Notice N23/00

London Stock Exchange
20 April 2000

For the attention of the
chairman/senior partner/compliance officer,
all member firms                                                       N23/00

STOCK EXCHANGE NOTICE

NOTIFICATION OF RULE AMENDMENTS 

DOMESTIC EQUITY MARKET
EXCHANGE TRADED FUNDS

Introduction

1. On 24 February 2000, the Exchange announced the introduction of extraMARK,
a new market for innovative investment companies and products. The first
product to be traded on extraMARK will be shares in Exchange Traded Funds
('ETFs').

2. This Notice sets out the general characteristics of ETFs and the relevant
Rules of the London Stock Exchange and associated guidance, including those
relating to trade and transaction reporting requirements.

Trading and settlement

3. ETF shares are domestic equity market securities which will trade on SETS
and settle through CREST.  The net asset value and the number of shares in
issue will be published by the issuer on a daily basis, via the Exchange's
Regulatory News Service. 

Creation and redemption of ETF shares

4. Creation and redemption of ETF shares allow market practitioners to
exchange the underlying constituent securities for a number of ETF shares
(creation) or to exchange a number of ETF shares for the underlying securities
(redemption).  This facility will be subject to the terms of the issue and
will usually be available only for holdings with a value in excess of £1m.

5. Creation of ETF shares constitutes a primary market transaction and is
therefore not on Exchange.  The redemption of ETF shares is an on Exchange
transaction. Transfers of the underlying securities, both for the creation and
redemption of ETF shares, are on Exchange transactions.

Trade and transaction reporting

6. Set out below are the trade and transaction reporting requirements for ETF
shares: 

a)       Trade reporting - once in issue, ETF shares will trade on SETS and
the normal trade reporting and WPA rules, and associated guidance, will apply.
 Given that the net asset value and amount of units in issue will be published
daily, the Exchange will not require trade reports for the creation and
redemption of ETF shares; whether for transactions in the underlying
securities or the ETF shares themselves; and

b)       Transaction reporting - will be required for trading in ETF shares in
the usual manner for domestic equity market securities.  For creation and
redemption, transaction reports will be required for the transfer of the
underlying securities.  Transaction reports will not be required for the
receipt of ETF shares on creation, which is not on Exchange, but will be
required for the transfer of ETF shares on redemption.  In order that the
Exchange can identify a transaction resulting from the redemption of ETF
shares, member firms must enter 'ER' (redemption) in the Sundry Information
Field of the transaction report.

Listing suspensions

7. If the listing of an underlying security is suspended, member firms may
apply under rule 2.12 (e) for permission to deal in that security in order to
create or redeem shares in an ETF.  This will be added to the guidance which
sets out the situations when permission will normally be granted.  Suspension
of an underlying security will not prevent trading in the ETF share itself.  

8. Amendments and additions to the Rules of the London Stock Exchange and
associated guidance are attached to this Notice and are effective immediately.
 Member firms should refer to the guidance requiring a special marker on
transaction reports resulting from the redemption of ETF shares, which may
require changes to back office systems.  Member firms are requested to
implement this change as soon as practical and, in any event, by 21 July 2000.

Andrew McStravick
Head of Market Regulation

Any comments or queries on this Notice should be addressed to Regulatory
Development, telephone [phone] (STX 33310) or 
Email: [e-mail]

This Stock Exchange Notice will be available on the website at
www.londonstockexchange.com/techlib/notices/