Document ID: SEC-2007-0910-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: New York Stock Exchange LLC
Posted Date: 2007-07-06T04:00Z

[Federal Register: July 6, 2007 (Volume 72, Number 129)]
[Notices]               
[Page 37067-37069]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06jy07-118]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55974; File No. SR-NYSE-2007-52]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to 
Exclude Interest Expense on Financial Instruments Classified Under GAAP 
as Liabilities From the Exchange's Earnings Standard

June 28, 2007.
    Pursuant to Section 19(b)(1)\1\ of the Securities Act of 1934 (the 
``Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is hereby given that 
on June 11, 2007, New York Stock Exchange LLC (the ``NYSE'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule changes as described in 
Items I and II below, which items have been substantially 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\ 15 U.S.C. 78a.
    \3\ 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 the earnings standard of Section 
102.01C(I) of the Exchange's Listed Company Manual (the ``Manual''). 
The amendment will enable the Exchange to adjust companies'' earnings 
for purposes of the earnings standard to exclude actual historical 
interest expense paid on financial instruments classified as 
liabilities under generally accepted accounting principles (``GAAP'') 
that are either retired with the proceeds of an offering occurring in 
conjunction with the listing or converted into common stock in 
conjunction with the company's initial public offering (``IPO'') at the 
time of listing. 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 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 listing in conjunction with an IPO by 
excluding actual historical interest expense paid on financial 
instruments classified as liabilities under GAAP that are either 
retired with the proceeds of an offering occurring in conjunction with 
the listing or converted into common stock in conjunction with the 
company's IPO at the time of listing.
    Nonpublic companies engaging in pre-IPO financings often raise 
capital through the sale of preferred stock. Preferred stock is also 
sometimes issued by pre-IPO companies to service providers in lieu of 
cash compensation. At the time of the company's IPO, the preferred 
stock may be converted into common stock. Companies may also redeem 
some or all of the outstanding preferred stock with a portion of the 
proceeds from the IPO.
    Section 102.01C(I) currently provides that a company's historical 
earnings may be adjusted for purposes of the earnings standard to 
reflect the elimination of the actual historical interest on debt 
retired with offering proceeds. If the event giving rise to the 
adjustment occurred during a time period such that pro forma amounts 
are not set forth in the SEC registration statement, the company must 
prepare the relevant adjusted financial data to reflect the adjustment 
to its historical financial data, and its outside audit firm must 
provide a report of having applied agreed-upon procedures with respect 
to such adjustments. Such report must be prepared in accordance with 
the standards established by the American Institute of Certified Public 
Accountants. Preferred stock generally entitles the holders to the 
payment of regular dividends. Prior to the adoption of FASB Statement 
No. 150, many companies treated accreted dividends on preferred stock 
as a charge to stockholders' equity. Under FASB

[[Page 37068]]

Statement No. 150, companies are now required to treat certain 
preferred stock as a liability and, accordingly, any dividends accrued 
or paid on such preferred stock are treated as interest expense on the 
income statement. The Exchange believes that it is appropriate to allow 
the same adjustment to all retired financial instruments classified as 
liabilities under GAAP as is made for interest paid on retired debt so 
as to eliminate the effect of dividend payments that are classified as 
interest expense on earnings when the instrument is retired out of the 
proceeds of the offering. The Exchange also believes that it is logical 
to apply the same treatment to the interest associated with any debt or 
other financial instrument which is converted into common stock at the 
time of a company's IPO occurring in conjunction with its listing, as 
the instrument that has given rise to the obligation to pay interest is 
extinguished at that time. The Exchange believes that this extension is 
reasonable given the purpose of the earnings standard, which is to 
determine the suitability for listing of companies on a forward-looking 
basis. The Exchange anticipates that this amendment will primarily 
benefit companies retiring preferred stock in connection with their 
IPOs.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) \4\ of the Act,\5\ in general, and furthers the 
objectives of Section 6(b)(5) of the 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.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78a.
    \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 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 foregoing proposed rule change does not: (1) 
Significantly affect the protection of investors or the public 
interest; (2) impose any significant burden on competition; and (3) 
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,\7\ it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \8\ and Rule 19b-
4(f)(6) thereunder.\9\
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    \7\ Rule 19b-4(f)(6)(iii) requires that a self-regulatory 
organization submit to 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 notice requirement.
    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6).
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    Under Rule 19b-4(f)(6) of the Act,\10\ the proposal does not become 
operative for 30 days after the date of its filing, or such shorter 
time as the Commission may designate if consistent with the protection 
of investors and the public interest. NYSE has requested that the 
Commission waive the 30-day operative delay so that it may immediately 
implement this proposal. The Commission believes that it is consistent 
with the protection of investors and the public interest to waive the 
30-day operative delay and make this proposed rule change immediately 
effective.\11\
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    \10\ Id.
    \11\ For purposes only of waiving the operative delay for this 
proposal, 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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    The Commission notes that, according to the Exchange, Manual 
Section 102.01(C)(I)(a)(i) already provides for certain adjustments to 
reflect the net proceeds of an offering, and the intended application 
of such proceeds to pay off a company's existing debt, including the 
elimination of actual historical interest on debt being retired with 
offering proceeds or by conversion into common stock. The proposed rule 
change would add language to the Manual to clarify that such 
adjustments to ``debt'' may properly be made to exclude interest 
expense on any financial instrument classified under GAAP as a 
liability. In this respect, the Commission believes that the change 
represents an effort by the Exchange to interpret the term ``debt'' as 
being consistent with the treatment of certain financial instruments 
considered liabilities under GAAP. Moreover, the proposal will extend 
the interest expense exclusion from the Exchange's earnings standard to 
interest associated with debt extinguished by conversion into common 
stock at the time of a company's IPO occurring in connection with 
listing. Given the purpose of the Exchange's earnings standard, which 
is to determine the suitability of applicants for listing on a forward-
looking basis, the Commission believes that this change is consistent 
with such purposes and is reasonable.
    At any time within 60 days of the filing of such proposed rule 
change, the Commission may summarily abrogate 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.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, 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 e-mail to rule-comments@sec.gov. Please include File 

Number SR-NYSE-2007-52 on the subject line.

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-2007-52. 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

[[Page 37069]]

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 such filing will also be available for inspection and 
copying at the principal office of the NYSE. 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-2007-52 and should be submitted on 
or before July 27, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
Florence E. Harmon,
Deputy Secretary.
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    \12\ 17 CFR 200.30-3(a)(12).
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 [FR Doc. E7-13069 Filed 7-5-07; 8:45 am]

BILLING CODE 8010-01-P