Document ID: SEC-2008-0788-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations: New York Stock Exchange LLC
Posted Date: 2008-06-09T04:00Z

[Federal Register: June 9, 2008 (Volume 73, Number 111)]
[Notices]               
[Page 32611-32613]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09jn08-85]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57904; File No. SR-NYSE-2008-40]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Discontinue Its Policy of Requiring Listed Companies Whose Charters 
Contain Transfer Restrictions To Amend Their Charters To Include 
Language Specifying That Those Restrictions Do Not Apply to Public 
Market Transactions

June 2, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 32612]]

(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 16, 2008, the 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 substantially prepared by the Exchange. 
The Exchange has designated the proposed rule change as ``non-
controversial'' under Section 19(b)(3)(A)(iii) \3\ of the Act and Rule 
19b-4(f)(6) thereunder,\4\ which renders the proposal effective upon 
filing with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 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 discontinue its policy of requiring listed 
companies whose charters contain transfer restrictions to amend their 
charters to include language specifying that those restrictions do not 
apply to public market transactions.
    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 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 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 discontinue its policy of requiring listed 
companies whose charters contain transfer restrictions to amend their 
charters to include language specifying that those restrictions do not 
apply to public market transactions. The change in policy will apply to 
companies listing in connection with their initial public offerings, as 
well as companies transferring from other markets.
    The Exchange has a long-standing policy of prohibiting the 
inclusion by any listed company in its charter of restrictions on 
transfers of the company's equity securities. Typically such provisions 
purport to enable the company to void transactions involving the 
transfer of the company's shares to purchasers who are designated 
prohibited holders. A purchaser is generally deemed to be a prohibited 
holder because it owns more than a specified threshold amount of the 
company's equity securities, or will do so if the prohibited 
transaction is consummated. Companies impose transfer restrictions for 
a variety of reasons, but they are most commonly found in the context 
of (i) real estate investment trusts (``REITs'') that wish to avoid 
losing their REIT status on the basis that a shareholder owns more than 
5% of the company's common equity or (ii) companies recently emerged 
from bankruptcy whose net operating loss (``NOL'') assets may be 
impaired as a result of changes in ownership levels by any shareholder 
owning more than 5% of the common equity securities. The charter will 
typically provide that the company will have the right to seize any 
shares bought by a prohibited purchaser and place them in trust to be 
sold for the benefit of that prohibited purchaser. The Exchange is 
generally not concerned with the application of this type of 
arrangement as it does not affect the finality of the sale as it 
relates to the seller. However, the Exchange is concerned if the 
language of the charter may be read as giving the company the ability 
to unwind the transaction or prohibit sellers from transferring to any 
willing purchaser in Exchange transactions. To that end, the Exchange 
requires companies that have transfer restrictions in their charters to 
include the following provision:

    NYSE Transactions. Nothing in this Article [ ] shall preclude 
the settlement of any transaction entered into through the 
facilities of the New York Stock Exchange or any other national 
securities exchange or automated inter-dealer quotation system. The 
fact that the settlement of any transaction occurs shall not negate 
the effect of any provision of this Article [ ] and any transferee 
in such a transaction shall be subject to all of the provisions and 
limitations set forth in this Article [ ].
    The Exchange believes that it is generally unproblematic for a 
company listing at the time of its initial public offering to amend its 
charter to insert the Exchange's required language, as such companies 
are typically closely held and can easily amend the charter by written 
consent prior to listing. However, to the Exchange's knowledge, none of 
the other national securities exchanges impose such a requirement and, 
as a consequence, a company transferring from another market will 
typically need to secure a vote from its public shareholders to amend 
the charter. As an accommodation, the Exchange allows transferring 
companies to list on the basis of a commitment to have a vote with 
respect to adding the required language to the charter at the company's 
next scheduled annual meeting. Companies are frequently uncomfortable 
with this requirement, as they believe it is confusing to shareholders 
and is unnecessary from a practical standpoint. As such, the Exchange 
believes the continuation of this policy by it represents a barrier to 
effective competition with other markets that do not apply such a 
policy.
    The Exchange has reviewed its transfer restrictions policy and 
concluded that it is no longer necessary in light of the structure of 
the modern securities markets. Because all exchange transactions are 
between anonymous street name accounts, it is impossible for a listed 
company to identify in advance a proposed transferee as a prohibited 
holder and block the transaction in advance of its execution. The 
company will only become aware of such a transfer when the purchaser 
files a Form 13D or 13G, at which time the company may exercise any 
right it may have to seize the shares and sell them. Notwithstanding 
the language contained in certain charters to the effect that 
prohibited transfers are ``void,'' the Exchange does not believe that 
it is feasible for a listed company to require the unwinding of a 
prohibited transfer.\5\ As such, the Exchange does not believe that 
requiring companies to include in their charters language specifying 
that any transfer restrictions do not apply to public market 
transactions provides any meaningful or necessary protection to sellers 
and believes that it is appropriate to discontinue this policy. The 
Exchange believes that discontinuing this policy will not result in any 
substantially greater likelihood that companies will be able to cause 
the unwinding of public market transactions in their equity securities. 
While it may be less burdensome in

[[Page 32613]]

many cases for companies undertaking an IPO to comply with the existing 
policy than is the case for companies that are already public, the 
Exchange believes that it is appropriate to end the policy with respect 
to all companies including IPOs, as it believes that the policy is 
unnecessary for the reasons stated above and it places the Exchange at 
a potential competitive disadvantage to other markets that do not 
impose such a requirement on companies listing at the time of their 
IPO.
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    \5\ The Exchange expresses no opinion as to the legal 
enforceability of transfer restriction provisions in company 
charters, which is a matter of the law of the jurisdiction of 
incorporation of the company in question.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\6\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\7\ 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 change in policy will 
particularly promote competition among exchanges, as it will eliminate 
a potential impediment to the transfer of the listing of certain 
companies from other markets to the Exchange.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 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 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 for 30 
days after the date of 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 \8\ and subparagraph (f)(6) of Rule 
19b-4 thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under 19b-4(f)(6) normally may not 
become operative prior to 30 days after the date of filing.\10\ 
However, Rule 19b-4(f)(6)(iii) \11\ 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 pre-operative delay and designate the 
proposed rule change to become operative upon filing.
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    \10\ 17 CFR 240.19b-4(f)(6)(iii).
    \11\ Id.
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because eliminating the NYSE's longstanding transfer restrictions 
policy should not have any effect on the settlement of public market 
transactions on the Exchange. The Commission designates the proposal to 
become effective and operative upon filing.\12\
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    \12\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the impact of the proposed rule 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 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 the 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-2008-40 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-NYSE-2008-40. 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. Copies of such 
filing also will be available for inspection and copying at the 
principal office of 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-2008-40 and should be submitted on or before June 30, 2008.
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    \13\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-12797 Filed 6-6-08; 8:45 am]

BILLING CODE 8010-01-P