index 
divisor to scale the index.
    \7\ An ``equal dollar-weighted'' index is calculated by 
establishing an aggregate market value for every component security 
of the index and then determining the number of shares of each 
security by dividing this aggregate market value by the current 
market price of the security. This method of calculation does not 
give more weight to price changes of the more highly capitalized 
component securities. Additionally, the weights of each component 
security are reset to equal values at regular intervals (e.g., 
quarterly).
    \8\ A ``modified equal dollar-weighted'' index resets component 
securities at regular intervals, but not necessarily to equal 
values.
    \9\ For example, an index can also be a simple average, 
calculated by simply adding up the prices of the securities in the 
index and dividing by the number of securities, disregarding the 
number of shares outstanding. Another type measures daily percentage 
movements of prices by averaging the percentage of the types of 
stocks constituting the index.
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    The Exchange notes that the Commission recently approved a proposal 
\10\ by the Amex to remove similar requirements in the Amex's generic 
listing standards for exchange-traded funds (``ETFs'') \11\ that 
eligible indexes be calculated based on the market capitalization, 
modified market capitalization, price, equal-dollar, or modified equal 
dollar weighting methodology. In approving Amex-2007-07, the Commission 
found that ``[a]s the market for ETFs has grown, the variety of 
weighting and calculation methodologies for underlying indexes has also 
expanded, limiting the applicability of Amex's current generic ETF 
listing standards.'' Similarly, the Exchange believes that growth in 
the market for Index Securities as well as an expansion in the 
weighting and calculation methods for underlying indexes has limited 
the applicability of Amex's current generic listing standards for Index 
Securities. The Exchange further notes that the Commission recently 
approved a similar filing by NYSE Arca, LLC (``NYSEArca'') in which 
NYSEArca proposed the elimination of its requirement that an underlying 
index used in connection with an issuance of Equity Index-Linked 
Securities must be calculated based on either a capitalization, 
modified capitalization, price, equal-dollar, or modified equal-dollar 
weighting methodology.\12\
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    \10\ See Securities Exchange Act Release No. 55544 (Mar. 27, 
2007), 72 FR 15923 (Apr. 3, 2007) (``Amex-2007-07'').
    \11\ See Amex Rule 1000-AEMI for portfolio depository receipts 
and Amex Rule 1000A-AEMI for index fund shares.
    \12\ See Securities Exchange Act Release No. 56838 (Nov. 26, 
2007), 72 FR 67774 (Nov. 30, 2007) (SR-NYSE-Arca-2007-118). In this 
filing NYSEArca stated that it was seeking to harmonize NYSEArca 
rules with the New York Stock Exchange (``NYSE'') Equity Index-
Linked Securities listing standard in Section 703.22 of the NYSE 
Listed Company Manual, which has no requirements concerning 
weighting methodologies.
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Rebalancing of Equal-Dollar and Modified Equal-Dollar Indexes

    Section 107D(i)(ii) of the Company Guide currently requires that 
indexes based upon the equal-dollar or modified equal-dollar weighting 
method be rebalanced quarterly. The Exchange is proposing to amend this 
requirement to require that the equal-dollar or modified equal-dollar 
weighting method be rebalanced at least semi-annually. A significant 
number of currently existing equity indexes that utilize the equal-
dollar or modified equal-dollar weighting methodology are rebalanced 
semi-annually rather than quarterly. As the issuer of Index Securities 
generally licenses the right to utilize the underlying index from a 
third party index sponsor, it is often not within the issuer's control 
to have the index rebalanced more frequently. As such, it is not 
possible currently under section 107D(i)(ii) of the Company Guide to 
list Index Securities based on indexes that are rebalanced semi-
annually. However, as these types of indexes are relatively common and 
detailed information concerning the procedures governing the 
construction of the underlying index will be available to investors 
either in the issuer's prospectus or on the index sponsor's Web site, 
the Exchange believes that it is appropriate to allow investors to make 
their own decisions as to the sufficiency of a semi-annual rebalancing 
of an equal-dollar index underlying an issuance of Index Securities. 
Investors and issuers would also benefit from the Amex's ability to 
list--without the delay associated with a stand-alone rule filing--
Index Securities based on a broader group of indexes. The Exchange 
further notes that the Commission recently approved a similar proposal 
by NYSEArca.\13\
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    \13\ See supra note 12.
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Continued Listing Criteria for Index-Linked Securities

    Section 107D(h) of the Company Guide provides the continued listing 
criteria for Index Securities. In particular, section 107D(h)(ii) of 
the Company Guide provides, as a condition of continued listing that, 
``the total number of components in the index may not increase or 
decrease by more than 33\1/3\% from the number of components in the 
index at the time of its initial listing, and in no event may be less 
than ten (10) components.'' The Exchange proposes to delete the 33\1/
3\% prohibition, but maintain the 10-component requirement of the rule.
    The Exchange believes that investors purchase Index Securities 
because they believe that the underlying index method is accurately 
described in the offering documentation and that the index sponsor will 
maintain the index methodology appropriately so that the index will 
continue to represent the sector, geographic region or other investment 
characteristics it is designed to track. As such, rather than buying 
Index Securities on the basis of the current contents of the index, 
investors are relying on the index sponsor to define and manage the 
index selection rules so that, over time, the index is sustainable in 
response to changing market conditions.
    Because Index Securities can have a duration of up to thirty (30) 
years, it is likely that some Index Securities will ultimately change 
in ways that render them noncompliant with section 107D(h)(ii) of the 
Company Guide. The Exchange believes that an unintended consequence of 
the 33\1/3\% requirement is that it penalizes Index Securities with 
long-term maturities. Specifically, total industry/country composite 
indexes are at risk of being delisted prior to the stated maturity date 
for the Index Security. As a result, issuers may not launch new Index 
Securities due to

[[Page 3764]]

concerns regarding the negative impact of delisting the index-linked 
security based on component changes that reflect expanding or 
retracting industry sectors or changes in the geographical business 
environment. The Exchange does not believe that it is protective of 
investors to require the delisting of Index Securities in such an 
event. The Exchange further notes that the Commission recently approved 
a similar proposal by NYSEArca.\14\
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    \14\ See Securities Exchange Act Release No. 57132 (Jan. 11, 
2008) (SR-NYSEArca-2007-125).
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations under the Act applicable to 
national securities exchanges and, in particular, the requirements of 
section 6(b) of the Act.\15\ Specifically, the Exchanges believe the 
proposed rule change is consistent with the requirements of section 
6(b)(5) of the Act \16\ that the rules of an exchange be designed to 
prevent fraudulent and manipulative acts, 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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    \15\ 15 U.S.C. 78f(b).
    \16\ 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 would impose no 
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 has neither solicited nor received comments on this 
proposal.

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-2007-137 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-2007-137. 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 submissions, 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, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filings also will be available for 
inspection and copying at the principal offices 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-2007-137 and should be 
submitted on or before February 12, 2008.

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

    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 national securities 
exchanges.\17\ In particular, the Commission finds that the proposal is 
consistent with the provisions of section 6(b)(5) of the Act \18\ in 
that it is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest.
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    \17\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. See 
U.S.C. 78c(f).
    \18\ 15 U.S.C. 78f(b)(5).
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    The Commission notes that the proposal to eliminate the requirement 
that an eligible index for Index Securities be calculated based on 
certain specified methodologies would conform the Exchange's 
requirements to the current listing standards for similar securities on 
other national securities exchanges.\19\ The Commission further 
believes that the proposal to provide that indexes based on the equal-
dollar or modified equal-dollar weighting methods be rebalanced at 
least semi-annually should benefit investors by providing a wider 
selection of derivative products based on such indexes. The Commission 
believes that the proposal to adjust the minimum rebalancing frequency 
requirement is reasonable, given the increasing number of equal-dollar 
or modified equal-dollar weighted indexes that are rebalanced on a 
semi-annual basis, and should allow for the listing and trading of 
certain Index Securities that would otherwise not be able to be listed 
and traded on the Exchange.
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    \19\ See supra note 12. See also Section 703.22 of the NYSE 
Listed Company Manual.
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    In addition, the Commission believes that eliminating the 
requirement prohibiting an index from increasing or decreasing by more 
than 33\1/3\% from the number of index components initially listed 
reasonably balances the removal of impediments to a free and open 
market with the protection of investors and the public interest, two 
principles set forth in section 6(b)(5) of the Act.\20\ The Commission 
notes that each issue of Index Securities must continue to maintain all 
of the initial listing standards for Index Securities, including the 
continued requirement that each underlying index have a minimum of 10 
component securities of different issuers. Given the variety of certain 
equity indexes that focus on specific industry sectors and geographic 
markets, for example, and the extended duration of maturities for 
certain Index Securities, the Commission believes that the number of 
components in an index may increase or decrease by more than 33\1/3\% 
from the number of components in the index at the time of initial 
listing without adversely impacting the interests of investors. At the 
same time, the Commission believes that the proposal should benefit 
investors by creating additional alternatives to

[[Page 3765]]

investing in such products and competition in the market for Index 
Securities, while maintaining transparency of the underlying components 
comprising an index. As such, the Commission believes it is reasonable 
and consistent with the Act for the Exchange to eliminate the 33\1/3\% 
requirement from the listing standards for Index Securities in the 
manner described in the proposal.
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    \20\ Id.
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    The Commission finds good cause for approving the proposed rule 
change before the 30th day after the date of publication of notice of 
filing thereof in the Federal Register. With respect to the Exchange's 
proposals to: (i) Eliminate the requirement that an eligible index for 
Index Securities be calculated and weighted following a specified 
methodology; (ii) provide that indexes based on the equal-dollar or 
modified equal-dollar weighting methods be rebalanced semi-annually 
rather than quarterly, as is currently the case; and (iii) eliminate 
the continued listing requirement prohibiting an index from increasing 
or decreasing by more than 33\1/3\% from the number of index components 
initially listed rule change, the Commission notes that it has recently 
approved substantially similar proposals for other national securities 
exchanges.\21\ The Commission does not believe that these proposals 
raise any novel regulatory issues. Therefore, the Commission finds good 
cause, consistent with section 19(b)(2) of the Act,\22\ to approve the 
proposed rule change on an accelerated basis.
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    \21\ See supra notes 12 and 14.
    \22\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\23\ that the proposed rule change (SR-Amex-2007-137), as modified 
by Amendment No. 1, be, and it hereby is, approved on an accelerated 
basis.
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    \23\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-995 Filed 1-18-08; 8:45 am]
BILLING CODE 8011-01-P