Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto by the New York Stock Exchange, Inc. To Amend Its Rule 500 Relating to Voluntary Delistings by Listed Companies

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39394; File No. SR-NYSE-97-31]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change and Amendment No. 1 Thereto by the New York Stock Exchange, Inc.

To Amend Its Rule 500 Relating to Voluntary Delistings by Listed

Companies

December 3, 1997.

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 17, 1997, the New York Stock Exchange, Inc. (``NYSE'' or

``Exchange'') filed with the Securities and Exchange Commission

(``SEC'' or ``Commission'') the proposed rule change as described in

Items I, II and III below, which Items have been substantially prepared

by the NYSE.\3\ On December 3, 1997, the NYSE submitted Amendment No. 1

to the proposed rule change.\4\ The Commission is publishing this

notice to solicit comments on the proposed rule change, as amended,

from interested persons.

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\1\ 15 U.S.C. 78s(b)(1).

\2\ 17 CFR 240.19b-4.

\3\ With the consent of the NYSE, Commission staff has

incorporated several technical changes to the Exchange's description

of its proposal. Telephone conversation between Richard Bernard,

Executive Vice President and General Counsel, NYSE, and Richard

Strasser, Assistant Director, Division of Market Regulation,

Commission, on November 26, 1997.

\4\ See Letter from James E. Buck, Senior Vice President and

Secretary, NYSE, to Jonathan G. Katz, Secretary, Commission, dated

December 1, 1997 (``Amendment No. 1''). In Amendment No. 1, the NYSE

amended the proposal to require an issuer proposing to delist its

securities from the Exchange to: (1) provide the Exchange with

written notice of the proposed delisting at the same time the issuer

provides such notice to its shareholders; and (2) send the Exchange

a copy of the delisting application the issuer submits to the

Commission. Commission staff has incorporated the proposed changes

set forth in Amendment No. 1 into the NYSE's description of its

proposal.

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

Substance of the Proposed Rule Change

The Exchange proposes to replace existing NYSE Rule 500 with a new

Rule 500 to revise the procedures a NYSE-listed company must follow to

delist its securities from the Exchange. The text of the proposed rule

change, as amended, is available at the Office of the Secretary, the

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

Statutory Basis for, the Proposed Rule Change

1. Purpose

The purpose of the proposed rule change, as amended, is to revise

the procedures an NYSE-listed company must follow to delist its

securities from the Exchange. Currently, Rule 500 requires

supermajority shareholder approval before a listed company can delist

its securities: holders of 66\2/3\ percent of the security must approve

the delisting, and ten percent or more of the individual holders cannot

object to the delisting.

The Exchange adopted existing Rule 500 in the 1930's as a corporate

governance safeguard, when delisting from the NYSE generally resulted

in the loss of a public market for a security. That is no longer the

case. Recognizing the changed corporate law and market circumstances,

the new Rule would substitute alternative delisting procedures

depending on the nature of the security.

For stock of a domestic issuer, the Rule would require

the issuer to obtain the approval of (1) the company's audit

committee and (2) a majority of the company's full board of

directors before the issuer could apply for delisting. Requiring

approval by the independent directors constituting the audit

committee, as well as approval of a majority of the full board of

directors (not just of a quorum of directors at a particular

meeting), would provide shareholders with protections that the

Exchange believes would help offset the loss of the current

shareholder voting requirement for delisting.

After receiving approval of the audit committee and board, the

issuer would be required to provide shareholders with at least 45

but no more than 60 days' written notice of the proposed delisting.

The notice must include a statement that the issuer complied with

the requirements discussed in the paragraph above. This notice and

waiting period would give shareholders who object to the proposed

delisting an opportunity to communicate their views to the issuer's

management and directors before the delisting becomes effective. It

also would assure a reasonable period of time for shareholders to

liquidate their positions in a stock in an orderly manner should

they decide that they did not want to continue to own the security

after delisting from the Exchange. At the same time, the 60-day cut-

off assures that the ``lame-duck'' status of the stock listing would

not persist to the point of impairing the ability of the Exchange to

maintain a fair and orderly market in the stock. The issuer must

contemporaneously send to the Exchange a copy of the written notice

sent to shareholders.

For stock of a non-U.S. issuer, the Rule simply would

require the issuer to obtain board approval before the issuer could

apply to the Commission for delisting, leaving to home country law

the determination of the requisite vote. The issuer also would need

to provide holders with reasonable notice of its intention to delist

the securities. The Supplementary Material to the Rule, discussed

below, provides further details on the nature of this notice.

For bonds of both domestic and non-U.S. issuers, an

issuer could apply to delist bonds subject only to board approval.

The Rule does not require that bond holders be notified of the

proposed delisting. The absence of the more rigorous requirement

that pertains to stock reflects the fact that the Exchange generally

is not the primary market for bonds.

New Supplementary Material to the Rule explains how these

procedures would operate.

Supplementary Material .10 cross-references NYSE Rule

4, which defines the term ``stock,'' and Rule 5, which defines the

term ``bond.'' Generally, the stock delisting procedures would

supply to securities ``classified for trading as stocks,'' including

common stock, preferred stock and certain derivative instruments,

such as equity-linked debt securities that trade pursuant to the

stock trading rules. The bond delisting procedures would apply to

fixed income products traded on the Bond Floor or through the

Automated Bond System.

Supplementary Material .20 provides guidance as to the

manner in which non-U.S. issuer must provide notice to shareholders

regarding the delisting of their stock. Non-U.S. issuers would be

required to send written notice of the delisting to (i) shareholders

that have a U.S. address or (ii) shareholders that own the stock in

the form of American Depositary Receipts. For other holders, the

issuer could follow home-country practice, which, for example, may

allow for notice through publication or other means.

Supplementary Material .30 cross-references NYSE Rule

465, which governs the transmission of reports and other materials

by member organizations to beneficial owners who hold securities in

``street'' name. Supplementary Material .30 notes that, pursuant to

Rule 465, both domestic and non-U.S. issuers must request that

member organizations transmit the written notice of the proposed

delisting as required by Rule 500 and Supplementary Material .20 to

beneficial stockholders.

[[Page 65117]]

Supplementary Material .40 discusses the interplay

between Rule 500 and the issuer's application to the SEC to withdraw

the security from listing. Pursuant to Commission Rule 12d2-2(d)

under the Exchange Act, an issuer may apply to withdraw the security

from listing after complying with the requirements of the Rule. With

respect to the delisting of stock, the proposed date of delisting in

the application to the Commission must be the same date specified in

the notice to shareholders. The issuer must contemporaneously send

to the Exchange a copy of the application submitted to the

Commission.

Supplementary Material .50 parallels a provision in

Rule 499 (governing Exchange-initiated delistings), which provides

that, when reviewing the listing status of one class of securities,

the Exchange will review the appropriateness of the continued

listing of other classes of the issuer's securities. Factors the

Exchange will consider in such a review under Rule 500 include, but

are not limited to, the pricing relationship between the securities

being delisted and the other security, and the ability of the

Exchange to make a market in the remaining securities. For example,

it is unlikely the Exchange would delist the common stock of an

issuer that delists bonds. On the other hand, it is likely that the

Exchange would delist the warrants of an issuer that delists its

common stock.

2. Statutory Basis

The Exchange believes the proposed rule change, as amended, is

consistent with the requirements of Section 6(b)(5) of the Act,\5\

which requires that the rules of the Exchange be designed to prevent

fraudulent and manipulative acts and practices, to promote just and

equitable principles of trade, and, in general, to protect investors

and the public interest.

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

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

The Exchange believes that the proposal does not 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

The Exchange has not solicited, and does not intend to solicit,

comments on this proposed rule change. The Exchange has not received

any unsolicited written comments from members or other interested

parties. However, in a process initiated at the beginning of May 1997,

the Exchange did consult with a number of its Board and advisory

committees, pension funds and other constituents in developing the

Rule. The NYSE represents that these constituents overwhelmingly

supported the revision of existing Rule 500, rather than its

elimination.

According to the NYSE, the most controversial issue among the

constituents was whether the requirement for a shareholder vote should

be maintained, albeit with a simple majority vote. The great majority

of those surveyed viewed delisting as a matter within the purview of

the business judgment of a company's board of directors. These

constituents believed that the Exchange could address the concerns

underlying the desire for a shareholder vote by requiring (1) a higher-

than-normal board vote, (2) the concurrence of independent directors,

and (3) provision to shareholders of notice of a proposed delisting.

The Exchange believes that the text of the Rule reflects the

reconciliation and incorporation of the comments and suggestions that

the exchange received from these constituents.

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

for Commission Action

Within 35 days of the publication of this notice in the Federal

Register or within such longer period (i) as the Commission may

designate up to 90 days of such date 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 such 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. In addition to any other issues

that the public may wish to address, the Commission specifically

requests comments on the following questions:

Are the shareholder notification procedures required under the

terms of the proposal necessary to the delisting process?

What are the costs involved with complying with the requisite

shareholder notifications?

Will issuers' costs arising from the requisite shareholder

notification create a disincentive to delist from the Exchange?

Is there an acceptable alternative means to providing shareholder

notification, such as through media publication?

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 at 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 No. SR-NYSE-97-31 and should be submitted by December 31, 1997.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97-32229 Filed 12-9-97; 8:45 am]

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