[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