
[Federal Register: April 28, 2008 (Volume 73, Number 82)]
[Notices]               
[Page 22983-22987]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28ap08-92]                         

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57693; File No. SR-Amex-2008-07]

 
Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing and Order Granting Accelerated Approval of Proposed 
Rule Change, as Modified by Amendment No. 1 Thereto, Relating to 
Currency Forward Pricing for Currency-Linked Securities

April 21, 2008.
    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 February 6, 2008, the American Stock Exchange LLC (``Exchange'' or 
``Amex'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been substantially prepared by the Exchange. 
On April 17, 2008, the Exchange filed Amendment No. 1 to the proposed 
rule change. This order provides notice of the proposed rule change, as 
amended, and approves the proposal on an accelerated basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Section 107F of the Amex Company 
Guide (the ``Company Guide'') to permit

[[Page 22984]]

the listing of currency-linked securities (``Currency-Linked 
Securities'') based on a Currency Reference Asset consisting of pricing 
information for one or more currencies that is the generally accepted 
forward price \3\ for the currency exchange rate(s) in question. The 
text of the proposed rule change is available at http://www.amex.com, 
Amex, and the Commission's Public Reference Room.
---------------------------------------------------------------------------

    \3\ This proposal would permit the use of a generally accepted 
forward price based on forward contracts that are either 
``deliverable'' or ``non-deliverable.''
---------------------------------------------------------------------------

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 it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item III 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 proposes to amend Section 107F(g)(ii) of the Company 
Guide to permit the listing of Currency-Linked Securities where the 
pricing information for some or all of the components of the Currency 
Reference Asset is the generally accepted forward price for the 
currency exchange rate(s) in question.
    The foreign exchange market is predominantly an over-the-counter 
(``OTC'') market operating 24 hours a day, five days a week.\4\ London, 
New York and Tokyo are the principal geographic centers of the 
worldwide foreign exchange market with approximately 58% of all foreign 
exchange business executed in the U.K., U.S., and Japan. Other smaller 
markets include Singapore, Zurich, and Frankfurt. The foreign currency 
market is the largest and most liquid financial market in the world. In 
2007, the average daily spot turnover accounted for over $1 trillion 
USD and the average daily forward turnover accounted for $362 billion 
USD.\5\ Over 85% of currency derivative products (swaps, options and 
futures) are traded OTC.\6\
---------------------------------------------------------------------------

    \4\ For information relating to the foreign exchange market 
generally, see Securities Exchange Act Release No. 54351 (August 23, 
2006), 71 FR 51245 (August 29, 2006) (SR-Amex-2006-44).
    \5\ See Bank for International Settlements, Triennial Central 
Bank Survey of Foreign Exchange and Derivatives Market Activity in 
2007 (December 2007) (Table E1) (the ``2007 BIS Report'').
    \6\ Id. at Table E38.
---------------------------------------------------------------------------

    Foreign exchange rates are influenced by national debt levels and 
trade deficits, domestic and foreign inflation rates and investors' 
expectations concerning inflation rates, domestic and foreign interest 
rates and investors' expectations concerning interest rates, currency 
exchange rates, investment and trading activities of mutual funds, 
hedge funds and currency funds, and global or regional political, 
economic or financial events and situations. Additionally, expectations 
among market participants that a currency's value soon will change may 
also affect exchange rates.
    There are three major kinds of transactions in the traditional 
foreign currency markets: Spot transactions, outright forwards and 
foreign exchange swaps. ``Spot'' trades are foreign currency 
transactions that settle typically within two business days with the 
counterparty to the trade. Spot transactions account for approximately 
35% of reported daily volume in the traditional foreign currency 
markets. ``Forward'' trades, which are transactions that settle on a 
date beyond spot, account for 12% of the reported daily volume, and 
``swap'' transactions, in which two parties exchange two currencies on 
one or more specified dates over an agreed period and exchange them 
again when the period ends, account for the remaining 53% of volume.
    Forward rates are quoted among dealers in premiums or discounts 
from the spot rate. The premium or discount is measured in ``points'' 
that represent the interest rate differential between two currencies 
for the period of the forward, converted into foreign exchange. In 
addition to the liquidity in the forward foreign exchange market, the 
forward market is also transparent. Bloomberg, Reuters and other major 
market data providers disseminate quotes for the forward market 
provided by OTC dealers.
    Most trading in the global OTC foreign currency markets is 
conducted by regulated financial institutions such as banks and broker-
dealers. In addition, in the United States, the Foreign Exchange 
Committee of the New York Federal Reserve Bank has issued Guidelines 
for Foreign Exchange Trading, and central bank sponsored committees in 
Japan and Singapore have published similar best practice guidelines. In 
the United Kingdom, the Bank of England has published the Non-
Investment Products Code, which covers foreign currency trading. The 
Financial Markets Association, whose members include major 
international banking organizations, has also established best 
practices guidelines called the Model Code.\7\ Participants in the U.S. 
OTC market for foreign currencies are generally regulated by their 
oversight regulators. For example, participating banks are regulated by 
the banking authorities.
---------------------------------------------------------------------------

    \7\ See supra note 4.
---------------------------------------------------------------------------

    As set forth above, this proposal would amend Section 107F(g)(ii) 
of the Company Guide to permit the listing of Currency-Linked 
Securities where the pricing information for some or all of the 
components of the Currency Reference Asset is the generally accepted 
forward price for the currency exchange rate in question. The generally 
accepted forward price is typically calculated as follows: \8\
---------------------------------------------------------------------------

    \8\ See Federal Reserve Bank of New York, All About * * * The 
Foreign Exchange Market in the United States, p. 38. (http://
www.newyorkfed.org/education/addpub/usfxm/).
[GRAPHIC] [TIFF OMITTED] TN28AP08.002

Points = Forward Rate-Spot Rate
    The Exchange believes that the liquidity and transparency \9\ of 
the OTC foreign currency market provides an adequate basis for using 
forward pricing information in connection with Currency-Linked 
Securities.
---------------------------------------------------------------------------

    \9\ For example, Bloomberg, Reuters, and other major market data 
providers disseminate pricing information for the forward market 
provided by OTC market makers.

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

[[Page 22985]]

    Based upon the trading volumes of forward contracts, the ability 
for an issuer to use forward pricing information under Section 
107F(g)(ii) of the Company Guide for any component of a Currency 
Reference Asset will be restricted to the following currencies 
(collectively, ``High Volume Currencies''): U.S. Dollar, Euro, Japanese 
Yen, British Pound Sterling, Swiss Franc, Canadian Dollar, Australian 
Dollar, Brazilian Real, Chinese Renminbi, Czech Koruna, Danish Krone, 
Hong Kong Dollar, Hungarian Forint, Indian Rupee, Indonesian Rupiah, 
Korean Won, Mexican Peso, Norwegian Krone, New Zealand Dollar, 
Philippine Peso, Polish Zloty, Russian Ruble, Swedish Krona, South 
African Rand, Singapore Dollar, Taiwan Dollar, Thai Baht or New Turkish 
Lira. The trading volume in these currencies is as follows:\10\
---------------------------------------------------------------------------

    \10\ See 2007 BIS Report, supra note 5, Statistical Annex 
Table--Foreign Exchange Markets; BIS, Triennial Central Bank Survey 
of Foreign Exchange and Derivatives Market Activity in April 2004, 
Statistical Annex Tables--Foreign Exchange Markets (2004); and BIS, 
Triennial Central Bank Survey of Foreign Exchange and Derivatives 
Market Activity in April 2001, Statistical Annex Tables--Foreign 
Exchange Markets (2001).

                                   FX Forward Average Daily Volume in Millions
----------------------------------------------------------------------------------------------------------------
                              Currency                                   2001       2004       2007     Average
----------------------------------------------------------------------------------------------------------------
U.S. Dollar.........................................................    110,795    170,357    289,435    190,196
Euro................................................................     54,327     88,243    137,391     93,320
Japanese Yen........................................................     33,257     47,135     61,453     47,282
British Pound Sterling..............................................     16,826     31,338     46,274     31,479
Swiss Franc.........................................................      6,637     11,307     21,186     13,043
Canadian Dollar.....................................................      4,335      8,947     15,280      9,521
Australian Dollar...................................................      5,416      9,788     20,463     11,889
Brazilian Real......................................................      1,259      1,072      5,259      2,530
Chinese Renminbi....................................................         55        811      4,572      1,813
Czech Koruna........................................................         96        253      1,432        594
Danish Krone........................................................        888      1,347      2,841      1,692
Hong Kong Dollar....................................................      3,055      2,221      6,022      3,766
Hungarian Forint....................................................         28        308      1,357        564
Indian Rupee........................................................        428      1,531      5,815      2,591
Indonesian Rupiah...................................................        103        267      1,292        554
Korean Won..........................................................      1,671      6,048     10,013      5,911
Mexican Peso........................................................        673      1,716      4,594      2,328
Norwegian Krone.....................................................      1,187      2,543      6,498      3,409
New Zealand Dollar..................................................        579      1,462      6,639      2,893
Philippine Peso.....................................................         73        232      1,123        476
Polish Zloty........................................................        439        483      2,644      1,189
Russian Ruble.......................................................         52        253      1,253        519
Swedish Krona.......................................................      3,207      4,158      8,543      5,303
South African Rand..................................................        825      1,122      3,458      1,802
Singapore Dollar....................................................        825      1,242      2,962      1,676
Taiwan Dollar.......................................................        603      2,798      4,724      2,708
Thai Baht New.......................................................        231        490        847        523
New Turkish Lira....................................................        164        239        535        313
                                                                     -------------------------------------------
    Total (divided by 2)............................................    125,018    199,858    337,956    220,944
----------------------------------------------------------------------------------------------------------------

    The total amount of contracts reflected in the chart above is 
divided by two because each contract is denominated in two currencies. 
For example, one contract will reflect cross rates in two currencies: 
U.S. Dollars against the Euro, the Singapore dollar against the Turkish 
Lira, etc. The daily notional turnover for the currency forward 
contracts reflected in the chart above ranged from 535 million USD to 
289 billion USD in April 2007.
    In connection with this proposal, the generally accepted forward 
price will be used for pricing purposes only to the extent that the 
Currency Reference Asset (as defined in Section 107F of the Company 
Guide) is based on the generally accepted forward price. In the event a 
Currency Reference Asset is based upon the generally accepted forward 
price and such forward price becomes unavailable due to a holiday, the 
generally accepted spot price may be used for calculating the pricing 
information of the Currency Reference Asset. The pricing information of 
the Currency Reference Asset on the following business day must be 
based upon the generally accepted forward price. This exception will 
permit certain hedged products that use forward pricing information to 
use the spot price, which is quoted in the United States, when the 
generally accepted forward price, which is derived from the generally 
accepted spot price, is unavailable due to a foreign holiday.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\11\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\12\ in particular, in that it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, and to remove impediments to and perfect 
the mechanism of a free and open market and a national market system. 
Specifically, the Exchange believes that the proposal to permit the use 
of generally accepted foreign currency forward pricing in connection 
with Currency-Linked Securities may better reflect the large, growing 
market in foreign exchange worldwide.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    The proposed rule change does not impose any burden on competition 
that

[[Page 22986]]

is not necessary or appropriate in furtherance of the purposes of the 
Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any unsolicited written comments from members or other interested 
parties.

III. 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. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-Amex-2008-07 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-Amex-2008-07. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/
sro.shtml). 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, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-Amex-2008-07 and should be 
submitted on or before May 19, 2008.

IV. Commission's Findings and Order Granting Accelerated Approval of 
the Proposed Rule Change

    After careful review, 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.\13\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\14\ which 
requires that an exchange have rules designed, among other things, to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest.
---------------------------------------------------------------------------

    \13\ In approving this rule change, the Commission notes that it 
has considered the proposal's impact on efficiency, competition, and 
capital formation. See 15 U.S.C. 78c(f).
    \14\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission believes that opportunities to invest in derivative 
securities products based not only on the spot value, but also on the 
forward price, of a foreign currency provide additional choices to 
accommodate particular investment needs and objectives, should benefit 
investors. The Commission notes that the foreign exchange market as a 
whole, which is predominantly OTC, is a highly liquid market.\15\ The 
Commission also notes that outright forward transactions account for a 
material percentage of reported daily volume on the foreign exchange 
markets.
---------------------------------------------------------------------------

    \15\ See supra note 5 and accompanying text.
---------------------------------------------------------------------------

    In the interest of assuring sufficient liquidity of the underlying 
components and thereby protecting investors of Currency-Linked 
Securities that are based on the generally accepted forward price for 
the currency exchange rate in question, the use of forward pricing 
information for any such component of a Currency Reference Asset would 
be limited to the High Volume Currencies. The Commission notes that 
Currency-Linked Securities that satisfy the applicable requirements 
under Section 107F of the Company Guide would be able to be listed and 
traded pursuant to Rule 19b-4(e) under the Act.\16\ The Commission 
believes that, to list and trade Currency-Linked Security products 
based on forward prices of foreign currencies pursuant to Rule 19b-4(e) 
under the Act, limiting such foreign currencies to the High Volume 
Global Currencies is an appropriate measure to assure sufficient 
liquidity in the underlying components.\17\ In addition, the forward 
price should be used for pricing purposes only to the extent that the 
Currency Reference Asset is based on the forward price.\18\ The 
Commission believes that the proposed rule change, which seeks to 
expand the types of components on which Currency-Linked Securities are 
based, should promote the listing and trading of additional Currency-
Linked Securities and thereby support greater options and competition 
in such products, to the benefit of investors and the public interest.
---------------------------------------------------------------------------

    \16\ See 17 CFR 240.19b-4(e). Rule 19b-4(e)(1) under the Act 
provides that the listing and trading of a new derivative securities 
product by a self-regulatory organization (``SRO'') shall not be 
deemed a proposed rule change, pursuant to paragraph (c)(1) of Rule 
19b-4 under the Act (17 CFR 240.19b-4(c)(1)), if the Commission has 
approved, pursuant to Section 19(b) of the Act (15 U.S.C. 78s(b)), 
the SRO's trading rules, procedures, and listing standards for the 
product class that would include the new derivatives securities 
product, and the SRO has a surveillance program for the product 
class.
    \17\ The Commission further notes that the Exchange may seek to 
list and trade a Currency-Linked Security product based on forward 
prices of non-High Volume Global Currencies by filing a proposed 
rule change pursuant to Section 19(b)(1) of the Act.
    \18\ The proposal also states that, with respect to a Currency-
Linked Security that is based on the forward price of a foreign 
currency, if the forward price is not available due to a holiday, 
the spot price may be used for calculating the pricing information 
of the Currency Reference Asset. The pricing information on the 
following business day must be based on the forward price. See 
proposed Commentary .01 to Section 107F of the Company Guide.
---------------------------------------------------------------------------

    The Commission finds good cause for approving this proposal before 
the 30th day after the publication of notice thereof in the Federal 
Register. The Commission has approved substantively identical proposed 
rule change by another national securities exchange \19\ and does not 
believe that this proposal raises any novel regulatory issues. 
Accelerating approval of this proposal should benefit investors by 
creating, without undue delay, additional competition in the market for 
Currency-Linked Securities.
---------------------------------------------------------------------------

    \19\ See Securities Exchange Act Release No. 54760 (March 10, 
2008), 73 FR 13942 (March 14, 2008) (SR-NYSEArca-2008-12).
---------------------------------------------------------------------------

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\20\ that the proposed rule change (SR-Amex-2008-07), as modified 
by Amendment No. 1

[[Page 22987]]

thereto, be, and it hereby is, approved on an accelerated basis.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78s(b)(2).
    \21\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-9187 Filed 4-25-08; 8:45 am]

BILLING CODE 8010-01-P
