[Federal Register Volume 69, Number 114 (Tuesday, June 15, 2004)]
[Notices]
[Pages 33434-33436]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-13355]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49821; File No. SR-NYSE-2004-14]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change and Amendment No. 
1 Thereto by New York Stock Exchange Relating to NYSE Listed Company 
Manual Section 102.04 (Closed-End Management Investment Companies 
Registered Under the Investment Company Act of 1940--Business 
Development Companies)

June 7, 2004.
    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 March 5, 2004, 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 and 
II below, which Items have been prepared by the Exchange. On April 28, 
2004, the NYSE amended the proposed rule change.\3\ The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as amended, from interested persons and is approving the proposal on an 
accelerated basis.
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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, Commission, dated April 27, 
2004 (``Amendment No. 1''). Amendment No. 1 revised the proposed 
rule text and made corresponding changes to the Form 19b-4 filed by 
the NYSE. Amendment No. 1 is incorporated into this notice.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed amendments to NYSE Listed Company Manual Section 
102.04 (Minimum Numerical Standards--Closed-end Management Investment 
Companies Registered Under the Investment Company Act of 1940) would 
enable the Exchange to list business development companies, which are 
closed-end management investment companies permitted by statute to not 
register under the Investment Company Act of 1940 (the ``Investment 
Company Act'').\4\ The text of the proposed rule change is below. 
Proposed new language is italicized; deletions are [bracketed].
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    \4\ 15 U.S.C. 80a-1 et seq.
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* * * * *
Listed Company Manual
* * * * *
102.00 Domestic Companies
* * * * *
102.04 Minimum Numerical Standards--Closed-End Management Investment 
Companies [Registered Under the Investment Company Act of 1940]
    A. The Exchange will generally authorize the listing of a closed-
end management investment company registered under the Investment 
Company Act of 1940 (a ``Fund'') that meets the requirements of Paras. 
102.01A and 102.01B above, provided that the required market value of 
publicly held shares shall be $60,000,000 regardless of whether it is 
an IPO or an existing Fund. Para. 102.01C will not apply.
    Notwithstanding the foregoing requirement for market value of 
publicly held shares of $60,000,000, the Exchange will generally 
authorize the listing of all the Funds in a group of Funds listed 
concurrently with a common investment adviser or investment advisers 
who are ``affiliated persons'', as defined in Section 2(a)(3) of the 
Investment Company Act of 1940, as amended, if:
    Total group market value of publicly held shares equals in the 
aggregate at least $200,000,000;
    The group market value of publicly held shares averages at least 
$45,000,000 per Fund; and
    No one Fund in the group has market value of publicly held shares 
of less than $30,000,000.
    B. The Exchange will generally authorize the listing of a closed-
end management investment company that has filed an election to be 
treated as a business development company under the Investment Company 
Act of 1940 that meets the requirements of Paras. 102.01A and 102.01B 
above, provided that the required market value of publicly held shares 
shall be $60,000,000 regardless of whether it is an IPO or an existing 
business development company, and provided further that the company has 
a total market capitalization of listed securities

[[Page 33435]]

of at least $75,000,000. Para. 102.01C will not apply.
* * * * *

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 III 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
    Open-end and closed-end funds registered under the Investment 
Company Act are typically utilized to invest in publicly traded 
business corporations, but are not typically used for private equity 
investment, e.g. non-public companies.\5\ The Exchange states that 
open-end investment companies (mutual funds) cannot by definition 
invest to any meaningful extent in private equity given their 
fundamental need for liquidity due generally to the fact that open-end 
mutual funds are redeemable.\6\ Registered closed-end funds are limited 
in other ways, with Investment Company Act restrictions on borrowing 
and on the ability to compensate management with equity being the 
principal difficulties.
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    \5\ Telephone conference between James F. Duffy, Senior Vice 
President, Associate General Counsel, NYSE, and Florence Harmon, 
Senior Special Counsel, Division, Commission, on June 3, 2004.
    \6\ Id.
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    To facilitate public investment in private equity, the Investment 
Company Act was amended to create a new category of closed-end 
investment company, known as a business development company (``BDCs''), 
subject to the Investment Company Act, but not required to register 
under it.\7\ Companies must elect to be treated as a BDC in order to 
qualify for this treatment and must file a notice to that effect with 
the Securities and Exchange Commission.\8\
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    \7\ 15 U.S.C. 80a-53. Telephone conference between James F. 
Duffy, Senior Vice President, Associate General Counsel, NYSE, and 
Florence Harmon, Senior Special Counsel, Division, Commission, on 
June 3, 2004.
    \8\ Id.
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    In order to be able to make the election, a company must have a 
class of equity securities registered under the Act.\9\ The NYSE 
believes that for this reason a BDC will typically seek to be traded on 
a public market.\10\ A number of special provisions of the Investment 
Company Act apply to BDCs and govern how they conduct their investment 
business. However, since BDCs are not registered under the Investment 
Company Act, such companies are required to file the same kind of 
periodic reports as other registrants under the Act (e.g., Form 10-K 
and Form 10-Q).\11\
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    \9\ 15 U.S.C. 80a-53(a).
    \10\ Based on conversations with Commission staff, it is the 
understanding of the Exchange that at that time approximately 21 
BDCs have been listed on national markets. Two BDCs--Allied Capital 
Corporation and Equus II, Inc.--listed on the Exchange following 
transfer from Nasdaq had a three-year operating history that 
permitted them to be listed on the Exchange under existing financial 
standards applicable to operating companies. Telephone conference 
between James F. Duffy, Senior Vice President, Associate General 
Counsel, NYSE, and Florence Harmon, Senior Special Counsel, 
Division, Commission, on June 3, 2004.
    \11\ 15 U.S.C. 78m, 78o(d).
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    The Exchange has historically required operating companies to have 
three years of operating history in order to list. Closed-end funds, 
however, typically list coincident with their establishment under 
Section 102.04 of the Listed Company Manual, which requires that the 
funds simply demonstrate at least $60 million in market value of 
publicly held shares. Under the present language used in Section 
102.04, however, the section applies to closed-end funds that are 
``registered under the Investment Company Act of 1940.'' Other self-
regulatory organizations (``SROs'') currently list and trade BDCs 
pursuant to listing standards that do not require an operating 
history.\12\
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    \12\ See NASD Rule 4420(c), Entry Standard 3; Amex Company 
Guide, Sec.  101(c) and (d), Initial Listing Standards 3 and 4. 
Telephone conference between James F. Duffy, Senior Vice President, 
Associate General Counsel, NYSE, and Florence Harmon, Senior Special 
Counsel, Division, Commission, on June 3, 2004.
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    The Exchange proposes to amend Section 102.04 to specify that it 
may also be used to list BDCs that meet the $60 million threshold, 
provided that they also have a total market capitalization of at least 
$75 million. The Exchange believes that the proposed amendments would 
create an appropriate financial standard under which to list BDCs.
    Pursuant to Rule 10A-3 of the Act,\13\ and Section 3 of Sarbanes-
Oxley Act of 2002,\14\ the Exchange will prohibit the initial or 
continued listing of any security of an issuer that is not in 
compliance with the requirements set forth therein.\15\
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    \13\ 17 CFR 240.10A-3.
    \14\ See Section 3 of Public Law 107-204, 116 Stat. 745 (2002).
    \15\ Telephone conference between James F. Duffy, Senior Vice 
President, Associate General Counsel, NYSE, and Florence Harmon, 
Senior Special Counsel, Division, Commission, on June 3, 2004.
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2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with section 6(b)(5) of the Act \16\ 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.
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    \16\ 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

    Written comments were neither solicited nor received.

III. 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. Comments may be submitted by any of 
the following methods:
    Electronic comments:
     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-NYSE-2004-14 on the subject line.
    Paper comments:
     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-NYSE-2004-14. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use

[[Page 33436]]

only one method. The Commission will post all comments on the 
Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 
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 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 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSE-2004-14 and should be 
submitted on or before July 6, 2004.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    For the following reasons, the Commission finds that the proposed 
rule change is consistent with the requirements of Section 6(b)(f)(5) 
of the Act and the rules and regulations thereunder. A BDC is a closed-
end management investment company that (1) is operated for the purpose 
of making investments of certain specified types--primarily in private 
equity through ``eligible portfolio companies,'' \17\ (2) as part of 
its investment in eligible portfolio companies makes available 
significant managerial assistance to them, and (3) elects to be treated 
as a BDC. BDCs are closed-end management investment companies that are 
subject to, but not required to register under, the Investment Company 
Act.\18\ Recently, a number of BDCs are seeking to become listed and 
traded on national markets.\19\
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    \17\ See 15 U.S.C. 80a-2(a)(46). Eligible portfolio companies 
are U.S. firms that are not publicly owned and which meet certain 
other criteria.
    \18\ BDCs originated as part of the Small Business Investment 
Incentive Act of 1980. Public Law 96-477, 94 Stat. 2275 (Oct. 21, 
1980).
    \19\ The Commission notes that, to date, 21 BDCs have been 
listed on national markets. The three of these that are listed on 
the NYSE--Allied Capital Corporation, MVC Capital, Inc., and Equus 
II, Inc.--satisfied the NYSE's existing listing standards requiring 
a one- to three-year operating history.
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    Under NYSE's current rules, as unregistered closed-end funds, BDCs 
may be listed and traded only if they satisfy the Exchange's general 
listing standards for operating companies, which, among other things, 
require a one- to three-year operating history.\20\ The general listing 
standards for operating companies used by other national markets--and 
applicable to BDCs--are less restrictive than those of the NYSE, in 
that they do not require an operating history. Nasdaq's listing 
standards, for example, permit an operating company to be listed 
without an operating history, so long as it satisfies a $75 million 
market capitalization test, a $20 million public float test, and 
certain other requirements.\21\ Amex has comparable listing standards 
that require either (1) $75 million in market capitalization and a $20 
million public float, or (2) $50 million in market capitalization and a 
$15 million public float, so long as there is at least $4,000,000 in 
stockholder equity.\22\
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    \20\ See NYSE Listed Company Manual, Section 102.01C.
    \21\ See NASD Rule 4420(c), Entry Standard 3. The Nasdaq listing 
standards for operating companies also require that there be a 
distribution of at least 400 shareholders, 1,100,000 publicly-held 
shares, and a bid price per share of $5.00 or more.
    \22\ Amex Company Guide, section 101(c) and (d), Initial Listing 
Standards 3 and 4. All Amex listed companies are required to meet 
certain distribution thresholds. In general, all Amex listed 
companies, including registered closed-end funds, require either (1) 
1,000,000 publicly-held shares and 400 shareholders, (2) 500,000 
publicly-held shares and 800 shareholders, or (3) 500,000 publicly-
held shares, 400 shareholders, and average daily trading volume of 
2,000 shares for the preceding six months. See Amex Company Guide, 
Sec.  101(f).
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    In order to accommodate and compete for new BDC listings more 
effectively, the NYSE proposes to modify its listing standards 
applicable to BDCs to be more comparable to those of other markets, 
including Nasdaq and Amex. Specifically, the NYSE would require that 
all closed-end funds, including BDCs, have a public float of at least 
$60 million and a total market capitalization of at least $75 million. 
While the rule change will facilitate listing and trading of BDCs on 
the NYSE, the Commission believes that the proposal will result in NYSE 
listing standards that are comparable to, but no less restrictive than, 
those of competing national markets.\23\
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    \23\ The Commission notes that it is currently reviewing the 
listing and other regulatory standards applicable to BDCs, 
registered closed-end funds, and non-conventional investments to 
determine whether the unique characteristics and risks of these 
products are adequately addressed. Depending on the results of that 
review, the Commission, among other things, may require 
modifications to the listing standards of the NYSE and other markets 
that are applicable to BDCs.
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    Therefore, 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.\24\ In particular, the Commission finds that, in 
light of the listing standards for BDCs currently used by other 
national markets that do not require an operating history for BDCs and 
the competitive need expressed by the Exchange, the proposed rule 
change is consistent with Section 6(b)(5) of the Act.\25\ The 
Commission thus finds that the proposed rule change, as amended, 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, in 
general, to protect investors and the public interest.
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    \24\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
    \25\ 15 U.S.C. 78f(b)(5).
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    In addition, the Exchange has requested that the Commission find 
good cause pursuant to Section 19(b)(2) of the Act \26\ to approve on 
an accelerated basis the proposed rule change to permit listing and 
trading of BDCs without an operating history. In its filing, the NYSE 
states that it expects BDC listing candidates to come to market in the 
near term. Absent Commission approval of the proposed rule change, the 
Exchange states that it will be unable to compete for these listings 
because the listing standards of other SROs do not require an operating 
history for BDCs, while the Exchange's current listing standards 
contain such a requirement. For this reason, as discussed generally in 
this Item IV, the Commission finds good cause for approving the 
proposed rule change, as amended, on an accelerated basis prior to the 
thirtieth day after publication of notice in the Federal Register.
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    \26\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change, as amended (SR-NYSE-2004-14), is hereby 
approved on an accelerated basis.\27\
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    \27\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 04-13355 Filed 6-14-04; 8:45 am]
BILLING CODE 8010-01-P