[Federal Register Volume 60, Number 235 (Thursday, December 7, 1995)]
[Notices]
[Pages 62921-62923]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-29784]



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SECURITIES AND EXCHANGE COMMISSION
[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\

    \1\15 U.S.C. 78s(b)(1).
    \2\17 CFR 240.19b-4.
    \3\See Letter from Geraldine M. Brindisi, Vice President and 
Corporate Secretary, Amex, to Glen Barrentine, Senior Counsel/Team 
Leader, SEC (Sept. 28, 1995).
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    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.

    \4\Securities Exchange Act Release No. 36326 (Oct. 3, 1995), 60 
FR 52713.
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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certain sections that contain provisions that are no longer applicable, 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, 

[[Page 62922]]
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 real-time 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\

    \5\The 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.
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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\

    \6\Under certain circumstances, this section requires warrants 
to be split in the same proportion as the underlying common stock.
    \7\Section 902 contains guidelines that are applicable to 
redeemable (callable) issues.
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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\

    \8\The 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.
    \9\Securities Exchange Act Release No. 20767 (Mar. 20, 1984), 49 
FR 11275 (approving File No. SR-NYSE-83-11).
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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.

    \10\See 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).
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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.

    \11\The 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.
    \12\Similarly, the fact that an issuer meets the numerical 
guidelines does not necessarily mean that its application will be 
approved.
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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 

[[Page 62923]]
mandating such action. In support of this rule change, the Exchange 
notes that the NYSE previously made a similar change to its rules.\13\

    \13\Securities Exchange Act Release No. 35373 (Feb. 14, 1995), 
60 FR 9709 (approving File No. SR-NYSE-94-42).
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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.

    \14\15 U.S.C. 77e.
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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.''

    \15\This 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).
    \16\Section 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).
    \17\This 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.
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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.

    \18\15 U.S.C. 78f(b)(5).
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    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.

    \19\See Letter from Claudia Crowley, Special Counsel, Legal & 
Regulatory Policy, Amex, to Glen Barrentine, Senior Counsel, SEC 
(Oct. 18, 1995).
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    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.

    \20\15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\21\

    \21\17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 95-29784 Filed 12-6-95; 8:45 am]
BILLING CODE 8010-01-M