[Federal Register Volume 59, Number 41 (Wednesday, March 2, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-4703]
[[Page Unknown]]
[Federal Register: March 2, 1994]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33661; International Release No. 637; File No. SR-NYSE-
93-47]
Self-Regulatory Organizations; New York Stock Exchange, Inc.;
Order Granting Approval to Proposed Rule Change and Notice of Filing
and Order Granting Accelerated Approval to Amendment No. 1 to Proposed
Rule Change Relating to Listing Standards for Non-U.S. Companies
February 23, 1994.
I. Introduction
On December 16, 1993, the New York Stock Exchange, Inc. (``NYSE''
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
thereunder,2 a proposed rule change to permit non-U.S. issuers to
distribute summary annual reports to U.S. holders of NYSE-listed
foreign securities and American Depositary Receipts (ADRs) (``U.S.
Holders'') under certain circumstances.3 On February 15, 1994, the
NYSE submitted Amendment No. 1 to the rule filing.4
---------------------------------------------------------------------------
\1\15 U.S.C. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1993).
\3\An ADR is a negotiable receipt that is issued by a
depository, generally a bank, representing shares of a foreign
issuer that have been deposited and are held, on behalf of holders
of the ADRs, at a custodian bank in the foreign issuer's home
country. ADRs are traded on the national stock exchanges and in
over-the-counter markets like stocks of domestic companies.
\4\Letter from Michael J. Simon, Milbank, Tweed, Hadley &
McCloy, to Richard Kosnik, Associate Director, Division of
Corporation Finance, SEC, dated February 15, 1994 (``NYSE Letter'').
The amendment added the phrase ``including summary financial
information'' in subsection (a) of the new language. See text of new
rule, infra.
---------------------------------------------------------------------------
The proposed rule change was published for comment in Securities
Exchange Act Release No. 33400 (December 29, 1993), 59 FR 642 (January
5, 1994). No comments were received on the proposal.
II. Description of the Proposal
Current NYSE policy requires all listed companies to submit to
shareholders an annual report with financial information as detailed in
Paragraph 203.01 of the NYSE Listed Company Manual. The Exchange is
modifying its annual report requirements to allow U.S. Holders to
receive summary annual reports if it is the practice in the home
country of the foreign issuer and certain other conditions are met. The
following is the text of the rule, with italics representing the
language added:
103.00 Non-U.S. Companies
* * * * *
Where it appears to the Exchange that a non-U.S. Company's
interim earnings reporting or corporate governance practices are not
prohibited by the law in the country in which it is domiciled, such
practices need not necessarily be barriers to listing or continued
listing. In addition, the Exchange will permit non-U.S. issuers to
follow home-country practices regarding the distribution of annual
reports to shareholders, if, at a minimum, (a) shareholders are
provided at least summary annual reports, including summary
financial information, (b) shareholders have the ability, upon
request, to receive an annual report that complies with the
requirements of Para. 203.01 (a ``full annual report''), and (c) the
financial information contained in the summary annual report is
reconciled to U.S. generally-accepted accounting principles to the
extent that such reconciliation would be required in the full annual
report.\5\
---------------------------------------------------------------------------
\5\NYSE Listed Company Manual Para. 103.00.
The rule change is, in part, in response to an amendment, adopted
in 1990, to the U.K. Companies Act that permits issuers listed on the
London Stock Exchange to provide holders of their ordinary shares a
choice to receive a full annual report or a summary annual report.\6\
Certain U.K. issuers sought permission from the NYSE to provide holders
of ADRs with summary reports in place of full annual reports if the
shareholders do not object.
---------------------------------------------------------------------------
\6\The U.K. Companies Act sets forth the specific financial and
management information that must be contained in the summary
reports. In addition, the U.K. Companies Act requires that
shareholders who receive only the summary report be given the
opportunity, at any time, to obtain the full annual report from the
company and that companies must notify shareholders annually of this
right and how the report can be obtained. When the program was
instituted in the U.K. in 1990, shareholders received both reports
and notice of the available option with respect to future reports.
---------------------------------------------------------------------------
The NYSE rule is formulated to permit foreign issuers to distribute
summary annual reports consistent with the practices of their home
countries. The rule does not attempt to specify particular financial
requirements.\7\ Instead, the Exchange will review specific proposals
to ensure that U.S. Holders receive adequate information.\8\
---------------------------------------------------------------------------
\7\Although the new rule is formulated to accommodate the U.K.'s
program, other foreign countries may adopt different practices.
\8\NYSE Letter, supra note 4. The letter clarified that the
Exchange does not intend to adopt the substance of the U.K. program,
and that it will permit the practice of providing shareholders with
an option to receive summary annual reports as opposed to full
annual reports to evolve over time. The NYSE has committed to review
each home country's practices to determine their sufficiency in
providing information to U.S. Holders.
---------------------------------------------------------------------------
The rule also does not mandate any specific method for providing
U.S. Holders with summary annual reports. As with the substantive
requirements, the NYSE proposal recognizes that foreign countries will
develop their own procedures for issuers to provide summary reports in
lieu of full annual reports. The Exchange, however, has indicated that
it will review all proposed programs to ensure that U.S. Holders have
reasonable access to the full annual report and receive full disclosure
of their option to receive the full report.\9\
---------------------------------------------------------------------------
\9\Id. Under the NYSE rule, full annual reports must still be
prepared and made available to all U.S. shareholders.
---------------------------------------------------------------------------
III. Discussion
The Commission finds that the proposed rule change to permit non-
U.S. issuers to distribute summary annual reports to U.S. Holders
according to the home country practice of the foreign issuer is
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities exchange,
and, in particular, with the requirements of section 6(b) of the
Act.\10\ Specifically, the Commission believes the proposal is
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 prevent fraudulent and manipulative acts, and, in general, to
protect investors and the public interest, in that it accommodates
foreign practices while ensuring that U.S. shareholders of foreign
securities and holders of ADRs continue to receive adequate information
concerning the companies in which they invest.
---------------------------------------------------------------------------
\10\15 U.S.C. 78f(b) (1988).
---------------------------------------------------------------------------
As the securities markets of the world become increasingly
interconnected, it is inevitable that application of certain exchange
rules conflict with customs and market practices in other
jurisdictions.\11\ The Commission believes that the NYSE's rule
reflects an appropriate balance between the need to protect U.S.
investors and the costs associated with requiring non-U.S. companies to
provide U.S. investors with full annual reports while the companies
home country law permits summary reports to foreign investors.
Accordingly, for the reasons discussed in more detail below, we believe
it is appropriate, in this limited situation pursuant to the conditions
set forth in NYSE Rule 103.00, to allow foreign issuers to comply with
their home country practices for the distribution of annual reports to
U.S. Holders.
---------------------------------------------------------------------------
\11\The Commission previously has allowed the Exchange to waive
or modify certain of its listing standards for foreign companies
based on the laws, customs or practices of their home countries. See
Securities Exchange Act Release No. 24634 (June 23, 1987), 52 FR
24230 (June 29, 1987).
---------------------------------------------------------------------------
First, the rule sets forth certain minimum requirements before
summary reports can be used, including that financial information
contained in the summary annual report be reconciled to U.S. generally-
accepted accounting principles, and that all shareholders have the
ability upon request to receive a full annual report. Second, the NYSE
will evaluate each country's program for providing shareholders with
summary annual reports to verify that U.S. Holders are receiving
adequate information under the laws of the foreign country. Finally,
the NYSE will also review the procedure the country has provided for
disclosing to shareholders the option to receive a full annual report.
If the Exchange determines that either the substance or the procedure
provided by a foreign country's law is unsatisfactory, the Exchange may
prescribe additional requirements before the summary annual report can
be distributed to U.S. Holders under the NYSE rule. In this regard, the
NYSE has stated it will ensure, under its new rule, that shareholders
receive adequate information and are provided with full and meaningful
disclosure of their choices to receive the full annual report as
opposed to the summary report.\12\ Based on the above, the Commission
believes the Exchange's review and oversight, combined with the minimum
requirements set forth in the rule, should ensure the continued
protection of investors and the public interest consistent with section
6(b)(5) of the Act.
---------------------------------------------------------------------------
\12\See NYSE Letter, supra note 4.
---------------------------------------------------------------------------
The Commission finds good cause for approving Amendment No. 1 to
the rule change prior to the thirtieth day after publication of notice
of filing thereof. Amendment No. 1 added language to subsection (a) of
the proposed rule to clarify the Exchange's intention that summary
annual reports include summary financial information.\13\ The NYSE's
proposed rule change was published in the Federal Register for the full
statutory period and no comments were received.\14\
---------------------------------------------------------------------------
\13\Id.
\14\See Securities Exchange Act Release No. 33400 (December 29,
1993), 59 FR 642 (January 5, 1994).
---------------------------------------------------------------------------
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning Amendment No. 1. Persons making written
submissions should file six copies thereof with the Secretary,
Securities and Exchange Commission, 450 Fifth Street, NW., Washington,
DC 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 communications 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,
NW., Washington, DC 20549. Copies of such filing will also be available
for inspection and copying at the principal office of the NYSE. All
submissions should refer to File No. SR-NYSE-93-47 and should be
submitted by March 23, 1994.
V. Conclusion
It is therefore ordered, Pursuant to section 19(b)(2) of the
Act,\15\ that the proposed rule change (SR-NYSE-93-47) is approved.
---------------------------------------------------------------------------
\15\15 U.S.C. 78s(b)(2) (1988).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\16\
---------------------------------------------------------------------------
\16\17 CFR 200.30-3(a)(12) (1993).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-4703 Filed 3-1-94; 8:45 am]
BILLING CODE 8010-01-M
