Document ID: SEC-2014-1683-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2014-10-06T04:00Z

[Federal Register Volume 79, Number 193 (Monday, October 6, 2014)]
[Notices]
[Pages 60218-60221]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-23702]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73265; File No. SR-NYSE-2014-52]

Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Amending Section 102.01C of the NYSE Listed Company Manual To Adopt a 
New Global Market Capitalization Test Initial Listing Standard for 
Operating Companies and To Eliminate All of the Current Initial Listing 
Standards for Operating Companies Except the Earnings Test

September 30, 2014.

    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on September 19, 2014, New York Stock Exchange LLC (``NYSE'' or 
``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 prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change 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 amend Section 102.01C of the NYSE Listed 
Company Manual (the ``Manual'') to adopt a new initial listing standard 
for operating companies and to eliminate all of the current initial 
listing standards for operating companies with one exception. The text 
of the proposed rule change is available on the Exchange's Web site at 
www.nyse.com, at the principal office of the Exchange, and at the 
Commission's Public Reference Room.

[[Page 60219]]

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 those 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 parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The NYSE proposes to amend Section 102.01C of the Manual to adopt a 
new initial listing standard for operating companies and eliminate all 
of the current initial listing standards for operating companies with 
one exception.
    The Exchange proposes to amend Section 102.01C of the Manual to 
adopt a new initial listing standard for operating companies (the 
``Global Market Capitalization Test'') consisting solely of a 
requirement that the listing applicant must have a minimum total global 
market capitalization of $200 million at the time of initial 
listing.\3\ Companies listing under the Global Market Capitalization 
Test will also be required to meet the existing distribution 
requirements of Section 102.01A of the Manual and the stock price and 
market value of publicly-held shares requirements of Section 102.01B of 
the Manual.\4\ In connection with the adoption of the Global Market 
Capitalization Test, the Exchange proposes to eliminate the Valuation/
Revenue with Cash Flow Test, the Pure Valuation/Revenue Test, the 
Affiliated Company Test and the Assets and Equity Test. The Earnings 
Test will remain in effect.\5\
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    \3\ If a company is currently publicly traded at the time it 
applies to list on the Exchange and is being qualified for listing 
under the Global Market Capitalization Test, it will be required to 
meet the $200 million global market capitalization requirement for 
at least the 90 consecutive trading days immediately preceding the 
date on which it receives clearance to submit an application to list 
on the Exchange. The Commission notes a company which is currently 
publicly traded at the time it applies to list on the Exchange and 
is being qualified for listing under the Global Market 
Capitalization Test will also need to maintain a closing price of at 
least $4 per share for a period of at least 90 consecutive trading 
days prior to receipt of clearance to make application to list on 
the Exchange. See proposed NYSE Manual Section 102.01C(II)**.
    \4\ All operating companies listing on the NYSE are required by 
Section 102.01B of the Manual to have a stock price of at least $4 
per share at the time of listing, which the Exchange notes is 
identical to the comparable requirement for listing on the Nasdaq 
Global Market. Companies listing in connection with an IPO or upon 
emergence from bankruptcy are required by Section 102.01A of the 
Manual to have 400 holders of round lots of their common stock and 
1.1 million publicly-held shares at the time of initial listing. 
Companies listing in connection with a transfer or quotation are 
required by Section 102.01A of the Manual to have 1.1 million 
publicly-held shares and either: (i) 400 holders of round lots; (ii) 
2,200 total stockholders together with average monthly trading 
volume of 100,000 shares (for the most recent six months); or (iii) 
500 total stockholders together with average monthly trading volume 
of one million shares (for the most recent 12 months). The Exchange 
notes that these requirements are at least as stringent as the 
parallel requirement for listing on the Nasdaq Global Market that an 
applicant must have 400 round lot holders plus 1.1 million publicly-
held shares. Section 102.01B of the Manual provides that any company 
listing in connection with an IPO or a spin-off must have $40 
million in market value of publicly-held shares at the time of 
initial listing and requires all other applicants to have $100 
million in market value of publicly-held shares. The Exchange notes 
that these requirements are significantly higher than the comparable 
requirements for listing under any of the Nasdaq Global Market 
initial listing standards. For example, under the various initial 
listing standards set forth in Nasdaq Marketplace Rule 5405(b), the 
highest market value of publicly-held shares that an issuer is 
required to demonstrate is $20 million.
    \5\ Pursuant to Section 102.01C of the Manual, a company can 
qualify for initial listing under the Earnings Test if it can 
demonstrate that it has pre-tax earnings from continuing operations, 
as adjusted, of (i) at least $10,000,000 in the aggregate for the 
last three fiscal years together with a minimum of $2,000,000 in 
each of the two most recent fiscal years, and positive amounts in 
all three years or (ii) at least $12,000,000 in the aggregate for 
the last three fiscal years together with a minimum of $5,000,000 in 
the most recent fiscal year and $2,000,000 in the next most recent 
fiscal year. A company that qualifies as an emerging growth company 
as defined in Section 2(a)(19) of the Securities Act of 1933 and 
Section 3(a)(80) of the Act can qualify for initial listing under 
the Earnings Test if it can demonstrate that it has pre-tax earnings 
from continuing operations, as adjusted, of at least $10,000,000 in 
the aggregate for the last two fiscal years with a minimum of 
$2,000,000 in both years.
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    The Exchange currently has five initial listing standards for 
operating companies: The Earnings Test; the Valuation/Revenue with Cash 
Flow Test; the Pure Valuation/Revenue Test; the Affiliated Company 
Test; and the Assets and Equity Test. All of these initial listing 
standards other than the Earnings Test include a global market 
capitalization requirement component ($500 million for the Valuation/
Revenue with Cash Flow Test; $750 million for the Pure Valuation/
Revenue Test; $500 million for the Affiliated Company Test; and $150 
million for the Assets and Equity Test). Because the Global Market 
Capitalization Test that the Exchange proposes to adopt will require 
only a minimum total global market capitalization of $200 million at 
the time of initial listing, the Exchange proposes to eliminate the 
Valuation/Revenue with Cash Flow Test, the Pure Valuation/Revenue Test, 
the Affiliated Company Test and the Assets and Equity Test as they 
require an issuer to demonstrate a global market capitalization of more 
than $200 million and would therefore no longer be relevant.
    In recent times, a number of companies have successfully completed 
sizable initial public offerings but have not qualified for listing on 
the NYSE. Typically, these companies are involved solely or primarily 
in research and development (``r&d'') activities at the time of their 
IPO and are raising funds in the IPO to continue their research. As 
these companies are not at a stage in their development where they are 
generating revenue, they do not qualify to list under the current 
initial listing standards that include requirements that are more 
suitable to companies that generate revenue (i.e., the Earnings Test, 
the Valuation/Revenue with Cash Flow Test, and the Pure Valuation/
Revenue Test). Many of these companies also do not have any appreciable 
amount of stockholders' equity at the time of their IPOs and they 
therefore are unable to meet the $50 million stockholders' equity 
requirement of the Assets and Equity Test. Consequently, a company of 
this type may be able to raise a significant amount of capital in an 
IPO and not meet any of the current NYSE initial listing standards. 
However, these companies are not precluded from listing on Nasdaq as 
the Nasdaq Global Market has a listing standard that permits the 
qualification of a company solely on the basis of a total market 
capitalization of $75 million \6\ (in addition to the stock price, 
distribution, and market value of publicly-held shares requirements 
discussed in Footnote 5 above).\7\ The NYSE wishes to adopt the 
proposed new Global Market Capitalization Test to address this 
competitive disadvantage it faces in competing with Nasdaq for the 
listing of these r&d-focused companies.
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    \6\ See Nasdaq Marketplace Rule 5405(b)(3).
    \7\ See, supra, Footnote 4 for a discussion of the stock price, 
distribution, and market value of publicly-held shares requirements 
of the Nasdaq Global Market.
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    The Exchange believes that by setting its market capitalization 
requirement under the proposed new standard at $200 million (more than 
twice the $75 million required by the comparable Nasdaq Global Market 
standard) it will ensure that companies listed under the new standard 
will be of a size that

[[Page 60220]]

makes them suitable for trading on the Exchange. The Exchange believes 
that the substantial size of companies seeking to list under the 
proposed Global Market Capitalization Test in combination with the 
Exchange's aforementioned stock price, distribution, and market-value 
of publicly-held shares requirements will ensure that the Exchange 
provides listed status only to bona fide companies that have or, in the 
case of an IPO, will have sufficient public float, investor base, and 
trading interest to provide the depth and liquidity necessary to 
promote fair and orderly markets. The Exchange notes that it has 
reviewed the IPOs that listed on Nasdaq over the last few years and 
that only a small number of those that were not qualified for listing 
on the NYSE would have been eligible for an NYSE listing under the 
proposed new standard. As such, the Exchange does not anticipate a 
significant increase in the number of qualified IPOs as a result of the 
proposed new standard and does not anticipate any meaningful reduction 
in the size and quality of companies listing on the Exchange as a 
consequence of the adoption of the proposed new standard.
    As with all other listing applicants, the Exchange reserves the 
right to deny listing to any company seeking to list under the Global 
Market Capitalization Test if the Exchange determines that the listing 
of any such company is inadvisable or unwarranted in the opinion of the 
Exchange. Similarly, as with all companies applying to list on the 
Exchange, in determining the suitability for listing of any company 
seeking to list under the Global Market Capitalization Test, the staff 
of NYSE Regulation will carefully review the company's financial 
statements and its disclosures in its public filings, as well as 
conducting a background review of the company's officers, directors and 
significant shareholders. In particular, staff will review whether any 
company listing under the Global Market Capitalization Test has access 
to sufficient funds to carry out its business strategy as disclosed. As 
a consequence of its ability to consider these and other factors in 
addition to the market capitalization and other numerical requirements, 
the Exchange believes that it will be able to exercise informed 
discretion in listing companies under the proposed standard and that 
the adoption of the proposed standard is therefore consistent with the 
protection of investors. In reaching this conclusion, the Exchange also 
relied on the fact that the Nasdaq Global Market has been applying 
initial listing standards that are less stringent than the proposed 
Global Market Capitalization Test for a significant period of time and 
there is consequently a great deal of experience that demonstrates that 
companies listing under these lower standards are suitable for listing 
on a national securities exchange.
    The Exchange's listing standards after adoption of the proposed 
Global Market Capitalization Test will exceed those established by 
Exchange Act Rule 3a51-1(a)(2) (the ``Penny Stock Rule'').\8\ 
Specifically, the Exchange notes that the $200 million total market 
capitalization required by the proposed standard far exceeds the $50 
million total market capitalization option of the Penny Stock Rule. 
While, in the case of newly-public companies, this requirement in the 
proposed standard would be measured at a point in time rather than over 
a 90 consecutive day period prior to listing as provided in the Penny 
Stock Rule, the Exchange believes that the far greater amount required 
by the proposed standard makes it a far more stringent standard than 
that of the Penny Stock Rule notwithstanding the different approach to 
measurement.\9\ Further, Nasdaq currently has an initial listing 
standard that requires that a company only demonstrate a total market 
capitalization of $75 million.\10\ In addition, the Exchange requires 
all initial listings, regardless of which standard they are listed 
under, to meet the stock price, distribution and market value of 
publicly-held shares requirements described in Footnote 5 above, all of 
which meet or exceed all of the Penny Stock Rule's remaining 
requirements. Companies listing under the Global Market Capitalization 
Test will also have to comply with all other applicable Exchange 
listing rules, including the Exchange's corporate governance 
requirements. The Exchange's continued listing standard set forth in 
Section 802.01B of the Manual that requires a listed company to 
maintain an average global market capitalization over a consecutive 30 
trading-day period of at least $50,000,000 or stockholders' equity of 
at least $50,000,000 in order to remain in compliance with Exchange 
rules will be applicable to companies that list under the Global Market 
Capitalization Test.
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    \8\ 17 CFR 240.[sic]a51-1(a)(ii).
    \9\ The Exchange notes, however, that current publicly-traded 
companies seeking to list on the Exchange under the proposed Global 
Market Capitalization Test will be required to (i) demonstrate the 
proposed market capitalization for a period of at least 90 
consecutive trading days prior to receipt of clearance to make 
application to list on the Exchange and (ii) maintain a closing 
price of at least $4 per share for a period of at least 90 
consecutive trading days prior to receipt of clearance to make 
application to list on the Exchange.
    \10\ Further, the Exchange has reviewed the initial listing 
standards of the American Stock Exchange (the ``Amex'') as in effect 
at the time of the adoption of the National Securities Market 
Improvement Act of 1996 (``NSMIA'') and notes that the Amex had an 
initial listing standard at that time permitting the listing of a 
company that had $15 million in market capitalization, $4 million in 
stockholders' equity and three years of operating history. While the 
proposed Global Market Capitalization Standard does not include any 
stockholders' equity or operating history requirements, its $200 
million market capitalization requirement is far greater than the 
$15 million required by the Amex standard in effect at the time of 
adoption of NSMIA. As such, the Exchange believes that the proposed 
Global Market Capitalization Test does not set a new low for a named 
market under NSMIA.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) \11\ of the Act, in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\12\ 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 to the initial 
listing standards is consistent with the investor protection objectives 
of Section 6(b)(5). The Exchange has reached this conclusion because: 
(i) As described in the ``Purpose'' section above, the Exchange will 
continue to consider factors other than an applicant's satisfaction of 
numerical criteria in exercising its discretion to list a company; and 
(ii) the Nasdaq Global Market has been applying initial listing 
standards that are less stringent than the proposed Global Market 
Capitalization Test for a significant period of time and there is 
consequently a great deal of experience that demonstrates that 
companies listing under these lower standards are suitable for listing 
on a national securities exchange. Further, the Exchange believes that 
the substantial size of companies seeking to list under the proposed 
Global Market Capitalization Test in combination with the Exchange's 
stock price, distribution, and market-value of publicly-held shares 
requirements will ensure that the Exchange provides listed status only 
to bona fide companies that have or, in the case of an IPO, will have 
sufficient public float, investor base, and trading

[[Page 60221]]

interest to provide the depth and liquidity necessary to promote fair 
and orderly markets.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 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 changes will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purpose of the Act. The proposed rule changes 
will expand the competition for the listing of equity securities of 
operating companies as they will enable the NYSE to compete for the 
listing of companies that are currently not qualified for listing on 
the NYSE but are qualified to list on other national securities 
exchanges.

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

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \13\ and Rule 19b-4(f)(6) thereunder.\14\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, 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 and Rule 19b-
4(f)(6)(iii) thereunder.\15\
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    \13\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ In addition, Rule 19b-4(f)(6)(iii) requires the Exchange to 
give the Commission written notice of the Exchange's 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 this 
requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \16\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\17\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest.
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    \16\ 17 CFR 240.19b-4(f)(6).
    \17\ 17 CFR 240.19b-4(f)(6)(iii).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such 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. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \18\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \18\ 15 U.S.C. 78s(b)(2)(B).
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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 email to rule-comments@sec.gov. Please include 
File Number SR-NYSE-2014-52 on the subject line.

Paper Comments

     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-NSYE-2014-52. This file 
number should be included on the subject line if email 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 Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such 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-2014-52 and should be 
submitted on or before October 27, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-23702 Filed 10-3-14; 8:45 am]
BILLING CODE 8011-01-P