Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the American Stock Exchange, Inc. Relating to S&P MidCap 400 Depositary Receipts

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-35127; File No. SR-Amex-94-52]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change by the American Stock Exchange, Inc. Relating to S&P MidCap 400

Depositary Receipts

December 20, 1994

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

(``Act''),\1\ notice is hereby given that on November 22, 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.

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\1\15 U.S.C. 78s(b)(1) (1982).

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

Substance of the Proposed Rule Change

The Amex proposes to list and trade under Amex Rules 1000 et seq.

Standard & Poor's (``S&P'') MidCap 400 Depositary Receipts. In

addition, the Exchange proposes to amend Amex Rule 1000 (b)(1) to

include reference to the alternative reinvestment of periodic cash

payments to holders, and to amend Amex Rule 1004 to extend it to the

S&P MidCap 400 Index.

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

the Secretary, 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 self-regulatory organization

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 self-regulatory organization

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. Portfolio Depositary Receipts

On December 11, 1992, the Commission approved Amex Rules 1000 et

seq.\2\ to accommodate trading on the Exchange of Portfolio Depositary

Receipts (``PDRs''). PDRs are securities that represent interests in a

unit investment trust (``Trust'') operating on an open-end basis and

holding a portfolio of securities. The Trust sponsor (``Sponsor'') of

each series of PDRs is PDR Services Corporation, a wholly-owned

subsidiary of the Amex.\3\ Each Trust is intended to provide investors

with an instrument that closely tracks the underlying securities

portfolio, that trades like a share of common stock, and that pays to

PDR holders periodic dividends proportionate to those paid with respect

to the underlying portfolio of securities, less certain expenses, as

described in the applicable Trust prospectus. The first Trust to be

formed in connection with the issuance of PDRS was based on the S&P 500

Index (``S&P Index''), known as Standard & Poor's Depositary Receipts

(``SPDRs''). SPDRs have been trading on the Exchange since January 29,

1993.

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\2\See Securities Exchange Act Release No. 31591 (December 11,

1992), 57 FR 60253.

\3\Portfolio Depositary Receipts and PDRs are service marks of

PDR Services Corporation.

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The Exchange now proposes to list and trade under Rules 1000 et

seq. Standard & Poor's Midcap 400 Depositary Receipts (``MidCap

SPDRs'').\4\ The Sponsor will enter into a trust agreement with a

trustee in accordance with Section 26 of the Investment Company Act of

1940. PDR Distributors, Inc. (``Distributor'') will act as underwriter

of MidCap SPDRs on an agency basis. All orders to create MidCap SPDRs

in Creation Unit size aggregations must be placed with the Distributor,

and it will be the responsibility of the Distributor to transmit such

orders to the Trustee. The Distributor is a registered broker-dealer, a

member of the National Association of Securities Dealers, Inc., and a

wholly-owned subsidiary of Signature Financial Group, Inc.

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\4\``Standard & Poor's 500,'' ``Standard & Poor's MidCap 400

Index,'' ``Standard & Poor's Depositary Receipts,'' ``SPDRs,''

``Standard & Poor's MidCap 400 Depositary Receipts,'' and ``MidCap

SPDRs'' are trademarks of McGraw-Hill, Inc., and are being used by

the Exchange and the Sponsor under license among Standard & Poor's,

a division of McGraw-Hill, Inc., the Exchange, and the Sponsor.

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To be eligible to place orders to create MidCap SPDRs as described

below, an entity or person either must be a participant in the

Continuous Net Settlement (``CNS'') system of the National Securities

Clearing Corporation (``NSCC'') or a Depository Trust Company (``DTC'')

participant. Upon acceptance of an order to create MidCap SPDRs, the

Distributor will instruct the Trustee to initiate the book-entry

movement of the appropriate number of MidCap SPDRs to the account of

the entity placing the order. MidCap SPDRs will be registered in book-

entry only, which records will be kept by DTC.

Payment with respect to creation orders placed through the

Distributor will be made by (1) the ``in-kind'' deposit with the

Trustee of a specified portfolio of securities that is formulated to

mirror, to the extent practicable, the component securities of the

underlying index or portfolio, and (2) a cash payment sufficient to

enable the Trustee to make a distribution to the holders of beneficial

interests in the Trust on the next dividend payment date as if all the

securities had been held for the entire accumulation period for the

distribution (``Dividend Equivalent Payment''), subject to certain

specified adjustments.\5\ The securities and cash accepted by the

Trustee are referred to, in the aggregate, as a ``Portfolio Deposit.''

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\5\See ``Distributions,'' infra.

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It is anticipated that the term of the MidCap SPDR Trust will be 25

years.

2. Issuance of MidCap SPDRs

Upon receipt of a Portfolio Deposit in payment for a creation order

placed through the Distributor as described above, the Trustee will

issue a specified number of MidCap SPDRs, which aggregate number is

referred to as a ``Creation Unit.'' The Exchange anticipates that, with

respect to MidCap SPDRs, a Creation Unit will be made up of 25,000

MidCap SPDRs. Individual MidCap SPDRs can then be traded in the

secondary market like other equity securities. It is expected that

Portfolio Deposits will be made primarily by institutional investors,

arbitragers, and the Exchange specialist. As of November 17, 1994, it

is estimated that the value of an individual MidCap SPDR would be

approximately $34.37.

It is expected that the Trustee or Sponsor will make available (a)

on a daily basis, a list of the names and required number of shares for

each of the securities in the current Portfolio Deposit; (b) on a

minute-by-minute basis throughout the day, a number representing the

value (on a per MidCap SPDR basis) of the securities portion of a

Portfolio Deposit in effect on such day; and (c) on a daily basis, the

accumulated dividends, less expenses per outstanding MidCap SPDR.

Transactions in MidCap SPDRs may be effected on the Exchange until

4:15 p.m. New York time each business day. The minimum fractional

change for MidCap SPDRs shall be \1/32\ of $1.00.

3. Redemption

MidCap SPDRs in Creation Unit size aggregations will be redeemable

in kind by tendering them to the Trustee. While holders may sell MidCap

SPDRs in the secondary market at any time, they must accumulate at

least 25,000 (or multiples thereof) to redeem them through the Trust.

MidCap SPDRs will remain outstanding until redeemed or until the

termination of the Trust. Creation Units will be redeemable on any

business day in exchange for a portfolio of the securities held by the

Trust identical in weighting and composition to the securities portion

of a Portfolio Deposit in effect on the date request is made for

redemption, together with a ``Cash Component'' (as defined in the Trust

prospectus), including accumulated dividends, less expenses, through

the date of redemption. The number of shares of each of the securities

transferred to the redeeming holder will be the number of shares of

each of the component stocks in a Portfolio Deposit on the day a

redemption notice is received by the Trustee, multiplied by the number

of Creation Units being redeemed. Nominal service fees may be charged

in connection with the creation and redemption of Creation Units. The

Trustee will cancel all tendered Creation Units upon redemption.

4. Distributions

The MidCap SPDR Trust will pay dividends quarterly. The regular

quarterly ex-dividend date for MidCap SPDRs will be the third Friday in

March, June, September, and December, unless such day is a New York

Stock Exchange holiday, in which case the ex-dividend date will be the

preceding Thursday (the ``ex-dividend date''). Holders of MidCap SPDRs

on the business day preceding the ex-dividend date will be entitled to

receive an amount representing dividends accumulated through the

quarterly dividend period preceding such ex-dividend date net of fees

and expenses for such period. The payment of dividends will be made on

the last Exchange business day in the calendar month following the ex-

dividend date (``Dividend Payment Date''). On the Dividend Payment

Date, dividends payable for those securities with ex-dividend dates

falling within the period from the ex-dividend date most recently

preceding the current ex-dividend date through the business day

preceding the current ex-dividend date will be distributed. The Trustee

will compute on a daily basis the dividends accumulated within each

quarterly dividend period. Dividend payments will be made through DTC

and its participants to all such holders with funds received from the

Trustee. The MidCap SPDR Trust intends to make the DTC Dividend

Reinvestment Service available for use by MidCap SPDR holders through

DTC Participant brokers for reinvestment of their cash proceeds. An

interested investor would have to commit his or her broker to ascertain

the availability of dividend reinvestment through such broker.

5. Criteria for Initial and Continued Listing

Because of the open-end nature of the Trust upon which a series of

PDRs is based, the Exchange believes it is necessary to maintain

appropriate flexibility in connection with listing a specific Trust. In

connection with initial listing, the Exchange establishes a minimum

number of PDRs required to be outstanding at the time of commencement

of Exchange trading. For MidCap SPDR, it is anticipated that a minimum

of 75,000 MidCap SPDR (i.e., three Creation Units of 25,000 MidCap SPDR

each), will be required to be outstanding when trading begins.

The MidCap SPD Trust will be subject to the initial and continued

listing criteria of Rule 1002(b). Rule 1002(b) provides that, following

twelve months from the formation of a Trust and commencement of

Exchange trading, the Exchange will consider suspension of trading in,

or removal from listing of, a Trust when, in its opinion, further

dealing in such securities appears unwarranted under the following

circumstances:

(a) If the Trust on which the PDRs are based has more than 60 days

remaining until termination and there have been fewer than 50 record

and/or beneficial holders of the PDRs for 30 or more consecutive

trading days; or

(b) If the index on which the Trust is based is no longer

calculated; or

(c) If such other event shall occur or condition exists which in

the opinion of the Exchange, makes further dealings on the Exchange

inadvisable.

A Trust shall terminate upon removal from Exchange listing and its

PDRs redeemed in accordance with provisions of the Trust prospectus. A

Trust may also terminate under such other conditions as may be set

forth in the Trust prospectus. For example, the Sponsor, following

notice to PDR holders, shall have discretion to direct that the Trust

be terminated if the value of securities in such Trust falls below a

specified amount.\6\ The MidCap SPD Trust will also terminate if the

license agreement with S&P terminates.

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\6\With respect to the MidCap SPDR Trust, the Sponsor has the

discretionary right to terminate the Trust if the value of Trust

Securities (as defined in the Trust registration statement) falls

below $25,000,000 at any time after six months following, and prior

to three years following, inception of the Trust. Following such

time, the Sponsor has the discretionary right to terminate if Trust

Securities fall below $100,000,000 in value, adjusted annually for

inflation.

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6. Trading Halts

Prior to commencement of trading in MidCap SPDRs, the Exchange will

issue a circular to members informing them of exchange policies

regarding trading halts in such securities. The circular will make

clear that, in addition to other factors that may be relevant, the

Exchange may consider factors such as those set forth in Rule 918C(b)

in exercising its discretion to halt or suspend trading. These factors

would include whether trading has been halted or suspended in the

primary market(s) for any combination of underlying stocks accounting

for 20% or more of the applicable current index group value;\7\ or

whether other unusual conditions or circumstances detrimental to the

maintenance of a fair and orderly market are present.\8\

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\7\Amex Rule 918C(b)(3).

\8\Amex Rule 918C(b)(4).

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7. Terms and Characteristics

Under Amex Rule 1000, Commentary .01, Amex members and member

organizations are required to provide to all purchasers of MidCap SPDRs

a written description of the terms and characteristics of such

securities, in a form prepared by the Exchange, not later than the time

a confirmation of the fist transaction in each series is delivered to

such purchaser. The Exchange also requires that such a description be

included with any sales material on MidCap SPDRs that is provided to

customers or the public. In addition, the Exchange requires that

members and member organizations provide customers the prospectus for

MidCap SPDRs upon request.

A member or member organization carrying an omnibus account for a

non-member broker-dealer is required to inform such non-member that

execution of an order to purchase MidCap SPDRs for that omnibus account

will be deemed to constitute agreement by the non-member to make the

written description available to its customers on the same terms as are

directly applicable to members and member organizations.

Prior to commencement of trading MidCap SPDRs, the Exchange will

distribute to exchange members and member organizations an Information

Circular calling attention to characteristics of the MidCaps SPDR Trust

and to applicable Exchange rules.

8. Amendments to Rules 1000(b) and 1004

The Exchange proposes to amend the definition of Portfolio

Depositary Receipt in Rule 1000(b) to add a reference to the possible

provision by a Trust of reinvestment of periodic cash proceeds

corresponding to the regular cash dividends or declarations declared

with respect to the underlying stock index securities or portfolio of

securities.

The Exchange proposes to amend Rule 1004, S&P 500 Index, to add

appropriate references to the S&P MidCap 400 Index.

9. Basis

The Exchange believes that the proposed rule change is consistent

with Section 6(b) of the Act. Specifically, the Exchange believes that

its proposal is consistent with the objectives of Section 6(b)(5) of

the Act 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

regulating, clearing, settling, processing information with respect to,

and facilitating transactions in, securities, and in general to protect

investors and the public interest. The Exchange believes that Portfolio

Depositary Receipts, generally, and SPDRs and MidCap SPDRs

specifically, have the potential to benefit the markets by providing an

alternate trading instrument, such as those encouraged by the Division

of Market Regulation in its report, The October 1987 Market Break, that

may help temper market volatility and reduce stress on individual index

component stocks during unusual market conditions.

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

The Amex believes that the proposed rule change will not impose any

burden on competition.

(C) Self-Regulatory Organization's Statement on Comments on the

Proposed Rule Change Received from Members, Participants, or Others

Written comments on the proposed rule change were neither solicited

nor received.

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 above-mentioned

self-regulatory organization. All submissions should refer to File No.

SR-Amex-94-52 and should be submitted by January 17, 1995.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\9\

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\9\17 CFR 200.30-3(a)(12) (1993).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-31881 Filed 12-27-94; 8:45 am]

BILLING CODE 8010-01-M