2438 Federal Register / Vol. 63, No. 10 / Thursday, January 15, 1998 / Notices

8 15 U.S.C. 78s(b)(2).

9 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3Amendment No. 1 discusses the composition of

the trust securities, the basis for the mandatory

termination date of the Trust, applicable trading

halt procedures, and applicable equity rules. See

letter from Michael Cavalier, Associate General

Counsel, Legal and Regulatory Policy, Amex, to

Sharon Lawson, Senior Special Counsel, Market

Regulation, Commission, dated December 3, 1997.

4See Securities Exchange Act Release No. 31591

(December 11, 1992), 57 FR 60253 (December 18,

1992) (‘‘SPDRs Order’’).

5 ‘‘PDRs’’ is a service mark of PDR Services Corp.

6See SPDRs Order, supra note 4.

7See Securities Exchange Act Release No. 35534

(March 24, 1995), 60 FR 16686 (March 31, 1995).

‘‘Standard & Poor’s 500,’’ ‘‘Standard & Poor’s

MidCap 400 Index,’’ ‘‘Standard & Poor’s Depositary

Receipts,’’ ‘‘SPDRs,’’ ‘‘Standard & Poor’s MidCap

400 Depositary Receipts’’ and ‘‘MidCap SPDRs’’ are

trademarks of The McGraw-Hill Companies, Inc.

and are being used by the Exchange and the

Sponsor under license among Standard & Poor’s, a

division of The McGraw-Hill Companies, Inc., the

Exchange and the Sponsor. ‘‘SPDRs’’ and ‘‘MidCap

SPDRs’’ are not sponsored, endorsed, sold, or

promoted by S&P, and S&P makes no representation

regarding the advisability of investing in SPDRs or

MidCap SPDRs.

8 ‘‘Dow Jones Industrial AverageSM,’’ ‘‘DJIASM,’’

‘‘Dow JonesSM’’ and ‘‘DIAMONDS’’ are each

trademarks and service marks of Down Jones &

Company, Inc. (‘‘Dow Jones’’) and have been

licensed for use for certain purposes by the

Exchange and the Sponsor. DIAMONDS are not

sponsored, endorsed, sold or promoted by Dow

Jones, and Dow Jones makes no representation

regarding the advisability of investing in such

product.

9The description of the DJIA included herein is

based on materials prepared by Dow Jones and

submitted by Amex in its proposed rule filing.

10A price-weighted index is an index in which

component stocks are weighted according to their

price.

11Currently, the divisor is recalculated after the

close of business on the day prior to the occurrence

business. The Listed Put and Call

Option Questionnaire and the Series 42

both consist of 50 multiple choice

questions. The Series 42, however, has

a question bank of 307 questions so a

person who has failed the exam is

unlikely to receive the same series of

questions upon re-testing, thereby

assuring that an individual is properly

tested for his competency in the subject

matter. Moreover, the Commission

believes that because the Series 42 is

only given at designated and secured

testing sites the integrity of the

examination process is protected.

The Commission therefor finds good

cause for approving the proposed rule

change (SR–Amex–97–45) prior to the

thirtieth day after date of publication of

notice thereof in the Federal Register.

It is Therefore Ordered, pursuant to

Section 19(b)(2),8 that the proposed rule

change be, and hereby is, approved.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.9

Jonathan G. Katz,

Secretary.

[FR Doc. 98–1038 Filed 1–14–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39525; File No. SR–Amex–

97–29]

Self-Regulatory Organizations;

American Stock Exchange, Inc.; Order

Granting Approval and Notice of Filing

and Order Granting Accelerated

Approval of Amendment No. 1 to the

Proposed Rule Change Relating to

Listing and Trading of DIAMONDSSM

Trust Units

January 8, 1998.

I. Introduction

On August 11, 1997, the American

Stock Exchange, Inc. (‘‘Amex’’ or

‘‘Exchange’’) submitted to the Securities

and Exchange Commission

(‘‘Commission’’), pursuant to Section

19(b)(1) of the Securities Exchange Act

of 1934 (‘‘Act’’) 1 and Rule 19b–4

thereunder,2 a proposed rule change to

list and trade under Amex Rules 1000

et seq. DIAMONDSSM, units of

beneficial interest in the DIAMONDS

Trust. In addition, the Exchange

proposes to adopt Amex Rule 1005,

‘‘Down Jones Indexes,’’ relating to

license and warranty issues.

Notice of the proposed rule change,

together with the substance of the

proposal, was published for comment in

Securities Exchange Act Release No.

39143 (September 29, 1997), 62 FR

51917 (October 3, 1997). No comments

were received on the proposal. The

Exchange filed Amendment No. 1 to the

proposed rule filing on December 3,

1997.3 This order approves the

proposed rule filing as amended.

II. Description

On December 11, 1992,4 the

Commission approved Amex Rules 1000

et seq. to accommodate trading on the

Exchange of Portfolio Depositary

Receipts (‘‘PDRsSM’’), securities which

represent interests in a unit investment

trust (‘‘Trust’’) operating on an open-end

basis and that hold a portfolio of

securities. The Trust sponsor

(‘‘Sponsor’’) for each series of PDRs is

PDR Services Corporation, a whollyowned subsidiary of Amex.5 Each Trust

is intended to provide investors with an

instrument that closely tracks the

underlying securities portfolio, that

trades like a share of common stock, and

that pays to PDR holders periodic

dividends proportionate to those paid

with respect to the underlying portfolio

of securities, less certain expenses, as

described in the applicable Trust

prospectus. The first Trust to be formed

in connection with the issuance of PDRs

was based on the Standard & Poor’s 500

Index (‘‘S&P 500 Index’’), known as

Standard & Poor’s Depositary Receipts

(‘‘SPDRs’’), which have been trading on

the Exchange since January 29, 1993.6 In

1995, the Commission approved Amex’s

listing and trading of PDRs based on the

Standard & Poor’s MidCap 400 IndexTM

(‘‘MidCap SPDRs’’).7

The Exchange now proposes to list

and trade under Rules 1000 et seq.

DIAMONDSSM, units of beneficial

interest in the DIAMONDS Trust.8 The

Sponsor will enter into a trust

agreement with the Trustee, State Street

Bank and Trust Company, in accordance

with Section 26 of the Investment

Company Act of 1940 (‘‘1940 Act’’). A

distributor will act as underwriter of

DIAMONDS on an agency basis. All

orders to create DIAMONDS in Creation

Unit size aggregations must be placed

with the distributor, and it will be the

responsibility of the distributor to

transmit such orders to the Trustee. The

distributor is a registered broker-dealer,

and a member of the National

Association of Securities Dealers, Inc.

The Dow Jones Industrial Average 9

The DJIA is a price-weighted stock

index consisting of 30 stocks traded on

the New York Stock Exchange

(‘‘NYSE’’).10 The DJIA is called an

‘‘average’’ because originally it was

calculated by adding up the component

stock prices and then dividing by the

number of stocks. The method remains

the same today, but the divisor (the

number that is divided into the total of

the stock prices) has been increased to

eight significant digits to minimize

distortions due to rounding. The DJIA

divisor is adjusted due to corporate

actions that change the price of any of

its component shares. The most frequent

reason for such an adjustment is a stock

split. For example, suppose a company

in the DJIA issues one new share for

each share outstanding. After this twofor-one ‘‘split,’’ each share of stock is

worth half what it was immediately

before, other things being equal. But

without an adjustment in the divisor,

this split would produce a distortion in

the DJIA. An adjustment must be made

to compensate so that the ‘‘average’’ will

remain unchanged. At Dow Jones, this

adjustment is handled by changing the

divisor.11
Federal Register / Vol. 63, No. 10 / Thursday, January 15, 1998 / Notices 2439

of the split. The formula used to calculate divisor

adjustments is: New Divisor=Current

Divisor×Adjusted Sum/Unadjusted of Prices Sum of

Prices.

12For further details on how the DJIA is

maintained, see the Commission’s order approving

the trading of options on the DJIA (File No. CBOE–

97–26) in Securities Exchange Act Release No.

39011 (September 3, 1997), 62 FR 47841 (September

11, 1997).

13The securities included in the Portfolio Deposit

generally will include all of the component

securities of the DJIA. The Trust will not hold an

optimized portfolio such as is the case with World

Equity Benchmark Shares (‘‘WEBS’’), but will hold

shares of all of the securities included in the DJIA.

The Trustee will hold, as nearly as practicable, an

equal number of shares of each of the DJIA

securities. See Amendment No. 1, supra note 3.

14See ‘‘Distributions’’ infra.

15Amex state that the basis of the mandatory

termination date of the Trust is to comply with the

common law rule against perpetuities which

provides, in brief, that no estate is valid unless it

must vest no later than twenty-one years after lives

in being at the creation if the estate, and that any

future or present estate is void in its creation if it

suspends the absolute power of alienation longer

than this period. See Amendment No. 1, supra note

3.

16The DIAMONDS Trust, Series I, filed with the

Commission’s Division of Investment Management

an application seeking, among other things, an

order: (1) permitting secondary market transactions

in DIAMONDS at negotiated prices, rather than at

a current public offering price described in the

prospectus as required by Section 22(d) of the 1940

Act and Rule 22c–1; and (2) permitting the sale of

DIAMONDS to purchasers in the secondary market

unaccompanied by a prospectus, when prospectus

delivery is not required by Section 4(3) of the

Securities Act of 1933 but may be required

according to Section 24(d) of the 1940 Act for

redeemable securities issued by a Unit Investment

Trust. The Commission granted these exemptions

on December 30, 1997. The exemptions permit

individual DIAMONDS to be traded in secondary

market transactions similar to a closed-end

investment company. See Investment Company Act

Release No. 22979 (December 30, 1997).

17As of August 7, 1997 it is estimated that the

value of such an individual DIAMONDS Unit

would be approximately $81.88.

18The Trustee shall have the discretion to deliver

the cash equivalent value of an Index security or

Index securities, based on the market value of such

Index security or securities as of the Evaluation

Time on the date such redemption is deemed

received by the Trustee, as a part of the Cash

Redemption Payment in lieu of delivering the Index

security or securities if: (1) the Trustee determines

in its discretion that an Index security is likely to

be unavailable or available in insufficient quantity

for delivery by the Trust upon redemption; or (2)

a redeeming investor requests redemption in cash

with respect to one or more Index securities, if, for

example, the redeemer is restricted by regulation or

otherwise from investing or engaging in a

transaction in one or more Index securities. See

Draft Preliminary Prospectus for DIAMONDS Trust,

Series 1, at 36.

Changes in the composition of the

DJIA are made entirely by the editors of

The Wall Street Journal without

consultation with the companies, the

respective stock exchange, or any

official agency. Additions or deletions

of components may be made to achieve

better representation of the broad

market and of American industry.12

The DIAMONDS Trust

To be eligible to place orders to create

DIAMONDS as described below, an

entity or person must either be a

participant in the Continuous Net

Settlement (‘‘CNS’’) system of the

National Securities Clearing Corporation

(‘‘NSCC’’) or a Depository Trust

Company (‘‘DTC’’) participant. Upon

acceptance of an order to create

DIAMONDS, the distributor will

instruct the Trustee to initiate the bookentry movement of the appropriate

number of DIAMONDS to the account of

the entity placing the order.

DIAMONDS will be registered in book

entry only, which records will be kept

by DTC.

Payment with respect to creation

orders placed through the distributor

will be made by (1) the ‘‘in-kind’’

deposit with the Trustee of a specified

portfolio of securities that is

substantially similar in composition to

the component shares of the underlying

index or portfolio;13 (2) a cash payment

sufficient to enable the Trustee to make

a distribution to the holders of

beneficial interests in the Trust on the

next dividend payment date as if all the

securities had been held for the entire

accumulation period for the distribution

(‘‘Dividend Equivalent Payment’’),

subject to certain specified

adjustments;14 and (3) a cash payment

or adjustment calculated by the Trustee

to enable the securities portfolio portion

to equal the net asset value of the Trust

(the ‘‘Balancing Amount’’). The

Balancing Amount and the Dividend

Equivalent Payment are referred to as

the ‘‘Cash Component’’ in the case of a

creation. The securities and cash

accepted by the Trustee are referred to,

in the aggregate, as a ‘‘Portfolio

Deposit.’’

The mandatory termination date of

the Trust will be the first to occur of (i)

January 30, 2122 or (ii) the date 20 years

after the death of the last survivor of

eleven persons named in the trust

agreement between the Trust Sponsor

and the Trustee.15

Issuance

Upon receipt of a Portfolio Deposit in

payment for a creation order placed

through the distributor as described

above, the Trustee will issue a specified

number of DIAMONDS, which aggregate

number is referred to as a ‘‘Creation

Unit.’’ A Creation Unit for DIAMONDS

will be made up of 50,000 DIAMONDS.

Individual DIAMONDS can then be

traded in the secondary market like

other equity securities.16 The

DIAMONDS Trust has been structured

to provide for the initial issuance of

DIAMONDS at a per unit price which

would approximate 1/100th of the value

of the DJIA.17

It is expected that the Trustee or

Sponsor will make available (a) on a

daily basis a list of the names and

required number of shares for each of

the securities in the current Portfolio

Deposit; (b) on a minute-by-minute basis

throughout the day, a number

representing the value (on a per

DIAMONDS Unit basis) of the securities

portion of a Portfolio Deposit in effect

on such day, plus accumulated

dividends less expenses through the

previous day’s close, and (c) on a daily

basis, the accumulated dividends, less

expenses, per outstanding DIAMONDS

Unit.

Transactions in DIAMONDS may be

effected on the Exchange until 4:15 p.m.

New York time each business day. The

minimum fractional change for

DIAMONDS shall be 1⁄64 of $1.00.

Redemption

DIAMONDS in Creation Unit size

aggregations generally18 will be

redeemable in kind by tendering them

to the Trustee. While holders may sell

DIAMONDS in the secondary market at

any time, they must accumulate at least

50,000 (or multiples thereof) to redeem

through the Trust. DIAMONDS will

remain outstanding until redeemed or

until the termination of the Trust.

Creation Units generally will be

redeemable on any business day in

exchange for a portfolio of the securities

held by the Trust identical in

composition to the securities portion of

a Portfolio Deposit in effect on the date

request is made for redemption, together

with a ‘‘Cash Redemption Payment’’ (as

defined in the Trust prospectus),

including accumulated dividends, less

expenses, through the date of

redemption. The number of shares of

each of the securities transferred to the

redeeming holder generally will be

number of shares of each of the

component stocks in a Portfolio Deposit

on the day of redemption notice is

received by the Trustee, multiplied by

the number of Creation Units being

redeemed. Nominal service fees may be

charged in connection with the creation

and redemption of Creation Units. The

Trustee will cancel all tendered

Creation Units upon redemption.

Distributions

The DIAMONDS Trust will pay

monthly dividends. The first exdividend date for DIAMONDS will be

the third Friday of the third full month

following the commencement date of
2440 Federal Register / Vol. 63, No. 10 / Thursday, January 15, 1998 / Notices

19With respect to the DIAMONDS Trust, the

Sponsor has the discretionary right to terminate the

Trust if the value of Trust Securities (as defined in

the Trust registration statement) falls below

$150,000,000 at any time after six months

following, and prior to three years following,

inception of the Trust. Following such time, the

Sponsor has the discretionary right to terminate the

Trust if Trust Securities fall below $350,000,000 in

value, adjusted annually for inflation.

20Amex Rule 918C(b)(3).

22Amex Rule 918C(b)(4). 22See Amendment No. 1, supra note 3.

the Trust unless such date is not a

Business Day, in which case the exdividend date will be the immediately

preceding Business Day (the ‘‘exdividend date’’). Holders of DIAMONDS

as reflected on the records of the DTC

and the DTC Participants on the second

business day following the ex-dividend

date will be entitled to receive an

amount representing dividends

accumulated through the monthly

dividend period which ends on the

business day preceding such exdividend date net of fees and expenses

accrued daily for such period. The

payment of dividends will be made on

the first business day coincident with or

following the Monday preceding the

third Friday in the calendar month

following the ex-dividend date (the

‘‘Dividend Payment Date’’). On the

Dividend Payment Date, dividends

payable for those securities with exdividend dates falling within the period

from the ex-dividend date most recently

preceding the current ex-dividend date

will be distributed. The Trustee will

compute on a daily basis the dividends

accumulated within each monthly

dividend period. Dividend payments

will be made through DTC and its

participants to all such holders with

funds received from the Trustee. The

DIAMONDS Trust intends to make the

DTC Dividend Reinvestment Service

available for use by DIAMONDS holders

through DTC Participant brokers for

reinvestment of their cash proceeds. An

interested investor would have to

consult his or her broker to ascertain the

availability of dividend reinvestment

through such broker.

Criteria for Initial and Continued Listing

Because of the open-end nature of the

Trust upon which a series of PDRs is

based, the Exchange believes it is

necessary to maintain appropriate

flexibility in connection with listing a

specific Trust. In connection with initial

listing, the Exchange will establish a

minimum number of PDRs required to

be outstanding at the time of

commencement of Exchange trading.

For DIAMONDS, a minimum of 150,000

DIAMONDS (i.e., three Creation Units of

50,000 DIAMONDS each), will be

required to be outstanding when trading

begins.

The DIAMONDS Trust will be subject

to the initial and continued listing

criteria of Rule 1002(b). Rule 1002(b)

provides that, following twelve months

from the formation of a Trust and

commencement of Exchange trading, the

Exchange will consider suspension of

trading in, or removal from listing of a

Trust when, in its opinion, further

dealing in such securities appears

unwarranted under the following

circumstances:

(a) if the Trust on which the PDRs are

based has more than 60 days remaining

until termination and there have been

fewer than 50 record and/or beneficial

holders of the PDRs for 30 or more

consecutive trading days; or

(b) if the index on which the Trust is

based is no longer calculated; or

(c) if such other event shall occur or

condition exists which, in the opinion

of the Exchange, makes further dealings

on the Exchange inadvisable.

A Trust shall terminate upon removal

from Exchange listing and its PDRs

redeemed in accordance with provisions

of the Trust prospectus. A Trust may

also terminate under such other

conditions as may be set forth in the

Trust prospectus. For example, the

Sponsor, following notice to PDR

holders, shall have discretion to direct

that the Trust be terminated if the value

of securities in such Trust falls below a

specified amount.19 The DIAMONDS

Trust may also terminate if the license

agreement with Dow Jones terminates.

Trading Halts

Prior to commencement of trading in

DIAMONDS, the Exchange will issue a

circular to members informing them of

Exchange policies regarding trading

halts in such securities. The circular

will make clear that, in addition to other

factors that may be relevant, the

Exchange may consider factors such as

those set further in Rule 918C(b) in

exercising its discretion to halt or

suspend trading. These factors would

include whether trading has been halted

or suspended in the primary market(s)

for any combination of underlying

stocks accounting for 20% or more of

the applicable current index group

value;20 or whether other unusual

conditions or circumstances detrimental

to the maintenance of a fair and orderly

market are present.21

Further, DIAMONDS trading will be

halted if the circuit breaker parameters

of Rule 117 have been reached. The

triggering of futures price limits for the

DJIA, S&P 500, S&P 100 or Major Market

Index (‘‘MMI’’) futures contracts will

not, in itself, require a halt in

DIAMONDS trading or a delayed

opening. However, such an event could

be considered by the Exchange along

with other factors, such as a halt in

options on the DJIA (‘‘DJX’’), S&P 100

(‘‘OEX’’), S&P 500 (‘‘SPX’’), or MMI

(‘‘XMI’’), in deciding whether to halt

trading in DIAMONDS or other indexbased derivative securities.22

Terms and Characteristics

Under Amex Rule 1000, Commentary

.01, Amex members and member

organizations are required to provide to

all purchasers of DIAMONDS a written

description of the terms and

characteristics of such securities, in a

form prepared by the Exchange, not

later than the time a confirmation of the

first transaction in each series is

delivered to such purchaser. The

Exchange also requires that such

description be included with any sales

material on DIAMONDS that is

provided to customers or the public. In

addition, the Exchange requires that

members and member organizations

provide customers the prospectus for

DIAMONDS upon request.

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 DIAMONDS for

such omnibus account will be deemed

to constitute agreement by the nonmember to make such written

description available to its customers on

the same terms as are directly applicable

to members and member organizations.

Prior to commencement of trading of

DIAMONDS, the Exchange will

distribute to Exchange members and

member organizations an Information

Circular calling attention to these

requirements as well as the

characteristics of the DIAMONDS Trust

and to applicable Exchange rules.

Proposed Rule 1005

The Exchange proposes to adopt Rule

1005 (‘‘Dow Jones Indexes’’) stating that

Dow Jones has licensed the Exchange to

use certain Dow Jones indexes for

purposes of the listing and trading of

particular series of Portfolio Depositary

Receipts on the Exchange, and stating,

among other things, that Dow Jones and

the Exchange make no warranty, express

or implied, as to results to be obtained

by any person or entity from the use of

the Indexes or any data included

therein.

III. Discussion

The Commission finds that the

proposed rule changes are consistent

with the requirements of the Act and the
Federal Register / Vol. 63, No. 10 / Thursday, January 15, 1998 / Notices 2441

23 15 U.S.C. 78f(b)(5).

24Pursuant 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 product 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.

25The Commission notes, however, that unlike

open-end funds where investors have the right to

redeem their fund shares on a daily basis, investors

could only redeem PDRs in creation unit share

sizes. Nevertheless, PDRs would have the added

benefit of liquidity from the secondary market and

PDR holders, unlike holders of most other open-end

funds, would be able to dispose of their shares in

a secondary market transaction.

26 In approving this rule, the Commission notes

that it has considered the proposed rule’s impact on

efficiency, competition, and capital formation. 15

U.S.C. 78c(f).

27See supra notes 4 and 7.

28Program trading is defined as index arbitrage or

any trading strategy involving the related purchase

or sale of a ‘‘basket’’ or group of fifteen or more

stocks having a total market value of $1 million or

more.

29Because of potential arbitrage opportunities,

the Commission believes that DIAMONDS will not

trade at a material discount or premium in relation

to their net asset value. The mere potential for

arbitrage should keep the market price of a

DIAMOND comparable to its net asset value, and

therefore, arbitrage activity likely will be minimal.

In addition, the Commission believes the Trust will

tract the underlying index more closely than an

open-end index fund because the Trust will accept

only in-kind deposits, and, therefore, will not incur

brokerage expenses in assembling its portfolio. In

addition, the Trust will generally redeem only in

kind, thereby enabling the Trust to invest virtually

all of its assets in securities comprising the

underlying index.

30 Investment Company Act Rule 22c–1 generally

requires that a registered investment company

issuing a redeemable security, its principal

underwriter, and dealers in that security, may sell,

redeem, or repurchase the security only at a price

based on the net asset value next computed after

receipt of an investor’s request to purchase, redeem,

or resell. The net asset value of a mutual fund

generally is computed once daily Monday through

Friday as designated by the investment company’s

board of directors. The Commission granted

DIAMONDS an exemption from this provision in

order to allow them to trade at negotiated prices in

the secondary market. See supra note 16. 31 Id.

rules and regulations thereunder

applicable to a national securities

exchange, and, in particular, with the

requirements of Section 6(b)(5).23 The

Commission believes that providing for

the exchange-trading of DIAMONDS

will offer investors an efficient way of

participating in the securities markets.

Specifically the Commission believes

that the trading of DIAMONDS will

provide investors with increased

flexibility in satisfying their investment

needs by allowing them to purchase and

sell a low-cost security replicating the

performance of a broad portfolio of

stocks at negotiated prices throughout

the business day.24 The Commission

also believes that PDRs in general, and

DIAMONDS in particular, will benefit

investors by allowing them to trade

securities based on unit investment

trusts in secondary market

transactions.25 Accordingly, as

discussed below, the proposed rule

change is consistent with the

requirements of Section 6(b)(5) that

Exchange rules facilitate transactions in

securities while continuing to further

investor protection and the public

interest.26

As the Commission noted in previous

orders approving other PDR products

(SPDRs and MidCap SPDRs) for listing

and trading on Amex,27 the Commission

believes that the trading of a security

like PDRs in general, and DIAMONDS

in particular, which replicate the

performance of a broad portfolio of

stocks, could benefit the securities

markets by, among other things, helping

to ameliorate the volatility occasionally

experienced in these markets. The

Commission believes that the creation of

one or more products where actual

portfolios of stocks or instruments

representing a portfolio of stocks, such

as DIAMONDS, can trade at a single

location in an auction market

environment could alter the dynamics

of program trading, because the

availability of such single transaction

portfolio trading could, in effect, restore

the execution of program trades to more

traditional block trading techniques.28

An individual DIAMOND has a value

approximately equal to one-onehundredth of the value of the DJIA,

making it available and useful to

individual retail investors desiring to

hold a security replicating the

performance of a broad portfolio of

stocks. Accordingly, the Commission

believes that trading of DIAMONDS will

provide retail investors with a cost

efficient means to make investment

decisions based on the direction of the

market and a whole and may provide

market participants several advantages

over existing methods of effecting

program trades involving stocks.

The Commission also believes that

PDRs, in general, and DIAMONDS, in

particular, will provide investors with

several advantages over standard openend mutual fund shares that track a

broad-based portfolio of stocks such as

the DJIA. In particular, investors will

have the ability to trade DIAMONDS

continuously throughout the business

day in secondary market transactions at

negotiated prices.29 In contrast,

pursuant to Investment Company Act

Rule 22c–1,30 holders and prospective

holders of open-end mutual fund shares

are limited to purchasing or redeeming

securities of the fund based on the net

asset value of the securities held by the

fund as designated by the board of

directors.31 Accordingly, PDRs in

general, and DIAMONDS in particular,

will allow investors to (1) respond

quickly to changes in the market; (2)

trade at a known price; (3) engage in

hedging strategies not currently

available to retail investors; and (4)

reduce transactions costs for trading a

portfolio of securities.

Although PDRs in general, and

DIAMONDS in particular, are not

leveraged instruments, and, therefore,

do not possess any of the attributes of

stock index options, their prices will

still be derived and based upon the

securities held in their respective

Trusts. In essence, DIAMONDS are

equity securities that are priced off a

portfolio of stocks based on the DJIA.

Accordingly, the level of risk involved

in the purchase or sale of DIAMONDS

(or a PDR in general) is similar to the

risk involved in the purchase or sale of

traditional common stock, with the

exception that the pricing mechanism

for DIAMONDS (and PDRs in general) is

based on a basket of stocks.

Nonetheless, the Commission has

several specific concerns regarding the

trading of these securities. In particular,

DIAMONDS raise disclosure, market

impact, and secondary market trading

issues that must be addressed

adequately. As discussed in more detail

below, the Commission believes Amex

adequately addresses these concerns.

The Commission believes that the

proposed rule filing contains several

provisions that will ensure that

investors are adequately apprised of the

terms, characteristics, and risks of

trading DIAMONDS. As noted above,

the proposal contains four aspects

addressing disclosure concerns. First,

pursuant to Amex Rule 1000(a),

Commentary .01, Amex members must

provide their customers trading

DIAMONDS with a written explanation

of any special characteristics and risks

attendant to trading such PDR securities

(such as DIAMONDS), a in form

prepared by Amex. As discussed above,

members can obtain DIAMONDS

product descriptions for distribution to

customers from Amex. Second,

members and member organizations

must include this written product

description with any sales material

relating to the series of DIAMONDS that

is provided to customers or the public.

Third, any other written materials

provided by a member or member

organization to customers or the public

referencing DIAMONDS as an
2442 Federal Register / Vol. 63, No. 10 / Thursday, January 15, 1998 / Notices

32This reflects the fact that PDRs are equity

products and not an options product, and,

therefore, do not necessitate the imposition of

options-like rules.

33See Amex Rule 411.

34 In addition, for PDRs tied to an index, the

triggering of futures price limits for the S&P 500

Index, S&P 100 Index, or MMI futures contracts will

not, in itself, result in a halt in PDR trading or a

delayed opening. However, the Exchange could

consider such an event, along with other factors,

such as a halt in trading in OEX, SPX, or MMI

options, in deciding whether to halt trading in

PDRs.

35See Amex Rule 918C(b).

36Even though PDR transactions may serve as

substitutes for transactions in the cash market, and

possibly make the order flow in individual stocks

smaller than would otherwise be the case, the

Commission acknowledges that during turbulent

market conditions the ability of large institutions to

redeem or create PDRs could conceivably have an

impact on price levels in the cash market. In

particular, if a PDR is redeemed, the resulting long

stock position could be sold into the market,

thereby depressing stock prices further. The

Commission notes, however, that the redemption or

creation of PDRs likely will not exacerbate a price

movement because PDRs will be subject to the

equity margin requirements of 50% and PDRs are

non-leveraged instruments. In addition, as noted

above, during turbulent market conditions, the

Commission believes PDRs, including SPDRs,

MidCap SPDRs and DIAMONDS, in particular, will

serve as a vehicle to accommodate and ‘‘bundle’’

order flow that otherwise would flow to the cash

market, thereby allowing such order flow to be

handled more efficiently and effectively.

Accordingly, although DIAMONDS, like any other

PDR, could, in certain circumstances, have an

impact on the cash market, on balance we believe

the product will be beneficial to the marketplace

and can actually aid in maintaining orderly

markets.

investment vehicle must include a

statement, in a form specified by Amex,

that a circular and prospectus are

available from a broker upon request.

Fourth, a member or member

organization carrying an omnibus

account for a non-member broker-dealer

is required to inform such non-member

that execution of an order to purchase

a series of DIAMONDS for such

omnibus account will be deemed to

constitute agreement by the nonmember to make the written product

description available to its customers on

the same terms as member firms.

Accordingly, the Commission believes

that investors in PDR securities, in

general, and DIAMONDS, in particular,

will be provided with adequate

disclosure of the unique characteristics

of the PDR instruments and other

relevant information pertaining to the

instruments.

Finally, under Amex’s proposal there

will be no special account opening or

customer suitability rules applicable to

the trading of DIAMONDS.32

Nevertheless, pursuant to Amex Rule

1000(a), Amex equity rules governing

account opening and suitability will

apply. Specifically, these provisions

provide that members shall use due

diligence to learn the essential facts

relative to every customer, order or

account opened, and, prior to or

promptly after the completion of a

transaction for such account,

specifically approve the opening of the

account.33

The Commission believes Amex has

adequately addressed the potential

market impact concerns raised by the

proposal. First, Amex’s proposal

permits listing and trading of specific

PDRs only after review by the

Commission. Second, Amex has

developed policies regarding trading

halts in PDRs. Specifically, the

Exchange would halt PDR trading in

DIAMONDS if the circuit breaker

parameters under Amex Rule 117 were

reached.34 In addition, in deciding

whether to halt trading or conduct a

delayed opening in PDRs, in general,

and DIAMONDS, in particular, Amex

represents that it will be guided by, but

not necessarily bound to, relevant stock

index option trading rules. These rules

would permit Amex, when determining

whether to halt DIAMONDS trading, to

consider whether trading has been

halted or suspended in the primary

market(s) for any combination of

underlying stocks accounting for 20% or

more of the applicable current index

group value or whether other unusual

conditions or circumstances detrimental

to the maintenance of a fair and orderly

market are present.35

The Commission believes that the

trading of PDRs is general, and

DIAMONDS in particular, on Amex

should not adversely impact U.S.

securities markets. As to the trading of

DIAMONDS, the Commission notes that

the corpus of the DIAMONDS Trust is

a portfolio of stocks replicating the

DJIA, a broad-based price-weighted

index consisting of 30 actively-traded

and liquid stocks. In fact, as described

above, the Commission believes

DIAMONDS may provide substantial

benefits to the marketplace and

investors, including, among others,

enhancing the stability of the markets

for individual stocks.36 Accordingly, the

Commission believes that DIAMONDS

do not contain features that will make

them likely to impact adversely the U.S.

securities markets.

Finally, the Commission notes that

Amex has submitted surveillance

procedures for the trading of

DIAMONDS and believes that those

procedures, which incorporate and rely

upon existing Amex surveillance

procedures governing equities, are

adequate under the Act.

The Commission finds that Amex’s

proposal contains adequate rules and

procedures to govern the trading of

DIAMONDS. Specifically, DIAMONDS,

like other listed PDRs, are equity

securities that will be subject to the full

panoply of Amex rules governing the

trading of equity securities on Amex,

including, among others, rules

governing the priority, parity and

precedence of orders and the

responsibilities of specialists. In

addition, Amex has developed specific

listing and delisting criteria for PDRs

that are applicable to DIAMONDS that

will help to ensure that the markets for

DIAMONDS will be deep and liquid. As

noted above, Amex’s proposal provides

for trading halt procedures governing

DIAMONDS. Finally, the Commission

notes that Amex’s equity rules

governing account opening and

suitability will apply to the trading of

DIAMONDS.

The Commission finds good cause to

approve Amendment No. 1 to the

proposed rule change prior to the

thirtieth day after the date of

publication of notice of filing thereof in

the Federal Register. Specifically,

Amendment No. 1 strengthens the

proposed rule change by clarifying the

nature of composition of the Trust, the

reasoning behind the trust term, the

trading halt procedures, and the

applicable equity trading rules. In

addition, the proposed rule change was

noticed for the full statutory period and

no comment letters were received.

Finally, amendment No. 1 does not raise

any new regulatory issues. Accordingly,

the Commission believes that there is

good cause, consistent with Section

6(b)(5) of the Act, to approve

Amendment No. 1 to the proposal on an

accelerated basis.

Interested persons are invited to

submit written data, views, and

arguments concerning Amendment No.

1 to the rule proposal. Persons making

written submissions should file six

copies thereof with the Secretary,

Securities and Exchange Commission,

450 Fifth Street, N.W., Washington, D.C.

20549. Copies of the submission, all

subsequent amendments, all written

statements with respect to the proposed

rule change that are filed with the

Commission, and all written

communications relating to the

proposed rule change between the

Commission and any person, other than

those that may be withheld from the

public in accordance with the

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

available for inspection and copying at

the Commission’s Public Reference

Room. Copies of such filing also will be

available for inspection and copying at

the principal office of the Exchange. All

submissions should refer to File No.
Federal Register / Vol. 63, No. 10 / Thursday, January 15, 1998 / Notices 2443

37 15 U.S.C. 78s(b)(2).

38 17 CFR 200.30–3(a)(12).

SR–Amex–97–29 and should be

submitted by February 5, 1998.

IV. Conclusion

It is Therefore Ordered, pursuant to

Section 19(b)(2) of the Act,37 that the

proposed rule change (SR–Amex–97–

29), as amended, is approve.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.38

Jonathan G. Katz,

Secretary.

[FR Doc. 98–1041 Filed 1–14–98; 8:45 am]

BILLING CODE 8010–01–M

DEPARTMENT OF STATE

The Bureau of Consular Affairs

[Public Notice 2700]

Agency Information Collection

Activities; Proposed Collection;

Comment Request

AGENCY: Department of State

ACTION: 60-Day Notice of Proposed

Information Collection; DSP–64,

Statement Regarding Lost and Stolen

Passport.

SUMMARY: The Department of State is

seeking Office of Management and

Budget (OMB) approval for the

information collection described below.

The purpose of this notice is to allow 60

days for public comment in the Federal

Register preceding submission to OMB.

This process is conducted in accordance

with the Paperwork Reduction Act of

1995.

The following summarizes the

information collection proposal

submitted to OMB:

Type of Request: Reinstatement,

without change, of a previously

approved collection for which approval

has expired.

Originating Office: The Bureau of

Consular Affairs.

Title of Information Collection:

Statement Regarding Lost and Stolen

Passport.

Frequency: On occasion.

Form Number: DSP–64.

Respondents: U.S. Citizens.

Estimated Number of Respondents:

30,000.

Average Hours Per Response: 15

minutes.

Total Estimated Burden: 7,500.

Public comments are being solicited

to permit the agency to—

• Evaluate whether the proposed

information collection is necessary for

the proper performance of the agency

functions.

• Evaluate the accuracy of the

agency’s estimate of the burden of the

proposed collection.

• Enhance the quality, utility, and

clarity of the information to be

collected.

• Minimize the reporting burden on

those who are to respond, including

through the use of automated collection

techniques or other forms of technology.

FOR FURTHER INFORMATION CONTACT:

Comments regarding the collection

listed in this notice or requests for

copies of the proposed collection and

supporting documents should be

directed to Charles S. Cunningham,

Directives Management Branch, U.S.

Department of State, Washington, DC

20520, (202) 647–0596.

Dated: December 23, 1997.

Glen H. Johnson,

Acting, Chief Information Officer.

[FR Doc. 98–1003 Filed 1–14–98; 8:45 am]

BILLING CODE 4710–06–M

DEPARTMENT OF STATE

[Public Notice 2701]

The Bureau of Consular Affairs; 60-Day

Notice of Proposed Information

Collection; DSP–10A, Birth Affidavit

SUMMARY: The Department of State is

seeking Office of Management and

Budget (OMB) approval for the

information collection described below.

The purpose of this notice is to allow 60

days for public comment in the Federal

Register preceding submission to OMB.

This process is conducted in accordance

with the Paperwork Reduction Act of

1995.

The following summarizes the

information collection proposal

submitted to OMB:

Type of Request: Reinstatement,

without change, of a previously

approved collection for which approval

has expired.

Originating Office: The Bureau of

Consular Affairs.

Title of Information Collection: Birth

Affidavit.

Frequency: On occasion.

Form Number: DSP–10A.

Respondents: Applicant’s eligibility to

be documented as a citizen of the

United States.

Estimated Number of Respondents:

50,000.

Average Hours Per Response: 15

minutes.

Total Estimated Burden: 12,500

hours.

Public comments are being solicited

to permit the agency to—

• Evaluate whether the proposed

information collection is necessary for

the proper performance of the agency

functions.

• Evaluate the accuracy of the

agency’s estimate of the burden of the

proposed collection.

• Enhance the quality, utility, and

clarity of the information to be

collected.

• Minimize the reporting burden on

those who are to respond, including

through the use of automated collection

techniques or other forms of technology.

FOR ADDITIONAL INFORMATION: Comments

regarding the collection listed in this

notice or requests for copies of the

proposed collection and supporting

documents should be directed to

Charles S. Cunningham, Directives

Management Branch, U.S. Department

of State, Washington, DC 20520, (202)

647–0596.

Dated: December 23, 1997.

Glen H. Johnson,

Acting Chief Information Officer.

[FR Doc. 98–1004 Filed 1–14–98; 8:45 am]

BILLING CODE 4710–06–M

DEPARTMENT OF STATE

Bureau of Consular Affairs

[Public Notice 2702]

Agency Information Collection

Activities; Proposed Collection;

Comment Request

AGENCY: Department of State.

ACTION: 60-Day Notice of Proposed

Information Collection; DS–1423,

Request By United States National For

and Report of Exception to Section 53.1,

Title 22 of the Code of Federal

Regulations.

SUMMARY: The Department of State is

seeking Office of Management and

Budget (OMB) approval for the

information collection described below.

The purpose of this notice is to allow 60

days for public comment in the Federal

Register preceding submission to OMB.

This process is conducted in accordance

with the Paperwork Reduction Act of

1995.

The following summarizes the

information collection proposal

submitted to OMB:

Type of Request: Reinstatement,

without change, of a previously

approved collection for which approval

has expired.

Originating Office: The Bureau of

Consular Affairs.