Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing of a Proposed Rule Change and Amendment No. 1 Thereto Relating to the Listing and Trading of Yield Underlying Participating Securities (YUPS), 20946-20951 [E5-1915]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 70, Number 77 (Friday, April 22, 2005)]
[Notices]
[Pages 20946-20951]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-1915]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51566; File No. SR-Amex-2004-47]


Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing of a Proposed Rule Change and Amendment No. 1 Thereto 
Relating to the Listing and Trading of Yield Underlying Participating 
Securities (YUPS)

April 18, 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 June 10, 2004, 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. On April 
15, 2005, the Exchange submitted Amendment No. 1 to the proposed rule 
change.\3\ The Commission is publishing this notice to solicit comments 
on the proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 makes minor typographical edits to the 
proposed rule text.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to approve for listing and trading Yield 
Underlying Participating Securities (``YUPS''), representing a 
beneficial ownership interest in the common stock of a single, 
publicly-traded company and a series of U.S. Treasury Securities 
(``Treasury Securities'') with quarterly maturities. YUPS would be 
eligible for listing and trading, including trading pursuant to 
unlisted trading privileges, pursuant to Rule 19b-4(e) \4\ if the 
product satisfies the criteria in proposed Commentary .03 of Rule 1202 
for ``Single TIRs.'' \5\ YUPS would also be subject to proposed 
Commentary .13 to Amex Rule 170 \6\ to allow a limited exception for 
specialist in Single TIRs, including the YUPS, to buy on plus ticks 
and/or sell on minus ticks to bring the Single TIR/YUPS into parity 
with the underlying securities. YUPS would also be subject to the 
proposed Commentary .05 to Amex Rule 1202, which states that YUPS do 
not qualify for side-by-side trading and integrated market making as 
set forth in Amex Rule 175(c)(2) and 985(e).\7\ Additionally, YUPS 
would be subject to proposed Commentary .06 to Amex Rule 1202, 
regarding trading halts, and proposed Commentary .07 to Amex Rule 1202, 
regarding allowable percentages set forth in Section 107B of the Amex 
Company Guide.\8\ The text of the proposed rule change is available on 
the Amex's Web site https://www.amex.com, at the principal office of the 
Amex, and at the Commission's Public Reference Room. The text of the 
proposed rule change appears below. Additions are italicized, deletions 
are bracketed.
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    \4\ 17 CFR 240.19b-4(e).
    \5\ See Securities Exchange Act Release No. 51567 (April 18, 
2005) (SR-Amex 2003-66)(''Single TIR Proposal'').
    \6\ This new Commentary .13 to Amex Rule 170 is proposed in the 
Single TIR Proposal.
    \7\ See Single TIR Proposal.
    \8\ See Single TIR Proposal.
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* * * * *

Rule 1202. Initial and Continued Listing

    Trust Issued Receipts will be listed and traded on the Exchange 
subject to application of the following criteria:
    (a)-(e) No Change.
Commentary
    .01 through [-.2].03 \9\ No Change.
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    \9\ See Single TIR Proposal for text of proposed Commentary .03 
to Rule 1202.
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    .04 A series of Trust Issued Receipts based on a single component 
security approved for trading pursuant to Commentary .03 of this Rule 
may also include U.S. Treasury Securities (``Treasury Securities''). Up 
to 35% of the Trust in such case may consist of Treasury Securities.
    .05 through .07 No Change.\10\
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    \10\ See Single TIR Proposal for text of proposed Commentaries 
.05, .06, and .07 to Rule 1202.
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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, the Amex included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the placed specified in 
Item III below. The Amex has prepared summaries, set forth in Section 
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
    Under Amex Rule 1201, the Exchange may approve for listing and 
trading trust

[[Page 20947]]

issued receipts (``TIRs'') \11\ based on one or more securities.\12\ 
The Amex in this proposal seeks to list for trading under Amex Rule 
1202, YUPS, representing ownership interests in a trust, the assets of 
which will consist of shares of the common stock of a single, publicly-
traded company (the ``Common Stock'') and a series of Treasury 
Securities with quarterly maturities in the form of strips (``U.S. 
Treasury Strips'').\13\ The Exchange proposes that the minimum number 
of receipts or YUPS required to be outstanding when trading commences 
is 150,000. YUPS may be approved for listing and trading on Common 
Stock that meets certain criteria identified below relating to, among 
other things, public float and trading volume, required in proposed 
Commentary .03 to Amex Rule 1202.\14\ The Exchange expects Cantor 
Fitzgerald & Co. (``Cantor''), as initial depositor to the trust, to 
offer the YUPS and Bank of New York (``BNY'') will act as trustee.
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    \11\ A TIR is defined in Amex Rule 1200(b) as a security (a) 
that is issued by a trust which holds specified securities deposited 
with the trust; (b) that, when aggregated in some specified minimum 
number, may be surrendered to the trust by the beneficial owner to 
receive the securities; and (c) that pays beneficial owners 
dividends and other distributions on the deposited securities, if 
any are declared and paid to the trustee by an issuer of the 
deposited securities.
    \12\ The Exchange defines a ``security'' or ``securities'' to 
include stocks, bonds, options, and other interests or instruments 
commonly known as securities. See Amex Constitution, Article I, 
Section 3(j). Pursuant to Commentary .01 to Amex Rule 1202, 
initially, no component security of a TIR may represent more than 
20% of the overall value of the receipt. If the portfolio of 
securities underlying the TIR drops to fewer than nine, the SRO will 
consult with the Commission staff to confirm the appropriateness of 
continued listing of such TIR. See Securities Exchange Act Release 
No. 41892 (September 21, 1999), 64 FR 52559 (September 29, 1999) 
(``TIR Approval Order'').
    \13\ A ``stripped bond'' is a bond that is separated into its 
two component parts: periodic interest payments and principal 
repayment. In the case of stripped bond, each of the interest 
repayments and principal repayment are stripped apart by a brokerage 
firm and sold individually as zero-coupon securities. U.S. Treasury 
Securities that are ``stripped'' are called ``STRIPS,'' which 
strands for ``separate trading of registered interest and principal 
of securities.''
    \14\ See Single TIR Proposal.
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Introduction
    In September 1999, the Exchange adopted rules for the listing and 
trading of TIRs.\15\ TIRs are negotiable receipts issued by trusts that 
represent investors' discrete identifiable and undivided beneficial 
ownership interest in the securities deposited into the trust. Since 
that time the Exchange has listed seventeen (17) TIRs under the trade 
name of HOLDRS,\16\ representing a wide variety of industry sectors and 
the market as a whole. The original HOLDR was the Internet HOLDR.
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    \15\ See TIR Approval Order.
    \16\ See HOLDRS No-Action Letter infra note 21 and Registration 
No. 333-78575 filed with the Commission on September 23, 1999 
pursuant to Rule 424(b)(4) CIK No. 00007286(2).
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    To accommodate the listing of additional TIRs, the Exchange in 
September 2000 revised the existing listing criteria and trading rules 
to permit the listing and trading of TIRs pursuant to Rule 19b-4(e) 
under the Act (``Generic Listing Standards'').\17\ In order to 
efficiently list TIRs without submitting a separate rule filing with 
the Commission for each TIR, the Exchange consistent with Rule 19b-4(e) 
requires, among other things, evidence of sufficient size, liquidity 
and non-concentration of the underlying component securities of the 
TIR.\18\ Because of the structure of YUPS, representing an interest in 
shares of the Common Stock and a series of U.S. Treasury strips, the 
Exchange believes that the current Generic Listing Standards cannot be 
used by the Exchange to list this product. However, based on the TIR 
Approval Order, the Exchange represents that YUPS may be listed for 
trading pursuant to Amex Rule 1201 and Amex Rule 1202, subject to 
Commission review and approval. As a result, the Exchange submits this 
proposed rule change for the purpose of adding Commentary .04 to Amex 
Rule 1202 to permit the listing and trading, including pursuant to 
unlisted trading privileges, of a series of YUPS pursuant to Rule 19b-
4(e) under the Act when the product complies with proposed Commentaries 
.03, .05, .06, and .07 to Amex Rule 1202 and proposed Commentary .13 to 
Amex Rule 170 in the Single TIR Proposal.
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    \17\ Commission Rule 19b-4(e), adopted on December 8, 1998, 
permits the Exchange to list and trade new derivative securities 
products without submitting a proposed rule change, provided the 
Exchange has in place trading rules, procedures, a surveillance 
program and listing standards that pertain to the class of 
securities covering the new product. See Securities Exchange Act 
Release No. 40761 (December 8, 1998), 63 FR 70952 (December 22, 
1998).
    \18\ Commentary .01 of Amex Rule 1202 provides the eligibility 
criteria for component securities represented by a series of a TIR 
as follows: (1) Each component security must be registered under 
Section 12 of the Act; (2) each component security must have a 
minimum public float of at least $150 million; (3) each component 
security must be listed on a U.S. national securities exchange or 
traded through the facilities of The Nasdaq Stock Market, Inc. 
(``Nasdaq'') and a reported national market system security; (4) 
each component security must have an average daily trading volume of 
at least 100,000 shares during the preceding sixty-day trading 
period; (5) each component security must have an average daily 
dollar value of shares traded during the proceeding sixty-day 
trading period of at least $1 million; and (6) the most heavily 
weighted component security may not initially represent more than 
20% of the overall value of the TIR.
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Listing Criteria
    Under Amex Rule 1201, the Exchange may list and trade TIRs based on 
one or more securities. The securities that are included in a series of 
a TIR are required to be selected by the Exchange or its agent, a 
wholly owned subsidiary of the Exchange, or by such other person as 
shall have a proprietary interest in such TIRs.\19\ Pursuant to Amex 
Rule 1201, the Exchange submits that it may designate YUPS for trading.
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    \19\ Cantor, the initial depositor, and BNY, the trustee, will 
determine the particular underlying Common Stock to be included in 
each YUPS trust.
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    YUPS will conform to the initial and continued listing criteria 
under proposed Commentary .03 for Single TIRs in Amex Rule 1202.\20\ 
Each YUPS trust will be formed under a depositary trust agreement, 
among BNY, as trustee, Cantor, the depositor, and other depositors, if 
any, and the holders of YUPS (the ``YUPS Trust'' or ``Trust'').\21\ The 
term of each YUPS Trust will expire on or shortly after three (3) years 
from its date of formation.
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    \20\ Additionally, the initial listing standards set forth in 
Amex Rule 1202(a) for all TIRs provide that the Exchange must 
establish a minimum number of TIRs required to be outstanding at the 
time of the commencement of trading on the Exchange. As set forth 
above, the minimum number of YUPS required to be outstanding at the 
time of trading is 150,000 receipts. The continued listing 
guidelines for all TIRs are set forth in Amex Rule 1202(b) and 
currently state that the Exchange will consider the suspension of 
trading in or removal from listing of a trust upon which a series of 
TIRs is based under any of the following circumstances: (1) If the 
trust has more than 60 days remaining until termination and there 
are fewer than 50 record and/or beneficial holders of Trust Issued 
Receipts for 30 or more consecutive trading days; (2) if the trust 
has fewer than 50,000 receipts issued and outstanding; (3) if the 
market value of all receipts issued and outstanding is less than 
$1,000,000; or (4) if such other event shall occur or condition 
exists which in the opinion of the Exchange makes further dealings 
on the Exchange inadvisable. Upon termination of a trust, the 
Exchange requires that any TIRs issued in connection with such trust 
be removed from Exchange listing. In addition, a trust may terminate 
in accordance with the provisions of the trust prospectus, which may 
provide for termination if the value of securities in the trust 
falls below a specified amount.
    \21\ The trust is not a registered investment company under the 
Investment Company Act of 1940 (``1940 Act''). See SEC No-Action 
Letter dated September 3, 1999 to Merrill Lynch, Pierce, Fenner & 
Smith Incorporated, providing relief from registration as a 
management investment company under the 1940 Act for HOLDRS (the 
``HOLDRS No-Action Letter''). The depositor, Cantor, has requested 
similar no-action relief from the staff of the Commission's Division 
of Investment Management.
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    As noted above, the Exchange proposes to establish specific 
criteria in proposed Commentary .03 to Amex Rule 1202, for determining 
whether Common Stock is eligible for YUPS listing and trading. The 
criteria are similar to, and based on, the existing criteria for TIRs 
under the Generic Listing Standards.

[[Page 20948]]

    Thus, the proposed eligibility criteria for the underlying equity 
component (``Common Stock'') represented by a series of YUPS are as 
follows:
    1. The component Common Stock must be registered under Section 12 
of the Act;
    2. The component Common Stock must be listed on a national 
securities exchange or traded through the facilities of Nasdaq and 
reported national market system security;
    3. The component Common Stock may be a security of the U.S. or 
foreign issuer that meets the requirements of Section 107B(f) \22\ of 
the Company Guide;
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    \22\ Section 107B(f) of the Company Guide provides requirements 
to meet in connection with the listing and trading of equity linked 
notes based on foreign and U.S. underlying securities. In general, 
this provision limits the amount of outstanding common shares of an 
entity that may be linked to a derivative instrument. The Exchange 
has also set forth, in proposed Commentary .07, that if an issuer 
proposes to list a Single TIR that relates to more than the 
allowable percentages set forth in Section 107B(f) of the Company 
Guide, the Exchange will submit a proposed rule change with the 
Commission pursuant to Section 19(b)(2) and cannot list and trade 
such Single TIR until the Commission issues an approval order. See 
Single TIR Proposal.
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    4. The component Common Stock must have a minimum public float of 
at least $150 million;
    5. The component Common Stock must have an average daily trading 
volume of at least 100,000 shares during the preceding sixty-day 
trading period; and
    6. The component Common Stock must have an average daily dollar 
volume of shares traded during the preceding sixty-day period of at 
least $1 million.
    Additionally, a minimum of 150,000 receipts are required to be 
outstanding when trading commences. For continued listing, the 
component stock must be eligible for standardized equity option trading 
pursuant to Amex Rule 916. The eligibility criteria were selected to 
ensure that the Common Stock available for YUPS is well capitalized and 
actively traded. With respect to public float and trading volume, the 
Exchange states the criteria track the requirements for qualification 
as ``actively traded securities'' under Regulation M.\23\
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    \23\ See Securities Exchange Act Release No. 38067 (December 20, 
1996), 62 FR 520 (January 3, 1997) at 35-36. Rules 101(c) and 102(d) 
under Regulation M defines ``actively-traded securities'' as those 
securities that have an average daily trading volume of at least $1 
million and are issued by an issuer whose common equity securities 
have a public float of at least $150 million.
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    Proposed Commentary .04 to Amex Rule 1202 provides that up to 35% 
of the YUPS Trust may consist of Treasury Securities. With respect to 
the U.S. Treasury strip component of YUPS, the Exchange notes that the 
market for Treasury Securities is the largest and most liquid 
securities market in the world.\24\ For the year 2003, total daily 
average transaction volume for primary dealers \25\ in U.S. Treasury 
coupon securities was approximately $406.08 billion. During this same 
period, primary dealer average daily transaction volume in the 1-3 year 
range was approximately $146.58 billion; average daily transaction 
volume in the 3-6 year range was approximately $130.67 billion; average 
daily transaction volume in the 6-11 year range was approximately 
$103.65 billion; and average daily transaction volume in the more than 
11 year range was approximately $25.08 billion.\26\ In the first 
quarter of 2004, average daily transaction volumes for the same 
duration U.S. Treasury coupon securities were $166.89 billion, $135.4 
billion, $106.4 billion and $24.12 billion, respectively. Most of this 
trading volume occurs in the most recently issued security in a 
particular maturity class.\27\
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    \24\ See ``The Treasury Securities Market: Overview and Recent 
Developments,'' The Federal Reserve Bulletin, December 1999; which 
can be obtained from the Federal Reserve's Web site 
www.federalreserve.gov/pubs/bulletin/1999/99index.htm.
    \25\ Primary dealers are selected by the Federal Reserve Bank of 
New York as counter parties for the New York Federal Reserve's open 
market operations (government securities transactions related to the 
Federal Reserve's implementation of monetary policy). Primary 
dealers are required to participate meaningfully in both open market 
operations and Treasury auctions and are required to provide policy 
relevant market information to the Federal Reserve Bank of New York.
    \26\ Primary dealers in Treasury Securities submit statistics to 
The Federal Reserve Bank of New York regarding their transactions in 
Treasuries. These statistics may be obtained from the New York 
Federal Reserve's Web site https://www.ny.frb.org.
    \27\ See supra note 24 at page 795.
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    The secondary market for Treasury Securities is a highly organized 
over-the-counter (``OTC'') market. Many dealers, and particularly the 
primary dealers, make markets in Treasury Securities. Trading activity 
takes place between primary dealers, non-primary dealers, and customers 
of these dealers, including financial institutions, non-financial 
institutions and individuals. Increasingly, trading in Treasury 
Securities occurs through automated trading systems.\28\
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    \28\ See ``eCommerce in the Fixed-Income Markets: The 2001 
Review of Electronic Transaction Systems,'' December 2001. This 
survey of electronic trading systems in the bond market was prepared 
by the staff of The Bond Market Association and is available through 
the Association's Web site https://www.bondmarkets.com.
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    The primary dealers are among the most active participants in the 
secondary market for Treasury Securities. The primary dealers and other 
large market participants frequently trade with each other, and most of 
these transactions occur through an interdealer broker.\29\ The 
interdealer brokers provide primary dealers and other large 
participants in the Treasury market with electronic screens that 
display the bid and offer prices among dealers and allow trades to be 
consummated.
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    \29\ E.g., BrokerTec Global, Cantor Fitzgerald, Garban-
Intercapital, and Liberty Brokerage.
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    Quote and trade information regarding Treasury Securities is widely 
available to market participants from a variety of sources. The 
electronic trade and quote systems of the dealers and interdealer 
brokers are one such source. Groups of dealers also furnish trade and 
quote information to vendors such as Bloomberg LLC, Reuters, Moneyline 
Telerate, and CQG. GovPX,\30\ for example, is a consortium of leading 
government securities dealers that provides market data from leading 
government securities dealers to market data vendors. TradeWeb, another 
example, is a consortium of 18 primary dealers that, in addition to 
providing a trading platform, also provides market data direct to 
subscribers or to other market data vendors.\31\ In addition, an 
interdealer broker of government securities (Cantor) for many years has 
provided Moneyline Telerate with market data.
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    \30\ https://www.govpx.com.
    \31\ https://www.tradeweb.com.
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    In order to provide investors who purchase or sell YUPS with 
information regarding the value of the underlying Common Stock and 
Treasury strips, the Exchange will disseminate every 15 seconds an 
indicative value of the underlying portfolio.\32\
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    \32\ Because YUPS will hold multiple securities (e.g., an equity 
security and Treasury strips), the Exchange finds it useful to 
disseminate an estimated intraday valuation indicative of the 
underlying portfolio.
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Product Description
    The Exchange states that YUPS are designed to provide investors 
with a current market yield, while also providing the opportunity to 
share in the appreciation, if any, of a publicly-traded share of common 
stock. YUPS represent an undivided beneficial interest in the 
underlying securities held by the YUPS Trust. A holder of YUPS may 
exchange the YUPS to receive each of the underlying securities. The 
Exchange states that the expenses associated with trading YUPS

[[Page 20949]]

are expected to be less than the expenses associated with trading each 
of the underlying securities separately in a traditional brokerage 
account. YUPS are also expected to provide reduced volatility compared 
to the trading of each Common Stock, largely due to the existence of 
downside protection received through the current yield of U.S. Treasury 
strips.
    YUPS are separate and distinct from the underlying securities 
comprising the portfolio of the YUPS Trust. Consistent with the TIR 
Approval Order,\33\ each YUPS Trust will only issue and retire YUPS in 
a minimum issuance denominations,\34\ which is expected to be eight (8) 
round-lots of 100 YUPS shares. Each Trust will only issue YUPS upon the 
deposit of the whole shares represented by the minimum issuance 
denomination and the series U.S. Treasury strips represented by such 
minimum issuance denomination. In the event that a fractional share is 
represented by the minimum issuance denomination, the Trust may require 
a minimum of more than one minimum issuance denomination for an 
issuance so that the Trust will always receive whole share amounts for 
issuance of YUPS. Thus, YUPS will trade on the Exchange only in round 
lots of 100 YUPS.
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    \33\ See TIR Approval Order.
    \34\ YUPS will evidenced by one or more global certificates that 
the trustee will deposit with DTC and register in the name of Cede & 
Co., as nominee for DTC. YUPS will be available only in book-entry 
form. Owners of YUPS may hold their YUPS through DTC, if they are 
participants in DTC, or indirectly through entities that are 
participants in DTC.
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    The number of outstanding YUPS will increase and decrease as a 
result of in-kind deposits and withdrawals of the underlying 
securities. The YUPS Trust will stand ready to issue additional YUPS on 
a continuous basis when an investor deposits the required securities 
with the trustee.
    The initial public offering price for 100 YUPS will equal the sum 
of the closing market price on the Nasdaq National Market (for Nasdaq 
stocks) or the primary listed securities exchange (for listed stocks) 
on the pricing date for each underlying share of the Common Stock 
multiplied by the ``share per receipt ratio amount'' \35\ to be 
determined on the pricing, and the closing prices of the U.S. Treasury 
strips in the futures market on the pricing date, plus an underwriting 
fee. After the initial public offering, each Trust may issue additional 
YUPS regarding a specific underlying Common Stock on a continuous 
basis. Investors may acquire YUPS in two ways: (1) Through a purchase 
on the Exchange, or (2) through an in-kind deposit with the trustee 
during normal business hours of the number of the underlying shares of 
Common Stock represented by the specified round-lots of 100 YUPS and 
the series of U.S. Treasury Strips represented by the specified round-
lots of 100 YUPS. Investors that create YUPS by delivery to the Trust 
of the requisite underlying Common Stock and U.S. Treasury Strips will 
be required to pay an issuance fee that is expected to be approximately 
1% of the value of the securities represented by the YUP receipt.\36\ 
In addition, investors will also be responsible for paying any sales 
commissions that are charged by a broker in connection with any 
purchase of the underlying securities.
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    \35\ The ``share per receipt ratio amount'' is the number of 
shares of the underlying Common Stock (or multiplier) for each one 
(1) YUP. The ``share per receipt ratio'' for each separate YUPS 
issue will depend on the price of the Common Stock and will vary 
from issue to issue. In general, the higher the market price of the 
Common Stock, the lower the ``share per receipt ratio.''
    \36\ Telephone conversation between Jeffrey Burns, Associate 
General Counsel, Amex, and Florence Harmon, Senior Special Counsel, 
Commission, on April 15, 2005.
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    The initial weighting of YUPS will be approximately 70% allocated 
to Common Stock and 30% allocated to the U.S. Treasury Strips. The 
specific share amounts for each round-lot of 100 YUPS will be 
determined on the pricing date. The underlying securities of YUPS 
consist of shares of a Common Stock that is registered under Section 12 
of the Act and meets the other listing criteria discussed above, and a 
series of zero-coupon U.S. Treasury Strips, maturing quarterly. In 
selecting the Common Stock, no investigation or review of the 
individual publicly-traded company, including the public filings, will 
be performed other than to the extent required to determine whether the 
company and its common stock satisfies the listing criteria for YUPS.
    After the pricing, the ``share per receipt ratio amount'' for an 
underlying Common Stock will not change, except for changes due to 
corporate events, such as stock splits or reverse stock splits. Under 
no circumstances will the common stock of a different publicly-traded 
company be substituted for the initial common stock established for the 
YUPS. The actual number of shares and weighting will be determined on 
the date of the initial capitalization of the Trust by the initial 
depositor and will appear in the final prospectus delivered in 
connection with sales of YUPS.\37\ The notional amount and weighting of 
the underlying U.S. Treasury Strips will also be determined on the 
pricing date and, except as a result of the maturity of the U.S. 
Treasury Strips, will not change during the term of the Trust. The 
relative weightings of the deposited securities will change based on 
the current market price of the deposited securities, but the component 
securities held by each YUPS Trust and represented by a YUPS will not 
change except as a result of the quarterly maturity of the U.S. 
Treasury Strips.
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    \37\ As a result of the share per receipt ratio amount or 
multiplier, the initial issue price will be a multiple of the 
current price of the Common Stock. For example, the initial issue 
price of a YUP may be $49.99 (plus a 1% issuance fee) provided a 
share per receipt ratio of 1.7825 and a current price of $20.00 per 
share for a given stock that qualifies as a YUP candidate and $15.00 
principal amount of Treasury Securities (with a current market value 
of $14.34). If YUPS are surrendered to the trustee in a minimum 
issuance amount (expected to be eight (8) round lots of 100 YUPS), 
the investor will receive 1,426 shares of the Common Stock and 
$12,000 principal amount of Treasury Securities for each minimum 
issuance denomination. In the event a minimum issuance denomination 
represents fractional shares due to certain corporate events such as 
stock splits or reverse stock splits or other corporate 
distributions, the trustee will deliver cash in lieu of such 
fractional share.
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    Investors may withdraw the underlying securities of YUPS upon 
request by delivering a minimum issuance denomination (expected to be 
eight (8) round lots of 100 YUPS) or integral multiple thereof to the 
trustee during normal business hours. To the extent that any exchange 
of YUPS requires the delivery of a fractional share, the trustee will 
sell such share in the market and deliver cash in lieu of such share. 
Beneficial owners of YUPS will have the same rights and privileges as 
they would have if they beneficially owned the underlying securities 
outside of the Trust.\38\ These include the right of investors to 
instruct the trustee to vote the securities, the right to receive 
dividends and other distributions on the underlying securities, if any, 
and the right to exchange YUPS to receive the underlying 
securities.\39\ However, except with respect to the right to vote for 
dissolution of the Trust, holders of YUPS will not have voting rights 
with

[[Page 20950]]

respect to the YUPS Trust.\40\ The Trust will not be managed and will 
remain static over the term of the Trust.
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    \38\ The trustee will deliver proxy soliciting materials 
provided by the publicly-traded company underlying YUPS to permit 
holders of YUPS to give the trustee instructions as to how to vote 
on matters to be considered at any annual or special meeting of 
shareholders held by that company.
    \39\ Dividends and distributions will generally be passed-
through to the holders of the YUPS. However, distributions, if any, 
of additional shares of common stock will be retained by the Trust 
and added to the quantity of the common stock underlying the 
outstanding YUPS. Telephone conversation between Jeffrey Burns, 
Associate General Counsel, Amex, and Florence Harmon, Senior Special 
Counsel, Commission, on April 15, 2005.
    \40\ Beneficial owners of YUPS, other than Cantor, will have the 
right to vote to dissolve and liquidate the Trust.
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    The Trust will not publish or otherwise calculate the aggregate 
value of the underlying security represented by YUPS. However, as noted 
above, the Exchange will disseminate every 15 seconds over the 
Consolidated Tape Association's Network B an indicative value of the 
underlying portfolio of YUPS. YUPS may trade in the secondary market at 
prices that are lower than the aggregate value of the corresponding 
underlying security. If, in such case, a holder of a YUPS wishes to 
realize the net asset value of the underlying security, that owner will 
have to exchange the YUPS.
    The Exchange believes that YUPS will not trade at a material 
discount or premium to the underlying securities held by the Trust 
based on potential arbitrage opportunities. The arbitrage process, 
which provides the opportunity to profit from differences in prices of 
the same or similar securities, increases the efficiency of the markets 
and serves to prevent potentially manipulative efforts. If the price of 
YUPS deviates enough from the portfolio of the deposited securities to 
create a material discount or premium, an arbitrage opportunity is 
created allowing the arbitrageur to either buy the YUPS at a discount, 
immediately cancel them in exchange for the deposited securities and 
sell the underlying securities in the cash market at a profit, or sell 
the YUPS short at a premium and buy the securities represented by YUPS 
to deposit in exchange for YUPS to deliver against the short position. 
In both instances the arbitrageur locks in a profit and the markets 
move back into line.
Prospectus Delivery
    In connection with the listing and trading of YUPS, all investors 
in YUPS who purchase in the initial offering will receive a prospectus. 
In addition, purchasers of YUPS directly from the Trust (by delivering 
the underlying securities to the Trust) will also receive a prospectus. 
Finally, Amex members purchasing YUPS from the Trust for resale to 
customers will deliver a prospectus to such customers.\41\
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    \41\ Telephone conversation between Jeffrey Burns, Associate 
General Counsel, Amex, and Florence Harmon, Senior Special Counsel, 
Commission, on April 15, 2005.
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Fee Structure
    As set forth in the Registration Statement in connection with the 
YUPS Trust, investors purchasing YUPS by delivery to the Trust of the 
securities represented by the YUPS are required to pay an issuance fee 
of 1% of the value of the securities underlying the YUPS receipt. There 
are no cancellation or withdrawal fees.\42\
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    \42\ Telephone conversation between Jeffrey Burns, Associate 
General Counsel, Amex, and Florence Harmon, Senior Special Counsel, 
Commission, on April 15, 2005 (as to fee structure generally).
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    Brokerage commissions may be charged by a securities broker for the 
purchase of the underlying securities in connection with the creation 
of the YUPS. In addition, purchases of YUPS on the Exchange may also be 
subject to brokerage commissions.
    BNY as trustee also will charge an annual custody fee of .04% of 
the Trust's assets, to be paid quarterly by Cantor (and thus will not 
be paid out of the assets of the Trust).
Termination Events
    The YUPS Trust will be terminated if any of the following 
circumstances occur: (1) The individual publicly-traded company of the 
underlying YUPS no longer has a class of securities registered under 
Section 12 of the Act; (2) the Commission finds that individual 
publicly-traded company underlying the YUPS or the Trust should be 
registered as an investment company under the 1940 Act, and the trustee 
has actual knowledge of the Commission finding; (3) the securities of 
the individual publicly-traded company underlying the YUPS cease to be 
outstanding as a result of a merger, consolidation or other corporate 
combination; (4) the individual publicly-traded company's common stock 
is no longer listed for trading on the Amex or New York Stock Exchange, 
Inc. (``NYSE'') or authorized for quotation on Nasdaq National Market 
System (``NMS'') for five (5) business days from the date the 
securities are no longer authorized for listing or quotation; (5) the 
YUPS are delisted from the Amex and are not listed for trading on 
another U.S. national securities exchange or authorized for quotation 
on Nasdaq NMS within five (5) business days from the date the YUPS are 
delisted; (6) the trustee resigns and no successor trustee is appointed 
within 60 days from the date the trustee provides notice to Cantor, the 
initial depositor, of its intent to resign; (7) 50% of beneficial 
owners of outstanding YUPS vote to dissolve and liquidate the trust; 
and/or (8) the withdrawal of such number of common stock from the Trust 
so that the aggregate value of the Trust's assets fall below a pre-
determined amount.
    Upon termination of the Trust, the beneficial owners will surrender 
the YUPS and the trustee will distribute the underlying securities to 
the YUPS holders.
Information Circular
    The proposed rule change would require the Exchange to evaluate the 
nature and complexity of YUPS, prior to the commencement of its 
trading, and, if appropriate, distribute and circulate to the 
membership guidance regarding member firm compliance responsibilities 
when handling transactions in such securities. In addition, prior to 
the commencement of trading in YUPS, the Exchange will issue a circular 
to members informing them of, among other things, Exchange policies 
regarding trading halts in such securities. First, the circular will 
advise that trading will be halted in the event the market volatility 
trading halt parameters set forth in Amex Rule 117 have been reached. 
Second, the circular will advise that, in addition to other factors 
that may be relevant, the Exchange may consider factors such as the 
extent to which trading is not occurring in a deposited share(s) and 
whether other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present; however, in any 
event, trading in the YUPS will be halted if trading in the underlying 
equity security is halted because of a regulatory trading halt as 
defined in Rule 6h-1 under the Act.\43\
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    \43\ Telephone conversation between Jeffrey Burns, Associate 
General Counsel, Amex, and Florence Harmon, Senior Special Counsel, 
Commission, on April 14, 2005 (regarding content of information 
circular generally and definition of regulatory trading halt).
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    In addition, the circular will also discuss the special 
characteristics and risks of trading YUPS. Specially, the circular, 
among other things, will discuss how the YUPS are issued and redeemed 
from the trust, that shares are not individually redeemable, member 
prospectus delivery requirements, and applicable Exchange rules, such 
as the limited exception to Amex Rule 170. The circular will also 
explain the various fees as described in the Registration Statement. 
The circular will also advise members of their suitability obligations 
with respect to a recommended transaction in the YUPS shares.\44\
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    \44\ See Amex Rule 411.

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[[Page 20951]]

Trading Rules
    YUPS are equity securities subject to Amex Rules governing the 
trading of equity securities, including, among others, rules governing 
priority, parity and precedence of orders, specialist responsibilities, 
account opening and customer suitability (Amex Rule 411), with the 
prior approval of a floor official, of a stop or limit order by a 
quotation (Amex Rule 154, Commentary .04(c)). Initial equity margin 
requirements of 50% and the regular equity trading hours of 9:30 a.m. 
to 4 p.m. will apply to transactions in YUPS. However, trading rules 
pertaining to the availability of odd-lot trading in Amex equities will 
not apply to the trading of YUPS, since they can only be traded in 
round-lots. YUPS will be deemed ``Eligible Securities,'' as defined in 
Amex Rule 230, for purposes of the Intermarket Trading System Plan and 
therefore will be subject to the trade through provisions of Amex Rule 
236 that require that Amex members avoid initiating trade-throughs for 
ITS securities.
    Specialist transactions of YUPS made in connection with the 
creation and redemption of YUPS will not be subject to the prohibitions 
of Amex Rule 190.\45\ YUPS will trade in minimum fractional increments 
pursuant to Amex Rule 127, resulting in a minimum fractional change of 
$0.01. YUPS will be subject to the short sale rule, Rule 10a-1 under 
the Act and Regulation SHO under the Act.\46\ In addition, Proposed 
Commentary .13 of Amex Rule 170 would grant a specialist in a Single 
TIR a limited exception from Commentaries .01, .02, and .07 of Amex 
Rule 170.\47\ Such exception would allow a specialist in a Single TIR 
to buy on plus ticks and/or sell on minus ticks for the purpose of 
bringing the Single TIR into parity with its underlying security. The 
Exchange represents that its surveillance procedures applicable to the 
YUPS are adequate to deter manipulation,\48\ and will be similar to 
those used for other TIRs and exchange-traded funds (``ETFs'') and will 
incorporate and rely upon existing Amex surveillance procedures 
governing options and equities.
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    \45\ See Commentary .05 to Amex Rule 190. Pursuant to Commentary 
.05, Amex Rule 190(a) will not restrict the specialist in YUPS from 
purchasing or canceling the YUP or its component securities in 
connection with the issuance of the YUP, from the Trust as 
appropriate to facilitate the maintenance of a fair and orderly 
market.
    \46\ 17 CFR 240.10a-1; 17 CFR 242.200(g).
    \47\ See Single TIR Proposal.
    \48\ Telephone conversation between Jeffrey Burns, Associate 
General Counsel, Amex, and Florence Harmon, Senior Special Counsel, 
Commission, on April 14, 2005.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act\49\ in general and furthers the objectives of 
Section 6(b)(5) \50\ in particular in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
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    \49\ 15 U.S.C. 78f(b).
    \50\ 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.

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

    The Exchange did not receive any written comments on 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 self-regulatory organization 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:

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-2004-47 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.

    All submissions should refer to File Number SR-Amex-2004-47. 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 
Exchange. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
Amex-2004-47 and should be submitted on or before May 13, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\51\
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    \51\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-1915 Filed 4-21-05; 8:45 am]
BILLING CODE 8010-01-P