[Federal Register Volume 59, Number 246 (Friday, December 23, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-31604]


[[Page Unknown]]

[Federal Register: December 23, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35111; File Nos. SR-BSE-94-16, SR-CBOE-94-52, SR-CHX-
94-24, SR-CSE-94-10, SR-PHLX-94-68, SR-PSE-94-36]

 

Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval to Proposed Rule Change by Boston Stock 
Exchange, Inc., Chicago Board Options Exchange, Incorporated, Chicago 
Stock Exchange, Incorporated, Cincinnati Stock Exchange, Inc., 
Philadelphia Stock Exchange, Inc., and Pacific Stock Exchange 
Incorporated Relating to the Listing of Securities Resulting From 
Limited Partnership Rollups

December 16, 1994.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'')\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 10 and December 1, 12, 15, and 16, 1994, the Chicago Stock 
Exchange, Incorporated (``CHX''), the Cincinnati Stock Exchange, Inc. 
(``CSE''), the Pacific Stock Exchange Incorporated (``PSE''), the 
Chicago Board Options Exchange, Incorporated (``CBOE''), and the Boston 
Stock Exchange, Inc. (``BSE'') and the Philadelphia Stock Exchange, 
Inc., (``PHLX''), respectively, (herein collectively referred to as 
``Exchanges'') filed with the Commission the proposed rule changes as 
described in Items I and II below, which Items have been prepared 
primarily by the Exchanges. On December 13, 1994, the CSE filed 
Amendment No. 1, to its proposed rule change.\3\ In addition, the PSE 
and the CHX each filed an Amendment No. 1 to their proposed rule 
changes on December 14, 1994.\4\ Each of these amendments made non-
substantive, clarifying changes to the proposals and are incorporated 
into the discussion below. The Commission is publishing this notice to 
solicit comments on the proposed rule changes from interested persons.
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    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\17 CFR 240.19b-4 (1991).
    \3\See letter from Robert P. Ackermann, Secretary and Vice 
President Regulatory Services, CSE, to Elisa Metzger, Senior 
Counsel, SEC, dated December 13, 1994.
    \4\See letter from David T. Rusoff, Attorney, Foley & Lardner, 
to Elisa Metzger, Senior Counsel, SEC, dated December 14, 1994, 
amending the CHX's proposed rule filing, and letter from Michael D. 
Pierson, Senior Attorney, PSE, to Elisa Metzger, Senior Counsel, 
SEC, dated December 14, 1994, amending the PSE's proposed rule 
filing.
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I. Self-Regulatory Organizations' Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchanges are proposing to amend their rules to implement 
additional listing standards for the listing of limited partnership 
rollup securities.\5\ The text of the proposed rule changes are 
available at the Commission.
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    \5\See proposed BSE Rule Chapter XXVII, Paragraph 2260; proposed 
CBOE Rule 31.5; proposed CHX Rule 7 of Article XXVIII; proposed CSE 
Rule Section 1.3(6); proposed PSE Rule 3.2(i); and proposed PHLX 
Rules 803, 805, and 852.
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II. Self-Regulatory Organizations' Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchanges included 
statements concerning the purpose of and basis for the proposed rule 
changes and discussed any comments they had received. The text of these 
statements may be examined at the places specified in Item III below. 
The Exchanges 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 Rule Change

1. Purpose
    IN December 1993, Congress adopted the Limited Partnership Rollup 
Reform Act of 1993 (``Rollup Reform Act'') to regulate limited 
partnership rollups. The Rollup Reform Act added subparagraph (9) to 
Section 6(b) of the act6 to require that the rules of an exchange 
must prohibit the listing of any security issued in a limited 
partnership rollup transaction, ``unless such transaction was conducted 
in accordance with procedures designed to protect the rights of limited 
partners, including'' the procedures specified at Section 6(b)(9) of 
the Act.
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    \6\15 U.S.C. 78f(b)(9) (1988 & Supp. 1993)
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    The Exchanges have filed the proposed rule changes to ensure their 
compliance with the provisions of the Rollup Reform Act. Specifically, 
these changes provide that securities issued in connection with a 
limited partnership rollup transaction cannot be listed on any of the 
Exchanges unless:
    A. such transaction was conducted in accordance with procedures 
designed to protect the rights of limited partners, including such 
procedures as are set forth specifically at Section 6(b)(9) of the Act;
    B. a broker-dealer that is a member of the National Association of 
Securities Dealers, Inc. (``NASD'') participated in the rollup 
transaction; and
    C. the issuer has provided the applicable Exchange with an opinion 
of counsel confirming that the transaction was, in fact, conducted in 
accordance with NASD procedures.

These last two requirements are designed to enable the Exchanges to 
rely upon the NASD's regulatory scheme, which recently was approved by 
the Commission,7 to govern the listing of rollups. In order to be 
listed, such a security also will have to satisfy the applicable 
Exchange's corporate governance and listing standards requirements, as 
appropriate.8
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    \7\See Securities Exchange Act Release No. 34533 (August 15, 
1994), 59 FR 43147 (August 22, 1994).
    \8\While all of the Exchanges require such securities to satisfy 
the applicable Exchange's corporate governance and listing standards 
requirements, as appropriate, the proposed rules filed by the CBOE 
and PHLX include a specific requirement that any limited partnership 
listed on the Exchange shall have at least one corporate general 
partner, or co-general partner, who satisfies the Exchange's 
independent director and audit committee requirements.
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the Act 
in that it is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest.

B. Self-Regulatory Organizations' Statement on Burden on Competition

    The Exchanges do not believe that the proposed rule changes will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

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

    The Exchanges have neither solicited nor received written comments 
on the proposed rule change.

III. 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 Exchanges. 
All submissions should refer to Files Nos. SR-BSE-94-16, SR-CBOE-94-52, 
SR-CHX-94-24, SR-CSE-94-10, SR-PHLX-94-68, and SR-PSE-94-36 and should 
be submitted by January 13, 1995.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Changes

    The Commission finds that the Exchanges' proposals to adopt listing 
standards for securities issued in limited partnership rollup 
transactions are consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
exchange. In particular, the Commission believes that the proposed 
listing standards are consistent with Section 6 of the Act, including 
the requirements of Section 6(b)(5),\9\ which provides that the rules 
of an exchange be 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.
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    \9\15 U.S.C. 78f(b)(5) (1988).
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    As stated above, Congress adopted the Rollup Reform Act to regulate 
limited partnership rollups. This act reflects a belief that 
partnership rollup transactions, when properly structured, may offer 
significant benefits to investors and for businesses that have used 
these structures to raise capital. Congress has determined, however, 
that abusive limited partnership rollup transactions harm investors, 
undermine investor confidence and threaten capital formation.\10\ To 
curtail these abuses, Congress amended Section 6 of the Act to provide 
that the rules of an exchange must prohibit the listing of a rollup 
security ``unless such transaction was conducted in accordance with 
procedures designed to protect the rights of limited partners, 
including'' such procedures as are set forth at subparagraph (9) of 
Section 6(b) of the Act.
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    \10\See S. Rep. No. 121, 103d Cong., 1st Sess. (1993).
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    In accordance with the Rollup Reform Act, the Exchanges' proposed 
rule proposals would adopt new listing standards that would condition 
the listing of securities issued in a rollup transaction upon 
satisfaction of the criteria set forth in Section 6(b)(9) of the Act. 
The new standards also would provide that a broker-dealer that is a 
member of the NASD must participate in the rollup transaction in which 
such securities were issued, and that the issuer of such securities 
must provide the applicable Exchange with an opinion of counsel 
confirming that the transaction was in fact conducted in accordance 
with NASD procedures. This would enable the Exchanges to rely upon the 
regulatory scheme adopted by the NASD (and recently approved by the 
Commission) to govern the listing of rollups.\11\
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    \11\See Securities Exchange Act Release No. 34533 (August 15, 
1995), 59 FR 43147 (August 22, 1994).
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    The Commission believes that the rule changes would provide 
important benefits to investors who may be subject to limited 
partnership rollup transactions by ensuring that their rights are 
protected in accordance with the intent of Congress as embodied in the 
Rollup Reform Act. The rule changes would permit rollups to take place 
but would protect against the abusive practices that have occurred in 
the past. In particular, these changes would ensure that limited 
partners are not forced into a rollup but instead have the right to 
compensation, based on appraisal. These rules also would prevent the 
unfair conversion and valuation of the general partner's interests in a 
rollup transaction; prevent investors' voting rights from being 
unfairly reduced or abridged; prevent the limited partners from having 
to bear an unfair portion of the costs of a transaction that has been 
rejected; and prevent the payment of fees to general partners in 
connection with a rollup that are unfair, unreasonable, or 
inappropriate.\12\ 
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    \12\The rules being approved hereby do not directly mandate that 
such rights be protected. Rather, these rules protect such rights 
indirectly by requiring that all securities issued in a limited 
partnership rollup transaction and listed on an Exchange be issued 
in a transaction conducted in accordance with NASD procedures that 
do mandate such rights.
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    The Commission finds good cause for approving the Exchanges' 
proposed rule changes on an accelerated basis prior to the thirtieth 
day after the date of publication of notice of filing thereof. As 
indicated above, the Commission recognizes that the rule changes will 
provide important benefits to investors who may be subject to limited 
partnership rollup transactions in that the amended proposed rule 
changes will ensure that investors' rights are protected in accordance 
with the intent of Congress as embodied in the Rollup Reform Act. In 
addition, the Exchange's proposals are substantively identical to the 
proposals of the American Stock Exchange, Inc. and the New York Stock 
Exchange, Inc. that were published in the Federal Register for the full 
comment period and that are being approved by the Commission this 
day.\13\ In addition, the Commission did receive seven comment letters 
in response to its release noticing the NASD's proposed regulatory 
scheme regarding limited partnership rollup transactions.\14\ The 
Commission considered these comments in its order approving the NASD's 
proposal,\15\ which proposal is the basis of the Exchanges' proposals. 
The Commission believes that accelerated approval of these listing 
standards for securities issued in limited partnership rollup 
transactions should benefit investors and the public interest.
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    \13\See Securities Exchange Act Release No. 43890 (October 25, 
1994), 59 FR 54647 (November 1, 1994) and Securities Exchange Act 
Release No. 43889 (October 25, 1994), 59 FR 54650 (November 1, 
1994), respectively. No comments were received in connection with 
these proposals.
    \14\See Securities Exchange Act Release No. 32312 (May 17, 
1993), 58 FR 29655 (May 21, 1993).
    \15\See note 8, supra.
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    It is therefore ordered, pursuant to Section 19(b)(2),\16\ that the 
proposed rule changes, including the amendments thereto, are hereby 
approved.

    \16\15 U.S.C. 78s(b)(2) (1988).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\17 CFR 200.30-3(a)(12) (1991).

[FR Doc. 94-31604 Filed 12-22-94; 8:45 am]
BILLING CODE 8010-01-M