[Federal Register Volume 62, Number 11 (Thursday, January 16, 1997)]
[Notices]
[Pages 2409-2411]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-1033]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38142; International Series Release No. 1043; File No.
SR-Amex-96-50]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by American Stock Exchange, Inc., Relating to the Listing and
Trading of Index Warrants Based on the BEMI South Africa Index
January 8, 1997.
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 30, 1996, the American Stock Exchange, Inc. (``Amex'' or
``Exchange'') filed with the Securities and Exchange Commission the
proposed rule change as described in Items I, II, and III below, which
Items have been prepared by the Amex. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Amex, pursuant to Rule 19b-4 of the Act proposes to approve for
listing and trading under Section 106 (Currency and Index Warrants) of
the Amex Company Guide index warrants based on the BEMI South Africa
Index (``Index''), a market capitalization-weighted broad-based index
developed by ING Barings Securities Limited comprised of 30 South
African companies representing five different industry groups.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Amex included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Amex has prepared summaries, set forth in sections
A, B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
Under Section 106 of the Amex Comany Guide, the Exchange may
approve for listing index warrants based on foreign and domestic market
indices. The Amex has received approval to trade a number of index
warrant products pursuant to Section 106.\3\ The Amex represents that
the listing and trading of warrants on the Index will comply in all
respects to Exchange Rules 1100 through 1110 for the trading of stock
index and currency warrants.
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\3\ See Securities Exchange Act Release No. 36070 (August 9,
1995), 60 FR 42205 (August 14, 1995) (approval for index warrants on
the Deutscher Aktienindex); Securities Exchange Act Release No.
33036 (October 8, 1993), 58 FR 53588 (October 15, 1993) (approval
for index warrants on the Amex Hong Kong 30 Index); and Securities
Exchange Act Release No. 31016 (August 11, 1992), 57 FR 37012
(August 17, 1992) (approval for index warrants on the Japan Index).
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Warrant issues on the Index will conform to the listing guidelines
under Section 106, which provide, among other things, that: (1) the
issuer shall have tangible net worth in excess of $250,000,000 and
otherwise substantially exceed earnings requirements in Section 101(A)
of the Comany Guide or meet the alternative guideline in paragraph (a);
(2) the term of the warrants shall be for a period ranging from one to
three years from date of issuance; and (3) the minimum public
distribution of such issues shall be 1,000,000 warrants, together with
a minimum of 400 public holders, and have an aggregate market value of
$4,000,000.
Index warrants will be direct obligations of their issuer subject
to cash-settlement during their term, and either exercisable throughout
their life (i.e., American style) or exercisable only on their
expiration date (i.e., European style). Upon exercise, or at the
warrant expiration date if not exercisable prior to such date), the
holder of a warrant structured as a ``put'' would receive payment in
U.S. dollars to the extent that the Index has declined below a pre-
stated cash settlement value. Conversely, holders of a warrant
structured as a ``call'' would, upon exercise or at expiration, receive
payment in U.S. dollars to the extent that the Index has increased
above the pre-stated cash settlement value. If ``out-of-the-money'' at
the time of expiration, the warrants would expire worthless.
The procedures for determining the cash settlement value for the
warrants have not yet been determined by ING Barings. Once those
procedures have been determined by ING Barings, they will be fully set
forth in the prospectus and in the Information Circular distributed by
the Exchange to its membership prior to the commencement of trading the
warrant.
The Amex has adopted suitability standards applicable to
recommendations to purchasers of Index warrants and transactions in
customer accounts. Amex Rule 411, Commentary .02 recommends that index
warrants under Section 106 of the Company Guide be sold only to
investors whose accounts have been approved for options trading
pursuant to Rule 921. The requirements under Rule 923 (Suitability)
shall apply to recommendations in index warrants both with respect to
customer accounts that have been approved for options trading and
customer accounts that have not been so approved. Amex Rule 421,
Commentary .02 requires a Senior Registered Options Principal or a
Registered Options Principal to approve and initial a discretionary
order in Index warrants on the day the order is entered. In addition,
the Amex, prior to the commencement of trading of Index warrants, will
distribute a circular to its membership calling attention to specific
risks associated with warrants on the Index.
The Amex is proposing to list index warrants based on the Index, an
internationally-recognized capitalization-weighed index representing a
broad-based portfolio of 30 large, actively traded stocks from South
Africa.\4\ The total market capitalization of the Index was $118.6
billion on September 30, 1996. The total available market
capitalization \5\ of the Index was $32.1 billion on September 30,
1996. The median available capitalization of the companies in the Index
on that date was $737 million and
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the average available market capitalization of these companies was
$1.07 billion. The individual available market capitalization of the
companies ranged from $848 million to $11.8 billion.
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\4\ The list of the component securities and their respective
weights in the Index were attached to the proposed rule filing as
Exhibit A, and are available for examination at the Amex or at the
Commission as specified in Item IV.
\5\ A company's ``available capitalization'' is defined as the
lower of (i) the company's ``free float'' or (ii) the legally
available capitalization of the company. A company's ``free float''
is defined as the percentage of shares which could reasonably be
expected to trade on the open market. Generally, government
holdings, corporate cross-ownership and other strategic holdings are
not considered freely floating.
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The Index was designed by and is maintained by ING Barings. The
stocks selected for inclusion in the Index were chosen on the basis of
both country and company criteria. To be included in the Index a
country must have a minimum Gross Domestic Product per capita of $400
and minimum market trading value of $2 billion per year, in at least
one of the last three years. The companies included in the Index are
drawn from a database of stock entities, which may represent individual
companies in their entirety, or separate lines of stock, e.g., A shares
and B shares, of the same company. The criteria for stock entities to
be included are: capitalization value greater than 1% of the ING
Barings database for that county; minimum free-float of 10%; and
minimum average daily trading value of $100,000. In addition shares
that rank first or second in their industry sector may be included if
they have a minimum capitalization of 0.5% of the ING Baring database
for that country and meet the normal free-float & daily trading value
rules.
The Index is composed of companies from 5 industry groups
including: consumer goods, energy, capital equipment, basic materials,
agriculture/food and financial. The largest stock accounts for 11.43%
of the Index, while the smallest accounts for 0.716%. The top five
stocks in the Index by weight account for 43.64%. The Exchange believes
that the Index is a Stock Index Group and a Broad Stock Index Group
pursuant to Rule 1100(b).
The Exchange also believes that the proposed Index complies with
the information sharing standards of Section 106(g) of the Company
Guide.\6\ The Exchange has entered into an agreement with the
Johannesburg Stock Exchange establishing the appropriate means to
obtain comprehensive surveillance information with respect to the
Index's component stocks. Once the agreement has been deemed effective
by the Commission, the proposed Index will comply with the information
sharing standards of Section 106(g) of the Company Guide.
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\6\ Section 106(g) of the Company Guide states that foreign
country securities or American Depository Receipts thereon that are
not subject to a comprehensive surveillance agreement, and have less
than 50% of their global trading volume in dollar value within the
United States, shall not in the aggregate, represent more than 20%
of the weight of an index, unless such index is otherwise approved
for warrant or option trading.
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The Index is capitalization-weighted and based on available
capitalization. The Index is quoted in U.S. dollars and disseminated
daily shortly after 4 p.m. New York time using local market closing
prices and Reuters 4 p.m. currency exchange rates. The Index was first
calculated on January 7, 1992 with a benchmark value of 100. In the
event a component security in the Index does not open for trading, the
most recent closing value for that component will be used in the
Index's calculation.
The Index is maintained by ING Barings Recomposition Committee. The
Recomposition Committee, established at the time of the launch of the
Index, reviews on a quarterly basis the Index rules and composition.
The committee implements changes or fixes standards as appropriate and
overseas the security environment of the Index and its record-keeping.
The quarterly recomposition meeting is normally held in the second week
of the last month of the quarter. The date of these meetings is posted
at least two months in advance on Reuters and the results are posted on
Reuters the day after a committee meeting. Any changes in the
composition of the Index are implemented on the last day of the month
that the committee meeting is held. This is approximately two weeks
after the committee meeting.
ING Barings will maintain the Index so that new issues and
privatizations are included in the Index at the end of the month in
which they have come to market, provided the company has met the
criteria for inclusion in the Index. New companies resulting from a
spin-off of a component company will be put into the Index and remain
in the Index until the next quarterly recomposition meeting. In the
event of certain types of corporate actions such as the payment of a
dividend other than an ordinary cash dividend, stock distribution,
stock spilt, reverse stock split, rights offering, reorganization,
recapitalization or similar event with respect to the component stocks,
the divisor will be adjusted, if necessary, to ensure Index continuity.
According to the Exchange, membership of the committee is regulated
by a ``Fire Wall.''\7\ All members are isolated from sales, trading
functions and corporate finance functions. Members are drawn from Index
research, calculation group, and the legal department of ING Barings.
To ensure impartiality and good practice, the committee has retained
Russell Systems Limited (part of the Frank Russell Group) to attend all
meetings and to provide an audit of attendance and appropriateness of
the agenda. Russell Systems Limited also provides advice on good
practice in indexation and on how to ensure the use of the best
available information on emerging markets.
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\7\ See Letter from A.N. Marsh, Legal Department, ING Barings,
to Richard Mikaliunas, Vice President, Capital Markets Development,
Amex, dated November 20, 1996.
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2. Basis
The Amex believes that the proposed rule change is consistent with
Section 6(b) of the Act in general and furthers the objectives of
Section 6(b) (5) in particular \8\ in that its designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, and is not deisgned to permit unfair
discrimination between customers, issuers, brokers or dealers.
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\8\ 15 U.S.C. 78f(b) (5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Amex does not believe that the proposed rule change will impose
any inappropriate burden on competition.
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. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of the
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submission, all subsequent amendments, all written statements with
respect to the proposed rule change that are filed with the Commission,
and all written communications relating to the proposed rule change
between the Commission and any person, other than those that may be
withheld from the public in accordance with the provisions of 5 U.S.C.
552, will be available for inspection and copying in the Commission's
Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.
20549. Copies of such filing will also be available for inspection and
copying at the principal office of the Amex. All submissions should
refer to File No. SR-Amex-96-50 and should be submitted by February 6,
1997.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-1033 Filed 1-15-97; 8:45 am]
BILLING CODE 8010-01-M
