April 5, 1990
TO: BOARD OF GOVERNORS NO. 23-90
RE: INSTITUTE PETITION FILED IN INDEX PARTICIPATIONS CASE
__________________________________________________________
The Institute has filed a conditional petition for
certiorari with the U.S. Supreme Court in the case concerning
"index participations". A copy of the petition (without
appendices) is attached.
"Index participations" (or "IPs") were products developed
by certain stock exchanges that provided investors with interests
in a selected portfolio of stocks (such as the S&P 500) and
enabled them to receive capital gains or losses and dividends
based on the underlying portfolio. The Institute had challenged
the SEC's order approving the IPs, arguing that they constituted
investment company securities and that the SEC erred in not
giving effect to the Investment Company Act in its consideration
of the product. (See Memorandum to Board of Governors No. 35-89,
dated June 2, 1989).
The SEC's order was also challenged by two futures
exchanges, which argued that IPs constituted futures, rather than
securities, and thus could be traded only on a futures exchange.
Last August, the U.S. Court of Appeals for the Seventh Circuit
ruled in favor of the futures exchanges. The court did not reach
the question of whether IPs were investment company securities.
(See Memorandum to Board of Governors No. 51-89, dated August 22,
1989.) Three stock exchanges, along with the Options Clearing
Corporation, have filed cert. petitions requesting that the
Supreme Court review the Seventh Circuit's decision.
The Institute's petition requests that, if the Supreme
Court grants the petition filed by the stock exchanges and the
OCC, the Court either (1) remand the case to the Seventh Circuit
to consider the Investment Company Act issues if the Supreme
Court reverses the lower court's decision or (2) consider the
Investment Company Act issues itself along with the issues raised
by the exchanges and the OCC.
We will keep you informed of developments.
Craig S. Tyle
Associate General Counsel
Attachment