[Federal Register Volume 62, Number 182 (Friday, September 19, 1997)]
[Notices]
[Pages 49269-49270]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-24865]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39055; File No. SR-CHX-97-17]
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.;
Order Granting Approval to Proposed Rule Change Relating to Tier I
Listing Standards to Adopt a Share Price Maintenance Standard for
Common Stock Listed on the Exchange
September 11, 1997.
I. Introduction
On June 25, 1997, the Chicago Stock Exchange, Inc. (``CHX'' 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 to add a share price maintenance
standard for common stock listed on Tier I of the Exchange.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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The proposed rule change was published for comment in the Federal
Register on July 8, 1997.\3\ No comments were received on the proposal.
This order approves the proposal.
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\3\ Securities Exchange Act Release No. 38795 (June 30, 1997),
62 FR 36594 (July 8, 1997).
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II. Description of the Proposal
The National Securities Markets Improvement Act of 1996 \4\ amended
section 18 of the Securities Act of 1933 \5\ to provide for exclusive
federal registration of securities listed, or authorized for listing,
on the New York Stock Exchange (``NYSE''), the American Stock Exchange
(``Amex'') or listed on the National Market System of the Nasdaq Stock
Market (``Nasdaq/NMS''), or any other national securities exchange
designated by the Commission by rule to have substantially similar
listing standards to those markets. The
[[Page 49270]]
CHX petitioned the SEC in February of this year to adopt a rule finding
the CHX's Tier I listing standards to be substantially similar to those
of the NYSE, Amex or Nasdaq/NMS. If the SEC adopts such a rule, any
security listed on the CHX under its Tier I standards would be exempt
from registration in all fifty states.
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\4\ Pub. L. 104-290, 110 Stat. 3416 (1996).
\5\ 15 U.S.C. 77s.
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The Commission has recently published for comment proposed Rule
146(b) which would designate various exchanges' listing standards as
being substantially similar to those of the NYSE, Amex or Nasdaq/
NMS.\6\ The Commission has indicated that it preliminary believes that
the only deficiency in the CHX Tier I standards, which precludes it
from designating the CHX Tier I securities as qualifying, is that there
is no minimum share price requirement for continued listing on Tier I.
If such deficiency was corrected, the SEC indicated that it would
consider including CHX's Tier I securities in the final Rule 146(b).
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\6\ Securities Exchange Act Release No. 38728, Securities Act
Release No. 7422 (June 10, 1997).
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As a result of the above, the CHX is proposing to amend Article
XXVIII, Rule 14 of the Exchange rules to add a minimum share price
requirement for continued listing of common stock on Tier I. The
proposed amendment is virtually identical to Amex's requirement. In
essence, the proposed amendment states that an issuer that has a common
stock listed under Tier I that is selling for a substantial period of
time at a low price per share must effect a reverse split within a
reasonable period of time after being notified that the Exchange deems
such action to be appropriate. The proposed amendment then sets forth
examples of pertinent factors which the Exchange will review in
determining whether a reverse split is appropriate. If the issuer fails
to effect a reverse split, then the Exchange would initiate a
proceeding to delist the issuer's common stock from Tier I.
III. Discussion
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 requirements of section 6(b).\7\ Specifically, the
Commission believes the proposal is consistent with the section 6(b)(5)
\8\ requirement 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 public
interest.\9\ New Exchange Rule 14(a)(4) provides the CHX with specific
authority to require an issuer with common stock listed on Tier I to
effect a reverse stock split when the issue is selling for a
substantial period of time at a low price per share. If such issuer
does not effect a reverse split of the shares, which should have the
effect of increasing share price, within a reasonable period of time
after being notified that the Exchange deems the reverse split to be
appropriate, the Exchange will delist the issuer's stock.
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(5).
\9\ In approving this rule, 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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In establishing criteria to uphold the quality of its market, the
Commission believes that it is appropriate for the Exchange to have a
maintenance standard for securities selling at low prices in
conjunction with the other standards for listing and maintenance. The
Commission finds that the share price maintenance standard is a
reasonable measure for the Exchange to use to maintain its quality
control standards for issuers listed on Tier I of the Exchange and is a
reasonable standard to use to remove low-priced securities from the
Exchange. As noted above, under the rule, the issuer will have the
opportunity to remedy concerns about stock selling at a low price by
effecting a reverse stock split.
The Commission also believes that the addition of the share price
maintenance standard to the Exchange's maintenance requirements for
common stock should help the Exchange monitor the continued financial
stability of companies listed on Tier I because low share prices can
sometimes be the result of financial difficulty with the issuer. The
maintenance standard will also help ensure that stocks that are more
susceptible to manipulation will not be traded on the Exchange. This
should protect investors and the public interest consistent with
section 6(b)(5) of the Act.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\10\ that the proposed rule change (SR-CHX-97-17) is approved.
\10\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-24865 Filed 9-18-97; 8:45 am]
BILLING CODE 8010-01-M
