Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change and Amendment No. 1 to the 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. 34-34597; File No. SR-Amex-94-27]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change and Amendment No. 1 to the Proposed Rule Change by the American

Stock Exchange, Inc. Relating to the Listing and Trading of Indexed

Term Notes

August 25, 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 August

8, 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. On August 24, 1994, the Exchange

submitted Amendment No. 1 to the proposed rule change.\1\ The

Commission is publishing this notice to solicit comments on the

proposed rule change from interested persons.

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\1\In Amendment No. 1 to the proposed rule change, the Exchange

proposes to: (1) provide that at maturity, holders of the indexed

term notes will receive a minimum of 90% of the principal amount of

the indexed term notes; and (2) amend the listing standards

regarding foreign securities and American Depository Receipts

(``ADRs'') represented in the index underlying the indexed term

notes. See Letter from Benjamin Krause, Senior Vice President,

Capital Markets Group, Amex, to Michael Walinskas, Branch Chief,

Office of Market Supervision, Division of Market Regulation,

Commission, dated August 24, 1994 (``Amendment No. 1'').

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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 ten or more equity securities representing

industrial companies (``Index''). 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 or more actively-traded

equity securities. The securities to be included in the Index will

include the stocks of companies in basic industries such as chemicals,

metals, steel, aluminum, paper and oil. The specific composition of the

Index will be determined by the issuer, Lehman Brothers, Inc., based on

its market research and investment strategy, prior to approval of the

proposed rule change.

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\2\See Securities and 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.\3\ 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 a period of not less than one nor more than seven years from the

date of issue. Notes may provide for periodic payments and/or payments

at maturity based on whole or in part or in part on changes in the

value of the Index and may feature a ``cap'' on the maximum amount to

be paid either periodically or at maturity. Additionally, the Notes

shall provide that at maturity, holders will receive not less than 90%

of the principal amount of the Notes.\4\ 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.

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\3\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, Inc.) 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. 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 of and stockholders' equity in

excess of $20 million.

\4\See Amendment No. 1, supra note 1.

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Eligibility Standards for Index Components

The Components of the Index shall meet the following criteria: (1)

a minimum market capitalization of $75 million, except that up to 10%

of the component securities 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 up to 10% of the component securities 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 90% of the weight of the

Index and at least 80% of the total number of components 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 on the New York Stock Exchange, or will be listed on the Amex

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

traded through NASDAQ; (5) all components of the Index will be subject

to last sale reporting pursuant to Rule 11Aa3-1 of the Act; and (6) no

more than 20% of the weight of the Index shall be represented by

foreign securities or ADRs for which the Exchange does not have in

place a comprehensive surveillance sharing agreement with the

appropriate regulatory organization(s) in such country(ies).\5\

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\5\Id.

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Index Calculation

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 equity securities will be established

by the issuer representing an investment of a specified dollar amount

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 or 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.\6\ In all cases, the divisor will be adjusted,

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

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\6\Lehman Brothers, Inc. will not attempt to find a replacement

stock or compensate for the extinction of a security due to

bankruptcy or a similar event.

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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 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, N.W., Washington, D.C. 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, N.W.,

Washington, D.C. 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-94-27 and should be

submitted by September 21, 1994.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\7\

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\7\17 CFR 200.30-3(a)(12) (1993).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-21474 Filed 8-30-94; 8:45 am]

BILLING CODE 8010-01-M