[Federal Register Volume 65, Number 101 (Wednesday, May 24, 2000)]
[Notices]
[Pages 33598-33602]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-13004]


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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.
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    \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).
    \5\ Securities Exchange Act Release No. 42542 (March 17, 2000), 
65 FR 16437.
    \6\ See 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.
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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.
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    \7\ 17 CFR 240.19b-4(e). Rule 19b-4(e) permits self-regulatory 
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).
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    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).
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    \8\ Under 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.
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    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, equal-dollar or modified equal-dollar weighting 
methodology. In addition, if the index is maintained by a broker-
dealer, 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

[[Page 33599]]

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\
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    \9\ 17 CFR 240.19b-4(e).
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    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\
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    \10\ See 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).
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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 non-member 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.
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    \11\ 15 U.S.C. 870a-24(d).
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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\
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    \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).
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    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

[[Page 33600]]

(``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<SUP></SUP> (``SPDRs''<SUP></SUP>); \15\ the 
Standard & Poor's MidCap 400 Index <SUP>TM</SUP> (``MidCap SPDRs 
<SUP>TM</SUP>''); \16\ the Dow Jones Industrial Average <SUP>SM</SUP> 
(``DIAMONDs <SUP>SM</SUP>''); \17\ and, the Nasdaq-100<SUP></SUP> 
(Index Nasdaq-100 Shares <SUP>TM</SUP>).\18\
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    \14\ Securities 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.
    \15\ Securities Exchange Act Release No. 31591 (December 11, 
1992), 57 FR 60253 (December 18, 1992).
    \16\ Securities 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 
<SUP></SUP>,'' ``SPDRs <SUP></SUP>,'' ``Standard & Poor's MidCap 
400 Depositary Receipts'' and ``MidCap SPDRs'' are trademarks of The 
McGraw-Hill Companies, Inc.
    \17\ Securities Exchange Act Release No. 39525 (January 8, 
1998), 63 FR 2438 (January 15, 1998). ``Dow Jones Industrial Average 
<SUP>SM</SUP>,'' ``DJIA <SUP>SM</SUP>,'' ``Dow Jones <SUP>SM</SUP>'' 
and ``DIAMONDS'' are each trademarks and service marks of Dow Jones 
& Company, Inc.
    \18\ Securities Exchange Act Release No. 41119 (February 26, 
1999), 64 FR 11510 (March 9, 1999). The ``Nasdaq-100 Index 
<SUP></SUP>,'' ``Nasdaq-100 <SUP></SUP>,'' ``Nasdaq 
<SUP></SUP>,'' and ``The Nasdaq Stock Market <SUP></SUP>'' 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.
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    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 
Shares<SUP>SM</SUP> (``WEBS <SUP>TM</SUP>'') based on Morgan Stanley 
Capital International foreign stock indices,\20\ and nine series of 
Select Sector SPDRs<Register> based on Select Sector Indexes comprised 
of stocks representing various industry sectors and included in the S&P 
500<Register> Index.\21\
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    \19\ Securities Exchange Act Release No. 36947 (March 8, 1996), 
61 FR 10606 (March 14, 1996).
    \20\ See 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.
    \21\ See 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.
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    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.
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    \22\ See Securities Exchange Act Release No. 40761 (December 8, 
1998), 63 FR 70952 (December 22, 1998).
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    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

[[Page 33601]]

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.
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    \23\ See supra Amendment No. 1, note 5.
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    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\
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    \24\ 15 U.S.C. 78f(b)(5).
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    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\
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    \25\ 15 U.S.C. 78f(b)(5)
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    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 non-member 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.
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    \26\ As per conversation between Mike Cavalier, Associate 
General Counsel, Amex, and Heather Traeger, Attorney, Division, SEC, 
on May 15, 2000.
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    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\
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    \27\ Id.
    \28\ 15 U.S.C. 78f(b)(5).
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    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

[[Page 33602]]

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.
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    \29\ See supra, note 15.
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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.
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    \30\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\31\
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    \31\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-13004 Filed 5-23-00; 8:45 am]
BILLING CODE 8010-01-M