Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the American Stock Exchange, Inc., Relating to the Permanent Approval of the Exchange's Pilot Program for Specialists in Portfolio Depositary Receipts, Investments Trust Securities, and Index Fund Shares To Participate In the After-Hours Trading Facility

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40201; File No. SR-AMEX-98-20]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change by the American Stock Exchange, Inc., Relating to the Permanent

Approval of the Exchange's Pilot Program for Specialists in Portfolio

Depositary Receipts, Investments Trust Securities, and Index Fund

Shares To Participate In the After-Hours Trading Facility

July 15, 1998.

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

(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that

on June 9, 1998, the American Stock Exchange, Inc. (``Amex'' or

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

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

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

Exchange. The Commission is publishing this notice to solicit comments

on the proposed rule change from interested persons.

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

\2\ 17 CFR 240.19b-4.

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

Substance of the Proposed Rule Change

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

the Secretary, the Amex, and at the Commission.

II. Self-Regulatory Organization's Statement of the Purpose of, and

Statutory Basis for the Proposed Rule Change

In its filing with the Commission, the Exchange included statements

concerning the purpose of and basis for the proposed rule change and

discussed any comments if received on the proposed rule change. The

text of these statements may be examined at the places specified in

Item IV below. The Exchange 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

The Exchange seeks permanent approval of the pilot program

permitting specialists in Portfolio Depository Receipts \3\ (``PDRs''),

investment trust securities, and Index Fund Shares to participate in

the after-hours trading (``AHT'') facility to ``clean-up'' order

imbalances and to effect closing price coupled orders.\4\

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\3\ The Exchange currently lists three Portfolio Depositary

Receipts, viz., Depositary Receipts on the Standard and Poor's

500 and MidCap Indexes, and Depositary Receipts

on the Dow Jones Industrial AverageTM. The Exchange also

lists 17 Index Fund Shares which are commonly referred to as

WEBSsm. WEBS are shares issued by an open-end management

investment company that seek to provide investment results that

correspond generally to the price and yield performance of a

specified foreign or domestic equity market index. The Exchange

currently lists WEBS based on the following Morgan Stanley Capital

International (``MSCI'') 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. (See SR-Amex-95-43.)

\4\ The Commission originally approved the pilot program in

Securities Exchange Act Release No. 34611 (Aug. 29, 1994), 59 FR

45739 (Sept. 2, 1994) (``Original Pilot Approval''). The pilot was

scheduled to expire on August 29, 1995, but was extended for three

successive one-year periods in Securities Exchange Act Release Nos.

36123 (Aug. 18, 1995), 60 FR 44519 (Aug. 28, 1995); 37529 (Aug. 6,

1996), 61 FR 41814 (Aug. 12, 1996); and 38986 (Aug. 17, 1997), 62 FR

46785 (Sept. 4, 1997). In the Original Pilot Approval and in each

extension, the Commission requested that the Exchange submit a

report and analysis regarding the operation of the pilot program.

The Exchange did not submit a report until 1997, as specialists made

little or no use of the pilot program until the period September 3,

1996 to May 30, 1997. The 1997 report stated that during that

period, there were two trades for a total of 600 shares of PDRs in

the AHT session for PDRs, index trust securities, and Index Funds

Shares. See letter dated August 5, 1997, from William Floyd-Jones,

Jr., Assistant General Counsel, Amex, to Michael Walinskas, Senior

Special Counsel, SEC. The 1998 report stated that during the period

June 1, 1997 to April 30, 1998, there were 12 trades for a total of

56,320 PDRs in the AHT session for PDRs, index fund securities, and

Index Fund Shares. See letter dated June 8, 1998, from William

Floyd-Jones, Jr., Assistant General Counsel, Amex, to Michael

Walinskas, Senior Special Counsel, SEC.

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The Exchange believes that permanent approval of the Exchange pilot

program to permit specialists in PDR's, investment trust securities,

and Index Fund Shares to participate in the AHT facility in order to

``clean-up'' order imbalances and effect closing price coupled orders

would benefit investors by providing additional liquidity to the listed

cash market for derivative securities based upon well-known market

indexes. The Amex maintains that investor interest in these securities

is rapidly increasing, and specialist participation in the AHT session

provides necessary liquidity after the close of the regular trading

session. In addition, the market price of these exchange-trading funds

is based upon transactions largely effected in markets other than the

Amex. (In the case of Index Fund Shares, the market price of these

securities is based exclusively on transactions occurring outside the

Amex.) The specialist in the Amex listed securities has no unique

access to market sensitive information regarding the market for the

underlying securities or closing index values. The Exchange, therefore,

believes that specialist participation in the AHT facility in PDRs,

investment trust securities and Index Fund Shares in the manner

previously approved by the Commission on a pilot basis does not raise

any market integrity issues. In addition, should a customer not care

for an execution at the closing price, the rules of the Exchange's AHT

facility permit cancellation of an order up to the close of the AHT

session at 5:00 p.m. (Orders in the AHT facility are not executed until

the 5:00 p.m. close of the AHT session.) A customer, therefore, has

approximately 40 minutes to determine if an execution at the closing

price suits its need and may cancel its order if it believes that the

closing price does not suit its objectives.

2. Basis

The Exchange believes the proposed rule change is consistent with

Section 6(b) of the Act, \5\ in general, and furthers the objectives of

Section 6(b)(5), \6\ in particular, in that it is designed to prevent

fraudulent acts and practices, promote just and equitable principles of

trade, 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.

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

\6\ 15 U.S.C. 78f(b)(5).

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

The Exchange believes that proposed permanent approval of the pilot

program would impose no burden on competition.

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

Rule Change Received from Members, Participants, or Others

No written comments were solicited or received with respect to the

proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing

for Commission Action

Within 35 days of the date of publication of this notice in the

Federal Register or within such longer period (i) as the Commission may

designate up to

[[Page 39609]]

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

Exchange 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, including whether the proposed rule

change is consistent with the Act. Persons making written submissions

should file six copies thereof with the Secretary, Securities and

Exchange Commission, 450 Fifth Street, N.W., 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 Room, 450 Fifth Street, N.W., 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-98-20 and should be submitted by August 24,

1998.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\7\

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\7\ 17 CFR 200.30-3(a)(12).

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Jonathan G. Katz,

Secretary.

[FR Doc. 98-19572 Filed 7-22-98; 8:45am]

BILLING CODE 8010-01-M