[Federal Register Volume 59, Number 227 (Monday, November 28, 1994)]
[Unknown Section]
[Page ]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-29212]


[Federal Register: November 28, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34985; File No. SR-NYSE-94-37]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of a Proposed Rule Change by the New York 
Stock Exchange, Inc. Relating to Equity-Linked Debt Securities 
(``ELDS'')

November 18, 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 October 
21, 1994, the New York Stock Exchange, Inc. (``NYSE'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'' or 
``SEC'') the proposed rule change as described in Items I and II below, 
which items have been prepared by the NYSE. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.

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

    The NYSE proposes to amend its listing standards for equity-linked 
debt securities (``ELDS'') contained in Paragraph 703.21 of the 
Exchange's Listed Company Manual (``Manual'') to provide for greater 
flexibility in the listing of ELDS. The text of the proposed rule 
change is available at the Office of the Secretary, NYSE, and at the 
Commission.

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

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

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

    ELDS are intermediate-term, debt securities of an issuer where the 
value of the debt is based, at least in part, on the value of another 
issuer's common stock or non-convertible preferred stock.\1\ The 
purpose of the proposed rule change is to provide alternative market 
capitalization and trading volume criteria for the linked security, 
that is, the security on which the value of the ELDS is based. 
Specifically, the proposed rule change will add the following 
alternative standard for securities that can be linked to an ELDS: (1) 
market capitalization of at least $500 million; and (2) annual U.S. 
trading volume for the one-year period prior to the listing of the ELDS 
of at least 80 million shares.\2\ Paragraph 703.21 will also be amended 
to provide flexibility for the listing of issues of ELDS in cases where 
the linked security does not meet the specified capitalization and 
trading volume criteria provided in Paragraph 703.21 of the Manual, 
provided the staff of the Commission concurs with the listings.
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    \1\The Commission originally approved the Exchange's ELDS 
listing standards on January 13, 1994. See Securities Exchange Act 
Release No. 33468 (January 13, 1994), 59 FR 3387 (January 21, 1994) 
(``Exchange Act Release No. 33468''). The ELDS listing standards 
have twice been amended since that time. See Securities Exchange Act 
Release Act Nos. 33841 (March 31, 1994), 59 FR 16671 (April 7, 1994) 
(order approving alternative minimum market capitalization and 
trading volume requirements for the security underlying an ELDS) 
(``Exchange Act Release No. 33841'') and 34545 (August 18, 1994), 59 
FR 43877 (August 25, 1994) (order approving the listing of ELDS 
linked to sponsored American Depositary Receipts (``ADRs'') and 
other securities issued by non-U.S. companies subject to reporting 
requirements under the Act) (``Exchange Act Release No. 34545'').
    \2\Currently, the market capitalization and trading volume 
requirements for a security underlying an ELDS are as follows: (1) 
market capitalization of at least $3 billion and trading volume in 
the U.S. for the one-year period prior to the listing of the ELDS of 
at least 2.5 million shares; or (2) market capitalization of at 
least $1.5 billion and trading volume in the U.S. for the one-year 
period prior to the listing of the ELDS of at least 20 million 
shares. See Exchange Act Release Nos. 33468 and 33841, supra note 1.
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    Finally, the proposed rule change amends existing language in 
Paragraph 703.21 regarding the listing of ELDS that represent more than 
the specified maximum percentages of the outstanding shares of the 
linked security.\3\ The amended language parallels the language 
discussed above regarding the ability of the Exchange to list ELDS that 
do not meet the specific capitalization and trading volume standards, 
i.e., an ELDS linked to more than the maximum specified percentages of 
the outstanding shares of the linked security could be listed provided 
that the NYSE, with the concurrence of the staff of the Commission, 
determines that the listing is appropriate.\4\
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    \3\Paragraph 703.21 presently provides that an issue of ELDS 
linked to a security issued by a: (1) U.S. company may not exceed 5% 
of the total outstanding shares of that security; and (2) non-U.S. 
company that is subject to reporting requirements under the Act may 
not exceed (i) 2% of the total worldwide outstanding shares of such 
security if at least 30% of the worldwide trading volume for the 
security and all related securities during the six-month period 
preceding the date of listing occurs in the U.S. market, (ii) 3% of 
the total worldwide outstanding shares of such security if at least 
50% of the worldwide trading volume for the security and all related 
securities during the six-month period preceding the date of listing 
occurs in the U.S. market, or (iii) 5% of the total worldwide 
outstanding shares of such security if at least 70% of the worldwide 
trading volume for the security and all related securities during 
the six-month period preceding the date of listing occurs in the 
U.S. market. See Securities Exchange Act Release Nos. 33468 and 
34545, supra note 1.
    \4\The Commission notes that Paragraph 703.21 presently provides 
that an ELDS may relate to more than the maximum percentages set 
forth above if the Exchange, in consultation with the staff of the 
Commission, determines that the listing is appropriate. As a result, 
the Commission believes that this portion of the proposed rule 
change is non-substantive in that it merely clarifies the intent of 
current standard set forth in the NYSE's rules, provides uniformity 
throughout Paragraph 703.21, and provides uniformity among the 
wording of the NYSE rule and similar rules of other self-regulatory 
organizations (see infra notes 10-12).
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    The NYSE believes the proposed rule change is consistent with 
Section 6(b) of the Act in general and furthers the objectives of 
Section 6(b)(5) in particular in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.

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

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

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

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

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

    The NYSE has requested that the proposed rule change be given 
accelerated effectiveness pursuant to Section 19(b)(2) of the Act.
    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange, and, in 
particular, the requirements of Section 6(b)(5) of the Act\5\ in that 
it is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, and to 
protect investors and the public interest. Specifically, the Commission 
believes that the proposed change does not raise any significant 
regulatory issues that were not addressed in the Commission's approval 
orders regarding ELDS.\6\ The Commission finds that the proposal to add 
an additional market capitalization and trading volume requirement for 
eligible linked securities will expand the number of securities that 
can be linked to an ELDS while maintaining the requirement that the 
linked security be an actively traded common stock or sponsored ADR 
issued by a highly capitalized issuer. While the proposal introduces a 
third alternative for ELDS eligibility that reduces the minimum market 
capitalization requirement for the linked security, the stock of such 
an issuer (or sponsored ADR related thereto) could only be linked to an 
ELDS issue if its trading volume in the U.S. for the prior one-year 
period is at least 80 million shares, which is four times higher than 
the current minimum trading volume requirement.\7\ The Commission 
believes that together, the new capitalization and trading volume 
requirements will continue to ensure that ELDS are only issued on 
highly liquid securities of broadly capitalized companies and that 
these requirements will reduce the likelihood of any adverse market 
impact on the securities underlying ELDS.
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    \5\15 U.S.C. Sec. 78f(b)(5) (1982).
    \6\See supra note 1.
    \7\See supra note 2.
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    Additionally, allowing the NYSE, subject to the concurrence of the 
staff of the Commission, to approve an issue of ELDS that either does 
not satisfy one of the existing requirements regarding market 
capitalization and trading volume merely adds flexibility to the 
proposed rule change. The Commission believes that this portion of the 
proposal does not raise any regulatory concerns, particularly given the 
requirement of obtaining the concurrence of the staff of the Commission 
prior to listing.\8\
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    \8\If the NYSE proposed an ELDS that raised unique or 
significant regulatory concerns, the staff of the Commission would 
require the NYSE to submit a rule filing to the Commission pursuant 
to Section 19(b) of the Act. Depending on the proposed facts, the 
Commission may require the NYSE to submit a rule filing to the 
Commission pursuant to Section 19(b) of the Act to address the 
regulatory issues raised by any proposed offering of ELDS that does 
not satisfy the market capitalization and/or trading volume set 
forth in Paragraph 703.21 of the Manual, as amended herein. In this 
connection, the Commission notes that any proposal to list an ELDS 
linked to a security with a market capitalization of less than $500 
million would raise significant regulatory concerns for which a 
Section 19(b) rule filing would be required.
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    Moreover, as stated above, amending the language of Paragraph 
703.21 to state that the concurrence of the staff of the Commission is 
required prior to listing an ELDS linked to greater than the maximum 
specified percentages of the outstanding shares of the linked security 
merely clarifies the intent of the language currently contained in 
Paragraph 703.21.\9\ Accordingly, this portion of the proposal raises 
no new regulatory concerns.
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    \9\See supra note 4.
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    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the date of publication of 
notice thereof in the Federal Register in order to allow the Exchange 
to begin listing ELDS satisfying the revised listing standards 
described herein without delay. For the reasons discussed above, the 
Commission believes that the proposal does not raise any significant 
regulatory issues. Additionally, the changes proposed herein are 
substantively the same as amendments recently approved by the 
Commission for the listing of equity linked debt by the American Stock 
Exchange, Inc.,\10\ the National Association of Securities Dealers, 
Inc.,\11\ and the Chicago Board Options Exchange, Inc,\12\ for which no 
comments have been received by the Commission.
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    \10\See Securities Exchange Act Release No. 34765 (September 30, 
1994), 59 FR 51220 (October 7, 1994).
    \11\See Securities Exchange Act Release No. 34758 (September 30, 
1994), 59 FR 50943 (October 6, 1994).
    \12\See Securities Exchange Act Release No. 34759 (September 30, 
1994), 59 FR 50939 (October 6, 1994).
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    For the above reasons, the Commission believes it is consistent 
with Section 19(b)(2)\13\ of the Act to approve the proposed rule 
change on an accelerated basis.
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    \13\15 U.S.C. Sec. 78s(b)(2) (1988).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the proposed rule change. 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 in 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 Number SR-NYSE-94-37 and 
should be submitted by December 19, 1994.
    It is therefore ordered, Pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-NYSE-94-37) is approved.

    \14\15 U.S.C. Sec. 78s(b)(2) (1982).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\17 CFR 200.30-3(a)(12) (1993).
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Jonathan G. Katz,
Secretary.
[FR Doc. 94-29212 Filed 11-25-94; 8:45 am]
BILLING CODE 8010-01-M