Document ID: SEC-2006-1613-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: New York Stock Exchange LLC
Posted Date: 2006-12-13T05:00Z

[Federal Register: December 13, 2006 (Volume 71, Number 239)]
[Notices]               
[Page 74972-74974]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13de06-81]                         

[[Page 74972]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54887; File No. SR-NYSE-2006-103]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to an Amendment to the Earnings Standard Included in the 
Exchange's Financial Listing Criteria

December 6, 2006.
    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 November 30, 2006, 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. 
NYSE has filed this proposal pursuant to Section 19(b)(3)(A) of the Act 
\3\ 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).
    \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

    NYSE proposes to include an alternative method for meeting the 
earnings standard alternative in its domestic financial listing 
standards for companies proposing to list on the Exchange contained in 
Section 102.01C of the Exchange's Listed Company Manual (the 
``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 Exchange 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. 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
    The Exchange proposes to include an alternative method for meeting 
the earnings standard alternative in its domestic financial listing 
standards for companies proposing to list on the Exchange contained in 
Section 102.01C of the Exchange's Manual.
    Section 102.01C of the Manual allows companies to list under the 
Exchange's domestic listing criteria by meeting one of three 
alternative standards. The earnings standard allows a company to list 
if it has pre-tax earnings from continuing operations and after 
minority interest, amortization and equity in the earnings or losses of 
investees, adjusted for certain specified items, totaling at least 
$10,000,000 in the aggregate for the last three fiscal years together 
with a minimum of $2,000,000 in each of the two most recent fiscal 
years, and positive amounts in all three years. Under certain 
circumstances, the Exchange may qualify a company based on the most 
recent completed nine months in lieu of the earliest fiscal year 
otherwise required by the applicable standard, in circumstances where a 
recapitalization transaction or significant change in operations has 
rendered irrelevant the financial position of the company in that third 
year back and the company would meet the requirements of Section 
102.01C based on the most recent nine months and the two immediately 
preceding fiscal years.
    The proposed amendment would amend the earnings standard to provide 
an alternative to the existing requirements. The alternative earnings 
standard would require total earnings over the three fiscal year period 
of $12,000,000, with at least $5,000,000 in earnings in the most 
recently completed fiscal year. The requirement of $2,000,000 in 
earnings in the middle year would be retained, but the requirement that 
the company have a positive amount in the earliest fiscal year in the 
period would be eliminated. The Exchange is proposing to allow 
companies listing under the proposed alternative earnings standard to 
use the most recent nine fiscal months instead of the earliest fiscal 
year, in the limited circumstances in which that approach is permitted 
under the current earnings test.\5\ If a company that listed on the 
basis of its most recent nine fiscal months does not actually meet the 
alternative earnings standard upon completion of the full fiscal year 
and does not at that time meet any of the other initial listing 
standard options, the Exchange will commence immediate delisting 
proceedings with respect to that company without the benefit of any of 
the cure provisions normally available to companies that are below 
continued listing standards. The amended rule text will also clarify 
that companies listing under any of the Exchange's financial standards 
using their most recent nine fiscal months will also be subject to 
delisting as set forth in the foregoing sentence. Section 802.01B of 
the Manual is also being amended to include an identical provision.
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    \5\ See Manual Section 102.01C.
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    The proposed amendment would allow the Exchange to list financially 
sound companies with substantial earnings that would be able to list 
under the current earnings standard but for losses in the earliest 
fiscal year of the three-year period. Frequently, that earliest year is 
unrepresentative of the current financial position of the company, as, 
for example, it has significantly changed its business model, was in a 
start-up phase of its development at that time, or has since undergone 
a recapitalization. The Exchange believes that the proposed alternative 
earnings standard is as stringent as the existing standard, as it 
requires $12,000,000 in total earnings over the measurement period 
rather than the $10,000,000 of the current standard and it requires 
$5,000,000 in earnings in the most recent fiscal year rather than the 
$2,000,000 required by the current standard. The Exchange believes that 
achieving these higher earnings requirements would be at least as good 
an indication of financial health as is the current earnings standard, 
even if a company had losses in the furthest back year of the period.
    The Exchange believes that its proposed alternative earnings 
standard is at least as stringent as a standard the Commission has 
approved previously for another self-regulatory agency. Specifically, 
the Nasdaq Global Market's Standard Three (``Standard Three'') does not 
require any demonstration of historical earnings. Standard Three 
requires $20 million in market value of publicly-held shares, while the 
Exchange's standards require $60 million in market value of publicly-
held shares in connection with initial public offerings or spin-offs 
and $100 million

[[Page 74973]]

for all other companies. A company can list under Standard Three by 
meeting only one other requirement: a market value of listed securities 
of $75 million. The Exchange believes that a company that meets its own 
$60 million in market value of publicly-held shares requirement would 
most likely also meet Standard Three's market value of listed 
securities test, as the Exchange requirement does not reflect the 
ownership interests of officers, directors and holders of more than 10% 
of the company's stock. The Exchange believes that even without 
considering its earnings requirements, the proposed alternate earnings 
standard is as stringent as Standard Three. When the earnings 
requirement, which is absent from Standard Three is included in the 
analysis, the proposed Exchange standard is clearly superior.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of Section 6(b) \6\ of the Act, in general, and 
Section 6(b)(5) \7\ of the Act, in particular, in that it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to remove impediments to, and 
perfect the mechanism of a free and open market and, in general, to 
protect investors and the public interest.
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    \6\ 15 U.S.C. 78(f)(b).
    \7\ 15 U.S.C. 78(f)(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

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the 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) does not become 
operative for 30 days after the date of the 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 \8\ and 
Rule 19b-4(f)(6) thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6). As required by Rule 19b-4(f)(6)(iii) 
under the Act, the Exchange also provided with the Commission with 
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 of the proposed rule 
change.
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    The Exchange has asked the Commission to waive the 30-day operative 
delay specified in Rule 19b-4(f)(6)(iii).\10\ The Exchange asserts that 
the proposed amendment implements a listing standard that is at least 
as stringent as a listing standard of another self-regulatory 
organization previously approved by the Commission. In addition, the 
Exchange believes that the proposed alternative does not weaken the 
requirements of its earnings standard as, while a company would now be 
able to meet the test even if it had incurred a loss in the earliest 
year of the period, the aggregate earnings requirement for the whole 
period and the requirement for the most recent year of the period have 
been significantly increased.
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    \10\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission hereby grants the request to waive the 30-day 
operative delay.\11\ As the NYSE states, the increase in the aggregate 
earnings requirement for the whole period and the increase in the 
requirement for the most recent year of the period should help ensure 
that financially sound companies are listed on the Exchange. In 
addition, the proposal furthers the public interest by providing that 
the Exchange will immediately delist, without the benefit of any of its 
normally available cure provisions,\12\ a company listed on the 
Exchange on the basis of such company's most recently completed nine 
months,\13\ when that company does not subsequently meet the 
alternative standard upon completion of the full fiscal year and does 
not meet any of the other initial listing standard options. Based on 
these facts, and that it appears that the proposed listing requirement 
is at least as stringent as a listing standard previously approved by 
the Commission for another market, the Commission believes that waiving 
the 30 day operative delay is consistent with the protection of 
investors and the public interest.
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    \11\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \12\ See Manual Sections 802.02 and 802.03.
    \13\ Section 102.01C of the Manual provides that financial 
statements covering a period of nine to twelve months shall satisfy 
the requirement for the most recent fiscal year in cases where the 
applicant has changed its fiscal year or where there has been a 
significant change in the company's operations or capital structure. 
In these cases, the Exchange must conclude that the Company can 
reasonably be expected to qualify under the regular standard upon 
completion of its then current fiscal year in lieu of the earliest 
fiscal year otherwise required by the applicable standard. See 
Manual Section 102.01C.
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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 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 e-mail to rule-comments@sec.gov. Please include File 

Number SR-NYSE-2006-103 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSE-2006-103. 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 will also be available for inspection and copying at the 
principal office of the NYSE. All comments received will be posted

[[Page 74974]]

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-2006-103 and should be submitted on or before 
January 3, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E6-21162 Filed 12-12-06; 8:45 am]

BILLING CODE 8011-01-P