[Federal Register Volume 65, Number 57 (Thursday, March 23, 2000)]
[Notices]
[Pages 15672-15675]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-7200]



[[Page 15672]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42539; File No. SR-Amex-99-39]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change by the American Stock Exchange LLC Amending Certain Listing 
Standards

March 17, 2000.
    On September 28, 1999, the American Stock Exchange LLC 
(``Exchange'' or ``Amex'' submitted to the Securities and Exchange 
Commission (``Commission''), pursuant to section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change amending certain of the 
Exchange's listing standards. The Exchange filed Amendments No. 1,\3\ 
2,\4\ and 3 \4\ to the proposed rule change on December 14, 1999, 
January 4, 2000, and January 19, 2000, respectively. The proposed rule 
change, as amended, was published for comment in the Federal Register 
on February 10, 2000.\6\ The Commission received no comments on the 
proposal. This order approves the proposal, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Letter from Michael Cavalier, Associate General Counsel, 
Legal & Regulatory Policy, Amex, to Jack P. Drogin, Assistant 
Director, Division of Market Regulation (``Division''), Commission, 
dated December 13, 1999 (``Amendment No. 1''). Amendment No. 1 
revises section 1101 of the Amex Company Guide to add references to 
forms filed with the Commission by unit investment trusts and open-
end management investment companies.
    \4\ Letter from Michael J. Ryan, Jr. Chief of Staff, Amex, to 
Jack P. Drogin, Assistant Director, Division, Commission, dated 
December 31, 1999 (``Amendment No. 2''). As originally filed, the 
proposed rule change eliminated the requirement to submit with an 
original listing application certain corporate documents and an 
opinion of counsel regarding the legality of the organization, 
existence of the issuer, and the validity of the securities to be 
issued. Amendment No. 2 reinstates the requirement to submit these 
documents. Amendment No. 2 also makes certain technical changes to 
the proposed rule change.
    \5\ Letter from Michael J. Ryan, Jr., Chief of Staff, Amex, to 
Jack P. Drogin, Assistant Director, Division, Commission, dated 
January 18, 2000 (``Amendment No. 3''). Amendment No. 3 eliminates 
the requirements to file certain documents with an original listing 
application, including an issuer's charter and by-laws, as well as 
an opinion of counsel. In lieu of requiring these documents, 
Amendment No. 3 states that the Exchange will ask issuers specific 
questions concerning quorum requirements, notice of record dates to 
shareholders and closing of transfer books. In addition, Amendment 
No. 3 states that the Exchange will require issuers to (i) furnish 
the Exchange with copies of opinions of counsel filed in connection 
with recent public offerings or private placements or (ii) if no 
opinions of counsel exist, represent to the Exchange that they are 
duly and validly organized under the laws of their state of 
incorporation. Finally, Amendment No. 3 reinstates Section 125 of 
the Amex Company Guide, relating to remedies available to 
bondholders upon default.
    \6\ Securities Exchange Act Release No. 42378 (Feb. 2, 2000), 65 
FR 6647.
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II. Description of the Proposal

    Due to the merger between the National Association of Securities 
Dealers (``NASD'') and the Amex, the qualification functions for the 
Nasdaq Stock Market (``Nasdaq'') and the Amex have been centralized in 
the Nasdaq-Amex Listing Qualifications Department (``Listing 
Qualifications''). As a result of this centralization, a number of 
Exchange rules have been reviewed with the goal of modernizing the 
Exchange's initial and continued listing process, creating consistent 
rules and processes across all the NASD's marketplaces, and reflecting 
the current business practices and procedures used by Listing 
Qualifications. This filing addresses those goals and makes other non-
substantive changes to reflect changed job titles \7\ and 
responsibilities following the merger, and clarifies the application of 
certain Exchange rules.
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    \7\ Changes to Part 4 of the Listing Standards reflect the 
elimination of the Corporate Relations Manager job function and the 
division of the responsibilities of the former Corporate Relations 
Manager among the Listing Qualifications, Stock Watch, and Issuer 
Service Department.
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Application Process

    Currently, Exchange rules encourage issuers to obtain an informal 
opinion from Amex staff, known as the Preliminary Listing Eligibility 
Opinion (``PLEO''), as to whether the issuer is eligible to list before 
formally applying to the Exchange. Because of the time involved for the 
issuer to prepare for this extra review and for staff to conduct this 
extra review, the PLEO process causes a delay in the time it takes for 
a final determination to be made on an issuer's application for listing 
on the Exchange. This process is also inconsistent with the Nasdaq 
process in which an application is filed at the outset of the process. 
As a result, when a issuer initially pursues listing on both markets, 
the issuer faces a delay in its ability to make a decision as to where 
to list. In order to streamline the application process, the Exchange 
proposes to eliminate the PLEO process. Accordingly, the Exchange 
proposes to delete sections 202 and 203 of the Listing Standards, 
Policies and Requirements and modify sections 101, 130, 201 and 211 to 
eliminate references to the PLEO process. Under the proposed revision, 
issuers will only file their completed listing application with the 
Exchange's staff.
    In addition, Exchange rules currently require a number of documents 
to be submitted with an original listing application. The Exchange 
proposes to eliminate certain requirements, including the Exchange's 
Listing Form 2 (Certificate of Distribution), Charter, By-Laws, 
Specimen Certificates, Trustee Certificates, Form for Indenture, Board 
Resolutions and certain contracts. Many of these documents are 
electronically available through an Issuer's public filings, or they 
are generally available to Listing Qualifications through other means 
(or upon request by Exchange staff from the issuer). Therefore, the 
Exchange proposes to remove these general requirements and instead 
request specific documents as necessary.\8\ Specifically, the Exchange 
proposes to modify sections 213, 216, 218, 305, 306, and 702 to reflect 
these changes.
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    \8\ In the standard comment letter that the Exchange sends 
issuers after Exchange staff has reviewed the issuer's listing 
application the Exchange will ask issuers specific questions 
concerning quorum requirements, notice of record dates to 
shareholders and closing of transfer books. Telephone call between 
Michael S. Emen, Vice President, Listing Qualifications, Amex, 
Rebekah Liu, Special Counsel, Division, Commission, and Sonia 
Patton, Attorney, Division, Commission, on January 27, 2000.
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    Similarly, the Exchange proposes that issuers no longer be required 
to obtain an opinion of counsel which, among other things, relates to 
the legality of the organization and existence of the issuer and the 
validity of the securities to be listed. These rules were originally 
enacted to prevent unauthorized securities from entering into the 
market and to protect the Exchange from legal liability, which might 
arise from the listing and trading of such securities. Today, however, 
such concerns are addressed through other means. In particular, an 
issuer's independent auditor reviews the issuance of securities as part 
of its annual audit and, generally, legal comfort is provided to market 
participants with respect to most securities issuances, including 
public offerings. Furthermore, the Exchange is largely protected from 
legal claims against it by its status as a self-regulatory 
organization. Accordingly, the Exchange proposes to delete requirements 
related to opinions of counsel in sections 213, 216, 218, and 306 of 
the Listing Standards.\9\
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    \9\ Through its standard comment letter, the Exchange will 
require issuers to (i) furnish the Exchange with copies of opinions 
of counsel filed in connection with recent public offerings or 
private placements or (ii) if no opinions of counsel exist, 
represent to the Exchange that they are duly and validly organized 
under the laws of their state of incorporation. Telephone call 
between Michael S. Emen, Vice President, Listing Qualifications, 
Amex, Rebekah Liu, Special Counsel, Division, Commission, and Sonia 
Patton, Attorney, Division, Commission, on January 27, 2000.

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[[Page 15673]]

    The Exchange currently requires an application to be submitted by 
an issuer whenever a shareholder rights plan is established and the 
underlying rights are registered with the Commission. These rights, 
commonly known as ``poison pills,'' technically constitute a separate 
security but trade in tandem with and as part of the issuer's common 
stock. Upon the occurrence of a ``triggering event'' such as the 
announcement of a hostile takeover or the acquisition of a specified 
percentage of the company's outstanding common stock, the rights would 
be detached from the common stock and become freely tradable as 
separate securities. At that point, under Exchange rules, the issuer is 
required to file a listing application with respect to those new 
securities. Given the listing application requirement upon the 
occurrence of a triggering event and the fact that until that time the 
securities are not traded as separate securities, the Exchange believes 
the requirements of section 343 are not necessary.

Criteria for Original Listing

    Sections 104 and 105 of the Listing Standards allow the listing of 
debt and warrants on the Amex, but only if the issuer is listed on the 
Amex or the New York Stock Exchange (``NYSE''). The exclusion of Nasdaq 
National market securities from this standard is no longer necessary or 
appropriate, given the level of the listing standards on the Nasdaq 
National Market in comparison to those of the Amex and the NYSE. The 
Exchange therefore proposes to expand the issues which may be listed on 
Amex to include debt and warrants of issuers listed on the Nasdaq 
National Market.
    Sections 112, 115, and 116 of the Listing Requirements impose more 
stringent standards on specific types of issuers: exploration and 
development companies, member corporations, and companies engaged in 
gaming operations. These rules arose when such companies generally 
remained private and the listing of companies in such sectors was 
fairly unusual. The Exchange proposes to eliminate these sector-
specific sections because the listing of securities of issuers in these 
sectors is now fairly common across all markets and issuers in these 
sectors now operate in highly regulated environments. Specifically, 
with respect to exploration and development companies, the Exchange 
notes that detailed disclosures about the issuer's stage of development 
and prospects are provided to potential investors in required, publicly 
filed reports. Accordingly, the Exchange does not believe it is 
appropriate to discriminate against such exploration stage companies 
seeking to raise capital on the Exchange. With respect to member 
corporations, the Exchange notes that these issuers are regulated by 
both the Commission and the membership organization to which the issuer 
belongs. Finally, with respect to companies engaged in gaming 
operations, the Exchange notes that these issuers operate in a highly 
regulated environment and are subject to substantial state and/or 
federal regulation. Furthermore, the Exchange notes that under its 
discretionary authority over all issuers, pursuant to section 101, it 
has authority to deny listing to issuers based on sector-specific 
issues in appropriate situations. Accordingly, the Exchange does not 
believe that the specific rules relating to issuers in these sectors 
are necessary or appropriate.
    The Exchange also proposes to clarify that the alternate listing 
guidelines contained in section 101 of the Listing Standards are not 
limited to issuers in certain sectors. The alternate guidelines were 
first adopted in 1977 and then modified in 1986 to allow a broader 
range of companies to qualify. The guidelines referenced as examples 
companies that were unable to satisfy the basic criteria due to 
significant research and development or other similar business 
development costs. The Exchange proposes changes to section 101 to 
clarify that the numerical aspects of the alternate guidelines apply to 
all issuers, regardless of industry. This change would be consistent 
with the approach used on Nasdaq, the Nasdaq SmallCap Market, and the 
NYSE, where alternative listing requirements are available to all 
issuers that meet the quantitative requirements.

Fees

    Section 144 of the Listing Standards currently imposes a $250 non-
refundable service charge that is subtracted from any refund otherwise 
due an issuer that is not approved for listing or that withdraws after 
completing the application process. Given the cost incurred by the 
Exchange in reviewing an application, the Exchange proposes to raise 
the non-refundable portion of the initial inclusion fee from $250 to 
$1,000 and to require the payment of this amount in advance of 
processing the application, in order to timely recoup such costs, 
especially in situations where these costs are incurred by the Exchange 
and the application is then withdrawn. The Exchange notes that this 
proposed change will not affect the listing fees paid by issuers who 
ultimately list on the Exchange and that this practice is consistent 
with that followed by Nasdaq. In addition, the Exchange notes that if 
an issuer applies for listing on both the Exchange and on Nasdaq, only 
a single $1,000 non-refundable fee would be collected for review of 
both applications.
    The Exchange also proposes to modify the treatment of treasury 
shares for fee purposes Under existing section 141, Amex listing fees 
are based on all shares outstanding, including treasury shares. The 
Exchange proposes to modify section 141 to exclude treasury shares when 
calculating shares outstanding for fee purposes \10\ and to clarify 
that annual fees billed based on shares outstanding information refers 
to information available on Exchange records as of December 31, and not 
shares outstanding information sent to the Exchange by issuers in 
February. This proposed rule change will result in a decrease in fees 
for issuers with treasury shares and will not affect other issuers.
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    \10\ This is consistent with the approach taken on the Nasdaq, 
resulting in identical application across all of the NASD's 
marketplaces.
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    Finally, as discussed above, because the Exchange proposes to 
eliminate section 343, requiring the submission of an application upon 
the creation of a shareholder rights plan, the Exchange also proposes 
to modify section 140, to eliminate the $1,000 fee associated with the 
shareholder rights plan application.

Schedule for Dividends

    The Exchange proposes to eliminate several rules that require 
additional time between the declaration and dividend date for dividends 
of issuers that do not have transfer facilities in the New York City 
area. Given the current state of communication networks and electronic 
interaction between issuers, transfer agents and investors, these 
additional time periods are no longer necessary. Accordingly, the 
Exchange proposes to modify sections 502, 512, and 521 and to eliminate 
section 520 to implement this proposed change.

Transfer Facilities

    Likewise, the Exchange proposes to remove a variety of rules 
concerning the qualification of Transfer Agents, Registrars, and Bond 
Trustees presently contained in sections 801-811. The Commission 
regulates the transfer agent industry and, since 1976, has imposed a 
series of rules over the industry \11\ that make many of the Exchange's 
rules unnecessary. Other Exchange rules relating to transfer agents (as 
well as

[[Page 15674]]

Agents for Payment) are inappropriate, as they limit the ability of 
agents with physical locations outside of New York to perform these 
functions. The Exchange also proposes to eliminate the requirements 
relating to Trustees for Bond Issues in section 811. The Exchange has 
never experienced a problem with respect to the qualification of a Bond 
Trustee and believes that these matters are better left to the 
individual issuers and applicable state law. Accordingly, the Exchange 
proposes to delete section 801-811 and to make conforming change to 
other sections that refer to those sections.
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    \11\ See Exchange Act Rules 17Ad-1 through 17Ad-21T, 17 CFR 
240.17Ad-1 through 17 CFR 240.17AD-21T.
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Certificate Requirements

    The Exchange also proposes to remove requirements relating to the 
form of securities and lost security holders. The rules relating to the 
form of securities are antiquated and may impede the use of innovations 
in this area, such as Depository Trust Corporation holdings and book 
entry methods. Furthermore, the Exchange notes that there are no 
comparable rules on Nasdaq. Accordingly, the Exchange proposed to 
delete existing sections 820 through 830, inclusive, and section 841 of 
the Listing Standards. Likewise, the Exchange rules governing the 
replacement of lost certificates in section 840 are no longer necessary 
in light of current practices followed by issuers and transfer agents.

Treasury Shares

    Existing Exchange rules require an issuer to report changes in the 
number of treasury shares. Given the changes proposes to the fee 
calculation for issuers, resulting in the exclusion of treasury shares 
from the fee base, the Exchange no longer needs this information. 
Accordingly, the Exchange proposes to eliminate section 901 of the 
Listing Standards. Furthermore, section 903, on repurchases of listed 
company securities, is unnecessary because it does not impose any 
Exchange requirements, but merely refers issuers to federal securities 
laws. Finally, the Exchange notes that section 902 allows an issuer to 
redeem securities only in pro rata fashion or by lot. The Exchange 
notes that issuers are governed by state law requirements in the 
redemption of securities and that as a practical matter, one of these 
methods is invariably applied. Therefore, the Exchange believes that 
section 902 is unnecessary and proposes its deletion and conforming 
amendments to sections 103(d), 104, and 105(b).

Other Changes to the Exchange's Listing Requirements

    The Exchange proposes certain changes to the listing requirements 
for issuers listed on the Amex. The Exchange proposes to change the 
definition of ``public distribution'' and ``public shareholders'' as 
defined in section 102. Currently, in determining the number of shares 
in the public, Exchange rules exclude concentrated holdings of 5% or 
greater. The comparable rules on Nasdaq, as well as the NYSE, only 
exclude holdings of 10% or greater. The Exchange believes that it is 
appropriate to exclude holdings of between 5% and 10% from the 
definition of public distribution and accordingly, proposes to modify 
section 102.
    Next, the Exchange proposes to modify section 120, relating to 
conflicts of interest. The existing Exchange rule states that the 
Exchange will consider conflicts situations in connection with the 
original listing of an issuer. The Exchange believes that a broader, 
ongoing review of related party transactions is appropriate and that 
the issuer's Audit Committee (or a comparable body) is an appropriate 
body for conducting such a review. Furthermore, the Exchange notes that 
under the proposed change, as in all cases, it may review a transaction 
using the Exchange's general discretionary authority if a transaction 
involved a conflict that raised public interest concerns. Accordingly, 
the Exchange proposes to adopt this revised listing requirement to 
better protect investors.\12\
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    \12\ The Exchange notes that this proposed change is consistent 
with the rules relating to conflicts of interest that apply to 
Nasdaq issuers and NYSE issuers. See NASD Rules 4310(c)(25)(G) and 
4460(h) and NYSE Listed Company Manual Section 307.00.
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    The Exchange also proposes to amend its rules relating to 
shareholder approval contained in section 713 to clarify that 
shareholder approval is required prior to issuance of a security that 
has the potential to result in the issuance of 20% of the pre-
transaction common shares outstanding for less than the greater of book 
or market value of the stock. While the present language of the rule 
does not include the word potential, it is fairly implied and Exchange 
staff has consistently applied the rule to require approval in cases 
where an issuance may potentially exceed the stated threshold. 
Accordingly, the Exchange proposes to modify the existing rule to 
clarify that an issuance is not permissible without shareholder 
approval when there is the potential to issue more than 20% of the pre-
transaction common shares outstanding for less than the greater of book 
or market value of the stock.

Emerging Company Marketplace

    In May 1995, the Exchange determined to discontinue the listing of 
new companies on the Emerging Company Marketplace and subsequently 
received Commission approval.\13\ Accordingly, the Exchange proposes to 
delete from the Supplement to the Amex Company Guide the criteria for 
new listing on the Emerging Company Marketplace. Furthermore, the 
Exchange proposes to delete from the Supplement the continued listing 
criteria with respect to all issues other than common stock because no 
existing issuers rely on these provisions and no new issuers can be 
listed that would rely on these provisions. This conforming change is 
consistent with the Commission's order approving the elimination of the 
Emerging Company Marketplace.

III. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of Section 6(b)(5) of the Act \14\ and the rules 
and regulations thereunder applicable to a national securities 
exchange, in that it is designed to facilitate securities transactions 
and to remove impediments to and perfect the mechanism of a free and 
open market.\15\ The Commission believes that the Exchange has 
adequately addressed the concerns that arise from eliminating the 
requirement to file certain corporate documents and an opinion of 
counsel with an original listing application. In both instances, the 
Exchange will obtain the most pertinent information that was provided 
in the required documents directly from issuers. For example, the 
Exchange will obtain information regarding the issuer's quorum 
requirements, notice of record dates to shareholders, and closing of 
transfer books-- previously available in the corporate documents filed 
by the issuer--via the Exchange's standard comment letter sent to 
issuers. With respect to the opinion of counsel previously required, 
the Exchange has similarly proposed procedures for

[[Page 15675]]

eliciting the pertinent information regarding the legal status of the 
issuer and the validity of the securities to be listed. By instituting 
these alternative procedures, the Commission believes that eliminating 
the filing of certain corporate documents and an opinion of counsel is 
reasonable and will allow issuers to list their securities on the 
Exchange more quickly and less expensively. Additionally, the 
Commission notes that electronic access to many of the corporate 
documents previously required provides an additional safeguard and 
source of information for the Exchange and the public.
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    \13\ See Securities Exchange Act Release No. 36079 (Aug. 9, 
1995), 60 FR 42926 (Aug. 17, 1995) (SR-Amex-95-23). Companies that 
were listed at the time the Emerging Company Marketplace was 
discontinued were permitted to continue their listing, subject to 
all the rules applicable to issuers on that Emerging Company 
Marketplace.
    \14\ 15 U.S.C. 78f(b)(5).
    \15\ In approving this rule change, the Commission has 
considered the proposal's impact on efficiency, competition, and 
capital formation, consistent with section 3 of the Act. 15 U.S.C. 
78c(f).
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    The Commission also believes that the proposed rule change will 
facilitate securities transactions and benefit investors by 
modernizing, simplifying, and conforming the Exchange's listing 
procedures to current business practices. For example, the Commission 
believes that the Exchange rules relating to the form of securities and 
lost security holders, limitations on transfer agents located outside 
of New York, and sector-specific listing requirements are no longer 
necessary, given technological advances and general developments in the 
capital markets. Similarly, eliminating the PLEO process simplifies the 
listing process significantly for issuers. Finally, changes to the 
rules relating to shareholder approval for the issuance of a security 
in certain circumstances (e.g.,Exchange Rule 713), conforms the 
Exchange's listing standards to common business practice.
    Lastly, the Commission believes that the proposed rule change will 
facilitate securities transactions by creating consistent rules and 
processes governing the listing of securities on both Nasdaq and Amex. 
Because the listing qualifications of both Nasdaq and Amex are now 
handled by the Nasdaq-Amex Listing Qualifications Department, the 
Commission believes that consistent rules and practices between both 
marketplaces will enable issuers to list securities on the Exchange 
much more quickly and will enable the Exchange to more efficiently 
review and process listing applications.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\16\ that the proposed rule change (SR-Amex-99-39), as amended, is 
approved.

    \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).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-7200 Filed 3-22-00; 8:45 am]
BILLING CODE 8010-01-M