65836 Federal Register / Vol. 62, No. 241 / Tuesday, December 16, 1997 / Notices

2Rule 3a–5 provides an exemption from the

definition of investment company for certain

companies organized primarily to finance the

business operations of their parent companies or

companies controlled by their parent companies.

1 15 U.S.C. § 78s(b)(1).

2Amendment No. 1 corrected a drafting error that

inadvertently omitted Section 142 of the Exchange’s

Company Guide from the proposed rule change

provision that would eliminate the term ‘‘backdoor

listing.’’ See Letter from Claudia Crowley, Special

Counsel, Legal & Regulatory Policy, Exchange, to

Michael L. Loftus, Attorney, Division of Market

Regulation, Commission, dated December 3, 1997.

exemption from all provisions of the

Act. Applicant notes that in the release

adopting rule 3a–5,2 the SEC stated that

it may be appropriate to grant exemptive

relief to the finance subsidiary of a

section 3(c) issuer, but only on a caseby-case basis so that it can have the

opportunity to evaluate all of the

relevant factors. According to the

adopting release, the concern was that a

company may be considered a noninvestment company for the purposes of

the Act under section 3(c) and still be

engaged primarily in investment

company activities.

2. Rule 3a–5(b)(3)(i) in relevant part

defines a ‘‘company controlled by the

parent company’’ to be a corporation,

partnership, or joint venture that is not

considered an investment company

under section 3(a) or that is excepted or

exempted by order from the definition

of investment company by section 3(b)

or by the rules and regulations under

section 3(a). Certain of Toronto

Dominion’s subsidiaries do not fit

within the technical definition of

‘‘companies controlled by the parent

company’’ because they derive their

non-investment company status from

section 3(c) of the Act.

3. Toronto Dominion states that

neither itself and its subsidiaries, nor

TD and its subsidiaries, engage

primarily in investment company

activities. In addition, if TD were itself

to issue the securities that are to be

issued by Toronto Dominion and use

the proceeds for its own purposes or

advance them to its subsidiaries or

affiliates, none of TD, Toronto

Dominion nor any of their respective

subsidiaries or affiliates would be

subject to regulation under the Act.

While TD has chosen to use Toronto

Dominion as a financing vehicle, by

virtue of the Guarantee, the holders of

the securities issued by Toronto

Dominion will have direct access to

TD’s credit.

4. Under rule 3a–5(a)(6), a finance

subsidiary may only invest in

government securities, securities of its

parent company or a company

controlled by its parent company or

debt securities exempt under section

3(a)(3) of the 1933 Act. Toronto

Dominion will hold equity securities of

unaffiliated companies in an amount

that does not exceed 4% of its assets.

Toronto Dominion will hold such

securities due to non-U.S. tax

constraints applicable to TD. The

primary purpose of Toronto Dominion,

however, will continue to be to finance

the business operations of TD and

companies controlled by TD. Moreover,

purchasers of Toronto Dominion’s debt

securities will receive disclosure

documents that make clear that such

purchasers should ultimately look to TD

for repayment pursuant to the

Guarantee. Neither Toronto Dominion’s

structure nor its mode of operation will

resemble that of an investment

company.

5. Section 6(c) of the Act, in pertinent

part, provides that the SEC, by order

upon application, may conditionally or

unconditionally exempt any person,

security or transaction, or any class or

classes of persons, securities or

transactions, from any provision or

provisions of the Act to the extent that

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. Toronto Dominion submits that

its exemptive request meet the

standards set out in section 6(c) and

should therefore be granted.

Applicant’s Condition

Toronto Dominion agrees that the

order granting the requested relief will

be subject to the following condition:

1. Toronto Dominion will comply

with all of the provisions of rule 3a–5

under the Act, except: (1) Toronto

Dominion will be permitted to invest in

or make loans to, corporations,

partnerships, and joint ventures that do

not meet the portion of the definition of

‘‘company controlled by the parent

company’’ in rule 3a–5(b)(3)(i) solely

because they are excluded from the

definition of investment company by

section 3(c)(1), (2), (3), (4), (6) or (7),

provided that any such entity that

Toronto Dominion invests in or makes

loans to that is excluded from the

definition of investment company

pursuant to section 3(c)(1) or section

3(c)(7) will be engaged solely in lending,

leasing or related activities (such as

entering into credit derivatives to

manage the credit risk exposures of its

lending and leasing activities) and will

not be structured as a means of avoiding

regulation under the Act, and provided,

further, that any such entity excluded

from the definition of investment

company pursuant to section 3(c)(6) of

the Act will not be engaged primarily,

directly or indirectly, in one or more of

the businesses described in section

3(c)(5) of the Act; and (2) Toronto

Dominion will be permitted to invest in,

reinvest in, own, hold or trade in equity

securities of unaffiliated companies

with a purchase price not in excess of

4% of Toronto Dominion’s assets.

For the SEC, by the Division of Investment

Management, pursuant to delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–32751 Filed 12–15–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39412; File No. SR–Amex–

97–42]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change and

Amendment No. 1 Thereto by the

American Stock Exchange, Inc.

Providing for the Waiver of

Shareholder Approval as a

Prerequisite to Certain Issuances of

Securities and the Removal of the

Term ‘‘Backdoor Listing’’ From the

Exchange’s Company Guide

December 8, 1997.

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

Securities Exchange Act of 1934

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

November 3, 1997, the American Stock

Exchange, Inc. (‘‘Amex’’ or ‘‘Exchange’’)

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 by the Exchange.

On December 5, 1997, the Exchange

filed with the Commission Amendment

No. 1 to the proposed rule change.2 The

Commission is publishing this notice to

solicit comments on the proposed rule

change from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange seeks to amend Section

710 of its Company Guide to provide for

the waiver of shareholder approval as a

prerequisite to certain issuances of

securities, when obtaining such

approval would seriously jeopardize the

financial viability of the issuer. The

Exchange also seeks to revise Sections

142, 341, 713, and 1003 of its Company

Guide to eliminate the term ‘‘backdoor

listing.’’
Federal Register / Vol. 62, No. 241 / Tuesday, December 16, 1997 / Notices 65837

3Conforming changes are also proposed to be

made to Sections 142, 713 and 1003 of the

Company Guide.

4 15 U.S.C. § 78f(b).

5 15 U.S.C. § 78f(b)(5).

6The proposed rule change filing is deemed filed

as of the date Amendment No. 1 was received by

the Commission.

7 15 U.S.C. § 78s(b)(3)(A).

8 17 CFR 240.19b–4(e)(6).

9 17 CFR 200.30–3(a)(12).

The text of the proposed rule change

is available at the Office of the

Secretary, the Exchange, and at the

Commission.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission, the

Exchange 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. The

Exchange has prepared summaries, set

forth in sections A, B, and C below, of

the most significant aspects of such

statements.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and the

Statutory Basis for, the Proposed Rule

Change

1. Purpose

The Exchange, along with the New

York Stock Exchange (‘‘NYSE’’) and The

Nasdaq Stock Market, Inc. (‘‘Nasdaq’’),

maintains guidelines requiring

shareholder approval for certain

issuances of securities. The Exchange’s

guidelines are set forth in Sections 711–

713 of the Exchange’s Company Guide.

These requirements typically apply to

the issuance of securities in connection

with management stock option plans,

large acquisitions, or discounted private

placements involving the issuance of

20% or more of the issuer’s shares.

Because the process of obtaining

shareholder approval may be timeconsuming, the Exchange has long

observed an unwritten policy allowing

the waiver of the shareholder approval

requirement in circumstances where the

very process of obtaining shareholder

approval would seriously jeopardize the

issuer’s ability to survive. The Exchange

notes that the rules of the NYSE and

Nasdaq specifically provide for such an

exception.

To conform its rules to those of the

other marketplaces, the Exchange

proposes to amend Section 710 of the

Company Guide to provide that waivers

of the shareholder approval required for

certain issuances of securities may be

granted, upon written application to the

Exchange when: (i) The delay in

securing shareholder approval would

seriously jeopardize the financial

viability of the issuer; (ii) reliance by the

issuer on this exception is expressly

approved by the audit committee of the

issuer’s board of directors or a

comparable body; and (iii) the issuer

mails a letter to all shareholders, at least

ten days before the shares are to be

issued, describing the transaction,

alerting the shareholders to its omission

to seek the shareholder approval that

would otherwise be required, and

indicating that the audit committee of

the issuer’s board of directors or a

comparable body has expressly

approved the exception.

In addition, the Exchange proposes to

eliminate the term ‘‘backdoor listing’’

from Section 341 of the Company Guide

and certain related provisions.3 The

Exchange currently uses the term to

describe a merger between a listed and

unlisted company, the net effect of

which is so substantial that the

Exchange considers it appropriate to

evaluate the listing eligibility of the

surviving entity under the Exchange’s

original listing guidelines. The

Exchange will retain the substance of

the affected Sections, but eliminate the

term ‘‘backdoor listing’’ because the

Exchange believes the phrase creates an

undesirable image. The Exchange

contends that Section 341 actually

enhances regulation by requiring a

substantially changed company to meet

original listing guidelines in order to

remain listed.

2. Statutory Basis

The Exchange believes that the

proposed rule change is consistent with

Section 6(b) of the Act,4 in general, and

furthers the objectives of Section

6(b)(5),5 in particular, in that it is

designed to promote just and equitable

principles of trade, to remove

impediments to and perfect the

mechanism of a free and open market

and a national market system, and to

protect investors and the public interest.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange does not believe the

proposed rule change will impose any

inappropriate burden on competition.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

The Exchange did not solicit or

receive written comments with respect

to the proposed rule change.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Because the foregoing proposed rule

change: (i) Does not significantly affect

the protection of investors or the public

interest; (ii) does not impose any

significant burden on competition; and

(iii) does not become operative for 30

days from December 5, 1997, the date on

which it was filed,6 and the Exchange

provided the Commission with written

notice of its intent to file the proposed

rule change at least five business days

prior to the filing date, it has become

effective pursuant to Section 19(b)(3)(A)

of the Act 7 and Rule 19b–4(e)(6) 8

thereunder.

At any time within 60 days of the

filing of the proposed 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,

or otherwise in furtherance of the

purposes of the Act.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views and

arguments concerning the foregoing.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, NW.,

Washington, DC 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 persons, 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

Section, 450 Fifth Street, NW.,

Washington, DC 20549. Copies of such

filing will also be available for

inspection and copying at the principal

office of the Exchange. All submissions

should refer to File No. SR–Amex–97–

42 and should be submitted by January

6, 1998.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.9
65838 Federal Register / Vol. 62, No. 241 / Tuesday, December 16, 1997 / Notices

1 15 U.S.C. § 78s(b)(1).

2On September 5, 1997, the NASD filed a

proposed rule change to Rule 2860(b) to

disaggregate conventional equity options from

exchange-traded equity options for position limit

purposes and to amend the OTC Collar Exemption

to provide that the exemption may be utilized with

respect to an entire conventional equity option

position, not just that portion that was established

pursuant to the NASD’s position limit hedge

exemption rule. SR–NASD–97–67. This proposed

rule change is currently pending with the

Commission.

3 In NASD Notice to Members 94–46, the NASD

answered common questions concerning position

limits, and included the following:

Question #5: Do the NASD options rules apply to

conventional option transactions effected abroad by

an NASD member or a foreign branch of an NASD

member?

Answer: Yes. If the option is booked and carried

with an NASD member, it is subject to the NASD

position-limit rule.

Jonathan G. Katz,

Secretary.

[FR Doc. 97–32750 Filed 12–15–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39417; File No. SR–NASD–

97–80]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the National Association of Securities

Dealers, Inc., Relating to Options

Position Limits

December 9, 1997.

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

Securities Exchange Act of 1934

(‘‘Exchange Act’’ or ‘‘Act’’),1 notice is

hereby given that on October 30, 1997,

NASD Regulation, Inc. (‘‘NASD

Regulation’’) filed with the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘Commission’’) the proposed rule

change as described in Items I, II, and

III below, which Items have been

prepared by the self-regulatory

organization. The Commission is

publishing this notice to solicit

comments on the proposed rule change

from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

NASD Regulation is proposing to

amend Rule 2860 of the Conduct Rules

of the National Association of Securities

Dealers, Inc. (‘‘NASD’’ or

‘‘Association’’), to exempt conventional

equity option transactions that are

intermediated by a member pursuant to

Exchange Act Rule 15a–6(a)(3) from

options position limits provided that the

member reports such transactions to the

Association in accordance with the

options position reporting requirements.

Below is the text of the proposed rule

change. Proposed new language is

italicized.

2860. Options

(b)(3) Position Limits;

(A) Stock Options—Except in highly

unusual circumstances, and with the

prior written approval of the

Association pursuant to the Rule 9600

Series for good cause shown in each

instance, no member shall effect for any

account in which such member has an

interest, or for the account of any

partner, officer, director or employee

thereof, or for the account of any

customer, an opening transaction

through Nasdaq, the over-the-counter

market or on any exchange in a stock

option contract of any class of stock

options if the member has reason to

believe that as a result of such

transaction the member or partner,

officer, director or employee thereof, or

customer would, acting alone or in

concert with others, directly or

indirectly, hold or control or be

obligated in respect of an aggregate

position in excess of:

* * * * *

(E) Conventional equity option

transactions effected by a member

pursuant to Exchange Act Rule 15a–

6(a)(3) shall not be subject to position

limits set forth in this subparagraph,

provided that such conventional equity

option transactions are reported to the

Association in accordance with the

requirements of subparagraph (5).

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission, the

self-regulatory organization 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.

The self-regulatory organization has

prepared summaries, set forth in

Sections A, B, and C below, of the most

significant aspects of such statements.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

1. Purpose

The proposed rule change would

exempt conventional equity option

transactions in which members act as

agent or intermediary pursuant to

Exchange Act Rule 15a–6(a)(3) from

options position limits provided that

such conventional equity option

transactions are reported to the

Association pursuant to Rule 2860(b)(5).

NASD Rule 2860(b)(3) establishes limits

on the number of options contracts that

a member, a customer, or a group of

investors acting in concert can write or

hold. Specifically, Rule 2860(b)(3)

provides that ‘‘no member shall effect

* * * for the account of any customer,

an opening transaction through Nasdaq,

the over-the-counter market or on any

exchange in a stock option contract of

any class of stock options if the * * *

customer would * * * hold or control

or be obligated in respect to an aggregate

position in excess of [certain prescribed

limits].’’ 2 Members have expressed

uncertainty as to whether U.S. broker/

dealers that intermediate conventional

equity option transactions between their

affiliated foreign broker/dealers and

U.S. institutional investors and major

U.S. institutional investors pursuant to

Rule 15a–6(a)(3), and that do not carry

such options positions, are subject to

the limits of the Rule. The NASD’s

options position limits apply to both

conventional and standardized equity

options. The proposed rule change,

however, would affect only transactions

in conventional equity options

intermediated by a member pursuant to

Rule 15a–6(a)(3). Position limits for all

other conventional equity options

transactions, as well as for standardized

options, would remain unchanged.

NASD Regulation believes that Rule

2860 is ambiguous as to whether the

limits specified in the Rule apply to

option position transactions

intermediated by a member firm under

Rule 15a–6(a)(3),3 and understands that

industry practice in this respect is

inconsistent. NASD Regulation is filing

this proposed rule change in order to

provide clarity and consistency of

treatment for all member firms

participating in transactions with

foreign broker/dealers under Rule 15a–

6(a)(3), and also to ensure that such

transactions are reported under

paragraph (b)(5) of the Rule.

NASD Regulation proposes amending

Rule 2860(b)(3) to expressly exempt

conventional equity option transactions

intermediated by U.S. broker/dealers

pursuant to Rule 15a–6(a)(3), provided

that the member report to the

Association such transactions which

establish an aggregate position of 200 or

more option contracts pursuant to Rule

2860(b)(5). Exchange Act Rule 15a–

6(a)(3) provides that a foreign broker or

dealer may, without registering under

the Securities Exchange Act of 1934,

induce or attempt to induce the