[Federal Register Volume 62, Number 163 (Friday, August 22, 1997)]
[Notices]
[Pages 44735-44739]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-22291]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38940; International Series Release No. 1097; File No. 
SR-Amex-97-20]


Self-Regulatory Organizations; Order Granting Approval to 
Proposed Rule Change and Notice of Filing and Order Granting 
Accelerated Approval to Amendment Nos. 1, 2, and 3 to Proposed Rule 
Change by the American Exchange, Inc., Relating to the Listing and 
Trading of Indexed Term Notes

August 15, 1997.

I. Introduction

    On April 30, 1997, the American Stock Exchange, Inc. (``Amex'' or 
``Exchange'') submitted to the Securities and Exchange Commission 
(``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 approve for listing and trading under Section 
107A of the Amex Company Guide market index target-term securities 
(``MITTS''),\3\ the return of which is based in whole or in part on 
changes in the value of the Major 11 International Index (``the Major 
11 International Index'').
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ ``MITTS'' and ``Market Index Target-Term Securities'' are 
service marks of Merrill Lynch & Co., Inc. (``Merrill Lynch'').
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    The proposed rule change, together with the substance of the 
proposal, was published for comment in Securities Exchange Act Release 
No. 38665 (May 21, 1997) 62 FR 28911 (May 28, 1997). No comment letters 
were received in response to the proposal. The Exchange subsequently 
filed Amendment Nos. 1, 2, and 3 to the proposed rule change on June 
11, 1997, \4\ June 30, 1997, \5\ and July 17, 1997,\6\ respectively. 
This order

[[Page 44736]]

approves the proposed rule change, as amended.
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    \4\ Amendment No. 1 states that the Exchange's equity trading 
rules will apply to the trading of indexed term notes linked to the 
Major 11 International Index, including Rule 411, which requires 
members to use due diligence to learn essential facts relative to 
every customer and to every order or account accepted, and Rule 462, 
which requires the application of equity margin rules to the trading 
of indexed term notes. Amendment No. 1 also states that the 
continued listing guidelines set forth in Sections 1001 through 1003 
of the Amex Company Guide will apply to the proposed indexed term 
notes; that the exchange will, prior to trading the proposed indexed 
term notes, distribute an Information Circular to members providing 
guidance with regard to member firm compliance responsibilities, 
including suitability recommendations, when handling transactions in 
the indexed term notes, and highlighting their special risks and 
characteristics; that the Exchange will maintain the Index and it 
will be the Exchange's responsibility to determine, if necessary, 
whether to replace a sub-index with a substitute or successor index 
or undertake to publish the sub-index if it ceases to be published. 
See letter from Claire P. McGrath, Vice-President and Special 
Counsel, Amex, to Ivette Lopez, Assistant Director, Market 
Supervision, Commission, dated June 10, 1997 (``Amendment No. 1'').
    \5\ Amendment No. 2 further clarifies Amendment No. 1 by stating 
that Section 1003(b) of the Company Guide in particular will apply 
to the proposed indexed term notes. Amendment No. 2 also states that 
the shares of a sub-index will remain fixed, except in the case of a 
significant event, such as a split in the value of the sub-index, a 
change in the method of calculation, or if the sub-index ceases to 
be published. Amendment No. 2 gives an example of what would happen 
to the Index calculation if a sub-index were to split in value. 
Also, if the sub-index ceases to be published, Amex could choose to 
replace it with a substitute index (another index currently being 
published that correlates highly with the sub-index being replaced, 
such as Amex's Japan Index could substitute for the Nikkei 225), a 
successor index (an index intended by the publisher as a replacement 
to the original sub-index), or undertake to publish the sub-index 
using the same procedures last used to calculate the sub-index prior 
to its discontinuance. In addition, Amendment No. 2 states that if 
the marketplace for the securities underlying any one of the sub-
indices that constitute the Major 11 International Index is closed 
on any given business day, due to natural disaster or holiday 
observed in the foreign country, Amex will use the previous closing 
value in the calculation. See letter from Claire P. McGrath, Vice-
President and Special Counsel, Derivatives Securities, Amex, to 
Ivette Lopez, Assistant Director, Market Regulation, Commission, 
dated June 27, 1997 (``Amendment No. 2'').
    \6\ Amendment No. 3 states that Amex intends to include a 
heightened suitability standard in the Information Circular it will 
distribute to its membership prior to the commencement of trading in 
Major 11 International Index Notes. The circular will state that 
before a member, member organization, or employee of such member 
organization undertakes to recommend a transaction in the security, 
such member or member organization should make a determination that 
the security is suitable for such customer and the person making the 
recommendation should have a reasonable basis for believing at the 
time of making the recommendation, that the customer has such 
knowledge and experience in financial matters that they may be 
capable of evaluating the risks and the special characteristics of 
the recommended transaction, including those highlighted, and is 
financially able to bear the risks of the recommended transaction. 
See letter from Claire McGrath, Vice-President and Special Counsel, 
Amex, to Ivette Lopez, Assistant Director, Market Regulation, 
Commission, dated July 16, 1997 (``Amendment No. 3'').
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II. Background and Description

    Under Section 107A of the Amex Company Guide, the Exchange may 
approve for listing and trading securities which cannot be readily 
categorized under the listing criteria for common and preferred stocks, 
bonds, debentures, or warrants.\7\ The Amex now proposes to list for 
trading under Section 107A of the Company Guide indexed term notes 
whose value in whole or in part will be based upon an index consisting 
of the major market indices of eight European countries, two Asian 
countries, and Australia (``Major 11 International Index Notes'' or 
``Index Notes'').\8\
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    \7\ See Securities Exchange Act Release No. 27753 (March 1, 
1990), 55 FR 8626 (March 8, 1990).
    \8\ The Commission has previously approved the listing and 
trading of MITTS or hybrid securities similar to MITTS based upon 
portfolios of securities. See e.g., Securities Exchange Act Release 
Nos. 32840 (September 2, 1993), 58 FR 47485 (September 9, 1993); 
33368 (December 22, 1993), 58 FR 68975 (December 29, 1993); 33495 
(January 19, 1994), 59 FR 3883 (January 27, 1994); 34692 (September 
20, 1994), 59 FR 49267 (September 27, 1994); 37533 (August 7, 1996), 
61 FR 42075 (August 13, 1996); and 37744 (September 27, 1996), 61 FR 
52480 (October 7, 1996) (``Term Notes Approval Orders''). MITTS on 
the Major 11 International Index Notes differ from these other MITTS 
products in that the Major 11 International Index is an index of 
several indices rather than a portfolio of individual securities. 
See, e.g., Securities Exchange Act Release No. 38819 (July 7, 1997), 
62 FR 37320 (July 11, 1997).
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    The Index Notes will be non-convertible debt securities and will 
conform to the initial listing guidelines under Section 107A of the 
Company Guide \9\ and the continued listing guidelines under Sections 
1001 to 1003 of the Company Guide.\10\ Although a specific maturity 
date will not be established until the time of the offering, the Index 
Notes will provide for maturity within a period of not less than one 
nor more than ten years from the date of issue. Indexed term notes may 
provide for payments at maturity based in whole or in part on changes 
in the value of the index.\11\ At maturity, holders of the Major 11 
International Index Notes will receive not less than 90% of the initial 
issue price. The notes will not be callable or redeemable prior to 
maturity and will be cash settled in U.S. currency.
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    \9\ Specifically, the notes must have: (1) A minimum 
distribution of one million trading units; (2) a minimum of 400 
holders; (3) an aggregate market value of at least $4 million; and 
(4) a term of at least one year. Additionally, the issuer of the 
notes must have assets of at least $100 million, stockholders' 
equity of at least $10 million, and pre-tax income of at least 
$750,000 in the last fiscal year or in tow of the three prior fiscal 
years. As an alternative to these financial criteria, the issue must 
have either: (1) Assets in excess of $200 million and stockholders' 
equity in excess of $10 million; or (2) assets in excess of $100 
million and stockholders' equity of at least $20 million.
    \10\ The Exchange's continued listing guidelines are set forth 
in Sections 1001 through 1003 of the Exchange's Company Guide. 
Section 1002(b) states that the Exchange will consider removing from 
listing any security where, in the opinion of the Exchange, it 
appears that the extent of public distribution or aggregate market 
value has become so reduced to make further dealings on the Exchange 
inadvisable. With respect to the continued listing guidelines for 
distribution of the indexed term notes on the Major 11 International 
Index, the Exchange will rely, in part, on the guidelines in Section 
1003(b), which discuss suspensions and delistings with respect to 
limited distribution and reduced market value. See Amendment No. 2, 
supra note 5.
    \11\ The Commission notes that the terms of the final payout for 
the Notes have not yet been finalized. However, Amex has stated that 
it expects an investor to receive the appreciation, if any, of the 
ending Index value over the starting Index value, plus an additional 
amount that would be between 10% and 20% of the appreciation amount. 
In addition, the Commission notes that previously approved MITTS 
products have had terms that include a cap on the amount of 
appreciation an investor could receive, while other MITTS products 
previously approved have been structured so that the investor can 
receive (in addition to the percentage of principal guaranteed) 
appreciation, if any, of the ending index value over the starting 
index value only if the ending index value is more than a certain 
percentage above the starting index value.
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    Consistent with other structured products, the Exchange will 
distribute a circular to its membership, prior to the commencement of 
trading, providing guidance with regard to member firm compliance 
responsibilities, including appropriate suitability criteria and/or 
guidelines, and highlighting the special risks and characteristics of 
the proposed Major 11 International Index Notes.\12\ The Exchange's 
equity trading rules will apply to the trading of the indexed term 
notes linked to the Index, including Rules 411 and 462.\13\ 
Specifically, Rule 411 will impose a duty of due diligence on Amex's 
members and member firms to learn the essential facts relating to every 
customer prior to trading Major 11 International Index Notes. In 
addition, for this particular MITTS product, the Exchange will require 
members and member firms to make a determination that the proposed 
index term note is suitable for the customer, and the person making the 
recommendation should have a reasonable basis for believing at the time 
of making the recommendation that the customer has the knowledge and 
experience in financial matters that they may be capable of evaluating 
the risks and the special characteristics of the recommended 
transaction, and is financially able to bear the risks of the 
recommended transaction.\14\
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    \12\ See Amendment Nos. 1 and 2, supra notes 4 and 5.
    \13\ Rule 411 requires the Exchange's members to use due 
diligence to learn the essential facts relative to every customer 
and to every order or account accepted. Rule 462 requires the 
application of equity margin rules to the trading of indexed term 
notes. See Amendment No. 1, supra note 4.
    \14\ See Amendment No. 3, supra note 6.
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    According to Amex, the eleven indices (``sub-indices'' or 
individually ``sub-index'') that form the Major 11 International Index 
are comprised of a total of 911 of the largest and most liquid 
securities from each of the eight European markets, two Asian markets, 
and the Australian market. Initial weightings will be assigned to each 
sub-index at the close of trading on the day immediately prior to the 
listing of the Index Notes and based upon the index's market 
capitalization. Based on market data as of April 3, 1997, the Nikkei 
225 Index (``NKY'') would have an assigned weight of approximately 
27.80%; the UK's Financial Times SE 100 Index (``FT-SE 100'') would 
have an assigned weight of approximately 23.44%; the Deutscher 
Aktienindex (``DAX'') would have an assigned weight of approximately 
8.86%; the Compagnie des Agents de Change 40 Index (``CAC 40'') would 
have an assigned weight of approximately 7.22%; the Swiss Market Index 
(``SMI'') would have an assigned weight of approximately 6.29%; the 
Amsterdam European Options Exchange Index (``AEX'') would have an 
assigned weight of approximately 5.76%; the Hong Kong 30 Index 
(``HKX'') would have an assigned weight of approximately 5.15%; the 
Australian All Ordinaries Index (``AS 30'') would have an assigned 
weight of approximately 5.94%; the Milano Italia Borsa 30 Index (``MIB 
30'') would have an assigned weight of approximately 3.63%; the 
Stockholm Options Market Index (``OMX'') would have an assigned weight 
of approximately 3.10%; and the IBEX 35 would have an assigned weight 
of approximately 2.81%. Amex represents that it has in place 
surveillance sharing agreements with the appropriate regulatory 
organizations in each country represented in the Major 11 International 
Index, except Sweden and Switzerland, which together represented 9.39% 
of the Major 11 International Index as of April 3, 1997.\15\
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    \15\ A description of each of the sub-indices is set forth in 
detail in the notice release. See Securities Exchange Act Release 
No. 38665 (May 21, 1997), 62 FR 28911 (May 28, 1997).
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    The Major 11 International Index will be calculated using a 
``capitalization-weighted'' methodology. As noted

[[Page 44737]]

above, each sub-index will be given its assigned weighting at the close 
of trading on the day immediately prior to the listing of the Index 
Note. The number of shares in each sub-index will be fixed on that day 
and will equal its weighting in the Major 11 International Index times 
100 divided by the sub-index level. There will be no periodic 
rebalancing of the Major 11 International Index to reflect changes in 
relative market capitalizations among the sub-indices. The initial sub-
index value used in the Major 11 International Index calculation will 
equal the product of the number of shares in the sub-index times its 
representative sub-index level. The Major 11 International Index will 
initially be set to provide a benchmark value of 100.00 at the close of 
trading on the day preceding the listing of the proposed Index Note. 
The Exchange will calculate the Major 11 International Index and, 
similar to other stock index values published by the Exchange, the 
value of the Major 11 International Index will be calculated 
continuously and disseminated every 15 seconds over the Consolidated 
Tape Association's Network B each trading day until the last individual 
sub-index ceases updating in its home market. The Exchange will then 
disseminate the Major 11 International Index based on the closing 
values for each sub-index.
    Because index term notes are generally meant to be a one time 
issuance, providing investors with a percentage of the appreciation in 
the index as measured over a specified period of time, and are 
essentially a passive investment, the Major 11 International Index will 
not be actively maintained like other derivatively based index 
products, except as discussed below. The shares for each sub-index will 
remain fixed during the life of the note, except in the event of a 
significant action taken by the publisher of the sub-index such as a 
split of the value of the sub-index or a change in the method of 
calculation. For example, if the publisher of one of the sub-indices 
were to split that index, Amex would double the shares represented by 
that sub-index in the Major 11 International Index.\16\ Further, if a 
sub-index ceases to be published, the Exchange may determine to replace 
it with a substitute index (another index currently being published 
that correlates highly with the sub-index being replaced),\17\ a 
successor index (an index intended by the publisher as a replacement to 
the original sub-index), or may undertake to publish the sub-index 
using the same procedures last used to calculate the sub-index prior to 
its discontinuance.\18\ For example, Amex states that if the CAC-40 
should cease to be published by SBF-Paris Bourse, Amex may undertake to 
publish a capitalization-weighted index of 40 of the most liquid and 
highly capitalized stocks traded on the Paris Bourse.\19\ Finally, the 
Commission notes that Amex has sole authority to determine whether to 
replace a sub-index that has ceased to be published and, if so, the 
choice of replacement. The issuer of the Major 11 International Index 
Notes has no role in these determinations.
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    \16\ See Amendment No. 2, supra note 5.
    \17\ For example, Amex's Japan Index could be a substitute for 
the Nikkei 225. See Amendment No. 2, supra note 5.
    \18\ See Amendment Nos. 1 and 2, supra notes 4 and 5.
    \19\ See Amendment No. 2, supra note 5. The Commission notes 
that this replacement process is slightly different from the 
approach used in other MITTS-like products. For example, under the 
terms of other previously approved MITTS, when portfolio securities 
cease to exist during the term of the note due to a merger, 
acquisition, or similar type corporate transaction, a value equal to 
the security's final value is assigned to the stock. Further, if a 
market price is no longer available for an index stock due to 
circumstances including, but not limited to, liquidation, 
bankruptcy, insolvency, or any other similar proceeding, then the 
security is assigned a value of zero for index calculation purposes, 
rather than replaced.
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    If the marketplace for the securities underlying any of the sub-
indices that constitute the Major 11 International Index is closed on 
any given business day in the U.S., such as in the event of a market 
disruption due to a natural disaster or in the more likely event that 
the marketplace is closed for a holiday celebrated in the foreign 
country, Amex will use the previous closing value in the calculation of 
the Major 11 International Index.\20\
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    \20\ See Amendment No. 2, supra note 5.
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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).<SUP>21</SUP> 
Specifically, the Commission believes providing for exchange-trading of 
Major 11 International Index Notes will offer a new and innovative 
means of participating in the market for foreign securities. In 
particular, the Commission believes that the proposed Index Notes will 
permit investors to gain equity exposure in the component foreign 
markets while at the same time limiting the downside risk of the 
original investment as a result of the principal guarantee. 
Accordingly, for the same reasons discussed below as well as the same 
reasons as discussed in the Term Notes Approval Orders,<SUP>22</SUP> 
the Commission finds that the rule proposal is consistent with the 
requirements of Section 6(b)(5) of the Act that the rules of an 
exchange be designed to prevent fraudulent and manipulative acts and 
practices, to facilitate transactions in securities, and to protect 
investors and the public interest.<SUP>23</SUP>
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    \21\ 15 U.S.C. 78f(b)(5).
    \22\ See Term Notes Approval Orders, supra note 7.
    \23\ In approving this rule, the Commission notes that it has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
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    The Commission notes that the Major 11 International Index Notes 
are not leveraged instruments; however, their price will still be 
derived from and based upon the securities in eleven different markets, 
as reflected by the underlying sub-indices. As noted in the Term Notes 
Approval Orders, the level of risk involved in the purchase and sale of 
a MITTS is generally similar to the risk involved in the purchase or 
sale of traditional common stock, except for the fact that the products 
are derivatively priced from a portfolio of securities. MITTS on the 
Major 11 International Index, however, raise an additional level of 
risk because the final rate of return of the Index Notes is 
derivatively priced, based upon the performance of a portfolio of 
eleven different sub-indices, whose performance is also derivatively 
priced based upon the performance of a portfolio of securities trading 
in each of these eleven market centers. Accordingly, the Commission has 
specific concerns regarding this type of product. For the reasons 
discussed below, the Commission believes Amex's proposal adequately 
addresses these concerns.
    First, the Commission notes that Amex's rules and procedures 
addressing the special concerns attendant to the trading of hybrid 
securities will be applicable to the proposed Index Notes. In 
particular, by imposing the hybrid listing standards, heightened 
suitability for recommendations in Index Notes, disclosure, and 
compliance requirements noted above, the Commission believes that the 
Exchange has adequately addressed the potential problems that could 
arise from the hybrid nature of the proposed Index Notes. In addition, 
Amex will distribute a circular to its membership calling attention to 
the specific risks associated with the Major 11 International Index 
Notes.<SUP>24</SUP>
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    \24\ See Amendment No. 1, supra note 4.
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    Second, the Major 11 International Index Notes remain a non-
leveraged product with the issuer guaranteeing no

[[Page 44738]]

less than 90% of principal return. The Commission realizes that the 
final payout on the Major 11 International Index Notes are dependent in 
part upon the individual credit of the issuer. To some extent this 
credit risk is minimized by the Exchange's listing standards in Section 
107A of the Company Guide which provide that only issuers satisfying 
substantial asset and equity requirements may issue securities such as 
MITTS. In addition, the Exchange's hydrid listing standards further 
require that the proposed indexed term notes have at least $4 million 
in market value.<SUP>25</SUP> In any event, financial information 
regarding the issuer, in addition to information on the underlying sub-
indices, will be publically available to investors.
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    \25\ See Amex Company Guide Sec. 107A.
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    Third, each of the sub-indices represent securities from eleven 
major markets. Both the history and performance of these indices, as 
well as current pricing trends, should be readily available through a 
variety of public sources. Further, the Commission notes that although 
the value of each sub-index should be available, Amex has committed to 
disseminating the value of the Major 11 International Index on a real 
time basis at least once every 15 seconds throughout the trading day. 
As noted above, current values for each individual sub-index will be 
used, including the value of the Major 11 International Index, for as 
long as they are available during Amex's trading hours. The Commission 
believes that this information will be extremely useful and beneficial 
for investors in the Index Notes.
    Fourth, the Commission also has a systematic concern, however, that 
a broker-dealer or a subsidiary providing a hedge for the issuer will 
incur position exposure. As discussed in the Term Notes Approval 
Orders, the Commission believes this concern is minimal given the size 
of the proposed Index Notes issuance in relation to the net worth of 
the issuer.\26\
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    \26\ See Term Notes Approval Orders, supra note 7.
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    Finally, the Commission also believes that the listing and trading 
of the proposed Index Notes should not unduly impact the market for the 
securities underlying the sub-indices or raise manipulative concerns. 
The Commission notes that all of the sub-indices that make up the Index 
are established indices.\27\ The Commission has previously reviewed or 
approved nine of the eleven sub-indices, representing 87.95% of the 
value of the Major 11 International Index as of April 3, 1997,\28\ in 
the context of either warrant trading, options trading, or while 
issuing non-objection letters to the Commodity Futures Trading 
Commission (``CFTC'').\29\ In these previous reviews, the Commission 
evaluated each of the individual sub-indices noted above and found that 
they were broad-based indices comprised of highly capitalized stocks 
with high trading volumes that were not readily susceptible to 
manipulation.\30\
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    \27\ The Commission notes that the Major 11 International Index 
Notes are not quite equivalent to other MITTS in that the Major 11 
International Index is based upon a group of sub-indices, all of 
which have not been approved by the Commission for trading. The 
Commission notes that by approving this proposed rule change the 
Commission is not approving either the Major 11 International Index 
or the underlying sub-indices for options, warrants, and/or futures 
trading. The Commission further notes that if the sub-indices that 
have not been approved were to equal more than 20% of the Major 11 
International Index value, the Commission would find it necessary to 
evaluate those sub-indices like other index products before 
approving the MITT. The decision to allow a MITTS to be priced 
partly off of non-approved indices is related to the fact that the 
Index Notes are a limited issuance, at least 90% principal 
guaranteed, non-leveraged investment, and that the non-approved 
indices comprise only 12.05% of the Major 11 International Index 
value. Any changes in these factors would alter the Commission's 
determination.
    \28\ The sub-indices that have been previously reviewed or 
approved in one of these contexts are the NKY, FT-SE 100, DAX, CAC 
40, HKX, AS 30, MIB 30, OMX, and the IBEX 35. The other two sub-
indices in the Major 11 International Index are SMI and AEX.
    \29\ The Commission has issued these non-objection letters 
relating to the offer and sale to U.S. citizens of futures and/or 
options on futures on the FT-SE 100, the DAX, the CAC 40, the MIB 
30, the OMX, and the IBEX 35. The Commission has issued a non-
objection letter relating to the application of the Chicago 
Mercantile Exchange for designation as a contract market to trade 
futures on the Nikkei 225 Index.
    \30\ The Commission notes that in its non-objection letter to 
the CFTC regarding the Nikkei 225, it found that the Nikkei 225 was 
not susceptible to manipulation because of the large number of 
stocks in the index and the representative nature of various 
industry segments included in the index.
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    Specifically, in the letters to the CFTC, the Commission found that 
certain of the sub-indices are not readily susceptible to manipulation 
because of the representative nature of the various industry segments 
included in the individual index, the relative weighted value of the 
index's component stocks, and the substantial capitalization and 
trading volume of the component stocks. In Commission orders previously 
approving the FT-SE 100 for warrant and reduced-value options trading, 
the CAC 40 for warrant trading, the DAX for warrant trading, the Nikkei 
225 for warrant trading, and the HKO for warrant trading, the 
Commission made similar findings that the index was a broad-based index 
of actively traded, well capitalized stocks.\31\ Additionally, Amex's 
surveillance procedures will serve to deter as well as detect any 
potential manipulation.\32\
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    \31\ See Securities Exchange Act Release Nos. 27565 (January 4, 
1990), 55 FR 376 (Nikkei 225 Warrants); 27769 (March 6, 1990), 55 FR 
9380 (March 13, 1990) (FT-SE 100 Warrants); 28544 (October 17, 
1990), 55 FR 42792 (October 23, 1990) (CAC 40 Warrants); 28587 
(October 30, 1990), 55 FR 46595 (November 5, 1990) (CAC 40 
Warrants); 29722 (September 23, 1991), 56 FR 49807 (October 1, 1991) 
(FT-SE 100 Reduced-Value Index Options); 33036 (October 8, 1993), 58 
FR 53588 (October 15, 1993) (HKO Warrants); and 36070 (August 9, 
1995), 60 FR 42205 (August 15, 1995) (DAX Warrants).
    \32\ As noted above, Amex represents that it has in place 
surveillance sharing agreements with the appropriate regulatory 
organizations in each country in the Major 11 International Index, 
except Sweden and Switzerland. These two countries together 
represented only 9.39% of the Major 11 International Index as of 
April 3, 1997.
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    The Commission finds good cause to approve Amendment Nos. 1, 2, and 
3 to the proposed rule change prior to the thirtieth day after the date 
of publication of notice of filing thereof in the Federal Register. As 
noted above, Amendment No. 1 states that the Exchange's equity rules, 
including the equity margin rule and the suitability rule, will apply 
to the trading of the proposed Index Notes. Amendment No. 3 adopts 
heightened suitability standards, as described above, for this 
particular MITTS product. In addition, Amendment No. 1 clarifies that 
the Exchange will distribute to its membership, prior to trading the 
proposed Index Notes, a circular providing guidance with regard to 
member and member firm compliance responsibilities, including 
suitability recommendations, when handling transactions in the proposed 
Index Notes and highlighting their special risks and characteristics.
    Amendment No. 1 also states that the continued listing standards 
set forth in Sections 1001-1003 of the Amex Company Guide will apply to 
the trading of the proposed Index Notes, and Amendment No. 2 further 
clarifies this by stating that Section 1003(b), in particular, will 
apply. Finally, Amendment Nos. 1 and 2, collectively, state that the 
shares for each sub-index will remain fixed, except in the event of a 
significant action taken by the publisher, such as a split in the sub-
index value, a change in the calculation of the sub-index, or if the 
sub-index ceases to be published. Amendment No. 2 also provides 
additional detail on potential changes that can be made to the Index 
upon certain events, as well as describes how Amex would calculate the 
Index if a sub-index was closed on any given business day in the U.S., 
such

[[Page 44739]]

as if a market disruption occurred due to a natural disaster or a 
foreign holiday.
    The Commission believes that Amendment Nos. 1, 2, and 3, as 
described herein, clarify and strengthen the Exchange's proposal by, 
among other things, providing the specific continued listing standards 
that will apply, which should help ensure a minimal level of depth and 
liquidity for continued trading of the product on Amex, identifying 
which trading rules will apply to the trading of the Index Notes, and 
adopting a heightened suitability standard for recommendations covering 
the Index Notes. Amendment Nos. 1 and 2 also refine the original 
proposal by specifying in further detail how the Exchange will be 
responsible for determining any changes in the sub-indices due to a 
significant event, and Amendment No. 1 clarifies the terms of the 
Information Circular. Additionally, the Exchange's proposal to list and 
trade the proposed Index Notes was noticed for the full comment period 
and no comment letters were received. Accordingly, the Commission 
believes that it is consistent with Section 6(b)(5) of the Act to 
approve Amendment Nos. 1, 2, and 3 to the proposal on an accelerated 
basis.
    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment Nos. 1, 2, and 3 to the rule proposal. 
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. 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 also will be available for 
inspection and copying at the principal office of the Exchange. All 
submissions should refer to File No. SR-Amex-97-20 and should be 
submitted by September 12, 1997.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\33\ that the proposed rule change (SR-Amex-97-20), including 
Amendment Nos. 1, 2, and 3 is approved.

    \33\ 15 U.S.C. 78s(b)2.
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\34\
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    \34\ 17 CFR 200.30.3(a)12.
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-22291 Filed 8-21-97; 8:45 am]
BILLING CODE 8010-01-M