Document ID: SEC-2008-0013-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; American Stock Exchange LLC; Order Granting Accelerated Approval of Proposed Rule Change
Posted Date: 2008-01-04T05:00Z

[Federal Register: January 4, 2008 (Volume 73, Number 3)]
[Notices]               
[Page 897-898]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04ja08-54]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57057; File No. SR-Amex-2007-94]

 
Self-Regulatory Organizations; American Stock Exchange, LLC; 
Order Granting Accelerated Approval of a Proposed Rule Change, as 
Modified by Amendment No. 1 Thereto, Relating to Notes Linked to the 
Performance of the CBOE S&P 500 PutWrite Index (PUTSM)

December 28, 2007.

I. Introduction

    On August 20, 2007, the American Stock Exchange, LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder \2\ to list and trade notes, the performance of which is 
linked to the CBOE S&P 500 PutWrite Index (PUTSM) (the ``PUT Index'' or 
``Index''). On November 27, 2007, the Amex submitted Amendment No. 1 to 
the proposed rule change. The proposed rule change, as amended, was 
published for comment in the Federal Register on December 6, 2007 for a 
15-day comment period.\3\ This order approves the proposed rule change, 
as amended on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 56853 (November 28, 
2007), 72 FR 68914 (``Notice'').
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II. Description of the Proposal

    The Amex proposes to list for trading under Section 107A of the 
Amex Company Guide (``Company Guide'') notes linked to the performance 
of the PUT Index (the ``Notes''). The Notes are a series of medium-term 
debt securities of Eksportfinans \4\ that provide for a cash payment at 
maturity or upon earlier exchange at the holder's option, based on the 
performance of the PUT Index as adjusted by an annual index fee (the 
``Index Fee''). As described in the Exchange's proposal,\5\ the Notes 
are cash-settled in U.S. dollars and do not give the holder any right 
to receive any of the component securities, dividend payments, or any 
other ownership right or interest in the securities comprising the PUT 
Index. The Notes are designed for investors who desire exposure to a 
covered put selling options strategy on a broad market index and who 
are willing to forego principal protection and market interest payments 
on the Notes during their term.
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    \4\ Eksportfinans and Standard & Poor's (``S&P''), a division of 
the McGraw-Hill Companies, Inc. have entered into a non-exclusive 
license agreement providing for the use of the PUT Index by 
Eksportfinans in connection with certain securities including the 
Notes. S&P is not responsible for and will not participate in the 
issuance and creation of the Notes. Eksportfinans will issue the 
Notes under the name ``Eksportfinans Index-Linked Notes. 
Eksportfinans has also been appointed to act as the calculation 
agent.
    \5\ For a more detailed description of the Notes, including 
their structure, applicable exchange listing and trading rules, 
disclosure of pricing information, surveillance, and other 
regulation, see Notice at 68914-15.
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    The PUT Index is determined, calculated and maintained solely by 
the Chicago Board Options Exchange, Inc. (``CBOE'').\6\ The PUT Index 
is a benchmark index designed to measure the performance of a 
hypothetical investment strategy that overlays short S&P 500 puts over 
a money market account. The PUT Index tracks the value of an initial 
investment of $100 in a portfolio that passively follows the CBOE S&P 
500 PUT strategy. The PUT Index strategy invests cash at one- and 
three-month Treasury Bill rates and sells a sequence of one-month at-
the-money S&P 500 puts (SPX). The short put position is collateralized 
by the Treasury bills. The theory of the PUT strategy is to trade a 
premium over Treasury bill rates for a leveraged exposure to S&P 500 
downturns.
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    \6\ For a more detailed description of the Put Index, including 
its construction and calculation, see Notice at 68915-17.
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    The Exchange submits that Section 107A and the continued listing 
guidelines under Sections 1001-1003 of the Company Guide will 
accommodate the listing and trading of Notes.\7\
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    \7\ Under Section 107A of the Company Guide, the Exchange may 
approve for listing and trading securities which cannot be readily 
categorized under the listing criteria for common and preferred 
stocks, bonds, debentures, or warrants. See Securities Exchange Act 
Release No. 27753 (March 1, 1990), 55 FR 8626 (March 8, 1990) (SR-
Amex-89-29).
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange.\8\ 
The Commission finds that this proposal is similar to several approved 
instruments currently listed and traded on the Amex.\9\ Accordingly, 
the Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act,\10\ which requires that the rules of an 
exchange be designed, among other things, to promote just and equitable 
principles 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.
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    \8\ In approving this proposed rule change, the Commission notes 
that it has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \9\ See Securities Exchange Act Release Nos. 51426 (March 23, 
2005), 70 FR 16315 (March 30, 2005) (approving the listing and 
trading of Morgan Stanley notes linked to the BXM Index); 50719 
(November 22, 2004), 69 FR 69644 (November 30, 2004) (approving the 
listing and trading of Morgan Stanley notes linked to the BXM 
Index); 51634 (April 29, 2005), 70 FR 24138 (May 6, 2005) (approving 
the listing and trading of Wachovia notes linked to the BXM Index); 
and 51840 (June 14, 2005), 70 FR 35468 (June 20, 2005) (approving 
the listing and trading of JPMorgan notes linked to the BXD Index). 
The BXM index is the CBOE S&P 500 BuyWrite IndexSM while the BXD is 
the equivalent index using the DJIA as the underlying index rather 
than the S&P 500.
    \10\ 15 U.S.C. 78f(b)(5).
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    The Commission further believes that the proposal is consistent 
with Section 11A(a)(1)(C)(iii) of the Act,\11\ which sets forth 
Congress' finding that it is in the public interest and appropriate for 
the protection of investors and the maintenance of fair and orderly 
markets to assure the availability to brokers, dealers, and investors 
of information with respect to quotations for and transactions in 
securities. The requirements of Section 107A of the Company Guide were 
designed to address the concerns attendant to the trading of hybrid 
securities, such as the Notes. For example, Section 107A of the Company 
Guide provides that only issuers satisfying specified asset and equity 
requirements may issue securities such as the Notes. In addition, the 
Exchange's ``Other Securities'' listing standards further require that 
the Notes have a market value of at least $4 million.
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    \11\ 15 U.S.C. 78k-1(a)(1)(C)(iii).

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[[Page 898]]

    Furthermore, the Commission believes that the proposal to list and 
trade the Shares is reasonably designed to promote fair disclosure of 
information that may be necessary to price the Notes appropriately. As 
described in the Notice, the Exchange represents that the PUT Index 
value will be calculated and disseminated by the CBOE once every 
scheduled trading day after the close. Eksportfinans has agreed to seek 
to arrange to have the PUT Index calculated and disseminated on a daily 
basis through a third party if the CBOE ceases to calculate and 
disseminate the Index. In such an event, the Exchange agrees to obtain 
Commission approval, pursuant to filing the appropriate Form 19b-4, 
prior to the substitution of the PUT Index. Further, the Exchange has 
agreed to undertake to delist the Notes in the event that the CBOE 
discontinues calculating and disseminating the Index, and Eksportfinans 
is unable to arrange the calculation and dissemination of the PUT 
Index.\12\
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    \12\ See Notice at 68917.
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    The daily closing price of the PUT Index is calculated and 
disseminated by the CBOE on its Web site at http://www.cboe.com and via 

the Options Pricing and Reporting Authority at the end of each trading 
day.\13\ The value of the S&P 500 Index is disseminated at least once 
every fifteen (15) seconds throughout the scheduled trading day. In 
addition, as indicated above, the value of the PUT Index is calculated 
once every scheduled trading day, thereby providing investors with a 
daily value of such ``hypothetical'' put selling options strategy on 
the S&P 500. In addition, the Exchange represents that it will 
disseminate over the Consolidated Tape Association's Network B, a daily 
indicative Redemption Amount (the ``Indicative Value'') to provide 
investors with a daily reference value of the Index. The Indicative 
Value, which is not adjusted on an intra-day basis, will be calculated 
by the Exchange after the close of trading and after the CBOE 
calculates the PUT Index for use by investors the next scheduled 
trading day.
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    \13\ The Commission, in connection with BXM and BXD Index Notes, 
approved the listing and trading of these products where the 
dissemination of the value of the underlying index occurred once per 
trading day. See supra note 9.
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    Because the PUT Index is not calculated and disseminated every 15 
seconds, the Exchange seeks a limited exception from the generic 
continued listing requirement set forth in Section 107D(h) of the 
Company Guide. In current Commentary .01 to Section 107, the Exchange 
provides that although the BXM and BXD Indexes do not satisfy the 
requirements of Section 107D(h), these Indexes nevertheless may be 
listed and traded pursuant to the generic standards set forth in 
Section 107D. The Commission believes that the dissemination of the S&P 
500 along with the ability of investors to obtain put option pricing 
information provides sufficient transparency regarding the Index. Given 
the large trading volume and capitalization of the compositions of the 
stocks underlying the S&P 500, the Commission believes that the listing 
and trading of the Notes that are linked to the PUT Index should not 
unduly impact the market for the underlying securities comprising the 
S&P 500 or raise manipulative concerns. Moreover, the issuers of the 
underlying securities comprising the S&P 500 are subject to reporting 
requirements under the Act, and all of the component stocks are either 
listed or traded on, or traded through the facilities of, U.S. 
securities markets. Accordingly, the Commissions will allow this 
proposed change to Commentary .01 to Section 107 as a limited 
exception.
    The Commission also believes that the Exchange's trading halt rules 
are reasonably designed to prevent trading in the Notes when 
transparency is impaired. The Exchange will halt trading in the Notes 
if the circuit breaker parameters of Amex Rule 117 have been 
reached.\14\ In exercising its discretion to halt or suspend trading in 
the Notes, the Exchange may consider factors such as those set forth in 
Amex Rule 918C(b) and other relevant factors.\15\ The Commission 
further believes that the trading rules and procedures to which the 
Notes will be subject pursuant to this proposal are consistent with the 
Act. The Exchange has represented that the Notes are subject to Amex's 
rules governing the trading of equity securities.
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    \14\ E-mail from Andrea Williams, Assistant General Counsel, 
Amex and Ronesha Butler, Special Counsel, Division of Trading and 
Markets, Commission (``Division''), Commission, on December 28, 
2007.
    \15\ Id.
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    In support of this proposal, the Exchange has made the following 
representations:
    (1) The Exchange's surveillance procedures are adequate to properly 
monitor the trading of the Notes. Specifically, Amex will rely on its 
existing surveillance procedures governing equities and options. 
Moreover, the Exchange has a general policy which prohibits the 
distribution of material, non-public information by its employees.
    (2) Prior to trading the Notes, the Exchange will distribute a 
circular to the membership 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. With 
respect to suitability recommendations and risks, the Exchange will 
require members, member organizations and employees thereof 
recommending a transaction in the Notes: (1) To determine that such 
transaction is suitable for the customer; and (2) to have a reasonable 
basis for believing that the customer can evaluate the special 
characteristics of, and is able to bear the financial risks of such 
transaction. In addition, Eksportfinans will deliver a prospectus in 
connection with the initial sales of the Notes.
    This approval order is based on the Exchange's representations.
    The Commission finds good cause, pursuant to Section 19(b)(2) of 
the Act,\16\ for approving the proposed rule change, as modified by 
Amendment No. 1, prior to the 30th day after the date of publication of 
notice in the Federal Register. The Commission notes that the present 
proposal is similar to prior proposals that the Commission has 
approved.\17\ The Commission does not believe that the proposed rule 
change, as modified by Amendment No. 1, raises any novel regulatory 
issues. Consequently, the Commission believes that it is appropriate to 
permit investors to benefit from these additional investment choices 
without delay. Accordingly, the Commission finds that there is good 
cause, consistent with Section 6(b)(5) of the Act,\18\ to approve the 
proposal, as modified by Amendment No. 1, on an accelerated basis.
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    \16\ 15 U.S.C. 78s(b)(2).
    \17\ See, supra, note 9.
    \18\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\19\ that the proposed rule change (SR-Amex-2007-94), as modified 
by Amendment No. 1, be, and it hereby is, approved on an accelerated 
basis.
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    \19\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E7-25622 Filed 1-3-08; 8:45 am]

BILLING CODE 8011-01-P