[Federal Register Volume 69, Number 18 (Wednesday, January 28, 2004)]
[Notices]
[Pages 4196-4198]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-1757]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49112; File No. SR-NYSE-2003-40]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change by the New York Stock Exchange, Inc. Relating to the Listing and 
Trading of Certain 7\3/4\% PEPSSM Units Under Section 703.19

January 21, 2004.

I. Introduction

    On November 26, 2003, the New York Stock Exchange, Inc. (``NYSE'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder,\2\ the proposed rule change to list and trade 7\3/4\% 
Premium Equity Participating Security Units (PEPSSM Units), 
Series B (``Units''). The proposed rule change was published for 
comment in the Federal Register on December 19, 2003.\3\
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    \1\ 15 U.S.C. 78s (b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 48918 (December 12, 
2003), 68 FR 70851.
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II. Description of the Proposed Rule Change

    The NYSE proposes to list and trade the Units pursuant to Section 
703.19 of the Listed Company Manual (``Manual'').\4\ Each of the Units 
consists of (1) a purchase contract (``Purchase Contract'') issued by 
PPL Corporation (``PPL'') and (2) a 2.5% undivided beneficial ownership 
interest in a $1,000 principal amount note (``Note'') due May 2006 
issued by PPL Capital Funding, Inc. (``PPL Capital'') and guaranteed by 
PPL.\5\
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    \4\ Under Section 703.19 of the Manual, the Exchange may approve 
for listing and trading securities not otherwise covered by the 
criteria of Sections 1 and 7 of the Manual, provided the issue is 
suited for auction market trading. See Securities Exchange Act 
Release No. 28217 (July 18, 1990), 55 FR 30056-01 (July 24, 1990).
    \5\ See Registration No. 333-108450. The Registration Statement 
became effective on January 8, 2004.
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    The Units are being offered pursuant to an exchange offer, the full 
terms of which are set out in the Registration Statement.\6\ 
Specifically, PPL offers to exchange the Units and a cash payment of 
$0.375 for each validly tendered and accepted 7\3/4\% Premium Equity 
Participating Security Unit (collectively referred to as the ``Old 
Units''), subject to, among other things, the condition that the Old 
Units remain listed on the Exchange.
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    \6\ The Exchange represents that the Registration Statement 
provides a detailed discussion and comparison of the Old Units and 
the Units so that holders can evaluate whether it is in their best 
interests to participate in the exchange offer.
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    Each Purchase Contract obligates the holder of a Unit to purchase 
from PPL, no later than May 18, 2004 (the ``Contract Settlement 
Date''), for a price of $25, the following number of shares of PPL 
common stock, $0.01 par value: (a) if the average of the closing prices 
of PPL's common stock over the 20-trading day period ending on the 
third trading day prior to the Contract Settlement Date multiplied by 
1.017 is equal to or greater than $65.03, 0.3910 shares; (b) if the 
average of the closing prices of PPL's common stock over the same 
period multiplied by 1.017 is less than $65.03 but greater than $53.30, 
a number of shares, between 0.3910 and 0.4770 shares, having a value, 
based on the 20-trading day average of the closing prices, equal to 
$25; and (c) if the average of the closing prices of PPL's common stock 
over the same period multiplied by 1.017 is less than or equal to 
$53.30, 0.4770 shares. PPL will also pay Unit holders a quarterly fixed 
amount in cash, called a contract adjustment payment, at a rate of 
0.46% per year of the stated amount of $25 per Unit, or $0.1150 per 
year.
    From the date of issuance until the Contract Settlement Date, the 
Notes will constitute subordinated obligations of PPL Capital and will 
be guaranteed on a subordinated basis by PPL. On or after Contract 
Settlement Date, the Notes will constitute senior obligations of PPL 
Capital and will be guaranteed on a senior basis by PPL. Prior to the 
Contract Settlement Date, the ownership interest in the Notes will be 
pledged to secure the Unit holders' obligation to purchase PPL's common 
stock under the purchase contract. PPL has appointed a remarketing 
agent to remarket, or sell on behalf of Unit holders, the Notes to 
third party investors on a date (the ``Remarketing Date'') just prior 
to the Contract Settlement Date. Unit holders may choose to opt out of 
the remarketing of the Notes to third party investors to satisfy their 
payment obligations on the Contract Settlement Date. A Unit holder who 
opts out of the remarketing of the Notes would be required to settle 
each Purchase Contract for $25.00 in cash.
    PPL Capital will also pay Unit holders interest at a rate of 7.29% 
per year on the principal amount of the Note. If there is a successful 
remarketing of the Notes, the interest rate will be reset and may be 
greater or less than 7.29% per year. PPL unconditionally guarantees the 
payment of principal and interest on the Notes of PPL Capital.
    The Units represent both an equity and fixed income investment in 
PPL. The equity investment is in the form of the Purchase Contract, 
which, unless earlier terminated, requires a Unit holder to purchase a 
variable number of shares of PPL common stock. The fixed income 
investment is in the form of a trust preferred security that represents 
an undivided beneficial interest in the subordinated Notes of PPL 
Capital which are guaranteed on a subordinated basis by PPL.
    The Units will conform to the issuer listing criteria under Section 
703.19 of the Manual and be subject to the relevant continuing listing 
criteria under Section 801 and 802 of the Manual.\7\ The Exchange will 
impose the issuer listing requirements of Section 703.19(1) of the 
Manual on PPL.\8\ The Exchange represents that PPL is an NYSE-listed 
company in good standing. The Units will also meet the listing 
standards found in Section 703.19(2) of the Manual, except that the 
Units will not have the minimum life of one year required for 
listings.\9\
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    \7\ Section 801.00 of the Manual provides, in relevant part, 
that when an issuer that has fallen below any of the continued 
listing criteria has more than one class of securities listed, the 
Exchange will give consideration to delisting all such classes. 
Section 802.01D of the Manual states, in relevant part, that 
delisting of specialized securities will be considered when the 
number of publicly-held shares is less than 100,000; the number of 
holders is less than 100; and aggregate market value of shares 
outstanding is less than $1 million. The Exchange also notes that it 
may, at any time, suspend a security if it believes that continued 
dealings in the security on the Exchange are not advisable.
    \8\ The issuer listing standards require: (1) If the issuer is a 
NYSE-listed company, the issuer must be a company in good standing; 
(2) if the issuer is an affiliate of an NYSE-listed company, the 
NYSE-listed company must be a company in good standing; and (3) if 
not listed, the issuer must meet NYSE original listing standards as 
set forth in Sections 102.01-102.03 and 103.01-05 of the Manual.
    \9\ The equity listing standards require: (1) At least 1 million 
securities outstanding; (2) at least 400 holders; (3) minimum life 
of one year; and (4) at least $4 million market value. The Units 
will not have a minimum life of one year because the Contract 
Settlement Date is May 18, 2004. The Exchange notes that it does not 
believe that the Units will raise any significant new regulatory 
issues. Because the Units will meet or exceed the other requirements 
under Section 703.19 of the Manual, the Exchange believes that the 
Units will have sufficient liquidity and depth of market, even if 
listed for a period shorter than one year. The Exchange also notes 
that the underlying PPL common stock from which the value of the 
Unit is in part derived will remain outstanding and listed on the 
Exchange following maturity of the Units.

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[[Page 4197]]

    The Exchange's existing equity trading rules apply to trading of 
the Units. The Exchange will also have in place certain other 
requirements to provide additional investor protection. First, pursuant 
to Exchange Rule 405, the Exchange will impose a duty of due diligence 
on its members and member firms to learn the essential facts relating 
to every customer prior to trading the Units.\10\ Second, the Units 
will be subject to the equity margin rules of the Exchange.\11\ Third, 
the Exchange will, prior to trading the Units, distribute a circular to 
the membership providing guidance with regard to member firm compliance 
responsibilities (including suitability recommendations) when handling 
transactions in the Units and highlighting the special risks and 
characteristics of the Units. With respect to suitability 
recommendations and risks, the Exchange will require members, member 
organizations and employees thereof recommending a transaction in the 
Units: (1) To determine that such transaction is suitable for the 
customer, and (2) to have a reasonable basis for believing that the 
customer can evaluate the special characteristics of, and is able to 
bear the financial risks of, such transaction.
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    \10\ NYSE Rule 405 requires that every member, member firm or 
member corporation use due diligence to learn the essential facts 
relative to every customer and to every order or account accepted.
    \11\ See NYSE Rule 431.
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    The Exchange represents that its surveillance procedures are 
adequate to properly monitor the trading of the Units. Specifically, 
the Exchange will rely on its existing surveillance procedures 
governing equity, which have been deemed adequate under the Act.

III. Discussion

    After careful consideration, the Commission finds that the proposed 
rule change is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
exchange, and, in particular, with the requirements of Section 6(b)(5) 
of the Act.\12\ Accordingly, the Commission finds that the listing and 
trading of the Units is consistent with the Act and will promote just 
and equitable principles of trade, foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, and, in general, protect investors and the public interest 
consistent with Section 6(b)(5) of the Act.\13\
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    \12\ Id.
    \13\ 15 U.S.C. 78f(b)(5). In approving this rule, 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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    As described more fully above, the Exchange proposes to list and 
trade the Units, which represent both an equity and fixed income 
investment in PPL. The equity investment is in the form of the Purchase 
Contract, which, unless earlier terminated, requires a Unit holder to 
purchase a variable number of shares of PPL common stock at a specified 
price, both to be determined at the time of termination. The fixed 
income investment is in the form of a trust preferred security that 
represents an undivided beneficial interest in the subordinated Notes 
of PPL Capital which are guaranteed on a subordinated basis by PPL. The 
Units are being offered pursuant to an exchange offer which will reduce 
the interest paid on the Notes by Unit holders as compared to the Old 
Units.\14\ The Exchange represents that the value of the Units is in 
part derived from the underlying PPL common stock. Unit holders are 
guaranteed at least the principal amount the payment of principal and 
interest on the Notes of PPL Capital. PPL will also pay Unit holders a 
quarterly fixed amount in cash, called a contract adjustment payment, 
at a rate of 0.46% per year of the stated amount of $25 per Unit, or 
$0.1150 per year.
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    \14\ See supra note 5.
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    The Commission notes that the Exchange's rules and procedures 
address the special concerns attendant to the trading of certain types 
of hybrid securities. In particular, by imposing the listing standards 
for certain types of hybrid securities, suitability, disclosure, and 
compliance requirements noted above, the Commission believes the 
Exchange has addressed adequately the potential problems that could 
arise from the hybrid nature of the Units. The Commission notes that 
the Exchange will distribute a circular to its members regarding member 
firm compliance responsibilities when handling transactions in the 
Units and highlighting the special risks and characteristics of the 
Units. Moreover, the Commission notes that the Exchange will distribute 
a prospectus to the holders of the Old Units calling attention to the 
specific risks associated with the purchase of the Units.
    The Exchange's ``Other Securities'' listing standards in Section 
703.19 of the Manual provide that issuers satisfying earnings and net 
tangible assets requirements may issue securities such as the Units 
provided that the issue is suited for auction market trading. The 
Commission notes that the Exchange has represented the following in 
accordance with the listing standards of Section 703.19 of the Manual: 
(1) That PPL is an NYSE-listed company in good standing; (2) there will 
be at least 1 million securities outstanding; (3) at least 400 holders; 
and (4) at least $4 million from which the value of the Unit is in part 
derived will remain outstanding and listed on the Exchange following 
maturity of the Units. The Commission notes that the Units will meet 
all of the relevant listing standards found in Section 703.19 of the 
Manual except that the Units will not have the minimum life of one 
year.\15\ Because the Units are being offered in connection with an 
exchange offer, the Commission believes that the Units will have 
sufficient liquidity and depth of market, even if listed for a period 
of shorter than one year. The Exchange will also provide each of the 
holders of the Old Units with a registration statement outlining the 
specific risks associated with the purchase of the Units. Consequently, 
the Commission does not believe that the Units will raise any 
significant regulatory issues.
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    \15\ See supra notes 8 and 9.
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    Because the issuer of the Unit is PPL (the Purchase Contract issued 
by PPL and the Note issued by PPL Capital and guaranteed by PPL), the 
Commission does not object to the Exchange's reliance on PPL to meet 
the issuer listing requirements of Section 703.19 of the Manual. The 
Units will conform to the listing guidelines under 703.19 of the 
Manual, except for the life of one year requirement, and the continued 
listing guidelines under Sections 801 and 802 of the Manual. The 
Commission also believes that the listing and trading of the Units 
should not unduly impact the market for the Units or raise manipulative 
concerns because the Exchange's existing equity trading rules and 
equity margin rules will apply to trading of the Units. As discussed 
more fully above, the Exchange will also have in place certain other 
requirements to provide additional investor protection. The Exchange 
represents that its surveillance procedures are adequate to properly 
monitor the trading of the Units. The Commission notes that the 
Exchange will rely on its existing surveillance procedures governing 
equity, which the Exchange represents

[[Page 4198]]

have been deemed adequate under the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\16\ that the proposed rule change (SR-NYSE-2003-40), be, and 
hereby is, approved.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \16\ 15 U.S.C. 78s(b)(2).
    \17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-1757 Filed 1-27-04; 8:45 am]
BILLING CODE 8010-01-P