22084 Federal Register / Vol. 60, No. 86 / Thursday, May 4, 1995 / Notices

1 In Amendment No. 1, the Exchange proposes to:

(1) clarify the name of the Real Estate Index; (2)

specify that the Real Estate Index will be initialized

at a value of 100; and (3) amend the formula for

calculating the value of the Real Estate Index. See

Letter from Claire McGrath, Managing Director and

Special Counsel, Amex, to Michael Walinskas,

Branch Chief, Office of Market Supervision

(‘‘OMS’’), Division of Market Regulation

(‘‘Division’’), Commission, dated April 4, 1995.

2The proposal incorrectly indicates that Section

107A requires a market value of not less than $20

million. Section 107A was recently amended to set

the minimum market value to $4 million. See

Securities Exchange Act Release No. 34765

(September 30, 1994), 59 FR 51220 (October 7,

1994).

3 If the Closing Index Level is lower than the level

of the Index at the time of the offering, holders will

receive at least 90% of the original issue price. The

minimum level that holders will receive at maturity

will be set at the time of the offering of the Notes.

submitting petitions that request action

with respect to specific products should

list on the first page of the petition the

following information: (1) The requested

action; (2) the HTS subheading in which

the product is classified; and, (3) if

applicable, the relevant beneficiary

developing country.

Frederick L. Montgomery,

Chairman, Trade Policy Staff Committee.

[FR Doc. 95–11051 Filed 5–3–95; 8:45 am]

BILLING CODE 3901–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–35651; File SR–Amex–95–

05]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change and

Amendment No. 1 to the Proposed

Rule Change by the American Stock

Exchange, Inc., Relating to the Listing

and Trading of Indexed Term Notes

Linked to the Real Estate Index

April 27, 1995.

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

Securities Exchange Act of 1934

(‘‘Act’’), 15 U.S.C. 78s(b)(1), notice is

hereby given that on February 16, 1995,

the American Stock Exchange, Inc.

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

Securities and Exchange Commission

(‘‘Commission’’) the proposed rule

change as described in Items I, II, and

III below, which Items have been

prepared by the Amex. On April 4,

1995, the Exchange filed Amendment

No. 1 to the proposal.1 The Commission

is publishing this notice to solicit

comments on the proposed rule change,

as amended, from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange proposes to approve for

listing and trading under Section 107A

of the Amex Company Guide (‘‘Guide’’)

intermediate-term, indexed notes

(‘‘Notes’’) whose value will be linked in

part to changes in the level of the Real

Estate Index (‘‘Index’’), a new index

designed to reflect general movements

in the underlying market for commercial

real estate. The Index is calculated by

combining the performance of two

separate equity indexes—one comprised

entirely of large, actively traded Real

Estate Investment Trusts (‘‘REIT50

Index’’), and the other being the Russell

2000 Index, a broad-based index

comprised of small capitalization stocks

(‘‘Russell 2000’’). The text of the

proposed rule change is available at the

Office of the Secretary, the Amex, and

at the Commission.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and the

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

Amex has prepared summaries, set forth

in sections (A), (B), and (C) below, of the

most significant aspects of such

statements.

(A) Self-Regulatory Organization’s

Statement of the Purpose of, and the

Statutory Basis for, the Proposed Rule

Change

Under Section 107 (Other Securities)

of the 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, and

warrants. The Amex now proposes to

list for trading under Section 107A of

the Guide, intermediate-term, indexed

notes, the value of which can be

expected to fluctuate based on changes

in the level of an index designed to

reflect general movements in the

underlying market for commercial real

estate by combining the performance of

two separate equity indexes—one

comprised entirely of large, actively

trade real estate investment trusts

(‘‘REITS’’), i.e., the REIT50 Index, and

the other a broad-based index of small

capitalization stocks, i.e., the Russell

2000.

Background

According to the Exchange, by some

estimates over half of the wealth in the

United States and as much as one-fourth

of total corporate value are in the form

of real estate. In addition, the Exchange

represents that studies of asset

allocation demonstrate clear

diversification benefits from allocating a

portion of an investment portfolio to

real estate as a separate asset class.

Traditional investment in a diversified

portfolio of commercial real estate,

however, is not possible for most

investors, in the Exchange’s opinion,

because of high transaction costs,

market illiquidity, and the extremely

large investment required to purchase a

pool of properties diversified across

different property types and geographic

regions.

The Exchange further represents that

research has demonstrated that the

performance associated with an index of

REITs may be attributed partly to

movements in the underlying real estate

market and partly to the small

capitalization nature of REIT securities.

Therefore, by subtracting a portion of

the returns associated with a broadbased small capitalization stock index

from the returns generated by an index

of REITs, the Exchange believes that an

index can be generated that more

closely reflects the performance of the

underlying real estate market. The

Exchange states that the proposed Notes

are intended to use this method to

provide an exchange-listed alternative

for investors who wish to gain exposure

to general movements in the real estate

sector or whose portfolios are heavily

weighted in real estate and wish to shed

some of that exposure.

Note Structure

The proposed Notes will conform to

the listing guidelines under Section

107A of the Guide which provide, in

part, that such issues have: (1) a public

distribution of at least one million

trading units; (2) a minimum of 400

holders; and (3) a market value of not

less than $4 million.2 The Notes will

have a term of two to five years and may

provide for periodic payments to

holders. Upon maturity, holders will

receive not less than 90% of the original

issue price plus an amount in U.S.

dollars equal to a participation rate (i.e.,

a specified percentage) multiplied by

the increase, if any, in the level of the

Index at the time of the offering and the

average of the closing Index level on the

first ten days of the last twenty days

preceding maturity (‘‘Closing Index

Level’’).3

The Notes may not be redeemed prior

to maturity and holders of the Notes

have no claim to the securities

underlying the Index. Thus, holders will

be able to liquidate their investment
Federal Register / Vol. 60, No. 86 / Thursday, May 4, 1995 / Notices 22085

4The Commission notes that the Amex will be

required to submit a draft of the circular to the

Commission staff for approval prior to distribution

to members.

5See Discussion of the REIT50 Index, infra.

6See Discussion of the Russell 200 Index, infra.

7Telephone conversation between Claire

McGrath, Managing Director and Special Counsel,

Amex, and Brad Ritter, Senior Counsel, OMS,

Division, Commission, on April 5, 1995.

8 Id.

9 Id.

prior to maturity only by selling the

Notes in the secondary market. The

Exchange anticipates that the trading

value of the Notes in the secondary

market will depend in large part on the

value of the securities comprising the

Index and such other factors as the level

of interest rates, the volatility of the

value of the Index, the time remaining

to maturity, dividend rates, and the

credit of the issuer.

The Notes will be subject to the equity

margin rules of the Exchange. The

Exchange will also distribute a circular

to its membership prior to trading the

Notes providing guidance with regard to

member firm compliance

responsibilities (including suitability

recommendations) when handling

transactions in the notes and

highlighting the special risks and

characteristics of the Notes.4

The Index

The Notes will be linked to the Real

Estate Index, a new index designed to

reflect general movements in the

underlying market for commercial real

estate. The Index is calculated as a

combination of the performance of two

separate equity indexes: the REIT50

Index, which is a total return index

comprised of 50 large, actively traded

REITS; 5 and the Russell 2000 Index,

which is a well-established

capitalization-weighted broad-based

index designed to track the performance

of the small capitalization segment of

the stock market.6

The Exchange represents that the

method for calculating the value of the

Index was developed based upon

research that has demonstrated that the

performance associated with an index of

REITs may be attributed partly to

movements in the underlying real estate

market, and partly to the small

capitalization nature of REIT stocks.

Therefore, by subtracting a portion of

the returns associated with a broadbased small capitalization stock index

(such as the Russell 2000) from the

returns generated by an index of REITs,

the Exchange believes that an index can

be generated that more closely reflects

the performance of the underlying real

estate market. Based on historical

research and for purposes of simplicity,

the Exchange has determined that the

portion of small capitalization stock

returns to be subtracted from the returns

of the REIT50 Index will be set at a fixed

level of 50% of the value of the Russell

2000.

The Index will initially be set at a

level of 100 as of the market close on the

day prior to the start of trading of the

Notes. At any point in time, the Index

value is calculated by multiplying the

initial Index level (i.e., 100) by a factor

determined as follows: First, the

percentage change in the REIT50 Index

from the market close on the day prior

to the start of trading of the Notes is

determined. Next, the percentage

change of the Russell 2000 from the

market close on the day prior to the start

of trading of the Notes is determined.

One half of the calculated percent

change in the Russell 2000 is then

subtracted from the calculated percent

change in the REIG50 Index. This

differential is added to the number one

to yield the factor by which the initial

Index level is multiplied to determine

the current Index level. The following

formula summarizes this calculation:

I RE

RE

R

R t init

init

init

init

= ∗ − − ∗  −



 















 100 50

50

50% 2000

2000

 1 + (RE50 t t ) ) (R2000

Where:

RE50=REIT50 Index.

R2000=Russell 2000 Index.

Init=Indicates the level of the

designated index as of the market

close on the day prior to the start

of trading of the Notes.

t=Indicates the current level of the

designated index.

The Index will be calculated

continuously based on the most recently

reported values of the REIT50 Index and

the Russell 2000 and disseminated

every 15 seconds over the Consolidated

Tape Association Network B.

Russell 2000 Index

The Russell 2000 is a well established

benchmark index of the smallcapitalization segment of the U.S. equity

market. Options on the Russell 2000

trade at the Chicago Board Options

Exchange and futures trade at the

Chicago Mercantile Exchange. The

Russell 2000 is capitalization-weighted,

and values are disseminated every 15

seconds to market vendors through the

Option Price Reporting Authority. The

value of the Russell 2000 does not

reflect reinvestment of dividends paid

on component stocks in the Index.

REIT50 Index

The REIT50 Index is a new

capitalization-weighted index and, as

discussed below, is a total return index.

The Exchange represents that the

REIT50 Index conforms with Exchange

Rule 901C, which specifies criteria for

inclusion of stocks in an index on

which standardized options will be

traded. The REIT50 Index is composed

of the 50 largest publicly-traded equity

REITs, as measured by market

capitalization. The REIT50 Index will be

maintained so that at each quarterly

review, as discussed below, over the

prior six-month period, the components

of the Index will have had an average

monthly trading volume of at least

400,000 shares with share prices greater

than or equal to $5 for the majority of

business days during the preceding

three calendar months.7 The REIT50

Index also does not and will not include

health care REITs or REITs that invest

primarily in real estate mortgages or

debt securities.8 The REIT50 Index also

will exclude real estate operating

companies and partnerships.9

The Exchange will review the

component securities on a quarterly

basis to ensure that the REIT50 Index

continues to represent only the largest

and most actively traded REITs. After

the close of trading on the last business

day of December, March, June, and

September, all eligible REITs will be

ranked by descending market

capitalization, and the 50 largest,

subject to the maintenance criteria

discussed above, will comprise the

REIT50 Index until the next quarterly

review. Only REITs that have been

trading for at least three calendar

months will be considered for inclusion

in the REIT50 Index. Resulting

composition changes will be made after

the close of trading on the third Friday

of January, April, July, and October. The

divisor of the REIT50 Index will be

adjusted as necessary to ensure that

there is no discontinuity in the value of
22086 Federal Register / Vol. 60, No. 86 / Thursday, May 4, 1995 / Notices

10 17 CFR 200.30–3(a)(12) (1994).

1Securities Exchange Act Release No. 27975 (May

1, 1990), 55 FR 19124.

2With the Commission’s approval of File No. SR–

NASD–93–24, the universe of securities eligible for

quotation in the OTCBB now includes certain

equities listed on regional stock exchanges that do

not qualify for dissemination of transaction reports

via the facilities of the Consolidated Tape

Association.

the REIT50 Index as a result of these

replacements.

The number of component stocks in

the REIT50 Index will remain fixed

between quarterly reviews. In the event

that one or more component securities

must be removed due to merger,

takeover, bankruptcy, or other

circumstances, the REIT next on the list

from the most recent quarterly review,

subject to the maintenance criteria

discussed above, will be selected to

replace that security in the REIT50

Index. In such case, the divisor will be

adjusted as necessary to ensure that

there is no discontinuity in the value of

the REIT50 Index.

The REIT50 Index is a total return

index in that the regular cash dividends

of its component securities are included

in calculating the value of the REIT50

Index. Therefore, at the close of trading

each day, the prices of component

securities that will trade ‘‘ex-dividend’’

the next day will be adjusted

(downward) by the value of the

dividend to reflect the price impact on

the stock as it trades without (or ‘‘ex’’)

the dividend on the following day. The

divisor is then adjusted to ensure

continuity of the Index value. The

REIT50 Index value will be calculated

and disseminated every 15 seconds over

the Consolidated Tape Association’s

Network B under a separate ticker

symbol so that the two component

indexes that comprise the Index (i.e., the

REIT50 and the Russell 2000 Indexes)

may be monitored separately, and the

Index value calculated independently.

Because the Notes are linked to an

index of equity securities, the

Exchange’s equity floor trading rules

will apply to the trading of the Notes.

In addition, members and member firms

will have an obligation pursuant to

Exchange Rule 411 to learn the essential

facts relating to every customer prior to

trading the Notes. The Exchange also

will require, pursuant to Exchange Rule

411, that a member or member firm

specifically approve a customer’s

account for trading the Notes prior to, or

promptly after, the completion of the

transaction.

The Exchange believes that the

proposed rule change is consistent with

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

furthers the objectives of Section 6(b)(5)

in particular, in that it is designed to

prevent fraudulent and manipulative

acts and practices, to promote just and

equitable principles of trade, to foster

cooperation and coordination with

persons engaged in facilitating

transactions in securities, and to 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 Amex does not believe that the

proposed rule change will impose any

inappropriate burden on competition.

(C) Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

No written comments were solicited

or received with respect 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 such

longer period to be appropriate and

publishes its reasons for so finding or

(ii) as to which the self-regulatory

organization consents, the Commission

will:

(A) By order approve such 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.

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 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 in

the Commission’s Public Reference

Section, 450 Fifth Street, N.W.,

Washington, D.C. 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–95–05 and should be

submitted by May 25, 1995.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.10

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–10969 Filed 5–3–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35652; File No. SR–NASD–

95–14]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change by the National

Association of Securities Dealers, Inc.,

Relating to an Interim Extension of the

OTC Bulletin Board Service Through

June 28, 1995

April 27, 1995.

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

Securities Exchange Act of 1934

(‘‘Act’’), 15 U.S.C. 78s(b)(1), notice is

hereby given that on April 26, 1995 the

National Association of Securities

Dealers, Inc. (‘‘NASD’’ or ‘‘Association’’)

filed with the Securities and Exchange

Commission (‘‘Commission’’ or ‘‘SEC’’)

the proposed rule change as described

in Items I, II, and III below, which Items

have been prepared by the NASD. The

Commission is publishing this notice to

solicit comments on the proposed rule

change from interested persons and is

simultaneously approving the proposal.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

On June 1, 1990, the NASD, through

a subsidiary corporation, initiated

operation of the OTC Bulletin Board

Service (‘‘OTCBB Service’’ or ‘‘Service’’)

in accord with the Commission’s

approval of File No. SR–NASD–88–19,

as amended.1 The OTCBB Service

provides a real-time quotation medium

that NASD member firms can elect to

use to enter, update, and retrieve

quotation information (including

unpriced indications of interest) for

securities traded over-the-counter that

are not listed on The Nasdaq Stock

MarketSM nor on a registered national

securities exchange (collectively

referred to as ‘‘OTC Equities’’).2

Essentially, the Service supports NASD

members’ market making in OTC

Equities through authorized Nasdaq

Workstation units. Real-time access to

quotation information captured in the

Service is available to subscribers of