[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].
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \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