[Federal Register Volume 60, Number 235 (Thursday, December 7, 1995)]
[Notices]
[Pages 62921-62923]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-29784]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36541; File No. SR-Amex-95-28]
Self-Regulatory Organizations; American Stock Exchange, Inc.;
Order Granting Approval to Proposed Rule Change Relating to Updates to
the Exchange's Company Guide
November 30, 1995.
I. Introduction
On July 19, 1995, the American Stock Exchange, Inc. (``Amex'' or
``Exchange'') submitted to the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to update various sections of its Company Guide.
On September 28, 1995, the Exchange filed Amendment No. 1 to the
proposed rule change.\3\
\1\15 U.S.C. 78s(b)(1).
\2\17 CFR 240.19b-4.
\3\See Letter from Geraldine M. Brindisi, Vice President and
Corporate Secretary, Amex, to Glen Barrentine, Senior Counsel/Team
Leader, SEC (Sept. 28, 1995).
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The proposed rule change, as amended, was published for comment in
the Federal Register on October 10, 1995.\4\ No comments were received
on the proposal.
\4\Securities Exchange Act Release No. 36326 (Oct. 3, 1995), 60
FR 52713.
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II. Description of the Proposal
The Exchange has proposed amendments to several sections of the
Amex Company Guide in order to conform it with recent changes to
comparable New York Stock Exchange (``NYSE'') sections, to update
certain sections that contain provisions that are no longer applicable,
and to clarify certain obligations contained in the rules. As described
more fully below, the Exchange proposes to amend sections of its
Company Guide that pertain to preferred stock, warrants, conflicts of
interest, original and annual listing fees, the listing resolution,
``backdoor'' listings, fractional shares, the listing agreement,
interim reports,
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legending requirements, and delisting standards.
A. Preferred Stock
The Exchange proposes to amend Section 103 to make it clear that
the numerical guidelines contained in this section concerning aggregate
market value and price per share only apply to publicly held shares.
The Exchange also proposes to amend Section 103 of the Company Guide to
provide that the Amex will not consider listing any issue of
convertible preferred stock unless the underlying security is subject
to real-time last sale reporting. Currently, as a general rule,
convertible preferred stock may be listed on the Exchange only if the
underlying security is listed on either the Amex or the NYSE. The
Exchange believes this restriction is no longer necessary because it
was adopted at a time when only the Amex and the NYSE provided last
sale reporting information. Now, however, other markets disseminate
such information.\5\
\5\The Exchange also notes that such a change would be
consistent with Section 104 of the Company Guide because this
section permits the listing of convertible bonds and debentures so
long as the underlying issue into which the bond or debenture is
convertible is subject to last sale reporting. See Securities
Exchange Act Release No. 22714 (Dec. 20, 1985), 50 FR 51958.
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B. Warrants
In order to simplify the listing process, the Exchange proposes to
consolidate all of its listing guidelines concerning warrants into
Section 105, add a paragraph to Section 105 that requires an issuer to
provide the Amex with two months advance notice of any extension of the
expiration date of a warrant issue, delete Section 508 of the Company
Guide\6\ and incorporate it into Section 105, and amend Section 105 to
reference the guidelines contained in Section 902 of the Company
Guide.\7\
\6\Under certain circumstances, this section requires warrants
to be split in the same proportion as the underlying common stock.
\7\Section 902 contains guidelines that are applicable to
redeemable (callable) issues.
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C. Conflicts of Interest
The Exchange proposes to delete the clause in Section 120 of the
Company Guide that authorizes the Exchange to require a company to
enter into a special agreement designed to reduce the possibility of
abuse of a conflict of interest situation. The Exchange believes this
provision is obsolete because audit committees\8\ are responsible for
reviewing transactions presenting potential conflicts of interest and,
in practice, the Exchange no longer utilizes these special agreements.
Moreover, the Exchange notes that the NYSE did away with a similar
provision some time ago.\9\
\8\The Exchange requires every listed company to establish and
maintain an audit committee that, at the very least, is composed of
a majority of independent directors. Amex Company Guide section 121.
\9\Securities Exchange Act Release No. 20767 (Mar. 20, 1984), 49
FR 11275 (approving File No. SR-NYSE-83-11).
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D. Original and Annual Listing Fees
Currently, Section 140 of the Company Guide specifies the original
listing fee for more than one million shares and the fee for less than
one million shares, but does not specify the fee for exactly one
million shares. The Exchange proposes to correct this oversight by
making it clear that the fee for exactly one million shares is $10,000.
The Exchange also proposes to make it clear that, according to Section
141 of the Company Guide, the annual listing fee for a warrant issue is
based on the number of warrants issued, not the number of shares
underlying the warrants.
E. Opinion of Counsel
The Exchange proposes to delete from Section 213 of the Company
Guide the requirement that the opinion of counsel address a prospect
company's qualification to conduct business in jurisdictions other than
that of its state of incorporation. In support of this, the Exchange
cites an ABA sponsored study of third-party legal opinions that states
that an opinion concerning a corporation's qualification to do business
in jurisdictions other than that of incorporation is generally not cost
effective or necessary.\10\ In addition, the Exchange notes that the
NYSE does not have a similar requirement.
\10\See American Bar Association, Third-Party Legal Opinion
Report, Including the Legal Opinion Accord, of the Section of
Business Law, 47 Bus. Law. 167 (Nov. 1991).
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F. Listing Resolution
The Exchange proposes to delete from Sections 213 and 330 the
requirement that a prospect company's Board of Directors provide the
Exchange with a listing resolution authorizing the filing of the
listing application. The Exchange believes this requirement does not
serve any significant purpose and, essentially, is ceremonial in
nature.
G. ``Backdoor'' Listings
Currently, the literal language of Section 341 of the Company Guide
indicates that the surviving entity of a backdoor listing\11\
transaction must meet the Exchange's original listing guidelines in all
respects. The Exchange states, however, that it has been its
longstanding practice to evaluate a backdoor listing on the same basis
that an original listing is reviewed. Among other things, this allows
the Exchange to exercise its discretion to approve a backdoor listing
even though the company does not meet all of the Exchange's numerical
guidelines.\12\ The Exchange proposes to make this section consistent
with the Exchange's practice.
\11\The Exchange defines a ``backdoor'' listing as any plan of
acquisition, merger, or consolidation, the net effect of which is
that a listed company is acquired by an unlisted company even though
the listed company is the nominal survivor. Amex Company Guide
section 341.
\12\Similarly, the fact that an issuer meets the numerical
guidelines does not necessarily mean that its application will be
approved.
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H. Fractional Shares
Very often when a company issues a stock dividend, the issuer must
settle fractional share interests. The Exchange's current practice is
to require those companies that do not choose to settle such interests
with a cash payment to round up to a full share in payment for the
fractional amount. The Exchange reasons that if the issuer were to
round down, the shareholder would be deprived of assets due him or her.
The Exchange proposes to make this requirement explicit by inserting it
into Section 507 of the Company Guide.
I. Listing Agreement
In its present form, the Exchange's listing agreement specifies a
number of obligations that a listed company is subject to by virtue of
listing its securities on the Amex. Most of these obligations also are
contained in various sections of the Company Guide. In order to
eliminate redundancies and avoid confusion, the Exchange proposes to
move to the Company Guide those provisions that currently are contained
in the listing agreement, but are not contained in the Company Guide.
In addition, the Exchange proposes to amend its listing agreement to
simply state that the issuer agrees to comply with all of the
Exchange's rules, policies, and procedures that apply to listed
companies.
J. Interim Reports
The Exchange proposes to amend Section 623 of the Company Guide to
advise companies that when they choose to mail interim reports to
shareholders, they should send the reports to both the record holders
and the beneficial owners. The Exchange believes this change strikes an
appropriate balance between the benefit of mailing these reports to
both the record holders and the beneficial owners against the high cost
of
[[Page 62923]]
mandating such action. In support of this rule change, the Exchange
notes that the NYSE previously made a similar change to its rules.\13\
\13\Securities Exchange Act Release No. 35373 (Feb. 14, 1995),
60 FR 9709 (approving File No. SR-NYSE-94-42).
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K. Legending Requirements
Currently, Section 980 of the Company Guide requires that listed
securities issued in reliance upon an exemption from the registration
requirements of Section 5 of the Securities Act of 1933\14\ bear a
legend specifying that sale or transfer restrictions apply to such
securities. The Exchange proposes to delete this requirement. The
Exchange states issuers have complained that the Exchange requirement
may be unnecessary and, in some instances, more restrictive than the
applicable laws. In addition, the Amex notes that the NYSE does not
impose an independent legending requirement on its listed companies.
\14\15 U.S.C. 77e.
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L. Delisting Standards
Because more brokerage firms are holding securities for their
customers in ``street name,'' and fewer customers are demanding
physical delivery of their securities,\15\ the proportion of beneficial
holders to record holders has increased dramatically in recent years.
Accordingly, companies are less likely to meet the Exchange's
maintenance standards concerning the total number of round lot
shareholders of record. As a result, certain companies that have well
over 300 round lot beneficial shareholders could be subject to
delisting proceedings.\16\ In order to address this situation, the
Exchange proposes to amend Section 1003 of the Company Guide to refer
to ``public shareholders''\17\ instead of ``shareholders of record.''
\15\This change in practice is in accordance with
recommendations for increased safety and soundness in the securities
industry made by the Bachmann Task Force. See Bachmann Task Force,
Report of the Bachmann Task Force on Clearance and Settlement Reform
in the U.S. Securities Markets 24-26 (May 1992) (recommending the
reduction in use of physical certificates).
\16\Section 1003 of the Company Guide provides, in pertinent
part, that the Exchange normally will consider delisting a security
``if the total number of round lot shareholders of record is less
than 300 * * *.'' (Emphasis added).
\17\This term would include both shareholders of record and
beneficial holders, but exclude officers, directors, controlling
shareholders, and other concentrated (i.e., 5% or greater),
affiliated, or family holdings. In addition, the Exchange proposes
to make conforming changes to sections 102, 103, 105, 106, 107, 110,
and 118.
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III. Discussion
The Commission has reviewed the Amex's proposed rule changes
carefully and concludes that these proposed changes are consistent with
the requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange. In particular, the
Commission finds that the amendments contained in this proposal are
consistent with the Section 6(b)(5)\18\ requirements that the rules of
an exchange be designed to promote just and equitable principles of
trade, to prevent fraudulent and manipulative acts, and, in general, to
protect investors and the public; and are not designed to permit unfair
discrimination between issuers.
\18\15 U.S.C. 78f(b)(5).
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The Commission supports the Amex's efforts to continue to review
the form and substance of its listed company regulations in response to
changes in market structure and eliminate requirements that no longer
serve a meaningful regulatory purpose. In this regard, the changes to
the listing process, such as eliminating the requirement for a Board
resolution authorizing the submission of a listing application, should
make the listing process easier for issuers without raising any
regulatory concerns. The Commission also believes the proposed rule
changes should be helpful in updating the Amex's listed company rules,
should facilitate transactions in securities, should clarify certain
obligations contained in the rules and, in general, further the
purposes of the Act. Finally, although the Commission has certain
concerns regarding the amendments to backdoor listings, delisting
standards, and convertible preferred stock, for the reasons discussed
below, we believe these provisions should be approved.
First, according to the Amex, the changes to the backdoor listing
standards will provide the Exchange with the same flexibility it
currently has in evaluating original listing applications. Although the
Commission is approving the Exchange's more liberal language concerning
backdoor listings, we believe that, as a general matter, listed
companies should meet the Exchange's numerical and other listing
guidelines. To the extent certain flexibility in applying listing
standards may occasionally be needed, the Commission expects the
Exchange to exercise its discretion conservatively when granting an
exception to these standards. Moreover, when the Exchange chooses to
make an exception to its stated listing standards, the Commission
expects the Exchange to have procedures in place that adequately
document and provide sufficient analysis as to why it is making such an
exception and which factors it considered pertinent.
Second, the proposed amendment to the Exchange's delisting
standards concerning the total number of round lot shareholders is a
reasonable response to changing market conditions. In approving this
amendment, however, the Commission understands the Exchange will have
certain procedures in place to verify the total number of round lot
beneficial holders. In this regard, the Exchange has represented to the
Commission that if Item 5 of a listed company's Form 10K reflects that
there are less than 300 record holders, the Corporate Relations Manager
assigned to this company will ask the company to provide confirmation
of the number of beneficial holders.\19\ The Commission believes these
procedures will help ensure that listed companies continue to meet the
minimum shareholder requirements for continued listing.
\19\See Letter from Claudia Crowley, Special Counsel, Legal &
Regulatory Policy, Amex, to Glen Barrentine, Senior Counsel, SEC
(Oct. 18, 1995).
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Finally, in approving the changes to Section 103 that would permit
the listing of convertible preferred stock where the underlying
security is subject to real-time last sale reporting, the Commission
expects the Amex, where appropriate, to ensure that the underlying
security is generally consistent with the Exchange's common stock
listing guidelines. This would be particularly expected in cases where
the convertible preferred could act as a surrogate for trading in the
underlying common stock (i.e., the preferred stock is structured in a
way to trade as a surrogate for the common stock and represents a
substantial portion of the outstanding underlying common stock).
It therefore is ordered, pursuant to Section 19(b)(2) of the
Act,\20\ that the amended proposed rule change (SR-Amex-95-28) is
approved.
\20\15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\21\
\21\17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 95-29784 Filed 12-6-95; 8:45 am]
BILLING CODE 8010-01-M