Federal Register / Vol. 62, No. 188 / Monday, September 29, 1997 / Notices 50973

29 In reviewing any disclosure materials

submitted, the Commission intends to assure that

the materials specifically describe the risks and

characteristics associated with trading Packaged

Spreads. The trading of Packaged Vertical Spreads

is expressly contingent upon the Commission’s

approval of such an ODD supplement.

30As described above, Packaged Vertical Spreads

on the S&P 500 and 100 indexes will be aggregated

with other options on the same index.

31 15 U.S.C. 78s(b)(2).

32 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3See Letter from James F. Duffy, Executive Vice

President and General Counsel, Legal and

Regulatory Policy, American Stock Exchange

(‘‘Amex’’), to Jonathan G. Katz, Secretary,

Commission, dated June 20, 1996 (‘‘Amex letter’’).

4See Securities Exchange Act Release Nos. 37121

(April 17, 1996), 61 FR 17932 (April 23, 1996)

(notice of File No. SR–CHX–96–12) and 37589

(August 21, 1996), 61 FR 44370 (August 28, 1996)

approval order). In that rule filing, the Exchange

also stated its intent to trade CountryBasket

securities, pursuant to a request for unlisted trading

privileges. CountryBasket securities are Units

designed to track the performance of specific

foreign indices, more fully described in SR–CHX–

96–12 and SR–NYSE–95–23. Id. See also Securities

Exchange Act Release No. 36923 (March 5, 1996),

61 FR 10410 (March 13, 1996) (order approving File

No. SR–NYSE–95–23).

Vertical Spreads. The Commission

believes it is important to provide

investors with information regarding the

rights and characteristics of Packaged

Vertical Spreads. In this regard,

Packaged Vertical Spread investors will

receive a special supplement to the

Options Clearing Corporation’s (‘‘OCC’’)

Options Disclosure Document (‘‘ODD

Supplement’’) explaining in detail the

risks and characteristics of Packaged

Spreads.29

The Commission finds good cause for

approving 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 to CBOE’s proposal

set forth a new definition for ‘‘vertical

spread interval’’ and several technical

non-substantive revisions to the margin

rules.

Amendment No. 2 to CBOE’s proposal

describes changes to its spread rules for

margin when the short index option of

a spread position is a Packaged Vertical

Spread, as described above; (2) verifies

that CBOE will list and add series for

Packaged Vertical Spreads in

accordance with Rule 24.9,

Interpretation and Policy .01(c); and (3)

sets position limits for Packaged

Vertical Spreads based on the S&P 500

and 100 to equal existing position limits

for the respective index options.30 The

Commission believes the Exchange’s

proposed reduction in position limits

from those originally proposed presents

no new regulatory issues and can be

approved on an accelerated basis.

Further, the originally proposed higher

position limits were subject to the full

21-day comment period without any

comments being received by the

Commission. Amendment No. 3 to

CBOE’s proposal also makes several

technical non-substantive changes. In

addition, the Exchange amended the

definition of Packaged Vertical Spread

to further clarify the structure of the

product.

The Commission believes that the

changes proposed in Amendment Nos.

1, 2, and 3, unless otherwise stated

above, merely clarify in the rule text

what was originally proposed by the

Exchange and will help to ensure that

investors understand the specifications

and trading characteristics of the

Packaged Vertical Spread contracts. In

addition, the Commission notes that the

original proposal was published for the

full 21-day comment period without any

comments being received by the

Commission.

Accordingly, the Commission finds

good cause, consistent with Sections

6(b)(5) and 19(b)(2) of the Act, to

approve Amendment Nos. 1, 2 and 3 to

the proposed rule change, on an

accelerated basis.

VI. Solicitation of Comments

Interested persons are invited to

submit written data, views and

arguments concerning Amendment Nos.

1, 2, and 3 to the proposed rule change.

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

Section, 450 Fifth Street, N.W.,

Washington, D.C. 20549. Copies of such

filing will also be available for

inspection and copying at the principal

office of the CBOE. All submissions

should refer to SR–CBOE–96–76 and

should be submitted by October 20,

1997.

V. Conclusion

Based upon the aforementioned

factors, the Commission finds that the

proposed changes relating to the listing

and trading of Packaged Vertical

Spreads on the S&P 500 and 100 are

consistent with the requirements of

Section 6(b)(5) and the rules and

regulations thereunder. The initiation of

Packaged Vertical Spread trading,

however, is conditioned upon the

issuance of an order approving an ODD

Supplement, pursuant to Rule 9b–1 of

the Act.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,31 that the

proposed rule change (File No. SR–

CBOE–96–76), as amended, is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.32

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–25689 Filed 9–26–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39117; File No. SR–CHX–

96–14]

Self-Regulatory Organizations; Order

Granting Approval to Proposed Rule

Change by the Chicago Stock

Exchange, Inc., Relating to Trading of

Particular Investment Company Units

September 22, 1997.

I. Introduction

On April 23, 1996, the Chicago Stock

Exchange, Inc. (‘‘CHX’’ 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 19(b)–4 thereunder,2

a proposed rule change to amend Article

XXVIII of the CHX’s Rules to permit

them to trade certain units representing

an interest in a registered investment

company (‘‘Units’’) on CHX.

The proposed rule change, together

with the substance of the proposal, was

published for comment in Securities

Exchange Act Release No. 37228 (May

20, 1996) 61 FR 26940 (May 29, 1996).

One comment letter was received in

response to the proposal.3

II. Background and Description

In SR–CHX–96–12, the Exchange

requested and received approval of

proposed rule changes allowing the

listing and/or trading of Units.4 CHX is

proposing to apply its existing listing

standards for the trading of Units to the

trading of World Equity Benchmark

Securities (‘‘WEBS’’) pursuant to

unlisted trading privileges (‘‘UTP’’).

CHX is also proposing to amend Article
50974 Federal Register / Vol. 62, No. 188 / Monday, September 29, 1997 / Notices

5See Securities Exchange Act Release No. 36947

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

(‘‘Amex WEBS Approval Order’’).

6The remainder of this section discusses the

structure of WEBS, the details of which are taken

from SR–Amex–95–43 and its Amendments Nos. 1,

2, 3. The information provided here is significantly

condensed from Amex’s filing. CHX notes that the

Amex has represented that customers who purchase

WEBS will receive a detailed prospectus from the

issuer.

7See Amex WEBS Approval Order, supra note 5. 8These are the same trading hours as at the CHX.

XXVIII, Rule 24, to add Interpretation

and Policy .02 to specifically allow the

Exchange to trade WEBS pursuant to

unlisted trading privileges. WEBS

currently are approved for trading on

the American Stock Exchange

(‘‘Amex’’).5 If at a later time CHX desires

to list WEBS, rather than only trade

WEBS pursuant to UTP, the Exchange

will request Commission approval for

that listing in a separate proposed rule

change filed pursuant to Section 19(b) of

the Act.6

Structure of WEBS

Rules to accommodate the trading of

Index Fund Shares generally on Amex,

along with Amex’s trading of WEBS,

were previously approved by the

Commission.7 The information provided

below is intended to provide a

description of how WEBS are created

and traded and is similar to that

discussed in the original Amex WEBS

Approval Order.

WEBS are issued by Foreign Fund,

Inc., and based on seventeen Morgan

Stanley Capital International (‘‘MSCI’’)

Indices (each individually an ‘‘MSCI

Index’’ or ‘‘Index’’ and collectively

‘‘MSCI Indices’’ or ‘‘Indices’’). The

countries whose markets are

represented by those indices are:

Australia, Austria, Belgium, Canada,

France, Germany, Hong Kong, Italy,

Japan, Malaysia, Mexico, Netherlands,

Singapore, Spain, Sweden, Switzerland,

and the United Kingdom.

The investment objective of each

WEBS series is to seek to provide

investment results that correspond

generally to the price and yield

performance of public securities traded

in the aggregate in particular foreign

markets, as represented by specific

MSCI Indices. Each WEBS series will

use a ‘‘passive’’ or indexing investment

approach which attempts to

approximate the investment

performance of its benchmark index

through quantitative analytical

procedures.

A WEBS series normally will invest at

least 95% of its total assets in stocks

that are represented in the relevant

MSCI Index and will at all times invest

at least 90% of its total assets in such

stocks. A WEBS series will not hold all

of the issues that comprise the subject

MSCI Index, but will attempt to hold a

representative sample of the securities

in the Index in a technique known as

‘‘portfolio sampling.’’

Foreign Fund, Inc. will issue and

redeem WEBS of each Index Series only

in aggregations of shares specified for

each Index Series (each aggregation a

‘‘Creation Unit’’). The number of shares

per Creation Unit will range from 40,000

to 600,000. In its original filing to list

and trade WEBS, Amex anticipated that

the value of a Creation Unit at the start

of trading would range from $450,000 to

$10,000,000, and the net asset value

(‘‘NAV’’) of an individual WEBS would

range from $10 to $20.

The MSCI Indices

MSCI generally seeks to have 60% of

the capitalization of a country’s stock

market index reflected in the MSCI

Index for such country. Thus, the MSCI

Indices seek to balance the

inclusiveness of an ‘‘all share’’ index

against the replicability of a ‘‘blue chip’’

index. MSCI applies the same criteria

and calculation methodology across all

markets for all indices, developed and

emerging.

All single-country MSCI Indices are

market capitalization weighted. For

countries that restrict foreign

ownership, MSCI calculates two

Indices. The additional Indices are

called ‘‘free’’ Indices, and they exclude

companies and share classes not

purchasable by foreigners. Free Indices

are currently calculated for Singapore,

Mexico, the Philippines, and Venezuela,

and for those regional and international

indices which include such markets.

The Mexico and Singapore WEBS series

will be based on the free Indices for

those countries. There are no WEBS

series corresponding to the Philippines

and Venezuela MSCI Indices.

All MSCI Indexes are calculated daily.

The calculation method weights stocks

in an index by their beginning-of-period

market capitalization. Share prices are

‘‘swept clean’’ daily and adjusted for

any rights issues, stock dividends or

splits. The MSCI Indices currently are

calculated in local currency and in U.S.

dollars, without dividends and with

gross dividends reinvested.

Prices used to calculate the MSCI

Indices are the official exchange closing

prices. All prices are taken from the

dominant exchange in each market. To

calculate the applicable foreign

currency exchange rate, MSCI uses WM/

Reuters Closing Spot Rates for all

developed and emerging markets except

those in Latin America. Because of the

high volatility of currencies in some

Latin American countries, MSCI

continue to calculate its own rates for

those countries. Under exceptional

circumstances MSCI may elect to use an

alternative exchange rate for any

country if the WM/Reuters rate is

believed not to be representative for a

given currency on a particular day.

Each MSCI Index on which a WEBS

series is based is calculated by MSCI for

each trading day in the applicable

foreign exchange market based on

official closing prices in such exchange

market. For each trading day, MSCI

publicly disseminates each Index value

for the previous day’s close. MSCI

Indices are reported periodically in

major financial publications and also

are available through vendors of

financial information.

Foreign Fund, Inc. will cause to be

made available daily the names and

required number of shares of each of the

securities to be deposited in connection

with the issuance of WEBS in Creation

Unit size aggregations for each WEBS

series, as well as information relating to

the required cash payment representing,

in part, the amount of accrued

dividends applicable to such WEBS

series. This information will be made

available by the Fund Advisor to any

National Securities Clearing Corporation

(‘‘NSCC’’) participant requesting such

information. In addition, other investors

can request such information directly

from the Fund distributor. The NAV for

each WEBS series will be calculated

directly by the Fund administrator,

PFPC, Inc. NAVs will be made available

to the public from the Fund distributor

by means of a toll-free number, and also

will be available to NSCC participants

through data made available from

NSCC.

To provide current WEBS pricing

information, Amex represented that it

anticipated it would disseminate

through the facilities of the

Consolidated Tap Association (‘‘CTA’’)

an indicative optimized portfolio value’’

(‘‘Value’’) for each WEBS series as

calculated by Bloomberg, L.P.

(‘‘Bloomberg’’). The Value will be

disseminated on a per WEBS basis every

fifteen seconds during regular Amex

trading hours of 9:30 A.M. to 4:00 P.M.

New York time.8

The Value likely will not reflect the

value of all securities included in the

applicable benchmark MSCI Index. In

addition, the Value will not necessarily

reflect the precise composition of the

current portfolio of securities held by

the Fund for each WEBS series at a

particular moment. Therefore, the Value

on a per WEBS basis disseminated

during Amex trading hours should not
Federal Register / Vol. 62, No. 188 / Monday, September 29, 1997 / Notices 50975

9The Commission notes that CHX has filed a

proposed rule change (SR–CHX–97–21) which

would require, in part, that any CHX member,

before recommending a transaction in any security,

have reasonable grounds for believing that the

recommendation is suitable for such customer upon

the basis of the facts, if any, disclosed by such

customer as to his other security holdings and as

to his financial situation and needs.

10See supra note 3.

11 15 U.S.C. 78f(b)(5).

12The Commission notes that unlike typical

open-end investment companies, where investors

have the right to redeem their fund shares on a

daily basis, investors in WEBS can redeem them in

creation unit size aggregations only.

13 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).

14See Amex WEBS Approval Order, supra note

5. The Commission hereby incorporates by

reference the discussion and rational for approving

WEBS provided in the Amex WEBS Approval

Order.

15As noted in the Background and Description

section supra, the estimated cost at the time of the

approval for trading on Amex was $10 to $20 per

individual WEBS.

16The Commission believes that WEBS will not

trade at a material discount or premium in relation

to their net asset value, because of potential

arbitrage opportunities. See Amex WEBS Approval

Order, supra note 5, at 31. the mere potential for

arbitrage should keep the market price of WEBS

comparable to their net asset values; therefore,

arbitrage activity likely will not be significant. In

addition, the Fund will redeem in-kind, thereby

enabling the Fund to invest virtually all of its assets

in securities comprising the MSCI Indices.

17 17 CFR 270.22c–1. Investment Company Act

Rule 22c–1 generally provides that a registered

investment company issuing a redeemable security,

its principal underwriter, and dealers in that

security may sell, redeem, or repurchase the

security only at a price based on the net asset value

next computed after receipt of an investor’s request

to purchase, redeem, or resell. The net asset value

of an open-end management investment company

generally is computed once daily Monday to Friday

as designated by the investment company’s board

of directors. The Commission granted WEBS an

exemption from this provision to allow them to

trade in the secondary market at negotiated prices.

See Amex WEBS Approval Order, supra note 5.

18 17 CFR 240.12f–5.

be viewed as a real-time update of the

net asset value of the Fund, which is

calculated only once a day. It is

expected, however, that during the

trading day the Value will closely

approximate the value per WEBS share

of the portfolio of securities for each

WEBS series except under unusual

circumstances.

The Exchange will distribute an

information circular to its members in

connection with the trading of WEBS.

The circular will discuss the special

characteristics and risks of trading this

type of security. Specifically, the

circular, among other issues, will

discuss what WEBS are, how they are

created and redeemed, the requirement

that members and member firms deliver

a prospectus to investors purchasing

WEBS prior to or concurrently with the

confirmation of a WEBS transaction,

applicable Exchange rules,

dissemination information, trading

information, and the applicability of

suitability rules.9 The Exchange also

intends to utilize its existing

surveillance procedures to surveil

trading in WEBS, including surveilling

specialist compliance with Article XXX,

Rule 23(a), which contemplates

specialists engaging in transactions with

the issuer of WEBS under certain

circumstances.

III. Summary of Comments

Amex filed a comment letter to the

proposed rule change.10 Amex states

that CHX, or any market trading or

proposing to trade WEBS, should be

required to submit for Commission

review an information circular to

distribute to their members prior to

trading WEBS on the exchange. Amex

also states that any such information

circular should adequately explain the

unique characteristics and risks of this

type of security, including member

responsibilities, and identify the

Exchange personnel who can be

contacted to discuss any issues or

answer any inquiries relating to the

trading of WEBS.

IV. 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).11 The

Commission believes that the

Exchange’s proposal to trade WEBS

pursuant to unlisted trading privileges

will provide investors with a convenient

way of participating in foreign securities

markets and could produce added

benefits to investors through the

increased competition between other

market centers trading the product.

Specifically, the Commission believes

that CHX’s proposal should help

provide investors with increased

flexibility in satisfying their investment

needs, by allowing them to purchase

and sell at negotiated prices throughout

the trading day securities that replicate

the performance of several portfolios of

stock,12 and by increasing the

availability of WEBS as an investment

tool. Accordingly, as discussed below,

the rule proposal is consistent with the

requirements of Section 6(b)(5) that

Exchange rules facilitate transactions in

securities, remove impediments to and

perfect the mechanism of a free and

open market and a national market

system, and, in general, protect

investors and the public interest, and is

not designed to permit unfair

discrimination between customers,

issuers, brokers, or dealers.13

As the Commission noted in greater

detail in the order approving WEBS for

listing and trading on Amex, 14 the

estimated cost of an individual WEBS 15

should make it attractive to individual

retail investors who wish to hold a

security replicating the performance of

a portfolio of foreign stocks. The

Commission also notes that WEBS

should provide investors with several

advantages over standard open-end

investment companies; in particular,

investors can trade WEBS continuously

throughout the day in secondary

markets at negotiated prices.16 In

contrast, Investment Company Act Rule

22c–1 17 limits holders and prospectus

holders of open-end management

investment company shares to

purchasing or redeeming securities of

the fund based on the net asset value of

the securities held by the fund as

designated by the board of directors.

Thus, WEBS should allow investors to

respond quickly to market changes

through intra-day trading opportunities,

expand the opportunity for retail

investors to engage in hedging

strategies, and reduce transaction costs

for trading a portfolio of stocks. The

Commission notes that under the

proposed rule change, these benefits of

WEBS will now be available to investors

trading on CHX and believes that the

addition of their trading on CHX

pursuant to UTP could produce added

benefits to investors through the

increased competition.

The Commission notes that although

the value of WEBS are based on the

value of the securities and cash held in

the Fund, WEBS are not leveraged

instruments. WEBS are essentially

equity securities that represent an

interest in a portfolio of stocks designed

to reflect substantially the applicable

MSCI Index. Accordingly, it is

appropriate to regulate WEBS in a

manner similar to other equity

securities. Nonetheless, the Commission

believes that the unique nature of WEBS

raises certain, disclosure, trading, and

other issues that need to be addressed.

The remainder of this section addresses

these issues, although they are

discussed in greater detail in the Amex

WEBS Approval Order, where the

Commission initially approved WEBS

for trading as a new product.

Trading of WEBS On CHX

The Commission notes that, pursuant

to Rule 12f–5 under the Act, 18 prior to

trading a particular class or type of

security pursuant to UTP, CHX must
50976 Federal Register / Vol. 62, No. 188 / Monday, September 29, 1997 / Notices

19The Commission approved generic rules for the

listing and/or trading of investment company units

on CHX in 1996. See Securities Exchange Act

Release No. 37589 (August 21, 1996), 61 FR 44370

(August 28, 1996).

20The Commission notes the listing and delisting

criteria is similar to those adopted by Amex to trade

WEBS.

21The Commission also believes that the

proposed rule change should help protect investors

and the public interest, and help perfect the

mechanisms of a national market system, in that it

will allow for the trading of WEBS on CHX

pursuant to UTP, making WEBS more broadly

available to the investing public.

22See supra note 9.

23The Commission notes that the information

circular also discusses exemptive relief granted by

the Commission from certain rules under the Act,

exemptions that CHX members can rely upon. The

applicable rules are: Rule 10b–10(e); Rule 10b–13;

Rule 10b–17(b)(2); Rule 11(d)(1); Rules 15cl–5 and

15cl–6; and Regulation M to the extent it

superseded Rules 10b–6 and 10b–7.

24 In particular, in response to the comments in

Amex’s comment letter, the Commission notes it

has reviewed CHX’s draft information circular and

that it believes the circular adequately explains the

unique characteristics and risks of WEBS, including

member responsibilities, and that it identifies the

Exchange personnel to contact regarding issues

relating to the trading of WEBS.

25 In addition, the Amex WEBS Approval Order

states that the statement of additional information

(‘‘SAI’’) to the preliminary prospectus states that

each series will calculate its NAV per share at the

close of the regular trading session for the NYSE on

each day that the Amex is open for business. NAV

generally will be based on the last quoted sales

price on the exchange where the security primarily

is traded. See Amex WEBS Approval Order, supra

note 5.

26The Commission notes that, in the Amex WEBS

Approval Order, it discussed the concerns raised

when a broker-dealer is involved in the

development and maintenance of a stock index

upon which a product such as WEBS is based.

Adequate procedures to prevent the misuse of

material, non-public information regarding changes

to component stocks in an MSCI Index have been

adopted and should help to address concerns raised

by Morgan Stanley’s involvement in the

management of the Indices.

have listing standards comparable to

those of the primary market on which

the security is listed. The Commission

finds that adequate rules and

procedures exist to govern the trading of

WEBS on CHX, pursuant to UTP. WEBS

will be deemed equity securities subject

to CHX’s rules governing the trading of

equity securities. Accordingly, the

Exchange’s existing general rules that

currently apply to the trading of equity

securities will also apply to WEBS. In

addition, CHX’s Article XXVIII, rule

24,19 which contains specific listing and

delisting criteria to accommodate the

trading of Units, will apply to the

trading of WEBS.20 These criteria

should help to ensure that a minimum

level of liquidity will exist in each

WEBS series to allow for the

maintenance of fair and orderly markets.

The delisting criteria allow the

Exchange to consider the suspension of

trading and the delisting of a series of

Units, including suspending trading in

WEBS traded on the Exchange pursuant

to UTP, if an event were to occur that

made further dealings in such securities

inadvisable. This will give the Exchange

flexibility to suspend trading in WEBS

if circumstances warrant such action.

Accordingly, the Commission believes

that CHX’s equity rules in general, and

CHX’s Article XXVIII, Rule in 24

particular, provide adequate safeguards

to prevent manipulative acts and

practices and to protect investors and

the public interest.21

The Commission notes that once CHX

receives approval to trade WEBS

pursuant to UTP, CHX intends to

request that WEBS be declared an

Intermarket Trading System (‘‘ITS’’)

eligible security. WEBS could then be

traded through ITS, subjecting the

trading of WEBS to all the ITS rules and

procedures, including the ITS tradethrough rule.

Disclosure

The Commission believes that CHX’s

proposal should provide for adequate

disclosure to investors relating to the

terms, characteristics, and risks of

trading WEBS. All WEBS investors,

including those purchasing WEBS on

CHX pursuant to UTP, will receive a

prospectus regarding the product.

Because WEBS trading on CHX

pursuant to UTP will be in continuous

distribution, the prospectus delivery

requirements of the Securities Act of

1933 will apply to both the initial

investors and to investors purchasing

such securities in the secondary market

on CHX. The prospectus addresses the

special characteristics of WEBS,

including a statement regarding their

redeemability and method of creation,

and that WEBS are not individually

redeemable.

CHX has also drafted an information

circular that will be sent to all CHX

members prior to the commencement of

trading of WEBS. The Commission notes

that it has reviewed this draft

information circular and believes it

adequately explains the unique

characteristics and risks of WEBS. The

circular will note, for example,

Exchange member responsibilities,

including that before an Exchange

member undertakes to recommend a

transaction in WEBS, it should make a

determination that it is in compliance

with applicable rules of other selfregulatory organizations of which it is a

member, including suitability rules.22

The circular will also address members’

responsibility to deliver a prospectus to

all investors purchasing WEBS, as well

as highlight the characteristics of WEBS,

including that they are only redeemable

in Creation Unit size aggregation.23 The

Commission also notes that CHX’s draft

circular is essentially the same as the

Amex WEBS circular previously

reviewed by the Commission. The

Commission also believes that CHX’s

draft information circular adequately

addresses Amex’s comments.24

Dissemination of WEBS Portfolio

Information

The Commission believes that since

Amex is disseminating the Values for

the seventeen WEBS series, investors

will be provided with timely and useful

information concerning the value of

WEBS, on per WEBS basis. The

Commission notes that information is

disseminated through facilities of the

CTA and reflects the currently available

information concerning the value of the

assets comprising the Deposit securities.

The information is disseminated every

15 seconds during the hours of 9:30 a.m.

to 4:00 p.m., Eastern standard time and

will be available to all investors,

irrespective of where the transaction is

executed. Also, since the value is

expected to closely track the applicable

WEBS series, the Commission believes

the Values will provide investors with

adequate information to determine the

intra-day value of a given WEBS

series.25 In the Amex WEBS Approval

Order, the Commission noted that it

expected Amex to monitor the

disseminated Value, and if Amex

determines that the Value does not

closely track applicable WEBS series, it

will arrange to disseminate an adequate

alternative.

Surveillance

The Commission notes that CHX has

submitted surveillance procedures for

WEBS and believes that those

procedures are adequate to address

concerns associated with the listing and

trading of such securities, including any

concerns associated with specialists

purchasing and redeeming Creation

Units. The Exchange has represented

that its surveillance procedures should

allow it to identify situations where

specialists purchase or redeem Creation

Units to ensure compliance with CHX

Article XXX, Rule 23(a), which requires

that such purchases or redemptions

facilitate the maintenance of a fair and

orderly market in the subject security.26

Specialists

The Commission finds that it is

consistent with the Act to allow a

specialist registered in a security issued

by an Investment Company to purchase

or redeem the listed security from the
Federal Register / Vol. 62, No. 188 / Monday, September 29, 1997 / Notices 50977

27The Commission notes that with respect to

WEBS, broker-dealers and other persons are

cautioned in the prospectus and/or the Fund’s SAI

that some activities on their part may, depending

on the circumstances, result in their being deemed

statutory underwriters and subject them to the

prospectus delivery and liability provisions of the

Securities Act of 1933.

28 15 U.S.C. 78s(b)(2).

29 17 CFR 200.30–3(a)(12).

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

2The Commission has modified the text of the

summaries prepared by DTC.

3For a more detailed description of CCS, refer to

Securities Exchange Act Release No. 35750 (January

22, 1996), 61 FR 2852 [File No. SR–DTC–95–18]

(order approving proposed rule change).

4The coupons contained in a shell must all be for

the same CUSIP number, series, and payable date.

5 15 U.S.C. 78q–1.

6 15 U.S.C. 78s(b)(3)(A)(ii).

7 17 CFR 240.19b–4(e)(2).

8 DTC’s rule filing originally was submitted for

consideration pursuant to Section 19(b)(2) of the

Act. 15 U.s.C. 78s(b)(2). However, DTC

subsequently requested that the Commission

consider the rule filing pursuant to Rule 19(b)(3)(A)

of the Act. Letter from Larry Thompson, Senior Vice

President and Deputy General Counsel, DTC

(September 22, 1997).

issuer as appropriate to facilitate the

maintenance of a fair and orderly

market in that security. The

Commission believes that such market

activities should enhance liquidity in

such security and facilitate a specialist’s

market making responsibilities. In

addition, because the specialist only

will be able to purchase and redeem

WEBS on the same terms and conditions

as any other investor (and only at the

NAV), and Creation transactions must

occur through the distributor and not

directly with the issuer, the Commission

believes that concerns regarding

potential abuse are minimized. As noted

above, the Exchange’s surveillance

procedures also should ensure that such

purchases are only for the purpose of

maintaining fair and orderly markets,

and not for any other improper or

speculative purposes. Finally, the

Commission notes that its approval of

this aspect of the Exchange’s rule

proposal does not address any other

requirements or obligations under the

federal securities laws that may be

applicable.27

V. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,28 that the

proposed rule change (SR–CHX–96–14)

is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.29

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–25687 Filed 9–26–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39114; File No. SR–DTC–

97–15]

Self-Regulatory Organizations; The

Depository Trust Company; Notice of

Filing of Proposed Rule Change

Relating to the Coupon Collection

Service

September 22, 1997.

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

Securities Exchange Act of 1934

(‘‘Act’’),1 notice is hereby given that on

July 15, 1997, The Depository Trust

Company (‘‘DTC’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’) the proposed rule

change as described in Items I, II, and

III below, which items have been

prepared primarily by DTC. The

Commission is publishing this notice to

solicit comments from interested

persons on the proposed rule change.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The proposed rule change revises

DTC’s fee schedule for its coupon

collection service (‘‘CCS’’). DTC will

give participants that use CCS a

discount of $0.25 per shell for any

month in which the participant’s shell

deposit volume is 6,250 or greater. If a

participant’s year-end shell deposit

volume is 75,000 or greater, DTC will

rebate to the participant the $0.25 per

shell for any month(s) in that year for

which the participant did not receive a

discount because its shell deposit

volume was less than 6,250.

In addition, DTC will charge

participants $0.60 per shell received

without a valid CUSIP number. This

additional fee is designed to serve as an

incentive to Participants to identify

their shells properly. As all of DTC’s

fees are reviewed on an annual basis,

this surcharge will be reevaluated each

year, based on the proportion of shells

that DTC receives without a valid CUSIP

number.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

DTC included statements concerning

the purpose of and basis for the

proposed rule change and discussed any

comments it received on the proposed

rule change. The text of these statements

may be examined at the places specified

in Item IV below. DTC has prepared

summaries, set forth in sections (A), (B),

and (C) below, of the most significant

aspects of such statements.2

(A) Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

CCS provides participants with a

method for the collection of interest

relating to coupons from municipal

bearer bonds.3 Participants using CCS

are required to deposit coupons in a

standard sealed envelope or ‘‘shell’’

each of which may contain no more

than 200 coupons. Participants also

must identify each shell properly,

which includes labeling each shell with

a valid CUSIP number.4 After verifying

the contents of the shells, DTC credits

the participants with the interest due on

the coupons contained in the shells.

The purpose of the proposed rule

change is to revise the fees associated

with CCS. DTC continually strives to

align service fees with estimated service

costs and the subject revisions are part

of that effort.

DTC believes that the proposed rule

change is consistent with the

requirements of Section 17A of the Act 5

and the rules and regulations

thereunder because it provides for the

equitable allocation of dues, fees, and

other charges among DTC’s participants.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

DTC does not believe that the

proposed rule change will impose any

burden on competition that is not

necessary or appropriate in furtherance

of the purposes of the Act.

(C) Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received from

Members, Participants or Others

Not applicable.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

The foregoing rule change has become

effective pursuant to Section

19(b)(3)(A)(ii) of the Act 6 and Rule 19b–

4(e)(2) thereunder 7 because the

proposal establishes or changes a due,

fee, or other charge imposed by DTC.8

At any time within sixty days of the

filing of such rule change, the

Commission may summarily abrogate

such rule change if it appears to the

Commission that such action is

necessary or appropriate in the public

interest, for the protection of investors,