Document ID: SEC-2008-1552-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2008-11-19T05:00Z

[Federal Register: November 19, 2008 (Volume 73, Number 224)]
[Notices]               
[Page 69708-69710]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19no08-130]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58934; File No. SR-NYSE-2008-98]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Granting Approval of Proposed Rule Change, as Modified by Amendment No. 
1, To Adopt an Additional Initial Listing Standard for Operating 
Companies

November 12, 2008.

I. Introduction

    On October 1, 2008, the New York Stock Exchange LLC (``NYSE'' or 
``Exchange''), filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change amending Section 102.01C of the Exchange's Listed 
Company Manual (``Manual'') to adopt an additional initial listing 
standard under which companies may qualify to list on the Exchange. On 
October 10, 2008, the proposed rule change was published for comment in 
the Federal Register.\3\ On November 10, 2008, NYSE filed Amendment No. 
1 to the proposed rule change.\4\ The Commission received no comments 
on the proposed rule change. This order approves the proposed rule 
change, as modified by Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 58740 (October 6, 
2008), 73 FR 60382 (``Notice'').
    \4\ Amendment No. 1 shows how Section 802.01B would be effected 
by changes proposed in SR-NYSE-2008-97. Because Amendment No. 1 is 
technical in nature, the Commission is not required to publish the 
amendment for comment.
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II. Description of the Proposal

    The Exchange has proposed to amend Section 102.01C of the Manual to 
adopt an additional initial listing standard under which companies may 
qualify to list on the Exchange. The Exchange has also proposed to 
apply the continued listing standard applicable under Section 802.01B 
to companies listed under the Earnings Test to companies listed under 
the proposed new initial listing standard.
    The proposed new standard (the ``Assets and Equity Test'') is an 
additional alternative standard under which companies may qualify to 
list, and will not replace any of the existing initial listing 
standards set forth in Section 102.01C. Companies qualifying to list 
under the proposed new standard will have to meet the same holder, 
publicly-held share and trading volume requirements as set forth in 
Section 102.01A as companies that list under the existing initial 
listing standards. Further, like companies that list under the existing 
initial listing standards in Section 102.01C, companies that list under 
the proposed standard must meet the same market value of publicly-held 
shares requirements \5\ and $4 stock price requirement in Section 
102.01B. Under the proposed standard, in addition to these other 
requirements, a company at the time of listing would be required to 
have, at a minimum, (i) $75 million in total assets, (ii) $50 million 
in stockholders' equity and (iii) $150 million of total market 
capitalization.\6\ The new standard also states that in considering the 
listing under the Assets and Equity Test of companies transferring from 
other markets, the Exchange will consider whether the company's 
business prospects and operating results indicate that the company's 
market capitalization value is likely to be sustained or increase over 
time.
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    \5\ Section 102.01B requires either $60 million market value in 
the case of IPOs or $100 million market value for all other 
companies.
    \6\ The total assets and stockholders equity that the Exchange 
will use for qualification purposes will be taken from the company's 
most recent balance sheet included in an SEC filing, in each case as 
adjusted pursuant to Sections 102.01C(I)(3)(a) (adjusting for the 
use of offering proceeds) and (b) (adjusting for the effects of 
acquisitions and dispositions) as applicable. In the case of 
companies listing in connection with an IPO, the company's 
underwriter (or, in the case of a spin-off, the parent company's 
investment banker or other financial advisor) must provide a written 
representation that demonstrates the company's ability to meet the 
$150 million global market capitalization requirement based upon the 
completion of the offering (or distribution).
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    Under the proposed rule, while companies that list under the Assets 
and Equity Test will not be required to have any minimum operating 
history prior to listing, companies that would otherwise have been 
considered for listing under Section 102.06 of the Manual--the 
Exchange's Acquisition Company standard (i.e., ``SPACs'')--will not 
qualify for listing under the Assets and Equity Test. SPACs will 
continue to be listed only under Section 102.06. The continued listing 
standards, in Section 802.01B of the Manual, which currently apply to 
companies that qualify to list under the Earnings Test is proposed to 
be extended to companies that qualify to list under the new Assets and 
Equity Test. Such companies will be considered to be below compliance 
standards if their average global market capitalization over a 
consecutive 30 trading-day period is less than $75 million and, at the 
same time, total stockholders' equity is less than $75 million. In 
addition, the holder, publicly-held share and trading volume 
requirements of Section 802.01A, the $25 million global market 
capitalization requirement in Section 802.01B, the $1.00 minimum stock 
price requirement in Section 802.01C, Section 802.01D (``Other 
Criteria''), and Section 802.01E (``SEC Annual Report Timely Filing 
Criteria'') will also apply to companies qualifying under the Assets 
and Equity Test.
    As discussed in more detail below, similar to recently adopted 
provisions under Section 102.01C, companies may apply to list under the 
Assets and Equity Test that have not previously had their common equity 
securities registered under the Act but which have

[[Page 69709]]

sold common equity securities in a private placement, and wish to list 
their common equity securities on the Exchange at the time of 
effectiveness of a registration statement filed solely for the purpose 
of allowing existing shareholders to sell their shares. For these 
companies, the Exchange is proposing that they have a global market 
capitalization of $180 million. In such cases, the Exchange may 
exercise its discretion to determine that such a company has met the 
global market capitalization requirement based on a combination of both 
(i) an independent third party valuation of the company and (ii) the 
most recent trading price for the company's common stock in a trading 
system for unregistered securities operated by a national securities 
exchange or a registered broker-dealer. The lesser of these values will 
be used for determining the company's compliance with the Exchange's 
global market capitalization requirement.
    The Exchange recently adopted provisions in relation to all of its 
existing initial listings standards that enable it to use third party 
valuations, in limited situations, as a basis for determining 
compliance with the applicable market capitalization requirements.\7\ 
The circumstances under which third party valuations may be used in 
connection with listings under the Assets and Equity Test will be 
identical to those that are applied under the existing initial listing 
standards. In particular, companies listing on this basis will be 
required to demonstrate a global market capitalization of $180 million, 
representing a 20% increase over the general market capitalization 
requirement of the listing standard.\8\ The Exchange stated in its 
filing that it is appropriate to use third party valuations in 
connection with the determination of the market capitalization of 
companies listing under the Assets and Equity Test, because the market 
capitalization requirement is 20% higher than that normally required 
under the standard, and the additional reliance on private market 
trading prices as a verification of the adequacy of the valuation in 
each case constitute, in the Exchange's view, significant safeguards to 
ensure the validity of the market capitalization derived from the third 
party valuation.
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    \7\ See Securities Exchange Act Release No. 58550 (September 15, 
2008), 73 FR 54442 (September 19, 2008) (SR-NYSE-2008-68).
    \8\ The Commission notes that the global market capitalization 
requirements under NYSE's other listing standards in 102.01C were 
also increased 20% for the purposes of listing using a third party 
valuation. Id.
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    In its filing, the Exchange stated its belief that, upon adoption 
of the proposed Assets and Equity Test, its listing standards will 
continue to ensure that only companies of a significant size and 
financial standing will be able to list on the Exchange. The Exchange 
noted that, while many companies will qualify for listing under the 
Assets and Equity Test that do not qualify under any other Exchange 
listing standard, many companies will continue to qualify to list on 
Nasdaq or the American Stock Exchange (n/k/a NYSE Alternext U.S. LLC or 
``NYSE Alternext'' or ``Amex'') that will not meet any of the 
Exchange's initial listing standards.
    The NYSE stated that the Assets and Equity Test requires all of the 
elements that must be met by a company listing under the total value of 
market capitalization option of Amex Initial Listing Standard 4.\9\ 
However, the Assets and Equity Test establishes equivalent or higher 
thresholds for each of the relevant criteria.\10\
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    \9\ See Amex Initial Listing Standard 4 (Amex Company Guide 
Section 101(d)). Companies may list under Amex Initial Listing 
Standard 4 without demonstrating any minimum market capitalization 
if the company has total assets and total revenue of $75 million 
each in its last fiscal year, or in two of its last three fiscal 
years.
    \10\ See Notice, supra note 3 for a comparison with Amex Initial 
Listing Standard 4.
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    The Exchange's listing standards after adoption of the proposed 
Assets and Equity Test will exceed those established by Exchange Act 
Rule 3a51-1(a)(2) (the ``Penny Stock Rule'').\11\ The proposed 
standard's $50 million stockholders' equity requirement exceeds the $5 
million option and the proposed standard's $150 million total market 
capitalization requirement exceeds the $50 million market 
capitalization option in the Penny Stock Rule. In addition, the 
Exchange requires all initial listings, regardless of which standard 
they are listed under, to have $60 million (in the case of IPOs) or 
$100 million (in all other cases) of market capitalization of publicly 
held shares, a $4 stock price, 400 round lot holders and 1.1 million 
publicly held shares, which meet or exceed all of the Penny Stock 
Rule's remaining requirements.
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    \11\ 17 CFR 240.3a51-1(a)(2).
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    Companies listing under the Assets and Equity Test will have to 
comply with all other applicable Exchange listing rules, including the 
Exchange's corporate governance requirements. As with all other listing 
applicants, the Exchange reserves the right to deny listing to any 
company seeking to list under the Assets and Equity Test if the 
Exchange determines that the listing of any such company is not in the 
interests of the Exchange or the public interest.

III. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange 
and, in particular, with Section 6(b)(5) of the Act,\12\ which 
requires, among other things, that the rules of a national securities 
exchange be designed to prevent fraudulent and manipulative acts and 
practices, 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, 
and to not permit unfair discrimination between customers, issuers, 
brokers, or dealers.\13\
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    \12\ 15 U.S.C. 78f(b)(5).
    \13\ In approving this rule, the Commission has considered its 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
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    The development and enforcement of adequate standards governing the 
initial and continued listing of securities on an exchange is an 
activity of critical importance to financial markets and the investing 
public. Listing standards, including those applicable to companies 
transferring from another exchange, serve as a means for an exchange to 
screen issuers and to provide listed status only to bona fide companies 
that have sufficient public float, investor base, and trading interest 
to provide the depth and liquidity necessary to promote fair and 
orderly markets. Adequate standards are especially important given the 
expectations of investors regarding exchange trading and the imprimatur 
of listing on a particular market. Once a security has been approved 
for initial listing, maintenance criteria allow an exchange to monitor 
the status and trading characteristics of that issue to ensure that it 
continues to meet the exchange's standards for market depth and 
liquidity so that fair and orderly markets can be maintained.
    The Commission recognizes that this is the first time that NYSE 
would be adopting a traditional equity security listing standard under 
Section 102.01C that does not require some previous operating history 
of the listing company and that the proposed standards are low

[[Page 69710]]

enough to qualify companies on the NYSE that previously would not 
qualify.\14\ However, as described above, the quantitative requirements 
of the new Assets and Equity Test exceed, and are more rigorous than, 
an existing Amex listing standard and meet or exceed the penny stock 
requirements in Exchange Act Rule 3a51-1(a)(2). Further, companies 
listing under the new Assets and Equity Test would still have to meet 
all the distribution, market value, and price requirements under 
Sections 102.01A and Section 102.01B of the Manual, and comply with all 
the corporate governance requirements as any other listed company.\15\ 
The Commission believes that these requirements, taken together, will 
help to ensure that the company has the requisite liquidity for listing 
on the Exchange and the maintenance of fair and orderly markets, 
consistent with the Act. The Commission also finds that the continued 
listing standards are appropriate and help ensure that only those 
companies with adequate depth and liquidity remain listed on the 
Exchange. We note that these continued listing standards are the same 
as for those companies that currently qualify to list under the 
Earnings Test.
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    \14\ Section 102.06 of the Manual, however, does allow the 
listing of SPACs, which do not have a prior operating history. As 
noted above, SPACs cannot qualify to list under the new Assets and 
Equity Test.
    \15\ See supra text accompanying note 5.
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    Finally, the Commission is approving the adoption of procedures 
similar to those previously approved by the Commission to qualify for 
listing upon a selling shareholders registration rather than an 
underwritten offering for the same reasons noted in the original 
approval order.\16\ As discussed above, the Commission had previously 
permitted, under limited circumstances, the use of third party 
valuations to meet applicable market capitalization requirements to 
qualify for listing under the various sections of Section 102.01C,\17\ 
and the Exchange is proposing to extend these identical requirements to 
the newly adopted Assets and Earnings Test. For third party valuations 
using the Assets and Earnings Test, the Exchange has proposed to 
increase the market capitalization requirement to $180,000,000 million, 
rather than the $150,000,000 currently proposed for other companies. As 
noted above, this increase is consistent with the 20% increase adopted 
for using a third party valuation for the other standards in 
102.01C.\18\ The Commission believes the provisions allowing the use of 
third party valuations for companies listing using the new Assets and 
Equity Test raises no new regulatory issues that were not discussed in 
the original approval order.\19\
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    \16\ See supra note 7.
    \17\ See supra note 7, 73 FR at 54443.
    \18\ The Commission notes that in relying on the third party 
valuation, the Exchange must consider any market factors or factors 
particular to the listing applicant that would cause concern that 
the value of the company had diminished since the date of Valuation 
and continue to monitor the company and the appropriateness of 
relying on the Valuation up until the time of listing. The 
Commission expects that where these factors indicate that the value 
calculated may not be an accurate estimation of a company's market 
value, the Exchange will use its discretion to determine not to list 
such company pursuant to the proposed provisions.
    \19\ See supra note 7.
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    In approving the new Assets and Equity Test, the Commission expects 
that the Exchange will deny listing to any company seeking to list 
pursuant to the proposed rule change if the Exchange determines that 
the listing of any such company is not in the interests of the Exchange 
or the public interest.
    For the reasons set forth above, the Commission finds that the 
proposed rule change is consistent with the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\20\ that the proposed rule change (SR-NYSE-2008-98), as modified 
by Amendment No. 1, be, and hereby is, approved.
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    \20\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-27423 Filed 11-18-08; 8:45 am]

BILLING CODE 8011-01-P