[Federal Register Volume 69, Number 161 (Friday, August 20, 2004)]
[Notices]
[Pages 51740-51744]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-19064]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50196; File No. SR-NYSE-2004-04]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange, Inc. To Amend Its Rules 
Regarding Listed Company Relations Proceedings

August 13, 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 February 9, 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, II, 
and III below, which Items have been prepared by the Exchange. On March 
29, 2004, the Exchange submitted Amendment No. 1 to the original 
proposal.\3\ On August 3, 2004, the Exchange submitted Amendment No. 2 
to the original proposal.\4\ 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, Division of Market Regulation 
(``Division''), Commission, dated March 26, 2004 (``Amendment No. 
1''). Amendment No. 1 replaced the proposed rule text in the 
original proposal to reflect changes in NYSE Rule 103C that the 
Commission recently had approved. See Securities Exchange Act 
Release No. 49345 (March 1, 2004), 69 FR 10791 (March 8, 2004).
    \4\ See letter from Darla C. Stuckey, Corporate Secretary, NYSE, 
to Nancy J. Sanow, Assistant Director, Division, Commission, dated 
August 2, 2004 (``Amendment No. 2''). Amendment No. 2 deleted NYSE 
Rule 103C and added the text of NYSE Rule 103C, as proposed to be 
amended, to the Listed Company Manual; added proposed rule text to 
provide for a review of the issuer's notice of a request for a 
change of specialist unit by the Exchange's Regulatory Group; and 
replaced a portion of the discussion in the purpose section of the 
filing to reflect these changes.

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[[Page 51741]]

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

    The proposed rule change, as amended, seeks to remove NYSE Rule 
103C (Listed Company Relations Proceedings), to add a new Section 
806.01 to NYSE's Listed Company Manual (Change of Specialist Unit upon 
Request of Company), and to add new rule text to NYSE Rule 103B 
pertaining to specialist reallocations following a specialist removal 
pursuant to the new Listed Company Manual Rule 806.01.

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, as 
amended, and discussed any comments it received on the proposed rule 
change, as amended. The text of these statements may be examined at the 
places specified in Item IV below. The NYSE has prepared summaries, set 
forth in Sections A, B, and C below, of the most significant aspects of 
such statements.
    The proposed changes to the rule text for NYSE Rules 103B and 103C 
and for new Section 860.01 in the NYSE's Listed Company Manual, marked 
to show changes from the Exchange's existing rules, is set forth in 
Exhibit A hereto.

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

1. Purpose
    The Exchange proposes to remove Rule 103C (Listed Company Relations 
Proceedings) and substitute it with a new Listed Company Manual Section 
806.01 in order to provide a more efficient and meaningful method for 
resolving disputes between listed companies and their assigned 
specialist units.
    The Exchange recognizes that the working relationship between a 
listed company and its specialist unit is of paramount importance. To 
help further this relationship, the Exchange provides a listed company 
with the opportunity to participate in the selection of its assigned 
specialist unit in accordance with the policies and procedures set 
forth in Exchange Rule 103B.\5\ Similarly, NYSE Rule 106 provides for a 
high level of interaction between the listed company and its specialist 
unit. These provisions are extremely beneficial to both the listed 
company and its specialist unit and promote a closer working 
relationship between them. Notwithstanding the success of these 
provisions, situations may occasionally arise in which a listed company 
and its specialist unit cannot easily resolve differences.
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    \5\ See Securities Exchange Act Release No. 46579 (October 1, 
2002), 67 FR 63004 (October 9, 2002) (SR-NYSE-2002-31) (codifying 
the specialist stock allocation policy as Rule 103B).
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    To address such listed company relations and compatibility issues, 
the Exchange adopted its current Rule 103C, which sets forth the 
process by which listed companies can request reassignment to a 
different specialist unit. However, the procedure set forth in its 
current Rule 103C is cumbersome and extremely lengthy. Moreover, under 
the current rule, even if it quickly becomes apparent that the listed 
company and its specialist unit are unable to resolve their 
differences, no reassignment can occur until at least one year after 
the listed company's request. It is likely for these reasons that no 
listed company has commenced a Rule 103C proceeding since the rule's 
adoption. Thus, it is necessary to provide a more meaningful and 
responsive mechanism to address non-regulatory issues between a listed 
company and its assigned specialist unit. This will promote the 
continued efficient operation of the marketplace and promote good 
relationships with and between listed companies and their specialists.
    In addition, proceedings under its current Rule 103C occur under 
the oversight of the Quality of Markets Committee, before a 
subcommittee consisting of, among others, certain Exchange officials. 
This process no longer makes sense given the recent changes to the 
Exchange's governance structure.\6\
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    \6\ See Securities Exchange Act Release No. 48946 (December 17, 
2003), 68 FR 74678 (December 24, 2003) (SR-NYSE-2003-34). See also 
Securities Exchange Act Release No. 49345 (March 1, 2004), 69 FR 
10791 (March 8, 2004) (SR-NYSE-2004-02).
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    The Exchange will codify in its Listed Company Manual a new 
section, 806.01, entitled ``Change of Specialist Unit upon Request of 
Company.'' This is the same section of the Listed Company Manual that 
includes the provision under which listed companies may voluntarily de-
list from the Exchange. Codification in this section reflects the fact 
that under these circumstances, the change of specialist represents an 
issuer choice: In this case, a choice to change its specialist rather 
than a choice to change the market on which the company is listed. 
Section 806.01 will provide a formal procedure whereby a listed company 
may give written notice to the Exchange of its request to change its 
specialist unit (the ``Issuer Notice''). The subject specialist unit 
will be provided with the Issuer Notice and given an opportunity to 
respond in writing. The Exchange will then appoint a committee to 
conduct a mediation of the issues that have arisen between the company 
and the specialist unit, consisting of representatives from the 
Exchange's Board of Executives (``BOE''), including at least one BOE 
floor broker representative, at least one BOE investor representative 
and at least one BOE listed company representative. At any time the 
listed company may give the Exchange notice that it is concluding the 
mediation because it wishes to continue with its specialist unit. 
However, after three months if the listed company wishes to proceed 
with the change of specialist unit, it may do so by filing a notice to 
that effect with the Exchange. The listed company stock would then be 
put up for allocation under NYSE Rule 103B (Specialist Stock 
Allocation).
    The procedure also requires that a copy of the Issuer Notice and 
any specialist response be provided to the Exchange's Regulatory Group 
for its review. The Regulatory Group will have two weeks to review the 
Issuer Notice before the earliest date that the mediation could get 
underway, and the Regulatory Group may request a review of the matter 
by the Regulatory Oversight Committee (``ROC'') of the Exchange's Board 
of Directors, a committee consisting entirely of independent directors. 
The mediation process may commence and continue during the Regulatory 
Group's review. However, where a review by the ROC has been requested, 
no change of specialist may occur until the ROC makes a final 
determination that, as a regulatory matter, it is appropriate to permit 
such a change. In making such determination, the ROC may consider all 
relevant regulatory issues, including without limitation whether the 
requested change appears to be in aid or furtherance of conduct that is 
illegal or violates Exchange rules, or in retaliation for a refusal by 
a specialist to engage in conduct that is illegal or violates Exchange 
rules.
    When a listed company change of specialist occurs under this new 
procedure, and the listed company's security is put up for allocation 
to a specialist, the currently assigned specialist unit may apply for 
the allocation consistent with the policies and procedures set forth in 
NYSE Rule 103B. If the currently assigned specialist unit does not 
apply for the allocation,

[[Page 51742]]

the unit may not be allocated the security under the provisions of NYSE 
Rule 103B relating to selection of a specialist unit by the Allocation 
Committee. No negative inference for allocation or regulatory purposes 
may be made against a specialist unit that has been changed pursuant to 
Section 806.01 of the Listed Company Manual. Similarly, the specialist 
unit shall not be afforded preferential treatment in subsequent 
allocations as a result of a change pursuant to such provision.
2. Statutory Basis
    The basis under the Act for this proposed rule change, as amended, 
is the requirement under Section 6(b)(5) \7\ that an Exchange have 
rules that are designed 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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    \7\ 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

    The Exchange has neither solicited nor received 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 self-regulatory organization consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, 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-2004-04 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-2004-04. 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-2004-04 and should be submitted on or before September 10, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.

Exhibit A.--Text of the Proposed Rule Change

(Changes are italicized; deleted material is in [brackets])
[Listed Company Relations Proceedings
    Rule 103C. (a) A listed company may file with the New Listings & 
Client Service Division a written notification (``Issuer Notice''), 
signed by the company's chief executive officer, that it wishes to 
commence a proceeding whereby the Quality of Markets Committee 
(``QOMC'') shall attempt to mediate and resolve non-regulatory issues 
that have arisen between the company and its assigned specialist unit. 
The Issuer Notice shall indicate the specific issues sought to be 
mediated and resolved, and what steps, if any, have been taken to try 
to address them before the filing of the Notice.
    (b) The QOMC shall refer the Issuer Notice to its Listed Company 
Relations Subcommittee (the ``Subcommittee'') which shall consist of 
four Board of Executives members (two of whom are representatives of 
listed companies and a senior officer of the Exchange. The Subcommittee 
shall review the Issuer Notice and shall notify the subject specialist 
unit that a Listed Company Relations Proceeding (``LCRP'') is being 
commenced pursuant to this rule, and that the LCRP shall run for one 
year from the date of notice to the specialist unit, unless concluded 
earlier by the listed company. The specialist unit shall be provided 
with a copy of the Issuer Notice, and shall be given two weeks within 
which to submit a written response to the Subcommittee.
    (c) After the two-week period for a response from the subject 
specialist unit, the Subcommittee shall meet with representatives of 
the listed company and the specialist unit that are parties to the 
LCRP, and shall identify specific steps that may be taken to mediate 
and resolve matters indicated in the Issuer Notice.
    (d) The parties to the LCRP shall each submit a written report to 
the Subcommittee no later than three months from the date the LCRP is 
commenced with respect to all matters indicated in the Issuer Notice, 
and any other matter that either party believes may have a bearing on 
the LCRP. The written report shall include a description of the 
progress each party has made on the specific steps established by the 
Subcommittee. The listed company may give written notice that it is 
concluding the LCRP at any time if it believes matters have been 
satisfactorily addressed. If the listed company wishes the LCRP to 
continue, it must so state. After receiving the written reports from 
the parties to the LCRP, the Subcommittee shall then advise the QOMC on 
the Subcommittee's conclusions regarding

[[Page 51743]]

whether or not the specialist has successfully completed the specific 
steps established by the Subcommittee. The Subcommittee may meet 
further with the parties to the LCRP, and identify such other specific 
steps that may be taken to resolve matters, as it deems appropriate. 
The same process shall be followed at six and nine month intervals from 
the date the LCRP is commenced, unless the listed company has chosen to 
conclude the LCRP.
    (e) At the end of one year from the commencement of the LCRP, the 
listed company shall, in writing, either (i) inform the Subcommittee 
that it wishes to conclude the LCRP; or (ii) inform the Subcommittee 
that matters between it and its specialist unit remain unresolved, and 
that it wishes that its stock be assigned to a different specialist 
unit. The Subcommittee shall prepare a report to the QOMC recommending 
that it is in the best interest of the continued efficient operation of 
the Exchange's market, either that (i) the LCRP should be concluded; or 
(ii) that the listed company's stock should be assigned to a different 
specialist unit. The Subcommittee's report to the QOMC shall indicate 
whether or not the specialist has successfully completed the specific 
steps established by the Subcommittee.
    (f) The QOMC shall review the report prepared by the Subcommittee 
and shall give the parties to the LCRP an opportunity to present their 
views in writing. The QOMC shall then make a recommendation to the 
Exchange's Board of Directors as to the disposition of the LCRP, 
including a recommendation as to whether the listed company's stock 
should be assigned to a different specialist unit.
    (g) The Exchange's Board of Directors shall review the QOMC's 
recommendation and may give the parties to the LCRP an opportunity to 
present their views in writing. The Board of Directors shall consider 
the efforts taken by the specialist to complete the Subcommittee's 
specific steps and then determine the appropriate disposition of the 
LCRP. The Board of Directors may, if it determines the non-regulatory 
issues that have arisen between the listed company and the specialist 
to be irreconcilable differences, not based upon bias or other 
violations of public policy, and that a reallocation would be in the 
best interest of the continued efficient operation of the Exchange's 
market, direct that the Allocation Committee reallocate the listed 
company's stock to a different specialist unit. The currently-assigned 
specialist unit and the member organization of any specialist member of 
the Board of Directors shall be precluded from applying to be allocated 
the stock. No reference to the LCRP or the Board's action shall be 
retained in the information maintained by the Allocation Committee with 
respect to the currently-assigned specialist unit, and the currently-
assigned specialist unit shall not be afforded preferential treatment 
in subsequent allocations as a result of a reallocation pursuant to 
this rule.]
New York Stock Exchange Listed Company Manual
806.0 [Rule of the Exchange in Respect of Removal From List Upon 
Request of Company] Request of Listed Company for a Change of 
Specialist Unit or for Removal From the List

806.01 Change of Specialist Unit Upon Request of Company

    (a) A listed company may file with the Corporate Secretary of the 
Exchange a written notice (the ``Issuer Notice''), signed by the 
company's chief executive officer, that it wishes to request a change 
of specialist unit. The Issuer Notice shall indicate the specific 
issues prompting this request, and what steps, if any, have been taken 
to try to address them before the filing of the Issuer Notice. The 
Corporate Secretary shall provide copies of the Issuer Notice to both 
the Exchange's New Listings & Client Service Division and to its 
Regulatory Group.
    (b) The Corporate Secretary shall notify the subject specialist 
unit that a Listed Company Change of Specialist Mediation 
(``Mediation'') is being commenced pursuant to this provision, and 
shall provide the specialist with a copy of the Issuer Notice. Within 
two weeks, the specialist unit may submit a written response to the 
Exchange's Corporate Secretary. The Corporate Secretary shall provide 
copies of any such written response to both the New Listings & Client 
Service Division and the Regulatory Group. The last day of that two-
week period shall be referred to herein as the ``Specialist Response 
Date''.
    (c) The Regulatory Group shall review the Issuer Notice and any 
specialist response, and may request a review of the matter by the 
Regulatory Oversight Committee (``ROC'') of the Exchange's Board of 
Directors. The Mediation process described hereunder may continue 
during the Regulatory Group's review, however, where a review by the 
ROC has been requested, no change of specialist unit may occur until 
the ROC makes a final determination that it is appropriate to permit 
such change. In making such determination, the ROC may consider all 
relevant regulatory issues, including without limitation whether the 
requested change appears to be in aid or furtherance of conduct that is 
illegal or violates Exchange rules, or in retaliation for a refusal by 
a specialist to engage in conduct that is illegal or violates Exchange 
rules. Notwithstanding the Regulatory Group's review of any matter 
raised during the process described herein, the Regulatory Group may at 
any time take any regulatory action that it may determine to be 
warranted.
    (d) The Exchange shall facilitate a mediation of the issues that 
have arisen between the company and the specialist unit. The Exchange 
shall appoint a committee consisting of at least one floor broker 
representative from the Exchange's Board of Executives (``BOE''), at 
least one BOE investor representative and at least one BOE listed 
company representative for each Mediation (``the Mediation 
Committee'').
    (e) As soon as practicable after the Specialist Response Date, the 
Mediation Committee shall commence to meet with representatives of the 
listed company and the specialist unit in an attempt to mediate the 
matters indicated in the Issuer Notice.
    (f) Any time after the filing of the Issuer Notice, the listed 
company may file with the Corporate Secretary of the Exchange a written 
notice, signed by the company's chief executive officer, that it is 
concluding the Mediation because it wishes to continue with the same 
specialist unit.
    (g) After the expiration of three months from the Specialist 
Response Date, the listed company may file with the Corporate Secretary 
of the Exchange written notice, signed by the company's chief executive 
officer, that it wishes to proceed with the change of specialist unit. 
Subject to paragraph (c) above, as soon as practicable thereafter, the 
security shall be put up for allocation under Exchange Rule 103B.
806.[00]02 Removal From List Upon Request of Company
* * * * *
New York Stock Exchange Rules
Specialist Stock Allocation
Rule 103B
* * * * *
Allocation Policy and Procedures
Purpose
* * * * *

[[Page 51744]]

    This document presents the policy of the Exchange with respect to 
the allocation of equity securities when: (1) [when] A common stock is 
to be initially listed on the Exchange; (2) [when] a security is to be 
reallocated as a result of disciplinary or other proceedings under 
Exchange Rules 103A, 475 and 476; [or] (3) [when] a specialist unit 
voluntarily surrenders its registration in a security as a result of 
possible disciplinary or performance improvement action; (4) a 
specialist unit is changed pursuant to Section 806.01 of the Exchange's 
Listed Company Manual; or (5) [and the allocation of] an Exchange-
Traded Fund[s] is to be admitted to trading on the Exchange on an 
unlisted trading privileges basis (see Section VIII).
* * * * *

V. Policy Notes

* * * * *

Change of Specialist Unit Upon Request of Issuer

    When an issuer has requested a change of specialist unit pursuant 
to Section 806.01 of the Exchange's Listed Company Manual, that unit 
may apply for the allocation consistent with the policies and 
procedures set forth in this Rule 103B. If the specialist unit does not 
apply for such allocation, the unit may not be allocated the security 
under the provisions of this rule relating to selection of a specialist 
unit by the Allocation Committee (Option 1).
    No negative inference for allocation or regulatory purposes is to 
be made against a subject specialist unit in the event that a 
specialist unit is changed pursuant to Section 806.01 of the Exchange's 
Listed Company Manual. Similarly, the specialist unit shall not be 
afforded preferential treatment in subsequent allocations as a result 
of a change pursuant to such provision.

[FR Doc. 04-19064 Filed 8-19-04; 8:45 am]
BILLING CODE 8010-01-P