[Federal Register Volume 70, Number 109 (Wednesday, June 8, 2005)]
[Notices]
[Pages 33573-33575]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-2938]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51777; File No. SR-NYSE-2004-49]


Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Order Approving Proposed Rule Change and Amendment No. 3 Thereto 
Relating to Procedures for Companies That Fail To File Annual Reports 
in a Timely Manner

June 2, 2005.

I. Introduction

    On August 19, 2004, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') submitted to the Securities and Exchange Commission 
(``Commission'' or ``SEC''), 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 codifying existing procedures 
followed where companies fail to satisfy the Commission's filing 
requirements for annual reports on Forms 10-K, 10-KSB, 20-F, 40-F, or 
N-CSR in a timely manner. The proposed rule change was published for 
public comment in the Federal Register on October 1, 2004.\3\ The 
Exchange filed Amendments No. 1 \4\ and 2 \5\ on October 29, 2004 and 
November 29, 2004, respectively. On December 21, 2004, the Exchange 
filed Amendment No. 3 to the proposed rule change.\6\ Amendment No. 3 
was published for public comment in the Federal Register on January 14, 
2005.\7\ The Commission received two comment letters regarding the 
proposed rule change.\8\ On March 1, 2005, the Exchange submitted a 
response to the comments.\9\ This order approves the proposed rule 
change, as amended.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 50452 (September 27, 
2004), 69 FR 58987.
    \4\ See letter from Mary Yeager, Assistant Secretary, NYSE, to 
Nancy J. Sanow, Assistant Director, Division of Market Regulation, 
Commission, dated October 28, 2004 (``Amendment No. 1'').
    \5\ Amendment No. 2 replaced and superseded Amendment No. 1. On 
December 21, 2004, the Exchange withdrew Amendment No. 2.
    \6\ Amendment No. 3 clarified that the proposed rule change 
would apply to companies that are already late in filing their 
annual reports as of the date that the Commission approves the 
proposed rule change.
    \7\ Securities Exchange Act Release No. 50982 (January 6, 2005), 
70 FR 2686. Amendment No. 3 clarified that the proposed rule change 
would apply to companies that are already late in filing their 
annual reports as of the date that the Commission approves the 
proposed rule change.
    \8\ See letters from James J. Angel, Associate Professor of 
Finance, McDonough School of Business, Georgetown University 
(``Angel''), to Jonathan G. Katz, Secretary, Commission (``Angel 
Letter''), and Edward S. Knight, Executive Vice President and 
General Counsel, The Nasdaq Stock Market, Inc. (``Nasdaq''), to 
Jonathan G. Katz, Secretary, Commission, dated February 4, 2005 
(``Nasdaq Letter'').
    \9\ See letter from Mary Yaeger, Assistant Secretary, NYSE, to 
Sharon Lawson, Division of Market Regulation, Commission, dated 
March 1, 2005.
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

    The Exchange is proposing to codify existing procedures followed 
where companies fail to satisfy the Commission's filing requirements 
for annual reports on Forms 10-K, 10-KSB, 20-F, 40-F, or N-CSR in a 
timely manner. The proposed rule change would apply with full effect to 
companies that are already late in filing their annual report on Form 
10-K, 20-F, 40-F, or N-CSR with the SEC as of the date that the 
Commission approves this rule filing.\10\ Specifically, a company that 
fails to file its annual report with the Commission in a timely manner 
would be subject to the following procedures under new Paragraph 
802.01E of the Listed Company Manual:
---------------------------------------------------------------------------

    \10\ See Amendment No. 3, supra note 6.
---------------------------------------------------------------------------

    Under Paragraph 802.01E, once the Exchange identifies that a 
company has failed to file a timely periodic annual report with the 
Commission by the later of (a) the date that the annual report was 
required to be filed with the Commission by the applicable form or (b) 
if a Form 12b-25 was timely filed with the Commission, the extended 
filing due date for the annual report, the Exchange would notify the 
company in writing of its status. The later of these two dates would be 
referred to as the ``Filing Due Date.''
    Within five days of receipt of this notification, the company would 
be required to (a) contact the Exchange to discuss the status of the 
annual report filing, and (b) if it has not already done so, issue a 
press release disclosing the status of the filing. If the company 
failed to issue this press release in a timely manner, the Exchange 
would itself issue a press release stating that the company has failed 
to timely file its annual report with the Commission.
    During the nine-month period from the Filing Due Date, the Exchange 
would monitor the company and the status of the filing, including 
through contact with the company, until the annual report is filed. 
Under the procedure, if the company failed to file the annual report 
within nine months from the Filing Due Date, the Exchange would be 
permitted, in its sole discretion, to allow the company's securities to 
be traded for up to an additional three-month trading period depending 
on the company's specific circumstances. If the Exchange determined 
that an additional trading period of up to three months is not 
appropriate, suspension and delisting procedures would commence in 
accordance with the procedures set out in Paragraph 804.00 of the 
Listed Company Manual.\11\ The new rule specifically states that a 
company would not be eligible to follow the procedures outlined in 
Paragraphs 802.02 and 802.03 with respect to this criteria.\12\
---------------------------------------------------------------------------

    \11\ Paragraph 804 sets forth the procedures the Exchange 
follows when it determines a security should be delisted, and the 
issuer's right of review of such decisions.
    \12\ Paragraphs 802.02 and 802.03 provide generally, among other 
things, that when a listed company is not in compliance with the 
Exchange's continued listing criteria, the Exchange notifies the 
company of its status and the company is given the opportunity to 
provide a plan advising the Exchange of the definitive action the 
company intends to take that would bring it into conformity with 
continued listing standards.
---------------------------------------------------------------------------

    In determining whether an additional trading period of up to three-
months is appropriate, the rule specifically states that the Exchange 
would consider the likelihood that the filing could be made during the 
additional period, as well as the company's general financial status, 
based on information provided by a variety of sources, including the 
company, its audit committee, its outside auditors, the staff of the 
Commission and any other regulatory body. The new procedures also state 
that the Exchange strongly encourages companies to provide ongoing 
disclosure on the status of the annual report filing to the market 
through press releases, and that the Exchange will take the frequency 
and detail of such information into account in determining whether an 
additional three-month trading period is appropriate. If the Exchange 
determined that an additional, up to three-month trading period was 
appropriate and the company failed to file its periodic annual report 
by the end of the additional period, suspension and delisting 
procedures would commence in accordance with the procedures set out in 
Paragraph 804.00 of the Listed Company Manual.\13\
---------------------------------------------------------------------------

    \13\ See also supra notes 11 and 12. In such a case, the 
procedures of Paragraphs 802.02 and 802.03 would not be available, 
as discussed above.

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

[[Page 33574]]

    The Commission notes that new Paragraph 802.01E permits the 
Exchange to suspend trading immediately and commence delisting 
procedures for a late annual report filer in accordance with Paragraph 
804. Specifically, the new rule states that if, at any time, the 
Exchange deemed it necessary or appropriate in the public interest or 
for the protection of investors, trading in any security could be 
suspended immediately, and, in accordance with the procedures set out 
in Paragraph 804.00, application made to the Commission to delist the 
security.

III. Comments

    The Commission received a total of two comment letters: the Nasdaq 
Letter and the Angel Letter,\14\ and a response from the NYSE.\15\ 
Angel stated that the proposal seemed reasonable overall, but that the 
NYSE should place an indicator on the ticker symbol of companies that 
are late in making required filings with the SEC. The Angel Letter also 
noted that Nasdaq puts an ``E'' on the end of a ticker symbol of 
companies late in required Commission filings and that the same 
identifier should be seen on NYSE late filers. Angel also recommended 
expanding the scope of the proposal to companies that are late in 
filing their quarterly reports, noting that this is just as important, 
if not more so, than late filers of annual reports.
---------------------------------------------------------------------------

    \14\ See supra note 8.
    \15\ See supra note 9.
---------------------------------------------------------------------------

    Nasdaq stated that the proposal does not ``go nearly far enough to 
protect investors.'' Nasdaq also stated that it does ``not believe that 
a market should offer what is essentially a blanket nine months filing 
extension to delinquent issuers'' and that ``the NYSE should be 
required to adopt a more reasonable timeframe to respond to annual 
report filing delinquencies.'' In support of this, Nasdaq notes that 
the issuer's financial statements would be at least a year old at the 
end of NYSE's nine month period. In addition, Nasdaq stated that 
quarterly reports are an important element of information which is 
available to investors and that without current financials, it is 
impossible for a marketplace to determine whether a listed issuer 
complies with continued listing standards. Further, Nasdaq noted that 
its own procedures cover late annual and interim reports and if an 
issuer fails to timely file required reports it is promptly notified it 
will be delisted unless it appeals.\16\
---------------------------------------------------------------------------

    \16\ Nasdaq further stated that appeal hearings with respect to 
filing delinquencies are scheduled on an expedited basis and 
generally occur within three weeks.
---------------------------------------------------------------------------

    In response to these comments, the NYSE stated that it agrees that 
investors should be provided with timely notice of companies that fail 
to file annual reports on time.\17\ The NYSE further stated that 
``since July 2004, the Exchange has monitored and disseminated 
transparent information on companies that fail to satisfy the 
Commission's requirement to file their annual financials in a timely 
manner.'' The NYSE further stated that it ``appends an `.LF' indicator 
in the financial status field of the company's ticker symbol and 
distributes that information via the low speed ticker and through [its] 
data stream to market vendors.'' The Exchange also stated that it keeps 
an updated list of companies that are late in their filings on its 
website, and notes the late filing status on the company's data page on 
its Web site. In response to Angel's and Nasdaq's recommendation of 
identifying and expanding the scope of the proposal to companies that 
are late in filing their quarterly reports, the NYSE stated that it is 
currently involved in conversations with the Commission regarding the 
identification of companies that have failed to timely file quarterly 
reports. The NYSE also noted that to the extent a company files an 
overdue annual report, the NYSE will not remove the .LF indicator or 
the company's late filing status on its website until such time as all 
outstanding interim reports are up to date. In response to Nasdaq's 
comment that the proposal would give a blanket nine month extension to 
delinquent issuers, the NYSE stated that, during the nine month period, 
it is in frequent contact with the company and can suspend trading and 
delist the company at any point during this nine month period should it 
determine that it is not appropriate to allow the company's securities 
to continue to trade. The NYSE further noted in support of its proposal 
that, as of the date of its letter, only six companies were delinquent 
in filing their annual report and that some of these companies were 
restating their financials in response to, or in conjunction with, an 
SEC investigation.
---------------------------------------------------------------------------

    \17\ Id.
---------------------------------------------------------------------------

IV. Discussion

    The Commission finds that the proposed rule change, as amended, is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange. In 
particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act \18\ which requires an 
Exchange to 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.\19\
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78f(b)(5).
    \19\ In approving the proposed rule change, the Commission has 
considered its impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    The Commission believes that the proposed rule change provides a 
reasonable first step for dealing with companies that fail to file 
annual reports on time. The Commission notes that if a company fails to 
file its annual report within the timeframes set forth in the proposed 
rule change, the Exchange would commence suspension and delisting 
procedures under Paragraph 804 of the Listed Company Manual. The 
Commission also notes that at any time during the 9 or 12 month period, 
as applicable, the Exchange may suspend trading and delist the company 
where it believes it is appropriate to do so in the public interest or 
for the protection of investors. The Commission believes that this 
should help to prevent an undue amount of time from passing without the 
company's audited financial statements being provided to the 
marketplace. In addition, since the NYSE is constantly monitoring the 
late filing issuers during the 9 or 12 month period, the NYSE has 
stated that it will, and the Commission expects the NYSE to, quickly 
suspend trading and commence delisting proceedings against any issuer 
during the 9 month period should it become necessary to do so based on 
the facts of the particular situation.\20\ The Commission believes, 
however, that the NYSE should consider shortening the timeframes within 
which a company must file annual reports before being delisted, as well 
as extending such requirements to issuers that are late in filing their 
quarterly reports with the Commission.
---------------------------------------------------------------------------

    \20\ If a company that is late in filing its annual report 
appeals any decision to suspend trading, the NYSE has stated that 
the company's securities would not be permitted to trade on the 
exchange during the appeal process. See NYSE Letter supra note 8; 
see also e-mail from Annemarie Tierney, Office of General Counsel, 
NYSE, to Sharon Lawson, Senior Special Counsel, Division of Market 
Regulation, Commission (April 14, 2005).
---------------------------------------------------------------------------

    In addition, the Commission notes that the Exchange appends an 
``.LF'' indicator in the financial status field of the company's ticker 
symbol, distributes that information via the low speed ticker and 
through its data stream to market vendors, and keeps an updated list of 
companies that are late in their

[[Page 33575]]

filings on its website. The NYSE also has stated that it actively 
encourages vendors and subscribers to display this indicator. The 
Commission believes that these measures should provide notice to the 
investing public that an issuer is late in filing its annual report 
with the Commission.\21\
---------------------------------------------------------------------------

    \21\ The Commission urges the NYSE to continue to encourage data 
vendors and subscribers to display the indicator.
---------------------------------------------------------------------------

    The Commission also notes that to the extent a late annual report 
filer files an overdue report, the NYSE has indicated it will not 
remove the indicator or the company's name from the late filer posting 
on its website until all outstanding quarterly reports have been 
submitted. While this is helpful to the public to ensure that investors 
are aware of the information available on a particular issuer, the 
Commission believes the NYSE should consider developing systems that 
identify all late filers of quarterly reports, irrespective of whether 
the annual report is also late. The Commission will continue to work 
with the NYSE in this area.
    As noted above, Amendment No. 3 clarifies that the proposed rule 
change would apply to companies that are already late in filing their 
annual reports as of the date that the Commission approves the proposed 
rule change. The Commission notes that this amendment was published for 
notice and comment and that no comments were received addressing this 
issue. The Commission believes that applying the proposal to companies 
that are already late in filing their annual reports as of the date 
that the Commission approves the proposed rule change should help to 
ensure that such companies do not remain late filers for an extended 
time period past the 9 or 12 month period allowed under new Paragraph 
802.01E of the Listed Company Manual, thereby benefiting the public 
interest.
    In summary, the Commission believes that the procedures being 
approved herein will provide clarity to both issuers and investors on 
the delisting procedures applicable to late annual report filers and 
will help to ensure that delisting procedures are commenced no later 
than 12 months after the date the annual report was due. Further, the 
Commission continues to encourage the NYSE to further refine its 
policies to address late quarterly reports and other related matters.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\22\ that the proposed rule change (SR-NYSE-2004-49), as amended, 
is approved.
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\23\
---------------------------------------------------------------------------

    \23\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-2938 Filed 6-7-05; 8:45 am]
BILLING CODE 8010-01-P