Self-Regulatory Organizations; American Stock Exchange, Inc., and Chicago Board Options Exchange, Inc., Order Approving Proposed Rule Changes Relating to the Listing and Trading of Warrants on the Deutscher Aktienindex (``DAX Index'')

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-36070; International Series Release No. 837 File Nos.

SR-Amex-94-55 and SR-CBOE-95-01]

Self-Regulatory Organizations; American Stock Exchange, Inc., and

Chicago Board Options Exchange, Inc., Order Approving Proposed Rule

Changes Relating to the Listing and Trading of Warrants on the

Deutscher Aktienindex (``DAX Index'')

August 9, 1995.

I. Introduction

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

(``Act'')\1\ and Rule 19b-4 thereunder,\2\ on December 5, 1994, the

American Stock Exchange, Inc. (``Amex'') filed with the Securities and

Exchange Commission (``Commission''), and on January 5, 1995, the

Chicago Board Options Exchange, Inc. (``CBOE'') filed with the

Commission, proposed rule changes to list and trade warrants on the

Deutscher Aktienindex (``DAX Index'' or ``Index''). The Amex and the

CBOE are collectively referred to herein as the ``Exchanges.'' Notices

of the proposals appeared in the Federal Register on January 26,

1994.\3\ The Commission received three comment letters concerning the

proposed rule changes.\4\ This order approves the Amex and the CBOE

proposals.

\1\ 15 U.S.C. Sec. 78s(b)(1) (1988).

\2\ 17 CFR 240.19b-4 (1994).

\3\ See Securities Exchange Act Release Nos. 35249 (January 19,

1995), 60 FR 5236 (notice of File No. SR-Amex-94-55), and 35247

(January 16, 1995), 60 FR 5233 (notice of File No. SR-CBOE-95-01).

\4\ All three letters were submitted on behalf of the Deutsche

Borse AG, the Frankfurt Stock Exchange (``FSE''), and the Deutsche

Terminborse (``DTB''). The Deutsche Borse AG is a holding company

formed in 1993 for the purpose of, among other things, assuming

ownership and control of the FSE and the DTB. See Letter from

Lawrence Hunt, Jr., Sidley & Austin, to Margaret McFarland, Deputy

Security, Commission, dated March 21, 1995 (commenting on File No.

SR-Amex-94-55), and letter from Lawrence Hunt, Jr., Sidley & Austin,

to Margaret McFarland, Deputy Secretary, Commission, dated March 21,

1995, (collectively, ``Comment Letters''). The commenters

subsequently submitted a follow-up statement to the Comment Letters.

See Letter from Lawrence Hunt, Jr., Sidley & Austin, to Margaret

McFarland, Deputy Secretary, Commission, dated July 19, 1995 (``July

19 Letter'').

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II. Description of the Proposals

The Amex and the CBOE propose to list index warrants based on the

DAX Index.

A. Composition and Maintenance of the Index

The DAX Index is a capitalization-weighted index of 30 German

equity securities listed on the Frankfurt Stock Exchange (``FSE''). The

capitalization of a particular stock in the Index is

[[Page 42206]]

calculated by multiplying its listed capital\5\ by the price of the

common stock (or if the common stock is not listed, the preferred

stock) and a multiplier determined by the FSE. The stocks included in

the DAX Index are among the largest German corporations, whose shares

are among the most actively traded of German issuers. The Index is

composed of securities representing more than ten broad industry

groups, including chemicals, automobile manufacturers, banks, and

insurance companies.\6\

\5\ Listed capital for a component security is determined based

on an issuer's preferred and common shares registered for trading on

the FSE. This is different from domestic capitalization-weighted

indexes, such as the S&P 500 Index, the values of which are

calculated based only on the shares of the issuer's common stock.

\6\ The components of the Index are: 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; Metallgesellschaft; Mannesmann AG; Preussag AG; RWE AG;

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

Volkswagen AG.

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The Index had a closing value of 2,184.33 on July 20, 1995. As of

December 2, 1994, the 30 stocks comprising the Index ranged in

individual market capitalizations from a low of approximately DM 1.17

billion (US. $841.73 million)\7\ to a high of approximately DM 50.59

billion (U.S. $36.40 billion) with a mean capitalization of DM 13.88

billion (U.S. $9.99 billion). Also as of that date, the five largest

stocks in the Index accounted for approximately 43.69% of the total

weight of the Index with no single security accounting for more than

12.15% of the weight of the Index. Average daily trading volume in the

components of the Index for the period from June 1, 1994, through

November 30, 1994, ranged from a low of 59,408 shares to a high of

1,042,280 shares, with an average daily trading volume for an Index

component during that period of 338,449 shares.

\7\ Based on a current German mark/U.S. dollar exchange rate of

approximately DM 1.39/U.S. $1.

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B. Calculation and Dissemination of the Index Value

The value of the DAX 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.

Eastern time), based on last sale prices of the component stocks. The

value of the Index is disseminated over Reuters News Service, among

others. The value of the Index, however, is not disseminated by the FSE

until opening prices are available for at least 15 components of the

Index representing at least 70% of the capitalization of the Index.

Thereafter, with respect to any stock that has not yet opened for

trading, the Index value is calculated using the previous day's closing

price for those components.

In order to maintain continuity of the value of the Index, the FSE

adjusts the Index to reflect certain events relating to the component

stocks. For example, the FSE adjusts the Index value to reflect cash

dividends paid on the component securities.\8\ An adjustment is also

applied by the FSE whenever a company issues new shares for which the

shareholders have preemptive rights, or when other intra-year events,

such as mergers and spinoffs, occur.

\8\ The FSE makes this adjustment because German companies

usually pay their dividends only once per year (generally in June or

July). If not adjusted, the annual dividend payment would result in

a significant drop in the value of the Index at the time when the

dividends are paid. As a result, the FSE calculates the dividend

adjustment such that share prices reflect full dividend

reinvestment.

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The number of listed shares of each stock used in the calculation

of the value of the Index is updated by the FSE annually in September.

At that time, the adjustment factors mentioned above, which reflect the

dividend payments and/or intra-year adjustments, are re-scaled to one,

with an additional adjustment made to maintain continuity in the value

of the Index.

In addition, the composition of the Index is reviewed periodically

by the FSE. It is the FSE's policy not to alter the composition of the

DAX Index unless a stock ceases to meet the criteria that initially

were the basis for including the stock in the Index. Replacements are

usually made from a list of substitute stocks. If it is not possible to

substitute a stock from the same industry group, a stock from another

industry may be substituted.

C. Index Warrant Trading

The Amex proposes to list DAX Index warrants pursuant to Section

106 of the Amex Company Guide (``Guide''). Under Amex's rules, the Amex

may approve for listing warrants on established foreign and domestic

market indexes. The CBOE has similar authority to list warrants on

foreign indexes pursuant to CBOE Rule 31.5(E).

The Amex and the CBOE represent that Index warrant issues will

conform to the index listing guidelines contained in Section 106 of the

Guide and CBOE Rule 31.5(E), respectively. Specifically, the listing

guidelines of the Exchanges require that: (1) issuers of DAX Index

warrants will be have assets in excess of $100,000,000 and otherwise

substantially exceed the Exchanges' size and earnings requirements; \9\

(2) the term of warrants will be for a period ranging from one to five

years from the date of issuance; and (3) the minimum public

distribution of such issues will be 1,000,000 warrants, with as minimum

of 400 public holders, and a minimum aggregate market value of

$4,000,000.

\9\ See Amex Guide Section 101 and CBOE Rule 31.5A.

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The Exchanges will apply the same margin treatment for the purchase

of Index warrants as they require for listed options.\10\

\10\ 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 July 21, 1995. See Amex Rule 462

and CBOE Rule 12.3.

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The proposed Index warrants will be direct obligations of their

issuers subject to cash-settlement in U.S. dollars, and either

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

only immediately prior to their expiration date (i.e., Europe-style).

Upon exercise, the holder of an Index 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.

Because index warrants are derivative in nature and closely

resemble index options, the Exchanges will also require that DAX Index

warrants be sold only to customers whose accounts have been approved

for options trading.\11\ Second, the Exchanges' options suitability

standards will apply to recommendations in Index warrants.\12\ Third,

the exchanges' rules regarding discretionary orders will also apply to

transactions in Index warrants.\13\

\11\ See Amex Rule 921 and CBOE Rule 9.7.

\12\ See Amex Rule 411, Commentary .02 and CBOE Rule 9.9.

\13\ See Amex Rule 421, Commentary .02 and CBOE Rule 30.50,

Interpretation .04 (requiring that the standards of Rule 9.10 be

applied to index warrant transactions).

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Prior to the commencement of trading of Index warrants, the

Exchanges will distribute circulars to their members calling attention

to certain compliance responsibilities when handling transactions in

Index warrants.

[[Page 42207]]

D. Surveillance

The Exchanges will use their existing surveillance procedures to

monitor trading in Index warrants. The Exchanges represent that they

are currently negotiating to enter into separate surveillance sharing

agreements with the FSE.

Both the Amex and the CBOE have submitted to Commission approval a

proposed rule change governing, among other things, customer protection

and margin requirements for stock index warrants, currency index

warrants, and currency warrants.\14\ DAX Index warrants issued

subsequent to approval of those proposals will be subject to these new

rules.

\14\ See Securities Exchange Act Release Nos. 35086 (December

12, 1994), 59 FR 65561 (December 20, 1994) (notice of File No. SR-

Amex-94-38), and 35178 (December 29, 1994), 60 FR 2409 (January 9,

1994) (notice of File No. SR-CBOE-94-34).

III. Comment Letters

Three comment letters were received by the Commission--one

discussing the CBOE proposal, one discussing the Amex proposal, and one

follow-up letter discussing both proposals. All three comment letters

were submitted on behalf of the Deutsche Borse AG, DTB, and FSE. The

first two letters received raised the same issues concerning the

respective proposals.\15\ The commenters assert that the FSE has a

proprietary interest in the DAX Index which vests the FSE with the

exclusive right to license its use for trading index products based on

the DAX Index. According to the commenters, even if the Amex and CBOE

had any rights to use the DAX Index or the ``DAX'' name, those rights

either lapsed or were terminated by the Deutsche Borse AG.\16\ As a

result, the commenters argue that the proposals raise issues concerning

intellectual property rights which should be resolved prior to

Commission approval of the proposals.

\15\ See Comment Letters, supra note 4.

\16\ Id. The commenters, however, have informed the Commission

that the Deutsche Borse AG is currently negotiating with the CBOE

and the Amex for purposes of licensing the DAX Index and the DAX

name to the Exchanges for purposes of listing DAX Index warrants.

See July 19 Letter, supra note 4.

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Similarly, the commenters also assert that all surveillance

agreements between the FSE and each of the Exchanges have either lapsed

or been terminated by the Deutsche Borse AG.\17\ As a result, the

commenters conclude that it would be impossible for the Commission to

find that the proposed DAX Index warrants would not be susceptible to

manipulation. The commenters, however, have informed the Commission

that the Deutsche Borse AG is currently negotiating with the CBOE and

the Amex for purposes of entering into market surveillance agreements

with each Exchange.\18\

\17\ See Comment Letters, supra note 4.

\18\ See July 19 Letter, supra note 4.

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Based on these arguments, the commenters conclude that it would be

inappropriate for the Commission to approve the proposed rule changes

until these issues are resolved.\19\

\19\ See Comment Letters, supra note 4.

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IV. Commission Findings

The Commission finds that the proposed rule changes are consistent

with the requirements of the Act and the rules and regulations

thereunder applicable to a national securities exchange, and, in

particular, the requirements of Section 6(b)(5) of the Act.\20\

Specifically, the Commission believes that the trading of warrants

based on the DAX Index will serve to protect investors, promote the

public interest, and help to remove impediments to a free and open

securities market by providing investors with a means to hedge exposure

to market risk associated with the German equity market and provide a

surrogate instrument for trading in the German securities market.\21\

The trading of warrants based on the DAX Index should provide investors

with a valuable hedging vehicle that should reflect accurately the

overall movement of the German equity market.

\20\ 15 U.S.C. Sec. 78f(b)(5) (1988).

\21\ Pursuant to Section 6(b)(5) of the Act, the Commission must

predicate approval of any new securities product upon a finding that

the introduction of such product is in the public interest. Such a

finding would be difficult with respect to a warrant that served no

hedging or other economic function, because any benefits that might

be derived by market participants likely would be outweighed by the

potential for manipulation, diminished public confidence in the

integrity of the markets, and other valid regulatory concerns.

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In addition, the Commission believes, for the reasons discussed

below, that the Amex and the CBOE have adequately addressed issues

related to customer protection, index design, surveillance, and market

impact of DAX Index warrants.

A. Customer Protection

Due to the derivative nature of index warrants, the Commission

believes that DAX Index warrants should only be sold to investors

capable of evaluating and bearing the risks associated with trading in

such instruments and that adequate risk disclosure be made to

investors. In this regard, the Commission notes that the rules and

procedures of the Exchanges that address the special concerns attendant

to the secondary market trading of index warrants will be applicable to

DAX Index warrants. In particular, by imposing the special suitability,

account approval, disclosure, and compliance requirements noted above,

the Amex and the CBOE have adequately addressed potential public

customer problems that could arise from the derivative nature of DAX

Index warrants. Moreover, the Amex and the CBOE plan to distribute

circulars to their members identifying the specific risks associated

with warrants on the DAX Index. Finally, pursuant to the Exchanges'

listing guidelines, only substantial companies capable of meeting their

warrant obligations will be eligible to issue DAX Index warrants.

B. Index Design and Structure

The Commission finds that it is appropriate and consistent with the

Act to classify the Index as a broad-based index. Specifically, the

Commission believes the Index is broad-based because it reflects a

substantial segment of the German equity market. First, the Index

consists of 30 actively traded stocks listed by the FSE. Second, the

market capitalizations of the stocks comprising the Index are very

large. Specifically, the total capitalization of the Index, as of

December 2, 1994, was approximately U.S. $299.55 billion, with the

market capitalizations of the individual stocks in the Index ranging

from a high of $36.40 billion to a low of $841.73 million, with a mean

value of $9.99 billion.\22\ Third, no one particular stock or group of

stocks dominates the weight of the Index. Specifically, as of December

2, 1994, no single stock accounted for more than 12.15% of the Index's

total value, and the percentage weighting of the five largest issues in

the Index accounted for 43.69% of the Index's value. Accordingly, the

Commission believes it is appropriate to classify the Index as broad-

based.

\22\ These figures are based on the German mark values as of

December 2, 1994, but converted to dollars using the current

exchange rate of approximately DM 1.39/U.S. $1.00.

C. Surveillance

As a general matter, the Commission believes that comprehensive

surveillance sharing agreements between the relevant foreign and

domestic exchanges are important where an index derivative product

based on foreign securities is to be traded in the United States.\23\

In most

[[Page 42208]]

cases, in the absence of such a comprehensive surveillance sharing

agreement, the Commission believes that it would be difficult to

conclude that an exchange listing a derivative product, such as a DAX

Index warrant, would be able to monitor effectively trading involving

the derivative product. Indeed, in commenting on the DTB's application

to offer and sell DAX Index futures to U.S. persons, the Commission

relied, in part, on the existence of a surveillance sharing agreement

between the FSE and the DTB.\24\

\23\ A comprehensive surveillance sharing agreement would allow

the parties to the agreement to obtain relevant surveillance

information, including, among other things, the identity of the

ultimate purchasers and sellers of securities.

\24\ See Letter to Elisse B. Walter, General Counsel, Commodity

Futures Trading Commission (``CFTC''), from Brandon Becker,

Director, Division of Market Regulation (``Division''), Commission,

dated November 21, 1994.

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With regard to the Amex and CBOE proposals, the Commission would

prefer that comprehensive surveillance agreements be in place, and

believes that such agreements play a particularly important role in

ensuring the integrity of global securities markets. The Deutsche Borse

AG, however, terminated license and market surveillance agreements

between the FSE and the Exchanges as part of a now completed strategic

review relating to competitive concerns surrounding the trading of the

DAX Index products by the Exchanges.\25\ Since completion of the

strategic review, the Deutsche Borse AG has decided to commence active

negotiations with the Exchanges regarding their listing and trading of

DAX Index warrants and for the purpose of entering into new market

surveillance sharing agreements.\26\ The Commission views these new

efforts favorably, and believes that a major market such as the FSE

should readily enter into comprehensive surveillance sharing

agreements.\27\ Even in the absence of such agreements, however, the

Commission does not believe that the Exchanges' proposals should

continue to be detained pending the conclusion of these negotiations

when an alternative with respect to obtaining surveillance information

exists for the DAX Index products. Specifically, the U.S. Department of

State and the German Foreign Office have exchanged Diplomatic Notes

that provide a framework for mutual assistance in investigatory and

regulatory matters (``Diplomatic Notes'').\28\ The Diplomatic Notes

confirm that the Commission is qualified to obtain assistance through

the German Ministry of Justice under German law. Based on the existence

of the Diplomatic Notes, the Commission believes that the German

governmental authorities are committed to assistance in addressing

cross-border fraud. In addition, the Commission could obtain from the

German Ministry of Justice (and vice versa) information similar to that

which would be available in the event that a comprehensive surveillance

sharing agreement were executed between the FSE and the Amex and the

CBOE with respect to transactions in FSE-traded stocks related to DAX

Index warrant transactions on the Amex and the CBOE.\29\ While this

arrangement would certainly be enhanced by the existence of

comprehensive surveillance sharing agreements, it is nonetheless

consistent with other instances where the Commission has explored

alternatives to direct exchange-to-exchange surveillance sharing

agreements where the relevant foreign exchange was unwilling or unable

to enter into a comprehensive surveillance sharing agreement.\30\

\25\ See July 19 Letter, supra note 4. The commenters stated

that ``[b]ecause of the amount of work and discretion involved in

maintaining the DAX Index, under both federal and state law, [the

FSE] has a proprietary interest in its Index, which vests it with

the exclusive right to license its use for trading in stock index

products.'' See Comment Letters, supra note 4.

\26\ See July 19 Letter, supra note 4.

\27\ Ideally, such agreements should be broad in nature rather

than designed to cover a specific product, such as DAX Index

warrants. The absence of broad surveillance agreements slows down

the introduction of new international products by forcing the

relevant exchanges to amend product-specific surveillance sharing

agreements every time a new product is introduced.

\28\ See International Series Release No. 691, 1994 SEC LEXIS

2324 (July 22, 1994).

\29\ It is the Commission's expectation that this information

would include transaction, clearing, and customer information

necessary to conduct an investigation relating to trading in DAX

Index warrants or components of the DAX Index.

\30\ See, e.g., Letter to David R. Merrill, Deputy General

Counsel, CFTC, from Brandon Becker, Director, Division, Commission,

dated April 20, 1994 (Commission comment letter to the CFTC

regarding the offer by the Osaka Securities Exchange of futures

contracts based on the Nikkei 300 Index to U.S. persons), and letter

to Joanne T. Medero, General Counsel, CFTC, from William H. Heyman,

Director, Division, Commission, dated January 16, 1992 (Commission

comment letter to the CFTC regarding the offers by the Osaka Stock

Exchange and the Tokyo Stock Exchange of futures contracts based on

the Nikkei 225 and TOPIX Indexes to U.S. persons).

In addition, the Commission notes that there are factors relating

to the computation of the DAX Index that further support reliance on

arrangements other than direct exchange-to-exchange surveillance

agreements. Specifically, the size of the market for the securities

underlying the DAX Index makes it less likely that the proposed Index

warrants are readily susceptible to manipulation.\31\ For example, as

of December 2, 1994, the market capitalization of the securities in the

Index ranged from a low of approximately U.S. $841 million to a high of

approximately U.S. $36 billion, and the average trading volume for

individual Index component securities during the period from June 1,

1994, through November 30, 1994, ranged from a low of 59,408 shares per

day to a high of over one million shares per day.

\31\ In evaluating the manipulative potential of a proposed

index derivative product, as it relates to the securities that

comprise the index and the index product itself, the Commission has

considered several factors, including, among others, (1) the number

of securities contained in the index or group, (2) the

capitalizations of those securities, (3) the depth and liquidity of

the group or index, (4) the diversification of the group or index,

(5) the manner in which the index or group is weighted, and (6) the

ability to conduct surveillance on the product. See Securities

Exchange Act Release No. 31016 (August 11, 1992), 57 FR 37012

(August 17, 1992).

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The Commission continues to believe strongly that the existence of

comprehensive surveillance sharing agreements between the appropriate

German entity(ies) \32\ and each of the Exchanges would be important

measures to deter and detect potential manipulations or other improper

or illegal trading involving DAX Index warrants. Accordingly, the

Commission urges the German parties and the Exchanges to continue in

their present negotiations with the goal of finalizing formal

comprehensive surveillance sharing agreements covering DAX Index

warrants and the securities contained in the DAX Index as soon as

practicable.\33\

\32\ This would probably be the FSE and/or the Deutsche Borse

AG. See July 19 Letter, supra note 4.

\33\ See supra notes 23 and 27.

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D. Commission Response to Comment Letters

The comment letters received by the Commission in response to the

proposed rule changes raise two issues--one concerning the potential

for manipulation as a result of the lack of surveillance sharing

agreements between the American and German exchanges, and the other

concerning the FSE's intellectual property rights in the DAX Index and

the DAX name.\34\

\34\ See Section III, supra.

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As stated above, the Commission believes that, even though new

surveillance sharing agreements between the Deutsche Borse AG and the

Exchanges have not yet been finalized, the Diplomatic Notes provide, in

the interim, both the Commission and the German Ministry of Justice

with the ability to obtain and share information necessary, among other

things, to investigate suspected attempts at manipulation of the

trading of DAX

[[Page 42209]]

Index warrants at the Exchanges and of the securities of which the DAX

Index is composed. As a result, the Commission believes that the

trading of DAX Index warrants by the Exchanges in the absence of

comprehensive surveillance sharing agreements between the Exchanges and

the relevant German entity(ies) does not raise any significant

regulatory concerns.

Similarly, the Commission believes that the commenters' concerns

over the FSE's proprietary interest in the DAX Index and the DAX name

do not preclude the Commission from approving the proposed rule

changes. Specifically, to the extent that the commenters' argument

raises a claim of misappropriation or infringement of a protected

property right, the Commission believes it is inappropriate for the

Commission to attempt to resolve these issues in a proceeding involving

the approval of an exchange's proposed rule change under the federal

securities laws. To take such delaying action whenever a third party

claim is asserted could stifle Commission review of new products

proposed by self-regulatory organizations. The plain language of the

U.S. securities laws does not suggest that Congress intended that the

Commission attempt, in the context of an approval proceeding for a

securities product, to resolve intellectual property right claims that

can be pursued elsewhere.\35\ Accordingly, the commenters' assertions

do not form a basis for the Commission to either disapprove or delay

approval of the Exchanges' proposals.\36\

\35\ Congress has enacted an elaborate statutory framework for

the establishment, preservation, and protection of intellectual

property rights and has established specific federal agencies to

administer these laws. Separate state causes of action also may be

available to the holders of these proprietary rights, as well as

possible recourse to German laws.

\36\ See Securities Exchange Act Release Nos. 26709 (April 11,

1989), 54 FR 15280 (April 17, 1989) (order approving the listing of

index participations by the Amex, CBOE, and Philadelphia Stock

Exchange), and 28475 (September 27, 1990), 55 FR 40492 (October 3,

1990) (order approving the trading by the Amex of options on the

Japan Index).

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V. Conclusion

For the reasons described above, the Commission finds that the

proposed rule changes by the Exchanges are consistent with the

requirements of the Act and the rules and regulations thereunder

applicable to a national securities exchange, and, in particular, the

requirements of Section 6(b)(5).\37\ Specifically, the Commission finds

that the listing and trading of warrants based on the DAX Index will

serve to promote the public interest and help to remove impediments to

a free and open securities market by providing investors with a means

to hedge exposure to market risk associated with the German equity

market and provide a surrogate instrument for trading in the German

securities market.

\37\ 15 U.S.C. Sec. 78f(b)(5) (1988).

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It is therefore ordered, pursuant to Section 19(b)(2) of the

Act,\38\ that the proposed rule changes (File Nos. SR-Amex-94-55 and

SR-CBOE-95-01), are approved.

\38\ 15 U.S.C. Sec. 78s(b)(2) (1984).

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For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\39\

\39\ 17 CFR 200.30-3(a)(12) (1994).

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Jonathan, G. Katz,

Secretary.

[FR Doc. 95-20157 Filed 8-14-95; 8:45 am]

BILLING CODE 8010-01-M