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February 3, 1999

Mr. James M. McNeil
Chief Examiner
Financial Regulatory Services Dept.
The Nasdaq-Amex Market Group
86 Trinity Place
New York, New York 10006-1872

Dear Mr. McNeil:

This is in response to your letter of January 28, 1999, concerning the treatment of Nasdaq-100 SharesSM (the "Shares") under the Board's Regulation T. The American Stock Exchange anticipates beginning trading the Shares in the first quarter of 1999. SharesSM

We understand that the Shares are units of beneficial interest in a unit investment trust based on the Nasdaq-100 Index® that are structured and will trade in a manner similar to SPDRs® (Standard & Poor's Depositary Receipts) and DIAMONDSSM. 1 The Shares will be exchangeable or convertible within 90 calendar days without restriction other than the payment of money into the stocks that comprise the Nasdaq-100 Index. The process of obtaining stocks comprising the Nasdaq-100 Index in exchange for the Shares is known as "redemption" and the process of obtaining Shares in exchange for stocks comprising the Nasdaq-100 Index is known as "creation."

This confirms that the margin treatment of the Shares under Regulation T will be the same as that for SPDRs and DIAMONDs. Specifically, the Shares are equity securities that qualify as margin securities under section 220.2 of Regulation T. Under the Supplement to Regulation T (section 220.12), the Shares are subject to a 50 percent initial margin when purchased by a customer and 150 percent initial margin when a customer establishes a short position in the Shares. Further, a customer who sells short individual stocks or a subset of stocks represented in the Nasdaq-100 Index will be subject to a 100 percent initial margin for the short sale if the account contains sufficient Shares to yield at least the number of shares of stock sold short upon redemption. Finally, a short sale of the Shares will be subject to a 100 percent initial margin if the account contains a portfolio of stocks comprising the Nasdaq-100 Index in sufficient quantity to yield at least the number of Shares sold short upon creation.


(Signed) Scott Holz

Scott Holz



1. The margin treatment of SPDRs and DIAMONDs was addressed in earlier correspondence from Board staff dated January 8, 1998 and February 1, 1993. Return to text

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