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Notice

Self-Regulatory Organizations; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change and Amendment No. 1 Thereto by the American Stock Exchange LLC Relating to the Listing and Trading of Trust Issued Receipts

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Start Preamble May 16, 2001.

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 February 7, 2001, the American Stock Exchange LLC (“Amex” or “Exchange”) filed with the Securities and Exchange Commission (“Commission” or “SEC”) the proposed rule change, and amended such proposed rule change on May 8, 2001,[3] described in Items I, II, and III below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons and to approve the proposal and Amendment No. 1 on an accelerated basis.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

The Amex proposes to amend Amex Rule 1202 to provide eligibility requirements for Component Securities represented by a series of Trust Issued Receipts (“TIRs”) that became part of such TIR when the security was either: (a) Distributed by a company whose securities are already included as a Component Security in the series of TIRs; or (b) received in exchange for the securities of a company previously included as a Component Security that are no longer outstanding due to a merger, consolidation, corporate combination or other event. The text of the proposed rule filing is below. Additions are in italics; deletions are in brackets.

Trust Issued Receipts

Initial and Continued Listing

Rule 1202

Trust Issued Receipts will be listed and traded on the Exchange subject to application of the following criteria:

(a)-(e) No change.

* * * Commentary

.01 No change.

.02 The eligibility requirements for Component Securities that are represented by a series of Trust Issued Receipts and that became part of the Trust Issued Receipt when the security was either: (a) distributed by a company already included as a Component Security in the series of Trust Issued Receipts; or (b) received in exchange for the securities of a company previously included as a Component Security that is no longer outstanding due to a merger, consolidation, corporate combination or other event, shall be as follows:

(i) the Component Security must be listed on a national securities exchange or traded through the facilities of Nasdaq and a reported national market system security;

(ii) the Component Security must be registered under section 12 of the Exchange Act; and

(iii) the Component Security must have a Standard & Poor's Sector Classification that is the same as the Standard & Poor's Sector Classification represented by Component Securities included in the Trust Issued Receipt at the time of the distribution or exchange.

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

In September 1999, the Exchange adopted rules for the listing and trading Start Printed Page 28588of TIRs.[4] TIRs are negotiable receipts that are issued by trusts and represent investors' discrete identifiable and undivided beneficial ownership interest in the securities deposited into the trust. Since that time, the Exchange has listed 15 TIRs under the trade name HOLDRS, representing a wide variety of industry sectors (e.g., Internet, biotechnology, pharmaceutical and telecommunications), and the market as a whole (e.g., Market 2000+HOLDRS and Eurpoe 2001 HOLDRS).

In September 2000, to accommodate the listing of additional TIRs, the Exchange revised the existing listing criteria and trading rules to permit the listing and trading of TIRs pursuant to Rule 19b-4(e).[5] The Exchange established the following eligibility criteria for Component Securities represented by a series of TIRs:

  • Each Component Security must be registered under section 12 of the Exchange Act;
  • Each Component Security must have a minimum public float of at least $150 million;
  • Each Component Security must be listed on a U.S. national securities exchange or traded through the facilities of Nasdaq and a reported national market system security;
  • Each Component Security must have an average daily trading volume of at least 100,000 shares during the preceding sixty-day trading period;
  • Each Component Security must have an average daily dollar value of shares traded during the preceding sixty-day trading period of at least $1 million; and
  • The most heavily weighted Component Security may not initially represent more than 20% of the overall value of the TIR.

Recently, the rules relating to the distributions of securities by Component Securities in a trust has been revised to provide: (a) If a company whose securities are included in a series of TIRs distributes a security, the distributed security will remain in the trust as a Component Security if it is listed for trading on a U.S. national securities exchange or through the facilities of Nasdaq and its Standard & Poor's sector classification is the same as the sector classification represented by the other Component Securities in the trust at the time of the distribution; and (b) if the securities of a company that are included in a series of TIRs are no longer outstanding as a result of a merger, consolidation, corporate combination or other event, any securities received in exchange for those securities will remain in the trust as a Component Security if it is listed for trading on a U.S. national securities exchange or through the facilities of Nasdaq and its Standard & Poor's sector classification is the same as the sector classification represented by the other Component Securities in the trust at the time of the merger, consolidation, corporate combination or other event.

As a result of this change, a security that is automatically deposited into the trust as a result of a distribution or a corporate event may remain in the trust even though it does not meet all of the initial eligibility requirements set forth in Commentary .01 to Amex Rule 1202. For example, securities distributed by an issuer or exchanged in a merger generally do not have measurable price and trading histories, and may not have a minimum public float of $150 million. There is no requirement to review the securities that are represented by TIRs on an ongoing basis to determine whether Component Securities continue to meet the initial eligibility requirements. The Exchange now proposed to amend Amex Rule 1202 to provide eligibility requirements for a Component Security that became part of a trust when the security was either: (a) Distributed by a company already included as a Component Security in the series of TIRs; or (b) received in exchange for the securities of a company previously included as a Component Security and that are no longer outstanding due to a merger, consolidation, corporate combination or other event. The eligibility requirements for such Component Securities are as follows:

  • Such Component Security must be listed on national securities exchange or traded through the facilities of Nasdaq and a reported national market system security;
  • Such Component Security must be registered under Section 12 of the Exchange Act; and
  • Such Component Security must have a Standard & Poor's Sector Classification that is the same as the Standard & Poor's Sector Classification represented by Component Securities already included in the TIR at the time of the distribution or exchange.

The Exchange believes that it is appropriate in these limited situations to provide alternate eligibility criteria for Component Securities. To reduce the number of distributions of securities from the TIR which cause inconvenience and increased transaction and administrative costs for investors, it is useful to allow certain securities that are received as part of a distribution from a company or as the result of a merger, consolidation, corporate combination or other event to remain in the TIR. The proposed eligibility requirements ensure that Component Securities included in a TIR as a result of a distribution or exchange event are widely held (having been distributed to all of the shareholders holding the original Component Security), traded through the facilities of an exchange or Nasdaq and registered under section 12 of the Act.[6]

2. Statutory Basis

The Exchange believes the proposed rule change is consistent with section 6(b) of the Act [7] in general, and furthers the objectives of section 6(b)(5) [8] in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, promote just and equitable principles of trade, remove impediments to and perfect the mechanisms of a free and open market and a national market system, and, in general, protect investors and the public interest.

B. Self-Regulatory Organization's Statement on Burden on Competition

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

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

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, as amended, is consistent with the Act. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. Copies of the submission, all subsequent amendments, all written Start Printed Page 28589statements 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 will also be available for inspection and copying at the principal office of the Amex. All submissions should refer to the File No. SR-Amex-2001-04 and should be submitted by June 13, 2001.

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

After careful review, the Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange, and in particular, the requirements of section 6(b)(5) of the Act.[9] Specifically, the Commission finds that the proposal to provide an alternate eligibility criteria for Component Securities received as part of a distribution or as a result of a merger, consolidation, corporate combination or other event to remain in the trust will prevent fraudulent and manipulative acts and practices, promote just and equitable principles of trade, facilitate transactions in securities, remove impediments to and perfect the mechanism of a free and open market and a national market system and, in general, protect investors and the public interest, and is not designed to permit unfair discrimination between customers, issuers, brokers or dealers.[10]

The Amex has requested that the proposed rule change be given accelerated approval pursuant to section 19(b)(2) of the Act.[11]

The Commission finds good cause for approving the proposed rule change prior to the thirtieth day after the date of publication of the notice of filing thereof in the Federal Register pursuant to section 19(b)(2).[12] There are TIRs currently listed and trading that have adopted the revised distribution provisions and such distributed or exchange securities may have or will shortly become Component Securities in one or more trusts issuing TIRs. Accordingly, the Commission finds that it is consistent with section 6(b)(5) of the Act [13] to approve the proposal on an accelerated basis to accommodate such possibility.

It Is Therefore Ordered, pursuant to section 19(b)(2) of the Act,[14] that the proposed rule change (SR-Amex-2001-04) and Amendment No. 1 are hereby approved on an accelerated basis.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[15]

Jonathan G. Katz,

Secretary.

End Signature End Preamble

Footnotes

3.  Amendment No. 1 made non-substantive changes to the text of proposed Commentary .02 of Amex Rule 1202. See letter from Claire P. McGrath, Vice President and Special Counsel, Amex, to Nancy Sanow, Assistant Director, Division of Market Regulation, SEC, dated May 4, 2001.

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4.  See Securities Exchange Act Release No. 41892 (September 21, 1999), 64 FR 52559 (September 29, 1999).

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5.  Rule 19b-4(e), adopted by the Commission on December 8, 1998, permits the Exchange to list and trade new derivative securities products without a rule change provided the Exchange has in place trading rules, procedures, a surveillance program and listing standards that pertain to the class of securities covering the new product. See Securities Exchange Act Release No. 40761 (December 8, 1998), 63 FR 70921 (December 22, 1998).

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10.  In approving this proposed rule change, the Commission notes that it has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

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[FR Doc. 01-12934 Filed 5-22-01; 8:45 am]

BILLING CODE 8010-01-M