Document ID: SEC-2009-0080-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2009-01-16T05:00Z

[Federal Register: January 16, 2009 (Volume 74, Number 11)]
[Notices]               
[Page 3117-3119]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16ja09-144]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59217; File No. SR-NYSE-2008-138]

 
Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by New York Stock Exchange LLC To Memorialize an Interpretation 
of the Listed Company Manual Concerning Shareholder Approval 
Requirements and To Describe a Certain Application of its Audit 
Committee Rule

January 8, 2009.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Exchange Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is 
hereby given that,

[[Page 3118]]

on December 22, 2008, New York Stock Exchange LLC (the ``NYSE'' or the 
``Exchange'') filed with the Securities and Exchange Commission the 
proposed rule change as described in Items I, II and III below, which 
items have been 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 memorialize an interpretation of the 
Listed Company Manual. 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 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
    On September 7, 2008 the Secretary of the Treasury of the United 
States and the Director of the FHFA jointly announced that on September 
6, 2008, pursuant to authority previously granted by Congress, FNM and 
FRE were placed into conservatorship with the FHFA, and Treasury 
entered into a Senior Preferred Stock Purchase Agreement with each 
company providing for, among other things, the issuance by each company 
to Treasury of senior preferred stock, and common stock warrants 
representing an ownership stake of 79.9% in each company.\4\
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    \4\ The Commission notes that the terms ``FHFA,'' ``FNM,'' and 
``FRE'' refer to the Federal Housing Finance Agency, Fannie Mae, and 
Freddie Mac, respectively.
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    The issuance of a security convertible into common stock equal to 
or in excess of 20% of the then outstanding common stock of a listed 
company generally requires shareholder approval under Section 312.03 of 
the NYSE Listed Company Manual. The NYSE has for many years taken the 
position that a listed company which is a debtor-in-possession under 
the U.S. bankruptcy laws satisfies the stockholder approval that might 
otherwise be required in connection with an issuance of common stock or 
a security convertible into common stock by obtaining bankruptcy court 
approval of the issuance of such stock. Such an interpretation is the 
only practical approach given that in such a circumstance the court, 
not the stockholders, has the authority to authorize or refuse to 
authorize the issuance of the security. Consequently, this rule filing 
codifies the Exchange's longstanding position that a listed company 
which is a debtor-in-possession satisfies any applicable stockholder 
approval requirement under Section 312.03 by obtaining bankruptcy court 
approval of the proposed issuance.
    The FHFA has specified that ``the powers of the stockholders [of 
FNM and FRE] are suspended until the conservatorship is 
terminated.''\5\ Based on this, the NYSE has concluded that for 
purposes of its rules requiring stockholder approval of the issuance of 
securities, i.e., Sections 312.03 and 303A.08 of the Listed Company 
Manual, it is appropriate to treat FNM and FRE while they are in 
conservatorship in the same manner as if they were each a debtor-in-
possession under the bankruptcy law. Accordingly, the NYSE takes the 
position that the requirement of Section 312.03 has been satisfied in 
connection with the issuance to the Department of the Treasury (the 
``Treasury'') by each of FNM and FRE of the warrants exercisable for 
common stock.
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    \5\ See Questions and Answers of Conservatorship, available on 
the Web site of the FHFA. (http://www.ofheo.gov/media/pdf/
FHFACONSERVQA.pdf) Note that FHFA in the same paragraph stated that 
``Stockholders will continue to retain all rights in the stock's 
financial worth; as such worth is determined by the market.''
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    Following the establishment of the conservatorship, the independent 
directors serving on the audit committees of the boards of directors of 
each of the companies left the board. Each of FNM and FRE are currently 
engaged in obtaining replacement directors and arranging the 
appropriate delegation from FHFA to the boards and the audit committees 
to allow the audit committees to function. In keeping with its normal 
procedures under the provisions of Listed Company Manual Section 
303A.06, NYSE is allowing the companies an appropriate period of time 
in which to fill the vacancies on the audit committee. The NYSE was 
informed that in connection with the quarterly financial reports on 
Form 10-Q which were filed in November for the companies' third 
quarter, each company arranged for its staff and independent auditor to 
make a presentation regarding the quarterly report to appropriate 
departments of the FHFA that was intended to replicate the kind of 
review that an audit committee would normally conduct with respect to a 
company's quarterly financials. The NYSE believes that this action is 
appropriate in light of the fact that neither company had an audit 
committee that was able to conduct that review. The Exchange notes that 
this filing does not seek to interpret Rule 10A-3 under the Sarbanes-
Oxley Act. Rather, the Exchange is simply describing its application of 
the requirements of Section 303A.06 of the Manual to FNM and FRE during 
the period that they do not have independent audit committees.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) \6\ of the Exchange Act in general and furthers the 
objectives of Section 6(b)(5) of the Exchange 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 its proposed interpretations of 
Sections 312.03 and 303A.06 are reasonable in light of the policies 
underlying those rules and constitute a suitable application of its 
rules to this unique and unprecedented situation. In particular, the 
Exchange notes that (i) it is in the public interest that the issuance 
of securities to the Treasury should not be subject to shareholder 
approval in light of the scale of Treasury's provision of capital to 
the two companies and (ii) the oversight of the companies' financial 
reporting by FHFA provides a reasonable level of protection to 
investors while the companies are repopulating their independent audit 
committees required by Section 303A.06.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).

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[[Page 3119]]

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 Exchange 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

    The proposed rule change is effective upon filing pursuant to 
Section 19(b)(3)(A) of the Exchange Act \8\ and paragraph (f)(1) of 
Rule 19b-4 thereunder \9\ as constituting a stated policy, practice, or 
interpretation with respect to the meaning, administration, or 
enforcement of an existing Exchange rule. 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 furtherance of the purposes of 
the Exchange Act.
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    \8\ 17 CFR 240.19b-4(f)(1).
    \9\ 17 CFR 240.19b-4(f)(1).
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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 Exchange 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-2008-138 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-2008-138. 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, 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-2008-138 and should be submitted on or before February 6, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-881 Filed 1-15-09; 8:45 am]

BILLING CODE 8011-01-P