[Federal Register Volume 66, Number 148 (Wednesday, August 1, 2001)]
[Notices]
[Pages 39809-39810]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-19125]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44592; File No. SR-NYSE-00-17]


Self-Regulatory Organizations; New York Stock Exchange; Order 
Granting Approval of a Proposed Rule Change Relating to the Physical 
Format Requirements for Securities Certificates

July 26, 2001.

I. Introduction

    On May 1, 2000, the New York Stock Exchange (``NYSE'') filed with 
the Securities and Exchange Commission (``Commission'') proposed rule 
change SR-NYSE-00-17 pursuant to section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act''),\1\ and on July 24, 2000, amended the 
proposed rule change. Notice of the proposal was published in the 
Federal Register on September 1, 2000.\2\ The Commission received 
thirty-four comment letters in response to the proposed rule change.\3\ 
The Commission is publishing this order to grant approval of the 
proposed rule change.\4\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Release No. 43207 (August 25, 2000), 65 
FR 53248.
    \3\ Letter to Jonathan G. Katz, Secretary, SEC. from Thomas C. 
Harris, Deputy Director, Department of the Treasury, Bureau of 
Engraving and Printing (September 20, 2000)(``Treasury''); Thomas L. 
Montrone, President and Chief Excutive Officer, Registrar and 
Transfer Company (September 20, 2000)(``Registrar and Transfer''; 
Ira Horowirtz, President, American Bank Note Company, (September 22, 
2000)(`` American Bank Note I''); Memorandum to File, (September 22, 
2000)(``Memo to File I'') Steven G. Nelson, Chairman of the Board, 
Continental Stock Transfer and Trust Company, (September 28, 
2000)(``Contintental'') Stewart S. Hudnut, Senior Vice President, 
Illinois Tool Works, Inc. (September 28, 2000)(``Illinois Tool''); 
Susan S. Keith, Vice President, Halliburton Company (September 29, 
2000)(``Halliburton''); John J. Burns, Jr., President, Alleghany 
Corporation (September 29, 2000)(``Alleghany''); Robert W. Beicke, 
Vice President, ITT Industries (October 2, 2000)(``ITT''); Robert W. 
Diaczuk, Vice President, PFPC Inc. (October 2, 2000)(``PFPC''); 
Steven L. Welter, Manager, Ashland Inc. (October 3, 
2000)(``Ashland''); Ronald L. Greene, Customer Service Manager, 
Banknote Corporation of America (October 3, 2000)(``Banknote Corp. 
I''); Kevin B. Marsh, Senior Vice President, SCANA Corporation, 
(October 3, 2000)(``SCANA''); Tommy Chisholm, Vice President, 
Southern Company (October 3, 2000)(``Southern Co.''); Richard E. 
Lane, Chairman/CEO, PlazaBank (October 3, 2000)(``PlazaBank''); 
Jerome Clair, Vice President, Citibank, N.A. (October 4, 
2000)(``Citibank''); John M. Turner, Vice President, First Union 
(October 4, 2000)(``First Union''); Darryl W. Colletti, Vice 
President, Merrill Lynch (October 4, 2000)(``Merrill Lynch''); 
Nicholas J. Camera, Senior Vice President, The Interpublic Group of 
Companies, Inc. (October 5, 2000)(``Interpublic''); Charles V. 
Rossi, Division President, EquiServe (October 5, 
2000)(``EquiServe''); Karen L. Strum, Assistant Secretary, Nabisco 
(October 5, 2000)(``Nabisco''); David B. Phillips, Assistant 
Corporate Secretary, Cigna (October 10, 2000)(``Cigna''); Elizabeth 
A. Overmyer, Corporate Secretary, Ball Corporation (October 13, 
2000)(``Ball Corp.''); Darlene Cornell, Analyst, Peoples Energy 
(October 17, 2000)(``Peoples Energy''); Thomas A. McNish, Vice 
President, CMS Energy (November 3, 2000)(``CMS'') Ronald L. Greene, 
Customer Service Manager, Banknote Corporation of America, Inc. 
(November 10, 2000)(``Banknote II''); Gary S. Tuttle, Individual 
(November 22, 2000)(``Tuttle''); Gregory P. Vitt, Vice President, 
A.G. Edwards & Sons, Inc. (November 30, 2000)(``A.G. Edwards''); 
Ronald L. Greene, Customer Service Manager, Banknote Corporation of 
America, Inc. (December 20, 2000)(``Banknote III''); David W. Smith, 
President, American Society of Corporate Secretaries (February 8, 
2001)(``ASCS''); Memorandum to File, February 28, 2001)(``Memo to 
File II''); James E. Buck, Senior Vice President, NYSE (March 2, 
2001)(``NYSE''); Ira Horowitz, President, American Bank Note Company 
(March 16, 2001)(American Bank Note II''); and to Mr. Stephen G. 
Walsh, Managing Director, Listings, Operations and Market Watch, New 
York Stock Exchange, from Donald F. Gress, Chairman, STA Operations 
Committee (May 11, 2001)(``STA Operations Committee''); Copies and a 
summary of these letters may be viewed in the Commission's Public 
Reference Room.)
    \4\ The text of the rule change is set forth in Exhibit A to the 
amended proposed rule change filing, which may be obtained by 
contacting the NYSE or through the Commission's Public Reference 
Room.
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II. Description

    In the past, the NYSE has set forth in its Listed Company Manual 
specific printing and engraving criteria for the production of 
certificates of listed issuers. These requirements were in large part 
to guard against the counterfeiting of certificates. However, in light 
of the continued move toward dematerialization and immobilization and 
the evolving technologies to support the movement of securities, the 
NYSE has reviewed its current certificate requirements. The NYSE notes 
that no comparable requirements exist in the NASDAQ rules. The NYSE 
also notes that the Commission has recently approved an American Stock 
Exchange (``Amex'') rule filing that allowed the Amex to eliminate its 
certificate requirements.\5\ Furthermore, public companies not listed 
on any exchange often use certificates that do not comply with the 
traditional NYSE criteria, which results in additional compliance 
expense if those companies seek an NYSE listing. In light of all the

[[Page 39810]]

foregoing, the rule change will eliminate the NYSE's Listed Company 
Manual's requirements pertaining to printing and appearance and will 
retain only the requirements that specify the content required on each 
certificate (e.g. company name, par value if required by law, and 
proper form of assignment.\6\
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    \5\ Securities Exchange Act Release No. 42539 (March 17, 2000), 
65 FR 15672.
    \6\ As originally filed, the NYSE proposed eliminating all its 
requirements for certificates. The NYSE subsequently amended its 
original filing to reflect concerns that Commission staff and 
industry entities such as DTC had raised in discussions with the 
NYSE (July 24, 2000), amendment). Specifically, the NYSE added new 
language to section 510 and added a new section 501.13, both of 
which incorporated certain provisions of the now eliminated section 
502 of the Listed Company Manual. The retained provisions contain 
the requirements relating to the contents required on certificates.
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III. Summary of Comments

    The Commission received thirty-four comment letters in response to 
the proposed rule change.\7\ Of the thirty-four commenters, twenty-
eight were not in support of the proposed rule change.\8\
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    \7\ Supra note 3.
    \8\ Treasury, Registrar and Transfer, American Bank Note I, Memo 
to File I, Continental, Illinois Tool, Halliburton, Alleghany, ITT, 
PFPC, Ashland, SCANA, Southern Co., PlazaBank, Citibank, First 
Union, Merrill Lynch, Interpublic, Equiserve, Nabisco, Cigna, Ball 
Corp., Peoples Energy, CMS, Tuttle, A.G. Edwards, American Bank Note 
II, and STA Operations Committee letters.
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    Seventeen of the twenty-eight letters in opposition to the proposed 
rule change expressed essentially the same concerns.\9\ Of those 
seventeen, NYSE-listed companies submitted fifteen, a transfer agent 
submitted one, and a bank submitted one. The essence of these letters 
was that the proposed rule change would ``increase the potential for 
alteration and/or duplication'' of physical securities certificates. In 
its letter, the department of the Treasury stated that the elimination 
of the requirement of intaglio printing on certificates, with its 
unique ``tactile effect and `three dimensional' appearance,'' would 
make certificates easier to counterfeit. Four transfer agents, a 
committee of the Stock Transfer Association, one individual, and one 
bank note company (with two submitted letters and one meeting with 
Commission staff) also set forth as their main concern the elimination 
of the requirement for engraved intaglio printing.\10\ One comment 
letter stated that it generally opposed elimination of any of the 
NYSE's certificate standards until such time as all certificates are 
dematerialized.\11\
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    \9\ Illinois Tool, Halliburton, ITT, PFPC, Alleghany, Ashland, 
SCANA, Interpublic, Merrill Lynch, Nabisco, Southern Co., First 
Union, Cigna, PlazaBank, Peoples Energy, Ball Corp., and CMS 
letters.
    \10\ Register and Transfer, Continental, Citibank, Equiserve, 
Tuttle, American Bank Note I, Memo to File I, American Bank Note II, 
and STA Operations Committee letters.
    \11\ A.G. Edwards letter.
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    In rebuttal, the NYSE argued, as did ASCS, that since the Amex has 
no certificate requirements, the NYSE should be allowed to eliminate 
its requirements as well and that most public companies will continue 
to use engraved certificates with intaglio printing anyway.\12\ The 
NYSE also argues that the security features pertaining to physical 
certificates that it retained in its Listed Company Manual are 
sufficient to adequately protect against counterfeiting.\13\
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    \12\ ASCS and NYSE letters.
    \13\ NYSE letter.
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IV. Discussion

    Section 6(b)(5)\14\ of the Act requires that the rules of a 
national securities exchange be designed to prevent fraudulent and 
manipulative acts and practices. For the reasons set forth below, the 
Commission finds that NYSE's proposed rule change is consistent with 
NYSE's obligation under section 6(b)(5) of the Act.
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    \14\ 15 U.S.C. 78f(b)(5).
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    The Commission carefully considered the concerns expressed by the 
letters not in support of the proposed rule change. Although the 
proposed rule change removes some specific printing and engraving 
requirements for the securities certificates of NYSE-listed companies, 
the Commission finds that the remaining NYSE certificate requirements 
should provide adequate protections against counterfeiting. Although 
the NYSE certificate requirements no longer mandate the use of intaglio 
printing or the inclusion of a vignette on the certificate's face, the 
Commission believes that other remaining requirements in the NYSE's 
Listed Company Manual (such as the use of penetrating ink, the use of 
matrix printing or maceration technique, the use of a standard size 
certificate, the use of either a bank note control number or a 
computer-generated serial account number and the inclusion of facsimile 
signatures of officers with their titles, the name of the transfer 
agent or registrar, the serial number of the certificate, the Cusip 
number and box, and the word ``Dated'' in the lower portion of the 
certificate) serve to adequately guard against counterfeiting and other 
fraudulent and manipulative acts and practices.
    While the Commission recognizes that the use of Intaglio printing 
can be a valuable safeguard against counterfeiting, the Commission does 
not believe that it is an exclusive one. The Commission also notes that 
there is nothing in the NYSE's Listed Company Manual that either 
requires a company to change its certificates in response to this rule 
change or prohibits a company from incorporating more security 
features, such as intaglio printing, into its certificates than NYSE 
rules require.

V. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act and in 
particular with the requirements of section 6(b)(5) of the Act and the 
rules and regulations thereunder.
    It is Therefore Ordered, pursuant to section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-NYSE-00-17) be and hereby is 
approved.

    For the Commission by the Division of Market Regulation,pursuant 
to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-19125 Filed 7-31-01; 8:45 am]
BILLING CODE 8010-01-M