02-17681. Self-Regulatory Organizations; New York Stock Exchange, Inc.; Order Granting Permanent Approval of Proposed Rule Change and Amendment Nos. 1 and 2 Thereto, and Notice of Filing of and Order Granting Accelerated Approval to Amendment No. 3 ...

July 3, 2002.

I. Introduction

On October 29, 2001, the New York Stock Exchange, Inc. (“NYSE” or “Exchange”) submitted to the Securities and Exchange Commission (“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 relating to amendments to the initial listing standards and allocation policy for closed-end management investment companies registered under the Investment Company Act of 1940 (hereinafter referred to as “funds” or “closed-end funds”). On March 14, 2002, the NYSE filed Amendment No. 1 to the proposed rule change with the Commission.^[3] On April 1, 2002, the NYSE filed Amendment No. 2 to the proposed rule change with the Commission.^[4] On April 2, 2002, the Commission issued notice of, and granted partial accelerated approval to, the proposed rule change and Amendment Nos. 1 and 2 thereto, on a three-month pilot basis.^[5]

The Commission received one comment letter on the proposed rule change, as amended.^[6] On June 27, 2002, the NYSE file Amendment No. 3 to the proposed rule change with the Commission.^[7] This order approves the proposed rule change, as amended, on a permanent basis and grants accelerated approval to Amendment No. 3. The Commission is also soliciting comments on Amendment No. 3 from interested persons.

II. Description of Proposal

The NYSE proposes to permanently amend Section 102.04 of the Exchange's Manual regarding listing standards for closed-end funds. The Exchange is proposing to apply to all individual closed-end funds that desire to list on the Exchange the $60 million public market value test currently used for funds applying in connection with their initial public offering. In addition, the Exchange is proposing a standard under which a group of funds meeting certain specified requirements can be listed concurrently by a single “fund family,” ^[8] even if the group includes one or more funds with less than $60 million in public market value. Specifically, the Exchange would generally authorize the listing of a fund family ^[9] if: (1) The total group market value of publicly held shares (offering proceeds, in the case of newly formed funds) equals in the aggregate at least $200 million; (2) each group averages at least $45 million in market value of publicly held shares (proceeds) per fund; and (3) no one fund in the group has a market value of publicly held shares (proceeds) of less than $30 million. This group standard would apply regardless of whether the group consists of newly formed or existing funds, or a combination thereof.

Finally, the Exchange is proposing to amend its Allocation Policy to permit a fund family to be allocated to one specialist unit, unless the Allocation Committee believes it appropriate to allocate the group to more than one specialist unit. In certain situations, the Allocation Committee would be permitted to allocate funds within a group to more than one unit. Such situations could include, for example, instances where the number of funds in the group, the types of funds, or the relative values of the funds suggest to the Allocation Committee that allocation to more than one specialist unit would be appropriate.^[10]

III. Summary of Comments

As noted above, the Commission received one comment letter regarding the proposal.^[11] ICI supported the proposed rule change, as amended by Amendment Nos. 1 and 2, and believed that the proposal would facilitate the listing of closed-end funds on the Exchange, particularly for listings of closed-end funds from a single fund family. ICI noted that the proposal would eliminate the existing distinction between newly formed and existing funds for listing purposes that currently requires existing funds to meet the same financial standards applicable to regular operating companies. ICI emphasized that the adoption of listing eligibility criteria for closed-end funds should take into account that such funds are structured and regulated differently than regular operating companies and, therefore, different financial standards should be applied to closed-end funds as compared to regular operating companies. Finally, ICI noted that the allocation to one specialist unit of all of the closed-end funds in a fund family group may result in a more effective utilization of the resources of the Exchange.

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. Specifically, the Commission believes the proposal is consistent with the requirements under Section 6(b)(5) of the Act ^[12] that the rules of an exchange be designed 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.^[13]

The Commission believes that the proposed rule change strikes a reasonable balance between the Exchange's obligation to protect investors and their confidence in the market and the Exchange's obligation to perfect the mechanism of a free and open market by listing funds, including fund families, on the Exchange. The Commission also believes that providing an alternative method to list closed-end funds on the Exchange should accommodate the desire of fund families to list groups of closed-end funds on one marketplace.

Furthermore, the Commission believes that it is reasonable to permit the Allocation Committee under normal circumstances to allocate to one specialist unit all the closed-end funds in a family group listed under the group criteria. According to the Exchange, economies of scale and more effective utilization of resources may be realized by the allocation of a group of what are likely to be less actively traded securities to one specialist unit, rather than to have the individual funds within the group allocated to a number of units. The Commission notes, however, that the Allocation Committee would not be required to allocate the entire group to one specialist unit. The Committee retains the flexibility to allocate to more than one unit if there are factors present that make the Committee believe that allocation to more than one unit is appropriate.

Finally, the Commission notes that it has no knowledge of any problems or regulatory concerns that have developed since the approval of the three-month pilot program.^[14] The Commission also notes that during the three-month pilot it received only one comment letter, which supported the proposed rule change. Accordingly, the Commission finds it appropriate and consistent with sections 6(b)(5) and 19(b)(2) of the Act ^[15] to approve the proposed rule change, as amended, on a permanent basis.

The Commission also finds good cause for accelerating approval of Amendment No. 3, because it merely clarifies the meaning of fund family to include those funds with a common investment adviser or having investment advisers which are affiliated persons, as defined by the Investment Company Act. Accordingly, the Commission finds that good cause exists, consistent with sections 6(b)(5) of the Act,^[16] and section 19(b)(2) of the Act ^[17] to accelerate approval of Amendment No. 3 to the proposed rule change prior to the thirtieth day after publication in the Federal Register.

V. Solicitation of Comments

Interested persons are invited to submit written data, views and arguments concerning Amendment No. 3, including whether the Amendment No. 3 is consistent with the Act. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street NW, Washington, DC 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. 552, will be available for inspection and copying in the Commission's Public Reference Room. 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-2001-45 and should be submitted by August 5, 2002.

VI. Conclusion

It is therefore ordered, pursuant to section 19(b)(2) of the Act,^[18] that the proposed rule change, as amended, (File No. SR-NYSE-2001-45) is approved on a permanent basis.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.^[19]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  See letter from Darla C. Stuckey, Corporate Secretary, NYSE, to Nancy J. Sanow, Assistant Director, Division of Market Regulation (“Division”), Commission, dated March 12, 2002 (“Amendment No. 1”).

4.  See letter from Darla C. Stuckey, Corporate Secretary, NYSE, to Nancy J. Sanow, Assistant Director, Division, Commission, dated April 1, 2002 (“Amendment No. 2”) (replacing Form 19b-4 in its entirety).

5.  See Securities Exchange Act Release No. 45684 (April 2, 2002), 67 FR 17092 (April 9, 2002).

6.  See letter from Ari Burstein, Associate Counsel, Investment Company Institute, to Jonathan G. Katz, Secretary, Commission, dated April 30, 2002 (“ICI Letter”).

7.  See letter from Darla C. Stuckey, Corporate Secretary, NYSE, to Nancy J. Sanow, Assistant Director, Division, Commission, dated June 25, 2002 (“Amendment No. 3”). In Amendment No. 3, the NYSE made a technical correction to the rule text and a conforming change to the purpose section to clarify the definition of affiliated persons in Section 102.04 of the NYSE Listed Company Manual (“Manual”) and Section V of the NYSE's Allocation Policy and Procedures (“Allocation Policy”).

8.  A “fund family” (as the term is used herein) consists of funds with a common investment adviser or having investment advisers, which are “affiliated persons,” as defined in Section 2(3) of the Investment Company Act of 1940, as amended. See Amendment No. 3, supra note 7. The Exchange represents that it will not have discretion to list a group of closed-end funds that desire to list concurrently by a fund family if the group does not satisfy the listing requirements for a fund family set forth in this proposal. However, the Exchange will retain the discretion to exclude a fund family that otherwise satisfies the requirements. Telephone conversation between Janet Kissane, Office of the General Counsel, NYSE, and Terri Evans, Assistant Director, and Frank N. Genco, Attorney, Division, Commission, on July 3, 2002.

9.  The Exchange has represented that the composition of the group will be determined in each case by the investment adviser bringing the group listing to the Exchange.

10.  The Exchange has represented that the normal Allocation Policy would apply to closed-end funds being listed on the Exchange just as they apply to any other business corporation being listed. Therefore, the amendment being proposed hereby is altering the Allocation Policy in only the discreet manner specified. The Exchange also represented that all the other aspects of the Allocation Policy, including the method by which the listed company is permitted to pick from a panel of specialists put together by the Allocation Committee, would apply.

11.  See ICI Letter.

12.  15 U.S.C. 78f(b)(5).

13.  In approving this proposal, the Commission notes that it has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

14.  Telephone conversation between Janet Kissane, Office of the General Counsel, NYSE, and Frank N. Genco, Attorney, Division, Commission, on July 2, 2002.

15.  15 U.S.C. 78f(b)(5) and 78s(b)(2).

16.  15 U.S.C. 78f(b)(5).

17.  15 U.S.C. 78s(b)(2).

18.  15 U.S.C. 78s(b)(2).

19.  17 CFR 200.30-3(a)(12).