Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing and Order Granting Accelerated Approval to Proposed Rule Change and Amendments No. 1, 2, and 3 Thereto Relating to the Listing and Trading of Principal Protected Notes Linked to the Dow Jones-AIG ExEnergy Sub-Index, 68645-68652 [E6-19978]
Download as PDF
<![CDATA[
sroberts on PROD1PC70 with NOTICES
Federal Register / Vol. 71, No. 227 / Monday, November 27, 2006 / Notices
and for securing the information needed
to support the application follow. RRB
Form AA–5, Application for
Substitution of Payee, obtains
information needed to determine the
selection of a representative payee who
will serve in the best interest of the
beneficiary. RRB Form G–478,
Statement Regarding Patient’s
Capability to Manage Payments, obtains
information about an annuitant’s
capability to manage payments. The
form is completed by the annuitant’s
personal physician or by a medical
officer, if the annuitant is in an
institution. It is not required when a
court has appointed an individual or
institution to manage the annuitant’s
funds or, in the absence of such
appointment, when the annuitant is a
minor. The RRB also provides
representative payees with a booklet at
the time of their appointment. The
booklet, RRB Form RB–5, Your Duties
as Representative Payee-Representative
Payee’s Record, advises representative
payees of their responsibilities under 20
CFR 266.9 and provides a means for the
representative payee to maintain records
pertaining to the receipt and use of RRB
benefits. The booklet is provided for the
representative payee’s convenience. The
RRB also accepts records that were kept
by representative payee’s as part of a
common business practice.
Completion is voluntary. One
response is requested of each
respondent. The RRB is proposing nonburden impacting editorial changes to
Forms AA–5 and G–478. No changes are
proposed for the Booklet RB–5. The
estimated completion time(s) is
estimated at 17 minutes for Form
AA–5, 6 minutes for Form G–478 and 60
minutes for Booklet RB–5. The RRB
estimates that approximately 3,000
Form AA–5’s, 2,000 Form G–478’s and
15,300 RB–5’s are completed annually.
Additional Information or Comments:
To request more information or to
obtain a copy of the information
collection justification, forms, and/or
supporting material, please call the RRB
Clearance Officer at (312) 751–3363 or
send an e-mail request to
Charles.Mierzwa@RRB.GOV. Comments
regarding the information collection
should be addressed to Ronald J.
Hodapp, Railroad Retirement Board, 844
North Rush Street, Chicago, Illinois
60611–2092 or send an e-mail to
Ronald.Hodapp@RRB.GOV. Written
comments should be received within 60
days of this notice.
SECURITIES AND EXCHANGE
COMMISSION
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meeting
[Release No. 34–54790; File No. SR–Amex–
2006–01]
Notice is hereby given, pursuant to
the provisions of the Government in the
Sunshine Act, Pub. L. 94–409, that the
Securities and Exchange Commission
will hold the following meeting during
the week of November 27, 2006:
A Closed Meeting will be held on
Wednesday, November 29, 2006 at 10
a.m.
Commissioners, Counsels to the
Commissioners, the Secretary to the
Commission, and recording secretaries
will attend the Closed Meeting. Certain
staff members who have an interest in
the matters may also be present.
The General Counsel of the
Commission, or his designee, has
certified that, in his opinion, one or
more of the exemptions set forth in 5
U.S.C. 552b(c)(3), (5), (7), (8), (9)(B) and
(10) and 17 CFR 200.402(a) (3), (5), (7),
(8), (9)(ii), and (10) permit consideration
of the scheduled matters at the Closed
Meeting.
Commissioner Atkins, as duty officer,
voted to consider the items listed for the
closed meeting in closed session.
The subject matters of the Closed
Meeting scheduled for Wednesday,
November 29, 2006 will be:
Formal orders of investigation;
Institution and settlement of injunctive
actions;
Institution and settlement of administrative
proceedings of an enforcement nature;
Resolution of litigation claims;
An adjudicatory matter; and
Other matters relating to enforcement
proceedings.
At times, changes in Commission
priorities require alterations in the
scheduling of meeting items.
For further information and to
ascertain what, if any, matters have been
added, deleted or postponed, please
contact: The Office of the Secretary at
(202) 551–5400.
Dated: November 21, 2006.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 06–9423 Filed 11–22–06; 11:42 am]
BILLING CODE 8011–01–P
Charles Mierzwa,
Clearance Officer.
[FR Doc. E6–19964 Filed 11–24–06; 8:45 am]
BILLING CODE 7905–01–P
VerDate Aug<31>2005
16:58 Nov 24, 2006
Jkt 211001
68645
PO 00000
Frm 00117
Fmt 4703
Sfmt 4703
Self-Regulatory Organizations;
American Stock Exchange LLC; Notice
of Filing and Order Granting
Accelerated Approval to Proposed
Rule Change and Amendments No. 1,
2, and 3 Thereto Relating to the Listing
and Trading of Principal Protected
Notes Linked to the Dow Jones-AIG
ExEnergy Sub-Index
November 20, 2006.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (‘‘Act’’)
and Rule 19b–4 thereunder,2 notice is
hereby given that on January 3, 2006,
the American Stock Exchange LLC
(‘‘Amex’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I and
II below, which Items have been
prepared by the Exchange. On March
21, Amex submitted Amendment No. 1
to the proposed rule change.3 On May
24, 2006, Amex submitted Amendment
No. 2 to the proposed rule change.4 On
November 13, 2006, Amex submitted
Amendment No. 3 to the proposed rule
change.5 The Commission is publishing
this notice and order to solicit
comments on the proposed rule change,
as amended, from interested persons
and to approve 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, principal protected notes, linked
to the performance of the Dow JonesAIG ExEnergy Sub-Index (the ‘‘DJAIG
ExEnergy Index’’ or the ‘‘Index’’).
The text of the proposed rule change
is available on Amex’s Web site at
https://www.amex.com, at Amex’s
principal office, and at the
Commission’s Public Reference Room.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Amendment No. 1 superseded and replaced the
original filing in its entirety.
4 In Amendment No. 2, the Exchange makes
representations regarding specialist prohibitions
and accounts and clarifies certain aspects of the
index methodology.
5 Amendment No. 3 supersedes and replaces the
original filing, Amendment No. 1, and Amendment
No. 2 in its entirety.
2 17
E:\FR\FM\27NON1.SGM
27NON1
68646
Federal Register / Vol. 71, No. 227 / Monday, November 27, 2006 / Notices
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 III below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Notes
Under Section 107A of the Amex
Company Guide (the ‘‘Company
Guide’’), the Exchange may approve for
listing and trading securities which
cannot be readily categorized under the
listing criteria for common and
preferred stocks, bonds, debentures, or
warrants.6 The Amex proposes to list for
trading under Section 107A of the
Company Guide principal protected
notes linked to the performance of the
Index (the ‘‘Notes’’).7 Merrill Lynch will
issue the Notes under the name ‘‘Market
Index Target-Term Securities’’ or
‘‘MITTS.’’ The Notes will provide for
participation in the positive
performance of the Index during their
term while reducing the risk exposure to
investors through principal protection.
The Notes will conform to the initial
listing guidelines under Section 107A 8
and continued listing guidelines under
Sections 1001–1003 9 of the Company
Guide. The Notes are senior nonconvertible debt securities of Merrill
Lynch. The Notes will have a term of no
more than ten (10) years. Merrill Lynch
will issue the Notes in denominations of
whole units, with each unit representing
a single Note. The original public
offering price was $10 per Note 10 and
thus the notes are currently trading
over-the-counter but are not listed on
any national securities exchange.11 At a
minimum, the Notes will entitle the
owner at maturity to receive at least
100% of the principal investment
amount. At maturity, the holder would
receive the full principal investment
amount of each Note plus a
supplemental redemption amount (the
‘‘Supplemental Redemption Amount’’)
based on the percentage change or
performance of the Index over the term
of the Note. The performance of the
Index will be based on an arithmetic
average of the levels of the Index at the
close of market on five (5) business days
shortly prior to the maturity of the
Notes. The Notes are not callable by
Merrill Lynch.
The Supplemental Redemption
Amount that a holder of a Note will be
entitled to receive is defined as the
greater of zero or the product of $10, the
performance of the Index and the
Participation Rate (which is 106.92%).
The performance of the Index will be
determined at maturity based on the
relation of the ‘‘Ending Value’’ 12 to the
‘‘Starting Value’’ of the Index. The
‘‘Ending Value’’ is generally equal to the
average of the closing levels of the
Index, determined on five (5) separate
calculation days. The ‘‘Starting Value’’
is the closing level of the Index on the
date the Notes are priced for initial sale
to the public. The Ending Value may be
calculated by reference to fewer than
five or even a single day’s closing level
if, during the period shortly before the
maturity date of the Notes, there is a
disruption in the trading of a sufficient
number of commodity futures included
in the Index or certain futures or option
contracts relating to the Index.13
At maturity, a holder will receive a
maturity payment amount per Note
equal to:
6 See Securities Exchange Act Release No. 27753
(March 1, 1990), 55 FR 8626 (March 8, 1990)
(approving File No. SR–Amex–89–29).
7 Merrill Lynch & Co. (‘‘Merrill Lynch’’), Dow
Jones & Company, Inc. (‘‘Dow Jones’’) and AIG
International, Inc. (‘‘AIGI’’) have entered into a nonexclusive license agreement providing for the use
of the Dow Jones-AIG ExEnergy Sub-Index by
Merrill Lynch and certain affiliates and subsidiaries
in connection with certain securities including the
Notes. Dow Jones and AIGI are not responsible and
will not participate in the issuance and creation of
the Notes.
8 The initial listing standards for the Notes
require: (i) A market value of at least $4 million and
(ii) a minimum public distribution requirement of
one million trading units with a minimum of 400
public shareholders. In addition, the listing
guidelines provide that the issuer has assets in
excess of $100 million and 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 that 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: (i)
assets in excess of $200 million and stockholders’
equity of at least $10 million; or (ii) assets in excess
of $100 million and stockholders’ equity of at least
$20 million.
9 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
VerDate Aug<31>2005
16:58 Nov 24, 2006
Jkt 211001
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.
10 Telephone conference among Florence
Harmon, Senior Special Counsel, Commission,
Kristie Diemer, Special Counsel, Commission,
Jeffrey P. Burns, Vice President and Associate
General Counsel, Amex, and Sudhir C.
Bhattacharyya, Assistant General Counsel, Amex on
November 16, 2006 (‘‘November 16 Telephone
Conference’’).
11 Telephone conference between Kristie Diemer,
Special Counsel, Commission and Sudhir C.
Bhattacharyya, Assistant General Counsel, Amex on
November 20, 2006.
12 The ‘‘Ending Value’’ is equal to the average of
the closing levels of the Index, determined on each
of the five calculation days shortly prior to maturity
(i.e., the calculation period). If there are fewer than
five calculation days during the calculation period,
due to a market disruption event, then the Ending
Value will equal the average of the closing levels
of the Index on those calculation days. If there is
only one calculation day during the calculation
PO 00000
Frm 00118
Fmt 4703
Sfmt 4725
period, then the Ending Value will equal the closing
level of the Index on that calculation day. If no
calculation days occur during the calculation
period, then the Ending Value will equal the closing
level of the Index determined on the last scheduled
Index business day in the calculation period,
regardless of the occurrence of a market disruption
event on that scheduled Index business day.
13 A ‘‘market disruption event’’ means any of the
following events as determined by the calculation
agent: (i) The suspension of or material limitation
on trading for more than two hours of trading, or
during the one-half hour period preceding the close
of trading, on the applicable exchange (without
taking into account any extended or after-hours
trading session), in any futures contract used in the
calculation of the Index or any successor index; (ii)
the suspension of or material limitation on trading,
in each case, for more than two hours of trading,
or during the one-half hour period preceding the
close of trading, on the applicable exchange
(without taking into account any extended or afterhours trading session), whether by reason of
movements in price otherwise exceeding levels
permitted by the relevant exchange or otherwise, in
option contracts or futures contracts related to the
Index, or any successor index, which are traded on
any major U.S. exchange; or (iii) the failure on any
day of the applicable exchange to publish the
official daily settlement prices for that day for any
futures contract used in the calculation of the
Index.
E:\FR\FM\27NON1.SGM
27NON1
EN27NO06.000</MATH>
sroberts on PROD1PC70 with NOTICES
(Ending Value − Starting Value)
Principal Amount + ($10 ×
× Participation Rate)
Starting Value
Federal Register / Vol. 71, No. 227 / Monday, November 27, 2006 / Notices
The Supplemental Redemption
Amount may not be less than zero. If the
Ending Value is less than the Starting
Value, the amount paid at maturity will
be 100% of the Principal Amount. The
amount paid at maturity per Note will
never be less than the Principal
Amount.
sroberts on PROD1PC70 with NOTICES
Dow Jones-AIG ExEnergy Sub-Index
The Dow Jones-AIG Commodity Index
and the DJAIG ExEnergy Index are
proprietary indexes that AIGI
International Inc. (‘‘AIGI’’) developed,
that each year are determined by ‘‘AIGFinancial Products Corp. (‘‘AIG–FP’’) 14,
subject to oversight and approval of the
Oversight Committee (defined below),
and that Dow Jones calculates. The
Index is designed to track rolling futures
positions in a diversified basket of
fifteen commodity futures (each, an
‘‘Index Component’’) which, plus
energy commodities, comprise the Dow
Jones-AIG Commodity Index.
The DJAIG ExEnergy Index tracks
what is known as a rolling futures
position, which is a position where, on
a periodic basis, futures contracts on
physical commodities specifying
delivery on a nearby date must be sold
and futures contracts on physical
commodities that have not yet reached
the delivery period must be purchased.
An investor with a rolling futures
position is able to avoid delivering
underlying physical commodities while
maintaining exposure to those
commodities. The rollover for each
Index Component occurs over a period
of five Dow Jones-AIG business days
each month according to a predetermined schedule. Currently, Dow
Jones calculates and disseminates the
DJAIG ExEnergy Index level at least 15second intervals from 8 a.m. to 3 p.m.,
Eastern time (‘‘ET’’),15 and publishes a
daily settlement price for the Index at
approximately 5 p.m., ET each day the
Amex is open for trading. Any
14 AIG–FP is not a broker-dealer or futures
commission merchant; however, AIG–FP may have
such affiliates. Therefore, AIG–FP (i) implemented
and agrees to maintain procedures reasonably
designed to prevent the use and dissemination by
relevant employees of AIG–FP, in violation of
applicable laws, rules and regulations, of material
non-public information relating to changes in the
composition or method of computation or
calculation of the Index or the Dow Jones-AIG
Commodity Index and (ii) agrees to periodically
check the application of such procedures as they
relate to personnel of AIG–FP responsible for such
changes. Dow Jones has informed the Exchange that
they do not have any affiliates engaged in the
securities or commodities trading businesses and,
as such, do not believe that such firewall
procedures are necessary in its case. In addition, the
Oversight Committee is subject to written policies
that acknowledge their obligations with respect to
material non-public information.
15 November 16 Telephone Conference.
VerDate Aug<31>2005
16:58 Nov 24, 2006
Jkt 211001
disseminated value of the Index after 3
p.m. is static.
The fifteen commodities for 2006 that
comprise the DJAIG ExEnergy Index are
(weightings as of November 15, 2006
noted in parentheses): aluminum
(9.31%); coffee (3.49%); copper
(10.24%); corn (11.87%); cotton
(3.48%); gold (8.41%); lean hogs
(5.03%); live cattle (6.58%); nickel
(6.54%); silver (3.33%); soybeans
(9.81%); soybean oil (4.03%); sugar
(2.73%); wheat (8.43%); and zinc
(6.73%).16
Dow Jones-AIG Commodity Index.
The calculation of the DJAIG
ExEnergy Index follows the same rules
as the calculation of the Dow Jones-AIG
Commodity Index; provided that the
daily value of the DJAIG ExEnergy Index
is determined by summing the product
of the prices of the Index Components
and their respective CIMs (as defined
below).
The Dow Jones-AIG Commodity Index
was created by Dow Jones and AIGI to
provide a liquid and diversified
benchmark for commodities. The Dow
Jones-AIG Commodity Index was
established on July 14, 1998 and is
currently comprised of futures contracts
on nineteen physical commodities.17
The nineteen commodities for 2006
that comprise the Dow Jones-AIG
Commodity Index (the ‘‘Dow Jones-AIG
Commodity Index Commodities’’) are
(weightings as of November 15, 2006
noted in parentheses): aluminum
(6.90%); coffee (2.59%); copper (7.59%);
corn (8.80%); cotton (2.58%); crude oil
(10.30%); gold (6.24%); heating oil
(3.16%); lean hogs (3.73%); live cattle
(4.88%); natural gas (9.34%); nickel
(4.85%); silver (2.47%); soybeans
(7.27%); soybean oil (2.99%); sugar
(2.03%); unleaded gasoline (3.06%);
wheat (6.25%); and zinc (4.99%).18
Futures contracts on the Dow Jones-AIG
Commodity Index are currently listed
for trading on the Chicago Board of
Trade (the ‘‘CBOT’’). The Dow JonesAIG Commodity Index commodities
currently trade on United States
exchanges, with the exception of
aluminum, nickel and zinc, which trade
on the London Metal Exchange (the
‘‘LME’’).
The Index was created using the
following four main principles:
16 E-mail from Sudhir C. Bhattacharyya, Assistant
General Counsel, Amex, to Florence Harmon,
Senior Special Counsel, Commission, dated
November 17, 2006.
17 A futures contract is an agreement that
provides for the purchase and sale of a specified
type and quantity of a commodity during a stated
delivery month for a fixed price.
18 November 16 Telephone Conference.
PO 00000
Frm 00119
Fmt 4703
Sfmt 4703
68647
• Economic significance. The Dow
Jones-AIG Commodity Index is designed
to reflect the importance of a diversified
group of physical commodities to the
world economy. To achieve a fair
representation, the Dow Jones-AIG
Commodity Index uses both liquidity
data and dollar-adjusted production
data in determining the relative
quantities of the commodities. The Dow
Jones-AIG Commodity Index primarily
relies on the liquidity of a particular
commodity (i.e., the relative amount of
trading activity of a particular
commodity), as an important indicator
of the value placed on that commodity
by financial and physical market
participants. In addition, production
data is also identified to measure the
importance of a commodity to the world
economy. Production data alone would
underestimate the economic
significance of storable commodities,
such as gold, relative to non-storable
commodities, such as livestock.
Production data alone also may
underestimate the value that the
financial community places on certain
commodities and/or the amount of
commercial activity related to various
commodities. The Dow Jones-AIG
Commodity Index accordingly relies on
both futures market liquidity of
commodities and production in
determining relative weightings.
• Diversification. The Dow Jones-AIG
Commodity Index is designed to
provide diversified exposure to
commodities as an asset class.
Disproportionate weightings of any
particular commodity or sector may
increase the volatility and negate the
concept of a broad-based commodity
index. As described further below,
diversification rules have been
established and are applied annually.
Additionally, the Dow Jones-AIG
Commodity Index is re-balanced
annually on a price-percentage basis in
order to maintain diversified
commodities exposure over time.
• Continuity. The Dow Jones-AIG
Commodity Index is designed to be
responsive to the changing nature of the
commodity markets in a manner that
does not completely reshape the
character of the Dow Jones-AIG
Commodity Index from year to year. The
Dow Jones-AIG Commodity Index is
intended to provide a stable benchmark,
so that end-users may be reasonably
confident that historical performance
data is based on a structure that bears
some resemblance to both the current
and future composition of the Dow
Jones-AIG Commodity Index.
• Liquidity. The Dow Jones-AIG
Commodity Index is designed to
provide a highly liquid index. Liquidity
E:\FR\FM\27NON1.SGM
27NON1
68648
Federal Register / Vol. 71, No. 227 / Monday, November 27, 2006 / Notices
as a weighting factor helps to ensure
that the Dow Jones-AIG Commodity
Index can accommodate substantial
investment flows. The liquidity of an
index affects transaction costs
associated with current investments and
may also affect the reliability of
historical price performance data.
sroberts on PROD1PC70 with NOTICES
Designated Contracts for Each Dow
Jones-AIG Commodity Index
Commodity
A futures contract, known as a
Designated Contract, is selected by the
Dow Jones-AIG Oversight Committee
(the ‘‘Oversight Committee’’) 19 for each
Dow Jones-AIG Commodity Index
Commodity. The Oversight Committee
was established by Dow Jones and AIGI
to assist with the operation of the Dow
Jones-AIG Commodity Index. The
Exchange states that the Oversight
Committee includes prominent
members of the financial, academic and
legal communities selected by AIGI and
meets annually to consider any changes
to be made to the Dow Jones-AIG
Commodity Index for the coming year.
The Oversight Committee may also meet
at such other times as may be necessary.
With the exception of several LME
contracts, where the Oversight
Committee believes that there exists
more than one futures contract with
sufficient liquidity to be chosen as a
Designated Contract for a Dow JonesAIG Commodity Index Commodity, the
Oversight Committee selects the futures
contract that is traded in the U.S. and
denominated in U.S. dollars. If more
than one of those contracts exists, the
Oversight Committee will select the
most actively traded contract. Data
concerning this Designated Contract
will be used to calculate the Dow JonesAIG Commodity Index. If a Designated
Contract were to be terminated or
replaced, a comparable futures contract
would be selected, if available, to
replace that Designated Contract.20
The Designated Contracts for the Dow
Jones-AIG Commodity Index
Commodities included in the Dow
19 The Exchange has been informed by Merrill
Lynch that none of the members of the Oversight
Committee are officers, directors or employees of
Merrill Lynch.
20 The Oversight Committee may exclude any
otherwise eligible contract from the Dow Jones-AIG
Commodity Index if it determines that it has an
inadequate trading window. The Dow Jones-AIG
Commodity Index currently includes contracts
traded on the London Metal Exchange (‘‘LME’’),
which is located in London. During the hours
where the LME is closed, Dow Jones uses the last
price and uses the settlement price once it is
available in order to publish the Dow Jones-AIG
Commodity Index value through the end of the
trading day. The Dow Jones-AIG Commodity Index
value does not reflect any after-hours or overnight
trading in contracts traded on the LME.
VerDate Aug<31>2005
16:58 Nov 24, 2006
Jkt 211001
Jones-AIG Commodity Index for 2006
are traded on the LME, the CBOT, the
New York Board of Trade (the
‘‘NYBOT’’), the Chicago Mercantile
Exchange, Inc. (the ‘‘CME’’) and the
New York Mercantile Exchange (the
‘‘NYMEX’’).21 The particular
commodities futures exchange for each
futures contract with Web site
information is as follows: (i) Aluminum,
nickel and zinc—LME at https://
www.lme.com; (ii) corn, soybeans,
soybean oil and wheat—CBOT at
https://www.cbot.com; (iii) live cattle and
lean hogs—CME at https://
www.cme.com; (iv) coffee and sugar—
NYBOT at https://www.nybot.com and
(v) copper, crude oil, gold, heating oil,
natural gas, silver and unleaded
gasoline—NYMEX at https://
www.nymex.com. In addition, various
market data vendors and financial news
publications publish futures prices and
data. The Exchange represents that
futures quotes and last sale information
for the commodities underlying the
Index are widely disseminated through
a variety of major market data vendors
worldwide, including Bloomberg and
Reuters. In addition, the Exchange
further represents that complete realtime data for such futures is available by
subscription from Reuters and
Bloomberg. The CBOT, LME and
NYMEX also provide delayed futures
information on current and past trading
sessions and market news free of charge
on their respective Web sites, and for a
fee, will provide real-time futures data.
The specific contract specifications for
the futures contracts are also available
from the futures exchanges on their Web
sites, as well as other financial
informational sources.
Annual Reweighting and Rebalancing of
the Dow Jones-AIG Commodity Index.
The Dow Jones-AIG Commodity Index
is reweighted and rebalanced each year
in January on a price percentage basis.
The annual weightings for the Dow
Jones-AIG Commodity Index are
determined each year in June or July by
AIGI under the supervision of the
Oversight Committee. The annual
weightings are announced in July and
implemented the following January. The
weightings for 2006, as listed below,
have been approved and became
effective in January 2006.
The relative weightings of the
component commodities included in
the Dow Jones-AIG Commodity Index
are determined annually according to
both liquidity and dollar-adjusted
21 November 16 Telephone Conference
(confirming designated contracts for 2005 and 2006
are traded on same exchanges).
PO 00000
Frm 00120
Fmt 4703
Sfmt 4703
production data. Each June, for each
commodity designated for potential
inclusion in the Dow Jones-AIG
Commodity Index, liquidity is measured
by the commodity liquidity percentage
(the ‘‘CLP’’) and production by the
commodity production percentage (the
‘‘CPP’’). The CLP for each commodity is
determined by taking a five-year average
of the product of the trading volume and
the historic dollar value of the
Designated Contract for that commodity,
and dividing the result by the sum of
the products for all commodities that
were designated for potential inclusion
in the Dow Jones-AIG Commodity
Index. The CPP is determined for each
commodity by taking a five-year average
of annual world production figures,
adjusted by the historic dollar value of
the Designated Contract, and dividing
the result by the sum of the production
figures for all the commodities that were
designated for potential inclusion in the
Dow Jones-AIG Commodity Index. The
CLP and CPP are then combined (using
a ratio of 2:1) to establish the
Commodity Dow Jones-AIG Commodity
Index Percentage (the ‘‘CIP’’) for each
commodity. The CIP is then adjusted in
accordance with the diversification
rules described below to determine the
commodities to be included in the Dow
Jones-AIG Commodity Index and their
respective percentage weights.
To ensure that no single commodity
or commodity sector dominates the Dow
Jones-AIG Commodity Index, the
following diversification rules are
applied to the annual reweighting and
rebalancing of the Dow Jones-AIG
Commodity Index, as of January of the
applicable year:
• No related group of commodities
designated as a Commodity Group (e.g.,
energy, precious metals, livestock or
grains) may constitute more than 33% of
the Dow Jones-AIG Commodity Index;
• No single commodity may
constitute more than 15% of the Dow
Jones-AIG Commodity Index;
• No single commodity, together with
its derivatives (e.g., crude oil, together
with heating oil and unleaded gasoline),
may constitute more than 25% of the
Dow Jones-AIG Commodity Index; and
• No single commodity in the Dow
Jones-AIG Commodity Index may
constitute less than 2% of the Dow
Jones-AIG Commodity Index.
Following the annual reweighting and
rebalancing of the Dow Jones-AIG
Commodity Index in January, the
percentage of any single commodity or
group of commodities at any time prior
to the next reweighting or rebalancing
E:\FR\FM\27NON1.SGM
27NON1
Federal Register / Vol. 71, No. 227 / Monday, November 27, 2006 / Notices
sroberts on PROD1PC70 with NOTICES
will fluctuate and may exceed or be less
than the percentage set forth above.22
Following application of the
diversification rules discussed above,
CIPs are incorporated into the Dow
Jones-AIG Commodity Index by
calculating the new unit weights for
each Dow Jones-AIG Commodity Index
commodity. Near the beginning of each
new calendar year (the ‘‘CIM
Determination Date’’), the CIPs, along
with the settlement prices on that date
for Designated Contracts included in the
Dow Jones-AIG Commodity Index, are
used to determine a Commodity Index
Multiplier (‘‘CIM’’) for each Dow JonesAIG Commodity Index commodity. This
CIM is used to achieve the percentage
weightings of the Dow Jones-AIG
Commodity Index commodities, in
dollar terms, indicated by their
respective CIPs. After the CIMs are
calculated, they remain fixed
throughout the year. As a result, the
observed price percentage of each Dow
Jones-AIG Commodity Index commodity
will float throughout the year, until the
CIMs are reset the following year based
on new CIPs.
To avoid delivering the underlying
physical commodities and to maintain
exposure to the underlying physical
commodities, periodically futures
contracts on physical commodities
specifying delivery on a nearby date
must be sold and futures contracts on
physical commodities that have not yet
reached the delivery period must be
purchased. The rollover for each
contract occurs over a period of five DJAIG Business Days 23 each month
according to a pre-determined schedule.
This process is known as ‘‘rolling’’ a
futures position. The Dow Jones-AIG
Commodity Index is a ‘‘rolling index.’’
The Dow Jones AIG-Commodity Index
is calculated by Dow Jones by applying
the impact of the changes to the futures
prices of commodities included in the
Dow Jones-AIG Commodity Index
(based on the commodities’ relative
22 The Exchange represents and clarifies that the
weightings of the components of the DJAIG
ExEnergy Index are determined in conjunction with
the annual reweighting and rebalancing of the Dow
Jones-AIG Commodity Index by assigning
weightings of zero to the energy commodities
included in the Dow Jones-AIG Commodity Index
and proportionally increasing the weightings of the
remaining commodities. For example, assume the
Dow Jones-AIG Commodity Index includes five
equally weighted (20%) commodities, including an
energy commodity. If the energy component were
assigned a weight of 0%, the weightings of the
remaining four non-energy components comprising
the DJAIG ExEnergy Index would be increased pro
rata and assigned equal weightings of 25%.
23 A DJ–AIG Business Day (‘‘DJ–AIG Business
Day’’) is a day on which the sum of the CIPs for
the Dow Jones-AIG Commodity Index commodities
that are available to trade is greater than 50%.
VerDate Aug<31>2005
16:58 Nov 24, 2006
Jkt 211001
weightings). Once the CIMs are
determined as discussed above, the
calculation of the Dow Jones-AIG
Commodity Index is a mathematical
process whereby the CIMs for the Dow
Jones-AIG Commodity Index
commodities are multiplied by the daily
settlement prices in U.S. dollars for the
applicable Designated Contracts. These
products are then summed. During the
rollover period, the sum includes both
nearby and deferred contracts weighted
according to the specified roll
percentage. The percentage change in
this sum from the prior day is then
applied to the prior Dow Jones-AIG
Commodity Index value. Finally, the
value of one day’s interest is added,
calculated using the most recent (lagged
by one day) 91-Day U.S. Treasury Bill
Auction High Rate to arrive at the
current Dow Jones-AIG Commodity
Index value.
Dow Jones-AIG Commodity Index
Calculation Disruption Events.
From time to time, the Exchange
states that disruptions can occur in
trading futures contracts on various
commodity futures exchanges. The daily
calculation of the Dow Jones-AIG
Commodity Index and the Index will be
adjusted in the event that AIGI
determines that any of the following
index calculation disruption events
exists: (i) The termination or suspension
of, or material limitation or disruption
in the trading of any futures contract
used in the calculation of the Dow
Jones-AIG Commodity Index on that
day; (ii) the settlement price of any
futures contract used in the calculation
of the Dow Jones-AIG Commodity Index
reflects the maximum permitted price
change from the previous day’s
settlement price; (iii) the failure of an
exchange to publish official settlement
prices for any futures contract used in
the calculation of the Dow Jones-AIG
Commodity Index; or (iv) with respect
to any futures contract used in the
calculation of the Dow Jones-AIG
Commodity Index that trades on the
LME, a business day on which the LME
is not open for trading. In the case of a
temporary disruption in connection
with the trading of the futures contracts
of the commodities comprising the
Index, the Exchange believes that it is
unnecessary for a filing pursuant to
Section 19(b) under the Act 24 to be
submitted to the Commission. The
Exchange submits that for a temporary
disruption of said futures contracts,
AIGI will typically use the prior day’s
price for an Index commodity or
commodities. In exceptional cases, AIGI
may employ a ‘‘fair value’’ price.
However, the Exchange represents that
if the use of a prior day’s price or ‘‘fair
value’’ pricing for an Index commodity
or commodities is more than of a
temporary nature, a rule filing will be
submitted pursuant to Section 19(b) of
the Act 25 seeking approval to continue
trading the Notes. Unless such approval
is received, the Exchange will
commence delisting the Notes.
Exchange Rules Applicable to the Notes
The Notes are cash-settled in U.S.
dollars and do not give the holder any
right or other ownership interest in the
Index or commodities comprising the
Index. The Notes are designed for
investors who desire to participate in, or
gain exposure to, an index composed of
a basket of actively-traded commodities,
are willing to hold the investment to
maturity, and who want to limit risk
exposure by receiving principal
protection of their investment amount.
The Notes will trade as equity
securities subject to the Amex equity
trading rules including, among others,
rules governing priority, parity and
precedence of orders, specialist
responsibilities, account opening, and
customer suitability requirements. In
addition, the Notes will be subject to the
equity margin rules of the Exchange.26
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: (i) To
determine that such transaction is
suitable for the customer, and (ii) 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, Merrill Lynch
will deliver a prospectus in connection
with the initial sales of the Notes. The
circular will also reference that the
Commission has no jurisdiction over the
trading of the physical commodities or
the futures contracts or on such
commodities upon which the value of
the Notes is based.27
25 Id.
26 See
24 15
PO 00000
U.S.C. 78s(b).
Frm 00121
Fmt 4703
Amex Rule 462.
16 Telephone Conference.
27 November
Sfmt 4703
68649
E:\FR\FM\27NON1.SGM
27NON1
68650
Federal Register / Vol. 71, No. 227 / Monday, November 27, 2006 / Notices
sroberts on PROD1PC70 with NOTICES
Criteria for Initial and Continued Listing
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.28 The Exchange also has a general
policy that prohibits the distribution of
material, non-public information by its
employees. The Notes will be subject to
the criteria in Section 107D of the
Company Guide for initial and
continued listing. The continued listing
criteria provides for the delisting or
removal from listing of the Notes under
any of the following circumstances:
• If the aggregate market value or the
principal amount of the Notes publicly
held is less than $400,000;
• If the value of the Index is no longer
calculated or widely disseminated by a
major market data vendor on at least a
15-second basis during the time the
Notes trade on the Exchange; or
• If such other event shall occur or
condition exists which in the opinion of
the Exchange makes further dealings on
the Exchange inadvisable.
Additionally, the Exchange represents
that it will file a proposed rule change
pursuant to Rule 19b–4 under the Act,29
seeking approval to continue trading the
Notes and unless approved, the
Exchange will commence delisting the
Notes if:
• Dow Jones and AIG–FP
substantially change either the index
component selection methodology or
the weighting methodology;
• If a new component is added to the
Index (or pricing information is used for
a new or existing component) that
constitutes more than 10% of the weight
of the Index with whose principal
trading market the Exchange does not
have a comprehensive surveillance
sharing agreement; or
• If a successor or substitute index is
used in connection with the Notes. The
filing will address, among other things
the listing and trading characteristics of
the successor or substitute index and
the Exchange’s surveillance procedures
applicable thereto.
Trading Halts
The Exchange will halt trading in the
Notes if the circuit breaker parameters
of Exchange Rule 117 have been
reached. In exercising its discretion to
halt or suspend trading in the Notes, the
Exchange may consider factors such as
those set forth in Exchange Rule
918C(b), in addition to other factors that
may be relevant. In particular, if the
Dow Jones-AIG Commodity Index value
is not being disseminated as required,
28 See
Rule 10A–3(c)(1), 17 CFR 240.10A–3(c)(1).
29 17 CFR 240.19b–4.
VerDate Aug<31>2005
16:58 Nov 24, 2006
Jkt 211001
the Exchange may halt trading during
the day in which the interruption to the
dissemination of the Dow Jones-AIG
Commodity Index value occurs. If the
interruption to the dissemination of the
Dow Jones-AIG Commodity Index value
persists past the trading day in which it
occurred, the Exchange will halt trading
no later than the beginning of the
trading day following the interruption.30
Specialist Prohibitions
The Exchange submits that current
Rule 1203A will be applicable to the
Notes. In connection with the Notes,
Rule 1203A provides that the
prohibitions in Rule 175(c) apply to a
specialist in the Notes, so that the
specialist or affiliated person may not
act or function as a market maker in the
underlying commodities, related futures
contracts or options, or any other related
commodity derivative. Consistent with
Rule 193, an affiliated person of the
specialist may be afforded an exemption
to act in a market making capacity, other
than as a specialist in the Notes on
another market center, in the underlying
commodities, related futures or options,
or any other related commodity
derivative. In particular, Rule 1203A
provides that an approved person of the
specialist that has established and
obtained Exchange approval for
procedures restricting the flow of
material, non-public market information
between itself and the specialist
member organization, and any member,
officer, or employee associated
therewith, may act in a market making
capacity, other than as a specialist in the
Notes on another market center, in the
underlying commodity, related
commodity futures or options on
commodity futures, or any other related
commodity derivatives.
Additionally, the Exchange further
submits that Rule 1204A will be
applicable to the Notes. Rule 1204A was
adopted to ensure that specialists
provide the Exchange with all the
necessary information relating to their
trading in physical commodities and
related futures contracts and options
thereon or any other related
commodities derivative. This Rule
further reminds members that, in
connection with trading the physical
asset or commodities, futures or options
on futures, or any other related
derivatives, the use of material, nonpublic information received from any
person associated with a member,
member organization or employee of
such person regarding trading by such
30 November 16 Telephone Conference. The
Exchange deleted inconsistent language regarding
trading halts.
PO 00000
Frm 00122
Fmt 4703
Sfmt 4703
person or employee in the physical asset
or commodities, futures or options on
futures, or any other related derivatives
is prohibited by the Exchange.
Surveillance
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 exchange-traded funds, trust
issued receipts (including the iShares
Comex Gold Trust, streetTRACKS Gold
Trust and DB Commodity Index
Tracking Fund) and index-linked
securities.31 With regard to the Index
Components, the Exchange currently
has in place a comprehensive
surveillance sharing arrangement with
the NYMEX and the LME, for the
purpose of providing information in
connection with trading in or related to
futures contracts traded on their
respective exchanges comprising the
Index. The Exchange also notes that the
CBOT, CME, and NYBOT are members
of the Intermarket Surveillance Group
(‘‘ISG’’). As a result, the Exchange
asserts that it can obtain market
surveillance information, including
customer identity information, from the
CBOT, CME, LME, NYBOT, and
NYMEX, if necessary, due to regulatory
concerns that may arise in connection
with the futures contracts.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6 of the Act,32 in general, and
furthers the objectives of Section 6(b)(5)
of the Act,33 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 believes that the
proposed rule change does not impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
31 The Commission requested, and the Exchange
agreed, to remove the phrase ‘‘which have been
deemed adequate under the Act’’ at the end of this
sentence. November 16 Telephone Conference.
32 15 U.S.C. 78f.
33 15 U.S.C. 78f(b)(5).
E:\FR\FM\27NON1.SGM
27NON1
Federal Register / Vol. 71, No. 227 / Monday, November 27, 2006 / Notices
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
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, as amended, is consistent with
the Act. Comments may be submitted by
any of the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–Amex–2006–01 on the
subject line.
IV. Commission’s Findings and Order
Granting Accelerated Approval of
Proposed Rule Change
The Commission finds that the
proposed rule change, as amended, is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to a national
securities exchange.34 In particular, the
Commission believes that the proposal
is consistent with Section 6(b)(5) of the
Act,35 which requires that the rules of
an exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and in
general to protect investors and the
public interest.
sroberts on PROD1PC70 with NOTICES
A. Surveillance
Information sharing agreements with
primary markets are an important part
of a self-regulatory organization’s ability
Paper Comments
to monitor for trading abuses with
• Send paper comments in triplicate
respect to derivative securities. The
to Nancy M. Morris, Secretary,
Commission believes that Amex’s
Securities and Exchange Commission,
comprehensive surveillance sharing
100 F Street, NE., Washington, DC
agreements with the NYMEX and the
20549–1090.
LME for the purpose of providing
All submissions should refer to File
information in connection with the
Number SR–Amex–2006–01. This file
Notes create the basis for Amex to
number should be included on the
subject line if e-mail is used. To help the monitor for fraudulent and
manipulative practices in the trading of
Commission process and review your
the Notes.
comments more efficiently, please use
Moreover, Amex Rules, including
only one method. The Commission will
Rule 1204A, give Amex the authority to
post all comments on the Commission’s
request information to monitor for
Internet Web site (https://www.sec.gov/
fraudulent and manipulative trading
rules/sro.shtml). Copies of the
facilities. The Commission believes that
submission, all subsequent
these rules provide the Amex with the
amendments, all written statements
tools necessary to adequately surveil
with respect to the proposed rule
trading in the Notes.
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Section, 100 F Street, NE., Washington,
DC 20549. Copies of such filing also will
be available for inspection and copying
at the principal office of Amex. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–Amex–2006–01 and should
be submitted on or before December 18,
2006.
VerDate Aug<31>2005
16:58 Nov 24, 2006
Jkt 211001
B. Dissemination of Information
The Commission believes that
sufficient venues for obtaining reliable
information exist so that investors in the
Notes can monitor the underlying Index
Components, the Dow Jones-AIG
Commodity Index, and the Index. There
is a considerable amount of information
about the Index Components, the Dow
Jones-AIG Commodity Index, and the
Index available through public Web
sites, and real time intraday prices and
daily closing prices for the Index
Components are available by
subscription from major market
vendors.
The Commission notes that the
amount paid at maturity, per Note, will
34 In approving this proposal, the Commission has
considered its impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
35 15 U.S.C. 78f(b)(5).
PO 00000
Frm 00123
Fmt 4703
Sfmt 4703
68651
be based on the percentage change or
performance of the Index over the term
of the Note. As more specifically
described herein, the amount paid at
maturity, per Note, will consist of at
least 100% of the Principal Amount,
plus a Supplemental Redemption
Amount, but it will never be less than
the Principal Amount.
The Commission believes that the
wide availability of such information
will facilitate transparency and reduce
the potential of unfair informational
advantage with respect to the Notes and,
when coupled with the principalprotected nature of the Notes, will
diminish the risk of manipulation.
C. Listing and Trading
The Commission finds that the
Exchange’s proposed rules and
procedures for the listing and trading of
the Notes are consistent with the Act.
The Notes will trade as equity securities
subject to the Amex equity trading rules
including, among others, rules
governing priority, parity and
precedence of orders, specialist
responsibilities, account opening, and
customer suitability requirements. In
addition, the Notes will be subject to the
equity margin rules of the Exchange, set
forth in Amex Rule 462. The
Commission believes that the listing and
delisting criteria for the Notes should
help to maintain a minimum level of
liquidity and therefore minimize the
potential for manipulation of the Notes.
The Commission notes that prior to
trading the Notes, Amex will distribute
a circular to the membership providing
guidance with regard to member firm
compliance responsibilities and
highlighting the special risks and
characteristics of the Notes. Specifically,
the Exchange will require those
recommending a transaction in the
Notes to determine that such transaction
is suitable for the customer, and to have
a reasonable basis for believing that the
customer can evaluate the special
characteristics of, and bear the financial
risks of, such transaction. The
Commission believes that the
information circular will inform
members about the terms,
characteristics and risks in trading the
Notes.
D. Accelerated Approval
The Commission finds good cause for
approving this proposed rule change, as
amended, before the thirtieth day after
the publication of notice thereof in the
Federal Register. The Commission notes
that this principal protected product is
similar to other products already
E:\FR\FM\27NON1.SGM
27NON1
68652
Federal Register / Vol. 71, No. 227 / Monday, November 27, 2006 / Notices
approved by the Commission.36
Therefore, accelerating approval of this
proposed rule change should benefit
investors who desire to participate in an
index composed of a basket of activelytraded commodities, who are willing to
hold the investment to maturity, and
who want to limit risk exposure, by
creating, without undue delay,
opportunities for such investments.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,37 that the
proposed rule change, as amended (SR–
Amex–2006–01), is hereby approved on
an accelerated basis.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.38
Nancy M. Morris,
Secretary.
[FR Doc. E6–19978 Filed 11–24–06; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–54777; File No. SR–Amex–
2006–89]
Self-Regulatory Organizations;
American Stock Exchange LLC; Notice
of Filing of Proposed Rule Change and
Amendment No. 1 Thereto To Establish
Fees for the Receipt and Use of
Proprietary Market Data Disseminated
by the Exchange
November 17, 2006.
sroberts on PROD1PC70 with NOTICES
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on
September 22, 2006, the American Stock
Exchange LLC (‘‘Amex’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
On November 15, 2006, the Exchange
filed Amendment No. 1 to the proposed
rule change.3 The Commission is
36 See e.g., Securities Exchange Act Release No.
54731 (November 9, 2006), 71 FR 66814 (notice and
order granting accelerated approval to the New
York Stock Exchange LLC to list and trade two
series of principal protected, commodity-linked
securities); Securities Exchange Act Release No.
54033 (June 22, 2006), 71 FR 37131 (June 29, 2006)
(order approving the listing and trading of principal
protected notes linked to the Metals-China basket
on Amex).
37 15 U.S.C. 78s(b)(2).
38 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Amendment No. 1 replaces the original filing in
its entirety.
VerDate Aug<31>2005
16:58 Nov 24, 2006
Jkt 211001
1. Purpose
Through the new Auction and
Electronic Market Integration trading
platform (known as AEMI), the
Exchange’s hybrid trading system, the
Exchange plans to make available for
dissemination on a real-time basis 4 a
compilation of all visible limit orders
resident in the AEMI central limit order
book (‘‘AEMI Depth of Book’’). The
Exchange proposes that AEMI Depth of
Book information be made available to
market data vendors, broker-dealers,
private network providers, and other
entities by means of data feeds. The
Exchange believes that, by making the
AEMI Depth of Book available, the
Exchange would be enhancing market
transparency and fostering competition
among orders and markets. With the
adoption of Regulation NMS, the
Commission rescinded ‘‘the prohibition
on SROs and their members from
disseminating their trade reports
independently.’’ The Commission
requires such dissemination to be fair,
reasonable and not unreasonably
discriminatory. The Exchange believes
that the Exchange’s data distribution
and proposed fees would be consistent
with these standards and reflect an
equitable allocation of the Exchange’s
overall costs to users of its facilities.
The Exchange proposes to establish
the Market Data Fee Schedule for the
receipt and use of various forms of
Amex market data. The Market Data Fee
Schedule being proposed is limited to
market data for equities and exchangetraded fund shares (‘‘ETFs’’) trading on
the AEMI system. Amex plans to
implement use of the AEMI system over
a period of time, commencing with four
products. The Exchange will monitor
the operation of AEMI and will deploy
additional products when appropriate.
It is anticipated that all equity and ETF
products will be trading on AEMI prior
to the implementation of Regulation
NMS in February 2007. The Exchange
would begin charging for the AEMI
Depth of Book data once all products are
trading on the AEMI system and the
market data is available for all products.
When AEMI is expanded to other
product lines, such as options, the
Exchange may further amend its fee
schedule to include fees for the receipt
and use of Amex market data for those
products. As the Market Data Fee
Schedule details, the Exchange is
proposing to assess data access fees and
professional and nonprofessional device
fees for the AEMI Depth of Book. The
Exchange states that these categories of
fees are consistent with fees the New
York Stock Exchange’s (‘‘NYSE’’)
charges for the receipt and use of their
market data through the NYSE
OpenBook 5 and the fees proposed to be
charged for the NYSE Arca, Inc.’s
(‘‘NYSE Arca’’) ArcaBook.6
• Data Access Fees. Direct Access.—
The Exchange proposes to impose a
monthly fee of $2,000 for a data
recipient to gain direct access to the
data feeds through which the Exchange
makes AEMI market data available.
• Indirect Access.—The Exchange
proposes to impose a monthly fee of
$1,500 for a data recipient to gain
indirect access to the data feeds through
which the Exchange makes AEMI
market data available. ‘‘Indirect access’’
refers to access to an AEMI market data
4 It should be noted that the Exchange makes
available to vendors the best bids and offers that are
included in the AEMI limit order book data no
earlier than it makes those best bids and offers
available to the processors under the CQ Plan and
the Reporting Plan for Nasdaq/National Market
System Securities Traded on an Exchange on an
Unlisted or Listed Basis (the ‘‘UTP Plan’’).
5 NYSE OpenBook provides information relating
to limit orders.
6 The ArcaBook provides a compilation of all
limit orders resident in the NYSE Arca limit order
book. See Securities Exchange Act Release No.
53952 (June 7, 2006), 71 FR 33496 (June 9, 2006)
(notice of filing of proposed rule change for SR–
NYSEArca–2006–21).
publishing this notice to solicit
comments on the proposed rule change,
as amended, from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
Amex Fees Schedule to establish fees
for the receipt and use of proprietary
market data disseminated by the
Exchange. The text of the proposed rule
change is available on Amex’s Web site
(https://www.amex.com), at Amex’s
principal office, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
Amex included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. The Exchange has
prepared summaries, set forth in
Sections A, B, and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
PO 00000
Frm 00124
Fmt 4703
Sfmt 4703
E:\FR\FM\27NON1.SGM
27NON1
]]>Agencies
[Federal Register Volume 71, Number 227 (Monday, November 27, 2006)]
[Notices]
[Pages 68645-68652]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-19978]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54790; File No. SR-Amex-2006-01]
Self-Regulatory Organizations; American Stock Exchange LLC;
Notice of Filing and Order Granting Accelerated Approval to Proposed
Rule Change and Amendments No. 1, 2, and 3 Thereto Relating to the
Listing and Trading of Principal Protected Notes Linked to the Dow
Jones-AIG ExEnergy Sub-Index
November 20, 2006.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') and Rule 19b-4 thereunder,\2\ notice is hereby given
that on January 3, 2006, the American Stock Exchange LLC (``Amex'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I and II below, which Items have been prepared by the Exchange.
On March 21, Amex submitted Amendment No. 1 to the proposed rule
change.\3\ On May 24, 2006, Amex submitted Amendment No. 2 to the
proposed rule change.\4\ On November 13, 2006, Amex submitted Amendment
No. 3 to the proposed rule change.\5\ The Commission is publishing this
notice and order to solicit comments on the proposed rule change, as
amended, from interested persons and to approve the proposal on an
accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Amendment No. 1 superseded and replaced the original filing
in its entirety.
\4\ In Amendment No. 2, the Exchange makes representations
regarding specialist prohibitions and accounts and clarifies certain
aspects of the index methodology.
\5\ Amendment No. 3 supersedes and replaces the original filing,
Amendment No. 1, and Amendment No. 2 in its entirety.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade, principal protected notes,
linked to the performance of the Dow Jones-AIG ExEnergy Sub-Index (the
``DJAIG ExEnergy Index'' or the ``Index'').
The text of the proposed rule change is available on Amex's Web
site at https://www.amex.com, at Amex's principal office, and at the
Commission's Public Reference Room.
[[Page 68646]]
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 III below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Notes
Under Section 107A of the Amex Company Guide (the ``Company
Guide''), the Exchange may approve for listing and trading securities
which cannot be readily categorized under the listing criteria for
common and preferred stocks, bonds, debentures, or warrants.\6\ The
Amex proposes to list for trading under Section 107A of the Company
Guide principal protected notes linked to the performance of the Index
(the ``Notes'').\7\ Merrill Lynch will issue the Notes under the name
``Market Index Target-Term Securities'' or ``MITTS.'' The Notes will
provide for participation in the positive performance of the Index
during their term while reducing the risk exposure to investors through
principal protection.
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release No. 27753 (March 1,
1990), 55 FR 8626 (March 8, 1990) (approving File No. SR-Amex-89-
29).
\7\ Merrill Lynch & Co. (``Merrill Lynch''), Dow Jones &
Company, Inc. (``Dow Jones'') and AIG International, Inc. (``AIGI'')
have entered into a non-exclusive license agreement providing for
the use of the Dow Jones-AIG ExEnergy Sub-Index by Merrill Lynch and
certain affiliates and subsidiaries in connection with certain
securities including the Notes. Dow Jones and AIGI are not
responsible and will not participate in the issuance and creation of
the Notes.
---------------------------------------------------------------------------
The Notes will conform to the initial listing guidelines under
Section 107A \8\ and continued listing guidelines under Sections 1001-
1003 \9\ of the Company Guide. The Notes are senior non-convertible
debt securities of Merrill Lynch. The Notes will have a term of no more
than ten (10) years. Merrill Lynch will issue the Notes in
denominations of whole units, with each unit representing a single
Note. The original public offering price was $10 per Note \10\ and thus
the notes are currently trading over-the-counter but are not listed on
any national securities exchange.\11\ At a minimum, the Notes will
entitle the owner at maturity to receive at least 100% of the principal
investment amount. At maturity, the holder would receive the full
principal investment amount of each Note plus a supplemental redemption
amount (the ``Supplemental Redemption Amount'') based on the percentage
change or performance of the Index over the term of the Note. The
performance of the Index will be based on an arithmetic average of the
levels of the Index at the close of market on five (5) business days
shortly prior to the maturity of the Notes. The Notes are not callable
by Merrill Lynch.
---------------------------------------------------------------------------
\8\ The initial listing standards for the Notes require: (i) A
market value of at least $4 million and (ii) a minimum public
distribution requirement of one million trading units with a minimum
of 400 public shareholders. In addition, the listing guidelines
provide that the issuer has assets in excess of $100 million and
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 that 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:
(i) assets in excess of $200 million and stockholders' equity of at
least $10 million; or (ii) assets in excess of $100 million and
stockholders' equity of at least $20 million.
\9\ 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.
\10\ Telephone conference among Florence Harmon, Senior Special
Counsel, Commission, Kristie Diemer, Special Counsel, Commission,
Jeffrey P. Burns, Vice President and Associate General Counsel,
Amex, and Sudhir C. Bhattacharyya, Assistant General Counsel, Amex
on November 16, 2006 (``November 16 Telephone Conference'').
\11\ Telephone conference between Kristie Diemer, Special
Counsel, Commission and Sudhir C. Bhattacharyya, Assistant General
Counsel, Amex on November 20, 2006.
---------------------------------------------------------------------------
The Supplemental Redemption Amount that a holder of a Note will be
entitled to receive is defined as the greater of zero or the product of
$10, the performance of the Index and the Participation Rate (which is
106.92%). The performance of the Index will be determined at maturity
based on the relation of the ``Ending Value'' \12\ to the ``Starting
Value'' of the Index. The ``Ending Value'' is generally equal to the
average of the closing levels of the Index, determined on five (5)
separate calculation days. The ``Starting Value'' is the closing level
of the Index on the date the Notes are priced for initial sale to the
public. The Ending Value may be calculated by reference to fewer than
five or even a single day's closing level if, during the period shortly
before the maturity date of the Notes, there is a disruption in the
trading of a sufficient number of commodity futures included in the
Index or certain futures or option contracts relating to the Index.\13\
---------------------------------------------------------------------------
\12\ The ``Ending Value'' is equal to the average of the closing
levels of the Index, determined on each of the five calculation days
shortly prior to maturity (i.e., the calculation period). If there
are fewer than five calculation days during the calculation period,
due to a market disruption event, then the Ending Value will equal
the average of the closing levels of the Index on those calculation
days. If there is only one calculation day during the calculation
period, then the Ending Value will equal the closing level of the
Index on that calculation day. If no calculation days occur during
the calculation period, then the Ending Value will equal the closing
level of the Index determined on the last scheduled Index business
day in the calculation period, regardless of the occurrence of a
market disruption event on that scheduled Index business day.
\13\ A ``market disruption event'' means any of the following
events as determined by the calculation agent: (i) The suspension of
or material limitation on trading for more than two hours of
trading, or during the one-half hour period preceding the close of
trading, on the applicable exchange (without taking into account any
extended or after-hours trading session), in any futures contract
used in the calculation of the Index or any successor index; (ii)
the suspension of or material limitation on trading, in each case,
for more than two hours of trading, or during the one-half hour
period preceding the close of trading, on the applicable exchange
(without taking into account any extended or after-hours trading
session), whether by reason of movements in price otherwise
exceeding levels permitted by the relevant exchange or otherwise, in
option contracts or futures contracts related to the Index, or any
successor index, which are traded on any major U.S. exchange; or
(iii) the failure on any day of the applicable exchange to publish
the official daily settlement prices for that day for any futures
contract used in the calculation of the Index.
---------------------------------------------------------------------------
At maturity, a holder will receive a maturity payment amount per
Note equal to:
[GRAPHIC] [TIFF OMITTED] TN27NO06.000
[[Page 68647]]
The Supplemental Redemption Amount may not be less than zero. If
the Ending Value is less than the Starting Value, the amount paid at
maturity will be 100% of the Principal Amount. The amount paid at
maturity per Note will never be less than the Principal Amount.
Dow Jones-AIG ExEnergy Sub-Index
The Dow Jones-AIG Commodity Index and the DJAIG ExEnergy Index are
proprietary indexes that AIGI International Inc. (``AIGI'') developed,
that each year are determined by ``AIG-Financial Products Corp. (``AIG-
FP'') \14\, subject to oversight and approval of the Oversight
Committee (defined below), and that Dow Jones calculates. The Index is
designed to track rolling futures positions in a diversified basket of
fifteen commodity futures (each, an ``Index Component'') which, plus
energy commodities, comprise the Dow Jones-AIG Commodity Index.
---------------------------------------------------------------------------
\14\ AIG-FP is not a broker-dealer or futures commission
merchant; however, AIG-FP may have such affiliates. Therefore, AIG-
FP (i) implemented and agrees to maintain procedures reasonably
designed to prevent the use and dissemination by relevant employees
of AIG-FP, in violation of applicable laws, rules and regulations,
of material non-public information relating to changes in the
composition or method of computation or calculation of the Index or
the Dow Jones-AIG Commodity Index and (ii) agrees to periodically
check the application of such procedures as they relate to personnel
of AIG-FP responsible for such changes. Dow Jones has informed the
Exchange that they do not have any affiliates engaged in the
securities or commodities trading businesses and, as such, do not
believe that such firewall procedures are necessary in its case. In
addition, the Oversight Committee is subject to written policies
that acknowledge their obligations with respect to material non-
public information.
---------------------------------------------------------------------------
The DJAIG ExEnergy Index tracks what is known as a rolling futures
position, which is a position where, on a periodic basis, futures
contracts on physical commodities specifying delivery on a nearby date
must be sold and futures contracts on physical commodities that have
not yet reached the delivery period must be purchased. An investor with
a rolling futures position is able to avoid delivering underlying
physical commodities while maintaining exposure to those commodities.
The rollover for each Index Component occurs over a period of five Dow
Jones-AIG business days each month according to a pre-determined
schedule. Currently, Dow Jones calculates and disseminates the DJAIG
ExEnergy Index level at least 15-second intervals from 8 a.m. to 3
p.m., Eastern time (``ET''),\15\ and publishes a daily settlement price
for the Index at approximately 5 p.m., ET each day the Amex is open for
trading. Any disseminated value of the Index after 3 p.m. is static.
---------------------------------------------------------------------------
\15\ November 16 Telephone Conference.
---------------------------------------------------------------------------
The fifteen commodities for 2006 that comprise the DJAIG ExEnergy
Index are (weightings as of November 15, 2006 noted in parentheses):
aluminum (9.31%); coffee (3.49%); copper (10.24%); corn (11.87%);
cotton (3.48%); gold (8.41%); lean hogs (5.03%); live cattle (6.58%);
nickel (6.54%); silver (3.33%); soybeans (9.81%); soybean oil (4.03%);
sugar (2.73%); wheat (8.43%); and zinc (6.73%).\16\
---------------------------------------------------------------------------
\16\ E-mail from Sudhir C. Bhattacharyya, Assistant General
Counsel, Amex, to Florence Harmon, Senior Special Counsel,
Commission, dated November 17, 2006.
---------------------------------------------------------------------------
Dow Jones-AIG Commodity Index.
The calculation of the DJAIG ExEnergy Index follows the same rules
as the calculation of the Dow Jones-AIG Commodity Index; provided that
the daily value of the DJAIG ExEnergy Index is determined by summing
the product of the prices of the Index Components and their respective
CIMs (as defined below).
The Dow Jones-AIG Commodity Index was created by Dow Jones and AIGI
to provide a liquid and diversified benchmark for commodities. The Dow
Jones-AIG Commodity Index was established on July 14, 1998 and is
currently comprised of futures contracts on nineteen physical
commodities.\17\
---------------------------------------------------------------------------
\17\ A futures contract is an agreement that provides for the
purchase and sale of a specified type and quantity of a commodity
during a stated delivery month for a fixed price.
---------------------------------------------------------------------------
The nineteen commodities for 2006 that comprise the Dow Jones-AIG
Commodity Index (the ``Dow Jones-AIG Commodity Index Commodities'') are
(weightings as of November 15, 2006 noted in parentheses): aluminum
(6.90%); coffee (2.59%); copper (7.59%); corn (8.80%); cotton (2.58%);
crude oil (10.30%); gold (6.24%); heating oil (3.16%); lean hogs
(3.73%); live cattle (4.88%); natural gas (9.34%); nickel (4.85%);
silver (2.47%); soybeans (7.27%); soybean oil (2.99%); sugar (2.03%);
unleaded gasoline (3.06%); wheat (6.25%); and zinc (4.99%).\18\ Futures
contracts on the Dow Jones-AIG Commodity Index are currently listed for
trading on the Chicago Board of Trade (the ``CBOT''). The Dow Jones-AIG
Commodity Index commodities currently trade on United States exchanges,
with the exception of aluminum, nickel and zinc, which trade on the
London Metal Exchange (the ``LME'').
---------------------------------------------------------------------------
\18\ November 16 Telephone Conference.
---------------------------------------------------------------------------
The Index was created using the following four main principles:
Economic significance. The Dow Jones-AIG Commodity Index
is designed to reflect the importance of a diversified group of
physical commodities to the world economy. To achieve a fair
representation, the Dow Jones-AIG Commodity Index uses both liquidity
data and dollar-adjusted production data in determining the relative
quantities of the commodities. The Dow Jones-AIG Commodity Index
primarily relies on the liquidity of a particular commodity (i.e., the
relative amount of trading activity of a particular commodity), as an
important indicator of the value placed on that commodity by financial
and physical market participants. In addition, production data is also
identified to measure the importance of a commodity to the world
economy. Production data alone would underestimate the economic
significance of storable commodities, such as gold, relative to non-
storable commodities, such as livestock. Production data alone also may
underestimate the value that the financial community places on certain
commodities and/or the amount of commercial activity related to various
commodities. The Dow Jones-AIG Commodity Index accordingly relies on
both futures market liquidity of commodities and production in
determining relative weightings.
Diversification. The Dow Jones-AIG Commodity Index is
designed to provide diversified exposure to commodities as an asset
class. Disproportionate weightings of any particular commodity or
sector may increase the volatility and negate the concept of a broad-
based commodity index. As described further below, diversification
rules have been established and are applied annually. Additionally, the
Dow Jones-AIG Commodity Index is re-balanced annually on a price-
percentage basis in order to maintain diversified commodities exposure
over time.
Continuity. The Dow Jones-AIG Commodity Index is designed
to be responsive to the changing nature of the commodity markets in a
manner that does not completely reshape the character of the Dow Jones-
AIG Commodity Index from year to year. The Dow Jones-AIG Commodity
Index is intended to provide a stable benchmark, so that end-users may
be reasonably confident that historical performance data is based on a
structure that bears some resemblance to both the current and future
composition of the Dow Jones-AIG Commodity Index.
Liquidity. The Dow Jones-AIG Commodity Index is designed
to provide a highly liquid index. Liquidity
[[Page 68648]]
as a weighting factor helps to ensure that the Dow Jones-AIG Commodity
Index can accommodate substantial investment flows. The liquidity of an
index affects transaction costs associated with current investments and
may also affect the reliability of historical price performance data.
Designated Contracts for Each Dow Jones-AIG Commodity Index Commodity
A futures contract, known as a Designated Contract, is selected by
the Dow Jones-AIG Oversight Committee (the ``Oversight Committee'')
\19\ for each Dow Jones-AIG Commodity Index Commodity. The Oversight
Committee was established by Dow Jones and AIGI to assist with the
operation of the Dow Jones-AIG Commodity Index. The Exchange states
that the Oversight Committee includes prominent members of the
financial, academic and legal communities selected by AIGI and meets
annually to consider any changes to be made to the Dow Jones-AIG
Commodity Index for the coming year. The Oversight Committee may also
meet at such other times as may be necessary.
---------------------------------------------------------------------------
\19\ The Exchange has been informed by Merrill Lynch that none
of the members of the Oversight Committee are officers, directors or
employees of Merrill Lynch.
---------------------------------------------------------------------------
With the exception of several LME contracts, where the Oversight
Committee believes that there exists more than one futures contract
with sufficient liquidity to be chosen as a Designated Contract for a
Dow Jones-AIG Commodity Index Commodity, the Oversight Committee
selects the futures contract that is traded in the U.S. and denominated
in U.S. dollars. If more than one of those contracts exists, the
Oversight Committee will select the most actively traded contract. Data
concerning this Designated Contract will be used to calculate the Dow
Jones-AIG Commodity Index. If a Designated Contract were to be
terminated or replaced, a comparable futures contract would be
selected, if available, to replace that Designated Contract.\20\
---------------------------------------------------------------------------
\20\ The Oversight Committee may exclude any otherwise eligible
contract from the Dow Jones-AIG Commodity Index if it determines
that it has an inadequate trading window. The Dow Jones-AIG
Commodity Index currently includes contracts traded on the London
Metal Exchange (``LME''), which is located in London. During the
hours where the LME is closed, Dow Jones uses the last price and
uses the settlement price once it is available in order to publish
the Dow Jones-AIG Commodity Index value through the end of the
trading day. The Dow Jones-AIG Commodity Index value does not
reflect any after-hours or overnight trading in contracts traded on
the LME.
---------------------------------------------------------------------------
The Designated Contracts for the Dow Jones-AIG Commodity Index
Commodities included in the Dow Jones-AIG Commodity Index for 2006 are
traded on the LME, the CBOT, the New York Board of Trade (the
``NYBOT''), the Chicago Mercantile Exchange, Inc. (the ``CME'') and the
New York Mercantile Exchange (the ``NYMEX'').\21\ The particular
commodities futures exchange for each futures contract with Web site
information is as follows: (i) Aluminum, nickel and zinc--LME at http:/
/www.lme.com; (ii) corn, soybeans, soybean oil and wheat--CBOT at
https://www.cbot.com; (iii) live cattle and lean hogs--CME at https://
www.cme.com; (iv) coffee and sugar--NYBOT at https://www.nybot.com and
(v) copper, crude oil, gold, heating oil, natural gas, silver and
unleaded gasoline--NYMEX at https://www.nymex.com. In addition, various
market data vendors and financial news publications publish futures
prices and data. The Exchange represents that futures quotes and last
sale information for the commodities underlying the Index are widely
disseminated through a variety of major market data vendors worldwide,
including Bloomberg and Reuters. In addition, the Exchange further
represents that complete real-time data for such futures is available
by subscription from Reuters and Bloomberg. The CBOT, LME and NYMEX
also provide delayed futures information on current and past trading
sessions and market news free of charge on their respective Web sites,
and for a fee, will provide real-time futures data. The specific
contract specifications for the futures contracts are also available
from the futures exchanges on their Web sites, as well as other
financial informational sources.
---------------------------------------------------------------------------
\21\ November 16 Telephone Conference (confirming designated
contracts for 2005 and 2006 are traded on same exchanges).
---------------------------------------------------------------------------
Annual Reweighting and Rebalancing of the Dow Jones-AIG Commodity
Index.
The Dow Jones-AIG Commodity Index is reweighted and rebalanced each
year in January on a price percentage basis. The annual weightings for
the Dow Jones-AIG Commodity Index are determined each year in June or
July by AIGI under the supervision of the Oversight Committee. The
annual weightings are announced in July and implemented the following
January. The weightings for 2006, as listed below, have been approved
and became effective in January 2006.
The relative weightings of the component commodities included in
the Dow Jones-AIG Commodity Index are determined annually according to
both liquidity and dollar-adjusted production data. Each June, for each
commodity designated for potential inclusion in the Dow Jones-AIG
Commodity Index, liquidity is measured by the commodity liquidity
percentage (the ``CLP'') and production by the commodity production
percentage (the ``CPP''). The CLP for each commodity is determined by
taking a five-year average of the product of the trading volume and the
historic dollar value of the Designated Contract for that commodity,
and dividing the result by the sum of the products for all commodities
that were designated for potential inclusion in the Dow Jones-AIG
Commodity Index. The CPP is determined for each commodity by taking a
five-year average of annual world production figures, adjusted by the
historic dollar value of the Designated Contract, and dividing the
result by the sum of the production figures for all the commodities
that were designated for potential inclusion in the Dow Jones-AIG
Commodity Index. The CLP and CPP are then combined (using a ratio of
2:1) to establish the Commodity Dow Jones-AIG Commodity Index
Percentage (the ``CIP'') for each commodity. The CIP is then adjusted
in accordance with the diversification rules described below to
determine the commodities to be included in the Dow Jones-AIG Commodity
Index and their respective percentage weights.
To ensure that no single commodity or commodity sector dominates
the Dow Jones-AIG Commodity Index, the following diversification rules
are applied to the annual reweighting and rebalancing of the Dow Jones-
AIG Commodity Index, as of January of the applicable year:
No related group of commodities designated as a Commodity
Group (e.g., energy, precious metals, livestock or grains) may
constitute more than 33% of the Dow Jones-AIG Commodity Index;
No single commodity may constitute more than 15% of the
Dow Jones-AIG Commodity Index;
No single commodity, together with its derivatives (e.g.,
crude oil, together with heating oil and unleaded gasoline), may
constitute more than 25% of the Dow Jones-AIG Commodity Index; and
No single commodity in the Dow Jones-AIG Commodity Index
may constitute less than 2% of the Dow Jones-AIG Commodity Index.
Following the annual reweighting and rebalancing of the Dow Jones-
AIG Commodity Index in January, the percentage of any single commodity
or group of commodities at any time prior to the next reweighting or
rebalancing
[[Page 68649]]
will fluctuate and may exceed or be less than the percentage set forth
above.\22\
---------------------------------------------------------------------------
\22\ The Exchange represents and clarifies that the weightings
of the components of the DJAIG ExEnergy Index are determined in
conjunction with the annual reweighting and rebalancing of the Dow
Jones-AIG Commodity Index by assigning weightings of zero to the
energy commodities included in the Dow Jones-AIG Commodity Index and
proportionally increasing the weightings of the remaining
commodities. For example, assume the Dow Jones-AIG Commodity Index
includes five equally weighted (20%) commodities, including an
energy commodity. If the energy component were assigned a weight of
0%, the weightings of the remaining four non-energy components
comprising the DJAIG ExEnergy Index would be increased pro rata and
assigned equal weightings of 25%.
---------------------------------------------------------------------------
Following application of the diversification rules discussed above,
CIPs are incorporated into the Dow Jones-AIG Commodity Index by
calculating the new unit weights for each Dow Jones-AIG Commodity Index
commodity. Near the beginning of each new calendar year (the ``CIM
Determination Date''), the CIPs, along with the settlement prices on
that date for Designated Contracts included in the Dow Jones-AIG
Commodity Index, are used to determine a Commodity Index Multiplier
(``CIM'') for each Dow Jones-AIG Commodity Index commodity. This CIM is
used to achieve the percentage weightings of the Dow Jones-AIG
Commodity Index commodities, in dollar terms, indicated by their
respective CIPs. After the CIMs are calculated, they remain fixed
throughout the year. As a result, the observed price percentage of each
Dow Jones-AIG Commodity Index commodity will float throughout the year,
until the CIMs are reset the following year based on new CIPs.
To avoid delivering the underlying physical commodities and to
maintain exposure to the underlying physical commodities, periodically
futures contracts on physical commodities specifying delivery on a
nearby date must be sold and futures contracts on physical commodities
that have not yet reached the delivery period must be purchased. The
rollover for each contract occurs over a period of five DJ-AIG Business
Days \23\ each month according to a pre-determined schedule. This
process is known as ``rolling'' a futures position. The Dow Jones-AIG
Commodity Index is a ``rolling index.''
---------------------------------------------------------------------------
\23\ A DJ-AIG Business Day (``DJ-AIG Business Day'') is a day on
which the sum of the CIPs for the Dow Jones-AIG Commodity Index
commodities that are available to trade is greater than 50%.
---------------------------------------------------------------------------
The Dow Jones AIG-Commodity Index is calculated by Dow Jones by
applying the impact of the changes to the futures prices of commodities
included in the Dow Jones-AIG Commodity Index (based on the
commodities' relative weightings). Once the CIMs are determined as
discussed above, the calculation of the Dow Jones-AIG Commodity Index
is a mathematical process whereby the CIMs for the Dow Jones-AIG
Commodity Index commodities are multiplied by the daily settlement
prices in U.S. dollars for the applicable Designated Contracts. These
products are then summed. During the rollover period, the sum includes
both nearby and deferred contracts weighted according to the specified
roll percentage. The percentage change in this sum from the prior day
is then applied to the prior Dow Jones-AIG Commodity Index value.
Finally, the value of one day's interest is added, calculated using the
most recent (lagged by one day) 91-Day U.S. Treasury Bill Auction High
Rate to arrive at the current Dow Jones-AIG Commodity Index value.
Dow Jones-AIG Commodity Index Calculation Disruption Events.
From time to time, the Exchange states that disruptions can occur
in trading futures contracts on various commodity futures exchanges.
The daily calculation of the Dow Jones-AIG Commodity Index and the
Index will be adjusted in the event that AIGI determines that any of
the following index calculation disruption events exists: (i) The
termination or suspension of, or material limitation or disruption in
the trading of any futures contract used in the calculation of the Dow
Jones-AIG Commodity Index on that day; (ii) the settlement price of any
futures contract used in the calculation of the Dow Jones-AIG Commodity
Index reflects the maximum permitted price change from the previous
day's settlement price; (iii) the failure of an exchange to publish
official settlement prices for any futures contract used in the
calculation of the Dow Jones-AIG Commodity Index; or (iv) with respect
to any futures contract used in the calculation of the Dow Jones-AIG
Commodity Index that trades on the LME, a business day on which the LME
is not open for trading. In the case of a temporary disruption in
connection with the trading of the futures contracts of the commodities
comprising the Index, the Exchange believes that it is unnecessary for
a filing pursuant to Section 19(b) under the Act \24\ to be submitted
to the Commission. The Exchange submits that for a temporary disruption
of said futures contracts, AIGI will typically use the prior day's
price for an Index commodity or commodities. In exceptional cases, AIGI
may employ a ``fair value'' price. However, the Exchange represents
that if the use of a prior day's price or ``fair value'' pricing for an
Index commodity or commodities is more than of a temporary nature, a
rule filing will be submitted pursuant to Section 19(b) of the Act \25\
seeking approval to continue trading the Notes. Unless such approval is
received, the Exchange will commence delisting the Notes.
---------------------------------------------------------------------------
\24\ 15 U.S.C. 78s(b).
\25\ Id.
---------------------------------------------------------------------------
Exchange Rules Applicable to the Notes
The Notes are cash-settled in U.S. dollars and do not give the
holder any right or other ownership interest in the Index or
commodities comprising the Index. The Notes are designed for investors
who desire to participate in, or gain exposure to, an index composed of
a basket of actively-traded commodities, are willing to hold the
investment to maturity, and who want to limit risk exposure by
receiving principal protection of their investment amount.
The Notes will trade as equity securities subject to the Amex
equity trading rules including, among others, rules governing priority,
parity and precedence of orders, specialist responsibilities, account
opening, and customer suitability requirements. In addition, the Notes
will be subject to the equity margin rules of the Exchange.\26\ 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: (i) To determine that such transaction is suitable for the
customer, and (ii) 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, Merrill
Lynch will deliver a prospectus in connection with the initial sales of
the Notes. The circular will also reference that the Commission has no
jurisdiction over the trading of the physical commodities or the
futures contracts or on such commodities upon which the value of the
Notes is based.\27\
---------------------------------------------------------------------------
\26\ See Amex Rule 462.
\27\ November 16 Telephone Conference.
---------------------------------------------------------------------------
[[Page 68650]]
Criteria for Initial and Continued Listing
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.\28\ The Exchange also has a general policy that
prohibits the distribution of material, non-public information by its
employees. The Notes will be subject to the criteria in Section 107D of
the Company Guide for initial and continued listing. The continued
listing criteria provides for the delisting or removal from listing of
the Notes under any of the following circumstances:
---------------------------------------------------------------------------
\28\ See Rule 10A-3(c)(1), 17 CFR 240.10A-3(c)(1).
---------------------------------------------------------------------------
If the aggregate market value or the principal amount of
the Notes publicly held is less than $400,000;
If the value of the Index is no longer calculated or
widely disseminated by a major market data vendor on at least a 15-
second basis during the time the Notes trade on the Exchange; or
If such other event shall occur or condition exists which
in the opinion of the Exchange makes further dealings on the Exchange
inadvisable.
Additionally, the Exchange represents that it will file a proposed
rule change pursuant to Rule 19b-4 under the Act,\29\ seeking approval
to continue trading the Notes and unless approved, the Exchange will
commence delisting the Notes if:
---------------------------------------------------------------------------
\29\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
Dow Jones and AIG-FP substantially change either the index
component selection methodology or the weighting methodology;
If a new component is added to the Index (or pricing
information is used for a new or existing component) that constitutes
more than 10% of the weight of the Index with whose principal trading
market the Exchange does not have a comprehensive surveillance sharing
agreement; or
If a successor or substitute index is used in connection
with the Notes. The filing will address, among other things the listing
and trading characteristics of the successor or substitute index and
the Exchange's surveillance procedures applicable thereto.
Trading Halts
The Exchange will halt trading in the Notes if the circuit breaker
parameters of Exchange Rule 117 have been reached. In exercising its
discretion to halt or suspend trading in the Notes, the Exchange may
consider factors such as those set forth in Exchange Rule 918C(b), in
addition to other factors that may be relevant. In particular, if the
Dow Jones-AIG Commodity Index value is not being disseminated as
required, the Exchange may halt trading during the day in which the
interruption to the dissemination of the Dow Jones-AIG Commodity Index
value occurs. If the interruption to the dissemination of the Dow
Jones-AIG Commodity Index value persists past the trading day in which
it occurred, the Exchange will halt trading no later than the beginning
of the trading day following the interruption.\30\
---------------------------------------------------------------------------
\30\ November 16 Telephone Conference. The Exchange deleted
inconsistent language regarding trading halts.
---------------------------------------------------------------------------
Specialist Prohibitions
The Exchange submits that current Rule 1203A will be applicable to
the Notes. In connection with the Notes, Rule 1203A provides that the
prohibitions in Rule 175(c) apply to a specialist in the Notes, so that
the specialist or affiliated person may not act or function as a market
maker in the underlying commodities, related futures contracts or
options, or any other related commodity derivative. Consistent with
Rule 193, an affiliated person of the specialist may be afforded an
exemption to act in a market making capacity, other than as a
specialist in the Notes on another market center, in the underlying
commodities, related futures or options, or any other related commodity
derivative. In particular, Rule 1203A provides that an approved person
of the specialist that has established and obtained Exchange approval
for procedures restricting the flow of material, non-public market
information between itself and the specialist member organization, and
any member, officer, or employee associated therewith, may act in a
market making capacity, other than as a specialist in the Notes on
another market center, in the underlying commodity, related commodity
futures or options on commodity futures, or any other related commodity
derivatives.
Additionally, the Exchange further submits that Rule 1204A will be
applicable to the Notes. Rule 1204A was adopted to ensure that
specialists provide the Exchange with all the necessary information
relating to their trading in physical commodities and related futures
contracts and options thereon or any other related commodities
derivative. This Rule further reminds members that, in connection with
trading the physical asset or commodities, futures or options on
futures, or any other related derivatives, the use of material, non-
public information received from any person associated with a member,
member organization or employee of such person regarding trading by
such person or employee in the physical asset or commodities, futures
or options on futures, or any other related derivatives is prohibited
by the Exchange.
Surveillance
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
exchange-traded funds, trust issued receipts (including the iShares
Comex Gold Trust, streetTRACKS Gold Trust and DB Commodity Index
Tracking Fund) and index-linked securities.\31\ With regard to the
Index Components, the Exchange currently has in place a comprehensive
surveillance sharing arrangement with the NYMEX and the LME, for the
purpose of providing information in connection with trading in or
related to futures contracts traded on their respective exchanges
comprising the Index. The Exchange also notes that the CBOT, CME, and
NYBOT are members of the Intermarket Surveillance Group (``ISG''). As a
result, the Exchange asserts that it can obtain market surveillance
information, including customer identity information, from the CBOT,
CME, LME, NYBOT, and NYMEX, if necessary, due to regulatory concerns
that may arise in connection with the futures contracts.
---------------------------------------------------------------------------
\31\ The Commission requested, and the Exchange agreed, to
remove the phrase ``which have been deemed adequate under the Act''
at the end of this sentence. November 16 Telephone Conference.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6 of the Act,\32\ in general, and furthers the objectives
of Section 6(b)(5) of the Act,\33\ 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.
---------------------------------------------------------------------------
\32\ 15 U.S.C. 78f.
\33\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes that the proposed rule change does not impose
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
[[Page 68651]]
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
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, as amended, is consistent with the Act. Comments may be
submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-Amex-2006-01 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-Amex-2006-01. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/
sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for inspection and
copying in the Commission's Public Reference Section, 100 F Street,
NE., Washington, DC 20549. Copies of such filing also will be available
for inspection and copying at the principal office of Amex. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-Amex-2006-01 and should be
submitted on or before December 18, 2006.
IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
The Commission finds that the proposed rule change, as amended, is
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities
exchange.\34\ In particular, the Commission believes that the proposal
is consistent with Section 6(b)(5) of the Act,\35\ which requires that
the rules of an exchange be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to remove impediments to and perfect the mechanism
of a free and open market and a national market system, and in general
to protect investors and the public interest.
---------------------------------------------------------------------------
\34\ In approving this proposal, the Commission has considered
its impact on efficiency, competition, and capital formation. See 15
U.S.C. 78c(f).
\35\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
A. Surveillance
Information sharing agreements with primary markets are an
important part of a self-regulatory organization's ability to monitor
for trading abuses with respect to derivative securities. The
Commission believes that Amex's comprehensive surveillance sharing
agreements with the NYMEX and the LME for the purpose of providing
information in connection with the Notes create the basis for Amex to
monitor for fraudulent and manipulative practices in the trading of the
Notes.
Moreover, Amex Rules, including Rule 1204A, give Amex the authority
to request information to monitor for fraudulent and manipulative
trading facilities. The Commission believes that these rules provide
the Amex with the tools necessary to adequately surveil trading in the
Notes.
B. Dissemination of Information
The Commission believes that sufficient venues for obtaining
reliable information exist so that investors in the Notes can monitor
the underlying Index Components, the Dow Jones-AIG Commodity Index, and
the Index. There is a considerable amount of information about the
Index Components, the Dow Jones-AIG Commodity Index, and the Index
available through public Web sites, and real time intraday prices and
daily closing prices for the Index Components are available by
subscription from major market vendors.
The Commission notes that the amount paid at maturity, per Note,
will be based on the percentage change or performance of the Index over
the term of the Note. As more specifically described herein, the amount
paid at maturity, per Note, will consist of at least 100% of the
Principal Amount, plus a Supplemental Redemption Amount, but it will
never be less than the Principal Amount.
The Commission believes that the wide availability of such
information will facilitate transparency and reduce the potential of
unfair informational advantage with respect to the Notes and, when
coupled with the principal-protected nature of the Notes, will diminish
the risk of manipulation.
C. Listing and Trading
The Commission finds that the Exchange's proposed rules and
procedures for the listing and trading of the Notes are consistent with
the Act. The Notes will trade as equity securities subject to the Amex
equity trading rules including, among others, rules governing priority,
parity and precedence of orders, specialist responsibilities, account
opening, and customer suitability requirements. In addition, the Notes
will be subject to the equity margin rules of the Exchange, set forth
in Amex Rule 462. The Commission believes that the listing and
delisting criteria for the Notes should help to maintain a minimum
level of liquidity and therefore minimize the potential for
manipulation of the Notes.
The Commission notes that prior to trading the Notes, Amex will
distribute a circular to the membership providing guidance with regard
to member firm compliance responsibilities and highlighting the special
risks and characteristics of the Notes. Specifically, the Exchange will
require those recommending a transaction in the Notes to determine that
such transaction is suitable for the customer, and to have a reasonable
basis for believing that the customer can evaluate the special
characteristics of, and bear the financial risks of, such transaction.
The Commission believes that the information circular will inform
members about the terms, characteristics and risks in trading the
Notes.
D. Accelerated Approval
The Commission finds good cause for approving this proposed rule
change, as amended, before the thirtieth day after the publication of
notice thereof in the Federal Register. The Commission notes that this
principal protected product is similar to other products already
[[Page 68652]]
approved by the Commission.\36\ Therefore, accelerating approval of
this proposed rule change should benefit investors who desire to
participate in an index composed of a basket of actively-traded
commodities, who are willing to hold the investment to maturity, and
who want to limit risk exposure, by creating, without undue delay,
opportunities for such investments.
---------------------------------------------------------------------------
\36\ See e.g., Securities Exchange Act Release No. 54731
(November 9, 2006), 71 FR 66814 (notice and order granting
accelerated approval to the New York Stock Exchange LLC to list and
trade two series of principal protected, commodity-linked
securities); Securities Exchange Act Release No. 54033 (June 22,
2006), 71 FR 37131 (June 29, 2006) (order approving the listing and
trading of principal protected notes linked to the Metals-China
basket on Amex).
---------------------------------------------------------------------------
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\37\ that the proposed rule change, as amended (SR-Amex-2006-01),
is hereby approved on an accelerated basis.
---------------------------------------------------------------------------
\37\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\38\
---------------------------------------------------------------------------
\38\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Nancy M. Morris,
Secretary.
[FR Doc. E6-19978 Filed 11-24-06; 8:45 am]
BILLING CODE 8011-01-P
