Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Notices 49543

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

2 17 CFR 240.19b–4.

3See Securities Exchange Act Release No. 37960

(November 15, 1996).

4See 61 FR 59261.

5See 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.

6The Index is a sub-index of the Barings

Emerging Markets Index (‘‘BEMI’’).

7A 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.

are not tied to applicant’s net

investment income and realized capital

gains and do not represent yield or

investment return.

4. Another concern underlying

section 19(b) and rule 19b–1 is that

frequent capital gains distributions

could facilitate improper sales practices,

including in particular, the practice of

urging an investor to purchase fund

shares on the basis of an upcoming

distribution (‘‘selling the dividend’’),

when the distribution would result in

an immediate corresponding reduction

in net asset value and would be, in

effect, a return of the investor’s capital.

Applicant submits that this concern

does not apply to closed-end investment

companies, such as applicant, which do

not continuously distribute shares.

5. Applicant states that increased

administrative costs also are a concern

underlying section 19(b) and rule 19b–

1. Applicant asserts that it will continue

to make quarterly distributions

regardless of whether capital gains are

included in any particular distribution.

6. Section 6(c) provides that the SEC

may exempt any person, security, or

transaction from any provision of the

Act, or from any rule thereunder, if such

exemption is necessary or appropriate

in the public interest and consistent

with the protection of investors and the

purposes fairly intended by the policy

and provisions of the Act. For the

reasons stated above, applicant believes

that the requested relief satisfies this

standard.

Applicant’s Condition

Applicant agrees that the order

granting the requested relief shall

terminate upon the effective date of a

registration statement under the

Securities Act of 1933 for any future

public offering by applicant of its shares

other than: (i) a non-transferable rights

offering to shareholders of applicant,

provided that such offering does not

include solicitation by brokers or the

payment of any commissions or

underwriting fee; and (ii) an offering in

connection with a merger,

consolidation, acquisition, or

reorganization.

For the SEC, by the Division of Investment

Management, under delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–25029 Filed 9–19–97; 8:45 am]

BILLING CODE 8010–01–M

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.

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 capitalizationweighted 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%.

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.

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 recordkeeping. 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
49544 Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Notices

8See Amendment No. 1, supra note 5.

9See note 7 supra for a definition of free float.

10A ‘‘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.

12See Amex Rule 462.

13See note 22 infra.

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

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.

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.

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

Barings has created special

procedures to prevent material nonpublic 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.

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 nonreal-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
Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Notices 49545

14The 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.

15See Amendment No. 1, supra note 5.

16See Amex Rules 1109 and 918(c) for the

regulations regarding trading halts and suspensions.

17The 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.

18See Amex Rule 462, supra note 12.

19As of June 30, 1997, component securities from

these four countries comprised 92.44% of the Index

weight.

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.

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

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

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.

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

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

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
49546 Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Notices

20 15 U.S.C. 78f(b)(5).

21Pursuant 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).

23The 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.

24See note 10 supra.

25See note 14 supra.

26The 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).

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

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

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 semiannual basis. If the 20% single stock,

50% top five stock standard is not

maintained, then the Exchange will reclassify the Index as narrow-based and

would, among other things, impose

minimum margin requirements for stock

index industry group warrants.

In particular, the Commission

believes that the real-time reporting of

simultaneously traded index component

securities that underlie an exchangetraded 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

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.
Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Notices 49547

27As 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.

28See note 14 supra.

29 15 U.S.C. 78s(b)(2).

30 17 CFR 200.30–3(a)(12).

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

2Securities Exchange Act Release No. 38736

(June 11, 1997), 62 FR 33145.

3Pursuant to Delta’s rules, Delta will clear and

settle repo transactions that have been entered into

directly between two participants or entered into by

two participants through the facilities of a broker

that has been specifically authorized by Delta for

such purpose.

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.

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-realtime 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

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.

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

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–25025 Filed 9–19–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39065; File No. SR–DCC–

97–03]

Self-Regulatory Organizations; Delta

Clearing Corp.; Order Approving

Proposed Rule Change Regarding the

Clearing of the Off-Date Portion of

Repurchase Agreements

September 12, 1997.

On March 11, 1997, Delta Clearing

Corp. (‘‘Delta’’) filed with the Securities

and Exchange Commission

(‘‘Commission’’) and on May 7, 1997,

and May 29, 1997, amended a proposed

rule change (File No. SR–DCC–97–03)

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

Securities Exchange Act of 1934

(‘‘Act’’).1 Notice of the proposal was

published in the Federal Register on

June 18, 1997.2 No comment letters

were received. For the reasons

discussed below, the Commission is

approving the proposed rule change.

I. Description

The proposed rule change amends

Delta’s procedures for repurchase

agreements and reverse repurchase

agreements (‘‘Repo Procedures’’) to

permit Delta to clear the off-date portion

of a repurchase agreement (‘‘repo’’)

transaction whose on-date portion has

been cleared outside of Delta. Delta’s

Repo Procedures now provide that Delta

may assume the obligation to clear

solely the off-date portion of a repo

transaction (‘‘novated repo’’) subject to:

(1) The receipt by Delta of matching

trade reports from the parties to the

trade or from authorized broker,3 as

applicable and (2) Delta’s confirmation

of the prior execution and clearance of

the on-date portion of such repo

transaction.

Section 2401 of the Repo Procedures

sets forth time periods for participants

to report on-date transactions to enable

Delta to clear such transactions by

settlement time. Section 2401 is

amended to provide that the time

periods for reporting transactions set