99-23994. Self-Regulatory Organizations; New York Stock Exchange, Inc.; Order Approving Proposed Rule Change and Amendment No. 1 Thereto and Notice of Filing and Order Granting Accelerated Approval of Amendment Nos. 2 and 3 to the Proposed Rule ...  

  • [Federal Register Volume 64, Number 178 (Wednesday, September 15, 1999)]
    [Notices]
    [Pages 50129-50131]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 99-23994]
    
    
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    SECURITIES AND EXCHANGE COMMISSION
    
    [Release No. 34-41834; File No. SR-NYSE-99-17]
    
    
    Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
    Order Approving Proposed Rule Change and Amendment No. 1 Thereto and 
    Notice of Filing and Order Granting Accelerated Approval of Amendment 
    Nos. 2 and 3 to the Proposed Rule Change Permanently Approving the 
    Pilot Program for the Listing Standards for Domestic and Non-U.S. 
    Companies
    
    September 3, 1999.
    
    I. Introduction
    
        On April 22, 1999, the New York Stock Exchange, Inc. (``NYSE'' or 
    ``Exchange'') filed with the Securities and Exchange Commission 
    (``Commission'' or ``SEC''), 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 the Exchange's 
    original listing standards. On May 19, 1999, the Exchange submitted 
    Amendment No. 1 to its proposal.\3\
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        \1\ 15 U.S.C. 78s(b)(1).
        \2\ 17 CFR 240.19b-4.
        \3\ See Letter from James Buck, Senior Vice President and 
    Secretary, NYSE, to Richard Strasser, Assistant Director, Division 
    of Market Regulation (``Division''), Commission, dated May 18, 1999 
    (``Amendment No. 1'').
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        The proposed rule change and Amendment No. 1 were published for 
    comment in the Federal Register on June 4, 1999,\4\ and the Commission 
    granted accelerated approval to the pilot program relating to an 
    alternative listing eligibility criteria for U.S. and non-U.S.
    
    [[Page 50130]]
    
    companies (``Pilot'') until September 3, 1999, or until the Commission 
    approves the Exchange's request for permanent approval of the Pilot. On 
    July 15, 1999, the Exchange filed Amendment No. 2 \5\ to the proposal 
    and on August 30, 1999, the Exchange filed Amendment No. 3.\6\ The 
    Commission received one comment letter regarding the proposal.\7\ This 
    notice and order approves the proposed rule change, as amended, and 
    solicits comments from interested person on Amendment Nos. 2 and 3.
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        \4\ Securities Exchange Act Release No. 41459 (May 27, 1999), 64 
    FR 30088 (June 4, 1999).
        \5\ In Amendment No. 2, the Exchange made technical changes to 
    conform its proposed rule language to reflect the Exchange's rule 
    language, as amended by a previously submitted rule proposl. See 
    Letter from Daniel Parker Odell, Assistant Secretary, NYSE, to 
    Richard Strasser, Assistant Director, Division, Commission, dated 
    July 14, 1999 (``Amendment No. 2).
        \6\ In Amendment No. 3, the Exchange made technical changes to 
    conform its proposed rule language to reflect the Exchange's rule 
    language, as amended by a previously submitted rule proposal. See 
    Letter from James E. Buck, Senior Vice President and Secretary, 
    NYSE, to Richard Strasser, Assistant Director, Division, Commission, 
    dated August 26, 1999 (``Amendment No. 3).
        \7\ See Letter from Frank G. Zarb, Chairman and Chief Executive 
    Officer, NASD, to Jonathan G. Katz, Secretary, Commission, dated 
    July 19, 1999 (``NASD Letter'').
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    II. Description of the Proposal
    
        The purpose of the proposed rule change is to add a new original 
    listing standard to the Exchange's domestic and non-U.S. numerical 
    listing criteria and to modify its current original listing criteria 
    applicable to non-U.S. issuers. The Exchange's numerical listing 
    criteria currently include requirements regarding size, earnings and 
    share distribution of a company. The Exchange is proposing to add a new 
    alternative standards that focuses on global market capitalization and 
    revenues for large, global companies.
        The specific proposed amendments to the Exchange's original listing 
    criteria are:
        1. The Exchange is proposing a Capitalization Standard alternative 
    to its other financial listing eligibility criteria. Under the proposed 
    amendment to Paragraphs 102.01 and 103.01 of the NYSE's Manual, a 
    company with a total global market capitalization of $1 billion and 
    revenues of $250 million in its most recent fiscal year would be 
    eligible for listing on the Exchange without satisfying any additional 
    financial eligibility requirements. However, the company would have to 
    meet the Exchange's other original listing criteria. The Exchange 
    believes that companies of this magnitude would be appropriate for 
    listing and trading on the NYSE even if they do not have earnings 
    because the lack of earnings could be indicative of the company's stage 
    of development, or the transitional nature of its home economy, or the 
    fact that a company could be undergoing short-term variations in 
    profitability. This listing standard is proposed for both domestic and 
    non-U.S. companies.
        For companies listing in connection with an initial public offering 
    (``IPO''), the valuation of the company's market capitalization would 
    need to be demonstrated by a written representation from the 
    underwriter (or, in the case of a spin-off, by the parent company's 
    investment banker, other financial advisor, or transfer agent, if 
    applicable) of the size of the offering as it pertains to the total 
    market capitalization of the company upon completion of the offering 
    (or distribution). For all other companies, the average market 
    capitalization over the preceding six months would be used to determine 
    the market capitalization of the company. In computing the six month 
    average, the Exchange proposes to take advantage of the daily figures 
    (i.e., share price and shares outstanding) over the preceding six-
    months.
        2. The Exchange currently has alternative numerical listing 
    criteria for non-U.S. companies with limited U.S. distribution.\8\ The 
    Exchange proposes to amend its pre-tax earnings standard for these 
    companies by requiring $25 million in pre-tax income in each of the two 
    most recent fiscal years. Currently, the company need only have pre-tax 
    earnings of $25 million in any one of the three most recent years. 
    Thus, to qualify under the proposed criteria, a non-U.S. issuer would 
    need to demonstrate pre-tax income of $100 million in the aggregate for 
    the last three fiscal years together with a minimum of $25 million of 
    pre-tax income in each of the two most recent fiscal years.
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        \8\ The Exchange applies the general financial listing standards 
    in Paragraph 102.01 of its Manual both to domestic companies and to 
    non-U.S. companies that have the required distribution and trading 
    volume in the United States (or North America, for North American 
    companies). However, the section and paragraph headings in the 
    Manual suggest that those standards apply only to U.S. companies. 
    The Exchange is proposing to change the non-U.S. heading to remove 
    that implication by incorporating the word ``alternative.''
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        The Exchange notes that its past experience indicates that non-U.S. 
    companies tend to follow U.S. GAAP/SEC disclosure guidelines, which 
    only require U.S. GAAP reconciliation for the most recent two years and 
    any relevant interim period. Thus, the third year back is generally 
    reported only in local GAAP and, therefore, is of little quantitative 
    value to the Exchange without reconciliation to U.S. GAAP. As a result 
    the proposed rule change would obviate the need to reconcile the third 
    year back to U.S. GAAP except where the Exchange determines that that 
    information is necessary to assure the Exchange that the aggregate $100 
    million threshold has been satisfied.
    
    III. Summary of Comments
    
        The Commission received one comment letter from the National 
    Association of Securities Dealers, Inc. (``NASD''), which opposed the 
    proposal.\9\ The Exchange responded to this letter.\10\
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        \9\ See NASD Letter, supra note 7.
        \10\ See Letter from James E. Buck, Senior Vice President and 
    Secretary, NYSE, to Jonathan G. Katz, Secretary Commission, dated 
    September 2, 1999.
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        In its letter, the NASD opposed the adoption of new listing 
    criteria that would increase the number of large Nasdaq issuers 
    eligible for listing on the NYSE, while the NYSE retains rules 
    restricting companies from voluntarily delisting from the NYSE \11\ and 
    restricting off-board trading activity by NYSE members.\12\ The NASD 
    contends that the proposal, in conjunction with NYSE Rules 500 and 390, 
    provides the NYSE with an unfair competitive advantage. Therefore, the 
    NASD contends that the NYSE should not be allowed to adopt any rule 
    change that increases the Exchange's ability to obtain or retain issuer 
    listings while NYSE Rules 500 and 390 remain in effect.
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        \11\ NYSE Rule 500.
        \12\ NYSE Rule 390.
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        In response, the Exchange argued that the NASD's argument is 
    unrelated to the current proposal and further, that the proposed rule 
    change is principally an additional listing standard to allow large 
    companies to list on the Exchange. The Exchange noted that the decision 
    whether to list on the Exchange is a decision made by the issuer.
    
    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.\13\ Specifically, the Commission believes the proposal is 
    consistent with the Section 6(b)(5) \14\ requirements that the rules of 
    an exchange be designed to promote just and equitable principles of 
    trade, to remove impediments to and perfect the mechanisms of a free 
    and open market and a national market system, and in
    
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    general, to protect investors and the public. The Commission believes 
    that the Exchange's alternative financial listing standard for 
    companies with $1 billion in market capitalization and $250 million in 
    revenues in the most recent fiscal year is an acceptable standard for 
    listing very large companies that the Exchange believes will prove to 
    be financially successful, although they may not have been profitable 
    in recent years. The Commission believes that the proposed rule change 
    is consistent with the Exchange's obligation to remove impediments to 
    and perfect the mechanism of a free and open market by providing 
    issuers another alternative for trading in the U.S. marketplace without 
    undermining the NYSE's listing standards, which play an important role 
    in protecting investors.
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        \13\ In approving this rule change, the Commission has 
    considered the proposed rule's impact on efficiency, competition, 
    and capital formation. 15 U.S.C. 78c(f).
        \14\ 15 U.S.C. 78f(b)(5).
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        The Commission also believes that it is reasonable for the Exchange 
    to accept a written representation from an underwriter (or, in the case 
    of a spin-off, by a written representation from the parent company's 
    investment banker or other financial advisor) for an IPO or spin-off, 
    since by definition it could not satisfy the requisite market 
    capitalization standard.
        With respect to the ``pre tax earnings'' standard, the proposal 
    amends its standard by requiring $25 million in pre-tax income in each 
    of the two most recent fiscal years. Thus, a non-U.S. issuer would need 
    to demonstrate pre-tax income of $100 million in the aggregate for the 
    last three fiscal years together with a minimum of $25 million of pre-
    tax income in each of the two most recent fiscal years. Reconciliation 
    to U.S. GAAP of the third year back is required only if the Exchange 
    determines that reconciliation is necessary to demonstrate that the 
    aggregate $100 million threshold is satisfied. The Commission believes 
    that the proposed change appropriately simplifies the non-U.S. company 
    listing criteria because its parallels the benchmark applied in the 
    ``adjusted cash flow'' standard for non-U.S. companies.\15\
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        \15\ See Securities Exchange Act Release No. 41502 (June 9, 
    1999) 64 FR 32588 (June 17, 1999).
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        The Commission carefully considered the concerns expressed by the 
    NASD in its letter opposing the proposal. Without taking a position in 
    this Order on the continued propriety of NYSE rules 390 and 500, the 
    Commission was not persuaded by the NASD's contention that in light of 
    those rules a proposal such as the current one that could reduce the 
    burden for companies to list on the NYSE is by its nature 
    inappropriately anti-competitive.
        The Commission finds that Amendment Nos. 2 and 3 are consistent 
    with the requirements of the Act and the rules and regulations 
    thereunder applicable to a national securities exchange. Specifically, 
    the Commission believes Amendment Nos. 2 and 3 are consistent with the 
    Section 6(b)(5) \16\ requirements that the rules of an exchange be 
    designed to remove impediments to and perfect the mechanisms of a free 
    and open market and a national market system by conforming the proposed 
    rule language with the text of the NYSE rule language recently approved 
    by the Commission.\17\
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        \16\ 15 U.S.C. 78f(b)(5).
        \17\ See Securities Exchange Release No. 41502 (June 9, 1999) 64 
    FR 32588 (June 17, 1999). In approving this rule change, the 
    Commission has considered the proposed rule's impact on efficiency, 
    competition, and capital formation. 15 U.S.C. 78c(f).
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        The Commission finds good cause for approving Amendments Nos. 2 and 
    3 prior to the thirtieth day after the date of publication of notice 
    thereof in the Federal Register. The Amendments merely conform the 
    proposed rule language to the Exchange's actual rule language and do 
    not make substantive changes to the text of the rule. In addition, 
    accelerated approval will enable the Exchange to simultaneously make 
    all relevant modifications to its Listed Company Manual and avoid any 
    potential confusion due to recent rule revisions. Accordingly, the 
    Commission finds that granting accelerated approval of Amendments No. 2 
    and 3 is appropriate and consistent with Sections 6(b)(5) and 19(b)(2) 
    of the Act.\18\
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        \18\ 15 U.S.C. 78f(b)(5) and 78s(b)(2).
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    V. Solicitation of Comments
    
        Interested persons are invited to submit written data, views and 
    arguments concerning the foregoing, including whether Amendments 2 and 
    3 are consistent with the Act. Persons making written statements 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 in Washington, DC. 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-99-17 
    and should be submitted by October 6, 1999.
    
    VI. Conclusion
    
        It is therefore ordered, pursuant to Section 19(b)(2) of the 
    Act,\19\ that the proposed rule change (File No. SR-NYSE-99-17), as 
    amended, relating to the listing criteria for U.S. and non-U.S. 
    companies, is approved.
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        \19\ 15 U.S.C. 78s(b)(2).
    
        For the Commission, by the Division of Market Regulation, 
    pursuant to delegated authority.\20\
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        \20\ 17 CFR 200.30-3(a)(12).
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    Margaret H. McFarland,
    Deputy Secretary.
    [FR Doc 99-23994 Filed 9-14-99; 8:45 am]
    BILLING CODE 8010-01-M
    
    
    

Document Information

Published:
09/15/1999
Department:
Securities and Exchange Commission
Entry Type:
Notice
Document Number:
99-23994
Pages:
50129-50131 (3 pages)
Docket Numbers:
Release No. 34-41834, File No. SR-NYSE-99-17
PDF File:
99-23994.pdf