[Federal Register Volume 61, Number 198 (Thursday, October 10, 1996)]
[Notices]
[Pages 53246-53247]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-26064]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37784; File Nos. SR-NYSE-96-25]
Self-Regulatory Organizations; Order Approving Proposed Rule
Changes by the New York Stock Exchange, Inc., Relating to Listing
Criteria for Equity Linked Debt Securities
October 4, 1996.
I. Introduction
On August 16, 1996, the New York Stock Exchange, Inc. (``NYSE''),
filed proposed rule changes with the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder,\2\ to amend their respective issuer listing standards for
Equity Linked Debt Securities (``ELDS'').\3\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ ELDS are non-convertible debt securities of an issuer where
the value of the debt is based, at least in part, on the value of
another issuer's common stock or non-convertible preferred stock.
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Notice of the proposal was published for comment and appeared in
the Federal Register on August 27, 1996.\4\ No comment letters were
received on the proposed rule change. This order approves the Exchange
proposal.
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\4\ See Securities Exchange Act Release No. 37585 (August 20,
1996), 61 FR 44116.
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II. Description of the Proposal
ELDS are non-convertible debt securities of an issuer where the
value of the debt is based, at least in part, on the value of another
issuer's common stock or non-convertible preferred stock (the
``underlying security''). The Exchange's listing standards currently
permit the listing of ELDS if, among other things, (i) the issuer has
minimum tangible net worth of $150 million and (ii) the original issue
price of the ELDS, combined with all the issuer's other publicly-traded
ELDS, does not exceed 25 percent of the issuer's net worth (the ``net
worth standard'').\5\
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\5\ See NYSE Listed Company Manual Para. 703.21.
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The Exchange proposes to add an alternative net worth standard to
its ELDS issuer listing standards. Under the
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new test, an issuer with tangible net worth of at least $250 million
would be able to issue ELDS without being subject to the limit that the
ELDS be no more than 25 percent of the issuer's net worth. Issuers with
tangible net worth of at least $150 million, but less than $250
million, will still be subject to the 25 percent limit.\6\ This will
provide the largest issuers with increased flexibility in their
financing and capitalization planning.
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\6\ The Commission notes that under the ELDS standards, issuers
must have a minimum net worth of at least $150 million.
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With respect to the listing of ELDS linked to non-U.S. securities,
the NYSE also proposes to amend the definition of ``Relative U.S. Share
Volume'' and to delete the definition of ``Relative ADR Volume.''
Specifically, the NYSE proposes collapsing these two definitions into a
single definition of ``Relative U.S. Volume.'' The Exchange states that
this change is non-substantive and is proposed solely to clarify and
simplify the rule.
III. Commission Finding and Conclusions
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, and, in
particular, the requirements of Section 6(b)(5) of the Act.\7\
Specifically, the Commission finds that the Exchange's proposal strike
a reasonable balance between the Commission's mandates under Section
6(b)(5) to remove impediments to and perfect the mechanism of a free
and open market and a national market system, while protecting
investors and the public interest. In particular, the Commission
believes that the trading of ELDS permits investors to more closely
approximate their desired investment objectives through, for example,
shifting some of the opportunity for upside gain in return for
additional income.
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\7\ 15 U.S.C. 78f(b)(5).
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ELDS, unlike standardized options, however, do not have a
clearinghouse guarantee but are instead dependent upon the individual
credit of the issuer. This heightens the possibility that a holder of
an ELDS may not be able to receive full cash settlement at maturity.
The Commission believes that the Exchange's proposed alternate ELDS
issuer listing standard requiring issuers to have at least $250 million
tangible net worth (without the issuance being limited to 25% of the
issuer's net worth), in addition to the existing size and earnings
requirements,\8\ reasonably addresses this additional credit risk, and
to some extent minimize this risk. The Commission also notes that the
revised standard is identical to that approved for other issuer-based
products, including index, currency, and currency index warrants.\9\
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\8\ See NYSE Listed Company Manual Paras. 102.01-102.03 or
103.01-103.05.
\9\ See Securities Exchange Act Release No. 36165 (August 29,
1995), 61 FR 46653 (September 7, 1996) (SR-NYSE-94-41).
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The Commission also believes that the NYSE's proposal to amend the
definition of ``Relative U.S. Share Volume,'' delete the definition of
``Relative ADR Volume,'' and collapse the two definitions into a single
definition of ``Relative U.S. Volume'' reasonably addresses its desire
to clarify and strengthen its rule language.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\10\ that the proposed rule change (File No. SR-NYSE-96-25) is
approved.
\10\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-26064 Filed 10-9-96; 8:45 am]
BILLING CODE 8010-01-M
