Document ID: SEC-2008-0652-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: American Stock Exchange LLC
Posted Date: 2008-05-06T04:00Z

[Federal Register: May 6, 2008 (Volume 73, Number 88)]
[Notices]               
[Page 25061-25066]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06my08-120]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57739; File No. SR-Amex-2008-17]

 
Self-Regulatory Organizations; American Stock Exchange LLC; Order 
Granting Approval of Proposed Rule Change, as Modified by Amendment No. 
1 Thereto, to Adopt Listing Rules for Fixed Income-Linked Securities, 
Futures-Linked Securities, and Combination-Linked Securities

April 30, 2008.

I. Introduction

    On February 29, 2008, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to adopt generic listing standards for Fixed 
Income-Linked Securities, Futures-Linked Securities, and Combination-
Linked Securities. On March 20, 2008, the Exchange filed Amendment No. 
1 to the proposed rule change. The proposed rule change, as amended, 
was published for comment in the Federal Register on March 27, 2008.\3\ 
The Commission received no comments on the proposal. This order 
approves the proposed rule change, as modified by Amendment No. 1 
thereto.
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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. 57539 (March 20, 
2008), 73 FR 16395.
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II. Description of the Proposal

    The Exchange proposes to add new Sections 107G, 107H, and 107I of 
the Amex Company Guide to provide generic listing standards for Fixed 
Income-Linked Securities, Futures-Linked Securities, and Combination-
Linked Securities (collectively, the ``New Linked Securities''). The 
primary purpose of the proposed rule change is to enable the listing 
and trading of the New Linked Securities pursuant to Rule 19b-4(e) \4\ 
under the Act, without individual Commission approval of each such 
product pursuant to section 19(b)(2) of the Act.\5\ The Exchange 
represents that within five business days after commencement of trading 
of a series of New Linked Securities under proposed Sections 107G, 
107H, and 107I of the Amex Company Guide, as applicable, the Exchange 
will file a Form 19b-4(e).\6\
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    \4\ Rule 19b-4(e) provides that the listing and trading of a new 
derivative securities product by a self-regulatory organization 
(``SRO'') shall not be deemed a proposed rule change, pursuant to 
section (c)(1) of Rule 19b-4 (17 CFR 240.19b-4(c)(1)), if the 
Commission has approved, pursuant to section 19(b) of the Act (15 
U.S.C. 78s(b)), the SRO's trading rules, procedures, and listing 
standards for the product class that would include the new 
derivatives securities product, and the SRO has a surveillance 
program for the product class. See 17 CFR 240.19b-4(e).
    \5\ 15 U.S.C. 78s(b)(2). The Exchange also seeks to make a 
technical change to Section 107D of the Amex Company Guide as part 
of the proposal. See infra note 7.
    \6\ 17 CFR 240.19b-4(e)(2)(ii); 17 CFR 249.820.
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General Issuer and Issue Eligibility

    As with Index-Linked Securities under current Section 107D of the 
Amex Company Guide,\7\ Commodity-Linked Securities under Section 
107E,\8\ and Currency-Linked Securities under Section 107F of the Amex 
Company Guide,\9\ the New Linked Securities do not give the holder any 
right to receive a portfolio component or any other ownership right or 
interest in the portfolio or underlying components comprising the 
applicable Reference Asset (as defined herein) and may or

[[Page 25062]]

may not provide for the repayment of the original principal investment 
amount. Likewise, the general standards set forth in Section 107D(a)-
(f), Section 107E(a)-(f), and Section 107F(a)-(f) of the Amex Company 
Guide will similarly apply to the New Linked Securities.\10\ 
Specifically, the Exchange will apply the following requirements to all 
issuers of New Linked Securities:
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    \7\ Index-Linked Securities are securities that provide for the 
payment at maturity of a cash amount based on the performance of an 
underlying index or indexes. As part of this proposed rule change, 
the Exchange seeks to make a technical change to Section 107D of the 
Amex Company Guide to define such underlying index or indexes as the 
``Equity Reference Asset.'' Such securities may or may not provide 
for the repayment of the original principal investment amount. See 
Section 107D and Section 107D(d) of the Amex Company Guide.
    \8\ Commodity-Linked Securities are securities that provide for 
the payment at maturity of a cash amount based on the performance of 
one or more commodities, commodity futures, options or other 
commodity derivatives or Commodity-Based Trust Shares (as defined in 
Amex rule 1200A), or a basket or index of any of the foregoing (the 
``Commodity Reference Asset''). Such securities may or may not 
provide for the repayment of the original principal investment 
amount. See Section 107E of the Amex Company Guide.
    \9\ Currency-Linked Securities are securities that provide for 
the payment at maturity of a cash amount based on the performance of 
one or more currencies, or options or currency futures or other 
currency derivatives or Currency Trust Shares (as defined in Amex 
Rule 1200B), or a basket or index of any of the foregoing (the 
``Currency Reference Asset''). Such securities may or may not 
provide for the repayment of the original principal investment 
amount. See Section 107F of the Amex Company Guide.
    \10\ See Section 107A of the Amex Company Guide (setting forth 
the ``General Criteria'' relating to minimum issuer eligibility 
requirements based on assets, earnings, and stockholders' equity, 
and minimum issue requirements based on public distribution, public 
shareholders, and principal amount/aggregate market value).
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     The issuer will be expected to have a minimum tangible net 
worth of $250,000,000 and to otherwise exceed certain earnings 
requirements. In the alternative, the issuer will be expected: (1) To 
have a minimum tangible net worth of $150,000,000; and (2) not to have 
issued index-linked note offerings (including the New Linked 
Securities), the original issue price of which, combined with all the 
issuer's other index-linked note offerings listed on a national 
securities exchange, exceeds 25% of the issuer's tangible net worth at 
the time of issuance.
     The issuer must be in compliance with Rule 10A-3 under the 
Act.\11\
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    \11\ See 17 CFR 240.10A-3.
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    In addition, the Exchange will apply the following requirements to 
each issue of New Linked Securities:
     The issue must have a minimum public distribution of at 
least 1,000,000 trading units with a minimum of 400 public 
shareholders. This minimum public distribution and minimum public 
shareholders requirements will not be applicable to an issue traded in 
thousand dollar denominations or if the securities are redeemable at 
the option of the holders thereof on at least a weekly basis.
     The issue must have a principal amount/aggregate market 
value of not less than $4 million.
     The issue must have a term of at least one year, but not 
greater than 30 years.
     The issue must be the nonconvertible debt of the issuer.
     The payment at maturity may or may not provide for a 
multiple of the direct or inverse performance of the underlying 
Reference Asset; however, in no event will a loss or negative payment 
at maturity be accelerated by a multiple that exceeds twice the 
performance of the underlying Reference Asset.

Fixed Income-Linked Securities

    Fixed Income-Linked Securities will be subject to the criteria 
proposed in new Section 107G of the Amex Company Guide for initial and 
continued listing. Fixed Income-Linked Securities are securities that 
provide for the payment at maturity of a cash amount based on the 
performance of one or more indexes or portfolios of debt securities 
that are notes, bonds, debentures or evidence of indebtedness that 
include, but are not limited to, U.S. Department of Treasury securities 
(``Treasury Securities''), government-sponsored entity securities 
(``GSE Securities''), municipal securities, trust preferred securities, 
supranational debt and debt of a foreign country or subdivision 
thereof, or a basket or index of any of the foregoing (collectively, 
``Fixed Income Reference Asset'').
    For the initial listing of Fixed Income-Linked Securities, the 
Fixed Income Reference Asset must either: (1) Have been approved for 
the trading of options or other derivatives by the Commission under 
Section 19(b)(2) of the Act and the rules thereunder, and the 
conditions set forth in the Commission's approval order, including 
comprehensive surveillance sharing agreements, continue to be 
satisfied; or (2) meet the following requirements: \12\
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    \12\ The Exchange notes that the quantitative criteria for Fixed 
Income Reference Assets are substantially similar to those set forth 
under Commentary .04 to Amex Rule 1000-AEMI and Commentary .03 to 
Amex Rule 1000A-AEMI, relating to Portfolio Depositary Receipts and 
Index Fund Shares, respectively, based on a fixed income index or 
portfolio. See Securities Exchange Act Release No. 55437 (March 9, 
2007), 72 FR 12233 (March 15, 2007) (SR-Amex-2006-118) (approving 
the adoption of ``fixed income'' and ``combination'' generic listing 
standards for exchange-traded funds).
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     Components of the Fixed Income Reference Asset that, in 
the aggregate, account for at least 75% of the weight of the Fixed 
Income Reference Asset must each have a minimum original principal 
amount outstanding of $100 million or more;
     A component of the Fixed Income Reference Asset may be a 
convertible security; however, once the convertible security component 
converts to the underlying equity security, the component is removed 
from the Fixed Income Reference Asset;
     No component of the Fixed Income Reference Asset 
(excluding Treasury Securities and GSE Securities) may represent more 
than 30% of the weight of the Fixed Income Reference Asset, and the 
five highest weighted components in the Fixed Income Reference Asset 
may not, in the aggregate, account for more than 65% of the weight of 
the Fixed Income Reference Asset;
     An underlying Fixed Income Reference Asset (excluding one 
consisting entirely of exempted securities) \13\ must include a minimum 
of 13 non-affiliated issuers;
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    \13\ ``Exempted securities'' is defined in Section 3(a)(12) of 
the Act (15 U.S.C. 78c(a)(12)). The Exchange notes that, for 
purposes of a Fixed Income Reference Asset, an ``exempted security'' 
may include Treasury Securities, municipal securities and/or GSE 
Securities.
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     Component securities that, in the aggregate, account for 
at least 90% of the weight of the Fixed Income Reference Asset must be 
one of the following: (1) From issuers that are required to file 
reports pursuant to Sections 13 and 15(d) of the Act; \14\ (2) from 
issuers that have a worldwide market value of their outstanding common 
equity held by non-affiliates of $700 million or more; (3) from issuers 
that have outstanding securities that are notes, bonds, debentures, or 
evidence of indebtedness having a total remaining principal amount of 
at least $1 billion; (4) exempted securities as defined in Section 
3(a)(12) of the Act; \15\ or (5) from issuers that are a government of 
a foreign country or a political subdivision of a foreign country; and
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    \14\ See 15 U.S.C. 78m; 15 U.S.C. 78o(d).
    \15\ See 15 U.S.C. 78c(a)(12).
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     The Fixed Income Reference Asset must be widely 
disseminated to the public by one or more major market vendors at least 
once per trading day.
    The Exchange will commence delisting or removal proceedings: \16\
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    \16\ The Exchange notes that the proposed continued listing 
standards for each of Fixed Income-Linked Securities, Futures-Linked 
Securities, and Combination-Linked Securities are substantially 
similar to those standards under Sections 107D, 107E, and 107F 
currently applicable to Index-Linked Securities, Commodity-Linked 
Securities, and Currency-Linked Securities, respectively. See 
Sections 107D, 107E, and 107F of the Amex Company Guide.
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     If any of the initial listing criteria for Fixed Income-
Linked Securities are not continuously maintained;
     If the aggregate market value or the principal amount of 
the Fixed Income Index-Linked Securities publicly held is less than 
$400,000;
     The value of the Fixed Income Reference Asset is no longer 
calculated or available, and a new Fixed Income Reference is 
substituted, unless the new Fixed Income Reference Asset meets the 
requirements of proposed Section 107G of the Company Guide; or
     If such other event shall occur or condition exists that, 
in the opinion of the Exchange, makes further dealings on the Exchange 
inadvisable.

Futures-Linked Securities

    Futures-Linked Securities will be subject to the criteria in 
proposed

[[Page 25063]]

Section 107H of the Amex Company Guide for initial and continued 
listing. Futures-Linked Securities are securities that provide for the 
payment at maturity of a cash amount based on the performance of one or 
more indexes or portfolios of: (1) Futures on Treasury Securities, GSE 
Securities, supranational debt and debt of a foreign country or a 
subdivision thereof, or options or other derivatives on any of the 
foregoing; or (2) interest rate futures or options or derivatives on 
the foregoing (collectively, ``Futures Reference Asset'').
    The issue must meet one of the initial listing standards set forth 
below:
     The Futures Reference Asset must have been reviewed and 
approved for the trading of Futures Securities or options or other 
derivatives by the Commission under Section 19(b)(2) of the Act and 
rules thereunder, and the conditions set forth in the Commission's 
approval order, including with respect to comprehensive surveillance 
sharing agreements, continue to be satisfied; or
     The pricing information for components of a Futures 
Reference Asset must be derived from a market which is an Intermarket 
Surveillance Group (``ISG'') member or affiliate member or with which 
the Exchange has a comprehensive surveillance sharing agreement. A 
Futures Reference Asset may include components representing not more 
than 10% of the dollar weight of such Futures Reference Asset for which 
the pricing information is derived from markets that do not meet the 
specified requirements; provided, however, that no single component 
subject to this exception exceeds 7% of the dollar weight of the 
Futures Reference Asset.
    In addition, the issue must meet both of the following initial 
listing criteria: (1) The value of the Futures Reference Asset must be 
calculated and widely disseminated by one or more major market data 
vendors on at least a 15-second basis during trading on the Exchange; 
and (2) in the case of Futures-Linked Securities that are periodically 
redeemable, the indicative value of the subject Futures-Linked 
Securities must be calculated and widely disseminated by one or more 
major market data vendors on at least a 15-second basis during trading 
on the Exchange.
    The Exchange will commence delisting or removal proceedings:
     If any of the initial listing criteria for Futures-Linked 
Securities are not continuously maintained;
     If the aggregate market value or the principal amount of 
the Futures-Linked Securities publicly held is less than $400,000;
     The value of the Futures Reference Asset is no longer 
calculated or available, and a new Futures Reference Asset is 
substituted, unless the new Futures Reference Asset meets the 
requirements of proposed Section 107H of the Amex Company Guide; or
     If such other event shall occur or condition exists that, 
in the opinion of the Exchange, makes further dealings on the Exchange 
inadvisable.

Combination-Linked Securities

    Combination-Linked Securities will be subject to the criteria in 
proposed Section 107I of the Amex Company Guide for initial and 
continued listing. Combination-Linked Securities are securities that 
provide for the payment at maturity of a cash amount based on the 
performance of any combination of two or more Equity Reference Assets, 
Commodity Reference Assets, Currency Reference Assets, Fixed Income 
Reference Assets, or Futures Reference Assets (collectively, 
``Combination Reference Asset,'' and together with Equity Reference 
Assets, Commodity Reference Assets, Currency Reference Assets, Fixed 
Income Reference Assets, and Futures Reference Assets, collectively, 
``Reference Assets''). In addition, a Combination Reference Asset may 
include as a component a notional investment in cash or a cash 
equivalent based on a widely accepted overnight loan interest rate, 
London Interbank Offered Rate (``LIBOR''), Prime Rate, or an implied 
interest rate based on observed market spot and foreign currency 
forward rates. The Exchange states that, for purposes of a notional 
investment as a component of a Multifactor Reference Asset, a long 
LIBOR weighting would represent a leverage charge offsetting long 
positions in the underlying Reference Assets.
    For the initial listing of a series of Combination-Linked 
Securities, each component of the Combination Reference Asset must: (1) 
Have been reviewed and approved for the trading of options or other 
derivatives by the Commission under Section 19(b)(2) of the Act and 
rules thereunder, and the conditions set forth in the Commission's 
approval order, including with respect to comprehensive surveillance 
sharing agreements, continued to be satisfied; or (2) meet the 
following requirements:
     Each Reference Asset included in the Combination Reference 
Asset must meet the applicable initial and continued listing criteria 
set forth in Sections 107D, 107E, 107F, 107G and/or 107H of the Amex 
Company Guide;
     The value of the Combination Reference Asset must be 
calculated and widely disseminated to the public on at least a 15-
second basis during the time the Combination-Linked Securities trade on 
the Exchange; and
     In the case of Combination-Linked Securities that are 
periodically redeemable, the indicative value of the Combination-Linked 
Securities must be calculated and widely disseminated by one or more 
major market data vendors on at least a 15-second basis during the time 
the Combination-Linked Securities trade on the Exchange.
    The Exchange will commence delisting or removal proceedings:
     If any of the initial listing criteria for Combination-
Linked Securities are not continuously maintained;
     If the aggregate market value or the principal amount of 
the Combination-Linked Securities publicly held is less than $400,000;
     The value of the Combination Reference Asset is no longer 
calculated or available, and a new Combination Reference is 
substituted, unless the new Combination Reference Asset meets the 
requirements of Section 107I of the Amex Company Guide; or
     If such other event shall occur or condition exists that, 
in the opinion of the Exchange, makes further dealings on the Exchange 
inadvisable.

Applicable Exchange Rules

    The New Linked Securities traded on the Exchange's equity trading 
floor will be subject to all Exchange rules governing the trading of 
equity securities. The Exchange's equity margin rules and the 
Exchange's regular trading hours (9:30 a.m. to 4 p.m. Eastern Time) 
will apply to transactions in the New Linked Securities. New Linked 
Securities listed and traded as bond or debt securities will be subject 
to the rules applicable to bond or debt securities, however, those New 
Linked Securities redeemable at the option of the holders thereof on at 
least a weekly basis will be subject to the trading rules applicable to 
exchange-traded funds.\17\
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    \17\ See proposed Sections 107G(k), 107H(k), and 107I(k) of the 
Amex Company Guide.
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Information Circular

    Upon evaluating the nature and complexity of each New Linked 
Security, the Exchange represents that it will prepare and distribute, 
if appropriate, an Information Circular to member organizations 
describing the products. Accordingly, the particular structure and 
corresponding risks of a New Linked Security will be highlighted and 
disclosed. The Information Circular will disclose whether the New 
Linked Security will trade as equity or debt, subject to

[[Page 25064]]

appropriate trading rules including, among others, rules governing 
priority, parity and precedence of orders, specialist responsibilities, 
account opening, and margin.
    The Information Circular will also detail the Exchange's 
suitability rule that requires a member organization recommending a 
transaction in these Securities: (1) To determine that such transaction 
is suitable for the customer (Amex Rule 411); and (2) to have a 
reasonable basis for believing that the customer can evaluate the 
special characteristics, and is able to bear the financial risks, of 
such transaction. In addition, the Information Circular will reference 
the requirement that Amex member organizations must deliver a 
prospectus to investors purchasing newly issued New Linked Securities 
prior to or concurrently with the confirmation of a transaction.

Surveillance

    The Exchange states that it will closely monitor activity in the 
New Linked Securities to identify and deter any potential improper 
trading activity. Additionally, the Exchange represents that its 
surveillance procedures are adequate to properly monitor the trading of 
the New Linked Securities. Specifically, the Exchange will rely on its 
existing surveillance procedures governing equities, options, and 
exchange-traded funds.\18\ The Exchange has developed procedures to 
closely monitor activity in the New Linked Securities and the 
underlying indexes and/or portfolios to identify and deter potential 
improper trading activity. To the extent applicable, the Exchange will 
be able to obtain trading and beneficial holder information from the 
primary trading markets for the portfolio components in relation to the 
New Linked Securities, either pursuant to bilateral information sharing 
agreements with those markets or because those markets are SRO members 
or affiliate members of ISG.
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    \18\ See proposed Sections 107G(j), 107H(j), and 107I(j) of the 
Amex Company Guide.
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Firewall Procedures

    If an underlying index is maintained by a broker-dealer, the 
broker-dealer is required to erect a ''firewall'' around the personnel 
responsible for the maintenance of such underlying index or who have 
access to information concerning changes and adjustments to the 
underlying index, and the underlying index must be calculated by a 
third party who is not a broker-dealer. Any advisory committee, 
supervisory board, or similar entity that advises an index license 
provider or that makes decisions regarding the underlying index or 
portfolio composition, methodology, and related matters must implement 
and maintain, or be subject to, procedures designed to prevent the use 
and dissemination of material, non-public information regarding the 
applicable underlying index or portfolio.\19\ The Exchange further 
proposes to apply Amex Rules 1203A and 1203B \20\ and 1204A and 1204B 
\21\ to Futures-Linked Securities and Combination-Linked Securities, to 
the extent such Combination-Linked Securities are comprised in part of 
Futures, Commodity, or Currency Reference Assets.
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    \19\ See proposed Sections 107G(i), 107H(i), and 107I(i) of the 
Amex Company Guide.
    \20\ Amex Rules 1203A and 1203B restrict the ability of the 
specialist firm for any issue of Commodity-Based Trust Shares and 
Currency Trust Shares or its affiliates to make markets in and trade 
the Commodity Reference Asset and/or Currency Reference Asset 
components, the commodities or currencies underlying the Commodity 
Reference Asset or Currency Reference Asset components, or options, 
futures, or options on futures on the Commodity Reference Asset or 
Currency Reference Asset, or any other derivatives based on the 
Commodity Reference Asset or Currency Reference Asset, any Commodity 
Reference Asset or Currency Reference Asset component, or any 
physical commodity or commodities underlying a Commodity Reference 
Asset component or any currency or currencies underlying a Currency 
Reference Asset component. See Amex Rules 1203A and 1203B. The 
Exchange maintains that these rules would similarly apply to the 
trading of the New Linked Securities to the extent such New Linked 
Securities are comprised in part of a Futures, Commodity, or 
Currency Reference Asset.
    \21\ Amex Rules 1204A and 1204B provide that specialists 
handling Commodity-Based Trust Shares and Currency Trust Shares 
provide the Exchange with all necessary information relating to 
their trading in underlying physical assets, commodities or 
currencies, related futures or options on futures, or any other 
related derivatives. See Amex Rules 1204A and 1204B. The Exchange 
maintains that these rules would similarly apply to the trading of 
New Linked Securities to the extent such New Linked Securities are 
comprised in part of a Futures, Commodity, or Currency Reference 
Asset.
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Trading Halts

    If the indicative value or the Reference Asset value applicable to 
a series of New Linked Securities is not being disseminated as 
required, the Exchange may halt trading during the day on which such 
interruption first occurs. If such interruption persists past the 
trading day in which it occurred, the Exchange will halt trading no 
later than the beginning of the trading day following the 
interruption.\22\
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    \22\ See proposed Sections 107G(h)(3), 107H(h)(3), and 
107I(h)(3) of the Amex Company Guide.
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III. Discussion and Commission's Findings

    After careful consideration, 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.\23\ In particular, the Commission finds that the proposed 
rule change is consistent with the requirements of Section 6(b)(5) of 
the Act,\24\ which requires, among other things, that the Exchange's 
rules be designed 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.
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    \23\ 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).
    \24\ 15 U.S.C. 78f(b)(5).
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A. Generic Listing Standards for the New Linked Securities

    To list and trade the New Linked Securities, the Exchange currently 
must file a proposed rule change with the Commission pursuant to 
Section 19(b)(1) of the Act \25\ and Rule 19b-4 thereunder.\26\ 
However, Rule 19b-4(e) provides that the listing and trading of a new 
derivative securities product by an SRO will not be deemed a proposed 
rule change pursuant to Rule 19b-4(c)(1) if the Commission has 
approved, pursuant to Section 19(b) of the Act, the SRO's trading 
rules, procedures, and listing standards for the product class that 
would include the new derivative securities product, and the SRO has a 
surveillance program for the product class.
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    \25\ 15 U.S.C. 78s(b)(1).
    \26\ 17 CFR 240.19b-4.
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    The Commission notes that it has previously approved substantively 
identical generic listing standards applicable to the same types of 
securities as proposed by Amex for another exchange.\27\ With respect 
to Fixed Income-Linked Securities, in particular, the Commission has 
approved generic listing standards pursuant to Rule 19b-4(e) for 
Portfolio Depositary Receipts and Index Fund Shares based on the 
performance of fixed income securities that are substantially similar 
to those proposed to be applicable to Fixed Income-Linked

[[Page 25065]]

Securities.\28\ With respect to the proposed generic listing standards 
for Combination-Linked Securities, the Commission has previously 
approved generic listing standards pursuant to Rule 19b-4(e) for 
Portfolio Depositary Receipts and Index Fund Shares based on the 
performance of a combination of assets.\29\ The Commission also notes 
that the proposed generic standards applicable to Futures-Linked 
Securities are substantively identical to those currently applicable to 
Commodity-Linked Securities with respect to the pricing information for 
the respective underlying assets.\30\ Lastly, the Commission notes that 
the proposed continued listing standards for each of the New Linked 
Securities are substantively identical to those existing standards 
applicable to Index-Linked Securities, Commodity-Linked Securities, and 
Currency-Linked Securities.\31\
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    \27\ See Securities Exchange Act Release No. 57701 (April 23, 
2008) (SR-NYSEArca-2008-20) (approving generic listing standards for 
Fixed Income Index-Linked Securities, Futures-Linked Securities, and 
Multifactor Index-Linked Securities).
    \28\ See Commentary .04 to Amex Rule 1000-AEMI and Commentary 
.03 to Amex Rule 1000A-AEMI (setting forth the generic listing and 
trading standards for Portfolio Depositary Receipts and Index Fund 
Shares based on an index or portfolio comprised of fixed income 
securities, respectively); see supra note 12 and accompanying text.
    \29\ See Commentary .05 to Amex Rule 1000-AEMI and Commentary 
.04 to Amex Rule 1000A-AEMI (setting forth the generic listing and 
trading standards for Portfolio Depositary Receipts and Index Fund 
Shares, respectively, based on a combination of assets representing 
equity and fixed income securities and requiring that each index or 
portfolio of equity or fixed income component securities separately 
satisfy its own applicable generic criteria for listing and trading 
pursuant to Rule 19b-4(e)).
    \30\ See Section 107E of the Amex Company Guide; see also infra 
note 42 and accompanying text.
    \31\ See supra note 16.
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    In approving the New Linked Securities for Exchange trading, the 
Commission considered applicable Exchange rules that govern their 
trading. The Commission believes that generic listing standards for the 
New Linked Securities should fulfill the intended objective of Rule 
19b-4(e) and allow securities that satisfy the proposed generic listing 
standards to commence trading without the need for public comment and 
Commission approval.\32\ The Exchange's ability to rely on Rule 19b-
4(e) to list and trade the New Linked Securities that meet the 
applicable requirements and minimum standards should reduce the time 
frame for bringing these securities to market and thereby reduce the 
burdens on issuers and other market participants, while also promoting 
competition and making such securities available to investors more 
quickly.
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    \32\ The Commission notes that the failure of a particular 
product or index to comply with the proposed generic listing 
standards under Rule 19b-4(e), however, would not preclude the 
Exchange from submitting a separate filing pursuant to Section 
19(b)(2) of the Act, requesting Commission approval to list and 
trade a particular series of the New Linked Securities.
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B. Listing and Trading the New Linked Securities

    Taken together, the Commission finds that the proposal contains 
adequate rules and procedures to govern the listing and trading of the 
New Linked Securities pursuant to Rule 19b-4(e) on the Exchange. 
Products listed and traded under the proposed generic standards will be 
subject to the full panoply of Amex rules and procedures that currently 
govern the trading of equity securities on the Exchange.
    The general listing requirements under Section 107D(a)-(f), Section 
107E(a)-(f), and Section 107F(a)-(f) of the Amex Company Guide, 
applicable to Index-Linked Securities, Commodity-Linked Securities, and 
Currency-Linked Securities, respectively, will similarly apply to the 
New Linked Securities under the proposed rule change.\33\ With respect 
to Fixed Income-Linked Securities, the definition of Fixed Income 
Reference Asset includes the same types of fixed income securities that 
may underlie Portfolio Depositary Receipts under Commentary .04 to Amex 
Rule 1000-AEMI and Index Fund Shares under Commentary .03 to Amex Rule 
1000A-AEMI.\34\ In addition, the Exchange's proposed eligibility 
criteria for Fixed Income Reference Assets, which are substantively 
identical to the criteria applicable to fixed income-based Portfolio 
Depositary Receipts and Index Fund Shares, include, among other things, 
minimum standards relating to original principal amount outstanding for 
each component of the Fixed Income Reference Asset, maximum 
concentration limits for each such component, and minimum number of 
non-affiliated issuers of such components.\35\ The Commission believes 
that these requirements should help to ensure that the underlying 
components of a Fixed Income Reference Asset are adequately 
capitalized, sufficiently liquid, and diversified. In addition, the 
Fixed Income Reference Asset must be widely disseminated to the public 
by one or more major market vendors at least once per business day 
during the time the Fixed Income-Linked Securities trade on the 
Exchange.
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    \33\ See supra note 10 and accompanying text.
    \34\ Compare proposed Sections 107G, 107H, and 107I of the Amex 
Company Guide with Commentary .04 to Amex Rule 1000-AEMI and 
Commentary .03 to Amex Rule 1000A-AEMI.
    \35\ See supra note 12.
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    In the case of Futures-Linked Securities, the underlying asset must 
either be an index of (1) futures on Treasury Securities, GSE 
Securities, supranational debt and debt of a foreign country or a 
subdivision thereof, or options or other derivatives on any of the 
foregoing, or (2) interest rate futures, or options on, or derivatives 
of, such interest rate futures. In addition, as with Commodity 
Reference Assets, Futures Reference Assets to which Futures-Linked 
Securities are linked must either have been reviewed and approved for 
trading by the Commission or the pricing information of their 
underlying components must be derived from certain required sources, 
subject to exceptions.\36\ These requirements should help to ensure 
that the components comprising a Futures Reference Asset are adequately 
transparent and subject to rules and standards of applicable exchanges 
that trade such components and that the Exchange is able to obtain 
information with respect to disruptions in, or unusual trading of, such 
components.\37\ To enhance the transparency of such Futures-Linked 
Securities, the proposal also would require (1) the value of the 
Futures Reference Asset to be calculated and widely disseminated by one 
or more major market data vendors on at least a 15-second basis during 
the time the Futures-Linked Securities trade on the Exchange, and (2) 
in the case of Futures-Linked Securities that are periodically 
redeemable, the indicative value of such securities to be calculated 
and widely disseminated by the Exchange or one or more major market 
data vendors on at least a 15-second basis during the time the Futures-
Linked Securities trade on the Exchange.
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    \36\ See infra note 42 and accompanying text.
    \37\ See id.
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    In the case of Combination-Linked Securities, the Combination 
Reference Asset may be comprised of any combination of two or more 
Reference Assets and a notional investment in cash or a cash equivalent 
based on a widely accepted overnight loan interest rate, LIBOR, Prime 
Rate, or an implied interest rate based on observed market spot and 
foreign currency forward rates. As stated earlier, the Commission notes 
that the proposed generic standards applicable to Combination-Linked 
Securities are substantially similar to those standards applicable to 
Portfolio Depositary Receipts and Index Fund Shares that are based on a 
combination of equity and fixed income securities in that each 
underlying Reference Asset must satisfy its own applicable minimum 
criteria and standards for the listing and trading of a series of

[[Page 25066]]

Combination-Linked Securities.\38\ In addition, under the proposed rule 
change, (1) the value of the Combination Reference Asset must be 
calculated and widely disseminated on at least a 15-second basis during 
the time such securities trade on the Exchange, and (2) in the case of 
Combination-Linked Securities that are periodically redeemable, the 
indicative value must be calculated and widely disseminated on at least 
a 15-second basis during the time such securities trade on the 
Exchange.
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    \38\ See supra note 28.
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    The Exchange has also developed continued listing criteria that 
would require it to commence delisting or removal proceedings in 
circumstances that make further dealings in the New Linked Securities 
inadvisable.\39\ The Commission notes that such standards are 
substantively identical to those continued listing standards currently 
applicable to Index-Linked Securities, Commodity-Linked Securities, and 
Currency-Linked Securities,\40\ and the Commission believes that such 
delisting criteria should help ensure the maintenance of fair and 
orderly markets for the New Linked Securities. The Commission further 
notes that, under the proposal, if the indicative value or Reference 
Asset value applicable to a series of the New Linked Securities is not 
disseminated as required, the Exchange may halt trading of such New 
Linked Securities during the day on which the interruption first 
occurs; however, if the interruption persists past the trading day on 
which it occurred, the Exchange will halt trading no later than the 
beginning of the trading day following the interruption. Such 
provisions relating to trading halts currently apply to Index-Linked 
Securities, Commodity-Linked Securities, and Currency-Linked 
Securities, and the Commission believes that the trading halt 
requirements should promote the availability of key information 
relating to the New Linked Securities for the benefit investors and 
other market participants.\41\
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    \39\ See proposed Sections 107G(h), 107H(h), and 107I(h) of the 
Amex Company Guide (providing that the Exchange will commence 
delisting or removal proceedings for any series of Fixed Income-
Linked Securities, Futures-linked Securities, and Combination-Linked 
Securities, respectively, if: (a) Any of the applicable initial 
listing criteria are not continuously maintained; (b) the aggregate 
market value or the principal amount of the applicable security 
publicly held is less than $400,000; (c) the value of the applicable 
Reference Asset is no longer calculated or available and a new 
Reference Asset is substituted, unless such new Reference Asset 
meets the requirements under Sections 107G, 107H, or 107I, as 
applicable; and (d) such other event shall occur or condition exists 
that, in the opinion of the Exchange, makes further dealings 
inadvisable).
    \40\ See supra note 16.
    \41\ Compare Sections 107D(h)(4), 107E(h)(4), and 107F(h)(4) of 
the Amex Company Guide with proposed Sections 107G(h)(3), 
107H(h)(3), and 107I(h)(3) of the Amex Company Guide.
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C. Surveillance

    The Commission notes that the New Linked Securities would be 
subject to the Exchange's existing surveillance procedures applicable 
to equities, options, and exchange-traded funds. The Exchange has 
represented that its surveillance procedures are adequate to properly 
monitor the trading of the New Linked Securities listed pursuant to 
these proposed generic listing standards and stated that it has 
developed such procedures to closely monitor activity in the New Linked 
Securities and their respective underlying indexes and/or portfolios to 
identify and deter any potential improper trading activity. In 
addition, the Commission notes that, with respect to the proposed New 
Linked Securities, the Exchange has represented that it will be able to 
obtain trading and beneficial holder information from the primary 
trading markets either pursuant to bilateral information sharing 
agreements with those markets or because those markets are SRO members 
or affiliate members of ISG. The Commission further notes that, for 
Futures-Linked Securities, the pricing information for components of a 
Futures Reference Asset must be derived from a market that is an ISG 
member or affiliate member or with which the Exchange has a 
comprehensive surveillance sharing agreement, subject to certain 
exceptions.\42\
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    \42\ See proposed Section 107H(g)(ii) of the Amex Company Guide 
(providing that the Futures Reference Asset may not include 
components representing more than 10% of the dollar weight of such 
Futures Reference Asset for which the pricing information is derived 
from markets that are neither ISG members or parties to a 
comprehensive surveillance sharing agreement with the Exchange and 
that no such single component may exceed 7% of the dollar weight of 
the Futures Reference Asset).
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D. Information Circular

    The Exchange has represented that it will prepare and distribute, 
if appropriate, an Information Circular to member organizations 
describing the New Linked Securities. Accordingly, the particular 
structure and corresponding risks of a New Linked Security will be 
highlighted and disclosed. The Information Circular will disclose 
whether the New Linked Security will trade as equity or debt, subject 
to appropriate trading rules including, among others, rules governing 
priority, parity and precedence of orders, specialist responsibilities, 
account opening, and margin. The Information Circular will also detail 
the Exchange's suitability rule and reference the requirement that Amex 
member organizations must deliver a prospectus to investors purchasing 
newly issued New Linked Securities prior to or concurrently with the 
confirmation of a transaction.

E. Firewall Procedures

    With respect to a series of New Linked Securities, if an underlying 
index is maintained by a broker-dealer, the broker-dealer is required 
to erect a ``firewall'' around the personnel responsible for the 
maintenance of such underlying index or who have access to information 
concerning changes and adjustments to the underlying index, and the 
underlying index must be calculated by a third party who is not a 
broker-dealer. Any advisory committee, supervisory board, or similar 
entity that advises an index license provider or that makes decisions 
regarding the underlying index or portfolio composition, methodology, 
and related matters must implement and maintain, or be subject to, 
procedures designed to prevent the use and dissemination of material, 
non-public information regarding the applicable underlying index or 
portfolio.\43\ The Exchange further proposes to apply Amex Rules 1203A 
and 1203B \44\ and 1204A and 1204B \45\ to Futures-Linked Securities 
and Combination-Linked Securities, to the extent such Combination-
Linked Securities are comprised in part of Futures, Commodity, or 
Currency Reference Assets.
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    \43\ See supra note 19.
    \44\ See supra note 20.
    \45\ See supra note 21.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\46\ that the proposed rule change (SR-Amex-2008-17), as modified 
by Amendment No. 1 thereto, be, and it hereby is, approved.
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    \46\ 15 U.S.C. 78s(b)(2).
    \47\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\47\
Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-9892 Filed 5-5-08; 8:45 am]

BILLING CODE 8010-01-P