[Federal Register Volume 60, Number 235 (Thursday, December 7, 1995)]
[Notices]
[Pages 62918-62920]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-29782]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36531; File No. SR-CHX-95-26]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Chicago Stock Exchange, Inc. Relating to Listing
Standards
November 30, 1995.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on November
8, 1995, the Chicago Stock Exchange, Inc. (``CHX'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I, II, and III below, which
Items have been prepared by the self-regulatory organization. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Article XXVIII of the Exchange's
Rules to modify the Exchange's listing standards and create two tiers
of listings.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of and basis for the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of these statements may be examined at
the places specified in Item IV below. The self-regulatory organization
has prepared summaries, set forth in Sections A, B, and C below, of the
most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The North American Securities Administration Association
(``NASAA'')\1\ has endorsed certain listing standards as sufficient to
warrant a state's granting exchange-listed securities a listing
exemption from registration. The CHX proposes to modify its own listing
standards to comply with those endorsed by NASAA and adopted by other
stock exchanges.\2\
\1\NASAA is an association of securities administrators from
each of the 50 states, the District of Columbia, Puerto Rico and ten
Canadian provinces.
\2\See, e.g., Securities Exchange Act Release No. 34235 (June
17, 1994), 59 FR 32736 (June 24, 1994) (approving a Philadelphia
Stock Exchange rule change adopting NASAA endorsed standards);
Securities Exchange Act Release No. 34429 (July 22, 1994), 59 FR
38998 (Aug. 1, 1994) (approving a Pacific Stock Exchange rule change
adopting NASAA endorsed standards).
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The CHX proposes changes to its Rules regarding the quantitative
requirements for issuers and issues, qualitative requirements for
issuers (e.g., corporate governance standards), and maintenance
criteria for issues. In no case do the proposed changes decrease
current CHX standards.
NASAA has entered into a Memorandum of Understanding (``MOU'') with
the Philadelphia Stock Exchange (``Phlx'')\3\ and the Pacific Stock
Exchange (``PSE'').\4\ Those memoranda set out standards that NASAA
recognizes as sufficient to warrant listing exemptions from state blue
sky requirements. The proposed rules establish listing standards that
are essentially identical to the standards set out in those two NASAA
MOUs. Although the CHX is in the process of reaching a similar MOU with
NASAA, the CHX's new listing standards are specifically designed to
satisfy the listing standards endorsed by NASAA.
\3\The Memorandum of Understanding was approved by NASAA and
Phlx on October 12, 1994.
\4\The Memorandum of Understanding was approved by NASAA and the
PSE on October 12, 1994.
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Other exchanges have established two tiers of listing requirements.
In general, Tier I listing standards are quantitatively and
qualitatively higher (i.e., more restrictive and demanding) than Tier
II listing standards.
The CHX does not currently have a two-tier structure for listings
but proposes to create a two-tiered structure. Both Tier I and Tier II
listed issues will be traded pursuant to identical auction rules, but
otherwise the two tiers will differ in several ways.
[[Page 62919]]
The new, higher standards proposed by the CHX will constitute
requirements for a new Tier I listing. The Tier I requirements for a
CHX listing will be identical in all material respects with the
requirements of the NASAA MOUs. The current standards of the CHX will
constitute the listing requirements for the new CHX Tier II listing.
The NASAA MOUs do not address Tier II standards.
Tier I issuers and issues will have to meet the corporate
governance and disclosure standards endorsed by NASAA MOUs. These
include newly specific requirements for disclosure of reports filed
with federal regulatory bodies; specific requirements for shareholder
approval for certain corporate actions involving the sale or issuance
of stock; and specific voting rights provisions forbidding corporate
actions that have a disparate impact on holders of stock. The CHX
currently has strict corporate governance and disclosure requirements,
which will remain in place for Tier II issuers and issues.
The CHX will identify and distinguish at all times which securities
are listed pursuant to Tier I and Tier II standards. If a Tier I listed
security fails to satisfy Tier I maintenance standards for continued
listing, the issue will be removed from Tier I listing. If it meets
Tier II standards, it will thereupon be listed on Tier II. If it does
not meet Tier II standards, it will be delisted. Moreover, if a Tier II
listed security matures to the point that it could meet the Tier I
standards, the issuer must apply and receive approval to list the
security pursuant to the Tier I standards before the CHX will recognize
that security as a Tier I issue. The CHX believes that adopting two
tiers of listing standards will provide flexibility for the CHX in
pursuing various listing objectives beneficial to CHX members and the
public.
The CHX has chosen to adopt NASAA's MOU standards as criteria for
its new Tier I because the CHX views those standards as carefully
crafted to provide an extremely high level of investor and shareholder
protection. For the same reason, the CHX proposes for Tier I to adopt
also NASAA's substantial corporate governance standards, including
requirements for independent directors, audit committees, shareholder
quorums, common stock voting rights, and conflict of interest
provisions. The CHX's current rules already address many of these same
issues, but for Tier I the CHX proposes to adopt all of NASAA's
suggested standards.
Tier I standards must be satisfied by all issuers on a continuing
basis. Moreover, CHX standards for Tier I initial and maintenance
listing are both mandatory and non-waivable.
Tier I Standards
With regard to common stock, Rule 8(a) replicates the NASAA MOUs'
numerical criteria applicable to original listing determinations in
every aspect including net tangible assets, numbers of shareholders and
shares publicly held, pre-tax and net earnings, and stock price.
In Rule 8(b), the CHX proposes to also offer alternate listing
standards for common stock issues. The proposed standards are identical
to those endorsed by NASAA. The CHX offers the alternate standards
because there are certain smaller companies that either due to the
nature of their business or the amount of resources committed by the
company to research and development, would not meet the standards in
Rule 8(a) but nevertheless deserve Tier I status. Thus, those types of
companies may be approved for listing under Tier I if they satisfy the
alternate listing criteria.
Rule 8(c), in conformance with the NASAA MOUs, provides standards
for initial public offerings approved for listing on the CHX. Such
offerings must be underwritten on a ``firm commitment'' basis and must
meet the CHX's listing standards within a 30-day grace period after
completion of the offering.
With regard to preferred stock, Rule 9 provides the Tier I original
listing criteria. Preferred stock issuers must satisfy the same net
tangible assets and net earnings criteria applicable to issuers of
common stock. The ability of the issuers to service the dividend
requirements for preferred stock will also be evaluated. The
requirements will differ for number of shares publicly held and
aggregate market value depending on whether the issuer has common stock
listed. Where the common stock is listed on the CHX, New York Stock
Exchange (``NYSE''), or American Stock Exchange (``Amex''), at least
100,000 shares of preferred stock must be publicly held with an
aggregate market value of at least $2 million dollars. Where the common
stock is not so listed, at least 400,000 shares of preferred stock must
be publicly held with an aggregate market value of at least $4 million.
Differentiating on this basis reflects the CHX's belief that companies
whose securities are publicly traded have a more significant investor
following and a greater demonstrated ability to raise necessary capital
while meeting the contingent payment obligations associated with
preferred stock and, as described below, bond and debentures. In either
case, a share of preferred stock must have a minimum closing bid price
of $10 to be eligible for listing.
Listing of bonds and debentures under Tier I will be governed by
Rule 10. In addition to evaluating issuers according to the same net
tangible assets and earnings standards applicable to equity issuers,
the CHX will also evaluate the ability of these issuers to satisfy the
interest and principal payments of bonds and debentures as they become
due. As above, the required aggregate market value and number of public
beneficial holders varies depending on whether the issuer's common
stock is listed and traded on either the CHX, Amex or NYSE.
Additionally, the CHX will require municipal bonds to meet higher
standards than other bonds.
Issuers seeking listing of warrants under Tier I must satisfy the
criteria of Rule 11. The CHX will set standards with regard to public
distribution, and it will not list warrants unless the security
underlying the warrant is already listed or will be listed concurrently
with the warrants on Tier I.
Rule 12 provides criteria for contingent value rights (``CVRs'').
The CHX will set standards for CVRs with regard to aggregate market
value, public distribution, net tangible assets, and maturity date. CVR
issuers must meet the net tangible assets and earnings requirements for
issuers of stock listed on the Exchange, and the CVRs to be listed must
have been approved for listed on another national securities exchange.
Finally, Rule 13 contains criteria applicable to new and innovative
products that do not fall within Rules 8-12 but otherwise have the
financial qualifications to be listed and are suitable for auction
market trading.
The CHX's maintenance requirements for Tier I securities duplicate
those found in the NASAA MOU with the PSE. Rules 14-17 set forth those
maintenance requirements for each type of issue. The CHX will initiate
delisting procedures against any issue that fails to meet the
maintenance requirements on a continuing basis.
Tier II Standards
Rule 18 sets forth the CHX's proposed Tier II standards. Tier II
standards will allow companies that may not be large enough to list
under Tier I the opportunity to have their securities traded in an
auction market, thereby increasing liquidity and issuer access to the
investment community.
[[Page 62920]]
The CHX's proposed Tier II standards are essentially identical to
the current CHX standards applicable to all listed issues, except that
index warrants and contingent value rights will no longer be listed
under Tier II.
Miscellaneous
The CHX does not propose to materially change its admissions
procedures or its delisting procedures.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b)(5) of the
Act in that the proposal fosters cooperation and coordination with
persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, removes impediments to and perfects the mechanism of a free
and open market and a national market system and protects investors and
the public interest. The proposal also is consistent with Section 11A
of the Act in that approval of the Tier I standards will aid in the
development of the national market system by enhancing competition for
equity listings.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any inappropriate burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the publication of this notice in the Federal
Register or within such other period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve the proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communication relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for inspection and copying at the
Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such filing will also be available
for inspection and copying at the principal office of the Exchange. All
submissions should refer to File No. SR-CHX-95-26 and should be
submitted by December 28, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
FR Doc. 95-29782 Filed 12-6-95; 8:45 am]
BILLING CODE 8010-01-M
