[Federal Register Volume 59, Number 246 (Friday, December 23, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-31601]
[[Page Unknown]]
[Federal Register: December 23, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35109; File Nos. SR-Amex 94-34, NYSE-94-35]
Self-Regulatory Organizations; American Stock Exchange, Inc. and
New York Stock Exchange, Inc.; Order Granting Approval to Rule Changes
Relating to Limited Partnership Rollup Transactions
December 16, 1994.
I. Introduction
On September 6 and October 6, 1994, the American Stock Exchange,
Inc. (``Amex'') and the New York Stock Exchange, Inc. (``NYSE''),
respectively, (the Amex and the NYSE collectively referred to as
``Exchanges'') 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
thereunder,\2\ proposed rule changes to prohibit listing of entities
resulting from limited partnership rollup transactions,\3\ except under
specified conditions, and to impose certain corporate governance
standards on limited partnerships. The proposed rule changes were
published for comment in Securities Exchange Act Release No. 43890
(October 25, 1994), 59 FR 54647 (November 1, 1994) and Securities
Exchange Act Release No. 43889 (October 25, 1994), 59 FR 54650
(November 1, 1994), respectively.
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\1\15 U.S.C. Sec. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1991).
\3\The term ``limited partnership rollup transaction'' is
defined at Section 14(h) of the Act. 15 U.S.C. Sec. 78n(h) (1988 &
Supp. 1993).
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On November 2 and December 14, 1994, the Amex filed Amendments Nos.
1 and 2, respectively.\4\ Amendment No. 2 replaced Amendment No. 1 in
its entirety. On November 21, 1994 the NYSE filed Amendment No. 1.\5\
Each of these amendments made non-substantive, clarifying changes to
the proposals that are incorporated into the discussion below.
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\4\See letters from Linda Tarr, Senior Counsel, Amex, to Elisa
Metzger, Senior Counsel, SEC, dated November 2 and December 14,
1994.
\5\See letter from James E. Buck, Senior Vice President and
Secretary, NYSE, to Jonathan G. Katz, Secretary, SEC, dated November
21, 1994.
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No comments were received on either proposal. This order approves
the proposed rule change, including all the amendments.
II. Overview of Proposals
In December 1993, Congress adopted the Limited Partnership Rollup
Reform Act of 1993 (``Rollup Reform Act'') to regulate limited
partnership rollups. The Rollup Reform Act added subparagraph (9) to
Section 6(b) of the Act\6\ to require that the rules of an exchange
must prohibit the listing of any security issued in a limited
partnership rollup transaction, ``unless such transaction was conducted
in accordance with procedures designed to protect the rights of limited
partners, including'' the procedures specified at Section 6(b)(9) of
the Act.
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\6\15 U.S.C. 78f(b)(9) (1988 & Supp. 1993).
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The Exchanges have filed the rule changes\7\ to ensure their
compliance with the provisions of the Rollup Reform Act. Specifically,
these changes provide that securities issued in connection with a
limited partnership rollup transaction cannot be listed on either
Exchange unless:
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\7\The rule change filed by the Amex adds a new Section 126 to
the Amex Company Guide. The NYSE's rule change adds a new Paragraph
105 to the NYSE's Listed Company Manual and renumbers existing
Paragraphs 105.00, 105.01, 105.02, and 105.03 as Paragraphs 106.00,
106.01, 106.02, and 106.03, respectively.
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A. such transaction was conducted in accordance with procedures
designed to protect the rights of limited partners, including such
procedures as are set forth specifically at Section 6(b)(9) of the Act;
B. a broker-dealer that is a member of the National Association of
Securities Dealers, Inc. (``NASD'') participated in the rollup
transaction; and
C. the issuer has provided the applicable Exchange with an opinion
of counsel confirming that the transaction was, in fact, conducted in
accordance with NASD procedures.
These last two requirements will enable the Exchanges to rely upon the
NASD's regulatory scheme, which recently was approved by the
Commission,\8\ to govern the listing to rollups. In order to be listed,
such a security also will have to satisfy the applicable Exchange's
corporate governance and listing standards requirements, as
appropriate, including a requirement that any limited partnership have
at least one corporate general partner, or co-general partner, who
satisfies the Exchange's independent director and audit committee
requirements.
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\8\See Securities Exchange Act Release No. 34533 (August 15,
1994), 59 FR 43147 (August 22, 1994).
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III. Comments
Although no written comments were received with respect to the rule
changes, the Commission did receive seven comment letters in response
to its release noticing the NASD's proposed regulatory scheme regarding
limited partnership rollup transactions.\9\ The Commission considered
these comments in its order approving the NASD's proposal,\10\ which
proposal is the basis of the Exchanges' proposals.
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\9\See Securities Exchange Act Release No. 32312 (May 17, 1993),
58 FR 29655 (May 21, 1993).
\10\See note 8, supra.
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IV. Discussion
The Commission finds that the Exchanges' proposals to adopt listing
standards for securities issued in limited partnership rollup
transactions are consistent with the requirements of the Act and the
rules and regulations thereunder applicable to a national securities
exchange. In particular, the Commission believes that the proposed
listing standards are consistent with Section 6 of the Act, including
the requirements of Section 6(b)(5),\11\ which provides that the rules
of an exchange be designed to prevent fraudulent and manipulative acts
and practices, to promote just and equitable principles of trade, and
to protect investors and the public interest.
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\11\15 U.S.C. Sec. 78f(b)(5) (1988).
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As stated above, Congress adopted the Rollup Reform Act to regulate
limited partnership rollups. This act reflects a belief that
partnership rollup transactions, when properly structured, may offer
significant benefits to investors and for businesses that have used
these structures to raise capital. Congress has determined, however,
that abusive limited partnership rollup transactions harm investors,
undermine investor confidence and threaten capital formation.\12\ To
curtail these abuses, Congress amended Section 6 of the Act to provide
that the rules of an exchange must prohibit the listing of a rollup
security ``unless such transaction was conducted in accordance with
procedures designed to protect the rights of limited partners,
including'' such procedures as are set forth at subparagraph (9) of
Section 6(b) of the Act.
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\12\See S. Rep. No. 121, 103d Cong., 1st Sess. (1993).
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In accordance with the Rollup Reform Act, the Exchangees' rule
proposals will adopt new listing standards that will condition the
listing of securities issued in a rollup transaction upon satisfaction
of the criteria set forth in Section 6(b)(9) of the Act. The new
standards also will provide that a broker-dealer that is a member of
the NASD must participate in the rollup transaction in which such
securities were issued, and that the issuer of such securities must
provide the applicable Exchange with an opinion of counsel confirming
that the transaction was in fact conducted in accordance with NASD
procedures. This will enable the Exchanges to rely upon the regulatory
scheme adopted by the NASD (and recently approved by the Commission) to
govern the listing of rollups.\13\
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\13\See Securities Exchange Act Release No. 34533 (August 15,
1994), 59 FR 43147 (August 22, 1994).
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The Commission believes that the rule changes will provide
important benefits to investors who may be subject to limited
partnership rollup transactions by ensuring that their rights are
protected in accordance with the intent of Congress as embodied in the
Rollup Reform Act. The rule changes will permit rollups to take place
but will protect against the abusive practices that have occurred in
the past. In particular, these changes will ensure that limited
partners are not forced into a rollup but instead have the right to
compensation, based on appraisal. These rules also will prevent the
unfair conversion and valuation of the general partner's interests in a
rollup transaction; prevent investors; voting rights from being
unfairly reduced or abridged; prevent the limited partners from having
to bear an unfair portion of the costs of a transaction that has been
rejected; and prevent the payment of fees to general partners in
connection with a rollup that are unfair, unreasonable, or
inappropriate.\14\
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\14\The rules being approved hereby do not directly mandate that
such rights be protected. Rather, these rules protect such rights
indirectly by requiring that all securities issued in a limited
partnership rollup transaction and listed on either Exchange be
issued in a transaction conducted in accordance with NASD procedures
that do mandate such rights.
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It is therefore ordered, pursuant to Section 19(b)(2),\15\ that the
proposed rule changes are hereby approved.
\15\15 U.S.C. Sec. 78s(b)(2) (1988).
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For the Commission, by the Division of Market Regulation,
pursuant to delegate authority.\16\
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\16\17 CFR 200.30-3(a)(12) (1991).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-31601 Filed 12-22-94; 8:45 am]
BILLING CODE 8010-01-M
