Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To Amend Section 107D of the Amex Company Guide, 3762-3765 [E8-995]

Download as PDF 3762 Federal Register / Vol. 73, No. 14 / Tuesday, January 22, 2008 / Notices All submissions should refer to File Number SR–Amex–2008–01. 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 Room, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–Amex–2008–01 and should be submitted on or before February 12, 2008. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.12 Florence E. Harmon, Deputy Secretary. [FR Doc. E8–968 Filed 1–18–08; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–57148; File No. SR–Amex– 2007–137] sroberts on PROD1PC70 with NOTICES Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To Amend Section 107D of the Amex Company Guide (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on December 14, 2007, the American Stock Exchange LLC (‘‘Exchange’’ or ‘‘Amex’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which items have been substantially prepared by the Amex. On January 8, 2008, the Exchange filed Amendment No. 1 to the proposed rule change. The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons and is approving the proposed rule change on an accelerated basis. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend section 107D of the Amex Company Guide (‘‘Company Guide’’) to: (i) Eliminate the requirement that an eligible index for index-linked securities (‘‘Index Securities’’) be calculated and weighted following a specified methodology; (ii) provide that indexes based on the equal-dollar or modified equal-dollar weighting methods be rebalanced semi-annually rather than quarterly, as is currently the case; and (iii) eliminate the continued listing requirement prohibiting an index from increasing or decreasing by more than 331⁄3% from the number of index components initially listed. The text of the proposed rule change is available at the Amex, at the Commission’s Public Reference Room, and at https://www.amex.com. 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, its 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. January 15, 2008. Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 1 15 12 17 CFR 200.30–3(a)(12). VerDate Aug<31>2005 20:38 Jan 18, 2008 2 17 Jkt 214001 PO 00000 U.S.C. 78s(b)(l). CFR 240.19b–4. Frm 00103 Fmt 4703 Sfmt 4703 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend section 107D of the Company Guide to: (i) Eliminate the requirement that an eligible index for Index Securities be calculated and weighted following a specified methodology; (ii) provide that indexes based on the equal-dollar or modified equal-dollar weighting methods be rebalanced semi-annually rather than quarterly, as is currently the case; and (iii) eliminate the continued listing requirement prohibiting an index from increasing or decreasing by more than 331⁄3% from the number of index components initially listed. Generic Listing Standards—Index Weighting Methodologies Section 107D of the Company Guide sets forth the generic listing standards for Index Securities. The generic listing standards permit the listing and trading of various qualifying Index Securities, subject to the procedures contained in Rule 19b–4(e) under the Act.3 The existence of generic listing standards allows qualifying Index Securities to list or trade without the need to file a rule change for each security under Rule 19b–4 under the Act. By amending its generic listing standards for Index Securities, the Exchange intends to reduce the timeframe for listing Index Securities and thereby reduce the burdens on issuers and other market participants. The generic listing standards for Index Securities in section 107D(i)(i) of the Company Guide currently provide that eligible indexes must be calculated based on either a capitalization,4 modified capitalization,5 price,6 equal3 17 CFR 240.19b–4(e). ‘‘capitalization-weighted’’ index is constructed so that weightings are biased toward the securities of larger companies. In calculating the index value, the market price of each component security is multiplied by the total number of shares outstanding to determine the market capitalization for each company in the index. The sum of the market capitalizations of all components determines the total capitalization for the index. The total market capitalization is then divided by an index divisor to scale the index to a desired reference level, e.g. 100, to establish a baseline for gauging future performance of the index. This will allow a security’s size and capitalization to have a greater impact on the value of the index. 5 A ‘‘modified capitalization-weighted’’ index is weighted using criteria other than the total, actual number of shares outstanding. 6 In a ‘‘price-weighted’’ index, the component securities are included based on their price. The value of the price-weighted index is calculated by adding together the last transaction price for each security in the index and dividing the resulting sum by an index divisor to scale the index. 4A E:\FR\FM\22JAN1.SGM 22JAN1 Federal Register / Vol. 73, No. 14 / Tuesday, January 22, 2008 / Notices sroberts on PROD1PC70 with NOTICES dollar 7 or modified equal-dollar 8 weighting methodology. The indexes potentially underlying an issue of Index Securities may differ based on various criteria such as broad-based market measures and narrow-based or industryspecific market measures. Ultimately, it is the diversity of the underlying securities as well as their market coverage that determine whether an index is broad-based or narrow-based. Further, indexes can be calculated using different methodologies and, thus, even where indexes are based on the same underlying securities, they may measure the relevant market differently because of differences in their calculation methodology. The methodologies currently permitted under section 107D(i)(i) of the Company Guide for Index Securities are not all-inclusive and there are other calculation methodologies that are not currently permitted under the Exchange’s generic listing standards.9 The Amex proposes to eliminate the current limitations in the generic listing standards for Index Securities relating to index calculation methodologies, thereby reducing the time-frame for listing Index Securities based on other index calculation methodologies and promoting competition. The Exchange believes that the proposal will further alleviate unnecessary burdens on issuers and other market participants without compromising investor protection. The Exchange notes that the Commission recently approved a proposal 10 by the Amex to remove similar requirements in the Amex’s generic listing standards for exchangetraded funds (‘‘ETFs’’) 11 that eligible indexes be calculated based on the market capitalization, modified market 7 An ‘‘equal dollar-weighted’’ index is calculated by establishing an aggregate market value for every component security of the index and then determining the number of shares of each security by dividing this aggregate market value by the current market price of the security. This method of calculation does not give more weight to price changes of the more highly capitalized component securities. Additionally, the weights of each component security are reset to equal values at regular intervals (e.g., quarterly). 8 A ‘‘modified equal dollar-weighted’’ index resets component securities at regular intervals, but not necessarily to equal values. 9 For example, an index can also be a simple average, calculated by simply adding up the prices of the securities in the index and dividing by the number of securities, disregarding the number of shares outstanding. Another type measures daily percentage movements of prices by averaging the percentage of the types of stocks constituting the index. 10 See Securities Exchange Act Release No. 55544 (Mar. 27, 2007), 72 FR 15923 (Apr. 3, 2007) (‘‘Amex–2007–07’’). 11 See Amex Rule 1000–AEMI for portfolio depository receipts and Amex Rule 1000A–AEMI for index fund shares. VerDate Aug<31>2005 20:38 Jan 18, 2008 Jkt 214001 capitalization, price, equal-dollar, or modified equal dollar weighting methodology. In approving Amex– 2007–07, the Commission found that ‘‘[a]s the market for ETFs has grown, the variety of weighting and calculation methodologies for underlying indexes has also expanded, limiting the applicability of Amex’s current generic ETF listing standards.’’ Similarly, the Exchange believes that growth in the market for Index Securities as well as an expansion in the weighting and calculation methods for underlying indexes has limited the applicability of Amex’s current generic listing standards for Index Securities. The Exchange further notes that the Commission recently approved a similar filing by NYSE Arca, LLC (‘‘NYSEArca’’) in which NYSEArca proposed the elimination of its requirement that an underlying index used in connection with an issuance of Equity Index-Linked Securities must be calculated based on either a capitalization, modified capitalization, price, equal-dollar, or modified equal-dollar weighting methodology.12 Rebalancing of Equal-Dollar and Modified Equal-Dollar Indexes Section 107D(i)(ii) of the Company Guide currently requires that indexes based upon the equal-dollar or modified equal-dollar weighting method be rebalanced quarterly. The Exchange is proposing to amend this requirement to require that the equal-dollar or modified equal-dollar weighting method be rebalanced at least semi-annually. A significant number of currently existing equity indexes that utilize the equaldollar or modified equal-dollar weighting methodology are rebalanced semi-annually rather than quarterly. As the issuer of Index Securities generally licenses the right to utilize the underlying index from a third party index sponsor, it is often not within the issuer’s control to have the index rebalanced more frequently. As such, it is not possible currently under section 107D(i)(ii) of the Company Guide to list Index Securities based on indexes that are rebalanced semi-annually. However, as these types of indexes are relatively common and detailed information concerning the procedures governing the construction of the underlying index 12 See Securities Exchange Act Release No. 56838 (Nov. 26, 2007), 72 FR 67774 (Nov. 30, 2007) (SR– NYSE–Arca–2007–118). In this filing NYSEArca stated that it was seeking to harmonize NYSEArca rules with the New York Stock Exchange (‘‘NYSE’’) Equity Index-Linked Securities listing standard in Section 703.22 of the NYSE Listed Company Manual, which has no requirements concerning weighting methodologies. PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 3763 will be available to investors either in the issuer’s prospectus or on the index sponsor’s Web site, the Exchange believes that it is appropriate to allow investors to make their own decisions as to the sufficiency of a semi-annual rebalancing of an equal-dollar index underlying an issuance of Index Securities. Investors and issuers would also benefit from the Amex’s ability to list—without the delay associated with a stand-alone rule filing—Index Securities based on a broader group of indexes. The Exchange further notes that the Commission recently approved a similar proposal by NYSEArca.13 Continued Listing Criteria for IndexLinked Securities Section 107D(h) of the Company Guide provides the continued listing criteria for Index Securities. In particular, section 107D(h)(ii) of the Company Guide provides, as a condition of continued listing that, ‘‘the total number of components in the index may not increase or decrease by more than 331⁄3% from the number of components in the index at the time of its initial listing, and in no event may be less than ten (10) components.’’ The Exchange proposes to delete the 331⁄3% prohibition, but maintain the 10component requirement of the rule. The Exchange believes that investors purchase Index Securities because they believe that the underlying index method is accurately described in the offering documentation and that the index sponsor will maintain the index methodology appropriately so that the index will continue to represent the sector, geographic region or other investment characteristics it is designed to track. As such, rather than buying Index Securities on the basis of the current contents of the index, investors are relying on the index sponsor to define and manage the index selection rules so that, over time, the index is sustainable in response to changing market conditions. Because Index Securities can have a duration of up to thirty (30) years, it is likely that some Index Securities will ultimately change in ways that render them noncompliant with section 107D(h)(ii) of the Company Guide. The Exchange believes that an unintended consequence of the 331⁄3% requirement is that it penalizes Index Securities with long-term maturities. Specifically, total industry/country composite indexes are at risk of being delisted prior to the stated maturity date for the Index Security. As a result, issuers may not launch new Index Securities due to 13 See E:\FR\FM\22JAN1.SGM supra note 12. 22JAN1 3764 Federal Register / Vol. 73, No. 14 / Tuesday, January 22, 2008 / Notices concerns regarding the negative impact of delisting the index-linked security based on component changes that reflect expanding or retracting industry sectors or changes in the geographical business environment. The Exchange does not believe that it is protective of investors to require the delisting of Index Securities in such an event. The Exchange further notes that the Commission recently approved a similar proposal by NYSEArca.14 2. Statutory Basis The Exchange believes the proposed rule change is consistent with the Act and the rules and regulations under the Act applicable to national securities exchanges and, in particular, the requirements of section 6(b) of the Act.15 Specifically, the Exchanges believe the proposed rule change is consistent with the requirements of section 6(b)(5) of the Act 16 that the rules of an exchange be designed to prevent fraudulent and manipulative acts, 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. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange believes that the proposed rule change would impose no burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others The Exchange has neither solicited nor received comments on this proposal. III. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: sroberts on PROD1PC70 with NOTICES Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File 14 See Securities Exchange Act Release No. 57132 (Jan. 11, 2008) (SR–NYSEArca–2007–125). 15 15 U.S.C. 78f(b). 16 15 U.S.C. 78f(b)(5). VerDate Aug<31>2005 20:38 Jan 18, 2008 Jkt 214001 principles of trade, to remove impediments to and perfect the mechanism of a free and open market Paper Comments and a national market system, and, in • Send paper comments in triplicate general, to protect investors and the to Nancy M. Morris, Secretary, public interest. Securities and Exchange Commission, The Commission notes that the 100 F Street, NE., Washington, DC proposal to eliminate the requirement 20549–1090. that an eligible index for Index Securities be calculated based on certain All submissions should refer to File specified methodologies would conform Number SR–Amex–2007–137. This file the Exchange’s requirements to the number should be included on the subject line if e-mail is used. To help the current listing standards for similar securities on other national securities Commission process and review your exchanges.19 The Commission further comments more efficiently, please use believes that the proposal to provide only one method. The Commission will post all comments on the Commission’s that indexes based on the equal-dollar or modified equal-dollar weighting Internet Web site (https://www.sec.gov/ methods be rebalanced at least semirules/sro.shtml). Copies of the annually should benefit investors by submissions, all subsequent providing a wider selection of derivative amendments, all written statements products based on such indexes. The with respect to the proposed rule Commission believes that the proposal change that are filed with the to adjust the minimum rebalancing Commission, and all written frequency requirement is reasonable, communications relating to the given the increasing number of equalproposed rule change between the Commission and any person, other than dollar or modified equal-dollar weighted indexes that are rebalanced on those that may be withheld from the a semi-annual basis, and should allow public in accordance with the for the listing and trading of certain provisions of 5 U.S.C. 552, will be Index Securities that would otherwise available for inspection and copying in not be able to be listed and traded on the Commission’s Public Reference the Exchange. Room, 100 F Street, NE., Washington, In addition, the Commission believes DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. that eliminating the requirement prohibiting an index from increasing or Copies of the filings also will be decreasing by more than 331⁄3% from available for inspection and copying at the number of index components the principal offices of the Exchange. initially listed reasonably balances the All comments received will be posted removal of impediments to a free and without change; the Commission does open market with the protection of not edit personal identifying investors and the public interest, two information from submissions. You principles set forth in section 6(b)(5) of should submit only information that 20 you wish to make available publicly. All the Act. The Commission notes that each issue of Index Securities must submissions should refer to File No. continue to maintain all of the initial SR–Amex–2007–137 and should be listing standards for Index Securities, submitted on or before February 12, including the continued requirement 2008. that each underlying index have a IV. Commission’s Findings and Order minimum of 10 component securities of Granting Accelerated Approval of different issuers. Given the variety of Proposed Rule Changes certain equity indexes that focus on specific industry sectors and geographic After careful consideration, the markets, for example, and the extended Commission finds that the proposed duration of maturities for certain Index rule change is consistent with the Securities, the Commission believes that requirements of the Act and the rules the number of components in an index and regulations thereunder, applicable may increase or decrease by more than to national securities exchanges.17 In 331⁄3% from the number of components particular, the Commission finds that in the index at the time of initial listing the proposal is consistent with the provisions of section 6(b)(5) of the Act 18 without adversely impacting the interests of investors. At the same time, in that it is designed to prevent the Commission believes that the fraudulent and manipulative acts and proposal should benefit investors by practices, to promote just and equitable creating additional alternatives to Number SR–Amex–2007–137 on the subject line. 17 In approving this proposal, the Commission has considered its impact on efficiency, competition, and capital formation. See U.S.C. 78c(f). 18 15 U.S.C. 78f(b)(5). PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 19 See supra note 12. See also Section 703.22 of the NYSE Listed Company Manual. 20 Id. E:\FR\FM\22JAN1.SGM 22JAN1 Federal Register / Vol. 73, No. 14 / Tuesday, January 22, 2008 / Notices investing in such products and competition in the market for Index Securities, while maintaining transparency of the underlying components comprising an index. As such, the Commission believes it is reasonable and consistent with the Act for the Exchange to eliminate the 331⁄3% requirement from the listing standards for Index Securities in the manner described in the proposal. The Commission finds good cause for approving the proposed rule change before the 30th day after the date of publication of notice of filing thereof in the Federal Register. With respect to the Exchange’s proposals to: (i) Eliminate the requirement that an eligible index for Index Securities be calculated and weighted following a specified methodology; (ii) provide that indexes based on the equal-dollar or modified equal-dollar weighting methods be rebalanced semi-annually rather than quarterly, as is currently the case; and (iii) eliminate the continued listing requirement prohibiting an index from increasing or decreasing by more than 331⁄3% from the number of index components initially listed rule change, the Commission notes that it has recently approved substantially similar proposals for other national securities exchanges.21 The Commission does not believe that these proposals raise any novel regulatory issues. Therefore, the Commission finds good cause, consistent with section 19(b)(2) of the Act,22 to approve the proposed rule change on an accelerated basis. V. Conclusion It is therefore ordered, pursuant to section 19(b)(2) of the Act,23 that the proposed rule change (SR–Amex–2007– 137), as modified by Amendment No. 1, be, and it hereby is, approved on an accelerated basis. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.24 Florence E. Harmon, Deputy Secretary. [FR Doc. E8–995 Filed 1–18–08; 8:45 am] sroberts on PROD1PC70 with NOTICES BILLING CODE 8011–01–P 21 See supra notes 12 and 14. U.S.C. 78s(b)(2). 23 15 U.S.C. 78s(b)(2). 24 17 CFR 200.30–3(a)(12). 22 15 VerDate Aug<31>2005 20:38 Jan 18, 2008 Jkt 214001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–57150; File No. SR–Amex– 2007–130] Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1 and 2 Thereto, Relating to Certain Modifications to the Initial Listing Standards for IndexLinked Securities, Commodity-Linked Securities, and Currency-Linked Securities January 15, 2008. Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on November 30, 2007, the American Stock Exchange LLC (‘‘Amex’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been substantially prepared by the Exchange. On December 5, 2007, the Exchange filed Amendment No. 1 to the proposed rule change. On December 21, 2007, the Exchange filed Amendment No. 2 to the proposed rule change. This order provides notice of the proposed rule change, as amended, and approves the proposed rule change, as modified by Amendment Nos. 1 and 2 thereto, on an accelerated basis. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend sections 107D, 107E, and 107F of the Amex Company Guide to revise the initial listing standards applicable to Index-Linked Securities, CommodityLinked Securities, and Currency-Linked Securities (collectively, the ‘‘Section 107 Securities’’),3 respectively. In 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 Index-Linked Securities are securities that provide for the payment at maturity of a cash amount based on the performance of an underlying index or indexes of equity securities (‘‘Underlying Index’’). See Section 107D of the Amex Company Guide. Commodity-Linked Securities are securities that provide for the payment at maturity of a cash amount based on the performance of one or more physical commodities or commodity futures, options or other commodity derivatives or Commodity-Based Trust Shares (as defined in Amex Rule 1200A), or a basket or index of any of the foregoing (‘‘Commodity Reference Asset’’). See Section 107E of the Amex Company Guide. Currency-Linked Securities are securities that provide for the payment at maturity of a cash amount based on the performance of one or more currencies, or options or currency futures or other 2 17 PO 00000 Frm 00106 Fmt 4703 Sfmt 4703 3765 addition, the Exchange proposes a conforming revision to Commentary .05 to Amex Rule 411 to apply the suitability standard to all derivative securities that seek investment results based on a multiple of the direct or inverse performance of an underlying asset. The text of the proposed rule change is available at the Exchange, the Commission’s Public Reference Room, and https://www.amex.com. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of the proposed rule change is to amend the generic listing standards of sections 107D, 107E, and 107F of the Amex Company Guide so that section 107 Securities may be listed where the positive and/or negative payment at maturity may be accelerated by a multiple of the performance of the underlying Reference Asset. The Exchange believes that liberalizing the existing listing criteria for section 107 Securities will benefit the marketplace and investors by providing additional risk/return alternative structures. Sections 107D, 107E, and 107F of the Amex Company Guide set forth the generic listing standards that permit the Exchange to list and trade Index-Linked Securities, Commodity-Linked Securities, and Currency-Linked Securities, respectively, pursuant to Rule 19b–4(e) under the Act.4 Currently, currency derivatives or Currency Trust Shares (as defined in Amex Rule 1200B), or a basket or index of any of the foregoing (‘‘Currency Reference Asset,’’ and, together with the Underlying Index and Commodity Reference Asset, collectively, the ‘‘Reference Asset’’). See Section 107F of the Amex Company Guide. 4 See 17 CFR 240.19b–4(e). Rule 19b–4(e) provides that the listing and trading of a new derivative securities product by a self-regulatory organization (‘‘SRO’’) shall not be deemed a proposed rule change, pursuant to paragraph (c)(1) of Rule 19b–4, if the Commission has approved, E:\FR\FM\22JAN1.SGM Continued 22JAN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 73, Number 14 (Tuesday, January 22, 2008)]
[Notices]
[Pages 3762-3765]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-995]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57148; File No. SR-Amex-2007-137]


Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing and Order Granting Accelerated Approval of a Proposed 
Rule Change, as Modified by Amendment No. 1 Thereto, To Amend Section 
107D of the Amex Company Guide

January 15, 2008.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 14, 2007, the American Stock Exchange LLC (``Exchange'' or 
``Amex'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which items have been substantially prepared by the Amex. On 
January 8, 2008, the Exchange filed Amendment No. 1 to the proposed 
rule change. The Commission is publishing this notice to solicit 
comments on the proposed rule change, as amended, from interested 
persons and is approving the proposed rule change on an accelerated 
basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(l).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend section 107D of the Amex Company 
Guide (``Company Guide'') to: (i) Eliminate the requirement that an 
eligible index for index-linked securities (``Index Securities'') be 
calculated and weighted following a specified methodology; (ii) provide 
that indexes based on the equal-dollar or modified equal-dollar 
weighting methods be rebalanced semi-annually rather than quarterly, as 
is currently the case; and (iii) eliminate the continued listing 
requirement prohibiting an index from increasing or decreasing by more 
than 33\1/3\% from the number of index components initially listed.
    The text of the proposed rule change is available at the Amex, at 
the Commission's Public Reference Room, and at https://www.amex.com.

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, its 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend section 107D of the Company Guide 
to: (i) Eliminate the requirement that an eligible index for Index 
Securities be calculated and weighted following a specified 
methodology; (ii) provide that indexes based on the equal-dollar or 
modified equal-dollar weighting methods be rebalanced semi-annually 
rather than quarterly, as is currently the case; and (iii) eliminate 
the continued listing requirement prohibiting an index from increasing 
or decreasing by more than 33\1/3\% from the number of index components 
initially listed.

Generic Listing Standards--Index Weighting Methodologies

    Section 107D of the Company Guide sets forth the generic listing 
standards for Index Securities. The generic listing standards permit 
the listing and trading of various qualifying Index Securities, subject 
to the procedures contained in Rule 19b-4(e) under the Act.\3\ The 
existence of generic listing standards allows qualifying Index 
Securities to list or trade without the need to file a rule change for 
each security under Rule 19b-4 under the Act. By amending its generic 
listing standards for Index Securities, the Exchange intends to reduce 
the timeframe for listing Index Securities and thereby reduce the 
burdens on issuers and other market participants.
---------------------------------------------------------------------------

    \3\ 17 CFR 240.19b-4(e).
---------------------------------------------------------------------------

    The generic listing standards for Index Securities in section 
107D(i)(i) of the Company Guide currently provide that eligible indexes 
must be calculated based on either a capitalization,\4\ modified 
capitalization,\5\ price,\6\ equal-

[[Page 3763]]

dollar \7\ or modified equal-dollar \8\ weighting methodology. The 
indexes potentially underlying an issue of Index Securities may differ 
based on various criteria such as broad-based market measures and 
narrow-based or industry-specific market measures. Ultimately, it is 
the diversity of the underlying securities as well as their market 
coverage that determine whether an index is broad-based or narrow-
based. Further, indexes can be calculated using different methodologies 
and, thus, even where indexes are based on the same underlying 
securities, they may measure the relevant market differently because of 
differences in their calculation methodology. The methodologies 
currently permitted under section 107D(i)(i) of the Company Guide for 
Index Securities are not all-inclusive and there are other calculation 
methodologies that are not currently permitted under the Exchange's 
generic listing standards.\9\ The Amex proposes to eliminate the 
current limitations in the generic listing standards for Index 
Securities relating to index calculation methodologies, thereby 
reducing the time-frame for listing Index Securities based on other 
index calculation methodologies and promoting competition. The Exchange 
believes that the proposal will further alleviate unnecessary burdens 
on issuers and other market participants without compromising investor 
protection.
---------------------------------------------------------------------------

    \4\ A ``capitalization-weighted'' index is constructed so that 
weightings are biased toward the securities of larger companies. In 
calculating the index value, the market price of each component 
security is multiplied by the total number of shares outstanding to 
determine the market capitalization for each company in the index. 
The sum of the market capitalizations of all components determines 
the total capitalization for the index. The total market 
capitalization is then divided by an index divisor to scale the 
index to a desired reference level, e.g. 100, to establish a 
baseline for gauging future performance of the index. This will 
allow a security's size and capitalization to have a greater impact 
on the value of the index.
    \5\ A ``modified capitalization-weighted'' index is weighted 
using criteria other than the total, actual number of shares 
outstanding.
    \6\ In a ``price-weighted'' index, the component securities are 
included based on their price. The value of the price-weighted index 
is calculated by adding together the last transaction price for each 
security in the index and dividing the resulting sum by an index 
divisor to scale the index.
    \7\ An ``equal dollar-weighted'' index is calculated by 
establishing an aggregate market value for every component security 
of the index and then determining the number of shares of each 
security by dividing this aggregate market value by the current 
market price of the security. This method of calculation does not 
give more weight to price changes of the more highly capitalized 
component securities. Additionally, the weights of each component 
security are reset to equal values at regular intervals (e.g., 
quarterly).
    \8\ A ``modified equal dollar-weighted'' index resets component 
securities at regular intervals, but not necessarily to equal 
values.
    \9\ For example, an index can also be a simple average, 
calculated by simply adding up the prices of the securities in the 
index and dividing by the number of securities, disregarding the 
number of shares outstanding. Another type measures daily percentage 
movements of prices by averaging the percentage of the types of 
stocks constituting the index.
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    The Exchange notes that the Commission recently approved a proposal 
\10\ by the Amex to remove similar requirements in the Amex's generic 
listing standards for exchange-traded funds (``ETFs'') \11\ that 
eligible indexes be calculated based on the market capitalization, 
modified market capitalization, price, equal-dollar, or modified equal 
dollar weighting methodology. In approving Amex-2007-07, the Commission 
found that ``[a]s the market for ETFs has grown, the variety of 
weighting and calculation methodologies for underlying indexes has also 
expanded, limiting the applicability of Amex's current generic ETF 
listing standards.'' Similarly, the Exchange believes that growth in 
the market for Index Securities as well as an expansion in the 
weighting and calculation methods for underlying indexes has limited 
the applicability of Amex's current generic listing standards for Index 
Securities. The Exchange further notes that the Commission recently 
approved a similar filing by NYSE Arca, LLC (``NYSEArca'') in which 
NYSEArca proposed the elimination of its requirement that an underlying 
index used in connection with an issuance of Equity Index-Linked 
Securities must be calculated based on either a capitalization, 
modified capitalization, price, equal-dollar, or modified equal-dollar 
weighting methodology.\12\
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    \10\ See Securities Exchange Act Release No. 55544 (Mar. 27, 
2007), 72 FR 15923 (Apr. 3, 2007) (``Amex-2007-07'').
    \11\ See Amex Rule 1000-AEMI for portfolio depository receipts 
and Amex Rule 1000A-AEMI for index fund shares.
    \12\ See Securities Exchange Act Release No. 56838 (Nov. 26, 
2007), 72 FR 67774 (Nov. 30, 2007) (SR-NYSE-Arca-2007-118). In this 
filing NYSEArca stated that it was seeking to harmonize NYSEArca 
rules with the New York Stock Exchange (``NYSE'') Equity Index-
Linked Securities listing standard in Section 703.22 of the NYSE 
Listed Company Manual, which has no requirements concerning 
weighting methodologies.
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Rebalancing of Equal-Dollar and Modified Equal-Dollar Indexes

    Section 107D(i)(ii) of the Company Guide currently requires that 
indexes based upon the equal-dollar or modified equal-dollar weighting 
method be rebalanced quarterly. The Exchange is proposing to amend this 
requirement to require that the equal-dollar or modified equal-dollar 
weighting method be rebalanced at least semi-annually. A significant 
number of currently existing equity indexes that utilize the equal-
dollar or modified equal-dollar weighting methodology are rebalanced 
semi-annually rather than quarterly. As the issuer of Index Securities 
generally licenses the right to utilize the underlying index from a 
third party index sponsor, it is often not within the issuer's control 
to have the index rebalanced more frequently. As such, it is not 
possible currently under section 107D(i)(ii) of the Company Guide to 
list Index Securities based on indexes that are rebalanced semi-
annually. However, as these types of indexes are relatively common and 
detailed information concerning the procedures governing the 
construction of the underlying index will be available to investors 
either in the issuer's prospectus or on the index sponsor's Web site, 
the Exchange believes that it is appropriate to allow investors to make 
their own decisions as to the sufficiency of a semi-annual rebalancing 
of an equal-dollar index underlying an issuance of Index Securities. 
Investors and issuers would also benefit from the Amex's ability to 
list--without the delay associated with a stand-alone rule filing--
Index Securities based on a broader group of indexes. The Exchange 
further notes that the Commission recently approved a similar proposal 
by NYSEArca.\13\
---------------------------------------------------------------------------

    \13\ See supra note 12.
---------------------------------------------------------------------------

Continued Listing Criteria for Index-Linked Securities

    Section 107D(h) of the Company Guide provides the continued listing 
criteria for Index Securities. In particular, section 107D(h)(ii) of 
the Company Guide provides, as a condition of continued listing that, 
``the total number of components in the index may not increase or 
decrease by more than 33\1/3\% from the number of components in the 
index at the time of its initial listing, and in no event may be less 
than ten (10) components.'' The Exchange proposes to delete the 33\1/
3\% prohibition, but maintain the 10-component requirement of the rule.
    The Exchange believes that investors purchase Index Securities 
because they believe that the underlying index method is accurately 
described in the offering documentation and that the index sponsor will 
maintain the index methodology appropriately so that the index will 
continue to represent the sector, geographic region or other investment 
characteristics it is designed to track. As such, rather than buying 
Index Securities on the basis of the current contents of the index, 
investors are relying on the index sponsor to define and manage the 
index selection rules so that, over time, the index is sustainable in 
response to changing market conditions.
    Because Index Securities can have a duration of up to thirty (30) 
years, it is likely that some Index Securities will ultimately change 
in ways that render them noncompliant with section 107D(h)(ii) of the 
Company Guide. The Exchange believes that an unintended consequence of 
the 33\1/3\% requirement is that it penalizes Index Securities with 
long-term maturities. Specifically, total industry/country composite 
indexes are at risk of being delisted prior to the stated maturity date 
for the Index Security. As a result, issuers may not launch new Index 
Securities due to

[[Page 3764]]

concerns regarding the negative impact of delisting the index-linked 
security based on component changes that reflect expanding or 
retracting industry sectors or changes in the geographical business 
environment. The Exchange does not believe that it is protective of 
investors to require the delisting of Index Securities in such an 
event. The Exchange further notes that the Commission recently approved 
a similar proposal by NYSEArca.\14\
---------------------------------------------------------------------------

    \14\ See Securities Exchange Act Release No. 57132 (Jan. 11, 
2008) (SR-NYSEArca-2007-125).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations under the Act applicable to 
national securities exchanges and, in particular, the requirements of 
section 6(b) of the Act.\15\ Specifically, the Exchanges believe the 
proposed rule change is consistent with the requirements of section 
6(b)(5) of the Act \16\ that the rules of an exchange be designed to 
prevent fraudulent and manipulative acts, 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.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 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 would impose no 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

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

    The Exchange has neither solicited nor received comments on this 
proposal.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-Amex-2007-137 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-2007-137. 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 submissions, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for inspection and 
copying in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filings also will be available for 
inspection and copying at the principal offices of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File No. SR-Amex-2007-137 and should be 
submitted on or before February 12, 2008.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Changes

    After careful consideration, the Commission finds that the proposed 
rule change is consistent with the requirements of the Act and the 
rules and regulations thereunder, applicable to national securities 
exchanges.\17\ In particular, the Commission finds that the proposal is 
consistent with the provisions of section 6(b)(5) of the Act \18\ in 
that it is 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.
---------------------------------------------------------------------------

    \17\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. See 
U.S.C. 78c(f).
    \18\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission notes that the proposal to eliminate the requirement 
that an eligible index for Index Securities be calculated based on 
certain specified methodologies would conform the Exchange's 
requirements to the current listing standards for similar securities on 
other national securities exchanges.\19\ The Commission further 
believes that the proposal to provide that indexes based on the equal-
dollar or modified equal-dollar weighting methods be rebalanced at 
least semi-annually should benefit investors by providing a wider 
selection of derivative products based on such indexes. The Commission 
believes that the proposal to adjust the minimum rebalancing frequency 
requirement is reasonable, given the increasing number of equal-dollar 
or modified equal-dollar weighted indexes that are rebalanced on a 
semi-annual basis, and should allow for the listing and trading of 
certain Index Securities that would otherwise not be able to be listed 
and traded on the Exchange.
---------------------------------------------------------------------------

    \19\ See supra note 12. See also Section 703.22 of the NYSE 
Listed Company Manual.
---------------------------------------------------------------------------

    In addition, the Commission believes that eliminating the 
requirement prohibiting an index from increasing or decreasing by more 
than 33\1/3\% from the number of index components initially listed 
reasonably balances the removal of impediments to a free and open 
market with the protection of investors and the public interest, two 
principles set forth in section 6(b)(5) of the Act.\20\ The Commission 
notes that each issue of Index Securities must continue to maintain all 
of the initial listing standards for Index Securities, including the 
continued requirement that each underlying index have a minimum of 10 
component securities of different issuers. Given the variety of certain 
equity indexes that focus on specific industry sectors and geographic 
markets, for example, and the extended duration of maturities for 
certain Index Securities, the Commission believes that the number of 
components in an index may increase or decrease by more than 33\1/3\% 
from the number of components in the index at the time of initial 
listing without adversely impacting the interests of investors. At the 
same time, the Commission believes that the proposal should benefit 
investors by creating additional alternatives to

[[Page 3765]]

investing in such products and competition in the market for Index 
Securities, while maintaining transparency of the underlying components 
comprising an index. As such, the Commission believes it is reasonable 
and consistent with the Act for the Exchange to eliminate the 33\1/3\% 
requirement from the listing standards for Index Securities in the 
manner described in the proposal.
---------------------------------------------------------------------------

    \20\ Id.
---------------------------------------------------------------------------

    The Commission finds good cause for approving the proposed rule 
change before the 30th day after the date of publication of notice of 
filing thereof in the Federal Register. With respect to the Exchange's 
proposals to: (i) Eliminate the requirement that an eligible index for 
Index Securities be calculated and weighted following a specified 
methodology; (ii) provide that indexes based on the equal-dollar or 
modified equal-dollar weighting methods be rebalanced semi-annually 
rather than quarterly, as is currently the case; and (iii) eliminate 
the continued listing requirement prohibiting an index from increasing 
or decreasing by more than 33\1/3\% from the number of index components 
initially listed rule change, the Commission notes that it has recently 
approved substantially similar proposals for other national securities 
exchanges.\21\ The Commission does not believe that these proposals 
raise any novel regulatory issues. Therefore, the Commission finds good 
cause, consistent with section 19(b)(2) of the Act,\22\ to approve the 
proposed rule change on an accelerated basis.
---------------------------------------------------------------------------

    \21\ See supra notes 12 and 14.
    \22\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\23\ that the proposed rule change (SR-Amex-2007-137), as modified 
by Amendment No. 1, be, and it hereby is, approved on an accelerated 
basis.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
---------------------------------------------------------------------------

    \24\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-995 Filed 1-18-08; 8:45 am]
BILLING CODE 8011-01-P

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