I. Introduction
On April 12, 1999, the New York Stock Exchange, Inc. (“NYSE” or “Exchange”) filed with the Securities and Exchange Commission (“SEC” or “Commission”) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) and Rule 19b-4 thereunder, a proposed rule change relating to amendments to the NYSE's Listed Company Manual (“Manual”) regarding the Exchange's procedures and oversight of listed companies. On October 25, 1999, the Exchange submitted Amendment No. 1 to the proposed rule change. On December 16, 1999, the Exchange submitted Amendment No. 2.
17 CFR 240.19b-4.
In Amendment No. 1, the NYSE made several clarifications to the proposed rule change, incorporated appropriate provisions for Non-U.S. issuers, and revised the procedures for the annual report requirement. See Letter to Richard Strasser, Assistant Director, Division of Market Regulation (“Division”), SEC, from James E. Buck, Senior Vice President and Secretary, NYSE, dated October 22, 1999 (“Amendment No. 1”).
In Amendment No. 2, the NYSE made several technical changes to the text of the proposed rule change and clarified that the supplemental listing application (“SLAP”) provision applies to Non-U.S. issuers. See Letter to Richard Strasser, Assistant Director, Division, SEC, from James E. Buck, Senior Vice President and Secretary, NYSE, dated December 14, 1999 (“Amendment No. 2”). In Amendment No. 2, the Exchange also requested accelerated approval of the proposed rule change. The Exchange withdrew this request as per telephone conversation between Amy Bilbija, Counsel, NYSE, and Terri Evans, Special Counsel, and Heather Traeger, Attorney, Division, SEC, on January 4, 2000.
The proposed rule change, as amended, as published for comment in the Federal Register on February 9, 2000. No comments were received on the proposal. This order approves the NYSE proposal, as amended.
Securities Exchange Act Release No. 42364 (January 28, 2000), 65 FR 6432.
II. Description of the Proposal
The proposal would make several changes to the Exchange's procedures and oversight of listed companies. First, the proposal would institute a regularly review procedure for listing applicants whereby Exchange staff would access media outlets, run Central Registration Depository checks, and consult with staff in the SEC's Division of Enforcement to identify any potential issues of concern regarding the applicant company's board members, officers (as the term “Officer” is defined in Section 16 of the Act), and non-institutional shareholders with an interest in excess of 10 percent. The proposal also would require each applicant company to submit a letter from inside or outside counsel representing that, to the company's knowledge, no officer, board member, or non-institutional shareholder with more than 10 percent ownership in the company has been convicted of a felony or misdemeanor relating to financial issues (e.g., embezzlement, fraud, or theft) in the past 10 years.
In addition, the proposal would amend the Exchange's procedures for processing SLAPs submitted for consideration by companies that have been identified as being below the Exchange's continued listing criteria. Upon receipt of a SLAP from such a company, Exchange staff would first determine whether or not the SLAP is for an issuance to current shareholders (e.g., a stock split). If so, the application would be authorized. If, however, the SLAP is for an issuance to new shareholders, the application will be reviewed against the Exchange-approved plan pursuant to which the company is operating to return to financial compliance with the Exchange's listing standards. If the proposed issuance is within the scope of the plan, or furthers the goals of the plan, it will be approved. Conversely, the Exchange will deny authorization if the proposed issuance is outside the scope of the plan or contradicts its goals.
This provision will apply to both U.S. and Non-U.S. issuers. See supra note 4.
In this context, the Exchange would recognize that employee stock option plans, although rarely a specific element of a financial plan, are customarily in furtherance of the company's objectives and are thereby consistent with any approved plan.
Third, the proposal would amend the Exchange's annual report requirements. The proposal would require that a company mail to shareholders by the specified date either an annual report or a Form 10-K (Form 20-F for Non-U.S. issuers) with an indication that it is in lieu of the annual report. Due to longer mailing and processing time, international companies will have a maximum period following the SEC filing deadlines of 45 days to mail either the annual report or Form 20-F (with an indication that it is in lieu of the annual report), where domestic issuers would have 30 days.
See Amendment No. 1, supra, note 3. Domestic companies are required to submit their annual filings on Form 10-K to the SEC within 90 days of the fiscal year end. International companies are required to submit their annual filings on Form 20-F within 180 days of the fiscal year end.
Id.
Furthermore, for companies that are unable to timely file a Form 10-K (or Form 20-F), the proposal would allow the Exchange to consider why the filing cannot be made, evaluate the continued listing status of the company in light of the specific facts presented, and require that the company issue a press release. Once the Form 10-K (or Form 20-F) is filed, the proposal would require a mailing of the Form 10-K (or Form 20-F) or an annual report to shareholders within 15 days (30 days for a Non-U.S. issuer).
Id.
Finally, the proposal would permit companies to distribute annual reports or SEC forms electronically to beneficial holders who give prior written consent. Such consent must be in writing, which may be in the form of electronic mail.
Id.
The proposal would also provide that failure to comply with these requirements will result in presentation of the company's situation to Exchange staff for appropriate action, which could include the determination to proceed with suspension of trading and application to the SEC to delist the security.
III. Discussion
The Commission finds that the proposal is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange. Specifically, the Commission believes that the proposal is consistent with the requirements of Section 6(b)(5) of the Act because it is designed to promote just and equitable principles of trade, to remove impediments to, and perfect the mechanism of a free and open market and, in general, to protect investors and the public interest. The Commission believes that the proposal, by codifying and expanding the Exchange's procedures and oversight of listed companies, strikes a reasonable balance between the Exchange's obligation to protect investors and investor confidence in the market, and its parallel obligation to perfect the mechanism of a free and open market.
In approving this rule, the Commission has considered the proposed rule change's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
15 U.S.C. 78f(b)(5).
The NYSE proposes several amendments to the Manual. First, the Exchange proposes to implement regulatory reviews of key personnel associated with listing applicants. Specifically, the proposal provides for a procedure where Exchange staff would attempt to identify, through a variety of sources, any possible issues of concern regarding an applicant's board members, officers, and certain non-institutional shareholders. The Commission believes that such reviews should strengthen and improve the effectiveness of the procedures for reviewing listing applicants, and enhance investor protection by screening out those companies that the Exchange believes are unsuitable for listing.
The proposal also codifies the Exchange's procedures regarding SLAPs for companies identified as being below continued listing standards. Specifically, the proposal requires that SLAPs concerning an issuance to new shareholders must not conflict with the company's Exchange-approved plan under which it is operating to return to compliance with the Exchange's financial listing standards. The Commission believes that codifying the procedures applicable to the SLAPs of such companies should enhance investor protection by ensuring that SLAPs which fail to satisfy the procedures are denied authorization.
The proposal further amends the Exchange's disclosure requirements for listed companies late in filing Form 10-Ks or annual reports. A company that is unable to make a timely filing will be required to explain its reasons for such lateness and will be required to issue a press release. Furthermore, the continued listing status of the company will be evaluated with regard to the specific facts presented. The proposal also allows companies to electronically distribute annual reports or SEC forms to beneficial shareholders who give prior written consent. Finally, the proposal provides that failure to comply with these requirements could result in the NYSE's determination to suspend trading and apply to the Commission to delist the security. The Commission believes that this proposed change should ensure that companies distribute their annual reports to investors in a timely manner or provide investors with an explanation for any delay, and provide issuers with explicit notice that a failure to comply with these requirements could result in suspension and delisting from the NYSE. The proposal also should provide investors with faster access to a company's forms or annual reports by allowing electronic distribution to those investors who give express consent to such distribution.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (SR-NYSE-99-14), as amended, is approved.
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-7975 Filed 3-30-00; 8:45 am]
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