[Federal Register Volume 59, Number 67 (Thursday, April 7, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-8282]


[[Page Unknown]]

[Federal Register: April 7, 1994]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33841; File No. SR-NYSE-94-04]

 

Self-Regulatory Organizations; Filing and Order Granting Partial 
Accelerated Approval of Proposed Rule Change by the New York Stock 
Exchange, Inc., Relating to Equity-Linked Debt Securities

March 31, 1994.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and rule 19b-4 hereunder,\2\ notice is hereby given that 
on March 1, 1994, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission or ``SEC'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the Exchange. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\17 CFR 240.19b-4 (1991).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Paragraph 703.21 of its Listed 
Company Manual (``Manual'') regarding the listing of Equity-Linked Debt 
Securities (``ELDS''). ELDS are intermediate-term (2-7 years), non-
convertible hybrid instruments whose value is based, in part, on the 
value of a highly capitalized, actively traded common stock or 
convertible preferred stock.\3\ The proposed rule change would (1) 
provide alternative minimum capitalization and trading volume 
requirements for the security underlying an ELDS issue, and (2) allow 
the listing of ELDS linked to non-U.S. securities. The text of the 
proposed rule change is available at the Office of the Secretary, NYSE, 
and at the Commission.
---------------------------------------------------------------------------

    \3\The Commission approved the listing and trading of ELDS on 
January 13, 1994. See Securities Exchange Act Release No. 33468 
(January 13, 1994), 59 FR 3387 (January 21, 1994) (``Exchange Act 
Release No. 33468'').
---------------------------------------------------------------------------

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The NYSE has prepared summaries, set forth in Sections 
A, B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    The purpose of the proposed rule change is to make two changes to 
the Exchange's listing standards for ELDS.\4\ The first change to the 
ELDS listing standards is to provide alternative market capitalization 
and trading volume criteria for the linked security, that is, the 
security on which the value of the ELDS is based. Currently, such a 
security must have a market capitalization of at least $3 billion and a 
trading volume of at least 2.5 million shares in the preceding year.\5\ 
The proposed rule change will provide, as an alternative to that 
standard, the ability to list ELDS linked to a security that has a $1.5 
billion market capitalization and a one-year trading volume of at least 
20 million shares. The Exchange believes that this will provide 
additional flexibility in the listing of ELDS, while ensuring that the 
linked security is highly capitalized and that there is adequate 
liquidity in the market for the linked security.
---------------------------------------------------------------------------

    \4\The Commission notes that an ELDS which satisfies the 
criteria set forth in the proposed rule change must also satisfy the 
other listing criteria for ELDS set forth in Paragraph 703.21 of the 
Manual.
    \5\Id.
---------------------------------------------------------------------------

    The second change to the ELDS listing standards would allow the 
issuer of the linked security to be a non-U.S. company if certain 
criteria are met. Under the proposal, the issuer could be a non-U.S. 
company (whose securities are traded in the United States either as 
ordinary shares or as American Depositary Receipts (``ADRs'')) if one 
of the following conditions is met:
     The Exchange has in place with the primary exchange for 
the security (and in the case of an ADR, with the primary exchange in 
the home country of the security underlying the ADR) an effective 
surveillance information sharing agreement;
     The United States is the primary market for the security 
(determined in the manner discussed below); or
     The staff of the Commission otherwise agrees to the 
listing.
    In determining whether the U.S. is the primary market for the 
linked security, the combined trading volume of the security (including 
the security itself, any ADR overlying the security (adjusted on a 
share equivalent basis) and other classes of stock related to the 
underlying security) in the United States for the three month period 
preceding the date of listing must be at least 50% of the combined 
world-wide trading in such securities. The U.S. trading in the security 
would include only those U.S. self-regulatory organizations included in 
the Intermarket Surveillance Group\6\ and linked through the 
Intermarket Trading System.\7\
---------------------------------------------------------------------------

    \6\ISG was formed on July 14, 1983 to, among other things, 
coordinate more effectively surveillance and investigative 
information sharing arrangements in the stock and options markets. 
See Intermarket Surveillance Group Agreement, July 14, 1983. The 
most recent amendment to the ISG Agreement, which incorporates the 
original agreement and all amendments made thereafter, was signed by 
ISG members on January 29, 1990. See Second Amendment to the 
Intermarket Surveillance Group Agreement, January 29, 1990. The 
members of the ISG, (and accordingly, of the U.S. market) are: The 
American Stock Exchange, Inc.; the Boston Stock Exchange, Inc.; the 
Chicago Board Options Exchange, Inc.; the Chicago Stock Exchange, 
Inc.; the Cincinnati Stock Exchange, Inc.; the National Association 
of Securities Dealers, Inc.; the NYSE; the Pacific Stock Exchange, 
Inc.; and the Philadelphia Stock Exchange, Inc. Because of potential 
opportunities for trading abuses involving stock index futures, 
stock options and the underlying stock and the need for greater 
sharing of surveillance information for these potential intermarket 
trading abuses, the major stock index futures exchanges (e.g., the 
Chicago Mercantile Exchange and the Chicago Board of Trade) joined 
the ISG as affiliate members in 1990.
    \7\ITS is a communications system designed to facilitate trading 
among competing markets by providing each market with order routing 
capabilities based on current quotation information. The system 
links the participant markets and provides facilities and procedures 
for: (1) The display of composite quotation information at each 
participant market, so that brokers are able to determine readily 
the best bid and offer available from any participant for multiple 
trading securities; (2) efficient routing of orders and sending 
administrative messages (on the functioning of the system) to all 
participating markets; (3) participation, under certain conditions, 
by members of all participating markets in opening transactions in 
those markets; and (4) routing orders from a participating market to 
a participating market with a better price.
---------------------------------------------------------------------------

    Trading in the U.S. in other markets would be included in the 
world-wide volume for the security, but not in the U.S. volume.
    The Exchange believes that allowing ELDS to be issued based on the 
value of eligible non-U.S. securities will provide significant benefits 
to investors and the capital markets by providing increased investment 
and corporate financing flexibility. The Exchange believes this 
flexibility will be achieved without compromising investor protection 
by ensuring that the linked security either has its primary market in 
the United States or that the Exchange has access to surveillance 
information from the primary exchange where the linked security is 
traded (and in the case of ADRs, with the primary exchange in the home 
country where the security underlying the ADR is traded).
    The Exchange believes that the proposed rule change is consistent 
with section 6 of the Act, in general, and with section 6(b)(5), in 
particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, 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 interest.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The NYSE does not believe that the proposed rule change will impose 
any inappropriate burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has requested that the proposed rule change be given 
accelerated effectiveness pursuant to section 19(b)(2) of the Act.
    The Commission finds that the portion of the proposed rule change 
relating to the alternative minimum capitalization and trading volume 
requirements for securities underlying ELDS is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange, and, in particular, the 
requirements of section 6(b)(5)\8\ in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, and to protect investors and the public 
interest. Specifically, the Commission finds that the proposal will 
expand the universe of securities that can be linked to ELDS while 
maintaining the requirement that the linked security be an actively 
traded common stock issued by a highly capitalized issuer. While the 
proposal introduces an alternative, reducing by one-half the minimum 
market capitalization of the linked security, the stock of such an 
issuer could only be linked to ELDS if its trading volume for the prior 
12-month period exceeds by eight times the current minimum trading 
volume set forth in Paragraph 703.21 of the Manual. Furthermore, the 
proposal does not alter any of the other listing requirements 
applicable to ELNs contained in Paragraph 703.21 of the Manual which 
the Commission has previously approved.\9\ As a result, the Commission 
finds that the proposed amendment is consistent with the Act.
---------------------------------------------------------------------------

    \8\15 U.S.C. 78f(b)(5) (1988).
    \9\See Exchange Act Release No. 33468, supra note 3.
---------------------------------------------------------------------------

    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the date of publication of 
notice of filing thereof in the Federal Register in order to allow the 
Exchange to list ELDS linked to stocks satisfying the proposed 
alternative market capitalization and trading volume guidelines without 
delay. In addition, the Commission notes it has not been made aware of 
any adverse comments concerning the ELDS series currently listed and 
trading on the Exchange. Furthermore, the Commission believes that the 
NYSE proposal does not raise any new issues that were not addressed to 
the Commission's satisfaction when the listing and trading of ELDS was 
originally approved. Finally, the Commission has approved identical 
alternative listing standards with respect to equity linked term notes 
(``ELNs'') listed and traded on the American Stock Exchange 
(``Amex'').\10\ The Commission notes that the Amex proposal with 
respect to the alternative listing standards applicable to ELNs was 
published for the full 21-day comment period and no comments opposing 
the proposal were received by the Commission. Accordingly, the 
Commission believes that good cause exists to approve the proposed rule 
change on an accelerated basis.
---------------------------------------------------------------------------

    \10\See Securities Exchange Act Release No. 33328 (December 13, 
1993), 58 FR 66041 (December 17, 1993).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing. 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-94-04 and should be 
submitted by April 28, 1994.
    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act\11\ that the portion of the proposed rule change (SR-NYSE-94-04) 
allowing securities underlying an ELDS issue to have a minimum 
capitalization of $1.5 billion and a trading volume in the 12 months 
prior to issuance of at least 20 million shares, in addition to 
satisfying the other requirements set forth in Paragraph 703.21 of the 
Manual, is hereby approved.

    \11\15 U.S.C. 78s(b)(2) (1988).
---------------------------------------------------------------------------

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
---------------------------------------------------------------------------

    \22\17 CFR 200.30-3(a)(12) (1993).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-8282 Filed 4-6-94; 8:45 am]
BILLING CODE 8010-01-M