[Federal Register Volume 63, Number 145 (Wednesday, July 29, 1998)]
[Notices]
[Pages 40575-40577]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-20248]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40253; File No. SR-NYSE-98-12]
Self-Regulatory Organizations; Order Granting Approval 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
July 23, 1998.
I. Introduction
On April 15, 1998, the New York Stock Exchange, Inc. (``NYSE'' 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
thereunder,\2\ a proposed rule change to amend its bond listing
procedure and practices. On April 30, 1998, the NYSE submitted to the
Commission Amendment No. 1 to the proposed rule change.\3\ The proposed
rule change, as amended, was published for comment in the Federal
Register on May 13, 1998.\4\ No comments were received regarding the
proposal. This order approves the proposed rule change, as amended.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 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, Exchange, to Michael Walinskas, Deputy Associate
Director, Division of Market Regulation, Commission, dated April 29,
1998. (``Amendment No. 1'').
\4\ Securities Exchange Act Release No. 39973 (May 7, 1998), 63
FR 26660.
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II. Description of the Proposal
The NYSE proposes to amend its Listed Company Manual (``Manual'')
to alter certain provisions regarding listing requirements for debt
securities and other debt security practices. Those provisions in the
Manual include:
(i) Interest Payments. Currently, Paragraph 204.18 requires that an
issuer or its paying agent notify the Exchange whenever the issuer
makes an interest payment, and the Exchange also requires an issuer to
notify the press and the Exchange whenever the issuer does not meet its
interest obligations. The proposal would delete the obligation to
inform the Exchange of interest payments made, whether by confirmation
cards or otherwise. And, the proposal also adds 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).
(ii) Multiple Facsimile Signatures. Paragraph 501.06 presently
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 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. When a single facsimile signature is used, the opinion
of counsel also must state that the actual facsimile signature to be
used has been duly adopted. Where two facsimile signatures are used,
the issuer must submit to the Exchange the board resolution adopting
the actual signatures to be used.
Although the Exchange would 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, it proposes to
discontinue the practice of requiring issuers to submit opinions of
counsel and board resolutions in respect of those requirements.
(iii) Discharge of Obligation upon Default of Funds. Paragraph
602.01 and Subparagraph (D) of Paragraph 703.06 currently 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 Exchange would remove this requirement from the Manual.
(iv) Clearance of Terms. Subparagraph (B) of Paragraph 703.06
presently asks an issuer to submit the indenture and registration terms
to the Exchange prior to applying to list a bond and to receive the
Exchange's clearance of the terms of those documents before the company
is permitted to use a ``listing intention
[[Page 40576]]
statement'' in the offering prospectus. The proposal would eliminate
these requirements and would amend Subparagraph (B) to clarify the
remaining portions of that Subparagraph. The remaining portions provide
guidance on the contents of a description of the issue. The Exchange
has clarified that the description of the issue is part of the listing
application for the security and is reviewed prior to the date the
security is listed.\5\
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\5\ See Letter From Fred Siesel, Director, Fixed Income Markets,
Exchange, to Kenneth M. Rosen, Attorney, Division of Market
Regulation, Commission, dated July 10, 1998 (``July 10 Letter'').
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(v) Delivery of Prospectus, Mortgage and/or Indenture. Subparagraph
(F) 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. The Exchange also requires the issuer to provide one
final copy of the 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 a 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.
(vi) Opinion of Counsel. Subparagraph (G) of Paragraph 703.06 now
requires an 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. Pursuant to the proposal, 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 accept as sufficient an issuer's
affirmation of the existence of the opinion of counsel. The Exchange
would continue to require the submission of the opinion of counsel for
Rule 144A offerings.
In addition, the Exchange would eliminate certain of the items that
currently must appear in the opinion of counsel. Specifically, the
Exchange would no longer 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.
III. Discussion
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of Section 6 of the Act. In
particular, the Commission believes the proposal is consistent with
Section 6(b)(5) of the Act.\6\ Section 6(b)(5) requires, among other
things, that the rules of the Exchange be designed to foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, and to remove impediments to
and perfect the mechanism of a free and open market and a national
market system.
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\6\ 15 U.S.C. 78f(b)(5). In approving this rule, the Commission
has considered the proposed rule's impact on efficiency,
competition, and capital formation. 15 U.S.C. 78c(f).
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The Commission agrees with the Exchange that the proposed changes
to the Manual should facilitate the listing process for debt securities
and should update rules and policies to better conform with current
practices. By eliminating certain requirements in the Manual, it should
become less burdensome for companies to follow relevant procedures.
This in turn should improve the transparency of the debt securities
market for all market participants, including investors. With less
burdensome rules and procedures, additional companies might list their
debt securities on the NYSE, thus increasing the number of these
securities accessible through and subject to the Exchange's trading and
disclosure systems.
Moreover, the Commission feels that such benefits should outweigh
any minimal protection afforded by eliminated provisions. Having
carefully reviewed each of the proposed changes to the Manual, the
Commission agrees with the Exchange's representation that each of the
eliminated provisions and document submission requirements are no
longer necessary.
More specifically, the Commission agrees that an issuer's
obligation to report to the press and to the Exchange failures to meet
payment obligations and unusual conditions and circumstances related to
and issuer's ability to meet interest payments sufficiently protects
investors without also continuing to require that issuers notify the
Exchange each time an interest payment is made.
Second, as to facsimile signatures, recognizing the continued
requirements that issuers authorized the use of such signatures, adopt
the specific facsimile signature to be used, and comply with relevant
state laws and charter, by-law, and indenture provisions, it is
appropriate to eliminate additional submissions of opinions of counsel
and board resolutions related to such requirements. The Commission
notes the increased acceptance of facsimile signatures and agrees with
the Exchange that the remaining requirements related to such signatures
should adequately protect the public.
Third, the Commission concurs with the elimination of the
prohibition against a debt security's indenture discharging 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. As the Exchange represented, the prohibition addressed 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 Exchange notes that the practice of advance security
deposits is no longer in use. The Commission agrees that this along
with protections now afforded bondholders by the Trust Indenture Act
and the fact that an issuer's defeasance does not normally discharge
that issuer's payment obligation to the bondholder as set forth in the
debt instrument weigh in favor of removing the ban.
Fourth, the Commission also finds that elimination of early
submission and prior clearance requirements are permissible. The
Commission notes that when evaluating a bond for listing, the Exchange
currently examines whether the issuer's equity security is listed on
the Exchange or, if the issuer does not list an equity security on the
Exchange, whether a nationally recognized security rating organization
has rated the debt issue no lower than a Standard & Poors' ``B'' rating
or its equivalent. This evaluation should give the Exchange sufficient
indication of whether the issuer should be permitted to move forward
with the listing process prior to a debt security's listing.
Furthermore, the Exchange explains that nothing in its filing on
[[Page 40577]]
bond listing procedures in any way changes the Exchange's substantive
debt listing standards nor the Exchange's enforcement of those
standards, such as the requirement that to be listed the issue must
have a par value of at least $5,000,000.\7\
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\7\ See July 10 Letter.
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As for early review of indenture terms, what continued to
necessitate such review was the prohibition against defeasance
discussed above. However, by eliminating that requirement, the Exchange
eliminates the last justification of its need to pre-clear indenture
and registration terms. Despite these changes, the Commission notes
that the Exchange has represented that issuers may still contact the
Exchange to discuss the issue's eligibility prior to engaging in the
process of completing a listing application when it is uncertain as to
whether it will qualify for listing.
Fifth, the Commission finds that it is appropriate for the Exchange
to ease certain document submission requirements when those documents
are readily available to the Exchange through electronic services. The
Exchange has clarified that for such a service to qualify as
satisfactory, it must be one to which the Exchange subscribes, and the
NYSE also has noted its access to other SEC public document services
through the Internet.\8\ Consequently, in carrying out its review of
debt securities, the Exchange should continue to have ready access to
documents which no longer need to be physically submitted by an issuer.
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\8\ See July 10 Letter.
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Sixth, substituting the affirmation of the existence of an opinion
of counsel for a copy of the opinion should also facilitate the listing
process. The Commission accepts the Exchange's representation that its
physical possession of the opinion of counsel is no longer necessary
because in connection with an underwritten offering the Exchange rarely
has need to refer to that opinion, and the Exchange can direct the
issuer to provide an opinion should the need arise.\9\ Moreover,
eliminating content from such opinion should not have a substantial
impact. Because the Exchange represents that it has rarely used or
relied upon the opinion's description of regulatory proceedings,
deletion appears to sacrifice little, while serving to simplify the
opinion. In addition, the Commission accepts the use of a listing-
application signature of an authorized officer of the issuer as
assurance of the board's authorization of the issue and of listing the
issue on the Exchange. Moreover, should the Exchange ultimately need to
review an opinion, it then could inquire as to any affiliation of the
opinion's writer with the issuer.\10\
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\9\ See July 10 Letter.
\10\ See Amendment No. 1.
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Finally, the Commission wishes to emphasize again that the proposal
does not affect the NYSE's substantive quantitative debt listing
standards.\11\ And, having reviewed the proposal in light of the
requirements and protections that remain in the Manual, the Commission
believes that adequate information will remain publicly available to
inform investors about the quality of issuers and their debt
securities.
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\11\ See July 10 Letter.
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\12\ that the proposed rule change (SR-NYSE-98-12), as amended, is
approved.
\12\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-20248 Filed 7-28-98; 8:45 am]
BILLING CODE 8010-01-M