Document ID: SEC-2007-0682-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: American Stock Exchange LLC
Posted Date: 2007-05-16T04:00Z

[Federal Register: May 16, 2007 (Volume 72, Number 94)]
[Notices]               
[Page 27602-27604]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16my07-116]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55733; File No. SR-Amex-2007-34]

 
Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing and Order Granting Accelerated Approval of Proposed 
Rule Change, as Modified by Amendment No. 1 Thereto, Relating to 
Amendments to Section 107 of the Company Guide

 May 10, 2007.
    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 April 5, 2007, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been substantially prepared by the Exchange. 
On May 4, 2007, the Exchange filed Amendment No. 1 to the proposed rule 
change. This order provides notice of the proposed rule change, as 
modified by Amendment No. 1, and 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend: (1) Sections 107A(b) and 107D(a) of 
the Amex Company Guide to provide an exception to the minimum public 
distribution requirement of one million units for issuances traded in 
thousand dollar denominations, and (2) Sections 107A(b), 107C(a) and 
107D(a) of the Amex Company Guide to provide an exception to the 400 
public shareholder requirement for securities that are redeemable at 
the option of the holders thereof on at least a weekly basis. The text 
of the proposed rule change is available at Amex, the Commission's 
Public Reference Room, and http://www.amex.com.

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
    Pursuant to Section 107 of the Amex Company Guide, the Exchange may 
approve for listing and trading securities which cannot be readily 
categorized under the listing criteria for common and preferred 
securities, bonds, debentures, or warrants (``Section 107 
Securities'').\3\ The general listing criteria relating to issuers and 
issuances are set forth in Section 107A of the Company Guide. In 
connection with each potential listing of Section 107 Securities, the 
Exchange evaluates each security and issuance against the following 
criteria in Section 107A (and correspondingly in Sections 107B, 
107C,\4\ 107D, and 107E): (1) A principal amount/aggregate market value 
of $4 million or greater, and (2) a minimum public distribution 
requirement of one million trading units with a minimum of 400 public 
shareholders, except that, if traded in thousand dollar denominations, 
then no minimum number of holders. In addition, the listing criteria 
also requires that the issuer must have assets in excess of $100 
million, stockholders' equity of at least $10 million, and pre-tax 
income of at least $750,000 in the last fiscal year or in two of the 
three prior fiscal years. In the case of an issuer who is unable to 
satisfy the earnings criteria stated in Section 101 of the Company 
Guide, the Exchange will require the issuer to have the following: (a) 
Assets in excess of $200 million and stockholders' equity of

[[Page 27603]]

at least $10 million; or (b) assets in excess of $100 million and 
stockholders' equity of at least $20 million.
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    \3\ See Securities Exchange Act Release No. 27753 (March 1, 
1990), 55 FR 8626 (March 8, 1990) (SR-Amex-89-29) (approving the 
listing guidelines under Section 107 for new securities not 
otherwise covered under existing sections of the Company Guide).
    \4\ The minimum public distribution requirement for Index-Linked 
Exchangeable Notes set forth in Section 107C of the Amex Company 
Guide is 150,000 notes rather than one million trading units.
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Minimum Public Distribution

    The first part of the proposal codifies an exception to Sections 
107A(b) and 107D(a) of the Amex Company Guide so that certain issuances 
of Section 107 Securities may be listed even though the minimum public 
distribution requirement of one million units is not met. This 
exception, however, is conditioned on whether or not the issuance is 
traded in thousand dollar denominations. Sections 107A (General 
Criteria) and 107D (Index-Linked Securities) currently require a 
minimum public distribution requirement of one million trading units 
and a minimum of 400 public shareholders, except, if traded in thousand 
dollar denominations, then no minimum number of holders. Amex notes 
that, without the exception to the one million unit minimum public 
distribution requirement, the Exchange would be unable to list certain 
Section 107 Securities in thousand dollar denominations having a market 
value of less than $1 billion. Amex believes the proposed exception to 
be a reasonable accommodation for those issuances in thousand dollar 
denominations. Accordingly, the proposal amends the rule text of 
Section 107A(b) and 107D(a) so that the minimum public distribution and 
minimum public shareholders requirements will not be applicable to an 
issue traded in thousand dollar denominations.

Minimum Public Shareholders

    The purpose of the second part of the proposal is to provide an 
exception to Sections 107A(b), 107C(a), and 107D(a) of the Amex Company 
Guide so that Section 107 Securities may be listed even though there 
may be less than 400 public shareholders at the time of listing.\5\ 
This exception will be conditioned on whether the particular issue 
provides for the redemption of securities at the option of the holders 
on at least a weekly basis. Therefore, the revision to Sections 
107A(b), 107C(a), and 107D(a) will provide that the minimum public 
shareholders requirement will not apply if the securities are 
redeemable at the option of the holders thereof on at least a weekly 
basis.
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    \5\ A revision to Section 107A(b) of the Amex Company Guide will 
also affect Sections 107B and 107E relating to equity linked term 
notes and trust certificate securities, respectively, because these 
provisions refer to Section 107A for purposes of meeting the 
``General Criteria.''
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    Over the past several years, the Exchange has added generic listing 
standards in Section 107 of the Company Guide for Equity Linked Term 
Notes, Index-Linked Exchangeable Notes, Index-Linked Securities, and 
Trust Certificate Securities. These requirements are set forth in 
Sections 107B,\6\ 107C, 107D,\7\ and 107E \8\ of the Amex Company 
Guide, respectively. Currently, for each issuance of the foregoing 
Section 107 Securities, there must be a minimum of 400 public 
shareholders, except when the issue is traded in thousand dollar 
denominations. The Exchange submits that an additional exception to the 
400 holder requirement is appropriate for certain securities which 
provide for redemption at the option of the holders on at least a 
weekly basis.
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    \6\ See Securities Exchange Act Release No. 32343 (May 20, 
1993), 58 FR 30833 (May 27, 1993) (SR-Amex-92-42) (approving the 
listing and trading of Equity Linked Term Notes). See also 
Securities Exchange Act Release No. 47055 (December 19, 2002), 67 FR 
79669 (December 30, 2002) (SR-Amex-2002-110) (increasing the maximum 
number of equity securities permitted to be linked to an Equity 
Linked Term Note); Securities Exchange Act Release No. 42582 (March 
27, 2000), 65 FR 17685 (April 4, 2000) (SR-Amex-99-42) (revising 
Section 107B of the Company Guide).
    \7\ See Securities Exchange Act Release No. 51258 (February 25, 
2005), 70 FR 10700 (March 4, 2005) (SR-Amex-2005-001) (adopting 
generic listing standards for Index-Linked Securities).
    \8\ See Securities Exchange Act Release No. 50355 (September 13, 
2004), 69 FR 56252 (September 20, 2004) (SR-Amex-2004-23) (approving 
generic listing standards for Trust Certificate Securities).
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    The Exchange believes that a weekly redemption right will ensure a 
strong correlation between the market price of Section 107 Securities 
and the performance of the underlying asset, such as a single security 
or basket of securities and/or securities index, as holders will be 
unlikely to sell their securities for less than their redemption value 
if they have a weekly right to redeem such securities for their full 
value. In addition, in the case of certain Section 107 Securities with 
a weekly redemption feature, the issuer may have the ability to issue 
new securities from time to time at market prices prevailing at the 
time of sale, at prices related to market prices, or at negotiated 
prices. The Exchange believes that this provides a ready supply of new 
securities, thereby reducing the potential that Section 107 Security 
market prices will be affected by a scarcity of available securities. 
In addition, the ability to issue new securities may assist in 
maintaining a strong correlation between the market price and 
indicative value, based largely on potential arbitrage opportunities 
that should mitigate the effect of price differentials.
    Amex believes that the ability to list certain Section 107 
Securities with these characteristics without any specific requirements 
as to the number of holders is important to the successful listing of 
such securities. Issuers issuing these types of Section 107 Securities 
generally do not intend to do so by way of an underwritten offering, 
but instead, initially distribute the securities similar to the manner 
in which exchange-traded funds or ``ETFs'' are brought to market. In 
the case of an ETF, shares are initially launched or distributed 
without a significant distribution event, with the share float 
increasing over time as securities in creation unit size are issued 
from the issuer at net asset value. The Exchange states that, because 
of market dynamics and the purchasing behavior of investors, it is 
difficult for an issuer to be able to guarantee a sufficient number of 
public shareholders or investors on the date of listing in order to 
meet the 400 shareholders requirement. However, the Exchange believes 
that this difficulty in ensuring 400 shareholders on the listing date 
is not indicative of a lack of liquidity and/or adequate distribution 
of the securities. Accordingly, the Exchange submits that the existence 
of a weekly redemption option justifies this limited exception to the 
400 public shareholder requirement.
2. Statutory Basis
    The proposal is consistent with Section 6(b) of the Act,\9\ in 
general, and Section 6(b)(5) of the Act,\10\ in particular, in that it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, and to remove impediments to, and perfect 
the mechanism of a free and open market and a national market system.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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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 that is not necessary or appropriate 
in furtherance of the purposes of the Act.

[[Page 27604]]

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. 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. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or     Send an e-mail to rule-comments@sec.gov. Please include 

File Number SR-Amex-2007-34 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-Amex-2007-34. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). 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 also will be available for inspection and copying at the 
principal offices of the Exchange. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-Amex-2007-34 and should be submitted on or before June 
6, 2007.

IV. Commission's Findings and Order Granting Accelerated Approval of 
the Proposed Rule Change

    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.\11\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\12\ which 
requires that an exchange have rules 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. The Commission believes that this proposal should benefit 
investors by providing an exception to the minimum public distribution 
requirements for certain Section 107 Securities issued and traded in 
thousand dollar denominations and providing an exception to the 400 
public shareholder requirement for Section 107 Securities that are 
redeemable at the option of the holders thereof on at least a weekly 
basis. The Commission believes that these exceptions are reasonable and 
should allow for the listing and trading of certain Section 107 
Securities that would otherwise not be able to be listed and traded on 
the Exchange.
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    \11\ In approving this 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).
    \12\ 15 U.S.C. 78f(b)(5).
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    The Commission finds good cause for approving this proposal before 
the thirtieth day after the publication of notice thereof in the 
Federal Register. The Commission notes that it has previously approved 
minimum public distribution and minimum public shareholder requirements 
that are substantially similar to Amex's proposal and found that such 
requirements were consistent with the Act.\13\ The Commission presently 
is not aware of any regulatory issue that should cause it to revisit 
that finding or would preclude the application of the proposed 
exceptions to the minimum public distribution and minimum public 
shareholder requirements. Therefore, accelerating approval of this 
proposal should benefit investors by creating, without undue delay, 
additional competition in the market for such securities.
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    \13\ See Securities Exchange Act Release No. 55687 (May 1, 
2007), 72 FR 25824 (May 7, 2007) (SR-NYSE-2007-27).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-Amex-2007-34), as modified 
by Amendment No.1, be, and it hereby is, approved on an accelerated 
basis.
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    \14\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-9364 Filed 5-15-07; 8:45 am]

BILLING CODE 8010-01-P