[Federal Register Volume 65, Number 155 (Thursday, August 10, 2000)]
[Notices]
[Pages 49046-49047]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-20260]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43111; File No. SR-NYSE-00-32]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange, Inc. to Extend the Pilot 
Relating to Shareholder Approval of Stock Option Plans

August 2, 2000.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby 
given that on July 13, 2000, the New York Stock Exchange, Inc. 
(``Exchange'' or ``NYSE'') 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. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to extend the effectiveness of the amendments 
to Sections 312.01, 312.03 and 312.04 of the Exchange's Listed Company 
Manual with respect to the definition of a ``broadly-based'' stock 
option plan (``1999 Proposal'').\3\ The Commission approved 1999 
Proposal on a pilot basis (``Pilot'') on June 4, 1999.\4\ The Pilot is 
scheduled to expire on September 30, 2000. The Exchange proposes to 
extend the effectiveness of the Pilot until September 30, 2003.
---------------------------------------------------------------------------

    \3\ The Commission notes that the definition approved in the 
1999 Proposal classifies a stock option plan as broadly-based if, 
pursuant to the terms of the plan (a) at least a majority of the 
issuer's full time, exempt U.S. employees are eligible to 
participate under the plan; and (b) at least a majority of the 
shares awarded under the plan (or shares of stock underlying options 
awarded under the plan) during the shorter of the three-year period 
commencing on the date the plan is adopted by the issuer or the term 
of the plan itself are made to employees who are not officers or 
directors of the issuer.
    \4\ Securities Exchange Act Release No. 41479, 64 FR 31667 (June 
11, 1999).
---------------------------------------------------------------------------

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 1999 Proposal amended Sections 312.01, 312.03 and 312.04 of the 
Exchange's Listed Company Manual to reflect the recommendations 
formulated by a Stockholder Approval Policy Task Force (``Task 
Force''), which was established by the Exchange to review comments and 
make recommendations concerning possible changes to its definition of 
what constitutes a ``broadly-based'' stock option plan for purposes of 
the Exchange's shareholder approval policy. The Task Force also 
recommended that the Exchange actively consider utilizing an overall 
dilution maximum for all non-tax qualified plans that otherwise would 
be exempt from shareholder approval requirements. The Task Force 
recommended that the Exchange direct it or another appropriate group to 
immediately consider the dilution issue with a target date of the 
NYSE's September 1999 meeting of the Board of Directors.
    The Exchange did so, and the Task Force continued its work and 
submitted a report of its findings to the Exchange's Board at the 
November 1999 meeting.\5\ The Task Force, however, recommended 
implementing enhanced disclosure requirements for the compensation 
tables contained in a company's SEC filings.\6\ Although the Task Force 
formulated dilution standards and presented them in its report, the 
Task Force believed and the Exchange's Board agreed, that such 
standards should be adopted uniformly by all the major listing markets 
in the United States. The Task Force was concerned that adoption of the 
dilution standard by only one market would lead to competition for 
listings based on disparities in the corporate governance rules of the 
respective markets. The Task Force believed that this would compromise 
the purposes intended to be served by those rules, and could undermine 
the public's confidence and trust in the markets.
---------------------------------------------------------------------------

    \5\ The Task Force had previously submitted a status report to 
the Commission in October 1999. See letter from Catherine Kinney, 
Group Executive Vice President, Office of the Chief Executive, NYSE, 
to Annette Nazareth, Director, Division of Market Regulation, SEC, 
dated October 28, 1999 (Status Report Submission NYSE 98-32).
---------------------------------------------------------------------------

    Accordingly, the Exchange began discussions with the management of 
the National Association of Securities Dealers regarding a dilution 
standard, but no consensus has yet been achieved. The Exchange is 
requesting an extension of the Pilot for three years in order to permit 
additional industry discussion of the issues, while at the same time 
enabling the Exchange to continue to study the experience of NYSE 
listed companies and their investors that utilize the exemption from 
shareholder approval for broadly-based stock options plans, as approved 
in the Pilot.
    The order issued by the Commission approving the 1999 Proposal on a 
pilot

[[Page 49047]]

basis (``Order'') \7\ requested that the Exchange submit a data report 
in connection with any extension request such as the one contained 
herein. Through review of supplemental listing applications submitted 
since June 4, 1999, the Exchange is determining which newly adopted 
stock option plans relied on the broadly-based exception set forth in 
the 1999 Proposal.
---------------------------------------------------------------------------

    \7\ See supra note 4.
---------------------------------------------------------------------------

    The Exchange estimates that given the number of companies involved 
and the fact that the information is not otherwise necessary for any 
other compliance reason, it will submit the requisite report to the 
Commission within forty-five days of this filing. Should the Exchange 
find that it will take significantly longer to compile the full report, 
the Exchange will prepare and submit to the Commission an interim 
report covering the information assembled during the 45-day period 
while continuing to work expeditiously to complete the report.
    In the Order, the Commission noted the concern expressed by several 
commenters on the 1999 Proposal that the second part of the definition 
of a broadly-based plan, which focuses on actual grants awarded during 
the shorter of either the first three years of the life of a plan or 
the term of the plan itself, does not protect against actions the 
company may take after the first three years. The Commission stated 
that it expected the Exchange ``to monitor and notify those companies 
that are subject to this rule if it believes that they are not 
complying with the spirit of the rule by delaying actual awards under a 
Plan until the three-year period has expired.'' \8\
---------------------------------------------------------------------------

    \8\ The Commission notes that the Order directed the NYSE to 
address concerns raised regarding the three-year limit for reviewing 
grants awarded under broadly-based plans in any request to extend 
the Pilot by monitoring whether companies continue to administer 
plans in a broadly-based fashion to determine whether changes need 
to be made to the participation prong. Specifically, the Commission 
stated that the NYSE should address whether the development of a 
rolling three-year period or other alternative would be more 
appropriate to ensure that plans are administered in a broadly-based 
manner. Further, the Commission directed the NYSE to submit a 
monitoring report including, at a minimum, information on the types 
and number of employees who are eligible to participate in broadly-
based stock options plans, as well as information concerning actual 
awards being made under such plans. The Commission expects that the 
monitoring report due to be submitted to the Commission will contain 
such information.
---------------------------------------------------------------------------

    The data which the Exchange will obtain from its companies and 
report to the Commission in connection with this extension request will 
give some indication of how companies are awarding grants under 
broadly-based plans, although the Exchange does not believe that this 
initial survey will provide any conclusive answers, and of course will 
not address whether companies will behave differently after the first 
three years of a plan. Nonetheless, if the grants reported by a company 
in connection with this survey appear heavily weighted towards officers 
and directors, the Exchange will counsel management of the company 
regarding the meaning and intent of the Exchange rule in an effort to 
assure that overall activity under the plan in the longer term will 
support the conclusion that the plan is in fact broadly-based.\9\ 
Should the listing markets move to a dilution standard that will 
replace the broadly-based exception, monitoring for this issue will not 
be necessary in the long term.
---------------------------------------------------------------------------

    \9\ See supra note 8.
---------------------------------------------------------------------------

2. Basis
    The Exchange believes that the proposal is consistent with Section 
6(b)(5) of the Act, which, among other things, requires that the rules 
of a national securities exchange be designed to promote just and 
equitable principles of trade, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system and, 
in general, to protect investors and the public interest. The Exchange 
believes that extending the effectiveness of the Pilot until September 
30, 2003 is consistent with these objectives because it will enable the 
Exchange to monitor the actions of listed companies with respect to 
their broadly-based plans, while permitting industry participants to 
continue discussions regarding a uniform dilution standard.

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 written comments on 
the proposal.

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 such 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 is consistent with the Act. Persons making written submissions 
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. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
NYSE. All submissions should refer to File No. SR-NYSE-00-32 and should 
be submitted by August 31, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
---------------------------------------------------------------------------

    \10\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-20260 Filed 8-9-00; 8:45 am]
BILLING CODE 8010-01-M