[Federal Register Volume 59, Number 67 (Thursday, April 7, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-8282]
[[Page Unknown]]
[Federal Register: April 7, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33841; File No. SR-NYSE-94-04]
Self-Regulatory Organizations; Filing and Order Granting Partial
Accelerated Approval of Proposed Rule Change by the New York Stock
Exchange, Inc., Relating to Equity-Linked Debt Securities
March 31, 1994.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and rule 19b-4 hereunder,\2\ notice is hereby given that
on March 1, 1994, the New York Stock Exchange, Inc. (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission or ``SEC'') the proposed rule change as described in
Items I and II below, which Items have been prepared by the Exchange.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\15 U.S.C. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1991).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Paragraph 703.21 of its Listed
Company Manual (``Manual'') regarding the listing of Equity-Linked Debt
Securities (``ELDS''). ELDS are intermediate-term (2-7 years), non-
convertible hybrid instruments whose value is based, in part, on the
value of a highly capitalized, actively traded common stock or
convertible preferred stock.\3\ The proposed rule change would (1)
provide alternative minimum capitalization and trading volume
requirements for the security underlying an ELDS issue, and (2) allow
the listing of ELDS linked to non-U.S. securities. The text of the
proposed rule change is available at the Office of the Secretary, NYSE,
and at the Commission.
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\3\The Commission approved the listing and trading of ELDS on
January 13, 1994. See Securities Exchange Act Release No. 33468
(January 13, 1994), 59 FR 3387 (January 21, 1994) (``Exchange Act
Release No. 33468'').
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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 Exchange 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 NYSE 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
The purpose of the proposed rule change is to make two changes to
the Exchange's listing standards for ELDS.\4\ The first change to the
ELDS listing standards is to provide alternative market capitalization
and trading volume criteria for the linked security, that is, the
security on which the value of the ELDS is based. Currently, such a
security must have a market capitalization of at least $3 billion and a
trading volume of at least 2.5 million shares in the preceding year.\5\
The proposed rule change will provide, as an alternative to that
standard, the ability to list ELDS linked to a security that has a $1.5
billion market capitalization and a one-year trading volume of at least
20 million shares. The Exchange believes that this will provide
additional flexibility in the listing of ELDS, while ensuring that the
linked security is highly capitalized and that there is adequate
liquidity in the market for the linked security.
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\4\The Commission notes that an ELDS which satisfies the
criteria set forth in the proposed rule change must also satisfy the
other listing criteria for ELDS set forth in Paragraph 703.21 of the
Manual.
\5\Id.
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The second change to the ELDS listing standards would allow the
issuer of the linked security to be a non-U.S. company if certain
criteria are met. Under the proposal, the issuer could be a non-U.S.
company (whose securities are traded in the United States either as
ordinary shares or as American Depositary Receipts (``ADRs'')) if one
of the following conditions is met:
The Exchange has in place with the primary exchange for
the security (and in the case of an ADR, with the primary exchange in
the home country of the security underlying the ADR) an effective
surveillance information sharing agreement;
The United States is the primary market for the security
(determined in the manner discussed below); or
The staff of the Commission otherwise agrees to the
listing.
In determining whether the U.S. is the primary market for the
linked security, the combined trading volume of the security (including
the security itself, any ADR overlying the security (adjusted on a
share equivalent basis) and other classes of stock related to the
underlying security) in the United States for the three month period
preceding the date of listing must be at least 50% of the combined
world-wide trading in such securities. The U.S. trading in the security
would include only those U.S. self-regulatory organizations included in
the Intermarket Surveillance Group\6\ and linked through the
Intermarket Trading System.\7\
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\6\ISG was formed on July 14, 1983 to, among other things,
coordinate more effectively surveillance and investigative
information sharing arrangements in the stock and options markets.
See Intermarket Surveillance Group Agreement, July 14, 1983. The
most recent amendment to the ISG Agreement, which incorporates the
original agreement and all amendments made thereafter, was signed by
ISG members on January 29, 1990. See Second Amendment to the
Intermarket Surveillance Group Agreement, January 29, 1990. The
members of the ISG, (and accordingly, of the U.S. market) are: The
American Stock Exchange, Inc.; the Boston Stock Exchange, Inc.; the
Chicago Board Options Exchange, Inc.; the Chicago Stock Exchange,
Inc.; the Cincinnati Stock Exchange, Inc.; the National Association
of Securities Dealers, Inc.; the NYSE; the Pacific Stock Exchange,
Inc.; and the Philadelphia Stock Exchange, Inc. Because of potential
opportunities for trading abuses involving stock index futures,
stock options and the underlying stock and the need for greater
sharing of surveillance information for these potential intermarket
trading abuses, the major stock index futures exchanges (e.g., the
Chicago Mercantile Exchange and the Chicago Board of Trade) joined
the ISG as affiliate members in 1990.
\7\ITS is a communications system designed to facilitate trading
among competing markets by providing each market with order routing
capabilities based on current quotation information. The system
links the participant markets and provides facilities and procedures
for: (1) The display of composite quotation information at each
participant market, so that brokers are able to determine readily
the best bid and offer available from any participant for multiple
trading securities; (2) efficient routing of orders and sending
administrative messages (on the functioning of the system) to all
participating markets; (3) participation, under certain conditions,
by members of all participating markets in opening transactions in
those markets; and (4) routing orders from a participating market to
a participating market with a better price.
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Trading in the U.S. in other markets would be included in the
world-wide volume for the security, but not in the U.S. volume.
The Exchange believes that allowing ELDS to be issued based on the
value of eligible non-U.S. securities will provide significant benefits
to investors and the capital markets by providing increased investment
and corporate financing flexibility. The Exchange believes this
flexibility will be achieved without compromising investor protection
by ensuring that the linked security either has its primary market in
the United States or that the Exchange has access to surveillance
information from the primary exchange where the linked security is
traded (and in the case of ADRs, with the primary exchange in the home
country where the security underlying the ADR is traded).
The Exchange believes that the proposed rule change is consistent
with section 6 of the Act, in general, and with section 6(b)(5), in
particular, in that it is designed to prevent fraudulent and
manipulative acts and practices, 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.
B. Self-Regulatory Organization's Statement on Burden on Competition
The NYSE 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 solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has requested that the proposed rule change be given
accelerated effectiveness pursuant to section 19(b)(2) of the Act.
The Commission finds that the portion of the proposed rule change
relating to the alternative minimum capitalization and trading volume
requirements for securities underlying ELDS is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange, and, in particular, the
requirements of section 6(b)(5)\8\ in that it is 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. Specifically, the Commission finds that the proposal will
expand the universe of securities that can be linked to ELDS while
maintaining the requirement that the linked security be an actively
traded common stock issued by a highly capitalized issuer. While the
proposal introduces an alternative, reducing by one-half the minimum
market capitalization of the linked security, the stock of such an
issuer could only be linked to ELDS if its trading volume for the prior
12-month period exceeds by eight times the current minimum trading
volume set forth in Paragraph 703.21 of the Manual. Furthermore, the
proposal does not alter any of the other listing requirements
applicable to ELNs contained in Paragraph 703.21 of the Manual which
the Commission has previously approved.\9\ As a result, the Commission
finds that the proposed amendment is consistent with the Act.
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\8\15 U.S.C. 78f(b)(5) (1988).
\9\See Exchange Act Release No. 33468, supra note 3.
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The Commission finds good cause for approving the proposed rule
change prior to the thirtieth day after the date of publication of
notice of filing thereof in the Federal Register in order to allow the
Exchange to list ELDS linked to stocks satisfying the proposed
alternative market capitalization and trading volume guidelines without
delay. In addition, the Commission notes it has not been made aware of
any adverse comments concerning the ELDS series currently listed and
trading on the Exchange. Furthermore, the Commission believes that the
NYSE proposal does not raise any new issues that were not addressed to
the Commission's satisfaction when the listing and trading of ELDS was
originally approved. Finally, the Commission has approved identical
alternative listing standards with respect to equity linked term notes
(``ELNs'') listed and traded on the American Stock Exchange
(``Amex'').\10\ The Commission notes that the Amex proposal with
respect to the alternative listing standards applicable to ELNs was
published for the full 21-day comment period and no comments opposing
the proposal were received by the Commission. Accordingly, the
Commission believes that good cause exists to approve the proposed rule
change on an accelerated basis.
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\10\See Securities Exchange Act Release No. 33328 (December 13,
1993), 58 FR 66041 (December 17, 1993).
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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 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-94-04 and should be
submitted by April 28, 1994.
It is therefore ordered, pursuant to section 19(b)(2) of the
Act\11\ that the portion of the proposed rule change (SR-NYSE-94-04)
allowing securities underlying an ELDS issue to have a minimum
capitalization of $1.5 billion and a trading volume in the 12 months
prior to issuance of at least 20 million shares, in addition to
satisfying the other requirements set forth in Paragraph 703.21 of the
Manual, is hereby approved.
\11\15 U.S.C. 78s(b)(2) (1988).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\12\
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\22\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-8282 Filed 4-6-94; 8:45 am]
BILLING CODE 8010-01-M
