Federal Register / Vol. 60, No. 235 / Thursday, December 7, 1995 / Notices 62921

7 15 U.S.C. 78q–1(b)(3)(F) (1988).

8 15 U.S.C. 78s(b)(3)(A)(i) (1988).

9 17 CFR 240.19b–4(e)(4) (1994).

10 17 CFR 200.30–3(a)(12) (1994).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3See Letter from Geraldine M. Brindisi, Vice

President and Corporate Secretary, Amex, to Glen

Barrentine, Senior Counsel/Team Leader, SEC

(Sept. 28, 1995).

4Securities Exchange Act Release No. 36326 (Oct.

3, 1995), 60 FR 52713.

(1) The amended rule reburies brokerdealers to disclose that they are not

members of the Securities Investor

Protection Corporation (‘‘SIPC’’) if, in

fact, they are not so affiliated. These

broker-dealers may make such

disclosures by noting ‘‘[Name of brokerdealer] is not a member of SIPC’’ in the

Special Instructions field of trade data

submitted to the ID system. PHILADEP’s

and MSTC’s proposed rule changes add

to their respective procedures the

method by which broker-dealers

indicate that they are not SIPC

members.

(2) In the case of a private debt

security, the amended rule requires

broker-dealers to disclose if the security

is not rated by a nationally recognized

statistical rating organization. A brokerdealer using the ID system can disclose

that fact by entering ‘‘Not Rated’’ or

‘‘N/R’’ in the Special Instructions field.

PHILADEP’s and MSTC’s proposed rule

changes add to their respective

procedures a statement of the meaning

of the codes ‘‘Not Rated‘‘ or ‘‘N/R.’’

(3) The amended rule requires brokerdealers to disclose that the yield for

asset-backed securities that are

continuously subject to prepayment

may vary depending upon the rate of

prepayments. Upon written request

from their customers, broker-dealers

will provide certain information

concerning the factors that affect these

securities’ yield. A broker-dealer using

the ID System can enter one of several

acronyms in the Security Type field

identifying the security as one of several

types of securities that meet the rule’s

definition of asset-backed security.

PHILADEP’s and MSTC’s proposed rule

changes add to their respective

procedures a provision designating

several acronyms that when placed in

the Security Type field will denote that

the security meets the Rule 10b–10

definition of an asset-backed security.

PHILADEP and MSTC believe the

proposed rule changes are consistent

with the requirements of Section

17A(B)(3)(F) 7 of the Act and the rules

and regulations thereunder applicable to

PHILADEP and MSTC because the

proposed rule changes will facilitate the

confirmation of transactions through the

use of the ID system in compliance with

the additional requirements of Rule

10b–10 and in conjunction with the

expiration date of the temporary

exemption on November 1, 1995.

B. Self-Regulatory Organizations’

Statements on Burden on Competition

PHILADEP and MSTC believe these

procedural modifications will not

impose a burden on competition.

Self-Regulatory Organizations’

Statements on Comments on the

Proposed Rule Changes Received From

Members, Participants or Others

PHILADEP and MSTC have neither

solicited nor received comments on the

proposed rule changes.

III. Date of Effectiveness of the

Proposed Rule Changes and Timing for

Commission Action

The foregoing rule changes have

become effective pursuant to Section

19(b)(3)(A)(i) 8 of the Act and pursuant

to Rule 19b–4(e)(4) 9 promulgated

thereunder because the proposals

constitute changes in existing services

of registered clearing agencies that do

not adversely affect the safeguarding of

securities or funds in the custody or

control of those clearing agencies or for

which they are responsible and do not

significantly affect the respective rights

or obligations of the clearing agencies or

persons using the service. At any time

within sixty days of the filing of such

rule changes, the Commission may

summarily abrogate such rule changes if

it appears to the Commission that such

action is necessary or appropriate in the

public interest, for the protection of

investors, or otherwise in furtherance of

the purposes of the Act.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning the foregoing.

Persons making such submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, N.W.,

Washington, DC 20549. Copies of the

submission, all subsequent

amendments, all written statements

respecting the proposed rule changes

that are filed with the Commission, and

all written communications concerning

the proposed rule changes between the

Commission and any person, other than

those that may be withheld from the

public pursuant to the provisions of 5

U.S.C. 552, will be available for

inspection and copying in the

Commission’s Public Reference Section,

450 Fifth Street, N.W., Washington, DC

20549. Copies of the respective filings

will also be available for inspection and

copying at the principal offices of

PHILADEP and MSTC. All submissions

should refer to File Nos. SR–

PHILADEP–95–09 and SR–MSTC–95–

09 and should be submitted by

December 28, 1995.

For the Commission by the Division

of Market Regulation, pursuant to

delegated authority.10

Jonathan G. Katz,

Secretary.

[FR Doc. 95–29783 Filed 12–6–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–36541; File No. SR–Amex–

95–28]

Self-Regulatory Organizations;

American Stock Exchange, Inc.; Order

Granting Approval to Proposed Rule

Change Relating to Updates to the

Exchange’s Company Guide

November 30, 1995.

I. Introduction

On July 19, 1995, the American Stock

Exchange, Inc. (‘‘Amex’’ or ‘‘Exchange’’)

submitted to the Securities and

Exchange Commission (‘‘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 update various

sections of its Company Guide. On

September 28, 1995, the Exchange filed

Amendment No. 1 to the proposed rule

change.3

The proposed rule change, as

amended, was published for comment

in the Federal Register on October 10,

1995.4 No comments were received on

the proposal.

II. Description of the Proposal

The Exchange has proposed

amendments to several sections of the

Amex Company Guide in order to

conform it with recent changes to

comparable New York Stock Exchange

(‘‘NYSE’’) sections, to update certain

sections that contain provisions that are

no longer applicable, and to clarify

certain obligations contained in the

rules. As described more fully below,

the Exchange proposes to amend

sections of its Company Guide that

pertain to preferred stock, warrants,

conflicts of interest, original and annual

listing fees, the listing resolution,

‘‘backdoor’’ listings, fractional shares,

the listing agreement, interim reports,
62922 Federal Register / Vol. 60, No. 235 / Thursday, December 7, 1995 / Notices

5The Exchange also notes that such a change

would be consistent with Section 104 of the

Company Guide because this section permits the

listing of convertible bonds and debentures so long

as the underlying issue into which the bond or

debenture is convertible is subject to last sale

reporting. See Securities Exchange Act Release No.

22714 (Dec. 20, 1985), 50 FR 51958.

6Under certain circumstances, this section

requires warrants to be split in the same proportion

as the underlying common stock.

7Section 902 contains guidelines that are

applicable to redeemable (callable) issues.

8The Exchange requires every listed company to

establish and maintain an audit committee that, at

the very least, is composed of a majority of

independent directors. Amex Company Guide

section 121.

9Securities Exchange Act Release No. 20767

(Mar. 20, 1984), 49 FR 11275 (approving File No.

SR–NYSE–83–11).

10See American Bar Association, Third-Party

Legal Opinion Report, Including the Legal Opinion

Accord, of the Section of Business Law, 47 Bus.

Law. 167 (Nov. 1991).

11The Exchange defines a ‘‘backdoor’’ listing as

any plan of acquisition, merger, or consolidation,

the net effect of which is that a listed company is

acquired by an unlisted company even though the

listed company is the nominal survivor. Amex

Company Guide section 341.

12Similarly, the fact that an issuer meets the

numerical guidelines does not necessarily mean

that its application will be approved.

legending requirements, and delisting

standards.

A. Preferred Stock

The Exchange proposes to amend

Section 103 to make it clear that the

numerical guidelines contained in this

section concerning aggregate market

value and price per share only apply to

publicly held shares. The Exchange also

proposes to amend Section 103 of the

Company Guide to provide that the

Amex will not consider listing any issue

of convertible preferred stock unless the

underlying security is subject to realtime last sale reporting. Currently, as a

general rule, convertible preferred stock

may be listed on the Exchange only if

the underlying security is listed on

either the Amex or the NYSE. The

Exchange believes this restriction is no

longer necessary because it was adopted

at a time when only the Amex and the

NYSE provided last sale reporting

information. Now, however, other

markets disseminate such information.5

B. Warrants

In order to simplify the listing

process, the Exchange proposes to

consolidate all of its listing guidelines

concerning warrants into Section 105,

add a paragraph to Section 105 that

requires an issuer to provide the Amex

with two months advance notice of any

extension of the expiration date of a

warrant issue, delete Section 508 of the

Company Guide 6 and incorporate it into

Section 105, and amend Section 105 to

reference the guidelines contained in

Section 902 of the Company Guide.7

C. Conflicts of Interest

The Exchange proposes to delete the

clause in Section 120 of the Company

Guide that authorizes the Exchange to

require a company to enter into a

special agreement designed to reduce

the possibility of abuse of a conflict of

interest situation. The Exchange

believes this provision is obsolete

because audit committees 8 are

responsible for reviewing transactions

presenting potential conflicts of interest

and, in practice, the Exchange no longer

utilizes these special agreements.

Moreover, the Exchange notes that the

NYSE did away with a similar provision

some time ago.9

D. Original and Annual Listing Fees

Currently, Section 140 of the

Company Guide specifies the original

listing fee for more than one million

shares and the fee for less than one

million shares, but does not specify the

fee for exactly one million shares. The

Exchange proposes to correct this

oversight by making it clear that the fee

for exactly one million shares is

$10,000. The Exchange also proposes to

make it clear that, according to Section

141 of the Company Guide, the annual

listing fee for a warrant issue is based

on the number of warrants issued, not

the number of shares underlying the

warrants.

E. Opinion of Counsel

The Exchange proposes to delete from

Section 213 of the Company Guide the

requirement that the opinion of counsel

address a prospect company’s

qualification to conduct business in

jurisdictions other than that of its state

of incorporation. In support of this, the

Exchange cites an ABA sponsored study

of third-party legal opinions that states

that an opinion concerning a

corporation’s qualification to do

business in jurisdictions other than that

of incorporation is generally not cost

effective or necessary.10 In addition, the

Exchange notes that the NYSE does not

have a similar requirement.

F. Listing Resolution

The Exchange proposes to delete from

Sections 213 and 330 the requirement

that a prospect company’s Board of

Directors provide the Exchange with a

listing resolution authorizing the filing

of the listing application. The Exchange

believes this requirement does not serve

any significant purpose and, essentially,

is ceremonial in nature.

G. ‘‘Backdoor’’ Listings

Currently, the literal language of

Section 341 of the Company Guide

indicates that the surviving entity of a

backdoor listing 11 transaction must

meet the Exchange’s original listing

guidelines in all respects. The Exchange

states, however, that it has been its

longstanding practice to evaluate a

backdoor listing on the same basis that

an original listing is reviewed. Among

other things, this allows the Exchange to

exercise its discretion to approve a

backdoor listing even though the

company does not meet all of the

Exchange’s numerical guidelines.12 The

Exchange proposes to make this section

consistent with the Exchange’s practice.

H. Fractional Shares

Very often when a company issues a

stock dividend, the issuer must settle

fractional share interests. The

Exchange’s current practice is to require

those companies that do not choose to

settle such interests with a cash

payment to round up to a full share in

payment for the fractional amount. The

Exchange reasons that if the issuer were

to round down, the shareholder would

be deprived of assets due him or her.

The Exchange proposes to make this

requirement explicit by inserting it into

Section 507 of the Company Guide.

I. Listing Agreement

In its present form, the Exchange’s

listing agreement specifies a number of

obligations that a listed company is

subject to by virtue of listing its

securities on the Amex. Most of these

obligations also are contained in various

sections of the Company Guide. In order

to eliminate redundancies and avoid

confusion, the Exchange proposes to

move to the Company Guide those

provisions that currently are contained

in the listing agreement, but are not

contained in the Company Guide. In

addition, the Exchange proposes to

amend its listing agreement to simply

state that the issuer agrees to comply

with all of the Exchange’s rules,

policies, and procedures that apply to

listed companies.

J. Interim Reports

The Exchange proposes to amend

Section 623 of the Company Guide to

advise companies that when they

choose to mail interim reports to

shareholders, they should send the

reports to both the record holders and

the beneficial owners. The Exchange

believes this change strikes an

appropriate balance between the benefit

of mailing these reports to both the

record holders and the beneficial

owners against the high cost of
Federal Register / Vol. 60, No. 235 / Thursday, December 7, 1995 / Notices 62923

13Securities Exchange Act Release No. 35373

(Feb. 14, 1995), 60 FR 9709 (approving File No. SR–

NYSE–94–42).

14 15 U.S.C. 77e.

15This change in practice is in accordance with

recommendations for increased safety and

soundness in the securities industry made by the

Bachmann Task Force. See Bachmann Task Force,

Report of the Bachmann Task Force on Clearance

and Settlement Reform in the U.S. Securities

Markets 24–26 (May 1992) (recommending the

reduction in use of physical certificates).

16Section 1003 of the Company Guide provides,

in pertinent part, that the Exchange normally will

consider delisting a security ‘‘if the total number of

round lot shareholders of record is less than 300

* * *.’’ (Emphasis added).

17This term would include both shareholders of

record and beneficial holders, but exclude officers,

directors, controlling shareholders, and other

concentrated (i.e., 5% or greater), affiliated, or

family holdings. In addition, the Exchange proposes

to make conforming changes to sections 102, 103,

105, 106, 107, 110, and 118. 18 15 U.S.C. 78f(b)(5).

19See Letter from Claudia Crowley, Special

Counsel, Legal & Regulatory Policy, Amex, to Glen

Barrentine, Senior Counsel, SEC (Oct. 18, 1995).

20 15 U.S.C. 78s(b)(2).

21 17 CFR 200.30–3(a)(12).

mandating such action. In support of

this rule change, the Exchange notes

that the NYSE previously made a

similar change to its rules.13

K. Legending Requirements

Currently, Section 980 of the

Company Guide requires that listed

securities issued in reliance upon an

exemption from the registration

requirements of Section 5 of the

Securities Act of 1933 14 bear a legend

specifying that sale or transfer

restrictions apply to such securities. The

Exchange proposes to delete this

requirement. The Exchange states

issuers have complained that the

Exchange requirement may be

unnecessary and, in some instances,

more restrictive than the applicable

laws. In addition, the Amex notes that

the NYSE does not impose an

independent legending requirement on

its listed companies.

L. Delisting Standards

Because more brokerage firms are

holding securities for their customers in

‘‘street name,’’ and fewer customers are

demanding physical delivery of their

securities,15 the proportion of beneficial

holders to record holders has increased

dramatically in recent years.

Accordingly, companies are less likely

to meet the Exchange’s maintenance

standards concerning the total number

of round lot shareholders of record. As

a result, certain companies that have

well over 300 round lot beneficial

shareholders could be subject to

delisting proceedings.16 In order to

address this situation, the Exchange

proposes to amend Section 1003 of the

Company Guide to refer to ‘‘public

shareholders’’ 17 instead of

‘‘shareholders of record.’’

III. Discussion

The Commission has reviewed the

Amex’s proposed rule changes carefully

and concludes that these proposed

changes are consistent with the

requirements of the Act and the rules

and regulations thereunder applicable to

a national securities exchange. In

particular, the Commission finds that

the amendments contained in this

proposal are consistent with the Section

6(b)(5) 18 requirements that the rules of

an exchange be designed to promote just

and equitable principles of trade, to

prevent fraudulent and manipulative

acts, and, in general, to protect investors

and the public; and are not designed to

permit unfair discrimination between

issuers.

The Commission supports the Amex’s

efforts to continue to review the form

and substance of its listed company

regulations in response to changes in

market structure and eliminate

requirements that no longer serve a

meaningful regulatory purpose. In this

regard, the changes to the listing

process, such as eliminating the

requirement for a Board resolution

authorizing the submission of a listing

application, should make the listing

process easier for issuers without raising

any regulatory concerns. The

Commission also believes the proposed

rule changes should be helpful in

updating the Amex’s listed company

rules, should facilitate transactions in

securities, should clarify certain

obligations contained in the rules and,

in general, further the purposes of the

Act. Finally, although the Commission

has certain concerns regarding the

amendments to backdoor listings,

delisting standards, and convertible

preferred stock, for the reasons

discussed below, we believe these

provisions should be approved.

First, according to the Amex, the

changes to the backdoor listing

standards will provide the Exchange

with the same flexibility it currently has

in evaluating original listing

applications. Although the Commission

is approving the Exchange’s more liberal

language concerning backdoor listings,

we believe that, as a general matter,

listed companies should meet the

Exchange’s numerical and other listing

guidelines. To the extent certain

flexibility in applying listing standards

may occasionally be needed, the

Commission expects the Exchange to

exercise its discretion conservatively

when granting an exception to these

standards. Moreover, when the

Exchange chooses to make an exception

to its stated listing standards, the

Commission expects the Exchange to

have procedures in place that

adequately document and provide

sufficient analysis as to why it is making

such an exception and which factors it

considered pertinent.

Second, the proposed amendment to

the Exchange’s delisting standards

concerning the total number of round

lot shareholders is a reasonable

response to changing market conditions.

In approving this amendment, however,

the Commission understands the

Exchange will have certain procedures

in place to verify the total number of

round lot beneficial holders. In this

regard, the Exchange has represented to

the Commission that if Item 5 of a listed

company’s Form 10K reflects that there

are less than 300 record holders, the

Corporate Relations Manager assigned to

this company will ask the company to

provide confirmation of the number of

beneficial holders.19 The Commission

believes these procedures will help

ensure that listed companies continue to

meet the minimum shareholder

requirements for continued listing.

Finally, in approving the changes to

Section 103 that would permit the

listing of convertible preferred stock

where the underlying security is subject

to real-time last sale reporting, the

Commission expects the Amex, where

appropriate, to ensure that the

underlying security is generally

consistent with the Exchange’s common

stock listing guidelines. This would be

particularly expected in cases where the

convertible preferred could act as a

surrogate for trading in the underlying

common stock (i.e., the preferred stock

is structured in a way to trade as a

surrogate for the common stock and

represents a substantial portion of the

outstanding underlying common stock).

It therefore is ordered, pursuant to

Section 19(b)(2) of the Act,20 that the

amended proposed rule change (SR–

Amex–95–28) is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.21

Jonathan G. Katz,

Secretary.

[FR Doc. 95–29784 Filed 12–6–95; 8:45 am]

BILLING CODE 8010–01–M