[Federal Register Volume 63, Number 145 (Wednesday, July 29, 1998)]
[Notices]
[Pages 40575-40577]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-20248]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40253; File No. SR-NYSE-98-12]


Self-Regulatory Organizations; Order Granting Approval of 
Proposed Rule Change and Amendment No. 1 Thereto by the New York Stock 
Exchange, Inc., Relating to Changes in Bond Listing Procedures and 
Practices

July 23, 1998.

I. Introduction

    On April 15, 1998, the New York Stock Exchange, Inc. (``NYSE'' 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 bond listing 
procedure and practices. On April 30, 1998, the NYSE submitted to the 
Commission Amendment No. 1 to the proposed rule change.\3\ The proposed 
rule change, as amended, was published for comment in the Federal 
Register on May 13, 1998.\4\ No comments were received regarding the 
proposal. This order approves the proposed rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange made technical corrections 
to the proposed rule change and clarified the purpose of the 
proposal. See Letter from James E. Buck, Senior Vice President and 
Secretary, Exchange, to Michael Walinskas, Deputy Associate 
Director, Division of Market Regulation, Commission, dated April 29, 
1998. (``Amendment No. 1'').
    \4\ Securities Exchange Act Release No. 39973 (May 7, 1998), 63 
FR 26660.
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II. Description of the Proposal

    The NYSE proposes to amend its Listed Company Manual (``Manual'') 
to alter certain provisions regarding listing requirements for debt 
securities and other debt security practices. Those provisions in the 
Manual include:
    (i) Interest Payments. Currently, Paragraph 204.18 requires that an 
issuer or its paying agent notify the Exchange whenever the issuer 
makes an interest payment, and the Exchange also requires an issuer to 
notify the press and the Exchange whenever the issuer does not meet its 
interest obligations. The proposal would delete the obligation to 
inform the Exchange of interest payments made, whether by confirmation 
cards or otherwise. And, the proposal also adds to the end of Paragraph 
204.18 a cross-reference to 202.00, which reminds issuers that they are 
required to disclose material information (including the inability to 
meet payment obligations).
    (ii) Multiple Facsimile Signatures. Paragraph 501.06 presently 
requires bonds to be executed, either manually or by facsimile machine, 
by two of the issuer's officers. Whether the issuer uses one facsimile 
signature (and one manual signature) or two facsimile signatures, the 
Exchange currently requires the issuer to submit an opinion of counsel 
that states that the use of each facsimile signature (a) is 
specifically authorized by (or at least is not inconsistent with) the 
issuer's charter or by-laws and the issue's indenture, and (b) is valid 
and effective under the laws of the state of the issuer's 
incorporation. When a single facsimile signature is used, the opinion 
of counsel also must state that the actual facsimile signature to be 
used has been duly adopted. Where two facsimile signatures are used, 
the issuer must submit to the Exchange the board resolution adopting 
the actual signatures to be used.
    Although the Exchange would continue to require issuers to 
authorize the use of facsimile signatures, to adopt the specific 
facsimile signatures to be used, to comply with charter, by-law and 
indenture provisions, and to comply with state laws, it proposes to 
discontinue the practice of requiring issuers to submit opinions of 
counsel and board resolutions in respect of those requirements.
    (iii) Discharge of Obligation upon Default of Funds. Paragraph 
602.01 and Subparagraph (D) of Paragraph 703.06 currently each require, 
in part, that a debt security's indenture may not discharge the 
issuer's payment obligation if the funds representing payment are 
deposited with the trustee, depository or paying agent more than ten 
days before the date on which the funds become available to bond 
holders. The Exchange would remove this requirement from the Manual.
    (iv) Clearance of Terms. Subparagraph (B) of Paragraph 703.06 
presently asks an issuer to submit the indenture and registration terms 
to the Exchange prior to applying to list a bond and to receive the 
Exchange's clearance of the terms of those documents before the company 
is permitted to use a ``listing intention

[[Page 40576]]

statement'' in the offering prospectus. The proposal would eliminate 
these requirements and would amend Subparagraph (B) to clarify the 
remaining portions of that Subparagraph. The remaining portions provide 
guidance on the contents of a description of the issue. The Exchange 
has clarified that the description of the issue is part of the listing 
application for the security and is reviewed prior to the date the 
security is listed.\5\
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    \5\ See Letter From Fred Siesel, Director, Fixed Income Markets, 
Exchange, to Kenneth M. Rosen, Attorney, Division of Market 
Regulation, Commission, dated July 10, 1998 (``July 10 Letter'').
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    (v) Delivery of Prospectus, Mortgage and/or Indenture. Subparagraph 
(F) of Paragraph 703.06 currently requires the issuer to provide with 
its listing application four copies of a security's prospectus if the 
debt security has been issued for 12 months or less and to provide one 
copy of the prospectus if the debt security has been issued for more 
than 12 months. The Exchange also requires the issuer to provide one 
final copy of the issuer's mortgage or indenture.
    The Exchange proposes to change those document delivery 
requirements if the issuer makes the document publicly available by 
means of a disclosure service (such as Disclosure, Inc.) that the 
Exchange finds satisfactory. If a document is available in that manner, 
the Exchange would no longer require the issuer to submit the final 
copy (in the case of a mortgage or indenture) and would require the 
issuer to submit only one copy of the prospectus, even if the debt 
security has been issued for 12 months or less.
    (vi) Opinion of Counsel. Subparagraph (G) of Paragraph 703.06 now 
requires an issuer to provide the Exchange with an opinion of counsel 
that verifies such things as the validity of the debt securities and 
the authorization for the issuance. Pursuant to the proposal, for 
issues that a registered broker-dealer purchases from the issuer with a 
view toward resale, whether through an underwritten public offering or 
otherwise, the Exchange would accept as sufficient an issuer's 
affirmation of the existence of the opinion of counsel. The Exchange 
would continue to require the submission of the opinion of counsel for 
Rule 144A offerings.
    In addition, the Exchange would eliminate certain of the items that 
currently must appear in the opinion of counsel. Specifically, the 
Exchange would no longer require the opinion: (a) To set forth the 
date, nature, and status of orders or proceedings of regulatory 
authorities relating to the issuance of securities that are the subject 
of a listing application; (b) to state that the Board has authorized 
the issuing and listing of the securities; and (c) to disclose an 
affiliation of the counsel to the issuer.

III. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of Section 6 of the Act. In 
particular, the Commission believes the proposal is consistent with 
Section 6(b)(5) of the Act.\6\ Section 6(b)(5) requires, among other 
things, that the rules of the Exchange be designed to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, and to remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system.
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    \6\ 15 U.S.C. 78f(b)(5). In approving this rule, the Commission 
has considered the proposed rule's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
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    The Commission agrees with the Exchange that the proposed changes 
to the Manual should facilitate the listing process for debt securities 
and should update rules and policies to better conform with current 
practices. By eliminating certain requirements in the Manual, it should 
become less burdensome for companies to follow relevant procedures. 
This in turn should improve the transparency of the debt securities 
market for all market participants, including investors. With less 
burdensome rules and procedures, additional companies might list their 
debt securities on the NYSE, thus increasing the number of these 
securities accessible through and subject to the Exchange's trading and 
disclosure systems.
    Moreover, the Commission feels that such benefits should outweigh 
any minimal protection afforded by eliminated provisions. Having 
carefully reviewed each of the proposed changes to the Manual, the 
Commission agrees with the Exchange's representation that each of the 
eliminated provisions and document submission requirements are no 
longer necessary.
    More specifically, the Commission agrees that an issuer's 
obligation to report to the press and to the Exchange failures to meet 
payment obligations and unusual conditions and circumstances related to 
and issuer's ability to meet interest payments sufficiently protects 
investors without also continuing to require that issuers notify the 
Exchange each time an interest payment is made.
    Second, as to facsimile signatures, recognizing the continued 
requirements that issuers authorized the use of such signatures, adopt 
the specific facsimile signature to be used, and comply with relevant 
state laws and charter, by-law, and indenture provisions, it is 
appropriate to eliminate additional submissions of opinions of counsel 
and board resolutions related to such requirements. The Commission 
notes the increased acceptance of facsimile signatures and agrees with 
the Exchange that the remaining requirements related to such signatures 
should adequately protect the public.
    Third, the Commission concurs with the elimination of the 
prohibition against a debt security's indenture discharging the 
issuer's payment obligation if the funds representing payment are 
deposited with the trustee, depository or paying agent more than ten 
days before the date on which the funds become available to bond 
holders. As the Exchange represented, the prohibition addressed the 
practice of depositing securities with the trustee in advance of a 
payment obligation as a way of satisfying a restrictive covenant where 
the indenture does not provide for prepayment. The Exchange adopted 
those provisions to protect bondholders prior to the enactment of the 
Trust Indenture Act and the widespread use of early call provisions. 
However, the Exchange notes that the practice of advance security 
deposits is no longer in use. The Commission agrees that this along 
with protections now afforded bondholders by the Trust Indenture Act 
and the fact that an issuer's defeasance does not normally discharge 
that issuer's payment obligation to the bondholder as set forth in the 
debt instrument weigh in favor of removing the ban.
    Fourth, the Commission also finds that elimination of early 
submission and prior clearance requirements are permissible. The 
Commission notes that when evaluating a bond for listing, the Exchange 
currently examines whether the issuer's equity security is listed on 
the Exchange or, if the issuer does not list an equity security on the 
Exchange, whether a nationally recognized security rating organization 
has rated the debt issue no lower than a Standard & Poors' ``B'' rating 
or its equivalent. This evaluation should give the Exchange sufficient 
indication of whether the issuer should be permitted to move forward 
with the listing process prior to a debt security's listing. 
Furthermore, the Exchange explains that nothing in its filing on

[[Page 40577]]

bond listing procedures in any way changes the Exchange's substantive 
debt listing standards nor the Exchange's enforcement of those 
standards, such as the requirement that to be listed the issue must 
have a par value of at least $5,000,000.\7\
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    \7\ See July 10 Letter.
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    As for early review of indenture terms, what continued to 
necessitate such review was the prohibition against defeasance 
discussed above. However, by eliminating that requirement, the Exchange 
eliminates the last justification of its need to pre-clear indenture 
and registration terms. Despite these changes, the Commission notes 
that the Exchange has represented that issuers may still contact the 
Exchange to discuss the issue's eligibility prior to engaging in the 
process of completing a listing application when it is uncertain as to 
whether it will qualify for listing.
    Fifth, the Commission finds that it is appropriate for the Exchange 
to ease certain document submission requirements when those documents 
are readily available to the Exchange through electronic services. The 
Exchange has clarified that for such a service to qualify as 
satisfactory, it must be one to which the Exchange subscribes, and the 
NYSE also has noted its access to other SEC public document services 
through the Internet.\8\ Consequently, in carrying out its review of 
debt securities, the Exchange should continue to have ready access to 
documents which no longer need to be physically submitted by an issuer.
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    \8\ See July 10 Letter.
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    Sixth, substituting the affirmation of the existence of an opinion 
of counsel for a copy of the opinion should also facilitate the listing 
process. The Commission accepts the Exchange's representation that its 
physical possession of the opinion of counsel is no longer necessary 
because in connection with an underwritten offering the Exchange rarely 
has need to refer to that opinion, and the Exchange can direct the 
issuer to provide an opinion should the need arise.\9\ Moreover, 
eliminating content from such opinion should not have a substantial 
impact. Because the Exchange represents that it has rarely used or 
relied upon the opinion's description of regulatory proceedings, 
deletion appears to sacrifice little, while serving to simplify the 
opinion. In addition, the Commission accepts the use of a listing-
application signature of an authorized officer of the issuer as 
assurance of the board's authorization of the issue and of listing the 
issue on the Exchange. Moreover, should the Exchange ultimately need to 
review an opinion, it then could inquire as to any affiliation of the 
opinion's writer with the issuer.\10\
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    \9\ See July 10 Letter.
    \10\ See Amendment No. 1.
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    Finally, the Commission wishes to emphasize again that the proposal 
does not affect the NYSE's substantive quantitative debt listing 
standards.\11\ And, having reviewed the proposal in light of the 
requirements and protections that remain in the Manual, the Commission 
believes that adequate information will remain publicly available to 
inform investors about the quality of issuers and their debt 
securities.
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    \11\ See July 10 Letter.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-NYSE-98-12), as amended, is 
approved.

    \12\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-20248 Filed 7-28-98; 8:45 am]
BILLING CODE 8010-01-M