Federal Register / Vol. 60, No. 54 / Tuesday, March 21, 1995 / Notices 14993

1The Phlx will notify the Commission if an issue

of ELNs is structured so that it is convertible prior

to maturity and will submit a rule filing pursuant

to Section 19(b) of the Act prior to listing ELNs with

such terms if the Commission so requires.

2The Phlx will notify the Commission if an issue

of ELNs provides for periodic interest payments to

holders based on a floating rate and will submit a

rule filing pursuant to Section 19(b) of the Act prior

to listing ELNs with such terms if the Commission

so requires.

3 In this connection, the Commission notes that

any proposal to list an ELN linked to a security with

a market capitalization of less than $500 million

would raise significant regulatory concerns for

which a Section 19(b) rule filing would be required.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–6937 Filed 3–20–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35479; File No. SR–Phlx–

95–09]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

Philadelphia Stock Exchange, Inc.

Relating to Listing Criteria for Equity

Linked Notes (‘‘ELNs’’)

March 13, 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 March 8, 1995, the

Philadelphia Stock Exchange, Inc.

(‘‘Phlx’’ 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 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 Phlx proposes to amend

Exchange Rule 803 to adopt listing

standards for equity linked notes

(‘‘ELNs’’). The text of the proposed rule

change is available at the Office of the

Secretary, the Phlx, 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

Phlx included statements concerning

the purpose of and basis for 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 Section (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

The purpose of the proposed rule

change is to add subsection (h) to

Exchange Rule 803 to permit the

Exchange to list and trade ELNs. ELNs

are intermediate-term, hybrid securities,

whose value is based in whole or in

part, to the performance of a highly

capitalized, actively traded U.S.

common stock, non-convertible

preferred stock, or foreign security that

is traded in the U.S. in the form of

sponsored American Depositary

Receipts (‘‘ADRs’’), ordinary shares, or

otherwise.1 ELNs may pay periodic

interest or may be issued as zero-coupon

instruments with no payments to

holders prior to maturity. ELNs may be

subject to a ‘‘cap’’ on the maximum

principal amount to be repaid to holders

upon maturity, and they may feature a

‘‘floor’’ on the minimum principal

amount paid to holders upon maturity.

A specific issue of ELNs, for example,

may provide holders with a fixed semiannual interest payment, while capping

the maximum amount to be repaid upon

maturity at 135% of the issuance price,

with no minimum floor guarantee on

the principal to be repaid at maturity.

Another issue of ELNs might offer lower

semi-annual payments based upon a

floating interest rate 2 with a minimum

floor for the repayment of principal of

75% of the issuance price. ELNs will be

treated as equity instruments for, among

other purposes, margin requirements.

According to the Phlx, the flexibility

available to an issuer of ELNs permits

the creation of securities which offer

issuers and investors the opportunity to

more precisely focus on a specific

investment strategy.

There are four components to the

proposed listing standards for ELNs: (1)

ELN issuer standards; (2) ELN offering

standards; (3) underlying linked

security standards; and (4) limitations

on the size of ELN offerings.

1. Issuer Listing Standards

The issuer must be listed on or be an

affiliate of a company listed on a

national securities exchange or the

Nasdaq National Market. Each issuer

must also have a minimum tangible net

worth of $150 million. Finally, the

market value of an ELN offering, when

combined with the market value of all

other ELN offerings previously

completed by the issuer and traded on

a national securities exchange or

through Nasdaq may not be grater than

25% of the issuer’s tangible net worth

at the time of issuance.

2. Offering Standards

In order to ensure adequate liquidity

in the markets for ELNs, each issuance

of an ELN must have: (1) A minimum

public distribution of one million ELNs;

(2) a minimum of 400 holders of the

ELNs, unless the ELNs are traded in

$1,000 denominations, in which case

thee is no minimum number of holders

required; (3) a minimum market value of

$4 million; and (4) a term to maturity of

two to seven years (although ELNs

linked to a non-U.S. security (including

a sponsored ADR) can not have a term

longer than three years).

3. Underlying Linked Security

Standards

In order to help ensure that ELNs will

not have a disruptive effect on the

market for the underlying securities, the

linked securities must have sufficiently

large market capitalizations and high

trading volumes. Specifically, an

underlying security must have: (1) A

minimum market capitalization of $3

billion and trading volume in the

United States of at least 2.5 million

shares in the 12-month period preceding

the listing of the ELN; (2) a minimum

market capitalization of $1.5 billion and

trading volume in the United States of

at least 20 million shares in the 12-

month period preceding the listing of

the ELN; or (3) a minimum market

capitalization of $500 million and

trading volume in the United States of

at least 80 million shares in the 12-

month period preceding the listing of

the ELN. In addition, if an issuer

proposes to issue ELNs on a security

that does not meet the market

capitalization and trading volume

standards set forth above, the Phlx, with

the concurrence of the staff of the

Commission, may evaluate the trading

volume, public float, and market

capitalization of that security, as well as

other relevant factors, and determine on

a case-by-case basis that it is appropriate

to list ELNs overlying that security. The

Phlx will submit a rule filing pursuant

to Section 19(b) of the Act if so required

by the Commission if significant

regulatory concerns are raised by a

proposed ELN offering that does not

meet the above market capitalization

and trading volume standards.3

The issuer of the linked security must

be a reporting company under the Act

and the underlying linked security must

be traded on a national securities

exchange or through Nasdaq and be
14994 Federal Register / Vol. 60, No. 54 / Tuesday, March 21, 1995 / Notices

4A non-U.S. company is any company formed or

incorporated outside of the United States.

5 ISG was formed on July 14, 1983 to, among

other things, coordinate more effectively

surveillance and investigative information sharing

arrangements in the stock and options markets. See

Intermarket Surveillance Group Agreement, July 14,

1983. The most recent amendment to the ISG

Agreement, which incorporates the original

agreement and all amendments made thereafter,

was signed by ISG members on January 29, 1990.

See Second Amendment to the Intermarket

Surveillance Group Agreement, January 29, 1990.

The members of the ISG, (and accordingly, of the

U.S. market) are: the American Stock Exchange, Inc.

(‘‘Amex’’); the Boston Stock Exchange, Inc.; the

Chicago Board Options Exchange, Inc. (‘‘CBOE’’);

the Chicago Stock Exchange, Inc.; the Cincinnati

Stock Exchange, Inc.; the National Association of

Securities Dealers, Inc. (‘‘NASD’’), the New York

Stock Exchange, Inc. (‘‘NYSE’’); the Pacific Stock

Exchange, Inc.; and the Philadelphia Stock

Exchange, Inc. Because of potential opportunities

for trading abuses involving stock index futures,

stock options and the underlying stock and the

need for greater sharing of surveillance information

for these potential intermarket trading abuses, the

major stock index futures exchanges (e.g., the

Chicago Mercantile Exchange and the Chicago

Board of Trade) joined the ISG as affiliate members

in 1990.

6 ITS is a communications system designed to

facilitate trading among competing markets by

providing each market with order routing

capabilities based on current quotation information.

The system links the participant markets and

provides facilities and procedures for: (1) the

display of composite quotation information at each

participant market, so that brokers are able to

determine readily the best bid and offer available

from any participant for multiply trading securities;

(2) efficient routing of orders and sending

administrative messages (on the functioning of the

system) to all participating markets; (3)

participation, under certain conditions, by members

of all participating markets in opening transactions

in those markets; and (4) routing orders from a

participating market to a participating market with

a better price.

7As with the market capitalization and trading

volume requirements, the Commission notes that

based on the proposed facts, the Phlx may be

required to submit a rule filing to the Commission

pursuant to Section 19(b) of the Act to address

regulatory issues raised by any Phlx proposal to list

ELNs related to more than the allowable

percentages of outstanding shares of the underlying

security.

8The Commission notes that the circular must be

in a form approved by the Commission.

9 15 U.S.C. 78f(b)(5) (1988).

subject to last sale reporting pursuant to

Rule 11Aa3–1 under the Act.

Additionally, ELNs can be linked to

certain non-U.S. companies 4 subject to

reporting requirements under the Act

whose securities are traded in the U.S.

either as ordinary shares or sponsored

ADRs, provided there are at least 2,000

holders of the underlying linked

security. For ELNs linked to non-U.S.

securities (including sponsored ADRs)

either: (1) The Exchange must also have

in place a comprehensive surveillance

agreement with the primary exchange in

the home country where the security

underlying the ELN is primarily traded

(or in the case of sponsored ADRs, on

the primary exchange where the

security underlying the ADR is traded);

or (2) the combined trading volume of

the underlying security and other

related securities occurring in the U.S.

market represents (on a share equivalent

basis) at least 50% of the combined

worldwide trading volume in the

underlying security, other related

securities, and other classes of common

stock related to the underlying security

over the six month period preceding the

date of listing of the ELN. The U.S.

market includes trading only on the U.S.

self-regulatory organizations included in

the Intermarket Surveillance Group 5

and linked through the Intermarket

Trading System.6

4. Limitations of Size of Particular ELN

Offerings

Without the concurrence of the staff

of the Commission, the issuance of

ELNs relating to any underlying U.S.

security may not exceed five percent of

the total outstanding shares of such

underlying security. Further, without

the concurrence of the staff of the

Commission, the issuance of ELNs

relating to any non-U.S. security

(including sponsored ADRs) that is

traded in the U.S. and is issued by a

non-U.S. company subject to U.S.

reporting requirements may not exceed:

(1) 2% of the total shares outstanding

worldwide provided at least 30% of the

worldwide trading volume in the

underlying security occurs in the U.S.

market during the six month period

preceding the date of listing of the ELN;

(2) 3% of the total shares outstanding

worldwide provided at least 50% of the

worldwide trading volume in the

underlying security occurs in the U.S.

market during the six month period

preceding the date of listing of the ELN;

or (3) 5% of the total shares outstanding

worldwide provided at least 70% of the

worldwide trading volume in the

underlying security occurs in the U.S.

market during the six month period

preceding the date of listing of the ELN.

An ELN may not be linked to a non-U.S.

security (including a sponsored ADR)

where such security and all related

securities had less than 30% of the

worldwide trading volume occur in the

U.S. during the six month period

preceding the date of listing of the ELN.

The Exchange may determine, on a caseby-case basis and with the concurrence

of the staff of the Commission, to

approve for listing ELNs that relate to

more than these allowable percentages.7

Finally, because ELNs are linked to

price movements in another security,

the Exchange proposes three additional

safeguards that are designed to satisfy

the investor protection concerns raised

by the trading of ELNs. First, for each

ELN issue, the Exchange will distribute

a circular to its membership 8 providing

guidance concerning member firm

compliance responsibilities (including

suitability recommendations and

account approval) when handling

transactions in ELNs. Second, members

will have a duty of due diligence

pursuant to Exchange Rule 746 to learn

the essential facts relating to every

customer trading ELNs prior to their

first ELN transaction. Third, pursuant to

Exchange Rule 747, a member must

approve a customer’s account for

trading ELNs prior to the completion of

the customer’s first ELN transaction.

The Phlx represents 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) 9 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 regulating, clearing,

settling, processing information with

respect to, and facilitating transactions

in securities, 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.

Specifically, the Phlx believes the

proposal strikes an appropriate balance

between the Phlx’s need to adapt and

respond to innovations in the securities

markets and the Phlx’s concomitant

need to ensure the protection of

investors and the maintenance of fair

and orderly markets. The Phlx believes

the proposed numerical, quantitative

listing standards should ensure that

only substantial companies capable of

meeting their contingent obligations

created by ELNs are able to list such

products on the Exchange. Similarly, by

providing for the distribution of

circulars to the membership concerning

member firm compliance

responsibilities and requirements, the

Phlx believes the proposal addresses

any potential sales practice concerns

that may arise in connection with ELNs.

The Phlx also believes that the trading

of ELNs will provide investors with

important investment and hedging

benefits that will serve to satisfy better

their investment and portfolio

management needs.

(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.
Federal Register / Vol. 60, No. 54 / Tuesday, March 21, 1995 / Notices 14995

10See Securities Exchange Act Release Nos.

33468 (January 13, 1994), 59 FR 3387 (January 21,

1994) (order originally approving the listing of

ELNs on the NYSE); 33841 (March 31, 1994), 59 FR

16671 (April 7, 1994) (order approving revised

market capitalization and trading volume

requirements for the listing of ELNs on the NYSE);

34545 (August 18, 1994), 59 FR 43877 (August 25,

1994) (order approving the listing of ELNs on the

NYSE linked to securities issued by non-U.S.

companies).

11See Secruities Exchange Act Release Nos. 32343

(May 20, 1993), 58 FR 30833 (May 27, 1993) (order

originally approving the listing of ELNs on the

Amex); 33328 (December 13, 1993), 58 FR 66041

(December 17, 1993) (order approving revised

market capitalization and trading volume

requirements for the listing of ELNs on the Amex);

34549 (August 18, 1994), 59 FR 43873 (August 25,

1994) (order approving the listing of ELNs on the

Amex linked to securities issued by non-U.S.

companies).

12See Securities Exchange Act Release No. 34759

(September 30, 1994), 59 FR 50939 (October 6,

1994).

13See Securities Exchange Act Release No. 34758

(September 30, 1994), 59 FR 50943 (October 6,

1994).

14The Commission notes that prior to listing any

ELNs, the Exchange will be required to obtain

approval from the staff of the Commission

concerning the Exchange’s surveillance procedures

applicable to the trading ELNs. 15 17 CFR 200.30–3 (a)(12) (1994).

(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

Because the foregoing proposed rule

change: (1) Does not significantly affect

the protection of investors or the public

interest; (2) does not impose any

significant burden on competition; and

(3) does not become operative for 30

days from February 22, 1995, it has

become effective pursuant to Section

19(b) (3) (A) of the Act and Rule 19b–

4 (e) (6) thereunder. The proposed ELN

listing standards are virtually identical

to the listing standards for equity linked

notes previously approved by the

Commission for NYSE,10 the Amex,11

the CBOE,12 and the NASD.13

Accordingly, because the Commission

has already approved similar rules for

other exchanges, the Phlx believes that

summary effectiveness of the proposed

rule change will not significantly affect

the protection of investors or the public

interest and will not impose any

significant burden on competition.14 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.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street NW.,

Washington, D.C. 20549. Copies of the

submission, all subsequent

amendments, all written statements

with respect to the proposed rule

change that are filed with the

Commission, and all written

communications relating to the

proposed rule change between the

Commission and any person, other than

those that may be withheld from the

public in accordance with the

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

available for inspection and copying at

the Commission’s Public Reference

Section, 450 Fifth Street NW.,

Washington, D.C. 20549. Copies of such

filing will also be available for

inspection and copying at the principal

office of the Phlx. All submissions

should refer to File No. SR–Phlx–95–09

and should be submitted by April 11,

1995.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.15

Johathan G. Katz,

Secretary.

[FR Doc. 95–6842 Filed 3–20–95; 8:45 am]

BILLING CODE 8010–01–M

Issuer Delisting; Notice of Application

to Withdraw From Listing and

Registration; (Conversion Industries,

Inc., Common Stock, No Par Value) File

No. 1–10249

March 15, 1995

Conversion Industries, Inc.

(‘‘Company’’) has filed an application

with the Securities and Exchange

Commission (‘‘Commission’’), pursuant

to Section 12(d) of the Securities

Exchange Act of 1934 (‘‘Act’’) and Rule

12d2–2(d) promulgated thereunder, to

withdraw the above specified security

(‘‘Security’’) from listing and

registration on the American Stock

Exchange, Inc. (‘‘Amex’’ or

‘‘Exchange’’).

The reasons alleged in the application

for withdrawing the Security from

listing and registration include the

following:

According to the Company, the

Company received a letter dated

October 11, 1994, from the Exchange

stating that it was considering delisting

the Security because it believed that the

Company had violated the Exchange’s

listing agreement and disclosure

policies. The Company responded to the

letter in writing to the Exchange dated

November 3, 1994. In addition, the

Company attended on November 3,

1994, a conference at the Exchange in

which it made an extensive oral

submission for the Exchange’s

consideration. Thereafter, the Company

submitted voluminous documents in

response to requests by the Exchange.

According to the Company, on

November 23, 1994, the Company

received a letter from the Exchange

stating that the Exchange had made a

determination to delist the Security.

Although the Company initially

elected to appeal the Exchange’s

decision to delist the Security to the

Exchange’s Board of Governors, the

Company has decided to settle matters

by removing the Security from the

Exchange. The Company believes that

due to the impasses between the

Exchange and the Company and the

anticipated large expenditures of money

and management time which would be

required before a final resolution of the

matters at issue could be obtained, it is

in the best interest of the Company and

its shareholders that matters be settled

by delisting the Security from the

Exchange.

The Exchange has also agreed that it

would be in the best interest of the

Exchange and the investing public to

resolve this issue between the Company

and the Exchange in this manner.

Any interested person may, on or

before April 6, 1995, submit by letter to

the Secretary of the Securities and

Exchange Commission, 450 Fifth Street

NW., Washington, D.C. 20549, facts

bearing upon whether the application

has been made in accordance with the

rules of the exchanges and what terms,

if any, should be imposed by the

Commission for the protection of

investors. The Commission, based on

the information submitted to it, will

issue an order granting the application

after the date mentioned above, unless

the Commission determines to order a

hearing on the matter.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.

Jonathan G. Katz,

Secretary.

[FR Doc. 95–6941 Filed 3–20–95; 8:45 am]

BILLING CODE 8010–01–M