[Federal Register Volume 61, Number 205 (Tuesday, October 22, 1996)]
[Notices]
[Pages 54827-54830]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-27037]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37823; File No. SR-Amex-96-23]


Self-Regulatory Organizations; the American Stock Exchange, Inc.; 
Order Granting Approval to Proposed Rule Change Relating to Various 
Changes to the Exchange's Company Guide

October 15, 1996.

I. Introduction

    On June 27, 1996, the American Stock Exchange, Inc. (``Amex'' or 
``Exchange'') submitted to the Securities and Exchange Commission 
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4

[[Page 54828]]

thereunder,\2\ a proposed rule change to amend various sections of the 
Exchange's Company Guide to simplify the additional listing process, 
add a new shareholder distribution guideline applicable to banks, and 
make several minor ``housekeeping'' changes.
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    \1\ 15 U.S.C. Sec. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    The proposed rule change was published for comment in Securities 
Exchange Act Release No. 37550 (August 9, 1996), 61 FR 42667 (August 
16, 1996). No comments were received on the proposal.

II. Description of the Proposals

A. Additional Listings

    The Exchange proposes to simplify its additional listing process, 
which functions as the Exchange's formal review of a request by an 
issuer to increase the amount of securities listed. Before a listed 
company issues additional securities of an already listed class, it is 
required to submit an additional listing application and obtain the 
Exchange's prior approval. Similarly, transfer agents for listed 
companies are required to contact the Exchange to verify that a 
company's request for new share issuances has been approved. The 
additional listing process is an essential part of the Exchange's 
program to oversee its market generally and monitor the compliance of 
listed companies with Sections 711-713 of its Company Guide, which 
require prior shareholder approval of certain transactions involving 
the issuance of stock, e.g., issuances of 20% or more of the 
outstanding shares at a discounted price or to effect an acquisition.
    The Exchange typically receives in excess of 300 additional listing 
applications per year. Each application, depending on the nature of the 
circumstances giving rise to the additional listing request, is 
completed in one of four formats: short, standard, stock option/
purchase, or stock dividend. Each format requires the detailed 
presentation of information that is often available in the applicant's 
proxy statement, prospectus or option plan, and must also be 
accompanied by a list of exhibits specified in the Company Guide.
    In its filing, the Exchange states that it has determined that it 
can substantially simplify the additional listing process for listed 
companies and transfer agents alike without undercutting its ability to 
regulate its market. In this regard, the Exchange has for the first 
time prepared a simplified, standardized application form, which can be 
used for all additional listings.\3\ According to the Exchange, this 
form will allow companies to incorporate by reference any transactional 
information that is set forth in a proxy statement, prospectus or 
certain other descriptive documents, thus eliminating the current 
practice of having to provide duplicative summary of this information 
on the application. Adopting a standardized form will, therefore, 
enable the Exchange to eliminate confusing and unnecessary instructions 
by significantly revising the applicable Company Guide provisions.\4\
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    \3\ The Commission notes that each application still will have 
to be accompanied by the required exhibits--e.g., Contract, Opinion 
of Counsel, Resolution, Amendment to Charter etc.,--prescribed in 
Section 330 (renumbered as 306 by this Order) of the Company Guide.
    \4\ The Commission notes that in simplifying its listings 
process, the Amex proposes the following changes to its Company 
Guide: Sec. 310 is renumbered as Sec. 303; Secs. 311-313 is deleted; 
Sec. 320 is deleted; Sec. 321 is renumbered as Sec. 304 with 
modification made to text; new Sec. 305 is added (Listing of Shares 
Pursuant to a Reverse Split/Substitution Listing); and Sec. 330 is 
renumbered as Sec. 306.
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    The Exchange also is proposing to eliminate the requirement that 
each application contain a reconciliation of all of the company's 
previously listed share reserves, except for the cases of stock 
dividends, splits, or substitution listings.\5\ The Exchange has 
determined to allow generally transfer agents to reconcile their 
records of shares outstanding with those of the Exchange on a quarterly 
basis instead of having the issuers and transfer agents engage in this 
extremely time-consuming exercise whenever an additional listing 
application is submitted.\6\ The Exchange indicates that in a series of 
informal discussions with all of its major transfer agents it was 
evident that they would prefer that the Exchange adopt this proposal. 
The Exchange believes that these new procedures should provide 
substantial benefits to listed companies and the Exchange.
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    \5\ The Commission notes that a similar procedure was adopted by 
the New York Stock Exchange (``NYSE'') when its standard form 
application procedures were implemented. See Securities Exchange Act 
Release No. 30662 (May 1, 1992), 57 FR 19655.
    \6\ The Exchange notes in its filing that a similar procedure is 
followed at the NYSE.
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B. Distribution Guidelines for Banks

    The Exchange's public distribution guidelines require 500,000 
shares and 800 holders, or 1,000,000 shares and 400 holders. In recent 
years, the Exchange has listed a number of local banks, some 
immediately following their conversion from mutual association to stock 
ownership (``demutualizing'').\7\ Such banks often have small, but 
because of their local concentration, stable ranks of shareholders. The 
Exchange notes that generally these small banks are well above the 
financial criteria for original listing, and due to the highly 
regulated nature of the banking industry there is usually little 
``business risk'' associated with listing these banks on the Exchange.
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    \7\ These transactions are typically conducted, in effect, as 
``best efforts'' underwritings in the sense that it is impossible to 
predict how many deposit-holders will elect to become shareholders 
and the conversion itself is not contingent upon the 
``accumulation'' of a specific number of shareholders.
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    The Exchange states it has occasionally found that otherwise 
attractive local banks have less than one million shares in their 
public float, and fewer than 800 shareholders. The Exchange notes that 
although the mix of shareholder and public float requirements in its 
listing standards is intended to accommodate a specialist's needs in 
maintaining a fair and orderly market, it has observed that shares of 
local banks generally trade steadily, with relatively stable prices, 
and that specialists have not encountered difficulties in trading them.
    The Exchange, therefore, proposes to adopt a specific distribution 
guideline applicable to banks, which would require only 400 public 
holders of at least 500,000 shares.\8\ Presently, there are two other 
circumstances where the Exchange lists issues with a float of less than 
one million shares and only 400 holders: stocks which trade 2,000 
shares a day or more, and warrants sold as part of a unit offering. The 
Exchange states that it has not experienced any difficulties in 
providing an appropriate marketplace for these listings, and, given the 
stability of the banks' shareholder bases and the regulated nature of 
the banking industry, the Exchange does not anticipate any difficulties 
with banking stocks.
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    \8\ The new distribution provision for bank stocks will be 
included in Section 102 of the Amex's Company Guide. Further, the 
Exchange has indicated that bank stocks will continue to be 
subjected to the Exchange's continued listing criteria specified in 
Section 1003 of its Company Guide, which provides the standards for 
continued listing of common and preferred stocks, and bonds. See 
Letter from Claudia Crowley, Special Counsel, Amex, to Chester 
McPherson, Attorney, Office of Market Supervision, Division of 
Market Regulation, Commission, dated October 9, 1996.
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C. Miscellaneous

    The Exchange seeks to make several miscellaneous changes necessary 
to conform particular sections of the Exchange's Company Guide to 
changes previously made to other sections. They are as follows:

[[Page 54829]]

    Section 1003 of the Company Guide is to be amended to provide that 
for continued listing purposes a company needs to have 300 public 
holders, and not 300 round lot holders. Similar changes were previously 
made to the Exchange's other public distribution guidelines.\9\
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    \9\ See Company Guide Section 102(a)--Distribution--which 
describes the minimum number of shareholders as ``public 
shareholder.'' The Company Guide notes that the term ``public 
shareholders,'' as used therein, includes both shareholders of 
record and beneficial holders, but is exclusive of the holdings of 
officers, directors, controlling shareholders, and other 
concentrated (i.e., 5% or greater) affiliated or family holdings.
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    Section 505, which provides that the Exchange would not look 
favorably upon a stock split that would result in a price below $5, is 
to be amended to refer to a $3 minimum price, to be consistent with the 
$3 stock price original listing guideline set forth in Section 
102(b).\10\
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    \10\ The Commission notes that the $3 minimum price was approved 
in Securities Exchange Act Release No. 24043 (January 30, 1987), 52 
FR 4071.
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    Finally, Section 220(b) of the Company Guide is to be amended to 
conform to changes that were previously made to Section 140 of the 
Company Guide with respect to the maximum listing fee applicable to 
foreign issuers.\11\
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    \11\ The Commission notes that the maximum $25,000 fee for non-
U.S. issuers already listed on a foreign exchange was approved in 
Securities Exchange Act Release No. 34272 (June 28, 1994), 59 FR 
34701.
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III. Discussion

    The Commission has carefully reviewed the Amex's proposed rule 
changes and concludes that the proposed changes are consistent with the 
requirement of the Act and the rules and regulations thereunder 
applicable to a national securities exchange, and, in particular, with 
the requirements of Sections 6(b).\12\ Specifically, the Commission 
believes the proposals are consistent with the Section 6(b)(5) 
requirements that the rules of an exchange be designed to promote just 
and equitable principles of trade, to remove impediments to and perfect 
the mechanism of a free and open market and a national market system, 
and in general, to protect investors and the public interest. The 
Commission supports the Amex's efforts of continuing to review the form 
and substance of its listed company regulations and to streamline its 
listing application process where appropriate.
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    \12\ 15 U.S.C. 78f(b).
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    The Exchange proposes to consolidate all types of additional 
listing applications into a single universal format by adopting a 
standard application form. The form will require listed companies to 
provide substantially the same information as is required under the 
existing procedures. However, instead of having to select one of four 
application formats: short, standard, stock option/purchase, or stock 
dividend, and having to present information that is often available in 
the applicant's proxy statement, prospectus or option plan, the 
proposed form provides for this information to be incorporated by 
reference. If there are no proxy statements, prospectuses, or option 
plans, then, when applicable the following information must be provided 
with the proposed standardized application form: Information for Stock 
Options, Plans and Grants; Information for a Private Placement; 
Information for an Acquisition; Information for Substitution Listing; 
Information for a Forward Stock Split or Stock Dividend; and a 
Reconciliation Sheet.
    The proposal to adopt this new application form does not in any way 
amend the Exchange's role in performing substantive review of 
additional listing requests by issuers. It merely seeks to amend 
various sections of the Company Guide to streamline the Exchange's 
application process for additional listings. As stated by the Exchange, 
the additional listing process is an essential part of its program to 
oversee its market generally. In this context, the Company Guide 
specifically states that the Exchange regards the agreement to list 
additional shares as an important safeguard for the shareholders of 
listed companies, and, therefore, will review each application for the 
requisite shareholder approval when applicable.\13\
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    \13\ See Exchange's Company Guide Section 302.
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    In addition to proposing the adoption of a standard application 
form, the Exchange, as part of the additional listing request review 
process, also proposes eliminating the requirement that each 
application contain a reconciliation of all of the company's previously 
listed share reserves, except for the cases of stock dividends, splits, 
or substitution listings. The Exchange has determined to allow transfer 
agents to reconcile their records of shares outstanding with those of 
the Exchange on a quarterly basis. According to the Exchange, this 
would eliminate the need for issuers and transfer agents to engage in 
an extremely time-consuming exercise whenever an additional listing 
application is submitted.\14\ The Exchange indicates that in a series 
of informal discussions with all of the major transfer agents it was 
evident that they would prefer that the Exchange adopt this proposal.
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    \14\ The Exchange notes that a similar procedure is followed at 
the New York Stock Exchange ``NYSE''. See Securities Exchange Act 
Release No. 30662 (May 1, 1992), 57 FR 19655 (approving the adoption 
of a standard form application by the NYSE).
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    The Commission believes that the consolidation of the additional 
listing application into a single standard form, and the elimination of 
the requirement that each application contain a reconciliation of all 
of the company's previously listed share reserves, will not reduce the 
quality or effectiveness of the Exchange's review of such additional 
listings, nor cause any unfair discrimination or disparate treatment 
among issuers.\15\ The Commission believes that not only will the 
proposal benefit listing companies by streamlining the application 
process (e.g., allowing incorporation by reference from other public 
documents) but it should also make the Exchange's review of additional 
listing applications more efficient.
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    \15\ The Commission notes that each application still will have 
to be accompanied by the required exhibits--e.g., Contract, Opinion 
of Counsel, Resolution, Amendment to Charter, etc.--prescribed in 
Section 330 (renumbered as 306 by this Order) of the Company Guide.
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    Second, the Exchange proposes establishing a listing standard 
specifically for banks. The Commission believes that this proposal is 
consistent with the purposes of the Act. The Exchange's existing 
distribution guidelines call for 500,000 shares and 800 holders, or, 
1,000,000 shares and 400 holders. The Exchange established this mix in 
order to accommodate a specialist's need in maintaining a fair and 
orderly market in each security. However, there are currently two 
circumstances under which the Exchange permits listing of securities 
with less than one million shares and only 400 shareholders: stocks 
which trade 2,000 shares a day or more, and warrants sold as part of a 
unit offering. The Exchange has indicated that it has not encountered 
any problems in providing an appropriate marketplace for these 
listings.
    The Commission recognizes that for more actively traded securities, 
(i.e., 2000 shares a day), a lower distribution standard appears 
appropriate because a minimum amount of liquidity is ensured. Although 
the Amex's proposal does not require minimum daily trading volume for 
bank stocks to be eligible for the lower standards, the Exchange 
indicates that it finds the shares of local banks to generally trade 
steadily, with relatively stable prices. Further, the Exchange notes 
that banks usually have well above the financial criteria for original 
listing and operate in a highly

[[Page 54830]]

regulated environment and believes the business risk associated with 
such listings to be minimal. Finally, as mentioned above, the same 
delisting criteria that apply to other stocks listed on the Exchange, 
continue to apply to bank stocks listed on the Amex.\16\ These factors 
help to support the Amex's belief that fair and orderly markets can be 
made for bank stocks listed under the proposed distribution and holder 
standards, and also ensure that the Amex can take the appropriate 
action to delist a bank stock when it falls below the existing 
delisting standards.
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    \16\ See supra note 8.
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    Based on the above, the Commission finds that the creation of a 
special set of distribution guidelines for bank stock is consistent 
with the requirements of Section 6(b)(5) of the Act \17\ and the rules 
and regulations thereunder applicable to a national securities exchange 
in that they are designed to remove impediments to, and perfect the 
mechanism of, a free and open market, and to protect investors and the 
public interest. In approving this portion of the Amex's proposal, the 
Commission notes that its rational is limited to the special case of 
bank stocks and continues to believe that higher initial distribution 
and holder requirements serve investors by ensuring a minimal level of 
liquidity and that a fair and orderly market can be maintained.
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    \17\ 15 U.S.C. Sec. 78f(b).
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    Finally, the Exchange proposes making a number of miscellaneous 
changes to bring its Company Guide in conformity with previously 
approved changes. These proposed changes involve sections 1003, 505 and 
220(b). The Exchange proposes to amend section 1003 to require that for 
continued listing purposes a company needs to have 300 public holders, 
and not 300 round lot holders. Similar changes to the Exchange's other 
public distribution guidelines were previously approved by the 
Commission.\18\ Accordingly, the Commission is approving the proposed 
changes to Section 1003 as the Exchange further updates its Company 
Guide.
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    \18\ See supra note 9.
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    The Exchange proposes amending Section 505 to adopt a $3 floor for 
stock dividends or forward splits of lower price issues. The Commission 
is approving this change to bring Section 505 into conformity with the 
original listing $3 minimum stock price set forth in Section 102(b) of 
the Company Guide.\19\ The Exchange also proposes amending Section 
220(b) of its Company Guide to incorporate the maximum listing fee 
applicable to foreign issuers. The Commission approves this amendment 
to make Section 220(b) consistent with the limit required by Section 
40.\20\
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    \19\ See supra note 10.
    \20\ See supra note 11.
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    Based on the above, the Commission finds that the proposed changes 
to Sections 1003, 505 and 220(b) are consistent with the requirements 
of the Act and the rules and regulations thereunder applicable to a 
national securities exchange, and, in general, to protect investors and 
the public, in that they will eliminate outdated references and revise 
these sections to conform to the other sections of the Company Guide.

IV. Conclusion

    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\21\ that the proposed rule change (SR-Amex-96-23) is approved.
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    \21\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-27037 Filed 10-21-96; 8:45 am]
BILLING CODE 8010-01-M