[Federal Register Volume 59, Number 17 (Wednesday, January 26, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-1582]
[[Page Unknown]]
[Federal Register: January 26, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33483; File No. SR-Amex-93-46]
Self-Regulatory Organizations; Filing of Proposed Rule Change and
Amendment No. 1 to the Proposed Rule Change by the American Stock
Exchange, Inc. Relating to Equity Linked Term Notes Linked to American
Depositary Receipts
January 14, 1994.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on December
29, 1993, 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. On January 13, 1994, the Amex
filed Amendment No. 1 to the proposed rule change.\1\ The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
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\1\Amendment No. 1 to the proposed rule change (1) discusses the
basis and necessity of listing and trading equity linked notes
(``ELNs'') linked to American Depositary Receipts (``ADRs''), and
(2) defines the U.S. ADR market. Additionally, Amendment No. 1
clarifies the procedures by which the Exchange will determine
whether an ELN may be listed on a particular ADR. Specifically, the
Exchange proposes to adopt the procedures proposed by the Exchange
in connection with the listing of options on ADRs (see Securities
Exchange Act Release No. 33130 (October 25, 1993), 58 FR 58357
(November 1, 1993)). See Letter from Claire McGrath, Managing
Director and Special Counsel, Derivative Securities, Amex, to
Richard Zack, Branch Chief, Office of Derivatives Regulation,
Division of Market Regulation, Commission, dated January 12, 1994
(``Amendment No. 1'').
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Section 107B (``Equity Linked Term
Notes'') of the Amex Company Guide (``Guide'') to provide for the
listing and trading of hybrid dept securities whose value is linked to
the performance of an ADR which is listed on a national securities
exchange or traded through the facilities of a national securities
system and subject to last sale reporting. The text of the proposed
rule change is available at the Office of the Secretary, the Amex, 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 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
On May 20, 1993, the Commission approved the Exchange's proposed
amendments to Section 107 of the Guide to provide for the listing and
trading of ELNs.\2\ Subsequently, on December 13, 1993, the Commission
approved a proposed rule change to provide alternative capitalization
and trading volume standards applicable to the securities underlying
ELNs.\3\
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\2\See Securities Exchange Act Release No. 32343 (May 20, 1993),
58 FR 30833 (May 27, 1993).
\3\See Securities Exchange Act Release No. 33328 (December 13,
1993), 58 FR 66041 (December 17, 1993).
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ELNs are intermediate term (two to seven years), non-convertible,
hybrid debt securities, the value of which is linked to the performance
of a highly capitalized, actively traded U.S. common stock. ELNs may
provide for periodic interest payments to holders based on fixed or
floating rates, or they may be structured as ``zero coupon''
instruments with no payments to holders prior to maturity.\4\ ELNs may
be subject to a ``cap'' on the maximum principal amount to be repaid to
holders upon maturity, and they may feature a ``floor'' on the minimum
principal amount paid to holders upon maturity. A specific issue of
ELNs, for example, may provide holders with a fixed semi-annual
interest payment, a cap of 135% of the issuance price on the maximum
amount to be paid upon maturity, and no minimum floor on the principal
to be repaid at maturity. Another issue of ELNs might offer lower
annual payments based upon a floating rate and a minimum floor
principal repayment of 75% of the issuance price. As may be seen, the
flexibility available to an issuer of ELNs permits the creation of
securities which offers investors the opportunity to more precisely
focus on a specific investment strategy. Since July 1993, the Exchange
has listed and currently trades seven ELNs issues.
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\4\The Exchange has agreed to notify the Commission if an issuer
of ELNs provides for periodic interest payments to holders based on
a floating rate. Id.
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ELNs conform to the general listing criteria under Section 107A of
the Guide, which provide that issues have: (1) A minimum public
distribution of one million trading units and a minimum of 400 holders;
(2) an aggregate market value of at least $20 million; (3) cash
settlement in U.S. dollars and a redemption price of at least three
dollars where the instrument contains such provisions; and (4) assets
of at least $100 million, stockholders' equity of at least $10 million,
and pre-tax income of at least $750,000 in the last fiscal year or in
two of the three prior fiscal years.\5\ ELNs also conform to the
special listing criteria of Section 107B of the Guide which provide
that: (1) Each issuer have a tangible net worth of at least $150
million; (2) the total original issue price of the particular issue of
ELNs combined with all of the issuer's other ELNs listed on a national
securities exchange or traded through the National Association of
Securities Dealers, Inc. Automated Quotation system not be greater than
25% of the issuer's tangible net worth at the time of issuance; (3)
each underlying linked stock must have a market capitalization of at
least $3 billion, and a trading volume in the 12-month period preceding
listing (in all markets in which the underlying security is traded) of
at least 2.5 million shares; (4) the issuer of the underlying linked
stock must be a U.S. reporting company under the Act; and (5) the
issuance of ELNs relating to an underlying linked stock may not exceed
5% of the total outstanding shares of such stock.
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\5\Issuers not meeting these financial criteria must have assets
in excess of $200 million and stockholders' equity of in excess of
$10 million, or, alternatively, assets in excess of $100 million and
stockholders' equity of at least $20 million.
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The Exchange now proposes to amend Section 107B of the Guide to
permit the listing and trading of ELNs linked to actively traded ADRs,
provided that (1) the Exchange has in place an effective surveillance
sharing agreement with the primary Exchange in the home country where
the security underlying the ADR trades, or (2) the combined trading
volume of the ADR and other related ADRs (as defined below) occurring
in the U.S. ADR market represents (on a share equivalent basis) at
least 50% of the combined worldwide trading volume in the ADR, the
security underlying the ADR, other classes of common stock related to
the underlying security, and ADRs overlying such other stock (``other
related ADRs'') over the three month period preceding the date of
listing.\6\ The Exchange will use its best efforts to discover all
markets (foreign and U.S.) on which the security underlying the ADR,
and all related securities, trades.\7\ These proposed changes are in
addition to the criteria which are currently in place for the listing
of ELNs.
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\6\The Exchange notes that under this calculation, the trading
volume for any U.S. ADRs trading on or through a U.S. securities
market that is not part of the U.S. ADR market will be included in
the determination of world-wide trading volume, but not in the
determination of the U.S. ADR market trading volume. See Amendment
No. 1, supra note 1.
\7\Id.
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Amendment No. 1 to the proposed rule change also defines the U.S.
ADR market as the U.S. self-regulatory organizations (``SROs'') that
are members of the Intermarket Surveillance Group (``ISG'')\8\ and
whose markets are linked together by the Intermarket Trading System
(``ITS'').\9\ Accordingly, the U.S. ADR market is currently comprised
of those SROs that are members of ISG.\10\
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\8\ISG was formed on July 14, 1983 to, among other things,
coordinate more effectively surveillance and investigative
information sharing arrangements in the stock and options markets.
See Intermarket Surveillance Group Agreement, July 14, 1983. The
members of the ISG are: the Amex: the Boston Stock Exchange, Inc.;
the Chicago Board Options Exchange, Inc.; the Chicago Stock
Exchange, Inc.; the Cincinnati Stock Exchange, Inc.; the National
Association of Securities Dealers, Inc.; the New York Stock
Exchange, Inc.; the Pacific Stock Exchange, Inc.; and the
Philadelphia Stock Exchange, Inc.
\9\ITS is a communications system designed to facilitate trading
among competing markets by providing each market with order routing
capabilities based on current quotation information. The system
links the participant markets and provides facilities and procedures
for: (1) the display of composite quotation information at each
participant market, so that brokers are able to determine readily
the best bid and offer available from any participant for multiply
traded securities; (2) efficient routing of orders and sending
administrative messages (on the functioning of the system) to all
participating markets; (3) participation, under certain conditions,
by members of all participating markets in opening transactions in
those markets; and (4) routing orders from a participating market to
a participating market with a better price.
\10\See Amendment No. 1, supra note 1.
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The Exchange believes that the proposed amendment will benefit
investors by expanding the number of securities that may be linked to
ELNs, thereby providing investors with enhanced investment flexibility.
The Exchange believes that it is appropriate to now include ADRs within
the existing regulatory framework for ELNs because of the significant
level of U.S. investor interest in both U.S. and non-U.S. highly
capitalized and actively traded reporting companies. Since both the
ELNs and the ADRs will be subject to the criteria outlined in sections
107A and 107B of the Guide, and the Exchange will either have in place
an effective surveillance sharing agreement with the primary exchange
in the home country where the security underlying the ADR trades or the
ADR will meet the trading volume criteria set forth in section 107B,
the Exchange believes that it will have the ability to inquire into
potential trading problems or irregularities with respect to the ELNs
and the ADRs to which they are linked.
The Exchange 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, in that it is designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in facilitating transactions in securities, and to
remove impediments to an perfect the mechanism of a free and open
market and a national market system.
(B) Self-Regulatory Organization's Statement on Burden on Competition
The 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
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 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. 552, will be available for inspection and copying in the
Commission's Public Reference Section, 450 Fifth Street NW.,
Washington, DC. 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-93-46 and should be
submitted by February 16, 1994.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
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\11\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-1582 Filed 1-25-94; 8:45 am]
BILLING CODE 8010-01-M
