[Federal Register Volume 63, Number 130 (Wednesday, July 8, 1998)]
[Notices]
[Pages 36981-36983]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-18003]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40143; File No. SR-Amex-97-38]


Self-Regulatory Organizations; American Stock Exchange, Inc.; 
Order Approving Proposed Rule Change and Notice of Filing and Order 
Granting Accelerated Approval to Amendment No. 1 to the Proposed Rule 
Change by the American Stock Exchange, Inc., Relating to the Exchange's 
Warrant Listing Guidelines.

June 29, 1998.

I. Introduction

    On October 22, 1997, the American Stock Exchange, Inc. (``Amex'' 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 Company Guide to 
revise its warrant listing and maintenance guidelines.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    The proposed rule change was published for comment in the Federal 
Register on December 10, 1997.\3\ No comments were received on the 
proposal. On April 3, 1998, Amex filed an Amendment to the proposed 
rule change.\4\ This order approves the Amex proposal, as amended.
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    \3\ Securities Exchange Act Release No. 39392 (Dec. 3, 1997), 62 
FR 65112.
    \4\ See Letter from Claudia Crowley, Special Counsel, Legal and 
Regulatory Policy, Amex, to Sharon Lawson, Senior Special Counsel, 
Division of Market Regulation, Commission, dated April 3, 1998 
(``Amendment No. 1''). In Amendment No. 1, Amex proposes raising the 
initial warrant listing standards from 100,000 warrants with no 
public holder requirement, as originally proposed, to 200,000 
warrants publicly held by not less than 100 public warrantholders. 
Amendment No. 1 makes several other clarifications which are 
discussed herein.
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II. Description of the Proposal

    The Amex proposes to amend its Company Guide to revise its warrant 
listing standards.\5\ Currently, Section 105 provides that the Amex 
will not list warrants unless the underlying common stock is listed on 
the Amex or the New York Stock Exchange (``NYSE'') and further provides 
that the Exchange will evaluate the warrant issuer's listing 
eligibility using the same financial and distribution guidelines as are 
applied to the listing of common stock.

[[Page 36982]]

Specifically, with respect to financial guidelines, the issuer of the 
warrants must meet the size and earnings requirements for common stock 
set forth in Section 101 (i.e., stockholders equity of at least 
$4,000,000 and pre-tax income of at least $750,000 in its last fiscal 
year, or in two of its last three fiscal years). The Exchange believes 
that these guidelines are unnecessarily high when applied to the 
listing of warrants. In this regard, the Amex notes that a listed 
company is not required to meet the original listing guidelines when 
issuing additional shares of its common stock and that warrants are 
nothing more than a claim on a company to issue more stock that does 
not expose a company to financial risk. Thus, Amex believes that 
warrant issuers should not be subject to the same stringent financial 
requirements as required of issuers of common stock.
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    \5\ The Amex has represented that the proposal would only affect 
warrants listed under Section 105 of the Exchange's Company Guide 
and not currency or other types of warrants listed pursuant to 
Section 106 or 107. See Amendment No. 1.
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    Similarly, Amex believes that the current original listing 
distribution requirements (i.e., a minimum of 500,000 publicly held 
warrants and not less than 800 public warrantholders or 1,000,000 
publicly held warrants and not less than 400 public warrantholders) are 
too high because price discovery occurs with the underlying security 
and, therefore, such a high degree of liquidity is not as important for 
the warrant.
    As a result of the above, the Amex is proposing to amend Section 
105, relating to initial listing requirements for warrants, and Section 
1003, relating to maintenance requirements for warrants.\6\ The Amex is 
proposing that Section 105 be amended to eliminate the express 
requirements that companies applying for listing of warrants must meet 
the size and earnings criteria for common stock. However, in addition 
to the current requirement that the underlying common stock (or other 
security underlying the warrant) must be listed on the Amex or the 
NYSE, the Amex is proposing to amend Section 105 to include a 
requirement that the underlying security must be in ``good standing.'' 
The Amex has represented that for a company's common stock to be in 
``good standing,'' it must be above the numerical maintenance standards 
of the Amex or the NYSE.\7\ Where common stock underlies the warrant, 
the ``good standing'' requirement results in a de facto size and 
earnings requirement for the issuer of the warrant.\8\ The Amex also is 
proposing that Section 105 be amended to reduce the original listing 
distribution criteria for warrants from 500,000 warrants outstanding 
and not less than 800 public warrantholders or 1,000,000 publicly held 
warrants and not less than 400 public warrantholders to 200,000 
warrants outstanding and not less than 100 public warrantholders.\9\ In 
addition, recognizing that a minimum level of liquidity is necessary to 
support a public market, the Amex is proposing to amend Section 1003 to 
add a specific maintenance standard of at least 50,000 publicly held 
warrants in order for Amex to continue listing the warrants. The Amex 
also has represented that it would suspend or delist the warrants if 
the underlying common stock (or other security underlying the warrant) 
is suspended or delisted.\10\
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    \6\ The Commission notes that currently the Exchange has no 
separate maintenance standards for warrants, but instead applies the 
general delisting provision in Section 1003.
    \7\ See Amendment No. 1. This representation clarifies that the 
underlying common stock must meet the objective numerical 
maintenance criteria rather than the subjective criteria that may 
permit a company to remain listed despite being below the numerical 
criteria.
    \8\ See Amex Company Guide, Sections 1001-1004; NYSE Rule 499.
    \9\ See Amendment No. 1.
    \10\ See Amendment No. 1.
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III. Discussion

    After careful review, 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(b)(5) in that it is 
designed to promote just and equitable principles of trade, and, in 
general, to protect investors and the public interest.\11\ 
Specifically, the Commission finds that revising the initial listing 
criteria and adopting specific maintenance requirements for warrants 
will serve to promote the public interest, protect investors and remove 
impediments to a free and open securities market by making more 
warrants eligible for trading on the Amex by reducing the numerical 
listing requirements while, at the same time, ensuring a minimum level 
of liquidity will exist to support the public trading market in such 
warrants.\12\
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    \11\ 15 U.S.C. 78f(b)(5).
    \12\ In approving the proposed rule change, the Commission notes 
that it has considered the proposed rule's impact on efficiency, 
competition and capital formation. 15 U.S.C. 78c(f).
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    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 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 SRO to monitor the 
status and trading characteristics of that issue to ensure that it 
continues to meet the SRO's standards for market depth and liquidity.
    The Commission believes that the proposed initial listing standards 
should help Amex to ensure that only substantial companies are eligible 
to have their warrants listed on the Exchange. While the proposed rule 
would no longer require issuers of warrants to meet the initial size 
and earnings requirements for issuers of common stock, the rule would 
require the common stock or other security underlying the warrant to be 
listed and in ``good standing'' on either the Amex or the NYSE.\13\ 
This standard will ensure, at a minimum, that only issuers who meet the 
numerical continued listing standards for issuers of common stock (or 
other securities underlying the warrant) on the Amex or NYSE may list 
warrants on the Amex.\14\ These requirements contain specific issuer 
standards including shareholders' equity, public float and 
earnings.\15\ In addition, the Amex will not list a warrant if the 
security underlying the warrant has been suspended.
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    \13\ This standard requires Amex to ensure the underlying 
security is meeting the numerical continued listing standards on the 
market where it is listed (e.g., Amex of NYSE). We note that the 
mere fact that a security continues to be listed on the Amex or NYSE 
is not sufficient inquiry to determine if it is meeting the 
numerical continued listing criteria.
    \14\ Section 105 is, in the Commission's view, generally 
intended to provide listing standards for traditional corporate 
warrants where the issuer of the underlying security is the same as 
the warrant issuer. The Commission believes that an issuer desiring 
to list warrants on another issuers' security may be more 
appropriately listed under another listing standard depending on 
such factors as whether the issuer of the warrant holds the 
underlying securities. For example, if the issuer did not hold the 
securities underlying the warrants and/or the issuer did not have a 
pre-existing relationship with the issuer of the underlying 
security, we believe the warrant should not be listed under Section 
105 for warrants. In any case, for the warrants that are appropriate 
for listing under Section 105, the Amex has stated that, if a third 
party issuer seeks to list warrants on the Exchange, the Amex will 
evaluate the listing eligibility of the warrants by applying the 
listing criteria in Section 105 to both the issuer of the warrants 
as well as to the issuer of the common stock underlying the 
warrants. See Letter from Michael Emen, Senior Vice President and 
Counsel--Securities, Legal and Regulatory Policy, Amex, to Sharon 
Lawson, Senior Special Counsel, Division of Market Regulation, 
Commission, dated June 16, 1998.
    \15\ See Amex Company Guide, Sections 1001-1004; NYSE Rule 499.
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    The Commission finds that it is not unreasonable for the Exchange 
to reduce

[[Page 36983]]

the initial listing distribution criteria from 500,000 warrants 
publicly held and not less than 800 public warrant holders or 1,000,000 
publicly held warrants and not less than 400 public warrantholders to 
200,000 warrants publicly held and not less than 100 public 
warrantholders with a maintenance standard of 50,000 warrants publicly 
held. The Commission recognizes that the reduction in the initial 
listing standards is substantial. In reviewing the Amex's proposal the 
Commission has been particularly concerned about the lowered public 
holder requirement and the lack of such a public holder requirement for 
continued listing. While the Commission's determination on this issue 
was close, we have determined to approve the new standards based, in 
part, on the unique, completely derivative nature of warrants and the 
fact that they are exercisable into another security that must remain 
in ``good standing'' on its listed market. Accordingly, although the 
Commission is concerned about maintaining sufficient liquidity in the 
marketplace for listed warrants, the Commission believes that the 
revised initial listing criteria together with the added maintenance 
standard will serve to enable the Exchange to evaluate the propriety of 
continued exchange trading of warrants.
    Finally, the Commission notes that warrants will trade under the 
Amex's existing regulatory regime for trading securities, and, 
therefore, the Commission believes that adequate safeguards are in 
place to ensure the protection of investors in warrants. In addition, 
the Amex will delist or suspend trading in warrants whenever the 
underlying equity security is delisted or suspended. Because warrants 
represent a claim on a company to issue stock, it is reasonable to 
expect the underlying equity security to meet the maintenance criteria 
of the exchange on which it is listed. It also would be undesirable to 
continue trading in listed warrants when the underlying equity security 
has been suspended or delisted and no longer trades in the secondary 
market.
    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 thereof in the Federal Register. Amendment No. 1 
raises the initial listing requirements from 100,000 warrants with no 
public warrantholder requirement, as originally proposed, to 200,000 
warrants publicly held by not less than 100 public warrantholders. The 
Commission believes that these higher standards are appropriate and 
serve to protect investors and the public interest. In addition, the 
Commission notes that no comments were received when the original 
notice of the proposed rule change was published and that no new 
regulatory issues are presented in Amendment No. 1.
    Accordingly, the Commission believes that good cause exists, 
consistent with Section 6(b)(5) and 19(b)(2) \16\ of the Act, to 
approve Amendment No. 1 on an accelerated basis.
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    \16\ 15 U.S.C. 78s(b)(2).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning Amendment No. 1, including whether the proposed 
rule change is consistent with the Act. 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 comments, 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. 522, will be available for inspection and 
copying in the Commission's Public Reference Room, 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 
Amex. All submissions should refer to File No. SR-Amex-97-38 and should 
be submitted by July 29, 1998.
    For the foregoing reasons, the Commission finds that the Amex's 
amended proposal to revise original listing and maintenance 
requirements for Section 105 warrants is consistent with the 
requirements of the Act and the rules and regulations thereunder.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (SR-Amex-97-38), as amended, is approved.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-18003 Filed 7-7-98; 8:45 am]
BILLING CODE 8010-01-M