[Federal Register Volume 65, Number 68 (Friday, April 7, 2000)]
[Notices]
[Pages 18412-18415]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-8487]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42579; File No. SR-NYSE-99-50]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment Nos. 1 and 2 thereto by the New York Stock 
Exchange, Inc. Relating to Continued Listing Standards

    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 December 21, 1999, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II and III below, which Items have been prepared by the 
Exchange. On March 27, 2000, the Exchange submitted Amendment No. 1 to 
the proposed rule change.\3\ On March 27, 2000, the Exchange submitted 
Amendment No. 2 to the proposed rule change.\4\ The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the NYSE made several clarifications to 
the intent and proposed interpretation of the proposed rule change. 
The Exchange expanded its discussion regarding the use of 
convertible securities in calculating the market capitalization of 
an issuer, and provided several examples of the proposed rule's 
application. The Exchange also explained the IRS-related basis for 
the proposed changes to the calculation of market capitalization for 
partnerships. Finally, the Exchange clarified that the proposed 
change to the bankruptcy provision would not restart the eighteen-
month clock for an Exchange-approved plan. See Letter to Belinda 
Blaine, Associate Directors, Division of Market Regulation 
(``Division''), SEC, from James E. Buck, Senior Vice President and 
Secretary, NYSE, dated March 21, 2000 (``Amendment No. 1'').
    \4\ In Amendment No. 2, the Exchange made several technical 
changes to the rule text which are reflected in this notice. See 
Letter to Belinda Blaine, Associate Director, Division, SEC, from 
James E. Buck, Senior Vice President and Secretary, NYSE, dated 
March 24, 2000 (``Amendment No. 2'').
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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 802 of its Listed Company 
Manual (the ``Manual'') regarding its criteria governing the continued 
listing of securities (and corresponding changes to NYSE Rule 499). 
Specifically, the Exchange proposes: (1) to define ``market 
capitalization'' for the purpose of its continued listing standards; 
(2) to clarify the appropriate measures for partnerships; and, (3) to 
codify the Exchange's discretion to accept a financial plan for certain 
companies that have filed or that have announced an intent to file for 
bankruptcy, and that are below financial continued listing standards, 
but that are otherwise financially sound. The text of the proposed rule 
change is as follows: Proposed additions are italicized and proposed 
deletions are in brackets.

NYSE Listed Company Manual

* * * * *
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 or non-U.S. issuer when:
* * * * *
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, for partnerships, both 
the general and limited partners' capital as applicable, 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.
    When applying the market capitalization test in any of the above 
three standards, the Exchange will generally look to the total common 
stock outstanding (excluding treasury shares) as well as any common 
stock that would be issued upon conversion of another outstanding 
equity security. The Exchange deems these securities to be reflected in 
market value to such an extent that the security is a ``substantial 
equivalent'' of common stock. In this regard, the Exchange will only 
consider

[[Page 18413]]

securities (1) Publicly traded (or quoted), or (2) Convertible into a 
publicly traded (or quoted) security. For partnerships, the Exchange 
will analyze the creation of the current capital structure to determine 
whether it is appropriate to include other publicly-traded securities 
in the calculation.
* * * * *
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. 802.10B 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. 802.10B above (which may 
be determined on the basis of price indications), it is subject to 
immediate suspension and delisting. Notwithstanding the foregoing, in 
the event that such a company is profitable (or has positive cash 
flow), or is demonstrably in sound financial health despite the 
bankruptcy proceedings, the Exchange may evaluate and accept a Plan 
submitted under the procedures of 802.02 and 802.03.
* * * * *

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.

* * * * *
.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.
* * * * *
    4. * Total global market capitalization is less than $50,000,000 
and total stockholders' equity or, for partnerships, both the general 
and limited partners' capital as applicable, 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] Sections .50 and .60.
    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] Sections .50 and .60.
    OR
     Average global market capitalization over a consecutive 30 
trading-day period is less than $100,000,000.
    * When applying the market capitalization test, the Exchange will 
generally look to the total common stock outstanding (excluding 
treasury shares) as well as any common stock that would be issued upon 
conversion of another outstanding equity security. The Exchange deems 
these securities to be reflected in market value to such an extent that 
the security is a ``substantial equivalent'' of common stock. In this 
regard, the Exchange will only consider securities (1) publicly traded 
(or quoted), or (2) convertible into a publicly traded (or quoted) 
security. For partnerships, the Exchange will analyze the creation of 
the current capital structure to determine whether it is appropriate to 
include other publicly-traded securities in the calculation.
* * * * *
    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 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. Notwithstanding the foregoing, in the event that such a 
company is profitable (or has positive cash flow), or is demonstrably 
in sound financial health despite the bankruptcy proceedings, the 
Exchange may evaluate and accept a Plan submitted under the procedures 
of Sections .50 and .60.

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 modify several of 
the Exchange's existing continued listing criteria. The Exchange 
recently revised its continued listing standards,\5\ and to this point 
several issues have come to light that necessitate clarification. 
First,

[[Page 18414]]

the Exchange proposes to define the term ``market capitalization'' in 
so far as it applies to the continued listing standards. Second, the 
Exchange proposes to clarify what is meant by ``shareholders equity'' 
in the context of partnerships. Third, the Exchange proposes to specify 
a set of circumstances in which it will exercise some discretion in 
determining the listing status of a company that has filed or has 
announced an intent to file for bankruptcy, and that is below the 
financial continued listing standards specified in Para. 802.01B of the 
Manual. These amendments are each discussed in detail below.
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    \5\ See Securities Exchange Act Release No. 42194 (December 1, 
1999), 64 FR 69311 (December 10, 1999).
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(A) Market Capitalization Definition
    Two of the new standards focus on the issuer's market 
capitalization. During the implementation of these new standards, 
several issues have arisen as to whether securities other than 
traditional equity instruments are intended to be included in the 
definition of the term ``market capitalization.''
    The Exchange evaluated the comments and suggestions put forth by 
many issuers and discussed the issue with several outside consultants. 
As a result of this process, the Exchange proposes to specify that for 
purposes of its continued listing standards, the term ``market 
capitalization'' will encompass all common stock outstanding, whether 
publicly traded or not, so long as the Exchange is able to accurately 
attribute a value to it \6\ on the day the market capitalization is 
calculated. Thus, if such a security is publicly traded common stock, 
the closing price from the previous trading day will be the price used 
for purposes of the calculation.
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    \6\ For example, a privately-held Class B common stock 
convertible into the listed Class A common stock would be included 
and valued on an as-converted basis.
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    In addition, the Exchange believes that it is appropriate to 
provide its staff with the discretion to evaluate the capital structure 
of the issuer and include common stock that would be issued upon 
conversion of an instrument that constitutes the issuer's capital. 
Traditional debt, related to financing activities, will be excluded. 
Similar to the procedure discussed above, but for convertible publicly-
traded securities other than common stock, the applicable price will be 
the closing price of the common stock into which it is convertible from 
the previous trading day. For example, if a convertible preferred 
security trades at $15 and the common stock into which it is 
convertible trades at $10, the price utilized would be the closing 
price of the common stock on the previous day (not the higher price of 
the preferred security) and the market capitalization would be computed 
on an as-converted basis.
    Finally, if the issuer has outstanding privately-held securities, 
the calculation would be made as described above for convertible 
securities based upon the previous day's closing price of the publicly-
traded security. Thus, a privately held Class B common stock 
convertible into the publicly-traded Class A would be valued at the 
price of the Class A. Likewise, a privately-held preferred Series A 
convertible into the publicly-traded Class A would be valued at the 
price of the Class A on an as-converted basis.
    The Exchange notes that it will also review any applicable 
conversion restrictions when conducting its market capitalization 
analysis and factor any such restrictions into the computations as 
appropriate.
(B) ``Shareholders' Equity'' and Market Capitalization'' of 
Partnerships.
    Partnerships raise a unique set of issues that need to be 
incorporated into Exchange rules. Again, after consulting with various 
individuals, the Exchange proposes to create an additional provision in 
the market capitalization definition. The provision would enable the 
Exchange to evaluate the formation of the current capital structure of 
the partnership and, where appropriate, to include other publicly-
traded securities in the calculation as a substantial equivalent to 
common stock.
    Furthermore, the Exchange proposes to amend the stockholders' 
equity test to clarify that both general and limited partners' capital 
is the measure for the applicable calculation. The Exchange believes 
that this clarification is necessary because the concept of 
``shareholders' equity'' is not applicable to partnerships. Instead, 
the notion of capital captures the appropriate analogous concept with 
respect to partnerships.
    The Exchange's intent in codifying the concept of analyzing the 
creation of the current capital structure stems primarily from the 
recent expiration of an IRS grandfather provision that resulted in 
numerous recapitalizations of partnerships. The Exchange believes it is 
not equitable to penalize these partnerships for restructuring in order 
to prevent, among other things, double taxation. Thus, for instance, if 
a holder of $50 of partnership units prior to the conversion were to 
receive $25 in partnership units and $25 in debt, the ``market value'' 
of the holdings has not changed and should be calculated at $50 for 
purposes of determining the continued listing status of the company. 
Consistent with the principles articulated above, the Exchange would 
require that the non-equity instrument be publicly traded so as to 
assure the ability to value the instrument.
(C) Companies That Have Field for Bankruptcy and That Are Below the 
Financial Continued Listing Criteria
    The recently approved language that addresses companies that have 
filed or that have announced an intent to file for bankruptcy, and that 
are also below the Exchange's financial continued listing criteria, 
requires the Exchange to subject such a company to ``immediate 
suspension and delisting.'' There are instances, however, where the 
Exchange has found that such a company should be afforded the 
opportunity to submit a financial plan for evaluation. For instance, a 
company that is profitable (or that has a positive cash flow), or is 
demonstrably in sound financial health despite the bankruptcy 
proceedings, should not be delisted if it can demonstrate that, within 
18 months, it will be in compliance with the Exchange's financial 
criteria. In response to these circumstances, the Exchange proposes to 
amend this provision to create the authority to analyze the financial 
status of these companies on a case-by-case basis. However, if a 
company has previously filed an Exchange-approved plan to meet the 
Exchange's continued listing standards within 18 months, application of 
this provision to the company does not restart the 18-month clock. 
Thus, for instance, a company that declares bankruptcy midstream 
through an Exchange-approved plan would still only have the remainder 
of the plan period to come into compliance. It would not be afforded an 
additional 18 months, but would incorporate the projected effect of the 
bankruptcy into its Plan and resubmit it for consideration.

2. Statutory Basis

    The Exchange believes the basis under the Act for the proposed rule 
change is the requirement under Section 6(b)(5) \7\ 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

[[Page 18415]]

open market and, in general, to protect investors and the public 
interest.
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    \7\ 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 with respect to 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.

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, 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. Sec. 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-99-50 and should be submitted by April 28, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-8487 Filed 4-6-00; 8:45 am]
BILLING CODE 8010-01-M