33598 Federal Register / Vol. 65, No. 101 / Wednesday, May 24, 2000 / Notices

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

2 17 CFR 240.19b–4.

3 17 CFR 240.19b–4(e).

4 15 U.S.C. 78s(b).

5Securities Exchange Act Release No. 42542

(March 17, 2000), 65 FR 16437.

6See letter from Michael J. Ryan, Chief of Staff,

Amex, to Nancy Sanow, Assistant Director, Division

of Market Regulation (‘‘Division’’), SEC, dated April

24, 2000 (‘‘Amendment No. 1’’). In Amendment No.

1, Amex proposed to add Commentary .03 to Amex

Rule 1000A, creating a product description delivery

requirement for series that have been granted relief

by the SEC from the prospectus delivery

requirements of Section 24(d) of the Investment

Company Act of 1940 (‘‘1940 Act’’). Amex also

clarified the timing for compliance with the

eligibility criteria and verified that the Exchange

will require issuers of a series of PDRs or Index

Fund Shares listed under Rule 19b–4(e) to represent

to the Exchange that the index or portfolio of

securities underlying such series will comply with

the applicable eligibility criteria as of the date of

initial deposit of securities to the trust or fund in

connection with the initial issuance of shares of

such trust or fund.

7 17 CFR 240.19b–4(e). Rule 19b–4(e) permits selfregulatory organizations (‘‘SROs’’) to list and trade

new derivatives products that comply with existing

SRO trading rules, procedures, surveillance

programs and listing standards, without submitting

a proposed rule change under Section 19(b).

8Under the Subchapter M of the Internal Revenue

Code, for a fund to qualify as a regulated investment

company the securities of a single issuer can

account for no more than 25% of a fund’s total

assets, and at least 50% of a fund’s total assets must

be comprised of cash (including government

securities) and securities of single issuers whose

securities account for less than 5% of such fund’s

total assets.

customary practice with respect to the

valuation of assets of the kind held by

the Investment Entities which may

include, in the case of co-investments

with a Bain Fund, valuations provided

by such Bain Fund.

6. Each Investment Entity and its

Managing Partner will maintain and

preserve, for the life of each such

Investment Entity and at least two years

thereafter, such accounts, books, and

other documents as constitute the

record forming the basis for the

financial statements and annual reports

of such Investment Entity to be

provided to its Partners, and agree that

all such records will be subject to

examination by the SEC and its staff. All

such records will be maintained in an

easily accessible place for at least the

first two years.

For the Commission, by the Division of

Investment Management, under delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–13066 Filed 5–24–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42787; File No. SR–Amex–

00–14]

Self-Regulatory Organizations;

American Stock Exchange LLC; Order

Approving Proposed Rule Change and

Notice of Filing and Order Granting

Accelerated Approval of Amendment

No. 1 Relating to Generic Listing

Standards Applicable to Listing

Portfolio Depository Receipts and

Index Fund Shares Pursuant to Rule

19b–4(e) Under the Securities

Exchange Act of 1934

I. Introduction

On March 6, 2000, the American

Stock Exchange LLC (‘‘Amex’’ or

‘‘Exchange’’) filed with the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘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

establish generic listing standards

applicable to Portfolio Depository

Receipts (‘‘PDRs’’) and Index Fund

Shares. By establishing generic listing

standards, the Amex may permit the

listing and trading of PDRs and Index

Fund Shares pursuant to Rule 19b–4(e)

under the Act 3 without submitting a

proposed rule change pursuant to

Section 19(b) under the Act.4 The

proposed rule change was published for

comment in the Federal Register on

March 28, 2000.5 No comments were

received on the proposal. The proposal

was amended on April 27, 2000.6 In this

notice and order, the Commission is

seeking comment from interested

persons on Amendment No. 1, and is

approving the proposed rule change,

including accelerated approval of

Amendment No. 1.

II. Description of the Proposal

The proposal adds commentaries to

Amex Rules 1000 and 1000A to provide

standards to permit listing and trading

of PDRs and Index Fund Shares

pursuant to Rule 19b–4(e) under the

Act.7 The proposal requires that PDRs

and Index Fund Shares listed pursuant

to Rule 19b–4(e) be subject to specific

generic criteria as set forth in proposed

Amex Rule 1000, Commentary .03 (for

PDRs) and Amex Rule 1000A,

Commentary .02 and .03 (for Index

Fund Shares). All other provisions of

Amex Rules 1000 et seq. and 1000A et

seq. will continue to apply to such

securities.

The proposed implements generic

listing criteria that are intended to

ensure that a significant portion of the

weight of an index or portfolio is

accounted for by stocks with substantial

market capitalization and trading

volume. Proposed Commentary .03 to

Amex Rule 1000 and Commentary .02 to

Amex Rule 1000A both provide that,

upon the initial listing of a series of

PDRs or Index Fund Shares under Rule

19b–4(e), component stocks that in the

aggregate account for at least 90% of the

weight of the index or portfolio must

have a minimum market value of at least

$75 million. In addition, the component

stocks in the index must have a

minimum monthly trading volume

during each of the last six months of at

least 250,000 shares for stocks

representing at least 90% of the weight

of the index or portfolio.

The most heavily weighted

component stock in an underlying index

cannot exceed 25% of the weight of the

index or portfolio, and the five most

heavily weighted component stocks

cannot exceed 65% of the weight of the

index or portfolio. The underlying index

or portfolio must include a minimum of

13 stocks, which is the minimum

number to permit qualification as a

regulated investment company under

Subchapter M of the Internal Revenue

Code.8 All securities in an underlying

index or portfolio must be listed on a

national securities exchange or The

Nasdaq Stock Market (including the

Nasdaq SmallCap Market).

Proposed Commentary .03 to Amex

Rule 1000 and Commentary .02 to Amex

Rule 1000A provide that the underlying

index will be calculated based on either

the market capitalization, modified

market capitalization, price, equaldollar or modified equal-dollar

weighting methodology. In addition, if

the index is maintained by a brokerdealer, the broker-dealer must erect a

‘‘fire wall’’ around the personnel who

have access to information concerning

changes and adjustments to the index

and the index must be calculated by a

third party who is not a broker-dealer.

The current index value will be

disseminated every 15 seconds over the

Consolidated Tape Association’s

Network B.

The Reporting Authority will

disseminate for each series of PDRs and

Index Fund Shares an estimate, updated

every 15 seconds, of the value of a share

of each series. This may be based, for

example, upon current information

regarding the required deposit of

securities plus any cash amount to

permit creation of new shares of the

series or upon the index value.

A minimum of 100,000 shares of a

series of PDRs or Index Fund Shares

will be required to be outstanding as of

the start of trading. The minimum

trading increment for a series of PDRs

Federal Register / Vol. 65, No. 101 / Wednesday, May 24, 2000 / Notices 33599

9 17 CFR 240.19b–4(e).

10See 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). 11 15 U.S.C. 870a–24(d).

12 15 U.S.C. 78f(b)(5). 13 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).

will be 1⁄64 of $1.00, and for Index Fund

Shares will be 1⁄16, 1⁄32 or 1⁄64 of $1.00,

as determined by the Exchange for a

specific series.

The original listing fee for each series

of PDRs and Indes Fund Shares will be

$5,000. The annual listing fee under

Section 141 of the Amex Company

Guide will be based upon the number of

shares of a series of PDRs outstanding at

the end of each calendar year. For funds

with multiple series of Index Fund

Shares, shares in all series outstanding

at year end will be aggregated for

purposes of the annual listing fee under

Section 141 of the Amex Company

Guide.

The Exchange will implement written

surveillance procedures for PDRs and

Index Fund Shares. In addition, the

Exchange will comply with the

recordkeeping requirements of Rule

19b–4(e), and will file Form 19b–4(e) for

each series of PDRs or Index Fund

Shares listed under the rule within five

business days of commencement of

trading.9

The provisions of Amex Rules 1000 et

seq. or 1000A et seq. will apply to all

series of PDRs and Index Fund Shares

listed under Rule 19b–4(e). In addition

to the requirements of proposed

Commentary .03 to Amex Rule 1000 and

Commentary .02 and .03 to Amex Rule

1000A, PDRs and Index Fund Shares

will be subject to Exchange procedures

and rules, discussed below, comparable

to those applied to existing PDRs and

Index Fund Shares.

Amex Rule 154

Commentary .04(c) to Amex Rule 154

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). PDRs and Index Fund Shares

listed under Rule 19b–4(e) will be

eligible for this treatment.10

Trading Halts

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 PDRs and

Index Fund Shares. These factors would

include: (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. Trading in these

Securities will also be halted in the

event that market-wide ‘‘circuit breaker’’

parameters of Amex Rule 117 are

triggered.

Amex Rule 190, Commentary .04

Commentary .04 to Amex Rule 190

will apply to PDRs and Index Fund

Shares listed under 19b–4(e). This

Commentary provides that the

prohibition in Amex Rule 190(a) against

a specialist or the specialist’s member

organization effecting any business

transactions with a company in which

stock the specialist is registered does

not restrict a specialist registered in a

series of PDRs or Index Fund Shares

from purchasing and redeeming the

applicable series from the issuer to

facilitate the maintenance of a fair and

orderly market.

Notice to Members

The Exchange will issue a Notice to

Members for each series of PDRs or

Index Fund Shares to be listed pursuant

to Rule 19b–4(e). The Notice will

describe the characteristics of the

securities and inform members of any

obligation to deliver a written product

description or prospectus, applicable, to

purchasers of PDRs or Index Fund

Shares. In addition, the notice will

inform members of their responsibilities

under Amex Rule 411 (Duty to Know

and Approve Customers) in connection

with customer transactions in these

securities.

The proposal also requires, in

proposed Commentary .03 to Rule

1000A, members and member

organizations to provide to purchasers

of a series of Index Fund Shares a

product description of the terms and

characteristics of such securities in a

form prepared by the open-end

management investment company

issuing such securities, not later than

the time a conformation of the first

transaction in such series is delivered to

the purchaser. This requirement applies

only if the particular series has been

granted relief from the prospectus

delivery requirements of Section 24(d)

of the 1940 Act.11 Additionally,

members and member organizations are

required to include the product

description with any sales materials

relating to a series of Index Fund Shares

that is provided to the public. Any other

written materials provided to customers

by a member or member organization

referring to a series of Index Fund

Shares must include a statement relating

to the product description, in

substantially the form set forth in the

proposed Commentary .03. The

proposal also provides that a member or

member organization carrying an

omnibus account for a non-member

broker-dealer is required to inform such

non-member that execution of an order

to purchase a series of Index Fund

Shares for such account will be deemed

to constitute agreement by the nonmember to make such product

description available to its customers on

the same terms as are directly applicable

to members and member organizations

under proposed Commentary .03.

Finally, the proposal provides that a

member or member organization must

provide a prospectus for a particular

series of Index Fund Shares upon the

customer’s request.

III. Discussion

The Commission finds that the

proposed rule change is consistent with

the requirements of the Act and the

rules and regulations thereunder

applicable to a national securities

exchange, and, in particular, with the

requirements of Section 6(b)(5).12

Specifically, the Commission finds that

the proposal to provide generic

standards to permit listing and trading

of PDRs and Index Fund Shares

pursuant to Rule 19b–4(e) furthers the

intent of that rule by facilitating

commencement of trading in these

securities without the need for notice

and comment and Commission approval

under Section 19(b) of the Act. Thus, by

establishing generic standards, the

proposal should reduce the Exchange’s

regulatory burden, as well as benefit the

public interest, by enabling the

Exchange to bring qualifying products to

the market more quickly. Accordingly,

the Commission finds that the

Exchange’s proposal will promote just

and equitable principles of trade, foster

cooperation and coordination with

persons engaged in regulating, clearing,

settling, processing information with

respect to, and facilitating transactions

in securities, and, in general, protect

investors and the public interest

consistent with Section 6(b)(5) of the

Act.13

On December 11, 1992, the

Commission approved Amex Rules 1000

et seq. to accommodate trading on the

Exchange of PDRs, which represent

interests in a unit investment trust

33600 Federal Register / Vol. 65, No. 101 / Wednesday, May 24, 2000 / Notices

14Securities Exchange Act Release No. 31591

(December 11, 1992), 57 FR 60253 (December 18,

1992). ‘‘PDRs’’ is a service mark of PDR Services

LLC, a wholly-owned subsidiary of the Exchange.

15Securities Exchange Act Release No. 31591

(December 11, 1992), 57 FR 60253 (December 18,

1992).

16Securities Exchange Act Release No. 35534

(March 24, 1995), 60 FR 16686 (March 31, 1995).

‘‘Standard & Poor’s 500,’’ ‘‘Standard & Poor’s

MidCap 400 Index,’’ ‘‘Standard & Poor’s Depositary

Receipts ,’’ ‘‘SPDRs ,’’ ‘‘Standard & Poor’s MidCap

400 Depositary Receipts’’ and ‘‘MidCap SPDRs’’ are

trademarks of The McGraw-Hill Companies, Inc.

17Securities Exchange Act Release No. 39525

(January 8, 1998), 63 FR 2438 (January 15, 1998).

‘‘Dow Jones Industrial Average SM,’’ ‘‘DJIA SM,’’

‘‘Dow Jones SM’’ and ‘‘DIAMONDS’’ are each

trademarks and service marks of Dow Jones &

Company, Inc.

18Securities Exchange Act Release No. 41119

(February 26, 1999), 64 FR 11510 (March 9, 1999).

The ‘‘Nasdaq-100 Index ,’’ ‘‘Nasdaq-100 ,’’

‘‘Nasdaq ,’’ and ‘‘The Nasdaq Stock Market ’’ are

trademarks of Nasdaq and have been licensed for

use for certain purposes by Investment Product

Services, Inc. pursuant to a License Agreement with

Nasdaq.

19Securities Exchange Act Release No. 36947

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

20See Securities Exchange Act Release No. 41983

(October 6, 1999), 64 FR 56008 (October 15, 1999).

‘‘World Equity Benchmark Shares’’ and ‘‘WEBS’’

are service marks of Morgan Stanley Group, Inc.

21See Securities Exchange Act Release No. 40479

(December 4, 1998), 63 FR 68483 (December 11,

1998). ‘‘Select Sector SPDR’’ is a service mark of

The McGraw-Hill Companies, Inc.

22See Securities Exchange Act Release No. 40761

(December 8, 1998), 63 FR 70952 (December 22,

1998).

(‘‘Trust’’) that operates on an open-end

basis and holds a portfolio of

securities.14 Each Trust is intended to

provide investors with an instrument

that closely tracks the underlying

securities portfolio, that trades like a

share of common stock, and that pays to

PDR holders periodic dividends

proportionate to those paid with respect

to the underlying portfolio of securities,

less certain expenses, as described in

the applicable Trust prospectus. The

Exchange currently trades PDRs based

on: the Standard & Poor’s 500 Index,

known as Standard & Poor’s Depositary

Receipts (‘‘SPDRs’’); 15 the Standard &

Poor’s MidCap 400 Index TM (‘‘MidCap

SPDRs TM’’); 16 the Dow Jones Industrial

Average SM (‘‘DIAMONDs SM’’); 17 and,

the Nasdaq-100 (Index Nasdaq-100

Shares TM).18

The Commission first approved

Amex’s listing and trading of Index

Fund Shares under Amex Rules 1000A

et seq. in 1996.19 Index Fund Shares are

shares issued by an open-end

management investment company that

seeks to provide investment results that

correspond generally to the price and

yield performance of a specified foreign

or domestic equity market index. The

Exchange currently lists under Amex

Rules 1000A et seq. seventeen series of

World Equity Benchmark SharesSM

(‘‘WEBS TM’’) based on Morgan Stanley

Capital International foreign stock

indices,20 and nine series of Select

Sector SPDRs based on Select Sector

Indexes comprised of stocks

representing various industry sectors

and included in the S&P 500 Index.21

Rule 19b–4(e) provides that the listing

and trading of a new derivative

securities product by an SRO shall not

be deemed a proposed rule change,

pursuant to paragraph (c)(1) of Rule

19b–4, if the Commission has approved,

pursuant to Section 19(b) of the

Exchange Act, the SRO’s trading rules,

procedures and listing standards for the

product class that include the new

derivative securities product and the

self-regulatory organization has a

surveillance program for the product

class.22 As noted above, the Commission

has previously approved Amex Rules

1000 et seq. and 1000A et seq. to permit

the listing and trading of PDRs and

Index Fund Shares. In approving these

securities for Exchange trading, the

Commission thoroughly considered the

structure of these securities, their

usefulness to investors and to the

markets, and the Amex rules that govern

their trading. Moreover, except for

SPDRs and the initial WEBS series, the

Exchange separately filed proposed rule

changes pursuant to Rule 19b–4 for each

series of PDRs or Index Fund Shares

currently trading on the Exchange. The

Commission believes that adopting

generic listing standards for these

securities and applying Rule 19b–4(e)

should fulfill the intended objective of

that rule by allowing those series of

PDRs and Index Fund Shares that satisfy

those standards to start trading, without

the need for notice and comment and

Commission approval. The Exchange’s

ability to rely on Rule 19b–4(e) for these

products potentially reduces the time

frame for bringing these securities to the

market and thus enhances investors’

opportunities. The Commission notes

that while the proposal reduces the

Exchange’s and the Commission’s

regulatory burden, the Commission will

maintain regulatory oversight over any

products listed under the generic

standards through regular inspection

oversight.

The Commission previously

concluded that PDRs and Index Fund

Shares it previously approved for listing

under the existing rules governing those

securities would allow investors to: (1)

Respond quickly to market changes

through intra-day trading opportunities;

(2) engage in hedging strategies similar

to those used by institutional investors;

and (3) reduce transactions costs for

trading a portfolio of securities. The

Commission believes, for the reasons set

forth below, that the product classes

that satisfy the proposed generic

standards for PDRs and Index Fund

Shares and, therefore, can be listed

under Rule 19b–4(e) without prior

Commission approval, should produce

the same benefits to the Exchange and

to investors.

The Commission finds that the

Amex’s proposal contains adequate

rules and procedures to govern the

listing and trading of PDRs and Index

Fund Shares Rule 19b–4(e). All series of

PDRs and Index Fund Shares listed

under the generic standards will be

subject to the full panoply of Amex

rules and procedures that now govern

the trading of existing PDRs and Index

Fund Shares on the Amex. Accordingly,

any new series of PDRs and Index Fund

Shares listed and traded under Rule

19b–4(e) will be subject to Amex rules

governing the trading of equity

securities, including, among others,

rules and procedures governing trading

halts, disclosures to members,

responsibilities of the specialist,

account opening and customer

suitability requirements, the election of

a stop or limit order, and margin.

In addition, the Amex has developed

specific listing criteria for series of PDRs

or Index Fund Shares qualifying for

Rule 19b–4(e) treatment that will help to

ensure that a minimum level of liquidity

will exist to allow for the maintenance

of fair and orderly markets. Specifically,

the Exchange has designated that a

minimum of 100,000 shares of a series

of PDRs or Index Fund Shares will be

required to be outstanding as of the start

of trading. The Commission believes

that this minimum number of securities

is sufficient to establish a liquid

Exchange market at the commencement

of trading. The Exchange has also

established that upon initial listing:

Component stocks that in the aggregate

account for at least 90% of the weight

of the index or portfolio must have

minimum market value of at least $75

million; the component stocks in the

index must have a minimum monthly

trading volume during each of the last

six months of at least 250,000 shares for

stocks representing at least 90% of the

weight of the index or portfolio; the

most heavily weighted component stock

cannot exceed 25% of the weight of the

index or portfolio, and the five most

heavily weighted component stocks

cannot exceed 65% of the weight of the

index or portfolio; the index or portfolio

must include a minimum of 13 stocks;

and all securities in an underlying index

or portfolio must be listed on a national

securities exchange or the Nasdaq Stock

Federal Register / Vol. 65, No. 101 / Wednesday, May 24, 2000 / Notices 33601

23See supra Amendment No. 1, note 5.

24 15 U.S.C. 78f(b)(5). 25 15 U.S.C. 78f(b)(5)

26As per conversation between Mike Cavalier,

Associate General Counsel, Amex, and Heather

Traeger, Attorney, Division, SEC, on May 15, 2000.

27 Id.

28 15 U.S.C. 78f(b)(5).

Market. Moreover, any series seeking to

list under the generic standards must

meet these eligibility criteria as of the

date of the initial deposit of securities

and cash into the trust or fund.23 The

Commission believes that these criteria

should serve to ensure that the

underlying securities of these indexes

and portfolios are well capitalized and

actively traded, which will help to

ensure that U.S. securities markets are

not adversely affected by the listing and

trading of new series of PDRs and Index

Fund Shares under rule 19b–4(e). These

listing criteria also will make certain

that new series of PDRs and Index Fund

Shares do not contain features that are

likely to impact adversely the U.S.

securities markets. Accordingly, the

Commission finds that these criteria are

consistent with Section 6(b)(5) of the

Act, because they serve to prevent

fraudulent or manipulative acts;

promote just and equitable principles of

trade; remove impediments to and

perfect the mechanism of a free and

open market and a national market

system; and protect investors and the

public interest.

In addition, as previously noted, all

series of PDRs and Index Fund Shares

listed under the generic standards will

be subject to the existing continued

listing criteria for these securities. This

requirement allows the Amex to

consider the suspension of trading and

the delisting of a series if an event

occurred that makes further dealings in

such securities inadvisable. The

Commission believes that this will give

the Amex flexibility to delist PDRs or

Index Fund Shares if circumstances

warrant such action.

Furthermore, the Commission finds

that the Exchange’s proposal to trade

PDRs in minimum fractional increments

of 1⁄64 of $1.00 and Index Fund Shares

in increments of 1⁄16, 1⁄32, or 1⁄64 of $1.00

is consistent with the Act. The

Commission believes that such trading

should enhance market liquidity, and

should promote more accurate pricing,

tighter quotations, and reduced price

fluctuations, which are all mechanisms

that benefit the investor. The

Commission also believes that such

trading should allow customers to

receive the best possible execution of

their transactions in the PDRs or Index

Fund Shares, thereby protecting

customers and the public interest

consistent with Section 6(b)(5) of the

Act.24

The Exchange represents that the

Reporting Authority will disseminate

for each series of PDRs or Index Fund

Shares an estimate, updated every 15

seconds, of the value of a share of each

series. The Commission believes that

the information the Exchange proposes

to have disseminated will provide

investors with timely and useful

information concerning the value of

each series. Additionally, the

Commission believes that the proposed

original listing fee of $5,000 is

reasonable, as is the proposed method

for calculating the annual fee.

The Amex has developed surveillance

procedures for PDRs and Index Fund

Shares listed under the generic

standards that incorporate and rely

upon existing Amex surveillance

procedures governing PDRs, Index Fund

Shares, and equities. The Exchange also

will file Form 19b–4(e) with the

Commission within five business days

of commencement of trading a series

under the generic standards, and will

comply with all Rule 19b–4(e)

recordkeeping requirements. The

Commission believes that these

surveillance procedures are adequate to

address concerns associated with listing

and trading PDRs and Index Fund

Shares under the generic standards.

Accordingly, the Commission believes

that the rules governing the trading of

such securities provide adequate

safeguards to prevent manipulative acts

and practices and to protect investors

and the public interest, consistent with

Section 6(b)(5) of the Act. 25

The Commission also notes that

certain concerns are raised when a

broker-dealer is involved in both the

development and maintenance of a

stock index upon which a product such

as PDRs or Index Fund Shares is based.

The proposal would require that in such

circumstances, the broker dealer must

have procedures in place to prevent the

misuse of material, non-public

information regarding changes and

adjustments to the index and the index

shall be calculated by a third party who

is not a broker-dealer. The Commission

believes that these requirements should

help address concerns raised by a

broker-dealer’s involvement in the

management of such an index.

The Commission believes that the

Exchange’s proposal will ensure that

investors have information that will

allow them to be adequately apprised of

the terms, characteristics, and risks of

trading PDRs and Index Fund Shares.

PDRs listed under the generic standards

will be subject to the existing Amex

rules for PDRs which have a prospectus

delivery requirement or, for series that

have been granted relief from the

prospectus delivery requirements of the

1940 Act, a product description delivery

requirement. The proposal would

implement a similar requirement for

Index Fund Shares. The prospectus or

product description will address the

special terms and characteristics of a

particular series, including a statement

regarding their redeemability and

method of creation, and a statement

regarding the likelihood of whether

such products will trade below, at, or

above net asset value, based on the role

of discount or premiums.26 The

requirement extends to a member or

member organization carrying an

omnibus account for a non-member

broker-dealer, who must notify the nonmember to make the product

description available to its customers on

the same terms as are directly applicable

to members and member organizations.

Finally, a member or member

organization must delivery a prospectus

to a customer upon request.

The Commission also notes that upon

the initial listing of any PDRs or Index

Fund Shares under the generic

standards, the Exchange will issue a

circular to its members explaining the

unique characteristics and risks of this

particular type of security. The circular

also will note the Exchange members’

prospectus or product description

delivery requirements, and highlight the

characteristics of purchases in a

particular series of PDRs or Index Fund

Shares.27 The circular also will inform

members of their responsibilities under

Amex Rules 411 in connection with

customer transactions in these

securities. Accordingly, the Commission

believes that the proposal governing the

trading of PDRs and Index Fund Shares

pursuant to the generic standards

provides adequate safeguards to prevent

manipulative acts and practices and to

protect investors and the public interest

consistent with Section 6(b)(5) of the

Act.28

The Commission finds good cause for

approving proposed Amendment No. 1

prior to the thirtieth day after the date

of publication of notice of filing in the

Federal Register. Specifically, the

amendment adds Commentary .03 to

Rule 1000A. Proposed Commentary .03

establishes a product description

delivery requirement for series of Index

Fund Shares that have been granted

relief by the Commission from the

prospectus delivery requirements of

Section 24(d) of the 1940 Act. Proposed

Commentary .03 is comparable to

33602 Federal Register / Vol. 65, No. 101 / Wednesday, May 24, 2000 / Notices

29See supra, note 15.

30 15 U.S.C. 78s(b)(2).

31 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3Note: the reference to NASD Regulation will be

changed to NASD Dispute Resolution, Inc., when

such new subsidiary becomes operational.

Commentary .01 to Amex Rule 1000

which, under similar circumstances,

requires delivery of a product

description to purchasers of PDRs and

was approved by the Commission in

December 1992.29 The Commission

believes it is appropriate to approve this

proposed provision at the same time as

approving the generic standards because

it establishes an important parallel

requirement for Index Fund Shares that

apply for listing under the proposed

generic standards to that of PDRs.

Accordingly, the Commission finds that

there is good cause, consistent with

Section 6(b)(5) of the Act, to approve

Amendment No. 1 to the proposal on an

accelerated basis.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning Amendment No.

1, including whether this amendment is

consistent with the Act. Persons making

written submissions should file six

copies thereof with the Secretary,

Securities and Exchange Commission,

450 Fifth Street, NW., Washington, DC

20549–0609. Copies of the submission,

all subsequent amendments, all written

statements with respect to the proposed

rule change that are filed with the

Commission, and all written

communications relating to the

proposed rule change between the

Commission and any person, other than

those that may be withheld from the

public in accordance with the

provisions of 5 U.S.C. 552, will be

available for inspection and copying at

the Commission’s Public Reference

Room. Copies of such filing will also be

available for inspection and copying at

the principal office of the Exchange. All

submissions should refer to File No.

SR–Amex–00–14 and should be

submitted by June 14, 2000.

V. Conclusion

It Is Therefore Ordered, pursuant to

Section 19(b)(2) of the Act,30 that the

proposed rule change (SR–Amex–00–

14), as amended, is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.31

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–13004 Filed 5–23–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42792; File No. SR–NASD–

00–11]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the National Association of Securities

Dealers, Inc., Amending Its Mediation

Fee Structure

May 17, 2000.

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 March 9,

2000, 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

(‘‘Commission’’) the proposed rule

change as described in Items I, II, and

III below, which Items have been

prepared by NASD Regulation. 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

NASD Regulation proposes to amend

the Code of Arbitration Procedure

(‘‘Code’’) of the NASD to encourage the

use of mediation, increase revenue by

adjusting mediation fee schedules, and

permit parties to agree to stay

arbitrations in order to mediate their

claims. The text of the proposed rule

change follows. Proposed new language

appears in italics; proposed deletions

appear in brackets.

* * * * *

Rule 10205. Schedule of Fees for

Industry and Clearing Controversies

(a)–(i) No change.

[(j) Each party to a matter submitted

to a mediation administered by the

Association where there is no

Association arbitration proceeding

pending shall pay an administrative fee

of $250. The parties to a mediation

administered by the Association shall

pay all of the mediator’s charges,

including the mediator’s travel and

other expenses. The charges shall be

specified in the Submission Agreement

and shall be apportioned equally among

the parties unless they agree otherwise.

Each party shall deposit with the

Association their proportional share of

the anticipated mediator charges and

expenses, as determined by the Director

of Mediation, prior to the first mediation

session. Mediator charges, except travel

and other expenses, are as follows:

(1) Initial Mediation Session: $600 or

four (4) times the mediator’s hourly rate

agreed by the parties and the mediator;

and

(2) Additional Mediation Sessions:

$150 per hour, or such other hourly rate

agreed by the parties and the mediator.]

* * * * *

Rule 10332. Schedule of Fees for

Customer Disputes

(a)–(h) No change.

[(i) Each party to a matter submitted

to a mediation administered by the

Association where there is no

Association arbitration proceeding

pending shall pay an administrative fee

of $150.]

[(j) The parties to a mediation

administered by the Association shall

pay all of the mediator’s charges,

including the mediator’s travel and

other expenses. The charges shall be

specified in the Submission Agreement

and shall be apportioned equally among

the parties unless they agree otherwise.

Each party shall deposit with the

Association their proportional share of

the anticipated mediator charges and

expenses, as determined by the Director

of Mediation, prior to the first mediation

session. Mediator charges, except travel

and other expenses, are as follows:

(1) Initial Mediation Session: $600 or

four (4) times the mediator’s hourly rate

agreed to by the parties and the

mediator; and

(2) Additional Mediation Sessions:

$150 per hour, or such other hourly rate

agreed to by the parties and the

mediator.]

* * * * *

Rule 10403. Arbitration Proceedings

(a) Unless the parties agree otherwise,

the submission of a matter for mediation

shall not stay or otherwise delay the

arbitration of a matter pending under

this Code. When the parties agree to

stay the arbitration in order to mediate

the claim, the arbitration proceeding

shall be stayed, notwithstanding any

provision to the contrary in this Code.

(b) If mediation is conducted through

NASD Regulation, no adjournment fees

will be charged for staying the

arbitration proceeding in order to

mediate.3

* * * * *