Document ID: SEC-2008-0929-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: American Stock Exchange LLC
Posted Date: 2008-07-09T04:00Z

[Federal Register: July 9, 2008 (Volume 73, Number 132)]
[Notices]               
[Page 39352-39355]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09jy08-108]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58067; File No. SR-Amex-2008-54]

 
Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change Relating to Closed-End Fund of 
Hedge Fund Listing Requirements

June 30, 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 June 27, 2008, the American Stock Exchange LLC (``Amex'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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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 adopt ``generic'' listing standards for 
closed-end management investment companies (``Closed-End Funds'') of 
hedge funds (``Hedge Funds''). The text of the proposed rule change is 
below. [Bracketing] indicates text to be deleted and italics indicate 
text to be added.
* * * * *

Section 101 of the Company Guide

    (a) through (e) No Change
    (f) Closed-End Management Investment Companies--(1)The Exchange 
will generally authorize the listing of a closed-end management 
investment company registered under the Investment Company Act of 1940 
(a ``Closed-End Fund'') that meets the following criteria: (i)[(1)] 
Size--market value of publicly held shares or net assets of at least 
$20,000,000; or (ii)[(2)] A Closed-End Fund which is part of a group of 
Closed-End Funds which are or will be listed on the Exchange, and which 
are managed by a common investment adviser or investment advisers who 
are ``affiliated persons'' as defined in Section 2(a)(3) of the 
Investment Company Act of 1940 as amended (the ``Group''), is subject 
to the following criteria:
    (A)[i.] The Group has a total market value of publicly held shares 
or net assets of at least $75,000,000;

[[Page 39353]]

    (B)[ii.] The Closed-End Funds in the Group have an average market 
value of publicly held shares or net assets of at least $15,000,000; 
and
    (C)[iii.] Each Closed-End Fund in the Group has a market value of 
publicly held shares or net assets of at least $10,000,000.
    (iii)[(3)] Distribution--See Section 102(a).
    (2) Closed-End Fund of ``Hedge'' Funds. A Closed-End Fund of Hedge 
Funds for purposes of this provision means a Closed-End Fund that 
invests in one or more ``Hedge Funds'' as defined in subparagraph (3) 
below and may include other securities and/or assets. In addition to 
the requirements set forth above in subparagraph (1) to Section 101(f) 
of the Company Guide, a Closed-End Fund of Hedge Funds is required to 
meet the following requirements:
    (i) Net Asset Value. In order for a Closed-End Fund of Hedge Funds 
to be listed by the Exchange, the Closed-End Fund is required to 
provide for the calculation and prompt public dissemination of its net 
asset value (``NAV'') on at least a weekly basis.
    (ii) Underlying Hedge Funds. A Closed-End Fund of Hedge Funds is 
permitted to invest only in underlying Hedge Funds that provide for 
weekly, valuation reports prepared by an unaffiliated, independent 
third party. The underlying Hedge Fund and the Closed-End Fund or the 
registered investment adviser on behalf of the Closed-End Fund must 
enter into a contractual relationship whereby the underlying Hedge Fund 
agrees to provide the weekly valuation reports to the Closed-End Fund.
    (iii) Information Dissemination. A Closed-End Fund must 
contractually agree to publicly disseminate any material information 
that an underlying Hedge Fund makes available to its investors. Such 
material information shall be publicly disseminated at the same time 
such information is provided to the underlying Hedge Fund's investors.
    (3) Definition of Hedge Fund. A ``Hedge'' Fund for purposes of this 
Section 101(f) of the Company Guide means a trust, corporation or 
similar entity that would be an investment company under section 3(a) 
of the Investment Company Act of 1940 (the ``1940 Act'') but for the 
exception provided from that definition by either sections 3(c)(1) or 
3(c)(7) of the 1940 Act.
* * * * *

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 this proposal is to adopt specific listing criteria 
for Closed-End Funds \3\ that substantially invest their assets in 
underlying ``Hedge Funds.'' A ``Hedge Fund'' for purposes of this 
proposal is defined in proposed Section 101(f)(3) of the Amex Company 
Guide (the ``Company Guide'') as a trust, corporation or similar entity 
that would be an investment company under section 3(a) of the 
Investment Company Act of 1940 (the ``1940 Act'') but for the exception 
provided from that definition by either sections 3(c)(1) or 3(c)(7) of 
the 1940 Act.
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    \3\ Section 5(a) of the Investment Company Act of 1940 defines a 
``closed-end'' company as any management company other than an open-
end company. An ``open-end company'' means a management company 
which is offering for sale or has outstanding any redeemable 
security of which it is the issuer. Closed-end funds generally issue 
a limited number of shares and are under no obligation to redeem the 
shares outstanding as is the case of an open-end fund. Shares of 
closed-end funds typically are listed and traded on a stock 
exchange. Accordingly, similar to stock of other publicly traded 
companies, share prices of closed-end funds are determined by the 
pressures of supply and demand rather than by the value of the 
underlying assets.
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    Section 3(c)(1) of the 1940 Act exempts from the definition of an 
investment company any issuer whose outstanding securities are 
beneficially owned by not more than 100 persons and which is not making 
and does not presently propose to make a public offering of its 
securities. Section 3(c)(7) of the 1940 Act generally exempts any 
issuer, the outstanding securities of which are owned exclusively by 
persons who, at the time of acquisition of such securities, are 
qualified purchasers, and which is not making and does not at that time 
propose to make a public offering of such securities. Section 3(c)(7) 
also provides an exception to issuers if in addition to qualified 
purchasers, outstanding securities of that issuer are beneficially 
owned by not more than 100 persons who are not qualified purchasers.\4\
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    \4\ Section 2(a)(51) of the 1940 Act defines a ``qualified 
purchaser'' to mean (i) any natural person who owns not less than $5 
million in investments; (ii) any company that owns not less than $5 
million in investments and that is owned directly or indirectly by 
or for 2 or more natural persons who are related as siblings or 
spouse (including former spouses), or direct lineal descendants by 
birth or adoption, spouses of such persons, the estates of such 
persons, or foundations, charitable organizations, or trusts 
established by or for the benefit of such persons; (iii) any trust 
that is not covered by clause (ii) and that was not formed for the 
specific purpose of acquiring the securities offered, as to which 
the trustee or other person authorized to make decisions with 
respect to the trust, and each settlor or other person who has 
contributed assets to the trust, is a person described in clause 
(i), (ii), or (iv); or (iv) any person, acting for its own account 
or the accounts of other qualified purchasers, who in the aggregate 
owns and invests on a discretionary basis, not less than $25 million 
in investments.
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General Criteria for Closed-End Funds

    Closed-End Fund securities that are listed on the Exchange are 
required to meet the requirements set forth in Section 101(f) of the 
Company Guide. The requirements are intended to insure that each 
security of a Closed-End Fund listed on the Exchange has sufficient 
market value and public distribution. In this manner, the Exchange 
believes that Closed-End Fund securities meeting these initial listing 
requirements are by definition suitable for auction trading.
    Section 101(f) of the Company Guide provides the following criteria 
for the initial listing of a Closed-End Fund security:
     A market value of publicly held shares or net assets of at 
least $20,000,000; or
     A Closed-End Fund which is part of a group of Closed-End 
Funds which are or will be listed on the Exchange, and which are 
managed by a common investment adviser or investment advisers who are 
``affiliated persons'' as defined in Section 2(a)(3) of the 1940 Act 
(the ``Group''), and subject to the following criteria:
     The Group has a total market value of publicly held shares 
or net assets of at least $75,000,000;
     The Closed-End Funds in the Group have an average market 
value of publicly held shares or net assets of at least $15,000,000; 
and
     Each Closed-End Fund in the Group has a market value of 
publicly held shares or net assets of at least $10,000,000.

and

     Minimum public distribution of 500,000 shares, together 
with a

[[Page 39354]]

minimum of 800 public shareholders or a minimum public distribution of 
1,000,000 shares together with a minimum of 400 public shareholders. 
The Exchange may alternatively consider the listing of a Closed-End 
Fund's securities if the Closed-End Fund has a minimum of 500,000 
shares publicly held, a minimum of 400 public shareholders and daily 
trading volume in the issue has been approximately 2,000 shares or more 
for the six months preceding the date of application. In evaluating the 
suitability of an issue for listing under this trading provision, the 
Exchange undertakes a review of the nature and frequency of such 
trading activity and such other factors as it may determine to be 
relevant in ascertaining whether such issue is suitable for auction 
market trading. A security which trades infrequently will not be 
considered for listing even though average daily volume amounts to 
2,000 shares per day or more.
    Under the Exchange's proposal, a Closed-End Fund of Hedge Funds 
would be required to meet the current initial listing standards for the 
securities of Closed-End Funds as set forth in Section 101(f)(1) 
through (3) of the Company Guide. In addition, the proposal would also 
add additional listing requirements for the securities of a Closed-End 
Fund of Hedge Funds to meet in order to be listed on the Exchange as 
set forth in the Section below.

The Proposal

    The proposal seeks to revise Section 101(f) of the Company Guide to 
provide that in addition to the general listing requirements for 
securities of Closed-End Funds detailed above, a Closed-End Fund of 
Hedge Funds is required to meet the following requirements:
     The Closed-End Fund will be required to provide for the 
calculation and public dissemination of its net asset value (``NAV'') 
on at least a weekly basis.
     A Closed-End Fund of Hedge Funds will be permitted to 
invest only in underlying Hedge Funds that provide for weekly, 
valuation reports prepared by an unaffiliated, independent third party.
     Each underlying Hedge Fund and the Closed-End Fund or the 
registered investment adviser on behalf of the Closed-End Fund will 
also be required to enter into a contractual relationship whereby the 
underlying Hedge Fund agrees to provide the weekly valuation reports to 
the Closed-End Fund.
     A Closed-End Fund of Hedge Funds will be required to 
contractually agree to publicly disseminate any material information 
that an underlying Hedge Fund makes available to its investors. Such 
material information is required to be publicly disseminated at the 
same time such information is provided to the underlying Hedge Fund's 
investors.
    In connection with these proposed requirements, the Exchange would 
require representations from each Closed-End Fund of Hedge Funds 
consisting of (i) an obligation by the Closed-End Fund of Hedge Funds 
to provide for the calculation and public dissemination of its NAV on 
at least a weekly basis, (ii) a requirement that the Closed-End Fund of 
Hedge Funds will invest only in underlying Hedge Funds that provide 
weekly, independent valuation reports prepared by unaffiliated third 
parties, and (iii) a commitment that the Closed-End Fund of Hedge Funds 
has entered into a contractual relationship with the underlying Hedge 
Fund whereby the Hedge Fund agrees to provide weekly valuation reports 
to the Closed-End Fund. In addition, the Closed-End Fund of Hedge Funds 
will also be required to provide a representation to the Exchange that 
any material information that an underlying Hedge Fund makes available 
to its investors will also be publicly available via a publicly 
available website at the same time such information is provided to the 
Hedge Fund's investors.
    The Exchange believes that the additional listing standards for 
Closed-End Fund of Hedge Funds will provide alternatives to listing 
markets overseas as well as the traditional over-the-counter (``OTC'') 
markets. For example, the London Stock Exchange recently announced a 
$500 million public offering of the BlackRock Absolute Return 
Strategies Ltd which will provide investors access to BlackRock's 
Appreciation Strategy of investing in pools of hedge funds.\5\ The 
Exchange notes that Goldman Sachs recently announced the introduction 
of a new index mutual fund that is expected to track the average return 
of the hedge fund universe.\6\
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    \5\ See MarketWatch, ``BlackRock Launches IPO for London-listed 
fund,'' dated March 29, 2008.
    \6\ See Ignites.com, ``Goldman Unveils '40 Act Hedge Fund for 
the Masses,'' dated June 12, 2008. The Goldman Sachs Absolute Return 
Tracker Fund tracks the Goldman Sachs ART Index, a benchmark created 
in January 2007 to replicate the average return of approximately 
4,000 hedge funds in the Lipper TASS hedge fund database. See also 
Securities Act File No. 33-17619 and Investment Company Act File No. 
811-05349.
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    The Exchange submits that the instant proposal would permit the 
listing of the CINTRA Select Fund \7\ once the Fund's registration 
statement is declared effective. The CINTRA Select Fund is a Closed-End 
Fund of Hedge Funds that seeks capital appreciation through underlying 
Hedge Funds that employ a variety of absolute return investment 
strategies.
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    \7\ See CINTRA Select Fund, Inc. Form N-2 (Securities Act File 
No. 333-96821 and Investment Company Act File No. 811-21165).
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    The Exchange believes that the adoption of the proposed Closed-End 
Fund of Hedge Funds listing standards will attract additional interest 
in listing and trading Closed-End Fund of ``Hedge Funds'' on the 
Exchange for the benefit of investors and the marketplace. We believe 
an auction-market or exchange listing venue for ``hedge fund'' products 
should serve to strengthen the regulatory environment for these 
products through increased transparency and regulatory oversight.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Exchange Act \8\ in general and furthers the 
objectives of Section 6(b)(5) \9\ 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. The Exchange further 
believes that the proposal is expected to provide investors and the 
marketplace with additional exchange-listed investment opportunities, 
promoting increased transparency and regulatory oversight unavailable 
in the over-the-counter market.
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    \8\ 15 U.S.C. 78f.
    \9\ 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.

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

    The Exchange did not receive any written comments on the proposed 
rule change.

[[Page 39355]]

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding, or (ii) as to 
which Amex consents, the Commission will:
    (A) By order approve such proposed rule change; or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, 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-2008-54 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-Amex-2008-54. 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, on official business 
days between the hours of 10 a.m. and 3 p.m. Copies of the 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-2008-54 and should be submitted on or before July 30, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-15513 Filed 7-8-08; 8:45 am]

BILLING CODE 8010-01-P