[Federal Register Volume 67, Number 102 (Tuesday, May 28, 2002)]
[Notices]
[Pages 36952-36954]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-13233]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45970; File No. SR-NYSE-2001-33]


Self-Regulatory Organizations; The New York Stock Exchange; 
Notice of Filing of Proposed Rule Change To Amend the Certification 
Requirements of the Listed Company Manual

May 21, 2002.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on August 24, 2001, the New 
York Stock Exchange (``NYSE'') filed with the Securities and Exchange 
Commission (``Commission'') and on April 16, 2002, and May 7, 2002, 
amended the proposed rule change as described in Items I, II, and III 
below, which items have been prepared primarily by the NYSE. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested parties.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

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

    The purpose of the proposed rule change is to amend Section 501 of 
the NYSE's Listed Company Manual (``Manual'') to specify that a stock 
may be listed on the NYSE notwithstanding that is dematerialized or in 
book-entry-only form if the stock is included in the Direct 
Registration System (``DRS'').

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 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 NYSE has prepared summaries, set forth in sections 
(A), (B), and (C) below, of the most significant aspects of these 
statements.\2\
---------------------------------------------------------------------------

    \2\ The Commission has modified the text of the summaries 
prepared by the NYSE.
---------------------------------------------------------------------------

(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    Section 5 of the NYSE's Manual deals with stock certificates 
requirements including when certificates must be distributed and what 
form stock certificates must take. Section 501.01 of the Manual 
currently requires a listed company to send stock certificates to 
record holders unless the stock distribution relates to a stock 
dividend reinvestment plan, stock dividend reinvestment purchase plan 
or a similar stock purchase plan, or the company's stock is included in 
DRS.
    Over the years the NYSE has recognized changes in custom as the use 
of certificates has become less common with respect to certain 
securities such as corporate bonds and structured products (e.g., 
equity-linked notes). In the 1980s for example, the NYSE amended 
Section 501.02 to specify that bonds may be listed on a book-entry 
basis using a global certificate held by a depository.\3\
---------------------------------------------------------------------------

    \3\ Securities Exchange Act Release No. 25872 (June 30, 1988), 
53 FR 25,560 [File No. SR-NYSE-88-07] (order approving rule 
permitting the use of a single global certificate for bonds).
---------------------------------------------------------------------------

    Even with respect to common stocks, the trend has been to emphasize 
immobilization of certificates and book-entry delivery and settlement 
of trades whenever possible. In 1993, uniform rules were adopted among 
the U.S. securities markets to specify that exchange members must 
settle all trades in ``depository-eligible securities'' on a book-entry 
basis (that is, without having to physically deliver certificates).\4\ 
In 1995, the NYSE adopted a rule specifying that a security must be 
``depository eligible'' prior to listing it on the exchange.\5\ 
Depository eligibility does not preclude certification of a security 
but it does not require a certificate either. Accordingly, securities 
may be completely dematerialized, represented by a single global 
certificate held at the depository, or represented by traditional stock 
certificates. In each case, the important characteristic is that the 
securities involved can be held in or on behalf of a depository so that 
trades

[[Page 36953]]

may be settled by book-entry without physical delivery.
---------------------------------------------------------------------------

    \4\ NYSE Rule 226. Securities Exchange Act Release No. 32455 
(June 11, 1993), 58 FR 33679 [File Nos. SR-AMEX-93-07; SR-BSE-93-08; 
SR-MSE-93-03; SR-NASD-93-11; SR-NYSE-93-13; SR-PSE-93-04; and SR-
PHLX-93-09] (order approving SRO rules requiring book-entry 
settlement of securities transactions).
    \5\ NYSE Rule 227. Securities Exchange Act Release No. 35798 
(June 1, 1995), 60 FR 30909 [File No. SR-NYSE-95-19] (order 
approving adoption of Rule 227 requiring issuers' shares to be 
depository eligible).
---------------------------------------------------------------------------

    In 1996, the NYSE amended Section 501.01 of the Manual to rescind 
its policy requiring listed companies to provide certificates to record 
holders for all distributions and instead allow issuers to offer a 
choice of receiving certificates or holding their position in DRS.\6\ 
Using DRS an investor is able to hold a book-entry position on the 
books of the issuer, to update stock ownership information directly 
with an issuer's transfer agent, and to electronically move his or her 
interest between the books of the issuer and his or her broker. While 
participation in DRS is optional for an issuer, the NYSE has to date 
taken the position that an investor must be able to obtain a 
traditional stock certificate upon request. As so construed, DRS did 
not afford the issuer the ability to completely dematerialize or 
utilize a global certificate with book-entry-only movement of 
securities positions.
---------------------------------------------------------------------------

    \6\ Securities Exchange Act Release No. 37937 (November 8, 
1996), 61 FR 58728 [File No. SR-NYSE 96-29] (order approving rule 
change requiring participating in DRS for certain stock 
distributions).
---------------------------------------------------------------------------

    In recent months, the NYSE has been approached by non-U.S. issuers 
that would like to list their ordinary shares on the NYSE but would 
prefer to use a book-entry-only format (i.e., where shareholders would 
not have the option of obtaining certificates). In addition, under the 
laws of certain countries, corporate securities are required to be 
dematerialized. Traditionally non-U.S. companies have been able to 
dematerialize their ordinary shares outside the U.S. while utilizing 
American Depositary Receipt (``ADR'') programs, which provide for the 
issuance of ADR certificates, in the U.S. For non-U.S. companies that 
desire to list ordinary shares in the U.S. as opposed to listing ADRs, 
it has become necessary to accommodate those non-U.S. companies' need 
or preference to dematerialize their shares or utilize a book-entry-
only format.
    Coincidentally, as the U.S. securities industry begins to prepare 
to change to a T+1 settlement cycle, there is a renewed focus on 
eliminating certificates from securities processing altogether, 
including a discussion within the industry of whether dematerialization 
should be mandated as it has been in certain other countries. 
Dematerialization has also assumed an increased urgency in the context 
of contingency planning following the September 11th tragedy.
    The rule change proposes amend Section 501.01 to allow a listed 
company to not send stock certificates to a record holder as long as 
the company's stock is included in DRS or is issued pursuant to a 
dividend reinvestment program, stock purchase plan, or similar plan. 
Non-equity securities that have traditionally been issued in book-
entry-only form, such as bonds and derivatives, will continue to be 
covered by the specific rules applicable to them and will not be 
required to be in DRS in order to issue in book-entry only or in a 
dematerialized form.\7\ The proposed rule change does not mandate book-
entry-only or dematerialization. Rather, the NYSE believes the rule 
change will eliminate the need to issue the traditional stock 
certificate and will allow non-certificated equities to be listed on 
the NYSE, subject to the requirement of Rule 227 that the issue be 
``depository eligible.''
---------------------------------------------------------------------------

    \7\ Sections 703.16 and 501.11 of the Manual.
---------------------------------------------------------------------------

    The NYSE believes the proposed rule change recognizes the 
desirability of providing shareholders with the flexibility offered by 
DRS, which provides an alternative to the traditional choices of 
receiving a stock certificate or holding stock in ``street name'' 
through a broker-dealer. Under DRS the shareholder can be directly 
registered with the company but be spared the burden and expense of 
safeguarding a certificate. The NYSE also notes that the successful 
expansion of the DRS since its first implementation in the mid-1990s 
should readily accommodate non-U.S. companies trading ordinary shares 
in this country.
    The NYSE believes that in accommodating book-entry-only or complete 
dematerialization of common stock it is aligning itself with the rules 
and policies of the other U.S. listing markets. The National 
Association of Securities Dealers Automated Quotations System 
(``NASDAQ'') does not have rules requiring certification or dictating 
the format of issues that are certificated. The American Stock Exchange 
(``AMEX''), which had rules similar to the traditional NYSE rules, 
eliminated all those rules as part of a sweeping set of amendments 
intended to more closely align the AMEX and NASDAQ listing 
administration following the acquisition of the AMEX by the National 
Association of Securities Dealers in 1998. As a result, each of those 
markets is today fully able to accommodate a listing applicant that 
wishes to dematerialize or use a book-entry-only structure for its 
common stock.
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) 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 open market, and in 
general, to protect investors and the public interest.\8\
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

(B) Self-Regulatory Organization's Statement on Burden on Competition

    The NYSE 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 NYSE has neither solicited nor received written comments on the 
proposed rule change. The NYSE will notify the Commission of any 
written comments received by the NYSE.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within thirty-five 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 ninety 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

[[Page 36954]]

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 Section, 450 Fifth Street, NW., Washington, DC 20549. Copies 
of such filing also will be available for inspection and copying at the 
principal office of the NYSE. All submissions should refer to File No. 
SR-NYSE-2001-33 and should be submitted by June 18, 2002.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\9\
---------------------------------------------------------------------------

    \9\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-13233 Filed 5-24-02; 8:45 am]
BILLING CODE 8010-01-P