[Federal Register Volume 73, Number 151 (Tuesday, August 5, 2008)]
[Notices]
[Pages 45511-45512]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-17892]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58254; File No. SR-NYSE-2008-58]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change To Make Permanent a Pilot 
Program Under Which the Exchange Excludes From Its Earnings Standard 
Gains or Losses From Extinguishment of Debt Prior to Maturity

July 30, 2008.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is 
hereby given that on July 22, 2008, New York Stock Exchange LLC (the 
``NYSE'' or the ``Exchange'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule changes as described 
in Items I, II, and III below, which items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule changes from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to adopt on a permanent basis an amendment to 
the earnings standard of section 102.01C(I) of the Exchange's Listed 
Company Manual (the ``Manual'') which is currently in force pursuant to 
a pilot program (the ``Pilot Program''). The amendment will enable the 
Exchange to adjust the earnings of companies listing in conjunction 
with an IPO by reversing the income statement effects for all periods 
of changes in fair value of financial instruments classified as a 
liability recorded by the company in earnings, provided such financial 
instrument is either being redeemed with the proceeds of an offering 
occurring in conjunction with the listing or converted into or 
exercised for common stock of the company at the time of listing.
    The text of the proposed rule change is available at http://www.nyse.com, the NYSE, and the Commission's Public Reference Room.

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 NYSE 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 Exchange proposes to amend the earnings standard of section 
102.01C(I) of the Manual. The amendment will enable the Exchange to 
adjust the earnings of companies for purposes of its pre-tax earnings 
standard by excluding gains or losses recognized in connection with the 
extinguishment of debt prior to its maturity. The adjustment will 
relate only to gains or losses incurred in the three-year period under 
examination for purposes of the earnings standard. The proposed 
amendment was originally implemented for a six-month period as a Pilot 
Program.\3\ The Pilot Program expired and was subsequently renewed for 
an additional three months, expiring on September 2, 2008.\4\
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    \3\ See Exchange Act Release No. 55974 (July 6, 2007), 72 FR 
37067 (June 28, 2007) (SR-NYSE-2007-52). [sic]
    \4\ See Exchange Act Release No. 57903 (June 2, 2008), 73 FR 
32610 (June 9, 2008) (SR-NYSE-2008-43).
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    Prior to the promulgation of Statement of Financial Accounting 
Standards No. 145 (``SFAS No. 145'') in 2002, Financial Accounting 
Standards Board Statement No. 4 (``FASB No. 4'') required that gains 
and losses from the extinguishment of debt prior to its maturity that 
were included in the determination of net income be aggregated and, if 
material, classified as an extraordinary item, net of related income 
tax effect. SFAS No. 145 rescinded FASB No. 4 and, as a result, gains 
or losses in connection with the extinguishment of debt prior to its 
maturity are now generally included in the calculation of operating 
earnings under generally accepted accounting principles (``GAAP''). As 
a result, some companies that would not otherwise be qualified to list 
may qualify as a result of the inclusion in pre-tax income of gains 
from the extinguishment of debt prior to its maturity. In addition, 
some prospective listed companies whose operating earnings would have 
met the requirements of the Exchange's pre-tax earnings test prior to 
2002 are now not qualified to list as they are required to include 
losses from the extinguishment of debt prior to its maturity in pre-tax 
income. In the Exchange's experience, these gains and losses are 
primarily noncash in nature. The gains generally represent the 
accelerated accrual of original issue discount, while the losses 
generally represent the remaining unamortized portion of costs incurred 
at the time of initial borrowing.
    The Exchange believes that it is appropriate to return to its pre-
2002 approach of excluding gains and losses from debt extinguishment 
from pre-tax earnings as calculated for purposes of its earnings 
standard. The purpose of the earnings standard is to determine the 
suitability for listing of companies on a

[[Page 45512]]

forward-looking basis in light of a sustained demonstration of strong 
earnings. As such, the Exchange does not believe that it is relevant to 
include in pre-tax earnings gains and losses from the extinguishment of 
debt prior to its maturity that are principally nonrecurring in nature. 
Additionally, we note that the analyst community also routinely exclude 
these gains and losses from their analyses in making recommendations as 
to the desirability of investing in companies' publicly-traded equity 
securities. The Exchange believes that adjusting company earnings for 
gains and losses from the extinguishment of debt prior to its maturity 
is consistent with the adjustments that are currently permitted under 
Section 102.01C for a number of other nonrecurring charges to earnings 
that are included in net income as recorded under GAAP, such as the 
exclusion of impairment charges on long-lived assets, the exclusion of 
gains and losses on sales of a subsidiary's or investee's stock and the 
exclusion of in-process purchased research and development charges. The 
Exchange also believes that this adjustment is reasonable given the 
purpose of the earnings standard, which is to determine the suitability 
for listing of companies on a forward-looking basis.
    As with all companies listed on the Exchange, the Financial 
Compliance staff of NYSE Regulation, Inc. will monitor on an ongoing 
basis the compliance with the Exchange's continued listing standards of 
any companies listed in reliance upon the proposed amendment. Such 
companies will be subject to delisting if they are found at any time to 
be below the Exchange's continued listing standards.
    As the Exchange gains experience in listing companies in reliance 
upon the proposed amendment, we will continue to carefully reevaluate 
its appropriateness. If we become aware that companies listed pursuant 
to the proposed amendment have difficulty complying with our continued 
listing standards, we will inform the Commission and discuss with the 
Commission the desirability of the continued use of the provision.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) \5\ of the Exchange Act, in general, and furthers the 
objectives of section 6(b)(5) of the Exchange Act,\6\ in particular, in 
that it is designed to promote just and equitable principles of trade, 
to foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in securities, to remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest. The Exchange believes that the proposed amendment is 
consistent with the investor protection objectives of the Exchange Act 
in that it provides for an adjustment to listing applicants' historical 
financial results that is consistent with other adjustments already 
permitted under the Exchange's earnings standard and is reasonable 
given the purpose of the earnings standard, which is to determine the 
suitability for listing of companies on a forward-looking basis.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Exchange Act.

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

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer 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, including whether the proposed rule 
change is consistent with the Exchange Act. Comments may be submitted 
by any of the following methods:

Electronic Comments

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an e-mail to <a href="/cdn-cgi/l/email-protection#82f0f7eee7afe1edefefe7ecf6f1c2f1e7e1ace5edf4"><span class="__cf_email__" data-cfemail="4133342d246c222e2c2c242f3532013224226f262e37">[email protected]</span></a>. Please include 
File Number SR-NYSE-2008-58 on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSE-2008-58. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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 communications 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 in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSE-2008-58 and should be 
submitted on or before August 26, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-17892 Filed 8-4-08; 8:45 am]
BILLING CODE 8010-01-P


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