[Federal Register Volume 61, Number 98 (Monday, May 20, 1996)]
[Notices]
[Pages 25257-25258]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-12596]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37211; International Series Release No. 978; File No.
SR-NYSE-96-05]
Self-Regulatory Organizations; New York Stock Exchange, Inc.;
Order Granting Approval to Proposed Rule Change Relating to Listing
Standards
May 14, 1996.
On March 18, 1996, 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 that would permit companies
domiciled in Canada, Mexico, and the United States (``North America'')
\3\ to include holders and trading volume in North America toward
meeting the stockholder and trading volume requirements for listing on
the Exchange pursuant to the domestic listing criteria.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ For purposes of this rule, a company is ``domiciled'' in the
country under the laws of which it is organized.
---------------------------------------------------------------------------
The proposed rule change was published for comment in Securities
Exchange Act Release No. 37055 (Apr. 1, 1996), 61 FR 15546 (Apr. 8,
1996). No comments were received on the proposal.
Under the current NYSE rules, companies applying to list on the
Exchange must meet the applicable listing criteria. For equity
listings, there are two different standards: domestic criteria, which
are available to all companies, (``domestic standards'') and criteria
available solely to non-U.S. companies (``worldwide standards''). Non-
U.S. companies may elect to qualify for listing under the Exchange's
domestic numerical standards or worldwide numerical standards. Non-U.S.
companies, however, must meet all of the criteria within the standard
under which they seek to qualify for listing.
Paragraph 102.01 of the NYSE's Listed Company Manual (``Manual'')
sets forth the standards for domestic companies that want to list their
equity securities on the Exchange. These standards require applicants
to satisfy certain minimum numerical criteria.\4\ Under these
requirements for listing, the company must have, among things, (a)
2,000 round-lot holders; (b) 2,200 total stockholders, together with an
average monthly trading volume of 100,000 shares for the most recent
six months; or (c) 500 total stockholders, together with an average
monthly trading volume of 1,000,000 shares for the most recent 12
months.\5\ The domestic criteria require that these standards be met
only through holders and trading volume occurring in the U.S.
---------------------------------------------------------------------------
\4\ In deciding whether to approve the listing of an equity
security, the NYSE also takes qualitative factors into
consideration. These factors include whether the company is a going
concern or a successor thereto, the degree of national interest in
the company, the character of the market for its products, its
relative stability and position in its industry.
\5\ In determining the number of holders for the above
distribution standards, the NYSE considers both beneficial and
record owners.
---------------------------------------------------------------------------
The Exchange proposes to amend these initial listing standards to
provide that for listing applications from North American companies the
Exchange will include all North American holders and North American
trading volume in applying the minimum stockholder and trading volume
requirements in Paragraph 102.01 of the Manual. The Exchange believes
that with continuing integration of the North American market, this
market should be viewed as a whole in reviewing a company's eligibility
for listing. Moreover, the Exchange believes that this will foster
internationalization of the securities markets by enhancing the access
of U.S. investors to the trading of Canadian and Mexican securities.
Pursuant to the proposed rule change, the Exchange would look at
the number of beneficial holders resident in North America in applying
the initial listing criteria of Paragraph 102.01 to North American
companies. In computing trading volume, the Exchange will look to the
reported volume (i) on U.S. stock exchanges, (ii) in the U.S. over-the-
counter market, and (iii) on Canadian or Mexican stock exchanges.\6\
The total volume reported from these sources must satisfy the NYSE's
initial listing standards. For American Depositary Receipts (``ADRs'')
to be listed on the NYSE, volume in the ordinary shares would be
adjusted to be on an ADR-equivalent basis.\7\ Finally, the proposed
rule change would make conforming changes to Paragraph 103.00 of the
Manual, which establishes alternate initial listing criteria for non-
U.S. companies.
---------------------------------------------------------------------------
\6\ According to the NYSE, the NYSE would consider an
``exchange'' to be a trading market that is regulated as a stock
exchange by home-country regulators. The NYSE believes that the
Bolsa Mexicana de valores is the only market in Mexico that would be
considered an ``exchange'' for this purpose. In Canada, the NYSE
believes that there currently are five stock exchanges that satisfy
this test: The Montreal Exchange and the Toronto, Vancouver,
Winnipeg, and Alberta Stock Exchanges. See letter from Michael J.
Simons, Milbank, Tweed, Hadley & McCloy, to Glen Barrentine, Senior
Counsel, Division of Market Regulation, SEC, dated April 1, 1996.
\7\ For example, assume that a Mexican company has ADRs trading
in the United States and ordinary shares trading in Mexico, with
each ADR representing 10 ordinary shares. If the company were to
apply to list its U.S.-traded ADRs on the NYSE, the Exchange would
divide the Mexican share volume by 10 in determining whether the
combined ADR/share volume meets the requirements of the listing
criteria. For Companies that have multiple series of shares or ADR's
the Exchange will include the volume only in the specific ordinary
shares and overlying ADRs that would be listed on the exchange.
---------------------------------------------------------------------------
The Commission finds that the proposed rule change 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
[[Page 25258]]
requirements of Section 6(b).\8\ 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 pubic interest; and are not
designed to permit unfair discrimination between issuers.
---------------------------------------------------------------------------
\8\ 15 U.S.C. 78f(b).
---------------------------------------------------------------------------
The development and enforcement of adequate standards governing the
initial and continued listing of securities on an exchange is an
activity of critical of critical importance to financial markets and
the investing public. Listing standards serve as a means for an
exchange to screen issuers and to provide listed status only to bona
fide companies with sufficient public float, investor base, and trading
interest to ensure that the market for a company's stock has the depth
and liquidity necessary to maintain fair and orderly markets. Adequate
standards are especially important given the expectations of investors
regarding exchange trading and the imprimatur of listing on a
particular market.
For the reasons set forth below, the Commission believes that the
proposed rule change will provide the NYSE with greater flexibility in
determining which equity securities warrant inclusion in its market,
without compromising the effectiveness of the Exchange's initial
listing standards.
The Commission believes that permitting North American companies to
satisfy the stockholder and trading volume requirements of the
Exchange's domestic initial listing standards by including the holders
and trading volume in North America is not inconsistent with the
purposes of the Act. With efforts such as the North American Free Trade
Agreement (``NAFTA''), North America increasingly is becoming an
integrated market place, and companies and investors are able to obtain
easier access to markets across borders. There is active interest by
U.S. investors in these markets, and Mexican and Canadian issues are
actively traded on the Exchange.
The Commission believes that this amendment to the initial listing
standards may assist companies domiciled in Canada and Mexico and U.S.
companies with a significant presence in those countries to gain
admittance to the NYSE and may promote greater investment opportunities
across borders in North America. Therefore, the Commission believes
that it is not unreasonable to consider the holders and trading volume
in all three countries for purposes of reviewing a company's
application to list under the domestic initial listing standards on the
NYSE.
Moreover, the Commission believes that the NYSE is appropriately
looking only to the reported volume on the Canadian and Mexican stock
exchanges in addition to the reported volume on the U.S. stock
exchanges and in the U.S. over-the-counter market to calculate trading
volume.\9\ The Commission believes that the reported volume from these
non-U.S. exchanges is sufficiently reliable for purposes of determining
a company's listing eligibility. Finally, for ADRs, the Exchange will
adjust the volume in the ordinary shares to an ADR-equivalent basis for
calculating trading volume for purposes of determining eligibility.\10\
The Commission believes that this adjustment will more accurately
reflect the price of the instrument trading on the NYSE because the
price of each share trading in Canada or Mexico may be a fraction of
the ADR.
---------------------------------------------------------------------------
\9\ If the NYSE were to decide to include trading data from
other sources, the NYSE would need to file a proposed rule change
with the Commission pursuant to Section 19(b) of the Act.
\10\ See supra note 7.
---------------------------------------------------------------------------
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\11\ that the proposed rule change (SR-NYSE-96-05) is approved.
\11\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\12\
---------------------------------------------------------------------------
\12\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-12596 Filed 5-17-96; 8:45 am]
BILLING CODE 8010-01-M
