[Federal Register Volume 67, Number 68 (Tuesday, April 9, 2002)]
[Notices]
[Pages 17092-17094]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-8514]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45684; File No. SR-NYSE-2001-45]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Partial Accelerated Approval of Proposed Rule Change, 
Amendment No. 1, and Amendment No. 2 Thereto by the New York Stock 
Exchange, Inc. Instituting a Pilot Program Relating to Amendments to 
the Initial Listing Standards and Allocation Policy for Closed-End 
Management Investment Companies Registered Under the Investment Company 
Act of 1940

April 2, 2002.
    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 October 29, 2001, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. On March 
14, 2002, the NYSE filed Amendment No. 1 to the proposed rule change 
with the Commission.\3\ On April 1, 2002, the NYSE filed Amendment No. 
2 to the proposed rule change with the Commission.\4\ The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as amended, from interested persons and grant accelerated approval to 
the portion of the proposal instituting a pilot program relating to the 
listing eligibility criteria and allocation policy for closed-end 
management investment companies registered under the Investment Company 
Act of 1940 (``pilot'').
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Darla C. Stuckey, Corporate Secretary, NYSE, 
to Nancy J. Sanow, Assistant Director, Division of Market Regulation 
(``Division''), Commission, dated March 12, 2002 (``Amendment No. 
1''). In Amendment No. 1, the Exchange, in part, substituted the 
phrase ``investment management company'' for ``fund family,'' 
provided a basis for the fund family standards, clarified the basis 
for establishing a fund group and the change in terminology in the 
listing standards from ``net assets'' to ``market value of publicly-
held shares,'' made conforming changes to the rule text, and further 
clarified its allocation policy for a group of closed-end funds.
    \4\ See letter from Darla C. Stuckey, Corporate Secretary, NYSE, 
to Nancy J. Sanow, Assistant Director, Division, Commission, dated 
April 1, 2002 (``Amendment No. 2'') (replacing Form 19b-4 in its 
entirety). In Amendment No. 2, the Exchange, in part, requested a 
three-month pilot, as well as permanent approval of the proposed 
rule change, substituted the phrase ``fund family'' for ``investment 
management company,'' defined the term ``fund family,'' clarified 
that each fund in the group is individually subject to the 
Exchange's continuing listing criteria, made conforming changes to 
its rule text, and requested accelerated approval of the pilot.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The NYSE proposes to implement a three-month pilot in respect of 
the following proposed rule change, as amended, while the Commission 
considers permanent approval of the proposal. The Exchange is proposing 
to amend Section 102.04 of the Exchange's Listed Company Manual 
(``Manual'') regarding listing standards for closed-end management 
investment companies registered under the Investment Company Act of 
1940 (hereinafter referred to as ``funds'' or ``closed-end funds''). 
The Exchange is proposing to apply to all individual closed-end funds 
that desire to list on the Exchange the $60 million public market value 
test currently used for funds applying in connection with their initial 
public offering.\5\ In addition, the Exchange is proposing a standard 
under which a group of funds meeting certain specified requirements can 
be listed concurrently by a single ``fund family,'' even if the group 
includes one or more funds with less than $60 million in public market 
value. Finally the Exchange is proposing to amend its Allocation Policy 
and Procedures (``Allocation Policy'') with respect to the specialist 
allocation of funds listed in such a fund family group.
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    \5\ The language in the current Manual Section 102.04, which the 
NYSE is proposing to replace, requires that a newly organized fund 
have $60 million in ``net assets.'' The NYSE proposes to use the 
term ``market value of publicly held shares,'' but represents that 
there is no substantive change involved in this different 
terminology. In the case of any IPO, whether of a business company 
or a fund, the Exchange has always looked at whether the offering 
has raised $60 million, and that is what the Exchange will continue 
to do under the amended rule. Similarly, with a transfer the 
Exchange has always looked at the aggregate market value of publicly 
held shares, and that is what the Exchange will continue to do under 
the amended rule. See Amendment No. 1, supra note 3.
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    The text of the proposed rule change is available at the NYSE and 
at the Commission.

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 NYSE included statements 
concerning the purpose of and basis for the proposed rule change, as 
amended, and discussed any comments it received on the proposed rule 
change. The text of these statements may be examined at

[[Page 17093]]

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 Exchange represents that currently there are over 380 closed-
end funds listed on the Exchange. The Exchange asserts that many of 
these funds represent multiple listings from a family of funds such as 
Nuveen, Morgan Stanley, Van Kampen or Merrill Lynch.\6\ The Exchange 
represents that funds are often offered, issued, and listed in groups, 
such as state municipal bond funds. It is the Exchange's understanding 
that the fund families prefer to list all funds in a group on the same 
market, but can encounter difficulties when one or more of a group 
falls below the size required by the Exchange. As the Exchange explored 
a specific standard for group listings of closed-end funds, it 
determined that it made sense not only for groups of newly formed funds 
but for groups of existing funds as well. This, in turn, prompted the 
Exchange to re-examine its current policy of applying a different set 
of standards to funds with three or more years of operating history. 
Presently, such funds must meet the financial standards applicable to 
regular operating companies (earnings, cash flow, etc.), in contrast to 
newly formed funds, which may be listed based only on raising at least 
$60 million. The Exchange has determined that this distinction between 
existing and newly formed funds no longer serves any desired business 
or other purpose, and so is appropriate for elimination. Accordingly, 
the Exchange is proposing to apply a $60 million public market value 
test to all funds seeking to list, regardless of whether they are newly 
formed funds, or existing funds transferring from another market.
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    \6\ The Exchange represents that a ``fund family'' (as the term 
is used herein) consists of funds with a common investment adviser 
or having investment advisers which are all affiliates of one 
another. See Amendment No. 2, supra note 4.
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    In addition, the Exchange is proposing to apply the following 
original listing standards to a group of closed-end funds listed 
concurrently by a single fund family. By meeting the following 
criteria, the funds in the group\7\ could all be listed even if one or 
more of the group did not satisfy the $60 million test:
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    \7\ The Exchange represents that the composition of the group 
will be determined in each case by the investment adviser bringing 
the group listing to the Exchange. See Amendment No. 1, supra note 
3.
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     Total group market value of publicly held shares (offering 
proceeds, in the case of newly formed funds) must equal in the 
aggregate at least $200 million;
     Each group must average a minimum of $45 million in market 
value of publicly held shares (proceeds) per fund; and
     No single fund in the group can have a market value of 
publicly held shares (proceeds) less than $30 million.
    As discussed above, this group standard will apply regardless of 
whether the group consists of newly formed or existing funds, or a 
combination thereof.\8\ The Exchange has determined that the foregoing 
standards achieve a balance between maintaining the Exchange's 
standards at an appropriate level, and providing some additional 
flexibility to fund families that desire to concurrently list a group 
of closed-end funds on the same Exchange.\9\
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    \8\ See Amendment No. 2, supra note 4.
    \9\ See Amendment Nos. 1 and 2, supra notes 3 and 4. Once a 
group of closed-end funds is listed under the proposed standards, 
each fund in the group will be individually subject to the 
Exchange's continued listing criteria applicable to funds specified 
in Section 802.01B of the Manual.
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    The Exchange is also proposing to amend its Allocation Policy \10\ 
to provide that the Allocation Committee should generally allocate to 
one specialist unit all the closed-end funds in a family group listed 
under the group criteria discussed above. The Exchange believes that 
economies of scale and more effective utilization of resources may be 
realized through the allocation of a group of what are likely to be 
less actively traded securities to one specialist unit, rather than to 
have the individual funds within the group allocated to a number of 
units. In certain situations, however, the Allocation Committee would 
be permitted to allocate funds within a group to more than one unit. 
Such situations could include, for example, instances where the number 
of funds in the group, the types of funds, or the relative values of 
the funds suggest to the Allocation Committee that allocation to more 
than one specialist unit would be appropriate.
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    \10\ The intent of the Exchange's Allocation Policy is (1) to 
ensure that the allocation process is based on fairness and 
consistency and that all specialist units have a fair opportunity 
for allocations based on established criteria and procedures; (2) to 
provide an incentive for ongoing enhancement of performance by 
specialist units; (3) to provide the best possible match between 
specialist unit and security; and (4) to contribute to the strength 
of the specialist system.
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    The Exchange first notes that the normal Allocation Policy apply to 
closed-end funds being listed on the Exchange just as they apply to any 
other business corporation being listed. Therefore, the amendment being 
proposed hereby is altering the Allocation Policy in only the discreet 
manner specified. The Exchange represents that all the other aspects of 
the Allocation Policy, including the method by which the listed company 
is permitted to pick from a panel of specialists put together by the 
Allocation Committee, will apply.\11\
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    \11\ See Amendment No. 1, supra note 3.
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    The Exchange also has stated that the allocation of a family group 
to a single specialist is to be the norm when listing fund families. 
The Exchange represents that closed-end funds are often less actively 
traded than regular listed companies, and the fact that a family group 
will include one or more funds on the smaller end of the spectrum 
suggests that those members of the group may trade even less actively 
than the average closed-end fund. As a result, it will usually be most 
appropriate to have the entire group allocated to the same specialist, 
so that it has the chance to trade both the larger and the smaller 
funds in the group. However, the Allocation Policy recognizes that 
there are situations where the Allocation Committee may conclude that 
allocation to more than one specialist unit is preferable. The Exchange 
asserts that it is impossible to predict all the circumstances in which 
this might arise, which is why the Allocation Committee is being 
provided with the discretion to react to situations as they occur. 
However, one set of circumstances that might prompt the Allocation 
Committee to allocate to more than one specialist is if a particularly 
large family group is presented with possibly several funds in the 
various size categories. The Exchange asserts that it could be 
considered overly burdensome to ask one unit to take on the entire 
group at one time, and it could be very possible to divide the group 
into two or perhaps even more tranches for allocation purposes, while 
still serving the goal of fairness and efficiency that has prompted the 
family group approach described herein.\12\
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    \12\ Id.
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2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is

[[Page 17094]]

consistent with section 6(b) of the Act,\13\ in general, and furthers 
the objectives of Section 6(b)(5),\14\ in particular, in that it is 
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 open market and a national 
market system, and, in general, to protect investors and the public 
interest.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 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, as 
amended, 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 Exchange 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.
    The Exchange has requested that the Commission find good cause 
pursuant to section 19(b)(2) of the Act,\15\ for approving the 
establishment of the pilot for a three-month period ending on July 5, 
2002 (or until such earlier time as the Commission grants the 
Exchange's request for permanent approval of the pilot), prior to the 
30th day after the date of publication of notice thereof in the Federal 
Register. The Exchange represents that accelerated approval will enable 
the Exchange to accommodate the timetable of listing fund families on 
the Exchange.\16\
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    \15\ 15 U.S.C. 78s(b)(2).
    \16\ See Amendment No. 2, supra note 4.
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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, 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 the filing 
will also be available for inspection and copying at the principal 
offices of the NYSE. All submissions should refer to File No. SR-NYSE-
2001-45 and should be submitted by April 30, 2002.

V. Commission Findings and Order Granting Partial Accelerated 
Approval of Proposed Rule Change

    The Commission finds that the proposed rule change, as amended, 
relating to the establishment of the pilot is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange. Specifically, the 
Commission believes the proposal is consistent with the requirements 
under section 6(b)(5) of the Act \17\ that the rules of an 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.\18\ The Commission believes that the proposed pilot strikes a 
reasonable balance between the Exchange's obligation to protect 
investors and their confidence in the market and the Exchange's 
obligation to perfect the mechanism of a free and open market by 
listing funds, including fund families, on the Exchange.
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    \17\ 15 U.S.C. 78f(b)(5).
    \18\ In approving this pilot, the Commission notes that it has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
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    The Commission finds good cause for approving the pilot prior to 
the 30th day after publication in the Federal Register. The NYSE has 
represented that it desires to promptly implement the proposed rule 
change based on business considerations \19\ and that accelerated 
approval will enable the Exchange to accommodate its timetable for 
listing fund families.\20\ The Commission believes that accelerated 
approval will permit the Exchange to continue listing funds and 
accommodate the desire of fund families to list groups of closed-end 
funds on one marketplace, while allowing the Commission adequate time 
to consider the Exchange's proposal for permanent approval of the 
pilot.\21\ Accordingly, the Commission finds it appropriate and 
consistent with sections 6(b)(5) and 19(b)(2) of the Act \22\ for 
partially approving the proposed rule change, as amended, prior to the 
thirtieth day after the date of publication of notice thereof in the 
Federal Register.
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    \19\ Telephone conversation between James F. Duffy, Senior Vice 
President, Elena Daly, Assistant General Counsel, NYSE; and Sonia A. 
Patton, Special Counsel, and Frank N. Genco, Attorney, Division, 
Commission, on April 02, 2002.
    \20\ See Amendment No. 2, supra note 4.
    \21\ Approval of the three-month pilot period should not be 
interpreted as suggesting that the Commission is predisposed to 
approving the proposal on a permanent basis.
    \22\ 15 U.S.C. 78f(b)(5) and 78s(b)(2).
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    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\23\ the proposed rule change, as amended, (File No. SR-NYSE-2001-
45) is approved on a pilot basis until July 5, 2002.
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    \23\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-8514 Filed 4-8-02; 8:45 am]
BILLING CODE 8010-01-P