Document ID: SEC-2012-1318-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2012-08-10T04:00Z

[Federal Register Volume 77, Number 155 (Friday, August 10, 2012)]
[Notices]
[Pages 47891-47893]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-19614]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67603; File No. SR-NYSE-2012-35]

 Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Reducing From 10 Days to Five Days the Shareholder Notification Period 
That Is a Condition to a Waiver of the NYSE's Shareholder Approval 
Requirements Pursuant to Section 312.05 of the Exchange's Listed 
Company Manual

August 6, 2012.
    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 August 6, 2012, 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 prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to reduce from 10 days to five days the 
shareholder notification period that is a condition to a waiver of the 
NYSE's shareholder approval requirements pursuant to Section 312.05 of 
the Exchange's Listed Company Manual (the ``Manual''). The Exchange 
also proposes to permit the shareholder notification to be effectuated 
by a broadly disseminated press release in addition to a letter to 
shareholders, and the date of such press release shall serve as the 
commencement date of the shareholder notification period, subject to a 
minimum notification period of at least two days from the date of 
mailing of the shareholder letter. 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.

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

[[Page 47892]]

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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    In connection with an emergency capital raising transaction by 
Knight Capital Group, Inc. (``KCG''), the Exchange proposes to reduce 
from 10 days to five days the shareholder notification period that is a 
condition to a waiver of the NYSE's shareholder approval requirements 
pursuant to Section 312.05 of the Manual. The Exchange also proposes to 
permit the shareholder notification to be effectuated by a broadly 
disseminated press release in addition to a letter to shareholders, and 
the date of such press release shall serve as the commencement date of 
the shareholder notification period, subject to a minimum notification 
period of at least two days from the date of mailing of the shareholder 
letter. The Exchange does not intend to amend the text of Section 
312.05.
    Section 312.03(c) of the Manual requires a listed company to obtain 
shareholder approval prior to the issuance of shares of common stock 
representing 20% or more of the voting power or number of shares 
outstanding of the company's then outstanding common stock or the 
issuance of securities convertible into, exchangeable for or 
exercisable for 20% or more of the voting power or number of shares 
outstanding of the company's then outstanding shares of common 
stock.\3\
---------------------------------------------------------------------------

    \3\ There are exceptions to the shareholder approval 
requirements of Section 312.03(c) for public offerings for cash and 
for a transaction that qualifies as a ``Bona Fide Private 
Financing'' as defined in Section 312.04(g).
---------------------------------------------------------------------------

    Subject to approval by the Exchange of an application made by the 
company, Section 312.05 provides an exception to the shareholder 
approval requirements of Section 312.03 when (1) the delay in securing 
shareholder approval would seriously jeopardize the financial viability 
of the enterprise and (2) reliance by the company on that exception is 
expressly approved by the audit committee of the listed company's board 
of directors (the ``financial distress exception''). A company relying 
on this exception must mail to all shareholders not later than 10 days 
before issuance of the securities a letter alerting them to its 
omission to seek the shareholder approval that would otherwise be 
required under the policy of the Exchange and indicating that the audit 
committee of the board has expressly approved the exception.
    KCG has made an application to the Exchange for a waiver of the 
Exchange's shareholder approval requirements pursuant to Section 312.05 
in relation to a proposed emergency capital raise. KCG has obtained the 
approval of its audit committee as required by Section 312.05. After 
extensive discussion with KCG, the Exchange has concluded that KCG's 
use of the financial viability exception is warranted and has approved 
KCG's application. However, KCG has informed the Exchange that it does 
not believe that it will be able to obtain the necessary funding on an 
immediate basis unless the investors are able to convert the securities 
they purchase into common stock more quickly than would be possible if 
the Exchange required the full 10 days notice to shareholders provided 
for in Section 312.05 of the Manual.
    KCG has informed the Exchange that there is grave doubt as to its 
ability to continue its operations in the immediate future if it is 
unable to obtain significant funding immediately. Given the company's 
belief that it will be unable to raise this capital if it is unable to 
issue common stock to its potential investors until the end of the full 
10-day notification period required under Section 312.05 of the Manual, 
KCG has informed the Exchange that it will likely be unable to continue 
its operations with immediate effect unless the Exchange shortens that 
notification period.
    Accordingly, the Exchange proposes to reduce from 10 to five days 
the shareholder notification requirement of Section 312.05 in relation 
to KCG's financial distress application. In addition, the Exchange 
proposes to permit the shareholder notification to be effectuated 
through KCG's issuance of a broadly disseminated press release, in 
addition to a shareholder letter, disclosing the information required 
by Section 312.05 of the Manual as well as that it obtained additional 
exemptive relief to reduce the shareholder notification requirement 
from 10 to five days, and the date of such press release shall serve as 
the commencement date of the shareholder notification period, subject 
to a minimum notification period of at least two days from the date of 
mailing of the shareholder letter. The press release must also disclose 
the earliest date at which the convertible securities will be converted 
or become convertible into common stock.\4\
---------------------------------------------------------------------------

    \4\ KCG has advised that it will also send a letter to 
shareholders contemporaneously with or shortly after issuance of the 
press release, but in any event at least two days prior to 
conversion by the investors of the securities they purchase into 
common stock.
---------------------------------------------------------------------------

    The Exchange believes that this relief is appropriate in light of 
the uniqueness of the circumstances giving rise to KCG's urgent need 
for capital. In particular, KCG operates a broker-dealer with 
significant operations and there could be some disruption to KCG's 
customers should KCG's operations cease abruptly. Moreover, KCG has 
advised that if the notice period is not shortened it will not be able 
to raise the capital needed to continue operations in the immediate 
future. With respect to the use of a press release in addition to a 
shareholder letter, the Exchange believes that the extremely high 
volume of trading in KCG' stock during the last few days has likely 
resulted in significant changes to its shareholder base and that a 
press release is therefore an effective means of communication with 
such shareholders. In addition, the Exchange believes that the 
reduction in the notification period is in the best interests of KCG's 
existing shareholders, since KCG will otherwise likely be unable to 
raise necessary capital to avoid insolvency, and likely significant 
erosion or elimination of shareholder value, absent such reduction.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) \5\ of the Securities Exchange Act of 1934 (the 
``Act''), 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. The Exchange believes that 
the proposed amendment is consistent with the investor protection 
objectives of Section 6(b)(5) of the Act in that KCG will likely become 
insolvent if the Exchange does not reduce the required notification 
period and the existing shareholders of KCG therefore have a compelling

[[Page 47893]]

interest in the company's ability to raise capital as quickly as 
possible. The Exchange also believes that use of a broadly disseminated 
press release is an effective means of communication with KCG's 
shareholders, in view of the extremely high trading volume in its stock 
during the last few days. The Exchange also notes that shareholders 
would still have a reasonable period of at least five days notice of 
the issuance, including at least a two day notice period after mailing 
of the shareholder letter. The Exchange also believes that the proposed 
waiver would facilitate transactions in securities, as there could be 
disruption to KCG's customers if KCG ceased operations abruptly.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    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) of the Act \7\ and Rule 19b-4(f)(6) thereunder.\8\ Because 
the Exchange states that the foregoing proposed rule change: (1) Does 
not significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms does not become operative for 30 days after the 
date of this 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 \9\ and Rule 19b-4(f)(6) thereunder.\10\
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6).
    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6). The Exchange has requested that the 
Commission waive the requirement that the Exchange provide 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 on which the 
Exchange filed the proposed rule change pursuant to Rule 19b-
4(f)(6)(iii). The Commission hereby grants this request.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing. However, 
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. The Exchange requested that the Commission waive 
the 30-day operative delay so that the proposed rule change may take 
effect upon filing with the Commission pursuant to Section 19(b)(3)(A) 
\11\ and Rule 19b-4(f)(6) \12\ thereunder, and also become operative on 
that same date. The Commission believes that waiver of the 30-day 
operative delay is consistent with the protection of investors and the 
public interest.\13\ The Exchange has represented, among other things, 
that (i) the waiver would allow KCG to obtain on an immediate basis the 
capital it needs to enable it to continue operations and avoid 
insolvency; (ii) KCG's existing shareholders, whom this notification is 
designed to inform, have a compelling interest in KCG's ability to 
raise capital as quickly as possible; and (iii) under these 
circumstances, by issuing a broadly disseminated press release, in 
addition to mailing a shareholder letter, KCG will provide effective 
notice of the issuance to its shareholders and its shareholders will 
still have a reasonable notice period of the issuance of at least five 
days. The Commission hereby waives the 30-day operative delay and 
designates the proposal operative upon filing.\14\
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \14\ In connection with this release, the Commission is not 
making any findings as to the accuracy of the representations made 
by the Exchange or expressing any view regarding the merits of any 
transaction, or its terms, entered into by KCG.
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the 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.

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-2012-35 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSE-2012-35. 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 
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-2012-35 and should be 
submitted on or before August 31, 2012.
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-19614 Filed 8-9-12; 8:45 am]
BILLING CODE 8011-01-P