[Federal Register Volume 69, Number 173 (Wednesday, September 8, 2004)]
[Notices]
[Pages 54328-54337]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-2090]



[[Page 54328]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50298; File No. SR-NYSE-2004-41]


Self-Regulatory Organizations; Notice of Filing of a Proposed 
Rule Change and Amendment No. 1 Thereto by the New York Stock Exchange, 
Inc. To Amend Section 303A of the NYSE Listed Company Manual Relating 
to Corporate Governance

August 31, 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 August 3, 2004, the New York Stock Exchange, Inc. (``NYSE'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in items I, II, III below, which 
items have been prepared by the NYSE. The NYSE submitted Amendment No. 
1 to the proposal on August 30, 2004.\3\ The Commission is publishing 
this notice to solicit comments on the proposed rule change 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, Commission, dated August 27, 2004, and accompanying Form 
19b-4 (``Amendment No. 1''). Amendment No. 1 changed the proposal 
from a filing submitted pursuant to section 19(b)(3)(A) of the Act 
to a proposal filed pursuant to section 19(b)(2) of the Act, made 
certain changes to the description of the proposal, and replaced 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 proposes to amend section 303A of the NYSE Listed Company 
Manual (``Listed Company Manual'') to make (i) clarifying language 
changes consistent with interpretations that have been provided by the 
Exchange in response to questions and published Frequently Asked 
Questions (``FAQs''), and (ii) changes to section 303A.02(b)(iii) to 
align it more closely with the similar standard in place at the other 
listing markets.
    The text of the proposed rule change appears below. Proposed 
additions are in italics; proposed deletions are in brackets.
* * * * *

Listed Company Manual

* * * * *

303A Corporate Governance Standards

General Application
    Companies listed on the Exchange must comply with certain standards 
regarding corporate governance as codified in this Section 303A. 
Consistent with the NYSE's traditional approach, as well as the 
requirements of the Sarbanes-Oxley Act of 2002, certain provisions of 
Section 303A are applicable to some listed companies but not to others.
Equity Listings
    Section 303A applies in full to all companies listing common equity 
securities, with the following exceptions:
Controlled Companies
    A listed company of which more than 50% of the voting power is held 
by an individual, a group or another company need not comply with the 
requirements of sections 303A.01, .04 or .05. A controlled company that 
chooses to take advantage of any or all of these exemptions must 
disclose that choice, that it is a controlled company and the basis for 
the determination in its annual proxy statement or, if the company does 
not file an annual proxy statement, in the company's annual report on 
Form 10-K filed with the SEC. Controlled companies must comply with the 
remaining provisions of Section 303A.
Limited Partnerships and Companies in Bankruptcy
    Due to their unique attributes, limited partnerships and companies 
in bankruptcy proceedings need not comply with the requirements of 
Sections 303A.01, .04 or .05. However, all limited partnerships (at the 
general partner level) and companies in bankruptcy proceedings must 
comply with the remaining provisions of Section 303A.
Closed-End and Open-End Funds
    The Exchange considers the significantly expanded standards and 
requirements provided for in Section 303A to be unnecessary for closed-
end and open-end management investment companies that are registered 
under the Investment Company Act of 1940, given the pervasive Federal 
regulation applicable to them. However, closed-end funds must comply 
with the requirements of Sections 303A.06, .07(a) and (c), and .12. 
Note, however, that in view of the common practice to utilize the same 
directors for boards in the same fund complex, closed-end funds will 
not be required to comply with the disclosure requirement in the second 
paragraph of the Commentary to 303A.07(a), which calls for disclosure 
of a board's determination with respect to simultaneous service on more 
than three public company audit committees. However, the other 
provisions of that paragraph will apply.
    Business development companies, which are a type of closed-end 
management investment company defined in Section 2(a)(48) of the 
Investment Company Act of 1940 that are not registered under that Act, 
are required to comply with all of the provisions of Section 303A 
applicable to domestic issuers other than Sections 303A.02 and .07(b). 
For purposes of Sections 303A.01, .03, .04, .05, and .09, a director of 
a business development company shall be considered to be independent if 
he or she is not an ``interested person'' of the company, as defined in 
Section 2(a)(19) of the Investment Company Act of 1940.
    As required by Rule 10A-3 under the Exchange Act, open-end funds 
(which can be listed as Investment Company Units, more commonly known 
as Exchange Traded Funds or ETFs) are required to comply with the 
requirements of Sections 303A.06 and .12(b) and (c).
    Rule 10A-3(b)(3)(ii) under the Exchange Act requires that each 
audit committee must establish procedures for the confidential, 
anonymous submission by employees of the listed issuer of concerns 
regarding questionable accounting or auditing matters. In view of the 
external management structure often employed by closed-end and open-end 
funds, the Exchange also requires the audit committees of such 
companies to establish such procedures for the confidential, anonymous 
submission by employees of the investment adviser, administrator, 
principal underwriter, or any other provider of accounting related 
services for the management company, as well as employees of the 
management company. This responsibility must be addressed in the audit 
committee charter.
Other Entities
    Except as otherwise required by Rule 10A-3 under the Exchange Act 
(for example, with respect to open-end funds), Section 303A does not 
apply to passive business organizations in the form of trusts (such as 
royalty trusts) or to derivatives and special purpose securities (such 
as those described in Sections 703.16, 703.19, 703.20 and 703.21). To 
the extent that Rule 10A-3 applies to a passive business organization, 
listed derivative or special purpose security, such entities are

[[Page 54329]]

required to comply with Sections 303A.06 and .12(b).
Foreign Private Issuers
    Listed companies that are foreign private issuers (as such term is 
defined in Rule 3b-4 under the Exchange Act) are permitted to follow 
home country practice in lieu of the provisions of this Section 303A, 
except that such companies are required to comply with the requirements 
of Sections 303A.06, .11 and .12(b) and (c).
Preferred and Debt Listings
    Section 303A does not generally apply to companies listing only 
preferred or debt securities on the Exchange. To the extent required by 
Rule 10A-3 under the Exchange Act, all companies listing only preferred 
or debt securities on the NYSE are required to comply with the 
requirements of Sections 303A.06 and .12(b) and (c).
Effective Dates/Transition Periods
    Except for Section 303A.08, which became effective June 30, 2003, 
listed companies will have until the earlier of their first annual 
meeting after January 15, 2004, or October 31, 2004, to comply with the 
new standards contained in Section 303A, although if a listed company 
with a classified board would be required (other than by virtue of a 
requirement under Section 303A.06) to change a director who would not 
normally stand for election in such annual meeting, the listed company 
may continue such director in office until the second annual meeting 
after such date, but no later than December 31, 2005. In addition, 
foreign private issuers will have until July 31, 2005[,] to comply with 
the new audit committee standards set out in Section 303A.06, and will 
not be required to provide the written affirmations required by Section 
303A.12(c) until after that date. As a general matter, the existing 
audit committee requirements provided for in Section 303 continue to 
apply to listed companies pending the transition to the new rules.
    Companies listing in conjunction with their initial public offering 
will be permitted to phase in their independent nomination and 
compensation committees on the same schedule as is permitted pursuant 
to Rule 10A-3 under the Exchange Act for audit committees, that is, one 
independent member at the time of listing, a majority of independent 
members within 90 days of listing and fully independent committees 
within one year. Such companies will be required to meet the majority 
independent board requirement within 12 months of listing. For purposes 
of Section 303A other than Sections 303A.06 and .12(b), a company will 
be considered to be listing in conjunction with an initial public 
offering if, immediately prior to listing, it does not have a class of 
common stock registered under the Exchange Act. The Exchange will also 
permit companies that are emerging from bankruptcy or have ceased to be 
controlled companies within the meaning of Section 303A to phase in 
independent nomination and compensation committees and majority 
independent boards on the same schedule as companies listing in 
conjunction with an initial public offering. However, for purposes of 
Sections 303A.06 and .12(b), a company will be considered to be listing 
in conjunction with an initial public offering only if it meets the 
conditions of Rule 10A-3(b)(1)(iv)(A) under the Exchange Act, namely, 
that the company was not, immediately prior to the effective date of a 
registration statement, required to file reports with the SEC pursuant 
to Section 13(a) or 15(d) of the Exchange Act.
    Companies listing upon transfer from another market have 12 months 
from the date of transfer in which to comply with any requirement to 
the extent the market on which they were listed did not have the same 
requirement. To the extent the other market has a substantially similar 
requirement but also had a transition period from the effective date of 
that market's rule, which period had not yet expired, the company will 
have the same transition period as would have been available to it on 
the other market. This transition period for companies transferring 
from another market will not apply to the requirements of Section 
303A.06 unless a transition period is available pursuant to Rule 10A-3 
under the Exchange Act.

References to Form 10-K

    There are provisions in this Section 303A that call for disclosure 
in a  listed company's Form 10-K under certain circumstances. If a 
listed company subject to such a provision is not a company required to 
file a Form 10-K, then the provision shall be interpreted to mean the 
annual periodic disclosure form that the listed company does file with 
the SEC. For example, for a closed-end fund, the appropriate form would 
be the annual Form N-CSR. If a listed company is not required to file 
either an annual proxy statement or an annual periodic report with the 
SEC, the disclosure shall be made in the annual report required under 
Section 203.01 of the Listed Company Manual.
    1. Listed companies must have a majority of independent directors. 
Commentary: Effective boards of directors exercise independent judgment 
in carrying out their responsibilities. Requiring a majority of 
independent directors will increase the quality of board oversight and 
lessen the possibility of damaging conflicts of interest.
    2. In order to tighten the definition of ``independent director'' 
for purposes of these standards:
    (a) No director qualifies as ``independent'' unless the board of 
directors affirmatively determines that the director has no material 
relationship with the listed company (either directly or as a partner, 
shareholder or officer of an organization that has a relationship with 
the company). Companies must identify which directors are independent 
and disclose the basis for that[ese] determination[s].
    Commentary: It is not possible to anticipate, or explicitly to 
provide for, all circumstances that might signal potential conflicts of 
interest, or that might bear on the materiality of a director's 
relationship to a listed company [(references to ``company'' would 
include any parent or subsidiary in a consolidated group with the 
company)]. Accordingly, it is best that boards making ``independence'' 
determinations broadly consider all relevant facts and circumstances. 
In particular, when assessing the materiality of a director's 
relationship with the listed company, the board should consider the 
issue not merely from the standpoint of the director, but also from 
that of persons or organizations with which the director has an 
affiliation. Material relationships can include commercial, industrial, 
banking, consulting, legal, accounting, charitable and familial 
relationships, among others. However, as the concern is independence 
from management, the Exchange does not view ownership of even a 
significant amount of stock, by itself, as a bar to an independence 
finding. The identity of the independent directors and [T]the basis for 
a board determination that a relationship is not material must be 
disclosed in the listed company's annual proxy statement or, if the 
company does not file an annual proxy statement, in the company's 
annual report on Form 10-K filed with the SEC. In this regard, a board 
may adopt and disclose categorical standards to assist it in making 
determinations of independence and may make a general disclosure if a 
director meets these standards. Any determination of independence for a 
director who does not meet these standards must be specifically 
explained. A company must disclose any standard it adopts. It may

[[Page 54330]]

then make the general statement that the independent directors meet the 
standards set by the board without detailing particular aspects of the 
immaterial relationships between individual directors and the company. 
In the event that a director with a business or other relationship that 
does not fit within the disclosed standards is determined to be 
independent, a board must disclose the basis for its determination in 
the manner described above. This approach provides investors with an 
adequate means of assessing the quality of a board's independence and 
its independence determinations while avoiding excessive disclosure of 
immaterial relationships.
    (b) In addition, a director is not independent if:
    (i) The [A] director [who] is, or has been within the last three 
years, an employee of the listed company, or [whose] an immediate 
family member is, or has been within the last three years, an executive 
officer,1 of the listed company [is not independent until three years 
after the end of such employment relationship].
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    1 For purposes of Section 303A, the term ``executive officer'' 
has the same meaning specified for the term ``officer'' in Rule 16a-
1(f) under the Securities Exchange Act of 1934.
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    Commentary: Employment as an interim Chairman or CEO or other 
executive officer shall not disqualify a director from being considered 
independent following that employment.
    (ii) The [A] director [who] has receive[s]d, or [whose] has an 
immediate family member who has receive[s]d, during any twelve-month 
period within the last three years, more than $100,000 [per year] in 
direct compensation from the listed company, other than director and 
committee fees and pension or other forms of deferred compensation for 
prior service (provided such compensation is not contingent in any way 
on continued service)[, is not independent until three years after he 
or she ceases to receive more than $100,000 per year in such 
compensation].
    Commentary: Compensation received by a director for former service 
as an interim Chairman or CEO or other executive officer need not be 
considered in determining independence under this test. Compensation 
received by an immediate family member for service as an [non-
executive] employee of the listed company (other than an executive 
officer) need not be considered in determining independence under this 
test.
    (iii) (A) The [A] director [who is affiliated with or employed by,] 
or an [whose] immediate family member is a current partner of a firm 
that is the company's internal or external auditor; (B) the director is 
a current employee of such a firm; (C) the director has an immediate 
family member who is a current employee of such a firm and who 
participates in the firm's audit, assurance or tax compliance (but not 
tax planning) practice; or (D) the director or an immediate family 
member was within the last three years (but is no longer) [affiliated 
with or employed in a professional capacity by,] a partner or employee 
of such a firm and personally worked on the listed company's audit 
within that time [company's a present or former internal or external 
auditor of the company is not ``independent'' until three years after 
the end of the affiliation or the employment or auditing relationship].
    Commentary: For purposes of this Section 303A.02(b)(iii) only, the 
term ``immediate family member'' shall mean a spouse, minor child or 
stepchild, or an adult child or stepchild sharing a home with the 
director.
    (iv) The [A] director or an immediate family member [who] is, or 
has been within the last three years, employed[, or whose immediate 
family member is employed,] as an executive officer of another company 
where any of the listed company's present executive officers at the 
same time serves or served on that company's compensation committee [is 
not ``independent'' until three years after the end of such service or 
the employment relationship].
    (v) The [A] director [who] is a[n] current [executive officer or 
an] employee, or [whose] an immediate family member is a[n] current 
executive officer, of a company that [makes] has made payments to, or 
receive[s]d payments from, the listed company for property or services 
in an amount which, in any [single] of the last three fiscal years, 
exceeds the greater of $1 million, or 2% of such other company's 
consolidated gross revenues[, is not ``independent'' until three years 
after falling below such threshold].
    Commentary: In applying the test in Section 303A.02(b)(v), both the 
payments and the consolidated gross revenues to be measured shall be 
those reported in the last completed fiscal year of such other company. 
The look-back provision for this test applies solely to the financial 
relationship between the listed company and the director or immediate 
family member's current employer; a listed company need not consider 
former employment of the director or immediate family member. 
[Charitable] Contributions to tax exempt organizations shall not be 
considered ``[companies] payments'' for purposes of Section 
303A.02(b)(v), provided however that a listed company shall disclose in 
its annual proxy statement, or if the listed company does not file an 
annual proxy statement, in the company's annual report on Form 10-K 
filed with the SEC, any [charitable] such contributions made by the 
listed company to any [charitable] tax exempt organization in which any 
independent [a] director serves as an executive officer if, within the 
preceding three years, contributions in any single fiscal year from the 
listed company to the organization exceeded the greater of $1 million, 
or 2% of such [charitable] tax exempt organization's consolidated gross 
revenues. Listed company boards are reminded of their obligations to 
consider the materiality of any such relationship in accordance with 
Section 303A.02(a) above.
    General Commentary to Section 303A.02(b): Other than with respect 
to Section 303A.02(b)(iii), a[A]n ``immediate family member'' includes 
a person's spouse, parents, children, siblings, mothers and fathers-in-
law, sons and daughters-in-law, brothers and sisters-in-law, and anyone 
(other than domestic employees) who shares such person's home. When 
applying the look-back provisions in Section 303A.02(b), listed 
companies need not consider individuals who are no longer immediate 
family members as a result of legal separation or divorce, or those who 
have died or become incapacitated.
    In addition, references to the ``company'' would include any parent 
or subsidiary in a consolidated group with the company.
    Transition Rule. Each of the above standards contains a three-year 
``look-back'' provision. In order to facilitate a smooth transition to 
the new independence standards, the Exchange will phase in the ``look-
back'' provisions by applying only a one-year look-back for the first 
year after adoption of these new standards. The three-year look-backs 
provided for in Section 303A.02(b) will begin to apply only from and 
after [insert the date which is the first anniversary of the effective 
date of this listing standard] November 4, 2004.
    As an example, until [insert the date which is the day prior to the 
first anniversary of the effective date of this listing standard] 
November 3, 2004, a listed company need look back only one year when 
testing compensation under Section 303A.02(b)(ii). Beginning [[insert 
the date which is the first anniversary of the effective date of this 
listing standard]] November 4, 2004, however, the listed company would

[[Page 54331]]

need to look back the full three years provided in Section 
303A.02(b)(ii).
    3. To empower non-management directors to serve as a more effective 
check on management, the non-management directors of each listed 
company must meet at regularly scheduled executive sessions without 
management.
    Commentary: To promote open discussion among the non-management 
directors, companies must schedule regular executive sessions in which 
those directors meet without management participation. ``Non-
management'' directors are all those who are not [company] executive 
officers [(as that term is defined in Rule 16a-1(f) under the 
Securities Act of 1933)], and includes such directors who are not 
independent by virtue of a material relationship, former status or 
family membership, or for any other reason.
    Regular scheduling of such meetings is important not only to foster 
better communication among non-management directors, but also to 
prevent any negative inference from attaching to the calling of 
executive sessions. [There need not be a single presiding director] A 
non-management director must preside over each executive session of the 
non-management directors, although the same director is not required to 
preside at all executive sessions of the non-management directors. If 
one director is chosen to preside at all of these meetings, his or her 
name must be disclosed in the listed company's annual proxy statement 
or, if the company does not file an annual proxy statement, in the 
company's annual report on Form 10-K filed with the SEC. Alternatively, 
if the same individual is not the presiding director at every meeting, 
a listed company [may] must disclose the procedure by which a presiding 
director is selected for each executive session. For example, a listed 
company may wish to rotate the presiding position among the chairs of 
board committees.
    In order that interested parties may be able to make their concerns 
known to the non-management directors, a listed company must disclose a 
method for such parties to communicate directly with the presiding 
director or with the non-management directors as a group. Such 
disclosure must be made in the listed company's annual proxy statement 
or, if the company does not file an annual proxy statement, in the 
company's annual report on Form 10-K filed with the SEC. Companies may, 
if they wish, utilize for this purpose the same procedures they have 
established to comply with the requirement of Rule 10A-3 (b)(3) under 
the Exchange Act, as applied to listed companies through Section 
303A.06.
    While this Section 303A.03 refers to meetings of non-management 
directors, if that group includes directors who are not independent 
under this Section 303A, listed companies should at least once a year 
schedule an executive session including only independent directors.
    4. (a) Listed companies must have a nominating/corporate governance 
committee composed entirely of independent directors.
    (b) The nominating/corporate governance committee must have a 
written charter that addresses:
    (i) The committee's purpose and responsibilities--which, at 
minimum, must be to: Identify individuals qualified to become board 
members, consistent with criteria approved by the board, and to select, 
or to recommend that the board select, the director nominees for the 
next annual meeting of shareholders; develop and recommend to the board 
a set of corporate governance [principles] guidelines applicable to the 
corporation; and oversee the evaluation of the board and management; 
and
    (ii)An annual performance evaluation of the committee.
    Commentary: A nominating/corporate governance committee is central 
to the effective functioning of the board. New director and board 
committee nominations are among a board's most important functions. 
Placing this responsibility in the hands of an independent nominating/
corporate governance committee can enhance the independence and quality 
of nominees. The committee is also responsible for taking a leadership 
role in shaping the corporate governance of a corporation.
    If a listed company is legally required by contract or otherwise to 
provide third parties with the ability to nominate directors (for 
example, preferred stock rights to elect directors upon a dividend 
default, shareholder agreements, and management agreements), the 
selection and nomination of such directors need not be subject to the 
nominating committee process.
    The nominating/corporate governance committee charter should also 
address the following items: Committee member qualifications; committee 
member appointment and removal; committee structure and operations 
(including authority to delegate to subcommittees); and committee 
reporting to the board. In addition, the charter should give the 
nominating/corporate governance committee sole authority to retain and 
terminate any search firm to be used to identify director candidates, 
including sole authority to approve the search firm's fees and other 
retention terms.
    Boards may allocate the responsibilities of the nominating/
corporate governance committee to committees of their own denomination, 
provided that the committees are composed entirely of independent 
directors. Any such committee must have a published committee charter.
    5. (a) Listed companies must have a compensation committee composed 
entirely of independent directors.
    (b) The compensation committee must have a written charter that 
addresses:
    (i) The committee's purpose and responsibilities--which, at 
minimum, must be to have direct responsibility to:
    (A) Review and approve corporate goals and objectives relevant to 
CEO compensation, evaluate the CEO's performance in light of those 
goals and objectives, and, either as a committee or together with the 
other independent directors (as directed by the board), determine and 
approve the CEO's compensation level based on this evaluation; and
    (B) Make recommendations to the board with respect to non-CEO 
executive officer compensation, and incentive-compensation [plans] and 
equity-based plans that are subject to board approval; and
    (C) Produce a compensation committee report on executive officer 
compensation as required by the SEC to be included in the listed 
company's annual proxy statement or annual report on Form 10-K filed 
with the SEC;
    (ii) An annual performance evaluation of the compensation 
committee.
    Commentary: In determining the long-term incentive component of CEO 
compensation, the committee should consider the listed company's 
performance and relative shareholder return, the value of similar 
incentive awards to CEOs at comparable companies, and the awards given 
to the listed company's CEO in past years. To avoid confusion, note 
that the compensation committee is not precluded from approving awards 
(with or without ratification of the board) as may be required to 
comply with applicable tax laws (i.e., Rule 162(m)). Note also that 
nothing in Section 303A.05(b)(i)(B) is intended to preclude the board 
from delegating its authority over such matters to the compensation 
committee.
    The compensation committee charter should also address the 
following items: Committee member qualifications; committee member 
appointment and removal; committee structure and

[[Page 54332]]

operations (including authority to delegate to subcommittees); and 
committee reporting to the board.
    Additionally, if a compensation consultant is to assist in the 
evaluation of director, CEO or [senior] executive officer compensation, 
the compensation committee charter should give that committee sole 
authority to retain and terminate the consulting firm, including sole 
authority to approve the firm's fees and other retention terms.
    Boards may allocate the responsibilities of the compensation 
committee to committees of their own denomination, provided that the 
committees are composed entirely of independent directors. Any such 
committee must have a published committee charter.
    Nothing in this provision should be construed as precluding 
discussion of CEO compensation with the board generally, as it is not 
the intent of this standard to impair communication among members of 
the board.
    6. Listed companies must have an audit committee that satisfies the 
requirements of Rule 10A-3 under the Exchange Act.
    Commentary: The Exchange will apply the requirements of Rule 10A-3 
in a manner consistent with the guidance provided by the Securities and 
Exchange Commission in SEC Release No. 34-47654 (April 1, 2003). 
Without limiting the generality of the foregoing, the Exchange will 
provide companies the opportunity to cure defects provided in Rule 10A-
3(a)(3) under the Exchange Act.
    7. (a) The audit committee must have a minimum of three members. 
Commentary: Each member of the audit committee must be financially 
literate, as such qualification is interpreted by the listed company's 
board in its business judgment, or must become financially literate 
within a reasonable period of time after his or her appointment to the 
audit committee. In addition, at least one member of the audit 
committee must have accounting or related financial management 
expertise, as the listed company's board interprets such qualification 
in its business judgment. While the Exchange does not require that a 
listed company's audit committee include a person who satisfies the 
definition of audit committee financial expert set out in Item 401(h) 
[(e)] of Regulation S-K, a board may presume that such a person has 
accounting or related financial management expertise.
    Because of the audit committee's demanding role and 
responsibilities, and the time commitment attendant to committee 
membership, each prospective audit committee member should evaluate 
carefully the existing demands on his or her time before accepting this 
important assignment. Additionally, if an audit committee member 
simultaneously serves on the audit committees of more than three public 
companies, and the listed company does not limit the number of audit 
committees on which its audit committee members serve to three or less, 
then in each case, the board must determine that such simultaneous 
service would not impair the ability of such member to effectively 
serve on the listed company's audit committee and disclose such 
determination in the listed company's annual proxy statement or, if the 
company does not file an annual proxy statement, in the company's 
annual report on Form 10-K filed with the SEC.
    (b) In addition to any requirement of Rule 10A-3(b)(1), all audit 
committee members must satisfy the requirements for independence set 
out in Section 303A.02.
    (c) The audit committee must have a written charter that addresses:
    (i) The committee's purpose--which, at minimum, must be to:
    (A) Assist board oversight of (1) the integrity of the listed 
company's financial statements, (2) the listed company's compliance 
with legal and regulatory requirements, (3) the independent auditor's 
qualifications and independence, and (4) the performance of the listed 
company's internal audit function and independent auditors; and
    (B) Prepare an audit committee report as required by the SEC to be 
included in the listed company's annual proxy statement;
    (ii) An annual performance evaluation of the audit committee; and
    (iii) The duties and responsibilities of the audit committee--
which, at a minimum, must include those set out in Rule 10A-3(b)(2), 
(3), (4) and (5) of the Exchange Act , as well as to:
    (A) At least annually, obtain and review a report by the 
independent auditor describing: the firm's internal quality-control 
procedures; any material issues raised by the most recent internal 
quality-control review, or peer review, of the firm, or by any inquiry 
or investigation by governmental or professional authorities, within 
the preceding five years, respecting one or more independent audits 
carried out by the firm, and any steps taken to deal with any such 
issues; and (to assess the auditor's independence) all relationships 
between the independent auditor and the listed company;
    Commentary: After reviewing the foregoing report and the 
independent auditor's work throughout the year, the audit committee 
will be in a position to evaluate the auditor's qualifications, 
performance and independence. This evaluation should include the review 
and evaluation of the lead partner of the independent auditor. In 
making its evaluation, the audit committee should take into account the 
opinions of management and the listed company's internal auditors (or 
other personnel responsible for the internal audit function). In 
addition to assuring the regular rotation of the lead audit partner as 
required by law, the audit committee should further consider whether, 
in order to assure continuing auditor independence, there should be 
regular rotation of the audit firm itself. The audit committee should 
present its conclusions with respect to the independent auditor to the 
full board.
    (B) Meet to review and discuss the listed company's annual audited 
financial statements and quarterly financial statements with management 
and the independent auditor, including reviewing the company's specific 
disclosures under ``Management's Discussion and Analysis of Financial 
Condition and Results of Operations';
    (C) Discuss the listed company's earnings press releases, as well 
as financial information and earnings guidance provided to analysts and 
rating agencies;
    Commentary: The audit committee's responsibility to discuss 
earnings releases, as well as financial information and earnings 
guidance, may be done generally (i.e., discussion of the types of 
information to be disclosed and the type of presentation to be made). 
The audit committee need not discuss in advance each earnings release 
or each instance in which a listed company may provide earnings 
guidance.
    (D) Discuss policies with respect to risk assessment and risk 
management;
    Commentary: While it is the job of the CEO and senior management to 
assess and manage the listed company's exposure to risk, the audit 
committee must discuss guidelines and policies to govern the process by 
which this is handled. The audit committee should discuss the listed 
company's major financial risk exposures and the steps management has 
taken to monitor and control such exposures. The audit committee is not 
required to be the sole body responsible for risk assessment and 
management, but, as stated above, the committee must discuss guidelines 
and policies to govern the process by which risk assessment and 
management is undertaken. Many companies,

[[Page 54333]]

particularly financial companies, manage and assess their risk through 
mechanisms other than the audit committee. The processes these 
companies have in place should be reviewed in a general manner by the 
audit committee, but they need not be replaced by the audit committee.
    (E) Meet separately, periodically, with management, with internal 
auditors (or other personnel responsible for the internal audit 
function) and with independent auditors;
    Commentary: To perform its oversight functions most effectively, 
the audit committee must have the benefit of separate sessions with 
management, the independent auditors and those responsible for the 
internal audit function. As noted herein, all listed companies must 
have an internal audit function. These separate sessions may be more 
productive than joint sessions in surfacing issues warranting committee 
attention.
    (F) Review with the independent auditor any audit problems or 
difficulties and management's response;
    Commentary: The audit committee must regularly review with the 
independent auditor any difficulties the auditor encountered in the 
course of the audit work, including any restrictions on the scope of 
the independent auditor's activities or on access to requested 
information, and any significant disagreements with management. Among 
the items the audit committee may want to review with the auditor are: 
Any accounting adjustments that were noted or proposed by the auditor 
but were ``passed'' (as immaterial or otherwise); any communications 
between the audit team and the audit firm's national office respecting 
auditing or accounting issues presented by the engagement; and any 
``management'' or ``internal control'' letter issued, or proposed to be 
issued, by the audit firm to the listed company. The review should also 
include discussion of the responsibilities, budget and staffing of the 
listed company's internal audit function.
    (G) Set clear hiring policies for employees or former employees of 
the independent auditors; and
    Commentary: Employees or former employees of the independent 
auditor are often valuable additions to corporate management. Such 
individuals' familiarity with the business, and personal rapport with 
the employees, may be attractive qualities when filling a key opening. 
However, the audit committee should set hiring policies taking into 
account the pressures that may exist for auditors consciously or 
subconsciously seeking a job with the company they audit.
    (H) Report regularly to the board of directors.
    Commentary: The audit committee should review with the full board 
any issues that arise with respect to the quality or integrity of the 
listed company's financial statements, the company's compliance with 
legal or regulatory requirements, the performance and independence of 
the company's independent auditors, or the performance of the internal 
audit function.
    General Commentary to Section 303A.07(c): While the fundamental 
responsibility for the listed company's financial statements and 
disclosures rests with management and the independent auditor, the 
audit committee must review: (A) Major issues regarding accounting 
principles and financial statement presentations, including any 
significant changes in the company's selection or application of 
accounting principles, and major issues as to the adequacy of the 
company's internal controls and any special audit steps adopted in 
light of material control deficiencies; (B) analyses prepared by 
management and/or the independent auditor setting forth significant 
financial reporting issues and judgments made in connection with the 
preparation of the financial statements, including analyses of the 
effects of alternative GAAP methods on the financial statements; (C) 
the effect of regulatory and accounting initiatives, as well as off-
balance sheet structures, on the financial statements of the listed 
company; and (D) the type and presentation of information to be 
included in earnings press releases (paying particular attention to any 
use of ``pro forma,'' or ``adjusted'' non-GAAP, information), as well 
as review any financial information and earnings guidance provided to 
analysts and rating agencies.
    (d) Each listed company must have an internal audit function.
    Commentary: Listed companies must maintain an internal audit 
function to provide management and the audit committee with ongoing 
assessments of the company's risk management processes and system of 
internal control. A listed company may choose to outsource this 
function to a third party service provider other than its independent 
auditor.
    General Commentary to Section 303A.07: To avoid any confusion, note 
that the audit committee functions specified in Section 303A.07 are the 
sole responsibility of the audit committee and may not be allocated to 
a different committee.
    8. No change.
    9. Listed companies must adopt and disclose corporate governance 
guidelines.
    Commentary: No single set of guidelines would be appropriate for 
every listed company, but certain key areas of universal importance 
include director qualifications and responsibilities, responsibilities 
of key board committees, and director compensation. Given the 
importance of corporate governance, each listed company's website must 
include its corporate governance guidelines and the charters of its 
most important committees (including at least the audit, and if 
applicable, compensation and nominating committees). [Each] The listed 
company['s] must state in its annual proxy statement or, if the company 
does not file an annual proxy statement, in the company's annual report 
on Form 10-K filed with the SEC [must state] that the foregoing 
information is available on its website, and that the information is 
available in print to any shareholder who requests it. Making this 
information publicly available should promote better investor 
understanding of the listed company's policies and procedures, as well 
as more conscientious adherence to them by directors and management.
    The following subjects must be addressed in the corporate 
governance guidelines:
     Director qualification standards. These standards should, 
at minimum, reflect the independence requirements set forth in Sections 
303A.01 and .02. Companies may also address other substantive 
qualification requirements, including policies limiting the number of 
boards on which a director may sit, and director tenure, retirement and 
succession.
     Director responsibilities. These responsibilities should 
clearly articulate what is expected from a director, including basic 
duties and responsibilities with respect to attendance at board 
meetings and advance review of meeting materials.
     Director access to management and, as necessary and 
appropriate, independent advisors.
     Director compensation. Director compensation guidelines 
should include general principles for determining the form and amount 
of director compensation (and for reviewing those principles, as 
appropriate). The board should be aware that questions as to directors' 
independence may be raised when directors' fees and emoluments exceed

[[Page 54334]]

what is customary. Similar concerns may be raised when the listed 
company makes substantial charitable contributions to organizations in 
which a director is affiliated, or enters into consulting contracts 
with (or provides other indirect forms of compensation to) a director. 
The board should critically evaluate each of these matters when 
determining the form and amount of director compensation, and the 
independence of a director.
     Director orientation and continuing education.
     Management succession. Succession planning should include 
policies and principles for CEO selection and performance review, as 
well as policies regarding succession in the event of an emergency or 
the retirement of the CEO.
     Annual performance evaluation of the board. The board 
should conduct a self-evaluation at least annually to determine whether 
it and its committees are functioning effectively.
    10. Listed companies must adopt and disclose a code of business 
conduct and ethics for directors, officers and employees, and promptly 
disclose any waivers of the code for directors or executive officers.
    Commentary: No code of business conduct and ethics can replace the 
thoughtful behavior of an ethical director, officer or employee. 
However, such a code can focus the board and management on areas of 
ethical risk, provide guidance to personnel to help them recognize and 
deal with ethical issues, provide mechanisms to report unethical 
conduct, and help to foster a culture of honesty and accountability.
    Each code of business conduct and ethics must require that any 
waiver of the code for executive officers or directors may be made only 
by the board or a board committee and must be promptly disclosed to 
shareholders. This disclosure requirement should inhibit casual and 
perhaps questionable waivers, and should help assure that, when 
warranted, a waiver is accompanied by appropriate controls designed to 
protect the listed company. It will also give shareholders the 
opportunity to evaluate the board's performance in granting waivers.
    Each code of business conduct and ethics must also contain 
compliance standards and procedures that will facilitate the effective 
operation of the code. These standards should ensure the prompt and 
consistent action against violations of the code. Each listed company's 
website must include its code of business conduct and ethics. [Each] 
The listed company['s] must state in its annual proxy statement or, if 
the company does not file an annual proxy statement, in the company's 
annual report on Form 10-K filed with the SEC [must state], that the 
foregoing information is available on its website and that the 
information is available in print to any shareholder who requests it.
    Each listed company may determine its own policies, but all listed 
companies should address the most important topics, including the 
following:
     Conflicts of interest. A ``conflict of interest'' occurs 
when an individual's private interest interferes in any way--or even 
appears to interfere--with the interests of the corporation as a whole. 
A conflict situation can arise when an employee, officer or director 
takes actions or has interests that may make it difficult to perform 
his or her company work objectively and effectively. Conflicts of 
interest also arise when an employee, officer or director, or a member 
of his or her family, receives improper personal benefits as a result 
of his or her position in the company. Loans to, or guarantees of 
obligations of, such persons are of special concern. The listed company 
should have a policy prohibiting such conflicts of interest, and 
providing a means for employees, officers and directors to communicate 
potential conflicts to the listed company.
     Corporate opportunities. Employees, officers and directors 
should be prohibited from (a) taking for themselves personally 
opportunities that are discovered through the use of corporate 
property, information or position; (b) using corporate property, 
information, or position for personal gain; and (c) competing with the 
company. Employees, officers and directors owe a duty to the company to 
advance its legitimate interests when the opportunity to do so arises.
     Confidentiality. Employees, officers and directors should 
maintain the confidentiality of information entrusted to them by the 
listed company or its customers, except when disclosure is authorized 
or legally mandated. Confidential information includes all non-public 
information that might be of use to competitors, or harmful to the 
company or its customers, if disclosed.
     Fair dealing. Each employee, officer and director should 
endeavor to deal fairly with the company's customers, suppliers, 
competitors and employees. None should take unfair advantage of anyone 
through manipulation, concealment, abuse of privileged information, 
misrepresentation of material facts, or any other unfair-dealing 
practice. Listed [C]companies may write their codes in a manner that 
does not alter existing legal rights and obligations of companies and 
their employees, such as ``at will'' employment arrangements.
     Protection and proper use of company assets. All 
employees, officers and directors should protect the company's assets 
and ensure their efficient use. Theft, carelessness and waste have a 
direct impact on the listed company's profitability. All company assets 
should be used for legitimate business purposes.
     Compliance with laws, rules and regulations (including 
insider trading laws). The listed company should proactively promote 
compliance with laws, rules and regulations, including insider trading 
laws. Insider trading is both unethical and illegal, and should be 
dealt with decisively.
     Encouraging the reporting of any illegal or unethical 
behavior. The listed company should proactively promote ethical 
behavior. The company should encourage employees to talk to 
supervisors, managers or other appropriate personnel when in doubt 
about the best course of action in a particular situation. 
Additionally, employees should report violations of laws, rules, 
regulations or the code of business conduct to appropriate personnel. 
To encourage employees to report such violations, the listed company 
must ensure that employees know that the company will not allow 
retaliation for reports made in good faith.
    11. Listed foreign private issuers must disclose any significant 
ways in which their corporate governance practices differ from those 
followed by domestic companies under NYSE listing standards.
    Commentary: Foreign private issuers must make their U.S. investors 
aware of the significant ways in which their [home country] corporate 
governance practices differ from those [followed by] required of 
domestic companies under NYSE listing standards. However, foreign 
private issuers are not required to present a detailed, item-by-item 
analysis of these differences. Such a disclosure would be long and 
unnecessarily complicated. Moreover, this requirement is not intended 
to suggest that one country's corporate governance practices are better 
or more effective than another. The Exchange believes that U.S. 
shareholders should be aware of the significant ways that the 
governance of a listed foreign private issuer differs from that of a 
U.S. listed company. The Exchange underscores that what is required is 
a brief, general summary of the significant differences, not a 
cumbersome analysis.

[[Page 54335]]

    Listed foreign private issuers may provide this disclosure either 
on their web site (provided it is in the English language and 
accessible from the United States) and/or in their annual report as 
distributed to shareholders in the United States in accordance with 
Sections 103.00 and 203.01 of the Listed Company Manual (again, in the 
English language). If the disclosure is only made available on the web 
site, the annual report shall so state and provide the web address at 
which the information may be obtained.
    12. (a) Each listed company CEO must certify to the NYSE each year 
that he or she is not aware of any violation by the company of NYSE 
corporate governance listing standards, qualifying the certification to 
the extent necessary.
    Commentary: The CEO's annual certification [to the NYSE that, as of 
the date of certification, he or she is unaware of any violation by the 
company of] regarding the NYSE's corporate governance listing standards 
will focus the CEO and senior management on the listed company's 
compliance with the listing standards. Both this certification to the 
NYSE, including any qualifications to that certification, and any CEO/
CFO certifications required to be filed with the SEC regarding the 
quality of the listed company's public disclosure, must be disclosed in 
the company's annual report to shareholders or, if the company does not 
prepare an annual report to shareholders, in the company's annual 
report on Form 10-K filed with the SEC.
    (b) Each listed company CEO must promptly notify the NYSE in 
writing after any executive officer of the listed company becomes aware 
of any material non-compliance with any applicable provisions of this 
Section 303A.
    (c) Each listed company must submit an executed Written Affirmation 
annually to the NYSE. In addition, each listed company must submit an 
interim Written Affirmation each time a change occurs to the board or 
any of the committees subject to Section 303A. The annual and interim 
Written Affirmations must be in the form specified by the NYSE.
    13. The NYSE may issue a public reprimand letter to any listed 
company that violates a NYSE listing standard.
    Commentary: Suspending trading in or delisting a listed company can 
be harmful to the very shareholders that the NYSE listing standards 
seek to protect; the NYSE must therefore use these measures sparingly 
and judiciously. For this reason it is appropriate for the NYSE to have 
the ability to apply a lesser sanction to deter companies from 
violating its corporate governance (or other) listing standards. 
Accordingly, the NYSE may issue a public reprimand letter to any listed 
company, regardless of type of security listed or country of 
incorporation, that it determines has violated a NYSE listing standard. 
For companies that repeatedly or flagrantly violate NYSE listing 
standards, suspension and delisting remain the ultimate penalties. For 
clarification, this lesser sanction is not intended for use in the case 
of companies that fall below the financial and other continued listing 
standards provided in Chapter 8 of the Listed Company Manual or that 
fail to comply with the audit committee standards set out in Section 
303A.06. The processes and procedures provided for in Chapter 8 govern 
the treatment of companies falling below those standards.
* * * * *

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. 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.

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

1. Purpose
    On November 4, 2003, the Commission approved Section 303A of the 
Listed Company Manual.\4\ Section 303A sets out the Exchange's 
corporate governance requirements applicable to listed companies. Since 
the date that Section 303A was approved, the Exchange staff has 
received numerous phone calls and e-mail requests for clarification and 
interpretations of these standards. Many of the questions and 
interpretive requests focused on similar issues or specific language 
that was causing confusion. Most have related to Section 303A.02(b), 
which establishes five bright line tests that directors must satisfy in 
order to be eligible to be deemed independent for purposes of board and 
committee membership.
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 48745 (November 4, 
2003), 68 FR 64154 (November 12, 2003) (SR-NYSE-2002-33).
---------------------------------------------------------------------------

    On January 29, 2004, the Exchange posted a series of FAQs relating 
to Section 303A on the Exchange's Web site at http://www.nyse.com. The 
Exchange subsequently updated these FAQs on February 13, 2004, to 
provide further clarification and additional interpretations.
    Based on the FAQs and the NYSE's experiences in working with listed 
companies and their legal counsels on issues and questions related to 
Section 303A, the Exchange has noted several issues which need 
clarification or, in one case, change.
    The following outlines the proposed amendments to Section 303A of 
the Listed Company Manual:
Section 303A.02--Independence definition
    The Exchange proposes to amend Section 303A.02(a) of the Listed 
Company Manual to clarify that companies are required to identify which 
of their directors have been deemed independent. The Exchange has been 
of the opinion that the existing language strongly implied that 
obligation, but believes it is appropriate to make the language 
explicit to remove any ambiguity.
    The Exchange proposes to amend Section 303A.02(b)(i) of the Listed 
Company Manual to add a definition of the term ``executive officer.'' 
The Exchange also proposes to make minor cleanup changes throughout 
Section 303A to provide consistency when utilizing this term. 
Additionally, the Exchange proposes to amend the commentary to Sections 
303A.02(b)(i) and (ii) to clarify that service as an interim executive 
officer (and not just an interim Chairman or CEO, as currently 
provided) will not trigger the look-back provisions in those sections.
    The Exchange proposes to amend Section 303A.02(b) of the Listed 
Company Manual to reformulate the wording of the bright line 
independence tests to more accurately reflect how the applicable look-
back periods should be applied. The Exchange also believes the 
reformulated language is considerably easier to read and understand.
    One of the most significant language difficulties presented was in 
Section 303A.02(b)(ii) of the Listed Company Manual, which precludes 
independence where a director or family member receives more than 
$100,000 in direct compensation. The wording suggested that under 
certain circumstances the look-back period might be as long as four 
years. The revised formulation would make clear that the period should 
not be longer than 36 months.
    The Exchange proposes to revise the Commentary to Section 
303A.02(b)(v) of the Listed Company Manual to clarify

[[Page 54336]]

the treatment of contributions under this test. The language as 
originally adopted referred to ``charitable organizations.'' According 
to the Exchange, it has become clear through discussions with listed 
company representatives that a company can have business relationships 
(as a vendor, for example) with a charitable organization, and the 
Exchange believes there is no reason why payments related to such 
business relationships should not be covered by the test in (b)(v). 
What the Exchange intended to distinguish, and to cover with disclosure 
under the Commentary, are ``contributions made to a 
charitable or tax exempt organization.
    The NYSE is proposing a change to the substance of Section 
303A.02(b)(iii) of the Listed Company Manual, which precludes 
independence where a director or family member is employed by, or 
affiliated with, a present or former internal or external auditor. 
According to the NYSE, a number of companies are finding directors 
precluded from independence because of past personal or family member 
affiliations with an auditing firm, even though the person involved 
never worked on the listed company account. The Exchange notes that the 
standards of the Nasdaq Stock Market, Inc. (``Nasdaq'') and the 
American Stock Exchange LLC (``Amex'') are more narrow than the current 
NYSE standard. For example, the Nasdaq and Amex standards implicate 
only former partners or employees of the audit firm who worked on the 
company's audit. Accordingly, the Exchange proposes to revise its 
standard so that it would cover any director or immediate family member 
who is a current partner of the audit firm, any director who is a 
current employee of the audit firm, any immediate family member who is 
a current employee of the audit firm participating in the firm's audit, 
assurance or tax compliance (but not tax planning) practice, and any 
former partner or employee of the audit firm who personally worked on 
the listed company's audit during the past three years. Finally, the 
Exchange states that to avoid what many believed to be the overbroad 
definition of ``immediate family member'' in connection with this 
standard, the definition of that term for purposes only of Section 
303A.02(b)(iii) would be revised to parallel the description of family 
member utilized by the Commission in Exchange Act Rule 10A-3(e)(8).\5\
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    \5\ 17 CFR 240.10A-3(e)(8).
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    As a result of the proposed change to Section 303A.02(b)(iii) of 
the Listed Company Manual, there is a category of person that would not 
have been impacted by existing Section 303A.02(b)(iii) that would be 
precluded from independence under the revised standard, namely, a 
director with a family member who is a current partner of the audit 
firm. Under the existing standard, such a family member did not impact 
the director's independence if the family member did not act in ``a 
professional capacity'' at the audit firm. Under the revised standard, 
any family member who is a current partner of the audit firm would 
preclude the director from being considered independent. To avoid 
suddenly changing the status of a current director, the Exchange would 
give companies until their first annual meeting after January 1, 2005, 
to replace a director who was independent under the NYSE's existing 
rule but not under the revised rule.
Section 303A.03--Requirements for Non-Management Directors
    The Exchange proposes to revise Section 303A.05(b) of the Listed 
Company Manual to clarify that a non-management director must preside 
over each executive session of the non-management directors, although 
the same director is not required to preside at all executive sessions 
of the non-management directors.
Section 303A.05--Requirements for Compensation Committees
    The Exchange proposes to revise Section 303A.05(b) of the Listed 
Company Manual to clarify that the non-CEO compensation on which the 
committee should focus is that of the executive officers. The Exchange 
also proposes to make clear that the board has the ability to delegate 
its authority to approve non-CEO executive officer compensation to the 
compensation committee.
Section 303A.07--Duties of the Audit Committee
    The Exchange proposes to revise Section 303A.07(c)(iii)(B) of the 
Listed Company Manual to clarify that the audit committee must meet to 
review and discuss the company's financial statements and must review 
the company's specific Management's Discussion and Analysis 
disclosures.
Sections 303A.09 and .10--Disclosures of Guidelines and Codes
    The Exchange proposes to amend Sections 303A.09 and .10 of the 
Listed Company Manual to specify that the disclosure must be in the 
annual proxy statement (or, if the company does not file a proxy 
statement, then in the Form 10-K), in order to be consistent with the 
other disclosure requirements of Section 303A.
Section 303A.11--Foreign Private Issuer Disclosures
    The Exchange proposes to amend Section 303A.11 of the Listed 
Company Manual to clarify that foreign private issuers are required to 
provide disclosure of the significant differences between the Section 
303A requirements and the actual corporate governance practices of the 
foreign private issuer, as opposed to the general corporate governance 
practices of the foreign private issuer's home country.
Section 303A.12--Certifications and Affirmations
    The Exchange proposes to amend the language of Section 303A.12 of 
the Listed Company Manual to clarify that any qualifications to the 
annual CEO certification must be specified and disclosed. The Exchange 
also proposes to add Section 303A.12(c) to specifically require that 
companies submit Annual and Interim Written Affirmations to the NYSE. 
The NYSE believes this clarifies the Exchange's intention to carry 
forward the written affirmation requirement currently found in Section 
303 of the Listed Company Manual. Proposed Section 303A.12(c) is the 
mechanism by which listed companies would be required to provide the 
NYSE with ongoing details of compliance or non-compliance with Section 
303A. The proposed changes would also amend the General Application of 
Section 303A of the Listed Company Manual to specify that listed 
Exchange Traded Funds that are open-end management investment 
companies, foreign private issuers, and preferred and debt listed 
companies (to the extent such companies must comply with Section 
303A.06 of the Listed Company Manual) would be required to submit the 
Annual and Interim Written Affirmations.
2. Statutory Basis
    The NYSE states that the basis for the proposed rule change under 
the Act is the requirement under Section 6(b)(5) under the Act \6\ 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.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b)(5).

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[[Page 54337]]

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Exchange 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 Exchange consents, the Commission will:
    A. By order approve such proposed rule change, as amended; 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 e-mail to [email protected]. Please include File 
Number SR-NYSE-2004-41 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-2004-41. 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 Room. 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-2004-41 and should be submitted on or before 
September 29, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
---------------------------------------------------------------------------

    \7\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jill M. Peterson,
Assistant Secretary.
 [FR Doc. E4-2090 Filed 9-7-04; 8:45 am]
BILLING CODE 8010-01-P