75740 Federal Register / Vol. 65, No. 233 / Monday, December 4, 2000 / Notices

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

2 17 CFR 240.19b–4.

3 In Amendment No. 1, the CSE requested

accelerated effectiveness of the proposed rule

change and provided reasons therefor. See Letter

from James M. Flynn, Staff Attorney, CSE, to

Michael Gaw, Attorney-Adviser, Division of Market

Regulation, Commission (November 16, 2000). The

CSE in fact meant to request accelerated approval

under Section 19(b)(2) of the Act in Amendment

No. 1. Telephone conversation between James M.

Flynn, Staff Attorney, CSE, and Michael Gaw,

Attorney-Adviser, Division of Market Regulation,

Commission, on November 21, 2000. Amendment

No. 1 also made certain minor changes to the text

of the proposed rule language, discussed below.

4 In the proposed rule language submitted by the

CSE, the term ‘‘Index Fund Share’’ as used here

inadvertently had the letter ‘‘s’’ at the end. In the

final rule text, the word ‘‘Share’’ will be in the

singular. See Amendment No. 1.

DC 20555–0001, and to George L. Edgar,

Esq., Morgan, Lewis and Bockius, 1800

M Street, NW., Washington, DC 20036,

attorney for the licensee.

Nontimely filings of petitions for

leave to intervene, amended petitions,

supplemental petitions, and/or requests

for hearing will not be entertained

absent a determination by the

Commission, the presiding officer or the

presiding Atomic Safety and Licensing

Board that the petition and/or request

should be granted based upon a

balancing of the factors specified in 10

CFR 2.714(a)(1)(i)–(v) and 2.714(d).

The Commission hereby provides

notice that this is a proceeding on an

application for license amendments

falling within the scope of section 134

of the Nuclear Waste Policy Act of 1982

(NWPA), 42 U.S.C. 10154. Under

section 134 of the NWPA, the

Commission, at the request of any party

to the proceeding, must use hybrid

hearing procedures with respect to ‘‘any

matter which the Commission

determines to be in controversy among

the parties.’’

The hybrid procedures in section 134

provide for oral argument on matters in

controversy, preceded by discovery

under the Commission’s rules, and the

designation, following argument, of only

those factual issues that involve a

genuine and substantial dispute,

together with any remaining questions

of law, to be resolved in an adjudicatory

hearing. Actual adjudicatory hearings

are to be held on only those issues

found to meet the criteria of section 134

and set for hearing after oral argument.

The Commission’s rules

implementing section 134 of the NWPA

are found in 10 CFR part 2, subpart K,

‘‘Hybrid Hearing Procedures for

Expansion of Spent Fuel Storage

Capacity at Civilian Nuclear Power

Reactors’ (published at 50 FR 41662,

dated October 15, 1985). Under those

rules, any party to the proceeding may

invoke the hybrid hearing procedures by

filing with the presiding officer a

written request for oral argument under

10 CFR 2.1109. To be timely, the request

must be filed within ten (10) days of an

order granting a request for hearing or

petition to intervene. The presiding

officer must grant a timely request for

oral argument. The presiding officer

may grant an untimely request for oral

argument only upon a showing of good

cause by the requesting party for the

failure to file on time and after

providing the other parties an

opportunity to respond to the untimely

request. If the presiding officer grants a

request for oral argument, any hearing

held on the application must be

conducted in accordance with the

hybrid hearing procedures. In essence,

those procedures limit the time

available for discovery and require that

an oral argument be held to determine

whether any contentions must be

resolved in an adjudicatory hearing. If

no party to the proceeding timely

requests oral argument, and if all

untimely requests for oral argument are

denied, then the usual procedures in 10

CFR part 2, subpart G apply.

For further details with respect to this

action, see the application for

amendments dated October 4, 2000,

which is available for public inspection

at the NRC’s Public Document Room,

located at One White Flint North, 11555

Rockville Pike (first floor), Rockville,

Maryland, 20852 and accessible

electronically through the ADAMS

Public Electronic Reading Room link at

the NRC Web site (http://nrc.gov).

Dated at Rockville, Maryland, this 27th day

of November 2000.

For the Nuclear Regulatory Commission.

David H. Jaffe,

Senior Project Manager, Section 1, Project

Directorate IV & Decommissioning, Division

of Licensing Project Management, Office of

Nuclear Reactor Regulation.

[FR Doc. 00–30785 Filed 12–1–00; 8:45 am]

BILLING CODE 7590–01–P

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43620; File No. SR–CSE–

00–06]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change and Amendment No. 1

Thereto by the Cincinnati Stock

Exchange, Inc., To Provide for the

Listing and Trading of Index Fund

Shares

November 27, 2000.

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

Securities Exchange Act of 1934

(‘‘Act’’),1 and Rule 19b–4 2 thereunder,

notice is hereby given that on October

13, 2000, the Cincinnati Stock

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

filed with the Securities and Exchange

Commission (‘‘Commission’’) the

proposed rule change as described in

Items I and II below, which Items have

been prepared primarily by the

Exchange. On November 17, 2000, the

CSE filed Amendment No. 1 to the

proposal.3 The Commission is

publishing this notice to solicit

comments on the proposed rule change

and Amendment No. 1 from interested

persons, and to grant accelerated

approval of the proposed rule change

and Amendment No. 1.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The CSE proposes to amend its rules

to adopt listing standards and trading

rules for Index Fund Shares, including

generic listing standards, which would

permit the Exchange to trade, either by

listing or pursuant to unlisted trading

privileges (‘‘UTP’’), series of Index Fund

Shares. Below is the text of the

proposed rule change; new language is

in italics.

* * * * *

Chapter XI

Trading Rules

Rule 11.9 National Securities Trading

System

* * * * *

Rule 11.9(x) Index Fund Shares

(1) Applicability. This Chapter is

applicable only to Index Fund Shares.

Except to the extent inconsistent with

this Chapter, or unless the context

otherwise requires, the provisions of the

Constitution and all other rules and

policies of the Exchange shall be

applicable to the trading on the

Exchange of Index Fund Shares. Index

Fund Shares are included within the

definition of ‘‘security’’ or ‘‘securities’’

as such terms are used in the

Constitution and Rules of the Exchange.

(2) Definitions. The following terms as

used in the Rules shall, unless the

context otherwise requires, have the

meanings herein specified.

(a) Index Fund Share 4 means a

security (a) that is issued by an openend management investment company

based on a portfolio of stocks that seeks

to provide investment results that

correspond generally to the price and

yield performance of a specified foreign

or domestic stock index; (b) that is

Federal Register / Vol. 65, No. 233 / Monday, December 4, 2000 / Notices 75741

5 In the initial language of the proposed rule, the

CSE inadvertently omitted the apostrophe in the

word ‘‘holder’s.’’ The CSE has indicated that, in the

official rule language, the apostrophe will be

included. Telephone conservation between James

M. Flynn, Staff Attorney, CSE, and Michael Gaw,

Attorney-Adviser, Division of Market Regulation,

Commission, on November 21, 2000.

6 In the proposed rule language submitted by the

CSE, the two sentences of this paragraph were

inadvertently run together and joined with a

comma. The CSE has indicated that, in the official

rule language, the sentences will be separated by a

period, and the first letter of the word beginning the

second sentence (‘‘The’’) will be capitalized. See

Amendment No. 1.

issued by such an open-end

management investment company in a

specified aggregate minimum number in

return for a deposit of specified

numbers of shares of stock and/or a

cash amount with a value equal to the

next determined net asset value; and (c)

that, when aggregated in the same

specified minimum number, may be

redeemed at a holder’s 5 request by such

open-end investment company which

will pay to the redeeming holder the

stock and/or cash with a value equal to

the next determined net asset value.

(b) Reporting Authority. The term

‘‘Reporting Authority’’ in respect of a

particular series of Index Fund Shares

means the Exchange, a subsidiary of the

Exchange, or an institution or reporting

service designated by the Exchange or

its subsidiary as the official source for

calculating and reporting information

relating to such series, including, but

not limited to, any current index or

portfolio value; the current value of the

portfolio of any securities required to be

deposited in connection with issuance

of Index Fund Shares; the amount of

any dividend equivalent payment or

cash distribution to holders of Index

Fund Shares, net asset value, or other

information relating to the issuance,

redemption or trading of Index Funds

Shares.

Nothing in this section shall imply

that an institution or reporting service

that is the source for calculating and

reporting information relating to Index

Fund Shares must be designated by the

Exchange. The 6 term ‘‘Reporting

Authority’’ shall not refer to an

institution or reporting service not so

designated.

(3) Disclosure. Upon request of a

customer, members and member

organizations shall provide to all

purchasers of Index Fund Shares a

prospectus for the series of Index Fund

Shares.

(4) Designation. The trading of Index

Fund Shares based on one or more

securities, whether by listing or

pursuant to unlisted trading privileges,

shall be considered on a case-by-case

basis. Each issue of Index Fund Shares

shall be based on each particular stock

index or portfolio and shall be

designated as a separate series and

shall be identified by a unique symbol.

The securities that are included in a

series of Index Fund Shares shall be

selected by the Exchange or its agent, a

wholly-owned subsidiary of the

Exchange, or by such other person

thereof, as shall have authorized use of

such index. Such index or portfolio may

be revised from time to time as may be

deemed necessary or appropriate to

maintain the quality and character of

the index or portfolio.

(5) Initial and Continued Listing and/

or Trading. Each series of Index Fund

Shares will be traded on the Exchange,

whether by listing or pursuant to

unlisted trading privileges, subject to

application of the following criteria:

(a) Commencement of Trading—For

each Series, the Exchange will establish

a minimum number of Index Fund

Shares required to be outstanding at the

time of commencement of trading on the

Exchange.

(b) Continued Trading—Following the

initial twelve month period following

commencement of trading on the

Exchange of a series of Index Fund

Shares, the Exchange will consider the

suspension of trading, the removal from

listing, or termination of unlisted

trading privileges for such series under

any of the following circumstances:

(i) if there are fewer than 50 beneficial

holders of the series of Index Fund

Shares for 30 or more consecutive

trading days;

(ii) if the value of the index or

portfolio of securities on which the

series of Index Fund Shares is based is

no longer calculated or available; or

(iii) if such other event shall occur or

condition exist which, in the opinion of

the Exchange, makes further dealings on

the Exchange inadvisable. Upon

termination of an open-ended

management investment company, the

Exchange requires that Index Fund

Shares issued in connection with such

entity be removed from Exchange

listing.

(c) Voting. Voting rights shall be as set

forth in the applicable open-end

management investment company

prospectus.

* * * Interpretation and Policies

.01 The Exchange may approve a

series of Index Fund Shares for listing

pursuant to Rule 19b–4(e) under the

Securities Exchange Act of 1934

provided each of the following criteria is

satisfied:

(a) Eligibility Criteria for Index

Components. Upon the initial listing of

a series of Index Fund Shares each

component of an index or portfolio

underlying a series of Index Fund

Shares shall meet the following criteria

as of the date of the initial deposit of

securities to the fund in connection with

the initial issuance of shares of such

fund:

(i) Component stocks that in the

aggregate account for at least 90% of

the weight of the index or portfolio shall

have a minimum market value of at

least $75 Million;

(ii) The component stocks shall have

a minimum monthly trading volume

during each of the last six months of at

least 250,000 shares for stocks

representing at least 90% of the weight

of the index or portfolio;

(iii) The most heavily weighted

component stock cannot exceed 25% of

the weight of the index or portfolio, and

the five most heavily weighted

component stocks cannot exceed 65%

of the weight of the index or portfolio;

(iv) The underlying index or portfolio

must include a minimum of 13 stocks;

and

(v) All securities in an underlying

index or portfolio must be listed on a

national securities exchange or The

Nasdaq Stock Market (including the

Nasdaq SmallCap Market).

(b) Index Methodology and

Calculation.

(i) The index underlying a series of

Index Fund Shares will be calculated

based on either the market

capitalization, modified market

capitalization, price, equal-dollar or

modified equal-dollar weighting

methodology;

(ii) If the index is maintained by a

broker-dealer, the broker-dealer shall

erect a ‘‘fire-wall’’ around the personnel

who have access to information

concerning changes and adjustments to

the index and the index shall be

calculated by a third party who is not

a broker-dealer; and

(iii) The current index value will be

disseminated every 15 seconds over the

Consolidated Tape Association’s

Network B.

(c) Disseminated Information. The

Reporting Authority will disseminate for

each series of Index Fund Shares an

estimate, updated every 15 seconds, of

the value of a share of each series. This

may be based, for example, upon

current information regarding the

required deposit of securities and cash

amount to permit creation of new shares

of the series or upon the index value.

(d) Initial Series Outstanding. A

minimum of 100,000 shares of a series

of Index Fund Shares is required to be

outstanding at commencement of

trading.

(e) Minimal Fractional Trading

Variation. The minimum fractional

75742 Federal Register / Vol. 65, No. 233 / Monday, December 4, 2000 / Notices

7 In the proposed rule language submitted by the

CSE, the word ‘‘a’’ as used here was omitted. The

CSE has indicated that, in the official rule language,

the word ‘‘a’’ will appear before the world

‘‘member.’’ See Amendment No. 1.

8See Exchange Act Release No. 34–42988 (June

28, 2000), 65 FR 42041 (July 7, 2000) (accelerated

approval of BSE generic listing standards for Index

Fund Shares); Exchange Act Release No. 34–42975

(June 22, 2000), 65 FR 40712 (June 30, 2000)

(accelerated approval of CHX generic listing

standards for Portfolio Depository Receipts and

Investment Company Units); Exchange Act Release

No. 34–42833 (May 26, 2000), 65 FR 35679 (June

5, 2000) (accelerated approval of CBOE generic

listing standards for Index Portfolio Shares);

Exchange Act Release No. 34–42787 (May 15, 2000),

65 FR 33598 (May 24, 2000) (approval of Amex

generic listing standards for Portfolio Depository

Receipts and Index Fund Shares).

9 17 CFR 240.19b–4(e).

trading variation may vary among

different series of Index Fund Shares

but will be set at 1⁄16, 1⁄32, or 1⁄64 of

$1.00.

(f) Hours of Trading. Trading will

occur between 9:30 a.m. and either 4:00

p.m. or 4:15 p.m. for each series of

Index Fund Shares, as specified by the

Exchange.

(g) Surveillance Procedures. The

Exchange will utilize existing

surveillance procedures for Index Fund

Shares.

(h) Applicability of Other Rules. The

provisions of the Cincinnati Stock

Exchanges Rules and By-Laws will

apply to all series of Index Fund Shares.

.02 The following paragraphs only

apply to series of Index Fund Shares

that are the subject of an order by the

Securities and Exchange Commission

exempting such series from certain

prospectus delivery requirements under

Section 24(d) of the Investment

Company Act of 1940. The Exchange

will inform members and member

organizations regarding application of

these provisions to a particular series of

Index Fund Shares by means of an

Information Circular prior to

commencement of trading in such

series. The Exchange requires that

members and member organizations

provide to all purchasers of a series of

Index Fund Shares a written description

of the terms and characteristics of such

securities, in a form prepared by the

open-end management investment

company issuing such securities, not

later than the time a confirmation of the

first transaction in such series is

delivered to such purchaser. In

addition, members and member

organizations shall include such a

written description with any sales

material relating to a series of Index

Fund Shares that is provided to

customers or the public. Any other

written materials provided by a member

or member organization to customers or

the public making specific reference to

a series of Index Fund Shares as an

investment vehicle must include a

statement in substantially the following

form: ‘‘A circular describing the terms

and characteristics of [the series of

Index Fund Shares] has been prepared

by the [open-end management

investment company name] and is

available from your broker or the

Exchange. It is recommended that you

obtain and review such circular before

purchasing [the series of Index Fund

Shares].’’

A member or member organization

carrying an omnibus account for a nonmember broker-dealer is required to

inform such non-member that execution

of an order to purchase a series of Index

Fund Shares for such omnibus account

will be deemed to constitute agreement

by the non-member to make such

written description available to its

customers on the same terms as are

directly applicable to members and

member organizations under this rule.

Upon request of a customer, a 7

member or member organization shall

also provide a prospectus for the

particular series of Index Fund Shares.

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 III 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

Statutory Basis for, the Proposed Rule

Change

1. Purpose

The Exchange proposes, in a new CSE

Rule 11.9(x), to adopt listing standards

to accommodate the trading, whether by

listing or pursuant to UTP, of Index

Fund Shares. The CSE has stated that

these standards are similar to those

established by other exchanges.8 The

CSE believes that the proposed rule

change would further the intent of Rule

19b–4(e) under the Act 9 by allowing

trading on the Exchange to begin in

Index Fund Shares, subject to the

proposed generic standards, without the

need for notice and comment and

Commission approval. The CSE also

believes that this new procedure has the

potential to reduce the time frame for

bringing these securities to market or for

trading them pursuant to UTP.

i. Index Fund Shares Generally

Index Fund Shares are securities that

are issued by an open-end management

investment company (‘‘Fund’’) that

seeks to provide investment results that

correspond generally to the price and

yield performance of a specified foreign

or domestic equity market index. Index

Fund Shares will be issued by an entity

registered with the Commission as an

open-end management investment

company, and which may be organized

as a series fund providing for the

creation of separate series of securities,

each with a portfolio consisting of some

or all of the component securities of a

specified securities index.

Issuance of Index Fund Shares by a

Fund will be made only in minimum

size aggregations or multiples thereof

(‘‘Creation Units’’). The applicable

Creation Unit size aggregation will be

set forth in the Fund’s prospectus and

will vary from one series of Index Fund

Shares to another, but generally will be

of substantial size (e.g., value in excess

of $450,000 per Creation Unit). It is

expected that a Fund will issue and sell

Index Fund Shares through a principal

underwriter on a continuous basis at the

net asset value per share next

determined after an order to purchase

Index Fund Shares in Creation Unit size

aggregations is received in proper form.

Index Fund Shares will be traded on

the Exchange like other equity

securities, and the CSE’s equity trading

rules will apply to the trading of Index

Fund Shares. The Exchange expects that

Creation Unit size aggregations of Index

Fund Shares generally will be issued in

exchange for the ‘‘in kind’’ deposit of a

specified portfolio of securities, together

with a cash payment representing, in

part, the amount of dividends accrued

up to the time of issuance. The

Exchange anticipates that such deposits

will be made primarily by institutional

investors, arbitrageurs, and the

Exchange designated dealers (generally

referred to as ‘‘specialists’’). Redemption

of Index Fund Shares generally will be

made ‘‘in kind’’ with a portfolio of

securities and cash exchanged for Index

Fund Shares that have been tendered for

redemption. Issuances of redemptions

also could occur for cash under

specified circumstances (e.g., if it is not

possible to effect delivery of securities

underlying the specific series in a

particular foreign country) and at other

times in the discretion of the Fund.

The Exchange expects that a Fund

will make available on a daily basis a

list of the names and the required

Federal Register / Vol. 65, No. 233 / Monday, December 4, 2000 / Notices 75743

10See Exchange Act Release No. 34–39268

(October 22, 1997), 62 FR 56211 (October 29, 1997)

(approval of CSE proposal to establish listing

criteria for Portfolio Depository Receipts).

11See supra note 8.

12 17 CFR 240.19b–4(e). Rule 19b–4(e) permits

self-regulatory organizations (‘‘SROs’’) to list and

trade new derivative products that comply with

existing SRO trading rules, procedures, surveillance

programs, and listing standards, without submitting

a proposed rule change under Section 19(b) of the

Act, 15 U.S.C. 78s(b).

13The CSE states that, under Subchapter M of the

Internal Revenue Code, for a fund to qualify as a

regulated investment company, the securities of a

single issuer can account for no more than 25

percent of a fund’s total assets, and at least 50

percent of a fund’s total assets must be comprised

of cash (including government securities) and

securities of single issuers whose securities account

for less than 5 percent of such fund’s total assets.

14The term ‘‘Designated Dealer’’ means a

proprietary Member who maintains a minimum net

capital of at least the greater of $500,000 or the

amount required under Rule 15c3–1 under the Act,

17 CFR 240.15c3–1, and who has been approved by

the Exchange’s Securities Committee to perform

market functions by entering bids and offers for

Continued

number of shares of each of the

securities to be deposited in connection

with issuance of Index Fund Shares of

a particular series in Creation Unit size

aggregations, as well as information

relating to the required cash payment

representing, in part, the amount of

accrued dividends.

A Fund may make periodic

distributions of dividends from net

investment income, including net

foreign currency gains, if any, in an

amount approximately equal to

accumulated dividends on securities

held by the Fund during the applicable

period, net expenses and liabilities for

such period.

ii. Criteria for Initial and Continued

Listing

The Exchange believes that the listing

criteria proposed in its new rule are

generally consistent with the listing

standards used by the CSE for Portfolio

Depository Receipts, currently found in

Chapter XI, Rule 11.9(v) of the Exchange

Rules.10

If Index Fund Shares are to be listed

on the CSE, it will establish a minimum

number of Index Fund Shares that must

be outstanding at the commencement of

Exchange trading, and such minimum

number will be included in any

required submission under Rule 19b–4.

In connection with continued listing,

the CSE will consider the suspension of

trading in, or removal from listing of, a

Fund upon which a series of Index

Fund Shares is based when any of the

following circumstances arise: (1) there

are fewer than 50 beneficial holders of

the series of Index Fund Shares for 30

or more consecutive trading days; (2)

the value of the index or portfolio of

securities on which the series of Index

Fund Shares is based is no longer

calculated or available; or (3) such other

event shall occur or condition exists

which, in the opinion of the Exchange,

makes further dealings on the Exchange

inadvisable. However, the CSE will not

be required to suspend or delist from

trading, based on the above factors, any

Index Fund Shares for a period of

twelve months after the initial listing of

such Index Fund Shares for trading on

the Exchange. In any case, upon

termination of a Fund, the Exchange

will require that Index Fund Shares

issued in connection with that Fund be

removed from Exchange listing.

The Exchange believes that these

proposed criteria are similar to the

Index Fund Shares listing criteria

currently used by the Amex.11

iii. Required Standards To Permit

Trading

The CSE proposes to adopt generic

listing and delisting standards to permit

the trading, either by listing or pursuant

to UTP, of Index Fund Shares pursuant

to Rule 19b–4(e) under the Act.12

Accordingly, the CSE proposes to

approve a series of Index Fund Shares

for listing or trading under the following

criteria.

Initial Listing Criteria

Upon the initial listing of a series of

Index Fund Shares, component stocks

that in the aggregate account for at least

90 percent of the weight of the

underlying index or portfolio must have

a minimum market value of at least $75

million. The compotent stocks

representing at least 90 percent of the

weight of the index or portfolio must

have a minimum monthly trading

volume during each of the last six

months of at least 250,000 shares. The

most heavily weighted component

stocks in an underlying index or

portfolio cannot exceed 25 percent of

the weight of the index or portfolio, and

the five most heavily weighted

component stocks cannot exceed 65

percent of the weight of the index or

portfolio.13 All securities in an

underlying index or portfolio must be

listed on either a national securities

exchange or the Nasdaq Stock Market

(including the Nasdaq SmallCap

Market). Finally, any series of Index

Fund Shares must meet these eligibility

criteria as of the date of the initial

deposit of securities and cash into the

trust or fund.

Continued Listing Criteria

The index underlying a series of

Index Fund Shares will be calculated

based on either the market

capitalization, modified market

capitalization, price, equal-dollar, or

modified equal-dollar weighting

methodology. In addition, if the index is

maintained by a broker-dealer, the

broker-dealer will erect a fire-wall

around the personnel who have access

to information concerning changes and

adjustments to the index, and the index

will be calculated by a third party who

is not a broker-dealer.

The current index value will be

disseminated every 15 seconds over the

Consolidated Tape Association’s

Network B. The Reporting Authority

will disseminate for each series of Index

Fund Shares an estimate, updated every

15 seconds, of the value of a share of

each series. This may be based upon, for

example, current information regarding

the required deposit of securities plus

any cash amount to permit creation of

new shares of the series or upon the

index value.

Index Fund Shares will be registered

in book entry form through the

Depository Trust Company. A minimum

of 100,000 shares of a series of Index

Fund Shares is required to be

outstanding at commencement of

trading. Trading in Index Fund Shares

on the Exchange will occur between

9:30 a.m. and either 4:00 p.m. or 4:15

p.m. (all times Eastern Standard Time)

for each series of Index Fund Shares, as

specified by the CSE.

Pursuant to UTP, the CSE will rely

upon the primary exchange that

originally listed the respective Fund to

monitor, surveil, and insure that the

proceeding listing criteria are met by

each index or portfolio that is listed and

traded on the CSE. The CSE has stated

that it will also monitor the respective

primary exchange’s actions, news

releases, and disclosures made about

any Index Fund Shares traded on the

CSE.

iv. CSE Rules Applicable to the Trading

of Index Fund Shares

Index Fund Shares are considered

‘‘securities’’ under the CSE’s Rules and

are subject to all applicable trading

rules, including the provisions of CSE

Chapter XIV, Rule 14.9, ITS ‘‘TradeThroughs’’ and ‘‘Locked Markets,’’

which prohibit Exchange members from

initiating trade-throughs for Intermarket

Trading System securities, as well as

rules governing priority, parity, and

precedence of orders; market volatilityrelated trading halt provisions; and

responsibilities of CSE Designated

Dealers.14 CSE equity margin rules also

75744 Federal Register / Vol. 65, No. 233 / Monday, December 4, 2000 / Notices

Designated Issues into the System. See CSE Rule

11.9(a)(3).

15See CSE Rule 11.9(v).

16See Amendment No. 1

17See CSE Rules, Chapter XIV.

18 17 CFR 240.12f–5.

19 15 U.S.C. 77e(b)(2).

20 15 U.S.C. 80a–24(d). 21 15 U.S.C. 78f(b)(5).

will apply to trading in Index Fund

Shares.

The CSE’s surveillance procedure for

Index Fund Shares will be similar to the

existing CSE procedures used for

Portfolio Depositary Receipts 15 and will

incorporate and rely upon existing

Exchange surveillance systems. The

Exchange has stated that it believes

these procedures will effectively

monitor the trading activity in Index

Fund Share products so as to ensure full

compliance with Exchange rules and the

federal securities laws.16

Prior to the commencement of trading

in Index Fund Shares, the Exchange will

issue a circular to members highlighting

the characteristics of Index Fund

Shares. The circular will discuss the

special characteristics and risks of

trading this type of security.

Specifically, the circular will discuss

what Index Fund Shares are, how they

are created and redeemed, the

requirement that members and member

firms deliver a prospectus to investors

purchasing Index Fund Shares prior to

or concurrently with the confirmation of

a transaction, applicable Exchange

Rules, dissemination information,

trading information, and the

applicability of suitability rules.

Additionally, the circular will inform

members of specific Exchange policies,

such as trading halts and market

conditions particular to such securities.

First, the circular will advise that

trading will be halted in the event the

market volatility trading halt parameters

have been reached.17 Second, the

circular will advise that the Exchange

may consider factors such as the extent

to which trading is not occurring in one

or more deposited securities and

whether other unusual conditions or

circumstances detrimental to the

maintenance of a fair and orderly

market in such securities are present.

Pursuant to Rule 12f–5 under the

Act,18 to trade a particular class or type

of security pursuant to UTP, the

Exchange must have rules providing for

transactions in such class or type of

security. The CSE’s proposed rule

change is designed to create standards

substantially similar to those approved

for other exchanges.

v. Disclosure to Customers

The CSE will require its members to

provide all purchasers of newly issued

Index Fund Shares with a prospectus for

each separate Fund. Because the

Creation Units will be in continuous

distribution, the prospectus delivery

requirements of Section 5(b)(2) of the

Securities Act of 1933 19 will apply to

all investors in Index Fund Shares,

including investors who make

secondary market purchases on the

Exchange in Index Fund Shares. With

respect to series of Index Fund Shares

that are the subject of an order by the

Commission exempting such series from

certain prospectus delivery

requirements under Section 24(d) of the

Investment Company Act of 1940,20 the

CSE will inform members and member

organizations regarding disclosure

obligations with respect to a particular

series of Index Fund Shares by means of

an Information Circular prior to

commencement of trading in such

series.

For any exempted series, the

Exchange requires that members and

member organizations provide to all

purchasers of a series of Index Fund

Shares a written description of the terms

and characteristics of such securities, in

a form prepared by the Fund issuing

such securities, not later than the time

a confirmation of the first transaction in

such series is delivered to a purchaser.

In addition, members and member

organizations shall include such written

description with any sales material

relating to a series of Index Fund Shares

that is provided to customers or the

public. Any other written materials

provided by a member or member

organization to customers or the public

making specific reference to a series of

Index Fund Shares as an investment

vehicle must include a statement in

substantially the following form: ‘‘A

circular describing the terms and

characteristics of [the series of Index

Fund Shares] has been prepared by the

[Fund name] and is available from your

broker or the Exchange. It is

recommended that you obtain and

review such circular before purchasing

[the series of Index Fund Shares]. In

addition, upon request you may obtain

from your broker a prospectus for [the

series of Index Fund Shares].’’

A member or member organization

carrying an omnibus account for a nonmember broker-dealer is required to

inform such non-member that execution

of an order to purchase a series of Index

Fund Shares for such omnibus account

will be deemed to constitute agreement

by the non-member to make such

written description available to its

customers on the same terms as are

directly applicable to members and

member organizations under this rule.

Upon request of a customer a member

or member organization shall also

provide a prospectus for the particular

series of Index Fund Shares.

vi. Minimum Fractional Change

The CSE proposes that the minimum

fractional change for Index Fund Shares

on the Exchange will be 1/16th, 1/32nd,

or 1/64th of $1.00, depending on the

series of Index Fund Shares. The

Exchange has stated that these are the

same minimum fractional increments

for the trading of Index Fund Shares on

the CSE, until such time as decimal

increments are implemented.

2. Statutory Basis

The CSE believes that the proposed

rule change is consistent with Section

6(b)(5) of the Act, 21 in that it is

designed to promote just and equitable

principles of trade; to foster cooperation

and coordination with persons engaged

in regulating securities transactions; to

remove impediments to and perfect the

mechanism of a free and open market

and a national market system; and, in

general, to protect investors and the

public interest.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The CSE does not believe that the

proposed rule change would 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

No written comments were either

solicited or received in connection with

the proposed rule change.

III. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning the foregoing,

including whether the proposed rule

change is consistent with the Act.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, N.W.,

Washington, D.C. 20549–0609. 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

Federal Register / Vol. 65, No. 233 / Monday, December 4, 2000 / Notices 75745

22 15 U.S.C. 78f(b)(5).

23 15 U.S.C. 78s(b)

24 15 U.S.C. 78f(b)(5). In approving this rule, the

Commission notes that it has considered the

proposed rule’s impact on efficiency, competition,

and capital formation. See 15 U.S.C. 78c(f).

25See supra note 8.

26See Exchange Act Release No. 40761

(December 8, 1998), 63 FR 70952 (December 22,

1998) (adopting release for Rule 19b–4(e)).

27See supra note 25.

28The Commission notes that, although Index

Fund Shares are not leveraged instruments and

therefore do not possess any of the attributes of

stock index options, their prices will be derived and

based upon the securities held in their respective

Funds. Accordingly, the level of risk involved in

the purchase or sale of Index Fund Shares is similar

to the risk involved in the purchase or sale of

traditional common stock. Nevertheless, the

Commission believes there are unique aspects to

trading Index Fund Shares, which the Exchange has

sufficiently and adequately addressed in this

proposal. 29 15 U.S.C. 78f(b)(5).

Commission and any person, other than

those that may be withheld from the

public in accordance with the

provisions of 5 U.S.C. 552, will be

available for inspection and copying at

the Commission’s Public Reference

Room. Copies of such filing will also be

available for inspection and copying at

the principal office of the Exchange. All

submissions should refer to File No.

SR–CSE–00–06 and should be

submitted by December 26, 2000.

IV. Commission’s Findings and Order

Granting Accelerated Approval of

Proposed Rule Change

The Commission finds that the

proposal 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). 22 Specifically, the

Commission finds that the CSE’s

proposal to establish generic standards

to permit the trading of Index Fund

Shares pursuant to Rule 19b–4(e)

furthers the intent of that rule by

facilitating commencement of trading in

these securities without the need for

notice and comment and Commission

approval under Section 19(b) of the

Act. 23 By establishing generic

standards, the proposal should reduce

the CSE’s regulatory burden, as well as

benefit the public interest, by enabling

the Exchange to bring qualifying

products to the market more quickly.

Accordingly, the Commission finds that

the CSE’s proposal will promote just

and equitable principles of trade; foster

cooperation and coordination with

persons engaged in regulating, clearing,

settling, processing information with

respect to, and facilitating transactions

in securities; and, in general, protect

investors and the public interest

consistent with Section 6(b)(5) of the

Act. 24 The Commission notes that it has

previously approved similar rules,

including generic listing standards,

relating to similar products traded on

the Boston Stock Exchange, the

American Stock Exchange, the Chicago

Board Options Exchange, and the

Chicago Stock Exchange. 25

Rule 19b–4(e) provides that the listing

and trading of a new derivative

securities product by an SRO shall not

be deemed a proposed rule change,

pursuant to paragraph (c)(1) of Rule

19b–4, if the Commission has approved,

pursuant to Section 19(b) of the

Exchange Act, the SRO’s trading rules,

procedures, and listing standards for the

product class that include the new

derivative securities product and the

SRO has a surveillance program for the

product class. 26 The Commission’s

approval of the proposed generic listing

standards for Index Fund Shares will

allow those series of Index Fund Shares

that satisfy those standards to start

trading under Rule 19b–4(e), without

the need for notice and comment and

Commission approval. The Exchange’s

ability to rely on Rule 19b–4(e) for these

products potentially reduces the time

frame for bringing these securities to the

market and thus enhances investors’

opportunities. The Commission notes

that, while the proposal reduces the

Exchange’s regulatory burden, the

Commission maintains regulatory

oversight over any products listed under

the generic standards through regular

inspection oversight.

The Commission previously

concluded that Index Fund Shares and

like products that it approved for

trading under similar rules on other

exchanges would allow investors: (1) To

respond quickly to market changes

through intra-day trading opportunities,

(2) to engage in hedging strategies

similar to those used by institutional

investors, and (3) to reduce transactions

costs for trading a portfolio of

securities.27 The Commission believes,

for the reasons set forth below, that the

product classes that satisfy the proposed

standards for Index Fund Shares should

produce the same benefits to the CSE

and to investors.

The Commission finds that the

Exchange’s proposal contains adequate

rules and procedures to govern the

trading of Index fund Shares under Rule

19b–4(e). All series of Index Fund

Shares listed under the proposed

standards will be subject to the full

panoply of CSE rules and procedures

that now govern the trading of existing

securities on the CSE.28 Accordingly,

any new series of Index Fund Shares

listed and traded on the Exchange, or

pursuant to UTP, will be subject to CSE

rules governing the trading of equity

securities, including, among others,

rules and procedures governing trading

halts, disclosures to members,

responsibilities of the specialist,

account opening and customer

suitability requirements, and margin.

These criteria allow the CSE to consider

the suspension of trading and the

delisting of a series if an event occurred

that made further dealings in such

securities inadvisable. This will give the

CSE flexibility to delist Index Fund

Shares if circumstances warrant such

action.

The Commission believes that the

CSE’s proposal will ensure that

investors have information that will

allow them to be adequately apprised of

the terms, characteristics, and risks of

trading Index Fund Shares. Members

and member organizations will be

required to provide to all purchasers of

Index Fund Shares a written description

of the terms and characteristics of these

securities, to include their description

in sales materials provided to customers

or the public, to include a specific

statement relating to the availability of

the description in other types of

materials distributed to customers or the

public, and to provide a copy of the

prospectus, when requested by the

customer. The proposal also requires a

member or member organization

carrying an omnibus account for a nonmember broker-dealer to notify the nonmember that execution of an order to

purchase Index Fund Shares constitutes

an agreement by the non-member to

provide the product description to its

customers.

The Commission also notes that, upon

the initial listing or trading pursuant to

UTP of any Index Fund Shares, the CSE

will issue a circular to its members

explaining the unique characteristics

and risks of this particular type of

security. The circular also will note the

prospectus or product description

delivery requirements of Exchange

members and inform members of their

responsibilities under CSE Rules in

connection with customer transactions

in these securities. The Commission

believes that these requirements ensure

adequate disclosure to investors about

the terms and characteristics of a

particular series and are consistent with

Section 6(b)(5) of the Act.29

In addition, the CSE has developed

specific listing criteria for series of

Index Fund Shares qualifying for Rule

19b–4(e) treatment that will help to

ensure that a minimum level of liquidity

will exist to allow for the maintenance

75746 Federal Register / Vol. 65, No. 233 / Monday, December 4, 2000 / Notices

30 15 U.S.C. 78f(b)(5).

31Telephone conversation between James M.

Flynn, Staff Attorney, CSE, and Michael Gaw,

Attorney-Adviser, Division of Market Regulation,

Commission, on November 1, 2000.

32 15 U.S.C. 78s(b) See supra note 25.

33 15 U.S.C. 78f(b)(6).

34 15 U.S.C. 78s(b)(2).

35 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3 In Amendment No. 1, the CSE requested

accelerated effectiveness of the proposed rule

change and provided reasons therefore. See Letter

from James M. Flynn, Staff Attorney, CSE, to

Michael Gaw, Attorney-Advisor, Division of Market

Regulation, Commission (November 16, 2000). The

CSE in fact meant to request accelerated approval

of the proposal in Amendment No. 1. Telephone

conversation between James M. Flynn, Staff

Attorney, CSE, and Michael Gaw, Attorney-Adviser,

Division of Market Regulation, Commission, on

November 21, 2000. Amendment No. 1 also

corrected a typographical error in the proposed rule

text.

4 17 CFR 240.19b–4(e).

of fair and orderly markets. Specifically,

the proposed generic listing standards

require that a minimum of 100,000

shares of a series of Index fund Shares

be outstanding as of the start of trading.

The Commission believes that this

minimum number of securities is

sufficient to establish a liquid market at

the commencement of trading.

The Commission believes that the

proposed generic listing standards

ensure that the securities composing the

underlying indexes and portfolios are

well capitalized and actively traded.

These capitalization and liquidity

criteria serve to prevent fraudulent or

manipulative acts, and are therefore

consistent with Section 6(b)(5) of the

Act. Furthermore, the Commission finds

that the Exchange’s proposal to trade

Index Fund Shares in increments of 1⁄16, 1⁄32, or 1⁄64, of $1.00, until the Exchange

is required to convert to decimal

trading, is consistent with the Act.

The Exchange also represents that the

Reporting Authority will disseminate

for each series of Index Fund Shares an

estimate, updated every 15 seconds, of

the value of a share of each series. The

Commission believes that the

information the Exchange proposes to

have disseminated will provide

investors with timely and useful

information concerning the value of

each series.

The Commission also notes that

certain concerns are raised when a

broker-dealer is involved in both the

development and maintenance of a

stock index upon which products such

as Index Fund Shares are based. The

proposal requires that, in such

circumstances, the broker-dealer must

have procedures in place to prevent the

misuse of material, non-public

information regarding changes and

adjustments to the index, and that the

index value be calculated by a third

party who is not a broker-dealer. The

Commission believes that these

requirements should help address

concerns raised by a broker-dealer’s

involvement in the management of such

an index.

In its proposed generic listing

standards, the CSE represents that it

will rely upon its existing surveillance

procedures for supervision of trading in

Index Fund Shares listed or traded

pursuant to Rule 19b–4(e). The

Commission believes that these

surveillance procedures are adequate to

address concerns associated with listing

and trading Index Fund Shares,

including those listed or traded under

the generic standards. Accordingly, the

Commission believes that the rules

governing the trading of such securities

provide adequate safeguards to prevent

manipulative acts and practices and to

protect investors and the public interest,

consistent with Section 6(b)(5) of the

Act.30 The Commission further notes

that the Exchange has represented that

it will file form 19b–4(e) with the

Commission within five business days

of commencement of trading a series

under the generic standards, and will

comply with all Rule 19b–4(e)

recordkeeping requirements.31

The Commission finds good cause for

approving the proposed rule change and

Amendment No. 1 thereto prior to the

thirtieth day after the date of

publication of notice thereof in the

Federal Register. The Commission notes

that the CSE’s proposal regarding the

listing and trading of Index Fund Shares

will be substantially similar to the rules

for similar products traded on other

exchanges that the Commission has

previously approved, and that they raise

issues that previously have been the

subject of a full comment period under

Section 19(b) of the Act.32 The

Commission does not believe that the

proposal raises novel regulatory issues

that were not addressed in the previous

filings. Accordingly, the Commission

finds that there is good cause, consistent

with Section 6(b)(5) of the Act,33 to

approve the proposed rule change and

Amendment No. 1 on an accelerated

basis.

It Is Therefore Ordered, pursuant to

Section 19(b)(2) of the Act,34 that the

proposed rule change (SR–CSE–00–06)

and Amendment No. 1 thereto are

hereby approved on an accelerated

basis.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.35

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–30719 Filed 12–1–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43604; File No. SR–CSE–

00–05]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change and Amendment No. 1

Thereto by the Cincinnati Stock

Exchange, Inc. Relating to the Listing

and Trading of Trust Issued Receipts

November 21, 2000.

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

Securities Exchange Act of 1934

(‘‘Act’’),1 and Rule 19b–4 2 thereunder,

notice is hereby given that on October

13, 2000, the Cincinnati Stock

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

filed with the Securities and Exchange

Commission (‘‘Commission’’) the

proposed rule change as described in

Items I and II below, which Items have

been substantially prepared by the

Exchange. On November 17, 2000, the

CSE filed Amendment No. 1 to the

proposed rule change.3 The Commission

is publishing this notice to solicit

comments on the proposed rule change

and Amendment No. 1 from interested

persons, and to grant accelerated

approval of the proposed rule change

and Amendment No. 1.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The CSE proposes to amend its listing

standards for Trust Issued Receipts

(‘‘TIRs’’) to establish generic standards

that permit listing and trading, or

trading pursuant to unlisted trading

privileges (‘‘UTP’’), of TIRs pursuant to

Rule 19b–4(e) under the Act.4 The text

of the proposed rule change is available

at the principal office of the CSE and at

the Commission.