regulatory organizations; proposed rule changes: New York Stock Exchange, Inc.,

[Federal Register: July 14, 1999 (Volume 64, Number 134)]

[Notices]

[Page 38063-38064]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr14jy99-158]

[[Page 38063]]

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41608; File No. SR-NYSE-99-22]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the New York Stock Exchange, Inc., Relating to Equity-Linked Debt Securities

July 8, 1999.

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 May 28, 1999, the New York Stock Exchange, Inc. (``NYSE'' or ``Exchange'') filedwith the Securities and Exchange Commission (``Commission'') the proposed rule change. The proposed rule change is described in Items I, II, and III 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.

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

\2\ 17 CFR 240.19b-4.

1. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

   The Exchange is proposing to amend paragraph 703.21 of its Listed Company Manual (``Manual'') regarding the listing of equity-linked debt securities (``ELDS''). The amendment deals with the minimum required term of such securities, and substitutes a one-year minimum for all ELDS (domestic and non-U.S.) for the current requirement that the securities have a term of two to seven years (three year maximum for non-U.S. securities). The text of the proposed rule change is as follows. New text is italicized and deleted text is bracketed. NYSE Listed Company Manual 703.21 Equity-Linked Debt Securities * * * * * (B) Equity-Linked Debt Security Listing Standards

   The issue must have: * * * * *

   ‹bullet› Minimum life of one year [A term of two to seven years; provided that if the issuer is a non-U.S. company, the issue may not have a term of more than three years]. * * * * *

2. 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 Exchange has prepared summaries, set forth in Sections A, B and C below, of the most significant aspects of such statements.

   1. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

      1. Purpose

      ELDS are non-convertible debt 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. Because ELDS are a derivative product related to the underlying stock, the Exchange trades ELDS on the equity trading Floor together with the underlying stock (if such stock is listed).

      Paragraph 703.21 of the Manual details the Exchange's listing standards for ELDS. Among other things, these standards require that the ELDS have a term of two to seven years, but not more than three years for ELDS based on the price of a non-U.S. issuer. The Exchange initially proposed these limits as a conservative measure to help ensure that the trading of ELDS does not have an adverse effect on the liquidity of the underlying stock, and is not used in a manipulative manner. The limits on the terms for ELDS contrast with the Exchange's general requirements of derivative instruments. Specifically, for warrants (Paragraph 703.12 of the Manual), foreign currency and currency index warrants (Paragraph 703.15 of the Manual), contingent value rights (Paragraph 703.18 of the Manual) and ``other securities'' (Paragraph 703.19 of the Manual), the Exchange requires only that the security have a minimum life of one year.

      In the nearly six years that the Exchange has traded ELDS, it has not discovered any adverse effects of this instrument. Indeed, ELDS appear to be an instrument that complements the trading of the underlying stock, and the continued popularity of the instrument demonstrates its appeal in the market. Accordingly, the Exchange sees no reason to retain more stringent requirements on these instruments compared to other derivative products. Thus, the purpose of this filing is to apply to ELDS the one-year minimum term requirement generally applicable to other derivative products regardless of whether based on a domestic or non-U.S. security.

      The Exchange believes that this rule change will provide issuers with more flexibility in developing ELDS and thus provide greater investment choices in the market. Specifically, the Exchange notes that many corporate debt instruments have terms well in excess of seven years, and that this rule change will allow the structuring of ELDS with terms to maturity comparable to such debt instruments. Furthermore, extending the term of ELDS will provide issuers with the ability to offer variations on ELDS, such as principal protection and call features that may not be as desirable on debt instruments with a shorter term. The Exchange believes that this added flexibility will encourage innovation without having an adverse effect on investor protection. 2. Statutory Basis

      The Exchange believes the proposed rule change is consistent with Section 6(b)(5) of the Act \3\ requiring that an exchange have rules that are 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 regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, 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.

      \3\ 15 U.S.C. 78f(b)(5).

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

      The Exchange believes the proposed rule change does not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.

   3. 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.

      [[Page 38064]]

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

   Within 35 days of the date of 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.

4. 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. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filedwith 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 in Washington, DC. Copies of such filing will also be available for inspection and copying at the principal office of the Exchange. All submissions should refer to File No. SR-NYSE-99-22 and should be submitted by August 4, 1999.

   For the Commission, by the Division of Market Regulation, pursuant to delegated authority.\4\

   \4\ 17 CFR 200.30-3(a)(12).

   Margaret H. McFarland, Deputy Secretary.

   [FR Doc. 99-17933Filed7-13-99; 8:45 am]

   BILLING CODE 8010-01-M