Document ID: SEC-2019-0656-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange, LLC
Posted Date: 2019-05-15T04:00Z

[Federal Register Volume 84, Number 94 (Wednesday, May 15, 2019)]
[Notices]
[Pages 21861-21863]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-09961]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85812; File No. SR-NYSE-2019-14]

Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change To Amend Section 703.18 of the 
Listed Company Manual To Permit the Listing of Event-Based Contingent 
Value Rights and Make Other Changes to the Listing Standards for 
Contingent Value Rights

May 9, 2019.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on April 25, 2019, New York Stock Exchange LLC (``NYSE'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III 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.
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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 amend Section 703.18 of the Listed Company 
Manual (the ``Manual'') to expand the circumstances under which a 
Contingent Value Right may be listed on the Exchange. The proposed rule 
change is available on the Exchange's website 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 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
    Contingent Value Rights (``CVRs'') are unsecured obligations of the 
issuer providing for a possible cash payment either (i) at maturity 
based upon the price performance of an affiliate's equity security (a 
``Price-Based CVR'') or (ii) within a specified time period, upon the 
occurrence of a specified event relating to the business of the issuer 
of the CVR or an affiliate of such issuer (an ``Event-Based CVR''). 
Section 703.18 of the Manual currently provides only for the listing of 
Price-Based CVRs. The Exchange proposes the following changes to its 
listing rules for CVRs:
     To permit the listing of Event-Based CVRs;
     To update the issuer listing standards in Section 703.18 
to reflect changes to the initial listing requirements for operating 
companies referenced in that rule; and
     To modify the delisting provisions to reflect that a CVR 
will be delisted if its issuer's common stock ceases to be listed on a 
national securities exchange.
    The Exchange proposes to amend Section 703.18 to also provide for 
the listing of Event-Based CVRs. With the exception of the payment 
triggering event, Event-Based CVRs are identical in structure to Price-
Based CVRs, the listing of which has been permitted under Section 
703.18 for many years.
    Event-Based CVRs would qualify for listing under the Exchange's 
current listing standards for ``Other Securities.'' However, the 
Exchange is filing this proposed rule change because in the 1998 
release adopting amendments to Exchange Act Rule 19b-4, which among 
other things added a definition of ``new derivative securities 
product,'' the Commission stated that ``[u]nder the amendment, if an 
SRO does not have listing standards, trading rules and procedures for 
CVRs approved by the Commission, such SRO must submit a proposed rule 
change for Commission approval, under Section 19(b), to establish 
listing standards, trading rules and procedures for the CVR product 
class, prior to listing CVRs.'' \4\
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    \4\ Exchange Act Release No. 40761 (December 8, 1998), 63 FR 
70952, at 70956-57 (December 22, 1998).
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    Price-Based CVRs are generally distributed to shareholders of an 
acquired company who are receiving shares of the acquirer as 
acquisition consideration. The Price-Based CVRs provide the acquiree's 
shareholders

[[Page 21862]]

with some medium term protection against poor stock price performance 
of the shares of the acquirer by guaranteeing them a specified cash 
payment if the acquirer's average stock price is below a specified 
level at the time of maturity of the Price-Based CVR.
    Event-Based CVRs are also typically issued to the shareholders of 
an acquired entity as consideration in an acquisition transaction. 
Event-Based CVRs entitle their holders to receive a specified cash 
payment upon the occurrence of a specified event prior to the maturity 
date of the Event-Based CVR. The Event-Based CVR provides the 
shareholders of the acquiree an additional interest in the medium-term 
performance of the merged entity. A common example of an Event-Based 
CVR occurs in mergers of life sciences companies, when the CVR payment 
is triggered by the receipt of FDA approval of a new drug application. 
Another example of an Event-Based CVR is a CVR whose payment triggering 
event is the achievement of a specified level of financial performance 
by the combined entity or by a division of the combined entity 
representing the assets from the acquired company. Event-Based CVRs, 
which are transferrable, have become increasingly common in recent 
years, especially in connection with mergers of life sciences 
companies, and the Exchange believes it is appropriate to amend Section 
703.18 to permit their listing on the NYSE.
    Section 703.18 currently provides that the issuer of a listed CVR 
must be an entity that has assets in excess of $100 million and meets 
the ``size and earnings'' requirements of Section 102 of the Manual. 
The Exchange intends to retain the $100 million assets requirement, but 
it proposes to amend the reference to the ``size and earnings 
requirements'' of Section 102 by specifying instead that the issuer 
must meet the requirements of Sections 102.01B and 102.01C. The 
requirements of Section 102.01B include the size requirements 
applicable to all newly-listed operating companies (the applicable 
requirement would be the $100 million in market value of publicly-held 
shares requirement applied to companies transferring from another 
national securities Exchange), as well as a $4.00 stock price 
requirement. Section 102.01C sets forth two financial standards, the 
Earnings Test and the Global Market Capitalization Test, one of which 
must be met by an issuer seeking to list on the Exchange. The Global 
Market Capitalization Test, which was adopted subsequent to the 
approval of Section 703.18, requires that an issuer have $200 million 
in global market capitalization at the time of listing, but includes no 
earnings criteria. Because most issuers qualify for listing pursuant to 
the Global Market Capitalization Test, and such test has no earnings 
criteria, the Exchange believes it is appropriate to remove the 
reference to ``size and earning requirements'' in the current Section 
703.18 and replace that language with a reference to Sections 102.01B 
and 102.01C instead. The Exchange believes that an issuer that meets 
the requirements of the Global Market Capitalization Test is likely to 
be a substantial company capable of meeting its financial obligations 
under the terms of a listed CVR.
    Currently, Section 703.18 provides that a CVR may be delisted when 
the related equity security to which the cash payment at maturity is 
tied is delisted. To reflect the fact that the delisting provision will 
now relate to both Cash-Based CVRs and Event-Based CVRs and to reflect 
the fact that Event-Based CVRs are not tied to the performance of a 
specific security, the Exchange proposes to modify this provision to 
provide that a CVR will be delisted when the issuer's common stock 
ceases to be listed on a national securities exchange. Under the 
Exchange's proposed amendment, if the common stock of a CVR issuer 
ceases to be listed on a national securities exchange, the CVR will be 
automatically delisted and the Exchange will not have discretion to 
continue listing the CVR.
    Finally, the Exchange proposes to update a reference in Section 
703.18 to New York Stock Exchange, Inc., by replacing it with a 
reference to New York Stock Exchange LLC, which is the correct current 
legal entity name for the Exchange. In addition, the Exchange proposes 
to add an introductory sentence prior to the form of information 
circular contained in Section 703.18. The Exchange intends to issue an 
information circular as described in Section 703.18 immediately prior 
to the listing of any CVR, including any Event-Based CVR.
    The Exchange will monitor activity in CVRs, including Event-Based 
CVRs, to identify and deter any potential improper trading activity in 
such securities and will adopt enhanced surveillance procedures to 
enable it to monitor CVRs alongside the common equity securities of the 
issuer or its affiliates, as applicable. The Exchange will rely on its 
existing trading surveillances, administered by the Exchange, or the 
Financial Industry Regulatory Authority (``FINRA'') on behalf of the 
Exchange, which are designed to detect violations of Exchange rules and 
applicable federal securities laws.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Exchange Act,\5\ in general, and furthers the 
objectives of Section 6(b)(5) of the Exchange 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 and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
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    The proposal to permit the listing of Event-Based CVRs under 
Section 703.18 is designed to protect investors and the public 
interest. Listed companies have been issuing transferable Event-Based 
CVRs as acquisition consideration for a number of years.\7\ The purpose 
of the proposed amendment is to provide a transparent regulated market 
for the trading of those securities. The Exchange notes that, with the 
exception of the payment triggering event, Event-Based CVRs are 
identical in structure to Price-Based CVRs. The listing of Price-Based 
CVRs has been permitted under Section 703.18 for many years.
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    \7\ See, for example, CVRs listed by Sanofi (cash payment tied 
to achieving sales targets of certain drugs) and Wright Medical 
Group N.V. (cash payment tied to FDA approval of a certain drug and 
achieving revenue milestones), both listed on the Nasdaq Stock 
Market.
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    The Exchange will distribute an information circular as described 
in Section 703.18 prior to the commencement of trading of any CVR 
apprising member firms of the special characteristics and risks of the 
CVR, as well as the Exchange's know-your-customer, suitability, and 
other rules applicable thereto. The distribution of this information 
circular will help address concerns, among others, that the complexity 
of a CVR could lead to investor confusion and create certain risks. In 
addition, the Exchange will monitor activity in CVRs, including Event-
Based CVRs, to identify and deter any potential improper trading 
activity in such securities and will adopt enhanced surveillance 
procedures to enable it to monitor CVRs together with the common equity 
securities of the issuer or its affiliates, as applicable. The

[[Page 21863]]

Exchange believes these measures will reduce the risks of manipulative 
or other improper activity in connection with CVRs.
    The proposed modification to the issuer qualification requirements 
of Section 703.18 is designed to protect investors and the public 
interest, as it conforms those requirements to changes in the initial 
listing requirements for common stocks of operating companies pursuant 
to amendments to Section 102 that have been implemented since the 
adoption of Section 703.18. The issuer requirements under Section 
703.18 are those applied to the initial listing of common stocks of 
operating companies and, as such, the Exchange believes that they are 
sufficiently rigorous to be used in connection with the listing of 
CVRs. The Exchange further believes that issuers that meek [sic] the 
Exchange's issuer qualification requirements are likely to be 
substantial companies capable of meeting their financial obligations 
under the terms of a listed CVR. The Exchange also notes that it will 
continue to require issuers of listed CVRs to have at least $100 
million in total assets at the time of original listing.
    The proposal to amend the continued listing requirements of Section 
703.18 to provide that a listed CVR will be delisted if its issuer 
ceases to be listed on a national securities exchange is designed to 
protect investors and the public interest, as it ensures that issuers 
whose CVR s are listed on the Exchange will meet the qualitative and 
quantitative standards for listing on a national securities exchange on 
a continuous basis.
    The updated reference to the Exchange's legal entity name and 
additional introductory language are simply factual corrections and 
have no substantive impact.

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. The proposed amendment to 
Section 703.18 will increase competition by providing an additional 
listing venue for Event-Based CVRs. The amendment to the issuer 
qualification requirements in Section 703.18 simply conforms those 
requirements to modifications to the initial listing requirements for 
common stocks of operating companies and does not impose any burden on 
competition. The amendment to the continued listing requirements in 
703.18 is being proposed to ensure the ongoing suitability for listing 
of the issuers of CVRs and does not impose any burden on competition.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or up to 90 days (i) as the Commission may designate 
if it finds such longer period to be appropriate and publishes its 
reasons for so finding or (ii) as to which the self-regulatory 
organization consents, the Commission will:
    (A) by order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-2019-14 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-2019-14. 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 website (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 website 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 10:00 a.m. and 
3:00 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSE-2019-14, and should be submitted on 
or before June 5, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-09961 Filed 5-14-19; 8:45 am]
 BILLING CODE 8011-01-P