[Federal Register Volume 69, Number 24 (Thursday, February 5, 2004)]
[Notices]
[Pages 5633-5641]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-2335]


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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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ With 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.
    \4\ See 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.
    \5\ See 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

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[[Page 5634]]

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 long-lived 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

[[Page 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 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.
    (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.

[[Page 5636]]

    (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.

[[Page 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:

[[Page 5638]]

    (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\
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    \6\ The 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.
---------------------------------------------------------------------------

    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 revenue-based, 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.
---------------------------------------------------------------------------

    \7\ The 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.
    \8\ The 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.
---------------------------------------------------------------------------

    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

[[Page 5639]]

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\
---------------------------------------------------------------------------

    \9\ Previously, 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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \10\ Id.
---------------------------------------------------------------------------

    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

[[Page 5640]]

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.
---------------------------------------------------------------------------

    \11\ As 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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

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

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: <a href="/cdn-cgi/l/email-protection#ed9f988188c08e8280808883999ead9e888ec38a829b"><span class="__cf_email__" data-cfemail="becccbd2db93ddd1d3d3dbd0cacdfecddbdd90d9d1c8">[email protected]</span></a>.
    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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    The amendments to section 102.01C(I), the ``Earnings Test,'' would 
require that companies demonstrate pre-tax 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\
---------------------------------------------------------------------------

    \15\ For 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).
---------------------------------------------------------------------------

    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 twelve-month 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

[[Page 5641]]

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.
---------------------------------------------------------------------------

    \16\ See supra n.11.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \17\ See supra note 15.
    \18\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

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

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\20\
---------------------------------------------------------------------------

    \20\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jill M. Peterson,
Assistant Secretary.
[FR Doc. 04-2335 Filed 2-4-04; 8:45 am]
BILLING CODE 8010-01-P


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