Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change, by the Chicago Stock Exchange, Inc., Relating to Trading of Particular Investment Company Units

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-37228; International Series Release No. 981; File No.

SR-CHX-96-14]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change, by the Chicago Stock Exchange, Inc., Relating to Trading of

Particular Investment Company Units

May 20, 1996.

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 April 23,

1996, the Chicago Stock Exchange, Inc. (``CHX'' or

[[Page 26941]]

``Exchange'') filed with the Securities and Exchange Commission

(``Commission'' of ``SEC'') the proposed rule change, as described in

Items I, II, and III below, which Items have been prepared by the self-

regulatory organization. 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 amend Article XXVIII of the CHS's Rules

governing the listing requirements of securities on the CHX.

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. Purpose

In SR-CHX-96-12, the Exchange requested approval of proposed rule

changes allowing listing and/or trading of units representing an

interest in a registered investment company (``Units'').\1\ In that

rule filing, the Exchange also stated its intent to trade CountryBasket

securities, pursuant to a request for unlisted trading privileges.

CountryBasket securities are Units designed to track the performance of

specific foreign indices, more fully described in SR-CHX-96-12 and SR-

NYSE-95-23.\2\

---------------------------------------------------------------------------

\1\ See Securities Exchange Act Release No. 37121 (April 17,

1996), 61 FR 17932 (notice of File No. SR-CHX-96-12).

\2\ Id. See also Securities Exchange Act Release No. 36923

(March 5, 1996), 61 FR 10410 (order approving File No. SR-NYSE-95-

23).

---------------------------------------------------------------------------

The American Stock Exchange (``Amex''), in SR-Amex-95-43, requested

and received approval of rules allowing listing and/or trading of

Units.\3\ The Amex also requested specific approval for the listing and

trading of World Equity Benchmark Securities (``WEBS''), securities

similar to CountryBaskets.

---------------------------------------------------------------------------

\3\ See Securities Exchange Act Release No. 36947 (March 14,

1996), 61 FR 10606 (order approving File No. SR-AMEX-95-43 as

amended).

---------------------------------------------------------------------------

The CHX is proposing to adopt listing standards to permit its

members to trade WEBS pursuant to unlisted trading privileges

(``UTP''). If at a later time CHX desires to list WEBS, rather than

only trade the Amex-approved WEBS pursuant to UTP, the Exchange will

request SEC approval for that listing in a separate proposed rule

change filed pursuant to Section 19(b) of the Act.

WEBS

The remainder of this filing discusses the structure of WEBS, the

details of which are taken from SR-Amex-95-43 and its Amendments Nos.

1, 2, and 3. The information provided here is significantly condensed

from the Amex's filing. CHX notes that the Amex has represented that

customers who purchase WEBS will receive a detailed prospectus from the

issuer.

Structure of WEBS

WEBS are issued by Foreign Fund, Inc., and based on seventeen

Morgan Stanley Capital International (``MSCI'') Indices (each

individually an ``MSCI Index'' or ``Index'' and collectively ``MSCI

Indices'' or ``Indices''). The countries whose markets are represented

by those indices are: Australia, Austria, Belgium, Canada, France,

Germany, Hong Kong, Italy, Japan, Malaysia, Mexico, Netherlands,

Singapore, Spain, Sweden, Switzerland, and the United Kingdom.

The investment objective of each WEBS series is to seek to provide

investment results that correspond generally to the price and yield

performance of public securities traded in the aggregate in particular

foreign markets, as represented by specific MSCI Indices. Each WEBS

series will use a ``passive'' or indexing investment approach which

attempts to approximate the investment performance of its benchmark

index through quantitative analytical procedures.

A WEBS series normally will invest at least 95% of its total assets

in stocks that are represented in the relevant MSCI Index and will at

all times invest at least 90% of its total assets in such stocks. A

WEBS series will not hold all of the issues that comprise the subject

MSCI Index, but will attempt to hold a representative sample of the

securities in the Index in a technique known as ``portfolio sampling.''

Foreign Fund, Inc., will issue and redeem WEBS of each Index Series

only in aggregations of shares specified for each Index Series (each

aggregation a ``Creation Unit''). The number of shares per Creation

Unit will range from 40,000 to 600,000. The Amex anticipates that the

value of a Creation Unit at the start of trading will range from

$450,000 to $10,000,000 and the net asset value (``NAV'') of an

individual WEBS will range from $10 to $20.

The MSCI Indices

MSCI generally seeks to have 60% of the capitalization of a

country's stock market index reflected in the MSCI Index for such

country. Thus, the MSCI Indices seek to balance the inclusiveness of an

``all share'' index against the replicability of a ``blue chip'' index.

MSCI applies the same criteria and calculation methodology across all

markets for all indices, developed and emerging.

All single-country MSCI Indices are market capitalization weighted.

For countries that restrict foreign ownership, MSCI calculates two

Indices. The additional Indices are called ``free'' Indices, and they

exclude companies and share classes not purchasable by foreigners. Free

Indices are currently calculated for Singapore, Mexico, the

Philippines, and Venezuela, and for those regional and international

Indices which include such markets. The Mexico and Singapore WEBS

series will be based on the free Indices for those countries. There are

no WEBS series corresponding to the Philippines and Venezuela MSCI

Indices.

All MSCI Indexes are calculated daily. The calculation method

weights stocks in an index by their beginning-of-period market

capitalization. Share prices are ``swept clean'' daily and adjusted for

any rights issues, stock dividends or splits. The MSCI Indices

currently are calculated in local currency and in U.S. dollars, without

dividends and with gross dividends reinvested.

Prices used to calculate the MSCI Indices are the official exchange

closing prices. All prices are taken from the dominant exchange in each

market. To calculate the applicable foreign currency exchange rate,

MSCI uses WM/Reuters Closing Spot Rates for all developed and emerging

markets except those in Latin America. Because of the high volatility

of currencies in some Latin American countries, MSCI continues to

calculate its own rates for those countries. Under exceptional

circumstances MSCI may elect to use an alternative exchange rate for

any country if the WM/Reuters rate is believed not to be representative

for a given currency on a particular day.

Each MSCI Index on which a WEBS series is based is calculated by

MSCI for

[[Page 26942]]

each trading day in the applicable foreign exchange market based on

official closing prices in such exchange market.

For each trading day, MSCI publicly disseminates each Index value

for the previous day's close. MSCI Indices are reported periodically in

major financial publications and also are available through vendors of

financial information.

Foreign Fund, Inc., will cause to be made available daily the names

and required number of shares of each of the securities to be deposited

in connection with the issuance of WEBS in Creation Unit size

aggregations for each WEBS series, as well as information relating to

the required cash payment representing, in part, the amount of accrued

dividends applicable to such WEBS series. This information will be made

available by the Fund Advisor to any National Securities Clearing

Corporation (``NSCC'') participant requesting such information. In

addition, other investors can request such information directly from

the Fund distributor. The NAV for each WEBS series will be calculated

directly by the Fund administrator, PFPC Inc. NAVs will be made

available to the public from the Fund distributor by means of a toll-

free number, and also will be available to NSCC participants through

data made available from NSCC.

To provide current WEBS pricing information, the Amex has

represented that it anticipates it will disseminate through the

facilities of the Consolidated Tape Association an ``indicative

optimized portfolio value'' (``Value'') for each WEBS series as

calculated by Bloomberg, L.P. (``Bloomberg''). The Value will be

disseminated on a per WEBS basis every fifteen seconds during regular

Amex trading hours of 9:30 a.m. to 4:00 p.m. New York time.

The Value likely will not reflect the value of all securities

included in the applicable benchmark MSCI Index. In addition, the Value

will not necessarily reflect the precise composition of the current

portfolio of securities held by the Fund for each WEBS series at a

particular moment. Therefore, the Value on a per WEBS basis

disseminated during Amex trading hours should not be viewed as a real-

time update of the net asset value of the Fund, which is calculated

only once a day. It is expected, however, that during the trading day

the Value will closely approximate the value per WEBS share of the

portfolio of securities for each WEBS series except under unusual

circumstances.

2. Statutory Basis

The proposed rule change is consistent with Section 6(b)(5) of the

Act in that the proposal fosters cooperation and coordination with

persons engaged in regulating, clearing, settling, processing

information with respect to, and facilitating transactions in

securities, removes impediments to and perfects the mechanism of a free

and open market and a national market system and protects investors and

the public interest.

B. Self-Regulatory Organization's Statement on Burden on Competition

The Exchange does not believe that the proposed rule change will

impose any burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed

Rule Change Received From Members, Participants or Others

The Exchange has neither solicited nor received written comments on

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 NW., Washington, D.C. 20549.

Copies of the submissions, 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 at the

Commission's Public Reference Section, 450 Fifth Street NW.,

Washington, D.C. 20549. Copies of such filing will also be available at

the principal office of the CHX. All submissions should refer to File

No. SR-CHX-96-14 and should be submitted by [insert date 21 days from

date of publication].

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96-13388 Filed 5-28-96; 8:45 am]

BILLING CODE 8010-01-M