65116 Federal Register / Vol. 62, No. 237 / Wednesday, December 10, 1997 / Notices

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

2 17 CFR 240.19b–4.

3With the consent of the NYSE, Commission staff

has incorporated several technical changes to the

Exchange’s description of its proposal. Telephone

conversation between Richard Bernard, Executive

Vice President and General Counsel, NYSE, and

Richard Strasser, Assistant Director, Division of

Market Regulation, Commission, on November 26,

1997.

4See Letter from James E. Buck, Senior Vice

President and Secretary, NYSE, to Jonathan G. Katz,

Secretary, Commission, dated December 1, 1997

(‘‘Amendment No. 1’’). In Amendment No. 1, the

NYSE amended the proposal to require an issuer

proposing to delist its securities from the Exchange

to: (1) provide the Exchange with written notice of

the proposed delisting at the same time the issuer

provides such notice to its shareholders; and (2)

send the Exchange a copy of the delisting

application the issuer submits to the Commission.

Commission staff has incorporated the proposed

changes set forth in Amendment No. 1 into the

NYSE’s description of its proposal.

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39394; File No. SR–NYSE–

97–31]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change and

Amendment No. 1 Thereto by the New

York Stock Exchange, Inc. To Amend

Its Rule 500 Relating to Voluntary

Delistings by Listed Companies

December 3, 1997.

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 November

17, 1997, 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, II and III below, which Items

have been substantially prepared by the

NYSE.3 On December 3, 1997, the NYSE

submitted Amendment No. 1 to the

proposed rule change.4 The Commission

is publishing this notice to solicit

comments on the proposed rule change,

as amended, from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange proposes to replace

existing NYSE Rule 500 with a new

Rule 500 to revise the procedures a

NYSE-listed company must follow to

delist its securities from the Exchange.

The text of the proposed rule change, as

amended, is available at the Office of

the Secretary, the NYSE, and at the

Commission.

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 NYSE 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 purpose of the proposed rule

change, as amended, is to revise the

procedures an NYSE-listed company

must follow to delist its securities from

the Exchange. Currently, Rule 500

requires supermajority shareholder

approval before a listed company can

delist its securities: holders of 662⁄3

percent of the security must approve the

delisting, and ten percent or more of the

individual holders cannot object to the

delisting.

The Exchange adopted existing Rule

500 in the 1930’s as a corporate

governance safeguard, when delisting

from the NYSE generally resulted in the

loss of a public market for a security.

That is no longer the case. Recognizing

the changed corporate law and market

circumstances, the new Rule would

substitute alternative delisting

procedures depending on the nature of

the security.

• For stock of a domestic issuer, the Rule

would require the issuer to obtain the

approval of (1) the company’s audit

committee and (2) a majority of the

company’s full board of directors before the

issuer could apply for delisting. Requiring

approval by the independent directors

constituting the audit committee, as well as

approval of a majority of the full board of

directors (not just of a quorum of directors at

a particular meeting), would provide

shareholders with protections that the

Exchange believes would help offset the loss

of the current shareholder voting requirement

for delisting.

After receiving approval of the audit

committee and board, the issuer would be

required to provide shareholders with at least

45 but no more than 60 days’ written notice

of the proposed delisting. The notice must

include a statement that the issuer complied

with the requirements discussed in the

paragraph above. This notice and waiting

period would give shareholders who object to

the proposed delisting an opportunity to

communicate their views to the issuer’s

management and directors before the

delisting becomes effective. It also would

assure a reasonable period of time for

shareholders to liquidate their positions in a

stock in an orderly manner should they

decide that they did not want to continue to

own the security after delisting from the

Exchange. At the same time, the 60-day cutoff assures that the ‘‘lame-duck’’ status of the

stock listing would not persist to the point

of impairing the ability of the Exchange to

maintain a fair and orderly market in the

stock. The issuer must contemporaneously

send to the Exchange a copy of the written

notice sent to shareholders.

• For stock of a non-U.S. issuer, the Rule

simply would require the issuer to obtain

board approval before the issuer could apply

to the Commission for delisting, leaving to

home country law the determination of the

requisite vote. The issuer also would need to

provide holders with reasonable notice of its

intention to delist the securities. The

Supplementary Material to the Rule,

discussed below, provides further details on

the nature of this notice.

• For bonds of both domestic and non-U.S.

issuers, an issuer could apply to delist bonds

subject only to board approval. The Rule

does not require that bond holders be

notified of the proposed delisting. The

absence of the more rigorous requirement

that pertains to stock reflects the fact that the

Exchange generally is not the primary market

for bonds.

New Supplementary Material to the

Rule explains how these procedures

would operate.

• Supplementary Material .10 crossreferences NYSE Rule 4, which defines the

term ‘‘stock,’’ and Rule 5, which defines the

term ‘‘bond.’’ Generally, the stock delisting

procedures would supply to securities

‘‘classified for trading as stocks,’’ including

common stock, preferred stock and certain

derivative instruments, such as equity-linked

debt securities that trade pursuant to the

stock trading rules. The bond delisting

procedures would apply to fixed income

products traded on the Bond Floor or through

the Automated Bond System.

• Supplementary Material .20 provides

guidance as to the manner in which non-U.S.

issuer must provide notice to shareholders

regarding the delisting of their stock. NonU.S. issuers would be required to send

written notice of the delisting to (i)

shareholders that have a U.S. address or (ii)

shareholders that own the stock in the form

of American Depositary Receipts. For other

holders, the issuer could follow homecountry practice, which, for example, may

allow for notice through publication or other

means.

• Supplementary Material .30 crossreferences NYSE Rule 465, which governs the

transmission of reports and other materials

by member organizations to beneficial

owners who hold securities in ‘‘street’’ name.

Supplementary Material .30 notes that,

pursuant to Rule 465, both domestic and

non-U.S. issuers must request that member

organizations transmit the written notice of

the proposed delisting as required by Rule

500 and Supplementary Material .20 to

beneficial stockholders.
Federal Register / Vol. 62, No. 237 / Wednesday, December 10, 1997 / Notices 65117

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

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

2 17 CFR 240.19b–4.

• Supplementary Material .40 discusses

the interplay between Rule 500 and the

issuer’s application to the SEC to withdraw

the security from listing. Pursuant to

Commission Rule 12d2–2(d) under the

Exchange Act, an issuer may apply to

withdraw the security from listing after

complying with the requirements of the Rule.

With respect to the delisting of stock, the

proposed date of delisting in the application

to the Commission must be the same date

specified in the notice to shareholders. The

issuer must contemporaneously send to the

Exchange a copy of the application submitted

to the Commission.

• Supplementary Material .50 parallels a

provision in Rule 499 (governing Exchangeinitiated delistings), which provides that,

when reviewing the listing status of one class

of securities, the Exchange will review the

appropriateness of the continued listing of

other classes of the issuer’s securities. Factors

the Exchange will consider in such a review

under Rule 500 include, but are not limited

to, the pricing relationship between the

securities being delisted and the other

security, and the ability of the Exchange to

make a market in the remaining securities.

For example, it is unlikely the Exchange

would delist the common stock of an issuer

that delists bonds. On the other hand, it is

likely that the Exchange would delist the

warrants of an issuer that delists its common

stock.

2. Statutory Basis

The Exchange believes the proposed

rule change, as amended, is consistent

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

of the Act,5 which requires that the rules

of the Exchange be designed to prevent

fraudulent and manipulative acts and

practices, to promote just and equitable

principles of trade, and, in general, to

protect investors and the public interest.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange believes that the

proposal does not 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

The Exchange has not solicited, and

does not intend to solicit, comments on

this proposed rule change. The

Exchange has not received any

unsolicited written comments from

members or other interested parties.

However, in a process initiated at the

beginning of May 1997, the Exchange

did consult with a number of its Board

and advisory committees, pension funds

and other constituents in developing the

Rule. The NYSE represents that these

constituents overwhelmingly supported

the revision of existing Rule 500, rather

than its elimination.

According to the NYSE, the most

controversial issue among the

constituents was whether the

requirement for a shareholder vote

should be maintained, albeit with a

simple majority vote. The great majority

of those surveyed viewed delisting as a

matter within the purview of the

business judgment of a company’s board

of directors. These constituents believed

that the Exchange could address the

concerns underlying the desire for a

shareholder vote by requiring (1) a

higher-than-normal board vote, (2) the

concurrence of independent directors,

and (3) provision to shareholders of

notice of a proposed delisting.

The Exchange believes that the text of

the Rule reflects the reconciliation and

incorporation of the comments and

suggestions that the exchange received

from these constituents.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within 35 days of the 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 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. In

addition to any other issues that the

public may wish to address, the

Commission specifically requests

comments on the following questions:

Are the shareholder notification

procedures required under the terms of

the proposal necessary to the delisting

process?

What are the costs involved with

complying with the requisite

shareholder notifications?

Will issuers’ costs arising from the

requisite shareholder notification create

a disincentive to delist from the

Exchange?

Is there an acceptable alternative

means to providing shareholder

notification, such as through media

publication?

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, N.W.,

Washington, D.C. 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

Section, 450 Fifth Street, N.W.,

Washington, D.C. 20549. Copies of such

filing will also be available for

inspection and copying at the principal

office of the NYSE. All submissions

should refer to File No. SR–NYSE–97–

31 and should be submitted by

December 31, 1997.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–32229 Filed 12–9–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39393; File No. SR–Phlx–

97–51]

Self-Regulation Organizations; Filing

of Proposed Rule Change by the

Philadelphia Stock Exchange, Inc.

Relating to the Allocation of Options

Trades

December 3, 1997.

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

Securities Exchange Act of 1934

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

notice is hereby given that on October

22, 1997, the Philadelphia Stock

Exchange, Inc. (‘‘Phlx’’ or ‘‘Exchange’’)

filed with the Securities and Exchange

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

the proposed rule change as described

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

have been prepared by the selfregulatory 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 Substance of

the Proposed Rule Change

The Phlx, pursuant to Rule 19b–4 of

the Act, proposes to provide that the

seller or largest participant to an option

transaction is responsible for allocating

an executed trade. Specifically, the