Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Change Relating to the Listing and Trading of Notes Linked to the Performance of the CBOE S&P 500 BuyWrite Index(sm), 24138-24143 [E5-2213]
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Federal Register / Vol. 70, No. 87 / Friday, May 6, 2005 / Notices
pence, and then cancel those
repurchased shares.
2. Capital Elections. Under the
repurchase options, JPMorgan Cazenove
Limited (‘‘JPMorgan Cazenove’’) would
offer to buy B shares for 65 pence per
share, free of all dealing expenses and
commissions. The Initial Capital
Election would occur shortly after the
EGM. At present, NGT expects that
JPMorgan Cazenove would offer
Deferred Capital Elections in 2006 and
2007.
Following completion of any
repurchase offer, JPMorgan Cazenove
would have the right to require NGT to
purchase at 65 pence per B share, those
B shares purchased from shareholders
pursuant to JPMorgan Cazenove’s
repurchase offer. All B shares
repurchased by NGT from JPMorgan
Cazenove would be cancelled, and
would not be held as treasury shares.
Those shareholders electing to hold
their B shares for a period of time
(including those that select the Final
Maturity Election, described below)
would be entitled to a dividend on the
B shares at a rate per annum of 75% of
12-month Sterling London Inter-Bank
Offer Rate on a value of 65 pence per B
share (‘‘Continuing Dividend’’).
3. Final Maturity Elections. Under the
terms and conditions of the B shares,
NGT would convert all of the B shares
outstanding after a certain date in 2007
(specified in the proxy materials) into
ordinary shares. The conversion ratio
would be one new ordinary share for
every M/65 B shares, where M
represents the average of the closing
mid-market quotations in pence of the
new ordinary shares on the London
Stock Exchange, as derived from the
Daily Official List (as maintained by the
UK Listing Authority for the purposes of
the Financial Services and Markets Act
2000, as amended) for the five business
days immediately preceding the
conversion date), fractional entitlements
being disregarded and the balance of
those shares (including any fractions)
shall be deferred shares as described in
the proxy materials. Conversions of the
B shares would be effected by NGT
through a reorganization of share capital
that would result in the elimination of
the B shares though their conversion
into ordinary shares.
II. Proposed Transactions
NGT requests authority under section
12(c) and rule 42 to acquire, retire,
redeem and/or convert the B shares in
connection with Initial Capital
Elections, Deferred Capital Elections
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18:03 May 05, 2005
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and Final Maturity Elections.9 The
company also requests authority under
section 6(a)(2) to effect the intended
reverse stock split. Further, NGT
requests authority to solicit shareholder
consents with regard to the B share
scheme under section 12(e) and rules 62
and 65. NGT states that it already has
the necessary authority to issue the B
shares.10
For the Commission, by the Division of
Investment Management, pursuant to
delegated authority.
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E5–2198 Filed 5–5–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–51634; File No. SR–Amex–
2005–036]
Self-Regulatory Organizations;
American Stock Exchange LLC; Notice
of Filing and Order Granting
Accelerated Approval of a Proposed
Rule Change Relating to the Listing
and Trading of Notes Linked to the
Performance of the CBOE S&P 500
BuyWrite Index(sm)
April 29, 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 March 25,
2005, the American Stock Exchange LLC
(‘‘Amex’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons and is
9 Not all sellers of B shares would be unaffiliated
with NGT, so those repurchases would not be
exempt under rule 42.
10 Economically, the issuance of B shares
constitutes a dividend. This dividend, however,
would not be subject to section 12(c) of the Act or
rule 46 because it would be paid out of NGT’s
‘‘distributable reserves,’’ which is generally
equivalent to unrestricted retained earnings under
U.S. GAAP. The issuance of B shares would be
subject to sections 6 and 7 of the Act. NGT,
however, is authorized through September 30, 2007
to issue various types of securities, including
preferred stock and securities convertible into
common stock, subject to certain conditions. See
HCAR No. 27898 (September 30, 2004) (‘‘Financing
Order’’). NGT states that the B shares issuance
would comply with all of the conditions of the
Financing Order.
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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approving the proposal on an
accelerated basis.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to list and
trade notes, the performance of which is
linked to the S&P 500 BuyWrite
Index(sm) (the ‘‘BXM Index’’ or
‘‘Index’’). The text of the proposed rule
change is available on the Amex’s Web
site (https://www.amex.com), at the
principal offices of the Amex, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Amex included statements concerning
the purpose of, and basis for, the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item III below. The Amex has
prepared summaries, set forth in
Sections A, B and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Under Section 107A of the Amex
Company Guide (‘‘Company Guide’’),
the Exchange may approve for listing
and trading securities that cannot be
readily categorized under the listing
criteria for common and preferred
stocks, bonds, debentures, or warrants.3
The Amex proposes to list for trading
under Section 107A of the Company
Guide notes linked to the performance
of the BXM Index (the ‘‘Notes’’). The
BXM Index is determined, calculated
and maintained solely by the Chicago
Board Options Exchange, Inc.
(‘‘CBOE’’).4 Wachovia Corporation
3 See Securities Exchange Act Release No. 27753
(Mar. 1, 1990), 55 FR 8626 (Mar. 8, 1990) (order
approving File No. SR–Amex–89–29).
4 If the CBOE discontinues publication of the
Index and the CBOE or another entity publishes a
successor or substitute index that the calculation
agent determines, in its sole discretion, to be
comparable to the Index (a ‘‘Successor Index’’), then
the calculation agent shall substitute the Successor
Index as calculated by the CBOE or any other entity
for the Index and calculate the Redemption Amount
(as defined below) by reference to the Successor
Index. Telephone conversation between Jeffrey P.
Burns, Associate General Counsel, Amex, Florence
Harmon, Senior Special Counsel, Division of
Market Regulation (‘‘Division’’), Commission, and
David Liu, Attorney, Division, Commission, on
April 26, 2005. In the event that the CBOE
discontinues publication of the Index and (a) the
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(‘‘Wachovia’’) will issue the Notes under
the name ‘‘Portfolio Tracking
Securities.’’ 5
The Notes will conform to the initial
listing guidelines under Section 107A 6
and continued listing guidelines under
Sections 1001–1003 7 of the Company
calculation agent does not select or approve a
Successor Index or (b) the Successor Index is no
longer published on any of the relevant scheduled
trading days, the calculation agent will compute a
substitute level for the Index in accordance with the
procedures last used to calculate the level of the
Index before any discontinuation but using only
those securities that comprised the Index prior to
such discontinuation. If a Successor Index is
selected or the calculation agent calculates a level
as a substitute for the Index, the Successor Index
or level will be used as a substitute for the Index
for all purposes going forward even if CBOE elects
to begin republishing the Index, unless the
calculation agent decides to use the republished
Index. If the CBOE discontinues publication of the
Index and the calculation agent determines that no
Successor Index is available at that time, then on
each scheduled trading day until the earlier to
occur of (a) the determination of the Redemption
Amount or (b) a determination by the calculation
agent that a Successor Index is available, the
calculation agent will determine the level that
would be used in computing the Redemption
Amount as if that day were a scheduled trading day.
See also infra note 22.
First Union Securities, Inc. has been appointed as
the initial calculation agent. Telephone
conversation between Jeffrey P. Burns, Associate
General Counsel, Amex, Florence Harmon, Senior
Special Counsel, Division, Commission, and David
Liu, Attorney, Division, Commission, on April 26,
2005.
5 Wachovia and Standard & Poor’s (‘‘S&P’’), a
division of the McGraw-Hill Companies, Inc. have
entered into a non-exclusive license agreement
providing for the use of the BXM Index by
Wachovia in connection with certain securities
including the Notes. S&P is not responsible for and
will not participate in the issuance and creation of
the Notes. Telephone conversation between Jeffrey
P. Burns, Associate General Counsel, Amex,
Florence Harmon, Senior Special Counsel, Division,
Commission, and David Liu, Attorney, Division,
Commission, on April 26, 2005.
6 The initial listing standards for the Notes
require: (1) A minimum public distribution of one
million units; (2) a minimum of 400 shareholders;
(3) a market value of at least $4 million; and (4) a
term of at least one year. Because the Notes will be
issued in $1,000 denominations, the minimum
public distribution requirement of one million units
and the minimum holder requirement of 400
holders do not apply. In addition, the listing
guidelines provide that the issuer has assets in
excess of $100 million, stockholder’s equity of at
least $10 million, and pre-tax income of at least
$750,000 in the last fiscal year or in two of the three
prior fiscal years. In the case of an issuer which is
unable to satisfy the earning criteria stated in
Section 101 of the Company Guide, the Exchange
will require the issuer to have the following: (1)
Assets in excess of $200 million and stockholders’
equity of at least $10 million; or (2) assets in excess
of $100 million and stockholders’ equity of at least
$20 million.
7 The Exchange’s continued listing guidelines are
set forth in Sections 1001 through 1003 of Part 10
to the Exchange’s Company Guide. Section 1002(b)
of the Company Guide states that the Exchange will
consider removing from listing any security where,
in the opinion of the Exchange, it appears that the
extent of public distribution or aggregate market
value has become so reduced to make further
dealings on the Exchange inadvisable. With respect
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Guide. The Notes are a series of
medium-term debt securities of
Wachovia that provide for a cash
payment at maturity or upon earlier
exchange at the holder’s option, based
on the performance of the BXM Index as
adjusted by the Adjustment Factor (as
defined below).8 The principal amount
of each Note is expected to be $1,000.
The Notes will not have a minimum
principal amount that will be repaid
and, accordingly, payment on the Notes
prior to or at maturity may be less than
the original issue price of the Notes. In
fact, the value of the BXM Index must
increase for the investor to receive at
least the $1,000 principal amount per
security at maturity or upon exchange or
redemption.9 If the value of the BXM
Index decreases or does not increase
sufficiently, the investor will receive
less, and possibly significantly less,
than the $1,000 principal amount per
security.10 In addition, holders of the
Notes will not receive any interest
payments from the Notes. The Notes
will have a term of at least one (1) but
no more than ten years.11 Commencing
May 2006 and continuing on an annual
basis, during the first fifteen calendar
days of May, holders of the Notes will
have the right to exchange the Notes for
a cash amount equal to the Redemption
Amount (as defined below) on the
Exchange Valuation Date (as defined
below) for such exchange.12 The Notes
are not callable by the issuer.
to continued listing guidelines for distribution of
the Notes, the Exchange will rely, in part, on the
guidelines for bonds in Section 1003(b)(iv). Section
1003(b)(iv)(A) provides that the Exchange will
normally consider suspending dealings in, or
removing from the list, a security if the aggregate
market value or the principal amount of bonds
publicly held is less than $400,000.
8 The Adjustment Factor is an annual fee that
accrues daily over the term of the Notes and is
equal to 1.5% per annum, compounded daily on an
actual/365 day count. Telephone conversation
between Jeffrey P. Burns, Associate General
Counsel, Amex, Florence Harmon, Senior Special
Counsel, Division, Commission, and David Liu,
Attorney, Division, Commission, on April 26, 2005.
9 The Notes are also subject to a 1.00% up-front
fee, as well as a 1.50% annual fee, compounded
daily. Telephone conversation between Jeffrey P.
Burns, Associate General Counsel, Amex, Florence
Harmon, Senior Special Counsel, Division,
Commission, and David Liu, Attorney, Division,
Commission, on April 26, 2005.
10 Telephone conversation between Jeffrey P.
Burns, Associate General Counsel, Amex, Florence
Harmon, Senior Special Counsel, Division,
Commission, and David Liu, Attorney, Division,
Commission, on April 26, 2005.
11 The term of the Notes is expected to be five
years and will be disclosed in the prospectus
supplement.
12 The ‘‘Exchange Valuation Date’’ is the second
scheduled trading day following the end of each
exchange period, provided that if such day is not
a trading day or if a market disruption event occurs
on such day, the Exchange Valuation Date will be
the next following scheduled trading day on which
PO 00000
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24139
The payment that a holder of a Note
will receive at maturity or exchange (the
‘‘Redemption Amount’’) will depend on
the relation of the Index ending level
(the ‘‘Index Ending Level’’) to the
closing level of the Index on the pricing
date (the ‘‘Index Starting Level’’) of the
BXM Index, as adjusted by the
Adjustment Factor (as defined below).
The Index Ending Level, for Notes held
to maturity, will equal the arithmetic
average of the products of the closing
levels of the Index on each Valuation
Date (as defined below). For Notes
exchanged pursuant to the exchange
right, the Index Ending Level will equal
the closing level of the Index on the
applicable Exchange Valuation Date (as
defined below). For purposes of
determining the amount payable at
maturity of the Notes, the Redemption
Amount will be determined on each of
the five scheduled trading days
immediately prior to the maturity date
(each a ‘‘Valuation Date’’ and
collectively, the ‘‘Valuation Dates’’). In
connection with an exchange, the
Redemption Amount will be determined
on the second scheduled trading day
after the end of each exchange period
(the ‘‘Exchange Valuation Date’’). In the
event that a Valuation Date or an
Exchange Valuation Date occurs on a
non-scheduled trading day or if the
calculation agent determines13 that a
market disruption event 14 occurs on
no market disruption event has occurred. There is
no minimum number of Notes required for an
exchange. Telephone conversation between Jeffrey
P. Burns, Associate General Counsel, Amex,
Florence Harmon, Senior Special Counsel, Division,
Commission, and David Liu, Attorney, Division,
Commission, on April 26, 2005.
13 Telephone conversation between Jeffrey P.
Burns, Associate General Counsel, Amex, Florence
Harmon, Senior Special Counsel, Division,
Commission, and David Liu, Attorney, Division,
Commission, on April 26, 2005.
14 A ‘‘market disruption event’’ is defined as the
failure of the primary market or related markets to
open for trading during regular trading hours or the
occurrence or existence of any of the following
events: (i) A trading disruption, if material, at any
time during the one hour period that ends at the
close of trading for the applicable exchange; (ii) an
exchange disruption, if material, at any time during
the one hour period that ends at the close of trading
for the applicable exchange; or (iii) an early closure.
A ‘‘trading disruption’’ generally means any
suspension of, or limitation, imposed on trading by
the primary exchange or related exchange or
otherwise, whether by reason of movements in
price exceeding limits permitted by the relevant
exchange or related exchange or otherwise (i)
relating to securities that comprise 20% or more of
the level of the S&P 500 Index (the ‘‘S&P 500’’)
or (ii) in options contracts or futures contracts
relating to the Index or the S&P 500 on any relevant
related exchange. An ‘‘exchange disruption’’ means
any event (other than a scheduled early closure)
that disrupts or impairs the ability of market
participants in general to (i) effect transactions in,
or obtain market values on, any primary exchange
or related exchange in securities that comprise 20%
E:\FR\FM\06MYN1.SGM
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06MYN1
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Federal Register / Vol. 70, No. 87 / Friday, May 6, 2005 / Notices
1.5% n
) ,
365
where ‘‘n’’ is the number of days from
but excluding the pricing date to and
including such calendar day.
A holder or investor on the maturity
date or applicable exchange date will
receive a Redemption Amount equal to:
Adjusted Index Ending Level
$990 ×
Index Starting Level
The Adjusted Index Ending Level for
Notes held to maturity is equal to the
average of the products of the Index
Ending Level and the Adjustment Factor
on each Valuation Date. In the case of
an exchange, the Adjusted Index Ending
Level is equal to the product of the
Index Ending Level and the Adjustment
Factor on the applicable Exchange
Valuation Date.
The Notes are cash-settled in U.S
dollars and do not give the holder any
right to receive any of the component
securities, dividend payments, or any
other ownership right or interest in the
securities comprising the BXM Index.15
The Notes are designed for investors
who want to participate in the exposure
to the S&P 500 that the BXM Index
provides while limiting downside risk,
and who are willing to forego interest
payments and principal protection on
the Notes during their term.
The Exchange notes that the
Commission has previously approved
the listing on the Amex of securities
with structures similar to that of the
proposed Notes.16 Description
of the Index. The BXM Index is a
or more of the level of the S&P 500 or (ii) effect
transactions in options contracts or futures
contracts relating to the Index or the S&P 500 on
any relevant related exchange. A ‘‘related
exchange’’ is an exchange or quotation system on
which futures or options contracts relating to the
Index or the S&P 500 are traded.
15 Telephone conversation between Jeffrey P.
Burns, Associate General Counsel, Amex, Florence
Harmon, Senior Special Counsel, Division,
Commission, and David Liu, Attorney, Division,
Commission, on April 26, 2005.
16 See Securities Exchange Act Release Nos.
50719 (Nov. 22, 2004), 69 FR 69644 (Nov. 30, 2004)
(approving the listing and trading of non-principal
protected notes linked to the BXM Index) (File No.
SR–Amex–2004–55).
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18:03 May 05, 2005
Jkt 205001
17 A ‘‘buy-write’’ is a conservative options
strategy in which an investor buys a stock or
portfolio and writes call options on the stock or
portfolio. This strategy is also known as a ‘‘covered
call’’ strategy. A buy-write strategy provides option
premium income to cushion decreases in the value
of an equity portfolio, but will underperform stocks
in a rising market. A buy-write strategy tends to
lessen overall volatility in a portfolio.
18 The BXM Index consists of a long position in
the component securities of the S&P 500 and
options on the S&P 500. The Exchange notes that
the Commission has approved the listing of
numerous securities linked to the performance of
the S&P 500 as well as options on the S&P 500. See,
e.g., Securities Exchange Act Release Nos. 19907
(June 24, 1983), 48 FR 30814 (July 5, 1983)
(approving the listing and trading of options on the
S&P 500) (File No. SR–CBOE–83–8); 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) (File No. SR–Amex–2003–46);
47983 (June 4, 2003), 68 FR 35032 (June 11, 2003)
(approving the listing and trading of a CSFB
Accelerated Return Notes linked to the S&P 500)
(File No. SR–Amex–2003–45); 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) (File No. SR–Amex–2003–
62); and 48486 (Sept. 11, 2003), 68 FR 54758 (Sept.
18, 2003) (approving the listing and trading of CSFB
Contingent Principal Protection Notes on the S&P
500) (File No. SR–Amex–2003–74). In addition, the
Commission previously approved the listing and
trading of a packaged buy-write option strategy
known as ‘‘BOUNDS.’’ See Securities Exchange Act
Release No. 36710 (Jan. 11, 1996), 61 FR 1791 (Jan.
23, 1996) (File Nos. SR–Amex–94–56, SR–CBOE–
95–14, and SR–PSE–95–01).
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received from the sold call options are
functionally ‘‘re-invested’’ in the
covered S&P 500 portfolio.
The value of the BXM Index on any
given date will equal the value of the
BXM Index on the previous day
multiplied by the daily rate of return 19
on the covered S&P 500 portfolio on that
date. Thus, the daily change in the BXM
Index reflects the daily changes in value
of the covered S&P 500 portfolio, which
consists of the S&P 500 (including
dividends) and the component S&P 500
option (SPX). The daily closing price of
the BXM Index is calculated and
disseminated by the CBOE on its Web
site at https://www.cboe.com and via the
Options Pricing and Reporting
Authority (‘‘OPRA’’) at the end of each
trading day.20 The value of the S&P 500
is widely disseminated at least once
every fifteen (15) seconds throughout
the scheduled trading day. The
Exchange believes that the intraday
dissemination of the S&P 500, along
with the ability of investors to obtain
real time, intraday S&P 500 call option
pricing provides sufficient transparency
regarding the BXM Index.21 In addition,
19 The daily rate of return on the covered S&P 500
portfolio is based on (a) the change in the closing
value of the stocks in the S&P 500 portfolio, (b) the
value of ordinary cash dividends on the stocks
underlying the S&P 500, and (c) the change in the
market price of the call option. The daily rate of
return will also include the value of ordinary cash
dividends distributed on the stocks underlying the
S&P 500 that are trading ‘‘ex-dividend’’ on that date
(that is, when transactions in the stock on an
organized securities exchange or trading system no
longer carry the right to receive that dividend or
distribution) as measured from the close in trading
on the previous day.
20 The Exchange notes that the Commission, in
connection with Bond Index Term Notes and the
Merrill Lynch EuroFund Market Index Target Term
Securities, has previously approved the listing and
trading of these products where the dissemination
of the value of the underlying index occurred once
per trading day. See Securities Exchange Act
Release Nos. 41334 (Apr. 27, 1999), 64 FR 23883
(May 4, 1999) (approving the listing and trading of
Bond Indexed Term Notes) (File No. SR–Amex–99–
03) and 40367 (Aug. 26, 1998), 63 FR 47052 (Sept.
3, 1998) (approving the listing and trading of
Merrill Lynch EuroFund Market Index Target Term
Securities) (File No. SR–Amex–98–24).
21 Call options on the S&P 500 (SPX) are traded
on the CBOE, and both last sale and quotation
information for the call options are disseminated in
real time through OPRA. The value of the BXM can
be readily approximated as a function of observable
market prices throughout the trading day. In
particular, such a calculation would require
information on the current price of the S&P 500
index and specific nearest-to-expiration call and
put options on that index. These components trade
in highly liquid markets, and real-time prices are
available continuously throughout the trading day
from a number of sources including Bloomberg and
CBOE. The ‘‘Indicative Value’’ (as discussed below)
may be a more accurate indicator of the valuation
of the Notes because it reflects the fees associated
with the Notes (e.g., on the initial principal amount
and the Adjustment Amount); however, the
‘‘Indicative Value’’ is also not adjusted intraday.
Telephone conversation between Jeffrey P. Burns,
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06MYN1
EN06MY05.003</MATH>
(100% −
benchmark index designed to measure
the performance of a hypothetical ‘‘buywrite’’ 17 strategy on the S&P 500.
Developed by the CBOE in cooperation
with S&P, the Index was initially
announced in April 2002.18 The
Exchange states that the CBOE
developed the BXM Index in response
to several factors, including the repeated
requests by options portfolio managers
that the CBOE provide an objective
benchmark for evaluating the
performance of buy-write strategies, one
of the most popular option trading
strategies. Further, the CBOE developed
the BXM Index to provide investors
with a relatively straightforward
indicator of the risk-reducing character
of options that otherwise may seem
complicated and inordinately risky.
The BXM Index is a passive total
return index based on (1) buying a
portfolio consisting of the component
stocks of the S&P 500, and (2) ‘‘writing’’
(or selling) near-term S&P 500 call
options (SPX), generally on the third
Friday of each month. This strategy
consists of a hypothetical portfolio
consisting of a ‘‘long’’ position indexed
to the S&P 500 on which are deemed
sold a succession of one-month, at-themoney call options on the S&P 500
(SPX) listed on the CBOE. Dividends
paid on the component stocks
underlying the S&P 500 and the dollar
value of option premium deemed
EN06MY05.002</MATH>
such date, the Valuation Date or the
Exchange Valuation Date, as applicable,
will be postponed to the next scheduled
trading day on which no market
disruption event occurs.
The Adjustment Factor will begin at
100% and will be reduced by the fee
rate of 1.5% per annum, compounded
daily on an actual/365 day count. On
any calendar day, the adjustment factor
is equal to:
Federal Register / Vol. 70, No. 87 / Friday, May 6, 2005 / Notices
as indicated above, the value of the
BXM Index is calculated once every
scheduled trading day, thereby,
providing investors with a daily value of
such ‘‘hypothetical’’ buy-write options
strategy on the S&P 500.
The Exchange states that the CBOE
has represented that the BXM Index
value will be calculated and
disseminated by the CBOE once every
scheduled trading day after the close.
The daily change in the BXM Index
reflects the daily changes in the S&P 500
and related options positions. The
Exchange states that Wachovia has
represented that it will seek to arrange
to have the BXM Index calculated and
disseminated on a daily basis through a
third party if the CBOE ceases to
calculate and disseminate the Index.22
If, however, Wachovia is unable to
arrange the calculation and
dissemination of the BXM Index as
indicated above, the Exchange will
undertake to delist the Notes.23
In order to provide an updated value
of the daily Redemption Amount for use
by investors, the Exchange will
disseminate over the Consolidated Tape
Association’s Network B, a daily
indicative Redemption Amount (the
‘‘Indicative Value’’). The Indicative
Value will be calculated by the Amex
after the close of trading and after the
CBOE calculates the BXM Index for use
by investors the next scheduled trading
day. It is designed to provide investors
with a daily reference value of the
Index. The Indicative Value may not
reflect the precise value of the current
Redemption Amount or amount payable
upon exchange or maturity. Therefore,
the Indicative Value disseminated by
the Amex during trading hours should
not be viewed as a real time update of
the BXM Index, which is calculated
only once a day. While the Indicative
Value that will be disseminated by the
Amex is expected to be close to the
current BXM Index value, the values of
the Indicative Value and the BXM Index
will diverge due to the application of
the Adjustment Factor.
Associate General Counsel, Amex, Florence
Harmon, Senior Special Counsel, Division,
Commission, and David Liu, Attorney, Division,
Commission, on April 26, 2005.
22 Prior to such change in the manner in which
the BXM Index is calculated, or in the event of any
Index substitution, the Exchange will file a
proposed rule change pursuant to Rule 19b–4,
which must be approved by the Commission prior
to continued listing and trading in the Notes.
Telephone conversation between Jeffrey P. Burns,
Associate General Counsel, Amex, Florence
Harmon, Senior Special Counsel, Division,
Commission, and David Liu, Attorney, Division,
Commission, on April 26, 2005.
23 See supra note 4 (regarding discontinuation of
the calculation and dissemination of the Notes).
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From June 30, 1988 through March
18, 2005, the annualized returns for the
BXM Index and the S&P 500 were
11.91% and 11.70%, respectively, with
the annualized standard deviation of the
daily returns during the same time
period of 10.92% and 16.06%,
respectively. As the chart in attached
Exhibit 3 to the Exchange’s Form 19b–
4 indicates, the BXM Index will closely
track the S&P 500 except in those cases
where the market is significantly rising
or decreasing. In the case of a fast rising
market, the BXM Index will trail the
S&P 500 due to the limited upside
potential of the Index because of the
‘‘buy-write’’ strategy. Due to the
cushioning effect of the ‘‘buy-write’’
strategy, the BXM Index has in the past
exhibited negative returns that are less
than the S&P 500 during a down market.
The Exchange expects the BXM Index to
continue to display these
characteristics.
The call options included in the value
of the BXM Index have successive terms
of approximately one month. Each day
that an option expires, which day is
referred to as a ‘‘roll’’ date, that option’s
value at expiration is taken into account
in the value of the BXM Index. At
expiration, the call option is settled
against the ‘‘Special Opening
Quotation,’’ a special calculation of the
S&P 500. The final settlement price of
the call option at expiration is equal to
the difference between the Special
Opening Quotation and the strike price
of the expired call option, or zero,
whichever is greater, and is removed
from the value of the BXM Index.
Subsequent to the settlement of the
expired call option, a new, ‘‘short’’ or
sold at-the-money call option is
included in the value of the BXM
Index.24 The initial value of the new call
option is calculated by the CBOE and is
based on the volume-weighted average
of all the transaction prices of the new
call option during a designated time
period on the day the strike price is
determined.25
As of March 18, 2005, the market
capitalization of the securities included
in the S&P 500 ranged from a high of
$400.4 billion to a low of $579.04
million. The average daily trading
volume for these same securities for the
last six (6) months ranged from a high
24 Like the expired call option, the new call
option will expire approximately one month after
the date of sale.
25 For this purpose, the CBOE excludes from the
calculation those call options identified as having
been executed as part of a spread (i.e., a position
taken in two or more options in order to profit
through changes in the relative prices of those
options).
PO 00000
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24141
of 38.90 million shares to a low of
180,857 shares.
The Exchange represents that it
prohibits the initial and/or continued
listing of any security that is not in
compliance with Rule 10A–3 under the
Act.26
Because the Notes are issued in
$1,000 denominations, the Amex’s
existing debt floor trading rules will
apply to the trading of the Notes. First,
pursuant to Amex Rule 411, the
Exchange will impose a duty of due
diligence on its members and member
firms to learn the essential facts relating
to every customer prior to trading the
Notes.27 Second, even though the
Exchange’s debt trading rules apply, the
Notes will be subject to the equity
margin rules of the Exchange.28 Third,
the Exchange will, prior to trading the
Notes, distribute a circular to the
membership providing guidance with
regard to member firm compliance
responsibilities (including suitability
recommendations) when handling
transactions in the Notes and
highlighting the special risks and
characteristics of the Notes. With
respect to suitability recommendations
and risks, the Exchange will require
members, member organizations and
employees thereof recommending a
transaction in the Notes: (1) To
determine that such transaction is
suitable for the customer,29 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. In addition, Wachovia will
deliver a prospectus in connection with
its sales of the Notes.
The Exchange represents that its
surveillance procedures are adequate to
properly monitor the trading of the
Notes. Specifically, the Amex will rely
on its existing surveillance procedures
governing equities and options that
include additional monitoring on key
pricing dates,30 which the Exchange
states have been deemed adequate
under the Act. In addition, the Exchange
also has a general policy which
prohibits the distribution of material,
26 See
17 CFR 240.10A–3.
Rule 411 requires, among other things,
that every member or member organization use due
diligence to learn the essential facts, relative to
every customer and to every order or account
accepted.
28 See Amex Rule 462 and Section 107B of the
Company Guide.
29 See Amex Rule 411.
30 Telephone conversation between Jeffrey P.
Burns, Associate General Counsel, Amex, Florence
Harmon, Senior Special Counsel, Division,
Commission, and David Liu, Attorney, Division,
Commission, on April 26, 2005.
27 Amex
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non-public information by its
employees.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act 31 in general, and
furthers the objectives of Section 6(b)(5)
of the Act 32 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.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
The Exchange states that no written
comments were solicited or received
with respect to the proposed rule
change.
III. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change 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 rulecomments@sec.gov. Please include File
Number SR–Amex–2005–036 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
No. SR–Amex–2005–036. This file
number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
31 15
32 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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18:03 May 05, 2005
Jkt 205001
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
Room. Copies of the 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 No.
SR–Amex–2005–036 and should be
submitted on or before May 27, 2005.
IV. Commission’s Findings and Order
Granting Accelerated Approval of the
Proposed Rule Change
Amex has asked the Commission to
approve the proposal on an accelerated
basis to accommodate the timetable for
listing the Notes. After careful
consideration, the Commission finds
that the proposed rule change is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to a national
securities exchange, and, in particular,
with the requirements of Section 6(b)(5)
of the Act.33 The Commission finds that
this proposal is similar to several
approved instruments currently listed
and traded on the Amex.34 Accordingly,
U.S.C. 78f(b)(5).
e.g., Securities Exchange Act Release Nos.
51426 (Mar. 23, 2005), 70 FR 16315 (Mar. 30, 2005)
(approving the listing and trading of notes linked
to the performance of the CBOE S&P 500 BuyWrite
Index(sm)) (File No. SR–Amex–2005–022); 50719
(Nov. 22, 2004), 69 FR 69644 (Nov. 30, 2004)
(approving the listing and trading of notes linked
to the performance of the CBOE S&P 500 BuyWrite
Index(sm)) (File No. SR–Amex–2004–55); 48486
(Sept. 11, 2003), 68 FR 54758 (Sept. 18, 2003)
(approving the listing and trading of CSFB
Contingent Principal Protected Notes on the S&P
500) (File No. SR–Amex–2003–74); 48152 (July 10,
2003), 68 FR 42435 (July 17, 2003) (approving the
listing and trading of UBS Partial Principal
Protected Notes linked to the S&P 500) (File No.
SR–Amex–2003–62); 47983 (June 4, 2003), 68 FR
35032 (June 11, 2003) (approving the listing and
trading of CSFB Accelerated Return Notes linked to
S&P 500) (File No. SR–Amex–2003–45); 47911 (May
22, 2003), 68 FR 32558 (May 30, 2003) (approving
the listing and trading of notes (Wachovia TEES)
PO 00000
33 15
34 See,
Frm 00182
Fmt 4703
Sfmt 4703
the Commission finds that the listing
and trading of the Notes based on the
BXM Index is consistent with the Act
and will promote just and equitable
principles of trade, foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to
and facilitating transactions in securities
consistent with Section 6(b)(5) of the
Act.35
The requirements of Section 107A of
the Company Guide were designed to
address the concerns attendant to the
trading of hybrid securities, like the
Notes. For example, Section 107A of the
Company Guide provides that only
issuers satisfying substantial asset and
equity requirements may issue
securities such as the Notes. In addition,
the Exchange’s ‘‘Other Securities’’
listing standards further require that the
Notes have a market value of at least $4
million.36 In any event, financial
information regarding Wachovia, in
addition to the information on the
component stocks, which are reporting
companies under the Act, and the
Notes, which will be registered under
Section 12 of the Act, will be available.
In approving the product, the
Commission recognizes that the Index is
a passive total return index based on (1)
buying a portfolio consisting of the
component stocks of the S&P 500, and
(2) ‘‘writing’’ (or selling) near-term S&P
500 call options (SPX), generally on the
third Friday of each month. Given the
large trading volume and capitalization
of the compositions of the stocks
underlying the S&P 500, the
Commission believes that the listing and
trading of the Notes that are linked to
the BXM Index should not unduly
impact the market for the underlying
securities compromising the S&P 500 or
raise manipulative concerns.37
Moreover, the issuers of the underlying
securities comprising the S&P 500 are
subject to reporting requirements under
linked to the S&P 500) (File No. SR–Amex–2003–
46); and 36710 (Jan. 11, 1996), 61 FR 1791 (Jan. 23,
1996) (approving the listing and trading of
BOUNDS) (File Nos. SR–Amex–94–56, SR–CBOE–
95–14, and SR–PSE–95–01).
35 15 U.S.C. 78f(b)(5). In approving the proposed
rule, the Commission has considered the proposed
rule’s impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
36 See Company Guide Section 107A(c).
37 The issuer, Wachovia, disclosed in the
prospectus and prospectus supplement that the
hedging activities of it and its affiliates, including
taking positions in the stocks underlying the Index
and selling call options on the Index, which could
adversely affect the market value of the Notes from
time to time and the redemption amount holders of
the Notes would receive on the Notes. Such hedging
activity must, of course, be conducted in
accordance with applicable regulatory
requirements.
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the Act, and all of the component stocks
are either listed or traded on, or traded
through the facilities of, U.S. securities
markets.
The Commission also believes that
any concerns that a broker-dealer, such
as Wachovia, or a subsidiary providing
a hedge for the issuer, will incur undue
position exposure are minimized by the
size of the Notes issuance in relation to
the net worth of Wachovia.38
Finally, the Commission notes that
the value of the Index will be calculated
and disseminated by the CBOE once
every trading day after the close of
trading. However, the Commission notes
that the value of the S&P 500 will be
widely disseminated at least once every
fifteen seconds throughout the trading
day and that investors are able to obtain
real-time call option pricing on the S&P
500 during the trading day. Further, the
Indicative Value, which will be
calculated by the Amex after the close
of trading and after the CBOE calculates
the BXM Index for use by investors the
next trading day, is designed to provide
investors with a daily reference value of
the adjusted Index. The Commission
notes that Wachovia has agreed to
arrange to have the BXM Index
calculated and disseminated on a daily
basis through a third party in the event
that the CBOE discontinues calculating
and disseminating the Index. In such
event, the Exchange agrees to obtain
Commission approval, pursuant to filing
the appropriate Form 19b–4, prior to the
substitution of the CBOE BXM Index.
Further, the Commission notes that the
Exchange has agreed to undertake to
delist the Notes in the event that the
CBOE ceases to calculate and
disseminate the Index, and Wachovia is
unable to arrange to have the BXM
Index calculated and widely
disseminated through a third party.
The Commission finds good cause for
approving the proposed rule change
prior to the 30th day after the date of
publication of the notice of filing thereof
in the Federal Register. The Exchange
has requested accelerated approval
because this product is similar to
several other instruments currently
38 See Securities Exchange Act Release Nos.
44913 (Oct. 9, 2001), 66 FR 52469 (Oct. 15, 2001)
(order approving the listing and trading of notes
whose return is based on the performance of the
Nasdaq-100 Index) (File No. SR–NASD–2001–73);
44483 (June 27, 2001), 66 FR 35677 (July 6, 2001)
(order approving the listing and trading of notes
whose return is based on a portfolio of 20 securities
selected from the Amex Institutional Index) (File
No. SR–Amex–2001–40); and 37744 (Sept. 27,
1996), 61 FR 52480 (Oct. 7, 1996) (order approving
the listing and trading of notes whose return is
based on a weighted portfolio of healthcare/
biotechnology industry securities) (File No. SR–
Amex–96–27).
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18:03 May 05, 2005
Jkt 205001
listed and traded on the Amex.39 The
Commission believes that the Notes will
provide investors with an additional
investment choice and that accelerated
approval of the proposal will allow
investors to begin trading the Notes
promptly. Additionally, the Notes will
be listed pursuant to Amex’s existing
hybrid security listing standards as
described above. Therefore, the
Commission finds good cause,
consistent with Section 19(b)(2) of the
Act,40 to approve the proposal on an
accelerated basis.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,41 that the
proposed rule change (File No. SR–
Amex–2005–036) is hereby approved on
an accelerated basis.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.42
Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5–2213 Filed 5–5–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–51639; File No. SR–CHX–
2005–12]
Self-Regulatory Organizations; Notice
of Filing and Immediate Effectiveness
of a Proposed Rule Change by the
Chicago Stock Exchange, Inc. Relating
to Participant Fees and Credits
April 29, 2005.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 2 thereunder,
notice is hereby given that on April 21,
2005, the Chicago Stock Exchange, Inc.
(‘‘CHX’’ 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 CHX. The proposed rule
change has been filed by the CHX as
establishing or changing a due, fee, or
other charge, pursuant to Section
19(b)(3)(A)(ii) of the Act,3 and Rule
39 See supra notes 16 (citing previous approvals
of securities with structures similar to that of the
proposed Notes); and 18 (citing previous approvals
of securities linked to the performance of the S&P
500 as well as options on the S&P 500).
40 15 U.S.C. 78f(b)(5) and 78s(b)(2).
41 15 U.S.C. 78s(b)(2).
42 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(ii).
PO 00000
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Sfmt 4703
19b–4(f)(2) 4 thereunder, which renders
the proposal effective upon filing with
the Commission. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend its
rules to amend its Participant Fee
Schedule to allow the Exchange to
extend the fixed fee exemption for
CHXpress securities to new securities
during the course of a month. Below is
the text of the proposed rule change.
Proposed new language is in italics;
proposed deletions are in [brackets].
*
*
*
*
*
PARTICIPANT FEES AND CREDITS
*
*
*
*
*
E. Specialist Fixed Fees
Except in the case of Tape B
Exemption Eligible Securities (as
defined above in Section D), and
Designated CHXpress Securities (as
defined below), which shall be exempt
from assessment of fixed fees,
specialists will be assigned a fixed fee
per assigned stock on a monthly basis,
to be calculated as follows:
*
*
*
*
*
‘‘Designated CHXpress Securities’’ are
those issues which have been
designated by the Exchange [on a
monthly basis] as fixed-fee exempt at
the beginning of each month, or which
have been added by the Exchange to the
list of exempt securities during the
month, with the consent of the specialist
assigned to trade the issue.
*
*
*
*
*
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant aspects of such
statements.
4 17
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06MYN1
]]>Agencies
[Federal Register Volume 70, Number 87 (Friday, May 6, 2005)]
[Notices]
[Pages 24138-24143]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-2213]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-51634; File No. SR-Amex-2005-036]
Self-Regulatory Organizations; American Stock Exchange LLC;
Notice of Filing and Order Granting Accelerated Approval of a Proposed
Rule Change Relating to the Listing and Trading of Notes Linked to the
Performance of the CBOE S&P 500 BuyWrite Index(sm)
April 29, 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 March 25, 2005, the American Stock Exchange LLC (``Amex'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons and is approving the
proposal on an accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade notes, the performance of
which is linked to the S&P 500 BuyWrite Index(sm) (the ``BXM Index'' or
``Index''). The text of the proposed rule change is available on the
Amex's Web site (https://www.amex.com), at the principal offices of the
Amex, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Amex included statements
concerning the purpose of, and basis for, the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item III below. The Amex has prepared summaries, set forth in Sections
A, B and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Under Section 107A of the Amex Company Guide (``Company Guide''),
the Exchange may approve for listing and trading securities that cannot
be readily categorized under the listing criteria for common and
preferred stocks, bonds, debentures, or warrants.\3\ The Amex proposes
to list for trading under Section 107A of the Company Guide notes
linked to the performance of the BXM Index (the ``Notes''). The BXM
Index is determined, calculated and maintained solely by the Chicago
Board Options Exchange, Inc. (``CBOE'').\4\ Wachovia Corporation
[[Page 24139]]
(``Wachovia'') will issue the Notes under the name ``Portfolio Tracking
Securities.'' \5\
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 27753 (Mar. 1,
1990), 55 FR 8626 (Mar. 8, 1990) (order approving File No. SR-Amex-
89-29).
\4\ If the CBOE discontinues publication of the Index and the
CBOE or another entity publishes a successor or substitute index
that the calculation agent determines, in its sole discretion, to be
comparable to the Index (a ``Successor Index''), then the
calculation agent shall substitute the Successor Index as calculated
by the CBOE or any other entity for the Index and calculate the
Redemption Amount (as defined below) by reference to the Successor
Index. Telephone conversation between Jeffrey P. Burns, Associate
General Counsel, Amex, Florence Harmon, Senior Special Counsel,
Division of Market Regulation (``Division''), Commission, and David
Liu, Attorney, Division, Commission, on April 26, 2005. In the event
that the CBOE discontinues publication of the Index and (a) the
calculation agent does not select or approve a Successor Index or
(b) the Successor Index is no longer published on any of the
relevant scheduled trading days, the calculation agent will compute
a substitute level for the Index in accordance with the procedures
last used to calculate the level of the Index before any
discontinuation but using only those securities that comprised the
Index prior to such discontinuation. If a Successor Index is
selected or the calculation agent calculates a level as a substitute
for the Index, the Successor Index or level will be used as a
substitute for the Index for all purposes going forward even if CBOE
elects to begin republishing the Index, unless the calculation agent
decides to use the republished Index. If the CBOE discontinues
publication of the Index and the calculation agent determines that
no Successor Index is available at that time, then on each scheduled
trading day until the earlier to occur of (a) the determination of
the Redemption Amount or (b) a determination by the calculation
agent that a Successor Index is available, the calculation agent
will determine the level that would be used in computing the
Redemption Amount as if that day were a scheduled trading day. See
also infra note 22.
First Union Securities, Inc. has been appointed as the initial
calculation agent. Telephone conversation between Jeffrey P. Burns,
Associate General Counsel, Amex, Florence Harmon, Senior Special
Counsel, Division, Commission, and David Liu, Attorney, Division,
Commission, on April 26, 2005.
\5\ Wachovia and Standard & Poor's (``S&P''), a division of the
McGraw-Hill Companies, Inc. have entered into a non-exclusive
license agreement providing for the use of the BXM Index by Wachovia
in connection with certain securities including the Notes. S&P is
not responsible for and will not participate in the issuance and
creation of the Notes. Telephone conversation between Jeffrey P.
Burns, Associate General Counsel, Amex, Florence Harmon, Senior
Special Counsel, Division, Commission, and David Liu, Attorney,
Division, Commission, on April 26, 2005.
---------------------------------------------------------------------------
The Notes will conform to the initial listing guidelines under
Section 107A \6\ and continued listing guidelines under Sections 1001-
1003 \7\ of the Company Guide. The Notes are a series of medium-term
debt securities of Wachovia that provide for a cash payment at maturity
or upon earlier exchange at the holder's option, based on the
performance of the BXM Index as adjusted by the Adjustment Factor (as
defined below).\8\ The principal amount of each Note is expected to be
$1,000. The Notes will not have a minimum principal amount that will be
repaid and, accordingly, payment on the Notes prior to or at maturity
may be less than the original issue price of the Notes. In fact, the
value of the BXM Index must increase for the investor to receive at
least the $1,000 principal amount per security at maturity or upon
exchange or redemption.\9\ If the value of the BXM Index decreases or
does not increase sufficiently, the investor will receive less, and
possibly significantly less, than the $1,000 principal amount per
security.\10\ In addition, holders of the Notes will not receive any
interest payments from the Notes. The Notes will have a term of at
least one (1) but no more than ten years.\11\ Commencing May 2006 and
continuing on an annual basis, during the first fifteen calendar days
of May, holders of the Notes will have the right to exchange the Notes
for a cash amount equal to the Redemption Amount (as defined below) on
the Exchange Valuation Date (as defined below) for such exchange.\12\
The Notes are not callable by the issuer.
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\6\ The initial listing standards for the Notes require: (1) A
minimum public distribution of one million units; (2) a minimum of
400 shareholders; (3) a market value of at least $4 million; and (4)
a term of at least one year. Because the Notes will be issued in
$1,000 denominations, the minimum public distribution requirement of
one million units and the minimum holder requirement of 400 holders
do not apply. In addition, the listing guidelines provide that the
issuer has assets in excess of $100 million, stockholder's equity of
at least $10 million, and pre-tax income of at least $750,000 in the
last fiscal year or in two of the three prior fiscal years. In the
case of an issuer which is unable to satisfy the earning criteria
stated in Section 101 of the Company Guide, the Exchange will
require the issuer to have the following: (1) Assets in excess of
$200 million and stockholders' equity of at least $10 million; or
(2) assets in excess of $100 million and stockholders' equity of at
least $20 million.
\7\ The Exchange's continued listing guidelines are set forth in
Sections 1001 through 1003 of Part 10 to the Exchange's Company
Guide. Section 1002(b) of the Company Guide states that the Exchange
will consider removing from listing any security where, in the
opinion of the Exchange, it appears that the extent of public
distribution or aggregate market value has become so reduced to make
further dealings on the Exchange inadvisable. With respect to
continued listing guidelines for distribution of the Notes, the
Exchange will rely, in part, on the guidelines for bonds in Section
1003(b)(iv). Section 1003(b)(iv)(A) provides that the Exchange will
normally consider suspending dealings in, or removing from the list,
a security if the aggregate market value or the principal amount of
bonds publicly held is less than $400,000.
\8\ The Adjustment Factor is an annual fee that accrues daily
over the term of the Notes and is equal to 1.5% per annum,
compounded daily on an actual/365 day count. Telephone conversation
between Jeffrey P. Burns, Associate General Counsel, Amex, Florence
Harmon, Senior Special Counsel, Division, Commission, and David Liu,
Attorney, Division, Commission, on April 26, 2005.
\9\ The Notes are also subject to a 1.00% up-front fee, as well
as a 1.50% annual fee, compounded daily. Telephone conversation
between Jeffrey P. Burns, Associate General Counsel, Amex, Florence
Harmon, Senior Special Counsel, Division, Commission, and David Liu,
Attorney, Division, Commission, on April 26, 2005.
\10\ Telephone conversation between Jeffrey P. Burns, Associate
General Counsel, Amex, Florence Harmon, Senior Special Counsel,
Division, Commission, and David Liu, Attorney, Division, Commission,
on April 26, 2005.
\11\ The term of the Notes is expected to be five years and will
be disclosed in the prospectus supplement.
\12\ The ``Exchange Valuation Date'' is the second scheduled
trading day following the end of each exchange period, provided that
if such day is not a trading day or if a market disruption event
occurs on such day, the Exchange Valuation Date will be the next
following scheduled trading day on which no market disruption event
has occurred. There is no minimum number of Notes required for an
exchange. Telephone conversation between Jeffrey P. Burns, Associate
General Counsel, Amex, Florence Harmon, Senior Special Counsel,
Division, Commission, and David Liu, Attorney, Division, Commission,
on April 26, 2005.
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The payment that a holder of a Note will receive at maturity or
exchange (the ``Redemption Amount'') will depend on the relation of the
Index ending level (the ``Index Ending Level'') to the closing level of
the Index on the pricing date (the ``Index Starting Level'') of the BXM
Index, as adjusted by the Adjustment Factor (as defined below). The
Index Ending Level, for Notes held to maturity, will equal the
arithmetic average of the products of the closing levels of the Index
on each Valuation Date (as defined below). For Notes exchanged pursuant
to the exchange right, the Index Ending Level will equal the closing
level of the Index on the applicable Exchange Valuation Date (as
defined below). For purposes of determining the amount payable at
maturity of the Notes, the Redemption Amount will be determined on each
of the five scheduled trading days immediately prior to the maturity
date (each a ``Valuation Date'' and collectively, the ``Valuation
Dates''). In connection with an exchange, the Redemption Amount will be
determined on the second scheduled trading day after the end of each
exchange period (the ``Exchange Valuation Date''). In the event that a
Valuation Date or an Exchange Valuation Date occurs on a non-scheduled
trading day or if the calculation agent determines\13\ that a market
disruption event \14\ occurs on
[[Page 24140]]
such date, the Valuation Date or the Exchange Valuation Date, as
applicable, will be postponed to the next scheduled trading day on
which no market disruption event occurs.
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\13\ Telephone conversation between Jeffrey P. Burns, Associate
General Counsel, Amex, Florence Harmon, Senior Special Counsel,
Division, Commission, and David Liu, Attorney, Division, Commission,
on April 26, 2005.
\14\ A ``market disruption event'' is defined as the failure of
the primary market or related markets to open for trading during
regular trading hours or the occurrence or existence of any of the
following events: (i) A trading disruption, if material, at any time
during the one hour period that ends at the close of trading for the
applicable exchange; (ii) an exchange disruption, if material, at
any time during the one hour period that ends at the close of
trading for the applicable exchange; or (iii) an early closure. A
``trading disruption'' generally means any suspension of, or
limitation, imposed on trading by the primary exchange or related
exchange or otherwise, whether by reason of movements in price
exceeding limits permitted by the relevant exchange or related
exchange or otherwise (i) relating to securities that comprise 20%
or more of the level of the S&P 500[reg] Index (the ``S&P 500'') or
(ii) in options contracts or futures contracts relating to the Index
or the S&P 500 on any relevant related exchange. An ``exchange
disruption'' means any event (other than a scheduled early closure)
that disrupts or impairs the ability of market participants in
general to (i) effect transactions in, or obtain market values on,
any primary exchange or related exchange in securities that comprise
20% or more of the level of the S&P 500 or (ii) effect transactions
in options contracts or futures contracts relating to the Index or
the S&P 500 on any relevant related exchange. A ``related exchange''
is an exchange or quotation system on which futures or options
contracts relating to the Index or the S&P 500 are traded.
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The Adjustment Factor will begin at 100% and will be reduced by the
fee rate of 1.5% per annum, compounded daily on an actual/365 day
count. On any calendar day, the adjustment factor is equal to:
[GRAPHIC] [TIFF OMITTED] TN06MY05.002
where ``n'' is the number of days from but excluding the pricing date
to and including such calendar day.
A holder or investor on the maturity date or applicable exchange
date will receive a Redemption Amount equal to:
[GRAPHIC] [TIFF OMITTED] TN06MY05.003
The Adjusted Index Ending Level for Notes held to maturity is equal
to the average of the products of the Index Ending Level and the
Adjustment Factor on each Valuation Date. In the case of an exchange,
the Adjusted Index Ending Level is equal to the product of the Index
Ending Level and the Adjustment Factor on the applicable Exchange
Valuation Date.
The Notes are cash-settled in U.S dollars and do not give the
holder any right to receive any of the component securities, dividend
payments, or any other ownership right or interest in the securities
comprising the BXM Index.\15\ The Notes are designed for investors who
want to participate in the exposure to the S&P 500 that the BXM Index
provides while limiting downside risk, and who are willing to forego
interest payments and principal protection on the Notes during their
term.
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\15\ Telephone conversation between Jeffrey P. Burns, Associate
General Counsel, Amex, Florence Harmon, Senior Special Counsel,
Division, Commission, and David Liu, Attorney, Division, Commission,
on April 26, 2005.
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The Exchange notes that the Commission has previously approved the
listing on the Amex of securities with structures similar to that of
the proposed Notes.\16\ Description of the Index. The BXM Index is a
benchmark index designed to measure the performance of a hypothetical
``buy-write'' \17\ strategy on the S&P 500. Developed by the CBOE in
cooperation with S&P, the Index was initially announced in April
2002.\18\ The Exchange states that the CBOE developed the BXM Index in
response to several factors, including the repeated requests by options
portfolio managers that the CBOE provide an objective benchmark for
evaluating the performance of buy-write strategies, one of the most
popular option trading strategies. Further, the CBOE developed the BXM
Index to provide investors with a relatively straightforward indicator
of the risk-reducing character of options that otherwise may seem
complicated and inordinately risky.
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\16\ See Securities Exchange Act Release Nos. 50719 (Nov. 22,
2004), 69 FR 69644 (Nov. 30, 2004) (approving the listing and
trading of non-principal protected notes linked to the BXM Index)
(File No. SR-Amex-2004-55).
\17\ A ``buy-write'' is a conservative options strategy in which
an investor buys a stock or portfolio and writes call options on the
stock or portfolio. This strategy is also known as a ``covered
call'' strategy. A buy-write strategy provides option premium income
to cushion decreases in the value of an equity portfolio, but will
underperform stocks in a rising market. A buy-write strategy tends
to lessen overall volatility in a portfolio.
\18\ The BXM Index consists of a long position in the component
securities of the S&P 500 and options on the S&P 500. The Exchange
notes that the Commission has approved the listing of numerous
securities linked to the performance of the S&P 500 as well as
options on the S&P 500. See, e.g., Securities Exchange Act Release
Nos. 19907 (June 24, 1983), 48 FR 30814 (July 5, 1983) (approving
the listing and trading of options on the S&P 500) (File No. SR-
CBOE-83-8); 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) (File No. SR-Amex-2003-46); 47983 (June 4, 2003), 68
FR 35032 (June 11, 2003) (approving the listing and trading of a
CSFB Accelerated Return Notes linked to the S&P 500) (File No. SR-
Amex-2003-45); 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) (File No. SR-Amex-2003-62); and 48486 (Sept.
11, 2003), 68 FR 54758 (Sept. 18, 2003) (approving the listing and
trading of CSFB Contingent Principal Protection Notes on the S&P
500) (File No. SR-Amex-2003-74). In addition, the Commission
previously approved the listing and trading of a packaged buy-write
option strategy known as ``BOUNDS.'' See Securities Exchange Act
Release No. 36710 (Jan. 11, 1996), 61 FR 1791 (Jan. 23, 1996) (File
Nos. SR-Amex-94-56, SR-CBOE-95-14, and SR-PSE-95-01).
---------------------------------------------------------------------------
The BXM Index is a passive total return index based on (1) buying a
portfolio consisting of the component stocks of the S&P 500, and (2)
``writing'' (or selling) near-term S&P 500 call options (SPX),
generally on the third Friday of each month. This strategy consists of
a hypothetical portfolio consisting of a ``long'' position indexed to
the S&P 500 on which are deemed sold a succession of one-month, at-the-
money call options on the S&P 500 (SPX) listed on the CBOE. Dividends
paid on the component stocks underlying the S&P 500 and the dollar
value of option premium deemed received from the sold call options are
functionally ``re-invested'' in the covered S&P 500 portfolio.
The value of the BXM Index on any given date will equal the value
of the BXM Index on the previous day multiplied by the daily rate of
return \19\ on the covered S&P 500 portfolio on that date. Thus, the
daily change in the BXM Index reflects the daily changes in value of
the covered S&P 500 portfolio, which consists of the S&P 500 (including
dividends) and the component S&P 500 option (SPX). The daily closing
price of the BXM Index is calculated and disseminated by the CBOE on
its Web site at https://www.cboe.com and via the Options Pricing and
Reporting Authority (``OPRA'') at the end of each trading day.\20\ The
value of the S&P 500 is widely disseminated at least once every fifteen
(15) seconds throughout the scheduled trading day. The Exchange
believes that the intraday dissemination of the S&P 500, along with the
ability of investors to obtain real time, intraday S&P 500 call option
pricing provides sufficient transparency regarding the BXM Index.\21\
In addition,
[[Page 24141]]
as indicated above, the value of the BXM Index is calculated once every
scheduled trading day, thereby, providing investors with a daily value
of such ``hypothetical'' buy-write options strategy on the S&P 500.
---------------------------------------------------------------------------
\19\ The daily rate of return on the covered S&P 500 portfolio
is based on (a) the change in the closing value of the stocks in the
S&P 500 portfolio, (b) the value of ordinary cash dividends on the
stocks underlying the S&P 500, and (c) the change in the market
price of the call option. The daily rate of return will also include
the value of ordinary cash dividends distributed on the stocks
underlying the S&P 500 that are trading ``ex-dividend'' on that date
(that is, when transactions in the stock on an organized securities
exchange or trading system no longer carry the right to receive that
dividend or distribution) as measured from the close in trading on
the previous day.
\20\ The Exchange notes that the Commission, in connection with
Bond Index Term Notes and the Merrill Lynch EuroFund Market Index
Target Term Securities, has previously approved the listing and
trading of these products where the dissemination of the value of
the underlying index occurred once per trading day. See Securities
Exchange Act Release Nos. 41334 (Apr. 27, 1999), 64 FR 23883 (May 4,
1999) (approving the listing and trading of Bond Indexed Term Notes)
(File No. SR-Amex-99-03) and 40367 (Aug. 26, 1998), 63 FR 47052
(Sept. 3, 1998) (approving the listing and trading of Merrill Lynch
EuroFund Market Index Target Term Securities) (File No. SR-Amex-98-
24).
\21\ Call options on the S&P 500 (SPX) are traded on the CBOE,
and both last sale and quotation information for the call options
are disseminated in real time through OPRA. The value of the BXM can
be readily approximated as a function of observable market prices
throughout the trading day. In particular, such a calculation would
require information on the current price of the S&P 500 index and
specific nearest-to-expiration call and put options on that index.
These components trade in highly liquid markets, and real-time
prices are available continuously throughout the trading day from a
number of sources including Bloomberg and CBOE. The ``Indicative
Value'' (as discussed below) may be a more accurate indicator of the
valuation of the Notes because it reflects the fees associated with
the Notes (e.g., on the initial principal amount and the Adjustment
Amount); however, the ``Indicative Value'' is also not adjusted
intraday. Telephone conversation between Jeffrey P. Burns, Associate
General Counsel, Amex, Florence Harmon, Senior Special Counsel,
Division, Commission, and David Liu, Attorney, Division, Commission,
on April 26, 2005.
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The Exchange states that the CBOE has represented that the BXM
Index value will be calculated and disseminated by the CBOE once every
scheduled trading day after the close. The daily change in the BXM
Index reflects the daily changes in the S&P 500 and related options
positions. The Exchange states that Wachovia has represented that it
will seek to arrange to have the BXM Index calculated and disseminated
on a daily basis through a third party if the CBOE ceases to calculate
and disseminate the Index.\22\ If, however, Wachovia is unable to
arrange the calculation and dissemination of the BXM Index as indicated
above, the Exchange will undertake to delist the Notes.\23\
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\22\ Prior to such change in the manner in which the BXM Index
is calculated, or in the event of any Index substitution, the
Exchange will file a proposed rule change pursuant to Rule 19b-4,
which must be approved by the Commission prior to continued listing
and trading in the Notes. Telephone conversation between Jeffrey P.
Burns, Associate General Counsel, Amex, Florence Harmon, Senior
Special Counsel, Division, Commission, and David Liu, Attorney,
Division, Commission, on April 26, 2005.
\23\ See supra note 4 (regarding discontinuation of the
calculation and dissemination of the Notes).
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In order to provide an updated value of the daily Redemption Amount
for use by investors, the Exchange will disseminate over the
Consolidated Tape Association's Network B, a daily indicative
Redemption Amount (the ``Indicative Value''). The Indicative Value will
be calculated by the Amex after the close of trading and after the CBOE
calculates the BXM Index for use by investors the next scheduled
trading day. It is designed to provide investors with a daily reference
value of the Index. The Indicative Value may not reflect the precise
value of the current Redemption Amount or amount payable upon exchange
or maturity. Therefore, the Indicative Value disseminated by the Amex
during trading hours should not be viewed as a real time update of the
BXM Index, which is calculated only once a day. While the Indicative
Value that will be disseminated by the Amex is expected to be close to
the current BXM Index value, the values of the Indicative Value and the
BXM Index will diverge due to the application of the Adjustment Factor.
From June 30, 1988 through March 18, 2005, the annualized returns
for the BXM Index and the S&P 500 were 11.91% and 11.70%, respectively,
with the annualized standard deviation of the daily returns during the
same time period of 10.92% and 16.06%, respectively. As the chart in
attached Exhibit 3 to the Exchange's Form 19b-4 indicates, the BXM
Index will closely track the S&P 500 except in those cases where the
market is significantly rising or decreasing. In the case of a fast
rising market, the BXM Index will trail the S&P 500 due to the limited
upside potential of the Index because of the ``buy-write'' strategy.
Due to the cushioning effect of the ``buy-write'' strategy, the BXM
Index has in the past exhibited negative returns that are less than the
S&P 500 during a down market. The Exchange expects the BXM Index to
continue to display these characteristics.
The call options included in the value of the BXM Index have
successive terms of approximately one month. Each day that an option
expires, which day is referred to as a ``roll'' date, that option's
value at expiration is taken into account in the value of the BXM
Index. At expiration, the call option is settled against the ``Special
Opening Quotation,'' a special calculation of the S&P 500. The final
settlement price of the call option at expiration is equal to the
difference between the Special Opening Quotation and the strike price
of the expired call option, or zero, whichever is greater, and is
removed from the value of the BXM Index. Subsequent to the settlement
of the expired call option, a new, ``short'' or sold at-the-money call
option is included in the value of the BXM Index.\24\ The initial value
of the new call option is calculated by the CBOE and is based on the
volume-weighted average of all the transaction prices of the new call
option during a designated time period on the day the strike price is
determined.\25\
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\24\ Like the expired call option, the new call option will
expire approximately one month after the date of sale.
\25\ For this purpose, the CBOE excludes from the calculation
those call options identified as having been executed as part of a
spread (i.e., a position taken in two or more options in order to
profit through changes in the relative prices of those options).
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As of March 18, 2005, the market capitalization of the securities
included in the S&P 500 ranged from a high of $400.4 billion to a low
of $579.04 million. The average daily trading volume for these same
securities for the last six (6) months ranged from a high of 38.90
million shares to a low of 180,857 shares.
The Exchange represents that it prohibits the initial and/or
continued listing of any security that is not in compliance with Rule
10A-3 under the Act.\26\
---------------------------------------------------------------------------
\26\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------
Because the Notes are issued in $1,000 denominations, the Amex's
existing debt floor trading rules will apply to the trading of the
Notes. First, pursuant to Amex Rule 411, the Exchange will impose a
duty of due diligence on its members and member firms to learn the
essential facts relating to every customer prior to trading the
Notes.\27\ Second, even though the Exchange's debt trading rules apply,
the Notes will be subject to the equity margin rules of the
Exchange.\28\ Third, the Exchange will, prior to trading the Notes,
distribute a circular to the membership providing guidance with regard
to member firm compliance responsibilities (including suitability
recommendations) when handling transactions in the Notes and
highlighting the special risks and characteristics of the Notes. With
respect to suitability recommendations and risks, the Exchange will
require members, member organizations and employees thereof
recommending a transaction in the Notes: (1) To determine that such
transaction is suitable for the customer,\29\ 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. In addition, Wachovia will deliver a prospectus in
connection with its sales of the Notes.
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\27\ Amex Rule 411 requires, among other things, that every
member or member organization use due diligence to learn the
essential facts, relative to every customer and to every order or
account accepted.
\28\ See Amex Rule 462 and Section 107B of the Company Guide.
\29\ See Amex Rule 411.
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The Exchange represents that its surveillance procedures are
adequate to properly monitor the trading of the Notes. Specifically,
the Amex will rely on its existing surveillance procedures governing
equities and options that include additional monitoring on key pricing
dates,\30\ which the Exchange states have been deemed adequate under
the Act. In addition, the Exchange also has a general policy which
prohibits the distribution of material,
[[Page 24142]]
non-public information by its employees.
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\30\ Telephone conversation between Jeffrey P. Burns, Associate
General Counsel, Amex, Florence Harmon, Senior Special Counsel,
Division, Commission, and David Liu, Attorney, Division, Commission,
on April 26, 2005.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act \31\ in general, and furthers the
objectives of Section 6(b)(5) of the Act \32\ 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.
---------------------------------------------------------------------------
\31\ 15 U.S.C. 78f(b).
\32\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange states that no written comments were solicited or
received with respect to the proposed rule change.
III. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change 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-2005-036 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 No. SR-Amex-2005-036. 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 Room. Copies of the
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 No. SR-Amex-2005-036 and should be submitted on or before May 27,
2005.
IV. Commission's Findings and Order Granting Accelerated Approval of
the Proposed Rule Change
Amex has asked the Commission to approve the proposal on an
accelerated basis to accommodate the timetable for listing the Notes.
After careful consideration, the Commission finds that the proposed
rule change is consistent with the requirements of the Act and the
rules and regulations thereunder applicable to a national securities
exchange, and, in particular, with the requirements of Section 6(b)(5)
of the Act.\33\ The Commission finds that this proposal is similar to
several approved instruments currently listed and traded on the
Amex.\34\ Accordingly, the Commission finds that the listing and
trading of the Notes based on the BXM Index is consistent with the Act
and will promote just and equitable principles of trade, foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to and
facilitating transactions in securities consistent with Section 6(b)(5)
of the Act.\35\
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\33\ 15 U.S.C. 78f(b)(5).
\34\ See, e.g., Securities Exchange Act Release Nos. 51426 (Mar.
23, 2005), 70 FR 16315 (Mar. 30, 2005) (approving the listing and
trading of notes linked to the performance of the CBOE S&P 500
BuyWrite Index(sm)) (File No. SR-Amex-2005-022); 50719 (Nov. 22,
2004), 69 FR 69644 (Nov. 30, 2004) (approving the listing and
trading of notes linked to the performance of the CBOE S&P 500
BuyWrite Index(sm)) (File No. SR-Amex-2004-55); 48486 (Sept. 11,
2003), 68 FR 54758 (Sept. 18, 2003) (approving the listing and
trading of CSFB Contingent Principal Protected Notes on the S&P 500)
(File No. SR-Amex-2003-74); 48152 (July 10, 2003), 68 FR 42435 (July
17, 2003) (approving the listing and trading of UBS Partial
Principal Protected Notes linked to the S&P 500) (File No. SR-Amex-
2003-62); 47983 (June 4, 2003), 68 FR 35032 (June 11, 2003)
(approving the listing and trading of CSFB Accelerated Return Notes
linked to S&P 500) (File No. SR-Amex-2003-45); 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) (File No. SR-Amex-2003-
46); and 36710 (Jan. 11, 1996), 61 FR 1791 (Jan. 23, 1996)
(approving the listing and trading of BOUNDS) (File Nos. SR-Amex-94-
56, SR-CBOE-95-14, and SR-PSE-95-01).
\35\ 15 U.S.C. 78f(b)(5). In approving the proposed rule, the
Commission has considered the proposed rule's impact on efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f).
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The requirements of Section 107A of the Company Guide were designed
to address the concerns attendant to the trading of hybrid securities,
like the Notes. For example, Section 107A of the Company Guide provides
that only issuers satisfying substantial asset and equity requirements
may issue securities such as the Notes. In addition, the Exchange's
``Other Securities'' listing standards further require that the Notes
have a market value of at least $4 million.\36\ In any event, financial
information regarding Wachovia, in addition to the information on the
component stocks, which are reporting companies under the Act, and the
Notes, which will be registered under Section 12 of the Act, will be
available.
---------------------------------------------------------------------------
\36\ See Company Guide Section 107A(c).
---------------------------------------------------------------------------
In approving the product, the Commission recognizes that the Index
is a passive total return index based on (1) buying a portfolio
consisting of the component stocks of the S&P 500, and (2) ``writing''
(or selling) near-term S&P 500 call options (SPX), generally on the
third Friday of each month. Given the large trading volume and
capitalization of the compositions of the stocks underlying the S&P
500, the Commission believes that the listing and trading of the Notes
that are linked to the BXM Index should not unduly impact the market
for the underlying securities compromising the S&P 500 or raise
manipulative concerns.\37\ Moreover, the issuers of the underlying
securities comprising the S&P 500 are subject to reporting requirements
under
[[Page 24143]]
the Act, and all of the component stocks are either listed or traded
on, or traded through the facilities of, U.S. securities markets.
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\37\ The issuer, Wachovia, disclosed in the prospectus and
prospectus supplement that the hedging activities of it and its
affiliates, including taking positions in the stocks underlying the
Index and selling call options on the Index, which could adversely
affect the market value of the Notes from time to time and the
redemption amount holders of the Notes would receive on the Notes.
Such hedging activity must, of course, be conducted in accordance
with applicable regulatory requirements.
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The Commission also believes that any concerns that a broker-
dealer, such as Wachovia, or a subsidiary providing a hedge for the
issuer, will incur undue position exposure are minimized by the size of
the Notes issuance in relation to the net worth of Wachovia.\38\
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\38\ See Securities Exchange Act Release Nos. 44913 (Oct. 9,
2001), 66 FR 52469 (Oct. 15, 2001) (order approving the listing and
trading of notes whose return is based on the performance of the
Nasdaq-100 Index) (File No. SR-NASD-2001-73); 44483 (June 27, 2001),
66 FR 35677 (July 6, 2001) (order approving the listing and trading
of notes whose return is based on a portfolio of 20 securities
selected from the Amex Institutional Index) (File No. SR-Amex-2001-
40); and 37744 (Sept. 27, 1996), 61 FR 52480 (Oct. 7, 1996) (order
approving the listing and trading of notes whose return is based on
a weighted portfolio of healthcare/biotechnology industry
securities) (File No. SR-Amex-96-27).
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Finally, the Commission notes that the value of the Index will be
calculated and disseminated by the CBOE once every trading day after
the close of trading. However, the Commission notes that the value of
the S&P 500 will be widely disseminated at least once every fifteen
seconds throughout the trading day and that investors are able to
obtain real-time call option pricing on the S&P 500 during the trading
day. Further, the Indicative Value, which will be calculated by the
Amex after the close of trading and after the CBOE calculates the BXM
Index for use by investors the next trading day, is designed to provide
investors with a daily reference value of the adjusted Index. The
Commission notes that Wachovia has agreed to arrange to have the BXM
Index calculated and disseminated on a daily basis through a third
party in the event that the CBOE discontinues calculating and
disseminating the Index. In such event, the Exchange agrees to obtain
Commission approval, pursuant to filing the appropriate Form 19b-4,
prior to the substitution of the CBOE BXM Index. Further, the
Commission notes that the Exchange has agreed to undertake to delist
the Notes in the event that the CBOE ceases to calculate and
disseminate the Index, and Wachovia is unable to arrange to have the
BXM Index calculated and widely disseminated through a third party.
The Commission finds good cause for approving the proposed rule
change prior to the 30th day after the date of publication of the
notice of filing thereof in the Federal Register. The Exchange has
requested accelerated approval because this product is similar to
several other instruments currently listed and traded on the Amex.\39\
The Commission believes that the Notes will provide investors with an
additional investment choice and that accelerated approval of the
proposal will allow investors to begin trading the Notes promptly.
Additionally, the Notes will be listed pursuant to Amex's existing
hybrid security listing standards as described above. Therefore, the
Commission finds good cause, consistent with Section 19(b)(2) of the
Act,\40\ to approve the proposal on an accelerated basis.
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\39\ See supra notes 16 (citing previous approvals of securities
with structures similar to that of the proposed Notes); and 18
(citing previous approvals of securities linked to the performance
of the S&P 500 as well as options on the S&P 500).
\40\ 15 U.S.C. 78f(b)(5) and 78s(b)(2).
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V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\41\ that the proposed rule change (File No. SR-Amex-2005-036) is
hereby approved on an accelerated basis.
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\41\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\42\
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\42\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-2213 Filed 5-5-05; 8:45 am]
BILLING CODE 8010-01-P
