[Federal Register Volume 68, Number 12 (Friday, January 17, 2003)]
[Notices]
[Pages 2603-2604]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-1050]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47161; File No. SR-NYSE-2001-46]


Self-Regulatory Organizations; Order Approving a Proposed Rule 
Change and Amendment Nos. 1 and 2 Thereto by the New York Stock 
Exchange, Inc. Amending Section 804 to the NYSE Listed Company Manual 
and NYSE Rule 499

January 10, 2003.
    On October 29, 2001, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to modify the Exchange's procedures for issuer 
appeals of delisting determinations, and to institute a non-refundable 
appeal fee. On October 30, 2002, the Exchange submitted Amendment No. 1 
to the proposed rule change.\3\ On November 7, 2002, the Exchange 
submitted Amendment No. 2 to the proposed rule change.\4\ The proposed 
rule change, as amended, was published in the Federal Register on 
November 19, 2002.\5\ No comments were received on the proposed rule 
change. This order approves the proposed rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Letter from Darla C. Stuckey, Corporate Secretary, NYSE, to 
Nancy Sanow, Assistant Director, Division of Market Regulation 
(``Division''), Commission, dated October 29, 2002 (``Amendment No. 
1''). Amendment No. 1 replaces the original proposed rule change in 
its entirety, and clarifies: (1) The scope of the NYSE Committee for 
Review's review on appeal; (2) that neither document discovery nor 
depositions are available; and (3) the rationale for requiring 
payment of a non-refundable fee in connection with a request for 
review.
    \4\ Letter from Darla C. Stuckey, Corporate Secretary, NYSE, to 
Nancy Sanow, Assistant Director, Division, Commission, dated 
November 7, 2002 (``Amendment No. 2''). Amendment No. 2 makes a 
minor technical correction to the proposed rule change.
    \5\ Securities Exchange Act Release No. 46802 (November 8, 
2002), 67 FR 69789.
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I. Description of the Proposal

    The Exchange proposes to amend Section 804 of the NYSE Listed 
Company Manual and NYSE Rule 499 to make the procedures for appealing 
delisting determinations, in its view, more efficient and effective, 
and to charge issuers a non-refundable appeal fee in the amount of 
$20,000.
    Under the current procedures, both the issuer and the Exchange 
staff are required to file their appeal briefs at the same time. The 
Exchange believes that having the appellant submit its brief first 
would more effectively utilize the resources of both the Committee and 
the Exchange staff. Accordingly, the Exchange proposes to amend the 
procedures to specify that the issuer must submit its written brief 
first, including any accompanying materials. The Exchange will be 
permitted to respond to the issuer's brief. The proposal further states 
that the issuer and the Exchange will be given substantially equal 
periods for the submission of their briefs. In addition, the Exchange 
proposes to clarify that the briefing schedule will be set to provide 
the Committee with adequate time to review the materials submitted to 
it in advance of the review date.\6\
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    \6\ The Exchange's Office of the General Counsel, which oversees 
the appeals process on behalf of the Committee, will schedule 
reviews on the first review day that is at least 25 business days 
from the date an issuer files the request for review, unless the 
next subsequent Review Day must be selected to accommodate the 
Committee's schedule, and can establish a briefing schedule that 
takes account of both the Committee's caseload and the complexities 
of the specific case. The Exchange represents that the Committee For 
Review typically meets every two months.
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    To assist in the Committee's evaluation, an issuer will be required 
to specify in its written request for review the grounds on which it 
intends to challenge the Exchange staff's determination, and whether it 
is requesting to make an oral presentation to the Committee.\7\ The 
Exchange will state that document discovery and depositions are not 
permitted. The Exchange's proposed rules also provide the scope of the 
Committee's review of appeals, including the guidelines pursuant to 
which the Committee may decide to hear new issues or evidence not 
identified in an issuer's original request for review.\8\
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    \7\ The Exchange represented that the Committee's review shall 
be based on oral argument (if any) and the written briefs and 
accompanying materials submitted by the parties. Typically, 
accompanying materials include materials the issuer or NYSE staff 
relies on in support of its position and are supplied as exhibits to 
the brief submitted by the party.
    \8\ In this regard, the Commission specifically notes that the 
NYSE's proposal would not permit the issuer to argue grounds for 
reversing the NYSE staff's decision that are not identified in its 
request for review. However, the issuer would be permitted to ask 
the Committee for leave to adduce additional evidence or raise 
arguments not identified in its request for review, if it can 
demonstrate that the proposed additional evidence or new arguments 
are material to its request for review and that there was reasonable 
ground for not adducing such evidence or identifying such issues 
earlier. The proposed rule language would not, however, (i) 
authorize an issuer to seek to file a reply brief in support of its 
request for review or (ii) be deemed to limit the NYSE staff's 
response to a request for review to the issues raised in the request 
for review. Upon review of a properly supported request, the 
Committee may in its sole discretion permit new arguments or 
additional evidence to be raised before the Committee. Following 
such event, the Committee may, as it deems appropriate, (i) itself 
decide the matter, or (ii) remand the matter to the NYSE staff for 
further review. Should the Committee remand the matter to the staff, 
the proposed rules provide that the Committee will instruct the 
staff to (i) give prompt consideration to the matter, and, (ii) 
complete its review and inform the Committee of its conclusions no 
later than seven (7) days before the first Review Day which is at 
least 25 business days from the date the matter is remanded to the 
staff.
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    In addition, the Exchange proposes to institute a non-refundable 
appeal fee in the amount of $20,000. The Exchange has not previously 
considered it necessary to charge a separate fee to companies appealing 
an Exchange delisting decision. However, in its filing, the Exchange 
noted that changes in policies and procedures adopted or formalized by 
the Exchange in recent years have resulted in a significant increase of 
issuers that are delisted.\9\ During the 12 months ending December 31, 
2001, the Exchange represented that it paid slightly in excess of 
$300,000 in legal fees to cover 11 delisting appeals completed during 
that time,\10\ giving an average out of pocket cost of slightly less 
than $30,000 for each appeal. This does not include the resources of 
the Exchange's own Financial Compliance and Office of the General 
Counsel personnel consumed in servicing these appeals. According to the 
Exchange, it is only fair and appropriate that the

[[Page 2604]]

companies incurring these added out of pocket costs defray these costs 
by paying the proposed $20,000 appeal fee.\11\
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    \9\ The Exchange believes this increase is a result of changes 
in appeal procedures whereby a company that has appealed a delisting 
likely will be permitted to trade on the NYSE while the appeal is 
pending. See Securities Exchange Act Release No. 42863 (May 30, 
2000), 65 FR 36488 (June 8, 2000). As an example, the Exchange noted 
that there were an average of 22 financial delistings per year 
during the three years from 1996 through 1998, but an average of 61 
per year during the period 1999 through 2001. Regarding appeals, in 
a 21-month period since new appeal procedures were in effect in 
2000, there were 18 appeals out of 114 delisting determinations. In 
contrast, during a previous 21-month period, there were only 6 
appeals out of 104 delisting determinations.
    \10\ The Exchange has elected to use outside counsel to 
represent the Exchange's Financial Compliance staff in delisting 
appeals.
    \11\ The Exchange does not believe that the appeal fee will 
deter companies from taking reasonable appeals. According to the 
Exchange, most companies that do appeal Exchange staff 
determinations are represented in that appeal by their own outside 
counsel, suggesting that they are able to invest a significant sum 
in the prosecution of their appeal. While the proposed Exchange 
appeal fee is greater than the amount charged at other listing 
markets, the Exchange notes that its original and continuing annual 
listing fees are also higher than those at other markets, and that 
its listed company population in general represents larger 
capitalization companies than on the other markets. The Exchange 
also notes that, particularly in the case of companies that have 
been delisted after attempting to utilize the financial plan process 
outlined in Section 802 of the NYSE Listed Company Manual, companies 
delisted by the Exchange typically have received a significant 
quantum of service and attention from the Exchange's Financial 
Compliance staff.
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II. Discussion

    After careful review, 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.\12\ In particular, the Commission finds that the 
proposal, as amended, is consistent with sections 6(b)(4), 6(b)(5) and 
6(b)(7) of the Act.\13\ Section 6(b)(4) of the Act \14\ requires that 
exchange rules provide for the equitable allocation of reasonable dues, 
fees, and other charges among its members and issuers and other persons 
using its facilities. Section 6(b)(5) of the Act \15\ requires, among 
other things, that the Exchange's rules 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, in general, to protect 
investors and the public interest. Section 6(b)(7) of the Act \16\ 
requires, among other things, that the Exchange's rules provide fair 
procedures for prohibiting or limiting any person with respect to 
access to services offered by the exchange or member thereof.
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    \12\ In approving this proposed rule change, the Commission has 
considered its impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \13\ 15 U.S.C. 78f(b)(4); 15 U.S.C. 78f(b)(5); 15 U.S.C. 
78f(b)(7).
    \14\ 15 U.S.C. 78f(b)(4).
    \15\ 15 U.S.C. 78f(b)(5).
    \16\ 15 U.S.C. 78f(b)(7).
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    The Commission believes that the proposal is consistent with 
sections 6(b)(5) and 6(b)(7) of the Act because the new procedures set 
forth specific time frames for scheduling and conducting a review of an 
appeal to ensure that the appeal is done in a timely manner. In 
particular, the review will be scheduled at the next review date, which 
will be at least 25 business days from the date the request for review 
is filed with the NYSE unless the next subsequent review date must be 
selected to accommodate the Committee's schedule.\17\ This change 
should help to ensure that the review process will not continue 
indefinitely and will provide clarity to the parties involved, 
especially since the existing rules were silent as to the timing of the 
Committee review date.
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    \17\ NYSE stated in its filing that the Committee For Review 
typically meets every two months.
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    The new procedures also define the scope of the Committee's review 
on appeal and the guidelines pursuant to which the Committee may decide 
to hear new issues or evidence not identified in an issuer's original 
request for review. The procedures specify that document discovery and 
depositions will not be permitted. However, the Commission notes that 
the issuer may ask the Committee for leave to adduce additional 
evidence or raise arguments not identified in its request for review, 
if it can demonstrate that the proposed additional evidence or new 
arguments are material to its request for review and that there was 
reasonable ground for not adducing such evidence or identifying such 
issues earlier. If the case is remanded back to Exchange staff, the 
rules would require specific time frames for the Committee to hear the 
staff's conclusions. The Commission believes that these time frames 
should help to ensure that appeals are considered in a timely manner 
and resolved promptly. The Commission believes that this is 
particularly important since, as noted above, the NYSE may permit an 
issuer to continue to trade during the appeal process. In summary, the 
Commission believes that the procedures as proposed will provide 
issuers and Exchange staff a fair and reasonable process, and clarifies 
the procedures used, to present their arguments on appeal. The 
procedures also may contribute to a more proficient appeals process, by 
reducing unnecessary delay between the issuer's request for appeal, the 
hearing before the Committee, and its final determination. Therefore, 
the Commission finds the procedures are consistent with sections 
6(b)(5) and 6(b)(7) of the Act.
    The Exchange also proposes to institute a non-refundable appeal fee 
in the amount of $20,000. The Commission believes that the proposed fee 
is consistent with section 6(b)(4) of the Act \18\ because it is 
designed to recoup the costs of processing requests for appeal and 
holding the subsequent proceedings, and thus is an equitable allocation 
of dues and fees among issuers. As noted above, the NYSE has indicated 
that there has been a significant increase in appeals recently due to 
changes whereby a company that has appealed a delisting would likely be 
permitted to trade on the Exchange during the appeal process. This has 
substantially increased the Exchange's overall legal costs in handling 
appeals. In addition to legal fees, the Exchange represents that it 
incurs additional administrative and personnel costs in servicing 
issuers. Although, the proposed appeal fee is greater than the amount 
currently charged at other listing markets, the Commission believes 
that the appeals fee is not overly excessive or burdensome to the 
extent that an issuer would be deterred from employing its due process 
right to appeal an Exchange staff determination and therefore is 
consistent with section 6(b)(7) of the Act.\19\
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    \18\ 15 U.S.C. 78f(b)(4).
    \19\ The Commission notes, however, that if the appeals fee was 
higher, it would have to determine whether the fee is consistent 
with section 6(b)(7) of the Act and acts as a deterrent to issuers 
exercising their due process rights.
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    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\20\ that the proposed rule change (SR-NYSE-2001-46), as amended, 
is approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\21\
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    \20\ 15 U.S.C. 78s(b)(2).
    \21\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-1050 Filed 1-16-03; 8:45 am]
BILLING CODE 8010-01-P