[Federal Register Volume 73, Number 180 (Tuesday, September 16, 2008)]
[Notices]
[Pages 53471-53472]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-21544]



[[Page 53471]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58500; File No. SR-NYSE-2008-57)


Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Approving Proposed Rule Change To Adopt on a Permanent Basis a Pilot 
Program Which Allows the Exchange To Adjust the Earnings of Companies 
for Purposes of Its Earnings Standard by Reversing the Income Statement 
Effects of Changes in Fair Value of Financial Instruments Extinguished 
at the Time of Listing

September 9, 2008.

I. Introduction

    On July 23, 2008, the New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to enable the Exchange to adjust the earnings of 
companies by reversing the income statement effects for all periods of 
any changes in fair value of financial instruments classified as a 
liability recorded by the company in earnings, provided such financial 
instrument is either being redeemed with the proceeds of an offering 
occurring in conjunction with the listing or converted into or 
exercised for common stock of the company at the time of listing. The 
proposed rule change was published for comment in the Federal Register 
on August 5, 2008.\3\ The Commission received no comments on the 
proposal. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 58253 (July 30, 
2008), 73 FR 45509.
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II. Description of the Proposal

    The Exchange proposes to amend the earnings standard of Section 
102.01C(I) of the Exchange's Listed Company Manual (``Manual'') to 
enable the Exchange to adjust the earnings of companies listing in 
conjunction with an initial public offering (``IPO'') by reversing the 
income statement effects for all periods of changes in fair value of 
financial instruments classified as a liability recorded by the company 
in earnings, provided such financial instrument is either being 
redeemed with the proceeds of an offering occurring in conjunction with 
the listing or converted into or exercised for common stock of the 
company at the time of listing. The proposed amendment was originally 
implemented for a six-month period as a Pilot Program.\4\ The Pilot 
Program expired and was subsequently renewed for an additional three 
months, expiring on September 2, 2008.\5\
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    \4\ See Securities Exchange Act Release No. 56290 (August 20, 
2007), 72 FR 49033 (August 27, 2007) (SR-NYSE-2007-75).
    \5\ See Securities Exchange Act Release No. 57905 (June 2, 
2008), 73 FR 32613 (June 9, 2008) (SR-NYSE-2008-44).
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    The Exchange believes that it is appropriate to exclude the effects 
of changes in fair value of a financial instrument classified as a 
liability from a company's earnings where the financial instrument is 
being retired at the time of a company's listing either out of the 
proceeds of a concurrent offering or by conversion into common stock at 
the time of listing. The Exchange believes that adjusting company 
earnings for charges arising out of the changes in fair value of 
financial instruments that are retired with the proceeds of an offering 
occurring in conjunction with the listing or converted into common 
stock at the time of listing is consistent with the adjustments that 
are currently permitted under Section 102.01C. Section 102.01C 
currently provides for adjustments to earnings for certain nonrecurring 
charges to earnings that are included in net income as recorded under 
GAAP, such as the exclusion of impairment charges on long-lived assets, 
the exclusion of gains and losses on sales of a subsidiary's or 
investee's stock and the exclusion of in-process purchased research and 
development charges. The Exchange believes that this adjustment is 
reasonable given the purpose of the earnings standard, which is to 
determine the suitability for listing of companies on a forward-looking 
basis.
    The Exchange has stated that, as with all companies listed on the 
Exchange, the Financial Compliance staff of NYSE Regulation will 
monitor on an ongoing basis the compliance with the Exchange's 
continued listing standards of any companies listed in reliance upon 
the proposed amendment. The Exchange represents that such companies 
will be subject to delisting if they are found at any time to be below 
the Exchange's continued listing standards.
    In its proposal, the Exchange stated that as it gains experience in 
listing companies in reliance upon the proposed amendment, it will 
continue to carefully reevaluate its appropriateness. If the Exchange 
becomes aware that companies listed pursuant to the proposed amendment 
have difficulty complying with the Exchange's continued listing 
standards, it will inform the Commission and discuss with the 
Commission the desirability of the continued use of the provision.

III. Discussion and Commission Findings

    After careful review, 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 
and, in particular, with Section 6(b)(5) of the Act,\6\ which requires, 
among other things, that the rules of a national securities exchange be 
designed to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of, a free and open market and a national market 
system, and, in general, to protect investors and the public 
interest.\7\
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    \6\ 15 U.S.C. 78f(b)(5).
    \7\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
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    The Commission believes that the proposed rule change is consistent 
with other adjustments the Exchange currently makes for certain 
nonrecurring charges to earnings when evaluating applicants on a 
forward-looking, post-IPO basis under the existing earnings standard in 
Section 102.01C(I) of the Manual and is reasonable given the purpose of 
the earnings standard, which is to determine the suitability for 
listing of companies on a forward-looking basis. The Commission notes 
that in determining a company's eligibility for listing, these changes 
will allow the Exchange to reverse the income statement effects for all 
periods of changes in fair value of financial instruments classified as 
a liability recorded by the company in earnings, provided such 
financial instrument is either being redeemed with the proceeds of an 
offering occurring in conjunction with the listing or converted into or 
exercised for common stock at the time of listing and will not impact 
the preparation of financial statements by the company listing on the 
Exchange. In addition, the Commission notes that the Exchange will 
monitor companies listing using this new adjustment and notes that the 
Exchange has agreed to discuss the standard with the Commission should 
it prove difficult for such companies to

[[Page 53472]]

comply with the Exchange's continued listing standards.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\8\ that the proposed rule change (SR-NYSE-2008-57) be, and hereby 
is, approved.
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    \8\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-21544 Filed 9-15-08; 8:45 am]
BILLING CODE 8010-01-P