[Federal Register Volume 59, Number 159 (Thursday, August 18, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-20236]
[[Page Unknown]]
[Federal Register: August 18, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34518; File Nos. SR-NYSE-94-20, SR-Amex-94-29, SR-NASD-
94-45]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Changes by New York Stock Exchange, Inc., American Stock Exchange,
Inc., and National Association of Securities Dealers, Inc., Relating to
the Exchanges' and Association's Rules Regarding Shareholder Voting
Rights
August 11, 1994.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on June 2,
1994, August 10, 1994, and August 5, 1994, the New York Stock Exchange,
Inc. (``NYSE''), the American Stock Exchange Inc. (``Amex''), and the
National Association of Securities Dealers, Inc. (``NASD''),
respectively,\1\ filed with the Securities and Exchange Commission
(``Commission'') the proposed rule changes as described in Items I, II
and III below, which Items have been prepared by the self-regulatory
organizations. On July 11, 1994, and August 8, 1994, the NYSE filed
Amendment Nos. 1 and 2, respectively, to the proposed rule change.\2\
The Commission is publishing this notice to solicit comments on the
proposed rule changes, as amended, from interested persons.
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\1\The NYSE, Amex, and NASD are collectively referred to herein
as the ``Markets''. The NYSE and Amex are collectively referred to
herein as the ``Exchanges''.
\2\See Amendment No. 1 to SR-NYSE-94-20 (available in full in
the Commission public reference room). As originally filed, the NYSE
Policy restated the current provision of Para. 313(B), which governs
the issuance of non-voting stock. Among other things, that provision
provides that, to be eligible for NYSE listing, non-voting common
stock must have been issued in a transaction ``deemed to have been
permitted under Rule 19c-4.'' This requirement implies that the NYSE
will list non-voting stock only if the original issuance of the
stock had been in conformity with the Policy. In Amendment No. 1 the
NYSE deleted from this paragraph the aforementioned condition.
In Amendment No. 2 the NYSE made some technical clarifications
to Exhibit A of its filing regarding references to deletions and
additions to its rules. See letter from Michael Simon, Milbank,
Tweed, Hadley & McCloy, to Amy Bilbija, Commission, dated August 5,
1994.
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I. Self-Regulatory Organizations' Statement of the Terms of Substance
of the Proposed Rule Changes
The Markets are proposing to amend their respective rules governing
the voting rights of shareholders of common stock listed on the
Exchanges, or in the case of the NASD, included in the Nasdaq System.
A. New York Stock Exchange
The NYSE is proposing amendments to Para. 313 of its Listed Company
Manual (the ``Manual'') to include a new NYSE Voting Rights Policy (the
``Policy'') for companies whose common stock is listed on the NYSE.
Para. 313(A) of the Manual is entirely new, and will replace the
current Para. 313(A) entitled ``Rule 19c-4'', although Supplementary
Material .20 is based on the current Supplementary Material to Para.
313 and Supplementary Material .40 is based on current Para. 313(D) of
the Manual. Para. 313(B) is proposed to be amendment, with additions
italicized and deletions [bracketed] in that paragraph. There is no
change to current Para. 313(C), and Para. 313(D) and the current
supplementary material are proposed to be deleted, as those sections
are now addressed in the Supplementary Material to Para. 313(A). The
text of the changes to the Manual is as follows:
313.00 Voting Rights
(A) [Rule 19c-4] Voting Rights Policy
On May 5, 1994, the Exchange's Board of Directors voted to modify
the Exchange's Voting Rights Policy, which had been based on former SEC
Rule 19c-4. The Policy is more flexible than Rule 19c-4. Accordingly,
the Exchange will continue to permit corporate actions or issuances by
listed companies that would have been permitted under Rule 19c-4, as
well as other actions or issuances that are not inconsistent with the
new Policy. In evaluating such other actions or issuances, the Exchange
will consider, among other things, the economics of such actions or
issuances and the voting rights being granted. The Exchange's
interpretations under the Policy will be flexible, recognizing that
both the capital markets and the circumstances and needs of listed
companies change over time. The text of the Exchange's Voting Rights
Policy is as follows:
Voting rights of existing shareholders of publicly traded common
stock under Section 12 of the Exchange Act cannot be disparately
reduced or restricted through any corporate action or issuance.
Examples of such corporate action or issuance include, but are not
limited to, the adoption of time phased voting plans, the adoption of
capped voting rights plans, the issuance of super voting stock, or the
issuance of stock with voting rights less than the per share exchange
offer.
SUPPLEMENTARY MATERIAL:
.10 Companies with Dual Class Structures--The restriction against
the issuance of super voting stock is primarily intended to apply to
the issuance of a new class of stock, and companies with existing dual
class capital structures would generally be permitted to issue
additional shares of the existing super voting stock without conflict
with this Policy.
.20 Consultation with the Exchange--Violation of the Exchange's
Voting Rights Policy could result in the loss of an Issuers' Exchange
market or public trading market. The Policy can apply to a variety of
corporate actions and securities issuances, not just super voting or
so-called ``time phase'' voting common stock. While the Policy will
continue to permit actions previously permitted under Rule 19c-4, it is
extremely important that listed companies communicate their intentions
to their Exchange representatives as early as possible before taking
any action or committing to take any action that may be inconsistent
with the Policy. The Exchange urges listed companies not to assume,
without first discussing the matter with the Exchange staff, that a
particular issuance of common or preferred stock or the taking of some
other corporate action will necessarily be consistent with the Policy.
It is suggested that copies of preliminary proxy or other material
concerning matters subject to the Policy be furnished to the Exchange
for review prior to formal filing.
.30 Review of Past Voting Rights Activities--In reviewing an
application for initial listing on the Exchange, the Exchange will
review the issuer's past corporate actions to determine whether another
self-regulatory organization (``SRO'') has found any of the issuer's
actions to have been a violation or evasion of the SRO's voting rights
policy. Based on such review, the Exchange may take any appropriate
action, including the denial of the listing or the placing of
restrictions on such listing. The Exchange will also review whether an
issuer seeking initial listing on the Exchange has requested a ruling
or interpretation from another SRO regarding the application of that
SRO's voting rights policy with respect to a proposed transaction. If
so, the Exchange will consider that fact in determining its response to
any ruling or interpretation that the issuer may request on the same or
similar transaction.
.40 Non-U.S. Companies--The Exchange will accept any action or
issuance relating to the voting rights structure of a non-U.S. company
that is in compliance with the Exchange's requirements for domestic
companies or that is not prohibited by the company's home country law.
(B) Non-Voting Common Stock
The Exchange's voting rights policy permits [policies have been
further amended to permit] the listing of the voting common stock of a
company which also has outstanding a non-voting common stock as well as
the listing of non-voting common stock. However, certain safeguards
must be provided to holders of a listed non-voting common stock.
(1) Any class of non-voting stock that is listed on the Exchange
must meet all original listing standards [and must have been issued in
a transaction that was deemed to have been permitted under Rule 19c-4].
The rights of the holders of the non-voting common stock should, except
for voting rights, be substantially the same as those of the holders of
the company's voting common stock.
(2)-(3) [No change]
(C) Preferred Stock, Minimum Voting Rights Required
(No change)
[(D) Non-U.S. Companies]
[Deleted]
[SUPPLEMENTARY MATERIAL]
[Deleted]
B. American Stock Exchange
The Amex is proposing to adopt a new uniform rule, with respect to
the voting rights of common stock shareholders, to be incorporated into
its Company Guide.\3\ Specifically, the Amex proposes to amend Section
122 of the Company Guide and that portion of the Company Guide
applicable to the Amex's Emerging Company Marketplace as follows: All
added material is italicized; all deleted material is [bracketed].
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\3\Consequently, the Exchange withdraws, effective upon approval
of this rule change by the Commission, SR-Amex-91-13, filed on June
11, 1991. That filing proposed a new voting rights policy for the
Exchange based upon the recommendations of a Special Committee on
Shareholder Voting Rights which has been appointed following the
decision of the United States Court of Appeals in which former SEC
Rule 29c-4 was vacated.
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Section 122. COMMON VOTING RIGHTS--[The Exchange will not approve
an application for the listing of a non-voting common stock issue. The
Exchange may approve the listing of a common stock which has the right
to elect only a minority of the board of directors.]
The following voting rights policy is based upon, but more flexible
than, former SEC Rule 19c-4. Accordingly, the Exchange will permit
corporate actions or issuances by listed companies that would have been
permitted under Rule 19c-4, as well as other actions or issuances that
are not inconsistent with the new Policy. In evaluating such other
actions or issuances, the Exchange will consider, among other things,
the economics of such actions or issuances and the voting rights being
granted. The Exchange's interpretations under the Policy will be
flexible, recognizing that both the capital markets and the
circumstances and needs of listed companies change over time. The text
of the Exchange's Voting Rights Policy is as follows:
Voting rights of existing shareholders of publicly traded common
stock registered under Section 12 of the Exchange Act cannot be
disparately reduced or restricted through any corporate action or
issuance. Examples of such corporate action or issuance include, but
are not limited to, the adoption of time-phased voting plans, the
adoption of capped voting rights plans, the issuance of super voting
stock, or the issuance of stock with voting rights less than the per
share voting rights of the existing common stock through an exchange
offer.
Commentary .01. Companies with Dual Class Structures. The above
restriction against the issuance of super voting stock is primarily
intended to apply to the issuance of a new class of stock, and
companies with existing dual class capital structures would generally
be permitted to issue additional shares of the existing super voting
stock without conflict with this policy.
.02. Consultation with the Exchange. Violation of the Exchange's
Voting Rights Policy could result in the loss of an issuers's exchange
market or public trading market. The Policy can apply to a variety of
corporate actions and securities issuances, not just super voting or
so-called ``time phase'' voting common stock. While the Policy will
continue to permit actions previously permitted under Rule 19c-4, it is
extremely important that listed companies communicate their intentions
to their Exchange representatives as early as possible before taking
any action or committing to take any action that may be inconsistent
with the Policy. The Exchange urges listed companies not to assume,
without first discussing the matter with the Exchange staff, that a
particular issuance of common or preferred stock or the taking of some
other corporate action will necessarily be consistent with the Policy.
It is suggested that copies of preliminary proxy or other material
concerning matters subject to the Policy be furnished to the Exchange
for review prior to formal filing.
.03. Review of Past Voting Rights Activities. In reviewing an
application for initial listing on the Exchange, the Exchange will
review the issuer's past corporate actions to determine whether another
self-regulatory organization (``SRO'') has found any of the issuer's
actions to have been a violation or evasion of that SRO's voting rights
policy. Based on such review, the Exchange may take any appropriate
action, including the denial of the listing or the placing of
restrictions on such listing. The Exchange will also review whether an
issuer seeking initial listing on the Exchange has requested a ruling
or interpretation from another SRO regarding the application of that
SRO's voting rights policy with respect to a proposed transaction. If
so, the Exchange will consider that fact in determining its response to
any ruling or interpretation that the issuer may request on the same or
similar transaction.
.04. Non-U.S. Companies, the Exchange will accept any action or
issuance relating to the voting rights structure of a non-U.S. company
that is in compliance with the Exchange's requirements for domestic
companies or that is not prohibited by the Company's home country law.
* * * * *
EMERGING COMPANY MARKETPLACE
* * * * *
OTHER
Companies listed on the Emerging Company Marketplace shall also be
subject to the following sections of the Company Guide except that
references to the American Stock Exchange forms, etc. shall instead
apply to corresponding forms, etc. of the Emerging Company Marketplace.
Part 1
Original Listing Requirements Sections 103(e), 105 (c), 122, 130, 141
and 144.
* * * * *
C. National Association of Securities Dealers
The NASD is proposing to amend Part II, Sections 1 and 2 of
Schedule D to the NASD By-Laws (``Schedule D'') to adopt a voting
rights rule for the Regular Nasdaq segment of the Nasdaq System. The
proposed rule change would also amend Parts II and III of Schedule D to
adopt a Policy of the Board of Governors to be applicable to the voting
rights rules in the Nasdaq National Market System segment and the
Regular Nasdaq segment of the Nasdaq System. Specifically, the policy
would be added to the end of Parts II and III to Schedule D to make it
applicable to the voting rights rules under proposed Sections 1(c)(21)
and 2(e)(20) of Part II and current Section 5(j) of Part III to
Schedule D.\4\ The proposed rule change also amends the title of
Section 5(j) to Part III of Schedule D to the NASD By-Laws. The
proposed new language is italicized; proposed deletions are
[bracketed]:
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\4\The inclusion requirements contained in Part II to Schedule D
are applicable to Regular Nasdaq securities. The inclusion
requirements contained in Parts II and III of Schedule D are
applicable to Nasdaq National Market System securities.
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SCHEDULE D TO THE NASD BY-LAWS
Part II
QUALIFCIATION REQUIREMENTS FOR NASDAQ
SECURITIES
Sec. 1 Qualification Requirements for Domestic and Canadian
Securities
* * * * *
(c)(21) Voting Rights--Voting rights of existing shareholders of
publicly traded common stock registered under Section 12 of the
Exchange Act cannot be disparately reduced or restricted through any
corporate action or issuance. Examples of such corporate action or
issuance include, but are not limited to, the adoption of time-phased
voting plans, the adoption of capped voting rights plans, the issuance
of super-voting stock, or the issuance of stock with voting rights less
than the per share voting rights of the existing common stock through
an exchange offer.
Sec. 2 Qualification Requirements for non-Canadian Foreign
Securities and American Depository Receipts
* * * * *
(e)(20) Voting Rights--Voting rights of existing shareholders of
publicly traded common stock registered under Section 12 of the
Exchange Act cannot be disparately reduced or restricted through any
corporate action or issuance. Examples of such corporate action or
issuance include, but are not limited to, the adoption of time-phased
voting plans, the adoption of capped voting rights plans, the issuance
of super-voting stock, or the issuance of stock with voting rights less
than the per share voting rights of the existing common stock through
an exchange offer.
* * * * *
Policy of the Board of Governors--
Voting Rights
The following voting rights policy is based upon, but more flexible
than, former SEC Rule 19c-4. Accordingly, the Nasdaq System will permit
corporate actions or issuances by Nasdaq System companies that would
have been permitted under Rule 19c-4, as well as other actions or
issuances that are not inconsistent with the new Policy. In evaluating
such other actions or issuances, the Nasdaq System will consider, among
other things, the economics of such actions or issuances and the voting
rights being granted. The Nasdaq System's interpretations under the
Policy will be flexible, recognizing that both the capital markets and
the circumstances and needs of Nasdaq System companies change over
time. The text of the Nasdaq System's Voting Rights Policy is as
follows:
Issuers with Dual Class Structures--The restriction against the
issuance of super voting stock is primarily intended to apply to the
issuance of a new class of stock, and issuers with existing dual class
structures would generally be permitted to issue additional shares of
the existing super voting stock without conflict with this Policy.
Consultation with the Nasdaq System--Violation of the Nasdaq
System's Voting Rights Policy could result in the loss of an Issuer's
Nasdaq System market or public trading market. The Policy can apply to
a variety of corporate actions and securities issuances, not just super
voting or so-called ``time-phase'' voting common stock. While the
Policy will continue to permit actions previously permitted under Rule
19c-4, it is extremely important that Nasdaq System issuers communicate
their intentions to their Nasdaq System representatives as early as
possible before taking any action or committing to take any action that
may be inconsistent with the Policy. The Nasdaq System urges issuers of
securities included in the Nasdaq System not to assume, without first
discussing the matter with the Nasdaq System staff, that a particular
issuance of common or preferred stock or the taking of some other
corporate action will necessarily be consistent with the Policy. It is
suggested that copies of preliminary proxy or other material concerning
matters subject to the Policy be furnished to the Nasdaq System for
review prior to formal filing.
Review of Past Voting Rights Activities--In reviewing an
application for initial qualification for inclusion of a security in
the Nasdaq System, the Nasdaq System will review the issuer's past
corporate actions to determine whether another self-regulatory
organization (``SRO'') has found any of the issuer's actions to have
been violation or evasion of the SRO's voting rights policy. Based on
such review, the Nasdaq System may take any appropriate action,
including the denial for the application or the placing of restrictions
on such qualification. The Nasdaq system will also review whether an
issuer seeking initial qualification for inclusion of a security in the
Nasdaq System has requested a ruling or interpretation from another SRO
regarding the application of that SRO's voting rights policy with
respect to a proposed transaction. If so, the Nasdaq System will
consider that fact in determining its response to any ruling or
interpretation that the issuer may request on the same or similar
transaction.
Non-U.S. Companies--The Nasdaq System will accept any action or
issuance relating to the voting rights structure of a non-U.S. issuer
that is in compliance with the Nasdaq System's requirements for
domestic companies or that is not prohibited by the issuer's home
country law.
* * * * *
Part III
* * * * *
Section 5. Non-Quantitative Designation Criteria for Issuers
Excepting Partnerships
* * * * *
(j) [Prohibition Against Shareholder Disenfranchisement] Voting
Rights
(The provisions under Section 5(j)\5\ remain unchanged.)
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\5\Section 5(j) reflects the adoption of the substance of former
SEC Rule 19c-4 for Nasdaq National Market System companies after
former SEC Rule was vacated by the U.S. Court of Appeals for the
D.C. Circuit in 1990.
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* * * * *
Policy of the Board of Governors--
Voting Rights
The following voting rights policy is based upon, but more flexible
than, former SEC Rule 19c-4. Accordingly, the Nasaq System will permit
corporate actions or issuances by Nasdaq System companies that would
have been permitted under Rule 19c-4, as well as other actions or
issuances that are not inconsistent with the new Policy. In evaluating
such other action, or issuances, the Nasdaq System will consider, among
other things, the economics of such actions or issuances and the voting
rights being granted. The Nasdaq System's interpretations under the
Policy will be flexible, recognizing that both the capital markets and
the circumstances and needs of Nasdaq System companies change over
time. The text of the Nasdaq System's Voting Rights Policy is as
follows:
Issuers with Dual Class Structures--The restriction against the
issuance of super voting stock is primarily intended to apply to the
issuance of a new class of stock, and issuers with existing dual class
structures would generally be permitted to issue additional shares of
the existing supper voting stock without conflict with this Policy.
Consultation with the Nasdaq System--Violation of the Nasdaq
System's Voting Rights Policy could result in the loss of an Issuer's
Nasdaq System market or public trading market. The Policy can apply to
a variety of corporate actions and securities issuances, not just super
voting or so-called ``time-phase'' voting common stock. While the
Policy will continue to permit actions previously permitted under Rule
19c-4, it is extremely important that Nasdaq System issuers communicate
their intentions to their Nasdaq System representatives as early as
possible before taking any action or committing to take any action that
may be inconsistent with the Policy. The Nasdaq System urges issuers of
securities included in the Nasdaq System not to assume, without first
discussing the matter with the Nasdaq System staff, that a particular
issuance of common or preferred stock or the taking of some other
corporate action will necessarily be consistent with the Policy. It is
suggested that copies of preliminary proxy or other material concerning
matters subject to the Policy be furnished to the Nasdaq System for
review prior to formal filing.
Review of Past Voting Rights Activities--In reviewing an
application for initial qualification for inclusion of a security in
the Nasdaq System, the Nasdaq System will review the issuer's past
corporate actions to determine whether another self-regulatory
organization (``SRO'') has found any of the issuer's actions to have
been a violation or evasion of the SRO's voting rights policy. Based on
such review, the Nasdaq System may take any appropriate action,
including the denial for the application or the placing of restrictions
on such qualification. The Nasdaq System will also review whether an
issuer seeking initial qualification of for inclusion of a security in
the Nasdaq System has requested a ruling or interpretation from another
SRO regarding the application of the SRO's voting rights policy with
respect to a proposed transaction. If so, the Nasdaq System will
consider that fact in determining its response to any ruling or
interpretation that the issuer may request on the same or similar
transaction.
Non-U.S. Companies--The Nasdaq System will accept any action or
issuance relating to the voting rights structure of a non-U.S. issuer
that is in compliance with the Nasdaq System's requirements for
domestic companies or that is not prohibited by the issuer's home
country law.
II. Self-Regulatory Organizations' Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Changes
In its filing with the Commission, the self-regulatory
organizations included statements concerning the purpose of and basis
for the proposed rule changes and discussed any comments received on
the proposed rule changes. The text of these statements may be examined
at the places specified in Item IV below. The self-regulatory
organizations have prepared summaries, set forth in Sections A, B, and
C below, of the most significant aspects of such statements.
A. Self-Regulatory Organizations' Statement of the Purpose of, and
Statutory Basis for, the proposed Rules Changes
1. Purpose
At the suggestion of SEC Chairman Arthur Levitt, the NYSE, Amex,
and NASD have each agreed to adopt a uniform policy (the `'Policy'')
with respect to the voting rights of common stock shareholders. With
respect to the NYSE, the Policy replaces current Para. 313 of the
Manual, which is a codification of the former SEC Rule 19c-4. That rule
was invalidated by the U.S. Court of Appeals in the case of The
Business Roundtable v. SEC (905 F.2d 406 (D.C. Cir. 1990)). The NYSE is
proposing the Policy for Commission consideration in conjunction with
similar filings of the Amex and NASD; the Policy will not become
effective until the Commission approves the filings of all three
markets.
Further, in the NYSE's application of the Policy, the NYSE will
``grandfather'' all listed companies that have taken action
inconsistent with former Rule 19c-4 since that rule was overturned.
This will cover listed companies that either have issued securities
contrary to the provisions of that rule or that have taken all
corporate action necessary to authorize such an issuance.
With respect to the Amex, the Policy replaces the current so-called
``Wang'' formula which has allowed the listing of limited voting shares
which satisfied certain prescribed limitations. That policy, which
predated the adoption of Rule 19c-4, is still being applied by the
Amex. Upon SEC approval of the Amex, NYSE and NASD proposals, the Amex
will cease to apply its ``Wang'' formula.
With respect to the NASD, the NASD has reviewed the voting rights
rule under Section 5(j) to Part III of Schedule D of the Nasdaq
National Market System segment of the Nasdaq System and determined that
it would further investor protections and the public interest to add a
voting rights rule to the Regular Nasdaq segment of the Nasdaq System.
The proposed rule change, therefore, added new Subsections 1(c)(21) and
2(e)(20) to Part II of Schedule D\6\ to add a voting rights rule
applicable to securities that trade on the Regular Nasdaq segment of
the Nasdaq System.
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\6\Section 1 to Part II of Schedule D provides the qualification
requirements for Regular Nasdaq Domestic and Canadian Securities.
Section 2 to Part II of Schedule D provides the qualification
requirements for Regular Nasdaq non-Canadian foreign securities and
American Depository Receipts.
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The proposed rule change also replaces the current title of Section
5(j) to Part III of Schedule D, ``Prohibition Against Shareholder
Disenfranchisement,'' in the Nasdaq National Market System with the
phrase ``Voting Rights'' in order to clarify that this Section is
cornered by the Proposed Interpretation of the Board of Governors. The
provisions under Section 5(j) remain unchanged.\7\
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\7\See note 5, supra.
---------------------------------------------------------------------------
The NASD recognizes that the language of the proposed voting rights
rules for Regular Nasdaq is different from the current provisions under
Section 5(j) to Part III of Schedule D applicable to the Nasdaq Market
System segment of the Nasdaq System. The Nasdaq System is adopting an
internal policy that, regardless of the differences in the language
between the voting rights rules of the Regular Nasdaq segment and the
Nasdaq National Market System segment, the Nasdaq System will interpret
the rules of both market segments uniformly.
As discussed later, the Nasdaq System will generally not apply the
Policy retroactively to issuers that were not subject to an equivalent
policy at the time of the action which might be deemed violative of the
Policy.
Interpretation of the Policy
With respect to the Markets, the Policy generally would prohibit an
issuer that already has publicly-traded common stock from engaging in a
corporate action or issuance that disparately reduces or restricts
shareholder voting rights. However, in applying the Policy, the Markets
would continue to permit transactions that had been permitted under
former Rule 19c-4. The NASD's policy, however would additionally
continue to permit transactions that had been permitted under Part III,
Section 5(j) of Schedule D.\8\
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\8\See note 5, supra.
---------------------------------------------------------------------------
In this regard, former Rule 19c-4 contained a list of corporate
actions that presumptively were not considered disenfranchising. For
example, the rule did not apply to corporate action taken under state
``control share acquisition statutes'' that require a corporation to
limit the voting rights of large shareholders. Under those statutes, a
shareholder of a specified percentage of the voting stock (such as 20
percent) loses its right to vote those shares unless the
``disinterested'' shareholders of the company vote to grant voting
rights to the ``control'' shareholder. These actions, as well as the
other corporate actions presumptively permitted under the old rule,
will continue to be presumptively permitted under the new Policy.
In addition to those specific provisions of former Rule 19c-4, in
the release adopting that rule the SEC specified that the rule would
not apply in certain circumstances. For example, former Rule 19c-4 did
not apply to corporate action taken under state anti-takeover statutes
or pursuant to other prevalent defensive shareholder rights plans,
including ``poison pills.'' These actions, as well as the other
corporate actions permitted in the Rule 19c-4 adoption release, will
continue to be permitted under the new Policy.
Following the initial adopting of Rule 19c-4, the Markets issued a
number of policy interpretations regarding corporate action that they
believed were permitted under the rule. For example, companies have
been permitted to issue multiple classes of stock linked to the
performance of specified business lines, with voting rights being based
on the relative market values of the classes of stock. In addition,
companies have been permitted to issue non-voting common stock under
the old policy. These interpretations, as well as all other relevant
interpretations permitting corporate actions or issuances under the old
policy, would continue to apply.\9\
---------------------------------------------------------------------------
\9\The NASD would continue to apply all former Rule 19c-4
interpretations, as well as those issued under the NASD's Section
5(j) to Part III of Schedule D.
---------------------------------------------------------------------------
In certain circumstances, the Policy would also provide greater
flexibility for companies initially adopting a new voting rights
structure. For example, if a company is in financial distress, the
company might issue preferred stock where the voting protection
provided to the purchasers of the securities is viewed as necessary to
protect the interests of the purchasers. Under the Policy, the Markets
would evaluate such transactions on a case-by-case basis.
In addition, the Policy would provide a company with additional
flexibility to issue ``regular vote'' stock following the issuance of
lower-vote stock. For example, former Rule 19c-4 generally permitted a
company to issue lower voting stock. However, once a company did so,
former Rule 19c-4 limited the subsequent ability of the company to
issue additional shares of its higher vote stock. Under the Policy,
there would be no such limitation because, at the time a person
purchased the lower vote stock, the investor would understand that the
company has the ability to issue additional amounts of higher vote
stock.
The most significant change under the Policy would be for companies
that have existing dual-class structures. For example, a company could
have a dual-class structure that it implemented prior to adoption of
the Policy, or could have a dual-class structure resulting from an
initial public offering or the issuance of lower-vote stock. Under
former Rule 19c-4, such a company generally was prohibited from issuing
additional amounts of the high-vote stock unless such issuance did not
further disenfranchise holders. In effect, the company's capital
structure was permitted only with respect to the specific securities
that were then in the market.
Under the Policy, there would be no restrictions on the ability of
a dual-class company to issue additional shares of existing classes of
heavy-vote stock in a capital-raising transaction, via a stock
dividend, through the issuance of stock options, or even in a stock
split. However, such a company would not be permitted to adopt a
different capital structure that reduces or restricts voting rights,
such as through a time phased voting plan or the issuance of a third
class of stock with greater voting rights.
Implementation of the Policy
The Policy will become effective in the Markets upon the adoption,
and Commission approval, of the same or similar policies and
implementing procedures by the NYSE, Amex, and NASD.
The Markets will have primary jurisdiction to give advice to
issuers in its own market. Thus, the advice given to a listed issuer by
the Exchanges to their respective issuers will be controlling.
Similarly, the advice given by the Nasdaq System to an issuer of a
security included in the Nasdaq System will be controlling.
In its interpretations under the Policy, the Markets will be
flexible, recognizing that both the capital markets and the
circumstances and needs of listed and Nasdaq System issuers change over
time. At the same time, the Policy will give the Markets broad
discretion in reviewing past voting rights actions by companies seeking
to list on the Exchanges, or qualify for inclusion in the Nasdaq
System, and, subject to the foregoing, they will apply the following
procedures in giving interpretations under the Policy:
NYSE:
An issuer seeking to list its securities on the NYSE may
seek advice from the NYSE with respect to a proposed transaction. In
such a case, the NYSE would not give advice under the Policy if the
issuer had already sought and received advice from its home market on
the transaction. In that instance, the NYSE would honor the home
market's interpretation.
If another market delists (or, in the case of the NASD,
deregisters) an issuer's securities for violation of the Policy, the
NYSE would not subsequently list the securities.
The NYSE will publish its interpretations under the
Policy.
Amex:
An issuer seeking to list its securities on the Amex may
seek advice from the Amex with respect to a proposed transaction. In
such a case, the Amex would not give advice under the Policy if the
issuer had already sought and received advice from its home market on
the transaction. In that instance, the Amex would honor the home
market's interpretation.
If another market delists (or, in the case of the NASD,
deregisters) an issuer's securities for violation of the Policy, the
Amex would not subsequently list the security.
The Amex will publish its interpretations under the
Policy.
NASD:
An issuer seeking to qualify for inclusion in the Nasdaq
System may seek advice from the Nasdaq System with respect to a
proposed transaction. In such a case, the Nasdaq System would not give
advice under the Policy if the issuer had already sought and received
advice from its home market on the transaction. In that instance, the
Nasdaq System would honor the home market's interpretation.
If another market delists an issuer's securities for
violation of the Policy, the Nasdaq System would not subsequently
qualify the security for inclusion or designation.
The Nasdaq System will publish its interpretations under
the Policy.
Under the Policy, the Markets will have flexibility in reviewing
the circumstances of the original issuance of any class of stock,
including non-voting stock, and determining whether to list/quote such
stock. For example, if a company issues stock shortly before seeking to
list or qualify for inclusion, and such an issuance would have been a
violation of the Policy had the issuer been listed on the exchange or
included in the Nasdaq System, the Markets generally would not list/
quote the stock. Similarly, if the issuer voluntarily delisted from an
exchange or withdrew from the Nasdaq System in order to effect such an
issuance, the Markets also generally would not list/quote the stock.
However, there are other situations in which such an issuance would
not necessarily be a bar to listing on the Exchanges or qualification
for inclusion in the Nasdaq System. For example, a company whose stock
is traded on the NASD's ``Electronic Bulletin Board'' could effect such
an issuance well before the issuer contemplated listing on an exchange
or registering on NASDAQ, and it may be appropriate to permit the
listing/quotation of such stock. To maintain necessary flexibility, the
Markets prefer to leave this area open to interpretation.\10\
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\10\Thus, the NYSE's Amendment No. 1 deletes the absolute
prohibition against listing non-voting common stock previously
issued in a manner not in conformity with the Policy. See note 2,
supra.
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2. Statutory Basis
The proposed rule changes are consistent with the Act in general
and further the objectives of Section 6(b)(5) (with respect to the
Exchanges) and Section 15A(b)(6) (with respect to the NASD) in
particular in that they are 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.
The NASD asserts additionally that the proposed rule changes would
provide a uniform policy on voting rights by the three markets, and
that such uniformity between markets should further investor
protections and the public interest.
B. Self-Regulatory Organizations' Statement on Burden on Competition
The Markets believe that the proposed rule change does not impose
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The Exchanges note that, under
the Policy, they would not list an issuer's security if another market
delists (or, in the case of the NASD, deregisters) an issuer's
securities for violation of such market's version of the Policy.
Similarly, the Exchanges would not give advice under the Policy if the
issuer had already sought and received advice from its home market on
the transaction. The NASD will be applying the same policies.
The Markets acknowledge that pursuant to these interpretive
policies, issuers may be impeded in seeking (i.e., forum shopping) more
favorable interpretations of the voting rights policy from the three
markets. However, the Markets do not believe that this is, in any way,
a ``burden on competition.'' Rather, the Markets believe that the
adoption of similar voting rights policies by the major U.S. markets
provides investors with the protections afforded by those policies and
the benefit of knowing that issuers cannot avoid the effects of a
market's voting rights policy by seeking an interpretation or a listing
(or, in the case of the NASD, registration) in another market.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants or Others
Neither the Amex nor the NASD solicited or received written
comments with respect to the proposed rule changes.
The NYSE, however, initially solicited comments from its members,
member organizations, listed companies, various advisory committees and
other constituents.\11\ The NYSE received 146 letters in response to
that solicitation. Of these letters, 93 expressed support for the
proposal, 39 opposed the proposal and 14 were neutral. The negative
comment letters generally opposed the proposal for the following
reasons: The NYSE does not have jurisdiction in this area; the Policy
is too restrictive and should permit any shareholder voting policy that
shareholders ratify; the policy is too flexible and the NYSE should
revert to a strict ``one-share, one-vote'' standard; and the policy
lacked specificity, thus not providing sufficient guidance as to what
voting rights structures the Policy would permit.
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\11\With respect to Amendment No. 1, however, the Exchange has
not solicited, and does not intend to solicit, comments. Further,
the Exchange did not receive any unsolicited written comments from
members or other interested parties. See note 2, supra.
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In response to those comments, the NYSE clearly believes that it
has jurisdiction to adopt a voting rights policy. The NYSE has long had
listing criteria governing such corporate governance matters as outside
directors, audit committees, shareholder approval of significant stock
issuances and voting rights. Indeed, the Policy reflects a continuing
evolution of the NYSE's voting rights policy, which initially
prohibited any voting rights structure other than a strict ``one-share,
one-vote.''
As to the possible adoption of either a shareholder ratification
policy or a strict ``one-share, one-vote'' policy, the NYSE considered
other possible policies in its deliberations following the invalidation
of Rule 19c-4. As adopted by the NYSE, the Policy is the result of
compromises following discussions with its constituents. As such, the
NYSE's judgment is that the Policy is a good and workable compromise,
recognizing that it is impossible to adopt a policy that would be
acceptable to all its constituents. The NYSE also notes that the Policy
was acceptable to the vast majority of commentators.
As to the specificity of the Policy, the NYSE worked closely with
its constituents to address this concern. The NYSE's original request
for comment included only: (i) The one-paragraph statement of the
policy; (ii) what is now included as Supplementary Material .10; and
(iii) a very general description of the background to the proposal. In
response to comments, the NYSE added the headnote to the Policy and the
remainder of the Supplementary Material. The NYSE has also included in
its filing a more detailed discussion of the manner in which it will
interpret and implement the Policy. The NYSE believes that these
changes fully respond to requests for greater specificity.
Shortly before the NYSE's Board of Directors meeting at which the
Policy was approved, the NYSE circulated the revised draft Policy to
various advisory committees. In response to that solicitation, the NYSE
received 12 written comments. Of those, eight letters supported the
revised draft and four letters offered various technical suggestions
regarding the draft. The NYSE incorporated many of the technical
suggestions in the Policy as filed with the Commission.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the publication of this notice in the Federal
Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve the proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
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, N.W., Washington, D.C. 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, N.W.,
Washington, D.C. 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 Nos. SR-NYSE-94-20, SR-Amex-94-29, and
SR-NASD-94-45, and should be submitted by September 8, 1994.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-20236 Filed 8-17-94; 8:45 am]
BILLING CODE 8010-01-M