838 Federal Register / Vol. 66, No. 3 / Thursday, January 4, 2001 / Notices

6 17 CFR 240.19c–3.

7See Securities Exchange Act Release No. 42212

(December 9, 1999), 64 FR 70297 (December 16,

1999).

8 15 U.S.C. 78f(b)(5).

9 15 U.S.C. 78k–1(a)(1)(D).

10U.S.C. 78s(b)(3)(A).

11 17 CFR 240.19b–4(f)(6).

12 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3See Letter from John Dayton, Assistant Secretary

and Counsel, Phlx, to Nancy J. Sanow Assistant

Director, Division of Market Regulation

(‘‘Division’’), Commission, dated December 12,

2000 (‘‘Amendment No. 1’’). In Amendment No. 1,

the Phlx corrected technical errors in the rule text

and the language of the rule text. The Phlx also

deleted proposed Phlx Rule 803(j)(4) because the

4:00 p.m. deadline until which trust issued receipts

can trade is already addressed in current Phlx Rule

101, Supplementary Material .02. The Phlx

determined to reserve Phlx Rule 803(j)(4) for future

use.

4See Letter from John Dayton, Assistant Secretary

and Counsel, Phlx, to Nancy J. Sanow Assistant

Director, Division, Commission, dated December

15, 2000 (‘‘Amendment No. 2’’). In Amendment No.

2, the Phlx renumbered proposed Phlx Rule 133,

Supplementary Material .05 as proposed Phlx Rule

136(b). Phlx Rule 136 was created in a separate Phlx

filing and relates to trading halts in certain

exchange traded funds. See Securities Exchange Act

Release No. 43717 (December 13, 2000) (Phlx–00–

54). The Phlx also clarified certain changes to the

rule text made in Amendment No. 1.

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

According to the Exchange, the

purpose of the proposed rule change is

to amend the definition of ‘‘ITS/CAES

Market Maker’’ to eliminate the current

reference to ‘‘ITS/CAES securities.’’

Since 1982, the National Association of

Securities Dealers’ participation in the

ITS Plan had been limited to securities

subject to SEC Rule 19c–3 (‘‘ITS/CAES

Securities’’).6 On December 9, 1999, the

Commission adopted amendments to

the ITS Plan to expand the ITS/CAES

linkage to all listed securities, thus

rendering unnecessary the term ‘‘ITS/

CAES securities.’’ 7

2. Statutory Basis

The Exchange believes that the

proposed amendment to NYSE Rule

15A is consistent with section 6(b)(5) of

the Act 8 as it is designed to promote

just and equitable principles of trade.

The Exchange also believes the

amendment is consistent with section

11A(a)(1)(D) of the Act,9 which calls for

the linking of markets for qualified

securities.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange does not believe that

the proposed rule change will impose

any burden on competition.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

The Exchange has neither solicited

not received written comments on the

proposed rule change.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Because the foregoing proposed rule

change does not: (i) Significantly affect

the protection of investors or the public

interest; (ii) Impose any significant

burden on competition; and

(iii) Become operative for 30 days

from the date on which it was filed, or

such shorter time as the Commission

may designate, it has become effective

pursuant to section 19(b)(3)(A) of the

Act 10 and Rule 19b–4(f)(6)

thereunder.11 At any time within 60

days of the filing of the proposed rule

change, the Commission may summarily

abrogate such rule change if it appears

to the Commission that such action is

necessary or appropriate in the public

interest, for the protection of investors,

or otherwise in furtherance of the

purposes of the Act.

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 submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street NW.,

Washington, DC 20549–0609. Copies of

the submission, all subsequent

amendments, all written statements

with respect to the proposed rule

change that are filed with the

Commission, and all written

communications relating to the

proposed rule change between the

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

Room. Copies of such filing will also be

available for inspection and copying at

the principal office of the Exchange.

All submissions should refer to File

No. SR–NYSE–00–33 and should be

submitted by January 25, 2001.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.12

Jonathan G. Katz,

Secretary.

[FR Doc. 01–214 Filed 1–3–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43773; File No. SR–Phlx–

00–31]

Self Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change and Amendments No. 1

and No. 2 by the Philadelphia Stock

Exchange, Inc., Relating to the Listing

of Trust Issued Receipts

December 27, 2000.

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 October

18, 2000, the Philadelphia Stock

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

filed with the Securities and Exchange

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

the proposed rule change as described

in Items I and II below, which Items

have been prepared by the Exchange.

On December 13, 2000, the Phlx filed

Amendment No. 1 to the proposed rule

change.3 On December 18, 2000, the

Phlx filed Amendment No. 2 to the

proposed rule change.4 The Commission

is publishing this notice to solicit

comments on the proposed rule change

and Amendments No. 1 and No. 2 from

interested persons and to approve the

proposal and Amendments No. 1 and

No. 2 on an accelerated basis.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Phlx proposes to amend its rules

to create listing criteria and additional

trading halt criteria to allow the

Exchange to list and trade trust issued

receipts, and to trade Holding Company

Federal Register / Vol. 66, No. 3 / Thursday, January 4, 2001 / Notices 839

5 ‘‘HOLDRs’’ and ‘‘Holding Company Depositary

Receipts’’ are service marks of Merrill Lynch & Co.

Depositary Receipts (‘‘HOLDRs’’),5 a

type of trust issued receipt, pursuant to

unlisted trading privileges (‘‘UTP’’).

Below is the text of the proposed rule

change. Proposed new language is in

italics.

* * * * *

Rule 136. Trading Halts in Certain

Exchange Traded Funds

(a) Rule 1047A(c) shall apply to the

trading of Trust Shares listed pursuant

to the terms of Rule 803(i). The term

‘‘option’’ as used therein shall be

deemed for the purposes of this rule

only to include a Trust Share.

(b) Rule 1047A(c) shall apply to the

trading of Trust Issued Receipts listed

pursuant to the terms of Rule 803(j). The

term ‘‘option’’ as used therein shall be

deemed for the purposes of this rule

only to include a Trust Issued Receipt.

The term ‘‘index’’ as used therein shall

be deemed for the purposes of this rule

only to mean ‘‘basket’’.

* * * * *

Criteria for Listing—Tier I

Rule 803

(j) Trust Issued Receipts 

(1) Applicability, Rule 803(j) is

applicable only to Trust Issued Receipts.

Except to the extent inconsistent with

Rule 803(j) or unless the context

otherwise requires, the provisions of the

By-laws and all other rules and policies

of the Board of Governors shall be

applicable to the trading on the

Exchange of such securities. Trust

Issued Receipts are included within the

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

as such terms are used in the By-laws

and Rules of the Exchange. 

(2) Definitions. The following terms as

used in the Rules shall, unless the

context otherwise requires, have the

meanings herein specified:

(A) Trust Issued Receipts. The term

‘‘Trust Issued Receipt’’ means a security

(i) that is issued by a trust (‘‘Trust’’)

which holds specified securities

deposited with the Trust;

(ii) that, when aggregated in some

specified minimum number, may be

surrendered to the Trust by the

beneficial owner to receive the

securities; and 

(iii) that pays beneficial owners

dividends and other distributions on the

deposited securities, if any are declared

and paid to the trustee by an issuer of

the deposited securities.

(B) Reporting Authority. The term

‘‘Reporting Authority’’ in respect of a

particular series of Trust Issued

Receipts means the Exchange, a whollyowned subsidiary of the Exchange, an

institution (including the Trustee for

that series of Trust Issued Receipts), or

a reporting service designated by the

Exchange or its subsidiary or by the

exchange that lists a particular series of

Trust Issued Receipts (if the Exchange is

trading the particular series of Trust

Issued Receipts pursuant to unlisted

trading privileges) as the official source

for calculating and reporting

information relating to such series of

Trust Issued Receipts, including, but not

limited to, any current basket or

portfolio value; the current value of the

basket or portfolio of securities required

to be deposited to the Trust in

connection with issuance of that series

of Trust Issued Receipts; the amount of

any dividend equivalent payment or

cash distribution to holders of that

series of Trust Issued Receipts, net asset

value, or other information relating to

the creation, redemption or trading of

that series of Trust Issued Receipts.

(3) Prospectus. Members and member

organizations shall provide to all

purchasers of newly issued Trust Issued

Receipts a prospectus for the series of

Trust Issued Receipts. 

(4) Reserved. 

(5) Designation. The Exchange may

list and trade Trust Issued Receipts

based on one or more securities. The

Trust Issued Receipts based on

particular securities shall be designated

as a separate series and shall be

identified by a unique symbol. The

securities that are included in a series

of Trust Issued Receipts shall be

selected by the Exchange or its agent, a

wholly-owned subsidiary of the

Exchange, or by such other person as

shall have a proprietary interest in such

Trust Issued Receipts.

(6) Initial and Continued Listing.

Trust Issued Receipts will be listed and

traded on the Exchange subject to

application of the following criteria:

(A) Initial Listing. For each Trust, the

Exchange will establish a minimum

number of Trust Issued Receipts

required to be outstanding at the time of

commencement of trading on the

Exchange.

(B) Continued Listing. Following the

initial twelve month period after

formation of a Trust and

commencement of trading on the

Exchange, the Exchange will consider

the suspension of trading in or removal

from listing of a Trust upon which a

series of Trust Issued Receipts is based

under any of the following

circumstances:

(i) if the Trust has more than 60 days

remaining until termination and there

are fewer than 50 record and/or

beneficial holders of Trust Issued

Receipts for 30 or more consecutive

trading days;

(ii) if the Trust has fewer than 50,000

receipts issued and outstanding;

(iii) if the market value of all receipts

issued and outstanding is less than

$1,000,000; or

(iv) if such other event shall occur or

condition exists which in the opinion of

the Exchange, makes further dealings on

the Exchange inadvisable.

(C) Upon termination of a Trust, the

Exchange requires that Trust Issued

Receipts issued in connection with such

Trust be removed from Exchange listing.

A Trust may terminate in accordance

with the provisions of the Trust

prospectus, which may provide for

termination if the value of securities in

the Trust falls below a specified

amount.

(7) Term. The stated term of the Trust

shall be as stated in the Trust

prospectus. However, a Trust may be

terminated under such earlier

circumstances as may be specified in

the Trust prospectus.

(8) Trustee. The Trustee must be a

trust company or banking institution

having substantial capital and surplus

and the experience and facilities for

handling corporate trust business. In

cases where, for any reason, an

individual has been appointed as

trustee, a qualified trust company or

banking institution must be appointed

co-trustee.

(9) Voting. Voting rights shall be as set

forth in the Trust prospectus.

(10) Limitation of Liability. Neither

the Exchange, the Reporting Authority

nor any agent of the Exchange shall

have any liability for damages, claims,

losses or expenses caused by any errors,

omissions, or delays in calculating or

disseminating any current basket or

portfolio value, the current value of the

portfolio of securities required to be

deposited to the Trust; the amount of

any dividend equivalent payment or

cash distribution to holders of Trust

Issued Receipts; net asset value; or other

information relating to the creation,

redemption or trading of Trust Issued

Receipts, resulting from any negligent

act or omission by the Exchange, or the

Reporting Authority, or any agent of the

Exchange, or any act, condition or cause

beyond the reasonable control of the

Exchange or its agent, or the Reporting

Authority, including, but not limited to,

an act of God; fire; flood; extraordinary

weather conditions; war; insurrection;

riot; strike; accident; action of

government; communications or power

failure; equipment or software

malfunction; or any error, omission or

delay in the reports of transactions in

840 Federal Register / Vol. 66, No. 3 / Thursday, January 4, 2001 / Notices

6Currently-issued, HOLDRs includes Biotech,

Broadband, Business to Business, Internet, Internet

Architecture, Internet Infrastructure, Market 2000+,

Pharmaceutical, Regional Bank, Semiconductor,

Software, Telecom and Utilities HOLDRs, all of

which are listed on the American Stock Exchange

LLP (‘‘Amex’’). Within the next few weeks, the

Exchange will file an amendment to the proposed

listing standards to accommodate a change in the

HOLDRs product related to the composition of the

portfolio. The prospectus for Market 2000+

HOLDRs describes this change. Telephone

conversation between John Dayton, Assistant

Secretary and Counsel, Phlx, and Heather Traeger,

Attorney, Division, Commission, on December 21,

2000.

7See Securities Exchange Act Release No. 41892

(September 21, 1999), 64 FR 52559 (September 29,

1999) (SR–Emex–99–20).

8See Securities Exchange Act Release No. 42056

(October 22, 1999), 64 FR 58870 (November 1, 1999)

(SR–CHX–99–22).

9See Securities Exchange Act Release No. 42347

(January 13, 2000), 64 FR 4451 (January 27, 2000)

(SR–BSE–99–15).

one or more underlying securities. The

Exchange makes no warranty, express

or implied, as to results to be obtained

by any person or entity from the use of

Trust Issued Receipts or any underlying

basket or portfolio of securities or data

included therein and the Exchange

makes no express or implied warranties,

and disclaims all warranties of

merchantability or fitness for a

particular purpose with respect to Trust

Issued Receipts or any underlying

basket or portfolio of securities or data

included therein. This limitation of

liability shall be in addition to any other

limitation contained in the Exchange’s

Articles of Incorporation or By-laws or

elsewhere in the Rules.

(11) Listing Fees and Other Rules. The

Exchange may, in its discretion, waive

listing fees for any issuer of Trust Issued

Receipts listed on the Exchange

pursuant to Rule 803(j). The provisions

of Rules 847, 849, 850 and 851 do not

apply to trusts issuing Trust Issued

Receipts listed on the Exchange

pursuant to Rule 803(j), or to the

trustees or the sponsors thereof. In

addition, consideration of the

suspension of trading in or removal

from listing of any Trust Issued Receipts

pursuant to Rule 810 will be made

pursuant to the criteria set forth in

section 6(B) of this Rule 802(j) rather

than the specific criteria set forth in

subsections (1) through (5) of Rule

810(a).

* * * * *

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission, the

Exchange included statements

concerning the purpose of, and basis for,

the proposed rule change and discussed

any comments it received on the

proposed rule change. The text of these

statements may be examined at the

places specified in Item III below. The

Exchange has prepared summaries, set

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

the most significant aspects of such

statements.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

1. Purpose

The Exchange is proposing listing

criteria and additional trading half

criteria to allow the Exchange to list

trust issued receipts, and to trade

currently issued HOLDRs,6 a series of

trust issued receipts, pursuant to UTP.

The Exchange represents that trust

issued receipts provide investors with a

flexible, cost-effective way to purchase,

hold and transfer the securities of one

or more specified companies.

a. Trust Issued Receipts Generally.

Description. Trust issued receipts are

negotiable receipts which are issued by

a trust representing securities of issuers

that have been deposited and are held

on behalf of the holders of the trust

issued receipts. Trust issued receipts

allow investors to hold securities

investments from a variety of companies

throughout a particular industry in a

single, exchange-listed and traded

instrument that represents their

beneficial ownership of each of the

deposited securities. Holders of trust

issued receipts maintain beneficial

ownership of each of the deposited

securities evidence by trust issued

receipts. Holders may cancel their trust

issued receipts at any time to receive the

deposited securities.

Beneficial owners of the receipts have

the same rights, privileges and

obligations as they would have if they

beneficially owned the deposited

securities outside of the trust issued

receipt program. For example, holders

of the receipts have the right to instruct

the trustee to vote the deposited

securities evidenced by the receipts;

receive reports, proxies and other

information distributed by the issuers of

the deposited securities to their security

holders; and receive dividends and

other distributions if any are declared

and paid by the issuers of the deposited

securities to the trustee.

Creation of a Trust. Trust issued

receipts will be issued by a trust created

pursuant to a depository trust

agreement. After the initial offering, the

trust may issue additional receipts on a

continuous basis when an investor

deposits the requisite securities with the

trust. An investor in trust issued

receipts will be permitted to withdraw

his or her deposited securities upon

delivery to the trustee of one or more

round-lots of 100 trust issued receipts

and to deposit such securities to receive

trust issued receipts.

b. Criteria for Initial and Continued

Listing. The Exchange believes that the

listing criteria proposed in its new rule

are generally consistent with the ‘‘Other

Securities’’ criteria currently found Phlx

Rule 803(f) as well as the trust issued

receipt listing criteria currently used by

the Amex,7 the Chicago Stock Exchange,

Inc. (‘‘CHX’’),8 and the Boston Stock

Exchange, Inc. (‘‘BSE’’).9

Under the proposal rule, if trust

issued receipts are to be listed on the

Exchange, the Exchange will establish a

minimum number of trust issued

receipts required to be outstanding at

the time trading commences on the

Exchange and will include that number

in any required submission to the

Commission.

With respect to continued listing, the

proposed rule provides that the

Exchange will consider the suspension

of trading in, or removal from listing of,

a trust upon which a series of trust

issued receipts is based in certain

circumstances. More specifically,

following the initial twelve month

period after formation of a trust and

commencement of trading on the

Exchange, the Exchange will consider

the suspension of trading in or removal

from listing of a trust upon which a

series of trust issued receipts is based if:

(1) The trust has more than sixty days

remaining until termination and there

are fewer than fifty record and/or

beneficial holders of trust issued

receipts for thirty or more consecutive

trading days; (2) the trust has fewer than

50,000 receipts issued and outstanding;

(3) the market value of all receipts

issued and outstanding is less than

$1,000,000; or (4) such other event shall

occur or condition exists which in the

opinion of the Exchange, makes further

dealings on the Exchange inadvisable.

These criteria are designed to

eliminate less liquid products while

maintaining the flexibility to avoid

delisting trust issued receipts (leading to

a possible termination of the trust)

because of relatively brief fluctuations

in market conditions that may cause the

number of holders to vary.

The Exchange will not, however, be

required to suspend or delist from

trading, based on the proposed rule, any

trust issued receipts for a period of one

Federal Register / Vol. 66, No. 3 / Thursday, January 4, 2001 / Notices 841

10 If trust issued receipts are traded only in round

lots (or round lot multiples), the Exchange’s rules

relating to odd lot executions will not apply.

11The Exchange notes that Semiconductor

HOLDRs are participating in the Decimal Pilot

Program and therefore, if traded on the Exchange,

will trade in the appropriate minimal variation.

12The Phlx confirmed the Phlx Rule 133 should

be changed to Phlx Rule 136, and that proposed

Phlx Rule 133, Supplementary Material .05, should

be changed to proposed Phlx Rule 136(b) in

accordance with the changes made in Amendment

No. 2, supra note 4. Telephone conversation

between John Dayton, Assistant Secretary and

Counsel, Phlx , and Sapna C. Patel, attorney,

Division, Commission, December 14, 2000.

13 Id.

14See supra note 6.

15For example, an order for 50 Trust Issued

Receipts will be rejected, while an order for 1,050

Trust Issued Receipts will be executed in part

(1,000) and rejected in part (50).

16The Exchange understands that the

Commission has provided an exemption from the

short sale rule, Rule 10a–1 under the act, for

transactions in HOLDRs. See SEC Exemption Letter,

1999 WL 1038048 (S.E.C.). The Exchange will issue

a notice to its members detailing the terms of the

exemption prior to any trading in HOLDRs.

17See Amendment No. 1, supra note 3.

Amendment No. 1 indicates the Phlx Rule 101,

Supplementary Material .02 states that equities on

the Exchange’s Equity Floor trade until 4:00 p.m.

unless otherwise announced by the Exchange. The

Exchange has confirmed that it will make the

appropriate filing with the Commission should it

decide to change this time. Telephone conversation

between John Dayton, Assistance Secretary and

Counsel, Phlx, and Sapna C. Patel, Attorney,

Division, Commission, December 14, 2000.

18 15 U.S.C. 78f(b).

19 15 U.S.C. 78f(b)(5).

year after the initial listing of such trust

issued receipts for trading on the

Exchange. Notwithstanding, in the first

year and thereafter, if the number of

companies represented by the deposited

securities drops to less than nine, and

each time thereafter the number of

companies is reduced, the Exchange

will consult with the Commission to

confirm the appropriateness of

continued listing of the trust issued

receipts.

c. Exchange Rules Applicable to the

Trading of Trust Issued. Receipts. Trust

issued receipts are considered

‘‘securities’’ under the Rules of the

Exchange and are subject to all

applicable trading rules, including the

provisions of Phlx 2001A, ITS TradeThroughs and Locked Markets, which

addresses trade-throughs for ITS

securities, as well as rules governing

priority, parity and precedence of

orders, market volatility-related trading

halt provisions and responsibilities of

the assigned specialist firm.10 Exchange

equity margin rules will apply.

Trust issued receipts will trade in the

appropriate minimum variation,

pursuant to Phlx Rule 125. If the trust

issued receipts are also traded on the

Amex, those receipts will trade at a

minimum variation of 1⁄16 of $1.00 for

trust issued receipts selling at or above

$.25 and 1⁄32 of $1.00 for those selling

below $.25. If the trust issued receipts

are traded on any other exchange or are

exclusively listed on the Phlx, different

minimum variations may apply. In

addition, the Exchange notes that due to

industry-wide changes in minimum

price variations, trading in trust issued

receipts are expected to be converted

from fractions to decimals.11

The Exchange’s surveillance

procedures for trust issued receipt will

be similar to the procedures used for

Trust Shares and will incorporate and

rely upon existing Phlx surveillance

systems.

Prior to the commencement of trading

of each new trust issued receipt, the

Exchange will distribute a circular to its

members and member organizations

alerting them to the unique

characteristics of trust issued receipts,

including the fact that trust issued

receipts are not individually

redeemable. The circular will also

confirm that trust issued receipts are

subject to the Exchange’s rule relating to

trading halts in certain Exchange traded

funds (Phlx Rule 136) and other criteria

set forth in proposed Phlx Rule 136(b).12

The circular will advise members that,

in exercising the discretion described in

proposed Phlx Rule 136(b), appropriate

Exchange officials may consider a

variety of factors, including the extent to

which trading is not occurring in an

underlying security and whether other

unusual conditions or circumstances

detrimental to the maintenance of a fair

and orderly market are present.13

d. Disclosure to Customers. The

Exchange will require its members to

provide all purchasers of newly issued

trust issued receipts with a prospectus

for that series of trust issued receipts.

Exchange members will be informed of

this requirement through the

informational circular on each HOLDRs

product to be delivered prior to the

commencement of trading. The

Exchange believes that delivery of this

information will apprise investors of the

terms, characteristics, and risks of

trading trust issued receipts.

e. Trading of Currently-Issued

HOLDRs. As noted above, upon

approval of the Exchange’s listing

standards for trust issued receipts, the

Exchange intends to begin trading

various series of trust issued receipts,

specifically currently-issued HOLDRs,

pursuant to UTP.14 All currently issued

HOLDRs are listed on the Amex.

The Exchange requests approval to

trade currently-issued HOLDRs on a

UTP basis when it determines it is

advisable to do so. Currently-issued

HOLDRs will be subject to all Exchange

trading rules applicable to securities

trading on a UTP basis with the

following exceptions. Currently-issued

HOLDRs may be acquired, held or

transferred only in round-lot amounts

(or round-lot multiples) of 100 receipts.

Thus, upon implementation of the

appropriate systems feature, orders for

less than a round-lot will be rejected,

while orders for greater than a roundlot, but not a round-lot multiple, will be

executed to the extent of the largest

round-lot multiple, rejecting the

remaining odd-lot.15 In addition,

transactions in currently-issued

HOLDRs have received an exemption

from the short sale rule; therefore, they

will not be subject to that restriction on

the Exchange.16 Transactions in trust

issued receipts may be effected until

4:00 p.m.17

2. Statutory Basis

The Exchange believes that the

proposed rule change is consistent with

section 6 of the Act 18 in general, and in

particular, with section 6(b)(5),19 in that

it is designed to promote just and

equitable principle of trade, to remove

impediments to and perfect the

mechanism of a free and open market

and a national market system, and, in

general, to protect investors and the

public interest. The Exchange believes

that trading of currently-issued HOLDRs

on a UTP basis should add additional

liquidity and provide investors with

another choice of venue to conduct

trading in these products.

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.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

The Exchange did not receive any

written comments on the proposed rule

change.

III. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning the foregoing,

including whether the proposed rule

change and Amendments No. 1 and No.

2 are consistent with the Act. Persons

making written submissions should file

six copies thereof with the Secretary,

Securities and Exchange Commission,

450 Fifth Street, NW., Washington, DC

20549–0609. Copies of the submission,

842 Federal Register / Vol. 66, No. 3 / Thursday, January 4, 2001 / Notices

20 Id.

21See supra note 9 (approving listing and trading

of trust issued receipts and Internet HOLDRs on the

BSE pursuant to UTP); see supra note 8 (approving

listing and trading of trust issued receipts and

Internet HOLDRs on the CHX pursuant to UTP); and

see supra note 7 (approving listing and trading of

trust issued receipts and Internet HOLDRs on the

Amex).

22 In approving this rule, the Commission notes

that it has also considered the proposed rule’s

impact on efficiency, competition, and capital

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

23The Commission has concerns about continued

trading of the trust issued receipts whether listed

or pursuant to UTP, if the number of component

securities falls to a level below nine securities,

because the receipts may no longer adequately

reflect a cross-section of the selected industry.

Accordingly, the Phlx has agreed to consult the

Commission concerning continued trading, once

the trust has fewer than nine component securities,

and for each subsequent loss of a security thereafter.

Telephone conversion between John Dayton,

Assistant Secretary and Counsel, Phlx, and Heather

Traeger, Attorney, Division, Commission,

November 29, 2000.

24Trading rules pertaining to the availability of

odd-lot trading do not apply because trust issued

receipts only can be traded in round-lots.

25The Exchange notes, however, that due to

industry-wide changes in minimum price

variations, trading in trust issued receipts are

expected to be converted from fractions to decimals.

More specifically, the Exchange notes that

semiconductor HOLDRs are participating in the

Decimal Pilot Program and therefore, if traded on

the Exchange, will trade in the appropriate minimal

variation.

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 will also be

available for inspection and copying at

the principal office of the Exchange. All

submissions should refer to File No.

SR–Phlx–00–31 and should be

submitted by January 25, 2001.

IV. Commission’s Findings and Order

Granting Accelerated Approval of

Proposed Rule Change

A. Generally

The Commission finds that the

proposed rule change is consistent with

the requirements of section (b)(5) of the

Act 20 and the rules and regulations

thereunder applicable to a national

securities exchange. Specifically, the

Commission finds, as it did in the

Amex, the CHX, and the BSE orders

approving the listing and trading of trust

issued receipts and Internet HOLDRs,21

that the proposed establishing listing

standards for trust issued receipts and to

trade Internet HOLDRs will provide

investors with a convenient and less

expensive way of participating in the

securities market. The proposal should

advance the public interest by providing

investors with increased flexibility in

satisfying their investment needs by

allowing them to purchase and sell a

single security replicating the

performance of a broad portfolio of

stocks at negotiated prices throughout

the business day. Accordingly, the

Commission finds that the proposal will

facilitate transactions in securities,

remove impediments to and perfect the

mechanism of a free and open market

and a national market system, and, in

general, to protect investors and the

public interest, and is not designed to

permit unfair discrimination between

customers, issuers, brokers, or dealers.22

As noted in the Amex approval order,

the Commission believes that trust

issued receipts will provide investors

with an alternative to trading a broad

range of securities on an individual

basis, and will give investors the ability

to trade trust issued receipts

representing a portfolio of securities

continuously throughout the business

day in secondary market transactions at

negotiated prices. Trust issued receipts

will allow investors to: (1) Respond

quickly to changes in the overall

securities markets generally and for the

industry represented by a particular

trust; (2) trade, at a price disseminated

on a continuous basis, a single

representing a portfolio of securities that

the investor owns beneficially; (3)

engage in hedging strategies similar to

those used by institutional investors; (4)

reduce transaction costs for trading a

portfolio of securities; and (5) retain

beneficial ownership of the securities

underlying the trust issued receipts.

Although trust issued receipts are not

leveraged instruments, and, therefore,

do not possess any of the attributes of

stock index options, their prices will be

derived and based upon the securities

held in their respective trusts.

Accordingly, the level of risk involved

in the purchase or sale of trust issued

receipts is similar to the risk involved

in the purchase or sale of traditional

common stock, with the exception that

the pricing mechanism for trust issued

receipts is based on a basket of

securities.23 Nevertheless, the

Commission believes that the unique

nature of trust issued receipts raises

certain product design, disclosure,

trading, and other issues.

B. Trading of Trust Issued Receipts—

Listing and UTP

The Commission finds that the Phlx’s

proposal contains adequate rules and

procedures to govern the trading of trust

issued receipts whether by listing or

pursuant to UTP. Trust issued receipts

are equity securities that will be subject

to the full panoply of Phlx rules

governing the trading of equity

securities on the Phlx, including, among

others, rules governing the priority,

parity and precedence of orders,

responsibilities of the specialist,

account opening and customer

suitability requirements, and the

election of a stop or limit order.24

In addition, the Phlx had developed

specific listing and delisting criteria for

trust issued receipts that will help to

ensure that a minimum level of liquidity

will exist for trust issued receipts to

allow for the maintenance of fair and

orderly markets. The delisting criteria

also allows the Phlx to consider the

suspension of trading and the delisting

of a trust issued receipt if an event

occurred that made further dealings in

such securities inadvisable. This will

give the Phlx flexibility to delist trust

issued receipts if circumstances warrant

such action. The Phlx’s proposal also

provides procedures to halt trading in

trust issued receipts in certain

enumerated circumstances.

Moreover, in approving this proposal,

the Commission notes the Exchange’s

belief that trust issued receipts will not

trade at a material discount or premium

in relation to the overall value of the

trusts’ assets because of potential

arbitrage opportunities. The Exchange

represents that the potential for

arbitrage should keep the market price

of a trust issued receipt comparable to

the overall value of the deposited

securities.

Furthermore, the Commission

believes that the Exchange’s proposal to

trade trust issued receipts in minimum

fractional increments of 1⁄16 of $1.00 is

consistent with the Act.25 The

Commission believes that such trading

should enhance market liquidity, and

should promote more accurate pricing,

tighter quotations, and reduced price

fluctuations. The Commission also

believes that such trading should allow

customers to receive the best possible

execution of their transactions in trust

issued receipts.

Finally, the Phlx will apply

surveillance procedures for trust issued

receipts that will be similar to the

procedures used for Trust Shares and

will incorporate and rely upon existing

Phlx surveillance procedures governing

equities. The Commission believes that

these surveillance procedures are

adequate to address concerns associated

Federal Register / Vol. 66, No. 3 / Thursday, January 4, 2001 / Notices 843

26See supra note 6.

27See supra note 21.

28 15 U.S.C. 78s(b)(2).

29 Id.

30 17 CFR 200.30–3(a)(12).

with listing and trading trust issued

receipts, including any concerns

associated with purchasing and

redeeming round-lots of 100 receipts.

Accordingly, the Commission believes

that the rules governing the trading of

trust issued receipts provide adequate

safeguards to prevent manipulative acts

and practices and to protect investors

and the public interest.

C. Disclosure and Dissemination of

Information

The Commission believes that the

Exchange’s proposal will ensure that

investors have information that will

allow them to be adequately apprised of

the terms, characteristics, and risks of

trading trust issued receipts. The

prospectus will address the special

characteristics of a particular trust

issued receipt basket, including a

statement regarding its redeemability

and method of creation. The

Commission notes that all investors in

trust issued receipts who purchase in

the initial offering will receive a

prospectus. In addition, anyone

purchasing a trust issued receipt

directly from the trust (by delivering the

underlying securities to the trust) will

also receive a prospectus. Finally, all

Phlx member firms who purchase trust

issued receipts from the trust for resale

to customers must deliver a prospectus

to such customers.

The Commission also notes that upon

the initial listing of any trust issued

receipts, the Exchange will issue a

circular to its members explaining the

unique characteristics and risks of this

type of security. The circular also will

note the Exchange members’ prospectus

delivery requirements, and highlight the

characteristics of purchases in trust

issued receipts. The circular also will

inform members of Exchange policies

regarding trading halts in issued

receipts.

D. Accelerated Approval

The Phlx has requested that the

Commission find good cause for

approving the proposed rule change and

Amendments No. 1 and No. 2 to the

thirtieth day after the date of

publication of notice in the Federal

Register. The Commission believes that

the Exchange’s proposal to trade trust

issued receipts, and specifically the

existing series of HOLDRs 26 pursuant to

UTP privileges, will provide investors

with a convenient and less expensive

way of participating in the securities

markets. The Commission believes that

the proposed rule change should

produce added benefits to investors

through the increased competition

between other market centers trading

the product. Specifically, the

Commission believes that by increasing

the availability of trust issued receipts,

and in particular Internet HOLDRs, as

an investment tool, the Phlx’s proposal

should help provide investors with

increased flexibility in satisfying their

investment needs, by allowing them to

purchase and sell a single security

replicating the performance of a broad

portfolio of stocks at negotiated prices

throughout the business day. The

Commission notes, however, that

notwithstanding approval of the listing

standards for trust issued receipts, other

similarly structured products, including

trust issued receipts based on other

industries, will require review by the

Commission prior to being traded on the

Exchange. Additional series cannot be

listed by the Exchange prior to

contacting Division staff. In addition,

the Phlx may be required to submit a

rule filing prior to trading a new issue

or series on the Exchange.

As noted above, the Commission has

approved the listing and trading of trust

issued receipts, including various series

of HOLDRs, at the Amex, the CHX, and

the BSE, under rules that are

substantially similar to Phlx Rule 803(j).

The trading requirements of trust issued

receipts at the Phlx will be substantially

similar to the trading requirements of

trust issued receipts at the Amex, the

CHX, and the BSE. The Commission

published those rules in the Federal

Register for the full notice and comment

period. No comments were received on

the proposed rules, and the Commission

found them consistent with the Act.27

The Commission does not believe that

trading of this product raises novel

regulatory issues that were not

addressed in the previous filing.

The Commission also finds good

cause for approving Amendments No. 1

and No. 2 prior to the thirtieth day after

notice of the Amendments is published

in the Federal Register pursuant to

section 19(b)(2) of the Act.28

Amendment No. 1 makes technical

changes to the proposed rule text,

deletes proposed Phlx Rule 803(j)(4)

because the 4:00 p.m. deadline until

which trust issued receipts can trade is

already mentioned in current Phlx Rule

101, Supplementary material .02, and

indicates that the Phlx is reserving Phlx

Rule 803(j)(4) for future use.

Amendment No. 2 renumbers proposed

Phlx Rule 133, Supplementary Material

.05 as proposed Phlx Rule 136(b) to

place this proposed rule in the

appropriate section of the Phlx Rules.

Phlx Rule 136 was created in a separate

Phlx filing and relates to trading halts in

certain exchange traded funds. In

Amendment No. 2, the Phlx also

clarifies certain changes to the rule text

made in Amendment No. 1. The

Commission finds that accelerated

approval of Amendments No. 1 and No.

2 is appropriate in order to permit the

Phlx to establish accurate and orderly

rules regarding the listing and trading of

trust issued receipts.

Accordingly, the Commission finds

good cause for approving the proposed

rule change and Amendments No. 1 and

No. 2 prior to the thirtieth day after the

date of publication of notice in the

Federal Register.

It is Therefore Ordered, pursuant to

section 19(b)(2) of the Act,29 that the

proposed rule change (SR–Phlx–00–31)

and Amendments No. 1 and No. 2 are

hereby approved on an accelerated

basis.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.30

Jonathan G. Katz,

Secretary.

[FR Doc. 01–157 Filed 1–3–01; 8:45 am]

BILLING CODE 8010–01–M

DEPARTMENT OF STATE

Office of Defense Trade Controls

[Public Notice 3531]

Notifications to the Congress of

Proposed Commercial Export Licenses

AGENCY: Department of State.

ACTION: Notice.

SUMMARY: Notice is hereby given that

the Department of State has forwarded

the attached Notifications of Proposed

Export Licenses to the Congress on the

dates shown on the attachments

pursuant to sections 36(c) and 36(d) and

in compliance with section 36(e) of the

Arms Export Control Act (22 U.S.C.

2776).

EFFECTIVE DATE: As shown on each of

the nine letters.

FOR FURTHER INFORMATION CONTACT: Mr.

William J. Lowell, Director, Office of

Defense Trade Controls, Bureau of

Political-Military Affairs, Department of

State (202 663–2700).

SUPPLEMENTARY INFORMATION: Section

38(e) of the Arms Export Control Act

mandates that notifications to the

Congress pursuant to sections 36(c) and