[Federal Register Volume 65, Number 9 (Thursday, January 13, 2000)]
[Notices]
[Pages 2205-2207]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-781]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-42313; File No. SR-CHX-99-19]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the Chicago Stock Exchange
Regarding Minimum Term of Equity-Linked Debt Securities
January 4, 2000.
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 September 24, 1999, the Chicago Stock Exchange, Inc. (``CHX'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change. The Exchange submitted
Amendment No. 1 to its proposal on October 19, 1999 \3\ and Amendment
No. 2 on December 30, 1999.\4\ The proposed rule change, as amended, is
described in Items I, II, and III below, which Items have been prepared
by the Exchange. The Exchange has designated the proposed rule change
as constituting a ``non-controversial'' rule change under subparagraph
(f)(6) of Rule 19b-4 under the Act \5\ which renders the proposal
effective upon receipt of this filing by the Commission.\6\ The
Commission is
[[Page 2206]]
publishing this notice to solicit comments on the proposed rule change
from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In Amendment No. 1 the Exchange requested accelerated
approval of the proposed rule change pursuant to Section 19(b)(2) of
the Act. Letter from Kathleen M. Boege, Associate General Counsel,
Exchange, to Katherine A. England, Assistant Director, Division of
Market Regulation (``Division''), Commission, dated October 19, 1999
(``Amendment No. 1'').
\4\ In Amendment No. 2, the Exchange requested accelerated
approval of the proposed rule change pursuant to Section
19(b)(3)(A)(i) of the Act and subparagraph (f)(6) of Rule 19b-4;
confirmed that it has surveillance procedures in place to identify
and deter manipulative trading activity of ELDS; and represented
that it would notify the Commission in advance if the Exchange
intended to list equity-linked debt securities of a non-U.S. company
issuer and the issue has a term of more than three years. The
Exchange also noted that the proposed rule change is identical to
rule changes recently approved by the Commission for the New York
Stock Exchange (``NYSE'') and the American Stock Exchange
(``AMEX''). Finally, the Exchange clarified that the proposed rule
not only reduces the minimum term of ELDS, but also eliminates the
maximum term of ELDS. Letter from Kathleen M. Boege, Associate
General Counsel, Exchange, to Katherine A. England, Division,
Commission, dated December 30, 1999 (``Amendment No. 2''). Because
Amendment No. 2 is substantive, the Commission will consider the
date Amendment No. 2 was filed on the filing date for the proposed
rule change under Section 19(b)(3)(A) of the Act.
\5\ 17 CFR 240.19b-4(f)(6).
\6\ As required by 17 CFR 240.19b-4(f)(6), the Exchange has
represented that the proposed rule change will not significantly
affect the protection of investors or the public interest, nor will
it impose any significant burden on competition. The Exchange also
fulfilled its obligation to provide at least five business days
notice to the Commission of its intent to file this proposed rule
change because this proposal was initially filed on September 24,
1999. Therefore, the Commission finds that it is consistent with the
protection of investors and the public interest to grant immediate
effectiveness to this proposed rule change. Further, given the
similarity of this rule filing to rules amending the minimum term of
equity-linked debt securities recently approved by the Commission
for the NYSE and the AMEX, the Commission is exercising its
authority under 17 CFR 240.19b-4(f)(6) to declare this rule
immediately effective.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Exchange proposes to amend Article XXVIII, Rule 26 of the
Exchange's rules to reduce the minimum term of equity-linked debt
securities (``ELDS''), whether based on a domestic or foreign issuer,
to one year, and eliminate the maximum term of an ELDS. The text of the
proposed rule change is available at the Exchange and at the
Commission.
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 statement
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
On November 30, 1998, the Commission approved listing standards for
ELDS trading on the Exchange.\7\ ELDS are non-convertible debt of an
issuer, the value of which is based, at least in part, on the value of
another issuer's common stock or non-convertible preferred stock.
Article XXVIII, Rule 26 of the Exchange's rules details the listing
standards for ELDS. Among other requirements, these standards currently
require that ELDS have a term of two to seven years, but no more than
three years, if the issuer is a non-U.S. company. The Exchange
initially adopted this term minimum (which is substantially longer than
the one-year minimum generally established for other derivative
securities) as a conservative measure to help ensure that the trading
of ELDS did not have an adverse effect on the liquidity of the
underlying stock and were not used in a manipulative manner.\8\
---------------------------------------------------------------------------
\7\ Securities Exchange Act Release No. 40730 (November 30,
1998), 63 FR 67958 (December 9, 1998).
\8\ The AMEX and the NYSE initially adopted similar term limits
for equity-linked debt securities listed on their exchanges.
Securities Exchange Act Release No. 32343 (May 20, 1993), 58 FR
30833 (May 27, 1993)(File No. SR-AMEX-92-42) for the AMEX;
Securities Exchange Act Release No. 33468 (January 13, 1994), 59 FR
3387 (January 21, 1994)(File No. SR-NYSE-93-39) for the NYSE.
---------------------------------------------------------------------------
Since the Exchange began listing ELDS for trading, the possible
adverse effects set forth above not manifested themselves. In fact, the
Exchange believes that ELDS complement the trading of the underlying
stocks and the continued popularity of ELDS amply demonstrates their
appeal in the market. The Exchange has in place surveillance procedures
covering ELDS and the securities linked to ELDS for the purposes of
identifying and deterring manipulative trading activity, and the
Exchange has represented that it will notify the Commission in advance
if the Exchange intends to list equity-linked debt securities of a non-
U.S. company issuer and the issue has a term of more than three
years.\9\ Finally, the Exchange notes that the Commission recently
approved rules for both the NYSE and AMEX that reduces the minimum term
for their equity-linked debt instruments to one year.\10\ Accordingly,
the Exchange believes that it is appropriate to relax the more
stringent term requirements set forth in Article XXVIII, Rule 26 of the
Exchange's rules by reducing the minimum ELDS term to one year and
eliminating the maximum term limit of ELDS.
---------------------------------------------------------------------------
\9\ Amendment No. 2, supra note 4.
\10\ Securities Exchange Act Release No. 41992 (October 7,
1999). 64 FR 56007 (October 15, 1999)(No. SR-NYSE-99-22) for the
NYSE; Securities Exchange Act Release No. 42110 (November 5, 1999),
64 FR 61677 (November 11, 1999) (File No. SR-AMEX-99-33) for the
AMEX.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange represents that the proposed rule change is consistent
with Section 6(b) \11\ of the Act in general and furthers the
objectives of Section 6(b)(5) \12\ in particular in that, by reducing
the minimum term of ELDS, impediments to the mechanism of a free and
open market and a national market system will be removed, and investors
and the public interest will be protected.\13\
---------------------------------------------------------------------------
\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
\13\ In reviewing this proposal, the Commission has considered
its impact on efficiency competition, and capital formation. 15
U.S.C. 78c(f).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants, or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
This proposed rule filing has been filed by the Exchange as a
``non-controversial'' rule change pursuant to Section 19(b)(3)(A)(i) of
the Act \14\ and subparagraph (f)(6) of Rule 19b-4 thereunder.\15\ The
foregoing proposed rule change does not significantly affect the
protection of investors or the public interest, nor does it impose any
significant burden on competition. The Exchange also provided the
Commission with written notice of its intent to file the proposed rule
change at least five days prior to the filing date, as statutorily
required.
---------------------------------------------------------------------------
\14\15 U.S.C. 78s(b)(3)(A)(i).
\15\17 CFR. 240.19b-(f)(6).
---------------------------------------------------------------------------
Pursuant to subparagraph (f)(6) of Rule 19b-4,\16\ the Commission
has the authority to shorten the time period for the effectiveness of a
rule ``if consistent with the protection of investors and the public
interest.'' In this case, shortening the time period for effectiveness
from 30 days after the date of filing \17\ to immediate effectiveness
is consistent with the protection of investors and the public interest
because approval of this proposed rule conforms the listing criteria
for equity-linked debt instruments among the Exchange, AMEX, and the
NYSE.
---------------------------------------------------------------------------
\16\Id.
\17\Id.
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
change, the Commission may summarily abrogate such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors,
[[Page 2207]]
or otherwise in furtherance of the purposes of the Act.
IV. 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. Persons making written submissions
should file copies thereof with the Secretary, Securities and Exchange
Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. 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 at the Commission's
Public Reference Room. Copies of such filing also will be available for
inspection and copying at the principal office of the Chicago Stock
Exchange, Incorporated. All submissions should refer to File No. SR-
CHX-99-19 and should be submitted by February 3, 2000.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\18\
---------------------------------------------------------------------------
\18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-781 Filed 1-12-00; 8:45 am]
BILLING CODE 8010-01-M
