[Federal Register Volume 64, Number 178 (Wednesday, September 15, 1999)]
[Notices]
[Pages 50129-50131]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-23994]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41834; File No. SR-NYSE-99-17]


Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Order Approving Proposed Rule Change and Amendment No. 1 Thereto and 
Notice of Filing and Order Granting Accelerated Approval of Amendment 
Nos. 2 and 3 to the Proposed Rule Change Permanently Approving the 
Pilot Program for the Listing Standards for Domestic and Non-U.S. 
Companies

September 3, 1999.

I. Introduction

    On April 22, 1999, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC''), 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 relating to the Exchange's 
original listing standards. On May 19, 1999, the Exchange submitted 
Amendment No. 1 to its proposal.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 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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    The proposed rule change and Amendment No. 1 were published for 
comment in the Federal Register on June 4, 1999,\4\ and the Commission 
granted accelerated approval to the pilot program relating to an 
alternative listing eligibility criteria for U.S. and non-U.S.

[[Page 50130]]

companies (``Pilot'') until September 3, 1999, or until the Commission 
approves the Exchange's request for permanent approval of the Pilot. On 
July 15, 1999, the Exchange filed Amendment No. 2 \5\ to the proposal 
and on August 30, 1999, the Exchange filed Amendment No. 3.\6\ The 
Commission received one comment letter regarding the proposal.\7\ This 
notice and order approves the proposed rule change, as amended, and 
solicits comments from interested person on Amendment Nos. 2 and 3.
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    \4\ Securities Exchange Act Release No. 41459 (May 27, 1999), 64 
FR 30088 (June 4, 1999).
    \5\ In Amendment No. 2, the Exchange made technical changes to 
conform its proposed rule language to reflect the Exchange's rule 
language, as amended by a previously submitted rule proposl. See 
Letter from Daniel Parker Odell, Assistant Secretary, NYSE, to 
Richard Strasser, Assistant Director, Division, Commission, dated 
July 14, 1999 (``Amendment No. 2).
    \6\ In Amendment No. 3, the Exchange made technical changes to 
conform its proposed rule language to reflect the Exchange's rule 
language, as amended by a previously submitted rule proposal. See 
Letter from James E. Buck, Senior Vice President and Secretary, 
NYSE, to Richard Strasser, Assistant Director, Division, Commission, 
dated August 26, 1999 (``Amendment No. 3).
    \7\ See Letter from Frank G. Zarb, Chairman and Chief Executive 
Officer, NASD, to Jonathan G. Katz, Secretary, Commission, dated 
July 19, 1999 (``NASD Letter'').
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II. Description of the Proposal

    The purpose of the 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 is proposing to add a new 
alternative standards that focuses on global market capitalization and 
revenues for large, global companies.
    The specific proposed amendments to the Exchange's original listing 
criteria are:
    1. The Exchange is proposing a Capitalization Standard alternative 
to its other financial listing eligibility criteria. 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. The Exchange 
believes that companies of this magnitude would be appropriate for 
listing and trading on the NYSE even if they do not have earnings 
because the lack of earnings could be indicative of the company's stage 
of development, or the transitional nature of its home economy, or the 
fact that a company could be undergoing short-term variations in 
profitability. This listing standard is proposed for both domestic and 
non-U.S. companies.
    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 market 
capitalization 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 advantage of the daily figures 
(i.e., share price and shares outstanding) over the preceding six-
months.
    2. The Exchange currently has alternative numerical listing 
criteria for non-U.S. companies with limited U.S. distribution.\8\ 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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    \8\ 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 
that 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 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.

III. Summary of Comments

    The Commission received one comment letter from the National 
Association of Securities Dealers, Inc. (``NASD''), which opposed the 
proposal.\9\ The Exchange responded to this letter.\10\
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    \9\ See NASD Letter, supra note 7.
    \10\ See Letter from James E. Buck, Senior Vice President and 
Secretary, NYSE, to Jonathan G. Katz, Secretary Commission, dated 
September 2, 1999.
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    In its letter, the NASD opposed the adoption of new listing 
criteria that would increase the number of large Nasdaq issuers 
eligible for listing on the NYSE, while the NYSE retains rules 
restricting companies from voluntarily delisting from the NYSE \11\ and 
restricting off-board trading activity by NYSE members.\12\ The NASD 
contends that the proposal, in conjunction with NYSE Rules 500 and 390, 
provides the NYSE with an unfair competitive advantage. Therefore, the 
NASD contends that the NYSE should not be allowed to adopt any rule 
change that increases the Exchange's ability to obtain or retain issuer 
listings while NYSE Rules 500 and 390 remain in effect.
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    \11\ NYSE Rule 500.
    \12\ NYSE Rule 390.
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    In response, the Exchange argued that the NASD's argument is 
unrelated to the current proposal and further, that the proposed rule 
change is principally an additional listing standard to allow large 
companies to list on the Exchange. The Exchange noted that the decision 
whether to list on the Exchange is a decision made by the issuer.

IV. Discussion

    The Commission finds that the proposed rule change, as amended, 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

[[Page 50131]]

general, to protect investors and the public. 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 is an acceptable standard for 
listing very large companies that the Exchange believes will prove to 
be financially successful, although they may not have been profitable 
in recent years. The Commission believes that the proposed rule change 
is consistent with the Exchange's obligation to remove impediments to 
and perfect the mechanism of a free and open market by providing 
issuers another alternative for trading in the U.S. marketplace without 
undermining the NYSE's listing standards, which play an important role 
in protecting investors.
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    \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).
    \14\ 15 U.S.C. 78f(b)(5).
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    The Commission also believes that it is reasonable for the Exchange 
to accept a written representation from an underwriter (or, in the case 
of a spin-off, by a written representation from the parent company's 
investment banker or other financial advisor) for an IPO or spin-off, 
since by definition it could not satisfy the requisite market 
capitalization standard.
    With respect to the ``pre tax earnings'' standard, the proposal 
amends its standard by requiring $25 million in pre-tax income in each 
of the two most recent fiscal years. Thus, 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. Reconciliation 
to U.S. GAAP of the third year back is required only if the Exchange 
determines that reconciliation is necessary to demonstrate that the 
aggregate $100 million threshold is satisfied. The Commission believes 
that the proposed change appropriately simplifies the non-U.S. company 
listing criteria because its parallels the benchmark applied in the 
``adjusted cash flow'' standard for non-U.S. companies.\15\
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    \15\ See Securities Exchange Act Release No. 41502 (June 9, 
1999) 64 FR 32588 (June 17, 1999).
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    The Commission carefully considered the concerns expressed by the 
NASD in its letter opposing the proposal. Without taking a position in 
this Order on the continued propriety of NYSE rules 390 and 500, the 
Commission was not persuaded by the NASD's contention that in light of 
those rules a proposal such as the current one that could reduce the 
burden for companies to list on the NYSE is by its nature 
inappropriately anti-competitive.
    The Commission finds that Amendment Nos. 2 and 3 are consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange. Specifically, 
the Commission believes Amendment Nos. 2 and 3 are consistent with the 
Section 6(b)(5) \16\ requirements that the rules of an exchange be 
designed to remove impediments to and perfect the mechanisms of a free 
and open market and a national market system by conforming the proposed 
rule language with the text of the NYSE rule language recently approved 
by the Commission.\17\
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    \16\ 15 U.S.C. 78f(b)(5).
    \17\ See Securities Exchange Release No. 41502 (June 9, 1999) 64 
FR 32588 (June 17, 1999). 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 Amendments Nos. 2 and 
3 prior to the thirtieth day after the date of publication of notice 
thereof in the Federal Register. The Amendments merely conform the 
proposed rule language to the Exchange's actual rule language and do 
not make substantive changes to the text of the rule. In addition, 
accelerated approval will enable the Exchange to simultaneously make 
all relevant modifications to its Listed Company Manual and avoid any 
potential confusion due to recent rule revisions. Accordingly, the 
Commission finds that granting accelerated approval of Amendments No. 2 
and 3 is appropriate and consistent with Sections 6(b)(5) and 19(b)(2) 
of the Act.\18\
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    \18\ 15 U.S.C. 78f(b)(5) and 78s(b)(2).
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V. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether Amendments 2 and 
3 are consistent with the Act. Persons making written statements should 
file six copies thereof with the Secretary, Securities and Exchange 
Commission, 450 Fifth Street, NW, Washington, DC 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 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. SR-NYSE-99-17 
and should be submitted by October 6, 1999.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\19\ that the proposed rule change (File No. SR-NYSE-99-17), as 
amended, relating to the listing criteria for U.S. and non-U.S. 
companies, is approved.
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    \19\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc 99-23994 Filed 9-14-99; 8:45 am]
BILLING CODE 8010-01-M