Document ID: SEC-2007-1086-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: New York Stock Exchange LLC
Posted Date: 2007-08-09T04:00Z

[Federal Register: August 9, 2007 (Volume 72, Number 153)]
[Notices]               
[Page 44904-44906]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09au07-115]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56195; File No. SR-NYSE-2007-71]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to 
Exclude from Its Earnings Standard Gains or Losses From Extinguishment 
of Debt Prior to Maturity on a Six Month Pilot Basis

August 2, 2007.
    Pursuant to section 19(b)(1)\1\ of the Securities Exchange Act of 
1934 (the ``Exchange Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is 
hereby given that on July 27, 2007, the New York Stock Exchange LLC 
(the ``NYSE'' or the ``Exchange'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change as 
described in Items I and II below, which Items have been substantially 
prepared by the Exchange. The Exchange has designated the proposed rule 
change as a ``non-controversial'' rule change pursuant to section 
19(b)(3)(A) of the Act\4\ and Rule 19b-4(f)(6) thereunder,\5\ which 
renders the proposed rule change effective upon filing with the 
Commission. 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\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the earnings standard of section 
102.01C(I) of the Exchange's Listed Company Manual (the ``Manual'') on 
a six-month pilot program basis. 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 text of the 
proposed rule change is available on the Exchange's Web site (http://www.nyse.com
), at the Exchange's Office of the Secretary, and at 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 Exchange 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 Exchange 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 on a six-month pilot

[[Page 44905]]

program basis (the ``Pilot Program''). 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.
    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 non-cash in nature, and, 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 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 non-recurring in nature. Additionally, 
the Exchange notes 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.
2. Statutory Basis
    The basis under the Exchange Act for this proposed rule change is 
the requirement under Section 6(b)(5)\6\ that an exchange have rules 
that are designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to remove 
impediments to, and perfect the mechanism of a free and open market 
and, in general, to protect investors and the public interest.
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    \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

    Because the proposed rule change: (i) Does not significantly affect 
the protection of investors or the public interest; (ii) does not 
impose any significant burden on competition; and (iii) does not become 
operative for 30 days after the date of the filing, or such shorter 
time as the Commission may designate if consistent with the protection 
of investors and the public interest, the proposed rule change has 
become effective pursuant to section 19(b)(3)(A) of the Act \7\ and 
Rule 19b-4(f)(6) thereunder.\8\
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6). Pursuant to Rule 19b-4(f)(6)(iii) 
under the Act, the Exchange is required to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied the five-day pre-filing requirement.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \9\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \10\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has requested that the Commission waive the 30-day operative delay. The 
Commission hereby grants the request.\11\ The Commission believes that 
waiving the 30-day operative delay is consistent with the protection of 
investors and the public interest because the proposed rule change is 
consistent with other adjustments the Exchange makes when evaluating 
applicants on a forward-looking, post-IPO basis under the existing 
earnings standard in section 102.01C(I) of the Listed Company Manual, 
and the proposal will take effect as a Pilot Program, allowing the 
Commission to evaluate the suitability of the proposal during the pilot 
period.
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    \9\ 17 CFR 240.19b-4(f)(6).
    \10\ 17 CFR 240.19b-4(f)(6)(iii).
    \11\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate the rule change 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, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or     Send an e-mail to rule-comments@sec.gov. Please include 

File Number SR-NYSE-2007-71 on the subject line.

[[Page 44906]]

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSE-2007-71. 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, 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-2007-71 and should be submitted on or before August 30, 2007.

    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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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-15546 Filed 8-8-07; 8:45 am]

BILLING CODE 8010-01-P