[Federal Register Volume 59, Number 214 (Monday, November 7, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-27445]


[[Page Unknown]]

[Federal Register: November 7, 1994]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240 and 249

[Release No. 34-34922; File No. S7-16-94]
RIN 3235-AG11

 

Exemptive Relief and Simplification of Filing Requirements for 
Debt Securities To Be Listed on a National Securities Exchange

AGENCY: Securities and Exchange Commission.

ACTION: Final rules.

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SUMMARY: The Securities and Exchange Commission (``Commission'') is 
adopting new Rule 3a12-11 under the Securities Exchange Act of 1934 
(``Exchange Act'') and amending certain Exchange Act rules to reduce 
existing regulatory distinctions between debt securities listed on a 
national securities exchange and those traded in the over-the-counter 
market. The Commission also is simplifying registration procedures 
under the Exchange Act for listed debt securities. The new rule and 
amendments will: exempt listed debt securities from restrictions on 
borrowing and from most of the proxy and information statement rules; 
provide for the automatic effectiveness of Form 8-A registration 
statements for listed debt securities; and eliminate the filing fee 
associated with Form 8-A registration statements for listed debt 
securities.

DATES: Effective Date: The rule and amendments are effective December 
7, 1994.
    Compliance Date: However, any registrant or broker-dealer may 
choose to comply with the new rules at the time of publication in the 
Federal Register. Registrants with proxy statements or Forms 8-A 
pending with the Commission should see the transition provisions set 
forth in Section V.

FOR FURTHER INFORMATION CONTACT: With regard to the exemption from 
restrictions on borrowing, Beth A. Stekler, at (202) 942-0190, Branch 
of Exchange Regulation, Division of Market Regulation; with regard to 
questions concerning the definition of debt securities, Office of Chief 
Counsel, Division of Corporation Finance, at (202) 942-2900; with 
regard to issues relating to the proxy rules or Form 8-A, Joseph P. 
Babits, at (202) 942-2910, Office of Disclosure Policy, Division of 
Corporation Finance; Securities and Exchange Commission (Mail Stops 5-
1, 3-3 and 3-12, respectively), 450 Fifth Street, N.W., Washington, 
D.C. 20549.

SUPPLEMENTARY INFORMATION: Under the Exchange Act,\1\ the Commission is 
adopting new Rule 3a12-11\2\ and revisions to Rules 12b-7,\3\ 12d1-
2,\4\ and Form 8-A.\5\
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    \1\15 U.S.C. 78a et seq.
    \2\17 CFR 240.3a12-11.
    \3\17 CFR 240.12b-7.
    \4\17 CFR 240.12d1-2.
    \5\17 CFR 249.208a.
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I. Introduction

    In June 1994, the Commission published for comment proposed new 
Exchange Act Rule 3a12-11 and certain revisions to current Exchange Act 
rules (``Proposing Release'').\6\ The proposals were designed to reduce 
existing regulatory distinctions between debt securities listed on a 
national securities exchange and those traded in the over-the-counter 
(``OTC'') market by exempting listed debt securities from restrictions 
on borrowing\7\ and proxy and information statement regulation.\8\ The 
Commission also proposed to simplify registration procedures under the 
Exchange Act for listed debt securities. Finally, comment was solicited 
as to whether it would be advisable to extend reporting requirements to 
issuers of debt securities that are traded in the OTC market under 
certain circumstances where the issuer is not otherwise subject to 
periodic reporting requirements.
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    \6\Release No. 34-34139 (June 1, 1994) [59 FR 29398].
    \7\Section 8(a) of the Exchange Act [15 U.S.C. 78h(a)].
    \8\Section 14(a), (b), and (c) of the Exchange Act [15 U.S.C. 
78n(a), (b), and (c)].
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    The Commission received 27 letters of comment from a variety of 
professional associations, securities firms, corporations and self-
regulatory organizations.\9\Most commenters supported the proposed 
exemptive relief and the simplified Exchange Act registration 
procedures. In addition, most commenters supported, or agreed that 
consideration should be given to, the extension of periodic reporting 
requirements to debt issuers in certain circumstances. The issue of 
extending periodic reporting is still under consideration by the 
Commission; the proposed rule and amendments are being adopted as 
proposed, except for minor changes as discussed below.
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    \9\The comment letters as well as the comment summary prepared 
by the staff are available for inspection and copying at the 
Commission's Public Reference Room (see File No. S7-16-94).
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II. New Exchange Act Rule 3a12-11 and Amendments to Exchange Act 
Rules

A. Background

    Section 12 of the Exchange Act\10\ requires all securities listed 
on a national securities exchange to be registered under the Exchange 
Act.\11\ Registration subjects the securities, whether debt or equity, 
to a number of regulatory provisions, including restrictions on 
borrowing,\12\ periodic reporting by the issuer,\13\ and proxy and 
information statement regulation.\14\ In contrast, debt securities 
traded in the OTC market are not required to be registered under the 
Exchange Act,\15\ and, therefore, such securities are not subject to 
the restrictions on borrowing or proxy and information statement 
regulation. These regulatory distinctions may have unnecessarily and 
unintentionally affected the structure and development of the debt 
markets.
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    \10\15 U.S.C. 78l.
    \11\Section 12(a) of the Exchange Act [15 U.S.C. 78l(a)] 
prevents any member, broker or dealer from effecting any transaction 
in any security listed on a national securities exchange unless the 
security is registered pursuant to Section 12(b) of the Exchange Act 
[15 U.S.C. 78l(b)].
    \12\Section 8(a) of the Exchange Act.
    \13\Section 13(a) of the Exchange Act [15 U.S.C. 78m(a)].
    \14\Sections 14 (a), (b) and (c) of the Exchange Act.
    \15\See Section 12(g) of the Exchange Act [15 U.S.C. 78l(g)], 
which only requires registration of equity securities.
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    The New York Stock Exchange (``NYSE'') has advised the Commission 
that the additional regulatory requirements imposed on listed debt 
securities create significant disincentives for issuers to list their 
debt on the national securities exchanges and urged that exemptive 
action be taken to eliminate this disparity. To address this disparate 
regulatory treatment between listed and OTC-traded debt, the Commission 
is adopting new Exchange Act Rule 3a12-11 to exempt listed debt 
securities from the borrowing restrictions and most of the proxy and 
information statement rules. Listed debt securities, however, will 
remain subject to the registration and reporting requirements of the 
Exchange Act. The Commission also is amending current Exchange Act 
rules in order to simplify the Exchange Act registration process by 
providing for the immediate effectiveness of Form 8-A registration 
statements pertaining to the listing of debt securities on a national 
securities exchange and eliminating the filing fee associated with the 
form.

B. Exemption from the Borrowing Restrictions of the Exchange Act

    Under Section 8(a), a broker-dealer can pledge a listed security, 
other than an exempted security, only to a limited group of lenders: a 
member bank of the Federal Reserve System; a non-member bank that has 
filed with the Board of Governors of the Federal Reserve System 
(``Federal Reserve Board'') an agreement to comply with those 
provisions of the federal securities and banking laws that apply to 
member banks;\16\ or another broker-dealer if such a loan is 
permissible under the rules and regulations of the Federal Reserve 
Board.\17\ There is, however, no comparable limitation on the available 
lenders for OTC securities. As a result, a broker-dealer can use bonds 
that are not listed on an exchange as collateral to secure financing 
from any lender.
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    \16\Regulation U [12 CFR 221.1 et seq.] requires that a non-
member bank file an agreement that conforms to the requirements of 
Section 8(a) prior to extending any credit secured by any nonexempt 
security registered on a national securities exchange to broker-
dealers who are borrowing in the ordinary course of business. See 12 
CFR 221.4(a).
    \17\For example, Regulation T [12 CFR 220.1 et seq.] authorizes 
a broker-dealer to clear or finance transactions for a specialist's 
market functions account. See 12 CFR 220.12(b).
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    The Commission proposed Rule 3a12-11(a) in response to concerns 
voiced by various market participants that Section 8(a) is overly 
restrictive and competitively unfair.\18\ According to these 
participants, broker-dealers' discretion in financing their positions 
is unduly constrained once a debt security is traded on an exchange. In 
addition, at least one national securities exchange was informed by its 
members that they may advise an issuer against listing bonds due to the 
restrictions in Section 8(a).\19\ In the Proposing Release, the 
Commission questioned whether existing regulatory distinctions may have 
unnecessarily affected the structure and development of the corporate 
bond market, without any benefit to investors.
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    \18\See, e.g., letter from Donald J. Solodar, Executive Vice 
President, Fixed Income, Options & Administration, NYSE, to Brandon 
Becker, Director, Division of Market Regulation, Securities and 
Exchange Commission, and Linda C. Quinn, Director, Division of 
Corporation Finance, Securities and Exchange Commission, dated July 
19, 1993 (``NYSE letter''); letter from Marc E. Lackritz, President, 
Securities Industry Association (``SIA''), to William W. Wiles, 
Secretary, Federal Reserve Board, dated December 23, 1992 (``SIA 
letter'').
    \19\See NYSE letter, n. 18, above.
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    After careful consideration of the issues raised in the Proposing 
Release and in the comment letters, the Commission has concluded that 
differential treatment of listed and OTC debt securities for loan 
purposes is no longer warranted, given developments in the OTC market 
since Congress amended the Exchange Act in the 1960s,\20\ the current 
structure of the bond market,\21\ and the nature of debt financing. The 
Commission believes that it is appropriate to eliminate this disparity 
by exempting listed debt securities from the borrowing restrictions of 
Section 8(a).\22\ Accordingly, Rule 3a12-11(a) will enable a broker-
dealer to pledge listed debt securities, like debt securities traded 
exclusively in the OTC market, to any lender.
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    \20\See 1968 Amendments to the Securities Exchange Act of 1934, 
Pub. L. No. 90-437, 82 Stat. 452 (1968).
    \21\Most secondary trading in debt securities (including listed 
debt securities) currently takes place in the OTC market; exchange 
trading of corporate bonds accounts for a relatively small 
percentage of the daily trading volume in such securities and is 
often in ``odd-lot'' size. United States Securities and Exchange 
Commission, Division of Market Regulation, The Corporate Bond 
Markets: Structure, Pricing and Trading 1, 13 (January 1992). 
Although these circumstances may change as a result of Rule 3a12-
11(a), the Commission believes that, at this time, Section 8(a) 
places a competitive burden on exchange markets by subjecting them 
to more restrictive regulation than the primary market for the 
trading of debt securities, the OTC market.
    \22\Section 8(a) specifically excludes exempted securities from 
the restrictions on the sources of credit available to broker-
dealers borrowing against listed securities. Under Section 3(a)(12) 
of the Exchange Act [15 U.S.C. 78c(a)(12)], the term ``exempted 
securities'' includes such securities as the Commission may exempt 
from the operation of any one or more provisions of the Exchange 
Act.
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    All 15 commenters that address the restrictions on borrowing, 
including staff of the Federal Reserve Board, support an exemption for 
listed debt securities. Several commenters state that Rule 3a12-11(a) 
will provide broker-dealers with greater flexibility and help them to 
obtain inventory financing on the most favorable terms. For instance, 
one commenter predicts that the new exemption will result in lower 
financing rates due to an increase in competition among sources of 
credit, such as corporations, insurance companies and other currently 
ineligible lenders.\23\ Others note that broker-dealers will be able to 
enter into repurchase agreements and other arrangements with non-bank 
institutional investors.\24\ Commenters also believe that Rule 3a12-
11(a) will reduce the current disincentive for issuers to list their 
debt on a national securities exchange. For these reasons, commenters 
strongly support exempting listed debt securities from Section 8(a)'s 
restrictions on borrowing. Certain commenters, moreover, recommend that 
the potential benefits of the exemption be extended to all listed 
securities, including listed equity securities.
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    \23\See letter from Laura L. Inman, Vice President and Senior 
Counsel, Debt Markets Group, Office of General Counsel, Merrill 
Lynch, to Jonathan G. Katz, Secretary, Securities and Exchange 
Commission, dated August 17, 1994. Merrill Lynch also states that 
the permissible counterparties under Section 8(a) are not viable 
lenders, because broker-dealers are reluctant to disclose their 
inventory positions to competitors and because banks have higher 
financing rates than other kinds of lenders. Id.
    \24\See, e.g., letter from Goldman Sachs to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, dated August 12, 
1994.
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    Finally, several commenters suggest that further action may be 
needed to eliminate the restriction in Regulation T that parallels the 
statutory restriction in Section 8(a).\25\ Commenters recommend that 
the Commission work with the Federal Reserve Board to clarify this 
matter, and suggest modifications to the text of the proposed rule to 
resolve the uncertainty.\26\
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    \25\Under Regulation T, a broker-dealer may not borrow in the 
ordinary course of business using as collateral any registered 
nonexempted security, except from a member bank of the Federal 
Reserve System; a non-member bank that has filed an agreement that 
conforms to the requirements of Section 8(a); or another broker-
dealer if the loan is permissible under Regulation T. See 12 CFR 
220.15(a). For purposes of Regulation T, ``nonexempted security'' 
means any security other than an exempted security as defined in 
Section 3(a)(12) of the Exchange Act. See 12 CFR 220.2(r). In 
addition, Regulation U requires that a non-member bank file an 
agreement conforming to the requirements of Section 8(a) before 
extending credit on any nonexempt security registered on an 
exchange. See 12 CFR 221.4(a).
    \26\In particular, commenters suggest that the Commission should 
expressly designate listed debt securities as ``exempted 
securities'' for purposes of Section 8(a) and any rules thereunder. 
See, e.g., letter from Anthony J. Leitner, Co-Chairman, Ad Hoc 
Committee on Regulation T, SIA, and Robert F. Price, Chairman, 
Federal Regulation Committee, SIA, to Jonathan G. Katz, Secretary, 
Securities and Exchange Commission, dated August 17, 1994.
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    The Commission agrees with the commenters that exempting listed 
debt securities from the Exchange Act's borrowing restrictions will 
eliminate an unwarranted regulatory disparity, with possible benefits 
to the corporate bond market. First, the Commission believes that Rule 
3a12-11(a) should provide broker-dealers with flexibility in financing 
their inventory positions. Specifically, the new rule will enable a 
broker-dealer borrowing against a listed debt security to choose among 
prospective lenders based solely upon the terms of the credit they 
offer. This should facilitate, among other things, repurchase 
agreements with non-bank institutional investors. As a result, adoption 
of Rule 3a12-11(a) may reduce the cost of dealer operations and may 
encourage broker-dealers to take positions in listed debt securities, 
thereby adding depth and liquidity to the corporate bond market.
    Second, the Commission finds that Rule 3a12-11(a) should eliminate 
one competitive barrier to the exchange-trading of debt securities. As 
noted in the comment letters, current Section 8(a), among other 
factors, may provide underwriters or investment bankers with an 
incentive to recommend that debt securities be traded in the OTC 
market, rather than listed on an exchange. The Commission believes that 
such an impact on the structure of the debt market is unwarranted. By 
equalizing the credit treatment of corporate bonds, adoption of Rule 
3a12-11(a) may provide a greater opportunity for exchanges to compete 
with the OTC market for debt listings.
    The Commission has concluded that the modifications suggested by 
the commenters to conform Regulations T and U with Rule 3a12-11(a) are 
not necessary. In this regard, staff of the Federal Reserve Board has 
confirmed that the section of Regulation T discussed by the 
commenters\27\ and the section of Regulation U governing agreements by 
non-member banks\28\ were adopted pursuant to Section 8(a).\29\ Federal 
Reserve Board staff agrees with the Commission that consequently Rule 
3a12-11(a), as proposed and as adopted, will have the effect of 
exempting listed debt securities from those provisions of the Federal 
Reserve Board's rules.\30\ Federal Reserve Board staff supports the 
Commission granting such an exemption. Listed debt securities will 
continue to be nonexempted securities for all other purposes under 
Regulations T and U.\31\
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    \27\As noted above, Section 220.15 of Regulation T parallels 
Section 8(a)'s restrictions on the sources of credit available to 
broker-dealers borrowing against listed securities. See n. 25, 
above, and accompanying text.
    \28\Section 221.4 of Regulation U requires a non-member bank to 
file an agreement conforming to the requirements of Section 8(a). 
See, n. 16 and 25, above.
    \29\See letter from Scott Holz, Senior Attorney, Division of 
Banking Supervision and Regulation, Federal Reserve Board, to Beth 
Stekler, Attorney, Division of Market Regulation, Securities and 
Exchange Commission, dated September 19, 1994.
    \30\Id.
    \31\Specifically, listed debt securities will continue to be 
nonexempted securities for purposes of Regulation T's margin 
requirements. Accordingly, a broker-dealer who extends credit 
secured by such collateral must comply with the applicable rules and 
regulations of the Federal Reserve Board.
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    Further, the Commission has considered the commenters' suggestion 
that the exemption from Section 8(a) apply to all listed securities, 
debt and equity. The new rules and amendments being adopted today, 
however, were designed to achieve competitive balance for the corporate 
bond market. Consistent with that goal, the Commission proposed and, at 
this time, has decided to adopt a rule that is limited to debt 
securities, rather than significantly change the exemptive rule by 
broadening it to cover equity securities. Nevertheless, the treatment 
of listed equity securities for loan purposes may warrant further 
exploration by the Commission and other appropriate regulatory 
organizations.
    With respect to the definition of the term ``debt security'' for 
purposes of new Rule 3a12-11, the Proposing Release solicited comment 
as to whether the term should include any security that is not an 
``equity security'' as defined by the Exchange Act and the rules 
thereunder,\32\ or whether the term should be more specifically 
defined.\33\ Commenters supported the broader definition primarily 
because of the risk that certain innovative securities may not fit 
squarely within pre-conceived categories. Given this concern, as well 
as the desire of the Commission to simplify an issuer's determination 
as to whether a debt or equity security is at issue, new Rule 3a12-11 
provides that the term ``debt security'' will include any security that 
is not an ``equity security'' as defined by the Exchange Act and the 
rules thereunder.\34\
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    \32\The term ``equity security'' is defined in Section 3(a)(11) 
[15 U.S.C. 78c(a)(11)] and Rule 3a11-1 [17 CFR 240.3a11-1] 
thereunder. Equity securities would include, among other items, 
stock or similar security, certificates of interest or participation 
in any profit sharing agreement, voting trust certificate or 
certificate of deposit for any equity security, limited partnership 
interest, any security that is convertible, with or without 
consideration, into an equity security or any warrant or right to 
subscribe or purchase an equity security.
    \33\The Proposing Release provided an example of a definition 
that enumerated specific characteristics of securities that would be 
considered ``debt securities'' under the proposed rule.
    \34\Exchange Act Rule 3a12-11(c).
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    The Proposing Release also solicited comment as to whether hybrid 
debt securities should be considered as debt or equity securities for 
purposes of new Rule 3a12-11. The Commission received limited comment. 
After further consideration, the Commission believes that no further 
clarification regarding hybrid securities is necessary; if a security 
is not an equity security as defined by the Exchange Act and the rules 
thereunder, then the security will be considered a ``debt security'' 
for purposes of Rule 3a12-11.35
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    \3\5Specific questions regarding whether a security is a debt 
security for purposes of Rule 3a12-11 may be brought to the 
attention of the Division of Corporation Finance, Office of Chief 
Counsel at (202) 942-2900.
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C. Exemption from Compliance with the Proxy Rules

    As discussed above, debt securities listed on a national securities 
exchange are subject to proxy regulation while debt securities traded 
in the OTC market, the principal trading market for debt 
securities,36 are not. The disparate application of the proxy 
rules between listed debt securities and OTC-traded debt securities 
reflected the nature of the debt markets in the 1960s when Congress 
amended the Exchange Act;37 this difference in regulatory 
treatment is cited by some as a significant disincentive for corporate 
issuers to list their debt securities on a national securities 
exchange.38
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    \3\6The OTC market is the principal trading market for debt (see 
n. 21, above). Of the more than 13,000 publicly traded domestic 
corporate bond issues in 1989, fewer than 20% (2,135 on the NYSE and 
280 on the American Stock Exchange (``AMEX'')) were listed on the 
NYSE and AMEX. See Colloton, ``Bondholder Communications--The 
Missing Link in High Yield Debt,'' Hill and Knowlton, Inc. at 17 
(August 1990).
    \3\7In 1963, the Commission submitted a report to Congress that 
set forth its recommendations as to the scope of regulations needed 
for the OTC market. See, Report of Special Study of Securities 
Markets, (``1963 Special Study'') U.S. Securities and Exchange 
Commission, H.R. Doc. No. 95, 88th Cong., 1st Sess. pt. 3, 34 
(1963). These recommendations led to the adoption of Section 12(g) 
in 1964. The Commission concluded that proxy regulation should not 
be required with respect to debt securities since Section 14 was 
designed to protect shareholders and the solicitation of proxies was 
``rarely [a] problem[ ] related to debt securities and, then, most 
probably in insolvency cases where other protections are 
available.'' Id. See also Section I.C of Release No. 34-34139.
    \3\8See, e.g., letter from Jeffrey S. Werner, Senior Vice 
President, General Electric Capital Corporation to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, dated August 5, 1994 
(``GE Capital letter'').
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    To eliminate the disparity, the Commission proposed Rule 3a12-11(b) 
to exempt debt securities listed on a national securities exchange from 
proxy regulation, but solicited comment as to whether the antifraud 
proscriptions39 and the Exchange Act rules governing the 
transmission to beneficial owners of proxy and consent materials and 
information statements should be excluded from the proposed 
exemption.40 The majority of commenters favored the proposed rule. 
With respect to listed debt securities, the proxy rules largely cover 
solicitations to amend the terms of an indenture contract.41 
Commenters who supported the exemption noted that debtholders often 
negotiate specific provisions governing the amendment of the indenture 
contract, and therefore, unlike shareholders, debtholders do not need 
the protection of the proxy rules.42
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    \3\9Exchange Act Rules 14a-9 [17 CFR 240.14a-9] and 14c-6 [17 
CFR 240.14c-6].
    \4\0Exchange Act Rules 14a-13, [17 CFR 240.14a-13], 14b-1 [17 
CFR 240.14b-1], 14b-2 [17 CFR 240.14b-2] and 14c-7 [17 CFR 240.14c-
7]. All terms used in these rules have the same meanings as in the 
Exchange Act and Exchange Act Rules 14a-1 [17 CFR 240.14a-1] and 
14c-1 [17 CFR 240.14c-1]. Additionally, the exemption afforded by 
Rule 14a-2(a) [17 CFR 240.14a-2(a)] will continue to be available.
    \4\1Solicitations of debtholders are infrequent. For example, 
between 1990 and 1993, 18 have occurred with respect to NYSE-listed 
issuers. See letter from Fred Siesel of NYSE to David Sirignano of 
the Division of Corporation Finance dated May 12, 1994.
    \4\2See letter from John F. Olson, Chair, Committee on Federal 
Regulation of Securities, American Bar Association (``ABA''); John 
J. Huber, Chair, Subcommittee on 1933 Act, ABA; and Richard E. 
Gutman, Chair, Subcommittee on Reporting Companies under the 1934 
Act, ABA, to Jonathan G. Katz, Secretary, Securities and Exchange 
Commission, dated August 4, 1994 (``ABA letter''). See also letters 
from Karl R. Barnickol, Chairman of Securities Law Committee, 
American Society of Corporate Secretaries, Inc. to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, dated July 26, 1994; 
Earle Mauldin, Chief Financial Officer, BellSouth Corporation to 
Jonathan G. Katz, Secretary, Securities and Exchange Commission, 
dated August 4, 1994; GE Capital letter, n. 38, above.
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    In addition to the protections supplied by the indenture contract 
and the Trust Indenture Act, debtholders will continue to be protected 
by the proxy rules' antifraud proscriptions and the Exchange Act rules 
that facilitate the transmission of materials to beneficial owners. The 
Commission has determined that any exemptive relief from the proxy 
rules should not encompass the antifraud proscriptions or the rules 
relating to the transmission of materials to beneficial owners. The 
antifraud proscriptions provide protection to investors without placing 
any undue burden upon the issuer. Further, the rules relating to the 
transmission of materials to beneficial owners not only provide 
protection to investors but also benefit the issuer by facilitating its 
ability to communicate directly with its debtholders. Accordingly, new 
Rule 3a12-11(b) will exempt exchange-listed debt securities43 from 
proxy regulation, except that the antifraud proscriptions and the rules 
adopted under the Exchange Act to facilitate the transmission of 
materials to beneficial owners will continue to apply. The foregoing 
provisions, coupled with the issuer's reporting obligation under the 
Exchange Act, should ensure that investors remain protected.
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    \4\3The term ``debt securities'' will be defined in the same 
manner as in the exemption from the restrictions on borrowing. See 
Exchange Act Rule 3a12-11(c).
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    The Proposing Release solicited comment as to whether the 
application of the proxy rules was part of the expectations of the 
parties negotiating the indenture contract, or of investors purchasing 
a listed debt security, and if so, whether the proxy rule exemption 
should be applied prospectively. Only one commenter addressed the 
issue.44 That commenter believed that there is no need for a 
prospective application of the exemption since debtholders do not 
normally expect the proxy rules to apply. Since the Commission desires 
to eliminate unnecessary regulatory disparity as expeditiously as 
possible and given the other protections afforded debtholders as 
discussed above, the proxy rule exemption is not limited to issues of 
debt offered subsequent to the adoption of the exemption.
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    \4\4See ABA letter, n. 42, above.
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D. Automatic Effectiveness of Form 8-A and Elimination of Filing Fee

    The Commission also is adopting amendments to Rule 12d1-2 and Form 
8-A to reduce or eliminate some of the procedural costs of listing debt 
on a national securities exchange.45 Commenters unanimously 
supported the proposed automatic effectiveness of Forms 8-A and the 
elimination of the associated filing fee.46
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    \4\5On June 1, 1994, the Commission also made practical 
modifications to filing procedures. See Section I.D of Release No. 
34-34139. The Division of Corporation Finance will accept requests 
from national securities exchanges that wish to file a combined Form 
8-A/Listing Application with the Commission on behalf of an issuer 
listing debt securities on their exchange. Any national securities 
exchange that is interested in filing a combined Form 8-A/Listing 
Application should have its representative contact Joseph P. Babits 
at (202) 942-2910.
    A national securities exchange using such a procedure may wish 
to make Form 8-A filings with the Commission in paper, whether or 
not the registrant is subject to mandated electronic filing via the 
Electronic Data Gathering, Analysis, and Retrieval system (EDGAR). 
Accordingly, the Division of Corporation Finance will consider 
requests for a continuing hardship exemption pursuant to Rule 202 of 
Regulation S-T [17 CFR 232.202] from any national securities 
exchange filing Forms 8-A on behalf of electronic filers. Continuing 
hardship exemptions will be available only through December 31, 
1996.
    National securities exchanges that intend to use a combined Form 
8-A/Listing Application that will become effective upon filing must 
confirm that the combined Form has been in fact filed with the 
Commission prior to the commencement of trading in the class of 
securities. The issuer, however, may choose to file the Form 8-A 
itself. Regardless of whether the issuer or the national securities 
exchange files the Form 8-A/Listing Application, the issuer is 
solely responsible for the filing and its contents.
    \4\6Several commenters, while supporting these proposals, stated 
that the Commission should go further and not require Section 12 
registration for issuers of debt securities subject to the reporting 
requirement of Section 13(a) of the Exchange Act. See, e.g., letter 
from Richard T. Chase, Senior Vice President, Chief Counsel, Lehman 
Brothers to Jonathan G. Katz, Secretary, Securities and Exchange 
Commission, dated September 8, 1994.
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    All Forms 8-A, including amendments, pertaining to the registration 
of a class of debt securities to be listed on a national securities 
exchange will be automatically effective if certification by the 
national securities exchange has been received by the Commission on or 
before the filing of the form.47 However, where a Form 8-A is 
registering a class of debt securities and securities from that class 
are being concurrently registered under the Securities Act, the Form 8-
A will not automatically become effective upon filing, so that the debt 
securities will not become subject to any obligations under the 
Exchange Act prior to the related Securities Act registration statement 
being declared effective. Instead, as proposed, where there is a 
concurrent Securities Act registration statement pending, the Form 8-A 
will become effective simultaneously with the effectiveness of the 
Securities Act registration statement. Acceleration requests no longer 
will be needed for either of these categories of Form 8-A.48
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    \4\7If an issuer elects to file the Form 8-A (or Form 8-A/
Listing Application) itself, it must ensure that the Commission has 
received certification from the exchange on or before the date of 
filing the Form if automatic effectiveness is requested, or, if 
concurrent effectiveness is requested, on or before the date the 
Securities Act registration statement has been declared effective. 
An issuer may contact the Office of Quality Control at (202) 942-
8970 (ext. 4475) to verify that certification has been received by 
the Commission.
    If multiple debt issues are being registered on a single Form 8-
A, certification for each issue must be received by the Commission 
prior to effectiveness. Where a Form 8-A relates to debt securities 
to be listed on multiple national securities exchanges (e.g., the 
NYSE and the Boston Stock Exchange), then certifications must be 
received by the Commission from each exchange prior to 
effectiveness.
    Forms 8-A that register both debt and equity securities are not 
encompassed by the amendments.
    \4\8Similarly, no effectiveness orders will be issued for Forms 
8-A, as is the case with other registration statements that are 
effective automatically (e.g., Form S-8 [17 CFR 239.16b]).
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    In addition, the Commission is amending Rule 12b-7 to eliminate the 
$250 filing fee for registering a class of debt securities on Form 8-
A.49 Form 8-A has been revised to add two new boxes, one of which 
the issuer would check to signify it is a debt registration requiring 
no fee and that the Form 8-A: (1) Is to be effective automatically upon 
filing, as no debt securities of the class being registered on the form 
are being registered concurrently under the Securities Act; or (2) is 
to be effective simultaneously with the effectiveness of a related 
Securities Act registration statement. In order to receive automatic or 
concurrent effectiveness, the appropriate box must be checked.50
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    \4\9Given the de minimis nature of the filing fee, it is of 
little significance in an issuer's decision to list securities. 
However, its elimination is consistent with the Commission's goal of 
eliminating regulatory disparity between listed and unlisted debt 
securities where not necessary for the protection of investors. The 
NYSE requires a listing fee for debt securities of $50 per million 
and minimum of $2,500 for new issues and $25 per million and minimum 
of $1,250 for issue outstanding one year or more. The fee does not 
apply if the company or its affiliate already has a class of equity 
securities listed on the NYSE.
    \5\0Registrants that are mandated electronic filers registering 
debt securities on Form 8-A should file in paper format until the 
necessary form types are available through the EDGAR system. The 
necessary form types are expected to be available with the release 
of the EDGARLink software version 4.10 in January 1995. Notice will 
be provided in the SEC Digest and the Federal Register and on the 
EDGAR Bulletin Board when the new EDGAR form types for Form 8-A are 
available. When available, registrants will use one of three new 
EDGAR form types: 8A12BEF (Form 8-A and amendments to Form 8-A 
registering debt securities that will be automatically effective 
upon filing), 8A12BT (Form 8-A registering debt securities that will 
be effective contemporaneously with the effectiveness of an 
associated Securities Act registration statement), or 8A12BT/A 
(amendment to Form 8-A registering debt securities that will be 
effective contemporaneously with the effectiveness of an associated 
Securities Act registration statement).
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III. Cost-Benefit Analysis

    No empirical data was submitted in response to the Commission's 
invitation to provide information on the costs and benefits of the 
proposed new Exchange Act rule and Exchange Act rule revisions. The 
rule and amendments should decrease the net costs to investors 
associated with listing debt securities on a national securities 
exchange, without materially diminishing the benefits to investors.
    Currently, an issuer is not required to register debt securities 
under the Exchange Act in order for those securities to be traded in 
the OTC market. Consequently, OTC-traded debt securities are not 
subject to either the restrictions on borrowing or proxy regulation. 
New Rule 3a12-11 is designed to eliminate the disparity between 
exchange-listed debt securities and OTC-traded debt securities by 
exempting listed debt securities from the restrictions on borrowing and 
proxy regulation.
    The amendments to the Exchange Act rules are expected to reduce or 
eliminate some of the procedural costs of listing debt on a national 
securities exchange. It is anticipated that the costs to investors 
associated with this new rule and amendments will be minimal.

IV. Summary of Final Regulatory Flexibility Analysis

    A Final Regulatory Flexibility Analysis has been prepared in 
accordance with 5 U.S.C. 604 for Rule 3a12-11 and amendments to Rule 
12b-7, 12d1-2, and Form 8-A. The analysis notes that the rule and 
amendments are expected to reduce regulatory costs for small entities.
    As discussed more fully in the analysis, the new rule and 
amendments will affect persons that are small entities, as defined by 
the Commission's rules. The exemptions provided by Rule 3a12-11 and 
revisions to Rules 12b-7, 12d1-2, and Form 8-A are expected to decrease 
the compliance burdens of small entities.
    A copy of the analysis may be obtained by contacting Joseph P. 
Babits, Office of Disclosure Policy, Division of Corporation Finance, 
Securities and Exchange Commission, 450 Fifth Street NW., Washington, 
D.C. 20549.

V. Effective Date and Transition Provisions

    The rule and amendments are effective 30 days after publication in 
the Federal Register, in accordance with the Administrative Procedures 
Act; however, any registrant or broker-dealer may choose to comply with 
the new rules at any time after publication in the Federal Register. To 
provide for a smooth transition for use of the new rule and amendments, 
the following transition provisions will be permitted. First, 
registrants that have proxy statements relating to a solicitation of 
debtholders pending with the Commission should contact the registrant's 
Branch Chief in the Division of Corporation Finance if they intend to 
rely on the proxy exemption afforded by the rule, so that the staff may 
stop processing the filing. Second, issuers that have Form 8-A 
registration statements for listed debt securities pending with the 
Commission should continue to follow the current procedures regarding 
acceleration of effectiveness of Forms 8-A. As is currently the case, 
those issuers or the national securities exchange on which the debt 
securities are to be listed must provide the staff with an acceleration 
request prior to the desired effective date of the Form 8-A. The staff 
will then notify the issuer and the national securities exchange once 
effectiveness has been granted.

VI. Statutory Basis for Rules

    New Rule 3a12-11 and amendments are being made pursuant to Exchange 
Act Sections 3(a)(12),51 9,52 10,53 12,54 
14,55 and 23,56 as amended.
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    \5\115 U.S.C. 78c(a)(12).
    \5\215 U.S.C. 78i.
    \5\315 U.S.C. 78j.
    \5\415 U.S.C. 78l.
    \5\515 U.S.C. 78n.
    \5\615 U.S.C. 78w.
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List of Subjects in 17 CFR Parts 240 and 249

    Reporting and record keeping requirements, Securities.

Text of the Amendments

    In accordance with the foregoing, Title 17, Chapter II of the Code 
of Federal Regulations is amended as follows:

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

    1. The authority citation for Part 240 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77eee, 77ggg, 
77nnn, 77sss, 77ttt, 78c, 78d, 78i, 78j, 78l, 78m, 78n, 78o, 78p, 
78q, 78s, 78w, 78x, 78ll(d), 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-
37, 80b-3, 80b-4 and 80b-11, unless otherwise noted.
* * * * *
    2. By adding Sec. 240.3a12-11 to read as follows:


Sec. 240.3a12-11  Exemption from Sections 8(a), 14(a), 14(b), and 14(c) 
for debt securities listed on a national securities exchange.

    (a) Debt securities that are listed for trading on a national 
securities exchange shall be exempt from the restrictions on borrowing 
of Section 8(a) of the Act (15 U.S.C. 78h(a)).
    (b) Debt securities registered pursuant to the provisions of 
Section 12(b) of the Act (15 U.S.C. 78l(b)) shall be exempt from 
Sections 14(a), 14(b), and 14(c) of the Act (15 U.S.C. 78n(a), (b), and 
(c)), except that Secs. 240.14a-1, 240.14a-2(a), 240.14a-9, 240.14a-13, 
240.14b-1, 240.14b-2, 240.14c-1, 240.14c-6 and 240.14c-7 shall continue 
to apply.
    (c) For purposes of this section, debt securities is defined to 
mean any securities that are not ``equity securities'' as defined in 
Section 3(a)(11) of the Act (15 U.S.C. 78c(a)(11)) and Sec. 240.3a11-1 
thereunder.
    3. By adding a sentence to the end of Sec. 240.12b-7 to read as 
follows:


Sec. 240.12b-7  Filing fee.

     * * * No fee, however, shall be paid to the Commission for the 
registration of debt securities, as defined in Sec. 240.3a12-11(c), on 
Form 8-A (17 CFR 249.208a) pursuant to Section 12(b) of the Act (15 
U.S.C. 78l(b)).
    4. By revising the section heading, designating the existing text 
as paragraph (a), and adding paragraph (b) to Sec. 240.12d1-2 to read 
as follows:


Sec. 240.12d1-2  Effectiveness of registration.

    (a) * * *
    (b) A registration statement on Form 8-A (17 CFR 249.208a) that 
only pertains to the listing of a class or classes of debt securities, 
as defined in Sec. 240.3a12-11(c), on a national securities exchange 
for which certification has been received by the Commission shall 
become effective upon filing with the Commission, in the case of a 
class of debt securities not concurrently being registered under the 
Securities Act of 1933 (15 U.S.C. 77a et seq.) (``Securities Act''); 
and otherwise, upon the effectiveness of a concurrent Securities Act 
registration statement to which the debt securities relate.

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

    5. The authority citation for Part 249 continues to read in part as 
follows:

    Authority: 15 U.S.C 78a, et seq., unless otherwise noted;
* * * * *
    6. By amending Sec. 249.208a by adding paragraph (c) to read as 
follows:


Sec. 249.208a  Form 8-A, for registration of certain classes of 
securities pursuant to section 12 (b) or (g) of the Securities Exchange 
Act of 1934.

* * * * *
    (c) If this form is used only for the registration of a class of 
debt securities as defined in Sec. 240.3a12-11(c) of this chapter and 
certification from the national securities exchange has been received 
by the Commission, it shall become effective either:
    (1) Upon filing with the Commission, in the case of a class of debt 
securities not concurrently being registered under the Securities Act 
of 1933 (15 U.S.C. 77a et seq.) (``Securities Act''); or
    (2) Upon the effectiveness of a concurrent Securities Act 
registration statement to which the debt securities relate.
    7. By amending Form 8-A (referenced in Sec. 249.208a) by adding two 
check boxes to the cover page immediately before ``Securities to be 
registered pursuant to Section 12(g) of the Act,'' and by adding 
paragraph (c) to General Instruction A to read as follows:

    Note: The text of Form 8-A does not and the amendments will not 
appear in the Code of Federal Regulations.

Form 8-A--For Registration of Certain Classes of Securities Pursuant to 
Section 12(b) or (g) of the Securities Exchange Act of 1934.

* * * * *
    If this Form relates to the registration of a class of debt 
securities and is effective upon filing pursuant to General 
Instruction A.(c)(1), please check the following box. [ ]
    If this Form relates to the registration of a class of debt 
securities and is to become effective simultaneously with the 
effectiveness of a concurrent registration statement under the 
Securities Act of 1933 pursuant to General Instruction A.(c)(2), 
please check the following box. [ ]
* * * * *

GENERAL INSTRUCTIONS

A. Rule as to Use of Form 8-A

* * * * *
    (c) If this form is used only for the registration of a class of 
debt securities as defined in Rule 3a12-11(c) (17 CFR 240.3a12-
11(c)) and certification from the national securities exchange has 
been received by the Commission, it shall become effective:
    (1) upon filing with the Commission, in the case of a class of 
debt securities not concurrently being registered under the 
Securities Act of 1933 (15 U.S.C. 78a et seq.) (``Securities Act''); 
or
    (2) simultaneously with the effectiveness of a concurrent 
Securities Act registration statement to which the debt securities 
relate. See Rule 12d1-2(b) (17 CFR 240.12d1-2(b)).

    By the Commission.

    Dated: November 1, 1994.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-27445 Filed 11-4-94; 8:45 am]
BILLING CODE 8010-01-P