Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the American Stock Exchange, Inc., Relating to the Listing and Trading of Indexed Term Notes

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34071; File No. SR-Amex-94-16]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change by the American Stock Exchange, Inc., Relating to the Listing

and Trading of Indexed Term Notes

May 17, 1994.

Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934

(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on May 13,

1994, the American Stock Exchange, Inc. (``Amex'' or ``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 Amex. The Commission is publishing this

notice to solicit comments on the proposed rule change from interested

persons.\1\

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\1\On May 16, 1994, the Amex filed Amendment No. 1 to the

proposed rule change to alter the eligibility standards for Index

(as defined herein) components as originally proposed. As amended,

non-U.S. component securities (stocks or American Depositary

Receipts) that are not subject to comprehensive surveillance

agreements may not in the aggregate represent more than two

components of the Index. See Letter from Claire McGrath, Managing

Director and Special Counsel, Derivative Securities, Amex, to

Michael Walinskas, Branch Chief, Office of Derivatives and Equity

Oversight, Division of Market Regulation, Commission, dated May 16,

1994.

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

of the Proposed Rule Change

The Exchange proposes to approve for listing and trading under

Section 107A of the Amex Company Guide (``Guide''), Indexed Term Notes

(``Notes''), the return on which is based in whole or in part on

changes in the value of a static portfolio of ten equity securities.

The text of the proposed rule change is available at the Office of the

Secretary, the Amex, and at the Commission.

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 Amex 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 the

Statutory Basis for, the Proposed Rule Change

Under section 107 of the Guide, the Exchange may approve for

listing and trading securities which cannot be readily categorized

under the listing criteria for common and preferred stocks, bonds,

debentures, or warrants.\2\ The Amex now proposes to list for trading

under section 107A of the Guide, Notes whose value is based in whole or

in part on a static index composed of ten actively-traded equity

securities to be determined and published by Lehman Brothers on or

about July 1, 1994 (``Index''). The securities to be included in the

Index will be announced by Lehman Brothers at or as close as possible

to the time of the offering of the Notes.

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\2\See Securities Exchange Act Release No. 27753 (March 1,

1990), 55 FR 8626 (March 8, 1990).

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The Notes will be non-convertible debt securities and will conform

to the listing guidelines under Section 107A of the Guide.

Specifically, the Notes must have: (1) A minimum public distribution of

one million trading units; (2) a minimum of 400 holders; (3) an

aggregate market value of at least $20 million; and (4) a term of at

least one year. Additionally, the issuer of the Notes (i.e., Lehman

Brothers) must have assets of at least $100 million, stockholders'

equity of at least $10 million, and pre-tax income of at least $750,000

in the last fiscal year or in two of the three prior fiscal years.\3\

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\3\As an alternative to these financial criteria, the issuer may

have either: (1) Assets in excess of $200 million and stockholders'

equity in excess of $10 million; or (2) assets in excess of $100

million and stockholders' equity in excess of $20 million.

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Although the specific maturity date will not be established until

immediately prior to the time of the offering, the Notes will provide

for maturity within approximately one year from the date of issue.

Notes may provide for periodic payments and/or payments at maturity

based in whole or in part on changes in the value of the Index. In

addition, the Notes may feature a ``cap'' on the maximum amount and/or

a ``floor'' on the minimum amount to be paid either periodically or at

maturity. Prior to the commencement of listing and trading of the

Notes, the Exchange shall distribute a circular to its membership

providing guidance with regard to member firm compliance

responsibilities, including appropriate suitability criteria and/or

guidelines.

The ten components of the Index shall meet the following criteria:

(1) A minimum market capitalization of $75 million, except that one

component security may have a market capitalization of not less than

$50 million; (2) trading volume in each of the six months prior to the

offering of the Notes of not less than one million shares, except that

one component security may have a trading volume in each of the six

months prior to the offering of the Notes of not less than 500,000

shares; (3) at least nine of the ten components of the Index will meet

the then current criteria for standardized options trading set forth in

Exchange Rule 915; (4) all components of the Index will be listed on

the Amex or the New York Stock Exchange, or will be National Market

securities traded through the National Association of Securities

Dealers Automated Quotation System; and (5) no more than two components

of the Index shall be non-U.S. securities that are not subject to

comprehensive surveillance sharing agreements between the appropriate

regulatory organizations.

The Index will be calculated using an ``equal dollar-weighting''

methodology designed to ensure that each of the component securities is

represented in an approximately equal dollar amount in the Index. To

create the Index, a portfolio of ten equity securities will be

established by the issuer, Lehman Brothers, representing an investment

of $10,000 in each component security (rounded to the nearest whole

share). The value of the Index will equal the current market value of

the sum of the assigned number of shares of each of the component

securities divided by the current Index divisor. The Index divisor will

initially be set to provide a benchmark value of 100.00 at the close of

trading on the day preceding the establishment of the Index.

The number of shares of each component stock in the Index will

remain fixed except in the event of certain types of corporate actions

such as the payment of a dividend (other than an ordinary cash

dividend), a stock distribution, stock split, reverse stock split,

rights offering, distribution, reorganization, recapitalization, or

similar event with respect to the component securities. The number of

shares of each component security may also be adjusted, if necessary,

in the event of a merger, consolidation, dissolution, or liquidation of

an issuer or in certain other events such as the distribution of

property by an issuer to shareholders, the expropriation or

nationalization of a foreign issuer of the imposition of certain

foreign taxes on shareholders of a foreign issuer. Shares of a

component security may be replaced (or supplemented) with other

securities under certain circumstances, such as the conversion of a

component stock into another class of security, the termination of a

depositary receipt program, or the spin-off of a subsidiary. If the

security remains in the Index, the number of shares of that security

may be adjusted, to the nearest whole share, to maintain the

component's relative weight in the Index at the level immediately prior

to the corporate action. In all cases, the divisor will be adjusted, if

necessary, to ensure continuity of the value of the Index.

The value of the Index will be calculated continuously by the Amex

and disseminated every 15 seconds over the Consolidated Tape

Association's Network B.

The Exchange believes that the proposed rule change is consistent

with section 6(b) of the Act, in general, and furthers the objectives

of section 6(b)(5) 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.

(B) Self-Regulatory Organization's Statement on Burden on Competition

The Amex does not believe that the proposed rule change will impose

any inappropriate burden on competition.

(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. 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 the self-regulatory organization 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. Persons making written submissions

should file six copies thereof with the Secretary, Securities and

Exchange Commission, 450 Fifth Street NW., Washington, DC 20549. 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 Section, 450 Fifth Street NW.,

Washington, DC. Copies of such filing will also be available for

inspection and copying at the principal office of the Amex. All

submissions should refer to File No. SR-Amex-94-16 and should be

submitted by June 13, 1994.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\4\

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\4\17 CFR 200.30-3(a)(12) (1993).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-12468 Filed 5-20-94; 8:45 am]

BILLING CODE 8010-01-M