[Federal Register Volume 60, Number 235 (Thursday, December 7, 1995)]
[Notices]
[Pages 62918-62920]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-29782]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36531; File No. SR-CHX-95-26]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Chicago Stock Exchange, Inc. Relating to Listing 
Standards

November 30, 1995.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on November 
8, 1995, the Chicago Stock Exchange, Inc. (``CHX'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the self-regulatory 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 Exchange proposes to amend Article XXVIII of the Exchange's 
Rules to modify the Exchange's listing standards and create two tiers 
of listings.

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 self-regulatory organization 
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 self-regulatory organization 
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 North American Securities Administration Association 
(``NASAA'')\1\ has endorsed certain listing standards as sufficient to 
warrant a state's granting exchange-listed securities a listing 
exemption from registration. The CHX proposes to modify its own listing 
standards to comply with those endorsed by NASAA and adopted by other 
stock exchanges.\2\

    \1\NASAA is an association of securities administrators from 
each of the 50 states, the District of Columbia, Puerto Rico and ten 
Canadian provinces.
    \2\See, e.g., Securities Exchange Act Release No. 34235 (June 
17, 1994), 59 FR 32736 (June 24, 1994) (approving a Philadelphia 
Stock Exchange rule change adopting NASAA endorsed standards); 
Securities Exchange Act Release No. 34429 (July 22, 1994), 59 FR 
38998 (Aug. 1, 1994) (approving a Pacific Stock Exchange rule change 
adopting NASAA endorsed standards).
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    The CHX proposes changes to its Rules regarding the quantitative 
requirements for issuers and issues, qualitative requirements for 
issuers (e.g., corporate governance standards), and maintenance 
criteria for issues. In no case do the proposed changes decrease 
current CHX standards.
    NASAA has entered into a Memorandum of Understanding (``MOU'') with 
the Philadelphia Stock Exchange (``Phlx'')\3\ and the Pacific Stock 
Exchange (``PSE'').\4\ Those memoranda set out standards that NASAA 
recognizes as sufficient to warrant listing exemptions from state blue 
sky requirements. The proposed rules establish listing standards that 
are essentially identical to the standards set out in those two NASAA 
MOUs. Although the CHX is in the process of reaching a similar MOU with 
NASAA, the CHX's new listing standards are specifically designed to 
satisfy the listing standards endorsed by NASAA.

    \3\The Memorandum of Understanding was approved by NASAA and 
Phlx on October 12, 1994.
    \4\The Memorandum of Understanding was approved by NASAA and the 
PSE on October 12, 1994.
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    Other exchanges have established two tiers of listing requirements. 
In general, Tier I listing standards are quantitatively and 
qualitatively higher (i.e., more restrictive and demanding) than Tier 
II listing standards.
    The CHX does not currently have a two-tier structure for listings 
but proposes to create a two-tiered structure. Both Tier I and Tier II 
listed issues will be traded pursuant to identical auction rules, but 
otherwise the two tiers will differ in several ways. 

[[Page 62919]]
The new, higher standards proposed by the CHX will constitute 
requirements for a new Tier I listing. The Tier I requirements for a 
CHX listing will be identical in all material respects with the 
requirements of the NASAA MOUs. The current standards of the CHX will 
constitute the listing requirements for the new CHX Tier II listing. 
The NASAA MOUs do not address Tier II standards.
    Tier I issuers and issues will have to meet the corporate 
governance and disclosure standards endorsed by NASAA MOUs. These 
include newly specific requirements for disclosure of reports filed 
with federal regulatory bodies; specific requirements for shareholder 
approval for certain corporate actions involving the sale or issuance 
of stock; and specific voting rights provisions forbidding corporate 
actions that have a disparate impact on holders of stock. The CHX 
currently has strict corporate governance and disclosure requirements, 
which will remain in place for Tier II issuers and issues.
    The CHX will identify and distinguish at all times which securities 
are listed pursuant to Tier I and Tier II standards. If a Tier I listed 
security fails to satisfy Tier I maintenance standards for continued 
listing, the issue will be removed from Tier I listing. If it meets 
Tier II standards, it will thereupon be listed on Tier II. If it does 
not meet Tier II standards, it will be delisted. Moreover, if a Tier II 
listed security matures to the point that it could meet the Tier I 
standards, the issuer must apply and receive approval to list the 
security pursuant to the Tier I standards before the CHX will recognize 
that security as a Tier I issue. The CHX believes that adopting two 
tiers of listing standards will provide flexibility for the CHX in 
pursuing various listing objectives beneficial to CHX members and the 
public.
    The CHX has chosen to adopt NASAA's MOU standards as criteria for 
its new Tier I because the CHX views those standards as carefully 
crafted to provide an extremely high level of investor and shareholder 
protection. For the same reason, the CHX proposes for Tier I to adopt 
also NASAA's substantial corporate governance standards, including 
requirements for independent directors, audit committees, shareholder 
quorums, common stock voting rights, and conflict of interest 
provisions. The CHX's current rules already address many of these same 
issues, but for Tier I the CHX proposes to adopt all of NASAA's 
suggested standards.
    Tier I standards must be satisfied by all issuers on a continuing 
basis. Moreover, CHX standards for Tier I initial and maintenance 
listing are both mandatory and non-waivable.

Tier I Standards

    With regard to common stock, Rule 8(a) replicates the NASAA MOUs' 
numerical criteria applicable to original listing determinations in 
every aspect including net tangible assets, numbers of shareholders and 
shares publicly held, pre-tax and net earnings, and stock price.
    In Rule 8(b), the CHX proposes to also offer alternate listing 
standards for common stock issues. The proposed standards are identical 
to those endorsed by NASAA. The CHX offers the alternate standards 
because there are certain smaller companies that either due to the 
nature of their business or the amount of resources committed by the 
company to research and development, would not meet the standards in 
Rule 8(a) but nevertheless deserve Tier I status. Thus, those types of 
companies may be approved for listing under Tier I if they satisfy the 
alternate listing criteria.
    Rule 8(c), in conformance with the NASAA MOUs, provides standards 
for initial public offerings approved for listing on the CHX. Such 
offerings must be underwritten on a ``firm commitment'' basis and must 
meet the CHX's listing standards within a 30-day grace period after 
completion of the offering.
    With regard to preferred stock, Rule 9 provides the Tier I original 
listing criteria. Preferred stock issuers must satisfy the same net 
tangible assets and net earnings criteria applicable to issuers of 
common stock. The ability of the issuers to service the dividend 
requirements for preferred stock will also be evaluated. The 
requirements will differ for number of shares publicly held and 
aggregate market value depending on whether the issuer has common stock 
listed. Where the common stock is listed on the CHX, New York Stock 
Exchange (``NYSE''), or American Stock Exchange (``Amex''), at least 
100,000 shares of preferred stock must be publicly held with an 
aggregate market value of at least $2 million dollars. Where the common 
stock is not so listed, at least 400,000 shares of preferred stock must 
be publicly held with an aggregate market value of at least $4 million. 
Differentiating on this basis reflects the CHX's belief that companies 
whose securities are publicly traded have a more significant investor 
following and a greater demonstrated ability to raise necessary capital 
while meeting the contingent payment obligations associated with 
preferred stock and, as described below, bond and debentures. In either 
case, a share of preferred stock must have a minimum closing bid price 
of $10 to be eligible for listing.
    Listing of bonds and debentures under Tier I will be governed by 
Rule 10. In addition to evaluating issuers according to the same net 
tangible assets and earnings standards applicable to equity issuers, 
the CHX will also evaluate the ability of these issuers to satisfy the 
interest and principal payments of bonds and debentures as they become 
due. As above, the required aggregate market value and number of public 
beneficial holders varies depending on whether the issuer's common 
stock is listed and traded on either the CHX, Amex or NYSE. 
Additionally, the CHX will require municipal bonds to meet higher 
standards than other bonds.
    Issuers seeking listing of warrants under Tier I must satisfy the 
criteria of Rule 11. The CHX will set standards with regard to public 
distribution, and it will not list warrants unless the security 
underlying the warrant is already listed or will be listed concurrently 
with the warrants on Tier I.
    Rule 12 provides criteria for contingent value rights (``CVRs''). 
The CHX will set standards for CVRs with regard to aggregate market 
value, public distribution, net tangible assets, and maturity date. CVR 
issuers must meet the net tangible assets and earnings requirements for 
issuers of stock listed on the Exchange, and the CVRs to be listed must 
have been approved for listed on another national securities exchange. 
Finally, Rule 13 contains criteria applicable to new and innovative 
products that do not fall within Rules 8-12 but otherwise have the 
financial qualifications to be listed and are suitable for auction 
market trading.
    The CHX's maintenance requirements for Tier I securities duplicate 
those found in the NASAA MOU with the PSE. Rules 14-17 set forth those 
maintenance requirements for each type of issue. The CHX will initiate 
delisting procedures against any issue that fails to meet the 
maintenance requirements on a continuing basis.

Tier II Standards

    Rule 18 sets forth the CHX's proposed Tier II standards. Tier II 
standards will allow companies that may not be large enough to list 
under Tier I the opportunity to have their securities traded in an 
auction market, thereby increasing liquidity and issuer access to the 
investment community.

[[Page 62920]]

    The CHX's proposed Tier II standards are essentially identical to 
the current CHX standards applicable to all listed issues, except that 
index warrants and contingent value rights will no longer be listed 
under Tier II.

Miscellaneous

    The CHX does not propose to materially change its admissions 
procedures or its delisting procedures.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b)(5) of the 
Act in that the proposal fosters cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, removes impediments to and perfects the mechanism of a free 
and open market and a national market system and protects investors and 
the public interest. The proposal also is consistent with Section 11A 
of the Act in that approval of the Tier I standards will aid in the 
development of the national market system by enhancing competition for 
equity listings.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any inappropriate burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

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 other 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 the 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. 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 communication 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 Exchange. All 
submissions should refer to File No. SR-CHX-95-26 and should be 
submitted by December 28, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
FR Doc. 95-29782 Filed 12-6-95; 8:45 am]
BILLING CODE 8010-01-M