[Federal Register Volume 61, Number 104 (Wednesday, May 29, 1996)]
[Notices]
[Pages 26940-26942]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13388]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37228; International Series Release No. 981; File No. 
SR-CHX-96-14]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change, by the Chicago Stock Exchange, Inc., Relating to Trading of 
Particular Investment Company Units

May 20, 1996.
    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 23, 
1996, the Chicago Stock Exchange, Inc. (``CHX'' or

[[Page 26941]]

``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' of ``SEC'') the proposed rule change, as described in 
Items I, II, and III below, which Items have been prepared by the self-
regulatory organization. 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 proposes to amend Article XXVIII of the CHS's Rules 
governing the listing requirements of securities on the CHX.

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 self-regulatory organization 
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 self-regulatory organization 
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
    In SR-CHX-96-12, the Exchange requested approval of proposed rule 
changes allowing listing and/or trading of units representing an 
interest in a registered investment company (``Units'').\1\ In that 
rule filing, the Exchange also stated its intent to trade CountryBasket 
securities, pursuant to a request for unlisted trading privileges. 
CountryBasket securities are Units designed to track the performance of 
specific foreign indices, more fully described in SR-CHX-96-12 and SR-
NYSE-95-23.\2\
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    \1\ See Securities Exchange Act Release No. 37121 (April 17, 
1996), 61 FR 17932 (notice of File No. SR-CHX-96-12).
    \2\ Id. See also Securities Exchange Act Release No. 36923 
(March 5, 1996), 61 FR 10410 (order approving File No. SR-NYSE-95-
23).
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    The American Stock Exchange (``Amex''), in SR-Amex-95-43, requested 
and received approval of rules allowing listing and/or trading of 
Units.\3\ The Amex also requested specific approval for the listing and 
trading of World Equity Benchmark Securities (``WEBS''), securities 
similar to CountryBaskets.
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    \3\ See Securities Exchange Act Release No. 36947 (March 14, 
1996), 61 FR 10606 (order approving File No. SR-AMEX-95-43 as 
amended).
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    The CHX is proposing to adopt listing standards to permit its 
members to trade WEBS pursuant to unlisted trading privileges 
(``UTP''). If at a later time CHX desires to list WEBS, rather than 
only trade the Amex-approved WEBS pursuant to UTP, the Exchange will 
request SEC approval for that listing in a separate proposed rule 
change filed pursuant to Section 19(b) of the Act.

WEBS

    The remainder of this filing discusses the structure of WEBS, the 
details of which are taken from SR-Amex-95-43 and its Amendments Nos. 
1, 2, and 3. The information provided here is significantly condensed 
from the Amex's filing. CHX notes that the Amex has represented that 
customers who purchase WEBS will receive a detailed prospectus from the 
issuer.

Structure of WEBS

    WEBS are issued by Foreign Fund, Inc., and based on seventeen 
Morgan Stanley Capital International (``MSCI'') Indices (each 
individually an ``MSCI Index'' or ``Index'' and collectively ``MSCI 
Indices'' or ``Indices''). The countries whose markets are represented 
by those indices are: Australia, Austria, Belgium, Canada, France, 
Germany, Hong Kong, Italy, Japan, Malaysia, Mexico, Netherlands, 
Singapore, Spain, Sweden, Switzerland, and the United Kingdom.
    The investment objective of each WEBS series is to seek to provide 
investment results that correspond generally to the price and yield 
performance of public securities traded in the aggregate in particular 
foreign markets, as represented by specific MSCI Indices. Each WEBS 
series will use a ``passive'' or indexing investment approach which 
attempts to approximate the investment performance of its benchmark 
index through quantitative analytical procedures.
    A WEBS series normally will invest at least 95% of its total assets 
in stocks that are represented in the relevant MSCI Index and will at 
all times invest at least 90% of its total assets in such stocks. A 
WEBS series will not hold all of the issues that comprise the subject 
MSCI Index, but will attempt to hold a representative sample of the 
securities in the Index in a technique known as ``portfolio sampling.''
    Foreign Fund, Inc., will issue and redeem WEBS of each Index Series 
only in aggregations of shares specified for each Index Series (each 
aggregation a ``Creation Unit''). The number of shares per Creation 
Unit will range from 40,000 to 600,000. The Amex anticipates that the 
value of a Creation Unit at the start of trading will range from 
$450,000 to $10,000,000 and the net asset value (``NAV'') of an 
individual WEBS will range from $10 to $20.
The MSCI Indices
    MSCI generally seeks to have 60% of the capitalization of a 
country's stock market index reflected in the MSCI Index for such 
country. Thus, the MSCI Indices seek to balance the inclusiveness of an 
``all share'' index against the replicability of a ``blue chip'' index. 
MSCI applies the same criteria and calculation methodology across all 
markets for all indices, developed and emerging.
    All single-country MSCI Indices are market capitalization weighted. 
For countries that restrict foreign ownership, MSCI calculates two 
Indices. The additional Indices are called ``free'' Indices, and they 
exclude companies and share classes not purchasable by foreigners. Free 
Indices are currently calculated for Singapore, Mexico, the 
Philippines, and Venezuela, and for those regional and international 
Indices which include such markets. The Mexico and Singapore WEBS 
series will be based on the free Indices for those countries. There are 
no WEBS series corresponding to the Philippines and Venezuela MSCI 
Indices.
    All MSCI Indexes are calculated daily. The calculation method 
weights stocks in an index by their beginning-of-period market 
capitalization. Share prices are ``swept clean'' daily and adjusted for 
any rights issues, stock dividends or splits. The MSCI Indices 
currently are calculated in local currency and in U.S. dollars, without 
dividends and with gross dividends reinvested.
    Prices used to calculate the MSCI Indices are the official exchange 
closing prices. All prices are taken from the dominant exchange in each 
market. To calculate the applicable foreign currency exchange rate, 
MSCI uses WM/Reuters Closing Spot Rates for all developed and emerging 
markets except those in Latin America. Because of the high volatility 
of currencies in some Latin American countries, MSCI continues to 
calculate its own rates for those countries. Under exceptional 
circumstances MSCI may elect to use an alternative exchange rate for 
any country if the WM/Reuters rate is believed not to be representative 
for a given currency on a particular day.
    Each MSCI Index on which a WEBS series is based is calculated by 
MSCI for

[[Page 26942]]

each trading day in the applicable foreign exchange market based on 
official closing prices in such exchange market.
    For each trading day, MSCI publicly disseminates each Index value 
for the previous day's close. MSCI Indices are reported periodically in 
major financial publications and also are available through vendors of 
financial information.
    Foreign Fund, Inc., will cause to be made available daily the names 
and required number of shares of each of the securities to be deposited 
in connection with the issuance of WEBS in Creation Unit size 
aggregations for each WEBS series, as well as information relating to 
the required cash payment representing, in part, the amount of accrued 
dividends applicable to such WEBS series. This information will be made 
available by the Fund Advisor to any National Securities Clearing 
Corporation (``NSCC'') participant requesting such information. In 
addition, other investors can request such information directly from 
the Fund distributor. The NAV for each WEBS series will be calculated 
directly by the Fund administrator, PFPC Inc. NAVs will be made 
available to the public from the Fund distributor by means of a toll-
free number, and also will be available to NSCC participants through 
data made available from NSCC.
    To provide current WEBS pricing information, the Amex has 
represented that it anticipates it will disseminate through the 
facilities of the Consolidated Tape Association an ``indicative 
optimized portfolio value'' (``Value'') for each WEBS series as 
calculated by Bloomberg, L.P. (``Bloomberg''). The Value will be 
disseminated on a per WEBS basis every fifteen seconds during regular 
Amex trading hours of 9:30 a.m. to 4:00 p.m. New York time.
    The Value likely will not reflect the value of all securities 
included in the applicable benchmark MSCI Index. In addition, the Value 
will not necessarily reflect the precise composition of the current 
portfolio of securities held by the Fund for each WEBS series at a 
particular moment. Therefore, the Value on a per WEBS basis 
disseminated during Amex trading hours should not be viewed as a real-
time update of the net asset value of the Fund, which is calculated 
only once a day. It is expected, however, that during the trading day 
the Value will closely approximate the value per WEBS share of the 
portfolio of securities for each WEBS series except under unusual 
circumstances.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b)(5) of the 
Act in that the proposal fosters cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, removes impediments to and perfects the mechanism of a free 
and open market and a national market system and protects investors and 
the public interest.

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 nor received written comments on 
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 NW., Washington, D.C. 20549. 
Copies of the submissions, 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 at 
the principal office of the CHX. All submissions should refer to File 
No. SR-CHX-96-14 and should be submitted by [insert date 21 days from 
date of publication].

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-13388 Filed 5-28-96; 8:45 am]
BILLING CODE 8010-01-M