[Federal Register Volume 62, Number 182 (Friday, September 19, 1997)]
[Notices]
[Pages 49286-49287]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-24864]



[[Page 49286]]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39053; File No. SR-Phlx-97-29]


Self-Regulatory Organizations; Order Granting Approval to 
Proposed Rule Change and Notice of Filing and Order Granting 
Accelerated Approval to Amendment No. 1 Thereto, by the Philadelphia 
Stock Exchange, Inc. Relating to Tier I Listing Standards

September 11, 1997.

I. Introduction

    On June 25, 1997, the Philadelphia Stock Exchange, Inc. (``Phlx'' 
or ``Exchange'') submitted to the Securities and Exchange Commission 
(``SEC'' or ``Commission''), pursuant to section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
Thereunder,\2\ a proposed rule change to amend its Tier I listing 
standards.
---------------------------------------------------------------------------

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

    The proposed rule change was published in the Federal Register on 
July 16, 1997.\3\ No comments were received on the proposal. On July 
22, 1997, the Phlx submitted Amendment No. 1 to the proposed rule 
change.\4\ This order approves the proposal, as amended, and solicits 
comment on Amendment No. 1.
---------------------------------------------------------------------------

    \3\ Securities Exchange Act Release No. 38825 (July 9, 1997), 62 
FR 38180 (July 16, 1997).
    \4\ See Letter from Michele R. Weisbaum, Associate General 
Counsel, Phlx, to David Sieradzki, Attorney, SEC (July 17, 1997) 
(``Amendment No. 1''). In Amendment No. 1, the Phlx added a new 
subsection (9) to Rule 803(e) requiring that currency, currency 
index and stock index warrants be cash-settled in U.S. dollars.
---------------------------------------------------------------------------

II. Description of the Proposal

    In October, 1996, the National Securities Markets Improvement Act 
of 1996 \5\ was signed into law. Among other provisions, the law 
amended section 18 of the Securities Act of 1933 (``Securities Act'') 
\6\ to provide for exclusive federal registration for ``covered 
securities'' which are those securities listed on the New York Stock 
Exchange (``NYSE''), American Stock Exchange (``Amex'') or the National 
Market System of the Nasdaq Stock Market (``Nasdaq/NMS'') or on any 
other national securities exchange designated by the Commission to have 
substantially similar listing standards to those markets. On March 31, 
1997, the Phlx petitioned the Commission to adopt a rule that would 
find Phlx Tier I listing standards to be substantially similar to those 
of the NYSE, Amex or Nasdaq/NMS and, therefore, entitle its listed Tier 
I securities to be considered covered securities.
---------------------------------------------------------------------------

    \5\ Pub. L. 104-290, Stat. 3416 (1996).
    \6\ 15 U.S.C. 77s.
---------------------------------------------------------------------------

    The Commission recently proposed Rule 146(b) under section 18 of 
the Securities Act, which would designate certain securities as 
``covered securities'' for purposes of this federal registration 
scheme.\7\ In order for the Commission to designate the Phlx's Tier I 
securities as covered securities, however, it must first determine that 
its Tier I listing and maintenance standards are substantially similar 
to those of either the NYSE, Amex or Nasdaq/NMS. The Commission has 
noted that it preliminarily believes that the Phlx's Tier I standards 
differ in three areas from those of the NYSE, Amex, or Nasdaq/NMS. By 
this filing, the Phlx is amending its rules to make them substantially 
similar to those of the Amex in those three specified areas as set 
forth below.
---------------------------------------------------------------------------

    \7\ Securities Exchange Act Release No. 38728, Securities Act 
Release No. 7422 (June 10, 1997), 62 FR 32705 (June 17, 1997).
---------------------------------------------------------------------------

    First, Phlx Rule 803(e) is being amended to adopt additional 
listing standards for index warrants, currency warrants and currency 
index warrants. New subsection (2) requires that warrants have a term 
of between one and five years from the date of issuance. New subsection 
(3) imposes a minimum public distribution and market value requirement 
of 1,000,000 warrants with at least 400 public warrant holders and a 
minimum aggregate market value of $4,000,000. Finally, new subsection 
(9) requires that index warrants, currency warrants and currency index 
warrants be cash-settled in U.S. dollars.\8\
---------------------------------------------------------------------------

    \8\ See Amendment No. 1, supra note 4. These provisions are 
substantially similar to sections 106 (b) and (c) of the Amex 
Company Guide.
---------------------------------------------------------------------------

    Second, the pre-tax income requirement for issuers of ``other 
securities'' in Rule 803(f)(2) is increased from $100,000 in three of 
the four prior fiscal years to $750,000 in its last fiscal year or in 
two of its last three fiscal years.\9\ Other securities are hybrid 
securities which have features common to both equity and debt 
securities, yet do not fit within the traditional definitions of 
either.
---------------------------------------------------------------------------

    \9\ This provision is substantially similar to section 107 and, 
by reference, section 101(b) of the Amex Company Guide.
---------------------------------------------------------------------------

    Finally, Exchange Rule 810(a), which contains the maintenance 
standards for Tier I securities, is amended to add maintenance 
standards for bonds, notes and debentures. The proposed Rule requires 
that debt securities maintain an aggregate market value or principal 
amount of bonds that are publicly held of $400,000 and requires the 
issuer to be able to meet its obligations in the listed debt 
securities. Also, for any debt security convertible into a listed 
equity security, the debt security will be reviewed when the underlying 
equity security is delisted and will be delisted when the underlying 
equity security is no longer subject to real-time trade reporting in 
the United States. In addition, if common stock is delisted for 
violation of any of the corporate governance criteria in Exchange Rules 
812 through 899, the Exchange also will delist any listed debt 
securities convertible into the common stock.\10\
---------------------------------------------------------------------------

    \10\ These provisions are substantially similar to section 1003 
(b)(iii) and (e) of the Amex Company Guide.
---------------------------------------------------------------------------

III. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange, and, in 
particular, the requirements of section 6 \11\ and the rules and 
regulation thereunder. Specifically, the Commission finds that the 
proposed rule change is consistent with the section 6(b)(5) \12\ 
requirement that the rules of an exchange be designed to promote just 
and equitable principles of trade, to remove impediments to, and 
perfect the mechanism of a free and open market and, in general, to 
protect investors and the public interest.\13\
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b) (5).
    \13\ In approving these rules, the Commission has considered the 
proposed rules' impact on efficiency, competition, and capital 
formation, 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    The Commission believes that the amendments to the Phlx's listing 
and maintenance standards should protect investors in a number of ways. 
First, the addition of minimum distribution and aggregate market value 
requirements to the listing standards for currency, currency index and 
stock index warrants will help to ensure the depth and liquidity of the 
market for warrants listed on the Exchange. In addition, limiting the 
term of maturity of these products to no greater than five years should 
protect investors from the credit risk of the issuer's ability to pay 
at the expiration of the warrant term. Second, increasing the pre-tax 
income requirement for issuers of ``other securities'' will protect 
investors by increasing the minimum financial requirements for issuers 
of ``other securities,'' thus reducing the likelihood of default. 
Third, the addition of maintenance requirements for bonds, notes and 
debentures protects investors

[[Page 49287]]

by helping to ensure that issuers of such securities continue to meet 
minimum financial standards and maintain the ability to make interest 
and principal payments as they come due. Finally, the review of a 
convertible bond when the underlying security is delisted and the 
requirement that convertible debt be automatically delisted if the 
underlying security is delisted for violation of corporate governance 
rules will help to ensure that issuers will be unable to avoid the 
effect of a delisting of an equity security by continuing to list a 
bond convertible into the delisted security.
    The Commission finds good cause for approving Amendment No. 1 to 
the proposed rule change prior to the thirtieth day after the date of 
publication of notice of filing thereof in the Federal Register. 
Amendment No. 1 does not change the nature of the proposal, but merely 
codifies a current Exchange practice of requiring that currency, 
currency index and stock index warrants be cash-settled in U.S. 
dollars. Further, the Commission notes that the original proposal was 
published for the full 21-day comment period and no comments were 
received by the Commission. Accordingly, the Commission believes it is 
consistent with sections 19(b)(2) and 6(b)(5) of the Act to approve 
Amendment No. 1 to the Exchange's proposal on an accelerated basis.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 1. Persons making written 
submissions should file six copies thereof with the Secretary, 
Securities and Exchange Commission, 450 Fifth Street, NW., Washington, 
DC 20549. 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 refer to File 
No. SR-Phlx-97-29 and should be submitted by October 10, 1997.

V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-Phlx-97-29) is approved, as 
amended.

    \14\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a) (12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-24864 Filed 9-18-97; 8:45 am]
BILLING CODE 8010-01-M