Federal Register / Vol. 63, No. 143 / Monday, July 27, 1998 / Notices 40145

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

2 17 CFR 240.19b–4.

3Securities Exchange Act Release No. 27753

(Mar. 1, 1990), 55 FR 8626 (Mar. 8, 1990).

4According to the prospectus prepared by the

underwriter, the Eurofund is a diversified, openend management company that seeks to provide

shareholders with capital appreciation primarily

through investment in equities of corporations

domiciled in European countries. While there are

no prescribed limits on geographic distribution

within the European community, it currently is

anticipated that a majority of the EuroFund’s assets

will be invested in equity securities of issuers

domiciled in Western European countries. Current

income from dividends and interest will not be an

important consideration in selecting portfolio

securities. The Eurofund expects that under normal

market conditions at least 80% of its net assets will

be invested in European corporate securities,

primarily common stocks, and debt and preferred

securities convertible into common stocks.

5 15 U.S.C. 80a–5(b).

6The EuroFund Index will measure the adjusted

total return value of Class B Shares of the

EuroFund. The total return value reflects the change

in net asset value of Class B Shares of the

Continued

execution, effectiveness, and

termination and the inclusion of escrow

arrangements.

2. Fees earned by WPG during the

Interim Period under the New Advisory

Agreements will be maintained in

interest-bearing escrow accounts with

an unaffiliated escrow agent, and the

amounts in such accounts (including

interest earned on such amounts) will

be paid (a) to WPG only upon approval

of the New Advisory Agreements by the

Funds’ respective shareholders or (b) in

the absence of such approval by

shareholders of a Fund, to such Fund.

3. The Funds will hold special

meetings of shareholders to vote on the

approval or disapproval of the New

Advisory Agreements on or before

October 31, 1998.

4. WPG will bear the costs relating to

the preparation and filing of this

application and the costs relating to the

solicitation of the approvals of the

Funds’ shareholders of the New

Advisory Agreements necessitated by

the Acquisition; provided, however, that

the Funds may bear a portion of the cost

of soliciting shareholders approval for

proposals unrelated to the Acquisition.

5. WPG will take all appropriate

actions to ensure that the scope and

quality of advisory and other services

provided to the Funds during the

Interim Period under the New Advisory

Agreements will be at least equivalent,

in the judgment of the Boards, including

a majority of the Independent Trustees,

to the scope and quality of services

provided under the Current Advisory

Agreements. In the event of any material

change in personnel providing services

pursuant to the New Advisory

Agreements during the Interim Period,

WPG will apprise and consult the

Boards of the affected Funds to assure

that such Board, including a majority of

the Independent Trustees, are satisfied

that the services provided by WPG will

not be diminished in scope or quality.

For the Commission, by the Division of

Investment Management, under delegated

authority.

Jonathan G. Katz,

Secretary.

[FR Doc. 98–19983 Filed 7–24–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40228; File No. SR–Amex–

98–24]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the American Stock Exchange, Inc.

Relating to the Listing and Trading of

Merrill Lynch EuroFund Market Index

Target Term Securities

July 17, 1998.

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

Securities Exchange Act of 1934

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

notice is hereby given that on June 30,

1998, the American Stock Exchange,

Inc. (‘‘Exchange’’ or ‘‘Amex’’) filed with

the Securities and Exchange

Commission (‘‘Commission’’) the

proposed rule change as described in

Items I, II, and III below, which Items

have been prepared by the Exchange.

The Commission is publishing this

notice to solicit comments on the

proposed rule change from interested

persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange seeks to list and trade

under Section 107A of the Exchange’s

Company Guide, Merrill Lynch

EuroFund Market Index Target Term

Securities SM (‘‘MITTS Securities’’).

The value of the MITTS Securities will

be based in whole or in part on changes

in the value of the Merrill Lynch

EuroFund Index (‘‘EuroFund Index’’).

The text of the proposed rule change

is available at the Office of the

Secretary, the Exchange and at the

Commission.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission, the

Exchange included statements

concerning the purpose of and basis for

the proposed rule change and discussed

any comments it received on the

proposed rule change. The text of these

statements may be examined at the

places specified in Item IV below. The

Exchange has prepared summaries, set

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

the most significant aspects of such

statements.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

1. Purpose

Under Section 107A of the Exchange’s

Company Guide, the Exchange may

approve for listing and trading securities

which cannot be readily categorized

under the listing criteria for common

and preferred stocks, bonds, debentures,

or warrants.3 The Exchange seeks to list

the MITTS Securities for trading under

Section 107A of the Exchange’s

Company Guide. The MITTS Securities

are structured as mutual fund linked

notes, the value of which will be linked,

in whole or in part, to the adjusted total

return value of Class B Shares of the

Merrill Lynch EuroFund (‘‘EuroFund’’),4

a mutual fund registered under the

Investment Company Act of 1940. The

EuroFund is a ‘‘diversified company’’ as

defined in Section 5(b) of the

Investment Company Act of 1940 5 and

the securities held by the EuroFund are

issued by companies based in five or

more countries.

The Exchange represents that MITTS

Securities will be senior, unsecured

debt securities that will conform to the

listing guidelines under Section 107A of

the Exchange’s Company Guide.

Although a specific maturity date will

not be established until the time of the

offering, the MITTS Securities will

provide for a maturity of between two

and seven years from the date of

issuance. MITTS Securities may provide

for periodic payments and/or payments

at maturity based in whole or in part on

changes in the value of the EuroFund

Index, an index based on the adjusted

total return of the Class B Shares of the

EuroFund.6 At maturity, holders of the
40146 Federal Register / Vol. 63, No. 143 / Monday, July 27, 1998 / Notices

EuroFund, plus cash dividends and distributions

paid on those shares. The Amex will calculate the

EuroFund Index value each day by reducing the

EuroFund Index value by a percentage equal to the

pro rata portion of an annual reduction factor. The

annual reduction factor is expected to be between

2.25% and 2.75% and will be determined on the

date that the MITTS Securities are priced for initial

sale to the public. Holders of Class B Shares receive

the value of their shares plus cash dividends and

distributions paid on those shares less fees. Holders

of the MITTS Securities receive at maturity the

principal amount of their investment plus a

Supplemental Redemption Amount based on the

adjusted total return of Class B Shares of the

Eurofund (as described above) which may be lower

than what a holder of Class B EuroFund Shares

might receive. The Amex represents that an

explanation of this deduction will be included in

any marketing materials, fact sheets, or any other

materials circulated to investors regarding the

trading of MITTS Securities.

7The Exchange represents that the EuroFund’s

value is updated only at the close of trading each

day because that is the only time when the

EuroFund’s NAV is determined and disseminated.

The Exchange believes this should not pose an

obstacle to the trading of the MITTS Securities,

anymore than it prevents investors from entering

intra-day orders to purchase or redeem shares of the

EuroFund’s itself at a closing NAV that is unknown

as the time the orders are entered.

8 17 CFR 270.22c–1.

9The Supplemental Redemption Amount, which

may not be less than zero, will equal the principal

amount ($10) multiplied by the percentage

difference between the ending value of the

EuroFund Index and the starting value [$10

((ending EuroFund Index value—starting EuroFund

Index value)/starting EuroFund Index value)]. The

ending and starting EuroFund Index values used to

calculate the Supplemental Redemption Amount

shall reflect the application of the annual reduction

fee.

10The specified date shall be two business days

prior to the stated maturity of the MITTS Securities.

Telephone conversation between Sharon Lawson,

Senior Special Counsel, Division of Market

Regulation, Commission; Cliare McGrath, Vice

President and Special Counsel, Exchange; and

Thomas Lee, Vice President of Customized

Investments, Merrill Lynch (July 16, 1998).

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

12 15 U.S.C. 78f(b)(5).

MITTS Securities will receive not less

than 100% of the initial issue price in

either the value of Class D Shares of the

EuroFund or cash.

a. Description of the MITTS Securities

and the Underlying Merrill Lynch

EuroFund. Similar to equity linked term

notes that are listed for trading pursuant

to Section 107B of the Exchange’s

Company Guide, the MITTS Securities

will have a limited term of between two

and seven years. In addition: (i) both the

issue (MITTS Securities) and the issuer

(Merrill Lynch & Co., Inc.) meet the

general criteria set forth in Section 107A

of the Exchange’s Company Guide; (ii)

the issuer has a minimum tangible net

worth in excess of $250,000,000 and

otherwise substantially exceeds the

earnings requirements set forth in

Section 101(A) of the Exchange’s

Company Guide; (iii) the EuroFund has

total net assets of approximately $2.16

billion; and (iv) the EuroFund’s net

asset value (‘‘NAV’’) is reported each

day through the facilities of the National

Association of Securities Dealers

Automated Quotation System

(‘‘Nasdaq’’). The continued listing

guidelines governing the MITTS

Securities are set forth in Sections 1001

through 1003 of the Exchange’s

Company Guide. In particular, Section

1003(b) regarding suspensions and

delistings with respect to limited

distribution and reduced market value

will apply to MITTS Securities. b. Calculation and Dissemination of

Net Asset and Index Values. The

EuroFund Index shall measure the

adjusted total return of Class B Shares

of the EuroFund. Such amount shall be

equal to the change in price of

EuroFund Class B Shares, plus cash

dividends and distributions paid on

EuroFund Class B Shares, less a

percentage equal to approximately

2.25%–2.75%, each year, of the value of

the EuroFund Index. The percentage

reduction of the EuroFund Index will be

applied to the total return of EuroFund

Class B Shares on a pro rata basis each

calendar day. This adjusted total return

value will be disseminated once a day

over the Consolidated Tape

Association’s Network B.7

In addition to the dissemination of the

adjusted total return value, the

EuroFund’s NAV will be disseminated

through the facilities of Nasdaq. If the

EuroFund does not comply with Rule

22c–1 under the Investment Company

Ac tof 1940,8 which requires daily

computation of a fund’s current NAV,

the Exchange will use the last available

price in its calculation.

c. Settlement of MITTS Securities.

Although the value of MITTS Securities

will be calculated using EuroFund Class

B Shares, MITTS Securities will settle in

Class D Shares of the EuroFund. Under

the proposal, MITTS Securities will

settle by delivery of the number of Class

D Shares of the EuroFund equal in value

to the principal amount ($10 per MITTS

Security) plus the Supplemental

Redemption Amount,9 if any, based on

the NAV for Class D Shares determined

on a specified data prior to the stated

maturity of the MITTS Securities.10 If

the issuer is unable to deliver the Class

D Shares because the EuroFund is not

issuing Class D Shares to new investors

in the EuroFund as of the date

immediately prior to the stated maturity

date, it will pay the equivalent amount

in cash.

d. Exchange Rule Applicable to

MITTS. Because MITTS Securities are

linked to a portfolio of equity securities,

the Exchange’s equity floor trading rules

and regular equity trading hours (9:30

a.m. to 4:00 p.m. Eastern Standard

Time) will govern the trading of MITTS

Securities. In addition, MITTS

Securities will be subject to the equity

margin rules of the Exchange.

In accordance with Exchange Rule

411, the Exchange shall impose a duty

of due diligence on its members and

member firms to determine the essential

facts relating to customers prior to their

purchasing and trading MITTS

Securities. Furthermore, consistent with

the offering of other structured

products, the Exchange will distribute a

circular to its membership prior to the

commencement of trading in MITTS

Securities to provide guidance regarding

member frim compliance

responsibilities, including appropriate

suitability criteria and/or guidelines.

The circular shall require that before a

member, member organization, or

employee of such member organization,

undertakes to recommend a transaction

in a MITT Security, such member or

member organization should make a

determination that the MITTS Security

is suitable for such customer. As part of

that determination, the person making

the recommendation should have a

reasonable basis for believing at the time

of making the recommendation, that the

customer has such knowledge and

experience in financial matters that they

may be capable of evaluating the risks

and the special characteristics of the

recommended transaction, including

those highlighted, and that the customer

is financially able to bear the risks of the

recommended transaction. Lastly, as

with other structured products, the

Exchange will closely monitor activity

in MITTS Securities to identify and

deter any potential improper trading

activity in the MITTS Securities.

2. Statutory Basis

The Exchange believes the proposed

rule change in consistent with Section

6(b) of the Act,11 in general, and furthers

the objectives of Section 6(b)(5),12 in

particular in that it is designed to

prevent fraudulent and manipulative

acts and practices, promote just and

equitable principles of trade, foster

cooperation and coordination with

persons engaged in facilitating

transactions in securities, and remove

impediments to and perfect the

mechanism of a free and open market

and a national market system.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange does not believe that

the proposed rule change will impose

any inappropriate burden on

competition.
Federal Register / Vol. 63, No. 143 / Monday, July 27, 1998 / Notices 40147

13 17 CFR 200.20–3(c)(12).

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

2Securities Exchange Act Release No. 40017 (May

20, 1998), 63 FR 29277 (May 28, 1998).

3Both the SuperMAX and Enhanced SuperMAX

programs have been approved by the Commission

on a permanent basis. See Securities Exchange Act

Release No. 32631 (July 14, 1993), 58 FR 39069

(July 21, 1993) (File No. SR–MSE–93–10) (Order

approving SuperMax on a permanent basis),

Securities Exchange Act Release No. 38338

(February 26, 1997), 62 FR 10102 (March 5, 1997)

(File No. SR–CHX–97–02) (Order approving

Exchange SuperMax on a permanent basis).

4See Securities Exchange Act Release No. 38816

(July 3, 1997), 62 FR 37325 (July 11, 1997) (File No.

SR–CHX–97–18).

5Rather than amending the existing text of the

SuperMax and Exchange SuperMax rules, the text

of the existing rule has been deleted and replaced

with new language. This was done to permit the

Exchange to re-write the rule, with non-substantive

changes, to clarify some language in the old rule

that may have been ambiguous.

6Under the proposal, small agency market orders

for SuperMax would be orders from 100 shares to

499 shares (or a greater amount chosen by the

specialist).

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

The Exchange did not solicit or

receive written comments with respects

to the proposed rule change.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within 35 days of the date of

publication of this notice in the Federal

Register or within such longer period (i)

as the Commission may designate up to

90 days of such date if it finds longer

period to be appropriate and publishes

its reasons for so finding, or (ii) as to

which the Exchange consents, the

Commission will:

(A) By order approve the proposed

rule change, or

(B) Institute proceedings to determine

whether the proposed rule change

should be disapproved.

IV. 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 submission

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, N.W.,

Washington, D.C. 20549. Copies of the

submissions, all subsequent

amendments, all written statement with

respect to the proposed rule change that

are filed with the Commission, and all

written communications relating to the

proposed rule change between the

Commission and any persons, other

than those that may be withheld from

the public in accordance with the

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

available for inspection and copying in

the Commission’s Public Reference

Section, 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 Exchange. All submissions

should refer to File No. SR–Amex–98–

24 and should be submitted by August

17, 1998.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.13

Jonathan G. Katz,

Secretary.

[FR Doc. 98–19987 Filed 7–24–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40235; File No. SR–CHX–

98–09]

Self-Regulatory Organizations; Order

Approving Proposed Rule Change by

The Chicago Stock Exchange,

Incorporated Amending the SuperMax

and Enhanced SuperMax Algorithms

July 17, 1998.

I. Background

On April 20, 1998, noticed is hereby

given that on April 20, 1998, the

Chicago Stock Exchange, Incorporated

(‘‘CHX’’ or ‘‘Exchange’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’) the proposed rule

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

the Securities Exchange Act of 1934

(‘‘Act’’).1 The proposed rule change was

published for comment in the Federal

Register.2 The Commission granted

accelerated approval to part of the

proposal, the new SuperMAX algorithm,

on a temporary basis until August 20,

1998. No comment letters were

received. For the reasons discussed

below, the Commission is approving the

proposed rule change on a permanent

basis.

II. Description of the Proposal

The Exchange proposes to amend its

SuperMax and Enhanced SuperMAX

programs, located in subsections (c) and

(e) of Rule 37 of Article XX.

Specifically, the Exchange is proposing

new algorithms to provide automated

price improvement under SuperMax

and Enhanced SuperMAX in 1⁄16th point

markets.3

In 1997, virtually every registered

national securities exchange and

national securities association changed

their minimum trading variation to one

sixteenth of a point or smaller. Although

the CHX made some technical changes

to its SuperMax and Enhanced

SuperMax programs at that time in light

of assumptions as to the smallest

minimum variation that were contained

in the text of the SuperMax and

Enhanced SuperMax rules, the CHX did

not change the algorithms to reflect the

additional price improvement

opportunities that are available because

of trading in sixteenths.4 The purpose of

the proposed rule change is to amend

the existing programs to both simplify

the price improvement algorithms and

increase the number of orders that are

eligible for price improvement due to

the smaller minimum trading variation.5

Under the new simplified algorithm

for SuperMax, small agency market

orders 6 would now be eligible for price

improvement if the market for the

security is quoted with a spread of 1⁄8 of

a point or greater (rather than the 1⁄4

point spread that is required under the

existing rule). In addition, the doubleup/double-down concept has been

eliminated. The simplified algorithm

will now provide 1⁄16th of a point price

improvement from the Intermarket

Trading System (‘‘ITS’’) best bid or offer

(‘‘BBO’’) if an execution at the ITS BBO

would be at least 1⁄8th point higher than

(for a buy order) or lower than (for a sell

order) the last primary market sale.

Basically price improvement is given

under certain circumstances when the

security is trading between the spread.

All other aspects of the existing

algorithm, including operating time,

timing of execution, applicability to

odd-lots, and out of range situations,

remain the same.

With respect to Enhanced SuperMax,

the Exchange proposes to make this

program an add-on feature for securities

for which the SuperMax program has

already been activated, rather than a

stand-alone program. As stated in the

Exchange’s Report on the operation of

the Enhanced SuperMax program that

was provided to the Commission in

advance of the Commission’s permanent

approval of Enhanced SuperMax

program, taken as a whole, the existing

SuperMax program provides more price

improvement than the existing

Enhanced SuperMax program. The

Exchange believes that interconnecting

the two programs will encourage more

specialists to enable the SuperMax

program, with greater resulting price

improvement, since the Enhanced

SuperMax program will only be

available when SuperMax is enable.