June 2, 1989
TO: BOARD OF GOVERNORS NO. 35-89
RE: INSTITUTE BRIEF SUBMITTED IN ACTION ON INDEX PARTICIPATIONS
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Attached is a copy of the brief filed by the Institute in
its action before the U.S. Court of Appeals for the Seventh
Circuit challenging the approval by the Securities and Exchange
Commission of "index participations". Index participations are
products offered by stock exchanges that provide investors with
an interest in a selected portfolio of stocks (such as the S&P
500) and enable them to receive capital gains or losses and
dividends based on the underlying portfolio. In its brief, the
Institute argues that the index participations constitute
investment companies and that the SEC erred in not giving effect
to the Investment Company Act in its consideration of these
products.
The Institute initially filed its Petition for Review in
the Third Circuit, but the action was transferred to the Seventh
Circuit, where it was consolidated with actions commenced by two
futures exchanges. The future exchanges are seeking review of
the SEC's actions on the grounds that the index participations
are futures, rather than securities, and thus subject to
regulation by the CFTC.
The Court of Appeals has denied motions by the Institute
and the futures exchanges for a stay of the SEC's order pending
its consideration of the case, but it did order an expedited
briefing schedule. Oral argument is scheduled for June 9.
We will keep you informed of developments.
Craig S. Tyle
Assistant General Counsel