[Federal Register Volume 61, Number 98 (Monday, May 20, 1996)]
[Notices]
[Pages 25257-25258]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-12596]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37211; International Series Release No. 978; File No. 
SR-NYSE-96-05]


Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Order Granting Approval to Proposed Rule Change Relating to Listing 
Standards

May 14, 1996.
    On March 18, 1996, 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 that would permit companies 
domiciled in Canada, Mexico, and the United States (``North America'') 
\3\ to include holders and trading volume in North America toward 
meeting the stockholder and trading volume requirements for listing on 
the Exchange pursuant to the domestic listing criteria.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ For purposes of this rule, a company is ``domiciled'' in the 
country under the laws of which it is organized.
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    The proposed rule change was published for comment in Securities 
Exchange Act Release No. 37055 (Apr. 1, 1996), 61 FR 15546 (Apr. 8, 
1996). No comments were received on the proposal.
    Under the current NYSE rules, companies applying to list on the 
Exchange must meet the applicable listing criteria. For equity 
listings, there are two different standards: domestic criteria, which 
are available to all companies, (``domestic standards'') and criteria 
available solely to non-U.S. companies (``worldwide standards''). Non-
U.S. companies may elect to qualify for listing under the Exchange's 
domestic numerical standards or worldwide numerical standards. Non-U.S. 
companies, however, must meet all of the criteria within the standard 
under which they seek to qualify for listing.
    Paragraph 102.01 of the NYSE's Listed Company Manual (``Manual'') 
sets forth the standards for domestic companies that want to list their 
equity securities on the Exchange. These standards require applicants 
to satisfy certain minimum numerical criteria.\4\ Under these 
requirements for listing, the company must have, among things, (a) 
2,000 round-lot holders; (b) 2,200 total stockholders, together with an 
average monthly trading volume of 100,000 shares for the most recent 
six months; or (c) 500 total stockholders, together with an average 
monthly trading volume of 1,000,000 shares for the most recent 12 
months.\5\ The domestic criteria require that these standards be met 
only through holders and trading volume occurring in the U.S.
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    \4\ In deciding whether to approve the listing of an equity 
security, the NYSE also takes qualitative factors into 
consideration. These factors include whether the company is a going 
concern or a successor thereto, the degree of national interest in 
the company, the character of the market for its products, its 
relative stability and position in its industry.
    \5\ In determining the number of holders for the above 
distribution standards, the NYSE considers both beneficial and 
record owners.
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    The Exchange proposes to amend these initial listing standards to 
provide that for listing applications from North American companies the 
Exchange will include all North American holders and North American 
trading volume in applying the minimum stockholder and trading volume 
requirements in Paragraph 102.01 of the Manual. The Exchange believes 
that with continuing integration of the North American market, this 
market should be viewed as a whole in reviewing a company's eligibility 
for listing. Moreover, the Exchange believes that this will foster 
internationalization of the securities markets by enhancing the access 
of U.S. investors to the trading of Canadian and Mexican securities.
    Pursuant to the proposed rule change, the Exchange would look at 
the number of beneficial holders resident in North America in applying 
the initial listing criteria of Paragraph 102.01 to North American 
companies. In computing trading volume, the Exchange will look to the 
reported volume (i) on U.S. stock exchanges, (ii) in the U.S. over-the-
counter market, and (iii) on Canadian or Mexican stock exchanges.\6\ 
The total volume reported from these sources must satisfy the NYSE's 
initial listing standards. For American Depositary Receipts (``ADRs'') 
to be listed on the NYSE, volume in the ordinary shares would be 
adjusted to be on an ADR-equivalent basis.\7\ Finally, the proposed 
rule change would make conforming changes to Paragraph 103.00 of the 
Manual, which establishes alternate initial listing criteria for non-
U.S. companies.
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    \6\ According to the NYSE, the NYSE would consider an 
``exchange'' to be a trading market that is regulated as a stock 
exchange by home-country regulators. The NYSE believes that the 
Bolsa Mexicana de valores is the only market in Mexico that would be 
considered an ``exchange'' for this purpose. In Canada, the NYSE 
believes that there currently are five stock exchanges that satisfy 
this test: The Montreal Exchange and the Toronto, Vancouver, 
Winnipeg, and Alberta Stock Exchanges. See letter from Michael J. 
Simons, Milbank, Tweed, Hadley & McCloy, to Glen Barrentine, Senior 
Counsel, Division of Market Regulation, SEC, dated April 1, 1996.
    \7\ For example, assume that a Mexican company has ADRs trading 
in the United States and ordinary shares trading in Mexico, with 
each ADR representing 10 ordinary shares. If the company were to 
apply to list its U.S.-traded ADRs on the NYSE, the Exchange would 
divide the Mexican share volume by 10 in determining whether the 
combined ADR/share volume meets the requirements of the listing 
criteria. For Companies that have multiple series of shares or ADR's 
the Exchange will include the volume only in the specific ordinary 
shares and overlying ADRs that would be listed on the exchange.
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    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, with the

[[Page 25258]]

requirements of Section 6(b).\8\ Specifically, the Commission believes 
the proposal is consistent with the Section 6(b)(5) 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 pubic interest; and are not 
designed to permit unfair discrimination between issuers.
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    \8\ 15 U.S.C. 78f(b).
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    The development and enforcement of adequate standards governing the 
initial and continued listing of securities on an exchange is an 
activity of critical of critical importance to financial markets and 
the investing public. Listing standards serve as a means for an 
exchange to screen issuers and to provide listed status only to bona 
fide companies with sufficient public float, investor base, and trading 
interest to ensure that the market for a company's stock has the depth 
and liquidity necessary to maintain fair and orderly markets. Adequate 
standards are especially important given the expectations of investors 
regarding exchange trading and the imprimatur of listing on a 
particular market.
    For the reasons set forth below, the Commission believes that the 
proposed rule change will provide the NYSE with greater flexibility in 
determining which equity securities warrant inclusion in its market, 
without compromising the effectiveness of the Exchange's initial 
listing standards.
    The Commission believes that permitting North American companies to 
satisfy the stockholder and trading volume requirements of the 
Exchange's domestic initial listing standards by including the holders 
and trading volume in North America is not inconsistent with the 
purposes of the Act. With efforts such as the North American Free Trade 
Agreement (``NAFTA''), North America increasingly is becoming an 
integrated market place, and companies and investors are able to obtain 
easier access to markets across borders. There is active interest by 
U.S. investors in these markets, and Mexican and Canadian issues are 
actively traded on the Exchange.
    The Commission believes that this amendment to the initial listing 
standards may assist companies domiciled in Canada and Mexico and U.S. 
companies with a significant presence in those countries to gain 
admittance to the NYSE and may promote greater investment opportunities 
across borders in North America. Therefore, the Commission believes 
that it is not unreasonable to consider the holders and trading volume 
in all three countries for purposes of reviewing a company's 
application to list under the domestic initial listing standards on the 
NYSE.
    Moreover, the Commission believes that the NYSE is appropriately 
looking only to the reported volume on the Canadian and Mexican stock 
exchanges in addition to the reported volume on the U.S. stock 
exchanges and in the U.S. over-the-counter market to calculate trading 
volume.\9\ The Commission believes that the reported volume from these 
non-U.S. exchanges is sufficiently reliable for purposes of determining 
a company's listing eligibility. Finally, for ADRs, the Exchange will 
adjust the volume in the ordinary shares to an ADR-equivalent basis for 
calculating trading volume for purposes of determining eligibility.\10\ 
The Commission believes that this adjustment will more accurately 
reflect the price of the instrument trading on the NYSE because the 
price of each share trading in Canada or Mexico may be a fraction of 
the ADR.
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    \9\ If the NYSE were to decide to include trading data from 
other sources, the NYSE would need to file a proposed rule change 
with the Commission pursuant to Section 19(b) of the Act.
    \10\ See supra note 7.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-NYSE-96-05) is approved.

    \11\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-12596 Filed 5-17-96; 8:45 am]
BILLING CODE 8010-01-M