[Federal Register Volume 69, Number 238 (Monday, December 13, 2004)]
[Notices]
[Pages 72240-72242]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-3608]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50810; File No. SR-NYSE-2004-04]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change and Amendment Nos. 1 and 2 Thereto by the New York Stock 
Exchange, Inc. To Amend Its Rules Regarding Listed Company Relations 
Proceedings

December 7, 2004.

I. Introduction

    On February 9, 2004, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend its rules regarding listed company 
relations proceedings. On March 29, 2004, the NYSE submitted Amendment 
No. 1 to the proposal.\3\ On August 3, 2004, the NYSE submitted 
Amendment No. 2 to the proposal.\4\
---------------------------------------------------------------------------

    \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 had recently 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 replaced it with proposed Section 806.01 in the 
Exchange's Listed Company Manual and a proposed Policy Note in NYSE 
Rule 103B.
---------------------------------------------------------------------------

    The proposed rule change, as amended, was published for notice and 
comment in the Federal Register on August 20, 2004.\5\ The Commission 
received no comment letters on the proposal. This order approves the 
proposed rule change, as amended by Amendment Nos. 1 and 2.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 50196 (August 13, 
2004), 69 FR 51740.
---------------------------------------------------------------------------

II. Description of the Proposal

    The Exchange has proposed to remove NYSE Rule 103C, which currently 
governs listed company relations proceedings, and to replace it with 
proposed Section 806.1 of the Exchange's Listed Company Manual. The 
Exchange also has proposed to add a related Policy Note to NYSE Rule 
103B, which governs specialist stock allocation. Currently, if a listed 
company has a non-regulatory dispute with its specialist unit, NYSE 
Rule 103C provides for a mediation process known as a ``Listed Company 
Relations Proceeding.'' In order to resolve the issue, this proceeding 
is facilitated by the Listed Company Relations Subcommittee, a 
subcommittee of the Quality of Markets Committee (``QOMC''). If the 
matter remains unresolved, the Subcommittee prepares a report making 
recommendations to the QOMC. The QOMC, in turn, reviews the 
Subcommittee's report and makes recommendations to the Exchange's Board 
of Directors. After reviewing the QOMC's recommendations and giving the 
parties to the mediation proceeding an opportunity to present their 
written views, the Board of Directors ultimately is authorized to 
direct the Allocation Committee to reallocate the listed company's 
stock to a different specialist unit. The Exchange has stated that the 
process for a Listed Company Relations Proceeding is ``cumbersome and 
extremely lengthy.'' The Exchange has further noted that proceedings 
under current NYSE Rule 103C occur under the oversight of the QOMC 
before a subcommittee consisting of, among others, certain Exchange 
officials. In the NYSE's view, this process no longer makes sense given 
the recent changes to the Exchange's governance structure.\6\ For these 
reasons, the Exchange is proposing a new mediation process under 
proposed Section 806.01 of its Listed Company Manual.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    Under proposed Section 806.01, if a listed company wishes to 
request a change of specialist unit, it would file a notice (the 
``Issuer Notice'') with the Corporate Secretary of the Exchange to that 
effect, stating the specific issues that prompted the request and what 
steps, if any, it has taken to address the issues.\7\ The Exchange's 
Corporate Secretary would provide copies of the Issuer Notice to the 
Exchange's Regulatory Group and the New Listings & Client Service 
Division. The Corporate Secretary also would notify the specialist unit 
that a Listed Company Change of Specialist Mediation (``Mediation'') is 
being commenced, and would provide a copy of the Issuer Notice to the 
specialist unit. The specialist unit would be granted two weeks to 
respond to the Issuer Notice, with the last date of that period 
referred to as the ``Specialist Response Date.'' The Exchange would 
appoint a committee (the ``Mediation Committee'') to facilitate the 
Mediation between the listed company and the specialist unit, which 
would consist of at least one floor broker representative of the NYSE's 
Board of Executives (``BOE''), at least one BOE investor 
representative, and at least one listed company representative of the 
BOE. As soon as practicable after the expiration of the Specialist 
Response Date, the Mediation Committee would commence a meeting with 
the representatives of the listed company and the specialist unit to 
attempt to mediate the matters indicated in the Issuer Notice.
---------------------------------------------------------------------------

    \7\ The Exchange represents that the proposed rule would be 
added to Section 8.06 of its Listed Company Manual (which includes 
the provision under which listed companies may voluntarily delist 
from the Exchange), because ``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.''
---------------------------------------------------------------------------

    At any time after the filing of the Issuer Notice, the listed 
company may file a written notice with the Corporate Secretary stating 
that it is concluding

[[Page 72241]]

the Mediation because it wishes to continue with the same specialist 
unit.
    Simultaneous with the mediation process, the Regulatory Group would 
review the Issuer Notice and any specialist response, and would have 
the authority to request a review of the matter by the Exchange's 
Regulatory Oversight Committee, a standing committee of the Exchange's 
Board of Directors composed wholly of independent NYSE directors. Where 
a review by the Regulatory Oversight Committee has been requested, no 
change of the specialist unit can occur until the Regulatory Oversight 
Committee makes a final determination that it is appropriate to permit 
such a change. The Regulatory Oversight Committee, in making its 
determination, would 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. Furthermore, notwithstanding the 
Regulatory Group's review of any matter raised during this process, the 
Regulatory Group would be able, at any time, to take any regulatory 
action that it may determine to be warranted.
    After the expiration of three months from the Specialist Response 
Date, the listed company would be able to file a written notice with 
the Exchange's Corporate Secretary stating that it wishes to proceed 
with the change of specialist unit. Subject to any ongoing review of 
the Regulatory Oversight Committee, as soon as practicable thereafter, 
the listed company's security would be submitted for allocation under 
Exchange Rule 103B. Under the proposed Policy Note to Exchange Rule 
103B, the currently-assigned specialist unit would not be prohibited 
from applying for allocation of the security. Furthermore, the proposed 
Policy Note would state that no negative inference for allocation or 
regulatory purposes would be made against the specialist unit in the 
event that the specialist unit is changed pursuant to the process 
outlined above, nor would the specialist unit be afforded preferential 
treatment in subsequent allocations as a result of a change pursuant to 
a Mediation.

III. Discussion and Commission Findings

    The Commission has reviewed the proposed rule change, as amended, 
and finds that it is consistent with the Act and the rules and 
regulations thereunder applicable to a national securities exchange,\8\ 
particularly Section 6(b)(5) of the Act.\9\ Section 6(b)(5) requires, 
among other things, that a national securities exchange's rules be 
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.
---------------------------------------------------------------------------

    \8\ In approving this proposed rule change, the Commission notes 
that it has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission believes that the proposed rule change appropriately 
balances the need to revise the current mediation process for 
resolution of disputes between listed companies and their assigned 
specialist units, which the Exchange represents is ``cumbersome and 
extremely lengthy,'' with the need to incorporate appropriate 
procedures that are designed to provide that any such mediation is 
subject to review by the Exchange's Regulatory Group and, in turn, by 
its Regulatory Oversight Committee. While the proposal shortens the 
current timeframe for resolving a dispute between the listed company 
and the specialist unit to three months, it also introduces the 
involvement of the Exchange's Regulatory Group in the mediation process 
to assure that the requested change of specialist unit is for non-
regulatory purposes. The Regulatory Group would be provided copies of 
any Issuer Notice and response to such Notice by the specialist unit. 
The Regulatory Group is accorded the right to take any regulatory 
action that it may determine to be warranted at any time during the 
Mediation. In addition, the Regulatory Group is permitted to request a 
review of the matter by the Regulatory Oversight Committee, a committee 
composed entirely of independent directors. When a review by the 
Regulatory Oversight Committee has been requested, no change of 
specialist unit may occur until after the Regulatory Oversight 
Committee makes a final determination that it is appropriate to permit 
such a change. The Regulatory Oversight Committee, in making its 
determination of whether to permit a change in specialist unit, may 
consider all relevant regulatory issues, including whether the 
requested change appears to be in aid or furtherance of conduct that is 
illegal or violates Exchange rules, or is in retaliation for a refusal 
by a specialist to engage in conduct that is illegal or violates 
Exchange rules. Therefore, the Commission believes that the proposed 
Mediation process, while more simplified and expedited than the current 
process, would provide an appropriate mechanism for the Exchange's 
Regulatory Group to maintain independent oversight over a listed 
company's request to change specialist units, to ascertain that such 
requests are confined to non-regulatory reasons, and to obtain a review 
by the Regulatory Oversight Committee when appropriate.
    The Commission believes that the proposal to simplify the 
procedures and shorten the timeframe for the mediation of disputes 
between a listed company and its specialist unit should not impair the 
ability of the listed company and the specialist unit to fully discuss 
and attempt to resolve any non-regulatory issues, under the auspices of 
the Mediation Committee. The Commission notes that the proposed rule 
change requires the Mediation Committee to commence meeting with the 
representatives of the listed company and the specialist unit ``as soon 
as practicable'' after the specialist unit has submitted its written 
response to the Issuer's Notice, and does not limit the Mediation 
Committee and the parties from meeting as many times as necessary to 
discuss and address concerns that the listed company has with its 
specialist unit. The proposal further provides that at any time the 
listed company may file a written notice concluding the Mediation 
because the listed company wishes to continue with the same specialist 
unit. Therefore, the Commission believes that the proposed Mediation 
process should provide the listed company and the specialist unit ample 
opportunity to discuss and attempt to resolve any non-regulatory 
issues.
    The Commission also believes that the proposal provides appropriate 
procedures for reallocating a security after a change of special unit 
and for subsequent allocation decisions affecting a specialist unit 
that is subject to such a change. The Commission notes that the 
proposed addition to the Policy Notes to NYSE Rule 103B, which governs 
specialist stock allocation, would lift the current prohibition on a 
specialist reapplying for an allocation of the security after the 
listed company has requested to change its specialist unit for a 
particular security. The proposal also would retain the provision that 
no preferential treatment for subsequent allocation would be 
demonstrated to a specialist unit that was a party to a Mediation. 
Furthermore, the proposal would state that no negative inference for 
allocation or regulatory purposes

[[Page 72242]]

would be made against a specialist unit in the event that a listed 
company requests a Mediation. The Commission believes that it is 
appropriate to permit a specialist unit to apply for the allocation of 
the security--should the specialist choose to apply for the 
allocation--despite the fact that the listed company and the specialist 
unit have been parties to a Mediation. There is the possibility, 
although it may be remote, that the specialist unit may be assigned to 
the listed company, so the specialist unit should not be barred from 
applying for the allocation, particularly if a non-regulatory matter 
between the parties has been vented through a mediation process. The 
Commission also believes that it is appropriate for the Exchange to 
have policies in place that would prevent any negative inference to be 
drawn for allocation or regulatory purposes and that would prohibit the 
specialist unit from being afforded preferential treatment in 
subsequent allocations, because addressing and resolving a non-
regulatory dispute between a listed company and its specialist unit 
should have no bearing on future allocations of securities to the 
specialist unit.
    Accordingly, the Commission finds that the proposed rule change is 
consistent with the Act.

IV. Conclusion

    It is therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-NYSE-2004-04), as amended by 
Amendment Nos. 1 and 2, is hereby approved.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
---------------------------------------------------------------------------

    \11\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jill M. Peterson,
Assistant Secretary.
 [FR Doc. E4-3608 Filed 12-10-04; 8:45 am]
BILLING CODE 8010-01-P