[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
[[Page 50131]]
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