Self-Regulatory Organizations; Order Approving Proposed Rule Change and Amendment No. 1 by the American Stock Exchange LLC and Notice of Filing and Order Granting Accelerated Approval to Amendment No. 2 Relating to the Adoption of Generic Listing Standards for Index-Linked Securities, 21257-21262 [E5-1949]
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Federal Register / Vol. 70, No. 78 / Monday, April 25, 2005 / Notices
incidental reading of the regulation. The
estimated average burden hours are
solely for purposes of the Paperwork
Reduction Act and are not derived from
a comprehensive or even a
representative survey or study of the
costs of SEC rules or forms.
Recordkeeping retention periods are
based on the disclosure required by
various forms and rules other than
Regulation S–X. In general, balance
sheets for the preceding two fiscal years,
income and cash flow statements for the
preceding three fiscal years, and
condensed quarterly financial
statements must be filed with the
Commission. Five year summary
financial information is required to be
disclosed by some larger registrants.
Filing financial statements, when
required by the governing rule or form,
is mandatory. Because these statements
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disseminating information to the
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An agency may not conduct or
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General comments regarding the
above information should be directed to
the following persons: (i) Desk Officer
for the Securities and Exchange
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New Executive Office Building,
Washington, DC 20503 or send an email to: David_Rostker@omb.eop.gov,
and (ii) R. Corey Booth, Director/Chief
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must be submitted to OMB within 30
days of this notice.
SECURITIES AND EXCHANGE
COMMISSION
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Sunshine Act Meeting
Notice is hereby given, pursuant to
the provisions of the Government in the
Sunshine Act, Pub. L. 94–409, that the
Securities and Exchange Commission
will hold the following meeting during
the week of April 25, 2005:
A Closed Meeting will be held on
Thursday, April 28, 2005 at 10 a.m.
14:51 Oct 19, 2009
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of 1934 (‘‘Act’’),1 and Rule 19b–4
thereunder,2 a proposed rule change 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 Act3 in connection
with index-linked securities (‘‘Index
Securities’’). On February 25, 2005,
Amex amended its proposal.4 The
proposed rule change, as modified by
Amendment No. 1, was published for
notice and comment in the Federal
Register on March 4, 2005.5 The
Commission received no comment
letters regarding the proposed rule
change. On April 15, 2005, Amex
amended the proposed rule change.6
This order approves the proposed rule
change, as modified by Amendment No.
1. Simultaneously, the Commission
provides notice of filing of Amendment
No. 2 and grants accelerated approval of
Amendment No. 2.
Dated: April 20, 2005.
Jonathan G. Katz,
Secretary.
[FR Doc. 05–8249 Filed 4–20–05; 4:00 pm]
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–4,9 if the
Commission has approved, pursuant to
Section 19(b) of the Act,10 the selfregulatory organization’s trading rules,
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
Self-Regulatory Organizations; Order
Approving Proposed Rule Change and
Amendment No. 1 by the American
Stock Exchange LLC and Notice of
Filing and Order Granting Accelerated
Approval to Amendment No. 2 Relating
to the Adoption of Generic Listing
Standards for Index-Linked Securities
BILLING CODE 8010–01–P
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Commissioners, Counsel to the
Commissioners, the Secretary to the
Commission, and recording secretaries
will attend the Closed Meeting. Certain
staff members who have an interest in
the matters may also be present.
The General Counsel of the
Commission, or his designee, has
certified that, in his opinion, one or
more of the exemptions set forth in 5
U.S.C. 552b(c)(3), (5), (7), (9)(B), and
(10) and 17 CFR 200.402(a)(3), (5), (7),
9(ii) and (10), permit consideration of
the scheduled matters at the Closed
Meeting.
Commissioner Goldschmid, as duty
officer, voted to consider the items
listed for the closed meeting in closed
session.
The subject matter of the Closed
Meeting scheduled for Thursday, April
28, 2005, will be:
Formal orders of investigations;
Institution and settlement of injunctive
actions;
Institution and settlement of
administrative proceedings of an
enforcement nature; and
Adjudicatory matters.
At times, changes in Commission
priorities require alterations in the
scheduling of meeting items.
For further information and to
ascertain what, if any, matters have been
added, deleted or postponed, please
contact:
The Office of the Secretary at (202)
942–7070.
[Release No. 34–51563; File No. SR–Amex–
2005–001]
Dated: April 5, 2005.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–1948 Filed 4–22–05; 8:45 am]
21257
April 15, 2005.
I. Introduction
On January 6, 2005, the American
Stock Exchange LLC (‘‘Amex’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
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II. Description of Proposal
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.7 The Amex proposes to add
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.8
A. Generic Listing Standards
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 17 CFR 240.19b–4(e).
4 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.
5 See Securities Exchange Act Release No. 51258
(February 25, 2005), 70 FR 10700 (‘‘Notice’’).
6 See Amendment No. 2, dated April 15, 2005
(‘‘Amendment No. 2’’). In Amendment No. 2, the
Exchange proposed minor clarifications to the rule
text. The text of Amendment No. 2 is available on
Amex’s Web site (https://www.amex.com), at the
Amex’s Office of the Secretary, and at the
Commission’s Public Reference Room.
7 See Securities Exchange Act Release No. 27753
(March 1, 1990), 55 FR 8624 (March 8, 1990) (order
approving File No. SR–Amex–89–29).
8 17 CFR 240.19b–4(e).
9 17 CFR 240.19b–4(c)(1).
10 15 U.S.C. 78s(b).
2 17
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Federal Register / Vol. 70, No. 78 / Monday, April 25, 2005 / Notices
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.11 Hence, Amex is proposing in
this rule filing to adopt generic listing
standard under new Section 107D of the
Company Guide for this product class,
pursuant to which it will be able to list
and trade (including pursuant to
unlisted trading privileges) Index
Securities without individual
Commission approval of each product
pursuant to Section 19(b)(2) of the
Act.12 Instead, Amex represents that any
securities it lists and/or trades pursuant
to Section 107D of the Amex Company
Guide will satisfy the standards set forth
therein. The Exchange states that,
within five (5) business days after
commencement of trading of an Index
Security in reliance on Section 107D,
Amex will file a Form 19b–4(e).13
The Exchange submits that several
Index Securities based on both broadbased and market segment indexes are
currently trading on the Exchange.14
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.
B. Index Securities
Index Securities are designed for
investors who desire to participate in a
specific market segment or combination
of market segments through index
products by providing investors with
exposure to an identifiable underlying
market index.15 Index Securities are the
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11 See
Securities Exchange Act Release No. 40761
(December 8, 1998), 63 FR 70952 (December 22,
1998) (the ‘‘19b–4(e) Order’’).
12 15 U.S.C. 78s(b)(2).
13 17 CFR 19b–4(e)(2)(ii); 17 CFR 249.820.
14 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
infra notes 16.
15 As explained in the Notice, the holder of an
Index Security may or may not be fully exposed to
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non-convertible debt of an issuer that
have a term of at least one (1) year but
not greater than ten (10) years. Index
Securities may or may not make interest
payments based on dividends or other
cash distributions paid on the securities
comprising the Underlying Index or
Indexes 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.
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.16 More generally,
Index Securities may or may not be
structured17 with accelerated returns,
upside or downside, based on the
performance of the Underlying Index.
Amex specifically represents that 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 or may
not provide ‘‘principal protection,’’ i.e.,
a minimum guaranteed amount to be
repaid.18 The Exchange believes that the
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.
16 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).
17 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.
18 Some Index Securities may provide for
‘‘contingent’’ protection of the principal amount,
whereby the principal protection may disappear if
the Underlying Index at any point in time during
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Fmt 4703
Sfmt 4703
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
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 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.
Pursuant to Section 107D, 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 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.
C. Proposed Listing Criteria
As explained more fully in the Notice,
Amex has proposed asset/equity
requirements and tangible net worth for
each Index Security issuer, as well as
minimum distribution, principal/market
value, and term thresholds for each
issuance of Index Securities.
the life of such security reaches a certain predetermined level. 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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Criteria for Underlying Indexes
Each index or combination of indexes
underlying an Index Security (the
‘‘Underlying Index’’ or ‘‘Underlying
Indexes’’) must satisfy the specific
criteria set forth in proposed Section
107D(g) of the Company Guide 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 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. In all cases, an
Underlying Index is required to have a
minimum of ten (10) component
securities (‘‘Underlying Security’’).
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,
modified market capitalization, price,
19 See supra notes 16, 18. 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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equal-dollar or modified equal-dollar
weighting methodology.20 If a brokerdealer 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.21 In addition, an Underlying
Index that is maintained by a brokerdealer 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,
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:
• Each Underlying Security must
have 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;
• Each Underlying Security must
have a 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 or modified capitalizationweighted index, the lesser of the five
20 Details regarding each of these methodologies
are described in the Notice. See Notice, notes 20–
24.
21 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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21259
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 (e.g., underlying securities that
account for 90% of the weight of the
index) 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 association 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 capitalizationweighted, modified capitalizationweighted and price weighted indexes as
of the first day of January and July in
each year;
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• 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 or
modified 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:
• 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.22
22 See
Rule 10A–3(c)(7), 17 CFR 240.10A–3(c)(7).
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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 4:00 p.m. will apply to transactions
in Index Securities.
Information Circular
In addition, upon evaluating the
nature and complexity of each Index
Security, the Exchange represents that it
will prepare and distribute, if
appropriate, an Information Circular to
members describing the product.
Accordingly, the particular structure
and corresponding risk of any Index
Security traded on the Exchange will be
highlighted and disclosed.23 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.
Surveillance
The Exchange will closely monitor
activity in Index Securities to identify
and deter any potential improper
trading activity in Index Securities.
Additionally, the Exchange represents
that it will develop surveillance
procedures adequate to properly
monitor the trading of the Index
Securities. Specifically, the Amex will
23 The Exchange notes that members conducting
a public securities business are subject to the rules
and regulations of the National Association of
Securities Dealers, Inc. (‘‘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.
PO 00000
Frm 00088
Fmt 4703
Sfmt 4703
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.
III. Commission Findings
After careful consideration, the
Commission finds that the proposed
rule change, as amended, is consistent
with Section 6(b) of the Act 24 and the
rules and regulations thereunder
applicable to a national securities
exchange.25 In particular, the
Commission believes that the proposal
furthers the objectives of Section 6(b)(5)
of the Act 26 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.
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.27 In
approving these securities for Exchange
trading, the Commission thoroughly
considered the structures, their
24 15
U.S.C. 78f(b).
approving this proposal, the Commission has
considered its impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
26 15 U.S.C. 78f(b)(5).
27 See supra notes 16, 18 and 19.
25 In
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usefulness to investors and to the
markets, and Amex rules that govern
their trading. The Commission believes
that generic listing standards for these
securities should fulfill the intended
objective of Rule 19b–4(e) by allowing
those Index Securities that satisfy the
generic listing standards to commence
trading without public comment and
Commission approval.28 This has the
potential to reduce the time frame for
bringing Index Securities to market and
thereby reduce the burdens on issuers
and other market participants. Further,
the Exchange’s ability to rely on Rule
19b–4(e) for Index Securities potentially
reduces the time frame for listing and
trading these securities, and thus
enhances investors’ opportunities. The
Commission notes that it maintains
regulatory oversight over any products
listed pursuant to generic listing
standards through regular inspection
oversight.
rmajette on DSK29S0YB1PROD with NOTICES
A. Trading of Index Securities
Taken together, the Commission finds
that the Amex proposal contains
adequate rules and procedures to govern
the trading of Index Securities listed
pursuant to Rule 19b–4(e) on the
Exchange or traded pursuant to unlisted
trading privileges. All Index Security
products listed under the standards will
be subject to the full panoply of Amex
rules and procedures that now govern
the trading of Index Securities and the
trading of equity securities on the
Amex, including among others, rules
and procedures governing trading halts,
disclosures to members, responsibilities
of the specialist, account opening and
customer suitability requirements, the
election of a stop or limit order, and
margin.
Amex has proposed asset/equity
requirements and tangible net worth for
each Index Security issuer, as well as
minimum distribution, principal/market
value, and term thresholds for each
issuance of Index Securities. As set forth
more fully above, Amex’s proposed
listing criteria include minimum market
capitalization, monthly trading volume,
and relative weighting requirements for
28 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)
(Narrow-Based 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). The Commission notes that 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.
VerDate Nov<24>2008
14:51 Oct 19, 2009
Jkt 220001
the Index Securities. These
requirements are designed to ensure that
the trading markets for index
components underlying Index Securities
are adequately capitalized and
sufficiently liquid, and that no one stock
dominates the index. The Commission
believes that these requirements should
significantly minimize the potential for
manipulation. The Commission also
finds that the requirement that each
component security underlying an
Index Security be listed on a national
securities exchange or traded through
the facilities of a national securities
system and subject to last sale reporting
will contribute significantly to the
transparency of the market for Index
Securities. Alternatively, if the index
component securities are foreign
securities that are not reporting
companies, the generic listing standards
permit listing of an Index Security if the
Commission previously approved the
underlying index for trading in
connection with another derivative
product and certain surveillance sharing
arrangements exist with foreign markets.
The Commission believes that if it has
previously determined that such index
and its components were sufficiently
transparent, then the Exchange may rely
on this finding, provided it has
comparable surveillance sharing
arrangements with the foreign market
that the Commission relied on in
approving the previous product.
The Commission believes that by
requiring pricing information for both
the relevant underlying index or
indexes and the Index Security to be
readily available and disseminated, the
proposed listing standards should help
ensure a fair and orderly market for
Index Securities approved pursuant to
Section 107D.
The Commission also believes that the
requirement that at least 90 percent of
the component securities, by weight,
and 80 percent of the total number of
component securities, be eligible
individually for options trading will
prevent an Index Security from being a
vehicle for trading options on a security
not otherwise options eligible.
The Exchange has also developed
delisting criteria that will permit Amex
to suspend trading of an Index Security
in case of circumstances that make
further dealings in the product
inadvisable. The Commission believes
that the delisting criteria will help
ensure a minimum level of liquidity
exists for each Index Security to allow
for the maintenance of fair and orderly
markets. Also, the Exchange will
commence delisting proceedings in the
event that the value of the underlying
index or index is no longer calculated
PO 00000
Frm 00089
Fmt 4703
Sfmt 4703
21261
and widely disseminated on at least a
15-second basis.
B. Surveillance
The Exchange must surveil trading in
any products listed under the generic
listing standards. In that regard, the
Commission believes that a surveillance
sharing agreement between an Exchange
proposing to list a stock index
derivative product and the exchange(s)
trading the stocks underlying the
derivative product is an important
measure for surveillance of the
derivative and underlying securities
markets. When a new derivative
securities product based upon domestic
securities is listed and traded on an
exchange pursuant to Rule 19b–4(e)
under the Act, the exchange should
determine that the markets upon which
all of the U.S. component securities
trade are members of the Intermarket
Surveillance Group (‘‘ISG’’), which
provides information relevant to the
surveillance of the trading of securities
on other market centers.29 For new
derivative securities products based on
securities from a foreign market, the
exchange should have a comprehensive
Intermarket Surveillance Agreement
with the market for the securities
underlying the new securities
product.30 Accordingly, the
Commission finds that Amex’s
commitment to implement
comprehensive surveillance sharing
agreements, as necessary,31 and the
requirement that no more than 20
percent of the weight of the index may
be comprised of foreign country
securities or ADRs that are not subject
to a comprehensive surveillance sharing
agreement 32 will make possible
adequate surveillance of trading of
Index Securities listed pursuant to the
proposed generic listing standards.
With regard to actual oversight, Amex
represents that its surveillance
procedures are sufficient to detect
fraudulent trading among members in
the trading of Index Securities pursuant
to proposed Section 107D of the Amex
Company Guide.
29 See Securities Exchange Act Release No. 40761
(December 8, 1998), 63 FR 70952 (December 22,
1998) (File No. S7–13–98). ISG was formed on July
14, 1983, to, among other things, coordinate more
effectively surveillance and investigative
information sharing arrangements in the stock and
options markets. The Commission notes that all of
the registered national securities exchanges,
including the ISE, as well as the NASD, are
members of the ISG.
30 See id.
31 Proposed Amex Company Guide Section
107D(j).
32 Proposed Amex Company Guide Section
107D(g)(vii).
E:\TEMP\25APN1.SGM
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Federal Register / Vol. 70, No. 78 / Monday, April 25, 2005 / Notices
C. Acceleration
The Commission finds good cause for
approving proposed Amendment No. 2
before the 30th day after the date of
publication of notice of filing thereof in
the Federal Register. In Amendment
No. 2, Amex made minor modifications
to the rule text and corresponding
description, which clarified the scope of
the proposal. The Commission believes
that Amendment No. 2 will facilitate
application of the Exchange’s generic
listing standards and enable more
expeditious review and listing of Index
Securities by Amex, reducing
administrative burdens and benefiting
the investing public. Thus, the
Commission finds good cause to
accelerate approval of the proposed rule
change, as amended.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning Amendment No.
2, including whether Amendment No. 2
is consistent with the Act. Comments
may be submitted by any of the
following methods:
rmajette on DSK29S0YB1PROD with 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
VerDate Nov<24>2008
14:51 Oct 19, 2009
Jkt 220001
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 May 16, 2005.
V. Conclusion
It is therefore ordered, pursuant to
section 19(b)(2) of the Act,33 that the
proposed rule change (SR–Amex–2005–
001), as modified by Amendment No. 1,
is hereby approved, and that
Amendment No. 2 to the proposed rule
change is hereby approved on an
accelerated basis.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.34
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–1949 Filed 4–22–05; 8:45 am]
BILLING CODE 8010–01–P
SMALL BUSINESS ADMINISTRATION
Delegations of Authority
Small Business Administration.
Notice of Delegations of
Authority.
AGENCY:
ACTION:
SUMMARY: This document provides the
public notice of the delegations of
authority for lender oversight and
enforcement activities by the
Administrator of the Small Business
Administration (SBA) to the Associate
Administrator for the Office of Lender
Oversight, the Lender Oversight
Committee, and the Associate Deputy
Administrator for Capital Access.
FOR FURTHER INFORMATION CONTACT:
Janet A. Tasker, Associate Administrator
for the Office of Lender Oversight, or
Diane K. Wright, Attorney Advisor, U.S.
Small Business Administration, 409 3rd
Street, SW., Washington, DC 20416,
telephone numbers: (202) 205–3049 or
(202) 205–6642, respectively; facsimile
number: (202) 205–6846; and electronic
mail: janet.tasker@sba.gov or
diane.wright@sba.gov, respectively.
SUPPLEMENTARY INFORMATION: This
publication provides the public notice
of the Administrator’s delegations of
authority with respect to SBA’s lender
33 15
34 17
PO 00000
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
Frm 00090
Fmt 4703
Sfmt 4703
oversight and enforcement activities. It
follows in time the Administrator’s
approval of designated responsibilities
of SBA’s Office of Lender Oversight. It
also incorporates specific authorities
enacted in Pub. L. 108–447, Division K
(December 7, 2004) or promulgated in
SBA regulations codified at 13 CFR part
120 or part 145. Delegation of Authority
12–G reads as follows:
Delegation of Authority No. 12–G.
I. The Administrator of the SBA,
Hector V. Barreto, pursuant to the
authority vested in him by the Small
Business Act, 15 U.S.C. 631, as
amended, and the Small Business
Investment Act of 1958, 15 U.S.C. 661,
as amended, hereby delegates the
following authorities:
A. To the Associate Administrator for
the Office of Lender Oversight (AA/
OLO):
1. Lender Oversight Activities.
a. To direct and coordinate SBA’s
lender oversight activities.
b. To review, examine, monitor, and
assess the risks to SBA loan programs
of, SBA lenders [including but not
limited to Small Business Lending
Companies (SBLCs); non-Federally
regulated lenders (as defined in Section
3(r)(2) of the Small Business Act); other
7(a) lenders; Certified Development
Companies (CDCs); and intermediaries
participating in SBA’s Microloan
Program (as defined in 13 CFR
120.701(e))] using a variety of oversight
tools, including but not limited to:
SBA’s Loan and Lender Monitoring
System (L/LMS); on-site reviews; off-site
monitoring and evaluation; and lender
ratings.
c. To set capital standards for SBLCs.
d. To assume responsibility for
follow-up and day-to-day dealings with
lenders with higher risk ratings of 4 or
5, other than servicing actions on
individual loans (which will be
reviewed by the Office of Financial
Assistance (OFA)), including but not
limited to approving delegations of
program authority (for example new
authority, renewal of authority, or
expansion of authority in the Preferred
Lender Program, Express Program,
Premier Certified Lender Program or any
other delegated program authority
established in the future).
e. To head and direct the activities of
the Bureau of PCLP Oversight.
f. To take all other actions relating to
lender oversight activities that are not
otherwise delegated to others pursuant
to these Delegations of Authority.
2. Enforcement Actions.
a. To make recommendations to the
Lender Oversight Committee relating to
enforcement actions against lenders
E:\TEMP\25APN1.SGM
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]]>Agencies
[Federal Register Volume 70, Number 78 (Monday, April 25, 2005)]
[Notices]
[Pages 21257-21262]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-1949]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-51563; File No. SR-Amex-2005-001]
Self-Regulatory Organizations; Order Approving Proposed Rule
Change and Amendment No. 1 by the American Stock Exchange LLC and
Notice of Filing and Order Granting Accelerated Approval to Amendment
No. 2 Relating to the Adoption of Generic Listing Standards for Index-
Linked Securities
April 15, 2005.
I. Introduction
On January 6, 2005, the American Stock Exchange LLC (``Amex'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change 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\3\ in connection with index-linked securities (``Index
Securities''). On February 25, 2005, Amex amended its proposal.\4\ The
proposed rule change, as modified by Amendment No. 1, was published for
notice and comment in the Federal Register on March 4, 2005.\5\ The
Commission received no comment letters regarding the proposed rule
change. On April 15, 2005, Amex amended the proposed rule change.\6\
This order approves the proposed rule change, as modified by Amendment
No. 1. Simultaneously, the Commission provides notice of filing of
Amendment No. 2 and grants accelerated approval of Amendment No. 2.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 17 CFR 240.19b-4(e).
\4\ 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.
\5\ See Securities Exchange Act Release No. 51258 (February 25,
2005), 70 FR 10700 (``Notice'').
\6\ See Amendment No. 2, dated April 15, 2005 (``Amendment No.
2''). In Amendment No. 2, the Exchange proposed minor clarifications
to the rule text. The text of Amendment No. 2 is available on Amex's
Web site (https://www.amex.com), at the Amex's Office of the
Secretary, and at the Commission's Public Reference Room.
---------------------------------------------------------------------------
II. Description of Proposal
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.\7\ The Amex proposes to add
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.\8\
---------------------------------------------------------------------------
\7\ See Securities Exchange Act Release No. 27753 (March 1,
1990), 55 FR 8624 (March 8, 1990) (order approving File No. SR-Amex-
89-29).
\8\ 17 CFR 240.19b-4(e).
---------------------------------------------------------------------------
A. Generic Listing Standards
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,\9\ if the Commission has approved, pursuant to Section
19(b) of the Act,\10\ the self-regulatory organization's trading rules,
[[Page 21258]]
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.\11\
Hence, Amex is proposing in this rule filing to adopt generic listing
standard under new Section 107D of the Company Guide for this product
class, pursuant to which it will be able to list and trade (including
pursuant to unlisted trading privileges) Index Securities without
individual Commission approval of each product pursuant to Section
19(b)(2) of the Act.\12\ Instead, Amex represents that any securities
it lists and/or trades pursuant to Section 107D of the Amex Company
Guide will satisfy the standards set forth therein. The Exchange states
that, within five (5) business days after commencement of trading of an
Index Security in reliance on Section 107D, Amex will file a Form 19b-
4(e).\13\
---------------------------------------------------------------------------
\9\ 17 CFR 240.19b-4(c)(1).
\10\ 15 U.S.C. 78s(b).
\11\ See Securities Exchange Act Release No. 40761 (December 8,
1998), 63 FR 70952 (December 22, 1998) (the ``19b-4(e) Order'').
\12\ 15 U.S.C. 78s(b)(2).
\13\ 17 CFR 19b-4(e)(2)(ii); 17 CFR 249.820.
---------------------------------------------------------------------------
The Exchange submits that several Index Securities based on both
broad-based and market segment indexes are currently trading on the
Exchange.\14\ 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.
---------------------------------------------------------------------------
\14\ 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 infra notes 16.
---------------------------------------------------------------------------
B. Index Securities
Index Securities are designed for investors who desire to
participate in a specific market segment or combination of market
segments through index products by providing investors with exposure to
an identifiable underlying market index.\15\ 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. Index Securities may or may
not make interest payments based on dividends or other cash
distributions paid on the securities comprising the Underlying Index or
Indexes 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.
---------------------------------------------------------------------------
\15\ As explained in the Notice, 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.\16\ More generally, Index Securities may or may not be
structured\17\ with accelerated returns, upside or downside, based on
the performance of the Underlying Index. Amex specifically represents
that 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 or may not provide ``principal protection,'' i.e., a
minimum guaranteed amount to be repaid.\18\ 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.
---------------------------------------------------------------------------
\16\ 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).
\17\ 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.
\18\ Some Index Securities may provide for ``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.
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 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 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.
Pursuant to Section 107D, 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 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.
C. Proposed Listing Criteria
As explained more fully in the Notice, Amex has proposed asset/
equity requirements and tangible net worth for each Index Security
issuer, as well as minimum distribution, principal/market value, and
term thresholds for each issuance of Index Securities.
[[Page 21259]]
Criteria for Underlying Indexes
Each index or combination of indexes underlying an Index Security
(the ``Underlying Index'' or ``Underlying Indexes'') must satisfy the
specific criteria set forth in proposed Section 107D(g) of the Company
Guide 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 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. In all cases, an Underlying Index is required to
have a minimum of ten (10) component securities (``Underlying
Security'').
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 16, 18. 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, modified market capitalization, price, equal-dollar or
modified equal-dollar weighting methodology.\20\ 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.\21\ 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.
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\20\ Details regarding each of these methodologies are described
in the Notice. See Notice, notes 20-24.
\21\ 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:
Each Underlying Security must have 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;
Each Underlying Security must have a 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 or modified
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 (e.g., underlying
securities that account for 90% of the weight of the index) 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 association 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, modified capitalization-weighted
and price weighted indexes as of the first day of January and July in
each year;
[[Page 21260]]
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 or modified 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:
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.\22\
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\22\ 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 4:00 p.m. will apply to transactions in Index
Securities.
Information Circular
In addition, upon evaluating the nature and complexity of each
Index Security, the Exchange represents that it will prepare and
distribute, if appropriate, an Information Circular to members
describing the product. Accordingly, the particular structure and
corresponding risk of any Index Security traded on the Exchange will be
highlighted and disclosed.\23\ 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.
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\23\ The Exchange notes that members conducting a public
securities business are subject to the rules and regulations of the
National Association of Securities Dealers, Inc. (``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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Surveillance
The Exchange will closely monitor activity in Index Securities to
identify and deter any potential improper trading activity in Index
Securities. Additionally, the Exchange represents that it will develop
surveillance procedures adequate to properly monitor the trading of the
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.
III. Commission Findings
After careful consideration, the Commission finds that the proposed
rule change, as amended, is consistent with Section 6(b) of the Act
\24\ and the rules and regulations thereunder applicable to a national
securities exchange.\25\ In particular, the Commission believes that
the proposal furthers the objectives of Section 6(b)(5) of the Act \26\
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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\24\ 15 U.S.C. 78f(b).
\25\ In approving this proposal, the Commission has considered
its impact on efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
\26\ 15 U.S.C. 78f(b)(5).
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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.\27\ In approving these securities for
Exchange trading, the Commission thoroughly considered the structures,
their
[[Page 21261]]
usefulness to investors and to the markets, and Amex rules that govern
their trading. The Commission believes that generic listing standards
for these securities should fulfill the intended objective of Rule 19b-
4(e) by allowing those Index Securities that satisfy the generic
listing standards to commence trading without public comment and
Commission approval.\28\ This has the potential to reduce the time
frame for bringing Index Securities to market and thereby reduce the
burdens on issuers and other market participants. Further, the
Exchange's ability to rely on Rule 19b-4(e) for Index Securities
potentially reduces the time frame for listing and trading these
securities, and thus enhances investors' opportunities. The Commission
notes that it maintains regulatory oversight over any products listed
pursuant to generic listing standards through regular inspection
oversight.
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\27\ See supra notes 16, 18 and 19.
\28\ 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) (Narrow-Based 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). The Commission notes that 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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A. Trading of Index Securities
Taken together, the Commission finds that the Amex proposal
contains adequate rules and procedures to govern the trading of Index
Securities listed pursuant to Rule 19b-4(e) on the Exchange or traded
pursuant to unlisted trading privileges. All Index Security products
listed under the standards will be subject to the full panoply of Amex
rules and procedures that now govern the trading of Index Securities
and the trading of equity securities on the Amex, including among
others, rules and procedures governing trading halts, disclosures to
members, responsibilities of the specialist, account opening and
customer suitability requirements, the election of a stop or limit
order, and margin.
Amex has proposed asset/equity requirements and tangible net worth
for each Index Security issuer, as well as minimum distribution,
principal/market value, and term thresholds for each issuance of Index
Securities. As set forth more fully above, Amex's proposed listing
criteria include minimum market capitalization, monthly trading volume,
and relative weighting requirements for the Index Securities. These
requirements are designed to ensure that the trading markets for index
components underlying Index Securities are adequately capitalized and
sufficiently liquid, and that no one stock dominates the index. The
Commission believes that these requirements should significantly
minimize the potential for manipulation. The Commission also finds that
the requirement that each component security underlying an Index
Security be listed on a national securities exchange or traded through
the facilities of a national securities system and subject to last sale
reporting will contribute significantly to the transparency of the
market for Index Securities. Alternatively, if the index component
securities are foreign securities that are not reporting companies, the
generic listing standards permit listing of an Index Security if the
Commission previously approved the underlying index for trading in
connection with another derivative product and certain surveillance
sharing arrangements exist with foreign markets. The Commission
believes that if it has previously determined that such index and its
components were sufficiently transparent, then the Exchange may rely on
this finding, provided it has comparable surveillance sharing
arrangements with the foreign market that the Commission relied on in
approving the previous product.
The Commission believes that by requiring pricing information for
both the relevant underlying index or indexes and the Index Security to
be readily available and disseminated, the proposed listing standards
should help ensure a fair and orderly market for Index Securities
approved pursuant to Section 107D.
The Commission also believes that the requirement that at least 90
percent of the component securities, by weight, and 80 percent of the
total number of component securities, be eligible individually for
options trading will prevent an Index Security from being a vehicle for
trading options on a security not otherwise options eligible.
The Exchange has also developed delisting criteria that will permit
Amex to suspend trading of an Index Security in case of circumstances
that make further dealings in the product inadvisable. The Commission
believes that the delisting criteria will help ensure a minimum level
of liquidity exists for each Index Security to allow for the
maintenance of fair and orderly markets. Also, the Exchange will
commence delisting proceedings in the event that the value of the
underlying index or index is no longer calculated and widely
disseminated on at least a 15-second basis.
B. Surveillance
The Exchange must surveil trading in any products listed under the
generic listing standards. In that regard, the Commission believes that
a surveillance sharing agreement between an Exchange proposing to list
a stock index derivative product and the exchange(s) trading the stocks
underlying the derivative product is an important measure for
surveillance of the derivative and underlying securities markets. When
a new derivative securities product based upon domestic securities is
listed and traded on an exchange pursuant to Rule 19b-4(e) under the
Act, the exchange should determine that the markets upon which all of
the U.S. component securities trade are members of the Intermarket
Surveillance Group (``ISG''), which provides information relevant to
the surveillance of the trading of securities on other market
centers.\29\ For new derivative securities products based on securities
from a foreign market, the exchange should have a comprehensive
Intermarket Surveillance Agreement with the market for the securities
underlying the new securities product.\30\ Accordingly, the Commission
finds that Amex's commitment to implement comprehensive surveillance
sharing agreements, as necessary,\31\ and the requirement that no more
than 20 percent of the weight of the index may be comprised of foreign
country securities or ADRs that are not subject to a comprehensive
surveillance sharing agreement \32\ will make possible adequate
surveillance of trading of Index Securities listed pursuant to the
proposed generic listing standards.
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\29\ See Securities Exchange Act Release No. 40761 (December 8,
1998), 63 FR 70952 (December 22, 1998) (File No. S7-13-98). ISG was
formed on July 14, 1983, to, among other things, coordinate more
effectively surveillance and investigative information sharing
arrangements in the stock and options markets. The Commission notes
that all of the registered national securities exchanges, including
the ISE, as well as the NASD, are members of the ISG.
\30\ See id.
\31\ Proposed Amex Company Guide Section 107D(j).
\32\ Proposed Amex Company Guide Section 107D(g)(vii).
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With regard to actual oversight, Amex represents that its
surveillance procedures are sufficient to detect fraudulent trading
among members in the trading of Index Securities pursuant to proposed
Section 107D of the Amex Company Guide.
[[Page 21262]]
C. Acceleration
The Commission finds good cause for approving proposed Amendment
No. 2 before the 30th day after the date of publication of notice of
filing thereof in the Federal Register. In Amendment No. 2, Amex made
minor modifications to the rule text and corresponding description,
which clarified the scope of the proposal. The Commission believes that
Amendment No. 2 will facilitate application of the Exchange's generic
listing standards and enable more expeditious review and listing of
Index Securities by Amex, reducing administrative burdens and
benefiting the investing public. Thus, the Commission finds good cause
to accelerate approval of the proposed rule change, as amended.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning Amendment No. 2, including whether Amendment No. 2
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-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 May 16, 2005.
V. Conclusion
It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\33\ that the proposed rule change (SR-Amex-2005-001), as modified
by Amendment No. 1, is hereby approved, and that Amendment No. 2 to the
proposed rule change is hereby approved on an accelerated basis.
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\33\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\34\
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\34\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-1949 Filed 4-22-05; 8:45 am]
BILLING CODE 8010-01-P
