Federal Register / Vol. 62, No. 188 / Monday, September 29, 1997 / Notices 50979

8 15 U.S.C. 78q–1.

9 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3The NYSE’s Shareholder Approval Policy is

contained in Paragraphs 312.03 through 312.05 of

the Exchange’s Listed Company Manual.

4Letter from Noreen M. Culhane, Senior Vice

President, Listings and Client Service, NYSE, to

Howard Kramer, Associate Director, Division of

Market Regulation, Commission (August 7, 1997).

correspondent broker-dealer’s

transactions before the clearing firm has

had a chance to review such

transactions. This increases the

possibility that a clearing firm will be

responsible for problematic or risky

transactions. In light of the higher risk

presented by these firms, NSCC believes

that they should be subject to higher

minimum capital standards.

Currently, twenty-nine NSCC

members do not meet the proposed

$500,000 standard for full service

members. For this reason, NSCC

proposes that the new standard become

effective on the later of (a) one year from

the date of publication in the Federal

Register of the notice of the filing of this

rule change or (b) the date of

Commission approval of this rule

change. NSCC believes that this

effective date will give those firms

sufficient time to obtain appropriate

capital infusions or make other clearing

arrangements.

In addition, two NSCC members that

clear for other broker-dealers do not

meet the $1,000,000 standard.

Therefore, NSCC proposes that this new

standard become effective on the later of

(a) six months from the date of

publication in the Federal Register of

the notice of the filing of this rule

change or (b) the date of Commission

approval of this rule change. NSCC

believes that this effective date will give

those firms sufficient time to obtain

appropriate capital infusions.

During the interim period, if any,

between Commission approval of this

rule change and its effective date, NSCC

will not consider applicants that do not

meet the new minimum capital

standards other than those firms

applying for membership in connection

with the agreement between NSCC and

the Stock Clearing Corporation of

Philadelphia (‘‘SCCP’’) under which

SCCP has agreed to cease operations as

a clearing corporation.

In view of the facts that: (i) The costs

of surveillance and of collateral

collection procedures in both time and

resources falls on NSCC and all of its

members and that these costs are

disproportionately high relative to the

size of the potential loss for members

with less than $500,000 in excess net

capital, (ii) the default or insolvency of

any settling member potentially imposes

burdens and costs on NSCC and all of

its members, and (iii) the changes

proposed by this filing are meant to

reduce these burdens and costs, NSCC

believes that this filing is consistent

with Section 17A of the Act 8 and the

rules and regulations thereunder.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

NSCC does not believe that the

proposed rule change will impose a

burden on competition. In fact, NSCC

believes that the proposed rule change

will rectify a burden on competition

that has slowly developed due to

changing circumstances by having the

costs of risk management more

equitably borne by all NSCC members

and by requiring all firms to have a

meaningful amount of capital at risk.

NSCC believes the increased capital

requirements better reflect current

marketplace realities.

(C) Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

No written comments relating to the

proposed rule change have been

solicited or received. NSCC will notify

the Commission of any written

comments received by NSCC.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within thirty-five 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

ninety 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 NSCC consents, the

Commission will:

(A) By order approve such proposed

rule change or

(B) Institute proceedings to determine

whether the proposed rule change

should be disapproved.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning the foregoing.

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 in

the Commission’s Public Reference

Section, 450 Fifth Street, NW.,

Washington, DC 20549. Copies of such

filing also will be available for

inspection and copying at the principal

office of NSCC. All submissions should

refer to File No. SR–NSCC–97–07 and

should be submitted by October 20,

1997.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.9

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–25690 Filed 9–26–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39098; File No. SR–NYSE–

97–14]

Self-Regulatory Organizations; New

York Stock Exchange, Inc.; Order

Approving Proposed Rule Change

Relating to Amendments to the

Shareholder Approval Policy

September 19, 1997.

I. Introduction

On May 16, 1997, the New York Stock

Exchange, Inc., (‘‘NYSE’’ or

‘‘Exchange’’) filed with the Securities

and Exchange Commission

(‘‘Commission’’ or ‘‘SEC’’) 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 relating to amendments to its

Shareholder Approval Policy.3 The

proposed rule change was published for

comment in Securities Exchange Act

Release No. 38716 (June 5, 1997), 62 FR

32135 (June 12, 1997). No comment

letters were received, however, on

August 8, 1997, the Exchange submitted

a letter in support of its filing.4

II. Description of the Proposal

Currently, the Exchange’s shareholder

approval policy requires a listed

company to obtain shareholder approval

in four situations:

• Related-Party Transactions: when

selling more than one percent of the

company’s stock, for either cash or other

assets, to a ‘‘related party,’’ define to

mean officers, directors and holders of

five percent or more of the company’s

common stock (or stock with five
50980 Federal Register / Vol. 62, No. 188 / Monday, September 29, 1997 / Notices

5The rule change also clarifies that shareholder

approval is required if any one of the four

requirements is triggered, notwithstanding the fact

that the other requirements of the Policy have not

been triggered. For example, a direct sale by a

company of more than 20 percent of its stock is a

bona fide financing still would require shareholder

approval as a related-party transaction if the

company sells more than one percent of the stock

to an officer or director.

6 15 U.S.C. § 78f(b)(5).

7 15 U.S.C. § 78f(b)(5).

percent or more of the company’s voting

power);

• Private Sales: when selling 20

percent or more of the company’s stock,

other than in a public offering for cash;

• Stock Option Plans: when adopting

stock option plans that are not ‘‘broadlybased’’; or

• Change of Control: with respect to

any issuance of stock that results in the

change of control of the company.

The Exchange is modifying the first

two of these requirements to provide

listed companies with flexibility in their

financing plans. In addition, the rule

change restructures the wording of the

Policy in order to simplify the language.

With the exception of the two changes

to the shareholder approval policy

described below, this restructuring does

not substantially change the Exchange’s

shareholder approval policy.

Related-Party Transactions

Issuers sometimes seek cash financing

from one or more of their ‘‘substantial’’

security holders (which the Exchange

defines as a person holding either five

percent of the company’s stock or five

percent of the company’s voting power).

The Exchange now requires shareholder

approval if a sale to a substantial

security holder results in a one percent

dilution.

The Exchange is proposing that cash

sales of stock to a substantial security

holder be exempt from the Policy if the

issuance is limited to five percent of the

issuer’s stock. Further, the exemption

from the policy would apply only if the

sale is at a price at least as high as each

of the book and market value of the

stock. Shareholder approval for

issuances that result in a dilution of

more than one percent of the issuer’s

stock would continue to be required

under the policy for sales of stock to any

related party (including substantial

security holders) for assets other than

cash and cash sales to officers and

directors.

Private Sales

The Exchange requires approval of all

issuances that result in a 20 percent

dilution, except for public offerings for

cash. The Exchange proposes to make a

private cash sale of 20 percent or more

of a company’s stock exempt from the

policy if (i) the sales is at a price at least

as high as each of the book and market

value of the stock and (ii) the sale is a

‘‘bona fide financing.’’ A bona fide

financing is a cash sale either (i) in

which a registered broker-dealer acts as

an intermediary in the transaction or (ii)

directly by an issuer to multiple

purchases in which no one purchase, or

group of related purchases, acquires

more than five percent of the issuer’s

common stock or voting power. The five

percent limit ensures that control

persons do not disproportionately

increase their ownership in a listed

company through privately-negotiated

sales, even if the sale price is at the

market.5

The Exchange has consulted with

several committees, including its Legal

Advisory Committee, the Listed

Company Advisory Committee, and the

Individual Investor Advisory

Committee, and represents that the

committees have reviewed the proposal

and encourage approval of the proposed

change.

The Exchange believes the basis

under the Act for this proposed rule

change is the requirement under Section

6(b)(5) 6 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 a national market

system, and, in general, to protect

investors and the public interest; and

are not designed to permit unfair

discrimination between customers,

issuers, brokers, or dealers.

III. Discussion

The Commission believes NYSE’s

proposal is consistent with the

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

Act.7 Section 6(b)(5) requires, among

other things, that the rules of an

exchange be designed to promote just

and equitable principles of trade, perfect

the mechanism of a free and open

national market system, and in general,

to further investor protection and the

public interest.

NYSE is proposing to amend its

Shareholder Approval Policy to exempt

cash sales of stock to a substantial

security holder if the issuance is limited

to five percent of the issuer’s stock. The

exemption would apply only if the sale

is at a price at least as high as each of

the book and market value of the stock.

The Commission believes the proposed

amendment is reasonable and consistent

with the Act. Specifically, the

Commission believes that cash sales do

not create the same valuation concerns

as do sales of stock for non-cash assets,

and that such an exemption offers

issuers flexibility when selling a limited

percentage of stock for cash to a

substantial security holder.

Furthermore, the Commission notes that

the Exchange will continue to require

shareholder approval for certain

issuances resulting in a dilution of more

than one percent of the issuer’s common

stock, including sales of stock to any

related party for assets other than cash,

and cash sales to officers and directors.

The Exchange is also proposing to

make a private cash sale of 20 percent

or more of a company’s stock exempt

from the Shareholder Approval Policy if

the sale is at a price at least as high as

each of the book and market value of the

stock, and the sale is a ‘‘bona fide

financing.’’ The Exchange defines a

‘‘bona fide financing’’ as a sale through

a broker-dealer acting as an

intermediary or a sale to multiple

parties in which no one person acquires

more than five percent of the issuer’s

stock. In its letter of support the

Exchange states that it has historically

exempted public cash offerings from

Section 312.03(c) of the Manual because

there is a certain amount of disclosure

and pricing discipline in public

offerings to protect stock holders from

potential abuse. The Exchange states

that it believes market practices and

changes to the Commission’s rules have

blurred the differences between public

and private sales. The Exchange further

notes that companies now engage in

broad-based sales of securities

convertible into listed common stock

under Commission Rule 144A. In these

transactions, the NYSE states that

registered broker-dealers perform

functions similar to that of underwriters

by conducting due diligence, buying the

securities from the issuer, and reselling

them to qualified institutional buyers.

Similarly, companies can raise capital

by selling securities privately in direct

transactions with multiple parties. The

NYSE believes that in both cases the

offerings have characteristics similar to

public offerings, noting that such sales

can more closely resemble public

offerings for cash than sales of stock

pursuant to a shelf registration which

are currently exempt from the

shareholder approval policy.

While the Commission recognizes that

certain types of private offerings, such

as those structured to facilitate resales

exclusively between and among

institutional investors pursuant to

Commission Rule 144A, have certain

characteristics that may make them

resemble public offerings, there are

certain elements that sharply

distinguish private offerings from public
Federal Register / Vol. 62, No. 188 / Monday, September 29, 1997 / Notices 50981

8See Preliminary note six, and Preliminary notes

three and four to Securities Act Rule 144A (Reg.

§ 230.144A).

9 15 U.S.C. § 77k.

10See Exchange Act Form 10–Q, Item 2(c); and

Exchange Act Form 8–K, Item 9.

11 15 U.S.C. 78s(b)(2).

12 17 CFR 200.30–3(a)(12).

offerings such as the ‘‘restricted’’ status

of the privately placed securities,8 and

the absence of both a prescribed public

disclosure document and a Section 11

remedy.9 Nevertheless, the Commission

believes that the limitations on price

and the requirement that the sales be

bona fide financing appropriately limit

the availability of the exemption and

should provide reasonable protections

for shareholders.

In particular, requiring that private

cash sales be made to multiple,

unrelated purchasers in which no one

purchaser or group of related purchasers

can acquire more than five percent of

the issuer’s common stock or voting

power should help to prevent the

exemption from being used by issuers to

avoid a shareholder vote when placing

large blocks of stock with a particular

purchaser. Moreover, as the NYSE

states, this requirement should also help

to impose pricing discipline on the

transaction, as well as to ensure that

control persons do not

disproportionately increase their

ownership in a company through

private sales. Further, as the NYSE

indicates, the alternative requirement

that a broker dealer act as an

intermediary to qualify for the private

cash offering exemption is meant to

cover Rule 144A sales. We agree with

the NYSE that market practices in this

area have developed involving both due

diligence and pricing that could serve to

protect shareholders from abuse of

unfair stock placements. The

Commission also believes that the

existing disclosure requirements for

private equity offerings also act as an

effective safeguard against potential

abuse of private cash offerings.10 In

summary, the Commission believes that

the limitation of the exemption to only

a ‘‘bona fide private financing’’, as

defined above, coupled with the

requirement that the sale be at a price

at least as high as each of the book and

market value of the stock provides

sufficient safeguards for shareholders to

support the exemption to the Policy in

these limited circumstances.

VI. Conclusion

The Commission believes the

proposed change should provide listed

companies with flexibility in their

financing plans, while still substantially

preserving the significant shareholder

rights afforded under the Policy.

Finally, the Commission believes the

restructuring of the wording of the

Policy should simplify and clarify the

Policy.

For the foregoing reasons, the

Commission finds that the proposed

rule change is consistent with the Act

and the rules and regulations

thereunder applicable to the NYSE, and

in particular Section 6(b)(5).

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,11 that the

proposed rule change (File No. SR–

NYSE–97–14) be and hereby is

approved.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.12

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–25770 Filed 9–26–97; 8:45 am]

BILLING CODE 8010–01–M

DEPARTMENT OF TRANSPORTATION

Notice of Application for Certificates of

Public Convenience and Necessity and

Foreign Air Carrier Permits Filed Under

Subpart Q During the Week Ending

September 19, 1997

The following Applications for

Certificate of Public Convenience and

Necessity and Foreign Air Carrier

Permits were filed under Subpart Q of

the Department of Transportation’s

Procedural Regulations (See 14 CFR

302.1701 et seq.). The due date for

Answers, Conforming Applications, or

Motions to Modify Scope are set forth

below for each application. Following

the Answer period DOT may process the

application by expedited procedures.

Such procedures may consist of the

adoption of a show-cause order, a

tentative order, or in appropriate cases,

a final order without further

proceedings.

Docket Number: OST–97–2913.

Date Filed: September 17, 1997.

Due Date for Answers, Conforming

Applications, or Motion to Modify

Scope: October 15, 1997.

Description: Application of Delta Air

Lines, Inc., pursuant to 49 U.S.C.

Sections 41102 and 41108, and Subpart

Q of the Regulations, applies for a

Certificate of Public Convenience and

Necessity authorizing Delta to engage in

scheduled foreign air transportation of

persons, property and mail between the

following terminal points: (1) Atlanta,

Georgia and Tokyo, Japan; (2) Portland,

Oregon and Osaka, Japan; and (3)

Portland, Oregon and Fukuoka, Japan.

Docket Number: OST–97–2914.

Date Filed: September 17, 1997.

Due Date for Answers, Conforming

Applications, or Motion to Modify

Scope: October 15, 1997.

Description: Application of American

Airlines, Inc., pursuant to 49 U.S.C.

Section 41108 and Subpart Q of the

Regulations, applies for renewal of its

certificate of public convenience and

necessity for Route 370 (segment 1)

(Dallas/Ft. Worth-London/Amsterdam/

Brussels), as reissued by Order 96–5–9,

May 12, 1996.

Docket Number: OST–97–2918.

Date Filed: September 17, 1997.

Due Date for Answers, Conforming

Applications, or Motion to Modify

Scope: October 15, 1997.

Description: Application of Pan

American World Airways, Inc.,

pursuant to 49 U.S.C. Section 41101,

and Subpart Q of the Regulations,

applies for issuance of a certificate of

public convenience and necessity

authorizing foreign air transportation.

Specifically, Pan Am is seeking

authority to engage in scheduled foreign

air transportation of persons, property

and mail between: (1) The co-terminal

points Miami, Florida, and New York,

New York, on the one hand, and Santo

Domingo, Dominican Republic, on the

other; and (2) the co-terminal points

Fort Lauderdale, and Miami, Florida,

and New York, New York on the one

hand, and Nassau, Bahamas, on the

other.

Docket Number: OST–97–2919.

Date Filed: September 19, 1997.

Due Date for Answers, Conforming

Applications, or Motion to Modify

Scope: October 17, 1997.

Description: Application of

Continental Airlines, Inc., pursuant to

49 U.S.C. Section 41102 and Subpart Q

of the Regulations, applies for renewal

of its Route 383 certificate authority to

provide scheduled foreign air

transportation of persons, property and

mail between Newark, New Jersey, and

London, U.K., and to integrate its Route

383 authority with Continental

authority at other points.

Paulette V. Twine,

Documentary Services.

[FR Doc. 97–25764 Filed 9–26–97; 8:45 am]

BILLING CODE 4910–62–P

DEPARTMENT OF THE TREASURY

[Treasury Order Number 165–30]

Designation of Acting Commissioner

of Customs; Authority Delegation

Dated: September 17, 1997.

Pursuant to the authority vested in the

Secretary of the Treasury, including the