Federal Register / Vol. 63, No. 130 /Wednesday, July 8, 1998 / Notices 36981

17See December 1997 Extension Request and

Letter from George T. Simon, Foley & Lardner to

Howard L. Kramer, Senior Associate Director,

Division, SEC, dated December 12, 1997 (‘‘CHX

Letter’’).

18See e.g., Actual Size Rule Release, supra note

13 and IODES Proposal, supra note 14. 19 17 CFR 200.30–3(a)(29).

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

2 17 CFR 240.19b–4.

3Securities Exchange Act Release No. 39392 (Dec.

3, 1997), 62 FR 65112.

4See Letter from Claudia Crowley, Special

Counsel, Legal and Regulatory Policy, Amex, to

Sharon Lawson, Senior Special Counsel, Division of

Market Regulation, Commission, dated April 3,

1998 (‘‘Amendment No. 1’’). In Amendment No. 1,

Amex proposes raising the initial warrant listing

standards from 100,000 warrants with no public

holder requirement, as originally proposed, to

200,000 warrants publicly held by not less than 100

public warrantholders. Amendment No. 1 makes

several other clarifications which are discussed

herein.

5The Amex has represented that the proposal

would only affect warrants listed under Section 105

of the Exchange’s Company Guide and not currency

or other types of warrants listed pursuant to Section

106 or 107. See Amendment No. 1.

needs of the CHX. Among other things,

Nasdaq market makers that already

subscribe to BRASS will be able to route

OTC/UTP orders to specialists on the

CHX floor through a SelectNet linkage

with BRASS workstations on the CHX

floor. Conversely, CHX specialists will

be able to route orders into SelectNet

through their BRASS workstations.17

The Commission notes that ASC will be

subject to the Commission’s inspection

and examination procedures with

regards to the specific customized

BRASS system that ASC will provide to

the CHX because ASC will be operating

a facility of an exchange.

The Commission continues to solicit

comment regarding the BBO calculation,

the trade through rule and the CHX’s

use of the BRASS system as well as

issues presented by changes occurring

in the market place.

VI. Discussion

The Commission finds that an

extension of temporary approval of the

operation of the Plan, as amended,

through December 31, 1998, is

appropriate and in furtherance of

Section 11A of the Act. The

Commission believes that such

extension will provide the Participants

with additional time to seek

Commission approval of pending

proposals concerning the BBO

calculation 18 and to begin to make

reasonable proposals concerning a trade

through rule to facilitate the trading of

OTC securities pursuant to UTP. In

addition, the Commission believes that

the extension will afford the CHX

adequate time to test the BRASS system,

address any operating issues concerning

its use and implement it. While the

Commission continues to solicit

comment on these matters, the

Commission believes that these matters

should be addressed directly by the

Participants on or before September 30,

1998 so that the Commission may have

ample time to determine whether to

approve the Plan on a permanent basis

by December 31, 1998.

The Commission also finds that it is

appropriate to extend the exemptive

relief from Rule 11Ac1–2 under the Act

until the earlier of December 31, 1998 or

until such time as the calculation

methodology for the BBO is based on a

price/size/time algorithm pursuant to a

mutual agreement among the

Participants approved by the

Commission. The Commission further

finds that it is appropriate to extend the

exemptive relief from Rule 11Aa3–1

under the Act, that requires transaction

reporting plans to include market

identifiers for transaction reports and

last sale data, to the BSE through

December 31, 1998. The Commission

believes that the extensions of the

exemptive relief provided to vendors

and the BSE, respectively, are consistent

with the Act, the Rules thereunder, and

specifically with the objectives set forth

in Sections 12(f) and 11A of the Act and

in Rules 11Aa3–1 and 11Aa3–2

thereunder.

VII. Solicitation of Comments

Interested persons are invited to

submit written data, views and

arguments concerning the extension,

including whether the extension 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. Copies of the submission, all

subsequent amendments, all written

statements with respect to the proposed

plan amendment that are filed with the

Commission and all written

communications relating to the

proposed plan amendment 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. All submissions should refer to

File No. S7–24–89 and should be

submitted by [insert date 21 days from

date of publication].

VIII. Conclusion

It is therefore ordered, pursuant to

Sections 12(f) and 11A and the Act and

paragraph (c)(2) of Rule 11Aa3–2

thereunder, that the Participants’

request to extend the effectiveness of the

Joint Transaction Reporting Plan, as

amended, for Nasdaq/National Market

securities traded on an exchange on an

unlisted or listed basis through

December 31, 1998, and certain

exemptive relief until December 31,

1998, is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.19

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–18053 Filed 7–7–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40143; File No. SR–Amex–

97–38]

Self-Regulatory Organizations;

American Stock Exchange, Inc.; Order

Approving Proposed Rule Change and

Notice of Filing and Order Granting

Accelerated Approval to Amendment

No. 1 to the Proposed Rule Change by

the American Stock Exchange, Inc.,

Relating to the Exchange’s Warrant

Listing Guidelines.

June 29, 1998.

I. Introduction

On October 22, 1997, the American

Stock Exchange, Inc. (‘‘Amex’’ or

‘‘Exchange’’) submitted to the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘Commission’’), pursuant to Section

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

of 1934 (‘‘Act’’) 1 and Rule 19b–4

thereunder,2 a proposed rule change to

amend its Company Guide to revise its

warrant listing and maintenance

guidelines.

The proposed rule change was

published for comment in the Federal

Register on December 10, 1997.3 No

comments were received on the

proposal. On April 3, 1998, Amex filed

an Amendment to the proposed rule

change.4 This order approves the Amex

proposal, as amended.

II. Description of the Proposal

The Amex proposes to amend its

Company Guide to revise its warrant

listing standards.5 Currently, Section

105 provides that the Amex will not list

warrants unless the underlying common

stock is listed on the Amex or the New

York Stock Exchange (‘‘NYSE’’) and

further provides that the Exchange will

evaluate the warrant issuer’s listing

eligibility using the same financial and

distribution guidelines as are applied to

the listing of common stock.
36982 Federal Register / Vol. 63, No. 130 /Wednesday, July 8, 1998 / Notices

6The Commission notes that currently the

Exchange has no separate maintenance standards

for warrants, but instead applies the general

delisting provision in Section 1003.

7See Amendment No. 1. This representation

clarifies that the underlying common stock must

meet the objective numerical maintenance criteria

rather than the subjective criteria that may permit

a company to remain listed despite being below the

numerical criteria.

8See Amex Company Guide, Sections 1001–1004;

NYSE Rule 499.

9See Amendment No. 1.

10See Amendment No. 1.

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

12 In approving the proposed rule change, the

Commission notes that it has considered the

proposed rule’s impact on efficiency, competition

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

13This standard requires Amex to ensure the

underlying security is meeting the numerical

continued listing standards on the market where it

is listed (e.g., Amex of NYSE). We note that the

mere fact that a security continues to be listed on

the Amex or NYSE is not sufficient inquiry to

determine if it is meeting the numerical continued

listing criteria.

14Section 105 is, in the Commission’s view,

generally intended to provide listing standards for

traditional corporate warrants where the issuer of

the underlying security is the same as the warrant

issuer. The Commission believes that an issuer

desiring to list warrants on another issuers’ security

may be more appropriately listed under another

listing standard depending on such factors as

whether the issuer of the warrant holds the

underlying securities. For example, if the issuer did

not hold the securities underlying the warrants and/

or the issuer did not have a pre-existing

relationship with the issuer of the underlying

security, we believe the warrant should not be

listed under Section 105 for warrants. In any case,

for the warrants that are appropriate for listing

under Section 105, the Amex has stated that, if a

third party issuer seeks to list warrants on the

Exchange, the Amex will evaluate the listing

eligibility of the warrants by applying the listing

criteria in Section 105 to both the issuer of the

warrants as well as to the issuer of the common

stock underlying the warrants. See Letter from

Michael Emen, Senior Vice President and

Counsel—Securities, Legal and Regulatory Policy,

Amex, to Sharon Lawson, Senior Special Counsel,

Division of Market Regulation, Commission, dated

June 16, 1998.

15See Amex Company Guide, Sections 1001–

1004; NYSE Rule 499.

Specifically, with respect to financial

guidelines, the issuer of the warrants

must meet the size and earnings

requirements for common stock set forth

in Section 101 (i.e., stockholders equity

of at least $4,000,000 and pre-tax

income of at least $750,000 in its last

fiscal year, or in two of its last three

fiscal years). The Exchange believes that

these guidelines are unnecessarily high

when applied to the listing of warrants.

In this regard, the Amex notes that a

listed company is not required to meet

the original listing guidelines when

issuing additional shares of its common

stock and that warrants are nothing

more than a claim on a company to

issue more stock that does not expose a

company to financial risk. Thus, Amex

believes that warrant issuers should not

be subject to the same stringent

financial requirements as required of

issuers of common stock.

Similarly, Amex believes that the

current original listing distribution

requirements (i.e., a minimum of

500,000 publicly held warrants and not

less than 800 public warrantholders or

1,000,000 publicly held warrants and

not less than 400 public warrantholders)

are too high because price discovery

occurs with the underlying security and,

therefore, such a high degree of liquidity

is not as important for the warrant.

As a result of the above, the Amex is

proposing to amend Section 105,

relating to initial listing requirements

for warrants, and Section 1003, relating

to maintenance requirements for

warrants.6 The Amex is proposing that

Section 105 be amended to eliminate

the express requirements that

companies applying for listing of

warrants must meet the size and

earnings criteria for common stock.

However, in addition to the current

requirement that the underlying

common stock (or other security

underlying the warrant) must be listed

on the Amex or the NYSE, the Amex is

proposing to amend Section 105 to

include a requirement that the

underlying security must be in ‘‘good

standing.’’ The Amex has represented

that for a company’s common stock to

be in ‘‘good standing,’’ it must be above

the numerical maintenance standards of

the Amex or the NYSE.7 Where common

stock underlies the warrant, the ‘‘good

standing’’ requirement results in a de

facto size and earnings requirement for

the issuer of the warrant.8 The Amex

also is proposing that Section 105 be

amended to reduce the original listing

distribution criteria for warrants from

500,000 warrants outstanding and not

less than 800 public warrantholders or

1,000,000 publicly held warrants and

not less than 400 public warrantholders

to 200,000 warrants outstanding and not

less than 100 public warrantholders.9 In

addition, recognizing that a minimum

level of liquidity is necessary to support

a public market, the Amex is proposing

to amend Section 1003 to add a specific

maintenance standard of at least 50,000

publicly held warrants in order for

Amex to continue listing the warrants.

The Amex also has represented that it

would suspend or delist the warrants if

the underlying common stock (or other

security underlying the warrant) is

suspended or delisted.10

III. Discussion

After careful review, the Commission

finds that the proposed rule change is

consistent with the requirements of the

Act and the rules and regulations

thereunder applicable to a national

securities exchange and, in particular,

the requirements of Section 6(b)(5) in

that it is designed to promote just and

equitable principles of trade, and, in

general, to protect investors and the

public interest.11 Specifically, the

Commission finds that revising the

initial listing criteria and adopting

specific maintenance requirements for

warrants will serve to promote the

public interest, protect investors and

remove impediments to a free and open

securities market by making more

warrants eligible for trading on the

Amex by reducing the numerical listing

requirements while, at the same time,

ensuring a minimum level of liquidity

will exist to support the public trading

market in such warrants.12

The development and enforcement of

adequate standards governing the initial

and continued listing of securities on an

exchange is of critical importance to

financial markets and the investing

public. Listing standards serve as a

means for a self-regulatory organization

(‘‘SRO’’) to screen issuers and provide

listed status only to bona fide

companies with sufficient float, investor

base and trading interest to maintain fair

and orderly markets. Once a security

has been approved for initial listing,

maintenance criteria allow an SRO to

monitor the status and trading

characteristics of that issue to ensure

that it continues to meet the SRO’s

standards for market depth and

liquidity.

The Commission believes that the

proposed initial listing standards should

help Amex to ensure that only

substantial companies are eligible to

have their warrants listed on the

Exchange. While the proposed rule

would no longer require issuers of

warrants to meet the initial size and

earnings requirements for issuers of

common stock, the rule would require

the common stock or other security

underlying the warrant to be listed and

in ‘‘good standing’’ on either the Amex

or the NYSE.13 This standard will

ensure, at a minimum, that only issuers

who meet the numerical continued

listing standards for issuers of common

stock (or other securities underlying the

warrant) on the Amex or NYSE may list

warrants on the Amex.14 These

requirements contain specific issuer

standards including shareholders’

equity, public float and earnings.15 In

addition, the Amex will not list a

warrant if the security underlying the

warrant has been suspended.

The Commission finds that it is not

unreasonable for the Exchange to reduce
Federal Register / Vol. 63, No. 130 /Wednesday, July 8, 1998 / Notices 36983

16 15 U.S.C. 78s(b)(2).

17 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1).

the initial listing distribution criteria

from 500,000 warrants publicly held

and not less than 800 public warrant

holders or 1,000,000 publicly held

warrants and not less than 400 public

warrantholders to 200,000 warrants

publicly held and not less than 100

public warrantholders with a

maintenance standard of 50,000

warrants publicly held. The

Commission recognizes that the

reduction in the initial listing standards

is substantial. In reviewing the Amex’s

proposal the Commission has been

particularly concerned about the

lowered public holder requirement and

the lack of such a public holder

requirement for continued listing. While

the Commission’s determination on this

issue was close, we have determined to

approve the new standards based, in

part, on the unique, completely

derivative nature of warrants and the

fact that they are exercisable into

another security that must remain in

‘‘good standing’’ on its listed market.

Accordingly, although the Commission

is concerned about maintaining

sufficient liquidity in the marketplace

for listed warrants, the Commission

believes that the revised initial listing

criteria together with the added

maintenance standard will serve to

enable the Exchange to evaluate the

propriety of continued exchange trading

of warrants.

Finally, the Commission notes that

warrants will trade under the Amex’s

existing regulatory regime for trading

securities, and, therefore, the

Commission believes that adequate

safeguards are in place to ensure the

protection of investors in warrants. In

addition, the Amex will delist or

suspend trading in warrants whenever

the underlying equity security is

delisted or suspended. Because warrants

represent a claim on a company to issue

stock, it is reasonable to expect the

underlying equity security to meet the

maintenance criteria of the exchange on

which it is listed. It also would be

undesirable to continue trading in listed

warrants when the underlying equity

security has been suspended or delisted

and no longer trades in the secondary

market.

The Commission finds good cause for

approving Amendment No. 1 to the

proposed rule change prior to the

thirtieth day after the date of

publication of notice thereof in the

Federal Register. Amendment No. 1

raises the initial listing requirements

from 100,000 warrants with no public

warrantholder requirement, as originally

proposed, to 200,000 warrants publicly

held by not less than 100 public

warrantholders. The Commission

believes that these higher standards are

appropriate and serve to protect

investors and the public interest. In

addition, the Commission notes that no

comments were received when the

original notice of the proposed rule

change was published and that no new

regulatory issues are presented in

Amendment No. 1.

Accordingly, the Commission believes

that good cause exists, consistent with

Section 6(b)(5) and 19(b)(2) 16 of the Act,

to approve Amendment No. 1 on an

accelerated basis.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views and

arguments concerning Amendment No.

1, 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. Copies of the

submission, all subsequent comments,

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. 522, will be

available for inspection and copying in

the Commission’s Public Reference

Room, 450 Fifth Street, N.W.,

Washington, D.C. 20549. Copies of such

filing will also be available for

inspection and copying at the principal

office of the Amex. All submissions

should refer to File No. SR–Amex–97–

38 and should be submitted by July 29,

1998.

For the foregoing reasons, the

Commission finds that the Amex’s

amended proposal to revise original

listing and maintenance requirements

for Section 105 warrants is consistent

with the requirements of the Act and the

rules and regulations thereunder.

It is therefore ordered, pursuant to

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

proposed rule change (SR–Amex–97–

38), as amended, is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.17

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–18003 Filed 7–7–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40150; File No. SR–CHX–

98–16]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change by The Chicago Stock

Exchange, Incorporated Relating to the

Trading of Nasdaq/NM Securities on

the CHX

July 1, 1998.

On June 17, 1998, the Chicago Stock

Exchange, Incorporated (‘‘CHX’’ or

‘‘Exchange’’) filed with the Securities

and Exchange Commission

(‘‘Commission’’), pursuant to Section

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

of 1934 (‘‘Act’’),1 the proposed rule

change as described in Items I, II, and

III below, which Items have been

prepared by the Exchange. The

Commission is publishing this notice to

solicit comments on the proposed rule

change from interested persons and to

grant accelerated approval of the

proposed rule change.

I. Self-Regulatory Organizations

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange hereby requests a six

month extension of the pilot program

relating to the trading of Nasdaq/NM

Securities on the Exchange that is

currently due to expire on June 30,

1998. Specifically, the pilot program

amended Article XX, Rule 37 and

Article XX, Rule 43 of the Exchange’s

Rules and the Exchange proposes that

the amendments remain in effect on a

pilot basis through December 31, 1998.

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 statutory

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.