Federal Register / Vol. 69, No. 24 / Thursday, February 5, 2004 / Notices 5633

4 15 U.S.C. 78o–3(b)(6). 5 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3With the permission of NYSE, the Commission 

has made typographical, non-substantive 

corrections to the text of the proposed rule change. 

See Telephone conversation between Annemarie 

Tierney, Assistant General Counsel, NYSE, and 

Susie Cho, Special Counsel, Division of Market 

Regulation (‘‘Division’’), Commission on January 

21, 2004.

4See Letter from Darla C. Stuckey, Corporate 

Secretary, NYSE, to Nancy J. Sanow, Assistant 

Director, Division, Commission, dated January 16, 

2004 (‘‘Amendment No. 1’’). Amendment No. 1 

replaced the original proposed rule change in its 

entirety.

5See Letter from Darla C. Stuckey, Corporate 

Secretary, NYSE, to Nancy J. Sanow, Assistant 

Director, Division, Commission, dated January 22, 

2004 (‘‘Amendment No. 2’’). Amendment No. 2

pools of liquidity. A member may 

choose to display quotations relating to 

its market-making unit on Nasdaq and 

its ECN on ADF. Under such 

circumstances, NASD believes that 

compliance with NASD Rule 

4613A(e)(1) would, in effect, require the 

member to consolidate these distinct 

business units for purposes of 

displaying quotations on each market, 

which would be contrary to the business 

model of the firm since these quotes 

represent separate liquidity pools. As an 

alternative, the member could establish 

separate broker/dealers for each 

business unit, which NASD believes is 

overly burdensome for members given 

the marginal benefits associated with 

NASD Rule 4613A(e)(1). 

For the reasons discussed above, the 

proposed rule change would repeal 

NASD Rule 4613A(e)(1). However, 

NASD represents that it will continue, 

as it currently does today, to monitor 

and surveil for any potentially collusive 

or manipulative conduct relating to 

quotation activity on markets under its 

regulatory authority.

2. Statutory Basis 

NASD believes that the proposed rule 

change is consistent with the provisions 

of section 15A(b)(6) of the Act,4 which 

requires, among other things, that 

NASD’s rules must be designed to 

prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, and, in 

general, to protect investors and the 

public interest. NASD believes that the 

proposed rule change accomplishes 

these ends. In light of the Commission’s 

vendor display rule, NASD believes 

NASD Rule 4316A(e)(1) does not serve 

any additional beneficial purposes and 

may, in fact, interfere with competition 

and certain member’s business models.

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

NASD does not believe that the 

proposed rule change will result in any 

burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

Written comments were neither 

solicited nor received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 35 days of the date of 

publication of this notice in the Federal 

Register or within such longer period (i) 

as the Commission may designate up to 

90 days of such date if it finds such 

longer period to be appropriate and 

publishes its reasons for so finding or 

(ii) as to which NASD consents, the 

Commission will: 

A. By order approve such proposed 

rule change, or 

B. Institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. In 

particular, the Commission solicits 

comment on (i) whether the proposed 

rule change will facilitate multiple 

quotations that erode SEC Rule 11Ac1–

1 and (ii) whether the proposed rule 

change will facilitate locking or crossing 

the quotes of other market centers. 

Persons making written submissions 

should file six copies thereof with the 

Secretary, Securities and Exchange 

Commission, 450 Fifth Street, NW., 

Washington, DC 20549–0609. 

Comments may also be submitted 

electronically at the following e-mail 

address: rule-comments@sec.gov. All 

comment letters should refer to File No. 

SR–NASD–2003–175. 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, comments 

should be sent in hard copy or by e-mail 

but not by both methods. 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. Copies of such filing will also be 

available for inspection and copying at 

the principal office of NASD. 

All submissions should refer to File 

No. SR–NASD–2003–175 and should be 

submitted by February 26, 2004.

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.5

J. Lynn Taylor, 

Assistant Secretary.

[FR Doc. 04–2361 Filed 2–4–04; 8:45 am] 

BILLING CODE 8010–01–P

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–49154; File No. SR–NYSE–

2003–43] 

Self-Regulatory Organizations; Notice 

of Filing of Proposed Rule Change and 

Amendments Nos. 1 and 2 Thereto by 

the New York Stock Exchange, Inc. and 

Order Granting Accelerated Approval 

of the Proposed Rule Change To 

Establish a Pilot Program To Amend 

the Minimum Numerical Standards 

(Sections 102.01C, 103.01B, 802.01B, 

and 802.01C of the Listed Company 

Manual) 

January 29, 2004. 

Pursuant to section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on December 

22, 2003, the New York Stock Exchange, 

Inc. (‘‘NYSE’’ or ‘‘Exchange’’) filed with 

the Securities and Exchange 

Commission (‘‘SEC’’ or ‘‘Commission’’) 

the proposed rule change as described 

in Items I and II below, which Items 

have been prepared by the Exchange.3

On January 19, 2004, the NYSE 

submitted Amendment No. 1 to the 

proposed rule change.4 On January 23, 

2004, the NYSE submitted Amendment 

No. 2 to the proposed rule change.5 The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change, as amended, from interested 

persons. For the reasons discussed 

below, the Commission is granting 

accelerated approval of the proposed 

rule change on a six-month pilot basis.

5634 Federal Register / Vol. 69, No. 24 / Thursday, February 5, 2004 / Notices 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The NYSE is proposing to amend, on 

a pilot basis, to expire on July 29, 2004, 

Sections 102.01C, 103.01B, 802.01B and 

802.01C of the Exchange’s Listed 

Company Manual (the ‘‘Manual’’) 

regarding the minimum numerical 

original and continued listing standards. 

Proposed new language is italicized; 

proposed deletions are in [brackets].

* * * * *

Listed Company Manual 

102.00 Domestic Companies

* * * * *

102.01C A company must meet one 

of the following financial standards. 

(I) Earnings Test (1) Pre-tax earnings 

from continuing operations and after 

minority interest, amortization and 

equity in the earnings or losses of 

investees as adjusted [(E)] for items 

specified in (2)(a) through (i) below [(F)] 

must total at least[.] 

[$2,500,000 in the latest fiscal year 

together with $2,000,000 in each of the 

preceding two years; or $6,500,000] 

$10,000,000 in the aggregate for the last 

three fiscal years together with a 

minimum of $[4,5]2,000,000 in the two

most recent fiscal years, and positive 

amounts [for] in all [each of the 

preceding two] three years. 

(2) Adjustments (E)(F) that must be 

included in the calculation of the 

amounts required in paragraph (1) are as 

follows: 

(a) Application of Use of Proceeds. If 

a company is in registration with the 

SEC and is in the process of an equity 

offering, adjustments should be made to 

reflect the net proceeds of that offering, 

and the specified intended 

application(s) of such proceeds to: 

(i) Pay off existing debt. The 

adjustment will include elimination of 

the actual historical interest on debt 

being retired with offering proceeds of 

all relevant periods. If the event giving 

rise to the adjustment occurred during 

a time-period such that pro forma

amounts are not set forth in the SEC 

registration statement (typically, the pro 

forma effect of repayment of debt will 

be provided in the current registration 

statement only with respect to the last 

fiscal year plus any interim period in 

accordance with SEC rules), the 

company must prepare the relevant 

adjusted financial data to reflect the 

adjustment to its historical financial 

data, and its outside audit firm must 

provide a report of having applied 

agreed-upon procedures with respect to 

such adjustments. Such report must be 

prepared in accordance with the 

standards established by the American 

Institute of Certified Public 

Accountants. 

(ii) Fund an acquisition:

(1) The adjustments will include 

those applicable with respect to 

acquisition(s) to be funded with the 

proceeds. Adjustments will be made 

that are disclosed as such in accordance 

with Rule 3–05 ‘‘Financial Statements of 

Business Acquired or to be Acquired’’

and Article 11 of Regulation S–X. 

Adjustments will be made for all the 

relevant periods for those acquisitions 

for which historical financial 

information of the acquiree is required 

to be disclosed in the SEC registration 

statement; and

(2) Adjustments applicable to any 

period for which pro forma numbers are 

not set forth in the registration 

statement shall be accompanied by the 

relevant adjusted financial data to 

combine the historical results of the 

acquiree (or relevant portion thereof) 

and acquiror, as disclosed in the 

company’s SEC filing. Under SEC rules, 

the number of periods disclosed 

depends upon the significance level of 

the acquiree to the acquiror. The 

adjustments will include those 

necessary to reflect (a) the allocation of 

the purchase price, including adjusting 

assets and liabilities of the acquiree to 

fair value recognizing any intangibles 

(and associated amortization and 

depreciation), and (b) the effects of 

additional financing to complete the 

acquisition. The company must prepare 

the relevant adjusted financial data to 

reflect the adjustment to its historical 

financial data, and its outside audit firm 

must provide a report of having applied 

agreed-upon procedures with respect to 

such adjustments. Such report must be 

prepared in accordance with the 

standards established by the American 

Institute of Certified Public 

Accountants. 

(b) Acquisitions and Dispositions: In 

instances other than acquisitions (and 

related dispositions of part of the 

acquiree) funded with the use of 

proceeds, adjustments will be made for 

those acquisitions and dispositions that 

are disclosed as such in a company’s 

financial statements in accordance with 

Rule 3–05 ‘‘Financial Statements of 

Business Acquired or to be Acquired’’

and Article 11 of Regulation S–X. If the 

disclosure does not specify pre-tax 

earnings from continuing operations, 

minority interest, and equity in the 

earnings or losses of investees, then 

such data must be prepared by the 

company’s outside audit firm for the 

Exchange’s consideration. In this regard, 

the audit firm would have to issue an 

independent accountant’s report on 

applying agreed-upon procedures in 

accordance with the standards 

established by the American Institute of 

Certified Public Accountants. 

(c) Exclusion of Merger or Acquisition 

Related Costs Recorded under Pooling 

of Interests;

(d) Exclusion of Charges or Income 

Specifically Disclosed in the 

Applicant’s SEC Filing for the 

Following:

(i) In connection with exiting an activity 

for the following: 

(1) Costs of severance and termination 

benefits 

(2) Costs and associated revenues and 

expenses associated with the 

elimination and reduction of 

product lines 

(3) Costs to consolidate or re-locate 

plant and office facilities 

(4) Loss or gain on disposal of longlived assets 

(ii) Environmental clean-up costs 

(iii) Litigation settlements

(e) Exclusion of Impairment Charges 

on Long-lived Assets (goodwill, 

property, plant, and equipment, and 

other long-lived assets); 

(f) Exclusion of Gains or Losses 

Associated with Sales of a Subsidiary’s 

or Investee’s Stock; 

(g) Exclusion of In-Process Purchased 

Research and Development Charges; 

(h) Regulation S–X Article 11 

Adjustments. Adjustments will include 

those contained in a company’s pro 

forma financial statements provided in 

a current filing with the SEC pursuant 

to SEC rules and regulations governing 

Article 11 ‘‘Pro forma information of 

Regulation S–X Part 210—Form and 

Content of and Requirements for 

Financial Statements.’’

(i) Exclusion of the Cumulative Effect 

of Adoption of New Accounting 

Standards. (APB Opinion No. 20)

Or 

(II) Valuation/Revenue Test. 

Companies listing under this standard 

may satisfy either (a) the Valuation/

Revenue with Cash Flow Test or (b) the 

Pure Valuation/Revenue Test.

(a) Valuation/Revenue with Cash Flow 

Test—[A Company with] 

(1) [not less than] At least

$500,000,000 in global market 

capitalization, [and] 

(2) At least $100,000,000 in revenues 

during the most recent 12 month period, 

[must] and

(3) [demonstrate from the operating 

activity section of its cash flow 

statement that its cash flow, which 

represents net income adjusted to (a) 

reconcile such amounts to cash 

provided by operating activities, and (b) 

exclude changes in operating assets and 

Federal Register / Vol. 69, No. 24 / Thursday, February 5, 2004 / Notices 5635

liabilities, is] at least $25,000,000 [in 

the] aggregate cash flows for the last 

three fiscal years [and each year is 

reported as a] with positive amounts in 

all three years, as adjusted [(E)(F)] 

pursuant to Para. 102.01C (I)(2)(a) and 

(b), as applicable. 

A Company must demonstrate cash 

flow based on the operating activity 

section of its cash flow statement. Cash 

flow represents net income adjusted to 

(a) reconcile such amounts to cash 

provided by operating activities, and (b) 

exclude changes in operating assets and 

liabilities. With respect to reconciling 

amounts pursuant to this Paragraph, all 

such amounts are limited to the amount 

included in the company’s income 

statement. 

(b) Pure Valuation/Revenue Test—

(1) At least $750,000,000 in global 

market capitalization, and

(2) At least $75,000,000 in revenues 

during the most recent fiscal year.

In the case of companies listing in 

connection with an IPO, the company’s 

underwriter (or, in the case of a spin-off, 

the parent company’s investment 

banker or other financial advisor) must 

provide a written representation that 

demonstrates the company’s ability to 

meet the $750,000,000 global market 

capitalization requirement based upon 

the completion of the offering (or 

distribution). For all other companies, 

market capitalization valuation will be 

determined over a six-month average.

[Or 

(III) For companies with not less than 

$1 billion in total worldwide market 

capitalization and with not less than 

$100 million revenues in the recent 

fiscal year, there are no additional 

financial requirements. For such 

companies listing in connection with an 

IPO, the market capitalization valuation 

must be demonstrated by written 

representation from the underwriter (or, 

in the case of a spin-off, by a written 

representation from the parent 

company’s investment banker or other 

financial advisor) of the total market 

capitalization of the company upon 

completion of the offering (or 

distribution). For all other such 

companies, the market capitalization 

valuation will be determined over a sixmonth average.]

Or

(III) Affiliated Company Test 

(1) at least $500,000,000 in global 

market capitalization;

(2) at least 12 months of operating 

history (although a company is not 

required to have been a separate 

corporate entity for such period); and

(3) the company’s parent or affiliated 

company is a listed company in good 

standing (as evidenced by written 

representation from the company or its 

financial advisor excluding that portion 

of the balance sheet attributable to the 

new entity); and

(4) the company’s parent or affiliated 

company retains control of the entity or 

is under common control with the 

entity.

‘‘Control’’ for purposes of the 

Affiliated Company Test will mean 

having the ability to exercise significant 

influence over the operating and 

financial policies of the listing 

company, and will be presumed to exist 

where the parent or affiliated company 

holds 20% or more of the listing 

company’s voting stock directly or 

indirectly. Other indicia that may be 

taken into account when determining 

whether control exists include board 

representation, participation in policy 

making processes, material 

intercompany transactions, interchange 

of managerial personnel, and 

technological dependency. The 

Affiliated Company Test is taken from 

and intended to be consistent with 

generally accepted accounting 

principles regarding use of the equity 

method of accounting for an investment 

in common stock.

(E) Only adjustments arising from 

events specifically so indicated in the 

company’s SEC filing(s) as to both 

categorization and amount can and must 

be made. Any such adjustment applies 

only in the year in which the event 

occurred except with regard to the use 

of proceeds or acquisitions and 

dispositions. Any company for which 

the Exchange relies on adjustments in 

granting clearance must include all 

relevant adjusted financial data in its 

listing application as specified in Para. 

702.04, and disclose the use of 

adjustments by including a statement in 

a press release (i) that additional 

information is available upon which the 

NYSE relied to list the company and is 

included in the listing application and 

(ii) that such information is available to 

the public upon request. 

(F) [The above-referenced adjustments 

are measured and recognized] Interested 

parties should apply the list of 

adjustments in accordance with any 

relevant accounting literature, such as 

that published by the Financial 

Accounting Standards Board (‘‘FASB’’), 

the Accounting Principles Board 

(‘‘APB’’), the Emerging Issues Task 

Force (‘‘EITF’’), the American Institute 

of Certified Public Accountants 

(‘‘AICPA’’), and the SEC. Any literature 

is intended to guide issuers and 

investors regarding the affected 

adjustment listed. If successor 

interpretations (or guidelines) are 

published with respect to any particular 

adjustment, the most recent relevant 

interpretations (or guidelines) should be 

consulted.

* * * * *

[(IV) Affiliated Company Standard 

(1) Market capitalization of $500 

million or greater (as evidenced by 

written representation from the 

underwriter, company, or its investment 

advisor); 

(2) Minimum of 12 months of 

operations (although it is not required to 

have been a separate corporate entity for 

such period); 

(3) Parent or affiliated company is a 

listed company in good standing (as 

evidenced by written representation 

from the company or its financial 

advisor excluding that portion of the 

balance sheet attributable to the new 

entity); and 

(4) Parent/affiliated company retains 

control* of the entity or is under 

common control* with the entity. 

*‘‘Control’’ for these purposes will 

mean the ability to exercise significant 

influence over operating and financial 

policies, and will be presumed to exist 

when the parent involved holds directly 

or indirectly 20% or more of the entity’s 

voting stock. Other indicia that may be 

taken into account for this purpose 

include board representation, 

participation in policy making 

processes, material intercompany 

transactions, interchange of managerial 

personnel, and technological 

dependency. This test is taken from and 

intended to be consistent with generally 

accepted accounting principles 

regarding use of the equity method of 

accounting for an investment in 

common stock.]

* * * * *

103.00 Non-U.S. Companies

* * * * *

103.01 Minimum Numerical 

Standards—Non-U.S. Companies—

Equity Listings Distribution

* * * * *

103.01B A company must meet one 

of the following financial standards: 

(I) Earnings Test

(1) Pre-tax earnings from continuing 

operations and after minority interest, 

amortization and equity in the earnings 

or losses of investees adjusted [(C)(D)] 

for items specified in para. 

102.01C(I)(2)(a) through (i) above, and 

103.01B(I)(2) below, must total at least[:] 

$100,000,000 in the aggregate for the 

last three fiscal years [together] with a 

minimum of $25,000,000 in each of the 

most recent two fiscal years.

5636 Federal Register / Vol. 69, No. 24 / Thursday, February 5, 2004 / Notices 

(2) Additional Adjustment (C)(D)

Available for Foreign Currency 

Devaluation. Non-operating adjustments 

when associated with translation 

adjustments representing a significant 

devaluation of a country’s currency 

(e.g., the currency of a company’s 

country of domicile devalues by more 

than 10 percent against the U.S. dollar 

within a six-month period). 

Adjustments may not include those 

associated with normal currency gains 

or losses. (3) Reconciliation to U.S. 

GAAP of the third year back would only 

be required if the Exchange determines 

that reconciliation is necessary to 

demonstrate that the aggregate 

$100,000,000 threshold is satisfied.

Or 

(II) Valuation/Revenue Test 

Companies listing under this standard 

may satisfy either (a) the Valuation/

Revenue with Cash Flow Test or (b) the 

Pure Valuation/Revenue Test.

(a) Valuation/Revenue with Cash 

Flow Test—[A Company with] 

(1) [not less than] at least

$500,000,000 in global market 

capitalization, [and] 

(2) at least $100,000,000 in revenues 

during the most recent 12 month period,

[must] and

(3) [demonstrate from the operating 

activity section of its cash flow 

statement that its operating cash flow 

excluding changes in operating assets 

and liabilities is] at least $100,000,000 

[in the] aggregate cash flows for the last 

three fiscal years where each of the two 

most recent years is reported at a 

minimum of $25,000,000, [as] adjusted 

in accordance with (C)(D) [for] Para. 

102.01C (I)(2) (a) and (b). 

A Company must demonstrate cash 

flow based on the operating activity 

section of its cash flow statement. Cash 

flow represents net income adjusted to 

(a) reconcile such amounts to cash 

provided by operating activities, and (b) 

exclude changes in operating assets and 

liabilities. With respect to reconciling 

amounts pursuant to this Paragraph, all 

such amounts are limited to the amount 

included in the company’s income 

statement.

Reconciliation to U.S. GAAP of the 

third fiscal year back would only be 

required if the Exchange determines that 

reconciliation is necessary to 

demonstrate that the [aggregate] 

$100,000,000 aggregate cash flow

threshold is satisfied. 

(b) Pure Valuation/Revenue Test—

(1) at least $750,000,000 in global 

market capitalization, and

(2) at least $75,000,000 in revenues 

during the most recent fiscal year.

In the case of companies listing in 

connection with an IPO, the company’s 

underwriter (or, in the case of a spin-off, 

the parent company’s investment 

banker or other financial advisor) must 

provide a written representation that 

demonstrates the company’s ability to 

meet the $750,000,000 global market 

capitalization requirement upon 

completion of the offering (or 

distribution). For all other companies, 

market capitalization valuation will be 

determined over a six-month average.

[Or 

(III) For companies with not less than 

$1 billion in total worldwide market 

capitalization and with not less than 

$100 million revenues in the recent 

fiscal year, there are no additional 

financial requirements. For such 

companies listing in connection with an 

IPO, the market capitalization valuation 

must be demonstrated by a written 

representation from the underwriter (or, 

in the case of a spin-off, by a written 

representation from the parent 

company’s investment banker, other 

financial advisor or transfer agent) of the 

total market capitalization of the 

company upon completion of the 

offering (or distribution). For all other 

such companies, the market 

capitalization valuation will be 

determined over a six-month average.]

Or

III. Affiliated Company Test 

(1) at least $500,000,000 in global 

market capitalization;

(2) at least 12 months of operating 

history (although a company is not 

required to have been a separate 

corporate entity for such period); and

(3) the company’s parent or affiliated 

company is a listed company in good 

standing (as evidenced by written 

representation from the company or its 

financial advisor excluding that portion 

of the balance sheet attributable to the 

new entity); and

(4) the company’s parent or affiliated 

company retains control of the entity or 

is under common control with the 

entity.

‘‘Control’’ for purposes of the 

Affiliated Company Test will mean 

having the ability to exercise significant 

influence over the operating and 

financial policies of the listing 

company, and will be presumed to exist 

where the parent or affiliated company 

holds 20% or more of the listing 

company’s voting stock directly or 

indirectly. Other indicia that may be 

taken into account when determining 

whether control exists include board 

representation, participation in policy 

making processes, material 

intercompany transactions, interchange 

of managerial personnel, and 

technological dependency. The 

Affiliated Company Test is taken from 

and intended to be consistent with 

generally accepted accounting 

principles regarding use of the equity 

method of accounting for an investment 

in common stock.

(C) Only adjustments arising from 

events specifically so indicated in the 

company’s SEC filing(s) as to both 

categorization and amount can and must 

be made. Any such adjustments apply 

only in the year in which the event 

occurred except with regard to the use 

of proceeds or acquisitions and 

dispositions. Any company for which 

the Exchange relies on adjustments in 

granting clearance must include all 

relevant adjusted financial data in its 

listing application as specified in Para. 

702.04, and disclose the use of 

adjustments by including a statement in 

a press release (i) that additional 

information is available upon which the 

NYSE relied to list the company and is 

included in the listing application and 

(ii) that such information is available to 

the public upon request. 

(D) Interested parties should apply the 

list of adjustments in accordance with 

any relevant accounting literature, such 

as that published by the Financial 

Accounting Standards Board (‘‘FASB’’), 

the Accounting Principles Board 

(‘‘APB’’), the Emerging Issues Task 

Force (‘‘EITF’’), the American Institute 

of Certified Public Accountants 

(‘‘AICPA’’), and the SEC. Any literature 

is intended to guide issuers and 

investors regarding the affected 

adjustment listed. If successor 

interpretations (or guidelines) are 

published with respect to any particular 

adjustment, the most recent relevant 

interpretations (or guidelines) should be 

consulted. 

[(IV) Affiliated Company Standard 

(1) Market capitalization of $500 

million or greater (as evidenced by 

written representation from the 

underwriter, company, or its investment 

advisor); 

(2) Minimum of 12 months of 

operations (although it is not required to 

have been a separate corporate entity for 

such period); 

(3) Parent or affiliated company is a 

listed company in good standing (as 

evidenced by written representation 

from the company or its financial 

advisor excluding that portion of the 

balance sheet attributable to the new 

entity); and 

(4) Parent/affiliated company retains 

control* of the entity or is under 

common control * with the entity. 

Federal Register / Vol. 69, No. 24 / Thursday, February 5, 2004 / Notices 5637

* ‘‘Control’’ for these purposes will 

mean the ability to exercise significant 

influence over operating and financial 

policies, and will be presumed to exist 

when the parent involved holds directly 

or indirectly 20% or more of the entity’s 

voting stock. Other indicia that may be 

taken into account for this purpose 

include board representation, 

participation in policymaking processes, 

material intercompany transactions, 

interchange of managerial personnel, 

and technological dependency. This test 

is taken from and intended to be 

consistent with generally accepted 

accounting principles regarding use of 

the equity method of accounting for an 

investment in common stock.]

* * * * *

802.00 Continued Listing

* * * * *

802.01 Continued Listing Criteria 

The Exchange would normally give 

consideration to delisting a security 

either a domestic or non-U.S. issuer 

when:

* * * * *

802.01B Numerical Criteria for Capital 

or Common Stock 

[If] A[a] company that falls below 

[any of the following] the criteria 

applicable to it [, it] is subject to the 

procedures outlined in Paras. 802.02 

and 802.03[:].

(I) A company that qualified to list 

under the Earnings Test set out in Para. 

102.01C(I) or in Para. 103.01B(I) will be 

considered to be below compliance 

standards if:

(i) [A]average global market 

capitalization over a consecutive 30 

trading-day period is less than 

[$50,000,000] $75,000,000 and, at the 

same time, total stockholders’ equity is 

less than [$50,000,000] $75,000,000 (C); 

or 

(ii) [A]average global market 

capitalization over a consecutive 30 

trading-day period is less than 

[$15,000,000; or] $25,000,000.

(II) A company that qualified to list 

under the Valuation/Revenue with Cash 

Flow Test set out in Para. 102.01C(II)(a) 

or Para. 103.01B(II)(a) will be 

considered to be below compliance 

standards if:

(i) Average global market 

capitalization over a consecutive 30 

trading-day period is less than 

$250,000,000 and, at the same time, 

total revenues are less than $20,000,000 

over the last 12 months (unless the 

company qualifies as an original listing 

under one of the other original listing 

standards) (D) ; or

(ii) Average global market 

capitalization over a consecutive 30 

trading-day period is less than 

$75,000,000.

[(iii) For companies that qualified for 

original listing under the ‘‘global market 

capitalization’’ standard] (III) A 

company that qualified to list under the 

Pure Valuation/Revenue Test set out in 

Para. 102.01C(II)(b) or Para. 

103.01B(II)(b) will be considered to be 

below compliance standards if:

(i) [A]average global market 

capitalization over a consecutive 30 

trading-day period is less than 

[$500,000,000] $375,000,000 and, at the 

same time, total revenues are less than 

[$20,000,000] $15,000,000 over the last 

12 months (unless the [resultant entity] 

company qualifies as an original listing 

under one of the other original listing 

standards) (D); or 

(ii) average global market 

capitalization over a consecutive 30 

trading-day period is less than 

$100,000,000. 

(IV) A company that qualified to list 

under the Affiliated Company Test set 

out in Para. 102.01C(III) or Para. 

103.01B(III) is not subject to any 

continued numerical standards unless:

(i) the listed company’s parent/

affiliated company ceases to control the 

listed company, or

(ii) the listed company’s parent/

affiliated company itself falls below the 

continued listing standards described to 

the parent/affiliated company.

In such case, the listed company that 

qualified to list under the Affiliated 

Company Test will be considered to be 

below compliance standards at any time 

that:

(i) average global market 

capitalization over a consecutive 30 

trading-day period is less than 

$75,000,000 and, at the same time, total 

stockholders’ equity is less than 

$75,000,000 (C); or

(ii) average global market 

capitalization over a consecutive 30 

trading-day period is less than 

$25,000,000.

When applying the market 

capitalization test in any of the above 

[three] four standards, the Exchange will 

generally look to the total common stock 

outstanding (excluding treasury shares) 

as well as any common stock that would 

be issued upon conversion of another 

outstanding equity security. The 

Exchange deems these securities to be 

reflected in market value to such an 

extent that the security is a ‘‘substantial 

equivalent’’ of common stock. In this 

regard, the Exchange will only consider 

securities (1) publicly traded (or 

quoted), or (2) convertible into a 

publicly traded (or quoted) security. For 

partnerships, the Exchange will analyze 

the creation of the current capital 

structure to determine whether it is 

appropriate to include other publicly 

traded securities in the calculation. 

[Affiliated Companies—Will not be 

subject to the $50,000,000 average 

global market capitalization and 

stockholders’ equity test unless the 

parent/affiliated company no longer 

controls the entity or such parent/

affiliated company itself falls below the 

continued listing standards described in 

this section.] 

Funds, REITs and Limited 

Partnerships [-] will be subject to 

immediate suspension and delisting 

procedures if [(1)] the average market 

capitalization of the entity over 30 

consecutive trading days is below 

[$15,000,000] $25,000,000 [or (2)]. In 

addition, [in the case of] a Fund [,] is 

subject to immediate suspension and 

delisting if it ceases to maintain its 

closed-end status. [, and in the case of 

a] A REIT is subject to immediate 

suspension and delisting if[,] it fails to 

maintain its REIT status (unless the 

resultant entity qualifies for an original 

listing as a corporation). 

The Exchange will notify the Fund, 

REIT or limited partnership if the 

average market capitalization falls 

below [$25,000,000] $35,000,000 and 

will advise the Fund, REIT or limited 

partnership of the delisting standard. 

Funds, REITs and limited partnerships 

are not subject to the procedures 

outlined in Paras. 802.02 and 802.03. 

Bonds [—] will be subject to 

immediate suspension and delisting 

procedures if:

(i) [T]the aggregate market value or 

principal amount of publicly-held 

bonds is less than $1,000,000, or

(ii) [T]the issuer is not able to meet its 

obligations on the listed debt securities. 

Bonds are not subject to the 

procedures outlined in Paras. 802.02 

and 802.03.

Preferred Stock, Guaranteed Railroad 

Stock and Similar Issues[-]will be 

subject to immediate suspension and 

delisting procedures if:

(i) the [A]aggregate market value of 

publicly-held shares is less than 

$2,000,000, or

(ii) the number of [P]publicly-held 

shares is less than 100,000. 

These types of securities are not 

subject to the procedures outlined in 

Paras. 802.02 and 802.03.

(C) In order [T]to be considered in 

conformity with continued listing 

standards pursuant to Paras. 802.02 and 

802.03, a company that is determined to 

be below compliance under this 

continued listing criterion must do one 

of the following: 

5638 Federal Register / Vol. 69, No. 24 / Thursday, February 5, 2004 / Notices 

6The NYSE has represented that it will notify 

listed companies of the Pilot Program by e-mail and 

by posting on its Web site. Telephone conversation 

between Noreen M. Culhane, Executive Vice 

President, Corporate Listings and Compliance, 

NYSE, Annemarie Tierney, Assistant General 

Counsel, NYSE, Florence Harmon, Senior Special 

Counsel, Division, Commission, and Susie Cho, 

Special Counsel, Division, Commission, on January 

21, 2004.

7The NYSE has represented that in evaluating 

companies for listing pursuant to existing Section 

102.01C(II), it has always analyzed a company’s 

‘‘global’’ market capitalization. Thus, the standards 

for the proposed ‘‘Valuation/Revenue with Cash 

Flow Test’’ clarify current NYSE practice. 

Telephone conversation between Noreen M. 

Culhane, Executive Vice President, Corporate 

Listings and Compliance, NYSE, Annemarie 

Tierney, Assistant General Counsel, NYSE, Florence 

Harmon, Senior Special Counsel, Division, 

Commission, and Susie Cho, Special Counsel, 

Division, Commission, on January 21, 2004.

8The current thresholds require: (a) A global 

market capitalization of $1 billion; and (b) revenues 

of at least $100 million. Section 102.01C(III) of the 

Manual.

(i) [R]reestablish both its market 

capitalization and its stockholders’

equity to the [$50,000,000] $75,000,000

level, or 

(ii) [A]achieve average global market 

capitalization over a consecutive 30 

trading-day period of at least 

[$100,000,000] $150,000,000, or 

(iii) [A]achieve average global market 

capitalization over a consecutive 30 

trading-day period of [$60,000,000] 

$90,000,000, with either (x) 

stockholders’ equity of at least 

[$40,000,000] $60,000,000, or (y) an 

increase in stockholders’ equity of at 

least [$40,000,000] $60,000,000 since 

the company was notified by the 

Exchange that it was below continued 

listing standards. 

(D) In order to be deemed in 

conformity with continued listing 

standards pursuant to paras. 802.02 and 

802.03, [A]a company that is 

determined to be below compliance 

under this continued listing criterion 

must either:

(i) reestablish both its market 

capitalization and its revenues to the 

applicable amounts [to be considered in 

conformity with continued listing 

standards pursuant to paras. 802.02 and 

802.03], or

(i) qualify as an original listing under 

any of the original listing standards.

802.01C Price Criteria for Capital or 

Common Stock [-] 

A Company will be considered to be 

below compliance standards if the

[A]average closing price of a security is 

less than $1.00 over a consecutive 30-

trading—day period (E).

* * * * *

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

NYSE included statements concerning 

the purpose of and basis for the 

proposed rule change and discussed any 

comments it received on the proposed 

rule change. The text of these statements 

may be examined at the places specified 

in Item IV below. The Exchange has 

prepared summaries, set forth in 

Sections A, B, and C below, of the most 

significant aspects of such statements.

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange is proposing to 

introduce a pilot program to amend 

certain of its minimum numerical 

standards for the listing and continued 

listing of equity securities on the New 

York Stock Exchange (‘‘Pilot Program’’). 

The Pilot Program will begin January 29, 

2004, and expire on July 29, 2004.6

The Exchange believes that the 

proposed Pilot Program will strengthen 

certain aspects of the minimum original 

and continued listing standards, while 

modestly easing the market-cap/revenue 

test to enable the NYSE to list somewhat 

younger companies that still meet 

substantial quantitative thresholds over 

their operating history. The Exchange 

staff represents that it has monitored the 

modest number of companies over the 

last two years that would have met the 

market-cap/revenue test as proposed 

and has found that those companies 

have performed to a standard that is 

appropriate for inclusion on the NYSE 

list. The Exchange believes that its 

standard in this respect, as in all 

respects, remains far higher than any 

other U.S. marketplace. 

Currently, section 102.01C of the 

Listed Company Manual provides that a 

company must meet one of four 

specified financial standards in order to 

qualify to have its equity securities 

listed. The Exchange is proposing to 

amend three of these four standards. 

The Exchange is also proposing to 

amend Section 103.01B(III), which 

provides a corresponding numerical 

standard applicable to international 

companies. 

Section 102.01C(I) currently requires 

that a company demonstrate pre-tax 

earnings of $6.5 million in aggregate for 

the last three fiscal years, with either a 

minimum of (a) $2.5 million in earnings 

in the most recent fiscal year and $2 

million in each of the preceding two 

years; or (b) $4.5 million in earnings in 

the most recent fiscal year, with positive 

amounts in each of the preceding two 

years. The Exchange is proposing to 

strengthen this standard and also to 

simplify it by eliminating the current 

two-tiered structure. As proposed, the 

‘‘Earnings Test’’ would require that 

companies demonstrate pre-tax earnings 

of $10 million in aggregate for the last 

three fiscal years. It would also require 

that the company demonstrate positive 

results in all three of the years tested 

with a minimum of $2 million in 

earnings in each of the preceding two 

years. 

Section 102.01C(II) currently requires 

that a company demonstrate market 

capitalization of at least $500 million 

and revenues of at least $100 million 

over the most recent 12-month period. 

Provided that these thresholds are met, 

a company with operating cash flows of 

at least $25 million in aggregate for the 

last three fiscal years with positive 

amounts in each of the three fiscal years 

would qualify for listing. Section 

102.01C(III) currently requires that 

companies demonstrate (a) market 

capitalization of at least $1 billion; and 

(b) revenues of at least $100 million in 

the most recent fiscal year. Because both 

of these tests are valuation and revenuebased, the Exchange proposes to 

consolidate them into one test with two 

alternative subsections. One of these 

sections of the proposed ‘‘Valuation/

Revenue Test’’ would incorporate the 

existing requirements of Section 

102.01C(II) as the ‘‘Valuation/Revenue 

with Cash Flow Test,’’ with no change 

to the current thresholds.7 The other 

section would incorporate the existing 

requirements of Section 102.01C(III) as 

the ‘‘Pure Valuation/Revenue Test.’’ In 

addition, the Exchange proposes to 

amend the current thresholds of Section 

102.01C(III) to require that companies 

demonstrate (a) market capitalization of 

at least $750 million; and (b) revenues 

of at least $75 million during the most 

recent fiscal year.8 The Exchange staff 

states that it is modestly lowering this 

listing standard, because it has 

monitored the number of companies 

over the last two years that would have 

met the Pure Valuation/Revenue test as 

NYSE proposes to modify it and has 

found that those companies have 

performed to a standard that is 

appropriate for inclusion on the NYSE 

list.

The Exchange is also proposing to 

make corresponding restructuring 

changes to Section 103.01B, which sets 

out minimum numerical standards for 

non-U.S. companies. The Exchange also 

proposes to amend the numeric 

thresholds of Section 103.01B(III) in 

Federal Register / Vol. 69, No. 24 / Thursday, February 5, 2004 / Notices 5639

9Previously, NYSE required $500,000,000 

average global market capitalization over a 

consecutive 30 trading-day period and total 

revenues of $20,000,000; or $100,000,000 average 

global market capitalization over a 30 trading-day 

period. Section 802.01B(iii) of the Manual.

10 Id.

accordance with the amendments 

proposed for Section 102.01C(III). 

In addition, the Exchange is 

proposing to restructure and amend the 

numerical continued listing standards 

set out in Section 802.01B. Section 

802.01B currently applies to companies 

that fall below any of the following 

criteria: (i) Average global market 

capitalization over a consecutive 30 

trading-day period is less than 

$50,000,000 and total stockholders’

equity is less than $50,000,000; (ii) 

average global market capitalization 

over a consecutive 30 trading-day 

period is less than $15,000,000; or (iii) 

for companies that qualified for original 

listing under the ‘‘global market 

capitalization’’ standard: (a) Average 

global market capitalization over a 

consecutive 30 trading-day period is 

less than $500,000,000 and total 

revenues are less than $20,000,000 over 

the last 12 months (unless the resultant 

entity qualifies as an original listing 

under one of the other original listing 

standards); or (b) average global market 

capitalization over a consecutive 30 

trading-day period is less than 

$100,000,000. 

The Exchange proposes to amend 

these thresholds and to specifically 

relate the continued listing standards of 

Section 802.01B to the original listing 

standards of Section 102.01C used to 

qualify a company for listing. 

Companies that are listed under the 

proposed ‘‘Earnings Test’’ will be 

considered to be below compliance if (a) 

average global market capitalization 

over a consecutive 30 trading-day 

period is less than $75,000,000 and, at 

the same time, total stockholders’ equity 

is less than $75,000,000; or (b) average 

global market capitalization over a 

consecutive 30 trading-day period is 

less than $25,000,000. These levels have 

been increased in the proposal to reflect 

marketplace expectations of those 

companies deemed suitable for 

continued listing. 

A company that qualifies to list under 

the proposed ‘‘Valuation/Revenue with 

Cash Flow Test’’ will be considered to 

be below compliance standards if (a) 

average global market capitalization 

over a consecutive 30 trading-day 

period is less than $250,000,000 and, at 

the same time, total revenues are less 

than $20,000,000 over the last 12 

months (unless the company qualifies as 

an original listing under one of the other 

original listing standards); or (b) average 

global market capitalization over a 

consecutive 30 trading-day period is 

less than $75,000,000.9

A company that qualifies to list under 

the proposed ‘‘Pure Valuation/Revenue 

Test’’ will be considered to be below 

compliance standards if (a) average 

global market capitalization over a 

consecutive 30 trading-day period is 

less than $375,000,000 and, at the same 

time, total revenues are less than 

$15,000,000 over the last 12 months 

(unless the resultant entity qualifies as 

an original listing under one of the other 

original listing standards); or (b) average 

global market capitalization over a 

consecutive 30 trading-day period is 

less than $100,000,000.10

The Exchange also proposes to clarify 

that it is the continued listing standards 

applicable to the proposed Earnings 

Test that will apply to companies that 

listed under the Affiliated Company 

Standard in circumstances where such 

listed company’s parent or affiliated 

company no longer controls the listed 

company or such listed company’s 

parent or affiliated company falls below 

the continued listing standards 

applicable to the parent or affiliated 

company. In addition, the Exchange 

proposes to increase the continued 

listing criteria for funds, REITs and 

limited partnerships from $15 million to 

$25 million with a corresponding 

increase to the notification threshold 

from $25 million to $35 million. 

Companies that fall below the 

foregoing minimum standards may be 

permitted a period of time to return to 

compliance, in accordance with the 

procedures specified in Sections 802.02 

and 802.03 of the Manual. As a general 

matter, companies must reestablish the 

level of market capitalization (and, if 

applicable, shareholder’s equity) 

specified in the continued listing 

standard that the company fell below. 

However, with respect to the current 

requirements of Section 802.01B(I) that 

a company reestablish both its market 

capitalization and its stockholders’

equity to the $50,000,000 level, footnote 

(C) to Section 802.01B provides several 

alternatives. Currently, the footnote 

specifies that to return to conformity, a 

company must do one of the following: 

(a) Reestablish both its market 

capitalization and its stockholders’

equity to the $50,000,000 level; (b) 

achieve average global market 

capitalization over a consecutive 30 

trading-day period of at least 

$100,000,000; or (c) achieve average 

global market capitalization over a 

consecutive 30 trading-day period of 

$60,000,000, with either (x) 

stockholders’ equity of at least 

$40,000,000, or (y) an increase in 

stockholders’ equity of at least 

$40,000,000 since the company was 

notified by the Exchange that it was 

below continued listing standards. The 

Exchange proposes to increase these 

thresholds to require that a company (a) 

reestablish both its market capitalization 

and its stockholders’ equity to the 

$75,000,000 level; (b) achieve average 

global market capitalization over a 

consecutive 30 trading-day period of at 

least $150,000,000; or (c) achieve 

average global market capitalization 

over a consecutive 30 trading-day 

period of $90,000,000, with either (x) 

stockholders’ equity of at least 

$60,000,000, or (y) an increase in 

stockholders’ equity of at least 

$60,000,000 since the company was 

notified by the Exchange that it was 

below continued listing standards. 

The Exchange has also considered 

how to transition the above-described 

changes to the continued listing 

standards. Sections 802.02 and 802.03 

provide that, with respect to a company 

which is determined to be below 

continued listing standards a second 

time within twelve months of successful 

recovery from previous non-compliance, 

the Exchange will examine the 

relationship between the two incidents 

of falling below continued listing 

standards and re-evaluate the 

company’s method of financial recovery 

from the first incident. The Exchange 

may then take appropriate action, 

which, depending upon the 

circumstances, may include truncating 

the normal procedures for reestablishing 

conformity with the continued listing 

standards or immediately initiating 

suspension and delisting procedures. 

For those companies that are within 

such a twelve-month period and would 

be deemed to be below continued listing 

standards as a direct result of the 

approval of the amendments proposed 

in this filing, the Exchange does not 

intend to truncate the normal 

procedures, or immediately initiate 

suspension and delisting, solely on the 

basis of the proposed increase to the 

current continued listing standards. 

For those companies that are 

currently below the continued listing 

standards, the Exchange intends to 

allow them to complete their applicable 

follow up procedures and plan for 

return to compliance as provided in 

sections 802.02 and 802.03 (‘‘Plan’’). If, 

at the end thereof, such companies are 

compliant with the continued listing 

standards for which they were originally 

notified, but below the increased 

requirements set forth above, the 

5640 Federal Register / Vol. 69, No. 24 / Thursday, February 5, 2004 / Notices 

11As of January 20, 2004, there are 10 companies 

operating pursuant to a NYSE approved business 

plan. These plans expire at various times 

throughout the balance of 2004. Under the proposed 

transition period, these companies could remain 

listed up to maximum of 22 months from the 

approval date of this filing, subject to ongoing 

monitoring and review. Telephone conversation 

between Annemarie Tierney, Assistant General 

Counsel, NYSE, Glenn Tyranski, Vice President, 

Financial Compliance, NYSE, and Susie Cho, 

Special Counsel, Division, Commission, on January 

20, 2004.

12 15 U.S.C. 78f(b)(5).

13 In approving this proposal, the Commission has 

considered its impact on efficiency, competition, 

and capital formation. 15 U.S.C. 78c(f).

14 15 U.S.C. 78f(b)(5).

15For example, one listing standard on Amex 

requires, among other things, $75 million market 

capitalization, or $75 million in total assets and 

revenues (in the last year or in 2 of the last 3 years). 

See Amex Company Guide, Section 101(d).

Exchange will grant them an 

opportunity to present an additional 

business plan advising the Exchange of 

definitive action the company has taken, 

or is taking, that would bring the 

company into conformity with the 

increased requirements within a further 

12 months.11 In addition, if a company 

completes its currently applicable 

follow up procedures and Plan and is 

not compliant at that time with the 

continued listing standards for which 

they were originally notified, but is 

above the increased requirements set 

forth above, the Exchange will consider 

that company to be in conformity with 

the continued listing standards.

Finally, the Exchange is proposing 

additional minor technical changes to 

Sections 102.02C, 103.01B, 802.01B and 

802.01C of the Manual. 

2. Statutory Basis 

The Exchange believes that the basis 

under the Act for this proposed rule 

change is the requirement under section 

6(b)(5) of the Act 12 that an exchange 

have rules that are designed to prevent 

fraudulent and manipulative acts and 

practices, 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.

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants or Others 

The Exchange has neither solicited 

nor received comments on the proposed 

rule change.

III. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the proposed rule 

change, including whether the proposed 

rule change is consistent with the Act. 

Persons making written submissions 

should file six copies thereof with the 

Secretary, Securities and Exchange 

Commission, 450 Fifth Street, NW., 

Washington, DC 20549–0609. 

Comments may also be submitted 

electronically at the following e-mail 

address: rule-comments@sec.gov.

All comment letters should refer to 

File No. SR–NYSE–2003–43. This file 

number should be included on the 

subject line if e-mail is used. To help the 

Commission process and review 

comments more efficiently, comments 

should be sent in hardcopy or by e-mail 

but not by both methods. 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 at 

the Commission’s Public Reference 

Room. Copies of such filing will also be 

available for inspection and copying at 

the principal office of the Exchange. All 

submissions should be submitted by 

February 26, 2004. 

IV. Commission’s Findings and Order 

Granting Accelerated Approval of 

Proposed Rule Change 

The Commission finds that the 

proposed rule change, as amended, is 

consistent with the requirements of the 

Act and the rules and regulations 

thereunder applicable to a national 

securities exchange.13 In particular, the 

Commission finds that the proposed 

rule change is consistent with section 

6(b)(5) of the Act,14 which requires that 

the rules of an exchange be designed to 

promote just and equitable principles of 

trade, remove impediments to and 

perfect the mechanism of a free and 

open market and a national securities 

system, and protect investors and the 

public interest.

The amendments to section 

102.01C(I), the ‘‘Earnings Test,’’ would 

require that companies demonstrate pretax earnings of $10 million in aggregate 

for the last three fiscal years. The 

proposed ‘‘Earnings Test’’ would also 

require that the company demonstrate 

positive results in all three of the years 

tested with a minimum of $2 million in 

earnings in each of the preceding two 

years. The Commission believes that 

these amendments are consistent with 

the Exchange Act. 

The amendments to the current 

thresholds of section 102.01C(III) would 

require, in order to qualify for listing 

under the ‘‘Pure Valuation/Revenue 

Test,’’ that companies demonstrate (a) 

market capitalization of at least $750 

million; and (b) revenues of at least $75 

million during the most recent fiscal 

year. The Commission believes that it is 

reasonable for the Exchange, based upon 

its experience, to determine that the 

companies that meet this proposed 

standard would be appropriate for 

inclusion on the NYSE list. The 

Commission notes that even with the 

proposed changes, the NYSE’s listing 

standard still remains substantially 

higher than comparable listing 

standards of other marketplaces.15

In addition, the Commission believes 

that the amendments to the numerical 

continued listing standards in Section 

802.01B should simplify and clarify the 

continued listing standards, by relating 

the continued listing standards to the 

original listing standards set forth in 

section 102.01C. The Commission 

believes that it is reasonable for the 

Exchange, based upon its experience, to 

determine that the proposed categories 

of listing standards reflect marketplace 

expectations of those companies 

deemed suitable for continued listing. 

The Commission notes that, in general, 

the continued listing standards reflect 

the proportional adjustments in the 

initial listing standards. 

Finally, the Exchange has explained 

how it intends to transition the 

proposed amendments to the continued 

listing standards. For those companies 

that are currently within a twelvemonth period following their recovery 

from previous non-compliance 

(pursuant to a Plan) advising the 

Exchange of action the company has 

taken, or is taking that would bring it 

into conformity with continued listing 

standards with 18 months), and would 

fall below continued listing standards as 

a direct result of the approval of the 

proposal, the Exchange does not intend 

to truncate the normal procedures or 

immediately initiate suspension and 

delisting, solely on the basis of the 

proposed increase to the current 

continued listing standards. 

The Exchange intends to allow 

companies that are currently below the 

continued listing standards to complete 

their applicable follow-up procedures 

and Plan for return to compliance, as 

Federal Register / Vol. 69, No. 24 / Thursday, February 5, 2004 / Notices 5641

16See supra n.11.

17See supra note 15.

18 15 U.S.C. 78s(b)(2).

19 15 U.S.C. 78s(b)(2).

20 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3See letter from Steven B. Maitlin, Senior 

Counsel, Regulatory Policy, PCX, to Leah Mesfin, 

Attorney, Division of Market Regulation, 

Commission, dated August 21, 2003 (‘‘Amendment 

No. 1’’). In Amendment No. 1, the Exchange 

replaced the term ‘‘independent Governors’’ in the 

proposed rule text with ‘‘Public Governors.’’

4Securities Exchange Act Release No. 48500 

(September 17, 2003), 68 FR 56030 (September 29, 

2003).

5 In approving this proposed rule change, the 

Commission notes that it has considered the 

proposed rule’s impact on efficiency, competition, 

and capital formation. 15 U.S.C. 78c(f).

6 15 U.S.C. 78f(b)(5).

7See PCX Constitution, Article II, Section 1(a).

8 15 U.S.C. 78s(b)(2).

9 17 CFR 200.30–3(a)(12).

provided in sections 802.02 and 802.03. 

If, at the end thereof, such companies 

are compliant with the continued listing 

standards for which they were originally 

notified, but below the increased 

requirements proposed herein, the 

Exchange would grant them an 

opportunity to present an additional 

business plan advising the Exchange of 

definitive action the company has taken, 

or is taking, that would bring the 

company into conformity with the 

increased requirements within a further 

12 months. In addition, if a company 

completes its currently applicable 

follow-up procedures and Plan and is 

not compliant at that time with the 

continued listing standards for which it 

was originally notified, but is above the 

increased requirements set forth above, 

the Exchange would consider that 

company to be in conformity with the 

continued listing standards. 

The Commission believes that the 

Exchange’s transition policies are 

reasonable and consistent with the Act. 

The Commission notes that these 

policies should impact few 

companies.16 The Commission, 

however, expects that the Exchange will 

follow closely the progress of companies 

that are currently in their Plan period or 

subsequent 12-month period, to ensure 

that these companies will attain the 

proposed continued listing standards. 

The Commission notes that, pursuant to 

section 802.02, the Exchange has the 

discretion to suspend trading in any 

security and apply to the Commission 

for delisting, when the Exchange deems 

it necessary for the protection of 

investors.

The NYSE has requested that the 

Commission find good cause for 

approving the proposed rule change, as 

amended, prior to the thirtieth day after 

the date of publication of notice in the 

Federal Register. The Commission 

believes that it is reasonable to grant 

accelerated approval to allow for the 

efficient administration of the 

Exchange’s original and continued 

listing programs as promptly as 

possible. The Commission notes that the 

listing standard of the NYSE that is 

being modestly lowered, as proposed, 

would remain substantially higher than 

other comparable listing standards of 

other marketplaces.17 In addition, the 

Commission notes that the amended 

original and continued listing standards 

will be in effect only as a pilot program 

for a six-month period. Accordingly, the 

Commission finds good cause, pursuant 

to section 19(b)(2) of the Act,18 for 

accelerated approval of the proposed 

rule change, as amended.

V. Conclusion 

It is therefore ordered, pursuant to 

section 19(b)(2) of the Act,19 that the 

proposed rule change (SR–NYSE–2003–

43), as amended, is hereby approved on 

an accelerated basis, as a six-month 

pilot, scheduled to expire on July 29, 

2004.

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.20

Jill M. Peterson, 

Assistant Secretary.

[FR Doc. 04–2335 Filed 2–4–04; 8:45 am] 

BILLING CODE 8010–01–P

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–49138; File No. SR–PCX–

2003–36] 

Self-Regulatory Organizations; Order 

Approving Proposed Rule Change and 

Amendment No. 1 Thereto by the 

Pacific Exchange, Inc. Relating to the 

Composition of Its Audit Committee 

January 28, 2004. 

On July 14, 2003, the Pacific 

Exchange, Inc. (‘‘PCX’’ 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 that would amend its rule 

regarding the PCX’s Audit Committee. 

On August 21, 2003, PCX submitted by 

facsimile Amendment No. 1 to the 

proposed rule change.3 The proposed 

rule change, as modified by Amendment 

No. 1, was published for comment in 

the Federal Register on September 29, 

2003.4 The Commission received no 

comments on the proposal.

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 5 and, in particular, the 

requirements of Section 6(b)(5) of the 

Act.6 Section 6(b)(5) requires, among 

other things, that the rules of the 

exchange be designed to prevent 

fraudulent and manipulative acts, to 

promote just and equitable principles of 

trade, and, in general, to protect 

investors and the public interest. The 

Commission notes that the proposed 

rule change specifies that all members 

of PCX’s Audit Committee must be 

Public Governors. The PCX Constitution 

requires ‘‘Public Governors’’ to be 

representatives of the public and not a 

broker or dealer or affiliated with a 

broker or dealer.7 Previously, Audit 

Committee members were not required 

to be Public Governors. Furthermore, 

the proposed rule change requires that 

at least one member of the Audit 

Committee have accounting or financial 

management expertise, as the Board of 

Governors interprets such qualification 

in its business judgment. The 

Commission believes that the proposed 

change should help improve the 

Exchange’s governance structure by 

requiring that all members of the Audit 

Committee be Public Governors and that 

at least one of those members have 

accounting or financial management 

expertise. In this way, the independence 

and effectiveness of the Audit 

Committee should be enhanced. 

Therefore, the Commission finds that 

the proposed rule change is consistent 

with the Act.

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,8 that the 

proposed rule change (SR–PCX–2003–

36), as amended by Amendment No. 1, 

be, and hereby is, approved.

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.9

Jill M. Peterson, 

Assistant Secretary.

[FR Doc. 04–2333 Filed 2–4–04; 8:45 am] 

BILLING CODE 8010–01–P