[Federal Register Volume 64, Number 229 (Tuesday, November 30, 1999)]
[Notices]
[Pages 66947-66952]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-30977]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-42159; File No. SR-Amex-99-46]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change and Amendment No.
1 by the American Stock Exchange LLC Relating to the Listing and
Trading of Biotech HOLDRs
November 19, 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 28, 1999, the American Stock Exchange LLC (``Amex'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items and I and II below, which Items have been prepared by the
Exchange. The proposal was amended on November 1, 1999.\3\ The
Commission is publishing this notice to solicit comments on the
proposed rule change and Amendment No. 1 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\ See letter from Scott Van Hatten, Legal Counsel, Derivative
Securities, Exchange to Nancy Sanow, Senior Special Counsel,
Division of Market Regulation, Commission dated November 1, 1999
(``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 trade Biotechnology HOLDRs (``Biotech
HOLDRs''), a trust issued receipt. The text of the proposed rule change
is available at the Office of the Secretary, 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 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 Propose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Amex proposes to list for trading, pursuant to Rules 1200 et
seq., trust issued receipts that are intended to provide investors with
a flexible, cost-effective way of purchasing, holding and transferring
the securities of one or more specified companies. Trust issued
receipts are unleveraged instruments, and therefore do not possess many
of the attributes of stock index options.
Except for the composition of basket of securities deposited in the
trust, the proposed Biotech HOLDERs are structurally identical to the
Internet HOLDRs trust issued receipts previously approved for listing
and trading on the Exchange.\4\ The newly proposed trust issued
receipts will evidence beneficial ownership of the specific deposited
securities represented by the receipts. The Exchange belives that the
level risk and sale of trust/issue receipts is almost identical to the
risk involved in the purchase or sale of the common stocks represented
by the receipt. Under this proposal the Exchange anticipates listing
trust issued receipts on one or more groups of securities. The Exchange
notes that it will be required to submit a proposal, pursuant to
Section 19(b) of the Exchange Act, before it lists a trust issued
receipt on a new group of securities.
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\1\ Securities Exchange Act Release No. 41892 (September 21,
1999), 64 FR 52559 (September 29, 1999).
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(a) Description of Trust Issued Receipts
The Exchange expects that this issuance of trust issued receipts
will represent 20 companies involved in various segments of the
biotechnology industry. The proposed companies and their specific share
amounts for each round-lot of 100 trust issued receipts are set forth
in the chart below and were determined as of October 25, 1999, so that
the initial weightings of each underlying security included in the
trust approximated the relative market capitalizations of the specified
companies, subject to a maximum weight of 20%, as of that date. Because
these weightings are a function of market prices, they are expected to
change substantially over time, including during the period between the
date of this proposed rule change and the date the trust issued
receipts are issued to the public.
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Initial
Name of company Symbol Share weighting Primary trading market
amounts (percent)
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Amgen Inc............................. AMGN 20 19.58 Nasdaq.
Genetech, Inc......................... DNA 11 18.62 NYSE.
Biogen, Inc........................... BGEN 13 11.61 Nasdaq
Immunex Corporation................... IMNX 13 9.87 Nasdaq.
PE Corp-PE Biosystems Group........... PEB 8 6.33 NYSE.
Chiron Corporation.................... CHIR 18 5.77 Nasdaq.
Medlmmune, Inc........................ MEDI 4 5.10 Nasdaq.
Genzyme Corporation................... GENZ 9 4.20 Nasdaq.
BioChem Pharma Inc.................... BCHE 9 2.55 Nasdaq.
Millennium Pharmaceuticals, Inc....... MLNM 3 2.81 Nasdaq.
Affymetric, Inc....................... AFFX 2 2.36 Nasdaq.
QLT Photo Therapeutics Inc............ QLTI 2 2.01 Nasdaq.
[[Page 66948]]
Gilead Sciences, Inc.................. GILD 3 2.34 Nasdaq.
Sepracor Inc.......................... SEPR 2 1.73 Nasdaq.
IDEC Pharmaceuticals Corporation...... IDPH 2 2.41 Nasdaq.
Human Genome Sciences, Inc............ HGSI 2 1.97 Nasdaq.
ICOS Corporation...................... ICOS 3 1.05 Nasdaq.
Enzon, Inc............................ ENZN 3 1.00 Nasdaq.
Celera Genomics....................... CRA 2 0.80 Nasdaq.
ImClone Systems Incorporated.......... IMCL 3 0.89 Nasdaq.
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The companies represented in the Biotech HOLDRs meet the following
minimum criteria, which are set forth in Amex Rule 1200: (1) The
companies' common stocks are registered under Section 12 of the Act;
(2) the minimum public float of each company included in the portfolio
is at least $150,000,000; (3) each stock is either listed on a national
securities exchange or traded through the facilities of Nasdaq and is a
reported national market system security; (4) the average daily trading
volume for each stock was at least one hundred thousand shares during
the preceding 60-day trading period; (5) the average daily dollar value
of the shares traded during the preceding 60-day trading period was at
lest $1 million; and (6) the initial weighting of each stock in the
receipt was based on market capitalization, however, if on the date
such weighting is determined, a stock represented more than 20% of the
overall value of the receipt, then the amount of such stock was reduced
to no more than 20% of the receipt value. Once initially set, the
securities represented by a receipt will not change, except in
accordance with the reconstitution events described below.
Trust Issued Receipts
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 issued receipts. Trust
issued receipts are designed to allow investors to hold certain
securities investments in a single, exchange-listed and traded
instrument representing their beneficial ownership in 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.
Benefical owners of the receipts will have the same rights,
privileges and obligations as they would have if they beneficially
owned the deposited securities outside of the trust issued receipt
program. 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 declared and paid by the
issuers of the deposited securities to the trustee.
The trust will issue trust issued receipts under the depositary
trust agreement, among The Bank of New York, as trustee, Merrill Lynch
Pierce Fenner & Smith Incorporated, other depositors and the owners of
the trust issued receipts. After the initial offering, a trust may
issue additional receipts on a continuous basis when an investor
deposits the requisite securities with the trust.
A round-lot of 100 trust issued receipts represents a holder's
individual and undivided beneficial ownership interest in the whole
number of securities represented by the receipt. Trust issued receipts
may be acquired, held or transferred only in round-lot amounts (or
round-lot multiples) of 100 receipts. The amounts of deposited
securities for each round-lot of 100 trust issued receipts will be
determined at the beginning of the marketing period and will be
disclosed in the prospectus to investors. 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. 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 executed to the extent of the largest round lot multiple, rejecting
the remaining odd-lot (e.g., orders for 50 trust issued receipts will
be rejected, and for orders of 1050 trust issued receipts, 1000 will be
executed and 50 will be rejected). The initial offering price for a
trust issued receipt will be established on the date the receipts are
priced for sale to the public.
Based upon the potential for arbitrage opportunities, 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
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. If the price of the trust issued
receipts deviate 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
receipts 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.
Trust issued receipts will be deemed ``Eligible Securities,'' as
defined in Amex Rule 230, for purposes of the Intermarket Trading
System (``ITS'') Plan and therefore will be subject to the trade
through provisions of Amex Rule 236, which require that Amex members
avoid initiating trade-throughs for ITS securities. Further, specialist
transactions with the trust issued receipts' trade made in connection
with the creation and redemption of trust issued receipts will not be
subject to the prohibitions of Rule 190.\5\
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\5\ Amex Rule 190 prohibits, among other things, any business
transaction between a specialist and the company in which stock the
specialist is registered.
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Minimum Fractional Change
Trust issued receipts will trade in minimum fractional increments
pursuant to Amex Rule 127. Application of Rule 127 will result in a
minimum fractional change of \1/16\th of $1.00 for
[[Page 66949]]
those trust issued receipts selling at or above $0.25 and \1/32\nd of
$1.00 for those selling below $0.25.
Maintenance of Trust Issued Receipts
Except when a reconstitution event occurs, as described below, the
securities represented in a trust issued receipt will not change.\6\
Additionally, the number of each security represented in a receipt will
not change except for changes due to certain corporate events such as
stock splits or reverse stock splits on the deposited securities or
when a reconstitution event occurs. Under no circumstances will a new
security be added to the list of securities after a particular receipt
program is established.
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\6\ The Amex will consult with the Commission to confirm the
appropriateness of the continued listing of trust issued receipts
should the portfolio of securities held by the trust become fewer
than nine.
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The relative weightings among the deposited securities will change
based on the current market price of the deposited securities and upon
the reconstitution events discussed below. Once established, the
component securities held by the trust and represented by trust issued
receipts will not change unless an event described below occurs.
Reconstitution Events
The trust agreement provides for the automatic distribution of
specified deposited securities to the beneficial owner of such receipts
in the circumstances referred to in the prospectus as ``reconstitution
events'': (1) If a company with deposited securities evidenced by a
trust issued receipt no longer has a class of common stock registered
under Section 12 of the Securities Exchange Act of 1934, then its
securities will no longer be a deposited security and the trustee will
distribute the securities of that company to the owners of the trust
receipts; (2) if the Commission finds that a company with deposited
securities evidenced by the trust issued receipts is a company that
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 securities
of that company to the owners of the trust issued receipts; (3) if the
deposited securities of a company evidenced by a trust issued receipt
are no longer outstanding because the securities were acquired by
another company, the trustee will distribute the consideration paid by
and received from the acquiring company to the beneficial owners of
trust issued receipts, unless the consideration is additional deposited
securities (i.e., the acquiring company's securities are already
included in the trust issued receipt as deposited securities), in which
case such additional securities will be deposited into the trust; and
(4) if an underlying issuer's deposited securities are delisted from
trading on their primary exchange or market and not listed for trading
on another national securities exchange or through Nasdaq within five
business days from the date the deposited securities are delisted.\7\
If the trustee removes a deposited security from the trust due to the
occurrence of one of the reconstitution events described above, the
trustee, in accordance with the depositary trust agreement, will
deliver the deposited security to the investor as promptly as
practicable after the date that the trustee has knowledge of the
occurrence of a reconstitution event.
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\7\ This provision is designed for the purpose of permitting a
deposited security to move its listing between, for example, the
Amex and Nasdaq without requiring the automatic distribution of the
deposited security to beneficial owners of the receipts. Should
deposited securities be delisted to a market other than a national
securities exchange or Nasdaq (e.g., the OTC Bulletin Board), such
securities will be automatically distributed to the beneficial
owners of the receipts.
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The trust will issue and cancel, and an investor may obtain, hold,
trade or surrender, receipts only in a round-lot of 100 trust issued
receipts or round-lot multiples. While investors will be able to
acquire, hold, transfer and surrender a round-lot of 100 trust issued
receipts, the bid and asked prices will be quoted on a per receipt
basis.\8\ The trust will issue additional receipts on a continuous
basis when an investor deposits the required securities with the trust.
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\8\ The receipt amount will be disseminated by the Amex every 15
seconds over the Consolidated Tape Association's Network B.
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A holder may obtain trust issued receipts by either purchasing them
on the Exchange or delivering to the trust during its normal business
hours the requisite securities evidencing a trust issued receipt. The
trustee will charge an issuance fee of up to $10.00 per 100 trust
issued receipts. If a holder wants to cancel trust issued receipts and
withdraw the deposited securities, the holder may do so by surrendering
the receipts to the trust during normal business hours. The trustee
will charge a cancellation fee of up to $10.00 per 100 trust issued
receipts. The holder should receive the deposited securities no later
than the business day after the trustee receives the request.
Termination of the Trust
The trust shall terminate upon the earlier of: (i) The removal of
the receipts from Amex listing if they are not listed for trading on
another national securities exchange or through the facilities of
Nasdaq within five business days from the date the receipts are
delisted; (ii) the trustee resigns and no successor trustee is
appointed within 60 days from the date the trustee provides notice to
the initial depositor of its intent to resign; (iii) 75 percent of
beneficial owners of outstanding trust issued receipts vote to dissolve
and liquidate the trust; or (iv) December 31, 2039. If a termination
event occurs, the trustee will distribute the underlying securities to
the investor as promptly as practicable after the termination event.
(b) Criteria for Initial and Continued Listing
Because of the continuous issuance and cancellation of trust issued
receipts, the Exchange believes that it is necessary to maintain
appropriate flexibility in connection with listing a specific trust. In
connection with initial listing, the Exchange proposes that, for each
trust, the Exchange will establish a minimum number of receipts
required to be outstanding at the time of commencement of Exchange
trading, and such minimum number will be filed with the Commission in
connection with any required submission under Rule 19b-4 under the Act
for each trust. It is anticipated that a minimum of 150,000 receipts
will be required to be outstanding when trading begins.
Because of the continuous issuance and cancellation of trust issued
receipts, and because the number of holders is subject to substantial
fluctuations depending on market conditions, the Exchange believes that
it would be inappropriate and burdensome on trust issued receipt
holders to consider suspending trading in or delisting a series of
receipts with the consequent termination of the trust, unless the
number of holders remains severely depressed over an extended time
period. Therefore, the Exchange will consider suspending or delisting a
trust from trading when, in its opinion, further dealing in such
securities appears unwarranted under the following circumstances:
(i) If the trust has more than 60 days remaining until termination
and there have been fewer than 50 record and/or beneficial holders of
the trust issued receipts for 30 or more consecutive trading days;
[[Page 66950]]
(ii) if the aggregate number of trust issued receipts outstanding
is less than 50,000;
(iii) if the aggregate market value of trust issued receipts
publicly held is less than $1,000,000; or
(iv) if such other event shall occur or condition exists which in
the opinion of the Exchange, makes further dealings on the Exchange
inadvisable.
However, the Exchange will not 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.
(c) Exchange Rules Applicable to the Trading of Trust Issued Receipts
Trust issued receipts will be deemed equity securities subject to
all Amex rules governing the trading of equity securities, including,
among others, rules governing priority, parity and precedence of
orders, responsibilities of the specialist, account opening and
customer suitability (Amex Rule 411), and the election, with the prior
approval of a floor official, of a stop or limit order by a quotation
(Amex Rule 154, Commentary .04(c)). Initial Exchange equity margin
requirements of 50 percent and the regular equity trading hours of 9:30
am to 4:00 pm will apply to transactions in trust issued receipts.
However, trading rules pertaining to the availability of odd-lot
trading in Amex equities will not apply to the trading of trust issued
receipts, because they can only be traded in round-lots. The Amex
applied for exemption from the short sale rate, Rule 10a-1 under the
Act,\9\ for Internet HOLDRs, which was granted on November 3, 1999.\10\
This exemption applies to Biotech HOLDRs as well. The Exchange will
issue a notice to its members detailing the terms of the exemption.
Amex's surveillance procedures for trust issued receipts will be
similar to those used for portfolio depositary receipts and will
incorporate and rely upon existing Amex surveillance procedures
governing options and equities.
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\9\ 17 CFR 240.10a-1.
\10\ See Letter to Claire P. McGrath, Vice President and Special
Counsel Derivative Securities, from James A. Brigagliano, Assistant
Director, Division of Market Regulation, SEC, dated November 3,
1999.
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With respect to investor disclosure, the Exchange notes that all
investors is 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
Amex members purchasing trust issued receipts from the trust for resale
to customers will deliver a prospectus to such customers.
Prior to the commencement of trading in trust issued receipts, the
Exchange will issue a circular to members informing them of, among
other things, Exchange policies regarding trading halts in such
securities. First, the circular will advise that trading will be halted
in the event the market volatility trading halt parameters set forth in
Rule 117 have been reached. Second, the circular will advise that, in
addition to other factors that may be relevant, the Exchange may
consider factors such as the extent to which trading is not occurring
in a deposited share(s) and whether other unusual conditions or
circumstances detrimental to the maintenance of a fair and orderly
market are present.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b)(5) \11\ of
the Act in 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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\11\ 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, 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 will also be available for inspection and copying at the
principal office of the Exchange. All submissions should refer to File
No. SR-Amex-99-46 and should be submitted by December 21, 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 the Act and the rules and
regulations thereunder applicable to a national securities exchange,
and in particular, with the requirements of Section 6(b)(5).\12\
Specifically, the Commission finds, as it did in the Amex order
approving the listing and trading of trust issued receipts generally,
and Internet HOLDRs specifically, that the proposal to list and trade
Biotech HOLDRs will provide investors with a convenient and less
expensive way of participating in the securities markets. The
Exchange's proposal should advance the public interest by providing
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. Accordingly, the
Commission finds that the Exchange's 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, protect investors and the public interest, and is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.\13\
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\12\ 15 U.S.C. 78f(b)(5).
\13\ In approving this rule, the Commission notes that it has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
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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 at
negotiated prices. Trust issued receipts will allow investors to: (1)
Respond quickly to changes in the overall securities markets generally
and for the
[[Page 66951]]
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 investor 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 many 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.\14\ Nevertheless, the Commission
believes that the unique nature of trust issued receipts raises certain
product design, disclosure, trading, and other issues that must be
addressed.
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\14\ The Commission has concerns about continued listing of the
trust issued receipts if the number of component securities falls to
a level below nine securities, because the receipts may no longer
adequately reflect a cross section of the selected industry.
Accordingly, the Amex has agreed to consult the Commission, once the
trust has fewer than nine component securities, and for each
subsequent loss of a security thereafter.
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B. Listing and Trading of Trust Issued Receipts
The Commission finds that the Amex's proposal, as amended, to trade
Biotech HOLDRs meets all of the specific criteria and listing standards
that were approved in the Amex order approving the listing and trading
of Internet HOLDRs.\15\ Biotech HOLDRs are equity securities that will
be subject to the full panoply of Amex rules governing the trading of
equity securities on the Amex, 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.\16\
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\15\ See supra, note 3.
\16\ 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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Moreover, in approving this proposal, the Commission notes the
Exchange's representation that Biotech HOLDRs 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 Biotech HOLDRs in minimum fractional increments of \1/16\th 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 Amex has developed surveillance procedures for trust
issued receipts that incorporate and rely upon existing Amex
surveillance procedures governing equities. The Commission believes
that these surveillance procedures are adequate to address concerns
associated with listing and trading of Biotech HOLDRs, 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, as amended,
will ensure that investors have information that will allow them to be
adequately apprised of the terms, characteristics, and risks of trading
trust issued receipts. The prospectus will address the special
characteristics of Biotech HOLDRs, including a statement regarding
their redeemability and method of creation. The Commission notes that
all investors in Biotech HOLDRs who purchase in the initial offering
will receive a prospectus. In addition, anyone purchasing Biotech
HOLDRs directly from the trust (by delivering the underlying securities
to the trust) will also receive a prospectus. Finally, all Amex member
firms who purchase Biotech HOLDRs 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 or this type of
security. The circular will note the Exchange members' prospectus
delivery requirements, and highlight the characteristics of Biotech
HOLDRs. The circular will inform members of Exchange policies regarding
trading halts in Biotech HOLDRs.
D. Accelerated Approval
Amex 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 Biotech HOLDRS, will
provide investors with a convenient and less expensive way of
participating in the securities markets. Specifically, the Commission
believes that by increasing the availability of trust issued receipts,
and in particular Biotech HOLDRs, as an investment tool, the Amex's
proposal should help provide investors with increased flexibility in
satisfying their investment needs. This is achieved by allowing
investors 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 of Biotech HOLDRs, other
similarly structured products, including trust issued receipts based on
other industries, will require review by the Commission prior to being
listed and traded on the Exchange. Moreover, additional series cannot
be listed prior to the Exchange contacting Division staff. Finally, the
Amex may be required to submit a rule filing prior to listing and
trading a new issue or series of trust issued receipts on the Exchange.
The Commission believes that the trading of this product raises no
new regulatory issues and, except for the composition of securities
deposited in trust, the Biotech HOLDRs are structurally the same as the
Internet HOLDRs trust receipts previously approved by the Commission
for listing and trading on the Amex. 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 the notice of filing
thereof in the Federal Register.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\17\ that the proposed rule change (SR-Amex-99-46), as amended, us
hereby approved on an accelerated basis.
\17\ 15 U.S.C. 78s(b)(2).
[[Page 66952]]
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-30977 Filed 11-29-99; 8:45 am]
BILLING CODE 8010-01-M
