[Federal Register Volume 70, Number 117 (Monday, June 20, 2005)]
[Notices]
[Pages 35484-35489]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-3156]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51813, File No. SR-NYSE-2004-20]


Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Order Approving Proposed Rule Change and Amendment Nos. 1, 2, 4, 5, 6, 
and 7 Thereto and Notice of Filing and Order Granting Accelerated 
Approval to Amendment No. 8 Thereto to Amend Its Original and Continued 
Quantitative Listing Standards

June 9, 2005.

I. Introduction

    On April 13, 2004, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with 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 to amend Sections 102.01C, 
103.01B, 802.01A, 802.01B, 802.01C, 802.02, and 802.03 of the NYSE's 
Listed Company Manual (``Listed Company Manual'') regarding the minimum 
numerical original and continued listing standards. On May 20, 2004, 
NYSE submitted Amendment No. 1 to the proposed rule change.\3\ The 
proposed rule change, as amended by Amendment No. 1, was published for 
comment in the Federal Register on July 2, 2004.\4\ The Commission 
received three comment letters on the proposed rule change, as amended 
by Amendment No. 1.\5\ On August 31, 2004, NYSE submitted Amendment No. 
2 to the proposed rule change.\6\ On November 29, 2004, NYSE submitted 
Amendment No. 3 to the proposed rule change.\7\ On December 17, 2004, 
NYSE withdrew Amendment No. 3. On December 17, 2004, NYSE submitted 
Amendment No. 4 to the proposed rule change.\8\ On January 25, 2005, 
NYSE submitted Amendment No. 5 to the proposed rule change.\9\ On 
February 17, 2005, NYSE submitted Amendment No. 6 to the proposed rule 
change.\10\ On March 4, 2005, NYSE submitted Amendment No. 7 to the 
proposed rule change.\11\ The proposed rule change, as amended, was re-
published for comment in the Federal Register on March 25, 2005.\12\ 
The Commission received one comment on the proposed rule change, as 
amended by Amendment Nos. 1, 2, 4, 5, 6, and 7.\13\ On May 27, 2005, 
NYSE submitted Amendment No. 8 to the proposed rule change.\14\ This 
order approves the proposed rule change, as amended by Amendment Nos. 1 
through 7. Simultaneously, the Commission provides notice of filing of 
Amendment No. 8 and grants accelerated approval of Amendment No. 8.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 replaced and superseded the original filing 
in its entirety.
    \4\ See Securities Exchange Act Release No. 49917 (June 25, 
2004), 69 FR 40439.
    \5\ See letters to Jonathan G. Katz, Secretary, Commission, from 
Richard F. Latour, President and CEO, MicroFinancial Inc., dated 
July 15, 2004 (``MicroFinancial Letter''); Kenneth A. Hoogstra, von 
Briesen & Roper, s.c., dated July 20, 2004 (``von Briesen Letter''); 
and John L. Patenaude, Vice President Finance and Chief Financial 
Officer, Nashua Corporation, dated July 22, 2004 (``Nashua 
Letter'').
    \6\ Amendment No. 2 replaced and superseded the original filing 
in its entirety. In addition, NYSE also responded to the three 
comment letters in Amendment No. 2.
    \7\ Amendment No. 3 replaced and superseded the original filing 
in its entirety.
    \8\ Amendment No. 4 replaced and superseded the original filing 
in its entirety.
    \9\ Amendment No. 5 replaced and superseded the original filing 
in its entirety.
    \10\ In Amendment No. 6, NYSE partially amended Sections 
802.01B, 802.02, and 802.03 of the proposed rule text.
    \11\ In Amendment No. 7, NYSE partially amended Sections 802.03 
of the proposed rule text.
    \12\ See Securities Exchange Act Release No. 51332 (March 8, 
2005), 70 FR 15392.
    \13\ See Letter to Jonathan G. Katz, Secretary, Commission, from 
Dorothy M. Donohue, Associate Counsel, Investment Company Institute, 
dated April 6, 2005 (``ICI Letter'').
    \14\ In Amendment No. 8, NYSE, in response to a comment letter, 
partially amended Section 802.01(B) of the proposed rule text to 
eliminate its proposed increase to the market capitalization 
continued listing requirement for closed-end funds, and to maintain 
the current market capitalization continued listing requirement for 
closed-end funds of $15 million with an early notification threshold 
of $25 million. In addition, the Exchange proposed to clarify that 
the proposed overall $25 million average market capitalization over 
30 consecutive trading days continued listing standard set out in 
second paragraph of Section 802.01B of the Listed Company Manual 
applies only to companies that are listed under Sections 102.01C or 
103.01B.
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II. Description

    The Exchange seeks permanent approval of changes to certain of its 
minimum numerical standards for the original listing and continued 
listing of equity securities on NYSE originally approved by the 
Commission on January 29, 2004, on a pilot program basis (the ``Pilot 
Program'').\15\ Subsequently, to address concerns of a number of listed 
companies that did not comply with the Pilot Program's automatic 
application of new continued listing standards, the Exchange suspended 
the portions of the Pilot Program relating to the continued listing 
standards of Section 802.01B of

[[Page 35485]]

the NYSE's Listed Company Manual.\16\ In this filing, File No. SR-NYSE-
2004-20, the Exchange seeks permanent approval for the Pilot Program 
currently in effect with respect to the Exchange's original minimum 
listing standards and approval of the continued minimum listing 
standards as initially proposed in File No. SR-NYSE-2003-43 (but 
subsequently suspended) with modifications that are responsive to 
public comments submitted to the Commission.
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    \15\ See Securities Exchange Act Release No. 49154 (January 29, 
2004), 69 FR 5633 (February 5, 2004) (approving File No. SR-NYSE-
2003-43).
    \16\ See Securities Exchange Act Release Nos. 49443 (March 18, 
2004), 69 FR 13929 (March 24, 2004) (File No. SR-NYSE-2004-15), and 
51628 (April 28, 2005), 70 FR 23288 (May 4, 2005) (File No. SR-NYSE-
2005-28).
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    Prior to the Pilot Program, Section 102.01C of the Listed Company 
Manual provided that a company must meet one of four specified 
financial standards in order to qualify to have its equity securities 
listed. The Exchange proposes permanent approval of amendments to three 
of these four standards that have been in effect under the Pilot 
Program.\17\ The Exchange also proposes permanent approval of 
amendments to Section 103.01B(III), which provides a corresponding 
numerical standard applicable to international companies and have also 
been in effect under the Pilot Program.
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    \17\ The ``Earnings Test,'' the ``Valuation/Revenue Test'' 
(incorporating in one section the pre-Pilot Program Valuation/
Revenue with Cash Flow Test and in another section the Pure 
Valuation/Revenue Test), or the ``Affiliated Company Test.'' See 
supra note 15 (approving File No. SR-NYSE-2003-43).
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    Prior to the Pilot Program, Section 102.01C(I) of the Listed 
Company Manual required that a company demonstrate pre-tax earnings of 
$6.5 million in aggregate for the last three fiscal years, with either 
a minimum of: (a) $2.5 million in earnings in the most recent fiscal 
year and $2 million in each of the preceding two years; or (b) $4.5 
million in earnings in the most recent fiscal year, with positive 
earnings in each of the preceding two years. Pursuant to the Pilot 
Program, the ``Earnings Test'' requires that companies demonstrate pre-
tax earnings of $10 million in aggregate for the last three fiscal 
years. It also requires that the company demonstrate positive results 
in all three of the years tested with a minimum of $2.0 million in 
earnings in each of the preceding two years. The Exchange believes that 
these changes strengthen the Earnings Test standard and also simplify 
it by eliminating the current two-tiered structure.
    Prior to the Pilot Program, Section 102.01C(II) of the Listed 
Company Manual required that a company demonstrate market 
capitalization of at least $500 million and revenues of at least $100 
million over the most recent 12-month period. Provided that these 
thresholds were met, a company with operating cash flows of at least 
$25 million in aggregate for the last three fiscal years and positive 
amounts in each of the three fiscal years would have qualified for 
listing. Section 102.01C(III) required that an issuer demonstrate (a) 
market capitalization of at least $1 billion and (b) revenues of at 
least $100 million in the most recent fiscal year. Because both of 
these tests are valuation and revenue-based, the Exchange now seeks 
permanent approval to consolidate them into one test with two 
alternative subsections. One of the sections of the current Pilot 
Program, the ``Valuation/Revenue Test,'' incorporates the pre-Pilot 
Program requirements of Section 102.01C(II) as the ``Valuation/Revenue 
with Cash Flow Test'' with no change to the previous thresholds. The 
other section incorporates the pre-Pilot Program requirements of 
Section 102.01C(III) as the ``Pure Valuation/Revenue Test.'' In 
addition, the Exchange proposes to permanently approve the Pilot 
Program amendments that will lower the thresholds of Section 
102.01C(III) that require that companies demonstrate (a) market 
capitalization of at least $750 million and (b) revenues of at least 
$75 million during the most recent fiscal year. As noted above, the 
Exchange represents that its staff has monitored the modest number of 
companies over the last two years that have met the Pilot Program's 
lower thresholds to the ``Pure Valuation/Revenue Test'' and found that 
those companies performed to a standard that is appropriate for 
inclusion on the NYSE list.\18\
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    \18\ See Amendment No. 2, supra note 6.
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    The Exchange is also proposing permanent approval of corresponding 
restructuring changes to Section 103.01B of the Listed Company Manual, 
which sets out minimum numerical standards for non-U.S. issuers. The 
Exchange is also proposing permanent approval of changes to the numeric 
thresholds of Section 103.01B(III) in accordance with changes to 
Section 102.01C(III).
    In addition, the Exchange seeks permanent approval of its suspended 
Pilot Program that restructures and amends the numerical continued 
listing standards. Section 802.01B of the Listed Company Manual 
currently applies to companies that fall below any of the following 
criteria: (i) Average global market capitalization over a consecutive 
30 trading-day period is less than $50 million and total stockholders' 
equity is less than $50 million; or (ii) average global market 
capitalization over a consecutive 30 trading-day period is less than 
$15 million; or (iii) for companies that qualified for original listing 
under the ``global market capitalization'' standard, (a) average global 
market capitalization over a consecutive 30 trading-day period is less 
than $500 million and total revenues are less than $20 million over the 
last 12 months (unless the resultant entity qualifies as an original 
listing under one of the other original listing standards), or (b) 
average global market capitalization over a consecutive 30 trading-day 
period is less than $100 million.
    The Exchange proposes to amend these thresholds and to specifically 
relate the continued listing standards of Section 802.01B of the Listed 
Company Manual to the original listing standards of Sections 102.01C or 
103.01B used to qualify a company for listing. In addition, the 
Exchange proposes to add a minimum continued listing standard 
applicable to all companies regardless of the original listing standard 
under which it listed. This standard would require that all companies 
listed under Sections 102.01C or 103.01B maintain average global market 
capitalization over a consecutive 30 trading-day period of at least $25 
million or undergo the prompt initiation of suspension and delisting 
procedures by the Exchange (the ``Minimum Continued Listing 
Standard'').\19\
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    \19\ Issuers that fall below this minimum threshold would not be 
afforded the opportunity to submit a plan and ``cure'' their 
noncompliance over a plan period. In addition, issuers that list 
under the Affiliated Company Test would be subject to the proposed 
$25,000,000 threshold, regardless of the status of their parent 
company.
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    Companies that list under the Pilot Program Earnings Test or its 
predecessor test will be considered to be below compliance if average 
global market capitalization over a consecutive 30 trading-day period 
is less than $75 million and, at the same time, total stockholders' 
equity is less than $75 million. This level has been increased in the 
proposal to reflect marketplace expectations of those companies deemed 
suitable for continued listing. The current alternate threshold for the 
Earnings Test that resulted in a company being below compliance if 
average global market capitalization over a consecutive 30 trading-day 
period is less than $15 million is proposed to be eliminated as a 
result of the proposed $25 million Minimum Continued Listing Standard.
    Issuers that list under the Pilot Program's ``Valuation/Revenue 
with Cash Flow Test'' or its predecessor test

[[Page 35486]]

would be considered to be below compliance standards if: (a) average 
global market capitalization over a consecutive 30 trading-day period 
is less than $250 million and, at the same time, total revenues are 
less than $20 million over the last 12 months (unless the company 
qualifies as an original listing under one of the other original 
listing standards); or (b) average global market capitalization over a 
consecutive 30 trading-day period is less than $75 million.\20\
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    \20\ These levels are lower than the existing ``global market 
capitalization'' standard.
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    Issuers that list under the Pilot Program's ``Pure Valuation/
Revenue Test'' or its predecessor test would be considered to be below 
compliance standards if: (a) average global market capitalization over 
a consecutive 30 trading-day period is less than $375 million and, at 
the same time, total revenues are less than $15 million over the last 
12 months (unless the company qualifies as an original listing under 
one of the other original listing standards); or (b) average global 
market capitalization over a consecutive 30 trading-day period is less 
than $100 million.
    The Exchange also proposes to clarify that, in circumstances where 
a listed company's parent or affiliated company no longer controls the 
listed company or such listed company's parent or affiliated company 
falls below the continued listing standards applicable to the parent or 
affiliated company, the continued listing standards applicable to the 
Pilot Program's Earnings Test would apply to companies that originally 
listed under the Affiliated Company Standard. Amendments are also 
proposed to make clear that companies that list under the Affiliated 
Company Standard are subject to the Minimum Continued Listing Standard, 
regardless of the status of the listed company's parent. In addition, 
the Exchange proposes to increase the continued listing criteria for 
REITs and limited partnerships from $15 million to $25 million with a 
corresponding increase to the notification threshold from $25 million 
to $35 million.
    Companies that fall below the foregoing minimum standards could be 
permitted a period of time to return to compliance, in accordance with 
the procedures specified in Sections 802.02 and 802.03 of the Listed 
Company Manual. As a general matter, companies must reestablish the 
level of market capitalization (and, if applicable, shareholder's 
equity) specified in the continued listing standard below which the 
company fell. However, with respect to the current requirements of 
Section 802.01B(I) that a company reestablish both its market 
capitalization and its stockholders' equity to the $50 million level, 
footnote (C) to Section 802.01B provides several alternatives. 
Currently, the footnote specifies that, to return to conformity, a 
company must do one of the following: (a) reestablish both its market 
capitalization and its stockholders' equity to the $50 million level; 
(b) achieve average global market capitalization over a consecutive 30-
trading-day period of at least $100 million; or (c) achieve average 
global market capitalization over a consecutive 30 trading-day period 
of $60 million, with either (x) stockholders' equity of at least $40 
million, or (y) an increase in stockholders' equity of at least $40 
million, since the company was notified by the Exchange that it was 
below continued listing standards. Likewise, with respect to the 
current requirements of Section 802.01B(iii) relating to companies that 
listed under the current global market capitalization standard, 
footnote (D) states that companies must reestablish both market 
capitalization and revenues in conformity with continued listing 
standards.
    The Exchange proposes, however, to eliminate footnotes (C) and (D) 
to Section 802.01B of the Listed Company Manual, and, instead amend 
Sections 802.02 and 802.03 to provide that a listed company's plan to 
regain compliance need only demonstrate how the company will cease to 
trigger the applicable Section 802.01B continued listing standard at 
the end of the allowable recovery period. For example, a company that 
listed under the proposed Earnings Test would be required to submit a 
plan that demonstrates how the company will exceed either the 
$75,000,000 market capitalization or shareholders' equity threshold, 
rather than be required to exceed both thresholds to regain compliance. 
It has been the Exchange's experience over the last five years that the 
sustained restoration of one component of the continued listing 
standard thresholds is evidence of a company's recovery. Due to the 
fact that a company would not be deemed below compliance unless it fell 
below both thresholds at the same time, the Exchange believes that the 
proposed amendment provides companies with a more rational basis for 
returning to compliance. This proposed change eliminates the potential 
for certain anomalies in situations where, for example, a company's 
stockholders' equity may never have been above the minimum and a 
decrease in market capitalization below the required threshold triggers 
non-compliance. Since, in this example, it is the fact that market 
capitalization also dropped below the required threshold that results 
in a deficiency (despite no change to stockholders' equity), under 
amended Sections 802.02 and 802.03, the company in this situation would 
only be required to recover market capitalization in order to regain 
compliance.
    The Exchange represents that it has considered how to transition 
the above-described changes to the continued listing standards and 
intends to provide a period of 30 trading days from the date of any 
Commission approval of the proposed amendments until such amendments 
would become effective.
    Sections 802.02 and 802.03 of the Listed Company Manual provide 
that, with respect to a company that is determined to be below 
continued listing standards a second time within 12 months of 
successful recovery from previous non-compliance, the Exchange will 
examine the relationship between the two incidents of falling below 
continued listing standards and re-evaluate the company's method of 
financial recovery from the first incident. The Exchange may then take 
appropriate action, which, depending upon the circumstances, may 
include truncating the normal procedures for reestablishing conformity 
with the continued listing standards or immediately initiating 
suspension and delisting procedures. For those companies that are 
within such a 12-month period and that would be deemed to be below 
continued listing standards as a direct result of the approval of the 
amendments proposed in this filing, the Exchange would not intend to 
truncate or immediately initiate suspension and delisting solely on the 
basis of the proposed increase to the current continued listing 
standards. The Exchange would take into consideration all of the facts 
and circumstances relating to the company in determining whether to 
allow such company an opportunity to submit a second plan.
    With respect to an issuer currently below the continued listing 
standards now in force, the Exchange intends to allow it to complete 
its applicable follow-up procedures and plan for return to compliance 
as provided in Sections 802.02 and 802.03 of the Listed Company Manual. 
If, at the end thereof, the issuer is compliant with the continued 
listing standards about which it was originally notified, but below the 
increased requirements set forth above, the Exchange would grant it an

[[Page 35487]]

opportunity to present an additional business plan advising the 
Exchange of definitive action the issuer has taken, or is taking, that 
would bring it into conformity with the increased requirements within a 
further 12 months. In addition, if an issuer was to complete its 
currently applicable follow-up procedures and plan and was not 
compliant at that time with the continued listing standards about which 
it was originally notified, but is above the increased requirements set 
forth above, the Exchange would consider that issuer to be in 
conformity with the continued listing standards.
    According to NYSE, for an issuer that is in compliance with the 
continued listing standards now in force but that might be below the 
continued listing standards proposed herein, the proposed 30 trading-
day measurement period prior to effectiveness would allow the Exchange 
sufficient time to provide early warnings to any issuer that would 
potentially be below compliance at the end of that period. If, at the 
end of the 30 trading-day measurement period, an issuer is below the 
increased requirements set forth above, the Exchange would formally 
notify the issuer of such non-compliance and provide it with an 
opportunity to present a business plan within 45 days of that 
notification advising the Exchange of definitive action the issuer 
would take to bring it into conformity with the increased requirements 
within an 18-month period.
    Finally, the Exchange proposes minor technical and conforming 
changes to Sections 102.02C, 103.01B, 802.01A, 802.01B, and 802.01C of 
the Listed Company Manual.

III. Summary of Comments

    The Commission received three comment letters generally opposing 
the proposed rule change, as amended by Amendment No. 1 and published 
for comment in the Federal Register on July 2, 2004.\21\ The commenters 
opposed the proposed increase to $75 million from $50 million to the 
Earnings Test continued listing standard thresholds for market 
capitalization and stockholders' equity million. Commenters believed 
that NYSE failed to provide a sufficient rationale for the proposal 
supported by data and market conditions.\22\ One commenter noted that 
the proposed changes would affect only a small percentage of NYSE's 
listed companies.\23\ The commenters argued that the proposed changes 
to the Earnings Test would be disruptive and particularly burdensome 
for the affected companies, leading to uncertainty among both affected 
issuers and their investors concerning the listing.\24\ The commenters 
argued that the proposal would push affected companies to sacrifice 
long-term plans in favor of short-term growth,\25\ or that smaller 
companies, currently in compliance, would be required to find 
alternatives in a short period of time.\26\ One commenter noted that a 
company currently below existing continued listing standards may, in 
some instances, be treated more favorably than those currently in 
compliance.\27\ All three commenters argued for either a grace period 
or grandfather provision for affected companies,\28\ and one commenter 
requested that the effective date of the proposal be clarified.\29\
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    \21\ 21See Securities Exchange Act Release No. 49917 (June 25, 
2004), 69 FR 40439.
    \22\ See MicroFinancial Letter, supra note 5, at 3, and von 
Briesen Letter, supra note 5, at 2.
    \23\ See MicroFinancial Letter, supra note 5, at 2.
    \24\ See Nashua Letter, supra note 5, at 1; MicroFinancial 
Letter, supra note 5, at 2; and von Briesen Letter, supra note 5, at 
2.
    \25\ See von Briesen Letter, supra note 5, at 2.
    \26\ See Nashua Letter, supra note 5, at 1.
    \27\ See von Briesen Letter, supra note 5, at 3.
    \28\ See MicroFinancial Letter, supra note 5, at 3-4; Nashua 
Letter, supra note 5, at 2; and von Briesen Letter, supra note 5, at 
3-4.
    \29\ See von Briesen Letter, supra note 5, at 3.
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    In response to these comments, NYSE noted in Amendment No. 2 that 
it undertook a further review of the listed companies that are 
currently either below the proposed continued financial listing 
standard thresholds or within 10% of those thresholds and found that 
there were only 21 such companies representing 0.08% of all NYSE-listed 
companies. According to NYSE, these companies qualified under the 
original Earnings Test or the original Closed-end Fund, REIT, or 
Limited Partnership Test. NYSE represented that only ten of the 21 
companies would have been below compliance under the proposed 
thresholds. NYSE represented that, of those ten, two companies were 
below compliance under the existing thresholds and one additional REIT 
was operating under a liquidation process expected to be completed in 
August 2004. NYSE noted that it believed that the proposed increases to 
the current continued listing standards were appropriate. As a result 
of these comments, NYSE filed Amendment No. 2 and proposed to amend 
Sections 802.02 and 802.03 of the Listed Company Manual to modify the 
thresholds that companies must exceed in order to regain compliance 
with the continued listing standards.\30\
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    \30\ Specifically and as described in greater detail above, the 
Exchange proposed to eliminate footnotes (C) and (D) to Section 
802.01B of the Listed Company Manual, and, instead proposed to amend 
Sections 802.02 and 802.03 to provide that a listed company's plan 
to regain compliance need only demonstrate how the company will 
cease to trigger the applicable Section 802.01B continued listing 
standard at the end of the allowable recovery period. Amendment No. 
2 also proposed to provide the Exchange with flexibility to extend a 
company's Plan period by an additional 12 months in certain 
circumstances. This aspect of the proposal was later removed.
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    The Commission received one comment letter from ICI partially 
opposing the proposed rule change, as amended by Amendment Nos. 1, 2, 
4, 5, 6, and 7 and published for comment in the Federal Register on 
March 25, 2005.\31\ ICI opposed the part of the proposal dealing with 
continued listing standards for closed-end funds.\32\ Specifically, ICI 
objected to the proposed change that would subject closed-end funds 
that fall below an average market capitalization of $25 million over 30 
consecutive trading days to immediate suspension and delisting instead 
of the $15 million requirement that is currently in effect. ISI 
stressed that the proposal does not take into account that NYSE 
maintains distinct initial listing standards for closed-end funds in a 
fund family verses stand-alone closed-end funds (noting that that funds 
in a fund family must have a public market value of $30 million versus 
stand-alone funds that must have a public market value of $60 
million).\33\ As a result, ISI believes that treating all closed-end 
funds, stand-alone funds and those listed as part of a fund family, the 
same by implementing a uniform $25 million market capitalization 
requirement with respect to the Exchange's continued listing standards 
is inappropriate.\34\ ISI instead recommended that NYSE maintain its 
current $15 million continued listing standard for closed-end funds 
that list as part of a fund family. ISI believes that its approach 
would make the NYSE's continued listing standard for closed-end funds 
more consistent with the continued listing standards for other issuers 
and

[[Page 35488]]

also make it easier for fund families to list all of their funds on one 
exchange.\35\
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    \31\ See Securities Exchange Act Release No. 51332 (March 8, 
2005), 70 FR 15392.
    \32\ See ICI Letter, supra note 13.
    \33\ See ICI Letter, supra note 13, at 1-2. ISI asserts that 
NYSE initially created this distinction to accommodate the wishes of 
fund families that generally prefer to list all of their funds on 
the same market.
    \34\ See ICI Letter, supra note 13, at 2. ISI notes that stand-
alone funds would be subject to delisting if they there is more than 
a 58 percent decline in market capitalization versus closed-end 
funds that would be subject to delisting if there is more than a 16 
percent decrease.
    \35\ See ICI Letter, supra note 13, at 2.
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    In response to ISI's comment, NYSE acknowledged in Amendment No. 8 
that closed-end funds listing in a fund family are subject to distinct 
alternative listing criteria that permit the listing of all of the 
funds in a family, if, among other things, no one fund has a market 
value of publicly held shares of less than $30 million (rather than the 
$60 million required for the listing of individual closed-end funds). 
NYSE also acknowledged that a fund that lists under the fund family 
initial listing standard with a market value of publicly held shares of 
$30 million would be subject to immediate early warning for delisting 
based on the originally proposed $35 million early notification 
threshold. In order to avoid this peculiar result, NYSE modified its 
proposal in Amendment No. 8 to maintain the existing market 
capitalization continued listing criteria for closed-end funds at its 
current level of $15 million with an early notification threshold of 
$25 million.

IV. Discussion and Commission Findings

    After careful review of the proposal and consideration of the 
comment letters, 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.\36\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\37\ which 
requires that the rules of an exchange be designed to promote just and 
equitable principles of trade, remove impediments to and perfect the 
mechanism of a free and open market and a national securities system, 
and protect investors and the public interest.
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    \36\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
    \37\ 15 U.S.C. 78f(b)(5).
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    The proposed changes to Section 102.01C(I) of the Listed Company 
Manual amending the Earnings Test would require that companies 
demonstrate pre-tax earnings of $10 million in aggregate for the last 
three fiscal years. The proposed Earnings Test would also require that 
the company demonstrate positive results in all three of the years 
tested with a minimum of $2 million in earnings in each of the 
preceding two years. The Commission believes that these amendments are 
consistent with the Act.
    The amendments to the current thresholds of Section 102.01C(III) of 
the Listed Company Manual would require, in order to qualify for 
listing under the ``Pure Valuation/Revenue Test,'' that companies 
demonstrate (a) market capitalization of at least $750 million; and (b) 
revenues of at least $75 million during the most recent fiscal year. 
The Commission believes that it is appropriate for the Exchange, based 
upon its experience, to determine that the companies that meet this 
proposed standard would be appropriate for inclusion on the NYSE list.
    In addition, the Commission believes that the amendments to the 
numerical continued listing standards in Section 802.01B of the Listed 
Company Manual should simplify and clarify the continued listing 
standards, by relating the continued listing standards to the original 
listing standards set forth in Sections 102.01C and 103.01B. The 
Commission believes that it is consistent with the Act for the 
Exchange, based upon its experience, to determine that the proposed 
categories of listing standards reflect marketplace expectations of 
those companies deemed suitable for continued listing. The Commission 
also believes that it is consistent with the Act for the Exchange to 
allow a company to regain compliance by ceasing to trigger the 
applicable continued listing standard it violated by the end of the 
recovery period. In addition, the Commission notes that, in general, 
the continued listing standards reflect the proportional adjustments in 
the initial listing standards.
    Three commenters, in responding to the proposed rule change as 
amended by Amendment No. 1, opposed the proposed increase to $75 
million from $50 million to the Earnings Test continued listing 
standard thresholds for market capitalization and stockholders' equity 
million. These commenters believed that NYSE failed to provide a 
sufficient rationale for the proposal supported by data and market 
conditions.\38\
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    \38\ See MicroFinancial Letter, supra note 5, at 3, and von 
Briesen Letter, supra note 5, at 2.
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    After carefully considering these comment letters, the Commission, 
however, believes that the proposed continued listing standards are 
reasonable and consistent with the Act. The Commission believes that 
the commenter's concerns are addressed by Amendment No. 2, in which 
NYSE proposed to amend Sections 802.02 and 802.03 of the Listed Company 
Manual to modify the thresholds that companies must exceed in order to 
regain compliance with the continued listing standards.\39\ NYSE also 
noted that it undertook a further review of the listed companies that 
are currently either below the proposed continued financial listing 
standard thresholds or within 10% of those thresholds and found that 
there were only 21 such companies representing 0.08% of all NYSE-listed 
companies. NYSE represented that only ten of the 21 companies would 
have been below compliance under the proposed thresholds. NYSE 
represented that, of those ten, two companies were below compliance 
under the existing thresholds and one additional REIT was operating 
under a liquidation process expected to be completed in August 2004.
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    \39\ Specifically and as described in greater detail above, the 
Exchange proposed to eliminate footnotes (C) and (D) to Section 
802.01B of the Listed Company Manual, and, instead proposed to amend 
Sections 802.02 and 802.03 to provide that a listed company's plan 
to regain compliance need only demonstrate how the company will 
cease to trigger the applicable Section 802.01B continued listing 
standard at the end of the allowable recovery period. Amendment No. 
2 also proposed to provide the Exchange with flexibility to extend a 
company's Plan period by an additional 12 months in certain 
circumstances. This aspect of the proposal was later removed.
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    The commenters also argued for either a grace period or grandfather 
provision for affected companies,\40\ and one commenter requested that 
the effective date of the proposal be clarified.\41\ The commenters 
argued that the proposed changes to the Earnings Test would be 
disruptive and particularly burdensome for the affected companies, 
leading to uncertainty among both affected issuers and their investors 
concerning the listing.\42\
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    \40\ See MicroFinancial Letter, supra note 5, at 3-4; Nashua 
Letter, supra note 5, at 2; and von Briesen Letter, supra note 5, at 
3-4.
    \41\ See von Briesen Letter, supra note 5, at 3.
    \42\ See Nashua Letter, supra note 5, at 1; MicroFinancial 
Letter, supra note 5, at 2; and von Briesen Letter, supra note 5, at 
2.
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    The Commission finds that the Exchange has provided an 
implementation schedule for the amended continued listing standards 
that includes a sufficient transition period for affected companies. 
Specifically, the Exchange will provide a period of 30 trading-days 
from the date of Commission approval of the proposed amendments until 
such amendments will become effective. In addition, for those companies 
that are currently within a 12-month period following their recovery 
from previous non-compliance (pursuant to a Plan) and would fall below 
continued listing standards as a direct result of the approval of the 
proposal, the Exchange does not intend to truncate the normal

[[Page 35489]]

procedures or immediately initiate suspension and delisting procedures, 
solely on the basis of the proposed increase to the current continued 
listing standards. The Exchange intends to take into consideration all 
of the facts and circumstances relating to the company, including the 
relationship between the two incidents of falling below the continued 
listing standards and the method of recovery from the first incident, 
in determining whether to allow such a company to submit a second Plan.
    The Exchange intends to allow companies that are currently below 
the continued listing standards to complete their applicable follow-up 
procedures and Plan for return to compliance, as provided in Sections 
802.02 and 802.03 of the Listed Company Manual. If, at the end thereof, 
such companies are compliant with the continued listing standards for 
which they were originally notified, but below the increased 
requirements proposed herein, the Exchange would grant them an 
opportunity to present an additional business plan advising the 
Exchange of definitive action the company has taken, or is taking, that 
would bring the company into conformity with the increased requirements 
within a further 12 months. In addition, if a company completes its 
currently applicable follow-up procedures and Plan and is not compliant 
at that time with the continued listing standards for which it was 
originally notified, but is above the increased requirements set forth 
above, the Exchange would consider that company to be in conformity 
with the continued listing standards.
    The Commission believes that the Exchange's transition policies are 
clearly delineated and consistent with the Act. The Commission notes 
that the notice and comment periods provided for this filing and the 
additional period of 30 trading-days from the date of Commission 
approval of the proposed amendments until such amendments would become 
effective should provide sufficient notice to issuers that may be below 
compliance with the proposed continued listing standards. The 
Commission, however, expects that the Exchange will follow closely the 
progress of companies that are currently in their Plan period or 
subsequent 12-month period, to ensure that these companies will satisfy 
the new continued listing standards. The Commission notes that, 
pursuant to Section 802.02 of the Listed Company Manual, the Exchange 
has the discretion to suspend trading in any security and apply to the 
Commission for delisting, when the Exchange deems it necessary for the 
protection of investors.
    In addition, the Commission received one comment letter from ICI in 
response to the proposed rule change, as amended by Amendment Nos. 1 
through 7. ICI objected to the proposed change that would subject 
closed-end funds that fall below an average market capitalization of 
$25 million over 30 consecutive trading days to immediate suspension 
and delisting instead of the $15 million requirement that is currently 
in effect. The Commission believes that the ISI's concerns are answered 
by Amendment No. 8, which maintains the existing market capitalization 
continued listing criteria for closed-end funds at its current level of 
$15 million with an early notification threshold of $25 million.
    The Commission finds good cause for approving proposed Amendment 
No. 8 before the thirtieth day after the date of publication of notice 
of filing thereof in the Federal Register. NYSE filed Amendment No. 8 
in response to a comment it received after the publication of notice of 
filing of the proposed rule change to address the commenter's 
concerns.\43\ Because Amendment No. 8 proposes simply to maintain the 
current market capitalization continued listing requirement in effect 
for closed-end funds,\44\ the Commission finds good cause for 
accelerating approval of the proposed rule change, as amended by 
Amendment No. 8.
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    \43\ See Summary of Comments, supra Section III.
    \44\ See note 14, supra.
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V. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the Amendment No. 8, including whether the 
proposed rule change, as amended by Amendment No. 8, is consistent with 
the Act. Comments may be submitted by any of the following methods:

Electronic Comments

    Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-NYSE-2004-20 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-9303. All submissions should refer to 
File Number SR-NYSE-2004-20. This file number should be included on the 
subject line if e-mail is used. To help the Commission process and 
review your comments more efficiently, please use only one method. The 
Commission will post all comments on the Commission's Internet Web site 
(http://www.sec.gov/rules/sro.shtml). Copies of the submission, all 
subsequent amendments, all written statements with respect to the 
proposed rule change that are filed with the Commission, and all 
written communications relating to the proposed rule change between the 
Commission and any person, other than those that may be withheld from 
the public in accordance with the provisions of 5 U.S.C. 552, will be 
available for inspection and copying in the Commission's Public 
Reference Section, Washington, DC 20549-9303. Copies of such filing 
also will be available for inspection and copying at the principal 
office of NYSE. All comments received will be posted without change; 
the Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
NYSE-2004-20 and should be submitted on or before July 11, 2005.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\45\ that the proposed rule change (SR-NYSE-2004-20), as amended by 
Amendment Nos. 1, 2, 4, 5, 6, and 7, is hereby approved, and that 
Amendment No. 8 to the proposed rule change be, and hereby is, approved 
on an accelerated basis.
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    \45\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\46\
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    \46\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-3156 Filed 6-17-05; 8:45 am]
BILLING CODE 8010-01-P