Federal Register / Vol. 65, No. 91 / Wednesday, May 10, 2000 / Notices 30155

3The current caps are set at 2000 contracts for

customer trades and 3000 contracts for member firm

proprietary, non-member broker-dealer, specialist,

and market maker trades.

4See Securities Exchange Act Release No. 42675,

(April 13, 2000). 65 FR 21223 (April 20, 2000).

5LEAPS are Long Term Equity Anticipation

Securities or options with durations of up to 36

months. See Amex Rule 903C.

6FLEX options are customized options with

individually specified terms such as strike price,

expiration date, and exercise style. See Amex Rule

900G.

7 15 U.S.C. 78f(b).

8 15 U.S.C. 78f(b)(4). 9 17 CFR 200.30–3(a)(12).

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.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Amex proposes to increase equity

options transaction fees for non-member

broker dealer orders.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission, the

Exchange included statements

concerning the purpose of and basis for

the proposed rule change and discussed

any comments it received on the

proposed rule change. The text of these

statements may be examined at the

places specified in Item IV below. The

Exchange has prepared summaries, set

forth in Sections A, B, and C below, of

the most significant aspect of such

statements.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

1. Purpose

The Amex proposes to increase equity

options transaction fees for non-member

broker-dealer orders. The Amex

currently imposes a transaction charge

on options trades executed on the

Exchange. The charges vary depending

on whether the transaction involves an

equity or index option and whether the

transaction is executed for a specialist

or market maker account, a member

firm’s proprietary account, a nonmember broker-dealer, or a customer

account. The Amex also imposes a

charge for clearance of options trades

and an options floor brokerage charge,

which also depends upon the type of

account for which the trade is executed.

In addition, all three types for charges—

transaction, options clearance, and

options floor brokerage—are subject to

caps on the number of options contracts

subject to the charges on a given day.3

Recently, the Amex eliminated all

options transaction, clearance, and floor

brokerage fees for customer equity

options orders.4 To offset the

elimination of these fees for customer

equity options orders, the Exchange

raised the equity options transaction fee

from $0.07 to $0.19 per contract side for

member firm proprietary orders and

from $0.08 to $0.17 per contract side for

specialist and market maker orders.

Now, to further offset the elimination of

options transaction, clearance and

brokerage fees for customer equity

option orders, the Exchange proposes to

increase the equity options transaction

fee for non-member broker-dealer orders

from $0.07 to $0.19 per contract side.

This revised fee will also apply to both

LEAPS 5 and FLEX 6 options. Equity

options clearance and floor brokerage

fees for non-member-dealers will remain

unchanged at $0.04 and $0.03 per

contract side, respectively.

2. Statutory Basis

The Exchange believes that the

proposed rule change is consistent with

Section 6(b) of the Act 7 in general, and

furthers the objectives of Section

6(b)(4) 8 in particular, in that it provides

for the equitable allocation of reasonable

dues, fees, and other charges among its

members and other persons using its

facilities.

B. Self-Regulatory Organization’s

Statements on Burden on Competition

The Amex does not believe that the

proposed rule change will impose any

burden on competition.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

The Exchange has neither solicited

nor received comments on 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 Exchange consents,

the Commission will:

(A) By order approve such rule

change, or

(B) Institute proceedings to determine

whether the proposed rule change

should be disapproved.

IV. Solicitation of Comments

Interested person 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

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 the File No.

SR–Amex–00–18 and should be

submitted by May 31, 2000.

For the Commission, by the Division on

Market Regulation, pursuant to delegated

authority.9

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–11607 Filed 5–9–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42748; International Series

Release No. 1222; File No. SR–Amex–98–

49]

Self-Regulatory Organizations;

American Stock Exchange LLC; Order

Approving Proposed Rule Change and

Amendment Nos. 1 and 2 Thereto and

Notice of Filing and Order Granting

Accelerated Approval of Amendment

Nos. 3, 4, and 5 to the Proposed Rule

Change Relating to Listing Additional

Series of World Equity Benchmark

Shares TM

May 2, 2000.

I. Introduction

On December 23, 1998, the American

Stock Exchange LLC (‘‘Amex’’ or

‘‘Exchange’’) filed with the Securities

and Exchange Commission

30156 Federal Register / Vol. 65, No. 91 / Wednesday, May 10, 2000 / Notices

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3See Restated 19b–4 Filing marked Amendment

No. 1 (‘‘Amendment No. 1’’).

4See Letter from Michael Cavalier, Associate

General Counsel, Legal & Regulatory Policy, Amex,

to Katherine England, Assistant Director, Division

of Market Regulation (‘‘Division’’), Commission,

dated April 8, 1999 (‘‘Amendment No. 2’’).

5See Securities Exchange Act Release No. 41322

(April 22, 1999), 64 FR 23138.

6 In Amendment No. 3, the Exchange clarified the

Fund’s policies relating to the weighting of

securities and industries in a WEBS index; the need

for cash creations and redemptions in Korea,

Taiwan, and Brazil; the surveillance procedures; the

calculation of the indicative optimized portfolio

value; and provided general information regarding

the value of a creation unit and the expected NAV

of individual shares. See Letter from Michael

Cavalier, Associate General Counsel, Legal &

Regulatory Policy, Amex, to Terri Evans, Special

Counsel, Division, Commission, dated December

14, 1999 (‘‘Amendment No. 3’’).

7 In Amendment No. 4, the Exchange withdrew

the WEBS Index Series based on the following

MSCI Indicies: Greece, Indonesia (Free), Portugal,

Thailand (Free) and Turkey. See Letter from

Michael Cavalier, Associate General Counsel, Legal

& Regulatory Policy, Amex, to Terri Evans, Special

Counsel, Division, Commission, dated January 6,

2000 (‘‘Amendment No. 4’’).

8 In Amendment No. 5, AMEX explained and

clarified that the computation of the Net Asset

Value (‘‘NAV’’) for the Korea, Taiwan and Brazil

WEBS Index Series will occur at times different

than was reflected in Amendment No. 3. The

computation of the NAV for the Korea and Taiwan

WEBS Index Series will occur at 8:30 a.m. New

York Time. The NAV computation for the Brazil

WEBS Index Series will occur at 5:00 p.m. New

York Time. In addition, the Exchange clarified that

Funds Distributor, Inc. will be replaced by SEI

Investments Distribution Company no later than

March 28, 2000. See Letter from Michael Cavalier,

Associate General Counsel, Legal & Regulatory

Policy, Amex, to Terri Evans, Special Counsel,

Division, Commission, dated March 16, 2000

(‘‘Amendment No. 5’’).

9See Securities Exchange Act Release No. 36947

(March 8, 1996), 61 FR 10606 (March 14, 1996).

10 ‘‘World Equity Benchmark Shares’’ and

‘‘WEBS’’ are service marks of Morgan Stanley

Group, Inc. ‘‘MSCI’’ and ‘‘MSCI Indices’’ are service

marks of Morgan Stanley & Co. Incorporated.

11See Amendment No. 4, supra note 7. The MSCI

EMU Index is comprised of stocks of companies

from countries participating in the EMU. Currently,

eleven countries are participating in the EMU:

Austria, Belgium, Finland, France, Germany,

Ireland, Italy, Luxembourg, the Netherlands,

Portugal and Spain. The MSCI EMU is currently

comprised of stocks of companies from ten of these

EMU countries (e.g., all of the EMU countries

except Luxembourg). MSCI has advised that it may,

in accordance with its methodology, change the

composition of MSCI EMU in the future, such

changes could include adding stock(s) of companies

from Luxembourg or from any other country that

becomes a participant in EMU.

12See Amendment No. 5, supra note 8.

13See infra Section II.B, Criteria for Initial and

Continued Listing.

14See Amendment No. 3, supra note 6.

15 Id. Information regarding such fees will be

included in the prospectus and information

circular. Telephone conversation between Michael

Cavalier, Associate General Counsel, Legal &

Regulatory Policy, Amex, and Terri Evans, Special

Counsel, Division, Commission, on May 1, 2000.

(‘‘Commission’’), pursuant to Section

19(b)(1) of the Securities Exchange Act

of 1934 (‘‘Act’’) 1 and Rule 19b–4

thereunder,2 a proposed rule change to

list additional series of World Equity

Benchmark Shares (‘‘WEBS’’). The

Exchange submitted Amendment No. 1

to its proposal on February 24, 1999,3

and Amendment No. 2 on April 9,

1999.4 The proposed rule change and

Amendment Nos. 1 and 2 were

published for comment in the Federal

Register on April 29, 1999.5 No

comments were received on the

proposal. The Exchange submitted

Amendment No. 3 to its proposed rule

change on December 15, 1999,6

Amendment No. 4 on January 11, 2000,7

and Amendment No. 5 on March 20,

2000.8 This notice and order approves

the proposed rule change, as amended,

and solicits comments from interested

persons on Amendment Nos. 3, 4, and

5.

II. Description of the Proposal

On March 4, 1996, the Commission

approved Amex’s listing and trading of

Index Fund Shares under Amex Rules

1000A et seq.9 Index Fund Shares are

shares issued by an open-end

management investment company that

seek to provide investment results that

correspond generally to the price and

yield performance of a specified foreign

or domestic equity market index.

The first Index Fund Shares approved

for listing on the Exchange were

seventeen series of WEBS issued by

Foreign Fund, Inc. (now WEBS Index

Fund, Inc.) (‘‘Fund’’), based on the

following Morgan Stanley Capital

international (‘‘MSCI’’) indices:

Australia, Austria, Belgium, Canada,

France, Germany, Hong Kong, Italy,

Japan, Malaysia, Mexico (Free),

Netherlands, Singapore (Free), Spain,

Sweden, Switzerland and the United

Kingdom.10 These WEBS Index Series

have been trading on the Amex since

March 18, 1996.

The Exchange is proposing to list six

additional WEBS Index Series based on

the following MSCI indices: MSCI EMU

Index,11 MSCI Brazil (Free) Index, MSCI

South Korea Index, MSCI South Africa

Index, MSCI Taiwan Index, and MSCI

United States Index.

Issuances of WEBS by the Fund are

made only in Creation Unit size

aggregations or multiples thereof. The

size of the applicable Creation Unit size

aggregation will be set forth in the

Fund’s prospectus and varies from one

WEBS Index Series to another, but is

generally substantial (e.g., value in

excess of $450,000 per Creation Unit).

The Fund issues and sells WEBS

through SEI Investments Distribution

Company (‘‘Distributor’’),12 the

distributor and principal underwriter,

on a continuous basis at the NAV per

share next determined after an order to

purchase WEBS in Creation Unit size

aggregations is received in proper

form.13 According to the Amex,

following issuance, WEBS are traded on

the Exchange like other equity securities

by professionals, as well as retail and

institutional investors.

Creation Unit size aggregations of

WEBS are generally issued in exchange

for the ‘‘in kind’’ deposit of a specified

portfolio of securities, together with a

cash payment representing, in part, the

amount of dividends accrued up to the

time of issuance. Amex states that such

deposits are made primarily by

institutional investors, arbitrageurs and

the Exchange specialist. Redemption of

WEBS is generally made on an in-kind

basis, with a portfolio of securities and

cash exchanged for WEBS that have

been tendered for redemption. Issuances

or redemptions could also occur for

cash under specified circumstances

(e.g., if it is not possible to effect

delivery of securities underlying the

specific series in a particular foreign

country) and at other times in the

discretion of the Fund.

Local restrictions on transfers of

securities to and between certain types

of foreign investors in Korea, Taiwan

and Brazil preclude in-kind creations

and redemptions of Creation Units of

the Korea, Taiwan and Brazil WEBS

Index Series. Accordingly, these series

have been structured so that Creation

Units may be created and redeemed

solely for cash until such time (if ever)

as the local restrictions are changed in

a way that permits such transactions to

occur on an in-kind basis.14 In addition,

each of the three series will charge

creation and redemption fees intended

to offset the cost of brokerage and

market impact associated with buying

and selling the baskets of stock held by

such Series.15

According to the Amex, an important

advantage of ‘‘in-kind’’ redemptions and

creations is that the Fund is not exposed

to execution risk or execution costs.

Amex stated in its proposal that

although the Korea, Taiwan and Brazil

WEBS Index Series will not benefit from

in-kind redemptions and creations, it is

expected that the fact that continuous

sales and redemptions are available will

result in WEBS Index Series trading

close to their NAV. Amex further notes

that the relevant markets are among the

largest and most liquid emerging

markets. As of August 31, 1999, the

market capitalizations of the Korean,

Taiwanese and Brazilian stock markets

were approximately BRL 262.7 billion

Federal Register / Vol. 65, No. 91 / Wednesday, May 10, 2000 / Notices 30157

16See Amendment No. 5, supra note 8. The

timing of the calculation of the NAV for Brazil,

South Korea, and Taiwan and the potential market

impact of the Fund buying or selling securities in

those markets will be disclosed in the prospectus

and information circular. Telephone conversation

between Michael Cavalier, Associate General

Counsel, Legal & Regulatory Policy, Amex, and

Terri Evans, Special Counsel, Division,

Commission, on May 1, 2000.

17See also, infra Section II.C, Dissemination of

Indicative Optimized Portfolio Value.

or $137 billion; KRW 280,229.5 billion

or $237.4 billion; and TWD 10,393.1

billion or $326.4 billion, respectively.

Barclays Global Fund Advisors, the

Fund’s investment advisor (‘‘Advisor’’),

is of the view that the Fund should

ordinarily be able to buy and sell

Creation Unit size baskets of stocks

promptly after receipt of an order

(ordinarily on the business day after

receipt of an order). The Fund currently

intends to compute the NAV of each of

the Korea and Taiwan WEBS Index

Series at 8:30 a.m. New York Time,

which is only a few hours after the close

of each of the Korea and Taiwan

markets. Amex notes, as with any openend fund, a purchase or redemption

order in respect of a WEBS Index Series

is priced at the NAV of the series that

is next determined after receipt of such

an order. For example, if an order to

purchase one or more Creation Units of

Korea WEBS Index Series is entered

with the Fund’s Distributor at 4:00 p.m.

New York Time on Tuesday, the cash

amount to be required to be transferred

to the Fund would be based on the NAV

of the Korea WEBS Index Series as of

8:30 a.m. New York Time on

Wednesday (i.e., the next business day).

According to the Amex, the Fund

believes that timing the calculation of

the NAV as of 8:30 a.m. New York Time

will significantly lessen the exposure of

the Korea and Taiwan WEBS Index

Series and their shareholders to the risk

of price movements in the local

securities markets, because if the Korea

or Taiwan WEBS Index Series receives

a purchase or redemption order during

the trading day in New York (when

orders are accepted), that Series will

have an opportunity to purchase or

dispose of portfolio securities in the

local market prior to the determination

of the NAV following the close of the

local market. Similarly, to ensure that

the NAV of the Brazil WEBS Index

Series is priced based on the closing

prices in the Brazil markets, the Fund

currently intends to compute the NAV

of each of the Brazil WEBS Index Series

at 5:00 p.m. New York Time.16

The Fund makes available on a daily

basis a list of the names and the

required number of shares of each of the

securities to be deposited in connection

with the issuance of a particular WEBS

Index Series in Creation Unit size

aggregations, as well as information

relating to the required cash payment

representing, in part, the amount of

accrued dividends.

A WEBS Index Series may make

periodic distributions of dividends from

net investment income, including net

foreign currency gains, if any, in an

amount approximately equal to

accumulated dividends on securities

held by the WEBS Index Series during

the applicable period, net of expenses

and liabilities for such period.

The NAV for each WEBS Index Series

is calculated by the Fund’s

administrator, PFPC Inc.

(‘‘Administrator’’). After calculation,

such NAVs are available to the public

from the Fund’s Distributor via a toll

free telephone number, and are also

available to National Securities Clearing

Corporation (‘‘NSCC’’) participants

through data made available from

NSCC.

WEBS are registered in book entry

form through The Depository Trust

Company. Trading in WEBS on the

Exchange is effected until 4:00 p.m. (ET)

each business day. The minimum

trading increment for WEBS is 1⁄16 of

$1.00, pursuant to Amex Rule 127,

Commentary .02.

A. MSCI Indices

In this proposal, Amex submitted a

description of the methodology used to

calculate the MSCI Indices, which was

prepared by MSCI. The following

description, provided by Amex,

supplements the description previously

submitted to the Commission in

connection with the Exchange’s initial

proposal to list WEBS.

Each MSCI Index on which a WEBS

Index Series is based is calculated by

MSCI for each trading day in the

applicable foreign exchange markets

based on official closing prices of the

applicable foreign exchange markets.

For each trading day, MSCI publicly

disseminates each index value for the

previous day’s close. MSCI Indices are

reported periodically in major financial

publications worldwide, and are also

available through vendors of financial

information.17

There are two broad categories of

changes to the MSCI Indices. The first

consists of market-driven changes,

including mergers, acquisitions, and

bankruptcies. These are announced and

implemented as they occur. The second

category consists of structural changes

to reflect the evolution of a market that

may occur due to changes industry

composition or regulations, among other

reasons. Structural changes to MSCI

Indices may occur only on four dates

throughout the year: The first business

day of March, June, September and

December. The changes are announced

at least two weeks in advance.

As noted in the WEBS prospectus for

the initial seventeen WEBS Index Series

(Registration No. 33–97598), the

investment objective of each WEBS

Index Series is to seek to provide

investment results that correspond

generally to the price and yield

performance of public securities traded

in the aggregate in particular markets, as

represented by specific MSCI

benchmark indices. Each WEBS Index

Series utilizes a ‘‘passive’’ or indexing

investment approach, which attempts to

approximate the investment

performance of its benchmark index

through quantitative analytical

procedures. Each Index Series has the

policy to remain as fully invested as

practicable in a pool of securities the

performance of which will approximate

the performance of the benchmark MSCI

Index taken in its entirety. MSCI

generally seeks to have 60% of the

capitalization of a country’s stock

market reflected in the MSCI Index for

such country, although in some cases,

other considerations may result in an

MSCI Index reflecting less or more than

this percentage.

The Fund maintains several policies

relating to the weighting of securities in

a WEBS Index Series, which serve to

prevent excessive weighting by

individual securities. For example, in

order for the Fund to qualify for tax

treatment as a regulated investment

company, it must meet several

requirements under the Internal

Revenue Code. Among these is the

requirement that, at the close of each

quarter of the Fund’s taxable year, (1) at

least 50% of the market value of the

Fund’s total assets must be represented

by cash items, U.S. government

securities, securities of other regulated

investment companies and other

securities, with such other securities

limited for purposes of this calculation

in respect of any one issuer to an

amount not greater than 5% of the value

of the Fund’s assets and not greater than

10% of the outstanding voting securities

of such issuer, and (2) not more than

25% of the value of its total assets may

be invested in the securities of any one

issuer, or of two or more issuers that are

controlled by the Fund (within the

meaning of section 851(b)(4)(B) of the

Internal Revenue Code) and that are

engaged in the same or similar trades or

businesses or related trades or

businesses (other than U.S. government

30158 Federal Register / Vol. 65, No. 91 / Wednesday, May 10, 2000 / Notices

18See Amendment No. 3, supra note 6.

19 Id.

20 Id.

21 Id.

22Telephone conversation between Michael

Cavalier, Associate General Counsel, Legal &

Regulatory Policy, Amex, and Terri Evans, Special

Counsel, Division, Commission, on January 31,

2000.

securities or the securities of other

regulated investment companies).18

The Fund also maintains an industry

concentration policy of all WEBS Index

Series. With respect to the two most

heavily weighted industries or groups of

industries in its benchmark MSCI Index,

a WEBS Index Series will invest in

securities (consistent with its

investment objective and other

investment policies) so that the

weighting of each such industry or

group of industries in the WEBS Index

Series does not diverge by more than

10% from the respective weighting of

such industry or group of industries in

its benchmark MSCI Index. An

exception to this policy is that if

investment in the stock of a single issuer

would account for more than 25% of the

WEBS Index Series, the WEBS Index

Series will invest less than 25% of its

net assets in such stock and will

reallocate the excess to stock(s) in the

same industry or group of industries,

and/or stock(s) in another industry or

group of industries, in its benchmark

MSCI Index. Each WEBS Index Series

will evaluate these industry weightings

at least weekly, and at the time of

evaluation will adjust its portfolio

composition to the extent necessary to

maintain compliance with the above

policy. A WEBS Index series may not

concentrate its investments except as

discussed above. This policy is a

fundamental investment policy and may

not be changed without the approval of

a majority of a WEBS Index Series

shareholders.19

Through the application of portfolio

sampling, each of the WEBS Index

Series is expected to contain less than

all of the component stocks in its

respective benchmark MSCI Index. The

following tables set forth the number of

stocks contained in the Benchmark

MSCI Index, and the initial number of

stocks expected to be included in each

corresponding WEBS Index Series (data

as of December 3, 1999).

County/Region

Number of

stocks in

benchmark

MSCI index

Number of

stocks in

WEBS

index series

Brazil ................. 47 41

South Korea ...... 92 92

South Africa ...... 46 39

Taiwan .............. 76 69

United States .... 324 155

EMU .................. 317 125

Each WEBS Index Series has a policy

to remain as fully invested as

practicable in a pool of equity securities.

Each WEBS Index Series will normally

invest at least 95% of its total assets in

stocks that are represented in its

benchmark MSCI Index except, in

limited circumstances, to assist in

meeting shareholder redemptions of

Creation Units. In order to comply with

the Internal Revenue Code, and manage

corporate actions and index changes in

the smaller markets, each of the Brazil

(Free), South Korea, South Africa, and

Taiwan WEBS Index Series will at all

times invest at least 80% of its total

assets in such stocks and at least half of

the remaining 20% of its total assets in

such stocks or in stocks included in the

relevant market but not in its

benchmark MSCI Index.20

The Exchange believes that these

requirements and policies prevent any

WEBS Index Series from being

excessively weighted in any single

security or small group of securities and

significantly reduce concerns that

trading in a particular WEBS Index

Series could become a surrogate for

trading in unregistered securities.21

As stated above, a WEBS Index Series

does not hold all of the issues that

comprise the subject MSCI Index, but

attempts to hold a representative sample

of the securities in the Index utilizing a

technique known as ‘‘portfolio

sampling.’’ As noted in the WEBS

prospectus, it is expected that, over

time, the ‘‘expected tracking error’’ of a

WEBS Index Series relative to the

performance of the relevant MSCI Index

will be less than 5%. An expected

tracking error of 5% means that there is

a 68% probability that the net return on

the asset value for the Index Series

(including dividends and without

reflecting expenses) will be between

95% and 105% of the return of the

subject MSCI Index after one year

without rebalancing the portfolio

composition. While no particular level

of tracking error is assured, the Fund’s

Advisor, monitors the tracking error of

each Index Series on an ongoing basis

and seeks to minimize tracking error to

the maximum extent possible. Semiannual and annual reports of the Fund

disclose tracking error over the previous

six-month periods, and in the event that

tracking error exceeds 5%, the Fund

Board of Directors will consider what

action might be appropriate.

B. Criteria for Initial and Continued

Listing

WEBS are subject to the criteria for

initial and continued listing of Index

Fund Shares in Amex Rule 1002A. For

each of the six WEBS Index Series, it is

anticipated that a minimum of two

Creation Units will be required to be

outstanding at the start of trading, with

the exception of the United States

WEBS Index Series and the EMU Index

Series, for which one Creation Unit will

be required to be outstanding at

commencement of trading. It is

anticipated that a Creation Unit will

consist of 50,000 WEBS except for the

United States WEBS Index Series and

EMU WEBS Index Series, for which the

anticipated minimums are 500,000 and

200,000 WEBS, respectively. The value

of a Creation Unit at the start of trading

would in all cases be in excess of

$500,000. It is expected that the NAV of

an individual share will initially range

from $10 to $25.22 The Fund will

establish a minimum number of WEBS

shares per Creation Unit for each Index

Series prior to commencement of

trading, which minimum number will

be disclosed in the Fund’s prospectus.

According to the Exchange, the

proposed minimum number of WEBS

outstanding at the start of trading for

each WEBS Index Series is sufficient to

provide market outstanding at the start

of trading for each WEBS Index Series

is sufficient to provide market liquidity

and to further the Fund’s objective to

seek to provide investment results that

correspond generally to the price and

yield performance of a specified MSCI

Index.

C. Dissemination of Indicative

Optimized Portfolio Value

As noted above, MSCI disseminates

values for each MSCI Index once each

trading day, based on closing prices in

the relevant exchange market. In

addition, the Fund makes available on

a daily basis the names and required

number of shares of each of the

securities to be deposited in connection

with the issuance of WEBS in Creation

Unit size aggregations for each WEBS

Index Series, as well as information

relating to the required cash payment

representing, in part, the amount of

accrued dividends applicable to such

WEBS Index Series. This information is

made available by the Fund’s Advisor to

any NSCC participant requesting such

information. In addition, other investors

can request such information directly

from the Fund’s Distributor. The NAV

for each WEBS Index Series is

calculated daily by the Fund’s

Administrator.

In order to provide updated

information relating to each WEBS

Federal Register / Vol. 65, No. 91 / Wednesday, May 10, 2000 / Notices 30159

23WEBS cannot be redeemed individually but

must be redeemed in Creation Unit size

aggregations applicable to the specific WEBS Index

Series.

24See Amendment No. 3, supra note 6.

25A slight difference between the Value

disseminated at 9:30 a.m. and the most recently

calculated Fund NAV can be expected because the

Value will include an estimated cash amount

consisting principally of any dividend accruals for

the Deposit Securities going ‘‘ex-dividend’’ on that

day.

26The NAV for Korea and Taiwan will be

calculated at 8:30 a.m. New York Time and 5 p.m.

New York Time of Brazil. See Amendment No. 5,

supra note 8.

27See Securities Exchange Act Release No. 29063

(April 10, 1991) 56 FR 15652 (April 17, 1991) note

9 (regarding Exchange designation of equity

derivative securities as eligible for such treatment

under Rule 154, Commentary .04(c)).

Index Series for use by investors,

professionals and persons wishing to

create or redeem WEBS,23 the Exchange

currently disseminates through the

facilities of the Consolidated Tape

Association (‘‘CTA’’) an updated

‘‘indicative optimized protfolio value’’

(‘‘Value’’) for each of the seventeen

WEBS Index Series currently traded as

calculated by Bloomberg, L.P. The

Exchange will also disseminate a Value

for the proposed six new WEBS Index

Series over CTA facilities (Network B)

as calculated by a securities information

provider (‘‘Value calculator’’). The

Value for the proposed WEBS Index

Series will be calculated by Bloomberg,

L.P. in the same manner utilized by

Bloomberg to calculate the Value for the

seventeen WEBS index series that are

currently trading.24 The Value is

disseminated on a per WEBS basis every

15 seconds during regular Amex trading

hours of 9:30 a.m. to 4 p.m. (ET). The

equity securities values included in the

Value are the values of the designated

portfolio of equity securities (‘‘Deposit

Securities’’) constituting an optimized

representation of the benchmark MSCI

foreign index for each WEBS Index

Series, which is the same as the

portfolio that to be utilized generally in

connection with creations and

redemptions of WEBS in Creation Unit

Size aggregations on that day. The

equity securities included in the Value

reflect the same market capitalization

weighting as the Deposit Securities in

the optimized for the particular WEBS

Index Series. In addition to the value of

the Deposit Securities for each WEBS

Index Series, the Value includes a cash

component consisting of estimated

accrued dividend and other income, less

expenses. The Value also reflects

changes in currency exchange rates

between the U.S. dollar and the

applicable home country currency.

The Value does not reflect the value

of all securities included in the

applicable benchmark MSCI index. In

addition, the Value does not necessarily

reflect the precise composition of the

current portfolio of securities held by

the Fund for each WEBS Index Series at

a particular point in time. Therefore,

Amex has stated that the Value of a per

WEBS basis disseminated during Amex

trading hours should not be viewed as

a real time update of the NAV of the

Fund, which is calculated only once a

day. While the Value disseminated by

the Amex at 9:30 a.m. is generally very

close to the most recently calculated

Fund NAV on a per WEBS basis,25

Amex notes that it is possible that the

value of the portfolio of securities held

by the Fund for a particular WEBS

Index Series may diverge from the

Deposit Securities Values during any

trading day. In such case, the Value will

not precisely reflect the value of the

Fund portfolio. Following calculation of

the NAV by the Fund’s Administrator as

of 4:00 p.m. (ET),26 the Value on a per

WEBS basis can be expected to be the

same as the NAV of the Fund on a per

WEBS basis.

However, during the trading day,

Amex believes the Value can be

expected to closely approximate the

value per WEBS share of the portfolio of

securities for each WEBS Index Series

except under unusual circumstances

(e.g., in the case of extensive

rebalancing of multiple securities in a

WEBS Index Series at the same time by

the Fund Advisor). According to the

Amex, the circumstances that might

cause the Value to be based on

calculations different from the valuation

per WEBS share of the actual portfolio

of an Index Series would not be

different than circumstances causing

any index fund or trust to diverge from

the underlying benchmark index.

The Exchange believes that

dissemination of the Value based on the

Deposit Securities provides additional

information regarding each WEBS Index

Series that is not otherwise available to

the public and is useful to professionals

and investors in connection with WEBS

trading on the Exchange or the creation

or redemption of WEBS.

For South Korea and Taiwan, there is

no overlap in trading hours between the

foreign markets and the Amex.

Therefore, for each Index Series, the

Value calculator will utilize closing

prices (in applicable foreign currency

prices) in the principal foreign market

for securities in the WEBS portfolio, and

convert the price to U.S. dollars. This

Value will be updated every 15 seconds

during Amex trading hours to reflect

changes in currency exchange rates

between the U.S. dollar and the

applicable foreign currency. The Value

will also include the applicable

estimated cash component for each

WEBS Index Series.

For Brazil, South Africa, and

countries included in the MSCI EMU

Index, which have trading hours

overlapping regular Amex trading

hours, the Value calculator will update

the applicable Value every 15 seconds

to reflect price changes in the applicable

foreign market or markets, and convert

such prices into U.S. dollars based on

the current currency exchange rate.

When the foreign market or markets are

closed but the Amex is open, the Value

will be updated every 15 seconds to

reflect changes in currency exchange

rates after the foreign market close. The

Value will also include the applicable

estimated cash component for each

Index Series.

For United States WEBS Index Series,

the Value calculator will update the

Value at least every 15 seconds, and

such Value will included the applicable

estimated cash component.

D. Original and Annual Listing Fees

The Amex original listing fee

applicable to the listing of WEBS Index

Series is $5,000 per WEBS Index Series.

In addition, the annual listing fee

applicable to WEBS Index Series under

Section 141 of the Amex Company

Guide will be based upon the year-end

aggregate number of outstanding WEBS

in all series, including the seventeen

existing series and the additional series

proposed herein.

E. Stop and Stop Limit Orders

Amex Rule 154, Commentary .04(c)

provides that stop and stop limit orders

to buy or sell a security (other than an

option, which is covered by Amex Rule

950(f) and Commentary thereto) the

price of which is derivatively priced

based upon another security or index of

securities, may with the prior approval

of a Floor Official, be elected by a

quotation, as set forth in Commentary

.04(c)(i–v). The Exchange has

designated Index Fund Shares,

including WEBS, as eligible for this

treatment.27

F. Amex Rule 190

Amex Rule 190, Commentary .04,

applies to Index Fund Shares listed on

the Exchange, including WEBS.

Commentary .04 states that nothing in

Amex Rule 190(a) should be construed

to restrict a specialist registered in a

security issued by an investment

company from purchasing and

redeeming the listed security, or

securities that can be subdivided or

30160 Federal Register / Vol. 65, No. 91 / Wednesday, May 10, 2000 / Notices

28Telephone conversation between Georgia

Bullitt, Vice President, Morgan Stanley Dean Witter,

and Belinda Blaine, Associate Director, Division,

Commission, on March 28, 2000.

29Telephone conservation between Michael

Cavalier, Associate General Counsel, Legal &

Regulatory Policy, Amex, and Terri Evans, Special

Counsel, Division, Commission, on May 1, 2000.

30 Id.

31See Amex Rule 918C.

32See Amendment No. 3, supra note 6.

33 15 U.S.C. 78f(b)(5). In approving this rule, the

Commission notes that is has considered the

proposed rule’s impact on efficiency, competition,

and capital formation. 15 U.S.C. 78c(f).

34The Commission notes that unlike typical

open-end investment companies, where investors

have the right to redeem their fund shares on a

daily basis, investors in WEBS can redeem in

Creation Unit size aggregations only.

35Pursuant to Section 6(b)(5) of the Act, the

Commission must predicate approval of exchange

trading for new products upon a finding that the

introduction of the product is in the public interest.

Such a finding would be difficult with respect to

a product that served no investment, hedging or

other economic functions, because any benefits that

might be derived by market participants would

likely be outweighed by the potential for

manipulation, diminished public confidence in the

integrity of the markets, and other valid regulatory

concerns.

36Because of potential arbitrage opportunities,

the Commission believes that WEBS will not trade

at a material discount or premium in relation to

their NAV. The mere potential for arbitrage should

keep the market price of WEBS comparable to their

NAVs; therefore, arbitrage activity likely will not be

significant. In addition, the Fund will generally

redeem in-kind, thereby enabling the Fund to invest

most of its assets in securities comprising the MSCI

Indices.

37 In contrast, proposals to list exchange-traded

derivative products that contain a built-in leverage

feature or component raise additional regulatory

issues, including heightened concerns regarding

manipulation, market impact, and customer

suitability. See e.g., Securities Exchange Act

Release No. 36165 (August 29, 1995), 60 FR 46653

(relating to the establishment of uniform listing and

trading guidelines for stock index, currency, and

currency index warrants).

converted into the listed security, from

the issuer as appropriate to facilitate the

maintenance of a fair and orderly

market.

G. Prospectus Delivery, Purchases,

Redemptions, and Suitability

The Exchange, in an Information

Circular to Exchange members and

member organizations, will inform

members and member organizations,

prior to commencement of trading, that

investors purchasing WEBS are required

to receive a Fund prospectus prior to or

concurrently with the confirmation of a

transaction therein. The prospectus will

disclose, among other matters, that the

NAV is determined for Brazil, South

Korea, and Taiwan at different times

than other MSCI WEBS Index Series.

Further the prospectus will disclose the

possible market impact of the Fund

buying or selling securities in Brazil,

South Korea, and Taiwan prior to the

calculation of the NAV,28 as well as the

creation and redemption fees for those

WEBS.29

In the Amex’s Information Circular,

members and member organizations

will be informed that procedures for

purchases and redemptions of WEBS in

Creation Unit Size are described in the

Fund prospectus and statement of

additional information, and that WEBS

are not individually redeemable but are

redeemable only in Creation Unit Size

aggregations or multiples thereof.

Further, the Information Circular will

discuss certain factors that make the

Brazil, South Korea, and Taiwan WEBS

Series different from the other WEBS

Index Series. This includes that the

NAV for Brazil, South Korea, and

Taiwan is determined at a different time

than the other WEBS Index Series; there

is a fee for creations and redemptions

for WEBS based on Brazil, South Korea,

and Taiwan; and there is a potential

market impact of the Fund buying and

selling in those three markets prior to

the calculation of the NAV.30 The

Information Circular will also inform

members and member organizations of

the characteristics of the specific series

and of applicable Exchange rules, as

well as of the requirements of Amex

Rule 411 (Duty to Know and Approve

Customers).

H. Trading Halts and Surveillance

In addition to other factors that may

be relevant, the Exchange may consider

factors such as those set forth in Amex

Rule 918C(b) in exercising its discretion

to halt or suspend trading in Index Fund

Shares, including WEBS. These factors

would include, but are not limited to:

(1) The extent to which trading is not

occurring in stocks underlying the

index; or (2) whether other unusual

conditions or circumstances detrimental

to the maintenance of a fair and orderly

market are present.31 In addition,

trading in WEBS will be halted if the

circuit breaker parameters under Amex

Rule 117 have been reached.

Exchange surveillance procedures

applicable to trading in the proposed

WEBS Index Series are the same as

those applicable to WEBS currently

trading on the Exchange.32

III. Discussion

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,

the requirements of Section 6(b)(5) of

the Act.33 The Commission believes that

the Exchange’s proposal to list and trade

WEBS will provide investors with a

convenient way of participating in the

foreign securities markets. The

Commission believes that the

Exchange’s proposal should help to

provide investors with increased

flexibility in satisfying their investment

needs by allowing them to purchase and

sell securities at negotiated prices

throughout the business day that

replicate the performance of several

portfolios of stocks.34 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.35

The estimated cost of an individual

WEBS, approximately $10 to $25,

should make it attractive to individual

retail investors who wish to hold a

security replicating the performance of

a portfolio of foreign stocks. Moreover,

the Commission believes that WEBS

will provide investors with several

advantages over standard open-end

investment companies specializing in

such stocks. In particular, investors will

be able to trade WEBS continuously

throughout the business day in

secondary market transactions at

negotiated prices.36 Accordingly, WEBS

should allow investors to: (1) Respond

quickly to market changes through intraday trading opportunities; (2) engage in

hedging strategies not currently

available to retain investors; and (3)

reduce transaction costs for trading a

portfolio of securities.

Although the value of WEBS will be

based on the value of the securities and

cash held in the Fund, WEBS are not

leveraged instruments.37 In essence,

WEBS are equity securities that

represent an interest in a portfolio of

stocks designed to reflect the applicable

MSCI Index. Accordingly, it is

appropriate to regulate WEBS in a

manner similar to other equity

securities. Nevertheless, the

Commission believes that the unique

nature of WEBS raise certain product

design, disclosure, trading, and other

issues that must be addressed.

A. WEBS Generally

The Commission believes that the

proposed WEBS are reasonably

designed to provide investors with an

investment vehicle that substantially

reflects in value the index it is based

upon, and, in turn, the performance of

Federal Register / Vol. 65, No. 91 / Wednesday, May 10, 2000 / Notices 30161

38See supra Country/Region Table in Section

II.A, MSCI Indices.

39Telephone conversation between Michael

Cavalier, Associate General Counsel, Legal &

Regulatory Policy, Exchange, and Terri Evans,

Special Counsel, Division, Commission, on

February 17, 2000.

40Among other issues that may arise under the

federal securities laws, such an occurrence could

raise the issue of whether WEBS trading would

remain consistent with Amex listing standards for

Index Fund Shares, as well as the surrogate trading

issue noted above.

41The Exchange states that it may, in the future,

seek to obtain an exemption from the prospectus

delivery requirement, either with respect to WEBS

or other Index Fund Shares listed on the Exchange.

In the event it obtains such an exemption, the

Exchange will discuss with Commission staff the

appropriate level of the disclosure that should be

required with respect to the Index Fund Shares

being listed, and will file any necessary rule change

to provide for such disclosure. 42Amex Rule 411.

the specified foreign equities market.

WEBS will be deemed equity securities

subject to Amex rule governing the

trading of equity securities. As such, the

Commission finds that adequate rules

and procedures exist to govern the

trading of WEBS. In this regard, the

Commission notes that MSCI imposes

specified criteria in the selection of

Index components. MSCI generally

seeks to have 60% of a market’s

capitalization reflected in that market’s

corresponding index. In selecting

components for a given Index, MSCI

excludes issues that are either small or

higher illiquid. Index constituents are

selected on the basis of seeking to

maximize float and liquidity, reflecting

a market’s size and industry profiles,

and minimizing cross-ownership.

The aim of this component selection

process is to make index components

highly representative of the over-all

economic sector make-up and market

capitalization of a given market. At the

same time, securities that are illiquid or

have a restricted float are avoided. The

Commission believes that these criteria

should serve to ensure that the

underlying securities of these indices

are well capitalized and actively traded.

The Commission also notes that a WEBS

series normally will invest at least 95%

of its total assets in such stocks,

represented by the benchmark index.

Three of the new WEBS, however, are

normally only required to invest at least

80% of their total assets in stocks

represented in its benchmark MSCI

Index, with at least half of the remaining

20% in such stocks or in stocks

included in the relevant market but not

its benchmark MSCI Index. The

Commission believes nevertheless that

these procedures provide sufficient

investment in the underlying Index. As

stated above, each WEBS Index Series

has a policy to concentrate its

investments in an industry or industries

if, and to the extent that, its

corresponding MSCI Index concentrates

in such industry or industries, except

where the stock of a single issuer would

account for more than 25% of the WEBS

Index Series. While the Commission

believes these requirements should help

to reduce concerns that the WEBS could

become a surrogate for trading in a

single or a few unregistered stocks, in

the event that a series of WEBS were to

become such a surrogate, the

Commission would expect the Amex to

take action immediately to delist the

securities to ensure compliance with the

Act.

A WEBS series will not hold all of the

securities that comprise the subject

MSCI Index, but will attempt to hold a

representative selection of such

securities by means of ‘‘portfolio

sampling.’’ 38 Moreover, no WEBS series

currently is expected to have fewer than

seventeen of the component securities

of the corresponding MSCI Index.39 The

Commission believes that taken

together, the foregoing are adequate to

characterize WEBS as bona fide index

funds. The Commission would be

concerned, however, if the

capitalization percentages or minimum

number of WEBS component securities

were to fall to a level such that the

WEBS portfolio no longer would

substantially reflect their corresponding

WEBS indices.40

B. Disclosure

The Commission believes that the

Exchange’s proposal should ensure that

investors have information that will

allow them to be adequately apprised of

the terms, characteristics, and risks of

trading WEBS.41 As noted above, all

WEBS investors; including secondary

market purchasers, will receive a

prospectus regarding the product.

Because WEBS will be in continuous

distribution, the prospectus delivery

requirements of the Securities Act of

1933 will apply both to initial investors,

and to all investors purchasing such

securities in secondary market

transaction on the Amex. The

prospectus will address the special

characteristics of a particular WEBS

Index Series, including a statement

regarding their redeemability and

method of creation. As noted above,

certain features make three of the WEBS

Series operate different from the other

WEBS Index Series. Accordingly, the

prospectus will disclose that the NAV

for Brazil, South Korea, and Taiwan is

determined at different times than other

MSCI WEBS Index Series. Further, the

prospectus will disclose the possible

market impact of the Fund buying or

selling securities in Brazil, South Korea,

and Taiwan and the creation and

redemption fees, intended to offset the

brokerage fees and market impact

associate with buying and selling

securities held by the Fund, that will be

charged for those three indices.

The Commission also notes that upon

the initial listing of any class of WEBS,

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

Exchange members’ responsibilities

under Exchange Rule 411 (‘‘know your

customer rule’’) regarding transactions

in WEBS. Exchange Rule 411 generally

requires that members use due diligence

to learn the essential facts relative to

every customer, every order or account

accepted.42 The circular also will

address members’ responsibility to

deliver a prospectus to all investors as

well as highlight the characteristics of

purchases in WEBS, including that they

only are redeemable in Creation Unit

size aggregations. In addition, the

Information Circular will disclose that

the NAV for Brazil, South Korea, and

Taiwan is determined at different times

than other MSCI WEBS Index Series.

Further, the Information Circular will

disclose the possible market impact of

the Fund buying or selling securities in

Brazil, South Korea, and Taiwan and the

creation and redemption fees that will

be charged for those three indices.

C. Dissemination of WEBS Portfolio

Information

The Commission believes that the

Values the Exchange proposes to have

disseminated for the six WEBS series

will provide investors with timely and

useful information concerning the value

of WEBS or a per WEBS basis. The

Exchange represents that the

information will be disseminated

through the facilities of the CTA and

will reflect currently available

information concerning the value of the

assets comprising the Deposit

Securities. This information will be

disseminated every 15 seconds during

regular Amex trading hours of 9:30 a.m.

to 4 p.m., New York Time. In addition,

since it is expected that the Value will

closely track the applicable WEBS

series, the Commission believes that the

Values will provide investors with

adequate information to determine the

intra-day value of a given WEBS series.

The Commission expects that the Amex

will monitor the disseminated Value,

and if the Amex were to determine that

the Value does not closely track

applicable WEBS series, it

30162 Federal Register / Vol. 65, No. 91 / Wednesday, May 10, 2000 / Notices

43See generally Securities Exchange Act Release

No. 29063 (April 10, 1991), 56 FR 15652 (approving

Amex proposal relating to stop and stop limit

orders in certain equity securities).

44 15 U.S.C. 78s(b) 45 15 U.S.C. 78f(b)(5) and 78s(b).

would arrange to disseminate an

adequate alternative value.

D. Specialists

The Commission finds that it is

consistent with the Act to allow a

specialist registered in a security issued

by an Investment Company to purchase

or redeem the listed security from the

issuers as appropriate to facilitate the

maintenance of a fair and orderly

market in that security. As noted in the

original WEBS order, which also

permitted specialist purchases and

redemptions, the Commission believes

that such market activities should

enhance liquidity in such securities and

facilitate a specialist’s market-making

responsibilities. In addition, because the

specialist only will be able to purchase

and redeem Units on the same terms

and conditions as any other investor at

NAV in accordance with the terms of

the Fund prospectus and statement of

additional information, the Commission

believes that concerns regarding

potential abuse are minimized. The

Exchange’s existing surveillance

procedures also should ensure that such

purchases are only for the purpose of

maintaining fair and orderly markets,

and not for any other improper or

speculative purposes. Finally, the

Commission notes that its approval of

this aspect of the Exchange’s rule

proposal does not address any other

requirements or obligations under the

federal securities laws that may be

applicable.

E. Surveillance

The Commission notes that

surveillance of the new WEBS product

is the same as the original WEBS

products. The Commission believes that

the surveillance procedures developed

by the Amex for WEBS are adequate to

address concerns associated with the

listing and trading of such securities,

including any concerns associated with

purchasing and redeeming Creation

Units.

When a broker dealer, such as Morgan

Stanley Dean Witter (‘‘MSDW’’), or a

broker dealer’s affiliate, such as MSCI,

in involved in the development and

maintenance of a stock index upon

which a product such as WEBS is based,

the broker-dealer and its affiliate should

have procedures designed specifically to

address the improper sharing of

information. The Commission notes that

MSCI has implemented procedures to

prevent the misuse of material, nonpublic information regarding changes to

component stocks in the WEBS Index

Series. The Commission believes that

the information barrier procedures put

in place by MSCI address the

unauthorized transfer and misuse of

material, non-public information.

F. Stop and Stop Limit Orders

The Commission believes that the

Amex’s proposal to designate the

additional WEBS Index Series as

eligible for election by quotation with

the prior approval of a Floor Official is

consistent with the Act. Amex Rule 154,

Commentary.04(c) generally provides

that stop and stop limit orders to buy or

sell a security or index of securities may

with the prior approval of a Floor

Official, be elected by a quotation, as set

forth in Rule 154, Commentary.04(c)(1–

v). Rule 154, Commentary.04(c)(v) states

that election by quotation only is

available for such derivative securities

as are designated by the Exchange as

eligible for such treatment. The

Exchange’s proposal would so designate

WEBS.

As previously noted by the

Commission, allowing stop and stop

limit orders in WEBS to be elected by

quotation, a rule typically used in the

options context, is appropriate because,

as a result of their derivative nature,

WEBS are in effect equity securities that

have a pricing and trading relationship

to the underlying securities similar to

the relationship between options and

their underlying securities.43

G. Scope of the Commission’s Order

The Commission is approving in

general the Exchange’s proposed listing

standards for the six new WEBS

described herein. Other similarly

structured products, including WEBS

based on MSCI Indices not described

herein, would require review by the

Commission pursuant to Section 19(b)

of the Act 44 prior to being traded on the

Exchange.

H. Accelerated Approval of Amendment

Nos. 3, 4 and 5

The Commission finds good cause for

approving Amendment Nos. 3, 4 and 5

prior to the thirtieth day after the date

of publication of notice of filing thereof

in the Federal Register. Amendment

No. 3 merely clarifies certain aspects of

the proposed rule change, such as the

Fund’s policy with respect to the

weighting of securities in a WEBS Index

Series; cash creations and redemptions

for Korea, Taiwan and Brazil WEBS

Index Series; surveillance procedures;

and the value of individual shares.

Amendment No. 4 merely withdraws

WEBS Index Series based on five

different countries. And finally,

Amendment No. 5 clarifies the timing of

when the NAV for Brazil South Korea,

and Taiwan is calculated. The

Commission notes that all of the

countries upon which the Exchange is

proposing to trade new WEBS were

disclosed during comment period and

no comments were received.

The Commission believes that

Amendment No. 3 strengthens the

Exchange’s proposal, because it

provides greater information to

investors regarding the weighting of

securities in a WEBS Index Series. In

addition, Amendment No. 3 assures

investors that the Exchange’s

surveillance procedures for its current

WEBS Index Series will apply to the six

new WEBS Index Series. Further, the

use of cash in lieu of ‘‘in-kind’’

creations and redemptions is consistent

with Amex Rule 1000A. The

Commission also believes that it is

appropriate for the Exchange to

withdraw five of the WEBS Index Series

in Amendment No. 4. The Commission

notes that Amendment No. 5 merely

changes the timing of the NAV

calculation for the Korea, Taiwan, and

Brazil WEBS Index Series. As noted

above, the Fund believes that the timing

of the calculation of the NAV until the

next day will significantly lessen

exposure of the Korea and Taiwan

WEBS Index Series and their

shareholders to the risk of price

movements in the local market. In

addition, the timing of the NAV

calculation of the Brazil WEBS Index

Series should help to ensure that it is

based on the Brazilian markets’ closing

prices. While there may be a market

impact as a result of this change, this is

disclosed in the prospectus given to all

investors trading in WEBS and the

Information Circular. Accordingly, the

Commission believes that there is good

cause, consistent with Sections 6(b)(5)

and 19(b) of the Act,45 to improve

Amendment Nos. 3, 4, and 5 to the

proposal on an accelerated basis.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views and

arguments concerning Amendment Nos.

3, 4, and 5, including whether

Amendment Nos. 3, 4, and 5 are

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

Federal Register / Vol. 65, No. 91 / Wednesday, May 10, 2000 / Notices 30163

46 15 U.S.C. 78s(b)(2).

47 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3See Letter from Alden S. Adkins, Senior Vice

President and General Counsel, NASD Regulation,

to Katherine A. England, Assistant Director,

Division of Market Regulation, Commission, dated

April 17, 2000 (‘‘Amendment No. 1’’). Amendment

No. 1 made substantive changes to the proposed

rule language, including the deletion of certain

provisions in the 9300 Series, Review of

Disciplinary Proceeding by National Adjudicatory

Council and NASD Board; Application for

Commission Review.

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 Exchange. All submissions

should refer to File No. SR–Amex–98–

49 and should be submitted by May 31,

2000.

V. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,46 that the

proposed rule change (SR–Amex–98–

49), as amended, is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.47

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–11611 Filed 5–9–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42751; File No. SR–NASD–

99–76]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change and

Amendment No. 1 by the National

Association of Securities Dealers, Inc.

Relating to Amendments to the Code

of Procedure and Other Provisions

May 3, 2000.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934 (‘‘Act’’

or ‘‘Exchange Act’’),1 and rule 19b–4

thereunder,2 notice is hereby given that

on December 28, 1999, the National

Association of Securities Dealers, Inc.

(‘‘NASD’’ or ‘‘Association’’), through its

wholly-owned subsidiary, NASD

Regulation, Inc. (‘‘NASD Regulation’’),

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 NASD

Regulation. On April 17, 2000, NASD

Regulation amended its proposal.3 The

Commission is publishing this notice to

solicit comments on the proposed rule

change, as amended, from interested

persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

NASD Regulation is proposing

amendments to the NASD Code of

Procedure and other provisions of the

NASD Rules, that include: (1) Clarifying

the Department of Market Regulation’s

role in disciplinary proceedings; (2)

requiring members to designate, as the

custodian of the record of the Form

BDW, persons who are associated with

the firm at the time the forms are filed;

(3) clarifying the authority of hearing

officers and making some limited

changes to that authority; (4) clarifying

the scope of the Association’s document

production requirements; (5) providing

for hearing panel review of staff

determinations to impose limitations on

member firm’s business activities

because of financial and/or operational

difficulties; (6) providing for changes to

the process for appeals of disciplinary

actions, statutory disqualification

proceedings, and certain other

accelerated proceedings; (7) providing

for a streamlined process to impose bars

or expulsions for the failure to provide

information to the Association; and (8)

providing for a process by which the

Association can more expeditiously

cancel memberships of firms that fail to

meet the Association’s eligibility and

qualification standards. The text of the

proposed rule change is available at the

Office of the Secretary, the NASD 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,

NASD Regulation included statements

concerning the purpose of, and basis for,

the proposed rule change and discussed

any comments it received on the

proposed rule change. The text of these

statements may be examined at the

places specified in Item IV below.

NASD Regulation 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 NASD Code of Procedure (the

‘‘Code’’), implemented on August 7,

1997, provides detailed requirements

governing NASD Regulation’s process

for:

(1) Authorizing, litigating, and issuing

disciplinary decisions;

(2) Providing for appeals of those

decisions;

(3) Taking certain actions through

categories of accelerated proceedings;

and

(4) Determining requests for relief

from statutory disqualifications.

Since August 7, 1997, the Association

staff has had significant experience

under the Code, and has noted certain

areas that need to be clarified or

changed. The Association is proposing a

series of clarifying and substantive

amendments to the Code and other

provisions as described below.

Custodian of the Record. Firms often

list persons not associated with the

firms as custodians of records on the

SEC Form BDW, and then the

Association may have difficulty

obtaining records when firms no longer

conduct business. The Association is

proposing to establish NASD Rule 3121

that would require members to

designate, as the custodians of the

record on the Form BDW, persons who

are associated with the firms at the time

the forms are filed.

Eligibility of Panel Members. In

certain circumstances, the National

Adjudicatory Council (NAC) or the

Review Subcommittee of the NAC

(Review Subcommittee) may appoint

panels to conduct hearings. Under

NASD Rule 1015, only one panel

member can be from the NAC, unless a

panel member is also a former NASD

Regulation Director or NASD Governor.

The Association believes that this

unnecessarily limits the pool of

potential panelists. The Association

believes that members of the NAC

possess specialized expertise that may

not be fully utilized under the current

rule language. Accordingly, the

Association is proposing to eliminate

this restriction.

Market Regulation’s Role in

Disciplinary Process. Both the

Department of Market Regulation and

the Department of Enforcement

represent NASD Regulation in formal

disciplinary matters under the Code.

However, the disciplinary rules only

refer to the Department of Enforcement

as the representative of the Association