[Federal Register Volume 63, Number 92 (Wednesday, May 13, 1998)]
[Notices]
[Pages 26660-26662]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-12706]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39973; File No. SR-NYSE-98-12]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 Thereto by the New York Stock Exchange, Inc. 
Relating To Changes in Bond Listing Procedures and Practices

May 7, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), \1\ notice is hereby given that on April 15, 1998, the New 
York Stock Exchange, Inc. (``NYSE'' or ``Exchange'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change as described in Items I, II, and III below, which Items have 
been prepared by the NYSE. On April 30, 1998, the NYSE submitted to the 
Commission Amendment No. 1 to the proposed rule change.\2\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ In Amendment No. 1, the Exchange made technical corrections 
to the proposed rule change and clarified the purpose of the 
proposal. See Letter from James E. Buck, Senior Vice President and 
Secretary, NYSE, to Michael Walinskas, Deputy Associate Director, 
Division of Market Supervision, dated April 29, 1998 (``Amendment 
No. 1'').
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to amend its Listed Company Manual to make 
certain changes regarding the listing requirements for debt securities 
and other debt security practices.

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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to make certain changes to its rules, 
standards and procedures relating to debt securities. The changes are 
designed to facilitate the process for listing debt securities on the 
Exchange and to update certain rules and policies to conform to todays 
practices.
    (a) Interest Payments. Paragraph 204.18 (Interest Payments) of the 
Listed Company Manual requires an issuer or its paying agent to notify 
the Exchange whenever it makes an interest payment. The obligation can 
be satisfied through the use of confirmation cards where that is 
appropriate. It also requires the issuer to notify the press and the 
Exchange whenever it does not meet its interest obligations. The 
Exchange proposes to delete the obligation to inform the Exchange of 
interest payments, whether by confirmation cards or otherwise.
    Instead, the Exchange feels that reliance upon an issuer's 
obligation to report its failure to meet a payment obligation 
adequately protects the holders of debt securities. The Exchange is 
also proposing to add to the end of Paragraph 204.18 a cross-reference 
to 202.00, which reminds issuers that they are required to disclose 
material information (including the inability to meet payment 
obligations).
    The Exchange believes that the issuer's obligation to report 
immediately to the press and the Exchange a failure to meet an interest 
payment or any unusual circumstance or condition relating to its 
ability to meet an interest payment makes the practice of mailing and 
collecting interest payment confirmation cards an administrative burden 
that is not necessary to the proper monitoring and surveillance of debt 
securities.
    (b) Multiple Facsimile Signatures. Paragraph 501.06 (Bond 
Signatures) requires bonds to be executed, either manually or by 
facsimile machine, by two of the issuer's officers. Whether the issuer 
uses one facsimile signature (and one manual signature) or two 
facsimile signatures, the Exchange currently requires the issuer to 
submit an opinion

[[Page 26661]]

of counsel that states that the use of each facsimile signature (a) is 
specifically authorized by (or at least is not inconsistent with) the 
issuer's charter or by-laws and the issue's indenture, and (b) is valid 
and effective under the laws of the state of the issuer's 
incorporation. In the case of the use of a single facsimile signature, 
the opinion of counsel must also state that the actual facsimile 
signature to be used has been duly adopted. In the case of the use of 
two facsimile signatures, the issuer is required to submit to the 
Exchange the board resolution adopting the actual signatures to be 
used.
    The Exchange believes that it remains appropriate to subject an 
issuer's use of facsimile signatures to each of those requirements. 
However, the Exchange believes that it is not necessary to require the 
issuer to provide opinions of counsel and board resolutions to the 
Exchange in connection with those requirements.
    The Exchange therefore proposes to continue to require issuers to 
authorize the use of facsimile signatures, to adopt the specific 
facsimile signatures to be used, to comply with charter, by-law and 
indenture provisions and to comply with state laws, but to discontinue 
the practice of requiring issuers to submit opinions of counsel and 
board resolutions in respect of those requirements. The Exchange 
believes that improvements in facsimile technology, increased 
acceptance of facsimile signatures in the business world and the 
streamlining of the listing process will justify the proposed updating 
of rules regulating the use of facsimile signatures.
    (c) Discharge of Obligation upon Default of Funds. Paragraph 602.01 
(Requirements for a Depository for Funds) and Subparagraph (D) of 
paragraph 703.06 each require, in part, that a debt security's 
indenture may not discharge the issuer's payment obligation if the 
funds representing payment are deposited with the trustee, depository 
or paying agent more than ten days before the date on which the funds 
become available to bond holders. The prohibition addresses the 
practice of depositing securities with the trustee in advance of a 
payment obligation as a way of satisfying a restrictive covenant where 
the indenture does not provide for prepayment.
    The Exchange adopted those provisions to protect bondholders prior 
to the enactment of the Trust Indenture Act and the widespread use of 
early call provisions. However, the practice of advance security 
deposits is no longer in use. That plus (a) the protections afforded to 
bondholders by the Trust Indenture Act and (b) the fact that an 
issuer's defeasance does not normally discharge the issuer's payment 
obligation to the bondholder as set forth in the debt instrument have 
led the Exchange to believe that it is appropriate to remove the 
prohibition from the Listed Company Manual.
    (d) Clearance of Terms. Subparagraph (B) (Clearance of Terms) of 
Paragraph 703.06 currently asks an issuer to submit the indenture and 
registration terms to the Exchange prior to applying to list the bond 
and to receive the Exchange's clearance of the terms of those documents 
before the company is permitted to use a ``listing intention 
statement'' in the offering prospectus. The Exchange no longer believes 
that early submission and prior clearance are necessary to the listing 
process and proposes to eliminate both requirements.
    Today, in determining whether a bond qualifies for listing on the 
Exchange, the Exchange determines whether (a) the issuer's equity 
security is listed on the Exchange (in which case, the issue's debt 
securities qualify for listing) or (b) if the issuer does not list its 
equity security on the Exchange, a nationally recognized security 
rating organization has rated the debt issue no lower than a Standard & 
Poors' ``B'' rating or its equivalent. As a result, the Exchange no 
longer needs to pre-clear the issuer's financial statements and the 
like in determining whether the debt security qualifies for an Exchange 
listing. The one item that has required the Exchange to continue to 
review indenture terms has been the prohibition against defeasance 
discussed in paragraph (iii) above. However, by eliminating that 
requirement, the Exchange eliminates the last justification of its need 
to pre-clear indenture and registration terms. Of course, if an issuer 
is uncertain as to whether it will qualify for listing, it is welcome 
to contact the Exchange to discuss the issue's eligibility prior to 
engaging in the process of completing a listing application.
    The Exchange also proposes to make some non-substantive changes to 
Subparagraph (B) that clarifies the remaining portions of that 
Subparagraph.
    (e) Delivery of Prospectus, Mortgage and/or Indenture. Subparagraph 
(F) (Debt Securities Listing Application Supporting Documents) of 
Paragraph 703.06 currently requires the issuer to provide with its 
listing application four copies of a security's prospectus if the debt 
security has been issued for 12 months or less and to provide one copy 
of the prospectus if the debt security has been issued for more than 12 
months. It also requires the issuer to provide one final copy of an 
issuer's mortgage or indenture.
    The Exchange proposes to change those document delivery 
requirements if the issuer makes the document publicly available by 
means of a disclosure service (such as Disclosure, Inc.) that the 
Exchange finds satisfactory. If the document is available in that 
manner, the Exchange would no longer require the issuer to submit the 
final copy (in the case of a mortgage or indenture) and would require 
the issuer to submit only one copy of the prospectus, even if the debt 
security has been issued for 12 months or less.
    The Exchange feels that modern technologies grant the Exchange 
ready and dependable access to documents and thereby reduce the need to 
require issuers to provide documents themselves.
    (f) Opinion of Counsel. Subparagraph (G) (Opinion of Counsel) of 
Paragraph 703.06 currently requires the issuer to provide the Exchange 
with an opinion of counsel that verifies such things as the validity of 
the debt securities and the authorization for the issuance. While the 
Exchange continues to believe that the opinion plays an important role 
in the listing process, the Exchange believes that its physical 
possession of the opinion is not necessary in most cases. Specifically, 
the Exchange believes that an issuer's affirmation of the existence of 
the opinion of counsel will suffice for issues that a registered 
broker-dealer purchases from the issuer with a view toward resale, 
whether through an underwritten public offering or otherwise. (The 
Exchange would continue to require the submission of the opinion of 
counsel for Rule 144A offerings.) The Exchange proposes to amend 
Subparagraph (G) accordingly.
    Substituting the affirmation for a copy of the opinion facilitates 
the listing process for issuers because it forestalls any need of the 
issuer to procure counsel's consent to share the opinion with the 
Exchange.
    In addition, the Exchange believes that it is appropriate to 
eliminate certain of the items that it requires for inclusion in the 
opinion of counsel. Specifically, the Exchange believes that it is no 
longer necessary to require the opinion (a) to set forth the date, 
nature and status of orders or proceedings of regulatory authorities 
relating to the issuance of securities that are the subject of a 
listing application, (b) to state that the Board has authorized the 
issuing and listing of the securities, and (c) to disclose an 
affiliation of the counsel to the issuer.

[[Page 26662]]

    The Exchange has rarely used or relied upon the opinion's 
description of regulatory proceedings. Its deletion would sacrifice 
little, while serving to simplify the opinion. In addition, the 
Exchange believes that the listing-application signature of an 
authorized officer of the issuer provides sufficient assurance of the 
board's authorization of the issue and of listing the issue on the 
Exchange.\3\
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    \3\ As for the elimination of the requirement to disclose 
counsel's affiliation to the issuer, in Amendment No. 1, the NYSE 
stressed that in most cases issuers no longer would have to furnish 
the opinion of counsel. The Exchange notes that if it needed to 
request, review, and/or rely on an opinion, the NYSE could then 
inquire about the opinion's source and any relevant affiliations. 
See Amendment No. 1.
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2. Statutory Basis
    The basis under the Act for the proposed rule change is the 
requirement under Section 6(b)(5) that an exchange have rules that are 
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 national 
market system, and, in general, to protect investors and the public 
interest.

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

    The proposed rule change does not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act.

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

    The Exchange has not solicited, and does not intend to solicit, 
comments on the proposed rule change. The Exchange has not received any 
unsolicited written comments from members or other interested parties.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be pro and publishes its reasons for so finding or (ii) as to which the 
self-regulatory organization consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. 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 Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
NYSE. All submissions should refer to the File No. SR-NYSE-98-12 and 
should be submitted by June 3, 1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\4\
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    \4\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-12706 Filed 5-12-98; 8:45 am]
BILLING CODE 8010-01-M