[Federal Register Volume 63, Number 22 (Tuesday, February 3, 1998)]
[Notices]
[Pages 5577-5579]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-2526]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39580; File No. SR-Amex-97-48]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by American Stock Exchange, Inc. Relating to Listing and Trading
of Index Warrants on the Merrill Lynch 1998 Equity Focus Index
January 26, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on December 22, 1997, the American Stock Exchange, Inc. (``Amex'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the Amex.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Amex proposes to approve for listing and trading index warrants
based on the Merrill Lynch 1998 Equity Focus Index (``Index''), an
equal-dollar weighted index developed by Merrill Lynch, Pierce, Fenner
& Smith, Inc. comprised of stocks (or American Depositary Receipts
(``ADRs'') thereon) which are traded on the New York Stock Exchange
(``NYSE'') or through the facilities of the National Association of
Securities Dealers Automated Quotation system (``NASDAQ''). 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 Amex included statements
concerning the purpose of and basis for the
[[Page 5578]]
proposed rule change and discussed any comments it received on the
proposed rule change. The text of these statements may be examined at
the places specified in Item IV below. The Amex has prepared summaries,
set forth in sections A, B, and C below, of the most significant
aspects of such statements.
A. Self Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
Under Section 106, Currency and Index Warrants, of the Amex Company
Guide, the Exchange may approve for listing index warrants based on
foreign and domestic market indices. The Exchange represents that
listing and trading of warrants on the Index will comply in all
respects to Amex 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 must have tangible net worth in excess of $250,000,000 and
otherwise substantially exceed the earnings requirements of Section
101(A) of the Company Guide or meet the alternate criteria set forth in
paragraph (a); (2) the term of the warrants shall be for a period
ranging from one to three years from date of issuance; and (3) the
minimum public distribution of such issues must be 1,000,000 warrants,
together with a minimum of 400 public holders, and 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 index level. 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
index level. If ``out-of-the-money'' at the time of expiration, the
warrants would expire worthless. In addition, the Amex, prior to the
commencement of trading, will distribute a circular to its membership
calling attention to specific risks associated with warrants on the
Index.
The Index
The Amex is proposing to list index warrants based on the Index, an
equal-dollar weighted Index developed by Merrill Lynch, Pierce, Fenner
& Smith Incorporated representing a portfolio of large, actively traded
stocks representing various industries. According to the Amex, the
total market capitalization of the Index totaled $380 billion on
December 10, 1997. The median capitalization of the companies in the
Index on that date was $9.4 billion and the average market
capitalization of these companies was $22 billion. The individual
market capitalization of the companies ranged from $1.7 billion to $106
billion. Minimum monthly trading volume in the Index stocks ranged from
approximately 330,000 shares to 54.4 million shares during the six
month period from June through November 1997. According to the
Exchange, 15 of the Index's 17 component securities meet the current
criteria for standardized options trading set forth in Rule 915. Only
two component securities, Telecom Italia SpA and Toyota Motor
Corporation, are represented by ADRs and in both instances,
comprehensive surveillance sharing arrangements are in place with the
appropriate regulatory authorities in each relevant country. The Amex
represents that no component security represents more than 25% of the
weight of the index and the five highest weighted securities do not
account for more than 50% of the weight of the Index.
The Index is calculated using an ``equal-dollar weighting''
methodology designed to ensure that each of the component securities is
initially represented in an approximately ``equal'' dollar amount in
the Index. 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
at that time. 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 17 companies included in the Index will
present approximately 5.882 percent of the weight of the Index at the
time of issuance of the warrant The Index multipliers will be
determined to yield an Index value of 100.00 on the date the warrant is
priced for initial offering to the public.
As noted above, the multiplier of each of the 17 component stocks
in the Index portfolio remains fixed except in the event of certain
types of corporate actions. Such corporate action includes the payment
of a dividend other than an ordinary cash dividend, stock distribution,
stock split, reverse 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 of 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 an 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 in the portfolio may be adjusted to
maintain the component's relative weight in the Index at the level
immediately prior to the corporation 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
LIBOR to term, compounded daily.
Similar to other stock index values published by the Exchange, the
value of the proposed Index will be calculated continuously and
disseminated every 15 seconds over the Consolidated Tape Association's
Network B.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act \3\ in general and furthers the objectives
of Section 6(b)(5) \4\ in particular in that the rules are 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.
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\3\ 15 U.S.C. 78f(b).
\4\ 15 US.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change will impose no burden on competition.
[[Page 5579]]
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 within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Persons making written submissions
shall file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 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 Room in Washington, D.C. 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-97-48 and should be submitted by February 24, 1998.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\5\
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\5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-2526 Filed 2-2-98; 8:45 am]
BILLING CODE 8010-01-M
