[Federal Register Volume 61, Number 205 (Tuesday, October 22, 1996)]
[Notices]
[Pages 54827-54830]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-27037]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37823; File No. SR-Amex-96-23]
Self-Regulatory Organizations; the American Stock Exchange, Inc.;
Order Granting Approval to Proposed Rule Change Relating to Various
Changes to the Exchange's Company Guide
October 15, 1996.
I. Introduction
On June 27, 1996, the American Stock Exchange, Inc. (``Amex'' or
``Exchange'') submitted to 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
[[Page 54828]]
thereunder,\2\ a proposed rule change to amend various sections of the
Exchange's Company Guide to simplify the additional listing process,
add a new shareholder distribution guideline applicable to banks, and
make several minor ``housekeeping'' changes.
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\1\ 15 U.S.C. Sec. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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The proposed rule change was published for comment in Securities
Exchange Act Release No. 37550 (August 9, 1996), 61 FR 42667 (August
16, 1996). No comments were received on the proposal.
II. Description of the Proposals
A. Additional Listings
The Exchange proposes to simplify its additional listing process,
which functions as the Exchange's formal review of a request by an
issuer to increase the amount of securities listed. Before a listed
company issues additional securities of an already listed class, it is
required to submit an additional listing application and obtain the
Exchange's prior approval. Similarly, transfer agents for listed
companies are required to contact the Exchange to verify that a
company's request for new share issuances has been approved. The
additional listing process is an essential part of the Exchange's
program to oversee its market generally and monitor the compliance of
listed companies with Sections 711-713 of its Company Guide, which
require prior shareholder approval of certain transactions involving
the issuance of stock, e.g., issuances of 20% or more of the
outstanding shares at a discounted price or to effect an acquisition.
The Exchange typically receives in excess of 300 additional listing
applications per year. Each application, depending on the nature of the
circumstances giving rise to the additional listing request, is
completed in one of four formats: short, standard, stock option/
purchase, or stock dividend. Each format requires the detailed
presentation of information that is often available in the applicant's
proxy statement, prospectus or option plan, and must also be
accompanied by a list of exhibits specified in the Company Guide.
In its filing, the Exchange states that it has determined that it
can substantially simplify the additional listing process for listed
companies and transfer agents alike without undercutting its ability to
regulate its market. In this regard, the Exchange has for the first
time prepared a simplified, standardized application form, which can be
used for all additional listings.\3\ According to the Exchange, this
form will allow companies to incorporate by reference any transactional
information that is set forth in a proxy statement, prospectus or
certain other descriptive documents, thus eliminating the current
practice of having to provide duplicative summary of this information
on the application. Adopting a standardized form will, therefore,
enable the Exchange to eliminate confusing and unnecessary instructions
by significantly revising the applicable Company Guide provisions.\4\
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\3\ The Commission notes that each application still will have
to be accompanied by the required exhibits--e.g., Contract, Opinion
of Counsel, Resolution, Amendment to Charter etc.,--prescribed in
Section 330 (renumbered as 306 by this Order) of the Company Guide.
\4\ The Commission notes that in simplifying its listings
process, the Amex proposes the following changes to its Company
Guide: Sec. 310 is renumbered as Sec. 303; Secs. 311-313 is deleted;
Sec. 320 is deleted; Sec. 321 is renumbered as Sec. 304 with
modification made to text; new Sec. 305 is added (Listing of Shares
Pursuant to a Reverse Split/Substitution Listing); and Sec. 330 is
renumbered as Sec. 306.
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The Exchange also is proposing to eliminate the requirement that
each application contain a reconciliation of all of the company's
previously listed share reserves, except for the cases of stock
dividends, splits, or substitution listings.\5\ The Exchange has
determined to allow generally transfer agents to reconcile their
records of shares outstanding with those of the Exchange on a quarterly
basis instead of having the issuers and transfer agents engage in this
extremely time-consuming exercise whenever an additional listing
application is submitted.\6\ The Exchange indicates that in a series of
informal discussions with all of its major transfer agents it was
evident that they would prefer that the Exchange adopt this proposal.
The Exchange believes that these new procedures should provide
substantial benefits to listed companies and the Exchange.
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\5\ The Commission notes that a similar procedure was adopted by
the New York Stock Exchange (``NYSE'') when its standard form
application procedures were implemented. See Securities Exchange Act
Release No. 30662 (May 1, 1992), 57 FR 19655.
\6\ The Exchange notes in its filing that a similar procedure is
followed at the NYSE.
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B. Distribution Guidelines for Banks
The Exchange's public distribution guidelines require 500,000
shares and 800 holders, or 1,000,000 shares and 400 holders. In recent
years, the Exchange has listed a number of local banks, some
immediately following their conversion from mutual association to stock
ownership (``demutualizing'').\7\ Such banks often have small, but
because of their local concentration, stable ranks of shareholders. The
Exchange notes that generally these small banks are well above the
financial criteria for original listing, and due to the highly
regulated nature of the banking industry there is usually little
``business risk'' associated with listing these banks on the Exchange.
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\7\ These transactions are typically conducted, in effect, as
``best efforts'' underwritings in the sense that it is impossible to
predict how many deposit-holders will elect to become shareholders
and the conversion itself is not contingent upon the
``accumulation'' of a specific number of shareholders.
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The Exchange states it has occasionally found that otherwise
attractive local banks have less than one million shares in their
public float, and fewer than 800 shareholders. The Exchange notes that
although the mix of shareholder and public float requirements in its
listing standards is intended to accommodate a specialist's needs in
maintaining a fair and orderly market, it has observed that shares of
local banks generally trade steadily, with relatively stable prices,
and that specialists have not encountered difficulties in trading them.
The Exchange, therefore, proposes to adopt a specific distribution
guideline applicable to banks, which would require only 400 public
holders of at least 500,000 shares.\8\ Presently, there are two other
circumstances where the Exchange lists issues with a float of less than
one million shares and only 400 holders: stocks which trade 2,000
shares a day or more, and warrants sold as part of a unit offering. The
Exchange states that it has not experienced any difficulties in
providing an appropriate marketplace for these listings, and, given the
stability of the banks' shareholder bases and the regulated nature of
the banking industry, the Exchange does not anticipate any difficulties
with banking stocks.
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\8\ The new distribution provision for bank stocks will be
included in Section 102 of the Amex's Company Guide. Further, the
Exchange has indicated that bank stocks will continue to be
subjected to the Exchange's continued listing criteria specified in
Section 1003 of its Company Guide, which provides the standards for
continued listing of common and preferred stocks, and bonds. See
Letter from Claudia Crowley, Special Counsel, Amex, to Chester
McPherson, Attorney, Office of Market Supervision, Division of
Market Regulation, Commission, dated October 9, 1996.
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C. Miscellaneous
The Exchange seeks to make several miscellaneous changes necessary
to conform particular sections of the Exchange's Company Guide to
changes previously made to other sections. They are as follows:
[[Page 54829]]
Section 1003 of the Company Guide is to be amended to provide that
for continued listing purposes a company needs to have 300 public
holders, and not 300 round lot holders. Similar changes were previously
made to the Exchange's other public distribution guidelines.\9\
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\9\ See Company Guide Section 102(a)--Distribution--which
describes the minimum number of shareholders as ``public
shareholder.'' The Company Guide notes that the term ``public
shareholders,'' as used therein, includes both shareholders of
record and beneficial holders, but is exclusive of the holdings of
officers, directors, controlling shareholders, and other
concentrated (i.e., 5% or greater) affiliated or family holdings.
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Section 505, which provides that the Exchange would not look
favorably upon a stock split that would result in a price below $5, is
to be amended to refer to a $3 minimum price, to be consistent with the
$3 stock price original listing guideline set forth in Section
102(b).\10\
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\10\ The Commission notes that the $3 minimum price was approved
in Securities Exchange Act Release No. 24043 (January 30, 1987), 52
FR 4071.
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Finally, Section 220(b) of the Company Guide is to be amended to
conform to changes that were previously made to Section 140 of the
Company Guide with respect to the maximum listing fee applicable to
foreign issuers.\11\
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\11\ The Commission notes that the maximum $25,000 fee for non-
U.S. issuers already listed on a foreign exchange was approved in
Securities Exchange Act Release No. 34272 (June 28, 1994), 59 FR
34701.
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III. Discussion
The Commission has carefully reviewed the Amex's proposed rule
changes and concludes that the proposed changes are consistent with the
requirement of the Act and the rules and regulations thereunder
applicable to a national securities exchange, and, in particular, with
the requirements of Sections 6(b).\12\ Specifically, the Commission
believes the proposals are consistent with the Section 6(b)(5)
requirements that the rules of an exchange be designed to promote just
and equitable principles of trade, to remove impediments to and perfect
the mechanism of a free and open market and a national market system,
and in general, to protect investors and the public interest. The
Commission supports the Amex's efforts of continuing to review the form
and substance of its listed company regulations and to streamline its
listing application process where appropriate.
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\12\ 15 U.S.C. 78f(b).
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The Exchange proposes to consolidate all types of additional
listing applications into a single universal format by adopting a
standard application form. The form will require listed companies to
provide substantially the same information as is required under the
existing procedures. However, instead of having to select one of four
application formats: short, standard, stock option/purchase, or stock
dividend, and having to present information that is often available in
the applicant's proxy statement, prospectus or option plan, the
proposed form provides for this information to be incorporated by
reference. If there are no proxy statements, prospectuses, or option
plans, then, when applicable the following information must be provided
with the proposed standardized application form: Information for Stock
Options, Plans and Grants; Information for a Private Placement;
Information for an Acquisition; Information for Substitution Listing;
Information for a Forward Stock Split or Stock Dividend; and a
Reconciliation Sheet.
The proposal to adopt this new application form does not in any way
amend the Exchange's role in performing substantive review of
additional listing requests by issuers. It merely seeks to amend
various sections of the Company Guide to streamline the Exchange's
application process for additional listings. As stated by the Exchange,
the additional listing process is an essential part of its program to
oversee its market generally. In this context, the Company Guide
specifically states that the Exchange regards the agreement to list
additional shares as an important safeguard for the shareholders of
listed companies, and, therefore, will review each application for the
requisite shareholder approval when applicable.\13\
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\13\ See Exchange's Company Guide Section 302.
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In addition to proposing the adoption of a standard application
form, the Exchange, as part of the additional listing request review
process, also proposes eliminating the requirement that each
application contain a reconciliation of all of the company's previously
listed share reserves, except for the cases of stock dividends, splits,
or substitution listings. The Exchange has determined to allow transfer
agents to reconcile their records of shares outstanding with those of
the Exchange on a quarterly basis. According to the Exchange, this
would eliminate the need for issuers and transfer agents to engage in
an extremely time-consuming exercise whenever an additional listing
application is submitted.\14\ The Exchange indicates that in a series
of informal discussions with all of the major transfer agents it was
evident that they would prefer that the Exchange adopt this proposal.
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\14\ The Exchange notes that a similar procedure is followed at
the New York Stock Exchange ``NYSE''. See Securities Exchange Act
Release No. 30662 (May 1, 1992), 57 FR 19655 (approving the adoption
of a standard form application by the NYSE).
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The Commission believes that the consolidation of the additional
listing application into a single standard form, and the elimination of
the requirement that each application contain a reconciliation of all
of the company's previously listed share reserves, will not reduce the
quality or effectiveness of the Exchange's review of such additional
listings, nor cause any unfair discrimination or disparate treatment
among issuers.\15\ The Commission believes that not only will the
proposal benefit listing companies by streamlining the application
process (e.g., allowing incorporation by reference from other public
documents) but it should also make the Exchange's review of additional
listing applications more efficient.
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\15\ The Commission notes that each application still will have
to be accompanied by the required exhibits--e.g., Contract, Opinion
of Counsel, Resolution, Amendment to Charter, etc.--prescribed in
Section 330 (renumbered as 306 by this Order) of the Company Guide.
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Second, the Exchange proposes establishing a listing standard
specifically for banks. The Commission believes that this proposal is
consistent with the purposes of the Act. The Exchange's existing
distribution guidelines call for 500,000 shares and 800 holders, or,
1,000,000 shares and 400 holders. The Exchange established this mix in
order to accommodate a specialist's need in maintaining a fair and
orderly market in each security. However, there are currently two
circumstances under which the Exchange permits listing of securities
with less than one million shares and only 400 shareholders: stocks
which trade 2,000 shares a day or more, and warrants sold as part of a
unit offering. The Exchange has indicated that it has not encountered
any problems in providing an appropriate marketplace for these
listings.
The Commission recognizes that for more actively traded securities,
(i.e., 2000 shares a day), a lower distribution standard appears
appropriate because a minimum amount of liquidity is ensured. Although
the Amex's proposal does not require minimum daily trading volume for
bank stocks to be eligible for the lower standards, the Exchange
indicates that it finds the shares of local banks to generally trade
steadily, with relatively stable prices. Further, the Exchange notes
that banks usually have well above the financial criteria for original
listing and operate in a highly
[[Page 54830]]
regulated environment and believes the business risk associated with
such listings to be minimal. Finally, as mentioned above, the same
delisting criteria that apply to other stocks listed on the Exchange,
continue to apply to bank stocks listed on the Amex.\16\ These factors
help to support the Amex's belief that fair and orderly markets can be
made for bank stocks listed under the proposed distribution and holder
standards, and also ensure that the Amex can take the appropriate
action to delist a bank stock when it falls below the existing
delisting standards.
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\16\ See supra note 8.
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Based on the above, the Commission finds that the creation of a
special set of distribution guidelines for bank stock is consistent
with the requirements of Section 6(b)(5) of the Act \17\ and the rules
and regulations thereunder applicable to a national securities exchange
in that they are designed to remove impediments to, and perfect the
mechanism of, a free and open market, and to protect investors and the
public interest. In approving this portion of the Amex's proposal, the
Commission notes that its rational is limited to the special case of
bank stocks and continues to believe that higher initial distribution
and holder requirements serve investors by ensuring a minimal level of
liquidity and that a fair and orderly market can be maintained.
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\17\ 15 U.S.C. Sec. 78f(b).
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Finally, the Exchange proposes making a number of miscellaneous
changes to bring its Company Guide in conformity with previously
approved changes. These proposed changes involve sections 1003, 505 and
220(b). The Exchange proposes to amend section 1003 to require that for
continued listing purposes a company needs to have 300 public holders,
and not 300 round lot holders. Similar changes to the Exchange's other
public distribution guidelines were previously approved by the
Commission.\18\ Accordingly, the Commission is approving the proposed
changes to Section 1003 as the Exchange further updates its Company
Guide.
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\18\ See supra note 9.
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The Exchange proposes amending Section 505 to adopt a $3 floor for
stock dividends or forward splits of lower price issues. The Commission
is approving this change to bring Section 505 into conformity with the
original listing $3 minimum stock price set forth in Section 102(b) of
the Company Guide.\19\ The Exchange also proposes amending Section
220(b) of its Company Guide to incorporate the maximum listing fee
applicable to foreign issuers. The Commission approves this amendment
to make Section 220(b) consistent with the limit required by Section
40.\20\
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\19\ See supra note 10.
\20\ See supra note 11.
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Based on the above, the Commission finds that the proposed changes
to Sections 1003, 505 and 220(b) are consistent with the requirements
of the Act and the rules and regulations thereunder applicable to a
national securities exchange, and, in general, to protect investors and
the public, in that they will eliminate outdated references and revise
these sections to conform to the other sections of the Company Guide.
IV. Conclusion
It Is Therefore Ordered, pursuant to Section 19(b)(2) of the
Act,\21\ that the proposed rule change (SR-Amex-96-23) is approved.
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\21\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-27037 Filed 10-21-96; 8:45 am]
BILLING CODE 8010-01-M
