Document ID: SEC-2008-0100-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: American Stock Exchange LLC
Posted Date: 2008-01-22T05:00Z

[Federal Register: January 22, 2008 (Volume 73, Number 14)]
[Notices]               
[Page 3765-3767]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22ja08-103]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57150; File No. SR-Amex-2007-130]

 
Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing and Order Granting Accelerated Approval of a Proposed 
Rule Change, as Modified by Amendment Nos. 1 and 2 Thereto, Relating to 
Certain Modifications to the Initial Listing Standards for Index-Linked 
Securities, Commodity-Linked Securities, and Currency-Linked Securities

January 15, 2008.
    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 November 30, 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 December 5, 2007, the Exchange filed Amendment No. 1 to the proposed 
rule change. On December 21, 2007, the Exchange filed Amendment No. 2 
to the proposed rule change. This order provides notice of the proposed 
rule change, as amended, and approves the proposed rule change, as 
modified by Amendment Nos. 1 and 2 thereto, 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 sections 107D, 107E, and 107F of the 
Amex Company Guide to revise the initial listing standards applicable 
to Index-Linked Securities, Commodity-Linked Securities, and Currency-
Linked Securities (collectively, the ``Section 107 Securities''),\3\ 
respectively. In addition, the Exchange proposes a conforming revision 
to Commentary .05 to Amex Rule 411 to apply the suitability standard to 
all derivative securities that seek investment results based on a 
multiple of the direct or inverse performance of an underlying asset. 
The text of the proposed rule change is available at the Exchange, the 
Commission's Public Reference Room, and http://www.amex.com.

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    \3\ 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 of equity securities (``Underlying 
Index''). See Section 107D of the Amex Company Guide. Commodity-
Linked Securities are securities that provide for the payment at 
maturity of a cash amount based on the performance of one or more 
physical commodities or 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 
(``Commodity Reference Asset''). See Section 107E of the Amex 
Company Guide. 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 (``Currency Reference Asset,'' and, together with the 
Underlying Index and Commodity Reference Asset, collectively, the 
``Reference Asset''). See Section 107F of the Amex Company Guide.
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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 IV 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
    The purpose of the proposed rule change is to amend the generic 
listing standards of sections 107D, 107E, and 107F of the Amex Company 
Guide so that section 107 Securities may be listed where the positive 
and/or negative payment at maturity may be accelerated by a multiple of 
the performance of the underlying Reference Asset. The Exchange 
believes that liberalizing the existing listing criteria for section 
107 Securities will benefit the marketplace and investors by providing 
additional risk/return alternative structures.
    Sections 107D, 107E, and 107F of the Amex Company Guide set forth 
the generic listing standards that permit the Exchange to list and 
trade Index-Linked Securities, Commodity-Linked Securities, and 
Currency-Linked Securities, respectively, pursuant to Rule 19b-4(e) 
under the Act.\4\ Currently,

[[Page 3766]]

the respective generic listing standards for such securities state, 
among other requirements, that the payment at maturity may or may not 
provide for a multiple of the positive performance of the applicable 
underlying Reference Asset, and in no event may payment at maturity be 
based on a multiple of the negative performance of the applicable 
underlying Reference Asset.
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    \4\ See 17 CFR 240.19b-4(e). 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 paragraph (c)(1) of Rule 19b-4, 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 derivatives securities 
product, and the SRO has a surveillance program for the product 
class.
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    Amex seeks to clarify and amend the generic listing standards for 
each of the section 107 Securities such that, with respect to the 
listing and trading of an issue of such securities pursuant to Rule 
19b-4(e): (1) The payment at maturity may or may not provide for a 
multiple of the direct or inverse performance of the applicable 
Reference Asset; and (2) in no event may a loss or negative payment at 
maturity be accelerated by a multiple that exceeds twice the 
performance of the applicable Reference Asset. The Exchange believes 
that the current restriction in the generic listing standards for each 
of the section 107 Securities is unnecessarily limiting, given the 
changes in the market for these securities and the demand for differing 
structures. In addition, the Exchange notes that certain exchange-
traded funds (``ETFs'') seeking to provide (a) investment results that 
correspond to or exceed twice (200%) the direct performance of a 
specified stock index, or (b) investment results that correspond to 
twice (-200%) the inverse or opposite of the index's performance, are 
currently listed and traded on the Exchange.\5\
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    \5\ See, e.g., Securities Exchange Act Release Nos. 52553 
(October 3, 2005), 70 FR 59100 (October 11, 2005) (SR-Amex-2004-62) 
(approving the listing and trading of shares of the xtraShares 
Trust); 54040 (June 23, 2006), 71 FR 37629 (June 30, 2006) (SR-Amex-
2006-41) (approving the listing and trading of shares of the 
ProShares Trust); 55117 (January 17, 2007), 72 FR 3442 (January 25, 
2007) (SR-Amex-2006-101) (approving the listing and trading of 
shares of the ProShares Trust based on various sector indexes); 
56592 (October 1, 2007), 72 FR 57364 (October 9, 2007) (SR-Amex-
2007-60) (approving the listing and trading of shares of the 
ProShares Trust based on various international equity indexes); and 
56713 (October 29, 2007), 72 FR 61915 (November 1, 2007) (SR-Amex-
2007-74) (approving the listing and trading of shares of funds of 
the Rydex ETF Trust).
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    The Exchange also seeks to amend Commentary .05 to Amex Rule 411 
(Duty to Know and Approve Customers). Section 107 Securities are 
subject to the general eligibility or suitability requirements existing 
for all products listed and traded on Amex, as set forth in Amex Rule 
411. The Exchange specifically seeks to apply Commentary .05 to Amex 
Rule 411 to all section 107 Securities that seek investment results 
based on a multiple of the direct or inverse performance of an 
underlying Reference Asset.
    Currently, Commentary .05 to Amex Rule 411 is limited to Index Fund 
Shares, listed pursuant to Amex Rule 1000A(b)(2), that seek to provide 
investment results that either exceed the performance of a specified 
foreign or domestic stock index by a specified multiple or that 
correspond to the inverse (opposite) of the performance of such index 
by a specified multiple. The proposed revision would apply Commentary 
.05 to Amex Rule 411 to all derivative securities, including Index-
Linked Securities, Commodity-Linked Securities, and Currency-Linked 
Securities, that seek to provide investment results that either exceed 
the performance of an underlying reference asset by a specified 
multiple or that correspond to the inverse (opposite) of the 
performance of an underlying reference asset by a specified multiple.
    Prior to commencement of trading, the Exchange will issue an 
Information Circular to its members and member organizations providing 
guidance with regard to member firm compliance responsibilities 
(including suitability obligations) when effecting transactions in 
section 107 Securities that seek investment results based on a multiple 
of the direct or inverse performance of an underlying Reference Asset 
and highlighting the special risks and characteristics of the 
securities and applicable Exchange rules. This Information Circular 
will set forth the requirements relating to Commentary .05 to Amex Rule 
411. Specifically, the Information Circular will remind members of 
their obligations in recommending transactions in the securities so 
that members have a reasonable basis to believe that (1) the 
recommendation is suitable for a customer given reasonable inquiry 
concerning the customer's investment objectives, financial situation 
and needs, and any other information known by such member, and (2) the 
customer can evaluate the special characteristics, and is able to bear 
the financial risks, of such investment. In connection with the 
suitability obligation, the Information Circular will also provide that 
members make reasonable efforts to obtain the following information: 
(1) The customer's financial status; (2) the customer's tax status; (3) 
the customer's investment objectives; and (4) such other information 
used or considered to be reasonable by such member or registered 
representative in making recommendations to the customer.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\6\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\7\ 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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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes the proposed rule change will impose no 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Exchange states that no written comments were solicited or 
received with respect to 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-2007-130 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-2007-130. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your

[[Page 3767]]

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, 100 F Street, NE., Washington, DC 20549, on official 
business days between the hours of 10 a.m. and 3 p.m. Copies of such 
filing also will be available for inspection and copying at the 
principal office 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-2007-130 and should be submitted on or before 
February 12, 2008.

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

    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.\8\ In particular, the Commission finds that the proposed rule 
change is consistent with section 6(b)(5) of the Act,\9\ which requires 
that the rules of a national securities 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 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\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the Exchange's proposal is consistent 
with the Act, and, in particular, reasonably balances the removal of 
impediments to a free and open market with the protection of investors 
and the public interest, two principles set forth in section 6(b)(5) of 
the Act. The Commission notes that a variety of exchange-traded funds 
seeking to provide (a) investment results that correspond to or exceed 
twice (200%) the direct performance of a specified stock index, or (b) 
investment results that correspond to twice (-200%) the inverse or 
opposite of the index's performance, are currently listed and traded on 
the Exchange.\10\ In addition, the Commission further believes that 
heightened suitability standards are appropriate for derivative 
securities products, including section 107 Securities, that seek to 
provide investment results that correspond to the direct or inverse 
performance of an underlying reference asset by a specified multiple 
and allow for a loss or negative payment at maturity to be accelerated 
by a specified multiple. Before recommending transactions in these 
types of leveraged products, Exchange members must have a reasonable 
basis to believe that the customer can evaluate the special 
characteristics, and is able to bear the financial risks, of such 
investment. The Commission expects the Exchange to continue to monitor 
the application of its suitability requirements, including those under 
Commentary .05 to Amex Rule 411, as proposed.
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    \10\ See supra note 5 and accompanying text.
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    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the date of publication of 
notice thereof in the Federal Register. The Commission notes that it 
has approved identical revisions to the initial listing standards for 
the same type of derivative securities products, as proposed by another 
national securities exchange.\11\ With respect to the revisions to 
Commentary .05 to Amex Rule 411, the Commission believes that the 
proposal strengthens the suitability standards and raises no new 
regulatory issues. Accordingly, the Commission finds good cause for 
approving the proposal on an accelerated basis, pursuant to section 
19(b)(2) of the Act.
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    \11\ See Securities Exchange Act Release No. 57149 (January 15, 
2008) (SR-NYSEArca-2007-122) (approving the proposal to make 
substantively identical revisions to the initial listing standards 
for Index-Linked Securities listed and/or traded on NYSE Arca, Inc. 
(``NYSE Arca'')). See also Securities Exchange Act Release No. 56907 
(December 5, 2007), 72 FR 70640 (December 12, 2007) (SR-NYSEArca-
2007-122) (providing notice of the proposal to make substantively 
identical revisions to the initial listing standards for Index-
Linked Securities listed and/or traded on NYSE Arca).
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VI. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-Amex-2007-130), as modified 
by Amendment Nos. 1 and 2 thereto, be, and it hereby is, approved on an 
accelerated basis.
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    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-996 Filed 1-18-08; 8:45 am]

BILLING CODE 8011-01-P