[Federal Register Volume 62, Number 183 (Monday, September 22, 1997)]
[Notices]
[Pages 49543-49547]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-25025]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39079; International Series Release No. 1099, File No. 
SR-Amex-96-38]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change and Notice of Filing and Order Granting Accelerated Approval of 
Amendment Nos. 1, 2, and 3 Thereto by the American Stock Exchange, 
Inc., Relating to the Listing and Trading of Warrants on the ING 
Barings Securities Limited BEMI Latin America Index

September 15, 1997.

I. Introduction

    On October 15, 1996, the American Stock Exchange, Inc. (``Amex'' or 
``Exchange'') submitted to 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\ the proposed rule change to list and trade warrants on 
the ING Barings Securities Limited BEMI Latin America Index 
(``Index'').\3\ A notice appeared in the Federal Register on November 
21, 1996.\4\ No comment letters were received concerning the proposed 
rule change. On December 24, 1996, March 3, 1997 and June 3, 1997, the 
Exchange filed Amendment Nos. 1, 2 and 3, respectively, to the proposed 
rule change.\5\ This order approves the Amex's proposal, as amended.
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    \1\ 15 U.S.C. 78s(b)(1)
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 37960 (November 15, 
1996).
    \4\ See 61 FR 59261.
    \5\ See Letters from Claire P. McGrath, Managing Director & 
Special Counsel, Derivative Securities, Amex, to Ivette Lopez, 
Assistant Director, Division of Market Regulation (``Division''), 
SEC, dated December 23, 1996 (``Amendment No. 1''), February 28, 
1997 (``Amendment No. 2''), and June 3, 1997 (``Amendment No. 3''), 
respectively. Amendment No. 1, sets forth, among other things, the 
definition of ``available capitalization,'' the calculation formula 
for the Index and the foreign stock exchanges with which the Amex 
has comprehensive surveillance sharing agreements. In Amendment No. 
2, the Amex provides for each Index component, the average daily 
trading volume for the six month period ending December 31, 1996 and 
their weights in the Index. In Amendment No. 3, the Amex provides 
Index maintenance standards.
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II. Description of the Proposal

    The purpose of the proposed rule change is to permit the Exchange 
to list and trade, under Section 106 of the Amex Company Guide, cash-
settled index warrants based on the Index.

A. Design of the Index

    The Exchange represents that the Index is a market capitalization-
weighted broad-based index developed by ING Barings Securities Limited 
(``Barings'') comprised of 122 stocks from 112 companies from the 
following seven Latin American countries: Argentina; Brazil; Chile; 
Colombia; Mexico; Peru; and Venezuela.\6\ In addition, the stocks 
represent eleven different industry groups. As of June 30, 1997, the 
number of stocks and weightings in the Index was as follows: Argentina 
22 stocks/12.63% weighting; Brazil 22 stocks/46.84% weighting; Chile 21 
stocks/11.20% weighting; Columbia 12 stocks/1.50% weighting; Mexico 26 
stocks/21.76% weighting; Peru 12 stocks/3.90% weighting; and Venezuela 
7 stocks/2.16% weighting. As of the same date, the largest stock 
accounted for 10.95% of the Index weight, while the smallest accounted 
for 0.016%. The top five stocks in the Index by weight accounted for 
32.15%.
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    \6\ The Index is a sub-index of the Barings Emerging Markets 
Index (``BEMI'').
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    The total available market capitalization of the Index was 
$158,437,566,290 billion on that date.\7\ The average available market 
capitalization of these companies was $1,298,668,576 billion. The 
individual available market capitalization of the companies ranged from 
$25,050,774 million to $17,343,762,504 billion.
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    \7\ A company's ``available capitalization'' is defined as the 
lower of (i) the company's ``free float'' or (ii) the legally 
available capitalization of the company. A company's ``free float'' 
is defined as the percentage of shares which could reasonably be 
expected to trade on the open market. Generally, government 
holdings, corporate cross-ownership and other strategic holdings are 
not considered freely floating.
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B. Maintenance of the Index

    The Index is maintained by Barings' Recomposition Committee. The 
Recomposition Committee, established at the time of the launch of the 
Index, reviews on a quarterly basis the Index rules and composition. 
The Recomposition Committee implements changes or fixes standards as 
appropriate and oversees the security environment of the Index and its 
record-keeping. The quarterly meeting is normally held in the second 
week of the last month of the quarter. The date of these meetings is 
posted at least two months in advance on Reuters and the results are 
publicly disclosed on Reuters the day after a meeting. Actual 
implementation of any changes to the composition of the Index occurs on 
the last day of the month that the meeting is held. This is 
approximately two

[[Page 49544]]

weeks after the Recomposition Committee has met and the changes to the 
Index have been publicly announced.
    Exceptionally, in the case of new issues, privatizations and 
takeovers, a stock can be introduced to or deleted from the Index 
without waiting for the next quarterly meeting. In these cases, the 
decision to include or remove a stock is taken by an ad hoc meeting of 
members of the Recomposition Committee in accordance with established 
rules. New companies resulting from a spin-off of a component company 
will be put into the Index and remain in the Index until the next 
quarterly recomposition meeting. The Amex notes that Barings will 
adjust the Index divisor, if necessary, in order to ensure Index 
continuity.\8\
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    \8\ See Amendment No. 1, supra note 5.
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    The stocks selected for inclusion in the Index were chosen on the 
basis of both country and company criteria. To be included in the 
Index, a country must have a minimum Gross Domestic Product per capita 
of $400 and a minimum market trading value of $2 billion per year in at 
least one of the last three years. The companies included in the Index 
are drawn from a database of stock entities, which may represent 
individual companies in their entirety, or separate classes of stock 
(e.g., A shares and B shares, of the same company). The criteria for 
stock entities to be included are: capitalization value greater than 1% 
of the Barings database for that country; minimum free float of 10%;\9\ 
and minimum average daily trading value of $100,000. In addition, 
shares that rank first or second in their industry sector may be 
included if they have a minimum capitalization of 0.5% of the Barings 
database for that country and meet the normal free-float and daily 
trading value rules.
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    \9\ See note 7 supra  for a definition of free float.
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    The Amex notes that Barings will maintain the Index to ensure that 
no more than 10% of the index weight is represented by stocks that do 
not have a minimum average daily trading value, on a rolling four 
quarter basis, of US$200,000.\10\ In addition, no more than 5% of the 
index weight will be represented by stocks that fall below US$100,000 
average daily trading value on a semi-annual basis.\11\ If the Index 
fails to meet either of these standards, the Index will be rebalanced 
by removing the requisite stocks.
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    \10\ A ``rolling four quarter basis'' is defined to mean that a 
stock will be reviewed each quarter to determine if it has 
maintained an average daily trading value of US$200,000 for the 
combined previous four quarters. For example, a security is reviewed 
at the beginning of the third quarter of 1997 and it maintained an 
average daily trading value of US$200,000 during the second and 
first quarters of 1997 and the fourth quarter of 1996 but it did not 
maintain such an average during the third quarter of 1996. The 
security may be removed if the figures from the third quarter of 
1996 reduce the average daily trading value below US$200,000 for the 
combined four quarter period.
    \11\ In contrast to a rolling four quarter review, component 
securities will be reviewed twice a year to determine if they meet 
this standard.
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    In addition, Barings maintains the Index to ensure that no single 
stock comprises more than 20% of the Index weight and no five stocks 
comprise more than 50% of the Index weight. If the Index fails to 
satisfy this maintenance requirement, the Exchange will apply margin 
requirements for stock index industry group warrants.\12\
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    \12\ See Amex Rule 462.
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    Barings has created special procedures to prevent material non-
public information from being improperly used by its research, sales 
and trading divisions in connection with the maintenance of the Index. 
Specifically, membership of the Recomposition Committee is regulated by 
a ``Fire Wall.'' All members are isolated from sales, trading and 
corporate finance functions. Members are drawn from Index research, 
calculation, legal and compliance departments of Barings. To ensure 
impartiality and good practice, the committee has retained Russell 
Systems Limited (``Russell''), part of the Frank Russell Group, to 
attend all meetings and to provide an audit of attendance and 
appropriateness of the agenda. Russell also provides advice on good 
practice in indexation and on how to ensure the use of the best 
available information on emerging markets.

C. Trading of the Index Warrants

    Currently, the Amex is seeking authority to list and trade only a 
single issuance of warrants on the Index which have a term of less than 
five years.\13\ The Index warrants will be direct obligations of their 
issuer subject to cash-settlement during their term and either 
exercisable throughout their life (i.e., American style) or exercisable 
only on their expiration date (i.e., European style). Upon exercise, or 
at the warrant expiration date if not exercisable prior to such date, 
the holder of a warrant structured as a ``put'' would receive payment 
in U.S. dollars to the extent the Index has declined below a pre-stated 
cash settlement value. Conversely, holders of a warrant structured as a 
``call'' would, upon exercise or at expiration, receive payment in U.S. 
dollars to the extent the Index has increased above the pre-stated cash 
settlement value. If out-of-the-money at the time of expiration, the 
warrants would expire worthless.
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    \13\See note 22 infra.
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    In addition, the Amex has adopted account approval standards 
covering transactions in customer accounts as the suitability standards 
applicable to recommendations to purchasers of index warrants. Amex 
Rule 411, Commentary .02 recommends that index warrants under Section 
106 of the Company Guide be sold only to investors whose accounts have 
been approved for options trading pursuant to Rule 921. The suitability 
requirements under Amex Rule 923 apply to recommendations in index 
warrants both with respect to customer accounts that have been approved 
for options trading and customer accounts that have not been so 
approved. Under these requirements, the person recommending a purchase 
of the Index warrants should have a reasonable basis for believing that 
the customer has such knowledge and experience in financial matters 
that he may reasonably be expected to be capable of evaluating the 
risks of the recommended transaction and is financially able to bear 
the risks of the position in the option contract. Amex Rule 421, 
Commentary .02 requires a Senior Registered Options Principal or a 
Registered Options Principal to approve and initial a discretionary 
order in index warrants on the day the order is entered.

D. Calculation and Dissemination of the Value of the Index

    The Index was first calculated on January 7, 1992 with a benchmark 
value of 100. As of June 30, 1997 the Index had a value of 203.825. The 
Amex disseminates the Index value every 15 seconds throughout the 
trading day over the Consolidated Tape Association's Tape B. The Amex, 
however, does not have real-time data feeds from the exchange that 
trade the component securities in Colombia, Peru and Venezuela. As a 
result, for those component securities that trade in Colombia, Peru and 
Venezuela, the previous day's last sale price, converted into U.S. 
dollars using Reuters 4 p.m. EST exchange rates, is used to calculate 
the Index value. If a security from a non-real-time reporting country, 
however, has options eligible American Depositary Receipts (``ADRs'') 
that trade on the New York Stock Exchange (``NYSE''), the ADR's real-
time NYSE price is used to calculate the Index value.
    As a result, the Index value is calculated so that stocks 
representing no more than 7% of the Index weight

[[Page 49545]]

report non-real-time prices.\14\ If the Index fails to meet this 
standard, the Index will be rebalanced at the quarterly Recomposition 
Committee meeting by removing the requisite stocks to permit the Index 
to meet this standard. In the event a component security in the Index 
does not open for trading, however, the most recent closing value for 
that component will be used in the Index's calculation.
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    \14\ The Commission believes that the most current last sale 
prices for each component stock should be used in calculating the 
Index value. Nevertheless, because of the difficulty in receiving 
timely information from the three countries noted above, the 
Commission has decided to permit the use of the previous day's 
closing price for a number of Index components as long as their 
weight remains relatively minor and in no case more than 7% of the 
Index weight. The Commission notes that a proposal to list and trade 
derivative instruments overlying an index that had more than 7% of 
its component securities reporting non-real-time prices would raise 
questions regarding whether that particular index and any derivative 
instruments overlying it would be susceptible to manipulation.
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    In the event of certain types of corporate actions such as the 
payment of a dividend other than an ordinary cash dividend, stock 
distribution, stock split, reverse stock split, rights offering, 
reorganization, recapitalization or similar event with respect to the 
component stocks, the Index divisor will be adjusted, if necessary, to 
ensure Index continuity.\15\
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    \15\ See Amendment No. 1, supra note 5.
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E. Warrant Listing Standards and Customer Safeguards

    The Exchange represents that the listing and trading of warrants 
based on the Index will comply in all respects with the Amex warrant 
listing standards. Under Section 106 of the Amex Company Guide,  the 
Exchange may approve for listing index warrants based on foreign and 
domestic market indices. In addition, the listing and trading of 
warrants on the Index will comply in all respects to Exchange Rules 
1100 through 1110 for the trading of stock index and currency warrants. 
As discussed below, these standards govern issuer eligibility, position 
and exercise limits, reportable positions, settlement, automatic 
exercise, margin and trading halts and suspensions.\16\
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    \16\ See Amex Rules 1109 and 918(c) for the regulations 
regarding trading halts and suspensions.
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    Under Section 106(a) of the Amex Company Guide, issuers are 
required to have minimum tangible net worth in excess of $250 million 
or, in the alternative, to have a minimum tangible net worth in excess 
of $150 million, provided that the issuer has not, including as a 
result of the proposed issuance, issued outstanding warrants where the 
aggregate original issue price of all such warrant offerings, combined 
with offerings by its affiliates, listed on a national securities 
exchange or traded through the facilities of Nasdaq exceeds 25% of the 
warrant issuer's net worth. In addition, Sections 106(b) and 106(c) of 
the Amex Company Guide require that warrant issues have a term of one 
to five years and have a minimum public distribution of one million 
warrants together with a minimum of 400 public holders and an aggregate 
market value of $4 million.
    Under Amex Rule 1107, no member can hold or control an aggregate 
position in a stock index warrant issue, or in all warrants issued on 
the same stock index, whether long or short, on the same side of the 
market, in excess of 15 million warrants with an original issue price 
of ten dollars or less. Stock index warrants with an original issue 
price greater than ten dollars will be weighted more heavily in 
calculating position limits. Amex Rule 1108 established exercise limits 
on stock index warrants analogous to those found on stock index 
options. Accordingly, no member, acting alone or in concert with 
others, directly or indirectly, may exercise a long position in 
warrants within five consecutive business days in excess of the 
permissible position limit. In addition, such limits are separate and 
distinct from any exercise limits that may be imposed by the issuers of 
stock index warrants.
    Under Amex Rule 1110, members are required to file a report with 
the Exchange whenever any account in which the member has an interest 
has established an aggregate position, whether long or short, of 
100,000 warrants overlying the same index, currency, or currency index.
    Under Section 106(d) of the Amex Company Guide, currency and index 
warrants must be cash-settled in U.S. dollars. The procedures for 
determining the cash settlement value for the warrants have not yet 
been determined by Barings.\17\ Once those procedures have been 
determined by Barings, they will be fully set forth in the prospectus 
and in the Information Circular distributed by the Exchange to its 
membership prior to the commencement of trading the warrant.
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    \17\ The Amex notes that the procedures for determining the cash 
settlement value of the warrants will be in accordance with its 
listing criteria for warrants. In the event that such procedures do 
not comport with established requirements, the Amex will notify the 
Commission, prior to implementing such procedures, in order to 
determine the proper regulatory response.
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    Under Section 106(f) of the Amex Company Guide, all unexercised 
warrants that are in-the-money will be automatically exercised on their 
expiration date or on or promptly following the date on which the 
warrants are delisted by the Exchange, provided that such warrant issue 
has not been listed on another organized securities market in the 
United States.
    In general, the margin requirements for long and short positions in 
stock index warrants are the same as the margin requirements for long 
and short positions in stock index options. Accordingly, the purchase 
of a stock index warrant will require payment in full and the short 
sale of a stock index warrant will require margin of 100% of the 
current value of the warrant plus 15% of the current value of the 
underlying index less the amount by which the warrant is out-of-the-
money, but not less than 10% of the index value.\18\
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    \18\ See Amex Rule 462, supra note 12.
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F. Surveillance

    The Amex notes that although it does not have comprehensive 
surveillance sharing agreements (``CSSAs'') with all seven countries 
represented in the Index, it does comply with section 106(g) of the 
Amex Company Guide. Section 106(g) of the Company Guide states that 
foreign country securities or ADRs thereon that are not subject to a 
CSSA, and have less than 50% of their global trading volume in dollar 
value within the United States, shall not in the aggregate, represent 
more than 20% of the weight of an index, unless such index is otherwise 
approved for warrant or option trading. The Commission has Memoranda of 
Understanding with government authorities in Argentina, Brazil, Chile 
and Mexico. The Exchange has CSSAs with the securities markets and/or 
self-regulators in Argentina, Brazil and Chile. The Amex notes that the 
Commission previously has permitted U.S. derivatives markets to list 
derivatives on securities where the home market for such securities is 
located in Argentina, Brazil, Chile and Mexico based upon the 
Commission's and the Exchange's information sharing arrangements with 
the appropriate government or self-regulatory authorities in such 
countries.\19\
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    \19\ As of June 30, 1997, component securities from these four 
countries comprised 92.44% of the Index weight.
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III. Commission Findings and Conclusions

    The Commission finds that the proposed rule change by the Exchange 
is consistent with the requirements of the Act and the rules and 
regulations

[[Page 49546]]

thereunder applicable to a national securities exchange, and in 
particular, the requirements of Section 6(b)(5) of the Act.\20\ 
Specifically, the Commission finds that the listing and trading of 
warrants based on the Index will serve to promote the public interest 
and help to remove impediments to a free and open securities market by 
providing investors with a means to hedge exposure to market risk 
associated with the Latin American equity markets \21\ and promote 
efficiency, competition, and capital formation.\22\
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    \20\ 15 U.S.C. 78f(b)(5).
    \21\ Pursuant to Section 6(b)(5) of the Act, the Commission must 
predicate approval of any new securities product upon a finding that 
the introduction of such product is in the public interest. Such a 
finding would be difficult with respect to a warrant that served no 
hedging or other economic function, because any benefits that might 
be derived by market participants likely would be outweighed by the 
potential for manipulation, diminished public confidence in the 
integrity of the markets, and other valid regulatory concerns.
    \22\ 15 U.S.C. 78c(f).
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    Nevertheless, the trading of warrants on the Index raises several 
concerns related to the design and maintenance of the Index, customer 
protection, surveillance and market impact. The Commission believes, 
however, for the reasons discussed below, that the Amex has adequately 
addressed these concerns.\23\
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    \23\ The Commission also notes that the Amex presently is only 
seeking the authority to list and trade a single issuance of 
warrants on the Index and that if the Exchange proposes to list and 
trade other products based on the Index, including other Index 
warrants, the Exchange will advise the Commission in order to 
determine whether a rule filing pursuant to Section 19(b) of the Act 
will be necessary and appropriate.
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A. Design and Maintenance of the Index

    The Commission finds that it is appropriate and consistent with the 
Act for the Amex to designate the Index as Broad-based for warrant 
trading. First, the Index is composed of 112 companies from 11 industry 
groups including: consumer goods, energy, capital equipment, basic 
materials, agriculture/food and financial services. Second, no 
particular stock or group of stocks dominates the Index. Specifically, 
as of June 30, 1997, the largest stock accounted for 10.95% of the 
Index weight, while the smallest accounted for 0.016%. The top five 
stocks in the Index by weight accounted for 32.15%. Accordingly, the 
Commission believes that it is appropriate to classify the Index as 
broad-based so that the Exchange may list warrants for trading pursuant 
to the Amex warrant listing standards for broad-based indices.
    The Commission notes that with respect to the maintenance of the 
Index, Barings has implemented several safeguards in connection with 
the listing and trading of the index warrants that will serve to ensure 
that the Index is a highly capitalized, diversified and actively-traded 
index. In this regard, Barings will maintain the Index so that: (1) No 
single stock may comprise more than 20% of the Index weight and no five 
stocks may comprise more than 50% of the Index weight; (2) no more than 
7% of the Index weight may report non-real-time prices in calculating 
the Index value (in addition, NYSE prices will be used for options 
eligible ADRs for securities from non-real-time reporting countries); 
(3) no more than 10% of the index weight may be represented by stocks 
that do not have a minimum average daily trading value, on a rolling 
four quarter basis, of US$200,000 \24\ and (4) no more than 5% of the 
Index weight may be represented by stocks that fall below US$100,000 
average daily trading value on a semi-annual basis. If the 20% single 
stock, 50% top five stock standard is not maintained, then the Exchange 
will re-classify the Index as narrow-based and would, among other 
things, impose minimum margin requirements for stock index industry 
group warrants.
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    \24\ See note 10 supra.
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    In particular, the Commission believes that the real-time reporting 
of simultaneously traded index component securities that underlie an 
exchange-traded index component securities that underlie an exchange-
traded derivatives product is an important element for the intra-day 
pricing of derivatives products, the reduction of potential market 
manipulation and other trading abuses. While not all of the Index's 
component securities report real-time prices, the Commission believes 
that the Exchange has reasonably addressed this concern by noting that 
no more than 7% of the Index weight, a de minimis amount, may report 
non-real-time prices. The Commission notes that if the Index fails to 
satisfy the 7% non-real time price reporting requirement or the minimum 
trading value requirements, Barings immediately will rebalance the 
Index by removing the requisite stocks.\25\
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    \25\ See note 14 supra.
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    In addition, the Commission notes that Barings has adopted 
appropriate procedures to be followed by those responsible for 
maintaining the Index in order to help prevent and deter the misuse of 
any informational advantages with respect to changes in the composition 
of the Index. Such procedures include, for example, informational 
barriers.

B. Customer Protection

    The Commission notes that the rules and procedures of the Exchange 
adequately address the special concerns attendant to the trading of 
index warrants. Specifically, the applicable suitability, account 
approval, disclosure and compliance requirements of the Amex warrant 
listing standards satisfactorily address potential public concerns. 
Moreover, the Amex plans to distribute a circular to its membership 
calling attention to specific risks associated with warrants on the 
Index. Pursuant to the Exchange's listing guidelines, only companies 
capable of meeting the Amex's index warrant issuer standards will be 
eligible to issue Index warrants. In addition, the Amex presently is 
seeking authority to list and trade only a single issuance of warrants 
on the Index which have a term of less than five years.

C. Surveillance

    In evaluating new derivative instruments, the Commission, 
consistent with the protection of investors, considers the degree to 
which the derivative instrument is susceptible to manipulation. The 
ability to obtain information necessary to detect and deter market 
manipulation and other trading abuses is a critical factor in the 
Commission's evaluation. It is for this reason that the Commission 
requires that there be a CSSA in place between an exchange listing or 
trading a derivative product and the exchanges trading the stocks 
underlying the derivative contract that specifically enables officials 
to survey trading in the derivative product and its underlying 
stocks.\26\ Such agreements provide a necessary deterrent to 
manipulation because they facilitate the availability of information 
needed to fully investigate a potential manipulation if it were to 
occur. For foreign stock index derivative products, these agreements 
are especially important to facilitate the collection of necessary 
regulatory, surveillance and other information from foreign 
jurisdictions.
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    \26\ The Commission believes that the ability to obtain relevant 
surveillance information, including, among other things, the 
identity of the ultimate purchasers and sellers of securities, is an 
essential and necessary component of a CSSA. A CSSA should provide 
the parties thereto with the ability to obtain information necessary 
to detect and deter market manipulation and other trading abuses. 
Consequently, the Commission generally requires that a CSSA require 
that the parties to the agreement provide each other, upon request, 
information about market trading activity, clearing activity and 
customer identity. See Securities Exchange Act Release No. 31529 
(November 27, 1992).

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[[Page 49547]]

    In order to address the above noted concerns and to comply with 
Section 106(g) of the Amex Company Guide, the Amex has entered into 
information sharing arrangements with the Buenos Aires Stock Exchange 
in Argentina, the Sao Paolo Stock Exchange in Brazil, and the Santiago 
Stock Exchange in Chile. In addition, the SEC has memoranda of 
understanding with: the Comision Nacional de Valores in Argentina; the 
Comissao de Valores Mobiliarios in Brazil; the Superintendencia de 
Valores y Seguros in Chile; and the Comision Nacional Bancaria y de 
Valores in Mexico. As of June 30, 1997, stocks from Argentina, Brazil, 
Chile, and Mexico represent 92.44% of the Index weight. As a result, no 
single uncovered country represents more than 3.90% of the Index weight 
and not two uncovered countries represent more than 6.06% of the Index 
weight.

D. Market Impact

    The Commission believes that the listing and trading of Index 
warrants on the Amex should not adversely impact the securities markets 
in the U.S. or Latin America. First, the existing index warrant 
surveillance procedures of the Amex will apply to warrants based on the 
Index. Second, the Commission notes that the Index is broad-based and 
diversified and includes highly capitalized securities that are 
actively traded in their home markets.\27\ Accordingly, the Commission 
does not believe that the introduction of Index warrants on the Amex 
will have a significant effect on the underlying Latin American 
securities markets.
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    \27\ As the Amex notes, while some of the stocks in the Index 
have relatively low trading volume, they account for only a small 
percentage of the Index weighting.
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    For the reasons described above, the Commission finds good cause to 
approve Amendment Nos. 1, 2 and 3, prior to the thirtieth day after the 
date of publication of notice of filing thereof in the Federal 
Register. Specifically, Amendment No. 1 provides, among other things, 
the definition of ``available capitalization,'' the calculation formula 
for the Index and the foreign stock exchange with which the Amex has 
surveillance sharing agreements. Amendment No. 2 provides the average 
daily trading volume for the six month period ending December 31, 1996 
and the weights of the Index components. Lastly, Amendment No. 3 adds 
several maintenance standards that the Commission believes strengthen 
the Amex proposal by ensuring that the Index remains broad-based and is 
comprised of relatively well-capitalized and liquid securities. No 
single stock may comprise more than 20% of the Index weight and no five 
stocks may comprise more than 50% of the Index weight. In addition, no 
more than 7% of the Index weight may report non-real-time prices in 
calculating the Index value. NYSE prices will be used for options 
eligible ADRs for securities from non-real-time reporting countries. 
The Commission believes that this standard will ensure that a 
substantial portion of the Index value will be calculated using current 
prices.\28\
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    \28\ See note 14 supra.
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    Accordingly, the Commission believes that it is consistent with 
Sections 6(b)(5) and 19(b)(2) \29\ of the Act, to find that good cause 
exists to approve Amendments Nos. 1, 2 and 3, on an accelerated basis.
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    \29\ 15 U.S.C. 78s(b)(2).
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IV. Solicitation of Comments and Conclusion

    Interested persons are invited to submit written data, views and 
arguments concerning Amendments Nos. 1, 2 and 3. 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 in the Commission's Public Reference Room in Washington, D.C. 
Copies of such filing will also be available for inspection and copying 
at the principal office of the Amex. All submissions should refer to 
the File No. SR-Amex-96-38 and should be submitted by October 14, 1997.
    For the foregoing reasons, the Commission finds that the Amex's 
proposal to list and trade warrants based on the Barings BEMI Latin 
America Index is consistent with the requirements of the Act and the 
rules and regulations thereunder.
    It is therefore ordered, pursuant to Section 19(b) (2) of the Act, 
that the proposed rule change (SR-Amex-96-38), as amended, is approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-25025 Filed 9-19-97; 8:45 am]
BILLING CODE 8010-01-M