Document ID: SEC-2008-0793-0001
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 32613-32615]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09jn08-86]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57905; File No. SR-NYSE-2008-44]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Adjust the Earnings of Companies for Purposes of Its Earnings Standard 
by Reversing the Income Statement Effects of Changes in Fair Value of 
Financial Instruments Extinguished at the Time of Listing on a Three 
Month Pilot Basis

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

[[Page 32614]]

 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on May 20, 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 amend the earnings standard of Section 
102.01C(I) of the Exchange's Listed Company Manual (``Manual''). The 
amendment will enable the Exchange to adjust the earnings of companies 
by reversing the income statement effects for all periods of any 
changes in fair value of financial instruments classified as a 
liability recorded by the company in earnings, provided such financial 
instrument is either being redeemed with the proceeds of an offering 
occurring in conjunction with the listing or converted into or 
exercised for common stock of the company at the time of listing. The 
proposed amendment was originally filed with the Commission as a pilot 
program (``Pilot Program''),\5\ which has since expired and this filing 
seeks to renew the Pilot Program for an additional three months. The 
text of the proposed rule changes 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.
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    \5\ See Securities Exchange Act Release No. 56290 (August 20, 
2007), 72 FR 49033 (August 27, 2007) (SR-NYSE-2007-75).
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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 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 
reversing the income statement effects for all periods of changes in 
fair value of financial instruments classified as a liability recorded 
by the company in earnings, provided such financial instrument is 
either being redeemed with the proceeds of an offering occurring in 
conjunction with the listing or converted into or exercised for common 
stock of the company at the time of listing. The proposed amendment was 
originally filed with the Commission for a six month period as a Pilot 
Program.\6\ The Pilot Program has expired and this filing seeks to 
renew the Pilot Program for an additional three months.
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    \6\ Id.
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    Nonpublic companies engaging in pre-IPO financings often raise 
capital through the sale of preferred stock and warrants to purchase 
preferred stock. Preferred stock and preferred stock warrants are also 
sometimes issued by pre-IPO companies to service providers in lieu of 
cash compensation. Typically, at the time of the company's IPO, the 
preferred stock is converted into common stock and the preferred stock 
warrants are automatically exercised and the underlying preferred stock 
is converted into common stock of the company. In some cases, companies 
may also redeem some or all of the outstanding preferred stock with a 
portion of the proceeds from the IPO.
    Some pre-IPO companies have determined that they must record in 
earnings changes in the fair value of certain financial instruments 
classified as liabilities. As the fair value of a pre-IPO company's 
equity often increases as the company gets closer to its IPO, many 
companies have had to record significant reductions in earnings 
associated with increases in the fair value of the preferred stock 
warrant liability. In certain cases, the impact on the company's 
earnings as reported under generally accepted accounting principles 
(``GAAP'') of the preferred stock liability causes otherwise qualified 
companies to fail to qualify under the Exchange's earnings standard. 
Under the Exchange's current rules, the Exchange cannot list these 
companies even though the preferred stock warrant liability will be 
extinguished at the time of the IPO by conversion into common stock or 
redemption out of the proceeds of the IPO.
    The Exchange believes that it is appropriate to exclude the effects 
of changes in fair value of a financial instrument classified as a 
liability from a company's earnings where the financial instrument is 
being retired at the time of a company's listing either out of the 
proceeds of a concurrent offering or by conversion into common stock at 
the time of listing. The Exchange believes that adjusting company 
earnings for charges arising out of the changes in fair value of 
financial instruments that are retired with the proceeds of an offering 
occurring in conjunction with the listing or converted into common 
stock at the time of listing 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.
    As with all companies listed on the Exchange, the Financial 
Compliance staff of NYSE Regulation will monitor on an ongoing basis 
the compliance with the Exchange's continued listing standards of any 
companies listed in reliance upon the proposed amendment. Such 
companies will be subject to delisting if they are found at any time to 
be below the Exchange's continued listing standards.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\7\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\8\ in particular, in that it 
is designed to promote just and equitable principles of trade, to 
foster cooperation and coordination with persons engaged

[[Page 32615]]

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 the Act in that 
it provides for an adjustment to list applicants' historical financial 
results that is consistent with other adjustments already permitted 
under the Exchange's earnings standard and is reasonable given the 
purpose of the earnings standard, which is to determine the suitability 
for listing of companies on a forward-looking basis.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 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

    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

    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 \9\ and subparagraph (f)(6) of Rule 
19b-4 thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 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.\11\ 
However, Rule 19b-4(f)(6)(iii) \12\ 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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    \11\ 17 CFR 240.19b-4(f)(6)(iii).
    \12\ 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 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. The Commission 
designates the proposal to become effective and operative upon 
filing.\13\
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    \13\ 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-2008-44 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-2008-44. 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-2008-44 and should be submitted on or before June 27, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-12798 Filed 6-6-08; 8:45 am]

BILLING CODE 8010-01-P