Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change By the American Stock Exchange, Inc. Relating to the Listing of Warrants Based on the Deutscher Aktienindex (DAX)

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-35249; International Series Release No. 775 File No.

SR-Amex-94-55]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change By the American Stock Exchange, Inc. Relating to the Listing of

Warrants Based on the Deutscher Aktienindex (DAX)

January 19, 1995.

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 December

5, 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.

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 106 of the Amex Company Guide (``Guide'') warrants based on the

Deutscher Aktienindex (``DAX Index'' or ``Index''), a capitalization-

weighted index of 30 German stocks trading on the Frankfurt Stock

Exchange (``FSE''). 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 Propose 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 106 (Currency and Index Warrants) of the Guide, the

Exchange may approve for listing index warrants based on established

foreign and domestic market indexes.\1\ The Amex is currently trading a

number of issues of index warrants pursuant to Section 106.\2\

\1\The Commission notes that the Exchange has filed a proposed

rule change that would, among other things, revise the criteria

pursuant to Rule 106 for listing stock index and currency warrants.

These new standards will apply to Index warrants issued following

approval of that proposal rule change. See Securities Exchange Act

Release No. 35086 (December 12, 1994), 59 FR 65561 (December 20,

1994) (notice of File No. SR-Amex-94-38).

\2\See Securities Exchange Act Release Nos. 33036 (October 8,

1993), 58 FR 53588 (October 15, 1993) (approval for index warrants

on the Amex Hong Kong 30 Index), 31016 (August 11, 1992), 57 FR

37012 (August 17, 1992) (approval for index warrants on the Japan

Index), and 30462 (March 11, 1992), 57 FR 9290 (March 17, 1992)

(approval for index warrants and index options on FT-SE Eurotrack

200 Index).

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The Amex is proposing to list index warrants based on the DAX

Index, an internationally-recognized, capitalization-weighted\3\ index

of 30 highly capitalized German stocks trading on the FSE.\4\ The DAX

Index is calculated by the FSE and is updated on a continuous basis.

The stocks included in the Index are among the largest German

corporations and their shares are among the most actively traded of

German issuers. The DAX Index is composed of ten broad industry groups

including chemicals, automobile manufacturers, banks, and insurance

companies.

\3\The capitalization of a particular stock in the DAX Index is

calculated by multiplying the price of the stock by the ``listed

capital.'' Listed capital includes common and preferred shares and

shares held in the corporate treasury. The Amex represents that this

weighting method differs from the method used in calculating

domestic capitalization-weighted indexes, which are calculated by

multiplying the price of the stock only by the number of common

shares.

\4\The components of the Index are as follows: Allianz AG

Holdings; BASF AG; Bayer AG; Bayer Hypo/Wech; BMW; Bayer Vereinsbank

AG; Commerzbank AG; Continental AG; Daimler-Benz AG; Deutsche

Babcock AG; Deutsche Bank AG; Degussa AG; Dresdner Bank AG; Henkel

KGAA-Pfd; Hoechst AG; Karstadt AG; Kaufhof Holdings AG; Lufthansa

AG; Linde AG; Man AG; Metallgesellsch; Mannesmann AG; Preussag AG;

RWE AG; Schering AG; Siemens AG; Thyssen AG; Veba AG; Viag AG; and

Volkswagen AG.

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The median capitalization of the companies in the Index as of

December 2, 1994, was US$6.52 billion.\5\ The average market

capitalization of these companies was US$8.78 billion as of that date.

The market capitalizations of the individual companies in the Index

ranged from US$740.51 million to US$32.02 billion as of December 2,

1994. The largest component, Allianz AG Holdings, accounted for 12.5%

of the total weighting of the DAX Index, while the smallest, Deutsche

Babcock AG, accounted for 0.28% of the weight of the Index. The five

highest weighted components of the Index on that date accounted for

43.69% of the total weight of the Index. Average daily volume in the

component securities for the period from June 1994, through November

1994, ranged from a low of approximately 59,408 shares to a high of

1.04 million shares, with an average trading volume for all components

of the Index of approximately 338,449 shares per day. The Index had a

closing value of 2,038.5 on December 2, 1994.

\5\Based on the exchange rate of DM 1 = US$1.58 prevailing on

December 2, 1994.

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The DAX Index is maintained by the FSE in conjunction which the

Borsen-Zeitung (an industry newspaper). The value of the Index is

calculated every minute by the FSE from 10:30 a.m. to 1:30 p.m.

Frankfurt time (4:30 a.m. to 7:30 a.m. New York time)\6\ and is

disseminated over Reuters News Service, among others. In addition, the

composition of the DAX Index is reviewed periodically by the FSE. The

FSE will not alter the composition of the DAX Index unless a stock

fails to meet certain criteria, e.g., market capitalization and trading

volume. Replacement stocks are usually selected from a list of

substitute stocks. If possible, a replacement stock will be selected by

the FSE from the same industry as the stock that it is replacing.

\6\Telephone conversation between Claire McGrath, Managing

Director and Special Counsel, Derivative Securities, Amex, and Brad

Ritter, Senior Counsel, Office of Market Supervision, Division of

Market Regulation, Commission, on January 5, 1995.

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The Exchange represents that warrant issues on the DAX Index will

conform [[Page 5237]] to the listing guidelines under Section 106 of

the Guide, which provide, among other things, that: (1) the issuer

shall have tangible net worth of at last US$150 million and otherwise

substantially exceed size and earnings requirements in Section 101(A)

of the Guide; (2) the term of the warrants shall be for a period

ranging from one to five years from the date of issuance; and (3) the

minimum public distribution of such issues shall be one million

warrants, together with a minimum of 400 public holders, and an

aggregate market value of at least US$4 million.

DAX Index warrants will be direct obligations of their issuer

subject to cash-settlement during their term. Index warrants will

either be exercisable throughout their life (i.e., American-style) or

exercisable only during a specified period immediately prior to the

expiration date (i.e., European-style). Upon exercise, the holder of a

warrant structured as a ``put'' will receive payment in U.S. dollars to

the extent that the DAX Index has declined below a cash settlement

value specified at the time of issuance. Conversely, upon exercise,

holders of an Index warrant structured as a ``call'' will receive

payment in U.S. dollars to the extent that the DAX Index has increased

above a cash settlement value specified at the time of issuance. Index

warrants that are ``out-of-the-money'' at the time of expiration will

expire worthless.

The Amex has adopted suitability standards applicable to

recommendations to purchasers of Index warrants and transactions in

customer accounts. Amex Rule 411, Commentary .02 applies the options

suitability standard in Amex Rule 923 to recommendations regarding

Index warrants; and the Amex requires that Index warrants be sold only

to accounts approved for the trading of options. Amex Rule 421,

Commentary .02 requires a Senior Registered Options Principal or a

Registered Options Principal to approve and initial a discretionary

order in Index warrants on the day the order is entered. In addition,

the Amex, prior to the commencement of trading of Index warrants, will

distribute a circular to its membership calling attention to specific

risks associated with warrants on the DAX Index.\7\

\7\The Commission notes that the Amex will be required to submit

a draft of the circular to the Commission staff for approval prior

to distribution to members.

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In its order approving listing standards for foreign currency and

index warrants, the Commission noted that, with respect to foreign

index warrants, there should be an adequate mechanism for sharing

surveillance information with respect to an index's component

securities.\8\ In this regard, the Amex represents that it has entered

into discussions with representatives of the FSE and has reached

preliminary agreement with respect to establishing an appropriate means

to accomplish such information sharing.

\8\See Securities Exchange Act Release No. 26152 (October 3,

1988), 53 FR 39832 (October 12, 1988).

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The Exchange believes that the proposed rule change is consistent

with Section 6(b) of the Act, in general, and furthers the objections

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, and is not designed to permit unfair

discrimination between customers, issuers, brokers, or dealers.

(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-94-55 and should be

submitted by February 16, 1995.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\9\

\9\17 CFR 200.30-3(a)(12) (1994).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95-1980 Filed 1-25-95; 8:45 am]

BILLING CODE 8010-01-M