[Federal Register Volume 64, Number 107 (Friday, June 4, 1999)]
[Notices]
[Pages 30088-30091]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-14116]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-41459; File No. SR-NYSE-99-17]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Partial Accelerated Approval of Proposed Rule Change and
Amendment No. 1 Thereto by the New York Stock Exchange, Inc., Relating
to Original Listing Standards
May 27, 1999.
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 April 22, 1999, the New York Stock Exchange, Inc. (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change relating to the exchange's
original listing standards. The Exchange submitted Amendment No. 1 to
its proposal on May 19, 1999.\3\ The proposed rule change, as amended,
is described in Items I, II, and III below, which Items have been
prepared by the exchange. The Commission is publishing this notice to
solicit comments on the proposed rule change, as amended, from
interested persons and to grant partial accelerated approval to the
portion of the proposal instituting a Pilot relating to the listing
eligibility criteria for companies satisfying the Capitalization
Standard. The Pilot will expire on September 3, 1999, or at such
earlier time as the Commission grants the Exchange's request for
permanent approval of the program.
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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 (i) requested that the
Commission approve on an accelerated basis a 90-day pilot program
(``Pilot'') for the portion of the proposal adding a new original
listing standard applicable to both domestic and non-U.S. companies
with a $1 billion market capitalization and $250 million in revenues
in the most recent fiscal year (``Capitalization Standard''), (ii)
clarified that companies satisfying the Capitalization Standard are
subject to the Exchange's other original listing criteria (other
than the financial criteria), (iii) revised the text of the proposed
rule language to show changes against the current Listed Company
Manual (``Manual'') rather than the language proposed for adoption
in the pending filing, (iv) incorporated procedures for
reconciliation with U.S. GAAP in the third year in the Exchange's
proposed rule language and (v) removed the cash flow standard from
the text of the proposed rule language. See Letter from James Buck,
Senior Vice President and Secretary, NYSE, to Richard Strasser,
Assistant Director, Division of Market Regulation (``Division''),
Commission, dated May 18, 1999 (``Amendment No. 1``).
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[[Page 30089]]
I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Exchange proposes to implement a Pilot amendment sections
102.01 and 103.01 of the Manual to implement an alternative listing
eligibility criteria for companies satisfying the Capitalization
Standard.\4\ The proposed Pilot would expire on September 3, 1999, or
such earlier time as the Commission grants the Exchange's request for
permanent approval of the program.\5\ In addition, the Exchange
proposes to modify its pre-tax earnings standard applicable to non-U.S.
issuers. The text of the proposed rule change follows. New text is
italicized and deleted text is bracketed.
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\4\ See Amendment No. 1, supra note 3.
\5\ Telephone conversation between N. Amy Bilbija, Counsel,
NYSE, and Terri Evans, Attorney, Division, Commission, on May 19,
1999.
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NYSE Listed Company Manual
Section 1
The Listing Process
* * * * *
102.01 Minimum Numerical Standards
--Domestic Companies
--Equity Listing
* * * * *
For companies with not less than $500,000,000 market capitalization
and $200,000,000 revenues in the most recent fiscal year:
* * * * *
OR
For companies with not less than $1 billion in total worldwide
market capitalization and with not less than $250 million revenues in
the most recent fiscal year, there are no additional financial
requirements. For such companies listing in connection with an IPO, the
market capitalization valuation must be demonstrated by a written
representation from the underwriter (or, in the case of a spin-off, by
a written representation from the parent company's investment banker or
other financial advisor) of the total market capitalization of the
company upon completion of the offering (or distribution). For all
other such companies, the market capitalization valuation will be
determined over a six-month average.
* * * * *
103.01 Alternative Minimum Numerical Standards [--] for Non-U.S.
Companies--Equity Listings
* * * * *
Pre-tax income
$100 million cumulative for latest 3 years \6\ with $25 million
minimum in each of the most recent two [for any one of the 3] years.
Reconciliation to U.S. GAAP of the third year back would only be
required if the Exchange determines that reconciliation is necessary to
demonstrate that the aggregate $100,000 threshold is satisfied.
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\6\ Prior to the Commission's grant of permanent approval of the
Pilot, the NYSE plans to modify its pre-tax income standard to
insert the word ``fiscal'' into its reference to three years and two
years, respectively. Telephone conversation between N. Amy Bilbija,
Counsel, NYSE, and Richard Strasser, Assistant Director, Division,
Commission, on May 27, 1999.
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OR
For companies with not less than $1 billion in total worldwide
market capitalization and with not less than $250 million revenues in
the most recent fiscal year, there are no additional financial
requirements. For such companies listing in connection with an IPO, the
market capitalization valuation must be demonstrated by a written
representation from the underwriter (or, in the case of a spin-off, by
a written representation from the parent company's investment banker,
other financial advisor, or transfer agent) of the total market
capitalization of the company upon completion of the offering (or
distribution). For all other such companies, the market capitalization
valuation will be determined over a six-month average.
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 Exchange 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 Exchange 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 purpose of this proposed rule change is to add a new original
listing standard to the Exchange's domestic and non-U.S. numerical
listing criteria and to modify its current original listing criteria
applicable to non-U.S. issuers.
The Exchange's numerical listing criteria currently include
requirements regarding size, earnings and share distribution of a
company. The Exchange believes there are numerous companies that would
benefit from trading in its auction-agency market, but which are
excluded under the NYSE's current evaluative criteria. Therefore, the
Exchange is proposing to add a new alternative standard that focuses on
global market capitalization and revenues for large, global companies.
In addition, the Exchange believes that both its current numerical
original listing criteria and its current continued listing criteria
place too much emphasis on a company's earnings to the exclusion of
other relevant factors. The Exchange believes that the size and trading
price of the company, the depth of its shareholder base and the size of
the company's stockholders' equity are also important gauges when
evaluating both the original and continued listing status of a
company.\7\
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\7\ The Exchange intends to file in the near future a proposed
rule change with the Commission to address its continued listing
criteria.
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The specific proposed amendments to the Exchange's original listing
criteria are:
1. The Exchange is proposing, on a 90-day Pilot basis pending
Commission approval on a permanent basis, a Capitalization Standard
alternative to its other financial listing eligibility criteria.\8\
Under the proposed amendment to Paragraphs 102.01 and 103.01 of the
NYSE's Manual, a company with a total global market capitalization of
$1 billion and revenues of $250 million in its most recent fiscal year
would be eligible for listing on the Exchange without satisfying any
additional financial eligibility requirements. However, the company
would have to meet the Exchange's other original listing criteria.\9\
The Exchange believes that companies of this magnitude would be
appropriate for listing and trading on the NYSE even if, for example,
the company's stage of development, or the transitional nature
[[Page 30090]]
of its home economy, preclude earnings, or if is undergoing short-term
variations in profitability. This listing standard is proposed for both
domestic and non-U.S. companies.
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\8\ See Amendment No. 1, supra note 3.
\9\ Id.
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For companies listing in connection with an initial public offering
(``IPO''), the valuation of the company's market capitalization would
need to be demonstrated by a written representation from the
underwriter (or, in the case of a spin-off, by the parent company's
investment banker, other financial advisor, or transfer agent, if
applicable) of the size of the offering as it pertains to the total
market capitalization of the company upon completion of the offering
(or distribution). For all other companies, the average over the
preceding six months would be used to determine the market
capitalization of the company. In computing the six month average, the
Exchange proposes to take the average of the daily figures over the
preceding six months.
2. The Exchange currently has alternative numerical listing
criteria for non-U.S. companies with limited U.S. distribution.\10\ The
Exchange proposes to amend its pre-tax earnings standard for these
companies by requiring $25 million in pre-tax income in each of the two
most recent fiscal years. Currently, the company need only have pre-tax
earnings of $25 million in any one of the three most recent years.
Thus, to qualify under the proposed criteria, a non-U.S. issuer would
need to demonstrate pre-tax income of $100 million in the aggregate for
the last three fiscal years together with a minimum of $25 million of
pre-tax income in each of the two most recent fiscal years.
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\10\ The Exchange applies the general financial listing
standards in Paragraph 102.01 of its Manual both to domestic
companies and to non-U.S. companies that have the required
distribution and trading volume in the United States (or North
America, for North American companies). However, the section and
paragraph headings in the Manual suggest that those standards apply
only to U.S. companies. The Exchange is proposing to change the non-
U.S. heading to remove the implication by incorporating the word
``alternative.''
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The Exchange notes that its past experience indicates that non-U.S.
companies tend to follow U.S. GAAP/SEC disclosure guidelines, which
only require a U.S. GAAP reconciliation for the most recent two years
and any relevant interim period. Thus, the third year back is generally
reported only in local GAAP and, therefore, is of little quantitative
value to the Exchange without reconciliation to U.S. GAAP. As a result,
the proposed rule change would obviate the need to reconcile the third
year back to U.S. GAAP except where the Exchange determines that that
information is necessary to assure the Exchange that the aggregate $100
million threshold has been satisfied.
2. Statutory Basis
The Exchange believes that the basis under the Act for the proposed
rule change is the requirement under section 6(b)(5) \11\ 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 foster cooperation and coordination with
persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, 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.
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\11\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
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 neither solicited nor received any written
comments form members or other interested parties.
II. 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 appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(a) by order approved 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, as amended, is consistent with the Act. Persons making written
submissions should file six copies thereof with the Secretary,
Securities and Exchange Commission, 450 Fifth Street, NW, Washington,
DC 20549-0609. In particular, the Commission is seeking comment on
whether the Exchange should be required to list only those companies
that can show positive earnings in recent years notwithstanding their
market capitalization or revenues.
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 in Washington, DC. Copies of such
filing will also be available for inspection and copying at the
principal office of the Exchange. All submissions should refer to File
No. SRNYSE9917 and should be submitted by June 25, 1999.
V. Commission's Findings and Order Granting Partial Accelerated
Approval of Proposed Rule Change
The Commission finds that the proposed rule change relating to the
establishment of the Pilot is consistent with the requirements of the
Act and the rules and regulations thereunder applicable to a national
securities exchange. Specifically, the Commission believes the proposal
is consistent with the section 6(b)(5) \12\ requirements that the rules
of an exchange be designed to promote just and equitable principles of
trade, to remove impediments to and perfect the mechanisms of a free
and open market and a national market system, and in general, to
protect investors and the public.\13\ The Commission believes that the
Exchange's alternative financial listing standard for companies with $1
billion in market capitalization and $250 million in revenues in the
most recent fiscal year permits the Exchange to list very large
companies that the Exchange believes will prove to be successful moving
forward although they may not have been profitable in recent years. The
Commission further believes that the proposed Pilot is consistent with
the Exchange's obligation to remove impediments to and perfect the
[[Page 30091]]
mechanism of a free and open market. The Commission notes that there is
no guarantee that a company that satisfies the market capitalization
and revenue standard in the Pilot will achieve positive earnings in the
future. However, the Commission preliminarily does not believe it is
inconsistent with the Act for the NYSE to permit companies to list on
the Exchange that have not established positive earnings in recent
years.
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\12\ 15 U.S.C. 78f(b)(5).
\13\ In approving this rule change, 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 finds good cause for approving the Pilot prior to
the thirtieth day after the date of publication of notice thereof in
the Federal Register. The Commission believes that accelerated approval
of the Pilot will enable the Commission and the Exchange to gain
experience with the application of the Capitalization Standard before
the Commission considers permanent approval of the Pilot.\14\
Accordingly, the Commission believes that granting accelerated approval
of the Pilot is appropriate and consistent with sections 6(b)(5) and
19(b)(2) of the Act.\15\
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\14\ Approval of the 90-day Pilot period should not be
interpreted as suggesting that the Commission is predisposed to
approving the proposal on a permanent basis.
\15\ 15 U.S.C. 78f(b)(5) and 78s(b)(2).
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It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\16\ that the portion of the proposed rule change (File No. SR-
NYSE-99-17) relating to the Pilot program is approved until September
3, 1999, or until the Commission grants permanent approval to the
proposal.
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\16\ 15 U.S.C. 78s(b)(2).
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).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-14116 Filed 6-3-99; 8:45 am]
BILLING CODE 8010-01-M