# 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

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URL: https://www.frixlaw.com/law-library/documents/fr%3A97-32229

## Record

- **Collection:** Federal Register
- **Document type:** Notice
- **Published:** December 10, 1997
- **Citation:** 62 FR 65116

## Text

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]
BILLING CODE 8010-01-M

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A97-32229. Public record. Not legal advice.