Self-Regulatory Organizations; Order Approving and Notice of Filing and Order Granting Accelerated Approval of Amendment Nos. 2 and 3 to Proposed Rule Change by the American Stock Exchange, Inc. Relating to Index Fund Shares

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-36947; International Series Release No. 949; File No.

SR-AMEX-95-43]

Self-Regulatory Organizations; Order Approving and Notice of

Filing and Order Granting Accelerated Approval of Amendment Nos. 2 and

3 to Proposed Rule Change by the American Stock Exchange, Inc. Relating

to Index Fund Shares

March 8, 1996.

I. Introduction and Background

On October 26, 1995, the American Stock Exchange, Inc. (``Amex'' or

``Exchange'') submitted to the Securities and Exchange Commission

(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4

thereunder,\2\ a proposed rule change to list and trade Index Fund

Shares. On November 14, 1995, the Amex filed Amendment No. 1 to its

proposal.\3\ Notice of the proposal appeared in the Federal Register on

December 6, 1995.\4\ On March 6, 1996, the Amex filed Amendment No. 2

to its proposal.\5\ On March 7, 1996, the Amex filed Amendment No. 3 to

its proposal.\6\ No comments were received on the proposed rule change

set forth in the Notice. This order approves the Exchange's proposal

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

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

\3\ In Amendment No. 1, the Amex states that any broker-dealer

handling transactions for customers in ``World Equity Benchmark

Securities'' (or ``WEBS'') will have an obligation to deliver to

such customers a prospectus regarding WEBS pursuant to the

requirements of the Securities Act of 1933. Amendment No. 1 also

states that prior to listing series of Index Fund Shares for indices

other than those described in the present rule filing, it will make

an appropriate filing pursuant to Rule 19b-4 under the Act. Letter

from James F. Duffy, Executive Vice President and General Counsel,

Legal and Regulatory Policy, Amex, to Michael Walinskas, Branch

Chief, Office of Market Supervision (``OMS''), Division of Market

Regulation (``Division''), Commission, dated November 14, 1995

(``Amendment No. 1'').

\4\ Securities Exchange Act Release No. 36527, (November 29,

1995), 60 FR 62513.

\5\ Amendment No. 2 provides additional information regarding

the structure of Index Fund Shares, and revises the minimum number

of such shares that must be outstanding prior to the commencement of

trading. Amendment No.2 also includes criteria fro initial listing,

a description of the dissemination of portfolio information, a

provision for original and annual listing fees, a modification

affecting stop and stop limit orders, a modification of minimum

fractional changes, an Amendment to Amex Rule 190 (Specialist's

Transactions with Public Customers), and effects a technical change

to proposed Amex Rule 1000A. Letter from James F. Duffy, Executive

Vice President and General Counsel, Legal & Regulatory Policy, Amex,

to Michael Walinskas, Branch Chief, OMS, Division, Commission, dated

March 6, 1996 (``Amendment No. 2'').

\6\ Amendment No. 3 clarifies that WEBS will trade until 4:00

p.m., not 4:15 p.m. as originally proposed; revises the proposal

with respect to trading halts; and provides information regarding

the dissemination of net asset values (``NAVs''). Letter from James

F. Duffy, Executive Vice President and General Counsel, Legal &

Regulatory Policy, Amex, to Michael Walinskas, Branch Chief, OMS,

Division, Commission, dated March 7, 1996 (``Amendment No. 3'').

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II. Description of the Proposal

A. Index Fund Shares

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

securities issued by an open-end management investment company

(``Fund'') that seeks to provide investment results that correspond

generally to the price and yield performance of a specified foreign or

domestic equity market index (``Index Fund Shares'' or ``Fund

Shares''). Index Fund Shares will be issued by an entity registered

with the Commission as an open-end management investment company, and

which may be organized as a series fund providing for the creation of

separate series of securities, each with a portfolio consisting of some

or all of the component securities of a specified securities index. A

Fund may establish tracking tolerances which will be disclosed in the

prospectus for a particular Fund or series thereof, as discussed in

greater detail below.

Issuances of Index Fund Shares by a Fund will be made only in

minimum size aggregations or multiplies thereof (``Creation Units'').

The size of the applicable Creation Unit size aggregation will be set

forth in the Fund's prospectus, and will vary from one series of Index

Fund Shares to another, but generally will be of substantial size

(e.g., value in excess of $450,000 per Creation Unit). It is expected

that a Fund will issue and sell Index Fund Shares through a principal

underwriter (``Distributor'') on a continuous basis at the net asset

value per share next determined after an order to purchase Index Fund

Shares in Creation Unit size aggregations is received in proper form.

Following issuance, Index Fund Shares would be traded on the Exchange

like other equity securities, and Amex equity trading rules would apply

to the trading of Index Fund Shares.

The Exchange expects that Creation Unit size aggregations of Index

Fund Shares generally will be issued in exchange for the ``in kind''

deposit of a specified portfolio of securities (``Deposit

Securities''), together with a cash payment representing, in part, the

amount of dividends accrued up to the time of issuance. The Exchange

anticipates that such deposits will be made primarily by institutional

investors, arbitragers, and the Exchange specialist. Redemption of

Index Fund Shares generally will be made ``in kind,'' with a portfolio

of securities and cash exchanged for Index Fund Shares that have been

tendered for redemption. Issuances or redemptions also could occur for

cash under specified circumstances (e.g., if it is not possible to

effect delivery of securities underlying the specific series in a

particular foreign country) and at other times in the discretion of the

Fund.

The Amex expects that a Fund will make available on a daily basis a

list of the names and the required number of shares of each of the

securities to be deposited in connection with issuance of Index Fund

Shares of a particular series in Creation Unit size aggregations, as

well as information relating to the required cash payment representing,

in part, the amount of accrued dividends.

[[Page 10607]]

A Fund may make periodic distributions of dividends from net

investment income, including net foreign currency gains, if any, in an

amount approximately equal to accumulated dividends on securities held

by the Fund during the applicable period, net a expenses and

liabilities for such period.

Index Fund Shares will be registered in book entry form through The

Depository Trust Company. Trading in Index Fund Shares on the Exchange

may be effected until 4:15 p.m. (New York time) each business day.

The Exchange's proposal seeks specifically to list Index Fund

Shares that will be series of World Equity Benchmark Shares (``WEBS'')

issued by Foreign Fund, Inc., and based on the following seventeen

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

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

Indices'' or ``Indices''): MSCI Australia Index; MSCI Austria Index;

MSCI Belgium Index; MSCI Canada Index; MSCI France Index; MSCI Germany

Index; MSCI Hong Kong Index; MSCI Italy Index; MSCI Japan Index; MSCI

Malaysia Index; MSCI Mexico Index; MSCI Netherlands Index; MSCI

Singapore (Free) Index; MSCI Spain Index; MSCI Sweden Index; MSCI

Switzerland Index; and MSCI United Kingdom Index (Each a ``WEBS

series'' or ``Index Series'').\7\

\7\ The Exchange has stated that it will make an appropriate

filing pursuant of Rule 19b-4 under the Act prior to listing series

of Index Fund Shares for indices other than those described in the

present proposal. Amendment No. 1, supra note 3.

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

only in aggregations of shares specified for each Index Series. The

following table sets forth the number of shares of an Index Series that

it is anticipated will constitute a Creation Unit for such Index

Series:

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

Shares per

Index series creation

unit

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

Australia Index Series...................................... 200,000

Austria Index Series........................................ 100,000

Belgium Index Series........................................ 40,000

Canada Index Series......................................... 100,000

France Index Series......................................... 200,000

Germany Index Series........................................ 300,000

Hong Kong Index Series...................................... 75,000

Italy Index Series.......................................... 150,000

Japan Index Series.......................................... 600,000

Malaysia Index Series....................................... 75,000

Mexico Index Series......................................... 100,000

Netherlands Index Series.................................... 50,000

Singapore (Free) Index Series............................... 100,000

Spain Index Series.......................................... 75,000

Sweden Index Series......................................... 75,000

Switzerland Index Series.................................... 125,000

United Kingdom Index Series................................. 200,000

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The Exchange anticipates that the value of a Creation Unit at the

start of trading will range from $450,000 to $10,000,000, and the NAV

of an individual WEBS will range from $10 to $20.\8\

\8\ See Amendment No. 2, supra note 5. The Commission notes that

if in the future the number of shares per Creation Unit of a WEBS

series were to be changed, or the value of a Creation Unit were to

fall significantly, such a change could require the filing of a

proposed rule change by the Exchange pursuant to Section 19(b) of

the Act.

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As noted in the Foreign Fund, Inc. preliminary prospectus,\9\ 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

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.\10\

\9\ See Form N-1A Registration Statement submitted under the

Securities Act of 1933 and the Investment Company Act of 1940,

Registration Nos. 33-97598; 811-9102.

\10\ Amendment No. 2, supra note 5.

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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.''

\11\ Nevertheless, each WEBS series currently is expected to have an

approximate weighted capitalization relative to the capitalization of

its benchmark MSCI Index, ranging from 82.6% for the Mexico (Free)

series, to 98.5% for the Sweden series.\12\

\11\ Id.

\12\ Letter from Donald R. Crawshaw, Sullivan & Cromwell, on

behalf of Foreign Fund, Inc., to Nancy J. Sanow, Assistant Director,

Office of Trading Practices, Automation & International Markets,

Commission, dated March 1, 1996 (data as of February 26, 1996).

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It is expected that, over time, the ``expected tracking error'' of

a WEBS series relative to the performance of the relevant MSCI Index

will be less than 5%. An expected tracking error of 5% means that there

is a 68% probability that the net asset value for the WEBS series will

be between 95% and 105% of the subject MSCI Index after one year

without rebalancing the portfolio composition, While no particular

level of tracking error is assured, the Fund advisor, BZW Global Fund

Advisors, will monitor the tracking error of each WEBS series on an

ongoing basis and will seek to minimize tracking error to the maximum

extent possible. Semi-annual and annual reports of the Fund will

disclose tracking error over the previous six month periods, and in the

event that tracking error exceeds 5%, the Fund board of directors will

consider what action might be appropriate.\13\

\13\ Amendment No. 2, supra note 5.

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B. The MSCI Indices \14\

1. General

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

country's stock market 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.

\14\ Information regarding the MSCI Indices was furnished by

Foreign Fund, Inc.

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2. Weighting

All single-country MSCI Indices are market capitalization weighted,

i.e., companies are included in the indices at their full market value

(total number of shares issued and paid up, multiplied by price). 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

currently are 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.\15\

\15\ See Form N-1A, supra note 9.

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3. Selection Criteria

The constituents of a country index are selected from the full

range of securities available in the market, excluding issues which are

either small or highly illiquid. Non-domiciled companies and investment

trusts are also excluded from consideration. After the index

constituents are chosen, they are reclassified using MSCI's schema of

[[Page 10608]]

38 industries and eight economic sectors to facilitate cross-country

comparisons.

The process of choosing index constituents from the universe of

available securities is consistent among indices. Determining the

constituents of an index is an optimization process which involves

maximizing float and liquidity, reflecting accurately the market's size

and industry profiles, and minimizing cross-ownership.

To reflect accurately country-wide performance, MSCI aims to

capture 60% of total market capitalization at both the country and

industry level. To reflect local market performance, an index should

contain a percentage of the market's overall capitalization sufficient

to achieve a high level of tracking. The greater the coverage, however,

the greater the risk of including securities which are illiquid or have

restricted float. MSCI's 60% coverage target seeks to balance these

considerations.

MSCI attempts to meet its 60% coverage target by including a

representative sample of large, medium and small capitalization stocks,

to capture the sometimes disparate performance of these sectors. In the

emerging markets, the liquidity of smaller issues can be a constraint.

At the same time, properly representing the lower capitalization end of

the market risks overwhelming the index with components. Within these

constraints, MSCI strives to include smaller capitalization stocks,

provided they exhibit sufficient liquidity.

4. Calculation Methodology

All MSCI Indices are calculated daily using Laspeyres' concept of a

weighted arithmetic average together with the concept of ``chain-

linking,'' a classical method of calculating stock market indices. The

Laspeyres 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 (e.g., before

withholding taxes).

5. Price and Exchange Rates

Prices used to calculate the MSCI Indices are the official exchange

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

market. In countries where there are foreign ownership limits, MSCI

uses the price quoted on the official exchange, regardless of whether

the limit has been reached.

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. The WM/Reuters Closing Spot

Rates were established by a committee of investment managers and data

providers, including MSCI, whose object was to standardize foreign

currency exchange rates used by the investment community. Exchange

rates are taken daily at 4 p.m. London time by the WM Company and are

sourced whenever possible from multi-contributor quotes on Reuters.

Representative rates are selected for each currency based on a number

of ``snapshots'' of the latest contributed quotations taken from the

Reuters service at short intervals around 4 p.m. WM/Reuters provides

closing bid and offer rates. MSCI uses these to calculate the mid-point

to 5 decimal places. Because of the high volatility of currencies in

some Latin American countries, MSCI continues to use its own timing and

source for these markets. MSCI continues to monitor exchange rates

independently and may, under exceptional circumstances, elect to use an

alternative exchange rate if the WM/Reuters rate is believed not to be

representative for a given currency on a particular day.

6. Changes to the Indices

In changing the constituents of the Indices, MSCI attempts to

balance representativeness versus undue turnover. An Index must

represent the current state of an evolving marketplace, yet minimize

turnover, which is costly as well as inconvenient for managers.

There are two broad categories of changes to the MSCI Indices. The

first consists of market-driven changes such as mergers, acquisitions,

and bankruptcies. These are announced and implemented as they occur.

The second category consists of structural changes to reflect the

evolution of a market, including changes in industry composition or

regulations. Structural changes may occur only on four dates during the

year: the first business days of March, June, September and December.

They are preannounced at least two weeks in advance.

Restructuring an Index involves a balancing of additions and

deletions. To maintain continuity and minimize turnover, MSCI is

reluctant to delete Index constituents, and its approach to additions

is correspondingly stringent. As markets grow because of

privatizations, investor interest, or the relaxation of regulations,

Index additions (with or without corresponding deletions) may be needed

to bring industry representations up to the 60% target. Companies are

considered not only with respect to their broad industry, but also with

respect to their subsector, so as to reflect if possible a broader

range of economic activity. Beyond industry representativeness, new

constituents are selected based on the criteria discussed above, i.e.

float, liquidity, cross-ownership, etc.

In general, new issues are not eligible for immediate inclusion in

the MSCI Indices because their liquidity remains unproven. Usually, new

issues undergo a ``seasoning'' period of one year to 18 months between

index restructurings until a trading pattern and volume are

established. After that time, they are eligible for inclusion, subject

to the criteria discussed above.

Companies may be deleted because they have diversified away from

their industry classification, because the industry has evolved in a

different direction from the company's thrust, or because a better

industry representative exists (either a new issue or an existing

company). In addition, in order not to exceed the 60% target coverage

of industries and countries, adding new Index companies may entail

corresponding deletions. Usually such deletions take place within the

same industry, but there are occasional exceptions.

7. Dissemination

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

MSCI for 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.\16\

\16\ Amendment No. 2, supra note 5.

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Foreign Fund, Inc. also 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

[[Page 10609]]

from the Fund distributor, Funds Distributor, Inc. The NAV for each

WEBS series will be calculated daily by the Fund administrator, PFPC

Inc.\17\

\17\ Id. 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. Amendment No. 3, supra note 6.

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To provide current WEBS pricing information for use by investors,

professionals, and persons wishing to create or redeem WEBS, the

Exchange anticipates it will disseminate through the facilities of the

Consolidated Tape Association an updated ``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 15 seconds during regular Amex trading hours of

9:30 a.m. and 4:00 p.m. New York time. The equity securities value that

will be included in the Value will be the values of the Deposit

Securities constituting an optimized representation of the benchmark

MSCI Index for each WEBS series, which is the same as the portfolio

that generally will be used in connection with creations and

redemptions of WEBS in Creation Unit size aggregations on that day. The

equity securities included in the Value will reflect the same market

capitalization weighting as the Deposit Securities in the optimized

portfolio for the particular WEBS series. In addition to the value of

the Deposit Securities for each WEBS series, the Value will include a

cash component consisting of estimated accrued dividend and other

income, less expenses. The Value also will reflect changes in currency

exchange rates between the U.S. dollar and the applicable home foreign

currency.\18\

\18\ Amendment No. 2, supra note. 5.

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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. While the Value disseminated by the Amex at 9:30 a.m.

is expected to be very close to the most recently calculated Fund net

asset value on a per WEBS basis,\19\ it is possible that the value of

the portfolio of securities held by the Fund for a particular WEBS

series may diverge from the Deposit Securities values during any

trading day. In such case, the Value will not precisely reflect the

value of the Fund portfolio. Following calculation of NAV by the Fund

administrator as of 4:00 p.m. New York time, it is expected that the

Value on a per WEBS basis would be the same as the NAV of the Fund on a

per WEBS basis. 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 (e.g., in the case of extensive rebalancing of multiple

securities in a WEBS series at the same time by the Fund advisor).\20\

\19\ A slight difference between the Value disseminated at 9:30

and the most recently calculated Fund NAV can be expected because

the Value will include an estimated cash amount consisting

principally of any dividend accruals for the Deposit Securities

going ``ex-dividend'' on that day.

\20\ Amendment No. 2, supra note 5.

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The Exchange believes that dissemination of the Value based on the

Deposit Securities will provide additional information regarding each

WEBS series that is not otherwise available to the public and that will

be useful to professionals and investors in connection with WEBS

trading on the Exchange or the creation or redemption of WEBS.\21\

\21\ Id.

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For Australia, Japan, Malaysia, Hong Kong, and Singapore (Free)

WEBS series, there is no overlap in trading hours between the foreign

markets and the Amex. Therefore, for each of these WEBS series, the

disseminated Value will be based upon closing prices, denominated in

the applicable foreign currency price, in the principal foreign market

for securities in the WEBS portfolio, and converted to U.S. dollars.

This value will be updated every 15 seconds during Amex trading hours

to reflect changes in currency exchange rates between the U.S. dollar

and the applicable foreign currency. The estimated portfolio value also

will include the applicable estimated cash component for each WEBS

series.\22\

\22\ Id.

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For the Europe, Canada, and Mexico WEBS series where there is an

overlap in the trading hours between the foreign market and the Amex,

the disseminated Value will be updated every 15 seconds and will

reflect price changes in the principal foreign market, converted into

U.S. dollars based on the current currency exchange rate. When the

foreign market is closed but the Amex is open, the Value will be

updated every 15 seconds to reflect changes in currency exchange rates

after the foreign market closes. The estimated portfolio value also

will include the applicable estimated cash component.\23\

\23\ Id.

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C. Criteria for Initial and Continued Listing

In connection with initial listing, the Exchange will establish a

minimum number of Index Fund Shares required to be outstanding at the

time of commencement of Exchange trading. For the Japan series, a

minimum of the equivalent of one Creation Unit will be required to be

outstanding at the start of trading. For each of the other series of

Index Fund shares, the Exchange anticipates that a minimum of two

Creation Units in Fund Shares would be required to be outstanding

before trading could begin.\24\

\24\ Cf., supra note 8.

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Each series of Index Fund Shares will be subject to the initial and

continued listing criteria of proposed Amex Rule 1002A(b) which

provides that following the initial twelve month period following

commencement of Exchange trading of a series of Index Fund Shares, the

Exchange will consider suspension of trading in, or removal from

listing of, such series under any of the following circumstances:

(a) if there are fewer than 50 beneficial holders of the series of

Index Fund Shares for 30 or more consecutive trading days; or

(b) if the value of the index or portfolio of securities on which

the series of Index Fund Shares is based is no longer calculated or

available; 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.\25\

\25\ The Commission notes that the preliminary prospectus states

that each WEBS series will at all times invest at least 90% of its

total assets in securities that are represented in the relevant MSCI

Index, and normally will invest 95% of its total assets in such

securities. In addition, each WEBS series has a policy to

concentrate its investments in an industry or industries if, and to

the extent that, its corresponding MSCI Index concentrates in such

industry or industries, except where the concentration is the result

of a single security. See Form N-1A, supra note 9. While the

Commission believes these requirements should help to reduce

concerns that the WEBS could become a surrogate for trading in a

single or a few unregistered stocks, in the event that a series of

WEBS were to become such a surrogate, the Commission would expect

the Amex to take action immediately to delist the securities to

ensure compliance with the Act.

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The Exchange will require that Index Fund Shares be removed from

listing upon termination of the Fund that issued such shares.

[[Page 10610]]

D. Specialists

Amex Rule 190(a) provides that a specialist may not directly or

indirectly effect any business transaction with a company or any

officer, director or 10% stockholder of a company in which stock the

specialist is registered. To clarify its interpretation of Rule 190(a)

with respect to specialist creation and redemption activity in such

listed securities as Index Fund Shares, as well as Portfolio Depositary

Receipts listed under Amex Rule 1000, the Exchange proposes to add

Commentary .04 to Rule 190. Proposed Commentary .04 would provide that

nothing under the provisions Amex Rule 190(a) will be deemed to

restrict a specialist registered in a security issued by an investment

company from purchasing and redeeming the listed security, or

securities that can be subdivided or converted into the listed

security, from the issuer as appropriate to facilitate the maintenance

of a fair and orderly market in the subject security. In addition, the

specialist, will be able to engage in creations and redemptions of WEBS

only according to the same terms and conditions as every other investor

at net asset value, in accordance with the terms of the Fund prospectus

and statement of additional information. The Amex believes that this

will minimize the potential for abuse.\26\

\26\ Amendment No. 2, supra note 5.

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E. Disclosure

With respect to investor disclosure, the Exchange notes that,

pursuant to the requirements of the Securities Act of 1933, as amended

(``1933 Act''), all investors in Index Fund Shares, including WEBS,

will receive a prospectus. Because the Units will be in continuous

distribution, the prospectus delivery requirements of the 1933 Act will

apply to all investors in Index Fund Shares, including secondary market

purchases on the Amex in WEBS. The prospectus and all marketing

material will refer to WEBS by using the term ``investment company.''

The term ``mutual fund'' will not be used at any time. The term ``open-

end investment company'' will be used in the prospectus only to the

extent required by Item 4 of Investment Company Act Form N-1A. In

addition, the cover page of the prospectus will include a distinct

paragraph stating that WEBS will not be individually redeemable.\27\

\27\ See Form N-1A, supra note 9.

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Prior to commencement of trading of a series of Index Fund Shares,

the Exchange will distribute to Exchange members and member

organizations an Information Circular calling attention to

characteristics of the specific series and to applicable Exchange

rules. That circular will inform member organizations of their

responsibilities under Exchange Rule 411 (``know your customer rule'')

with respect to transactions in such Index Fund Shares. The circular

will inform member organizations of their responsibility to deliver a

prospectus to all investors purchasing WEBS. The Amex has stated that

any broker-dealer handling transactions for customers in WEBS will have

an obligation to delivery to such customers a prospectus regarding WEBS

pursuant to the requirements of the Securities Act of 1933.\28\ The

circular also will note that WEBS are not individually redeemable; they

may be redeemed in Creation Unit size aggregations only.

\28\ Amendment No. 1, supra note 3. The Exchange states that it

may, in the future, seek to obtain an exemption from the prospectus

delivery requirement, either with respect to WEBS or other series of

Index Fund Shares listed on the Exchange. Id. In the event it

obtains such an exemption, the Exchange will discuss with Commission

staff the appropriate level of disclosure that should be required

with respect to the Index Fund Shares being listed, and will file

any necessary rule change to provide for such disclosure.

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F. Trading Halts

Prior to commencement of trading in Index Fund Shares, 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: (1) 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; or (2)

whether other unusual conditions or circumstances detrimental to the

maintenance of a fair and orderly market are present.\29\

\29\ Amendment No. 3, supra note 6.

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G. Listing Fees

The Amex proposes an original listing fee for WEBS of $5,000 per

series (i.e., $85,000 for the seventeen WEBS series herein described).

In addition, the annual listing fee applicable to WEBS series under

Section 141f the Amex Company Guide will be based upon the year-end

aggregate number of outstanding WEBS in all series, except that no

annual listing fee will be assessed for calendar year 1996.\30\

\30\ Amendment No. 2, supra note 5.

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H. Stop and Stop Limit Orders

Amex Rule 154, Commentary .04(c) provides that stop and stop limit

orders to buy or sell a security (other than an option, which is

covered by Rule 950(f) and Commentary thereto) the price of which is

derivatively priced based upon another security or index of securities,

may, with the prior approval of a Floor Official, be elected by a

quotation, as set forth in Rule 154, Commentary .04(c)(i-iv). The

Exchange proposes to designate Index Fund Shares, including WEBS, as

eligible for this treatment.\31\

\31\ Id.

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I. Minimum Fractional Change

Under Amex Rule 127, the minimum fractional change for securities

traded on the Amex is \1/16\ of $1.00 for securities selling at $10.00

and over. The Exchange proposes to add Commentary .02 to Rule 127 to

provide that, for Index Fund Shares that would be listed under proposed

Rule 1000A et seq., including WEBS, the minimum fractional change will

be \1/16\ of $1.00. Thus, proposed Commentary .02 would accommodate

trading in sixteenths for shares of WEBS series selling at $10.00 and

over, as well as under $10.00. The Intermarket Trading System (``ITS'')

accommodates trading in sixteenths only for Amex securities priced

below $10.00. In the event another ITS participant market seeks to

initiate WEBS trading through ITS, the Exchange would discuss with the

ITS Operating Committee appropriate modifications to ITS to permit

trading of Index Fund Shares, including WEBS, in sixteenths for shares

priced above $10.00, and would make reasonable efforts to address

issues raised by such prospective trading.\32\

\32\ Id.

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III. Discussion

The Commission finds that the proposed rule change is 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.\33\ The

Commission believes that the Exchange's proposal to list and trade

Index Fund Shares, and specifically WEBS, will provide investors with a

convenient way of participating in foreign securities markets. The

Exchange's proposal should help to provide investors with increased

flexibility in satisfying their investment needs by allowing them to

purchase and sell securities at negotiated prices throughout the

business day that

[[Page 10611]]

replicate the performance of several portfolios of stocks.\34\

Accordingly, the Commission finds that the Exchange's proposal will

facilitate transactions in securities, remove impediments to and

perfect the mechanism of a free and open market and a national market

system, and, in general, protect investors and the public interest, and

is not designed to permit unfair discrimination between customers,

issuers, brokers, or dealers.\35\

\33\ 15 U.S.C. 78f(b)(5) (1988).

\34\ The Commission notes that unlike typical open-end

investment companies, where investors have the right to redeem their

fund shares on a daily basis, investors in Index Fund Shares,

including WEBS, could redeem them in Creation Unit size aggregations

only.

\35\ Pursuant to Section 6(b)(5) of the Act, the Commission must

predicate approval of exchange trading for new products upon a

finding that the introduction of the product is in the public

interest. Such a finding would be difficult with respect to a

product that served no investment, hedging or other economic

functions, because any benefits that might be derived by market

participants would likely 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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The estimated cost of an individual WEBS, approximately $10 to $20,

should make it attractive to individual retail investors who wish to

hold a security replicating the performance of a portfolio of foreign

stocks. Moreover, the Commission believes that WEBS will provide

investors with several advantages over standard open-end investment

companies specializing in such stocks. In particular, investors will be

able to trade WEBS continuously throughout the business day in

secondary market transactions at negotiated prices.\36\ In contrast,

Investment Company Rule 22c-1 \37\ limits holders and prospective

holders of open-end investment company shares to purchasing or

redeeming securities of the fund based on the net asset value of the

securities held by the fund as designated by the board of directors.

Accordingly, WEBS should allow investors to: (1) Respond quickly to

market changes through intra-day trading opportunities; (2) engage in

hedging strategies not currently available to retail investors; and (3)

reduce transaction costs for trading a portfolio of securities.

\36\ Because of potential arbitrage opportunities, the

Commission believes that WEBS will not trade at a material discount

or premium in relation to their net asset value. The mere potential

for arbitrage should keep the market price of WEBS comparable to

their net asset values; therefore, arbitrage activity likely will

not be significant. In addition, the Fund will redeem in-kind,

thereby enabling the Fund to invest virtually all of its assets in

securities comprising the MSCI Indices.

\37\ 17 CFR 270.22c-1 (1994). Investment Company Act Rule 22c-1

generally provides that a registered investment company issuing a

redeemable security, its principal underwriter, and dealers in that

security may sell, redeem, or repurchase the security only at a

price based on the net asset value next computed after receipt of an

investor's request to purchase, redeem, or resell. The net asset

value of an open-end investment company generally is computed once

daily Monday through Friday as designated by the investment

company's board of directors. The Commission granted WEBS an

exemption from this provision to allow them to trade in the

secondary market at negotiated prices. See Investment Company Act

Release No. 21803; International Series Release No. 944, March 5,

1996.

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Although the value of WEBS will be based on the value of the

securities and cash held in the Fund, WEBS are not leveraged

instruments.\38\ In essence, WEBS are equity securities that represent

an interest in a portfolio of stocks designed to reflect substantially

the applicable MSCI Index. Accordingly, it is appropriate to regulate

WEBS in a manner similar to other equity securities. Nevertheless, the

Commission believes that the unique nature of WEBS raise certain

product design, disclosure, trading, and other issues that must be

addressed.

\38\ In contrast, proposals to list exchange-traded derivative

products that contain a built-in leverage feature or component raise

additional regulatory issues, including heightened concerns

regarding manipulation, market impact, and customer suitability. See

e.g., Securities Exchange Act Release No. 36165 (August 29, 1995),

60 FR 46653 (relating to the establishment of uniform listing and

trading guidelines for stock index, currency, and currency index

warrants).

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A. WEBS Generally

The Commission believes that the proposed WEBS are reasonably

designed to provide investors with an investment vehicle that

substantially reflects in value the index it is based upon, and, in

turn, the performance of the specified foreign equities market. In this

regard, the Commission notes that MSCI imposes specific criteria in the

selection of Index components. MSCI generally seeks to have 60% of a

market's capitalization reflected in that market's corresponding Index.

In selecting components for a given Index, MSCI excludes issues that

are either small or highly illiquid. Index constituents are selected on

the basis of seeking to maximize float and liquidity, reflecting a

market's size and industry profiles, and minimizing cross-ownership.

The aim of this component selection process is to make Index

components highly representative of the over-all economic sector make-

up and market capitalization of a given market. At the same time,

securities that are illiquid or that have a restricted float are

avoided. The Commission believes that these criteria should serve to

ensure that the underlying securities of these Indices are well

capitalized and actively traded.

The Commission also notes that the WEBS' investment policies

require that at all times at least 90% of a given series total assets

must be invested in stocks that are represented in the relevant MSCI

Index. Moreover, a WEBS series normally will invest at least 95% of its

total assets in such stocks. In addition, stocks are selected for

inclusion in a WEBS series in order to have aggregated investment

characteristics (based on market capitalization and industry

weightings), fundamental characteristics (such as return variability,

earnings valuation and yield) and liquidity measures similar to those

of the subject MSCI Index taken in its entirety. Hence, the Fund

Advisor will seek to construct the portfolio of each WEBS series so

that, in the aggregate, its capitalization, industry, and fundamental

investment characteristics perform like those of the subject MSCI

Index.\39\

\39\ See Form N-1A, supra note 9.

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As noted above, to comply with these investment policies, a WEBS

series will not hold all of the securities that comprise the subject

MSCI Index, but will attempt to hold a representative selection of such

securities by means of ``portfolio sampling.'' Nevertheless, each WEBS

series currently is expected to have an approximate weighted

capitalization relative to the capitalization of its benchmark MSCI

Index, ranging from 82.6% for the Mexico (Free) series, to 98.5% for

the Sweden series.\40\ Moreover, no WEBS series currently is expected

to have fewer than seventeen of the component securities of the

corresponding MSCI Index.\41\ The Commission believes that taken

together, the foregoing are adequate to characterize WEBS as bona fide

index funds. The Commission would be concerned, however, if the

capitalization percentages or minimum number of WEBS component

securities were to fall to a level such that the WEBS portfolios no

longer would substantially reflect their corresponding WEBS

Indices.\42\

\40\ Letter from Donald R. Crawshaw, supra note 12.

\41\ Id.

\42\ Among other issues that may arise under the federal

securities laws, such an occurrence could raise the issue of whether

WEBS trading would remain consistent with Amex listing standards for

Index Fund Shares, as well as the surrogate trading issue noted

above. See supra note 25.

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B. Disclosure

The Commission believes that the Exchange's proposal should ensure

that investors have information that will allow them to be adequately

apprised of the terms, characteristics, and risks of trading Index Fund

Shares, including

[[Page 10612]]

WEBS.\43\ As noted above, all Fund Share investors will receive a

prospectus regarding the product. Because Index Fund Shares, including

WEBS, will be in continuous distribution, the prospectus delivery

requirements of the Securities Act of 1933 will apply both to initial

investors, and to all investors purchasing such securities in secondary

market transactions on the Amex. The prospectus will address the

special characteristics of a particular Index Fund Share series,

including a statement regarding its redeemability and method of

creation. With respect to WEBS, the prospectus will state specifically

that WEBS individually are not redeemable.

\43\ The Exchange states that it may, in the future, seek to

obtain an exemption from the prospectus delivery requirement, either

with respect to WEBS or other Index Fund Shares listed on the

Exchange. In the event it obtains such an exemption, the Exchange

will discuss with Commission staff the appropriate level of

disclosure that should be required with respect to the Index Fund

Shares being listed, and will file any necessary rule change to

provide for such disclosure.

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The Commission also notes that upon the initial listing of any

class of Index Fund Shares, including WEBS, the Exchange will issue a

circular to its members explaining the unique characteristics and risks

of this type of security. The circular also will note Exchange members'

responsibilities under Exchange Rule 411 (``know your customer rule'')

regarding transactions in such Index Fund Shares. Exchange Rule 411

generally requires that members use due diligence to learn the

essential facts relative to every customer, every order or account

accepted.\44\ The circular also will address members' responsibility to

deliver a prospectus to all investors as well as highlight the

characteristics of purchases in Index Fund Shares, including WEBS,

including that they only are redeemable in Creation Unit size

aggregations.

\44\ Amex Rule 411.

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C. Trading of WEBS

The Commission finds that adequate rules and procedures exist to

govern the trading of Index Fund Shares, including WEBS. Index Fund

Shares will be deemed equity securities subject to Amex rules governing

the trading of equity securities.\45\ These rules include: General and

Floor Rules, such as priority, parity, and precedence of orders, market

volatility related trading halt provisions pursuant to Rule 117,

members dealing for their own accounts, specialists, odd-lot brokers,

and registered traders, and handling of orders and reports; \46\ Office

Rules, such as conduct of accounts, margin rules, and advertising; \47\

and Contracts in Securities, such as duty to report transactions,

comparisons of transactions, marking to the market, delivery of

securities, dividends and interest, closing of contracts, and money and

security loans.\48\ The Amex also will consider halting trading in any

series of Index Funds Shares under certain other circumstances

including those set forth in Amex Rule 918C(b)(4) regarding the

presence of other unusual conditions or circumstances detrimental to

the maintenance of a fair and orderly market.\49\

\45\ Telephone Conversation between Michael Cavalier, Assistant

General Counsel, Amex, and Francois Mazur, Attorney, OMS, Division,

Commission, on March 4, 1996.

\46\ Amex Rules 1-236.

\47\ Amex Rules 300-590.

\48\ Amex Rules 700-891.

\49\ See supra note 29, and accompanying text.

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The Commission is satisfied with the Amex's development of specific

listing and delisting criteria for Index Fund Shares. These criteria

should help to ensure that a minimum level of liquidity will exist in

each series of Index Fund Shares to allow for the maintenance of fair

and orderly markets. The delisting criteria also allows the Exchange to

consider the suspension of trading and the delisting of a series of

Index Fund Shares, including WEBS, if an event were to occur that made

further dealings in such securities inadvisable. This will give the

Exchange flexibility to delist Index Fund Shares, including WEBS, if

circumstances warrant such action. For example, as noted above, in the

event that WEBS became a surrogate for trading a single or few

unregistered securities, such an event could raise issues that would

require delisting of WEBS so as to ensure compliance with the Act.\50\

Accordingly, the Commission believes that the rules governing the

trading of Index Fund Shares provide adequate safeguards to prevent

manipulative acts and practices and to protect investors and the public

interest.

\50\ See supra note 25.

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D. Dissemination of WEBS Portfolio Information

The Commission believes that the Values the Exchange proposes to

have disseminated for the seventeen WEBS series will provide investors

with timely and useful information concerning the value of WEBS on a

per WEBS basis. The Exchange represents that the information will be

disseminated through the facilities of the CTA and will reflect

currently-available information concerning the value of the assets

comprising the Deposit Securities. This information will be

disseminated every 15 seconds during regular Amex trading hours of 9:30

a.m. to 4:00 p.m., New York time. In addition, since it is expected

that the Value will closely track the applicable WEBS series, the

Commission believes that the Values will provide investors with

adequate information to determine the intra-day value of a given WEBS

series.\51\ The Commission expects that the Amex will monitor the

disseminated Value, and if the Amex were to determine that the Value

does not closely track applicable WEBS series, it would arrange to

disseminate an adequate alternative value.

\51\ In addition, the statement of additional information to the

preliminary prospectus states that each series will calculate its

NAV per share at the close of the regular trading session for the

New York Stock Exchange, Inc. on each day that the Exchange is open

for business. NAV generally will be based on the last quoted sales

price on the exchange where the security primarily is traded. Form

N-1A, supra note 9. See also note 17, supra, discussing availability

of NAV.

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E. Specialists

The Commission finds that it is consistent with the Act to allow a

specialist registered in a security issued by an Investment Company to

purchase or redeem the listed security from the issuer as appropriate

to facilitate the maintenance of a fair and orderly market in that

security. The Commission believes that such market activities should

enhance liquidity in such securities and facilitate a specialist's

market-making responsibilities. In addition, because the specialist

only will be able to purchase and redeem Units on the same terms and

conditions as any other investor at NAV in accordance with the terms of

the Fund prospectus and statement of additional information, the

Commission believes that concerns regarding potential abuse are

minimized. The Exchange's existing surveillance procedures also should

ensure that such purchases are only for the purpose of maintaining fair

and orderly markets, and not for any other improper or speculative

purposes. Finally, the Commission notes that its approval of this

aspect of the Exchange's rule proposal does not address any other

requirements or obligations under the federal securities laws that may

be applicable.\52\

\52\ Broker dealers and other persons will be cautioned in the

prospectus and/or the Fund's statement of additional information

that some activities on their part may, depending on the

circumstances, result in their being deemed statutory underwriters

and subject them to the prospectus delivery and liability provisions

of the Securities Act of 1933.

[[Page 10613]]

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F. Surveillance

The Commission believes that the surveillance procedures developed

by the Amex for WEBS are adequate to address concerns associated with

the listing and trading of such securities, including any concerns

associated with purchasing and redeeming Creation Units.

The Commission also notes that certain concerns are raised when a

broker-dealer, such as Morgan Stanley & Co. Incorporated (``Morgan

Stanley''), is involved in the development and maintenance of a stock

index upon which a product such as Index Fund Shares, in this case

WEBS, is based. The Indices were created by MSCI, which also is

responsible for making substitutions and other adjustments to the

Indices. Responsibility for making substitutions and other adjustments

to the Indices has been delegated to Capital International S.C.

(``CIPSA''), which in turn is a subsidiary of Capital International

S.A. (``CISA''), itself a subsidiary of The Capital Group. Morgan

Stanley represents that the individuals employed by CIPSA are not

involved in sales and trading for Morgan Stanley or in equity research.

Information provided by CIPSA concerning the Indices is made available

to MSCI and Morgan Stanley at the same time it becomes available to

other market participants. Moreover, as discussed above, WEBS series

will not hold all the securities underlying a corresponding MSCI Index,

holding instead a representative sampling of such securities. In

addition, Morgan Stanley, CISA, and CIPSA each have procedures in place

to prevent the misuse of material, non-public information regarding

changes to component stocks in an MSCI Index.\53\ The Commission

believes that these provisions should help to address concerns raised

by Morgan Stanley's involvement in the management of the Indices.

\53\ Letter from Rachel Ascher, Vice President and Counsel,

Morgan Stanley, to Michael Walinskas, Branch Chief, OMS, Division,

Commission, dated March 6, 1996.

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G. Stop and Stop Limit Orders

The Commission believes that the Amex's proposal to designate Index

Fund Shares, including WEBS, as eligible for election by quotation with

the prior approval of a Floor Official is consistent with the Act. Amex

Rule 154, Commentary .04(c) generally provides that stop and stop limit

orders to buy or sell a security or index of securities may with the

prior approval of a Floor Official, be elected by a quotation, as set

forth in Rule 154, Commentary .04(c)(1-v). Rule 154, Commentary

.04(c)(v) states that election by quotation only is available for such

derivative securities as are designated by the Exchange as eligible for

such treatment. The Exchange's proposal would so designate Index Fund

Shares.

The Commission believes that to allow stop and stop limit orders in

Index Fund Shares to be elected by quotation, a rule typically used in

the options context, is appropriate because, as a result of their

derivative nature, Index Fund Shares are in effect equity securities

that have a pricing and trading relationship to the underlying

securities similar to the relationship between options and their

underlying securities.\54\

\54\ See generally Securities Exchange Act Release No. 29063

(April 10, 1991), 56 FR 15652 (approving Amex proposal relating to

stop and stop limit orders in certain equity securities).

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H. Minimum Fractional Changes

The Commission believes that the Exchange's propsoal to add

Commentary .02 to its Rule 127 to provide that Index Fund Shares,

including WEBS, are tradeable in minimum fractional changes of \1/16\

of $1.00 is consistent with the Act. In initially approving the trading

of Portfolio Depositary Receipts (``PDRs'') in minimum fractional

changes of \1/32\ of $1.00, the Commission stated that such trading

should enhance market liquidity, and should promote more accurate

pricing, tighter quotations, and reduced price fluctuations.\55\ The

Commission also stated that such trading should allow customers to

receive the best possible execution of their transactions in PDRs.\56\

The Commission believes that this reasoning equally is applicable to

Index Fund Shares, including WEBS.

\55\ See Securities Exchange Act Release No. 31794 (January 29,

1993), 58 FR 7272 (order approving Amex proposal relating to minimum

fractions of trading).

\56\ Id.

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Although Index Fund Shares, and specifically WEBS, initially will

be listed on the Amex, the Commission notes that it is conceivable that

other national securities exchanges or the National Association of

Securities Dealers, Inc. could apply for authority to list and trade

such products. Currently, however, the Intermarket Trading System

(``ITS'') is not capable of accommodating quotes in \1/16\th of $1.00

for securities priced over $10 (although ITS does accommodate quotes in

\1/16\th of $1.00 for securities priced below $10).\57\ The Amex states

that in the event another ITS participant market seeks to initiate WEBS

trading through ITS, the Exchange will discuss with the ITS Operating

Committee appropriate modifications to ITS to permit trading Index Fund

Shares in \1/16\ of $1.00 increments for shares priced at or above $10,

and would make reasonable efforts to address issues raised by such

prospective trading.\58\ The Commission expects the Amex to work with

ITS and other market participants in a timely manner to accommodate

trading in sixteenths through ITS should other ITS participants seek to

initiate WEBS trading.

\57\ Amendment No. 2, supra note 5.

\58\ Id.

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I. Scope of the Commission's Order

The Commission is approving in general the Exchange's proposed

listing standards for Index Fund Shares, and specifically the seventeen

series of WEBS described herein. Other similarly structured products,

including WEBS based on MSCI Indices not described herein, would

require review by the Commission pursuant to Section 19(b) of the Act

prior to being traded on the Exchange.

J. Accelerated Approval of Amendment Nos. 2 and 3

The Commission finds good cause for approving Amendment Nos. 2 and

3 prior to the thirtieth day after the date of publication of notice of

filing thereof in the Federal Register. Amendment No. 2 provides

additional information regarding the structure of Index Fund Shares.

Amendment No. 2 also includes changes to the criteria for initial

listing, a description of the dissemination of portfolio information, a

provision for original and annual listing fees, a modification

affecting stop and stop limit orders, a modification of minimum

fractional changes, an Amendment to Amex Rule 190 (Specialist's

Transactions with Public Customers), and effects a technical change to

proposed Amex Rule 1000A. Amendment No. 3 clarifies that WEBS will

trade until 4:00 p.m., not 4:15 p.m. as originally proposed; revises

its proposal with respect to trading halts; and provides information

regarding the dissemination of NAVs.

The Commission believes that the information presented by Amendment

No. 2 concerning the criteria for initial listing is generally

consistent with the Exchange's original proposal. The provision

regarding WEBS portfolio compositions and the dissemination of

portfolio compositions and the dissemination of portfolio values should

strengthen the Exchange's proposal by

[[Page 10614]]

providing investors with additional information. The technical change

to proposed Amex Rule 1000A does not represent a material change. The

Commission believes that the proposed original listing fee is

reasonable and notes that no annual listing fees will be assessed for

calendar year 1996. Finally, the other aspects of Amendment No. 2

concern issues that have been raised in prior Exchange proposals that

have been the subject of a full comment period pursuant to Section

19(b) of the Act. The Commission believes that the trading hour

provision of Amendment No. 3 does not represent a material change to

the Exchange's original proposal and conforms WEBS trading hours to the

Amex's regular trading hours. Amendment No. 3's trading halt provision

clarifies the Exchange's proposal and makes it consistent with existing

Exchange rules. Finally, the explanation regarding the dissemination of

NAV clarifies what information will be made available to the public.

For the foregoing reasons, the Commission believes there is good cause,

consistent with Sections 6(b)(5) and 19(b)(2) of the Act,59 to

approve Amendment Nos. 2 and 3 to the proposal on an accelerated basis.

\59\ 15 U.S.C. 78f(b)(5) and 78s(b)(2) (1988).

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IV. Solicitation of Comments

Interested persons are invited to submit written data, views, and

arguments concerning Amendment Nos. 2 and 3. 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 20549. 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-95-43 and should be

submitted by April 14, 1996.

V. Conclusion

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

that the proposed rule change (SR-Amex-95-43), as amended, is approved.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\60\

\60\ 17 CFR Sec. 200.30-3(a)(12) (1994).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96-6089 Filed 3-13-96; 8:45 am]

BILLING CODE 8010-01-M