[Federal Register Volume 72, Number 196 (Thursday, October 11, 2007)]
[Notices]
[Pages 57982-57984]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-20025]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56606; File No. SR-NYSEArca-2007-69]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Accelerated Approval of Proposed Rule Change, as Modified by Amendment 
No. 1, and Notice of Filing of Amendment No. 1 Thereto Relating to 
Adoption of Revised Initial and Continued Listing Standards for the 
Pilot Program Expiring on November 30, 2007

October 3, 2007.

I. Introduction

    On July 23, 2007, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
amend its initial and continued listing standards for the listing of 
common stock under a pilot program expiring on November 30, 2007 
(``Pilot Program'').\3\ The proposed rule change was published for 
comment in the Federal Register on August 16, 2007.\4\ The Commission 
received no comments on the proposal. On September 27, 2007, NYSE Arca 
filed Partial Amendment No. 1 to the proposed rule change.\5\ This 
order approves the proposed rule change, as modified by Amendment No. 
1, on an accelerated basis, and provides notice of filing of Amendment 
No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The Commission initially approved the Pilot Program for six 
months, until May 29, 2007. See Securities Exchange Act Release No. 
54796 (November 20, 2006), 71 FR 69166 (November 29, 2006) (SR-
NYSEArca-2006-85). The Pilot Program was subsequently extended for 
an additional six months, until November 30, 2007. See Securities 
Exchange Act Release No. 55838 (May 31, 2007), 72 FR 31642 (June 7, 
2007) (SR-NYSEArca-2007-51).
    \4\ See Securities Exchange Act Release No. 56232 (August 9, 
2007), 72 FR 46119.
    \5\ In Partial Amendment No. 1, NYSE Arca (i) Indicates that it 
is the Exchange's current practice to require, in the case of 
initial public offerings, at least $5 per share, based on the 
initial public offering price; (ii) codifies the Exchange's current 
practice of requiring at least $5 per share for initial public 
offerings; (iii) describes the Exchange's process to verify 
compliance with the initial listing requirements; and (iv) clarifies 
that the Exchange is amending the closing price per share for 
currently listed issuers by requiring them to meet the price for at 
least 90 consecutive trading days prior to applying for listing.
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II. Description of the Proposal

    NYSE Arca proposes to amend its initial and continued listing 
standards under the Pilot Program. According to the Exchange, based on 
its experience in the initial six-month period of the Pilot Program, 
the Exchange concluded that the listing standards would qualify many 
companies for listing that are much smaller than the minimum size it 
wishes to include in its target market. NYSE Arca further noted that 
the proposed amended initial listing standard would exclude from 
qualification some companies that currently qualify to list but whose 
size or financial performance is not consistent with that of the kind 
of issuer NYSE Arca intends to list.

A. Initial Listing Standards

    The current NYSE Arca listing standards require for initial listing 
that, at the time of initial listing, the listed class of common stock 
shall have: \6\
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    \6\ See NYSE Arca Equities Rule 5.2(c).
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    At least 1.1 million publicly held shares.
    A closing price per share of $5 or more.\7\
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    \7\ In the case of initial public offerings, the Exchange 
represents that it interprets the provision as requiring an initial 
public offering price of $5 per share or more. See Partial Amendment 
No. 1, supra note 5.
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    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:
    A market value of listed securities of at least $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
    Total assets and total revenue of at least $75 million each for the 
most

[[Page 57983]]

recently completed fiscal year or in each of two of the last three most 
recently completed fiscal years. NYSE Arca proposes to eliminate 
Standards One and Two and require all issuers to qualify under an 
amended version of existing Standard Three. As proposed, the market 
value of publicly held shares requirement of Standard Three would be 
raised from $20 million to $45 million. All issuers would be required 
to meet the market value of listed securities of Standard Three, which 
would be raised from $75 million to $150 million. In addition, the 
issuer of the security would be required to meet two of the following 
four conditions:
    Total assets of at least $75 million.
    Total revenues of at least $50 million for the most recently 
completed fiscal year.
    Stockholders' equity of at least $50 million.
    Positive pre-tax earnings in the most recently completed fiscal 
year.
    Finally, NYSE Arca is amending the closing price per share 
requirement. Currently, NYSE Arca requires a closing price of $5 per 
share or more and does not differentiate between initial public 
offerings and currently traded issuers.\8\ NYSE Arca proposes to 
require (1) In the case of initial public offerings, an initial public 
offering price of $5 per share or more \9\ and (2) in the case of 
currently traded issuers, a closing price of $5 per share or more for 
90 consecutive trading days prior to applying for listing.\10\
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    \8\ The Commission notes that the previous language in the $5.00 
minimum closing price did not specify how a company listing for the 
first time would meet this requirement since there would be no 
previous closing price history. In Partial Amendment No 1, NYSE Arca 
described the Exchanges process to verify compliance with initial 
listing standards in an initial public offering situation.
    \9\ According to the Exchange, in the case of initial public 
offerings, the issuer or principal underwriter must provide NYSE 
Arca with a letter of representation stating that the issuer is 
expected to be in compliance with the requisite holders, market 
value, and share price requirements upon completion of the offering. 
The letter of representation must provide NYSE Arca with an 
approximation of the anticipated numerical levels for each of the 
cited criteria. NYSE Arca also requires issuers to provide a 
distribution schedule signed by an executive officer of the issuer, 
providing the best available estimate of the number of beneficial 
holders. For transfer listings, this form is due prior to admission 
to trading. For initial public offerings, this form is due within 
120 days after completion of the offering. NYSE Arca represents that 
it intends to continue the foregoing procedures in connection with 
the application of its initial listing standards as amended by this 
filing.
    \10\ Under current NYSE Arca rules, only issuers qualifying for 
listing under the first alternative of Standard Three would have to 
meet the $5 closing price requirement for 90 consecutive trading 
days prior to applying for listing. This change would require all 
currently traded issuers to meet the price requirement for 90 
consecutive days prior to listing.
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B. Continued Listing Standards

    The current NYSE Arca listing standards require for continued 
listing that the listed class of common stock shall meet either 
Continued Listing Standard One or Continued Listing Standard Two. The 
factors for Continued Listing Standard One are:
    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.
    NYSE Arca proposes to amend Continued Listing Standard One as 
follows:
    The publicly held shares requirement would be raised from 750,000 
to 1.1 million shares.
    The market value of publicly held shares requirement would be 
raised from $5 million to $15 million.
    The stockholders' equity would be raised from $10 million to $15 
million.
    The minimum of 400 round lot shareholders would remain the same. 
NYSE Arca is not amending Continued Listing Standard Two.

III. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\11\ In 
particular, the Commission finds that the proposed rule change is 
consistent with section 6(b)(5) of the Act,\12\ 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, 
protect investors and the public interest, and are not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers. The development and enforcement of adequate standards 
governing the initial and continued listing of securities on an 
exchange is an activity of critical importance to financial markets and 
the investing public. Listing standards serve as a means for an 
exchange to screen issuers and to provide listed status only to bona 
fide companies with sufficient public float, investor base, and trading 
interest to ensure that the market for a company's stock has the depth 
and liquidity necessary to maintain fair and orderly markets. Adequate 
standards are especially important given the expectations of investors 
regarding exchange trading and the imprimatur of listing on a 
particular market. Once a security has been approved for initial 
listing, maintenance criteria allow an exchange to monitor the status 
and trading characteristics of that issue to ensure that it continues 
to meet the exchange's standards for market depth and liquidity so that 
fair and orderly markets can be maintained.
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    \11\ 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).
    \12\ 15 U.S.C. 78f(b)(5).
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    As discussed in more detail below, the new standards will allow 
NYSE Arca to list certain types of companies that meet specified 
criteria, including size, market value, holder, and price requirements, 
which should help to ensure that listed companies have sufficient depth 
and liquidity to maintain a fair and orderly market. The Commission 
notes that the proposed NYSE Arca initial listing standards remain more 
restrictive than the current Pilot Program requirements for current 
initial listing Standard Three. For example, the market value of 
publicly held shares would increase from $20 million to $45 
million.\13\ In addition, the market value of listed securities would 
increase from $75 million to $150 million.\14\ As noted above, the 
continued listing standards under Standard One are being increased to 
reflect the increased initial listing standards. For example, the 
market value of publicly held shares is raised from $5 million to $15 
million, the publicly held shares requirement is raised from 750,000 to 
1.1 million shares, and the stockholders' equity is raised from $10 
million to $15 million.
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    \13\ See proposed NYSE Arca Equities Rule 5.2(c)(iv).
    \14\ See proposed NYSE Arca Equities Rule 5.2(c)(v). In 
addition, under the proposal, an issuer must meet two of the four 
factors noted above that serve as indicators of the issuer's 
financial condition.
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    While the rule proposal will allow NYSE Arca to exclude from 
qualification some companies that currently qualify to list, but whose 
size or financial performance is not consistent with the kind of issuer 
the Exchange has stated it intends to list, the Commission believes 
that as long as there are requirements to ensure adequate depth and 
liquidity, and other regulatory requirements are in place to ensure 
adequate investor protections, that it is within the Exchange's 
business judgment to determine it no longer wants to qualify for 
listing these type of smaller companies under its rules.\15\

[[Page 57984]]

Further, the Exchange has represented that any currently listed issuers 
who would be below the proposed continued listing standards will have 
an ability to gain compliance through the Exchange's normal process. 
The Exchange's rules, among other things, set forth certain due process 
procedures, including a right of review, with respect to any delisting 
determination by the Exchange.\16\
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    \15\ The Commission notes that under NYSE Arca rules, the 
Exchange has broad discretion to deny listing to any company based 
on any event, condition, or circumstance that makes listing of the 
company inadvisable or unwarranted in the opinion of the Exchange. 
Further, the Commission notes that the rule permits the Exchange to 
deny listing even if the company meets the listing standards. See 
NYSE Arca Equities Rule 5.2(a).
    \16\ See NYSE Arca Equities Rule 5.5(m).
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    Finally, NYSE Arca is making some clarifying changes to the $5.00 
minimum closing price requirement.\17\ For initial public offerings, 
NYSE Arca is codifying its current practice of requiring an initial 
public offering price per share of $5 or more.\18\ For currently traded 
issuers, NYSE Arca is amending the current $5 price per share 
requirement by adding the Standard Three requirement of meeting the 
minimal price per share for 90 consecutive trading days prior to 
applying for listing. The Commission believes that the proposed changes 
to the price per share requirement will provide clarity to issuers on 
the price requirements to list on NYSE Arca and ensure that currently 
traded issuers must evidence some minimum price history to qualify for 
listing.
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    \17\ See proposed NYSE Arca Equities Rule 5.5(c)(ii).
    \18\ See supra note 9, which discuss compliance with the initial 
listing standards for initial public offerings.
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    Based on the above, the Commission believes the rule change is 
reasonable and should continue to provide only for the listing of 
securities with a sufficient investor base to maintain fair and orderly 
markets. While the changes will remove certain alternative initial 
listing standards under NYSE Arca rules that may have actually been 
higher in some respects from the current standards, because these are 
all alternative standards and the proposal actually increases existing 
requirements under initial listing alternative Standard Three and makes 
that the sole alternative for qualifying for listing, taken as a whole, 
the Commission believes the standards are an increase over the current 
standards. The continued listing standards also are an increase 
compared to existing standards. Accordingly, the Commission believes 
that the changes adequately protect investors and the public interest.

IV. Accelerated Approval of Proposed Rule Change as Modified by 
Amendment No. 1

    Pursuant to section 19(b)(2) of the Act,\19\ the Commission finds 
good cause to approve the proposal, as modified by Amendment No. 1, 
prior to the thirtieth day after the publication of the proposal in the 
Federal Register. The Commission notes that the Exchange is codifying 
its current procedures with respect to the initial public offering 
price per share requirement and clarifies that the proposal would 
change the price per share requirement for currently listed issuers by 
requiring them to meet this price requirement for a specified period of 
time. The Commission believes that Amendment No. 1 clarifies the 
proposed rule language and does not introduce any new regulatory 
issues. For these reasons, the Commission finds good cause for 
approving the proposal, as modified by Amendment No. 1, on an 
accelerated basis.
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    \19\ 15 U.S.C. 78s(b)(2).
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V. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 1, including whether the amendment 
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-2007-69 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-2007-69. 
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, 100 F Street, 
NE., Washington, DC 20549, on official business days between the hours 
of 10 a.m. and 3 p.m. 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-2007-69 and should 
be submitted on or before November 1, 2007.

VI. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment No. 1, 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.\20\
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    \20\ The approval order for the Pilot Program noted that the 
staff of the Division of Market Regulation would not recommend 
enforcement action to the Commission under Rules 15g-2 through 15g-9 
under the Act if broker-dealers treated equity securities listed 
pursuant to the initial and continued listing standards set forth in 
amended NYSE Arca Equities Rule 5 as meeting the exclusion from the 
definition of penny stock contained in Rule 3a51-1 under the Act 
pursuant to paragraph (a)(2) thereof. See supra note 3. Because the 
alternative listing standard contained in Rule 5.2(c)(3)(ii)(b) of 
the Pilot Program, which necessitated no-action relief, is not 
included in the amended listing standards, no-action relief would 
not be required for the new standards being adopted in this order.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\21\ that the proposed rule change (SR-NYSEArca-2007-69), as 
modified by Amendment No. 1, be, and hereby is, approved on an 
accelerated basis, as a pilot until November 30, 2007.
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    \21\ 15 U.S.C. 78s(b)(2).
    \22\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\22\
Nancy M. Morris,
Secretary.
[FR Doc. E7-20025 Filed 10-10-07; 8:45 am]
BILLING CODE 8011-01-P