[Federal Register Volume 59, Number 81 (Thursday, April 28, 1994)]
[Unknown Section]
[Page ]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-10086]
[Federal Register: April 28, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33933; File No. SR-NYSE-94-14]
April 20, 1994.
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the New York Stock Exchange, Inc., Relating to Health Care
Portfolio Market Index Target-Term Securities
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 April 12, 1994, the New York Stock Exchange, Inc. (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'' or ``SEC'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the
Exchange. 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. 78s(b)(1) (1988).
\2\CFR 240.19b-4 (1991).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list for trading Market Index Target-Term
Securities (``MITTS''),\3\ the return on which is based upon a
portfolio of securities of U.S. companies in the health care industry
(``Health Care Portfolio''), Initially, the Health Care Portfolio will
contain the securities of 22 health care companies that are traded in
the United States on the NYSE or are National Market System securities
traded through the facilities of the National Association of Securities
Dealers Automated Quotation System (``NASDAQ'').\4\
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\3\``MITTS'' and ``Market Index Target-Term Securities'' are
service marks of Merrill Lynch & Co., Inc. (``Merrill Lynch'').
\4\The companies represented in the Health Care Portfolio are:
Abbott Laboratories; American Home Products Corporation; Baxter
International Inc.; Beverly Enterprises, Inc.; Bristol-Meyers Squibb
Company; FHP International Corporation; Foundation Health
Corporation; Genesis Health Ventures, Inc.; Health Management
Associates, Inc.; Health Care and Retirement Corporation; The
Hillhaven Corporation; Horizon Healthcare Corporation; Johnson &
Johnson; Eli Lilly and Company; Living Centers of America, Inc.;
Pacificare Health Systems, Inc.; Pfizer Inc.; Sierra Health
Services, Inc.; United Healthcare Corporation; U.S. Healthcare,
Inc.; Warner-Lambert Company; and Wellpoint Health Networks Inc.
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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 the
Item IV below. The NYSE 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
Pursuant to the listing criteria set forth in Section 703.19 of the
Exchange's Listed Company Manual (``Manual''), the Exchange proposes to
list and trade MITTS. MITTS are securities that entitle the holder to
receive from the issuer upon maturity an amount based upon the change
in the market value of a stock index or portfolio, provided that a
minimum amount (90% of the principal amount) will be repaid. The
Exchange is submitting the proposed rule change specifically to enable
the Exchange to list for trading MITTS on the Health Care Portfolio
(``Health Care Portfolio MITTS'') issued by Merrill Lynch.
Health Care Portfolio MITTS will allow investors to combine
protection of a substantial portion of the principal amount of the
MITTS with the potential additional payments based on a portfolio of
securities of selected health care companies. The Health Care Portfolio
MITTS will provide that at least 90% of the principal amount thereof
will be repaid at maturity.
The Security
Health Care Portfolio MITTS will entitle the owner at maturity to
receive an amount based upon the percentage change between the
``Original Portfolio Value'' and the ``Ending Average Portfolio
Value,'' subject to a minimum repayment amount. The ``Original
Portfolio Value'' is the value of the Health Care Portfolio on the date
on which the issuer prices the Health Care Portfolio MITTS issue for
the initial offering to the public. The ``Ending Average Portfolio
Value'' is the average of the values of the Health Care Portfolio at
the end of the five calendar quarters preceding the expiration of the
Health Care Portfolio MITTS on December 31, 1999.\5\ The Ending Average
Portfolio Value will be used in calculating the amount owners will
receive upon maturity.\6\
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\5\Specifically, the Ending Average Portfolio Value will equal
the average of the quarterly values of the Health Care Portfolio
beginning in the calendar quarter ending December 31, 1998. The
quarterly value for each of the first four of the final five
calendar quarters shall be the Health Care Portfolio value on the
last scheduled Exchange trading day on which there is no market
disruption event, The quarterly value for the final calendar quarter
shall be the Health Care Portfolio Value on the seventh scheduled
Exchange trading day preceding maturity of the Health Care MITTS
unless there is a market disruption event in which case the sixth
trading day preceding maturity shall be used.
\6\The Health Care Portfolio MITTS will entitle a holder at
maturity to receive for each $10 principal amount of MITTS an amount
equal to the Ending Average Portfolio Value of the Health Care
Portfolio divided by 10, but in any event no less than $9 per each
$10 principal amount of Health Care Portfolio MITTS.
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If the market value of the portfolio has declined, the owner will
receive not less than a specified percentage of the principal amount of
the security. (For instance, if the market value of the portfolio used
to calculate the amount payable at maturity has declined more than 10%,
the owners of the Health Care Portfolio MITTS will receive 90% of the
principal amount of the securities.) The payment at maturity is based
on changes in the value of the portfolio, but does not reflect the
payment of dividends on the securities that comprise the portfolio.
As with other MITTS, Health Care Portfolio MITTS may not be
redeemed prior to maturity and are not callable by the issuer. Owners
may sell the security on the Exchange. The Exchange anticipates that
the trading value of the security in the secondary market will depend
in large part on the value of the Health Care Portfolio and also on
other factors, including the level of interest rates, the volatility of
the value of the Health Care Portfolio, the time remaining to maturity,
dividend rates, and the creditworthiness of the issuer.
The Exchange will only list for trading Health Care Portfolio MITTS
issues that have at least one million outstanding securities, at least
400 owners, a minimum life of one year and at least a $4 million market
value, and that otherwise comply with the Exchange's initial listing
criteria. In addition, the Exchange will monitor each issue to verify
that it complies with the Exchange's continued listing criteria.\7\
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\7\See section 703.19 of the Manual.
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Merrill Lynch will deposit registered securities representing
Health Care Portfolio MITTS with its depository, the Depository Trust
Company (``DTC''), so as to permit book-entry settlement of
transactions by participants in DTC.
The Portfolio
The Health Care Portfolio consists of the common stock of 22 highly
capitalized health care companies. The common stock of the 22 companies
initially will be equally weighted within the portfolio on the pricing
date. The public float (i.e., the market price multiplied by the number
of shares outstanding) of the 22 companies differ significantly (from a
high of $28 billion (Bristol Meyers Squibb Co.) to a low of $285
million (Horizon Healthcare Corp.)), as do the market prices of their
common stock (from a high of $84.625 (United Healthcare Corporation) to
a low of $15.375 (Beverly Enterprises, Inc.)).\8\
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\8\Prices specified in this paragraph, and prices and exchange
rates used to calculate public float specified in this paragraph,
are as of March 7, 1994.
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The common stock of 19 of the 22 component companies is listed on
the Exchange. The common stock of the other three component companies
is traded through NASDAQ. At the outset, the common stock of each of
the companies represented in the Health Care Portfolio will have equal
representation. That is, the common stock of each company included in
the portfolio shall be assigned a multiplier on the pricing date such
that all component companies represent an equal percentage of the value
of the entire portfolio on such date. The multiplier indicates the
number of shares of common stock (or fraction of one share) included in
the calculation of the portfolio. Thus, each of the 22 companies
represented shall represent 4.545% of the total portfolio on the
pricing date.
The multipliers assigned to the component companies will be
adjusted for certain events such as stock splits, reverse stock splits,
or stock dividends, and the value of the component securities will also
be adjusted for certain events including a liquidation, bankruptcy,
insolvency, merger, or consolidation involving the issuer of the
underlying shares. For example, if the issuer of the shares underlying
a component company has been subject to a merger or a consolidation and
is not the surviving entity, then a value for such common stock will be
determined at the time such issuer is merged or consolidated and will
equal the last available market price for such common stock and that
value will be constant for the remaining term of the Health Care
Portfolio MITTS.\9\
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\9\Merrill Lynch will not attempt to find a replacement stock or
to compensate for the extinction of a security due to bankruptcy or
a similar event.
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Based upon the reported prices of the common stock, a Merrill Lynch
affiliate or an independent third party will calculate the value of the
Health Care Portfolio on at least a daily basis and make those values
available to investors.
The Issuer
The Exchange has determined that the issuer of the Health Care
Portfolio MITTS, Merrill Lynch, meets the listing criteria set forth in
Section 703.19 of the Manual. The Exchange states that Merrill Lynch is
an Exchange-listed company in good standing and has sufficient assets
to justify the issuance of MITTS offerings of the size contemplated by
the proposed rule change.
The Exchange believes that the proposed rule change is consistent
with Section 6 of the Act, in general, and with 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 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.
B. Self-Regulatory Organization's Statement on Burden on Competition
The NYSE 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
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. 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 at the
Commission's Public Reference Section, 450 Fifth Street NW.,
Washington, DC 20549. Copies of such filing will also be available for
inspection and copying at the principal office of the NYSE. All
submissions should refer to File No. SR-NYSE-94-14 and should be
submitted by May 19, 1994.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\10\
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\10\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-10086 Filed 4-26-94; 8:45 am]
BILLING CODE 8010-01-M
