Self-Regulatory Organizations; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Change by the New York Stock Exchange, Inc. Relating to Equity-Linked Debt Securities (``ELDS'')

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34985; File No. SR-NYSE-94-37]

Self-Regulatory Organizations; Notice of Filing and Order

Granting Accelerated Approval of a Proposed Rule Change by the New York

Stock Exchange, Inc. Relating to Equity-Linked Debt Securities

(``ELDS'')

November 18, 1994.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on October

21, 1994, the New York Stock Exchange, Inc. (``NYSE'' or ``Exchange'')

filed with the Securities and Exchange Commission (``Commission'' or

``SEC'') the proposed rule change as described in Items I and II below,

which items have been prepared by the NYSE. The Commission is

publishing this notice to solicit comments on the proposed rule change

from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance

of the Proposed Rule Change

The NYSE proposes to amend its listing standards for equity-linked

debt securities (``ELDS'') contained in Paragraph 703.21 of the

Exchange's Listed Company Manual (``Manual'') to provide for greater

flexibility in the listing of ELDS. The text of the proposed rule

change is available at the Office of the Secretary, NYSE, and at the

Commission.

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 NYSE 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 the

Statutory Basis for, the Proposed Rule Change

ELDS are intermediate-term, debt securities of an issuer where the

value of the debt is based, at least in part, on the value of another

issuer's common stock or non-convertible preferred stock.\1\ The

purpose of the proposed rule change is to provide alternative market

capitalization and trading volume criteria for the linked security,

that is, the security on which the value of the ELDS is based.

Specifically, the proposed rule change will add the following

alternative standard for securities that can be linked to an ELDS: (1)

market capitalization of at least $500 million; and (2) annual U.S.

trading volume for the one-year period prior to the listing of the ELDS

of at least 80 million shares.\2\ Paragraph 703.21 will also be amended

to provide flexibility for the listing of issues of ELDS in cases where

the linked security does not meet the specified capitalization and

trading volume criteria provided in Paragraph 703.21 of the Manual,

provided the staff of the Commission concurs with the listings.

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\1\The Commission originally approved the Exchange's ELDS

listing standards on January 13, 1994. See Securities Exchange Act

Release No. 33468 (January 13, 1994), 59 FR 3387 (January 21, 1994)

(``Exchange Act Release No. 33468''). The ELDS listing standards

have twice been amended since that time. See Securities Exchange Act

Release Act Nos. 33841 (March 31, 1994), 59 FR 16671 (April 7, 1994)

(order approving alternative minimum market capitalization and

trading volume requirements for the security underlying an ELDS)

(``Exchange Act Release No. 33841'') and 34545 (August 18, 1994), 59

FR 43877 (August 25, 1994) (order approving the listing of ELDS

linked to sponsored American Depositary Receipts (``ADRs'') and

other securities issued by non-U.S. companies subject to reporting

requirements under the Act) (``Exchange Act Release No. 34545'').

\2\Currently, the market capitalization and trading volume

requirements for a security underlying an ELDS are as follows: (1)

market capitalization of at least $3 billion and trading volume in

the U.S. for the one-year period prior to the listing of the ELDS of

at least 2.5 million shares; or (2) market capitalization of at

least $1.5 billion and trading volume in the U.S. for the one-year

period prior to the listing of the ELDS of at least 20 million

shares. See Exchange Act Release Nos. 33468 and 33841, supra note 1.

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Finally, the proposed rule change amends existing language in

Paragraph 703.21 regarding the listing of ELDS that represent more than

the specified maximum percentages of the outstanding shares of the

linked security.\3\ The amended language parallels the language

discussed above regarding the ability of the Exchange to list ELDS that

do not meet the specific capitalization and trading volume standards,

i.e., an ELDS linked to more than the maximum specified percentages of

the outstanding shares of the linked security could be listed provided

that the NYSE, with the concurrence of the staff of the Commission,

determines that the listing is appropriate.\4\

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\3\Paragraph 703.21 presently provides that an issue of ELDS

linked to a security issued by a: (1) U.S. company may not exceed 5%

of the total outstanding shares of that security; and (2) non-U.S.

company that is subject to reporting requirements under the Act may

not exceed (i) 2% of the total worldwide outstanding shares of such

security if at least 30% of the worldwide trading volume for the

security and all related securities during the six-month period

preceding the date of listing occurs in the U.S. market, (ii) 3% of

the total worldwide outstanding shares of such security if at least

50% of the worldwide trading volume for the security and all related

securities during the six-month period preceding the date of listing

occurs in the U.S. market, or (iii) 5% of the total worldwide

outstanding shares of such security if at least 70% of the worldwide

trading volume for the security and all related securities during

the six-month period preceding the date of listing occurs in the

U.S. market. See Securities Exchange Act Release Nos. 33468 and

34545, supra note 1.

\4\The Commission notes that Paragraph 703.21 presently provides

that an ELDS may relate to more than the maximum percentages set

forth above if the Exchange, in consultation with the staff of the

Commission, determines that the listing is appropriate. As a result,

the Commission believes that this portion of the proposed rule

change is non-substantive in that it merely clarifies the intent of

current standard set forth in the NYSE's rules, provides uniformity

throughout Paragraph 703.21, and provides uniformity among the

wording of the NYSE rule and similar rules of other self-regulatory

organizations (see infra notes 10-12).

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The NYSE believes the proposed rule change is consistent with

Section 6(b) of the Act in general and furthers the objectives of

Section 6(b)(5) in particular in that it is 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 facilitating transactions in securities, and to

remove impediments to and perfect the mechanism of a free and open

market and a national market system.

B. Self-Regulatory Organization's Statement on Burden on Competition

The NYSE does not believe that the proposed rule change will 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 either solicited or received with respect

to the proposed rule change.

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

Commission Action

The NYSE has requested that the proposed rule change be given

accelerated effectiveness pursuant to Section 19(b)(2) of the Act.

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, the requirements of Section 6(b)(5) of the Act\5\ in that

it is designed to prevent fraudulent and manipulative acts and

practices, to promote just and equitable principles of trade, and to

protect investors and the public interest. Specifically, the Commission

believes that the proposed change does not raise any significant

regulatory issues that were not addressed in the Commission's approval

orders regarding ELDS.\6\ The Commission finds that the proposal to add

an additional market capitalization and trading volume requirement for

eligible linked securities will expand the number of securities that

can be linked to an ELDS while maintaining the requirement that the

linked security be an actively traded common stock or sponsored ADR

issued by a highly capitalized issuer. While the proposal introduces a

third alternative for ELDS eligibility that reduces the minimum market

capitalization requirement for the linked security, the stock of such

an issuer (or sponsored ADR related thereto) could only be linked to an

ELDS issue if its trading volume in the U.S. for the prior one-year

period is at least 80 million shares, which is four times higher than

the current minimum trading volume requirement.\7\ The Commission

believes that together, the new capitalization and trading volume

requirements will continue to ensure that ELDS are only issued on

highly liquid securities of broadly capitalized companies and that

these requirements will reduce the likelihood of any adverse market

impact on the securities underlying ELDS.

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\5\15 U.S.C. Sec. 78f(b)(5) (1982).

\6\See supra note 1.

\7\See supra note 2.

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Additionally, allowing the NYSE, subject to the concurrence of the

staff of the Commission, to approve an issue of ELDS that either does

not satisfy one of the existing requirements regarding market

capitalization and trading volume merely adds flexibility to the

proposed rule change. The Commission believes that this portion of the

proposal does not raise any regulatory concerns, particularly given the

requirement of obtaining the concurrence of the staff of the Commission

prior to listing.\8\

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\8\If the NYSE proposed an ELDS that raised unique or

significant regulatory concerns, the staff of the Commission would

require the NYSE to submit a rule filing to the Commission pursuant

to Section 19(b) of the Act. Depending on the proposed facts, the

Commission may require the NYSE to submit a rule filing to the

Commission pursuant to Section 19(b) of the Act to address the

regulatory issues raised by any proposed offering of ELDS that does

not satisfy the market capitalization and/or trading volume set

forth in Paragraph 703.21 of the Manual, as amended herein. In this

connection, the Commission notes that any proposal to list an ELDS

linked to a security with a market capitalization of less than $500

million would raise significant regulatory concerns for which a

Section 19(b) rule filing would be required.

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Moreover, as stated above, amending the language of Paragraph

703.21 to state that the concurrence of the staff of the Commission is

required prior to listing an ELDS linked to greater than the maximum

specified percentages of the outstanding shares of the linked security

merely clarifies the intent of the language currently contained in

Paragraph 703.21.\9\ Accordingly, this portion of the proposal raises

no new regulatory concerns.

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\9\See supra note 4.

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The Commission finds good cause for approving the proposed rule

change prior to the thirtieth day after the date of publication of

notice thereof in the Federal Register in order to allow the Exchange

to begin listing ELDS satisfying the revised listing standards

described herein without delay. For the reasons discussed above, the

Commission believes that the proposal does not raise any significant

regulatory issues. Additionally, the changes proposed herein are

substantively the same as amendments recently approved by the

Commission for the listing of equity linked debt by the American Stock

Exchange, Inc.,\10\ the National Association of Securities Dealers,

Inc.,\11\ and the Chicago Board Options Exchange, Inc,\12\ for which no

comments have been received by the Commission.

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\10\See Securities Exchange Act Release No. 34765 (September 30,

1994), 59 FR 51220 (October 7, 1994).

\11\See Securities Exchange Act Release No. 34758 (September 30,

1994), 59 FR 50943 (October 6, 1994).

\12\See Securities Exchange Act Release No. 34759 (September 30,

1994), 59 FR 50939 (October 6, 1994).

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For the above reasons, the Commission believes it is consistent

with Section 19(b)(2)\13\ of the Act to approve the proposed rule

change on an accelerated basis.

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\13\15 U.S.C. Sec. 78s(b)(2) (1988).

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IV. Solicitation of Comments

Interested persons are invited to submit written data, views and

arguments concerning the proposed rule change. Persons making written

submissions should file six copies thereof with the Secretary,

Securities and Exchange Commission, 450 Fifth Street, N.W., Washington,

D.C. 20549. 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 Section, 450 Fifth Street,

N.W., Washington, D.C. 20549. Copies of such filing will also be

available for inspection and copying at the principal office of the

NYSE. All submissions should refer to File Number SR-NYSE-94-37 and

should be submitted by December 19, 1994.

It is therefore ordered, Pursuant to Section 19(b)(2) of the

Act,\14\ that the proposed rule change (SR-NYSE-94-37) is approved.

\14\15 U.S.C. Sec. 78s(b)(2) (1982).

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For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\15\

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\15\17 CFR 200.30-3(a)(12) (1993).

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Jonathan G. Katz,

Secretary.

[FR Doc. 94-29212 Filed 11-25-94; 8:45 am]

BILLING CODE 8010-01-M