[Federal Register Volume 61, Number 15 (Tuesday, January 23, 1996)]
[Notices]
[Pages 1799-1801]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-834]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36721; File No. SR-Amex-95-58]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the American Stock Exchange, Inc., Relating to Listing and
Trading of Warrants Based on the Undervalued Market Basket
January 16, 1996.
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 January 2, 1996, the American Stock Exchange, Inc. (``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 Amex. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
\1\ 15 U.S.C. Sec. 78s(b)(1)(1988).
\2\ 17 CFR 240.19b-4 (1994).
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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 of the Amex Company Guide,
index warrants based on the undervalued market basket index
(``Index''). The Index is an equal-dollar weighted broad-based index
developed by the Exchange and is comprised of stocks which are traded
on the Amex, the New York Stock Exchange, Inc. (``NYSE''), or through
the facilities of the National Association of Securities Dealers
Automated Quotation system and are reported national market system
securities (``NASDAQ/NMS'').
The text of the proposed rule change is available at the Office of
the Secretary, the Amex, and 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 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
Under Section 106 of the Amex Company Guide, the Exchange may
approve for listing index warrants based on foreign and domestic market
indices. While the Exchange currently lists and trades warrants on a
number of foreign market indices, it currently proposes to list and
trade warrants on a domestic market index. The listing and trading of
warrants on the undervalued market basket index will comply in all
respects with Exchange Rules 1100 through 1110 for the trading of stock
index and currency warrants.
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 size and earnings requirements in
Section 101(A) of the Company Guide or meet the alternate guideline in
paragraph (a); (2) the term of the warrants shall be for a period
ranging from one to three years from the 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. In
addition, the Amex, prior to the
[[Page 1800]]
commencement of trading, 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
undervalued market basket index, an equal-dollar weighted index. The
Index represents a broad-based portfolio of large, actively traded
stocks from various industries. The total market capitalization of the
Index was $344,658,060,000 on December 22, 1995. The median
capitalization of the companies in the Index on that date was
approximately $3.2 billion and the average market capitalization of
these companies was approximately $8 billion. The individual market
capitalization of the companies ranged from approximately $126 million
to approximately $48.5 billion. During the six month period from June
1995 through November 1995, the average monthly trading volume of the
stocks in the Index ranged from 500,000 shares to 188.5 million
shares.\3\
\3\ Two of the component securities, Patriot Am. Hospitality and
Pharmacia & Upjohn, Inc., have been trading for less than six
months. Patriot Am. Hospitality began trading on September 27, 1995
as an initial public offering and has had an average monthly trading
volume for the months of October and November of 2.7 million shares.
Pharmacia & Upjohn was the result of a merger between Pharmacia
Aktiebolag and The Upjohn Company and began trading on November 3,
1995. Pharmacia & Upjohn traded 47.5 million shares during the month
of November.
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The Index is calculated using an ``equal-dollar weighting''
methodology that is designed to ensure that each of the component
securities is represented in an approximately ``equal'' dollar amount
in the Index. The following is a description of how the equal-dollar
weighting calculation method works. Initially, each of the securities
in the Index will have equal representation. Specifically, each
security included in the Index will be assigned a multiplier on the
date of issuance of the warrant so that each component represents an
equal percentage of the value of the Index on the date of issuance. The
multiplier indicates the number of shares of a security (or the
fraction of one share), given its market price on an exchange or
through NASDAQ, to be included in the calculation of the Index.
Accordingly, each of the 43 companies included in the Index will
represent approximately 2.32 percent of the weight of the Index at the
time of issuance of the warrant. The Index multipliers will be
determined to yield the benchmark value of 100.00 on the date the
warrant is priced for initial offering to the public.
As noted above, the multiplier of each component stock in the Index
portfolio remains fixed except 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 split, reverse stock
split, rights offering, distribution, reorganization, recapitalization,
or similar event. The multiplier of each component stock may also be
adjusted, if necessary, in the event of a merger, consolidation,
dissolution, or liquidation of an issuer or in certain other events
such as the distribution of property by an issuer to shareholders, the
expropriation or nationalization of a foreign issuer, or the imposition
of certain foreign taxes on shareholders of a foreign issuer. Shares of
a component stock may be replaced (or supplemented) with other
securities under certain circumstances, such as the conversion of a
component stock into another class of security, the termination of a
depositary receipt program, or the spin-off of a subsidiary. If the
stock remains in the Index, the multiplier of that security may be
adjusted to maintain the component's relative weight in the Index at
the level immediately prior to the corporate action. In the event that
a security in the Index is removed due to a corporate consolidation and
the holders of such security receive cash, the cash value of such
security will be included in the Index and will accrue interest at
Labor to term, compounded daily.
Similar to other stock index values published by the Exchange, the
value of the Index will be calculated continuously and disseminated
every fifteen seconds over the Consolidated Tape Association's Network
B.
The Exchange believes that it is appropriate to seek broad-based
index classification for warrant trading on the undervalued market
basket index since the Index represents a broad spectrum of companies
across various industries. The industry breakdown, as classified by the
Office of Management and Budget in their Standard Industry
Classifications, includes computers, aircraft, retain, banking,
cellular telecommunications, pharmaceutical, petroleum products,
medical supplies, hotel/motels, toys, and retail stationary. Further,
the Index meets and exceeds the following criteria: (1) Each component
security has an average daily trading volume of at least 40,000 shares
during the preceding six months (to remain in the Index, each component
will have to maintain an average daily trading volume of at least
20,000 shares); (2) no more than 20% of the total weighting of the
Index is represented by underlying securities that have an average
daily trading volume less than 75,000 shares in the preceding six
months; (3) no underlying security represents more than 10% of the
total weight of the Index; (4) the five most heavily weighted
securities in the Index do not represent more than 30% of the total
weight of the Index; (5) the Index is comprised of at least ten
industry sectors represented by no less than 43 component securities;
and (6) at least 75% of the total capitalization of the Index is
represented by component securities that meet the Exchange's criteria
for standardized options trading which is set forth in Exchange Rule
915. In addition, the Index meets and exceeds the Designation Criteria
for Futures Contracts Involving Non-Diversified Stock Indexes.\4\
\4\ See Securities and Exchange Commission and Commodity Futures
Trading Commission Joint Statement of Policy, Release No. 20578
(January 18, 1984), 49 FR 2884.
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2. Statutory Basis
The Amex believes that the proposed rule change is consistent with
Section 6(b) of the Act in general, and with Section 6(b)(5) in
particular,\5\ in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, and is not designed to permit unfair
discrimination between customers, issuers, brokers or dealers.
\5\ 15 U.S.C. Sec. 78f(b)(5) (1988).
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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 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 Amex consents, the Commission will:
A. by order approve the proposed rule change, or
B. institute proceedings to determine whether the proposed rule
change should be disapproved.
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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, NW., Washington, DC 20549.
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. Sec. 552, will be available for inspection and copying at
the Commission's Public Reference Section, 450 Fifth Street, NW.,
Washington, DC 20549. Copies of such filing also will be available for
inspection and copying at the principal office of the Amex. All
submissions should refer to File No. SR-Amex-95-58 and should be
submitted by February 13, 1996.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\6\
\6\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-834 Filed 1-22-96; 8:45 am]
BILLING CODE 8010-01-M
