[Federal Register Volume 64, Number 199 (Friday, October 15, 1999)]
[Notices]
[Pages 56007-56008]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-26896]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-41992; File No. SR-NYSE-99-22]
Self-Regulatory Organizations; New York Stock Exchange, Inc.;
Order Granting Approval to Proposed Rule Change Relating to Equity-
Linked Debt Securities
October 7, 1999.
I. Introduction
On May 28, 1999, the New York Stock Exchange, Inc. (``NYSE'' or
``Exchange'') submitted to the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change amending Paragraph 703.21 of its Listed Company
Manual (``Manual''), the listing of equity-linked debt securities
(``ELDS'').
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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The proposed rule change was published for comment in the Federal
Register on July 14, 1999.\3\ No comments were received on the
proposal. This order approves the proposal.
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\3\ Securities Exchange Act Release No. 41608 (July 8, 1999), 64
FR 38063 (July 14, 1999).
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II. Description of the Proposal
The Exchange is proposing to amend its listing criteria for ELDS.
The amendment deals with the minimum required term of such securities,
and substitutes a one-year minimum for all ELDS (domestic and non-U.S.)
for the current requirement that the securities have a term of two to
seven years (three year maximum for non-U.S. securities).
ELDS are non-convertible debt 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. Because ELDS are a
derivative product related to the underlying stock, the Exchange trades
ELDS on the equity trading floor together with the underlying stock (if
such stock is listed).
Paragraph 703.21 of the Manual details the Exchange's listing
standards for ELDS. Among other things, these standards require that
the ELDS have a term of two to seven years, but not more than three
years for ELDS based on the price of a non-U.S. issuer. The Exchange
initially proposed these limits as a conservative measure to help
ensure that the trading of ELDS does not have an adverse effect on the
liquidity of the underlying stock, and is not used in a manipulative
manner. The limits on the terms for ELDS contrast with the Exchange's
general requirements for derivative instruments. Specifically, for
warrants (Paragraph 703.12 of the Manual), foreign currency and
currency index warrants (Paragraph 703.15 of the Manual), contingent
value rights (Paragraph 703.18 of the Manual) and ``other securities''
(Paragraph 703.19 of the Manual), the Exchange requires only that the
security have a minimum life of one year.
III. Discussion
After careful review, 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,\4\
and in particular, with the requirements of Section 6(b)(5).\5\
Specifically, the Commission finds that providing for a minimum one
year term for all ELDS is designed to remove impediments to and perfect
the mechanism of a free and open market and a national market system.
The Commission believes that it will be less confusing for issuers and
investors alike and beneficial to the mechanism of a free and open
market, if the listing standards for ELDS conform to the listing
standards of the Exchange's other hybrid products found in Section 703
of the Manual.\6\ Generally those securities share the following
listing criteria: 1 million of the applicable security outstanding, at
least 400 holders, at least $4 million aggregate market value, and a
minimum life of one year.\7\
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\4\ In approving this rule change, the Commission has considered
the proposed rule's impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
\5\ 15 U.S.C. 78f(b)(5).
\6\ See Manual Paragraphs 703.12 (warrants), 703.15 (foreign
currency and currency index warrants), 703.18 (contingent value
rights), and 703.19 (other securities).
\7\ Id. Other requirements may also apply.
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The Commission notes that in the nearly six years that the Exchange
has traded ELDS, the Exchange has not discovered any adverse effects of
this instrument. In addition, the Exchange has verified that it has
adequate surveillance procedures to monitor for possible manipulation
of ELDS as well as the related equity securities.\8\ The Exchange has
also agreed to notify the Commission in advance if the Exchange intends
to list ELDS of a non-U.S. company issuer and the issue has a term
[[Page 56008]]
of more than three years.\9\ The Exchange believes that this rule
change will provide issuers with more flexibility in developing ELDS
and thus provide greater investment choices in the market. The
Commission believes that this added flexibility will encourage
innovation without having an adverse effect on investor protection.
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\8\ Telephone conversation between Vincent Patton, Assistant
Vice-President, Structured Securities, NYSE, Judy Bryngil, Vice-
President, Market Trading Analysis, NYSE, and Terri Evans, Attorney,
Division of Market Regulation (``Division''), Commission, on July
23, 1999.
\9\ Telephone conversation between Vincent Patton, Assistant
Vice-President, Structured Securities, NYSE, and Nancy Sanow, Senior
Special Counsel, Division, Commission on July 8, 1999.
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\10\ that the proposed rule change (SR-NYSE-99-22) 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. 99-26896 Filed 10-14-99; 8:45 am]
BILLING CODE 8010-10-M
