[Federal Register Volume 71, Number 229 (Wednesday, November 29, 2006)]
[Notices]
[Pages 69166-69172]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-20211]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54796; File No. SR-NYSEArca-2006-85]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Order Granting Accelerated Approval of Proposed Rule Change 
Relating to a Six-Month Pilot Program To Adopt New Initial and 
Continued Listing Standards

 November 20, 2006.
    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 November 17, 2006, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'' or 
``SEC'') the proposed rule change as described in Items I and II below, 
which Items have been substantially prepared by the Exchange. The 
Commission is publishing this notice to solicit comment on the proposed 
rule change from interested persons. For the reasons discussed below, 
the Commission is granting accelerated approval of the proposed rule 
change, as a six-month pilot, until May 29, 2007.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes, on a six-month pilot program basis (the 
``Pilot Program''), to make significant revisions to its initial and 
continued financial listing standards for operating companies.\3\ The 
text of the proposed rule change is available on the Exchange's Web 
site at www.nysearca.com, at the Exchange's Office of the Secretary and 
at the Commission's Public Reference Room.
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    \3\ The Commission notes that the proposed changes are primarily 
to the initial and continued listing standards of common stock and 
common stock equivalent securities, preferred stock and similar 
issues and secondary classes of common stock. Some changes are also 
being made to the listing standards for bonds and debentures, 
warrants, contingent value rights, other securities, and index-
linked exchangeable notes.
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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 self-regulatory organization 
included statements concerning the purpose of and basis for the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statements may be examined at

[[Page 69167]]

the places specified in Item III below. The self-regulatory 
organization 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 March 7, 2006, Archipelago Holdings, Inc. and the New York Stock 
Exchange, Inc. completed their merger (the ``Merger''), creating NYSE 
Group, Inc. (``NYSE Group''). NYSE Group is a holding company that 
operates, among other subsidiaries, two securities exchanges: New York 
Stock Exchange LLC (``NYSE'') and NYSE Arca Equities, Inc. (``NYSE Arca 
Equities'' or the ``Corporation'').\4\ NYSE Arca Equities conducts its 
equities trading operations through its equities trading facility, NYSE 
Arca, L.L.C. (also referred to as the ``NYSE Arca Marketplace'').
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    \4\ The Commission notes that NYSE Arca is actually the 
registered national securities exchange and NYSE Arca Equities is a 
wholly-owned subsidiary of NYSE Arca.
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    In connection with the Merger, NYSE Arca Marketplace examined all 
aspects of its listings program, and as a result, determined to make 
substantial modifications and enhancements to its listing standards. 
Accordingly, with this filing, NYSE Arca is proposing significant 
revisions to the initial and continued listing criteria applicable to 
operating companies set forth in NYSE Arca Equities Rule 5, completely 
replacing the current tiered structure with a single set of numerical 
and financial requirements.\5\ The principal objectives of these 
proposed revisions are to upgrade the financial condition, shareholder 
interest, and stature of issuers listing on NYSE Arca Marketplace; more 
closely align NYSE Arca Marketplace's listing standards and structure 
with the NYSE; and enhance NYSE Arca Marketplace's competitive 
position.\6\
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    \5\ This filing relates only to quantitative (financial) 
original and continued listing standards applicable to operating 
companies. It does not relate to listing standards for corporate 
governance, exchange traded funds, open and closed-end funds, 
commodity-based trusts, trust issued receipts, portfolio depositary 
receipts, investment company units or other types of structured 
products. See supra note 3.
    \6\ The Commission recently approved substantial revisions to 
NYSE Arca's listing fees. See Securities Exchange Act Release No. 
54007 (June 16, 2006), 71 FR 36155 (June 23, 2006) (SR-PCX-2006-16).
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    NYSE Arca Equities Rule 5.1(a) provides that the Board of the 
Directors of the Exchange will make determinations as to whether to 
list securities or admit securities to unlisted trading privileges on 
the Exchange. Similarly, current NYSE Arca Equities Rule 5.2(a) 
provides that the prescribed forms of applications to list securities 
on the Exchange will be determined by the Board of Directors. This 
filing proposes to amend both of the aforementioned requirements to 
state that the Exchange will make such determinations. Such decisions 
will be made by the chief executive officer of the Exchange or by staff 
of the Exchange pursuant to authority delegated by the chief executive 
officer. In addition, NYSE Arca Equities Rule 5.2(a) would be amended 
to state that the Exchange may deny listing or apply additional or more 
stringent criteria based on any event, condition, or circumstance that 
makes the listing of the company inadvisable or unwarranted in the 
opinion of the Exchange. Such determination could be made even if the 
company meets the standards set forth below.

Summary of Current and Proposed Initial Listing Standards

Summary of Current Initial Listing Standards for Operating Companies

    Currently, the NYSE Arca Marketplace has a two-tier listing 
structure, classifying listed securities as either Tier I or Tier II. 
For their common stock to qualify for initial listing as a Tier I 
security, issuers must satisfy, among other things, the numerical 
criteria set forth in NYSE Arca Equities Rule 5.2(c).\7\ To qualify for 
initial listing as a Tier II security, issuers must satisfy, among 
other things, the numerical criteria set forth in NYSE Arca Equities 
Rule 5.2(k). Both Rule 5.2(c) and Rule 5.2(k) also provide that an 
issuer may qualify under either a Basic or an Alternate set of listing 
criteria. To be eligible to list, an issuer need only satisfy all of 
the criteria under one of these four separate sets of standards.\8\
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    \7\ In addition to the numerical criteria set forth in Rules 
5.2(c) and 5.2(k), issuers must also satisfy certain qualitative 
requirements, including corporate governance-related standards set 
forth in NYSE Arca Equities Rule 5.3. These corporate governance 
rules are not the subject of this proposal.
    \8\ NYSE Arca Equities Rule 5.2(a) provides that approval of 
listing applications is a matter solely within the discretion of 
NYSE Arca Equities, and the fact that an issuer may meet the 
applicable listing requirements does not necessarily mean that its 
application will be approved.

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[[Page 69168]]

    These requirements are:

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                                                    Tier I (Rule 5.2(c))              Tier II (Rule 5.2(k))
                                             -------------------------------------------------------------------
                                                   Basic          Alternate          Basic          Alternate
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Net tangible assets \9\.....................  ...............  ...............      $2,000,000   ...............
Net worth \10\..............................      $4,000,000      $12,000,000   ...............      $8,000,000
Pre-tax income \11\.........................        $750,000   ...............  ...............  ...............
Net income \12\.............................  ...............  ...............        $100,000   ...............
Public float (shares).......................         500,000        1,000,000          500,000        1,000,000
Public beneficial holders \13\..............      800 or 400              400              500              500
Market value................................      $3,000,000      $15,000,000       $1,500,000       $2,000,000
Operating history...........................  ...............         3 years          3 years   ...............
Price \14\..................................              $5               $3               $3               $1
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Proposed Initial Listing Standards for Common Stock and Common Stock 
Equivalent Securities

    With this filing, NYSE Arca is proposing to eliminate the Tier I 
and II classifications and replace, in their entirety, the current Tier 
I and Tier II numerical standards for initial listing for common stock 
set forth in NYSE Arca Rules 5.2(c) and (k), respectively. Companies 
whose common stock is listed with a Tier II designation will be able to 
remain listed under the existing Tier II rules as long as they are in 
compliance with the maintenance requirements of Arca Equities Rule 
5.5(h). However, the Exchange will no longer list any new issuers or 
additional classes of securities with a Tier II designation.
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    \9\ NYSE Arca Equities Rule 5.1(b)(10) defines ``net tangible 
assets'' as the amount of funds remaining after deducting intangible 
assets from stockholders' equity. This rule further provides that 
intangible assets include, but are not limited to, goodwill, 
patents, copyrights, trademarks, leaseholds, franchises, licenses, 
permits, research and development costs, organization costs, and 
similar types of property rights.
    \10\ NYSE Arca Equities Rule 5.1(b)(9) defines ``net worth'' as 
total assets (excluding the value of goodwill) less total 
liabilities.
    \11\ NYSE Arca Equities Rule 5.2(c)(4) provides that an issuer 
must have pre-tax income from continuing operations of at least 
$750,000 in the last fiscal year or two of the last three fiscal 
years.
    \12\ NYSE Arca Equities Rule 5.2(k)(4) provides that an issuer 
must have net income from continuing operations of at least $100,000 
in the last fiscal year or in two of the last three fiscal years, or 
total net tangible assets of $2,500,000.
    \13\ NYSE Arca Equities Rule 5.2(c)(2) provides that issuers 
must have at least 800 public beneficial holders if the issuer has 
at least 500,000 and less than 1,000,000 shares publicly held, or a 
minimum of 400 public beneficial holders if the issuer has either: 
(i) At least 1,000,000 shares publicly held; or (ii) at least 
500,000 shares publicly held and average daily trading volume in 
excess of 2,000 shares for the six months preceding the date of 
application.
    \14\ NYSE Arca Equities Rules 5.2(c)(5) and 5.2(k)(5) provide 
that the issuer must maintain the minimum price for the majority of 
business days for the most recent six-month period prior to the date 
of application, and the price must be at or above the minimum per 
share at the time of application.
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    In place of the existing Tier I and Tier II standards, this filing 
proposes to require for initial listing that, at the time of initial 
listing, the listed class of common stock or common stock equivalent 
securities \15\ shall have:
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    \15\ Proposed NYSE Arca Equities Rule 5.1(b)(26) defines common 
stock equivalent as ``ordinary shares, ADRs, American Depository 
Shares, global depository shares, depository shares, shares or 
certificates of beneficial interest of trusts, and other similar 
issues that have the same characteristics of common stock.''
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     At least 1.1 million publicly held shares.
     A closing price per share of $5 or more.
     A minimum of 400 round lot shareholders.
    In addition, the requirements of one of Standards One, Two or Three 
below must be met:

Standard One

     The issuer of the security had annual income from 
continuing operations before income taxes of at least $1 million in the 
most recently completed fiscal year or in two of the last three most 
recently completed fiscal years.
     The market value of publicly held shares is at least $8 
million.
     The issuer of the security has stockholders' equity of at 
least $15 million.

Standard Two

     The issuer of the security has stockholders' equity of at 
least $30 million.
     The market value of publicly held shares is at least $18 
million.
     The issuer has a two-year operating history.

Standard Three

     The market value of publicly held shares is at least $20 
million.
     The issuer has:
    [cir] A market value of listed securities of $75 million (currently 
traded issuers must meet this requirement and the $5 closing price 
requirement for 90 consecutive trading days prior to applying for 
listing); or
    [cir] Total assets and total revenue of $75 million each for the 
most recently completed fiscal year or two of the last three most 
recently completed fiscal years.
    In evaluating compliance with these standards, the Exchange will 
consider amounts contained in a company's pro forma financial 
statements provided in a filing with the Commission pursuant to 
Commission rules and regulations governing Article 11 ``Pro forma 
information of Regulation S-X Part 210--Form and Content of and 
Requirements for Financial Statements.'' This shall include, without 
limitation, adjustments relating to the proceeds of an offering. In the 
case of foreign private issuers (as such term is defined in Rule 3b-4 
under the Act), the Exchange will take into account global market 
capitalization in evaluating compliance with the market capitalization 
requirements of this rule.
    This revised rule shall apply to common stock and common stock 
equivalents, including, but not limited to: Ordinary shares, American 
Depository Receipts (``ADRs''), American Depository Shares, global 
depository shares, depository shares, shares or certificates of 
beneficial interest of trusts, and other similar issues that have the 
same characteristics of common stock.

Summary of Current Initial Listing Standards for Preferred Stock and 
Similar Issues

    Currently, as set forth in NYSE Arca Equities Rule 5.2(d), in the 
case of preferred stock and similar issues, the following listing 
requirements among others must be met:
     The issuer must meet the net worth and earnings 
requirements as set forth in the Tier I Basic Listing Requirements 
under Rule 5.2(c), and must meet and appear to be able to service the 
dividend requirements for the preferred stock.
     If the company's common stock is traded on NYSE Arca or on 
either the American Stock Exchange LLC

[[Page 69169]]

(``Amex'') or NYSE, the following public distribution requirements must 
be met: At least 100,000 preferred shares publicly held and an 
aggregate market value of at least $2,000,000, and a minimum closing 
bid price of $10.
     If the related common stock is not traded on any of the 
above referenced exchanges then the requirements are: At least 400,000 
preferred shares publicly held and an aggregate market value of at 
least $4,000,000, and a minimum closing bid price of $10. At least 800 
public beneficial holders of 100 shares or more shall also be required.

Proposed Initial Listing Standards for Preferred Stock and Similar 
Issues and Secondary Classes of Common Stock

    For initial listing, if the common stock or common stock equity 
equivalent security of the issuer is listed on the Exchange or on the 
NYSE, The Nasdaq Global Market or the Amex, the issue shall have:
     At least 200,000 publicly held shares;
     A market value of publicly held shares of at least 
$4,000,000;
     A minimum closing price per share of $5;
     A minimum of 100 round lot shareholders.
    Alternatively, in the event the issuer's common stock or common 
stock equivalent security is not listed on either the Exchange or on 
the NYSE, The Nasdaq Global Market or the Amex, the preferred stock 
and/or secondary class of common stock may be traded on the Exchange so 
long as the security satisfies the initial listing criteria for common 
stock.

Summary of Current and Proposed Continued Listing Standards

Current Continued Listing Standards for Common Stock

    To qualify for continued listing as a Tier I security, issuers must 
satisfy, among other things, the numerical criteria set forth in NYSE 
Arca Equities Rule 5.5(b). To qualify for continued listing as a Tier 
II security, issuers must satisfy, among other things, the numerical 
criteria set forth in NYSE Arca Equities Rule 5.5(h).
    These requirements are:
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    \16\ If the issuer has sustained losses from continuing 
operations and/or net losses in two of the last three fiscal years, 
then it must have a minimum of $2 million in net worth. If the 
issuer has sustained losses from continuing operations and/or net 
losses in three of the last four fiscal years, then it must have a 
minimum of $4 million in net worth.
    \17\ Alternatively, an issuer must have at least 300 beneficial 
holders of 100 shares or more.
    \18\ NYSE Arca Equities Rules 5.5(b) and (h) provide that NYSE 
Arca Equities may waive the minimum bid price requirements upon 
consideration of market conditions, the issuer's capitalization, the 
number of outstanding and publicly held shares, and any other 
factors NYSE Arca Equities deems appropriate. This proposal 
eliminates this provision and replaces it with the ``cure period'' 
set forth in revised Rule 5.5(b).

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                                              Tier I (Rule 5.5(b))               Tier II (Rule 5.5(h))
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Net tangible assets or Net worth........  $2,000,000 or 4,000,000      $500,000 or 2,000,000.
                                           \16\.
Public float (shares)...................  200,000....................  300,000.
Public beneficial holders...............  400 \17\...................  250.
Market value............................  $1,000,000.................  $500,000.
Bid price \18\..........................  $3.........................  $1.
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Proposed Continued Listing Standards for Common Stock and Common Stock 
Equivalent Securities

    With this filing, NYSE Arca is proposing to eliminate the two 
tiered structure and replace, in their entirety, the current Tier I and 
Tier II numerical standards for continued listing for common stock set 
forth in NYSE Arca Rules 5.5(b) and (h), respectively, except that Rule 
5.5(h) will continue to be applied to common stocks listed with a Tier 
II designation prior to the effectiveness of this filing. In their 
place, this filing proposes in new Rule 5.5(b) to require for continued 
listing that a listed common stock must meet the criteria set forth in 
either Continued Listing Standard One or Continued Listing Standard Two 
below to continue to remain listed on the Exchange. All of the existing 
Tier I issuers and securities currently meet the requirements of the 
proposed continued listing standards. As such, the Exchange does not 
need to provide a phase in period for compliance with the new rules and 
will be able to apply them as soon as the Commission approves the Pilot 
Program.
    Under the proposed new standards, a listed common stock must meet 
each of the criteria set forth in Continued Listing Standards One or 
Two below to continue to remain listed on the Exchange.

Continued Listing Standard One

     750,000 publicly held shares;
     Market value of publicly held shares of $5 million;
     The issuer has stockholders' equity of at least $10 
million; and
     400 shareholders of round lots.

Continued Listing Standard Two

     The issuer has:
    [cir] A market value of listed securities of $50 million or, in the 
case of non-U.S. companies, a global market capitalization of $50 
million; or
    [cir] total assets and total revenue of $50 million each for the 
most recently completed fiscal year or two of the last three most 
recently completed fiscal years.
     1,100,000 shares publicly held;
     Market value of publicly held shares of $15 million; and
     400 shareholders of round lots.
    In the case of a non-U.S. company with ADRs listed on the Exchange, 
the term ``global market capitalization'' means (x) the closing sale 
price per share of the common stock or common stock equivalent security 
underlying the ADRs multiplied by (y) the number of shares of such 
common stock or common stock equivalent security outstanding worldwide 
(including any shares underlying outstanding ADRs).
    In addition, an issuer will also be considered to be below 
compliance standards if the average closing price of a security is less 
than $1.00 over a consecutive 30 trading-day period. Once notified, the 
issuer must bring its share price and average share price back above 
$1.00 by six months following receipt of the notification. The issuer 
must, however, notify the Exchange, within 10 business days of receipt 
of the notification, of its intent to cure this deficiency or be 
subject to suspension and delisting procedures. Once a U.S. issuer is 
notified that it is below compliance, it is required to issue a press 
release disclosing the fact that it has fallen below the continued 
listing standards of the Exchange concurrent with filing notice of such 
non-compliance with the SEC as required by Form 8-K. Once a foreign 
private issuer is notified that it is below compliance, the issuer has 
30 days to issue a press

[[Page 69170]]

release disclosing the fact that it has fallen below the continued 
listing standards of the Exchange. If the foreign private issuer fails 
to issue this press release during the allotted 30 days, the Exchange 
will issue the requisite press release. In the event that at the 
expiration of the six-month cure period, both a $1.00 share price and a 
$1.00 average share price over the preceding 30 trading days are not 
attained, the Exchange will commence suspension and delisting 
procedures.
    Notwithstanding the foregoing, if an issuer determines that, if 
necessary, it will cure the price condition by taking an action that 
will require approval of its shareholders, it must so inform the 
Exchange in the above referenced notification, must obtain the 
shareholder approval by no later than its next annual meeting, and must 
implement the action promptly thereafter. The price condition will be 
deemed cured if the price promptly exceeds $1.00 per share, and the 
price remains above the level for at least the following 30 trading 
days.
    Notwithstanding the foregoing, if the subject security is not the 
primary trading common equity security of the issuer (e.g., a tracking 
stock or a preferred class), as discussed in more detail below, the 
Exchange may determine whether to apply this test to such security 
after evaluating the financial status of the issuer.

Continued Listing Standards for Preferred Stock and Similar Issues and 
Secondary Classes of Common Stock

    NYSE Arca proposes to replace its existing continued listing 
standards for preferred stock and similar issues with the requirements 
described below and to also apply those requirements to secondary 
classes of common stock.
    For continued listing, if the common stock or common stock equity 
equivalent security of the issuer is listed on the Exchange or on the 
NYSE, The Nasdaq Global Market or the Amex, the issue shall have:
     At least 100,000 publicly held shares;
     A market value of publicly held shares of at least 
$1,000,000;
     A minimum closing price per share of $1;
     A minimum of 100 round lot shareholders.
    If the preferred stock or similar issue is the issuer's only 
security listed on the Exchange, after evaluating the financial status 
of the issuer, the Exchange may choose to apply the six-month cure 
period provided under the proposed common stock continued listing 
standards to any failure to maintain a $1 closing price.
    Alternatively, in the event the issuer's common stock or common 
stock equivalent security is not listed on either the Exchange or on 
the NYSE, The Nasdaq Global Market or the Amex, the preferred stock 
and/or secondary class of common stock may be listed on the Exchange so 
long as the security satisfies the continued listing criteria for 
common stock.

Other Securities Pre-Tax Income Requirement

    To conform to the parallel provision in Standard One of the 
proposed common stock initial listing standards, the Exchange proposes 
to increase the pre-tax income from continuing operations standard of 
NYSE Arca Equities Rule 5.2(e) (``Bonds and Debentures''), NYSE Arca 
Equities Rule 5.2(g) (``Contingent Value Rights''), NYSE Arca Equities 
Rule 5.2(j)(1) (``Other Securities'') and NYSE Arca Equities Rule 
5.2(j)(4) (``Index-Linked Exchangeable Notes'') from $750,000 to $1 
million.\19\
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    \19\ The Commission notes that, among other things, the Exchange 
proposes other clarifying changes, additional definitions, and 
different net worth standards for bonds and debentures, contingent 
value rights, other securities, and index-linked exchangeable notes.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act,\20\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act \21\ in particular, because it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, and to remove impediments to and perfect the mechanism of a 
free and open market and a national market system.
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    \20\ 15 U.S.C. 78f(b).
    \21\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments on the proposed rule change were neither solicited 
nor received.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change 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-NYSEArca-2006-85 on the subject line.

Paper Comments:

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2006-85. 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 Exchange. 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-NYSEArca-2006-85 and should be submitted on or before 
December 20, 2006.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder

[[Page 69171]]

applicable to a national securities exchange.\22\ In particular, the 
Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act,\23\ which requires that an exchange have 
rules designed, among other things, 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 are not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \22\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rules' impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \23\ 15 U.S.C. 78f(b)(5).
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    The Exchange proposes to make significant changes to its initial 
and continued listing standards. Among other things, the Exchange would 
no longer have a two-tiered listing structure. The Exchange represents 
that all existing Tier I issuers would meet one of the proposed 
continued listing standards set forth in proposed NYSE Arca Equities 
Rule 5.5(h). Further, the proposal would include a grandfather clause 
to ensure that the existing Tier II issuers would have the option to 
remain listed on the Exchange for as long as they meet the continued 
listing standards. The Commission believes that the proposal is 
designed not to permit unfair discrimination among issuers, since the 
proposal would treat all prospective issuers and existing Exchange-
listed issuers equally.
    Although the proposal significantly restructures and changes NYSE 
Arca listing standards, as discussed below, the changes are 
substantially similar to The Nasdaq Global Market initial and continued 
listing standards. Based on this, the Commission believes it is 
reasonable for the Exchange to determine that companies that meet these 
new listing standards are appropriate for inclusion and continued 
listing on NYSE Arca. For these reasons, as discussed in more details 
below, the Commission finds that the proposal is consistent with the 
requirements of the Act.

A. Initial Listing Standards

    As proposed, the Exchange's common stock or common stock equivalent 
securities \24\ initial listing standards would be significantly 
modified and the Exchange would no longer have Tier I or Tier II 
securities. Common stock or common stock equivalent securities would 
need: (1) At least 1.1 million publicly held shares; (2) a closing 
price per share of $5 or more; and (3) a minimum of 400 round lot 
shareholders, in addition to meeting the additional standards set forth 
in one of three alternatives.\25\ Among other things, Standard 1 and 
Standard 2 would replace the current net worth requirement with an 
increased stockholders' equity requirement of $15,000,000 and 
$30,000,000, respectively. In addition, under Standard 3, the current 
net worth requirement would be eliminated and the issuer would be 
required to have a market value of listed securities of $75,000,000 or 
total assets and total revenue of $75,000,000 each for the most 
recently completed fiscal year or two of the last three most recently 
completed fiscal years. The Commission notes that the proposed initial 
listing standards for common stock or common stock equivalent 
securities are substantially similar to The Nasdaq Global Market 
initial listing standards.\26\
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    \24\ See proposed NYSE Arca Equities Rule 5.1(b)(26).
    \25\ See proposed NYSE Arca Equities Rule 5.2(c).
    \26\ See Nasdaq Rule 4420(a)-(c).
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    The Exchange's proposed preferred stock (and similar issues) and 
secondary classes of common stock initial listing standards would also 
be significantly modified. The Exchange would eliminate the current net 
worth and earnings requirements, and increase the current publicly held 
shares requirement and market value requirement. The Exchange would 
also lower the current bid price requirement. As proposed, if the 
common stock or common stock equivalent security of the issuer is 
listed on the Exchange, NYSE, The Nasdaq Global Market, or Amex, these 
securities must have: (1) At least 200,000 publicly held shares; (2) a 
market value of publicly held shares of at least $4 million; (3) a 
closing price per share of $5 or more; and (4) a minimum of 100 round 
lot shareholders.\27\ If the common stock or common stock equivalent 
security of the issuer is not listed on the Exchange, NYSE, The Nasdaq 
Global Market, or Amex, these securities must satisfy the initial 
listing standards for common stock.\28\ The Commission notes that these 
requirements are substantially similar to The Nasdaq Global Market 
initial listing standards.\29\
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    \27\ See proposed NYSE Arca Equities Rule 5.2(d).
    \28\ See proposed NYSE Arca Equities Rule 5.2(d).
    \29\ See Nasdaq Rule 4420(k).
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    The Exchange also proposes to amend the initial listing standards 
for bonds and debentures and contingent value rights by increasing the 
net worth requirement and pre-tax income requirement consistent with 
the proposed common stock initial listing standards. In addition, the 
Exchange proposes to amend the initial listing standards for other 
securities and index-linked exchangeable notes to add a pre-tax income 
requirement, consistent with the pre-tax income requirements of the 
common stock initial listing standards. The pre-tax income requirement 
for these securities is being raised from $750,000 to $1,000,000.
    Based on the foregoing, the Commission believes that the proposed 
amendments to the NYSE Arca Equities initial listing standards are 
consistent with the requirements of the Act.

B. Continued Listing Standards

    The Commission believes that the proposed amendments to the NYSE 
Arca Equities continued listing standards are consistent with the 
requirements of the Act. The Exchange proposes to amend the common 
stock or common stock equivalent securities continued listing standard, 
by requiring that common stock must meet the standards set forth in one 
of two alternatives.\30\ Both common stock continued listing standards 
would increase the current publicly held shares requirement. In 
addition, the current $1,000,000 market value requirement would be 
increased to a $5,000,000 market value of publicly held shares 
requirement under Continued Listing Standard 1 and $15,000,000 under 
Continued Listing Standard 2. Continued Listing Standard 1 would 
replace the current net worth requirement of $2,000,000 or $4,000,000 
with a higher stockholders' equity requirement of $10,000,000. 
Continued Listing Standard 2 would eliminate the current net worth 
requirement, but require companies to maintain a market value of listed 
securities of $50,000,000 (in the case of non-U.S. companies, a global 
market capitalization of $50,000,000), or total assets and total 
revenue of $50,000,000 each for the most recently completed fiscal year 
or two of the last three most recently completed fiscal years. In 
addition, the Exchange would require under both common stock continued 
listing standards that all common stock have an average closing price 
of at least $1.00 over a consecutive 30-day trading period, instead of 
the current $3 bid price requirement.\31\ The Commission notes that the 
proposed continued listing standards for common stock, common stock 
equivalent securities and similar issues are substantially similar

[[Page 69172]]

to The Nasdaq Global Market continued listing standards.\32\
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    \30\ See proposed NYSE Arca Equities Rule 5.5(b).
    \31\ As noted above, issuers would have six months to cure this 
deficiency. See proposed NYSE Arca Equities Rule 5.5(b).
    \32\ See Nasdaq Rule 4450(a)-(b).
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    The Exchange also proposes to amend the preferred stock (and 
similar issues) and secondary classes of common stock continued listing 
standards.\33\ The Exchange would eliminate the current net worth 
requirement and continuing operations requirements. In addition, the 
proposed new preferred continued listing standards would contain a new 
$1 bid price requirement. The Commission notes that the proposed 
continued listing standards for preferred stock and similar issues and 
secondary classes of common stock are substantially similar to The 
Nasdaq Global Market continued listing standards.\34\
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    \33\ See proposed NYSE Arca Equities Rule 5.5(c).
    \34\ See Nasdaq Rule 4450(h).
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C. Other Changes

    The proposed rule change would permit the Exchange, rather than its 
board of directors, to approve securities for listing and to prescribe 
the form of listing applications.\35\ In particular, the Exchange may 
deny listing or apply additional or more stringent criteria based on 
any event, condition, or circumstance that makes the listing of the 
company inadvisable or unwarranted in the opinion of the Exchange. Such 
determination could be made even if the company meets the standards set 
forth below. The Commission believes that it is reasonable for the 
Exchange, based upon its experience, to determine whether the security 
of a company would be appropriate for inclusion on NYSE Arca. The 
Commission notes that this amendment is similar to NYSE's listing 
standards.\36\ Further, with respect to the continued listing standards 
of all securities, the Exchange proposes to require all issuers to 
comply with the Exchange's corporate governance qualitative standards, 
rather than only the independent directors/board committees requirement 
in current NYSE Arca Equities Rule 5.3(k).\37\ The Commission believes 
that these amendments are consistent with the requirements of the Act.
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    \35\ See proposed NYSE Arca Equities Rule 5.1(a) and 5.2(a).
    \36\ See NYSE Listed Company Manual Section 101.00.
    \37\ See also NYSE Arca Equities Rule 5.5(k), which sets forth 
other reasons for suspending or delisting securities on the 
Exchange.
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D. Accelerated Approval

    Pursuant to Section 19(b)(2) of the Act,\38\ the Commission may not 
approve any proposed rule change prior to the 30th day after the date 
of publication of notice of the filing thereof, unless the Commission 
finds good cause for so doing and publishes its reasons for so finding. 
The Exchange has requested the Commission find good cause for approving 
the proposed rule change prior to the 30th day after the date of 
publication of notice in the Federal Register.
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    \38\ 15 U.S.C. 78s(b)(2).
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    The Commission believes that it is reasonable to grant accelerated 
approval to allow for the efficient administration of the Exchange's 
initial and continued listing programs as promptly as possible. The 
Commission notes that the proposed listing standards, while 
significantly different than the Exchange's current listing standards, 
are substantially similar to The Nasdaq Global Market, which the 
Commission previously approved. In addition, the Commission notes that 
the proposed listing standards would be in effect only as a pilot 
program for a six-month period.\39\ Accordingly, the Commission 
believes that there is good cause, pursuant to Sections 6(b)(5) of the 
Act \40\ and 19(b)(2) of the Act,\41\ to grant accelerated approval to 
the proposed rule change prior to the 30th day after the date of 
publication of notice in the Federal Register.
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    \39\ In any request under Section 19(b) of the Act for permanent 
approval or an extension of the pilot period, the Exchange may wish 
to report on the operations of the new standards during the pilot 
period.
    \40\ 15 U.S.C. 78f(b)(5).
    \41\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with the Act and the rules and regulations 
thereunder applicable to a national securities exchange, and, in 
particular, with Section 6(b)(5) of the Act.\42\
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    \42\ 15 U.S.C. 78f(b)(5). The staff of the Division of Market 
Regulation (``Staff'') would not recommend enforcement action to the 
Commission under Rules 15g-2 through 15g-9 under the Act if broker-
dealers treat equity securities listed pursuant to the initial and 
continued listing requirements set forth in amended NYSE Arca 
Equities Rule 5 as meeting the exclusion from the definition of 
penny stock contained in Rule 3a51-1 udner the Act pursuant to 
paragraph (a)(2) thereof. In taking this position, the Staff notes 
in particular that these amended listing requirements are 
equivalent, in all material respects, to the listing requirments of 
the The Nasdaq Global Market.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\43\ that the proposed rule change (SR-NYSEArca-2006-85), is hereby 
approved on an accelerated basis, as a six-month pilot, until May 29, 
2007.
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    \43\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\44\
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    \44\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-20211 Filed 11-28-06; 8:45 am]
BILLING CODE 8011-01-P