[Federal Register Volume 78, Number 240 (Friday, December 13, 2013)]
[Notices]
[Pages 75952-75954]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-29741]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71029; File No. SR-NYSE-2013-67]


Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Granting Approval to Proposed Rule Change to Amend the Quantitative 
Continued Listing Standards Applicable to Companies Listed Under 
Sections 102.01C and 103.01B of the Listed Company Manual

December 9, 2013.

I. Introduction

    On October 8, 2013, 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 amend the quantitative continued listing 
standards applicable to companies listed under one of the financial 
standards of Sections 102.01C and 103.01B of the Exchange's Listed 
Company Manual (``Manual''). The proposed rule change was published for 
comment in the Federal Register on October 25, 2013.\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. 70728 (October 25, 
2013), 78 FR 64043.
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II. Description of the Proposal

    The Exchange proposes to amend the continued listing standards in 
Section 802.01B of the Manual. Under current Exchange initial listing 
rules, companies applying to list equity securities on the NYSE must 
meet one of the specific financial standards,\4\ in addition to the 
other listing requirements set out in Section 102.00 for domestic 
companies and Section 103.00 for non-U.S. companies. Once listed, 
companies have to meet the Exchanges continued listing criteria set out 
in Section 802.01 of the Manual. In addition to the other minimum 
continued listing requirements that apply to capital or common 
stock,\5\ companies with such securities listed on the Exchange must 
also meet certain quantitative financial continued listing standards 
which correspond to the standard under which the securities were 
initially listed.\6\ There are currently four different financial 
continued listing standards which apply to the capital or common stock 
of a listed company, depending under which standard it was originally 
listed under.\7\
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    \4\ See Section 102.01C of the Manual (for domestic issuers) and 
Section 103.01B (for non-U.S. issuers). See also note 7, infra.
    \5\ See Section 802.01A of the Manual (distribution criteria for 
capital or common stock); Section 802.01C of the Manual (maintaining 
a stock price on a 30-day average basis of $1.00 per share); and 
Section 802.01B (stating that ``the Exchange will promptly initiate 
suspension and delisting procedures with respect to a company that 
is listed under any financial standard set out in Sections 102.01C 
or 103.01B if a company is determined to have average global market 
capitalization over a consecutive 30 trading-day period of less than 
$15,000,000, regardless of the original standard under which it 
listed''). See also Section 802.01D of the Manual (listing other 
additional criteria for continued listing). The Commission notes 
that the Exchange has represented that the continued listing 
standards would apply to American Depositary Receipts.
    \6\ See Section 802.01B of the Manual.
    \7\ See Sections 802.01B(I), (II), (III) and (IV) of the Manual. 
The filing states that these continued listing standards apply to 
operating companies, however, the Commission notes that the Manual 
does not specifically refer to the term operating companies.
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    A company that qualified to list under the Earnings Test or Assets 
and Equity Test, would be considered to be below compliance if over a 
consecutive 30 trading-day period, the average global market 
capitalization of its securities is less than $50,000,000 and the total 
stockholders' equity is less than $50,000,000.\8\
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    \8\ See Section 802.01B(I) of the Manual.
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    A company qualifying to list under the Valuation/Revenue with Cash 
Flow Test, would be considered to be below compliance if (A) over a 
consecutive 30 trading-day period, the average global market 
capitalization of its securities is less than $250,000,000 and the 
total revenues are less than $20,000,000 over the last 12 months 
(unless the listed company qualifies as an original listing under one 
of the other original listing standards) or (B) the average global 
market capitalization over a consecutive 30 trading-day period is less 
than $75,000,000.
    A company that qualified to list under the Pure Valuation/Revenue 
Test would be considered to be below compliance if (A) over a 
consecutive 30 trading-day period, the average global market 
capitalization of the company's securities is less than $375,000,000 
and

[[Page 75953]]

the total revenues are less than $15,000,000 over the last 12 months 
(unless the listed company qualifies as an original listing under one 
of the other original listing standards \9\ or (B) the average global 
market capitalization over a consecutive 30 trading-day period is less 
than $100,000,000.\10\
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    \9\ See Section 802.01B(II) of the Manual.
    \10\ See Section 802.01B(III) of the Manual.
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    Finally, listed companies that originally listed under the 
Affiliated Company Test would be considered to be below compliance if 
(A) the parent or affiliated company ceases to control the listed 
company, or the listed company's parent or affiliated company falls 
below the applicable continued listing standards and (B) over a 
consecutive 30 trading-day period, the average global market 
capitalization of the company's securities is less than $75,000,000 and 
the total stockholders' equity is less than $75,000,000.\11\
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    \11\ See Section 802.01B(IV) of the Manual.
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    The Exchange proposes to delete these four current continued 
listing standards, and to use one continued listing standard, which is 
identical to the one currently applicable to companies listing under 
the Earnings Test and Assets and Equity Test. Under the proposal, a 
listed company will be considered to be below compliance if its average 
global market capitalization over a consecutive 30 trading-day period 
is less than $50,000,000 and, at the same time, the stockholders' 
equity is less than $50,000,000.

III. Discussion and Commission Findings

    The Commission has carefully reviewed the proposed rule change and 
finds that it is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
exchange, and in particular, Section 6(b)(5) of the Act,\12\ which 
among other things, requires 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.\13\
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    \12\ 15 U.S.C. 78f(b)(5).
    \13\ In approving the proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
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    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. Adequate standards are especially important given the 
expectations of investors regarding exchange trading and the imprimatur 
of listing on a particular market. Listing standards, among other 
things, 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 IPO, will have sufficient public float, investor base, and 
trading interest to provide the depth and liquidity necessary to 
promote fair and orderly markets. 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.
    The Exchange proposes to delete the current four separate tracks of 
continued listing standards and replace them with one continued listing 
standard applicable to all operating companies listing their capital or 
common stock, regardless of the initial listing standard that the 
company originally qualified for listing under. Listed companies would 
still be required to meet, and comply with, other standards, such as 
the distribution criteria,\14\ price criteria,\15\ and the minimum 
market capitalization requirement.\16\ The Exchange stated its belief 
that it would be fairer to use a single continued listing standard that 
would apply to all operating companies (for the listing of their 
capital or common stock), since under the current rules a listed 
security may be below its applicable continued listing standards and 
deemed non-compliant or delisted notwithstanding that it would have 
remained compliant if another continued listing standard applied. The 
Exchange noted that this creates the anomalous result that two 
companies that have identical quantitative characteristics would be 
treated differently based on how it originally qualified to list, which 
could have been many years ago. According to the Exchange, the approach 
of assigning different quantitative continued listing requirements to 
companies that originally listed under different listing standards was 
adopted in 2004 \17\ and the quality of listed companies has not been 
enhanced by this approach. The Exchange represented that a review of 
data over a period of five years indicates that all of the securities 
that were delisted under the current applicable standard would have 
been delisted under the proposed standard, or the other applicable 
minimum listing criteria.\18\ We note that under the Exchange's 
proposal, the additional minimum listing criteria is remaining 
unchanged and will continue to apply.\19\
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    \14\ See Section 802.01A of the Manual.
    \15\ See Section 802.01C of the Manual.
    \16\ See Section 802.01B of the Manual (requiring average global 
market capitalization over a consecutive 30 trading-day period of 
$15,000,000).
    \17\ The Commission notes that prior to the 2004 change in 
continued listing standards, the Exchange's continued listing 
requirements generally applied to all companies, except for a 
separate standard for companies qualifying for the global market 
capitalization standard.
    \18\ See note 5, supra. In particular, the Exchange was 
referring to the $1 per share price requirement and the $15 million 
minimum global market capitalization requirement.
    \19\ See note 5, supra.
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    After careful consideration, the Commission finds that the proposal 
is consistent with the requirements of the Act. The Commission believes 
that the proposal is not designed to permit unfair discrimination 
between issuers since under the proposal, all operating companies 
listing common or capital stock on the Exchange will be subject to the 
same financial continued listing standards. To the extent other types 
of listed securities, such as debt, and other types of issuers, such as 
trusts and partnerships, have different continued listing standards, 
these differences are based on the different type, and characteristics 
of those securities and issuers, and those differences currently exist 
and have been previous approved by the Commission consistent with the 
requirements of the Act.
    The Commission has also considered whether the proposed changes 
will continue to ensure that only those companies with adequate market 
depth and liquidity can continue to trade on the Exchange so that fair 
and orderly markets can be maintained, consistent with investor 
protection and the public interest under Section 6(b)(5) of the Act. In 
this regard, we note that the Exchange represented that 87% of the 
operating companies currently listed on the Exchange are already 
subject to a continued listing standard which is identical to the 
proposed continued listing standard. As a result, for these listed 
companies the proposed continued listing standard will have no change 
as to their continued listing

[[Page 75954]]

requirements. In addition, because the vast majority of listed 
companies have to comply with the proposed continued listing standard, 
the Exchange should have sufficient experience monitoring for 
compliance with the proposed standard. As noted above, the Exchange 
also found, based on a review of data of companies below compliance 
under the NYSE's financial standards from 2006 to 2012, that all of the 
securities that were delisted under the current applicable standard 
would have been delisted under the proposed standard, or the other 
applicable minimum listing criteria.\20\ Based on the Exchange's review 
and experience in administering the proposed standard, the Exchange 
concluded that the proposed continued listing standard, in combination 
with the other minimum continued listing criteria, is a rigorous 
measure to ensure companies and their securities remain suitable for 
listing.\21\ Based on the above, the Commission believes that that 
proposal is consistent with the requirements of the Act. We, however, 
would expect the Exchange to monitor its continued listing standards to 
ensure that they remain adequate and make adjustments to its rules 
where necessary.
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    \20\ See Notice at supra note 3 and note 18, supra. The Exchange 
further noted that the minority of companies that would not have 
fallen below the proposed standard or other minimum continued 
listing standards, have all regained compliance with the 
quantitative continued listing standards.
    \21\ As to companies listed under the Affiliated Company Test, 
the Commission notes that although the current quantitative market 
capitalization and stockholder equity continued listing standards 
applicable to such listings are higher than the proposed standards, 
these standards only applied if the parent or affiliated company 
ceased control of the listed company or the parent or affiliate also 
fell below continued listing standards. Under the new standards, 
however, companies listed under the Affiliated Company Test will be 
subject to the new continued listing requirement irrespective of 
whether the parent or affiliated company ceases to control the 
listed company or the parent or affiliate falls below continued 
listing standards, which arguably may be a stronger standard despite 
the lower numerical criteria.
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    Finally, in approving the proposal, we recognize that some of the 
current continued listing standards have substantially higher market 
capitalization requirements than under the new standard.\22\ We 
understand some of the rationale for the higher standards was related 
to the higher market capitalization requirements in the initial listing 
standards. For the reasons, however, noted above, including the 
Exchange's representation that the proposed standard, along with the 
additional minimum standards, should adequately ensure the quality of 
companies that continue to list on the exchange based on its experience 
with monitoring companies for compliance, and the fact that the 
proposed standard had previously been approved as one of several 
continued financial listing standards, and thus already applies to a 
large majority of currently listed companies, we are approving the 
proposal.\23\ We also note that the adoption of the proposed continued 
listing standard does not appear to set a new low when comparing the 
continued listing standards of other named markets under Section 18 of 
the Securities Act of 1933, both currently and at the time Section 18 
was adopted in 1996.\24\ Taken as a whole, the Exchange's continued 
listing standards appear to be as high as NYSE MKT's continued listing 
standards for common stock of operating companies.\25\
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    \22\ For example, under the current Pure Valuation/Revenue Test, 
companies would need to meet average global market capitalization 
over a consecutive 30 trading-day period of $100,000,000. The 
Commission notes, however, that the proposed standard includes an 
additional requirement on stockholders equity.
    \23\ The Commission notes that the Exchange rules give it the 
flexibility to commence delisting proceedings should any event or 
condition makes further dealings or listing of the securities on the 
Exchange inadvisable or unwarranted. Accordingly, we would expect 
the Exchange to continue to monitor a listed company that has lost a 
significant percentage of its market capitalization when compared to 
the original standard it was listed under, especially if the 
substantial loss in value indicates issues with the company that 
would raise whether further dealings on the Exchange are warranted. 
See Section 802.01D of the Manual.
    \24\ 15 U.S.C. 77r (Section 102 of the National Securities 
Markets Improvement Act (``NSMIA'') of 1996 amended Section 18 of 
the Securities Act of 1933).
    \25\ See email from Patrick Troy, Chief Counsel, NYSE, to Steve 
L. Kuan, Special Counsel, Division of Trading and Markets, 
Commission, on November 25, 2013. The Commission notes that the a 
direct comparison of NYSE MKT's continued listing standards with the 
proposed NYSE continued listing standards is not possible, since 
some of the standards use different criteria. For example, NYSE MKT 
uses a public stockholder requirement, while NYSE uses a total 
stockholders requirement. Taken as a whole, however, the Commission 
believes that the proposed NYSE standards appear to be as high as 
NYSE MKT's standards.
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IV. Conclusion

    For the foregoing reasons, 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.\26\
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    \26\ 15 U.S.C. 78f(b)(5).
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    It is therefore ordered, pursuant the Section 19(b)(2) of the Act, 
that the proposed rule change (SR-NYSE-2013-67), is hereby approved.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ See 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-29741 Filed 12-12-13; 8:45 am]
BILLING CODE 8011-01-P