[Federal Register Volume 69, Number 127 (Friday, July 2, 2004)]
[Notices]
[Pages 40439-40446]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-15049]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49917, File No. SR-NYSE-2004-20]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 Thereto by the New York Stock Exchange, 
Inc., to Change Its Original and Continued Quantitative Listing 
Standards

June 25, 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 April 13, 2004, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. On May 20, 2004, NYSE submitted Amendment No. 1 to the 
proposed rule change.\3\ The Commission is publishing this notice to 
solicit comments on the proposed rule change, as amended, from 
interested persons.
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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, Divison of Market Regulation 
(``Division''), Commission, dated May 19, 2004 (``Amendment No. 
1''). Amendment No. 1 replaced and superseded the original filing in 
its entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The NYSE is proposing to amend Sections 102.01C, 103.01B, 802.01B, 
and 802.01C of the NYSE's Listed Company Manual regarding the minimum 
numerical original and continued listing standards. Proposed new 
language is italicized; deletions are bracketed.\4\
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    \4\ The NYSE has agreed to amend the proposed rule change to 
make technical corrections to the proposed rule text. Telephone 
conversation between Annemarie Tierney, Assistant General Gounsel, 
NYSE, and Susie Cho, Special Counsel, Division, Commission, on May 
4, 2004.
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* * * * *

102.00 Domestic Companies

102.01C A Company Must Meet One of the Following Financial Standards

    (I) Earnings Test (1) Pre-tax earnings from continuing operations 
and after minority interest, amortization and equity in the earnings or 
losses of investees as adjusted [(E)] for items specified in (2)(a) 
through (i) below [(F)] must total at least[.] [$2,500,000 in the 
latest fiscal year together with $2,000,000 in each of the preceding 
two years; or $6,500,000] $10,000,000 in the aggregate for the last 
three fiscal years together with a minimum of $[4,5]2,000,000 in the 
two most recent fiscal years,] and positive amounts [for] in all [each 
of the preceding two] three years.
    (2) Adjustments (E)(F) that must be included in the calculation of 
the amounts required in paragraph (1) are as follows:
    (a) Application of Use of Proceeds. If a company is in registration 
with the SEC and is in the process of an equity offering, adjustments 
should be made to reflect the net proceeds of that offering, and the 
specified intended application(s) of such proceeds to:
    (i) Pay off existing debt. The adjustment will include elimination 
of the actual historical interest on debt being retired with offering 
proceeds of all relevant periods. If the event giving rise to the 
adjustment occurred during a time-period such that pro forma amounts 
are not set forth in the SEC registration statement (typically, the pro

[[Page 40440]]

forma effect of repayment of debt will be provided in the current 
registration statement only with respect to the last fiscal year plus 
any interim period in accordance with SEC rules), the company must 
prepare the relevant adjusted financial data to reflect the adjustment 
to its historical financial data, and its outside audit firm must 
provide a report of having applied agreed-upon procedures with respect 
to such adjustments. Such report must be prepared in accordance with 
the standards established by the American Institute of Certified Public 
Accountants.
    (ii) Fund an acquisition:
    (1) The adjustments will include those applicable with respect to 
acquisition(s) to be funded with the proceeds. Adjustments will be made 
that are disclosed as such in accordance with Rule 3-05 ``Financial 
Statements of Business Acquired or to be Acquired'' and Article 11 of 
Regulation S-X. Adjustments will be made for all the relevant periods 
for those acquisitions for which historical financial information of 
the acquiree is required to be disclosed in the SEC registration 
statement; and
    (2) Adjustments applicable to any period for which pro forma 
numbers are not set forth in the registration statement shall be 
accompanied by the relevant adjusted financial data to combine the 
historical results of the acquiree (or relevant portion thereof) and 
acquirer, as disclosed in the company's SEC filing. Under SEC rules, 
the number of periods disclosed depends upon the significance level of 
the acquiree to the acquirer. The adjustments will include those 
necessary to reflect (a) the allocation of the purchase price, 
including adjusting assets and liabilities of the acquiree to fair 
value recognizing any intangibles (and associated amortization and 
depreciation), and (b) the effects of additional financing to complete 
the acquisition. The company must prepare the relevant adjusted 
financial data to reflect the adjustment to its historical financial 
data, and its outside audit firm must provide a report of having 
applied agreed-upon procedures with respect to such adjustments. Such 
report must be prepared in accordance with the standards established by 
the American Institute of Certified Public Accountants.
    (b) Acquisitions and Dispositions: In instances other than 
acquisitions (and related dispositions of part of the acquiree) funded 
with the use of proceeds, adjustments will be made for those 
acquisitions and dispositions that are disclosed as such in a company's 
financial statements in accordance with Rule 3-05 ``Financial 
Statements of Business Acquired or to be Acquired'' and Article 11 of 
Regulation S-X. If the disclosure does not specify pre-tax earnings 
from continuing operations, minority interest, and equity in the 
earnings or losses of investees, then such data must be prepared by the 
company's outside audit firm for the Exchange's consideration. In this 
regard, the audit firm would have to issue an independent accountant's 
report on applying agreed-upon procedures in accordance with the 
standards established by the American Institute of Certified Public 
Accountants.
    (c) Exclusion of Merger or Acquisition Related Costs Recorded under 
Pooling of Interests;
    (d) Exclusion of Charges or Income Specifically Disclosed in the 
Applicant's SEC Filing for the Following:
    (i) In connection with exiting an activity for the following:
    (1) Costs of severance and termination benefits
    (2) Costs and associated revenues and expenses associated with the 
elimination and reduction of product lines
    (3) Costs to consolidate or re-locate plant and office facilities
    (4) Loss or gain on disposal of long-lived assets
    (ii) Environmental clean-up costs
    (iii) Litigation settlements;
    (e) Exclusion of Impairment Charges on Long-lived Assets (goodwill, 
property, plant, and equipment, and other long-lived assets);
    (f) Exclusion of Gains or Losses Associated with Sales of a 
Subsidiary's or Investee's Stock;
    (g) Exclusion of In-Process Purchased Research and Development 
Charges;
    (h) Regulation S-X Article 11 Adjustments; Adjustments will include 
those contained in a company's pro forma financial statements provided 
in a current filing with the SEC pursuant to SEC rules and regulations 
governing Article 11 ``Pro forma information of Regulation S-X Part 
210--Form and Content of and Requirements for Financial Statements'';
    (i) Exclusion of the Cumulative Effect of Adoption of New 
Accounting Standards (APB Opinion No. 20) OR
    (II) Valuation/Revenue Test Companies listing under this standard 
may satisfy either (a) the Valuation/Revenue with Cash Flow Test or (b) 
the Pure Valuation/Revenue Test.
    (a) Valuation/Revenue with Cash Flow Test--[A Company with]
    (1) [not less than] at least $500,000,000 in global market 
capitalization, [and]
    (2) at least $100,000,000 in revenues during the most recent 12 
month period, [must] and
    (3) [demonstrate from the operating activity section of its cash 
flow statement that its cash flow, which represents net income adjusted 
to (a) reconcile such amounts to cash provided by operating activities, 
and (b) exclude changes in operating assets and liabilities, is] at 
least $25,000,000 [in the] aggregate cash flows for the last three 
fiscal years [and each year is reported as a] with positive amounts in 
all three years, as adjusted [(E)(F)] pursuant to Para. 102.01C 
(I)(2)(a) and (b), as applicable.
    A Company must demonstrate cash flow based on the operating 
activity section of its cash flow statement. Cash flow represents net 
income adjusted to (a) reconcile such amounts to cash provided by 
operating activities, and (b) exclude changes in operating assets and 
liabilities. With respect to reconciling amounts pursuant to this 
Paragraph, all such amounts are limited to the amount included in the 
company's income statement.
    (b) Pure Valuation/Revenue Test--
    (1) at least $750,000,000 in global market capitalization, and
    (2) at least $75,000,000 in revenues during the most recent fiscal 
year. In the case of companies listing in connection with an IPO, the 
company's underwriter (or, in the case of a spin-off, the parent 
company's investment banker or other financial advisor) must provide a 
written representation that demonstrates the company's ability to meet 
the $750,000,000 global market capitalization requirement based upon 
the completion of the offering (or distribution). For all other 
companies, market capitalization valuation will be determined over a 
six-month average.
    [OR
    (III) For companies with not less than $1 billion in total 
worldwide market capitalization and with not less than $100 million 
revenues in the recent fiscal year, there are no additional financial 
requirements. For such companies listing in connection with an IPO, the 
market capitalization valuation must be demonstrated by written 
representation from the underwriter (or, in the case of a spin-off, by 
a written representation from the parent company's investment banker or 
other financial advisor) of the total market capitalization of the 
company upon completion of the offering (or distribution). For all 
other such companies, the market capitalization valuation will be 
determined over a six-month average.]
OR

[[Page 40441]]

    (III) Affiliated Company Test
    (1) at least $500,000,000 in global market capitalization;
    (2) at least 12 months of operating history (although a company is 
not required to have been a separate corporate entity for such period); 
and
    (3) the company's parent or affiliated company is a listed company 
in good standing (as evidenced by written representation from the 
company or its financial advisor excluding that portion of the balance 
sheet attributable to the new entity); and
    (4) the company's parent or affiliated company retains control of 
the entity or is under common control with the entity.
    ``Control'' for purposes of the Affiliated Company Test will mean 
having the ability to exercise significant influence over the operating 
and financial policies of the listing company, and will be presumed to 
exist where the parent or affiliated company holds 20% or more of the 
listing company's voting stock directly or indirectly. Other indicia 
that may be taken into account when determining whether control exists 
include board representation, participation in policy making processes, 
material intercompany transactions, interchange of managerial 
personnel, and technological dependency. The Affiliated Company Test is 
taken from and intended to be consistent with generally accepted 
accounting principles regarding use of the equity method of accounting 
for an investment in common stock.
    (E) Only adjustments arising from events specifically so indicated 
in the company's SEC filing(s) as to both categorization and amount can 
and must be made. Any such adjustment applies only in the year in which 
the event occurred except with regard to the use of proceeds or 
acquisitions and dispositions. Any company for which the Exchange 
relies on adjustments in granting clearance must include all relevant 
adjusted financial data in its listing application as specified in 
Para. 702.04, and disclose the use of adjustments by including a 
statement in a press release (i) that additional information is 
available upon which the NYSE relied to list the company and is 
included in the listing application and (ii) that such information is 
available to the public upon request.
    (F) [The above-referenced adjustments are measured and recognized] 
Interested parties should apply the list of adjustments in accordance 
with any relevant accounting literature, such as that published by the 
Financial Accounting Standards Board (``FASB''), the Accounting 
Principles Board (``APB''), the Emerging Issues Task Force (``EITF''), 
the American Institute of Certified Public Accountants (``AICPA''), and 
the SEC. Any literature is intended to guide issuers and investors 
regarding the affected adjustment listed. If successor interpretations 
(or guidelines) are published with respect to any particular 
adjustment, the most recent relevant interpretations (or guidelines) 
should be consulted.
* * * * *
    [(IV) Affiliated Company Standard
    (1) Market capitalization of $500,000,000 million or greater (as 
evidenced by written representation from the underwriter, company, or 
its investment advisor);
    (2) Minimum of 12 months of operations (although it is not required 
to have been a separate corporate entity for such period);
    (1) Parent or affiliated company is a listed company in good 
standing (as evidenced by written representation from the company or 
its financial advisor excluding that portion of the balance sheet 
attributable to the new entity); and
    (2) Parent/affiliated company retains control* of the entity or is 
under common control* with the entity.
    ``Control'' for these purposes will mean the ability to exercise 
significant influence over operating and financial policies, and will 
be presumed to exist when the parent involved holds directly or 
indirectly 20% or more of the entity's voting stock. Other indicia that 
may be taken into account for this purpose include board 
representation, participation in policy making processes, material 
intercompany transactions, interchange of managerial personnel, and 
technological dependency. This test is taken from and intended to be 
consistent with generally accepted accounting principles regarding use 
of the equity method of accounting for an investment in common stock.]
* * * * *

103.00 Non-U.S. Companies

* * * * *

103.01 Minimum Numerical Standards `` Non-U.S. Companies'' Equity 
Listings Distribution

* * * * *

103.01B A Company Must Meet One of the Following Financial Standards

    (I) Earnings Test
    (1) Pre-tax earnings from continuing operations and after minority 
interest, amortization and equity in the earnings or losses of 
investees adjusted [(C)(D)] for items specified in para. 
102.01C(I)(2)(a) through (i) above, and 103.01B(I)(2) below, must total 
at least[:] $100,000,000 in the aggregate for the last three fiscal 
years [together] with a minimum of $25,000,000 in each of the most 
recent two fiscal years.
    (2) Additional Adjustment (C)(D) Available for Foreign Currency 
Devaluation. Non-operating adjustments when associated with translation 
adjustments representing a significant devaluation of a country's 
currency (e.g., the currency of a company's country of domicile 
devalues by more than 10 percent against the U.S. dollar within a six-
month period). Adjustments may not include those associated with normal 
currency gains or losses.
    (3) Reconciliation to U.S. GAAP of the third year back would only 
be required if the Exchange determines that reconciliation is necessary 
to demonstrate that the aggregate $100,000,000 threshold is satisfied.
OR
    (II) Valuation/Revenue Test
    Companies listing under this standard may satisfy either (a) the 
Valuation/Revenue with Cash Flow Test or (b) the Pure Valuation/Revenue 
Test.
    (a) Valuation/Revenue with Cash Flow Test--[A Company with]
    (1) [not less than] at least $500,000,000 in global market 
capitalization, [and]
    (2) at least $100,000,000 in revenues during the most recent 12 
month period, [must] and
    (3) [demonstrate from the operating activity section of its cash 
flow statement that its operating cash flow excluding changes in 
operating assets and liabilities is] at least $100,000,000 [in the ] 
aggregate cash flows for the last three fiscal years where each of the 
two most recent years is reported at a minimum of $25,000,000, [as] 
adjusted in accordance with (C)(D) [for] Para. 102.01C (I)(2) (a) and 
(b).
    A Company must demonstrate cash flow based on the operating 
activity section of its cash flow statement. Cash flow represents net 
income adjusted to (a) reconcile such amounts to cash provided by 
operating activities, and (b) exclude changes in operating assets and 
liabilities. With respect to reconciling amounts pursuant to this 
Paragraph, all such amounts are limited to the amount included in the 
company's income statement.
    Reconciliation to U.S. GAAP of the third fiscal year back would 
only be required if the Exchange determines that reconciliation is 
necessary to demonstrate that the [aggregate]

[[Page 40442]]

$100,000,000 aggregate cash flow threshold is satisfied.
    (b) Pure Valuation/Revenue Test--
    (1) at least $750,000,000 in global market capitalization, and
    (2) at least $75,000,000 in revenues during the most recent fiscal 
year. In the case of companies listing in connection with an IPO, the 
company's underwriter (or, in the case of a spin-off, the parent 
company's investment banker or other financial advisor) must provide a 
written representation that demonstrates the company's ability to meet 
the $750,000,000 global market capitalization requirement upon 
completion of the offering (or distribution). For all other companies, 
market capitalization valuation will be determined over a six-month 
average.
[OR
    (III) For companies with not less than $1 billion in total 
worldwide market capitalization and with not less than $100 million 
revenues in the recent fiscal year, there are no additional financial 
requirements. For such companies listing in connection with an IPO, the 
market capitalization valuation must be demonstrated by a written 
representation from the underwriter (or, in the case of a spin-off, by 
a written representation from the parent company's investment banker, 
other financial advisor or transfer agent) of the total market 
capitalization of the company upon completion of the offering (or 
distribution). For all other such companies, the market capitalization 
valuation will be determined over a six-month average.] OR
    (III) Affiliated Company Test
    (1) at least $500,000,000 in global market capitalization;
    (2) at least 12 months of operating history (although a company is 
not required to have been a separate corporate entity for such period); 
and
    (3) the company's parent or affiliated company is a listed company 
in good standing (as evidenced by written representation from the 
company or its financial advisor excluding that portion of the balance 
sheet attributable to the new entity); and
    (4) the company's parent or affiliated company retains control of 
the entity or is under common control with the entity.
    ``Control'' for purposes of the Affiliated Company Test will mean 
having the ability to exercise significant influence over the operating 
and financial policies of the listing company, and will be presumed to 
exist where the parent or affiliated company holds 20% or more of the 
listing company's voting stock directly or indirectly. Other indicia 
that may be taken into account when determining whether control exists 
include board representation, participation in policy making processes, 
material intercompany transactions, interchange of managerial 
personnel, and technological dependency. The Affiliated Company Test is 
taken from and intended to be consistent with generally accepted 
accounting principles regarding use of the equity method of accounting 
for an investment in common stock.
    (C) Only adjustments arising from events specifically so indicated 
in the company's SEC filing(s) as to both categorization and amount can 
and must be made. Any such adjustments apply only in the year in which 
the event occurred except with regard to the use of proceeds or 
acquisitions and dispositions. Any company for which the Exchange 
relies on adjustments in granting clearance must include all relevant 
adjusted financial data in its listing application as specified in 
Para. 702.04, and disclose the use of adjustments by including a 
statement in a press release (i) that additional information is 
available upon which the NYSE relied to list the company and is 
included in the listing application and (ii) that such information is 
available to the public upon request.
    (D) Interested parties should apply the list of adjustments in 
accordance with any relevant accounting literature, such as that 
published by the Financial Accounting Standards Board (``FASB), the 
Accounting Principles Board (``APB''), the Emerging Issues Task Force 
(``EITF''), the American Institute of Certified Public Accountants 
(``AICPA''), and the SEC. Any literature is intended to guide issuers 
and investors regarding the affected adjustment listed. If successor 
interpretations (or guidelines) are published with respect to any 
particular adjustment, the most recent relevant interpretations (or 
guidelines) should be consulted.
    [(IV) Affiliated Company Standard
    (1) Market capitalization of $500 million or greater (as evidenced 
by written representation from the underwriter, company, or its 
investment advisor);
    (2) Minimum of 12 months of operations (although it is not required 
to have been a separate corporate entity for such period);
    (3) Parent or affiliated company is a listed company in good 
standing (as evidenced by written representation from the company or 
its financial advisor excluding that portion of the balance sheet 
attributable to the new entity); and
    (4) Parent/affiliated company retains control* of the entity or is 
under common control* with the entity.
    *``Control'' for these purposes will mean the ability to exercise 
significant influence over operating and financial policies, and will 
be presumed to exist when the parent involved holds directly or 
indirectly 20% or more of the entity's voting stock. Other indicia that 
may be taken into account for this purpose include board 
representation, participation in policymaking processes, material 
intercompany transactions, interchange of managerial personnel, and 
technological dependency. This test is taken from and intended to be 
consistent with generally accepted accounting principles regarding use 
of the equity method of accounting for an investment in common stock.]
* * * * *

802.00 Continued Listing

* * * * *

802.01 Continued Listing Criteria

    The Exchange would normally give consideration to delisting a 
security either a domestic or non-U.S. issuer when:
* * * * *

802.01B Numerical Criteria for Capital or Common Stock

    [If] A[a] company that falls below [any of the following] the 
criteria applicable to it [, it] is subject to the procedures outlined 
in Paras. 802.02 and 802.03[:].
    (I) A company that qualified to list under the Earnings Test set 
out in Para. 102.01C(I) or in Para. 103.01B(I) will be considered to be 
below compliance standards if:
    (i) [A]average global market capitalization over a consecutive 30 
trading-day period is less than [$50,000,000] $75,000,000 and, at the 
same time, total stockholders' equity is less than [$50,000,000] 
$75,000,000 (C); or
    (ii) [A]average global market capitalization over a consecutive 30 
trading-day period is less than [$15,000,000; or] $25,000,000.
    (II) A company that qualified to list under the Valuation/Revenue 
with Cash Flow Test set out in Para. 102.01C(II)(a) or Para. 
103.01B(II)(a) will be considered to be below compliance standards if:
    (i) Average global market capitalization over a consecutive 30 
trading-day period is less than $250,000,000 and, at the same time, 
total revenues are less than $20,000,000

[[Page 40443]]

over the last 12 months (unless the company qualifies as an original 
listing under one of the other original listing standards) (D) ; or
    (ii) Average global market capitalization over a consecutive 30 
trading--day period is less than $75,000,000.
    [(iii) For companies that qualified for original listing under the 
``global market capitalization'' standard:] (III) A company that 
qualified to list under the Pure Valuation/Revenue Test set out in 
Para. 102.01C(II)(b) or Para. 103.01B(II)(b) will be considered to be 
below compliance standards if:
    (i) [A]average global market capitalization over a consecutive 30 
trading-day period is less than [$500,000,000] $375,000,000 and, at the 
same time, total revenues are less than [$20,000,000] $15,000,000 over 
the last 12 months (unless the [resultant entity] company qualifies as 
an original listing under one of the other original listing standards) 
(D); or
    (ii) average global market capitalization over a consecutive 30 
trading-day period is less than $100,000,000.
    (IV) A company that qualified to list under the Affiliated Company 
Test set out in Para. 102.01C(III) or Para. 103.01B(III) is not subject 
to any continued numerical standards unless:
    (i) the listed company's parent/affiliated company ceases to 
control the listed company, or
    (ii) the listed company's parent/affiliated company itself falls 
below the continued listing standards described to the parent/
affiliated company.
    In such case, the listed company that qualified to list under the 
Affiliated Company Test will be considered to be below compliance 
standards at any time that:
    (i) average global market capitalization over a consecutive 30 
trading-day period is less than $75,000,000 and, at the same time, 
total stockholders' equity is less than $75,000,000 (C); or
    (ii) average global market capitalization over a consecutive 30 
trading-day period is less than $25,000,000.
    When applying the market capitalization test in any of the above 
[three] four standards, the Exchange will generally look to the total 
common stock outstanding (excluding treasury shares) as well as any 
common stock that would be issued upon conversion of another 
outstanding equity security. The Exchange deems these securities to be 
reflected in market value to such an extent that the security is a 
``substantial equivalent'' of common stock. In this regard, the 
Exchange will only consider securities (1) publicly traded (or quoted), 
or (2) convertible into a publicly traded (or quoted) security. For 
partnerships, the Exchange will analyze the creation of the current 
capital structure to determine whether it is appropriate to include 
other publicly traded securities in the calculation.
    [Affiliated Companies--Will not be subject to the $50,000,000 
average global market capitalization and stockholders' equity test 
unless the parent/affiliated company no longer controls the entity or 
such parent/affiliated company itself falls below the continued listing 
standards described in this section.]
    Funds, REITs and Limited Partnerships [--] will be subject to 
immediate suspension and delisting procedures if [(1)] the average 
market capitalization of the entity over 30 consecutive trading days is 
below [$15,000,000] $25,000,000 [or (2)]. In addition, [in the case of] 
a Fund [,] is subject to immediate suspension and delisting if it 
ceases to maintain its closed-end status. [, and in the case of a] A 
REIT is subject to immediate suspension and delisting if[,] it fails to 
maintain its REIT status (unless the resultant entity qualifies for an 
original listing as a corporation).
    The Exchange will notify the Fund, REIT or limited partnership if 
the average market capitalization falls below [$25,000,000] $35,000,000 
and will advise the Fund, REIT or limited partnership of the delisting 
standard. Funds, REITs and limited partnerships are not subject to the 
procedures outlined in Paras. 802.02 and 802.03.
    Bonds [--] will be subject to immediate suspension and delisting 
procedures if: (i) [.] [T]the aggregate market value or principal 
amount of publicly-held bonds is less than $1,000,000, or
    (ii) [.] [T]the issuer is not able to meet its obligations on the 
listed debt securities. Bonds are not subject to the procedures 
outlined in Paras. 802.02 and 802.03. Preferred Stock, Guaranteed 
Railroad Stock and Similar Issues[-]will be subject to immediate 
suspension and delisting procedures if:
    (i) [.] the [A]aggregate market value of publicly-held shares is 
less than $2,000,000, or
    (ii) [.] the number of [P]publicly-held shares is less than 
100,000. These types of securities are not subject to the procedures 
outlined in Paras. 802.02 and 802.03.
    (C) In order [T]to be considered in conformity with continued 
listing standards pursuant to Paras. 802.02 and 802.03, a company that 
is determined to be below compliance under this continued listing 
criterion must do one of the following:
    (i) [R]reestablish both its market capitalization and its 
stockholders' equity to the [$50,000,000] $75,000,000 level, or
    (ii) [A]achieve average global market capitalization over a 
consecutive 30 trading-day period of at least [$100,000,000] 
$150,000,000, or
    (iii) [A]achieve average global market capitalization over a 
consecutive 30 trading-day period of [$60,000,000] $90,000,000, with 
either (x) stockholders' equity of at least [$40,000,000] $60,000,000, 
or (y) an increase in stockholders' equity of at least [$40,000,000] 
$60,000,000 since the company was notified by the Exchange that it was 
below continued listing standards.
    (D) In order to be deemed in conformity with continued listing 
standards pursuant to paras. 802.02 and 802.03, [A]a company that is 
determined to be below compliance under this continued listing 
criterion must either:
    (i) reestablish both its market capitalization and its revenues to 
the applicable amounts [to be considered in conformity with continued 
listing standards pursuant to paras. 802.02 and 802.03], or
    (ii) qualify as an original listing under any of the original 
listing standards.

802.01C Price Criteria for Capital or Common Stock

    A Company will be considered to be below compliance standards if 
the [A]average closing price of a security is less than $1.00 over a 
consecutive 30-trading-day period (E).
* * * * *

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 Exchange 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 Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant aspects of such 
statements.

[[Page 40444]]

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

1. Purpose
    The Exchange is proposing amendments to certain of its minimum 
numerical standards for the listing and continued listing of equity 
securities on the NYSE. On January 29, 2004, the Commission approved 
these proposed amendments sought by the NYSE on a pilot program basis 
(the ``Pilot Program'').\5\ The Pilot Program provided a transition 
period for companies that were below compliance under the previous 
continued listing standards at the time the Pilot Program was approved, 
granting them an opportunity to present an additional business plan 
advising the Exchange of definitive action the company has taken, or is 
taking, that would bring the company into conformity with the Pilot 
Program requirements within 12 months of the end of their previous 
plan. No transition period was provided, however, for companies that 
were in compliance with the previous standards but not in compliance 
with the Pilot Program standards at the time the Pilot Program was 
approved.
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    \5\ See Securities Exchange Act Release No. 49154 (January 29, 
2004), 69 FR 5633 (February 5, 2004) (approving File No. SR-NYSE-
2003-43).
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    At the Exchange's request, the Commission approved the Pilot 
Program on an accelerated basis. The Exchange now believes that there 
was no opportunity for listed companies to review and comment on the 
Pilot Program requirements prior to the date compliance was required. 
The NYSE notes that a number of the listed companies that did not 
comply with the Pilot Program standards as of the date of approval 
expressed dismay at the automatic application of the new standards with 
no public notice.\6\ In order to address these concerns, the Exchange 
suspended the portions of the Pilot Program relating to the continued 
listing standards of Section 802.01B of the NYSE's Listed Company 
Manual.\7\ In File No. SR-NYSE-2004-15, the Exchange noted its 
intention to file with the Commission a proposed rule change, without 
any request for accelerated approval, allowing a full notice-and-
comment period regarding the requirements of the Pilot Program relating 
to Section 802.01B.\8\ File No. SR-NYSE-2004-15 did not, however, amend 
the Pilot Program with respect to Sections 102.01C and 103.01B of the 
NYSE's Listed Company Manual concerning original minimum listing 
standards or the Pilot Program's non-substantive change to the language 
of Section 802.01C.\9\
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    \6\ See letters from Kenneth A. Hoogstra, von Briesen & Roper, 
s.c., to Jonathan G. Katz, Secretary, Commission, dated February 25, 
2004, and W. Randy Eaddy, Kilpatrick Stockton LLP, to Jonathan G. 
Katz, Secretary, Commission, dated March 11, 2004, (commenting on 
File No. SR-NYSE-2003-43).
    \7\ See Securities Exchange Act Release No. 49443 (March 18, 
2004), 69 FR 13929 (March 24, 2004) (File No. SR-NYSE-2004-15).
    \8\ See id.
    \9\ See id.
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    The Exchange now seeks permanent approval for the Pilot Program 
currently in effect with respect to the Exchange's original minimum 
listing standards and approval of the continued minimum listing 
standards as initially proposed in File No. SR-NYSE-2003-43. The 
Exchange represents that it maintains an ongoing dialog with 
knowledgeable practitioners at investment banks, broker-dealers, and 
venture capital firms, and adjusts its listing standards periodically 
to ensure that the standards recognize and reflect current market 
conditions and to allow the Exchange to continue to attract quality 
companies. The Exchange represents, furthermore, that such changes are 
proposed only after detailed analysis by Exchange staff of how the 
proposed standards would affect the NYSE list. The NYSE asserts that 
the proposed amendments will strengthen certain aspects of the minimum 
original and continued listing standards, while modestly easing the 
pre-Pilot ``Program Market-Cap/Revenue Test'' to enable the NYSE to 
list somewhat younger companies that still meet substantial 
quantitative thresholds over their operating history. According to the 
NYSE, Exchange staff monitored the modest number of companies over the 
last two years that would have met the ``Market-Cap/Revenue Test'' as 
the Exchange proposes to modify it and found that those companies have 
performed to a standard that would be appropriate for inclusion on the 
NYSE list.
    Prior to the Pilot Program, Section 102.01C of the Listed Company 
Manual provided that a company must meet one of four specified 
financial standards in order to qualify to have its equity securities 
listed. The Exchange is proposing permanent approval of amendments to 
three of these four standards that have been in effect under the Pilot 
Program.\10\ The Exchange is also proposing permanent approval of 
amendments to Section 103.01B(III), which provides a corresponding 
numerical standard applicable to international companies and have also 
been in effect under the Pilot Program.
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    \10\ The ``Earnings Test,'' the ``Valuation/Revenue Test'' 
(incorporating in one section the pre-Pilot Program Valuation/
Revenue with Cash Flow Test and in another section the Pure 
Valuation/Revenue Test), or the ``Affiliated Company Test.'' See 
Securities Exchange Act Release No. 49154 (January 29, 2004), 69 FR 
5633 (February 5, 2004) (approving File No. SR-NYSE-2003-43).
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    Prior to the Pilot Program, Section 102.01C(I) required that a 
company demonstrate pre-tax earnings of $6.5 million in aggregate for 
the last three fiscal years, with either a minimum of: (a) $2.5 million 
in earnings in the most recent fiscal year and $2 million in each of 
the preceding two years; or (b) $4.5 million in earnings in the most 
recent fiscal year, with positive earnings in each of the preceding two 
years. Pursuant to the Pilot Program, the ``Earnings Test'' requires 
that companies demonstrate pre-tax earnings of $10 million in aggregate 
for the last three fiscal years. It also requires that the company 
demonstrate positive results in all three of the years tested with a 
minimum of $2.0 million in earnings in each of the preceding two years. 
The Exchange believes that these changes strengthen the ``Earnings 
Test'' standard and also simplify it by eliminating the current two-
tiered structure.
    Prior to the Pilot Program, Section 102.01C(II) required that a 
company demonstrate market capitalization of at least $500 million and 
revenues of at least $100 million over the most recent 12-month period. 
Provided that these thresholds were met, a company with operating cash 
flows of at least $25 million in aggregate for the last three fiscal 
years and positive amounts in each of the three fiscal years would have 
qualified for listing. Section 102.01C(III) required that an issuer 
demonstrate (a) market capitalization of at least $1 billion and (b) 
revenues of at least $100 million in the most recent fiscal year. 
Because both of these tests are valuation and revenue-based, the 
Exchange now seeks permanent approval to consolidate them into one test 
with two alternative subsections. One of the sections of the current 
Pilot Program, the ``Valuation/Revenue Test,'' incorporates the pre-
Pilot Program requirements of Section 102.01C(II) as the ``Valuation/
Revenue with Cash Flow Test'' with no change to the previous 
thresholds. The other section incorporates the pre-Pilot Program 
requirements of Section 102.01C(III) as the ``Pure Valuation/Revenue 
Test.'' In addition, the Exchange is proposing to permanently approve 
the amendments to the thresholds of Section 102.01C(III) that require 
that companies demonstrate (a) market capitalization of at least $750

[[Page 40445]]

million and (b) revenues of at least $75 million during the most recent 
fiscal year. As noted above, the Exchange represents that its staff has 
monitored the modest number of companies over the last two years that 
would have met the Pilot Program's ``Pure Valuation/Revenue Test'' and 
found that those companies performed to a standard that is appropriate 
for inclusion on the NYSE list.
    The Exchange is also proposing permanent approval of corresponding 
restructuring changes to Section 103.01B, which sets out minimum 
numerical standards for non-U.S. issuers. The Exchange is also 
proposing permanent approval of changes to the numeric thresholds of 
Section 103.01B(III) in accordance with changes to Section 
102.01C(III).
    In addition, the Exchange seeks permanent approval of its suspended 
Pilot Program restructuring and amending the numerical continued 
listing standards. Section 802.01B of the Listed Company Manual 
currently applies to companies that fall below any of the following 
criteria: (i) Average global market capitalization over a consecutive 
30-trading-day period is less than $50 million and total stockholders' 
equity is less than $50 million; or (ii) average global market 
capitalization over a consecutive 30-trading-day period is less than 
$15 million; or (iii) for companies that qualified for original listing 
under the ``global market capitalization'' standard, (a) average global 
market capitalization over a consecutive 30-trading-day period is less 
than $500 million and total revenues are less than $20 million over the 
last 12 months (unless the resultant entity qualifies as an original 
listing under one of the other original listing standards), or (b) 
average global market capitalization over a consecutive 30-trading-day 
period is less than $100 million.
    The Exchange proposes to amend these thresholds and to specifically 
relate the continued listing standards of Section 802.01B to the 
original listing standards of Section 102.01C used to qualify a company 
for listing. Companies that list under the Pilot Program's ``Earnings 
Test'' or its predecessor test would be considered to be below 
compliance if: (a) Average global market capitalization over a 
consecutive 30-trading-day period is less than $75 million and, at the 
same time, total stockholders' equity is less than $75 million; or (b) 
average global market capitalization over a consecutive 30-trading-day 
period is less than $25 million. These levels have been increased in 
the proposal to reflect marketplace expectations of those companies 
deemed suitable for continued listing. These levels are lower than the 
existing ``global market capitalization'' standard.
    Issuers that list under the Pilot Program's ``Valuation/Revenue 
with Cash Flow Test'' or its predecessor test would be considered to be 
below compliance standards if: (a) Average global market capitalization 
over a consecutive 30-trading-day period is less than $250 million and, 
at the same time, total revenues are less than $20 million over the 
last 12 months (unless the company qualifies as an original listing 
under one of the other original listing standards);\11\ or (b) average 
global market capitalization over a consecutive 30-trading-day period 
is less than $75 million.
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    \11\ These levels are lower than the existing ``global market 
capitalization'' standard.
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    Issuers that list under the Pilot Program's ``Pure Valuation/
Revenue Test'' or its predecessor test would be considered to be below 
compliance standards if: (a) Average global market capitalization over 
a consecutive 30-trading-day period is less than $375 million and, at 
the same time, total revenues are less than $15 million over the last 
12 months (unless the company qualifies as an original listing under 
one of the other original listing standards); or (b) average global 
market capitalization over a consecutive 30-trading-day period is less 
than $100 million.
    The Exchange also proposes to clarify that, in circumstances where 
a listed company's parent or affiliated company no longer controls the 
listed company or such listed company's parent or affiliated company 
falls below the continued listing standards applicable to the parent or 
affiliated company, the continued listing standards applicable to the 
Pilot Program's ``Earnings Test'' would apply to companies that 
originally listed under the Affiliated Company Standard. In addition, 
the Exchange proposes to increase the continued listing criteria for 
funds, REITs, and limited partnerships from $15 million to $25 million 
with a corresponding increase to the notification threshold from $25 
million to $35 million.
    Companies that fall below the foregoing minimum standards could be 
permitted a period of time to return to compliance, in accordance with 
the procedures specified in Sections 802.02 and 802.03 of the Listed 
Company Manual. As a general matter, companies must reestablish the 
level of market capitalization (and, if applicable, shareholder's 
equity) specified in the continued listing standard below which the 
company fell. However, with respect to the current requirements of 
Section 802.01B(I) that a company reestablish both its market 
capitalization and its stockholders' equity to the $50 million level, 
footnote (C) to Section 802.01B provides several alternatives. 
Currently, the footnote specifies that, to return to conformity, a 
company must do one of the following: (a) Reestablish both its market 
capitalization and its stockholders' equity to the $50 million level; 
(b) achieve average global market capitalization over a consecutive 30-
trading-day period of at least $100 million; or (c) achieve average 
global market capitalization over a consecutive 30-trading-day period 
of $60 million, with either (x) stockholders' equity of at least $40 
million, or (y) an increase in stockholders' equity of at least $40 
million, since the company was notified by the Exchange that it was 
below continued listing standards. The Exchange proposes to increase 
these thresholds to require a company to: (a) Reestablish both its 
market capitalization and its stockholders' equity to the $75 million 
level; or (b) achieve average global market capitalization over a 
consecutive 30-trading-day period of at least $150 million; or (c) 
achieve average global market capitalization over a consecutive 30-
trading-day period of $90 million with either (x) stockholders' equity 
of at least $60 million, or (y) an increase in stockholders' equity of 
at least $60 million, since the company was notified by the Exchange 
that it was below continued listing standards.
    The Exchange represents that it has considered how to transition 
the above-described changes to the continued listing standards and 
intends to provide a period of 30 trading days from the date of any 
Commission approval of the proposed amendments until such amendments 
would become effective.
    Sections 802.02 and 802.03 of the Listed Company Manual provide 
that, with respect to a company which is determined to be below 
continued listing standards a second time within 12 months of 
successful recovery from previous non-compliance, the Exchange will 
examine the relationship between the two incidents of falling below 
continued listing standards and re-evaluate the company's method of 
financial recovery from the first incident. The Exchange may then take 
appropriate action, which, depending upon the circumstances, may 
include truncating the normal procedures for reestablishing conformity 
with the continued listing standards or

[[Page 40446]]

immediately initiating suspension and delisting procedures. For those 
companies that are within such a 12-month period and who would be 
deemed to be below continued listing standards as a direct result of 
the approval of the amendments proposed in this filing, the Exchange 
would not intend to truncate or immediately initiate suspension and 
delisting solely on the basis of the proposed increase to the current 
continued listing standards. The Exchange would take into consideration 
all of the facts and circumstances relating to the company in 
determining whether to allow such company an opportunity to submit a 
second plan.
    With respect to an issuer currently below the continued listing 
standards now in force, the Exchange intends to allow it to complete 
its applicable follow-up procedures and plan for return to compliance 
as provided in Sections 802.02 and 802.03 of the Listed Company Manual. 
If, at the end thereof, the issuer is compliant with the continued 
listing standards about which it was originally notified, but below the 
increased requirements set forth above, the Exchange would grant it an 
opportunity to present an additional business plan advising the 
Exchange of definitive action the issuer has taken, or is taking, that 
would bring it into conformity with the increased requirements within a 
further 12 months. In addition, if an issuer were to complete its 
currently applicable follow-up procedures and plan and were not 
compliant at that time with the continued listing standards about which 
it was originally notified, but is above the increased requirements set 
forth above, the Exchange would consider that issuer to be in 
conformity with the continued listing standards.
    For an issuer that is in compliance with the continued listing 
standards now in force, but that might be below the continued listing 
standards proposed herein, the proposed 30-day measurement period prior 
to effectiveness would allow the Exchange sufficient time to provide 
early warnings to any issuer that would potentially be below compliance 
at the end of that period. If, at the end of the 30-trading-day 
measurement period, an issuer is below the increased requirements set 
forth above, the Exchange would formally notify the issuer of such non-
compliance and provide it with an opportunity to present a business 
plan within 45 days of that notification advising the Exchange of 
definitive action the issuer would take to bring it into conformity 
with the increased requirements within an 18-month period.
    Finally, the Exchange is proposing minor technical and conforming 
changes to Sections 102.02C, 103.01B, 802.01B, and 802.01C of the 
Listed Company Manual.
2. Statutory Basis
    The Exchange believes that the proposed rule change satisfies the 
requirement under Section 6(b)(5) of the Act \12\ that the Exchange's 
rules be 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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    \12\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The NYSE does not believe that the proposed rule change would 
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 did not solicit or receive written comments on 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.

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. 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-2004-20 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-2004-20. 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 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-2004-20 and should be submitted on or before July 
23, 2004. 

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-15049 Filed 7-1-04; 8:45 am]
BILLING CODE 8010-01-P