[Federal Register Volume 73, Number 238 (Wednesday, December 10, 2008)]
[Notices]
[Pages 75144-75148]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-29154]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59050; File No. SR-Amex-2008-70]


Self-Regulatory Organizations; American Stock Exchange LLC; Order 
Approving Proposed Rule Change as Modified by Amendment No. 1 Thereto, 
To Revise Its Initial Listing Process To Eliminate the Current Appeal 
Process for Initial Listing Decisions, Add a New Confidential Pre-
Application Eligibility Review Process, and Upgrade Its Listing 
Requirements by Eliminating the Alternative Listing Standards

December 3, 2008.

I. Introduction

    On September 4, 2008, the American Stock Exchange LLC (``Amex,'' or 
the ``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 the procedures for initial listing of 
securities on Amex. On September 17, 2008, Amex filed Amendment No. 1 
to the proposed rule change. The proposed rule change was published for 
comment in the Federal Register on September 24, 2008.\3\ Initially one 
comment was received opposing the proposed rule change.\4\ NYSE 
Alternext

[[Page 75145]]

U.S. LLC \5\ filed a response on October 22, 2008.\6\ Subsequently, an 
additional comment letter was received in response to Alternext's 
letter.\7\ This order approves the proposed rule change, as modified by 
Amendment No. 1 thereto.
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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. 58570 (September 17, 
2008), 73 FR 55185 (``Notice'').
    \4\ See letter from Brendan E. Cryan, Managing Member Brendan E. 
Cyran & Company, LLC, and Jonathan Q. Frey, Chief Operating Officer 
of J. Streicher & Co. L.L.C., dated October 10, 2008 (``Specialist 
Letter 1'').
    \5\ NYSE Alternext U.S. LLC (``Alternext'') is the successor to 
the Amex, after being acquired by the New York Stock Exchange LLC 
(``NYSE'').
    \6\ See letter from Janet Kissane, Corporate Secretary, NYSE 
Alternext U.S. LLC, dated October 22, 2008 (``Alternext Response 
Letter'').
    \7\ See letter from Jonathan Q. Frey, Chief Operating Officer of 
J. Streicher & Co. L.L.C., dated October 30, 2008 (``Specialist 
Letter 2'').
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II. Description of the Proposal

    Sections 101(e) and 1203(c) of the Amex Company Guide currently 
provide that the securities of certain issuers which do not satisfy any 
of the Exchange's regular initial listing standards may nonetheless be 
eligible for initial listing on the Exchange pursuant to the Exchange's 
appeal procedures, which include authorization of approval of the 
listing by a Listing Qualifications Panel of the Exchange's Committee 
on Securities, if (a) the issuer satisfies one of two minimum numerical 
alternative listing standards, and (b) the Listing Qualifications Panel 
makes an affirmative finding that there are mitigating factors that 
warrant listing pursuant to these alternative listing standards.\8\ The 
Exchange proposes to eliminate the two alternative listing 
standards.\9\ In addition, to align its initial listing process with 
the process in place at the NYSE, the Exchange proposes to amend 
Sections 101 and 1201-1206 of the Amex Company Guide to eliminate the 
current appeal process for initial listing decisions by the Exchange. 
The Exchange believes that requiring listing applicants to meet the 
requirements of the Exchange's regular initial listing standards will 
strengthen and enhance its listing standards. Further, the Exchange's 
experience with its existing initial listing appeal process is that it 
has almost never been utilized, and never successfully, to appeal a 
staff determination on the basis that such determination was erroneous. 
According to Amex, the few appeals made have been by issuers seeking 
listing under the two aforementioned alternative listing standards 
(which can only be achieved through the appeal processes).
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    \8\ The issuer is also required to make an announcement through 
the news media that it has been approved for listing pursuant to the 
alternative listing standards. See Section 1203(c)(iii) of the Amex 
Company Guide.
    \9\ The Exchange notes that a relatively small number of 
companies are listed on the Exchange each year under the two 
alternative listing standards that are being eliminated under the 
proposed rule change. See infra note 18.
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    The Exchange also proposes to add a new mandatory confidential pre-
application eligibility review process for companies considering an 
initial listing on the Exchange. Pursuant to this process, company 
officials seeking a listing on the Exchange would be required to 
undertake preliminary confidential discussions with the Exchange, prior 
to submitting a formal listing application, to determine whether its 
securities are eligible for listing approval. Only after a company has 
cleared the confidential pre-application eligibility review and has 
been authorized by the Exchange to proceed may it file an original 
listing application and complete the other formal steps in the original 
listing process pursuant to Section 202 of the Amex Company Guide.\10\ 
The information needed for the purpose of conducting a confidential 
pre-application eligibility review is set forth in current Sections 
210-222 of the Amex Company Guide.\11\ There will be no charge to the 
company in connection with the confidential pre-application eligibility 
review.
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    \10\ The confidential pre-application eligibility review process 
would be comparable to the process in place at the NYSE as described 
in Sections 101, 104 and 701 of the NYSE Listed Company Manual.
    \11\ Sections 210-220 of the Amex Company Guide currently 
contain requirements for original listing applications. With the 
adoption of the pre-application eligibility review, these same 
criteria will be required for that process as well.
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    The Exchange anticipates that the proposed new confidential pre-
application eligibility review process will enable it to provide an 
issuer with guidance and clarification on whether or not it is eligible 
for listing on a more expeditious basis. The Exchange believes that the 
new confidential pre-application eligibility review process will 
provide a fair procedure, consistent with Section 6(b)(7) of the 
Act,\12\ for all issuers seeking listing, including those that receive 
an adverse determination. Specifically, consistent with the Exchange's 
current review process, initial listing eligibility determinations must 
be made in accordance with the criteria specified in the Exchange's 
listing standards, following a rigorous staff analysis and managerial 
oversight. The Exchange asserts that this structured review process, 
based on transparent standards, mitigates against erroneous 
determinations.
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    \12\ 15 U.S.C. 78f(b)(7).
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    The Exchange represents that it has considered how to transition 
the proposed rule change and proposes the following treatment for 
issuers that have applications currently in process for an initial 
listing on the Exchange. Any initial listing applications that are 
already filed and in process with the Exchange as of the date of 
effectiveness of this proposed rule change (``Legacy Applications'') 
will be treated as if they were still governed by the initial listing 
procedures in the Amex Company Guide as in effect immediately prior to 
such date of effectiveness, which effective date will be the date of 
approval of the rule change by the Commission. Consequently, companies 
with Legacy Applications would have the right to appeal the initial 
listing decision and to be evaluated for listing under the alternative 
initial listing standards that are being eliminated by this filing. To 
this end, the Exchange proposes the addition of a temporary Section 
1212T to the Amex Company Guide. Temporary Section 1212T will contain 
the current initial listing provisions of the Amex Company Guide that 
reference the alternative listing standards and other provisions of 
Part 12 that are applicable to such alternative standards, which are 
otherwise being proposed for deletion from the Amex Company Guide. The 
temporary provisions of Rule 1212T will apply solely to the Legacy 
Applications and will otherwise be of no force or effect.
    In addition to the changes discussed above, the Exchange is also 
proposing three other minor changes of a ``housekeeping'' nature to the 
text of the Amex Company Guide. Section 206, containing an outdated and 
non-substantive reference to listing day, would be eliminated. An 
outdated reference in Section 1202 to the Listing Investigations 
Department (which no longer exists) would be deleted under the proposed 
rule change. Finally, language in Section 1201(d) listing a number of 
non-quantitative factors that the Exchange will consider in evaluating 
an initial listing application would be eliminated under the proposal, 
because those factors (and certain others) are already set forth in 
Section 101.
    Amex filed the proposed rule change to implement a NYSE Euronext 
business plan for the Amex after the consummation of the transactions 
contemplated by the merger agreement dated January 17, 2008 among the 
Exchange, the Amex Membership Corporation, NYSE Euronext and certain 
other entities, whereby a successor to the Exchange will become an 
indirect, wholly-owned subsidiary of NYSE Euronext (the 
``Acquisition''). The Acquisition was completed on October

[[Page 75146]]

1, 2008, so pursuant to the implementation schedule set forth by the 
Exchange, the proposal will take effect upon Commission approval.\13\
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    \13\ See Securities Exchange Act Release No. 58673 (September 
29, 2008), 73 FR 58995 (October 1, 2008); see Notice, supra 3.
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III. Summary of Comments

    Specialist Letter 1 objects to the Exchange's elimination of the 
alternative listing standards and states that, at a minimum, Amex 
should be required to more fully explain its concerns with the 
alternative standards so that the commenters and the public can 
adequately analyze the proposal.\14\ In this regard, Specialist Letter 
1 raised several issues or requests for additional clarification.\15\ 
First, Specialist Letter 1 is skeptical of the Exchange's proposition 
that the elimination of the two alternative listing standards will 
strengthen and enhance the initial listing standards.\16\ The Exchange 
responded that this is adequately addressed in the Notice and that the 
Exchange made a business determination to eliminate the alternative 
listing standards which impose a less stringent standard than the 
regular initial listing standards. The Exchange noted that elimination 
of the alternative listing standards will require that all companies 
seeking listing on the Exchange to satisfy the more stringent regular 
listing standards, which in the Exchange's view will strengthen and 
enhance its initial listing standards.\17\ The Exchange further noted 
that in each full year since 2002, the number of companies approved for 
listing under the alternative listing standards was minimal and that 
due to these small numbers, the process was disproportionately 
cumbersome and resource intensive.\18\ Therefore, the Exchange 
concludes elimination of the alternative listing standards will have a 
relatively minimal impact on listings on the Exchange or Exchange 
equity specialists.
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    \14\ See Specialist Letter 1, supra note 4.
    \15\ See Specialist Letter 1, supra note 4.
    \16\ See Specialist Letter 1, supra note 4, at 2.
    \17\ See Response Letter, supra note 5, at 1-2.
    \18\ Since 2003, only 16 companies were approved under the 
alternative standards in comparison with 455 under the regular 
standards.
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    Second, Specialist Letter 1 argues that the Exchange fails to offer 
any analysis or facts to support its proposal. Such analysis, 
Specialist Letter 1 states, will help determine whether alternatives 
that are less detrimental may exist. In response, the Exchange states 
that it is not required to demonstrate that companies listed under the 
alternate standards have performed worse than other listed companies, 
and that a decision to reasonably increase its listing standards is a 
business decision within its purview.
    Third, Specialist Letter 1 raises the concern that the proposed 
rule change will have a negative impact on the companies that will not 
otherwise qualify for listing on the Exchange if the alternative 
initial listing standards are eliminated.\19\ The Exchange believes 
that adequate trading venues, such as the Over the Counter (``OTC'') 
Bulletin Board exist for those companies that cannot meet the 
Exchange's regular initial listing standards.\20\ The Exchange further 
notes that as these companies grow in other markets, they may later 
become eligible for listing under the Exchange's regular initial 
listing standards.
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    \19\ See Specialist Letter 1, supra note 4, at 2. In particular, 
the commenters note that elimination of the standards will result in 
more companies trading in less regulated, less liquid, and more 
expensive markets and will impact capital formation for such 
companies.
    \20\ See Response Letter, supra note 6, at 2.
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    Finally, Specialist Letter 1 questions whether NYSE Euronext 
supports the proposed rule change.\21\ The Exchange noted in the Notice 
that the proposed changes to the initial listing process were part of 
its strategic business planning in anticipation of its acquisition by 
NYSE Euronext and was aimed at more closely aligning its listing 
process with the NYSE.\22\ The Response Letter confirms that NYSE 
supports the Exchange's proposal.\23\
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    \21\ See Specialist Letter 1, supra note 4, at 2-3.
    \22\ See Response Letter, supra note 6, at 3.
    \23\ Id.
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    Specialist Letter 2 \24\ argues, among other things, that it is not 
consistent with Section 6 of the Act for the Exchange to simply justify 
its proposal as a business decision entirely within its purview. 
Specialist Letter 2 also states that the Exchange failed to answer 
questions on whether companies listed under the alternative standards 
performed poorly as compared to other listed companies, and that this 
information should be a matter of public record. The commenter argues 
that it is difficult to understand why the Exchange would want to 
reduce its ability to list companies at a time it is losing its top 
tier companies to NYSE which could raise questions about the ``future 
health and well being of the Exchange.'' \25\ The commenter also 
reiterates its position that relegating these companies to alternate 
markets does not seem to be in the public interest. Finally, the 
commenter notes, among other things, that the Exchange still has not 
been able to show any harm from listing companies under the alternative 
standards, and that the Exchange should be required to provide facts 
and analysis to support a finding that elimination of the alternative 
standards is in the public interest.\26\
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    \24\ Specialist Letter 2 was submitted by one of the two 
commenters who submitted Specialist Letter 1. See supra note 7.
    \25\ See Specialist Letter 2, supra note 7 at 2.
    \26\ Id. at 3.
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IV. Discussion and Commission Findings

    After careful consideration, 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 \27\ and, in particular, the requirements of Section 6 of the 
Act.\28\ Specifically, the Commission finds that the proposed rule 
change is consistent with Section 6(b)(5) of the Act,\29\ which 
requires, among other things, that the rules of a national securities 
exchange be 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 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 
and are not designed to permit unfair discrimination between customers, 
issuers, brokers or dealers.
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    \27\ In approving this proposed rule change the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \28\ 15 U.S.C. 78f.
    \29\ 15 U.S.C. 78f(b)(5).
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    The Exchange proposes to eliminate the appeal procedures for 
initial listing decisions. The Exchange further proposes to eliminate 
the alternative listing standards on which almost all of such initial 
listing appeals are based. As a result of the proposed rule change, all 
companies that list on the Exchange must meet the requirements of the 
Exchange's regular initial listing standards which are higher than the 
alternative initial listing standards.\30\
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    \30\ See Amex Company Guide Sections 210-222 for current initial 
listing standards. See also Response Letter, supra note 6 at Exhibit 
A which contains a comparison of regular initial listing standards 
versus alternative listing standards.
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    The Commission has carefully considered both of the comments. The 
commenters argue that Amex has not justified elimination of the 
alternative listing standards and should be required to provide facts 
and analysis to support

[[Page 75147]]

a finding that the proposal is in the public interest. They further 
note that to do otherwise would accede to the Exchange's view that they 
are not required to show that companies listed under the alternative 
standards have performed more poorly than other companies and that the 
decision to eliminate the alternative standards is totally a business 
decision that is within its purview. The commenters believe this 
analysis ignores the requirements of Section 6 of the Act that requires 
proposals of the Exchange to only be approved if they are in the public 
interest.
    After carefully considering these comments, the Commission believes 
that the proposal as to the elimination of the alternative listing 
standards is reasonable and consistent with the Act, and furthers 
investor protection and the public interest. In making this finding, 
the Commission notes at the outset that 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 that have, or in the case of an initial 
public offering, will have sufficient public float, investor base, and 
trading interest to provide the depth and liquidity necessary to 
promote 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.
    Based on the above analysis, the Commission would find it difficult 
to justify denying an exchange the ability to eliminate lower listing 
standards under the Act, assuming the elimination of such standards are 
done on a fair and equitable basis, does not unfairly discriminate 
between issuers as required under Section 6(b)(5) of the Act, and there 
remain sufficient listing and regulatory requirements to ensure 
adequate depth and liquidity for listed companies, and the protection 
of investors and the public interest. Where all of these factors exist, 
as the Commission finds in the Amex's proposal, the Commission believes 
that it is within the Exchange's business judgment to determine it no 
longer wants to qualify for listing these types of smaller companies 
under its rules.\31\ The Commission emphasizes that its approval of the 
Amex's proposal is not being based solely on the business judgment of 
the Exchange. While the Exchange's determination to eliminate the 
alternative initial listing standards may indeed be motivated by its 
business judgment, the Commission nevertheless believes that fact does 
not preclude us from finding, as we do for the reasons discussed 
herein, that the proposal is consistent with the requirements of the 
Act and Section 6(b)(5) in particular.\32\
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    \31\ The Commission notes that under the Exchange's rules, the 
approval of an application for listing of securities is a matter 
solely within the discretion 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 Amex Company 
Guide Section 101.
    \32\ See also Securities Exchange Act Release No. 56606 (October 
3, 2007), 72 FR 57982 (October 11, 2007) (approving proposed rule 
change by NYSE Arca, Inc. to amend initial listing standards that 
would have the effect of excluding from qualification some companies 
that previously qualified for initial listing).
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    In making this finding the Commission notes that Amex has provided 
for Legacy Applications so that any issuer that was currently being 
considered under the Amex's initial listing standards up to the date of 
approval of this rule filing could still avail itself of the 
alternative listing standards if it so qualified. This helps to ensure 
that issuers currently in the process of applying for initial listing 
on Amex would not suddenly find the alternative standards unavailable 
due to the approval of this rule proposal. Further, companies that 
initially listed on the Exchange under the alternative listing 
standards will remain listed and not be affected by the proposal, which 
is on a going forward basis. In this regard, Amex's regular initial 
listing and continued listing standards remain the same for all listed 
companies.
    The Commission notes that in terms of potential harm to issuers who 
no longer will be able to avail themselves of the Amex alternative 
initial listing standards, alternative trading venues exist for these 
companies as noted in the Exchange's Response Letter.\33\ As discussed 
above, existing listed companies and Legacy Applicants will not be 
adversely affected in any way by the Exchange's proposal. The 
Commission does not believe the Exchange is required to maintain lower 
listing standards to accommodate the potential for listings in the 
future, especially when alternative markets exist and all companies 
have an equal opportunity to apply under regular initial listing 
standards.
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    \33\ While the commenters argue that such alternative markets 
will provide less protection for shareholders, the Commission need 
not make a qualitative judgment about such markets to address this 
concern. Rather, the Commission believes that it is sufficient to 
determine that given the importance of listing standards and the 
expectations of investors in terms of the types of companies listed 
on a national securities exchange as discussed above, it will 
further the public interest by eliminating the Exchange's lower 
listing standards and requiring all listed companies to meet the 
existing higher regular initial listing standards.
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    Finally, the Commission recognizes that the commenters, as 
specialists on the Exchange, may potentially be losing the ability to 
make a market in securities of companies that could have qualified for 
listing under the alternative standards. However, as provided in the 
Amex Response Letter, the majority of companies are listed on the 
Exchange under the regular initial listing standards, while listing 
under the alternative standards has only represented a small percentage 
of the overall listings on the Amex. For example, in 2007 of 109 new 
listings, 2 were under the alternative standards. Further, those 
companies that no longer qualify for initial listing could, as noted by 
Amex, apply in the future for an Amex listing after developing a 
trading market in an alternative market place. The Act does not dictate 
that Amex continue to list companies that cannot qualify under the 
regular listing standards because of the potential loss of business. 
Indeed, to require Amex to retain its alternative listing standards for 
that reason would, in itself, be a business decision. For all the 
reasons discussed above, the Commission believes that the proposal to 
eliminate the alternative initial listing standards is reasonable and 
should continue to provide only for the listing of securities with a 
sufficient investor base to maintain fair and orderly markets and 
adequately protect investors and the public interest.
    The Commission also believes that the establishment of a mandatory 
confidential pre-application review is reasonable and consistent with 
the Act.\34\ The Commission notes that the new confidential pre-
application eligibility review criteria are set forth in the Amex 
Company Guide.\35\ The pre-application review process will enable the 
Exchange to obtain information from companies seeking a listing and 
provide the issuer with guidance and clarification on whether or not it 
is eligible for listing. The proposal should therefore make the listing 
process more efficient for both the Exchange and potential listed 
companies. Accordingly, the Commission believes that the

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changes adequately protect investors and the public interest.
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    \34\ The NYSE currently has a similar process in place; see 
Sections 101, 104 and 701 of the NYSE Listed Company Manual.
    \35\ See proposed Section 201 of the Amex Company Guide.
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    Finally, the Commission notes that the elimination of the outdated 
and redundant provisions is consistent with the Act and should make the 
Company Manuel easier and clearer to use.

V. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change, as amended, is consistent with the requirements 
of the Act and in particular Section 6 of the Act and the rules and 
regulations thereunder.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change, as amended (File No. SR-Amex-2008-70) is 
approved.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\36\
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    \36\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-29154 Filed 12-9-08; 8:45 am]
BILLING CODE 8011-01-P