[Federal Register Volume 63, Number 13 (Wednesday, January 21, 1998)]
[Rules and Regulations]
[Pages 3032-3036]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-1295]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 230

[Release No. 33-7494, 34-39542, File No. S7-17-97]
RIN 3235-AH18


Covered Securities Pursuant to Section 18 of the Securities Act 
of 1933

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: The Securities and Exchange Commission (``SEC'' or 
``Commission'') is adopting Rule 146(b) under Section 18 the Securities 
Act of 1933, as amended (``Securities Act''). The purpose of the Rule 
is to designate securities listed on the Chicago Board Options 
Exchange, Tier I of the Pacific Exchange, and Tier I of the 
Philadelphia Stock Exchange as covered securities for the purposes of 
Section 18 of the Securities Act. Covered Securities under Section 18 
are exempt from state law registration requirements.

EFFECTIVE DATE: This final rule is effective January 21, 1998.

FOR FURTHER INFORMATION CONTACT: Sharon M. Lawson, Senior Special 
Counsel, James T. McHale, Special Counsel, or David S. Sieradzki, Esq., 
at 202/942-0181, 202/942-0190, or 202/942-0135; Office of Market 
Supervision, Division of Market Regulation, Securities and Exchange 
Commission (Mail Stop 2-2), 450 Fifth Street, N.W., Washington, D.C. 
20549.

SUPPLEMENTARY INFORMATION:

I. Introduction

    On October 11, 1996, The National Securities Markets Improvement 
Act of 1996 (``NSMIA'') <SUP>1</SUP> was signed into law. Among other 
changes made to the federal securities laws, NSMIA amends Section 18 of 
the Securities Act <SUP>2</SUP> to provide for exclusive federal 
registration of securities listed, or authorized for listing, on the 
New York Stock Exchange (``NYSE''), the American Stock Exchange 
(``Amex''), or listed on the National Market System of the Nasdaq Stock 
Market (``Nasdaq/NMS''), or any other national securities exchange 
designated by the Commission to have substantially similar listing 
standards to those markets. More specifically, Section 18(a) provides 
that ``no law, rule, regulation, or order, or other administrative 
action of any State * * * requiring, or with respect to, registration 
or qualification of securities * * * shall directly or indirectly apply 
to a security that--(A) is a covered security.'' Covered securities are 
defined in Section 18(b)(1) to include those securities listed, or 
authorized for listing, on the NYSE, Amex, or listed on Nasdaq/NMS 
(collectively the ``Named Markets''), or those securities listed, or 
authorized for listing, on a national securities exchange (or tier or 
segment thereof) that has listing standards that the Commission 
determines by rule are ``substantially similar'' to one of the Named 
Markets.
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    \1\ Pub. L. 104-290, 110 Stat. 3416 (1996).
    \2\ 15 U.S.C. 77r.
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    The Pacific Exchange, Incorporated (``PCX''), the Chicago Board 
Options Exchange, Incorporated (``CBOE''), the Chicago Stock Exchange, 
Incorporated (``CHX''), and the Philadelphia Stock Exchange, 
Incorporated (``Phlx'') (collectively the ``Petitioners'') have 
petitioned the Commission to adopt a rule which finds their listing 
standards to be substantially similar to those of the NYSE, Amex, or 
Nasdaq/NMS and, therefore, entitling securities listed pursuant thereto 
to be deemed covered securities under Section 18 of the Securities 
Act.<SUP>3</SUP>
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    \3\ See Letter from David P. Semak, Vice President, Regulation, 
Pacific Stock Exchange, Incorporated (n/k/a Pacific Exchange, Inc.), 
to Arthur Levitt, Jr., Chairman, Commission, dated November 15, 1996 
(``PCX Petition''); letter from Alger B. Chapman, Chairman, CBOE, to 
Jonathan G. Katz, Secretary, Commission, dated November 18, 1996 
(''CBOE Petition''); letter from J. Craig Long, Esq., Foley and 
Lardner, to Jonathan G. Katz, Secretary, Commission, dated February 
4, 1997(''CHX Petition''); and letter from Michele R. Weisbaum, Vice 
President and Associate General Counsel, Phlx, to Jonathan G. Katz, 
Secretary, Commission, dated March 31, 1997 (``Phlx Petition'') 
(collectively the ``Petitions'').
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    On June 10, 1997, the Commission issued a release proposing to 
adopt Rule 146(b) that would designate securities listed on the CBOE 
and Tier I of the PCX as designated securities for the purposes of 
Section 18(a) of the Securities Act, and soliciting comment on whether 
Tier I securities of the CHX and Phlx should be included in Rule 
146(b).<SUP>4</SUP> The Commission received three comment letters in 
response to the proposal.<SUP>5</SUP>
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    \4\ Securities Act Release No. 7422, Securities Exchange Act 
Release No. 38728 (June 10, 1997) (``proposing release''), 62 FR 
32705 (June 17, 1997).
    \5\ See Letter from J. Craig Long, Esq., Foley & Lardner, to 
Jonathan G. Katz, Secretary, Commission, dated June 26, 1997 
(received June 30, 1997) (``Foley letter''); letter from Ira L. 
Kotel, Esq., Roberts, Sheridan & Kotel, to Jonathan G. Katz, 
Secretary, Commission, dated July 16, 1997 (received July 21, 1997) 
(``Kotel letter''); and letter from James C. Yong, First Vice 
President and General Counsel, The Options Clearing Corporation 
(``OCC''), to Jonathan G. Katz, Secretary, Commission, dated July 8, 
1997 (received July 22, 1997) (``OCC letter'').
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    As to the inclusion of securities listed on Tier I of the CHX and 
Tier I of the Phlx in Rule 146(b), the Commission stated that while 
most of their Tier I listing standards are substantially similar to one 
of the Named Markets, they differed in several important 
respects.<SUP>6</SUP> The Commission also indicated, however, that if 
the CHX and Phlx were to revise their Tier I listing standards in these 
areas to conform them to those of the NYSE, Amex, or Nasdaq/NMS prior 
to the adoption of the proposed Rule, the Commission likely would 
include securities listed on these markets in final Rule 146(b). 
Accordingly, in order to obtain the benefits of the exemption under the 
proposed Rule, the CHX and Phlx <SUP>7</SUP> both revised their Tier I 
listing standards to address the noted deficiencies. Although CHX has 
modified its listing and maintenance standards as suggested, the 
Commission has concerns regarding the CHX's listing and maintenance 
procedures and thus does not include CHX in the final Rule. The 
Commission will continue to review the CHX's listing program, including 
listing standards and operations, and may determine to include 
securities listed on CHX Tier I in the future.
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    \6\ Specifically, the Commission noted that unlike the NYSE, 
Amex, or Nasdaq/NMS, the CHX did not have a minimum share price 
requirement for continued listing of common stock on Tier I. With 
regard to the Phlx, the Commission identified the Exchange's lack of 
a maintenance standard for bonds and debentures listed on Tier I of 
the Exchange as a deficiency in their listing standards. Moreover, 
with respect to stock index, currency and currency index warrants, 
the Phlx had no public distribution, aggregate market value, nor 
term to maturity requirements. Finally, the Commission noted that 
issuers of ``other securities'' listed on Tier I of the Phlx were 
required to have pre-tax income of only $100,000 in three of the 
four last fiscal years, versus the Amex requirement that issuers 
have $750,000 in pre-tax income in their last fiscal year, or in two 
of their last three fiscal years. See proposing release, supra note 
4.
    \7\ See Phlx Listing Standards Order, infra note 18.
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    After careful comparison, the Commission concludes that currently

[[Page 3033]]

the listing standards of Tier I of the PCX, and Phlx, and the listing 
standards of the CBOE are substantially similar to the listing 
standards of the NYSE, Amex or Nasdaq/NMS. Accordingly, the Commission 
today is adopting Rule 146(b) which designates securities listed on 
such markets as covered securities under Section 18(b)(1) of the 
Securities Act. As adopted, Rule 146(b) will provide those covered 
securities with an exemption from state blue sky provisions as set 
forth under Section 18(a) of the Securities Act.

II. Background

    The development and enforcement of adequate standards governing the 
initial and continued listing of securities on an exchange is of 
critical importance to financial markets and the investing public. 
Listing standards serve as a means for a self-regulatory organization 
(``SRO'') to screen issuers and to provide listed status only to bona 
fide companies with sufficient float, investor base and trading 
interest to maintain fair and orderly markets. Once a security has been 
approved for initial listing, maintenance criteria allow an exchange to 
monitor the status and trading characteristics of that issue to ensure 
that it continues to meet the exchange's standards for market depth and 
liquidity.
    Many States have recognized the importance of listing standards by 
excepting from state registration requirements securities traded on the 
Named Markets.<SUP>8</SUP> In enacting Section 18, Congress intended to 
codify in the Securities Act an exemption from state registration 
requirements similar to these state law provisions.<SUP>9</SUP> In 
order to avoid competitive disparities, Congress provided the 
Commission with the discretionary authority to extend similar 
preemption treatment to other national securities exchanges (or tiers 
or segments thereof) that have substantially similar listing 
standards.<SUP>10</SUP>
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    \8\ See, e.g., Del. Code Ann. tit. 6 sec. 7309(a)(8) (1996).
    \9\ H.R. Rep. No. 622, 104th Cong., 2d Sess., pt. 1, at 30 
(1996) (``Legislative History''). As a result of this federal 
preemption of the state registration process, SRO listing standards 
have become all the more important to preserving the integrity of 
U.S financial markets and protecting investors.
    \10\ See Legislative History, supra note 9.
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    As noted above, the PCX, CBOE, CHX, and Phlx all have petitioned 
the Commission to adopt a rule as contemplated by Section 
18.<SUP>11</SUP> The Petitioners assert that their Tier I listing 
standards <SUP>12</SUP> are substantially similar to those of the Named 
Markets, and that until the Commission acts to provide them with the 
benefits of the Section 18 exemption, they will be at a competitive 
disadvantage to these markets. The Commission recognizes the 
competitive concerns raised by the Petitioners, but notes that the 
statute requires the Commission to make an independent finding that the 
Petitioners' listing standards are substantially similar to those of 
the NYSE, the Amex or Nasdaq/NMS.
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    \11\ See Petitions, supra note 3.
    \12\ The Commission notes that presently the CBOE only has one 
tier, or segment, for listing purposes.
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III. Comment Letters

    As noted above, the Commission received three comment letters in 
response to the proposal.\13\ The Foley letter, filed on behalf of the 
CHX, noted that the CHX had submitted a proposed rule change with the 
Commission to amend its maintenance standards for common stock listed 
on Tier I of the Exchange to add a minimum share price. The Foley 
letter urged that once approved, the amendment should resolve the 
Commission's concerns relating to the CHX's Tier I standards and that 
the Commission should include securities listed on CHX's Tier I in Rule 
146(b).
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    \13\ See supra note 5.
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    The Kotel letter did not address the desirability of adopting 
proposed Rule 146(b) generally, but urged the Commission to include 
securities listed on the Nasdaq SmallCap Market (``SmallCap'') in the 
Rule. In support of this view, the Kotel letter noted that the National 
Association of Securities Dealers, Inc. (``NASD'') recently proposed to 
amend the requirements for initial listing on SmallCap and that once 
the new SmallCap listing standards were approved, they would be 
substantially similar to those of the Amex.\14\ Accordingly, the Kotel 
letter urged that securities listed on SmallCap should be deemed 
covered securities for purposes of Rule 146(b). In addition, the Kotel 
letter stated that extending the benefits of the Rule to securities 
listed on SmallCap would further the Commission's policy of simplifying 
securities regulation for small businesses and would lower the costs 
for small businesses in complying with federal and state regulations.
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    \14\ The changes to the SmallCap listing standards referred to 
in the Kotel letter were recently approved by the Commission. See 
Securities Exchange Act Release No. 38961 (August 22, 1997) 
(``Nasdaq Listing Standards Order'').
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    The third comment letter received by the Commission, the OCC 
letter, generally supported the proposed Rule. In addition, the OCC 
letter urged the Commission to designate standardized options traded on 
Tier I of the Phlx as covered securities under the Rule, in the event 
the Phlx did not file to amend its listing standards to address the 
concerns raised by the Commission in the proposing release.

IV. Discussion

    The Commission has reviewed extensively the listing and maintenance 
standards for all securities listed and traded on the Petitioners' 
markets, including common stock, preferred stock, bonds and debentures, 
and options.\15\ With regard to applying the ``substantially similar'' 
standard, the Commission notes that under Section 18(b)(1)(B) of the 
Securities Act the Commission has the authority to compare the listing 
standards of a petitioner with those of either the NYSE, Amex, or 
Nasdaq/NMS. The Commission attempted initially to compare a 
petitioner's listing standards for all securities with only one of 
these markets.\16\ If a petitioner's listing standards in a particular 
category did not meet the standards of that market, however, the 
Commission compared the petitioner's standards to the other two 
markets. Additionally, the Commission interpreted the substantially 
similar standard to require listing standards at least as comprehensive 
as those of the markets named in Section 18(b)(1)(A). If a petitioner's 
standards were higher than such markets, then the Commission still 
determined that the petitioner's standards were substantially similar 
to these markets. Finally, the Commission reviewed the listing 
standards for each type of security in making the substantially similar 
determination. Differences in language or approach of the listing 
standards for a particular security did not necessarily lead to a 
determination that the listing standards of a petitioner were not 
substantially similar to those of the named exchange.
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    \15\ The Commission also has reviewed each exchange's listing 
and maintenance standards for warrants, currency and index warrants, 
other securities, contingent value rights, equity linked notes, and 
unit investment trusts. See proposing release, supra note 4.
    \16\ For purposes of comparing the listing standards of the CBOE 
and Tier I of the PCX, Phlx and CHX, the Commission used the listing 
standards applicable to securities listed on the Amex.
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    After careful comparison, using the approach outlined above, the 
Commission concludes that currently the listing standards of the CBOE 
and Tier I of the PCX, and Phlx are substantially similar to the 
listing standards of the NYSE, Amex or Nasdaq/NMS.\17\ Therefore, the

[[Page 3034]]

Commission is adopting Rule 146(b), designating securities listed on 
these markets as ``covered securities'' for purposes of Section 18 of 
the Securities Act. With regard to the CHX, the Commission has 
determined not to include securities listed on Tier I of the Exchange 
at this time. Although the Exchange has modified its listing and 
maintenance standards as suggested, the Commission has concerns 
regarding the CHX's listing and maintenance procedures. The Commission 
will continue to review the CHX's listing program, including listing 
standards and operations, and may determine to include securities 
listed on CHX Tier I in the future.
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    \17\ The proposing release contains a more detailed description 
of the comparison of these exchanges to the Named Markets. See 
proposing release, supra note 4.
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    With regard to the Phlx, the Commission concludes that the changes 
recently made by the Exchange to its Tier I listing standards 
<SUP>18</SUP> enable the Commission to make the substantially similar 
finding.<SUP>19</SUP> First, the Phlx amended Rule 803(e) to adopt 
additional listing standards for stock index warrants, currency 
warrants and currency index warrants (collectively ``non-equity 
warrants''). New subsection (2) to Rule 803(e) requires that non-equity 
warrants have a term of between one and five years from the date of 
issuance. Rule 803(e)(3) imposes a minimum public distribution and 
market value requirement of 1,000,000 non-equity warrants with at least 
400 public warrant holders and a minimum aggregate market value of 
$4,000,000. Finally, new subsection (9) to Rule 803(e) requires that 
non-equity warrants be cash-settled in U.S. dollars.<SUP>20</SUP>
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    \18\ See Securities Exchange Act Release No. 39053 (September 
11, 1997), 62 FR 49286 (September 19, 1997) (``Phlx Listing 
Standards Order'').
    \19\ As noted above, the Commission stated in the proposing 
release that if the Phlx were to revise its Tier I listing standards 
in the areas where the Commission identified deficiencies prior to 
the adoption of the proposed Rule, the Commission likely would 
include securities listed on the Phlx in final Rule 146(b).
    \20\ Although the Commission did not identify the lack of a 
cash-settlement requirement as a deficiency in the Phlx's Tier I 
listing standards, the Phlx determined to codify its existing 
requirement that non-equity warrants be cash-settled in U.S. 
dollars. This requirement is identical to Section 106(d) of the Amex 
Company Guide.
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    Second, the Phlx increased the pre-tax income requirement for 
issuers of ``other securities'' in Rule 803(f)(2) from $100,000 in 
three of the four prior fiscal years to $750,000 in the issuer's last 
fiscal year or in two of its last three fiscal years.<SUP>21</SUP> 
Other securities are hybrid securities that have features common to 
both equity and debt securities, yet do not fit within the traditional 
definitions of either.
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    \21\ This provision is substantially similar to Section 107 and, 
by reference, Section 101(b) of the Amex Company Guide.
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    Third, the Phlx amended Rule 810(a), which contains the maintenance 
standards for Tier I securities, to add maintenance standards for 
bonds, notes and debentures. New subsection (5) to Rule 810(a) requires 
that debt securities maintain an aggregate market value or principal 
amount of bonds that are publicly held of $400,000 and that the issuer 
is 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 Phlx Rules 812 through 899, the 
Exchange also will delist any listed debt security convertible into 
that common stock.<SUP>22</SUP>
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    \22\ These provisions are substantially similar to Section 
1003(b)(iii) and (e) of the Amex Company Guide.
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    In light of the above changes made by the Phlx to its Tier I 
listing standards, the Commission concludes that the Phlx's Tier I 
listing standards, when taken as a whole, are substantially similar to 
those of the Amex, and that securities listed on Tier I of the Phlx 
should be included in Rule 146(b) as covered securities. In addition, 
because Phlx Tier I securities include options, the Commission need not 
consider whether standardized options traded on the Phlx could be 
deemed covered securities separately from other Phlx Tier I securities, 
as suggested in the OCC letter.
    With regard to the Kotel letter, while it does appear that the 
SmallCap initial listing standards for common stock are similar to 
those of the Amex, the Commission has determined not to include 
securities listed on SmallCap in Rule 146(b) at this time. First, the 
proposing release did not solicit comment on whether SmallCap listing 
standards are substantially similar to one of the Named Markets. 
Second, the Commission has identified several aspects of the SmallCap 
listing standards which appear to differ significantly from those of 
the Amex and the other primary markets. <SUP>23</SUP> Third, pursuant 
to the Nasdaq Listing Standards Order, the new maintenance standards do 
not become effective until six months after the Order was issued 
(February 22, 1998), and the existing maintenance standards for 
securities listed on SmallCap are considerably less stringent than 
those of any one of the Named Markets. Finally, the Commission notes 
that it has the authority to undertake a more extensive review of the 
SmallCap listing standards in the future and, if appropriate, propose 
an amendment to Rule 146(b) to include securities listed on SmallCap in 
the Rule.
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    \23\ Specifically, the minimum share price for preferred stock 
to be listed on SmallCap is $4 per share, while the minimum share 
price for initial inclusion of preferred shares on the Amex is $10. 
See Section 103(b) of the Amex Company Guide and NASD Rule 
4310(c)(4). In addition, SmallCap does not have a minimum 
distribution requirement for preferred stock, while the Amex 
requires a minimum of 100,000 publicly held shares when the issuer 
of the preferred shares has common stock listed on the Amex or NYSE. 
See Amex Section 103(b). Lastly, warrants listed on SmallCap are 
required to have a minimum distribution of 100,000 warrants for 
initial inclusion, while Amex requires a minimum distribution of 
1,000,000 warrants to 400 public holders or 500,000 warrants to 800 
public holders. See Amex Section 105(b) and NASD Rule 4310(c)(9).
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    With respect to a designated exchange maintaining its status under 
Rule 146(b), the Commission notes that Congress intended for the 
Commission to monitor the listing requirements of the regional 
exchanges, consistent with its supervisory authority under the 
Securities Exchange Act of 1934 (``Exchange Act''), to ensure the 
continued integrity of these markets and the protection of investors. 
<SUP>24</SUP> For example, if a regional exchange proposed to lower its 
listing standards for common stock, the Commission likely would 
consider this to be a substantive revision which may change the finding 
that the regional exchange's listing standards are substantially 
similar to those of the Named Markets. <SUP>25</SUP> Accordingly, in 
reviewing future proposed changes to SRO listing standards, the 
Commission will consider whether the proposed change(s) will require an 
amendment to Rule 146(b). In the event that the

[[Page 3035]]

Commission determines that a proposed change in listing standards would 
require an amendment to Rule 146(b), and where the proposed rule change 
is subject to full notice and comment under Section 19(b) of the 
Exchange Act, the Commission may conclude that it is unnecessary to 
provide notice and comment for the corresponding amendment to this 
Rule. <SUP>26</SUP> Finally, the Commission notes that enforcement of 
an SRO's listing standards is subject to periodic inspections by 
Commission staff, as is enforcement of all SRO rules, and should the 
Commission find that an exchange designated in Rule 146(b) is not 
adequately enforcing its requirements for initial and continued 
listing, the Commission will take appropriate action to revoke that 
exchange's exemption.
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    \24\ See Legislative History, supra note 9.
    \25\ If, however, one of the Named Markets raised its listing 
standards with respect to a particular security, a conforming change 
by the exchanges designated in Rule 146(b) may not necessarily be 
required for two reasons. First, Section 18(b)(1)(B) requires that 
the regional exchanges' listing standards be substantially similar 
to only one of the Named Markets in order to qualify for the 
exemption. Second, a listing standard change made by one of the 
Named Markets should not force the exchanges designated in Rule 
146(b) to conform their listing standards. Otherwise, a single Named 
Market would be, in effect, setting the listing standards for all 
the regional exchanges. If, however, all three Named Markets were to 
raise their listing standards, and the Commission believed that the 
change was significant enough so that failure to adopt the new 
standard rendered the exchanges designated in Rule 146(b) to have 
substantially inferior standards, then the Commission may require 
the latter exchanges to raise their standards in order to maintain 
their exemption under the Rule.
    \26\ Although the Administrative Procedure Act states that an 
agency must provide general notice of the proposed rulemaking and an 
opportunity for comment, these requirements do not apply if the 
agency for good cause, finds that those procedures are 
``impracticable, unnecessary, or contrary to the public interest.'' 
5 U.S.C. 553(b)(B).
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V. Conclusion

    For the reasons discussed above, as supplemented by the 
Commission's detailed discussion in the proposing release, the 
Commission concludes that the listing standards of the CBOE, and Tier I 
of the PCX, and Phlx are substantially similar to those of the NYSE, 
Amex or Nasdaq/NMS. Accordingly, securities listed on these Exchanges 
should be deemed covered securities and entitled to an exemption from 
state blue sky provisions as set forth in Section 18(a) of the 
Securities Act.
    The Commission concludes that the Rule offers potential benefits 
for investors. The Rule should facilitate listings on qualifying 
exchanges, or tiers or segments thereof, which should increase 
competition and enhance the overall liquidity of the U.S. securities 
markets. The Commission does not anticipate that the Rule would result 
in any costs for U.S. investors or others. As noted above, through the 
review of SRO listing standards pursuant to Section 19(b) of the 
Exchange Act, the Commission will be able to continue to ensure such 
listing standards are sufficient to protect investors. The Commission 
also concludes that Rule 146(b) should serve to reduce the cost of 
raising capital because it will streamline the registration process for 
issuers listing on the Exchanges designated in the Rule. Thus, the 
Commission has considered the Rule's impact on efficiency, competition 
and capital formation and concludes that it would promote these three 
objectives. <SUP>27</SUP> At the same time, Rule 146(b) does not 
undercut the state securities review of offerings because the listing 
standards of the CBOE and Tier I of the PCX, and Phlx are substantially 
similar to the Named Markets, which are already exempt from state 
registration. Finally, Rule 146(b) imposes no recordkeeping or 
compliance burdens, and merely provides a limited purpose exemption 
under the federal securities laws.
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    \27\ 15 U.S.C. 77b(b).
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VI. Administrative Requirements

    Pursuant to Section 605(b) of the Regulatory Flexibility Act, 5 
U.S.C. 605(b), the Chairman of the Commission has certified that Rule 
146(b) should not have a significant economic impact on a substantial 
number of small entities. This certification, including the reasons 
therefor, is attached to this release as Appendix A. The Paperwork 
Reduction Act does not apply because the proposed amendments do not 
impose recordkeeping or information collection requirements, or other 
collections of information which require the approval of the Office of 
Management and Budget under 44 U.S.C. 3501, et. seq.

VII. Statutory Basis

    Rule 146(b) is being adopted pursuant to 15 U.S.C. 77r et seq., 
particularly Section 18 of the Securities Act unless otherwise noted.

List of Subjects in 17 CFR Part 230

    Securities.

Text of the Rule

    For the reasons set forth in the preamble, Title 17, Chapter II of 
the Code of Federal Regulations is amended as follows:

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

    1. The authority citation for Part 230 continues to read, in part, 
as follows:

    Authority: 15 U.S.C. 77b, 77f, 77g, 77h, 77j, 77s, 77sss, 78c, 
78d, 78l, 78m, 78n, 78o, 78w, 78ll(d), 78t, 80a-8, 80a-29, 80a-30, 
and 80a-37, unless otherwise noted.
* * * * *
    2. Section 230.146 is amended by revising the section heading, 
redesignating the introductory text and paragraphs (a) and (b) as 
paragraph (a) introductory text and paragraphs (a)(1) and (a)(2), 
respectively, and adding paragraph (b) to read as follows:


Sec. 230.146  Rules under Section 18 of the Act.

* * * * *
    (b) Covered securities for purposes of Section 18. (1) For purposes 
of Section 18(b) of the Act (15 U.S.C. 77r), the Commission finds that 
the following national securities exchanges, or segments or tiers 
thereof, have listing standards that are substantially similar to those 
of the New York Stock Exchange (``NYSE''), the American Stock Exchange 
(``Amex''), or the National Market System of the Nasdaq Stock Market 
(``Nasdaq/NMS''), and that securities listed on such exchanges shall be 
deemed covered securities:
    (i) Tier I of the Pacific Exchange, Incorporated;
    (ii) Tier I of the Philadelphia Stock Exchange, Incorporated; and
    (iii) The Chicago Board Options Exchange, Incorporated.
    (2) The designation of securities in paragraphs (b)(1)(i) through 
(iii) of this section as covered securities is conditioned on such 
exchanges' listing standards (or segments or tiers thereof) continuing 
to be substantially similar to those of the NYSE, Amex, or Nasdaq/NMS.

    By the Commission.

    Dated: January 13, 1998.
Margaret H. McFarland,
Deputy Secretary.

    Note: Appendix A to the Preamble will not appear in the Code of 
Federal Regulations.

Appendix A--Regulatory Flexibility Act Certification

    I, Arthur Levitt, Jr., Chairman of the Securities and Exchange 
Commission, hereby certify, pursuant to 5 U.S.C. 605(b), that Rule 
146(b) (``Rule'') under the Securities Act of 1933 (``Securities 
Act''), which will designate securities listed on certain national 
securities exchanges, or tiers or segments thereof, as covered 
securities under Section 18 of the Securities Act, and therefore 
provide them with an exemption from state registration requirements, 
will not have a significant economic impact on a substantial number 
of small entities for the following reasons. Under the Securities 
Act, a small entity is defined as ``an issuer whose total assets on 
the last day of its most recent fiscal year were $5,000,000 or 
less.'' Issuers of this size generally will not qualify for listing 
on the national securities exchanges, or tiers or segments thereof, 
designated in Rule 146(b). More specifically, both the Chicago Board 
Options Exchange, Incorporated and Tier I of the Pacific Exchange, 
Incorporated require issuers of common stock to have net worth of at 
least $4,000,000. To be listed on Tier I of the Philadelphia Stock 
Exchange, Incorporated issuers of common stock must have net 
tangible assets of at least $4,000,000. I do not believe that there 
are a substantial number of small entities which have total assets 
less than $5,000,000, yet a net worth or net tangible assets of at 
least $4,000,000. For example, none of the issuers of common stock 
listed exclusively on Tier I of the

[[Page 3036]]

Pacific Exchange have total assets of $5,000,000 or less. In 
addition, the proposed rule imposes no record-keeping or compliance 
burden, but merely exempts certain qualifying securities from state 
law registration requirements.

    Dated: January 2, 1998.
Arthur Levitt, Jr.,
Chairman.
[FR Doc. 98-1295 Filed 1-20-98; 8:45 am]
BILLING CODE 8010-01-P