Self-Regulatory Organizations; Filing and Order Granting Partial Accelerated Approval of Proposed Rule Change by the New York Stock Exchange, Inc., Relating to Equity-Linked Debt Securities

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-33841; File No. SR-NYSE-94-04]

Self-Regulatory Organizations; Filing and Order Granting Partial

Accelerated Approval of Proposed Rule Change by the New York Stock

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

March 31, 1994.

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

(``Act''),\1\ and rule 19b-4 hereunder,\2\ notice is hereby given that

on March 1, 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 Exchange.

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) (1988).

\2\17 CFR 240.19b-4 (1991).

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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 Paragraph 703.21 of its Listed

Company Manual (``Manual'') regarding the listing of Equity-Linked Debt

Securities (``ELDS''). ELDS are intermediate-term (2-7 years), non-

convertible hybrid instruments whose value is based, in part, on the

value of a highly capitalized, actively traded common stock or

convertible preferred stock.\3\ The proposed rule change would (1)

provide alternative minimum capitalization and trading volume

requirements for the security underlying an ELDS issue, and (2) allow

the listing of ELDS linked to non-U.S. securities. The text of the

proposed rule change is available at the Office of the Secretary, NYSE,

and at the Commission.

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\3\The Commission approved the listing and trading of ELDS 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'').

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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. 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

The purpose of the proposed rule change is to make two changes to

the Exchange's listing standards for ELDS.\4\ The first change to the

ELDS listing standards 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. Currently, such a

security must have a market capitalization of at least $3 billion and a

trading volume of at least 2.5 million shares in the preceding year.\5\

The proposed rule change will provide, as an alternative to that

standard, the ability to list ELDS linked to a security that has a $1.5

billion market capitalization and a one-year trading volume of at least

20 million shares. The Exchange believes that this will provide

additional flexibility in the listing of ELDS, while ensuring that the

linked security is highly capitalized and that there is adequate

liquidity in the market for the linked security.

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\4\The Commission notes that an ELDS which satisfies the

criteria set forth in the proposed rule change must also satisfy the

other listing criteria for ELDS set forth in Paragraph 703.21 of the

Manual.

\5\Id.

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The second change to the ELDS listing standards would allow the

issuer of the linked security to be a non-U.S. company if certain

criteria are met. Under the proposal, the issuer could be a non-U.S.

company (whose securities are traded in the United States either as

ordinary shares or as American Depositary Receipts (``ADRs'')) if one

of the following conditions is met:

The Exchange has in place with the primary exchange for

the security (and in the case of an ADR, with the primary exchange in

the home country of the security underlying the ADR) an effective

surveillance information sharing agreement;

The United States is the primary market for the security

(determined in the manner discussed below); or

The staff of the Commission otherwise agrees to the

listing.

In determining whether the U.S. is the primary market for the

linked security, the combined trading volume of the security (including

the security itself, any ADR overlying the security (adjusted on a

share equivalent basis) and other classes of stock related to the

underlying security) in the United States for the three month period

preceding the date of listing must be at least 50% of the combined

world-wide trading in such securities. The U.S. trading in the security

would include only those U.S. self-regulatory organizations included in

the Intermarket Surveillance Group\6\ and linked through the

Intermarket Trading System.\7\

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\6\ISG was formed on July 14, 1983 to, among other things,

coordinate more effectively surveillance and investigative

information sharing arrangements in the stock and options markets.

See Intermarket Surveillance Group Agreement, July 14, 1983. The

most recent amendment to the ISG Agreement, which incorporates the

original agreement and all amendments made thereafter, was signed by

ISG members on January 29, 1990. See Second Amendment to the

Intermarket Surveillance Group Agreement, January 29, 1990. The

members of the ISG, (and accordingly, of the U.S. market) are: The

American Stock Exchange, Inc.; the Boston Stock Exchange, Inc.; the

Chicago Board Options Exchange, Inc.; the Chicago Stock Exchange,

Inc.; the Cincinnati Stock Exchange, Inc.; the National Association

of Securities Dealers, Inc.; the NYSE; the Pacific Stock Exchange,

Inc.; and the Philadelphia Stock Exchange, Inc. Because of potential

opportunities for trading abuses involving stock index futures,

stock options and the underlying stock and the need for greater

sharing of surveillance information for these potential intermarket

trading abuses, the major stock index futures exchanges (e.g., the

Chicago Mercantile Exchange and the Chicago Board of Trade) joined

the ISG as affiliate members in 1990.

\7\ITS is a communications system designed to facilitate trading

among competing markets by providing each market with order routing

capabilities based on current quotation information. The system

links the participant markets and provides facilities and procedures

for: (1) The display of composite quotation information at each

participant market, so that brokers are able to determine readily

the best bid and offer available from any participant for multiple

trading securities; (2) efficient routing of orders and sending

administrative messages (on the functioning of the system) to all

participating markets; (3) participation, under certain conditions,

by members of all participating markets in opening transactions in

those markets; and (4) routing orders from a participating market to

a participating market with a better price.

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Trading in the U.S. in other markets would be included in the

world-wide volume for the security, but not in the U.S. volume.

The Exchange believes that allowing ELDS to be issued based on the

value of eligible non-U.S. securities will provide significant benefits

to investors and the capital markets by providing increased investment

and corporate financing flexibility. The Exchange believes this

flexibility will be achieved without compromising investor protection

by ensuring that the linked security either has its primary market in

the United States or that the Exchange has access to surveillance

information from the primary exchange where the linked security is

traded (and in the case of ADRs, with the primary exchange in the home

country where the security underlying the ADR is traded).

The Exchange believes that the proposed rule change is consistent

with section 6 of the Act, in general, and with 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 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.

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

The NYSE does not believe that the proposed rule change will impose

any inappropriate 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

The Exchange 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 portion of the proposed rule change

relating to the alternative minimum capitalization and trading volume

requirements for securities underlying ELDS 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)\8\ 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 finds that the proposal will

expand the universe of securities that can be linked to ELDS while

maintaining the requirement that the linked security be an actively

traded common stock issued by a highly capitalized issuer. While the

proposal introduces an alternative, reducing by one-half the minimum

market capitalization of the linked security, the stock of such an

issuer could only be linked to ELDS if its trading volume for the prior

12-month period exceeds by eight times the current minimum trading

volume set forth in Paragraph 703.21 of the Manual. Furthermore, the

proposal does not alter any of the other listing requirements

applicable to ELNs contained in Paragraph 703.21 of the Manual which

the Commission has previously approved.\9\ As a result, the Commission

finds that the proposed amendment is consistent with the Act.

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\8\15 U.S.C. 78f(b)(5) (1988).

\9\See Exchange Act Release No. 33468, supra note 3.

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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 of filing thereof in the Federal Register in order to allow the

Exchange to list ELDS linked to stocks satisfying the proposed

alternative market capitalization and trading volume guidelines without

delay. In addition, the Commission notes it has not been made aware of

any adverse comments concerning the ELDS series currently listed and

trading on the Exchange. Furthermore, the Commission believes that the

NYSE proposal does not raise any new issues that were not addressed to

the Commission's satisfaction when the listing and trading of ELDS was

originally approved. Finally, the Commission has approved identical

alternative listing standards with respect to equity linked term notes

(``ELNs'') listed and traded on the American Stock Exchange

(``Amex'').\10\ The Commission notes that the Amex proposal with

respect to the alternative listing standards applicable to ELNs was

published for the full 21-day comment period and no comments opposing

the proposal were received by the Commission. Accordingly, the

Commission believes that good cause exists to approve the proposed rule

change on an accelerated basis.

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\10\See Securities Exchange Act Release No. 33328 (December 13,

1993), 58 FR 66041 (December 17, 1993).

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IV. Solicitation of Comments

Interested persons are invited to submit written data, views and

arguments concerning the foregoing. Persons making written submissions

should file six copies thereof with the Secretary, Securities and

Exchange Commission, 450 Fifth Street NW., Washington, DC 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 at the

Commission's Public Reference Section, 450 Fifth Street NW.,

Washington, DC 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 No. SR-NYSE-94-04 and should be

submitted by April 28, 1994.

It is therefore ordered, pursuant to section 19(b)(2) of the

Act\11\ that the portion of the proposed rule change (SR-NYSE-94-04)

allowing securities underlying an ELDS issue to have a minimum

capitalization of $1.5 billion and a trading volume in the 12 months

prior to issuance of at least 20 million shares, in addition to

satisfying the other requirements set forth in Paragraph 703.21 of the

Manual, is hereby approved.

\11\15 U.S.C. 78s(b)(2) (1988).

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For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\12\

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\22\17 CFR 200.30-3(a)(12) (1993).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-8282 Filed 4-6-94; 8:45 am]

BILLING CODE 8010-01-M