Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting Approval of a Proposed Rule Change, as Modified by Amendment No. 1 Thereto, Relating to Listing Standards for Warrants, Rights, and Units, 28848-28850 [E8-11036]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 73, Number 97 (Monday, May 19, 2008)]
[Notices]
[Pages 28848-28850]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-11036]



[[Page 28848]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57815; File No. SR-NYSEArca-2007-104]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of a Proposed Rule Change, as Modified by Amendment No. 1 
Thereto, Relating to Listing Standards for Warrants, Rights, and Units

May 12, 2008.

I. Introduction

    On October 3, 2007, NYSE Arca, Inc. (``NYSE Arca'' or 
``Exchange''), through its wholly owned subsidiary, NYSE Arca Equities, 
Inc. (``NYSE Arca Equities''), filed with the Securities and Exchange 
Commission (``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposal to apply certain initial and continued 
listing standards to rights to purchase listed securities and to adopt 
new listing requirements for Units.\3\ On March 27, the Exchange filed 
Amendment No. 1 to the proposed rule change. The proposed rule change 
was published for comment in the Federal Register on April 8, 2008.\4\ 
The Commission received no comments on the proposal. This order 
approves the proposed rule change, as modified by Amendment No. 1 
thereto.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ ``Units'' are defined as paired securities which may be 
transferred and traded only in combination with one another as a 
single economic unit. See NYSE Arca Equities Rule 5.1(b)(20). 
Currently, the Exchange has continued listing standards for Units in 
NYSE Arca Equities Rule 5.5(a), which references NYSE Arca Equities 
Rules 5.5(b)-(e). NYSE Arca Equities Rules 5.5(b)-(e) relate to the 
continued listing requirements for common stock and common stock 
equivalent securities, preferred stock and secondary classes of 
common stock, bonds and debentures, and warrants, respectively. See 
NYSE Arca Equities Rules 5.5(b)-(e). See also infra note 9.
    \4\ See Securities Exchange Act Release No. 57603 (April 2, 
2008), 73 FR 19125.
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II. Description of the Proposal

    The Exchange proposes to: (1) Amend NYSE Arca Equities Rules 5.2(f) 
and 5.5(e), the Exchange's initial and continued listing standards for 
warrants, to apply such standards to rights to purchase securities; \5\ 
and (2) adopt new NYSE Arca Equities Rule 5.2(k) to add listing 
standards for Units. The Exchange states that the proposed rule changes 
herein are modeled upon the rules of The NASDAQ Stock Market LLC 
(``Nasdaq'') and provisions contained in the Company Guide of the 
American Stock Exchange LLC (``Amex'').\6\
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    \5\ The initial and continued listing standards for warrants 
under NYSE Arca Equities Rules 5.2(f) and 5.5(e), respectively, were 
approved by the Commission in 1994. See Securities Exchange Act 
Release No. 34429 (July 22, 1994), 59 FR 38998 (August 1, 1994) (SR-
PSE-93-12) (approving quantitative and qualitative listing standards 
with respect to common stock, preferred stock, bonds and debentures, 
warrants, contingent value rights, and other securities).
    \6\ The Exchange states that Nasdaq's initial listing standards 
for warrants and rights are set forth in Nasdaq Rule 4420(d), and 
its continued listing standards for warrants and rights are set 
forth in Nasdaq Rule 4450(d). In addition, Nasdaq's initial listing 
standards for units are set forth in Nasdaq Rule 4420(h). The 
Exchange also states that the proposal regarding the listing 
standards for Units are based, in part, on provisions contained in 
the Amex Company Guide. See infra note 12.
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Listing Standards for Warrants and Rights

    Currently, NYSE Arca Equities Rule 5.2(f) addresses the Exchange's 
initial listing standards for warrants. The Exchange proposes to add 
rights to this Rule and apply these same initial listing standards to 
both warrants and rights to purchase securities.\7\ As is the case for 
warrants, at least 500,000 rights must be publicly held by not less 
than 250 public beneficial holders under NYSE Arca Equities Rule 
5.2(f)(1), as amended. The purpose for this change is to allow the 
Exchange to list rights so that it can offer investors more investment 
options, while also remaining competitive in the marketplace.
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    \7\ The Exchange states that Nasdaq made a similar change to its 
rule, which is now contained in Nasdaq Rule 4420(d). See Securities 
Exchange Act Release No. 43435 (October 11, 2000), 65 FR 62779 
(October 19, 2000) (SR-NASD-99-69) (approving, among other things, 
the inclusion of rights in the initial listing standards for 
warrants).
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    Currently, NYSE Arca Equities Rule 5.2(f)(2) provides, in part, 
that the Exchange will not list warrants unless the common stock of the 
company or other security underlying the warrants is already listed 
(and meets the pertinent continued listing requirements) or will be 
listed on the Exchange concurrently with the warrants. The Exchange 
proposes to amend NYSE Arca Equities Rule 5.2(f)(2) to provide that the 
common stock of the company or other security underlying the warrants 
and rights must be listed and trading (and meets the pertinent 
continued listing standards), or will be listed and trading, on a 
national securities exchange concurrently with the listing and trading 
of warrants or rights, as applicable. The Exchange notes that it would 
not list a warrant or right if the security underlying such warrant or 
right is no longer trading or is subject to a trading halt, as imposed 
by the national securities exchange listing such underlying security. 
Therefore, the Exchange believes that investors would remain protected.
    Currently, NYSE Arca Equities Rule 5.5(e) addresses the continued 
listing of warrants on the Exchange. NYSE Arca Equities Rule 5.5(e) 
states that, for continued listing, the common stock of the company or 
other security underlying the warrants must meet the applicable Tier I 
maintenance requirements. The Exchange proposes to amend this Rule so 
that the continued listing standard, as proposed to be modified as 
discussed below, would apply to both warrants and rights to purchase 
listed securities.\8\ As is the case with the proposal to add rights to 
the initial listing standards, the purpose for this change is to allow 
the Exchange to list rights so that it can offer investors more 
investment options, while also remaining competitive in the 
marketplace.
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    \8\ The Exchange states that Nasdaq's continued listing 
standards for warrants also apply to rights, as set forth in 
Nasdaq's Rule 4450(d).
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    As stated above, NYSE Arca Equities Rule 5.5(e) provides, in 
pertinent part, that the underlying common stock of the company or 
other security must meet the applicable Tier I maintenance requirements 
under NYSE Arca Equities Rule 5.5. The Exchange proposes to amend this 
language to state that, in the case of warrants and rights, the common 
stock of the company or other security underlying the warrants or 
rights, as applicable, must continue to be listed on a national 
securities exchange. The Exchange believes that, as long as the 
security underlying warrants and rights satisfies the listing standards 
of another national securities exchange and are otherwise in good 
standing for trading, investors would be able to obtain additional 
investment options and, at the same time, remain protected. The 
Exchange also proposes this change to simplify the continued listing 
standards under NYSE Arca Equities Rule 5.5(e) and ensure that the 
issuer of an underlying security is listed on a national securities 
exchange, in the interest of protecting investors.

Listing Standards for Units

    Currently, the Exchange has no separate initial quantitative 
listing standards for Units, although it has a definition and continued 
listing standards for Units.\9\ The Exchange

[[Page 28849]]

proposes to adopt initial listing standards for Units under proposed 
NYSE Arca Equities Rule 5.2(k). The Exchange states that the proposed 
standards are substantially similar to those under Nasdaq Rule 
4420(h).\10\
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    \9\ NYSE Arca Equities Rule 5.5(a) states that, in the case of 
Units, the Exchange will normally consider suspending dealings in or 
delisting if any of the component parts do not meet the applicable 
listing standards as set forth in NYSE Arca Equities Rules 5.5(b)-
(e). If one or more of the components is otherwise qualified for 
listing, that component may remain listed. Where all component parts 
of a Unit do not meet the applicable listing standards as set forth 
in NYSE Arca Equities Rules 5.5(b)-(e), the Unit will be delisted 
from the Exchange. See supra note 3.
    \10\ See Nasdaq Rule 4420(h). See also Securities Exchange Act 
Release No. 49746 (May 20, 2004), 69 FR 30356 (May 27, 2004) (SR-
NASD-2004-81) (approving listing standards for units).
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    In particular, under proposed NYSE Arca Equities Rule 5.2(k), all 
Units must have at least one equity component and all components must 
meet the initial and continued listing standards in NYSE Arca Equities 
Rules 5.2(k) and 5.5 (a)-(e), as applicable, or in the case of debt 
components, meet certain specified criteria including: (1) An aggregate 
market value or principal amount of at least $5 million; (2) a 
requirement that the issuer of the debt security have equity securities 
that are listed on a national securities exchange; and (3) in the case 
of convertible debt, limitations on changes to conversion prices, 
subject to an exception, and a real-time last sale reporting 
requirement for the equity security into which the debt is 
convertible.\11\ In addition, all components of the Unit must be issued 
by the same issuer, and all Units and issuers of such Units must comply 
with the initial and continued listing standards of NYSE Arca Equities 
Rules 5.2(k) and 5.5(a)-(e), as applicable.
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    \11\ The Exchange notes that real-time last sale reporting must 
be available for the underlying equity security, and it will not be 
sufficient that the Unit containing such equity security be subject 
to last sale reporting.
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    The Exchange also proposes that Units be subject to a minimum 
listing period of 30 days from the first day of listing, except that 
the period may be shortened if the Units are suspended or withdrawn for 
regulatory purposes. Issuers and underwriters seeking to withdraw Units 
from listing must provide the Exchange with notice of such intent at 
least 15 days prior to withdrawal. Accordingly, the Exchange believes 
that these provisions will provide investors a meaningful period of 
time to react to the withdrawal of the Unit from listing and trading.
    Under proposed NYSE Arca Equities Rule 5.2(k)(3), each issuer of 
Units must include in its prospectus or other offering document used in 
connection with any offering of securities that is required to be filed 
with the Commission under the federal securities laws and the rules and 
regulations thereunder a statement regarding any intention to delist 
the Units immediately after the minimum inclusion period referenced 
above. In addition, an issuer of a Unit would be required to provide 
information regarding the terms and conditions of the components of the 
Unit, the ratio of the components comprising the Unit, and when a 
component of the Unit is separately listed on an exchange, on the 
issuer's Internet Web site, or if it does not maintain a Web site, in 
its annual report provided to Unit holders. Further, an issuer would be 
required to immediately publicize through, at a minimum, a public 
announcement through the news media, any change in the terms of a 
listed Unit, such as changes to the terms and conditions of any of the 
components or to the ratio of components within the Unit. The Exchange 
believes that this heightened disclosure requirement is appropriate to 
ensure that sufficient information regarding the attributes of these 
securities is publicly available on a timely basis.
    The Exchange also proposes to add language clarifying the 
applicability of certain continued listing standards relating to 
components of Units that have separated.\12\ The Exchange states that, 
when Units in good standing begin to separate into their component 
securities, the remaining Units that are still intact and the 
components of those Units which have separated may all be separately 
listed and continue to trade, provided that they meet the applicable 
continued listing standards. The proposal specifies that, in 
determining whether an individual component meets the applicable 
distribution requirements specified in the continued listing standards, 
the Units that are intact and freely separable into their component 
parts will be counted toward the total numbers required for continued 
listing of the component. For example, if 1,000,000 shares of common 
stock are publicly held after separation from their Units, and 500,000 
intact and freely separable Units are publicly held, the common stock 
would be credited with having 1,500,000 shares publicly held, enabling 
it to meet the publicly held shares requirement for common stock, which 
requires at least 1,100,000 shares of common stock to be publicly 
held.\13\ If the Units are no longer freely separable and/or listed on 
the Exchange, the separately-traded components would still be required 
to meet their applicable continued listing standards, however, without 
aggregation of the Units.
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    \12\ The Exchange states that its proposal to clarify the 
applicability of listing standards relating to components of Units 
that have separated is modeled upon Section 1003(g)(ii) and (iii) of 
the Amex Company Guide. See Securities Exchange Act Release No. 
55675 (April 26, 2007), 72 FR 24638 (May 3, 2007) (SR-Amex-2006-114) 
(approving amendments to the listing standards for units).
    \13\ See NYSE Arca Equities Rule 5.5(b)(1).
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    Despite the fact that the aggregated distribution values satisfy 
the continued listing distribution standards, in certain circumstances 
under the proposal, the Exchange would also consider suspending trading 
in, or removing from listing, an individual component or Unit when, in 
the opinion of the Exchange, the public distribution or aggregate 
market value of such component or Unit becomes so reduced as to make 
continued listing on the Exchange inadvisable. In its review of the 
advisability of the continued listing of an individual component or 
Unit under such circumstances, the Exchange proposes to take into 
account the trading characteristics of the component or Unit and 
whether it would be in the public interest for trading in such 
component or Unit to continue.
    The Exchange states that it will halt or suspend trading in the 
Units or rights, as the case may be, when the underlying security is 
halted on the relevant national securities exchange. In addition, for 
Units and rights that are listed on the Exchange and based upon an 
underlying security listed on another national securities exchange, the 
Exchange represents that it will monitor Units and rights under the 
Exchange's applicable continued listing standards.
    As is the case with the initial and continued listing standards for 
rights, the Exchange states that the purpose for the proposed initial 
listing standards for Units is to allow the Exchange to list Units so 
that it can offer investors more investment options, while also 
remaining competitive in the marketplace.

III. Commission's Findings and Order Granting Approval of the Proposed 
Rule Change

    After careful review and based on the Exchange's representations, 
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.\14\ In particular, the 
Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act \15\ in that

[[Page 28850]]

it is designed 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.
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    \14\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \15\ 15 U.S.C. 78f(b)(5).
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    With respect to the proposal to apply the initial and continued 
listing standards for warrants to rights to purchase securities, the 
Commission notes that it has approved the application of such standards 
to rights with respect to the rules of another national securities 
exchange.\16\ The Commission believes that, in the case of warrants or 
rights, as applicable, the Exchange's proposal to permit the underlying 
security to be listed and trading on another national securities 
exchange should benefit investors by offering additional investment 
options on the Exchange for warrants and rights and, at the same time, 
protect such investors, as long as the underlying security satisfies 
the applicable initial and continued listing standards of such other 
national securities exchange. The Commission notes that, with respect 
to rights listed on the Exchange and based on an underlying security 
listed on another national securities exchange, the Exchange will halt 
or suspend trading in rights when the underlying security is halted on 
the relevant national securities exchange.\17\ The Commission expects 
that the Exchange will also monitor on a continuous basis the 
application of the continued listing standards under proposed NYSE Arca 
Equities Rule 5.5(e) as they relate to such rights. Under proposed NYSE 
Arca Equities Rule 5.5(e), if the security underlying a series of 
rights or warrants is delisted by another national securities exchange, 
the Exchange must delist such rights.
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    \16\ See supra notes 6 and 7.
    \17\ The Commission further notes that, by virtue of the 
requirement that the security underlying the right must be listed 
and trading on a national securities exchange, such security will be 
subject to last-sale reporting. As a result, the Commission expects 
the Exchange, and the Exchange has committed, to halt trading in a 
series of rights if the underlying security is halted on the 
relevant national securities exchange.
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    With respect to the adoption of listing standards for Units, the 
Commission notes that it has approved substantially similar standards 
for other national securities exchanges.\18\ The Commission believes 
that, in the case of Units based on a debt security component, the 
Exchange's proposal to permit the issuer of such debt component to have 
equity securities listed on another national securities exchange should 
benefit investors by offering additional investment options on the 
Exchange for Units.\19\ The Commission notes that, with respect to 
Units listed on the Exchange, the Exchange will halt or suspend trading 
in such Units when the trading of an underlying security component is 
halted. In addition, the Commission further notes that the Exchange 
will monitor on a continuous basis the application of the continued 
listing standards under NYSE Arca Equities Rule 5.5(a) as they relate 
to such Units. Lastly, under the proposed rule, if it appears that not 
enough Units will be separated to allow the components to meet the 
public distribution and aggregate market value requirements 
independently or there are other concerns, the rule makes clear that 
the Exchange should consider delisting the components or Unit. This 
recognizes the fact that although the rule allows the aggregation of 
Units and components for purposes of the applicable distribution 
standards, the Exchange will need to ensure that there is some minimal 
level of liquidity in each component and Unit and should consider 
delisting if the public distribution or the aggregate market value of 
the components or Unit has become so reduced as to make continued 
listing on the Exchange inadvisable. In this regard, the Exchange will 
take into account the individual distribution values and the trading 
characteristics of the component or Unit and whether it would be in the 
public interest for continued trading of such component or Unit.\20\
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    \18\ See supra notes 10 and 12.
    \19\ In the case of Units based on a debt security component, 
the Commission notes that, if a series of equity securities of the 
issuer of the debt security component is delisted on a national 
securities exchange, the Exchange would be expected to halt trading 
in the related Units and institute delisting proceedings for such 
Units.
    \20\ The Commission notes that minimum distribution requirements 
are extremely important to ensure, among other things, the liquidity 
of a security and an active public market. The changes being 
approved for meeting the distribution standards applicable to Units 
and their components recognize the unique trading characteristics 
and challenges that can occur in meeting the minimum standards 
during the separation period of the Units, while containing certain 
protections to ensure certain minimum standards will be met.
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    The Commission believes that the proposal should help to promote 
transparency of the Exchange rules relating to the initial and 
continued listing of rights and Units and provide clearer guidance for 
members and investors trading in such securities. As noted above, the 
security components underlying a series of rights or Units, as 
applicable, will be subject to last-sale reporting by virtue of being 
listed on the Exchange or another national securities exchange, and the 
Commission notes that the Exchange will halt trading in such series of 
rights or Units, as applicable, if a security component thereunder 
ceases to trade on the relevant market or if such security component is 
no longer subject to last-sale reporting and is delisted on a national 
securities exchange. For the foregoing reasons, the Commission believes 
it is reasonable and consistent with the Act for the Exchange to adopt 
listing standards for rights and Units in the manner described in the 
proposal.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\21\ that the proposed rule change (SR-NYSEArca-2007-104), as 
modified by Amendment No. 1 thereto, be, and it hereby is, approved.
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    \21\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
Florence E. Harmon,
Deputy Secretary.
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    \22\ 17 CFR 200.30-3(a)(12).
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 [FR Doc. E8-11036 Filed 5-16-08; 8:45 am]
BILLING CODE 8010-01-P