[Federal Register Volume 64, Number 210 (Monday, November 1, 1999)]
[Notices]
[Pages 58870-58875]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-28457]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-42056; File No. SR-CHX-99-22]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change and Amendment
Nos. 1, 2 and 3 by the Chicago Stock Exchange, Inc., Relating to
Listing Standards for Trust Issued Receipts
October 22, 1999.
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 October 7, 1999, the Chicago Stock Exchange, Inc.,
(``CHX'' or ``Exchange'') filed with the Securities and Exchange
Commission (``SEC'' or ``Commission'') the proposed rule change as
described in Items I and II below, which Items have been prepared by
the Exchange. Amendment Nos. 1, 2, and 3 were filed on October 13, 15,
and 20, 1999, respectively.3 The Commission is publishing
this notice to solicit comments on the proposed rule change and
Amendment Nos. 1, 2, and 3 from interested persons and to grant
accelerated approval to the proposed rule change, as amended.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Amendment No. 1 added new text regarding the arbitrage
process and the trust issued receipt's trading price. Amendment No.
2 added additional minimum listing requirements for securities to
qualify for inclusion in a trust issued receipt. Amendment No. 3
changed the figure for initial distribution of Internet HOLDRs from
150,000 to approximately 3.7 million. See Letters from Paul B.
O'Kelly, Executive Vice President, Market Regulation and Legal, CHX,
to Heather Traeger, Attorney, Division of Market Regulation, SEC,
dated October 13, 1999, October 15, 1999 and October 20, 1999.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Exchange proposes to add a new Rule 27 to Article XXVIII of the
Exchange's rules to adopt listing standards for trust receipts. Once
these listing standards have been approved, the Exchange intends to
trade Internet Holding Company Depository Receipts (``Internet
HOLDRs''), a trust issued receipt. The Exchange also proposes to trade
Internet HOLDRs pursuant to unlisted trading privileges (``UTP''). The
text of the proposed rule change is available at the Office of the
Secretary, CHX 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 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 is proposing listing criteria to allow the Exchange to
list trust issued receipts, and to trade Internet HOLDRs, a type of
trust issued receipt, pursuant to UTP. The Exchange represents that
trust issued receipts provide investors with a flexible, cost-effective
way to purchase, hold and transfer the securities of one or more
specified companies.
a. Trust Issued Receipts Generally.--Description. Trust issued
receipts are negotiable receipts which are issued by a trust
representing securities of issuers that have been deposited and are
held on behalf of the holders of the trust
[[Page 58871]]
issued receipts. Trust issued receipts allow investors to hold
securities investments from a variety of companies throughout a
particular industry in a single, exchange-listed and traded instrument
that represents their beneficial ownership of each of the deposited
securities. Holders of trust issued receipts maintain beneficial
ownership of each of the deposited securities evidenced by trust issued
receipts. Holders may cancel their trust issued receipts at any time to
receive the deposited securities.
Beneficial owners of the receipts have the same rights, privileges
and obligations as they would have if they benefically owned the
deposited securities outside of the trust issued receipt program. For
example, holders of the receipts have the right to instruct the trustee
to vote the deposited securities evidenced by the receipts; will
receive reports, proxies and other information distributed by the
issuers of the deposited securities to their security holders; and will
receive dividends and other distributions if any are declared and paid
by the issuers of the deposited securities to the trustee.
Creation of a trust. Trust issued receipts will be issued by a
trust created pursuant to a depository trust agreement. After the
initial offering, the trust may issue additional receipts on a
continuous basis when an investor deposits the requisite securities
with the trust. An investor in trust issued receipts will be permitted
to withdraw his or her deposited securities upon delivery to the
trustee of one or more round-lots of 100 trust issued receipts and to
deposit such securities to receive trust issued receipts.
b. Criteria for Initial and Continued Listing. The Exchange
believes that the listing criteria proposed in its new rule are
generally consistent with the ``Other Securities'' criteria currently
found in Article XXVIII, Rule 13 of the CHX Rules as well as the trust
issued receipt listing criteria currently used by the American Stock
Exchange.\4\
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\4\ The American Stock Exchange's (``Amex'') listing criteria
were approved by the Commission on September 21, 1999. See
Securities Exchange Act Release No. 41892 (September 21, 1999), 64
FR 52559 (September 29, 1999).
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Initial Listing. Under the proposed rule, if trust issued receipts
are to be listed on the Exchange, the Exchange will establish a minimum
number of trust issued receipts required to be outstanding at the time
trading commences on the Exchange and will include that number in any
required submission to the Commission.
Continued Listing. The Exchange will consider the suspension of
trading in, or removal from listing of, a trust upon which a series of
trust issued receipts is based when any of the following circumstances
arise: (1) If the trust has more than 60 days remaining until
termination and there are fewer than 50 record and/or beneficial
holders of the trust issued receipts for 30 or more consecutive trading
days; (2) if the trust has fewer than 50,000 receipts issued and
outstanding; (3) if the market value of all receipts issued and
outstanding is less than $1,000,000; or (4) if any other event occurs,
or any other condition exists, which, in the opinion of the Exchange,
makes further trading on the Exchange inadvisable. These flexible
criteria allow the Exchange to avoid delisting trust issued receipts
(leading to a possible termination of the trust) because of relatively
brief fluctuations in market conditions that may cause the number of
holders to vary.
The Exchange will not, however, be required to suspend or delist
from trading, based on the above factors, any trust issued receipts for
a period of one year after the initial listing of such trust issued
receipts for trading on the Exchange. Notwithstanding, in the first
year and thereafter, if the number of companies represented by the
deposited securities drops to less than nine, and each time thereafter
the number of companies is reduced, the Exchange will consult with the
Commission to confirm the appropriateness of continued listing of the
trust issued receipts.
c. Exchange Rules Applicable to the Trading of Trust Issued
Receipts. Trust issued receipts are considered ``securities'' under the
Rules of the Exchange and are subject to all applicable trading rules,
including the provisions of Article XX, Rule 40, ITS Trade-Throughs and
Locked Markets, which prohibit CHX members from initiating trade-
throughs for ITS securities, as well as rules governing priority,
parity and precedence of orders, market volatility-related trading halt
provisions and responsibilities of the assigned specialist firm.\5\
Exchange equity margin rules will apply.
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\5\ There are two possible exceptions to this general rule.
First, if trust issued receipts are traded only in round lots (or
round-lot multiples), the Exchange's rules relating to odd-lot
executions will not apply. Additionally, the Exchange understands
that application for exemption from the short sale rule, Rule 10a-1
under the Act, 17 CFR 240.10a-1, has been made with respect to
Internet HOLDRs and is currently pending with the Commission. If
that request is granted and if it applies to trust issued receipts
traded on the Exchange, the Exchange will issue a notice to its
members detailing the terms of the exemption and confirming that
applicable CHX rules relating to short sales do not apply.
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Trust issued receipts will trade in the minimum fractional
increments described in CHX Article XX, Rule 22. If the trust issued
receipts are also traded on the American Stock Exchange, those receipts
will trade at a minimum variation of 1/16th of $1.00 for trust issued
receipts selling at or above $.25 and 1/32nd of $1.00 for those selling
below $.25. If the trust issued receipts are traded on any other
exchange or are exclusively listed on the CHX, different minimum
fractional increments may apply.
The Exchange's surveillance procedures for trust issued receipts
will be similar to the procedures used for portfolio depositary
receipts and will incorporate and rely upon existing CHX surveillance
systems.
Prior to the commencement of trading of each new trust issued
receipt, the Exchange will distribute a circular to its members and
member organizations alerting them to the unique characteristics of
trust issued receipts, including the fact that trust issued receipts
are not individually redeemable. The circular will also confirm that
trust issued receipts are subject to the Exchange's rule relating to
trading halts due to extraordinary market volatility (Article IX, Rule
10A) and that the underlying securities included in the trust are
subject to the Exchange's rule which allows Exchange officials to halt
trading in specific securities, under certain circumstances (Article
IX, Rule 10(b)). The circular will advise members that, in exercising
the discretion described in Article IX, Rule 10(b), appropriate
Exchange officials may consider a variety of factors, including the
event to which trading is not occurring in an underlying security and
whether other unusual conditions or circumstances detrimental to the
maintenance of a fair and orderly market are present.
d. Disclosure to Customers. The Exchange will require its members
to provide all purchasers of newly issued trust issues receipts with a
prospectus for that series of trust issued receipts.
e. Trading of Internet HOLDRs. As noted above, upon approval of the
CHX's listing standards for trust issued receipts, the Exchange intends
to begin trading a particular series of trust issued receipts, Internet
HOLDRs pursuant to UTP privileges. The following section of this
submission contains information about Internet HOLDRs. This information
is based upon descriptions included in the Internet HOLDRs prospectus,
the Internet HOLDRs depositary trust agreement, the Amex submissions
relating to its trust issued receipt listing proposal and the
[[Page 58872]]
Commission's order approving the Amex proposal.\6\
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\6\See supra, note 4.
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Creation of Internet HOLDRs. Internet HOLDRs will be issued by the
Internet HOLDRs Trust, which was created pursuant to a depositary trust
agreement dated September 2, 1999, among The Bank of New York, as
trustee, Merrill Lynch Pierce Fenner & Smith Incorporated, other
depositors and the owners of the Internet HOLDRs. The Exchange
understands that approximately 3.7 million trust issued receipts were
issued in connection with the initial distribution of Internet HOLDRs.
The deposited securities underlying Internet HOLDRs are: America
Online (AOL), Yahoo Inc. (YHOO), Amazon.com Inc. (AMZN), eBay Inc.
(EBY), At Home Corp. (ATHM), PricelineCom Inc. (PCLIN), CMGI Inc.
(CMGI), Inktomi Corporation (INKT), RealNetworks, Inc. (RNWK), Exodus
Communications, Inc. (EXDS), E*TRADE Group Inc. (EGRP), DoubleClick
Inc. (DCLK), Ameritrade Holding Corp. (AMTD), Lycos, Inc. (LCOS), CNET,
Inc. (CNET), PSINet Inc. (PSIX), Network Associates, Inc. (NETA),
Earthlink Network, Inc. (ELNK), Mindspring Enterprises, Inc. (MSPG),
and Go2NET, Inc. (GNET).
The twenty companies represented by the securities in the portfolio
underlying the Internet HOLDRs trust were required to meet the
following minimum criteria when they were selected on August 31, 1999:
(1) each company's common stock must be registered under Section 12 of
the Exchange Act; (2) the minimum public float of each company included
in the portfolio must be at least $150 million; (3) each security must
be either listed on a national securities exchange or traded through
the facilities of Nasdaq and reported national market system
securities; (4) the average daily trading volume must be at least
100,000 shares during the preceding sixty-day period; and (5) the
average daily dollar value of the shares traded during the preceding
sixty-day period must be at least $1 million. the initial weighting of
each security in the portfolio was based on its market capitalization
as of August 31, 1999; however, any security that represented more than
20% of the overall value of the receipt on the date the weighting was
determined, was reduced to no more than 20% of the receipt value.
In addition, each of the companies whose common stock is included
in the Internet HOLDRs also met the following criteria: (1) the market
capitalization for each company was equal to or greater than $1
billion; (2) the average daily trading volume for each security was at
least 1.2 million shares over the 60 trading days prior to August 31,
1999; (3) the average daily dollar volume of the shares traded for each
company during the sixty-day trading period prior to August 31, 1999
was at least $60 million; and (4) each company was traded on a national
securities exchange or Nasdaq/NM for at least ninety days prior to
August 31, 1999.
Trading Issues. A round lot of 100 Internet HOLDRs represents a
holder's individual and undivided beneficial ownership interest in the
whole number of securities represented by the receipt. Because Internet
HOLDRs may be acquired held or transferred only in round-lot amounts
(or round-lot multiples) of 100 receipts, orders for less than a round
lot will be rejected, while orders for greater than a round lot (but
not a round-lot multiple) will be filled to the extent of the largest
round lot multiple, rejecting the remaining odd lot.\7\
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\7\ For example, an order for 50 trust issued receipts will be
rejected and an order for 1050 trust issued receipts will be
executed in part (1,000) and rejected in part (50).
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The Exchange believes that trust issued receipts will not trade at
a material discount or premium to the assets held by the issuing trust.
The Exchange represents that the arbitrage process--which provides the
opportunity to profit from differences in prices of the same or similar
securities (e.g., the trust issued receipts and the portfolio of
deposited securities), increases the efficiency of the markets and
serves to prevent potentially manipulative efforts--should promote
correlative pricing between the trust issued receipts and the deposited
securities. If the price of the trust issued receipt deviates enough
from the portfolio of deposited securities to create a material
discount or premium, an arbitrage opportunity is created allowing the
arbitrageur to either buy the trust issued receipt at a discount,
immediately cancel them in exchange for the deposited securities and
sell the shares in the cash market at a profit, or sell the trust
issued receipts short at a premium and buy the securities represented
by the receipts to deposit in exchange for the trust issued receipts to
deliver against the short position. In both instances, the arbitrageur
locks in a profit and the markets move back into line.
Maintenance of the Internet HOLDRs Portfolio. Except when a
reconstitution event occurs, as described below, the securities
represented by a trust issued receipt will not change.\8\ According to
the Internet HOLDRs prospectus, under no circumstances will a new
company be added to the group of issuers of the underlying securities
and weightings of component securities will not be adjusted after they
are initially set.
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\8\ Even if a reconstitution event does not occur, the number of
each security represented in a receipt may change due to certain
corporate events such as stock splits or reverse stock splits on the
deposited securities and the relative weightings among the deposited
securities may change based on the current market price of the
deposited securities.
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Reconstitution Events. As described in the Internet HOLDRs
prospectus, the securities underlying the trust issued receipts will be
automatically distributed to the beneficial owners of the receipts in
four circumstances:
(1) If the issuer of the underlying securities no longer has a
class of common stock registered under Section 12 of the Act, then its
securities will no longer be an underlying security and the trustee
will distribute the shares of that company to the owners of the trust
issued receipts;
(2) If the Commission finds that an issuer of underlying securities
should be registered as an investment company under the Investment
Company Act of 1940, and the trustee has actual knowledge of the
Commission's finding, then the trustee will distribute the shares of
that company to the owners of the trust issued receipts;
(3) If the underlying securities of an issuer cease to be
outstanding as a result of a merger, consolidation or other corporate
combination, the trustee will distribute the consideration paid by and
received from the acquiring company to the beneficial owners of the
trust issued receipts, unless the acquiring company's securities are
already included in the trust issued receipts as deposited securities
and the consideration paid is additional underlying securities, in
which case the additional securities will be deposited into the trust;
and
(4) If an issuer's underlying securities are delisted from trading
on a national securities exchange or Nasdaq and are not listed for
trading on another national securities exchange or through Nasdaq
within five business days from the date the securities are delisted.
As described in the prospectus, if a reconstitution event occurs,
the trustee will deliver the underlying security to the investor as
promptly as practicable after the date that the trustee has knowledge
of the occurrence of a reconstitution event.
Issuance and Cancellation of Internet HOLDRs. The trust will issue
and cancel, and an investor may obtain, hold, trade and surrender,
Internet
[[Page 58873]]
HOLDRs only in a round lot of 100 trust issued receipts and round-lot
multiples. Nevertheless, the bid and asked prices will be quoted on a
per receipt basis. The trust will issue additional receipts on a
continuous basis when an investor deposits the required securities with
the trust.
An investor may obtain trust issued receipts by either purchasing
them on an exchange or by delivering to the trustee the underlying
securities evidencing a round lot of trust issued receipts. The trustee
will charge investors an issuance fee of up to $10 for each round lot
of 100 trust issued receipts. An investor may cancel trust issued
receipts and withdraw the deposited securities by delivering a round
lot or round-lot multiple of the trust issued receipts to the trustee,
during normal business hours. The trustee will charge investors a
cancellation fee of up to $10 for each round lot of 100 trust issued
receipts. Lower charges may be assigned based on the volume, frequency
and size of issuances and cancellations. According to the prospectus,
the trustee expects that, in most cases, it will deliver the deposited
securities within one business day of the withdrawal request.
Termination of the Trust. As described in the Internet HOLDRs
prospectus, the trust will terminate on the earliest of the following
occurrences: (1) If the trustee resigns and no successor trustee is
appointed by the initial depositor within 60 days from the date the
trustee provides notice to the initial depositor of its intent to
resign; (2) If the trust issued receipts are delisted from the Amex and
are not listed for trading on another national securities exchange or
through Nasdaq within five business days from the date the receipts are
delisted; (3) If 75% of the beneficial owners of outstanding trust
issued receipts (other than Merrill Lynch, Pierce, Fenner & Smith
Incorporated) vote to dissolve and liquidate the trust; or (4) December
31, 2039. If a termination event occurs, the trustee will distribute
the underlying securities to beneficial owners as promptly as
practicable after the termination event.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b)(5) \9\ of
the Act is that it is designed 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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\9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule 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 either solicited or received.
III. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change, as amended, is consistent with the Act. Persons making written
submissions should file six copies thereof with the Secretary,
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549-0609. 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 will also be available for inspection and copying at the
principal office of the Exchange. All submissions should refer to File
No. SR-CHX-99-22 and should be submitted by November 22, 1999.
IV. Commission's Findings and Order Granting Accelerated Approval
of Proposed Rule Change
A. Generally
The Commission finds that the proposed rule change,as amended, is
consistent with the requirements of Section 6(b)(5) of a the Act \10\
and the rules and regulations thereunder applicable to a national
securities exchange. Specifically, the Commission finds, as it did in
the Amex order approving the listing and trading of trust issued
receipts and Internet HOLDRs,\11\ that the proposal establishing
listing standards for trust issued receipts and to trade Internet
HOLDRs will provide investors with a convenient and less expensive way
of participating in the securities markets. The proposal should advance
the public interest by providing investors with increased flexibility
in satisfying their investment needs allowing them to purchase and sell
a single security replicating the performance of a broad portfolio of
stocks at negotiated prices throughout the business day. Accordingly,
the Commission finds that the proposal will facilitate transactions in
securities, 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, and is not designed to
permit unfair discrimination between customers, issuers, brokers, or
dealers.\12\
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\10\ 15 U.S.C. 78f(b)(5).
\11\ See supra, note 4.
\12\ In approving this rule, the Commission notes that it has
also considered the proposed rule's impact on efficiency,
competition, and capital formation. 15 U.S.C. 78c(f).
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As noted in the Amex approval order, the Commission believes that
trust issued receipts will provide investors with an alternative to
trading a broad range of securities on an individual basis, and will
give investors the ability to trade trust issued receipts representing
a portfolio of securities continuously throughout the business day in
secondary market transactions negotiated prices. Trust issue receipts
will allow investors to: (1) Respond quickly to changes in the overall
securities markets generally and for the industry represented by a
particular trust; (2) trade, at a price disseminated on a continuous
basis, a single security representing a portfolio of securities that
the investors owns beneficially; (3) engage in hedging strategies
similar to those used by institutional investors; (4) reduce
transaction costs for trading a portfolio of securities; and (5) retain
beneficial ownership of the securities underlying the trust issued
receipts.
Although trust issued receipts are not leveraged instruments, and,
therefore, do not possess any of the attributes of stock index options,
their prices will be derived and based upon the securities held in
their respective trusts. Accordingly, the level of risk involved in the
purchase or sale of trust issued receipts is similar to the risk
involved in the purchase or sale of traditional common stock, with the
exception that the pricing mechanism for trust issued receipts is based
on a basket of securities.\13\ Nevertheless, the
[[Page 58874]]
Commission believes that the unique nature of trust issued receipts
raises certain product design, disclosure, trading, and other issues.
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\13\ The Commission has concerns about continued trading of the
trust receipts whether listed or pursuant to UTP, if the number of
component securities falls to a level below nine securities, because
the receipts may not longer adequately reflect a cross section of
the selected industry. Accordingly, the CHX has agreed to consult
the Commission concerning continued trading, once the trust has
fewer than nine component securities, and for each subsequent loss
of a security thereafter.
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B. Trading of Trust Issued Receipts--Listing and UTP
The Commission finds that the CHX's proposal contains adequate
rules and procedures to govern the trading of trust issued receipts
whether by listing or pursuant to UTP. Trust issued receipts are equity
securities that will be subject to the full panoply of CHX rules
governing the trading of equity securities on the CHX, including, among
others, rules governing the priority, parity and precedence of orders,
responsibilities of the specialist, account opening and customer
suitability requirements, and the election of a stop or limit
order.\14\
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\14\ Trading rules pertaining to the availability of odd-lot
trading do not apply because trust issued receipts only can be
traded in round-lots.
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In addition, the CHX has developed specific listing and delisting
criteria for trust issued receipts that will help to ensure that a
minimum level of liquidity will exist for trust issued receipts to
allow for the maintenance of fair and orderly markets. The delisting
criteria also allows the CHX to consider the suspension of trading and
the delisting of a trust issued receipt if an event occurred that made
further dealings in such securities inadvisable. This will give the CHX
flexibility to delist trust issued receipts if circumstances warrant
such action. CHX's proposal also provides procedures to halt trading in
trust issued receipts in certain enumerated circumstances.
Moreover, in approving this proposal, the Commission notes the
Exchange's belief that trust issued receipts will not trade at a
material discount or premium in relation to the overall value of the
trusts' assets because of potential arbitrage opportunities. The
Exchange represents that the potential for arbitrage should keep the
market price of a trust issued receipt comparable to the overall value
of the deposited securities.
Furthermore, the Commission believes that the Exchange's proposal
to trade trust issued receipts in minimum fractional increments of 1/
16th of $1.00 is consistent with the Act. The Commission believes that
such trading should enhance market liquidity, and should promote more
accurate pricing, tighter quotations, and reduced price fluctuations.
The Commission also believes that such trading should allow customers
to receive the best possible execution of their transactions in trust
issued receipts.
Finally, the CHX will apply surveillance procedures for trust
issued receipts that will be similar to the procedures used for
portfolio depositary receipts and will incorporate and rely upon
existing CHX surveillance procedures governing equities. The Commission
believes that these surveillance procedures are adequate to address
concerns associated with listing and trading trust issued receipts,
including any concerns associated with purchasing and redeeming round-
lots of 100 receipts. Accordingly, the Commission believes that the
rules governing the trading of trust issued receipts provide adequate
safeguards to prevent manipulative acts and practices and to protect
investors and the public interest.
C. Disclosure and Dissemination of Information
The Commission believes that the Exchange's proposal will ensure
that investors have information that will allow them to be adequately
apprised of the terms, characteristics, and risk of trading trust
issued receipts. The prospectus will address the special
characteristics of a particular trust issued receipt basket, including
a statement regarding its redeemability and method of creation. The
Commission notes that all investors in trust issued receipts who
purchase in the initial offering will receive a prospectus. In
addition, anyone purchasing a trust issued receipt directly from the
trust (by delivering the underlying securities to the trust) will also
receive a prospectus. Finally, all CHX member firms who purchase trust
issued receipts from the trust for resale to customers must deliver a
prospectus to such customers.
The Commission also notes that upon the initial listing of any
trust issued receipts, the Exchange will issue a circular to its
members explaining the unique characteristics and risks of this type of
security. The circular also will note the Exchange members' prospectus
delivery requirements, and highlight the characteristics of purchases
in trust issued receipts. The circular also will inform members of
Exchange policies regarding trading halts in trust issued receipts.
CHX has requested that the Commission find good cause for approving
the proposed rule change prior to the thirtieth day after the date of
publication of notice in the Federal Register. The Commission believes
that the Exchange's proposal to trade trust issued receipts, and
specifically Internet HOLDRs pursuant to UTP privileges, will provide
investors with a convenient and less expensive way of participating in
the securities markets. The Commission believes that the proposed rule
change could produce added benefits to investors through the increased
competition between other market centers trading the product.
Specifically, the Commission believes that by increasing the
availability of trust issued receipts, and in particular Internet
HOLDRs, as an investment tool, the CHX's proposal should help provide
investors with increased flexibility in satisfying their investment
needs, by allowing them to purchase and sell a single security
replicating the performance of a broad portfolio of stocks at
negotiated prices throughout the business day. The Commission notes,
however, that notwithstanding approval of the listing standards for
trust issued receipts, other similarly structured products, including
trust issued receipts based on other industries, will require review by
the Commission prior to being traded on the Exchange. Additional series
cannot be listed by the Exchange prior to contacting Division staff. In
addition, the CHX may be required to submit a rule filing prior to
trading a new issue or series on the Exchange.
As noted above, the Commission has approved the listing and trading
of trust issued receipts, including Internet HOLDs, at the Amex, under
rules that are substantially similar to CHX Article XXVII, rule 27. The
trading requirements of trust issued receipts at the CHX will be
substantially similar to the trading requirements of trust issued
receipts at the Amex. The Commission published those rules in the
Federal Register for the full notice and comment period. No comments
were received on the proposed rules, and the Commission found them
consistent with the Act.\15\ The Commission does not believe that
trading of this product raises novel regulatory issues that were not
addressed in the previous filing. Accordingly, the Commission finds
good cause for approving the proposed rule change, as amended, prior to
the thirtieth day after the date of publication of notice in the
Federal Register.
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\15\ See Securities Exchange Act Release No. 48192 (September
21, 1999), 64 FR 52559 (September 29, 1999).
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\16\ that the proposed rule change (SR-CHX-99-22),
[[Page 58875]]
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as amended, is hereby approved on an accelerated basis.
\16\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-28457 Filed 10-29-99; 8:45 am]
BILLING CODE 8010-01-M
