[Federal Register Volume 62, Number 237 (Wednesday, December 10, 1997)]
[Notices]
[Pages 65116-65117]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-32229]



[[Page 65116]]

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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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ With 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.
    \4\ See 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.
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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 66\2/3\ 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.

    <bullet> 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 cut-
off 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.
    <bullet> 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.
    <bullet> 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.

    <bullet> Supplementary Material .10 cross-references 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.
    <bullet> 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. Non-U.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 home-country practice, which, for example, may 
allow for notice through publication or other means.
    <bullet> Supplementary Material .30 cross-references 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.

[[Page 65117]]

    <bullet> 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.
    <bullet> Supplementary Material .50 parallels a provision in 
Rule 499 (governing Exchange-initiated 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.
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    \5\ 15 U.S.C. 78f(b)(5).
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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