# 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 > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A94-21474 ## Record - **Collection:** Federal Register - **Document type:** Uncategorized Document - **Published:** August 31, 1994 ## Text 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. --------------------------------------------------------------------------- \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''). --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \2\See Securities and Exchange Act Release No. 27753 (March 1, 1990), 55 FR 8626 (March 8, 1990). --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \5\Id. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \7\17 CFR 200.30-3(a)(12) (1993). --------------------------------------------------------------------------- Margaret H. McFarland, Deputy Secretary. [FR Doc. 94-21474 Filed 8-30-94; 8:45 am] BILLING CODE 8010-01-M --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A94-21474. Public record. Not legal advice.