Federal Register / Vol. 76, No. 154 / Wednesday, August 10, 2011 / Notices 49513 

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

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

4 In some cases a private company effects an 

exchange offer or other transaction pursuant to 

which it combines with a public shell company. 

5 15 U.S.C. 77a. 

6See Letter from Mary L. Schapiro to Hon. Patrick 

T. McHenry, dated April 27, 2011 (‘‘Schapiro 

Letter’’), at pages 3–4. 7See Schapiro Letter at page 4. 8See ‘‘Investor Bulletin: Reverse Mergers’’ 2011– 

123. 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–65034; File No. SR–NYSE– 

2011–38] 

Self-Regulatory Organizations; New 

York Stock Exchange LLC; Notice of 

Filing of Proposed Rule Change 

Amending Sections 102.01 and 103.01 

of the Exchange’s Listed Company 

Manual To Adopt Additional Listing 

Requirements for Companies Applying 

To List After Consummation of a 

‘‘Reverse Merger’’ With a Shell 

Company 

August 4, 2011. 

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

Securities Exchange Act of 1934 

(‘‘Act’’),2 and Rule 19b–4 thereunder,3

notice is hereby given that, on July 22, 

2011, New York Stock Exchange LLC 

(‘‘NYSE’’ or the ‘‘Exchange’’) filed with 

the Securities and Exchange 

Commission (the ‘‘Commission’’) the 

proposed rule change as described in 

Items I and II below, which Items have 

been prepared by the self-regulatory 

organization. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of the Substance 

of the Proposed Rule Change 

The Exchange proposes to amend 

Sections 102.01 and 103.01 of the 

Exchange’s Listed Company Manual 

(the ‘‘Manual’’) to adopt additional 

initial listing requirements for 

companies applying to list after 

consummation of a ‘‘reverse merger’’ 

with a shell company. The text of the 

proposed rule change is available at the 

Exchange, the Commission’s Public 

Reference Room, and http:// 

www.nyse.com. 

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 

self-regulatory organization 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 NYSE proposes to adopt more 

stringent listing requirements for 

operating companies that become 

Exchange Act reporting companies by 

combining with a shell company which 

is an Exchange Act reporting company. 

The proposed listing requirements 

would apply to combinations with a 

shell company which is an Exchange 

Act reporting company, through a 

reverse merger, exchange offer or 

otherwise (a ‘‘reverse merger 

transaction’’). 

In a reverse merger transaction, an 

existing public shell company merges 

with a private operating company in a 

transaction in which the shell company 

is the surviving legal entity.4 While the 

public shell company survives the 

merger, the shareholders of the private 

operating company typically hold a 

large majority of the shares of the public 

company after the merger and the 

management and board of the private 

company will assume those roles in the 

post-merger public company. The assets 

and business operations of the postmerger surviving public company are 

primarily, if not solely, those of the 

former private operating company. The 

Exchange understands that private 

operating companies generally enter 

into reverse merger transactions to 

enable the company and its 

shareholders to sell shares in the public 

equity markets. By becoming a public 

reporting company via a reverse merger, 

a private operating company can access 

the public markets quickly and avoid 

the generally more expensive and 

lengthy process of going public by way 

of an initial public offering. While the 

public shell company is required to 

report the reverse merger in a Form 8– 

K filing with the Securities and 

Exchange Commission (the 

‘‘Commission’’), generally there are no 

registration requirements under the 

Securities Act of 1933 (the ‘‘Securities 

Act’’) 5 at that point in time, as there 

would be for an IPO. 

Significant regulatory concerns, 

including accounting fraud allegations, 

have arisen with respect to a number of 

reverse merger companies in recent 

times. The Commission has taken direct 

action against reverse merger 

companies. During 2011, the 

Commission has suspended trading in 

the securities of a number of reverse 

merger companies and has revoked the 

securities registration of a number of 

reverse merger companies.6 The 

Commission also recently brought an 

enforcement proceeding against an audit 

firm relating to its work for reverse 

merger companies.7 In addition, the 

Commission issued a bulletin on the 

risks of investing in reverse merger 

companies, noting potential market and 

regulatory risks related to investing in 

reverse merger companies.8

In response to these concerns, NYSE 

Regulation staff has been conducting 

heightened, risk-informed reviews of 

reverse merger companies seeking to list 

on the NYSE or NYSE Amex to consider 

factors other than the enumerated initial 

listing criteria in making listing 

determinations. In this regard, Section 

101.00 of the Manual provides that the 

Exchange has ‘‘broad discretion 

regarding the listing of a company.’’ 

Section 101.00 provides that the 

Exchange may use such discretion to 

‘‘deny listing or apply additional or 

more stringent criteria based on any 

event, condition, or circumstance that 

makes the listing of the company 

inadvisable or unwarranted in the 

opinion of the Exchange.’’ The 

Exchange may use this discretionary 

authority to increase the stringency of 

its stated listing criteria but not to 

decrease their stringency. 

In light of the well-documented 

concerns related to some reverse merger 

companies as described above, the 

Exchange believes it is appropriate to 

codify in its rules specific requirements 

with respect to the initial listing 

qualification of reverse merger 

companies. As proposed, a reverse 

merger company would not be eligible 

for listing unless the combined entity 

had, immediately preceding the filing of 

the initial listing application: 

(1) Traded for at least one year in the 

U.S. over-the-counter market, on 

another national securities exchange or 

on a regulated foreign exchange 

following the consummation of the 

reverse merger and (i) In the case of a 

domestic issuer, filed with the 

Commission a Form 8–K including all of 

the information required by Item 2.01(f) 

of Form 8–K, including all required 

audited financial statements, or (ii) in 

the case of a foreign private issuer, filed 

the information described in (i) above 

on Form 20–F; 


emcdonald on DSK2BSOYB1PROD with NOTICES
49514 Federal Register / Vol. 76, No. 154 / Wednesday, August 10, 2011 / Notices 

9For purposes of Section 102.01B, a company is 

listing in connection with its Initial Firm 

Commitment Underwritten Public Offering if (i) 

Such company has a class of common stock 

registered under the Exchange Act, (ii) such 

common stock has never been listed on a national 

securities exchange in the period since the 

commencement of its current registration under the 

Exchange Act, and (iii) such company is listing in 

connection with a firm commitment underwritten 

public offering that is its first firm commitment 

underwritten public offering of its common stock 

since the registration of its common stock under the 

Exchange Act. 

10The prospectus and registration statement 

covering the offering would thus need to relate to 

the combined financial statements and operations 

of the Reverse Merger Company. 

11The Commission notes that under NYSE’s 

proposal a non-U.S. Reverse Merger Company that 

will not be subject to the proposed 103.01E 

requirements because it is listing in connection 

with an Initial Firm Commitment Underwritten 

Public Offering where the proceeds in the offering 

will generate a minimum of $40,000,000 in 

aggregate market value of publicly held shares 

would still have to meet all the requirements in 

Section 103.01A of the Manual that include a 

market value of publicly held shares of $100 

million worldwide. 

(2) Maintained on both an absolute 

and an average basis for a sustained 

period a minimum stock price of at least 

$4; and 

(3) Timely filed with the Commission 

all required reports since the 

consummation of the reverse merger, 

including the filing of at least one 

annual report containing audited 

financial statements for a full fiscal year 

commencing on a date after the date of 

filing with the Commission of the filing 

described in (1) above. 

In addition, a reverse merger company 

would be required to maintain on both 

an absolute and an average basis a 

minimum stock price of at least $4 

through listing. 

The Exchange believes that requiring 

a ‘‘seasoning’’ period prior to listing for 

reverse merger companies should 

provide greater assurance that the 

company’s operations and financial 

reporting are reliable, and will also 

provide time for its independent auditor 

to detect any potential irregularities, as 

well as for the company to identify and 

implement enhancements to address 

any internal control weaknesses. The 

seasoning period will also provide time 

for regulatory and market scrutiny of the 

company, and for any concerns that 

would preclude listing eligibility to be 

identified. 

In addition, the Exchange believes 

that the proposed rule change will 

increase transparency to issuers and 

market participants with respect to the 

factors considered by NYSE Regulation 

in assessing reverse merger companies 

for listing, and generally should reduce 

the risk of regulatory concerns with 

respect to these companies being 

discovered after listing. However, the 

Exchange notes that, while it believes 

the proposed requirements would be a 

meaningful additional safeguard, it is 

not possible to guarantee that a reverse 

merger company (or any other listed 

company) is not engaged in undetected 

accounting fraud or subject to other 

concealed and undisclosed legal or 

regulatory problems. 

For purposes of proposed Section 

102.01F of the Manual (which will be 

applicable to reverse merger companies 

which qualify to list under the domestic 

companies criteria of Section 102.01) 

and proposed Section 103.01E of the 

Manual (which will be applicable to 

reverse merger companies which qualify 

to list under the non-U.S. companies 

criteria of Section 103.01), a ‘‘Reverse 

Merger’’ would mean any transaction 

whereby an operating company became 

an Exchange Act reporting company by 

combining with a shell company that 

was an Exchange Act reporting 

company, whether through a reverse 

merger, exchange offer, or otherwise. 

However, a Reverse Merger would not 

include the acquisition of an operating 

company by a listed company that 

qualified for initial listing under Section 

102.06 of the Manual (i.e., the 

Exchange’s special purpose acquisition 

company (‘‘SPAC’’) listing standard). In 

determining whether a company was a 

shell company, the Exchange would 

consider, among other factors: Whether 

the company was considered a ‘‘shell 

company’’ as defined in Rule 12b–2 

under the Exchange Act; what 

percentage of the company’s assets were 

active versus passive; whether the 

company generated revenues, and if so, 

whether the revenues were passively or 

actively generated; whether the 

company’s expenses were reasonably 

related to the revenues being generated; 

how many employees worked in the 

company’s revenue-generating business 

operations; how long the company had 

been without material business 

operations; and whether the company 

had publicly announced a plan to begin 

operating activities or generate 

revenues, including through a near-term 

acquisition or transaction. 

In order to qualify for initial listing, 

a company that was formed by a Reverse 

Merger (a ‘‘Reverse Merger Company’’) 

would be required to comply with one 

of the initial listing standards for 

operating companies set forth in Section 

102.01C or 103.01B of the Manual and 

the applicable distribution, stock price 

and market value requirements of 

Sections 102.01A and 102.01B of the 

Manual (in the case of companies listing 

pursuant to Section 102.01) and Section 

103.01A (in the case of companies 

listing pursuant to Section 103.01). 

Proposed Sections 102.01F and 103.01E 

would supplement and not replace any 

applicable requirements of Sections 

102.01 or 102.03. However, in addition 

to the otherwise applicable 

requirements of Sections 102.01 or 

103.01, a Reverse Merger Company 

would be eligible to submit an 

application for initial listing only if it 

meets the additional criteria specified 

above. 

The Exchange would have the 

discretion to impose more stringent 

requirements than those set forth above 

if the Exchange believed it was 

warranted in the case of a particular 

Reverse Merger Company based on, 

among other things, an inactive trading 

market in the Reverse Merger 

Company’s securities, the existence of a 

low number of publicly held shares that 

were not subject to transfer restrictions, 

if the Reverse Merger Company had not 

had a Securities Act registration 

statement or other filing subjected to a 

comprehensive review by the 

Commission, or if the Reverse Merger 

Company had disclosed that it had 

material weaknesses in its internal 

controls which had been identified by 

management and/or the Reverse Merger 

Company’s independent auditor and 

had not yet implemented an appropriate 

corrective action plan. 

A Reverse Merger Company would 

not be subject to the requirements of 

proposed Section 102.01F or proposed 

Section 103.01E, as applicable, if it was 

listing in connection with an Initial 

Firm Commitment Underwritten Public 

Offering (as defined in Section 

102.01B9) where the proceeds to the 

Reverse Merger Company were 

sufficient on a standalone basis to 

generate $40,000,000 in aggregate 

market value of publicly-held shares 

and the offering was occurring 

subsequent to or concurrently with the 

reverse merger.10 In that case, the 

Reverse Merger Company would only 

need to meet the requirements of one of 

the initial listing standards in Section 

102.01C or Section 103.01B, as 

applicable.11 The Exchange believes 

that it is appropriate to exempt Reverse 

merger Companies from the proposed 

rule where they are listing in 

conjunction with a sizable offering, as 

those companies would be subject to the 

same Commission review and due 

diligence by underwriters as a company 

listing in conjunction with its IPO or 

any other company listing in 

conjunction with an Initial Firm 

Commitment Underwritten Public 

Offering, so it would be inequitable to 


emcdonald on DSK2BSOYB1PROD with NOTICES
Federal Register / Vol. 76, No. 154 / Wednesday, August 10, 2011 / Notices 49515 

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

13 15 U.S.C. 78f(b)(5). 

14 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3 17 CFR 240.19b–4(f)(6). 

4Changes are marked to the rule text that appears 

in the electronic manual of Nasdaq found at http:// 

nasdaq.cchwallstreet.com. 

subject them to more stringent 

requirements. 

2. Statutory Basis 

The Exchange believes that the 

proposed rule change is consistent with 

Section 6(b) 12 of the Act, in general, and 

furthers the objectives of Section 6(b)(5) 

of the Act,13 in particular in that it is 

designed to promote just and equitable 

principles of trade, to foster cooperation 

and coordination with persons engaged 

in regulating, clearing, settling, 

processing information with respect to, 

and facilitating transactions in 

securities, to remove impediments to 

and perfect the mechanism of a free and 

open market and a national market 

system, and, in general, to protect 

investors and the public interest. The 

Exchange believes that the proposed 

rule change is consistent with Section 

6(b)(5) of the Act in that, as discussed 

above under the heading ‘‘Purpose’’, its 

purpose is to apply more stringent 

initial listing requirements to a category 

of companies that have raised regulatory 

concerns, thereby furthering the goal of 

protection of 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 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 

No written comments were solicited 

or received with respect to the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 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 the self-regulatory 

organization consents, the Commission 

will: 

A. By order approve or disapprove 

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, as amended, is consistent with 

the Act. Comments may be submitted by 

any of the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–NYSE–2011–38 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–NYSE–2011–38. 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, 

please use only one method. The 

Commission will post all comments on 

the Commission’s Internet Web site 

(http://www.sec.gov/rules/sro.shtml). 

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 Web site viewing and 

printing in the Commission’s Public 

Reference Room on official business 

days between the hours of 10 a.m. and 

3 p.m. Copies of such filing also will be 

available for inspection and copying at 

the principal office of NYSE. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–NYSE–2011–38, and 

should be submitted on or before 

August 31, 2011. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.14

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2011–20243 Filed 8–9–11; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–65038; File No. SR– 

NASDAQ–2011–100] 

Self-Regulatory Organizations; The 

NASDAQ Stock Market LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change To Modify the 

Defined Term ‘‘Closed-End Fund’’ in 

Rules 5910 and 5920 

August 5, 2011. 

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 July 26, 

2011, The NASDAQ Stock Market LLC 

(‘‘Nasdaq’’) filed with the Securities and 

Exchange Commission (‘‘Commission’’) 

the proposed rule change as described 

in Items I, II, and III below, which Items 

have been substantially prepared by 

Nasdaq. Nasdaq has designated the 

proposed rule change as effecting a 

change described under Rule 19b–4(f)(6) 

under the Act,3 which renders the 

proposal effective upon filing with the 

Commission. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of the Substance 

of the Proposed Rule Change 

Nasdaq proposes to modify the 

defined term ‘‘Closed-End Fund’’ in 

Rules 5910 and 5920 to include 

business development companies. 

The text of the proposed rule change 

is below. Proposed new language is in 

italics; proposed deletions are in 

brackets.4

5910. The NASDAQ Global Market 

(a) Entry Fee 

(1)–(2) No change. 

(3) A closed-end management investment 

company [registered] regulated under the 

Investment Company Act of 1940, as 

amended (a ‘‘Closed-End Fund’’), that 

submits an application for listing on the 

Nasdaq Global Market shall pay to Nasdaq an 


emcdonald on DSK2BSOYB1PROD with NOTICES