[Federal Register Volume 64, Number 147 (Monday, August 2, 1999)]
[Notices]
[Pages 41986-41992]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-19716]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41648; File No. SR-NYSE-99-29]


Self-Regulatory Organizations; Filing and Order Granting Partial 
Accelerated Approval of Proposed Rule Change by the New York Stock 
Exchange, Inc. Instituting a Pilot Program Relating to Continued 
Listing Standards

July 26, 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 June 22, 1999, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change has described in 
Items, I, II, and III below, which items have been prepared by the 
Exchange. The Commission is publishing this notice and order to solicit 
comments on the proposed rule change from interested persons and to 
grant partial accelerated approval to the portion of the proposal 
instituting a pilot program relating to continued listing standards.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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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 Section 8 of its Listed Company 
Manual (``Manual''), and to make corresponding changes to NYSE Rule 
499, regarding its criteria governing the continued listing of 
securities. The Exchange proposes to implement these changes 
immediately pursuant to a Pilot program (``Pilot'') that would expire 
on November 1, 1999, or such earlier time as the Commission approves 
the Exchange's request for permanent approval of the program.\3\

[[Page 41987]]

The text of the proposed rule change follows.\4\ New text is italicized 
and deleted text is bracketed.\5\
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    \3\ Telephone conversation between N. Amy Bilbija, Counsel, 
NYSE, and Heather Traeger, Attorney, Division of Market Regulation 
(``Division''), SEC, on July 9, 1999.
    \4\ The Exchange notes that it recently received approval from 
the Commission to amend many aspects of the NYSE's listing and 
continued listing programs. The proposed rule language set forth 
here shows changes against the new text approved by the Commission, 
but not yet incorporated into the Manual. See Securities Exchange 
Act Release No. 41502 (June 9, 1999), 64 FR 32588 (June 17, 1999) 
(order approving File No. SR-NYSE-99-13) (``Release No. 41502'').
    \5\ Several minor technical changes were made to the proposed 
rule text pursuant to a telephone conversation between N. Amy 
Bilbija, Counsel, NYSE, and Heather Traeger, Attorney, Division, 
SEC, on July 9, 1999.
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NYSE Listed Company Mutual

* * * * *

Section 8

Suspension and Delisting

801.00  Policy

* * * * *

802.00  Continued Listing

802.01  Continued Listing Criteria

* * * * *
    The Exchange would normally give consideration to delisting a 
security of either a domestic of non-U.S. issuer [a company] when:
    802.01A. Distribution Criteria for Capital or Common Stock--
* * * * *
[ Aggregate market value of publicly-held shares, (A) subject 
to adjustment depending on market conditions, as described below (C) is 
less than--$8,000,000]
    [(C) Calculation of Adjustment
    On January 15 and July 15 of each year, the NYSE Composite Index at 
the close of business for that date, or on the next succeeding business 
day if the Exchange is closed, is divided by the base value of 55.06 
(the NYSE Composite Index for July 15, 1971, the date upon which the 
$5,000,000 standard was adopted). The $5,000,000 standard is multiplied 
by the adjustment factor as so calculated (after rounding to the 
nearest thousandth). The resulting product is rounded to the nearest 
$100,000.
    The adjustment is made only when the NYSE Composite Index is lower 
than that of the base value, and is limited to a maximum reduction of 
50% to a $2,500,000 standard which will be in effect for the succeeding 
six months following the calculation.
    Since the NYSE Composite Index has remained above 55.06 in recent 
years, no adjustment has been necessary and the standard has remained 
at $5,000,000.]
* * * * *
    [Earnings--
     Aggregate market value of shares outstanding (excluding 
treasury stock) is less than--$12,000,000 and average net income (D) 
after taxes for past 3 years is less than--$600,000
     Net tangible assets available to common stock are less 
than--$12,000,000 and average net income (D) after taxes for past 3 
years in less than--$600,000
    (D) For a company that included in its original listing application 
adjustments to historical financial data, during the first three years 
following the date of its original listing, the Exchange will calculate 
the company's average net income after taxes for any year considered in 
assessing its qualification for listing taking into consideration those 
specific adjustments made to the company's historical financial data 
for that year in the original listing application.]
* * * * *
    [Adjusted Net Income--
     For companies that, on listing, demonstrated earning power 
by meeting the listing standards requiring minimum levels of adjusted 
net income, and for companies that are currently valued on a ``cash 
flow'' basis, as described in Para. 102.01 of this Listed Company 
Manual: Aggregate market value of shares outstanding (excluding 
treasury stock) is less than--$25,000,000 and average adjusted net 
income for past 3 years is less than--$6,500,000
    Bonds--
     The aggregate market value or principal amount of 
publicly-held bonds is less than--$1,000,000
    The issuer is not able to meet its obligations on the listed debt 
securities.
    Preferred Stock, Guaranteed Railroad Stock and Similar Issues
     Aggregate market value of publicly-held shares is less 
than--$2,000,000
     Publicly-held shares is less than--100,000]
    802.01B. Numerical Criteria for Capital or Common Stock--
    If a company falls below any of the following criteria, it is 
subject to the procedures outlined in Paras. 802.02 and 802.03:
     Total global market capitalization is less than 
$50,000,000 and total stockholders' equity (or net assets for Funds) is 
less than $50,000,000 (C); or
     Average global market capitalization over a consecutive 30 
trading-day period is less than $15,000,000; or
    For companies that qualify under the ``global market 
capitalization'' standard:
     Total global market capitalization is less than 
$500,000,000 and total revenues are less than $50,000,000 over the last 
12 months (unless the resultant entity qualifies as an original listing 
under one of the other standards) (C)
OR
     Average global market capitalization over a consecutive 30 
trading-day period is less than $100,000,000.
    Funds--Until a fund has operated for three years, it shall be held 
to a continued listing standard of $30,000,000 in both total market 
capitalization and net assets. Regardless of the length of time a fund 
has been operating at the time of its initial listing, once it has 
operated for three years, it shall be held to the financial criteria 
outlined at the beginning of this Para. 802.01B. At all times, all 
funds must (1) maintain their closed-end status and (2) maintain a 
minimum market capitalization of $15,000,000.
    REITs--Until a REIT has operated for three years, it shall be held 
to a continued listing standard of $30,000,000 in both total market 
capitalization and stockholders' equity. Regardless of the length of 
time a REIT has been operating at the time of its initial listing, once 
it has operated for three years, it shall be held to the financial 
criteria outlined at the beginning of this Para. 802.01B. At all times, 
all REITs must (1) maintain their REIT status (unless the resultant 
entity qualifies as an original listing as a corporation), and (2) 
maintain a minimum market capitalization of $15,000,000.
    Bonds--
     The aggregate market value or principal amount of 
publicly-held bonds is less than--$1,000,000
     The issuer is not able to meet its obligations on the 
listed debt securities.
    Preferred Stock, Guaranteed Railroad Stock and Similar Issues--
     Aggregate market value of publicly-held shares is less 
than--$2,000,000 Publicly-held shares is less than--100,000
    (C) A company that is determined to be below this continued listing 
criteria must re-establish both its market capitalization and its 
stockholders' equity (or net assets for Funds) or revenues, as 
applicable, to be considered in conformity with continued listing 
standards pursuant to Paras. 802.02 and 802.03.

802.01C. Price Criteria

    Average closing price of a security is less than $1.00 over a 
consecutive 30-trading-day period (D).
    (D) Once notified, the company must bring its average share price 
back above $1.00 within the six months following

[[Page 41988]]

receipt of the notification. If this is the only criteria that makes 
the company below the Exchange's continued listing standards, the 
procedures outlined in Paras. 802.02 and 802.03 do not apply. The 
company must, however, notify the Exchange, within 10 business days of 
receipt of the notification, of its intent to cure this deficiency or 
be subject to suspension and delisting procedures. In the event that at 
the expiration of the six-month cure period, a $1.00 average share 
price over the preceding 30 trading days is not attained, the Exchange 
will commence suspension and delisting procedures.

802.01D. Other Criteria--

    If any of the following factors apply to a listed company, the 
Exchange may in its sole discretion subject the company to the 
procedures outlined in Paras. 802.02 and 802.03:
* * * * *
    Bankruptcy and/or Liquidation--
    An intent to file under any of the sections of the bankruptcy law 
has been announced or a filing has been made or liquidation has been 
authorized and the company is committed to proceed. If a company files 
or announces an intent to file for reorganization relief under the 
bankruptcy laws (or an equivalent foreign law), the Exchange may 
exercise its discretion to continue the listing and trading of the 
securities of the company. However, if a company that is below any 
continued listing standard enumerated in Para. 802.01B above (which may 
be determined on the basis of price indications) files or announces an 
intent to file for relief under any provisions of any bankruptcy laws, 
it is subject to immediate suspension and delisting. Similarly, if a 
company that files or announces an intent to file for relief under any 
provisions of any bankruptcy laws subsequently falls below any 
continued listing standard enumerated in Para. 802.01B above (which may 
be determined on the basis of price indications), it is subject to 
immediate suspension and delisting.
* * * * *
    The Exchange is not limited by the criteria set forth above. 
Rather, it may make an appraisal of, and determine on an individual 
basis, the suitability for continued listing of an issue in the light 
of all pertinent facts whenever it deems such action appropriate, even 
though a security meets or fails to meet any enumerated criteria. Other 
factors which may lead to a company's delisting include:
* * * * *
     Unsatisfactory financial conditions and/or operating 
results.
     Most recent independent public accountant's opinion on the 
financial statements contains a:
     Qualified opinion;
     Adverse opinion;
     Disclaimer opinion; or
     Unqualified opinion with a ``going concern'' emphasis.
* * * * *

802.02  Continued Listing Evaluation and Follow-Up Procedures for 
Domestic Companies

* * * * *
    If the Exchange accepts the Plan, the Exchange will review the 
company on a quarterly basis for compliance with the Plan. If the 
company fails to meet the material aspects of the Plan or any of the 
quarterly milestones, the Exchange will review the circumstances and 
variance, and determine whether such variance warrants commencement of 
suspension and delisting procedures. Should the Exchange determine to 
proceed with suspension and delisting procedures, it may do so 
regardless of the company's continued listing status at that time. In 
any event, if the company does not meet continued listing standards at 
the end of the 18-month period, the Exchange promptly will initiate 
suspension and delisting procedures.
    If the company did meet continued listing standards at the end of 
the 18-month Plan period but, within twelve months of the end of the 
18-month period, it is again determined to be below continued listing 
standards, the Exchange will examine the relationship between the two 
incidents of falling below continued listing standards and re-evaluate 
the company's method of financial recovery from the first incident. It 
will then take appropriate action, which, depending upon the 
circumstances, may include truncating the procedures described above or 
immediately initiating suspension and delisting procedures.
* * * * *

802.03  Continued Listing Evaluation and Follow-up Procedures for 
Non-U.S. Companies

* * * * *
    If the Exchange accepts the Plan, the Exchange will review the 
company on a semi-annual basis for compliance with the Plan. If the 
company fails to meet the material aspects of the Plan or any of the 
semi-annual milestones, the Exchange will review the circumstances and 
variance, and determine whether such variance warrants commencement of 
suspension and delisting procedures. Should the Exchange determine to 
proceed with suspension and delisting procedures, it may do so 
regardless of the company's continued listing status at that time. In 
any event, if the company does not meet continued listing standards at 
the end of the 18-month period, the Exchange will promptly initiate 
suspension and delisting procedures.
* * * * *
    If the company did meet continued listing standards at the end of 
the 18-month Plan period but, within twelve months of the end of the 
18-month period, it is again determined to be below continued listing 
standards, the Exchange will examine the relationship between the two 
incidents of falling below continued listing standards and re-evaluate 
the company's method of financial recovery from the first incident. It 
will then take appropriate action, which, depending upon the 
circumstances, may include truncating the procedures described above or 
immediately initiating suspension and delisting procedures.

NYSE Rules

Delisting of Securities, Suspension From Dealings or Removal From 
List by Action of the Exchange

    The aim of the New York Stock Exchange is to provide the foremost 
auction market for securities of well-established companies in which 
there is a broad public interest and ownership.
    Rule 499.
* * * * *
    .10  General.
* * * * *
    The Exchange is not limited by what is set forth under the heading 
``Numerical and Other Criteria.'' Rather, it may make an appraisal of, 
and determine on an individual basis, the suitability for continued 
listing of an issue in the light of all pertinent facts whenever it 
deems such action appropriate, even though a security meets or fails to 
meet any enumerated criteria. Many factors might be considered in this 
connection, e.g., the failure of a company to make timely, adequate, 
and accurate disclosures of information to its shareholders and the 
investing public or to observe good accounting practices in reporting 
earnings and financial position; other conduct not in keeping with 
sound public policy; unsatisfactory financial conditions and/or 
operating results; most recent independent accountant's opinion on the 
financial statements contains a (a) qualified opinion, (b) adverse 
opinion, (c) disclaimer opinion, or (d) unqualified opinion with a 
``going concern'' emphasis;
* * * * *

[[Page 41989]]

    .20  NUMERICAL AND OTHER CRITERIA.--WHEN A COMPANY FALLS BELOW ANY 
OF THESE CRITERIA, THE EXCHANGE MAY GIVE CONSIDERATION TO ANY 
DEFINITIVE ACTION THAT A COMPANY WOULD PROPOSE TO TAKE THAT WOULD BRING 
IT ABOVE CONTINUED LISTING STANDARDS.
    [Furthermore, w] Where a listed company which falls below any of 
these criteria proposes to effect a combination with an unlisted 
company in a manner in which, in the opinion of the Exchange, would 
result in the acquisition of the listed company by the unlisted 
company, regardless of which company is the survivor in the 
combination, the Exchange will normally not approve the listing of the 
additional shares arising out of the combination unless the company 
resulting from the combination meets the original listing standards of 
the Exchange in all respects.
* * * * *
    The Exchange would normally give consideration to suspending or 
removing from the list a security of a company, whether it be a 
domestic or non-U.S. issuer, when:
* * * * *
    [3. Aggregate market value of publicly-held shares, * subject to 
adjustment ** depending on market conditions, is less than $8,000,000.
    * Shares held by officers, directors, or their immediate families 
and other concentrated holding of 10% or more are excluded in 
calculating the number of publicly-held shares.
    ** Value subject to adjustment as described below:
Calculation of Adjustment
    On January 15 and July 15 of each year the New York Stock Exchange 
Composite Index at the close of business for that date, or on the next 
succeeding business day if the Exchange is closed, would be divided by 
the base value of 55.06, the NYSE Composite Index for July 15, 1971 and 
also the date on which the $5,000,000 criterion was adopted, and then 
multiplied by the $5,000,000 criterion, and then rounded to the nearest 
$100,000.
    Example:

NYSE Composite Index July 15, 1975
    51.24

=93.1%  x  $5,000,000=$4,700,000

NYSE Composite Index Base Year
    55.06

    The adjustment is made only when the Composite Index is lower than 
that of the base value, and is limited to a maximum reduction of 50% to 
a $2,500,000 criterion, and will be in effect for the succeeding six 
months following the calculation.
    4. Aggregate market value of shares outstanding (excluding treasury 
stock) is less than--$12,000,000 and
    Average net income after taxes for past 3 years is less than--
$600,000
    5. Net tangible assets available to common stock are less than--
$12,000,000 and
    Average net income after taxes for past 3 years is less than--
$600,000]
    [6.] 3.
    4. Total global market capitalization is less than $50,000,000 and 
total stockholders' equity (or net assets for Funds) is less than 
$50,000,000. A company that is determined to be below this continued 
listing criteria must re-establish both its market capitalization and 
its stockholders' equity (or net assets for Funds) to be considered in 
conformity with continued listing standards pursuant to Paras. 802.02 
and 802.03.
    5. Average global market capitalization over a consecutive three-
month period is less than $15,000,000.
    6. For companies that qualify under the ``global market 
capitalization'' standard:
     Total global market capitalization is less than 
$500,000,000 and total revenues are less than $50,000,000 over the past 
12 months. A company that is determined to be below this continued 
listing criteria must re-establish both its market capitalization and 
its revenues to be considered in conformity with continued listing 
standards pursuant to Paras. 802.02 and 802.03. OR
     Average global market capitalization over a consecutive 30 
trading-day period is less than $100,000,000
    7. Funds--Until a fund has operated for three years, it shall be 
held to a continued listing standard of $30,000,000 in both total 
market capitalization and net assets. Regardless of the length of time 
a fund has been operating at the time of its initial listing, once it 
has operated for three years, it shall be held to the financial 
criteria outlined in sections 4-6 above. At all times, all funds must 
(1) maintain their closed-end status, and (2) maintain a minimum market 
capitalization of $15,000,000.
    8. REITs--Until a REIT has operated for three years, it shall be 
held to a continued listing standard of $30,000,000 in both total 
market capitalization and stockholders' equity. Regardless of the 
length of time a REIT has been operating at the time of its initial 
listing, once it has operated for three years, it shall be held to the 
financial criteria outlined in sections 4-6 above. At all times, all 
REITs must (1) maintain their REIT status (unless the resultant entity 
qualifies as an original listing as a corporation), and (2) maintain a 
minimum market capitalization of $15,000,000.
    9. Average closing price of a security is less than $1.00 over a 
consecutive 30 trading-day period. Once notified, the company must 
bring its average share price back above $1.00 within the six months 
following receipt of the notification. If this is the only criteria 
that makes the company below the Exchange's continued listing 
standards, the procedures outlined in Paras. .50 and .60 of this Rule 
499 do not apply. The company must, however, notify the Exchange, 
within 10 business days of receipt of the notification, of its intent 
to cure this deficiency. In the event that at the expiration of the 
six-month cure period, a $1.00 average share price over the preceding 
30 trading days is not attained, the Exchange will commence suspension 
and delisting procedures.
* * * * *
    [11.]14. Bankruptcy and/or Liquidation.--An intent to file under 
any of the sections of the bankruptcy law has been announced or a 
filing has been made of that liquidation has been authorized and the 
company is committed to proceed. If a company files or announces an 
intent to file for reorganization relief under the bankruptcy laws (or 
an equivalent foreign law), the Exchange may exercise its discretion to 
continue the listing and trading of the securities of the company. 
However, if a company that is below any continued listing standard 
enumerated in sections 4-6 above (which may be determined on the basis 
of price indications) files or announces an intent to file for relief 
under any provisions of any bankruptcy laws, it is subject to immediate 
suspension and delisting. Similarly, if a company that files or 
announces an intent to file for relief under any provisions of any 
bankruptcy laws subsequently falls below any continued listing standard 
enumerated in sections 4-6 above (which may be determined on the basis 
of price indications), it is subject to immediate suspension and 
delisting.
    {Renumber current paragraphs 7 through 20 of Rule 499.20 as 
paragraphs 10 through 23, respectively, of Rule 499.20.}

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,

[[Page 41990]]

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 Exchange proposes to modify several of its existing continued 
listing criteria, to codify certain Exchange policies regarding its 
continued listing criteria, to replace certain of the current criteria 
with new continued listing criteria, and to create subsections in the 
continued listing section.
    The Exchange's current numerical continued listing criteria include 
requirements regarding size, earnings, and share distribution.\6\ The 
Exchange believes that, in contrast to the current standards' focus on 
earnings and net tangible assets, a company's market capitalization, 
the breadth of its shareholder base and the size of its stockholders' 
equity are better gauges for evaluating the continued listing status of 
a company.
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    \6\ Currently, the Exchange's financial criteria subject a 
company to delisting if it has: an aggregate market value of its 
policy-held common stock of less than $8 million; or net tangible 
assets or an aggregate market value of its common stock of less than 
$12 million and average net income of less than $600 thousand for 
the past three years; or for ``cash flow companies,'' an aggregate 
market value of shares outstanding (excluding treasury stock) of 
less than $25 million and average ``adjusted net income'' for the 
past three years of less than $6.5 million. In addition, there are 
requirements related to the number of total stockholders and number 
of publicly held shares.
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    Specifically, the Exchange proposes to replace its current criteria 
with a financial standard subjecting a company to suspension and 
delisting if: (i) its global market capitalization and its 
stockholders' equity (or net assets for closed-end investment companies 
registered under the Investment Company Act of 1940 (``Funds'')) each 
fall below $50 million, or (ii) its average global market 
capitalization is below $15 million over 30 consecutive trading days. 
In the context of delisting, the Exchange believes the more appropriate 
focus is on the size and the amount of stockholders' equity in a 
company, rather than on what may be transitory earning trends. These 
two standards would apply to every company, whether domestic or non-
U.S., and whether it listed under the ``adjusted earnings'' or ``cash 
flow'' standard.
    The Exchange is also proposing a new continued listing standard for 
those companies that qualify for initial listing under the ``global 
market capitalization'' standard.\7\ Such a company would be subject to 
delisting if: (i) its total global market capitalization is below $500 
million and its total revenues are below $50 million over the past 12 
months,\8\ or (ii) its average global market capitalization is below 
$100 million over 30 consecutive trading days. In the event that such a 
company can qualify under one of the other original listing criteria, 
however, it would not be subject to delisting.
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    \7\ The standard is currently effective on a three-month pilot 
period that commenced on May 27, 1999. The Exchange expects to seek 
permanent approval of this listing standard prior to September 3, 
1999, the date the pilot is scheduled to expire. See Securities 
Exchange Act Release No. 41459 (May 27, 1999), 64 FR 30088 (June 4, 
1999) (notice and order granting partial accelerated approval to 
File No. SR-NYSE-99-17).
    \8\ The review is based on the unaudited Quarterly Reports. 
Consequently, if a company were to restate its financials, the NYSE 
would re-evaluate the company's eligibility for continued listing on 
the Exchange. Telephone conversation between N. Amy Bilbija, 
Counsel, NYSE, and Deborah Flynn, Special Counsel, Division, SEC, on 
July 12, 1999.
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    Finally, the Exchange is also proposing to adopt a price criteria 
applicable to all issuers. Specifically, the Exchange proposes to add a 
new minimum continued listing standard that would be triggered when a 
security's average closing price over a 30-trading-day period falls 
below $1.00. Once this standard is triggered, companies would have six 
months to cure the deficiency.
    With respect to the $50 million market capitalization and $50 
million stockholders' equity standard, a company that falls below this 
continued listing criteria would be permitted 18 months to re-establish 
both its market capitalization and its stockholders' equity to be 
considered in conformity with continued listing standards. (See Paras. 
802.02 and 802.03 of the Manual). With respect to the $15 million 
minimum for average global market capitalization, upon notification, 
the company would be required to restore its market capitalization to 
at least $15 million within 18 months.
    With respect to the closing price minimum of $1.00, once notified, 
a company would have six moths to return its average stock price to 
above $1.00. As an alert mechanism for issuers, the Exchange intends to 
notify a company whose average price falls below $5.00 over a 30-
trading-day period of the consequences of a further decline in its 
share price to below $1.00. Each company so identified and notified 
would then be tracked by the Exchange and its price monitored. If this 
is the only criteria that causes a company to fall below the Exchange's 
continued listing standards, the Exchange generally would not commence 
suspension and delisting procedures for six months. However, the 
company must notify the Exchange within 10 business days of receipt of 
its notification of its intent to cure this deficiency or be subject to 
immediate suspension and delisting. In the event that, at the 
expiration of the six-month cure period, at $1.00 share price is not 
attained, the Exchange will commence suspension and delisting 
procedures.
    The Commission recently approved a codification of the Exchange's 
initial listing standard for Funds with less than three years of 
operating history.\9\ This standard requires a minimum net asset value 
of $60 million. The Exchange now proposes to codify a specific 
delisting criteria for these newly-formed Funds of $30 million in both 
market capitalization and net assets. The Exchange is proposing a lower 
continued listing standard for newly-formed Funds that recognizes that 
they qualify originally at a lower amount (50% of the original 
qualification threshold). In addition, the Exchange proposes to 
incorporate into the Funds section its general standard of a minimum of 
$15 million in market capitalization. Finally, the Exchange is 
proposing to codify its existing policy that Funds are immediately 
delistable upon conversion to open-ended status. The Exchange notes 
that, upon attainment of three years of operating history, the Funds 
would be subject to the numerical criteria generally applicable to 
capital or common stock proposed above.
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    \9\ The Exchange has specifically tailored listing standards for 
IPOs, Funds and real estate investment trusts (``REITs'') that 
address the nature of these listings and their operations. See 
Securities Exchange Act Release No. 41346 (April 29, 1999), 64 FR 
24435 (May 6, 1999).
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    The Commission recently approved an original listing standard for 
REITs with less than three years of operating history.\10\ The Exchange 
now proposes to codify a specific delisting criteria for these newly-
formed REITs of $30 million in both market capitalization and 
stockholders' equity. Similar to Funds, the Exchange is proposing a 
lower continued listing standard for newly-formed REITs that recognizes 
that they qualify at a lower amount (50% of the original qualification 
threshold). In addition, the Exchange proposes to incorporate into the 
REIT section the

[[Page 41991]]

minimum standard of $15 million of market capitalization. Finally, the 
Exchange is proposing a new policy that a REIT is immediately 
delistable upon the loss of its REIT status if the resultant entity is 
unable to qualify as an original listing as a corporation (or other 
operating company) at that time. The Exchange notes that upon 
attainment of three years of operating history, the REIT would be 
subject to the numerical criteria generally applicable to capital or 
common stock proposed above.
---------------------------------------------------------------------------

    \10\ See Release No. 41502.
---------------------------------------------------------------------------

    The Exchange proposes to clarify and codify its policy whereby a 
company that files or announces an intent to file for reorganization 
under the bankruptcy laws is not subject to automatic delisting. In 
such a situation, the Exchange could exercise discretion to continue 
the listing and trading of the securities of the company. Once such a 
company is identified, the Exchange monitors its performance against 
the remaining continued listing standards, the compliance with which 
may be determined on the basis of price indications, as opposed to a 
30-trading-day average. If a company that is below any continued 
listing standard enumerated in proposed Para. 802.01B of the Manual 
(``Numerical Criteria for Capital or Common Stock'') files or announces 
an intent to file for such relief (or if a company having filed for 
bankruptcy becomes below another continued listing standard), it would 
be subject to immediate suspension and delisting. Notwithstanding the 
preceding, the Exchange may at any time exercise its discretion to 
proceed with suspension and delisting procedures based solely upon a 
bankruptcy filing.
    The Exchange proposes an additional delisting criteria to address 
non-numerical indications in financial statements of unsatisfactory 
financial performance. These additional criteria could lead to the 
delisting of a company that may otherwise continue to meet the 
specifically-enumerated numerical criteria in Section 802.01 of the 
Manual. The Exchange views the disclosure contained in the independent 
accountant's opinion that the company receives on its financial 
statements as providing one such indication. Independent public 
accountant's opinions that might indicate unsatisfactory financial 
performance include: (i) a qualified opinion, (ii) an adverse opinion, 
(iii) a disclaimer opinion, or (iv) an unqualified opinion with a 
``going concern'' emphasis.
    In addition, if a company that emerges from being below continued 
listing standards again falls below continued listing standards within 
12 months, the Exchange will scrutinize the original methods of 
financial recovery taken by the company. In this regard, the Exchange 
would also examine the relationship of the two incidents of falling 
below continued listing standards. Exchange staff would then take the 
requisite action, which may include truncating the procedures described 
in Paras. 802.02 and 802.03, or immediately initiating suspension and 
delisting procedures.
    The Exchange proposes to codify and provide more specificity to its 
current policy of requesting companies that trigger one or more of the 
factors outlined in ``Other Criteria'' to comply with the procedures 
outlined in Paras. 802.02 and 802.03 of the Manual when it determines 
it is appropriate to do so. For instance, the Exchange has historically 
requested additional information from companies it has identified as 
having a significant reduction in operating assets. Such information 
has often taken the form of a ``plan'' as defined in Paras. 802.02 and 
802.03 of the Manual.
    Upon the Commission's approval of this Pilot, all listed companies 
will immediately become subject to these new continued listing 
standards, and the 30-day clock for computing the various averages in 
the proposed standards will begin. The Exchange anticipates that there 
will be a number of listed companies that are mid-stream through an 
approved financial plan due to having fallen below the current 
continued listing standards, which will also be below the new proposed 
continued listing standards. With regard to these companies, the 
Exchange notified them of the new standards at the time it filed with 
the Commission to prepare them for the transition and to give them an 
opportunity to prepare new plans with new goals. These companies will 
be notified upon Commission approval and given 45 days from receipt of 
the notice to submit a plan (unless the current plan is already 
financially sufficient) to the Exchange delineating how they intend to 
come into compliance with the new standards within 12 months. However, 
if the company is solely below the proposed $1.00 threshold, it would 
only have the six-month period discussed above to cure its deficiency.
    The Exchange also notes that there are companies currently 
identified as below continued listing standards that will not be below 
continued listing standards under the new proposed standards. While 
this proposal is pending Commission action, the Exchange intends to 
stay the plan submission process for these companies. In doing so, the 
Exchange intends to avoid placing an unfair burden on these issuers by 
forcing them to expend capital and personnel resources to develop a 
six-quarter plan, the goals of which will become obsolete in the 
immediate future. Finally, with regard to all listed companies that are 
currently in good financial standing, the Exchange intends to afford 
those companies that are identified as below the new continued criteria 
at the time of Commission approval 18 months from the effective date of 
this Pilot to return to good standing pursuant to the procedures 
detailed in Paras. 802.02 and 802.03 of the Manual.
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 remove impediments to, and perfect the 
mechanism of a free and open market 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 comments on the 
proposed rule change.

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 appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) by order approve the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.
    The Exchange has requested that the Commission find good cause, 
pursuant

[[Page 41992]]

to Section 19(b)(2) of the Act,\12\ for approving the establishment of 
the Pilot which would expire on November 1, 1999 (or until such earlier 
time as the Commission grants the Exchange's request for permanent 
approval of the program), prior to the thirtieth day after publication 
in the Federal Register.
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    \12\ 15 U.S.C. 78s(b)(2).
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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-
0609. 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 at the 
Commission's Public Reference Room. 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. SR-NYSE-99-29 and 
should be submitted by August 23, 1999.

V. Commission's Findings and Order Granting Partial Accelerated 
Approval of Proposed Rule Change

    The Commission finds that the portion of 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.\13\ Specifically, the 
Commission believes the proposal is consistent with the Section 6(b)(5) 
\14\ 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.
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    \13\ In approving this Pilot, the Commission has considered the 
proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \14\ 15 U.S.C. 78f(b)(5).
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    The Commission finds that the revisions and codification of the 
continued listing criteria set forth in the proposed Pilot, which 
should ensure that companies that final to satisfy the continued 
listing criteria are identified, reviewed, and then subjected to 
specified delisting procedures, are consistent with the Act and should 
enhance investor protection. Moreover, the Pilot should ensure that 
those companies falling below the NYSE's continued listing criteria are 
provided with transparent, detailed procedures for addressing their 
status. The Commission further believes that the proposed Pilot is 
consistent with the Exchange's obligation to perfect the mechanism of a 
free and open market by codifying its continued listing criteria, 
thereby encouraging the NYSE to apply uniformly its criteria in listing 
and, if necessary, delisting securities on the Exchange. Lastly, the 
Commission believes that the proposed continued listing criteria, 
established in the Pilot, should help to ensure the stability of the 
marketplace, as well as protect investors, by enabling the NYSE to 
identify listed companies that may not have sufficient trading depth 
and liquidity to warrant continued listing.
    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 Exchange to minimize the interruption in 
its continued listing and delisting of these securities and allow for 
an orderly transition for its issuers, while providing the Commission 
adequate time to carefully consider the Exchange's proposal seeking 
permanent approval of the proposed changes to its continued listing 
criteria.\15\
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    \15\ The Commission's approval of the Pilot should not be 
interpreted as suggesting that the Commission is predisposed to 
approving the proposal on a permanent basis.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\16\ that the Pilot program proposed by the Exchange (File No. SR-
NYSE-99-29) is approved until November 1, 1999, or until the Commission 
approves the proposal permanently.

    \16\ 15 U.S.C. 78s(b)(2).
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    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. 99-19716 Filed 7-30-99; 8:45 am]
BILLING CODE 8010-01-M