[Federal Register Volume 65, Number 77 (Thursday, April 20, 2000)]
[Notices]
[Pages 21227-21230]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-9916]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42671; File No. SR-NYSE-00-12]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change and Amendment 
Nos. 1 and 2 Thereto by the New York Stock Exchange, Inc. Relating to 
Original and Continued Listing Standards for Affiliated Companies

April 12, 2000.
    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 March 15, 2000, 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, and II below, which Items have been prepared by the Exchange. 
On March 28, 2000, the Exchange submitted Amendment No. 1 to the 
proposed rule change.\3\ On April 12, 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 and to grant accelerated approval 
to the proposed rule change and Amendment Nos. 1 and 2.
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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 clarified the method of 
analysis of a listed company's good-standing status. See letter from 
James E. Buck, Senior Vice President and Secretary, NYSE, to Belinda 
Blaine, Associate Director, Division of Market Regulation 
(``Division'', SEC, dated March 24, 2000 (``Amendment No. 1'').
    \4\ In Amendment No. 2, the Exchange proposed to apply the 
changes proposed in Amendment No. 1 to paragraph 102.01C, U.S. 
companies, to paragraph 103.01B, Non-U.S. companies. The Exchange 
also proposed to delete the proposed rule text from paragraph 
802.01C which would have applied the Price Criteria standard to a 
situation which is the subject of a separate proposed rule change by 
the Exchange. Furthermore, the Exchange changed their request for 
accelerated approval to April 12 from April 10, 2000, and the 
Exchange expanded their explanation of the proposed rule change in 
the purpose section of the filing. See letter from James E. Buck, 
Senior Vice President and Secretary, NYSE, to Belinda Blaine, 
Associate Director, Division, SEC, dated April 11, 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 proposed rule change consists of amendments to Sections 
102.01B, 102.01C, 103.01A, 103.01B, 802.01B and 802.01C of the Listed 
Company Manual (``Manual'') of the Exchange. These sections of the 
Manual set forth the financial original and continued listing standards 
of the Exchange. The text of the proposed rule change, as amended, is 
as follows. New text is italicized.

NYSE Listed Company Manual

* * * * *
Section 1
The Listing Process
* * * * *
102.01B. A company must demonstrate an aggregate market value of 
publicly-held shares of $60,000,000 for companies that list either at 
the time of their initial public offerings (``IPOs'')(C) or as a result 
of spin-offs or under the Affiliated Company standard, and $100,000,000 
for other companies (D).
102.01C. A company must meet one of the following financial standards:
* * * * *
    (IV) Affiliated Company Standard \5\
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    \5\ The formatting of the components in the proposed Affiliated 
Company listing standard were changed from capital letters (A, B, C, 
and D) to numbers (1, 2, 3, and 4). Telephone conversation between 
James Duffy, Senior Vice President and Associate General Counsel, 
NYSE, and Heather Traeger, Attorney, Division, SEC, on April 12, 
2000.
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    (1) Market capitalization of $500 million or greater (as evidenced 
by written representation from the underwriter, company, or its 
investment advisor);
    (2) Minimum of 12 months of operations (although it is not required 
to have been a separate corporate entity for such period);
    (3) Parent or affiliated company is a listed company in good 
standing (as evidenced by written representation from the company or 
its financial advisor excluding that portion of the balance sheet 
attributable to the new entity); and
    (4) Parent/affiliated company retains control* of the entity or is 
under common control* with the entity.

    * ``Control'' for these purposes will mean the ability to 
exercise significant influence over operating and financial 
policies, and will be presumed to exist when the parent involved 
holds directly or indirectly 20% or more of the entity's voting 
stock. Other idicia

[[Page 21228]]

that may be taken into account for this purpose include board 
representation, participation in policymaking processes, material 
intercompany transactions, interchange of managerial personnel, and 
technological dependency. This test is taken from and intended to be 
consistent with generally accepted accounting principles regarding 
use of the equity method of accounting for an investment in common 
stock.
* * * * *
103.01A. A company must meet the following distribution and size 
requirements
* * * * *
    Market value of publicly-held shares (A)--$100 million Worldwide(B)
    or for companies listing under the Affiliated Company standard--$60 
million Worldwide(B)
103.01B. A company must meet one of the following financial standards:
* * * * *

OR

    (IV) Affiliated Company Standard \6\
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    \6\ The formatting of the components in the proposed Affiliated 
Company listing standard were changed from capital letters (E, F, G, 
and H) to numbers (1, 2, 3 and 4). Id.
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    (1) Market capitalization of $500 million or greater (as evidenced 
by written representation from the underwriter, company, or its 
investment advisor);
    (2) Minimum of 12 months of operations (although it is not required 
to have been a separate corporate entity for such period);
    (3) Parent or affiliated company is a listed company in good 
standing (as evidenced by written representation from the company or 
its financial advisor excluding that portion of the balance sheet 
attributable to the new entity); and
    (4) parent/affiliated company retains control* of the entity or is 
under common control* with the entity.

    * ``Control'' for these purposes will mean the ability to 
exercise significant influence over operating and financial 
policies, and will be presumed to exist when the parent involved 
holds directly or indirectly 20% or more of the entity's voting 
stock. Other indicia that may be taken into account for this purpose 
include board representation, participation in policymaking 
processes, material intercompany transactions, interchange of 
managerial personnel, and technological dependency. This test is 
taken from and intended to be consistent with generally accepted 
accounting principles regarding use of the equity method of 
accounting for an investment in common stock.
* * * * *
Section 8
Suspension and Delisting
802.01B  Numerical Criteria for Capital or Common Stock.
* * * * *
    Affiliated Companies--Will not be subject to the $50 million market 
capitalization and stockholders' equity test unless the parent/
affiliated company no longer controls the entity or such parent/
affiliated company itself falls below the continued listing standards 
in this section.
    Funds will be subject to immediate suspension and delisting 
procedures if (1) the average market capitalization over 30 consecutive 
trading days is below $15,000,000 or (2) the Fund ceases to maintain 
its closed-end status. The Exchange will notify the fund if the average 
market capitalization falls below $25,000,000 and advise the fund of 
the delisting standard. Funds are not subject to the procedures 
outlined in Paras. 802.02 and 802.03.
* * * * *
802.01C  Price Criteria
* * * * *
    Notwithstanding the foregoing, if the subject security is a stock 
listed under the Affiliated Company standard where the parent remains 
in ``control'' as the term is used in that standard, the Exchange may 
determine whether to apply the Price Criteria to such security after 
evaluating the financial status of the company and/or the parent/
affiliated company, as the case may be.

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 III 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 the proposed rule change is to add a new original 
listing standard and related continued listing standard to the 
Exchange's listing criteria.
    According to the Exchange, companies in the current capital markets 
are employing strategies to ``unlock value'' in a portion of their 
business, particularly internet-related business. These include initial 
public offerings which spin-off or carve-out a subsidiary, as well as 
issuing ``tracking stocks,'' i.e., stocks of an issuer that are 
intended to track the value of a portion of the issuer's business. 
Currently, the Exchange lists tracking stocks as additional shares of a 
listed issuer, but requires carve-outs and spin-offs to separately 
qualify under the original listing standards, even when the transaction 
is similar in many respects to one involving a tracking stock. The 
Exchange represents that its issuers, given a substantial continuing 
interest in these new entities, would like to keep them listed on the 
Exchange, and the Exchange agrees that in many cases that would appear 
to be appropriate. Accordingly, the Exchange is proposing to adopt a 
new Affiliated Company original listing standard, and a related 
continuing listing standard, that would accommodate these companies. 
The Exchange notes that conventional ``tracking stocks'' will continue 
to be listed without specific separate financial standards as they 
qualify as additional classes of securities of the already listed 
company.
    Currently, all domestic companies listing on the Exchange must meet 
the distribution and minimum public market capitalization standards set 
forth in Sections 102.01A and 102.01B of the Manual, and Non-U.S. 
companies must meet the standards set forth in Section 103.01A. The 
Exchange notes that the pertinent sections of the Manual to this 
proposed rule change are Sections 102.01C and 103.01B, which set forth 
the financial criteria an applicant must meet. In applying the proposed 
Affiliated Company standard, therefore, applicants must comply with 
Sections 102.01A and 102.01B for domestic companies and Section 103.01A 
for Non-U.S. companies. The proposed changes to Sections 102.01C and 
103.01B, which are identical, set forth four components as the minimum 
listing criteria for Affiliate Companies, including: (a) that the 
company have a market capitalization of $500 million or greater; (b) 
that the company have been in operation for a minimum of 12 months; (c) 
that the parent or affiliated company is a listed company in good 
standing; and (d) that the parent/affiliated company retains control of 
the entity or is under common control with the entity.
    First, the Exchange proposes that the market capitalization of the 
Affiliated

[[Page 21229]]

Company must be at least $500 million to ensure the entity is of a size 
for which the new standard is appropriate. With respect to this 
requirement, the Exchange will require written representation from the 
underwriter, company or its investment adviser, as applicable, in order 
to establish that the new entity will have a minimum market 
capitalization of $500 million. The Exchange notes that the public 
market value of the Affiliated Company, as with spin-offs and carve 
outs, for example, must be at least $60 million.
    Second, the Exchange proposes a maturation component that would 
require a minimum of twelve months of operations prior to the new 
listing. In this regard, the Exchange seeks to ensure that the entity 
is an appropriate candidate for the new standard by demonstrating 
operations for at least one year. The Exchange notes that there is no 
requirement that the entity be a separate corporate entity for such 
period, as it believes that such a construct is often not utilized by 
large corporations with multiple operating units.
    Third, the proposed standard would require a two-part test with 
regard to the parent or affiliated company. First, it must be a listed 
company in good standing. The Exchange represents that in determining 
whether the parent/affiliate is in good standing, it will take into 
consideration the portion of the business that is becoming the new 
company. Specifically, in determining the stockholders' equity of the 
parent, the portion applicable to the new entity not retained by the 
parent/affiliate would be deducted. The Exchange will require written 
representation from the underwriter, company or its investment advisor, 
as applicable, in order to establish that the parent/affiliate will 
remain in good standing following he severance of the new entity. In 
adopting this approach, the Exchange seeks to prevent any double 
counting of the value of the new entity during the listing process. 
Second, the parent/affiliate must retain a certain amount of control 
(or be under common control). The Exchange believes the appropriate 
threshold at which to set a presumption of control is 20%. The Exchange 
will evaluate all inter-locking elements between the parent and the new 
entity in making the determination of whether sufficient control is 
retained such that the Affiliated Company standard is appropriate.
    In addition to the proposed initial listing standard, the Exchange 
is proposing two changes to its continued listings standards. To 
maintain listing on the Exchange, companies must exceed a conjunctive 
test of at least both $50 million in market capitalization and $50 
million in shareholders' equity, and a stand-along market 
capitalization minimum of at least $15 million. With respect to 
companies listed under the proposed Affiliated Company standard, the 
conjunctive test in Section 802.01B of the Manual would only be applied 
in the event that the parent/affiliated company no longer controls the 
entity or the parent/affiliated company itself fell below the continued 
listing standard. In this regard, the Exchange believes that, so long 
as the parent is in good financial standing and control is maintained, 
the new entity should be subject only to the minimum standard of $15 
million in market capitalization.
    The second proposed change to the continued listing standards 
pertains to Section 802.01C of the Manual. This section imposes a $1 
Price Criteria, so that a security for which the stock price has fallen 
below $1 would be considered by the Exchange to be below continued 
listing standards. Again, the Exchange believes that, so long as the 
control elements continue to be in place, the application of the Price 
Criteria may not necessarily be appropriate. In this regard, the 
Exchange will evaluate the financial status of both the new company and 
the parent/affiliated company.\7\
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    \7\ The Exchange notes that a similar change has been proposed 
regarding applicability of the Price Criteria to second classes of 
securities. This proposed change has been filed with the Commission 
(SR-NYSE-00-08).
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2. Statutory Basis
    The Exchange represents that the proposed rule change is consistent 
with the requirement under Section 6(b)(5) of the Act; \8\ that an 
Exchange have rules that are designed 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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    \8\ 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 solicited comments from its Legal Advisory Committee 
and Listed Company Advisory Committee. All comments received from the 
two Committees were in support of the proposed amendments.\9\ The sole 
written comment support the proposal because transactions that result 
in Affiliated companies ``maximize value and return to operational 
units of a more controllable size.''\10\ This commenter also stated 
that fees on Affiliated Company listings should be addressed at some 
point, and suggested that there should be a notion of a segregated 
operational unit, division, or management in addition to the 12 months 
of operating results.\11\ In addition, this commenter questioned 
whether the 12-month benchmark is sufficient.\12\
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    \9\ The Exchange noted that all comments were verbal, with the 
exception of one written comment received via electronic mail. See 
Amendment No. 1, supra note 3.
    \10\ Id.
    \11\ Id.
    \12\ Id.
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    In response to this commenter, the Exchange stated that it will 
address the issue of fees separately, and noted that most divisions 
that evolve into separate entities are segregated with a management 
structure in place in the particular division.\13\ The Exchange further 
stated that it believes 12 months provides a sufficient benchmark as it 
would allow for an adequate gauge of credibility that the division was 
not formed solely to effectuate the transaction.\14\
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    \13\ Id.
    \14\ Id.
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III. 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. 552, will be available for inspection 
and copying in the Commission's Public Reference Room. Copies of such 
filings will also be available for inspection and copying at the 
principal office of the NYSE. All submissions should refer to File No.

[[Page 21230]]

SR-NYSE-00-12 and should be submitted by May 11, 2000.

IV. Commission's Findings and Order Granting Approval of Proposed 
Rule Change

    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, 
and in particular, with the requirements of Section 6(b)(5),\15\ 
because the proposed rule is designed 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.\16\
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    \15\ 15 U.S.C. 78f(b)(5).
    \16\ In approving this rule, the Commission has considered its 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
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    Specifically, the Commission believes that the Exchange's proposed 
Affiliated Company listing standard and related continuing listing 
standard will permit the Exchange, without compromising the 
effectiveness of the Exchange's listing standards, to retain the 
listings of its issuer's carve-outs, spin-offs or ``tracking stocks'' 
that meet the requirements of the Affiliated Company standard. The 
Commission further believes that the proposed rule change, as amended, 
is consistent with the Exchange's obligation to remove impediments to 
and perfect the mechanism of a free and open market by providing the 
NYSE with greater flexibility in determining which equity securities 
warrant inclusion in its market. As such, the proposal should allow the 
Exchange to add listings based on the prospective entity's relationship 
with an NYSE listed company in good standing that otherwise might not 
qualify under its current original listing criteria.
    The NYSE has requested that the Commission find good cause for 
approving the proposed rule change, as amended, prior to the thirtieth 
day after the date of publication of notice in the Federal Register. 
The Exchange requested that the Commission accelerate the effective 
date of the proposed rule change so that issuers engaged in 
transactions that would result in Affiliated Companies could avail 
themselves of the new standard by April 12, 2000.\17\ The Commission 
believes that it is reasonable to permit the Exchange to implement the 
new standard by April 12, 2000, as it would allow issuers currently 
engaged in such transactions to avail themselves of the new listing 
standards after such date. Accordingly, the Commission finds good 
cause, consistent with Sections 6(b)(5) and 19(b)(2) of the Act,\18\ to 
approve the proposed rule change, as amended, on an accelerated basis.
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    \17\ See Amendment No. 2, supra note 4.
    \18\ 15 U.S.C. 78f(b)(5) and 78s(b)(2).
    \19\ 15 U.S.C. 78s(b)(2).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\19\ that the proposed rule change (SR-NSYE-00-12), as amended, is 
hereby approved on an accelerated basis.

    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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Jonathan G. Katz,
Secretary.
[FR Doc. 00-9916 Filed 4-19-00; 8:45 am]
BILLING CODE 8010-01-M