[Federal Register Volume 59, Number 41 (Wednesday, March 2, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-4703]


[[Page Unknown]]

[Federal Register: March 2, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33661; International Release No. 637; File No. SR-NYSE-
93-47]

 

Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Order Granting Approval to Proposed Rule Change and Notice of Filing 
and Order Granting Accelerated Approval to Amendment No. 1 to Proposed 
Rule Change Relating to Listing Standards for Non-U.S. Companies

February 23, 1994.

I. Introduction

    On December 16, 1993, the New York Stock Exchange, Inc. (``NYSE'' 
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 permit non-U.S. issuers to 
distribute summary annual reports to U.S. holders of NYSE-listed 
foreign securities and American Depositary Receipts (ADRs) (``U.S. 
Holders'') under certain circumstances.3 On February 15, 1994, the 
NYSE submitted Amendment No. 1 to the rule filing.4
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    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\17 CFR 240.19b-4 (1993).
    \3\An ADR is a negotiable receipt that is issued by a 
depository, generally a bank, representing shares of a foreign 
issuer that have been deposited and are held, on behalf of holders 
of the ADRs, at a custodian bank in the foreign issuer's home 
country. ADRs are traded on the national stock exchanges and in 
over-the-counter markets like stocks of domestic companies.
    \4\Letter from Michael J. Simon, Milbank, Tweed, Hadley & 
McCloy, to Richard Kosnik, Associate Director, Division of 
Corporation Finance, SEC, dated February 15, 1994 (``NYSE Letter''). 
The amendment added the phrase ``including summary financial 
information'' in subsection (a) of the new language. See text of new 
rule, infra.
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    The proposed rule change was published for comment in Securities 
Exchange Act Release No. 33400 (December 29, 1993), 59 FR 642 (January 
5, 1994). No comments were received on the proposal.

II. Description of the Proposal

    Current NYSE policy requires all listed companies to submit to 
shareholders an annual report with financial information as detailed in 
Paragraph 203.01 of the NYSE Listed Company Manual. The Exchange is 
modifying its annual report requirements to allow U.S. Holders to 
receive summary annual reports if it is the practice in the home 
country of the foreign issuer and certain other conditions are met. The 
following is the text of the rule, with italics representing the 
language added:
103.00 Non-U.S. Companies
* * * * *
    Where it appears to the Exchange that a non-U.S. Company's 
interim earnings reporting or corporate governance practices are not 
prohibited by the law in the country in which it is domiciled, such 
practices need not necessarily be barriers to listing or continued 
listing. In addition, the Exchange will permit non-U.S. issuers to 
follow home-country practices regarding the distribution of annual 
reports to shareholders, if, at a minimum, (a) shareholders are 
provided at least summary annual reports, including summary 
financial information, (b) shareholders have the ability, upon 
request, to receive an annual report that complies with the 
requirements of Para. 203.01 (a ``full annual report''), and (c) the 
financial information contained in the summary annual report is 
reconciled to U.S. generally-accepted accounting principles to the 
extent that such reconciliation would be required in the full annual 
report.\5\
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    \5\NYSE Listed Company Manual Para. 103.00.

    The rule change is, in part, in response to an amendment, adopted 
in 1990, to the U.K. Companies Act that permits issuers listed on the 
London Stock Exchange to provide holders of their ordinary shares a 
choice to receive a full annual report or a summary annual report.\6\ 
Certain U.K. issuers sought permission from the NYSE to provide holders 
of ADRs with summary reports in place of full annual reports if the 
shareholders do not object.
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    \6\The U.K. Companies Act sets forth the specific financial and 
management information that must be contained in the summary 
reports. In addition, the U.K. Companies Act requires that 
shareholders who receive only the summary report be given the 
opportunity, at any time, to obtain the full annual report from the 
company and that companies must notify shareholders annually of this 
right and how the report can be obtained. When the program was 
instituted in the U.K. in 1990, shareholders received both reports 
and notice of the available option with respect to future reports.
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    The NYSE rule is formulated to permit foreign issuers to distribute 
summary annual reports consistent with the practices of their home 
countries. The rule does not attempt to specify particular financial 
requirements.\7\ Instead, the Exchange will review specific proposals 
to ensure that U.S. Holders receive adequate information.\8\
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    \7\Although the new rule is formulated to accommodate the U.K.'s 
program, other foreign countries may adopt different practices.
    \8\NYSE Letter, supra note 4. The letter clarified that the 
Exchange does not intend to adopt the substance of the U.K. program, 
and that it will permit the practice of providing shareholders with 
an option to receive summary annual reports as opposed to full 
annual reports to evolve over time. The NYSE has committed to review 
each home country's practices to determine their sufficiency in 
providing information to U.S. Holders.
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    The rule also does not mandate any specific method for providing 
U.S. Holders with summary annual reports. As with the substantive 
requirements, the NYSE proposal recognizes that foreign countries will 
develop their own procedures for issuers to provide summary reports in 
lieu of full annual reports. The Exchange, however, has indicated that 
it will review all proposed programs to ensure that U.S. Holders have 
reasonable access to the full annual report and receive full disclosure 
of their option to receive the full report.\9\
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    \9\Id. Under the NYSE rule, full annual reports must still be 
prepared and made available to all U.S. shareholders.
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III. Discussion

    The Commission finds that the proposed rule change to permit non-
U.S. issuers to distribute summary annual reports to U.S. Holders 
according to the home country practice of the foreign issuer 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) of the 
Act.\10\ Specifically, the Commission believes the proposal is 
consistent with the Section 6(b)(5) requirements 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, in that it accommodates 
foreign practices while ensuring that U.S. shareholders of foreign 
securities and holders of ADRs continue to receive adequate information 
concerning the companies in which they invest.
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    \10\15 U.S.C. 78f(b) (1988).
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    As the securities markets of the world become increasingly 
interconnected, it is inevitable that application of certain exchange 
rules conflict with customs and market practices in other 
jurisdictions.\11\ The Commission believes that the NYSE's rule 
reflects an appropriate balance between the need to protect U.S. 
investors and the costs associated with requiring non-U.S. companies to 
provide U.S. investors with full annual reports while the companies 
home country law permits summary reports to foreign investors. 
Accordingly, for the reasons discussed in more detail below, we believe 
it is appropriate, in this limited situation pursuant to the conditions 
set forth in NYSE Rule 103.00, to allow foreign issuers to comply with 
their home country practices for the distribution of annual reports to 
U.S. Holders.
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    \11\The Commission previously has allowed the Exchange to waive 
or modify certain of its listing standards for foreign companies 
based on the laws, customs or practices of their home countries. See 
Securities Exchange Act Release No. 24634 (June 23, 1987), 52 FR 
24230 (June 29, 1987).
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    First, the rule sets forth certain minimum requirements before 
summary reports can be used, including that financial information 
contained in the summary annual report be reconciled to U.S. generally-
accepted accounting principles, and that all shareholders have the 
ability upon request to receive a full annual report. Second, the NYSE 
will evaluate each country's program for providing shareholders with 
summary annual reports to verify that U.S. Holders are receiving 
adequate information under the laws of the foreign country. Finally, 
the NYSE will also review the procedure the country has provided for 
disclosing to shareholders the option to receive a full annual report. 
If the Exchange determines that either the substance or the procedure 
provided by a foreign country's law is unsatisfactory, the Exchange may 
prescribe additional requirements before the summary annual report can 
be distributed to U.S. Holders under the NYSE rule. In this regard, the 
NYSE has stated it will ensure, under its new rule, that shareholders 
receive adequate information and are provided with full and meaningful 
disclosure of their choices to receive the full annual report as 
opposed to the summary report.\12\ Based on the above, the Commission 
believes the Exchange's review and oversight, combined with the minimum 
requirements set forth in the rule, should ensure the continued 
protection of investors and the public interest consistent with section 
6(b)(5) of the Act.
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    \12\See NYSE Letter, supra note 4.
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    The Commission finds good cause for approving Amendment No. 1 to 
the rule change prior to the thirtieth day after publication of notice 
of filing thereof. Amendment No. 1 added language to subsection (a) of 
the proposed rule to clarify the Exchange's intention that summary 
annual reports include summary financial information.\13\ The NYSE's 
proposed rule change was published in the Federal Register for the full 
statutory period and no comments were received.\14\
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    \13\Id.
    \14\See Securities Exchange Act Release No. 33400 (December 29, 
1993), 59 FR 642 (January 5, 1994).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning Amendment No. 1. Persons making written 
submissions should file six copies thereof with the Secretary, 
Securities and Exchange Commission, 450 Fifth Street, NW., Washington, 
DC 20549. 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 at the Commission's Public Reference Section, 450 Fifth Street, 
NW., Washington, DC 20549. 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-93-47 and should be 
submitted by March 23, 1994.

V. Conclusion

    It is therefore ordered, Pursuant to section 19(b)(2) of the 
Act,\15\ that the proposed rule change (SR-NYSE-93-47) is approved.
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    \15\15 U.S.C. 78s(b)(2) (1988).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-4703 Filed 3-1-94; 8:45 am]
BILLING CODE 8010-01-M