[Federal Register Volume 64, Number 87 (Thursday, May 6, 1999)]
[Notices]
[Pages 24435-24437]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-11360]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-41346; File No. SR-NYSE-99-02]
Self-Regulatory Organizations; New York Stock Exchange, Inc.;
Order Approving Proposed Rule Change and Notice of Filing and Order
Granting Accelerated Approval of Amendment No. 1 to Proposed Rule
Change Permanently Approving the Pilot Program for the Listing
Eligibility Criteria for Closed-End Management Investment Companies
Registered Under The Investment Company Act of 1940
April 29, 1999.
I. Introduction
On January 26, 1999, the New York Stock Exchange, Inc. (``NYSE'' or
``Exchange'') filed with 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 under the
Act,\2\ a proposed rule change creating a pilot program (``pilot'')
relating to the listing eligibility criteria for closed-end investment
companies registered under the Investment Company Act of 1940
(``Funds'').
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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Notice of the proposal was published in the Federal Register on
February 3, 1999.\3\ The Commission received one comment letter on the
proposal. On April 21, 1999, the NYSE submitted Amendment No. 1 to the
proposed rule change.\4\ This notice and order approves the proposed
rule change as amended and seeks comment from interested persons on
Amendment No. 1.
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\3\ See Securities Exchange Act Release No. 40979 (January 26,
1999), 64 FR 5332 (February 3, 1999).
\4\ See letter from James E. Buck, Senior Vice President and
Secretary, NYSE, to Jonathan G. Katz, Secretary, SEC, April 21, 1999
(``Amendment No. 1''). In Amendment No. 1, the NYSE added a
requirement that an applicant Fund, which is a spin-off or carve-
out, show that the new entity will satisfy the net assets test by
submitting to the Exchange a letter from its parent company's
investment banker or other financial advisor.
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II. Description of the Proposal
The Exchange generally lists Funds either in connection with an
initial public offering or shortly thereafter, when the fund does not
have a three-year operating history and is thus considered newly
formed. On January 26, 1999, the Exchange proposed to codify its policy
regarding the listing of these newly organized Funds.\5\ The same day,
the Commission granted partial accelerated approval to the proposal as
a three-month pilot, effective until April 29, 1999.
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\5\ The Exchange sought both accelerated approval to implement a
three-month pilot program to amend its Listed Company Manual with
respect to Funds and permanent approval of the rule change
implemented in the pilot.
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Under the pilot, if a Fund has at least $60 million in net assets,
as evidenced by a firm underwriting commitment, the Exchange will
generally authorize the listing of the Fund. This requirement is the
minimum net asset requirement for listing. Additionally, the Exchange
retains the discretion to deny listing to a Fund if it determines that,
based upon a comprehensive financial analysis, it is unlikely that the
particular Fund will be able to maintain its financial status. Any Fund
with less than $60 million in net assets will not be considered for
listing.
Lastly, Funds are subject to continued financial listing standards.
The Exchange generates a monthly exception report to identify companies
below the
[[Page 24436]]
Exchange's continued listing standards. If a Fund is so identified by
the Exchange's Financial Compliance Department, it will be subject to
the same compliance and monitoring procedures imposed upon any other
NYSE-listed company so identified.
The Exchange is proposing an exception to the ``Firm underwriting
commitment'' required in the pilot.\6\ The Exchange contends that spin-
offs and carve-outs are not the subjects of an underwriting and,
therefore, are unable to submit the requisite undertaking letter.
Accordingly, an applicant Fund, which is a spin-off or carve-out, must
show that the new entity will satisfy the net assets test by submitting
to the Exchange a letter from its parent company's investment banker or
other financial advisor.
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\6\ See Amendment No. 1, supra note 4.
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III. Summary of Comments
The Commission received one comment letter from the Investment
Company Institute (``ICI''),\7\ which opposed the proposal.\8\ The
Exchange responded to this letter.\9\
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\7\ The ICI is a national investment company industry
association. Its membership includes 7,408 open-end investment
companies (``mutual fund''), 499 closed-end investment companies and
eight sponsors of unit investment trusts. The ICI notes that mutual
fund members have assets of about $5.468 trillion, accounting for
approximately 95% of total industry assets, and have over 62 million
individual shareholders.
\8\ See letter from Ari Burstein, Assistant Counsel, ICI, to
Jonathan G. Katz, Secretary, SEC, March 1, 1999.
\9\ See letter from James E. Buck, Senior Vice President and
Secretary, NYSE, to Jonathan G. Katz, Secretary, SEC, April 16,
1999.
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In its letter the ICI questioned a number of aspects of the
proposal, including: the reason for proposing solely a net asset based
eligibility listing standard; the rationale for the proposed $60
million threshold; the application of the requirement (i.e., whether
funds currently listed are grandfathered from the requirements); and,
the existence of any other listing standards and requirements.
In its response, the Exchange argued that the proposed rule change
is merely a codification of an existing practice, which has evolved
over time as a way to assess the financial viability of a newly
organized Fund that does not have a three-year operating history
against which the Exchange's general listing standards can be
applied\10\ The Exchange also explained that ICI's concern that the net
asset standard is the only standard applicable to Funds is unfounded
because Funds are also subject to the Exchange's distribution and
corporate governance standards. Finally, the Exchange stated that
grandfather provisions are not necessary because the $60 million
threshold is the minimum requirement imposed. The Exchange also noted
that it is developing specific standards to judge a Fund for continued
listing status.
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\10\ The NYSE noted that the proposal omitted a projected
earnings requirement that the Exchange determined provided minimal
incremental value.
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IV. Discussion
The Commission finds that the proposed rule change, as amended, is
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities
exchange.\11\ Specifically, the Commission believes the proposal is
consistent with the Section 6(b)(5) \12\ requirements that the rules of
an exchange be designed to promote just and equitable principals of
trade, to remove impediments to and perfect the mechanisms of a free
and open market and a national market system, and, in general, to
protest investors and the public.
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\11\ In approving the proposed rule change, the Commission has
considered its impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
\12\ 15 U.S.C. 78f(b)(5).
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The Commission recognizes that in many cases the applicant Fund is
not a traditional operating entity and therefore it is not possible to
apply the earnings standards specified in the Exchange's Listed Company
Manual at the time of listing. Thus, the Commission believes that the
Exchange's proposed listing standard serves as an acceptable means for
screening out those Funds that the Exchange believes are unsuitable for
listing because of insufficient assets. The Commission recognizes that
the net assets test in intended as a minimum standard and that the
Exchange may, with respect to a given Fund, determine that,
notwithstanding sufficient net assets, the Fund may otherwise be
unsuited for listing.
The Commission carefully considered the concerns expressed by the
ICI in its letter opposing the proposal. Ultimately, the Commission
concluded that the net asset standard codified by the Exchange in the
proposal is a clear, nondiscriminatory standard that should promote
transparency with respect to the Exchange listing standards for Funds
and is not inconsistent with the Act. The Commission believes that the
proposed standard should promote certainty and reduce costs in the
listing process which should benefit investors and other market
participants.
The Commission finds good cause for approving proposed Amendment
No. 1 prior to the thirtieth day after the date of publication of
notice of filing in the Federal Register. The amendment addresses those
Funds that would not be the subject of an underwriting (i.e., spin-offs
and carve-outs), and as such, would be unable to submit the requisite
undertaking letter. The proposed amendment would permit these Funds to
show the NYSE that they meet the asset test through another acceptable
means (i.e., through a representation by the parent company's
investment banker or other financial advisor). Because the Commission
believes the amendment is an appropriate accommodation for spin-offs
and carve-outs, which could not comply with the original proposal, the
Commission finds good cause for accelerating approval of Amendment No.
1.
V. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning Amendment No. 1, including whether the proposed
amendment is consistent with the Act. Persons making written
submissions should file six copies thereof with the Secretary,
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549-0609. 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. Sec. 552, will be available for
inspection and copying at the Commission's Public Reference Room.
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-NYSE-99-02 and should be submitted by May 27, 1999.
VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\13\ that the proposed rule change (SR-NYSE-99-02), including
Amendment No. 1, relating to the listing eligibility criteria for
closed-end management investment companies registered under the
Investment Company Act of 1940, is approved.
\13\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-11360 Filed 5-5-99; 8:45 am]
BILLING CODE 8010-01-M
