Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto by the American Stock Exchange LLC Relating to the Adoption of Generic Listing Standards for Index-Linked Securities, 10700-10706 [E5-875]
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10700
the Act 4 in connection with indexlinked securities (‘‘Index Securities’’).
The text of the proposed rule change,
as amended, is set forth below.
Proposed new language is in italics;
proposed deletions are in brackets.
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[FR Doc. 05–4214 Filed 3–3–05; 8:45 am]
BILLING CODE 8010–01–C
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–51258; File No. SR–Amex–
2005–001]
Self-Regulatory Organizations; Notice
of Filing of Proposed Rule Change and
Amendment No. 1 Thereto by the
American Stock Exchange LLC
Relating to the Adoption of Generic
Listing Standards for Index-Linked
Securities
February 25, 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 January 6,
2005, the American Stock Exchange LLC
(‘‘Amex’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
the proposed rule change as described
in Items I, II, and III below, which Items
have been prepared by the selfregulatory organization. On February 25,
2005, Amex amended its proposal.3 The
Commission is publishing this notice to
solicit comments on the proposed rule
change, as amended, from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to add section
107D to the Amex Company Guide for
the purpose of adopting generic listing
standards pursuant to Rule 19b–4(e) of
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Amendment No. 1, dated February 25, 2005
(‘‘Amendment No. 1’’). In Amendment No. 1, the
Exchange revised the proposed rule text and
corresponding description. Amendment No. 1
replaced Amex’s original filing in its entirety.
2 17
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Amex Company Guide
Section 107 Other Securities
The Exchange will consider listing
any security not otherwise covered by
the criteria of sections 101 through 106,
provided the issue is otherwise suited
for auction market trading. Such issues
will be evaluated for listing against the
following criteria:
A–C. No Change
D. [Reserved] Index-Linked Securities
Index-linked securities are securities
that provide for the payment at maturity
of a cash amount based on the
performance of an underlying index or
indexes. Such securities may or may not
provide for the repayment of the original
principal investment amount. The
Exchange may submit a rule filing
pursuant to section 19(b)(2) of the
Securities Exchange Act of 1934 to
permit the listing and trading of indexlinked securities that do not otherwise
meet the standards set forth below in
paragraphs (a) through (k). The
Exchange will consider for listing and
trading pursuant to Rule 19b–4(e) under
the Securities Exchange Act of 1934,
index-linked securities provided:
(a) Both the issue and the issuer of
such security meet the criteria set forth
above in ‘‘General Criteria,’’ except that
the minimum public distribution shall
be 1,000,000 units with a minimum of
400 public holders, except, if traded in
thousand dollar denominations, then no
minimum number of holders.
(b) The issue has a minimum term of
one (1) year but not greater than ten (10)
years.
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CFR 240.19b–4(e).
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(c) The issue must be the nonconvertible debt of the issuer.
(d) The payment at maturity may or
may not provide for a multiple of the
positive performance of an underlying
index or indexes; however, in no event
will payment at maturity be based on a
multiple of the negative performance of
an underlying index or indexes.
(e) The issuer will be expected to have
a minimum tangible net worth in excess
of $250,000,000, and to otherwise
substantially exceed the earnings
requirements set forth in section 101(a)
of the Company Guide. In the
alternative, the issuer will be expected:
(i) to have a minimum tangible net
worth of $150,000,000 and to otherwise
substantially exceed the earnings
requirement set forth in section 101(a)
of the Company Guide, and (ii) not to
have issued securities where the original
issue price of all the issuer’s other
index-linked note offerings (combined
with index-linked note offerings of the
issuer’s affiliates) listed on a national
securities exchange or traded through
the facilities of Nasdaq exceeds 25% of
the issuer’s net worth.
(f) The issuer is in compliance with
Rule 10A–3 under the Securities
Exchange Act of 1934.
(g) Initial Listing Criteria—Each
underlying index is required to have at
least ten (10) component securities. In
addition, the index or indexes to which
the security is linked shall either (1)
have been reviewed and approved for
the trading of options or other
derivatives by the Commission under
section 19(b)(2) of the 1934 Act and
rules thereunder and the conditions set
forth in the Commission’s approval
order, including comprehensive
surveillance sharing agreements for
non-U.S. stocks, continue to be satisfied,
or (2) the index or indexes meet the
following criteria:
(i) Each component security has a
minimum market value of at least $75
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million, except that for each of the
lowest weighted component securities in
the index that in the aggregate account
for no more than 10% of the weight of
the index, the market value can be at
least $50 million;
(ii) Each component security shall
have trading volume in each of the last
six months of not less than 1,000,000
shares, except that for each of the lowest
weighted component securities in the
index that in the aggregate account for
no more than 10% of the weight of the
index, the trading volume shall be at
least 500,000 shares in each of the last
six months;
(iii) In the case of a capitalization
weighted index, the lesser of the five
highest weighted component securities
in the index or the highest weighted
component securities in the index that
in the aggregate represent at least 30%
of the total number of component
securities in the index, each have an
average monthly trading volume of at
least 2,000,000 shares over the previous
six months;
(iv) No underlying component
security will represent more than 25%
of the weight of the index, and the five
highest weighted component securities
in the index do not in the aggregate
account for more than 50% of the
weight of the index (60% for an index
consisting of fewer than 25 component
securities);
(v) 90% of the index’s numerical
value and at least 80% of the total
number of component securities will
meet the then current criteria for
standardized option trading set forth in
Exchange Rule 915;
(vi) Each component security shall be
a 1934 Act reporting company which is
listed on a national securities exchange
or is traded through the facilities of a
national securities system and is subject
to last sale reporting; and
(vii) Foreign country securities or
American Depository Receipts (‘‘ADRs’’)
that are not subject to comprehensive
surveillance agreements do not in the
aggregate represent more than 20% of
the weight of the index.
(h) Continued Listing Criteria—(1)
The Exchange will commence delisting
or removal proceedings (unless the
Commission has approved the
continued trading of the subject indexlinked security), if any of the standards
set forth above in paragraph (g) are not
continuously maintained, except that:
(i) The criteria that no single
component represent more than 25% of
the weight of the index and the five
highest weighted components in the
index can not represent more than 50%
(or 60% for indexes with less than 25
components) of the weight of the Index,
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need only be satisfied for capitalization
weighted and price weighted indexes as
of the first day of January and July in
each year;
(ii) The total number of components
in the index may not increase or
decrease by more than 331⁄3 percent
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;
(iii) The trading volume of each
component security in the index must
be at least 500,000 shares for each of the
last six months, except that for each of
the lowest weighted components in the
index that in the aggregate account for
no more than 10% of the weight of the
index, trading volume must be at least
400,000 shares for each of the last six
months; and
(iv) In a capitalization-weighted
index, the lesser of the five highest
weighted component securities in the
index or the highest weighted
component securities in the index that
in the aggregate represent at least 30%
of the total number of stocks in the
index have had an average monthly
trading volume of at least 1,000,000
shares over the previous six months.
(2) In connection with an index-linked
security that is listed pursuant to
paragraph (g)(1) above, the Exchange
will commence delisting or removal
proceedings (unless the Commission has
approved the continued trading of the
subject index-linked security) if an
underlying index or indexes fails to
satisfy the maintenance standards or
conditions for such index or indexes as
set forth by the Commission in its order
under section 19(b)(2) of the 1934 Act
approving the index or indexes for the
trading of options or other derivatives.
(3) The Exchange will also commence
delisting or removal proceedings (unless
the Commission has approved the
continued trading of the subject indexlinked security), under any of the
following circumstances:
(i) If the aggregate market value or the
principal amount of the securities
publicly held is less than $400,000;
(ii) If the value of the index or
composite value of the indexes is no
longer calculated or widely
disseminated on at least a 15-second
basis; or
(iii) If such other event shall occur or
condition exists which in the opinion of
the Exchange makes further dealings on
the Exchange inadvisable.
(i) Index Methodology and
Calculation—(i) Each index will be
calculated based on either a
capitalization, modified capitalization,
price, equal-dollar or modified equaldollar weighting methodology. (ii)
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Indexes based upon the equal-dollar or
modified equal-dollar weighting method
will be rebalanced at least quarterly. (iii)
If the index is maintained by a brokerdealer, the broker-dealer shall erect a
‘‘firewall’’ around the personnel who
have access to information concerning
changes and adjustments to the index
and the index shall be calculated by a
third party who is not a broker-dealer.
(iv) The current value of an index will
be widely disseminated at least every 15
seconds. (v) If the value of an indexlinked security is based on more than
one (1) index, then the composite value
of such indexes must be widely
disseminated at least every 15 seconds.
(i) Surveillance Procedures. The
Exchange will implement written
surveillance procedures for index-linked
securities, including adequate
comprehensive surveillance sharing
agreements for non-U.S. securities, as
applicable.
(k) Index-linked securities will be
treated as equity instruments.
E. No Change
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
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 IV 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 Exchange proposes to add new
Section 107D to the Amex Company
Guide to provide generic listing
standards to permit the listing and
trading of Index Securities pursuant to
Rule 19b–4(e) under the Act.5 Rule 19b–
4(e) provides that the listing and trading
of a new derivative securities product
by a self-regulatory organization shall
not be deemed a proposed rule change,
pursuant to paragraph (c)(1) of Rule
19b–4,6 if the Commission has
approved, pursuant to section 19(b) of
the Act,7 the self-regulatory
5 17
CFR 240.19b–4(e).
CFR 240.19b–4(c)(1).
7 15 U.S.C. 78s(b).
6 17
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organization’s trading rules, procedures
and listing standards for the product
class that would include the new
derivatives securities product, and the
self-regulatory organization has a
surveillance program for the product
class.8
The Commission has previously
approved the listing and trading of
several Index Securities by the
Exchange based on a variety of debt
structures and market indexes.9 In
approving these securities for Exchange
trading, the Commission thoroughly
considered the structures, their
usefulness to investors and to the
markets, and Amex rules that govern
their trading. The Exchange believes
that adopting generic listing standards
for these securities and applying Rule
19b–4(e) should fulfill the intended
objective of that Rule by allowing those
Index Securities that satisfy the
proposed generic listing standards to
commence trading, without the need for
the public comment period and
Commission approval.10 This has the
potential to reduce the time frame for
bringing Index Securities to market and
thereby reducing the burdens on issuers
and other market participants. The
failure of a particular index to comply
with the proposed generic listing
standards under Rule 19b–4(e),
however, would not preclude the
Exchange from submitting a separate
filing pursuant to section 19(b)(2),
requesting Commission approval to list
and trade a particular index-linked
product.
Under section 107A of the Amex
Company Guide, the Exchange may
approve for listing and trading securities
that cannot be readily categorized under
the listing criteria for common and
preferred securities, bonds, debentures,
or warrants.11 The Amex proposes in
this rule filing to adopt generic listing
standard for Index Securities under new
Section 107D.12 Index Securities are
8 See Securities Exchange Act Release No. 40761
(December 8, 1998), 63 FR 70952 (December 22,
1998) (the ‘‘19b–4(e) Order’’).
9 See infra notes 14, 15 and 19.
10 The Exchange has previously received
Commission approval to list and trade certain index
options, exchange-traded fund shares and trust
issued receipts pursuant to Rule 19b–4(e). See
Securities Exchange Act Release Nos. 41091
(February 23, 1999), 64 FR 10515 (March 4, 1999)
(Index Options); 42787 (May 15, 2000), 65 FR 33598
(May 24, 2000) (ETFs); and 43396 (September 29,
2000), 65 FR 60230 (October 10, 2000) (TIRs).
11 See Securities Exchange Act Release No. 27753
(March 1, 1990), 55 FR 8624 (March 8, 1990) (order
approving File No. SR–Amex–89–29).
12 See Securities Exchange Act Release No. 32343
(May 20, 1993), 58 FR 30833 (May 27, 1993) (first
Commission order approving equity linked notes
(‘‘Original ELN Order’’)). See also Securities
Exchange Act Release Nos. 42582 (March 27, 2001),
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designed for investors who desire to
participate in a specific market segment
or combination of market segments
through index products. Each Index
Security is intended to provide
investors with exposure to an
identifiable underlying market index.
Index Securities may or may not make
interest payments to the holder during
their term. Despite the fact that Index
Securities are linked to an underlying
index, each will trade as a single,
exchange-listed security.
The Exchange proposes that generic
listing standards appropriate for Index
Securities provide that each index or
combination of indexes (the
‘‘Underlying Index’’ or ‘‘Underlying
Indexes’’) meet the criteria set forth in
proposed section 107D(g) or be an index
previously approved for the trading of
options or other derivative securities by
the Commission under section 19(b)(2)
of the Act and rules thereunder. In all
cases, an Underlying Index is required
to have a minimum of ten (10)
component securities. The specific
criteria for each underlying component
security in proposed section 107D(g) is
set forth below in the section entitled
‘‘Eligibility Standards for Underlying
Component Securities.’’ In general, the
criteria for the underlying component
securities of an Underlying Index is
substantially similar to the requirements
for index options set forth in
Commentary .02 to Amex Rule 901C.
Description of Index-Linked
Securities. Index Securities are the nonconvertible debt of an issuer that have
a term of at least one (1) year but not
greater than ten (10) years. The issuer of
an Index Security may or may not
provide for periodic interest payments
to holders based on dividends or other
cash distributions paid on the securities
comprising the Underlying Index or
Indexes during a prescribed period.13
The holder of an Index Security may or
may not be fully exposed to the
appreciation and/or depreciation of the
underlying component securities. For
example, an Index Security may be
subject to a ‘‘cap’’ on the maximum
principal amount to be repaid to holders
or a ‘‘floor’’ on the minimum principal
amount to be repaid to holders at
maturity. A typical Index Security listed
and traded on the Exchange provides for
a payment amount in a multiple greater
than one (1) times the positive index
65 FR 17685 (April 4, 2000) (permitting ELN on up
to 20 securities) and 47055 (December 19, 2002), 67
FR 79669 (December 30, 2002) (increasing
allowable ELN basket to 30 securities).
13 Interest payments may be based on a fixed or
floating rate.
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return or performance, subject to a
maximum gain or cap.14
The proposed generic listing
standards will not be applicable to
Index Securities where the payment at
maturity may be based on a multiple of
negative performance of an underlying
index or indexes. An Index Security
may not provide for a minimum
guaranteed amount to be repaid, i.e., no
‘‘principal protection.’’ Other Index
Securities provide for participation in
the positive return or performance of an
index with the added protection of
receiving a payment guarantee of the
issuance price or ‘‘principal protection.’’
Further iterations may also provide
‘‘contingent’’ protection of the principal
amount, whereby the principal
protection may disappear if the
Underlying Index at any point in time
during the life of such security reaches
a certain pre-determined level.15 The
Exchange believes that the flexibility to
list a variety of Index Securities will
offer investors the opportunity to more
precisely focus their specific investment
strategies.
The original public offering price of
Index Securities may vary with the most
14 See, e.g., Securities Exchange Act Release Nos.
50812 (December 7, 2004), 69 FR 74544 (December
14, 2004) (approving the listing and trading of
Wachovia Notes linked to the performance of the
Nasdaq-100); 50278 (August 26, 2004), 69 FR 53751
(September 2, 2004) (approving the listing and
trading of Citigroup Notes linked to the
performance of the S&P 500); 50019 (July 14, 2004),
69 FR 43635 (July 21, 2004) (approving the listing
and trading of Morgan Stanley PLUS Notes linked
to the performance of the S&P 500); 50016 (July 14,
2004), 69 FR 43639 (July 21, 2004) (approving the
listing and trading of Morgan Stanley PLUS Notes
linked to the performance of the Nikkei 225 Index);
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); 47983 (June
4, 2003), 68 FR 35032 (June 11, 2003) (approving
the listing and trading of a CSFB Accelerated
Return Notes linked to S&P 500); 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); 46883 (November 21, 2002), 67 FR
71216 (November 29, 2002) (approving the listing
and trading of Market Recovery Notes on the DJIA)
and 45966 (May 20, 2002), 67 FR 36942 (May 28,
2002) (approving the listing and trading of notes
linked to the performance of the Nasdaq 100).
15 See, e.g., Securities Exchange Act Release Nos.
50850 (December 14, 2004), 69 FR 76506 (December
21, 2004) (approving the listing and trading of
Wachovia Trigger Capitals linked to the
performance of the S&P 500); 50414 (September 20,
2004), 69 FR 58001 (September 28, 2004)
(approving the listing and Trading of Lehman
Contingent Protection Notes on the S&P 500); 49453
(March 19, 2004), 69 FR 15913 (March 26, 2004)
(approving the listing and Trading of Contingent
Principal Protection Notes linked to the
performance of the DJIA); 48486 (September 11,
2003), 68 FR 54758 (September 18, 2003)
(approving the listing and trading of CSFB
Contingent Principal Protection Notes linked to the
performance of the S&P 500); and 48152 (July 10,
2003), 68 FR 42435 (July 17, 2003) (approving the
listing and trading of a UBS Partial Protection Note
linked to the performance of the S&P 500).
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common offering price expected to be
$10 or $1,000 per unit. As discussed
above, Index Securities entitle the
owner at maturity to receive a cash
amount based upon the performance of
a particular market index or
combination of indexes. The structure of
an Index Security may provide
‘‘principal protection’’ or provide that
the principal amount is fully exposed to
the performance of a market index. The
Index Securities do not give the holder
any right to receive a portfolio security,
dividend payments, or any other
ownership right or interest in the
portfolio or index of securities
comprising the Underlying Index. The
current value of an Underlying Index or
composite value of the Underlying
Indexes will be widely disseminated at
least every 15 seconds during the
trading day.
Index Securities may or may not be
structured 16 with accelerated returns,
upside or downside, based on the
performance of the Underlying Index.
For example, an Index Security may
provide for an accelerated return of 3to-1 if the Underlying Index achieves a
positive return at maturity. The
Exchange submits that Index Securities
are ‘‘hybrid’’ securities whose rates of
return are largely the result of the
performance of an Underlying Index or
Indexes comprised of component
securities. In connection with the listing
and trading of Index Securities, the
Exchange will issue an Information
Circular to members detailing the
special risks and characteristics of the
securities. Accordingly, the particular
structure and corresponding risk of any
Index Security traded on the Exchange
will be highlighted and disclosed.17
Index Securities are expected to trade
at a lower cost than the cost of trading
16 See, e.g., Securities Exchange Act Release Nos.
48280 (August 1, 2003), 68 FR 47121 (August 7,
2003). As stated, the proposed generic listing
standards will not be applicable to Index Securities
that are structured with ‘‘downside’’ accelerated
returns.
17 The Exchange notes that members conducting
a public securities business are subject to the rules
and regulations of the NASD, including NASD Rule
2310(a) and (b). Accordingly, NASD Notice to
Members 03–71 regarding non-conventional
investments or ‘‘NCIs’’ applies to Exchange
members recommending/selling index-linked
securities to public customers. This Notice
specifically reminds members in connection with
NCIs (such as index-linked securities) of their
obligations to: (1) Conduct adequate due diligence
to understand the features of the product; (2)
perform a reasonable-basis suitability analysis; (3)
perform customer-specific suitability analysis in
connection with any recommended transactions; (4)
provide a balanced disclosure of both the risks and
rewards associated with the particular product,
especially when selling to retail investors; (5)
implement appropriate internal controls; and (6)
train registered persons regarding the features, risk
and suitability of these products.
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each of the underlying component
securities separately (because of
reduced commission and custody costs)
and are also expected to give investors
the ability to maintain index exposure
without the corresponding management
or administrative fees and ongoing
expenses. The initial offering price for
an Index Security will be established on
the date the security is priced for sale
to the public. The final value of an
Index Security will be determined on
the valuation date at or near maturity
consistent with the mechanics detailed
in the prospectus for such Index
Security.
Eligibility Standards for Issuers. The
following standards are proposed for
each issuer of Index Securities:
(A) Assets/Equity—The issuer shall
have assets in excess of $100 million
and stockholders’ equity of at least $10
million. In the case of an issuer that is
unable to satisfy the earnings criteria set
forth in Section 101 of the Amex
Company Guide, the Exchange generally
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.
(B) Distribution—Minimum public
distribution of 1,000,000 notes with a
minimum of 400 public shareholders,
except, if traded in thousand dollar
denominations, then no minimum
number of holders.
(C) Principal Amount/Aggregate
Market Value—Not less than $4 million.
(D) Term—The issue has a minimum
of one (1) year but not greater than ten
(10) years.
(E) Tangible Net Worth—The issuer
will be expected to have a minimum
tangible net worth 18 in excess of
$250,000,000 and to otherwise
substantially exceed the earnings
requirements set forth in section 101 of
the Amex Company Guide. In the
alternative, the issuer will be expected:
(i) to have a minimum tangible net
worth of $150,000,000 and to otherwise
substantially exceed the earnings
requirement set forth in section 101 of
the Amex Company Guide, and (ii) not
to have issued securities where the
original issue price of all the issuer’s
other index-linked note offerings
(combined with index-linked note
offerings of the issuer’s affiliates) listed
on a national securities exchange or
18 ‘‘Tangible net worth’’ is defined as total assets
less intangible assets and total liabilities.
Intangibles include non-material benefits such as
goodwill, patents, copyrights and trademarks.
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traded through the facilities of Nasdaq
exceeds 25% of the issuer’s net worth.
Description of Underlying Indexes.
Each Underlying Index will either be (i)
an index meeting the specific criteria set
forth below in proposed Amex
Company Guide section 107D(g) that is
similar to current Amex Rule
Commentary .02 to Rule 901C; or (ii) an
index approved for the trading of
options or other derivatives securities
by the Commission under section
19(b)(2) of the Act and rules thereunder.
However, in all cases, an Underlying
Index must contain at least ten (10)
component securities.
Examples of Underlying Indexes
intended to be covered under the
proposed generic listing standards
include the Standard & Poor’s 500 Index
(‘‘S&P 500’’), Nasdaq-100 Index
(‘‘Nasdaq 100’’), the Dow Jones
Industrial Average (‘‘DJIA’’), Nikkei 225
Index (‘‘Nikkei 225’’), the Dow Jones
STOXX 50 Index (‘‘DJ STOXX 50’’), the
Global Titans 50 Index (‘‘Global Titans
50’’), Amex Biotechnology Index
(‘‘Amex Biotech’’), and certain other
indexes that represent various industry
and/or market segments.19 The
Exchange will require that all changes to
an Underlying Index, including the
deletion and addition of underlying
component securities, index
rebalancings and changes to the
calculation of the index, will be made
in accordance with the proposed generic
criteria or the Commission’s section
19(b)(2) order, which approved the
similar derivative product containing
the Underlying Index.
In order to satisfy the proposed
generic listing standards, the
Underlying Index will be calculated
based on either a market
capitalization,20 modified market
19 See supra notes 14, 15. See also Securities
Exchange Act Release Nos. 49548 (April 9, 2004),
69 FR 20089 (April 15, 2004) (approving the listing
and trading of notes linked to the performance of
the Select Utility Index); 48151 (July 10, 2003), 68
FR 42438 (July 17, 2003) (approving the listing and
trading of notes linked to the performance of the
Amex Biotechnology Index); 46882 (November 21,
2002), 67 FR 71219 (November 29, 2002) (approving
the listing and trading of notes linked to the
performance of the Select Fifty Index); 45305
(January 17, 2002), 67 FR 3753 (January 25, 2002)
(approving the listing and trading of notes linked
to the performance of the Biotech-Pharmaceutical
Index); 44342 (May 23, 2001), 66 FR 29613 (May
31, 2001) (Select Ten Index); 44437 (June 18, 2001),
66 FR 33585 (June 22, 2001) (approving the listing
and trading of notes linked to the performance of
the Industrial 15 Index); and 46021 (June 3, 2002),
67 FR 39753 (June 10, 2002) (approving the listing
and trading of notes linked to the performance of
the Select European 50 Index).
20 A ‘‘market capitalization’’ index is the most
common type of stock index. The components are
weighted according to the total market value of the
outstanding shares, i.e., share price times the
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capitalization,21 price,22 equal-dollar 23
or modified equal-dollar 24 weighting
methodology. If a broker-dealer is
responsible for maintaining (or has a
role in maintaining) the Underlying
Index, such broker-dealer is required to
erect and maintain a ‘‘firewall,’’ in a
form satisfactory to the Exchange, to
prevent the flow of information
regarding the Underlying Index from the
index production personnel to the sales
and trading personnel.25 In addition, an
Underlying Index that is maintained by
a broker-dealer is also required to be
calculated by an independent third
party who is not a broker-dealer.
Eligibility Standards for Underlying
Securities. Index Securities will be
subject to the criteria in proposed Amex
Company Guide section 107D(g) and (h)
for initial and continued listing. For an
Underlying Index to be appropriate for
the initial listing of an Index Security,
number of shares outstanding. This type of index
will fluctuate in line with the price moves of the
component stocks.
21 A ‘‘modified market capitalization’’ index is
similar to the market capitalization index, except
that an adjustment to the weights of one or more
of the components occurs. This is typically done to
avoid having an index that has one or a few stocks
representing a disproportionate amount of the index
value.
22 A ‘‘price weighted’’ index is an index in which
the component stocks are weighted by their share
price. The most common example is the DJIA.
23 An ‘‘equal dollar weighted’’ index is an index
structured so that share quantities for each of the
component stocks in the index are determined as
if one were buying an equal dollar amount of each
stock in the index. Equal dollar weighted indexes
are usually rebalanced to equal weightings either
quarterly, semi-annually, or annually.
24 A ‘‘modified equal-dollar weighted’’ index is
designed to be a fair measurement of the particular
industry or sector represented by the index, without
assigning an excessive weight to one or more index
components that have a large market capitalization
relative to the other index components. In this type
of index, each component is assigned a weight that
takes into account the relative market capitalization
of the securities comprising the index. The index
is subsequently rebalanced to maintain these preestablished weighting levels. Like equal-dollar
weighted indexes, the value of a modified equaldollar weighted index will equal the current
combined market value of the assigned number of
shares of each of the underlying components
divided by the appropriate index divisor. A
modified equal-dollar weighted index will typically
be re-balanced quarterly.
25 For certain indexes, an index provider, such as
Dow Jones, may select the components and
calculate the index, but overseas broker-dealer
affiliates of U.S. registered broker-dealers may sit on
an ‘‘advisory’’ committee that recommends
component selections to the index provider. In such
case, the Exchange should ensure that appropriate
information barriers and insider trading policies
exist for this advisory committee. See Securities
Exchange Act Release No. 50501 (October 7, 2004),
69 FR 61533 (October 19, 2004) (approving NASD
2004–138, pertaining to index linked notes on the
Dow Jones Euro Stoxx 50 Index). Telephone
conversation between Jeffrey Burns, Associate
General Counsel, Amex, and Florence Harmon,
Senior Special Counsel, Division of Market
Regulation, Commission, on February 23, 2005.
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19:07 Mar 03, 2005
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such Index must either be approved for
the trading of options or other derivative
securities by the Commission under
section 19(b)(2) of the Act and rules
thereunder or meet the following
requirements:
• A minimum market value of at least
$75 million, except that for each of the
lowest weighted Underlying Securities
in the index that in the aggregate
account for no more than 10% of the
weight of the index, the market value
can be at least $50 million;
• Trading volume in each of the last
six months of not less than 1,000,000
shares, except that for each of the lowest
weighted Underlying Securities in the
index that in the aggregate account for
no more than 10% of the weight of the
index, the trading volume shall be at
least 500,000 shares in each of the last
six months;
• In the case of a capitalizationweighted index, the lesser of the five
highest weight Underlying Securities in
the index or the highest weighted
Underlying Securities in the index that
in the aggregate represent at least 30%
of the total number of Underlying
Securities in the index, each have an
average monthly trading volume of at
least 2,000,000 shares over the previous
six months;
• No component security will
represent more than 25% of the weight
of the index, and the five highest
weighted component securities in the
index will not in the aggregate account
for more than 50% of the weight of the
index (60% for an index consisting of
fewer than 25 Underlying Securities);
• 90% of the index’s numerical index
value and at least 80% of the total
number of component securities will
meet the then current criteria for
standardized options trading set forth in
Exchange Rule 915;
• Each component security shall be a
1934 Act reporting company which is
listed on a national securities exchange
or is traded through the facilities of a
national securities system and is subject
to last sale reporting; and
• Foreign country securities or
American Depository Receipts (‘‘ADRs’’)
that are not subject to comprehensive
surveillance agreements do not in the
aggregate represent more than 20% of
the weight of the index.
As described above in the section
entitled ‘‘Description of Underlying
Indexes,’’ all Underlying Indexes are
required to have at least ten (10)
component securities.
The proposed continued listing
criteria set forth in proposed Amex
Company Guide section 107D(h)(1)
regarding the underlying components of
an Underlying Index provides that the
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Exchange will commence delisting or
removal proceedings of an Index
Security (unless the Commission has
approved the continued trading of the
Index Security) if any of the standards
set forth in the initial eligibility criteria
of proposed Amex Company Guide
section 107D(g) are not continuously
maintained, except that:
• The criteria that no single
component represent more than 25% of
the weight of the index and the five
highest weighted components in the
index can not represent more than 50%
(or 60% for indexes with less than 25
components) of the weight of the Index,
need only be satisfied for capitalization
weighted and price weighted indexes as
of the first day of January and July in
each year;
• The total number of components in
the index may not increase or decrease
by more than 331⁄3% 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 trading volume of each
component security in the index must
be at least 500,000 shares for each of the
last six months, except that for each of
the lowest weighted components in the
index that in the aggregate account for
no more than 10% of the weight of the
index, trading volume must be at least
400,000 shares for each of the last six
months; and
• In a capitalization-weighted index,
the lesser of the five highest weighted
component securities in the index or the
highest weighted component securities
in the index that in the aggregate
represent at least 30% of the total
number of stocks in the index have had
an average monthly trading volume of at
least 1,000,000 shares over the previous
six months.
In connection with an Index Security
that is listed pursuant to proposed
Amex Company Guide section
107D(g)(1), the Exchange will
commence delisting or removal
proceedings (unless the Commission has
approved the continued trading of the
Index Security) if an underlying index
or indexes fails to satisfy the
maintenance standards or conditions for
such index or indexes as set forth by the
Commission in its order under section
19(b)(2) of the Act approving the index
or indexes for the trading of options or
other derivatives.
As set forth in proposed Amex
Company Guide section 107D(h)(3), the
Exchange will also commence delisting
or removal proceedings of an Index
Security (unless the Commission has
approved the continued trading of the
Index Security), under any of the
following circumstances:
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Federal Register / Vol. 70, No. 42 / Friday, March 4, 2005 / Notices
• If the aggregate market value or the
principal amount of the securities
publicly held is less than $400,000;
• If the value of the Underlying Index
or composite value of the Underlying
Indexes is no longer calculated and
widely disseminated on at least a 15second basis; or
• If such other event shall occur or
condition exists which is the opinion of
the Exchange makes further dealings on
the Exchange inadvisable.
The Amex represents that Index
Securities listed and traded on the
Exchange will be required to be in
compliance with Rule 10A–3 under the
Act.26
Exchange Rules Applicable to IndexLinked Securities. Index Securities will
be treated as equity instruments and
will be subject to all Exchange rules
governing the trading of equity
securities, including, among others,
rules governing priority, parity and
precedence of orders, market volatility
related trading halt provisions pursuant
to Amex Rule 117, and responsibilities
of the specialist. Exchange equity
margin rules and the regular equity
trading hours of 9:30 a.m. to 4 p.m. will
apply to transactions in Index
Securities.
In addition, the Exchange will
evaluate the nature and complexity of
each Index Security and, if appropriate,
distribute a circular to the membership,
prior to the commencement of trading,
providing guidance with respect to,
among other things, member firm
compliance responsibilities when
handling transactions in Index
Securities and highlighting the special
risks and characteristics. Specifically,
the circular, among other things, will
discuss and emphasize the structure and
operation of the Index Security, the
requirement that members and member
firms deliver a prospectus to investors
purchasing an Index Security prior to or
concurrently with the confirmation of a
transaction, applicable Amex rules,
dissemination information regarding the
Underlying Index, trading information
and applicable suitability rules.
In particular, the circular will set
forth the Exchange’s suitability rule that
requires member and member
organizations and employees thereof
recommending a transaction in Index
Securities: (1) To determine that such
transaction is suitable for the customer
(Amex Rule 411) 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.
26 See
Rule 10A–3(c)(7), 17 CFR 240.10A–3(c)(7).
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19:07 Mar 03, 2005
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The Exchange will closely monitor
activity in Index Securities to identify
and deter any potential improper
trading activity in Index Securities. The
Exchange represents that its
surveillance procedures are adequate to
properly monitor the trading of Index
Securities. Specifically, the Amex will
rely on its existing surveillance
procedures governing equities, options
and exchange-traded funds, which have
been deemed adequate under the Act.
The Exchange has developed
procedures to closely monitor activity in
the Index Security and related
Underlying Securities to identify and
deter potential improper trading
activity. Proposed Amex Company
Guide section 107D(j) provides that the
Exchange will implement written
surveillance procedures for Index
Securities.
The Exchange also has a general
policy prohibiting the distribution of
material, non-public information by its
employees. As detailed above in the
description of the generic standards, if
the issuer or a broker-dealer is
responsible for maintaining (or has a
role in maintaining) the Underlying
Index, such issuer or broker-dealer is
required to erect and maintain a
‘‘firewall’’ in a form satisfactory to the
Exchange, in order to prevent the flow
of information regarding the Underlying
Index from the index production
personnel to sales and trading
personnel. In addition, the Exchange
will require that calculation of
Underlying Indexes be performed by an
independent third party who is not a
broker-dealer.
The Exchange submits that several
Index Securities based on both broadbased and market segment indexes are
currently trading on the Exchange.27
Each of these products separately
received approval for trading by the
Commission. Amex believes that the
27 See, e.g., Securities Exchange Act Release Nos.
48151 (July 10, 2003), 68 FR 42438 (July 17, 2003)
(approving the listing and trading of notes linked
to the Amex Biotech Index); 47983 (June 4, 2003),
68 FR 35032 (June 11, 2003) (approving the listing
and trading of a CSFB Note linked to S&P 500);
47911 (May 22, 2003), 68 FR 32558 (May 30, 2003)
(approving the listing and trading of notes linked
to the S&P 500); 46021 (June 3, 2002), 67 FR 39753
(June 10, 2002) (approving the listing and trading
of notes linked to the Select European 50 Index);
45639 (March 25, 2002), 67 FR 15258 (March 29,
2002) (approving the listing and trading of notes
linked to the Oil Natural Gas Index); 45305 (January
17, 2002), 67 FR 3753 (January 25, 2002) (approving
the listing and trading of notes linked to the
Biotech-Pharmaceutical Index); 44437 (June 18,
2001), 66 FR 33585 (June 22, 2001) (approving the
listing and trading of notes linked to the Industrial
15 Index); and 44342 (May 23, 2001), 66 FR 29613
(May 31, 2001) (approving the listing and trading
of notes linked to the Select Ten Index). See also
supra notes 13, 14 and 18.
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10705
proposed generic listing standards for
Index Securities will serve to streamline
and increase the efficiency of listing
index-linked products on the Exchange.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
section 6(b) of the Act 28 in general and
furthers the objective of section
6(b)(5) 29 in particular in that it is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principal 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.
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 did not solicit or
receive any written comments with
respect to the proposed rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the Exchange consents,
the Commission will:
A. By order approve such proposed
rule change, or
B. Institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. 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:
28 15
29 15
E:\FR\FM\04MRN1.SGM
U.S.C. 78f(b).
U.S.C. 78f(b)(5)
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Federal Register / Vol. 70, No. 42 / Friday, March 4, 2005 / Notices
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–Amex–2005–001 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
Securities and Exchange Commission,
450 Fifth Street, NW., Washington, DC
20549–0609.
All submissions should refer to File
Number SR–Amex–2005–001. 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 (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Section, 450 Fifth Street, NW.,
Washington, DC 20549. Copies of such
filing also will be available for
inspection and copying at the principal
office of the Amex. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–Amex–
2005–001 and should be submitted on
or before March 25, 2005.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.30
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–875 Filed 3–3–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–51269; File No. SR–Amex–
2005–025]
Self-Regulatory Organizations; Notice
of Filing and Immediate Effectiveness
of Proposed Rule Change by the
American Stock Exchange LLC
Relating to Fees for Transactions in
Options on the Nasdaq 100 Index
(NDX) and Mini-Nasdaq 100 Index
(MNX)
February 28, 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 February
23, 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, II, and III below, which Items
have been prepared by the Exchange.
The Exchange filed the proposed rule
change pursuant to Section 19(b)(3)(A)
of the Act 3 and Rule 19b–4(f)(2)
thereunder,4 which renders it effective
upon filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to modify its
Options Fee Schedule by increasing the
per-contract license fee in connection
with transactions by specialists and
registered options traders (‘‘ROTs’’) in
options on the Nasdaq 100 Index
(‘‘NDX’’) and the reduced-value Nasdaq
100 Index (‘‘MNX’’). The text of the
proposed rule change is available on
Amex’s Web site (https://
www.amex.com), at the Amex’s
principal office, 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
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 IV below. The
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(2).
2 17
30 17
CFR 200.30–3(a)(12).
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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 Exchange has entered into
numerous agreements with index
providers for the purpose of trading
index options. The requirement to pay
an index license fee to such third parties
is a condition to the listing and trading
of these index options. In many cases,
the Exchange is required to pay a
significant licensing fee to issuers or
index owners that may not be
reimbursed. In an effort to recoup the
costs associated with index licenses, the
Exchange has previously established a
per-contract licensing fee for specialists
and ROTs that is collected on every
transaction in designated products in
which a specialist or ROT is a party.
The licensing fees currently imposed on
specialists and ROTs are set forth in the
Exchange’s Options Fee Schedule.
The current license fee charged to
specialists and ROTs trading NDX and
MNX options is $0.10 per contract side.
As a result of a recent change to the
licensing agreement for NDX and MNX,
the Exchange is now being charged a
higher license fee. Accordingly, the
Exchange now proposes to charge $0.15
per contract side for NDX and MNX
options.
The purpose of the proposed fee is for
the Exchange to recoup its costs in
connection with the index license fee
for the trading of NDX and MNX
options. The proposed license fee will
be collected on every transaction in
NDX or MNX options in which a
specialist or ROT is a party.
Accordingly, the Exchange believes that
requiring the payment of a per-contract
licensing fee by those specialists and
ROTs that are the beneficiaries of the
Exchange’s index license agreements is
justified and is consistent with the rules
of the Exchange. The Exchange believes
that passing the license fee (on a percontract basis) along to the specialists
allocated to NDX and MNX and the
ROTs trading such products is efficient
and consistent with the intent of the
Exchange to pass on its non-reimbursed
costs to those market participants that
are the beneficiaries of such license
agreements.
The Exchange notes that it has
recently increased a number of member
fees to better align Exchange fees with
the actual cost of delivering services and
E:\FR\FM\04MRN1.SGM
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]]>Agencies
[Federal Register Volume 70, Number 42 (Friday, March 4, 2005)]
[Notices]
[Pages 10700-10706]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-875]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-51258; File No. SR-Amex-2005-001]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment No. 1 Thereto by the American Stock Exchange LLC
Relating to the Adoption of Generic Listing Standards for Index-Linked
Securities
February 25, 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 January 6, 2005, the American Stock Exchange LLC (``Amex'' or
``Exchange'') filed with the Securities and Exchange Commission the
proposed rule change as described in Items I, II, and III below, which
Items have been prepared by the self-regulatory organization. On
February 25, 2005, Amex amended its proposal.\3\ The Commission is
publishing this notice to solicit comments on the proposed rule change,
as amended, from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Amendment No. 1, dated February 25, 2005 (``Amendment
No. 1''). In Amendment No. 1, the Exchange revised the proposed rule
text and corresponding description. Amendment No. 1 replaced Amex's
original filing in its entirety.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to add section 107D to the Amex Company Guide
for the purpose of adopting generic listing standards pursuant to Rule
19b-4(e) of the Act \4\ in connection with index-linked securities
(``Index Securities'').
---------------------------------------------------------------------------
\4\ 17 CFR 240.19b-4(e).
---------------------------------------------------------------------------
The text of the proposed rule change, as amended, is set forth
below. Proposed new language is in italics; proposed deletions are in
brackets.
* * * * *
Amex Company Guide
Section 107 Other Securities
The Exchange will consider listing any security not otherwise
covered by the criteria of sections 101 through 106, provided the issue
is otherwise suited for auction market trading. Such issues will be
evaluated for listing against the following criteria:
A-C. No Change
D. [Reserved] Index-Linked Securities
Index-linked securities are securities that provide for the payment
at maturity of a cash amount based on the performance of an underlying
index or indexes. Such securities may or may not provide for the
repayment of the original principal investment amount. The Exchange may
submit a rule filing pursuant to section 19(b)(2) of the Securities
Exchange Act of 1934 to permit the listing and trading of index-linked
securities that do not otherwise meet the standards set forth below in
paragraphs (a) through (k). The Exchange will consider for listing and
trading pursuant to Rule 19b-4(e) under the Securities Exchange Act of
1934, index-linked securities provided:
(a) Both the issue and the issuer of such security meet the
criteria set forth above in ``General Criteria,'' except that the
minimum public distribution shall be 1,000,000 units with a minimum of
400 public holders, except, if traded in thousand dollar denominations,
then no minimum number of holders.
(b) The issue has a minimum term of one (1) year but not greater
than ten (10) years.
(c) The issue must be the non-convertible debt of the issuer.
(d) The payment at maturity may or may not provide for a multiple
of the positive performance of an underlying index or indexes; however,
in no event will payment at maturity be based on a multiple of the
negative performance of an underlying index or indexes.
(e) The issuer will be expected to have a minimum tangible net
worth in excess of $250,000,000, and to otherwise substantially exceed
the earnings requirements set forth in section 101(a) of the Company
Guide. In the alternative, the issuer will be expected: (i) to have a
minimum tangible net worth of $150,000,000 and to otherwise
substantially exceed the earnings requirement set forth in section
101(a) of the Company Guide, and (ii) not to have issued securities
where the original issue price of all the issuer's other index-linked
note offerings (combined with index-linked note offerings of the
issuer's affiliates) listed on a national securities exchange or traded
through the facilities of Nasdaq exceeds 25% of the issuer's net worth.
(f) The issuer is in compliance with Rule 10A-3 under the
Securities Exchange Act of 1934.
(g) Initial Listing Criteria--Each underlying index is required to
have at least ten (10) component securities. In addition, the index or
indexes to which the security is linked shall either (1) have been
reviewed and approved for the trading of options or other derivatives
by the Commission under section 19(b)(2) of the 1934 Act and rules
thereunder and the conditions set forth in the Commission's approval
order, including comprehensive surveillance sharing agreements for non-
U.S. stocks, continue to be satisfied, or (2) the index or indexes meet
the following criteria:
(i) Each component security has a minimum market value of at least
$75
[[Page 10701]]
million, except that for each of the lowest weighted component
securities in the index that in the aggregate account for no more than
10% of the weight of the index, the market value can be at least $50
million;
(ii) Each component security shall have trading volume in each of
the last six months of not less than 1,000,000 shares, except that for
each of the lowest weighted component securities in the index that in
the aggregate account for no more than 10% of the weight of the index,
the trading volume shall be at least 500,000 shares in each of the last
six months;
(iii) In the case of a capitalization weighted index, the lesser of
the five highest weighted component securities in the index or the
highest weighted component securities in the index that in the
aggregate represent at least 30% of the total number of component
securities in the index, each have an average monthly trading volume of
at least 2,000,000 shares over the previous six months;
(iv) No underlying component security will represent more than 25%
of the weight of the index, and the five highest weighted component
securities in the index do not in the aggregate account for more than
50% of the weight of the index (60% for an index consisting of fewer
than 25 component securities);
(v) 90% of the index's numerical value and at least 80% of the
total number of component securities will meet the then current
criteria for standardized option trading set forth in Exchange Rule
915;
(vi) Each component security shall be a 1934 Act reporting company
which is listed on a national securities exchange or is traded through
the facilities of a national securities system and is subject to last
sale reporting; and
(vii) Foreign country securities or American Depository Receipts
(``ADRs'') that are not subject to comprehensive surveillance
agreements do not in the aggregate represent more than 20% of the
weight of the index.
(h) Continued Listing Criteria--(1) The Exchange will commence
delisting or removal proceedings (unless the Commission has approved
the continued trading of the subject index-linked security), if any of
the standards set forth above in paragraph (g) are not continuously
maintained, except that:
(i) The criteria that no single component represent more than 25%
of the weight of the index and the five highest weighted components in
the index can not represent more than 50% (or 60% for indexes with less
than 25 components) of the weight of the Index, need only be satisfied
for capitalization weighted and price weighted indexes as of the first
day of January and July in each year;
(ii) The total number of components in the index may not increase
or decrease by more than 33\1/3\ percent 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;
(iii) The trading volume of each component security in the index
must be at least 500,000 shares for each of the last six months, except
that for each of the lowest weighted components in the index that in
the aggregate account for no more than 10% of the weight of the index,
trading volume must be at least 400,000 shares for each of the last six
months; and
(iv) In a capitalization-weighted index, the lesser of the five
highest weighted component securities in the index or the highest
weighted component securities in the index that in the aggregate
represent at least 30% of the total number of stocks in the index have
had an average monthly trading volume of at least 1,000,000 shares over
the previous six months.
(2) In connection with an index-linked security that is listed
pursuant to paragraph (g)(1) above, the Exchange will commence
delisting or removal proceedings (unless the Commission has approved
the continued trading of the subject index-linked security) if an
underlying index or indexes fails to satisfy the maintenance standards
or conditions for such index or indexes as set forth by the Commission
in its order under section 19(b)(2) of the 1934 Act approving the index
or indexes for the trading of options or other derivatives.
(3) The Exchange will also commence delisting or removal
proceedings (unless the Commission has approved the continued trading
of the subject index-linked security), under any of the following
circumstances:
(i) If the aggregate market value or the principal amount of the
securities publicly held is less than $400,000;
(ii) If the value of the index or composite value of the indexes is
no longer calculated or widely disseminated on at least a 15-second
basis; or
(iii) If such other event shall occur or condition exists which in
the opinion of the Exchange makes further dealings on the Exchange
inadvisable.
(i) Index Methodology and Calculation--(i) Each index will be
calculated based on either a capitalization, modified capitalization,
price, equal-dollar or modified equal-dollar weighting methodology.
(ii) Indexes based upon the equal-dollar or modified equal-dollar
weighting method will be rebalanced at least quarterly. (iii) If the
index is maintained by a broker-dealer, the broker-dealer shall erect a
``firewall'' around the personnel who have access to information
concerning changes and adjustments to the index and the index shall be
calculated by a third party who is not a broker-dealer. (iv) The
current value of an index will be widely disseminated at least every 15
seconds. (v) If the value of an index-linked security is based on more
than one (1) index, then the composite value of such indexes must be
widely disseminated at least every 15 seconds.
(i) Surveillance Procedures. The Exchange will implement written
surveillance procedures for index-linked securities, including adequate
comprehensive surveillance sharing agreements for non-U.S. securities,
as applicable.
(k) Index-linked securities will be treated as equity instruments.
E. No Change
* * * * *
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, 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 IV 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 Exchange proposes to add new Section 107D to the Amex Company
Guide to provide generic listing standards to permit the listing and
trading of Index Securities pursuant to Rule 19b-4(e) under the Act.\5\
Rule 19b-4(e) provides that the listing and trading of a new derivative
securities product by a self-regulatory organization shall not be
deemed a proposed rule change, pursuant to paragraph (c)(1) of Rule
19b-4,\6\ if the Commission has approved, pursuant to section 19(b) of
the Act,\7\ the self-regulatory
[[Page 10702]]
organization's trading rules, procedures and listing standards for the
product class that would include the new derivatives securities
product, and the self-regulatory organization has a surveillance
program for the product class.\8\
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\5\ 17 CFR 240.19b-4(e).
\6\ 17 CFR 240.19b-4(c)(1).
\7\ 15 U.S.C. 78s(b).
\8\ See Securities Exchange Act Release No. 40761 (December 8,
1998), 63 FR 70952 (December 22, 1998) (the ``19b-4(e) Order'').
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The Commission has previously approved the listing and trading of
several Index Securities by the Exchange based on a variety of debt
structures and market indexes.\9\ In approving these securities for
Exchange trading, the Commission thoroughly considered the structures,
their usefulness to investors and to the markets, and Amex rules that
govern their trading. The Exchange believes that adopting generic
listing standards for these securities and applying Rule 19b-4(e)
should fulfill the intended objective of that Rule by allowing those
Index Securities that satisfy the proposed generic listing standards to
commence trading, without the need for the public comment period and
Commission approval.\10\ This has the potential to reduce the time
frame for bringing Index Securities to market and thereby reducing the
burdens on issuers and other market participants. The failure of a
particular index to comply with the proposed generic listing standards
under Rule 19b-4(e), however, would not preclude the Exchange from
submitting a separate filing pursuant to section 19(b)(2), requesting
Commission approval to list and trade a particular index-linked
product.
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\9\ See infra notes 14, 15 and 19.
\10\ The Exchange has previously received Commission approval to
list and trade certain index options, exchange-traded fund shares
and trust issued receipts pursuant to Rule 19b-4(e). See Securities
Exchange Act Release Nos. 41091 (February 23, 1999), 64 FR 10515
(March 4, 1999) (Index Options); 42787 (May 15, 2000), 65 FR 33598
(May 24, 2000) (ETFs); and 43396 (September 29, 2000), 65 FR 60230
(October 10, 2000) (TIRs).
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Under section 107A of the Amex Company Guide, the Exchange may
approve for listing and trading securities that cannot be readily
categorized under the listing criteria for common and preferred
securities, bonds, debentures, or warrants.\11\ The Amex proposes in
this rule filing to adopt generic listing standard for Index Securities
under new Section 107D.\12\ Index Securities are designed for investors
who desire to participate in a specific market segment or combination
of market segments through index products. Each Index Security is
intended to provide investors with exposure to an identifiable
underlying market index. Index Securities may or may not make interest
payments to the holder during their term. Despite the fact that Index
Securities are linked to an underlying index, each will trade as a
single, exchange-listed security.
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\11\ See Securities Exchange Act Release No. 27753 (March 1,
1990), 55 FR 8624 (March 8, 1990) (order approving File No. SR-Amex-
89-29).
\12\ See Securities Exchange Act Release No. 32343 (May 20,
1993), 58 FR 30833 (May 27, 1993) (first Commission order approving
equity linked notes (``Original ELN Order'')). See also Securities
Exchange Act Release Nos. 42582 (March 27, 2001), 65 FR 17685 (April
4, 2000) (permitting ELN on up to 20 securities) and 47055 (December
19, 2002), 67 FR 79669 (December 30, 2002) (increasing allowable ELN
basket to 30 securities).
---------------------------------------------------------------------------
The Exchange proposes that generic listing standards appropriate
for Index Securities provide that each index or combination of indexes
(the ``Underlying Index'' or ``Underlying Indexes'') meet the criteria
set forth in proposed section 107D(g) or be an index previously
approved for the trading of options or other derivative securities by
the Commission under section 19(b)(2) of the Act and rules thereunder.
In all cases, an Underlying Index is required to have a minimum of ten
(10) component securities. The specific criteria for each underlying
component security in proposed section 107D(g) is set forth below in
the section entitled ``Eligibility Standards for Underlying Component
Securities.'' In general, the criteria for the underlying component
securities of an Underlying Index is substantially similar to the
requirements for index options set forth in Commentary .02 to Amex Rule
901C.
Description of Index-Linked Securities. Index Securities are the
non-convertible debt of an issuer that have a term of at least one (1)
year but not greater than ten (10) years. The issuer of an Index
Security may or may not provide for periodic interest payments to
holders based on dividends or other cash distributions paid on the
securities comprising the Underlying Index or Indexes during a
prescribed period.\13\ The holder of an Index Security may or may not
be fully exposed to the appreciation and/or depreciation of the
underlying component securities. For example, an Index Security may be
subject to a ``cap'' on the maximum principal amount to be repaid to
holders or a ``floor'' on the minimum principal amount to be repaid to
holders at maturity. A typical Index Security listed and traded on the
Exchange provides for a payment amount in a multiple greater than one
(1) times the positive index return or performance, subject to a
maximum gain or cap.\14\
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\13\ Interest payments may be based on a fixed or floating rate.
\14\ See, e.g., Securities Exchange Act Release Nos. 50812
(December 7, 2004), 69 FR 74544 (December 14, 2004) (approving the
listing and trading of Wachovia Notes linked to the performance of
the Nasdaq-100); 50278 (August 26, 2004), 69 FR 53751 (September 2,
2004) (approving the listing and trading of Citigroup Notes linked
to the performance of the S&P 500); 50019 (July 14, 2004), 69 FR
43635 (July 21, 2004) (approving the listing and trading of Morgan
Stanley PLUS Notes linked to the performance of the S&P 500); 50016
(July 14, 2004), 69 FR 43639 (July 21, 2004) (approving the listing
and trading of Morgan Stanley PLUS Notes linked to the performance
of the Nikkei 225 Index); 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); 47983 (June 4, 2003), 68 FR
35032 (June 11, 2003) (approving the listing and trading of a CSFB
Accelerated Return Notes linked to S&P 500); 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); 46883 (November 21,
2002), 67 FR 71216 (November 29, 2002) (approving the listing and
trading of Market Recovery Notes on the DJIA) and 45966 (May 20,
2002), 67 FR 36942 (May 28, 2002) (approving the listing and trading
of notes linked to the performance of the Nasdaq 100).
---------------------------------------------------------------------------
The proposed generic listing standards will not be applicable to
Index Securities where the payment at maturity may be based on a
multiple of negative performance of an underlying index or indexes. An
Index Security may not provide for a minimum guaranteed amount to be
repaid, i.e., no ``principal protection.'' Other Index Securities
provide for participation in the positive return or performance of an
index with the added protection of receiving a payment guarantee of the
issuance price or ``principal protection.'' Further iterations may also
provide ``contingent'' protection of the principal amount, whereby the
principal protection may disappear if the Underlying Index at any point
in time during the life of such security reaches a certain pre-
determined level.\15\ The Exchange believes that the flexibility to
list a variety of Index Securities will offer investors the opportunity
to more precisely focus their specific investment strategies.
---------------------------------------------------------------------------
\15\ See, e.g., Securities Exchange Act Release Nos. 50850
(December 14, 2004), 69 FR 76506 (December 21, 2004) (approving the
listing and trading of Wachovia Trigger Capitals linked to the
performance of the S&P 500); 50414 (September 20, 2004), 69 FR 58001
(September 28, 2004) (approving the listing and Trading of Lehman
Contingent Protection Notes on the S&P 500); 49453 (March 19, 2004),
69 FR 15913 (March 26, 2004) (approving the listing and Trading of
Contingent Principal Protection Notes linked to the performance of
the DJIA); 48486 (September 11, 2003), 68 FR 54758 (September 18,
2003) (approving the listing and trading of CSFB Contingent
Principal Protection Notes linked to the performance of the S&P
500); and 48152 (July 10, 2003), 68 FR 42435 (July 17, 2003)
(approving the listing and trading of a UBS Partial Protection Note
linked to the performance of the S&P 500).
---------------------------------------------------------------------------
The original public offering price of Index Securities may vary
with the most
[[Page 10703]]
common offering price expected to be $10 or $1,000 per unit. As
discussed above, Index Securities entitle the owner at maturity to
receive a cash amount based upon the performance of a particular market
index or combination of indexes. The structure of an Index Security may
provide ``principal protection'' or provide that the principal amount
is fully exposed to the performance of a market index. The Index
Securities do not give the holder any right to receive a portfolio
security, dividend payments, or any other ownership right or interest
in the portfolio or index of securities comprising the Underlying
Index. The current value of an Underlying Index or composite value of
the Underlying Indexes will be widely disseminated at least every 15
seconds during the trading day.
Index Securities may or may not be structured \16\ with accelerated
returns, upside or downside, based on the performance of the Underlying
Index. For example, an Index Security may provide for an accelerated
return of 3-to-1 if the Underlying Index achieves a positive return at
maturity. The Exchange submits that Index Securities are ``hybrid''
securities whose rates of return are largely the result of the
performance of an Underlying Index or Indexes comprised of component
securities. In connection with the listing and trading of Index
Securities, the Exchange will issue an Information Circular to members
detailing the special risks and characteristics of the securities.
Accordingly, the particular structure and corresponding risk of any
Index Security traded on the Exchange will be highlighted and
disclosed.\17\
---------------------------------------------------------------------------
\16\ See, e.g., Securities Exchange Act Release Nos. 48280
(August 1, 2003), 68 FR 47121 (August 7, 2003). As stated, the
proposed generic listing standards will not be applicable to Index
Securities that are structured with ``downside'' accelerated
returns.
\17\ The Exchange notes that members conducting a public
securities business are subject to the rules and regulations of the
NASD, including NASD Rule 2310(a) and (b). Accordingly, NASD Notice
to Members 03-71 regarding non-conventional investments or ``NCIs''
applies to Exchange members recommending/selling index-linked
securities to public customers. This Notice specifically reminds
members in connection with NCIs (such as index-linked securities) of
their obligations to: (1) Conduct adequate due diligence to
understand the features of the product; (2) perform a reasonable-
basis suitability analysis; (3) perform customer-specific
suitability analysis in connection with any recommended
transactions; (4) provide a balanced disclosure of both the risks
and rewards associated with the particular product, especially when
selling to retail investors; (5) implement appropriate internal
controls; and (6) train registered persons regarding the features,
risk and suitability of these products.
---------------------------------------------------------------------------
Index Securities are expected to trade at a lower cost than the
cost of trading each of the underlying component securities separately
(because of reduced commission and custody costs) and are also expected
to give investors the ability to maintain index exposure without the
corresponding management or administrative fees and ongoing expenses.
The initial offering price for an Index Security will be established on
the date the security is priced for sale to the public. The final value
of an Index Security will be determined on the valuation date at or
near maturity consistent with the mechanics detailed in the prospectus
for such Index Security.
Eligibility Standards for Issuers. The following standards are
proposed for each issuer of Index Securities:
(A) Assets/Equity--The issuer shall have assets in excess of $100
million and stockholders' equity of at least $10 million. In the case
of an issuer that is unable to satisfy the earnings criteria set forth
in Section 101 of the Amex Company Guide, the Exchange generally 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.
(B) Distribution--Minimum public distribution of 1,000,000 notes
with a minimum of 400 public shareholders, except, if traded in
thousand dollar denominations, then no minimum number of holders.
(C) Principal Amount/Aggregate Market Value--Not less than $4
million.
(D) Term--The issue has a minimum of one (1) year but not greater
than ten (10) years.
(E) Tangible Net Worth--The issuer will be expected to have a
minimum tangible net worth \18\ in excess of $250,000,000 and to
otherwise substantially exceed the earnings requirements set forth in
section 101 of the Amex Company Guide. In the alternative, the issuer
will be expected: (i) to have a minimum tangible net worth of
$150,000,000 and to otherwise substantially exceed the earnings
requirement set forth in section 101 of the Amex Company Guide, and
(ii) not to have issued securities where the original issue price of
all the issuer's other index-linked note offerings (combined with
index-linked note offerings of the issuer's affiliates) listed on a
national securities exchange or traded through the facilities of Nasdaq
exceeds 25% of the issuer's net worth.
---------------------------------------------------------------------------
\18\ ``Tangible net worth'' is defined as total assets less
intangible assets and total liabilities. Intangibles include non-
material benefits such as goodwill, patents, copyrights and
trademarks.
---------------------------------------------------------------------------
Description of Underlying Indexes. Each Underlying Index will
either be (i) an index meeting the specific criteria set forth below in
proposed Amex Company Guide section 107D(g) that is similar to current
Amex Rule Commentary .02 to Rule 901C; or (ii) an index approved for
the trading of options or other derivatives securities by the
Commission under section 19(b)(2) of the Act and rules thereunder.
However, in all cases, an Underlying Index must contain at least ten
(10) component securities.
Examples of Underlying Indexes intended to be covered under the
proposed generic listing standards include the Standard & Poor's 500
Index (``S&P 500''), Nasdaq-100 Index (``Nasdaq 100''), the Dow Jones
Industrial Average (``DJIA''), Nikkei 225 Index (``Nikkei 225''), the
Dow Jones STOXX 50 Index (``DJ STOXX 50''), the Global Titans 50 Index
(``Global Titans 50''), Amex Biotechnology Index (``Amex Biotech''),
and certain other indexes that represent various industry and/or market
segments.\19\ The Exchange will require that all changes to an
Underlying Index, including the deletion and addition of underlying
component securities, index rebalancings and changes to the calculation
of the index, will be made in accordance with the proposed generic
criteria or the Commission's section 19(b)(2) order, which approved the
similar derivative product containing the Underlying Index.
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\19\ See supra notes 14, 15. See also Securities Exchange Act
Release Nos. 49548 (April 9, 2004), 69 FR 20089 (April 15, 2004)
(approving the listing and trading of notes linked to the
performance of the Select Utility Index); 48151 (July 10, 2003), 68
FR 42438 (July 17, 2003) (approving the listing and trading of notes
linked to the performance of the Amex Biotechnology Index); 46882
(November 21, 2002), 67 FR 71219 (November 29, 2002) (approving the
listing and trading of notes linked to the performance of the Select
Fifty Index); 45305 (January 17, 2002), 67 FR 3753 (January 25,
2002) (approving the listing and trading of notes linked to the
performance of the Biotech-Pharmaceutical Index); 44342 (May 23,
2001), 66 FR 29613 (May 31, 2001) (Select Ten Index); 44437 (June
18, 2001), 66 FR 33585 (June 22, 2001) (approving the listing and
trading of notes linked to the performance of the Industrial 15
Index); and 46021 (June 3, 2002), 67 FR 39753 (June 10, 2002)
(approving the listing and trading of notes linked to the
performance of the Select European 50 Index).
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In order to satisfy the proposed generic listing standards, the
Underlying Index will be calculated based on either a market
capitalization,\20\ modified market
[[Page 10704]]
capitalization,\21\ price,\22\ equal-dollar \23\ or modified equal-
dollar \24\ weighting methodology. If a broker-dealer is responsible
for maintaining (or has a role in maintaining) the Underlying Index,
such broker-dealer is required to erect and maintain a ``firewall,'' in
a form satisfactory to the Exchange, to prevent the flow of information
regarding the Underlying Index from the index production personnel to
the sales and trading personnel.\25\ In addition, an Underlying Index
that is maintained by a broker-dealer is also required to be calculated
by an independent third party who is not a broker-dealer.
---------------------------------------------------------------------------
\20\ A ``market capitalization'' index is the most common type
of stock index. The components are weighted according to the total
market value of the outstanding shares, i.e., share price times the
number of shares outstanding. This type of index will fluctuate in
line with the price moves of the component stocks.
\21\ A ``modified market capitalization'' index is similar to
the market capitalization index, except that an adjustment to the
weights of one or more of the components occurs. This is typically
done to avoid having an index that has one or a few stocks
representing a disproportionate amount of the index value.
\22\ A ``price weighted'' index is an index in which the
component stocks are weighted by their share price. The most common
example is the DJIA.
\23\ An ``equal dollar weighted'' index is an index structured
so that share quantities for each of the component stocks in the
index are determined as if one were buying an equal dollar amount of
each stock in the index. Equal dollar weighted indexes are usually
rebalanced to equal weightings either quarterly, semi-annually, or
annually.
\24\ A ``modified equal-dollar weighted'' index is designed to
be a fair measurement of the particular industry or sector
represented by the index, without assigning an excessive weight to
one or more index components that have a large market capitalization
relative to the other index components. In this type of index, each
component is assigned a weight that takes into account the relative
market capitalization of the securities comprising the index. The
index is subsequently rebalanced to maintain these pre-established
weighting levels. Like equal-dollar weighted indexes, the value of a
modified equal-dollar weighted index will equal the current combined
market value of the assigned number of shares of each of the
underlying components divided by the appropriate index divisor. A
modified equal-dollar weighted index will typically be re-balanced
quarterly.
\25\ For certain indexes, an index provider, such as Dow Jones,
may select the components and calculate the index, but overseas
broker-dealer affiliates of U.S. registered broker-dealers may sit
on an ``advisory'' committee that recommends component selections to
the index provider. In such case, the Exchange should ensure that
appropriate information barriers and insider trading policies exist
for this advisory committee. See Securities Exchange Act Release No.
50501 (October 7, 2004), 69 FR 61533 (October 19, 2004) (approving
NASD 2004-138, pertaining to index linked notes on the Dow Jones
Euro Stoxx 50 Index). Telephone conversation between Jeffrey Burns,
Associate General Counsel, Amex, and Florence Harmon, Senior Special
Counsel, Division of Market Regulation, Commission, on February 23,
2005.
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Eligibility Standards for Underlying Securities. Index Securities
will be subject to the criteria in proposed Amex Company Guide section
107D(g) and (h) for initial and continued listing. For an Underlying
Index to be appropriate for the initial listing of an Index Security,
such Index must either be approved for the trading of options or other
derivative securities by the Commission under section 19(b)(2) of the
Act and rules thereunder or meet the following requirements:
A minimum market value of at least $75 million, except
that for each of the lowest weighted Underlying Securities in the index
that in the aggregate account for no more than 10% of the weight of the
index, the market value can be at least $50 million;
Trading volume in each of the last six months of not less
than 1,000,000 shares, except that for each of the lowest weighted
Underlying Securities in the index that in the aggregate account for no
more than 10% of the weight of the index, the trading volume shall be
at least 500,000 shares in each of the last six months;
In the case of a capitalization-weighted index, the lesser
of the five highest weight Underlying Securities in the index or the
highest weighted Underlying Securities in the index that in the
aggregate represent at least 30% of the total number of Underlying
Securities in the index, each have an average monthly trading volume of
at least 2,000,000 shares over the previous six months;
No component security will represent more than 25% of the
weight of the index, and the five highest weighted component securities
in the index will not in the aggregate account for more than 50% of the
weight of the index (60% for an index consisting of fewer than 25
Underlying Securities);
90% of the index's numerical index value and at least 80%
of the total number of component securities will meet the then current
criteria for standardized options trading set forth in Exchange Rule
915;
Each component security shall be a 1934 Act reporting
company which is listed on a national securities exchange or is traded
through the facilities of a national securities system and is subject
to last sale reporting; and
Foreign country securities or American Depository Receipts
(``ADRs'') that are not subject to comprehensive surveillance
agreements do not in the aggregate represent more than 20% of the
weight of the index.
As described above in the section entitled ``Description of
Underlying Indexes,'' all Underlying Indexes are required to have at
least ten (10) component securities.
The proposed continued listing criteria set forth in proposed Amex
Company Guide section 107D(h)(1) regarding the underlying components of
an Underlying Index provides that the Exchange will commence delisting
or removal proceedings of an Index Security (unless the Commission has
approved the continued trading of the Index Security) if any of the
standards set forth in the initial eligibility criteria of proposed
Amex Company Guide section 107D(g) are not continuously maintained,
except that:
The criteria that no single component represent more than
25% of the weight of the index and the five highest weighted components
in the index can not represent more than 50% (or 60% for indexes with
less than 25 components) of the weight of the Index, need only be
satisfied for capitalization weighted and price weighted indexes as of
the first day of January and July in each year;
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 trading volume of each component security in the index
must be at least 500,000 shares for each of the last six months, except
that for each of the lowest weighted components in the index that in
the aggregate account for no more than 10% of the weight of the index,
trading volume must be at least 400,000 shares for each of the last six
months; and
In a capitalization-weighted index, the lesser of the five
highest weighted component securities in the index or the highest
weighted component securities in the index that in the aggregate
represent at least 30% of the total number of stocks in the index have
had an average monthly trading volume of at least 1,000,000 shares over
the previous six months.
In connection with an Index Security that is listed pursuant to
proposed Amex Company Guide section 107D(g)(1), the Exchange will
commence delisting or removal proceedings (unless the Commission has
approved the continued trading of the Index Security) if an underlying
index or indexes fails to satisfy the maintenance standards or
conditions for such index or indexes as set forth by the Commission in
its order under section 19(b)(2) of the Act approving the index or
indexes for the trading of options or other derivatives.
As set forth in proposed Amex Company Guide section 107D(h)(3), the
Exchange will also commence delisting or removal proceedings of an
Index Security (unless the Commission has approved the continued
trading of the Index Security), under any of the following
circumstances:
[[Page 10705]]
If the aggregate market value or the principal amount of
the securities publicly held is less than $400,000;
If the value of the Underlying Index or composite value of
the Underlying Indexes is no longer calculated and widely disseminated
on at least a 15-second basis; or
If such other event shall occur or condition exists which
is the opinion of the Exchange makes further dealings on the Exchange
inadvisable.
The Amex represents that Index Securities listed and traded on the
Exchange will be required to be in compliance with Rule 10A-3 under the
Act.\26\
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\26\ See Rule 10A-3(c)(7), 17 CFR 240.10A-3(c)(7).
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Exchange Rules Applicable to Index-Linked Securities. Index
Securities will be treated as equity instruments and will be subject to
all Exchange rules governing the trading of equity securities,
including, among others, rules governing priority, parity and
precedence of orders, market volatility related trading halt provisions
pursuant to Amex Rule 117, and responsibilities of the specialist.
Exchange equity margin rules and the regular equity trading hours of
9:30 a.m. to 4 p.m. will apply to transactions in Index Securities.
In addition, the Exchange will evaluate the nature and complexity
of each Index Security and, if appropriate, distribute a circular to
the membership, prior to the commencement of trading, providing
guidance with respect to, among other things, member firm compliance
responsibilities when handling transactions in Index Securities and
highlighting the special risks and characteristics. Specifically, the
circular, among other things, will discuss and emphasize the structure
and operation of the Index Security, the requirement that members and
member firms deliver a prospectus to investors purchasing an Index
Security prior to or concurrently with the confirmation of a
transaction, applicable Amex rules, dissemination information regarding
the Underlying Index, trading information and applicable suitability
rules.
In particular, the circular will set forth the Exchange's
suitability rule that requires member and member organizations and
employees thereof recommending a transaction in Index Securities: (1)
To determine that such transaction is suitable for the customer (Amex
Rule 411) 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.
The Exchange will closely monitor activity in Index Securities to
identify and deter any potential improper trading activity in Index
Securities. The Exchange represents that its surveillance procedures
are adequate to properly monitor the trading of Index Securities.
Specifically, the Amex will rely on its existing surveillance
procedures governing equities, options and exchange-traded funds, which
have been deemed adequate under the Act. The Exchange has developed
procedures to closely monitor activity in the Index Security and
related Underlying Securities to identify and deter potential improper
trading activity. Proposed Amex Company Guide section 107D(j) provides
that the Exchange will implement written surveillance procedures for
Index Securities.
The Exchange also has a general policy prohibiting the distribution
of material, non-public information by its employees. As detailed above
in the description of the generic standards, if the issuer or a broker-
dealer is responsible for maintaining (or has a role in maintaining)
the Underlying Index, such issuer or broker-dealer is required to erect
and maintain a ``firewall'' in a form satisfactory to the Exchange, in
order to prevent the flow of information regarding the Underlying Index
from the index production personnel to sales and trading personnel. In
addition, the Exchange will require that calculation of Underlying
Indexes be performed by an independent third party who is not a broker-
dealer.
The Exchange submits that several Index Securities based on both
broad-based and market segment indexes are currently trading on the
Exchange.\27\ Each of these products separately received approval for
trading by the Commission. Amex believes that the proposed generic
listing standards for Index Securities will serve to streamline and
increase the efficiency of listing index-linked products on the
Exchange.
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\27\ See, e.g., Securities Exchange Act Release Nos. 48151 (July
10, 2003), 68 FR 42438 (July 17, 2003) (approving the listing and
trading of notes linked to the Amex Biotech Index); 47983 (June 4,
2003), 68 FR 35032 (June 11, 2003) (approving the listing and
trading of a CSFB Note linked to S&P 500); 47911 (May 22, 2003), 68
FR 32558 (May 30, 2003) (approving the listing and trading of notes
linked to the S&P 500); 46021 (June 3, 2002), 67 FR 39753 (June 10,
2002) (approving the listing and trading of notes linked to the
Select European 50 Index); 45639 (March 25, 2002), 67 FR 15258
(March 29, 2002) (approving the listing and trading of notes linked
to the Oil Natural Gas Index); 45305 (January 17, 2002), 67 FR 3753
(January 25, 2002) (approving the listing and trading of notes
linked to the Biotech-Pharmaceutical Index); 44437 (June 18, 2001),
66 FR 33585 (June 22, 2001) (approving the listing and trading of
notes linked to the Industrial 15 Index); and 44342 (May 23, 2001),
66 FR 29613 (May 31, 2001) (approving the listing and trading of
notes linked to the Select Ten Index). See also supra notes 13, 14
and 18.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with section 6(b) of the Act \28\ in general and furthers the objective
of section 6(b)(5) \29\ in particular in that it is designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principal 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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\28\ 15 U.S.C. 78f(b).
\29\ 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 did not solicit or receive any written comments with
respect to the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
A. By order approve such proposed rule change, or
B. Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. 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:
[[Page 10706]]
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-Amex-2005-001 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW.,
Washington, DC 20549-0609.
All submissions should refer to File Number SR-Amex-2005-001. 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 (https://www.sec.gov/
rules/sro.shtml). Copies of the submission, all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for inspection
and copying in the Commission's Public Reference Section, 450 Fifth
Street, NW., Washington, DC 20549. Copies of such filing also will be
available for inspection and copying at the principal office of the
Amex. All comments received will be posted without change; the
Commission does not edit personal identifying information from
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-
Amex-2005-001 and should be submitted on or before March 25, 2005.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\30\
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\30\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-875 Filed 3-3-05; 8:45 am]
BILLING CODE 8010-01-P
