Self-Regulatory Organizations; New York Stock Exchange LLC; Order Approving Proposed Rule Change To Make Permanent a Pilot Program Under Which the Exchange Excludes From Its Earnings Standard Gains or Losses From Extinguishment of Debt Prior to Maturity, 53469-53470 [E8-21543]

Download as PDF Federal Register / Vol. 73, No. 180 / Tuesday, September 16, 2008 / Notices be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/other.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File No. 4–568 on the subject line. ebenthall on PROD1PC60 with NOTICES Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549. All submissions should refer to File No. 4–568. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/rules/other.shtml). 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 changes 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, 100 F Street, NE., Washington, DC 20549–1090. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File No. 4–568 and should be submitted on or before October 16, 2008. II. Date of Effectiveness of the Proposed Minor Rule Violation Plan and Timing for Commission Action Pursuant to section 19d–1 of the Act and Rule 19d–1(c)(2) thereunder,7 after October 16, 2008, the Commission may, by order, declare BATS Exchange’s proposed Minor Rule Violation Plan effective if the plan is consistent with the public interest, the protection of investors, or otherwise in furtherance of the purposes of the Act. The Commission in its order may restrict the categories of violations to be designated as minor rule violations and may impose any other terms or conditions to the proposed Minor Rule Violation Plan, 7 15 U.S.C. 78s(d)(1) and 17 CFR 240.19d–1(c)(2). VerDate Aug<31>2005 13:43 Sep 15, 2008 Jkt 214001 File No. 4–568, and to the period of its effectiveness which the Commission deems necessary or appropriate in the public interest, for the protection of investors or otherwise in furtherance of the purposes of this Act. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.8 Florence E. Harmon, Acting Secretary. [FR Doc. E8–21616 Filed 9–15–08; 8:45 am] BILLING CODE 8010–01–P 53469 Accession. For these reasons, the Commission designates the proposal to be operative upon filing with the Commission.20 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority. Florence E. Harmon, Acting Secretary. [FR Doc. E8–21485 Filed 9–15–08; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION SECURITIES AND EXCHANGE COMMISSION [Release No. 34–58499; File No. SR–NYSE– 2008–58] [Release No. 34–58445A; File No. SR–BSE– 2008–43] Self-Regulatory Organizations; Boston Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Regarding Transfer of Ownership of MX US 2, Inc.; Correction Self-Regulatory Organizations; New York Stock Exchange LLC; Order Approving Proposed Rule Change To Make Permanent a Pilot Program Under Which the Exchange Excludes From Its Earnings Standard Gains or Losses From Extinguishment of Debt Prior to Maturity September 10, 2008. September 9, 2008. In FR Doc. No. E8–20869, for Tuesday, September 9, 2008, beginning on page 52434, make the following correction. On page 52436, first column, the first full paragraph is revised to read as follows: A proposed rule change filed under Rule 19b–4(f)(6) normally may not become operative prior to 30 days after the date of filing.17 However, Rule 19b– 4(f)(6)(iii) permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest.18 The Exchange has requested that the Commission waive the 30-day operative delay.19 The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest because BSE has represented that the Instruments of Accession will be executed on August 29, 2008, and there is no reason to delay implementation of the changes to the BOX LLC Agreement pursuant to the Instruments of I. Introduction On July 22, 2008, the New York Stock Exchange LLC (‘‘NYSE’’ or ‘‘Exchange’’) 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 proposed rule change to enable the Exchange to adjust the earnings of companies for purposes of the Exchange’s pre-tax earnings standard by excluding gains or losses recognized in connection with the extinguishment of debt prior to its maturity. The proposed rule change was published for comment in the Federal Register on August 5, 2008.3 The Commission received no comments on the proposal. This order approves the proposed rule change. 8 17 CFR 200.30–3(a)(44). CFR 240.19b–4(f)(6)(iii). In addition, Rule 19b–4(f)(6)(iii) requires the self-regulatory organization to give the Commission notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Commission has determined to waive the five-day prefiling period in this case. 18 17 CFR 240.19b–4(f)(6)(iii). 19 See E-mail from Lisa J. Fall, General Counsel and Corporate Secretary, BOX, to Molly Kim, Special Counsel, Division of Trading and Markets, Commission, on August 29, 2008. 17 17 PO 00000 Frm 00064 Fmt 4703 Sfmt 4703 II. Description of the Proposal The Exchange proposes to amend the earnings standard of section 102.01C(I) of the Exchange’s Listed Company Manual (‘‘Manual’’) to enable the Exchange to adjust the earnings of companies for purposes of its pre-tax earnings standard by excluding gains or losses recognized in connection with the extinguishment of debt prior to its maturity. The adjustment would relate 20 For purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 58254 (July 30, 2008), 73 FR 45511. E:\FR\FM\16SEN1.SGM 16SEN1 53470 Federal Register / Vol. 73, No. 180 / Tuesday, September 16, 2008 / Notices ebenthall on PROD1PC60 with NOTICES only to gains or losses incurred in the three-year period under examination for purposes of the earnings standard. The proposed amendment was originally implemented for a six-month period as a Pilot Program.4 The Pilot Program expired and was subsequently renewed for an additional three months, expiring on September 2, 2008.5 Prior to the promulgation of Statement of Financial Accounting Standards No. 145 (‘‘SFAS No. 145’’) in 2002, Financial Accounting Standards Board Statement No. 4 (‘‘FASB No. 4’’) required that gains and losses from the extinguishment of debt prior to its maturity that were included in the determination of net income be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. SFAS No. 145 rescinded FASB No. 4 and, as a result, gains or losses in connection with the extinguishment of debt prior to its maturity are now generally included in the calculation of operating earnings under generally accepted accounting principles (‘‘GAAP’’). As a result, the Exchange has stated that some companies that would not otherwise be qualified to list may qualify as a result of the inclusion in pre-tax income of gains from the extinguishment of debt prior to its maturity. In addition, according to the Exchange, some prospective listed companies whose operating earnings would have met the requirements of the Exchange’s pre-tax earnings test prior to 2002 are now not qualified to list as they are required to include losses from the extinguishment of debt prior to its maturity in pre-tax income. In its proposal, the Exchange stated that in its experience, these gains and losses are primarily noncash in nature and that the gains generally represent the accelerated accrual of original issue discount, while the losses generally represent the remaining unamortized portion of costs incurred at the time of initial borrowing. The Exchange believes that it is appropriate to return to its pre-2002 approach of excluding gains and losses from debt extinguishment from pre-tax earnings as calculated for purposes of its earnings standard. In its proposal, the Exchange stated that the purpose of the earnings standard is to determine the suitability for listing of companies on a forward-looking basis in light of a sustained demonstration of strong earnings. The Exchange does not believe 4 See Exchange Act Release No. 56195 (August 2, 2007), 72 FR 44904 (August 9, 2007) (SR–NYSE– 2007–71). 5 See Exchange Act Release No. 57903 (June 2, 2008), 73 FR 32610 (June 9, 2008) (SR–NYSE–2008– 43). VerDate Aug<31>2005 13:43 Sep 15, 2008 Jkt 214001 that it is relevant to include in pre-tax earnings gains and losses from the extinguishment of debt prior to its maturity that are principally nonrecurring in nature. Additionally, the Exchange believes that the analyst community routinely excludes these gains and losses from their analyses in making recommendations as to the desirability of investing in companies’ publicly-traded equity securities. The Exchange believes that adjusting company earnings for gains and losses from the extinguishment of debt prior to its maturity is consistent with the adjustments that are currently permitted under section 102.01C for a number of other nonrecurring charges to earnings that are included in net income as recorded under GAAP, such as the exclusion of impairment charges on long-lived assets, the exclusion of gains and losses on sales of a subsidiary’s or investee’s stock and the exclusion of inprocess purchased research and development charges. The Exchange also believes that this adjustment is reasonable given the purpose of the earnings standard, which is to determine the suitability for listing of companies on a forward-looking basis. The Exchange has stated that, as with all companies listed on the Exchange, the Financial Compliance staff of NYSE Regulation, Inc. will monitor on an ongoing basis the compliance with the Exchange’s continued listing standards of any companies listed in reliance upon the proposed amendment. The Exchange represents that such companies will be subject to delisting if they are found at any time to be below the Exchange’s continued listing standards. In its proposal, the Exchange stated that as it gains experience in listing companies in reliance upon the proposed amendment, it will continue to carefully reevaluate the appropriateness of the amendment. If the Exchange becomes aware that companies listed pursuant to the proposed amendment have difficulty complying with the Exchange’s continued listing standards, it will inform the Commission and discuss with the Commission the desirability of the continued use of the provision. III. Discussion and Commission Findings After careful review, 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 and, in particular, PO 00000 Frm 00065 Fmt 4703 Sfmt 4703 with section 6(b)(5) of the Act,6 which requires, among other things, that the rules of a national securities exchange be 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.7 The Commission believes that the proposed rule change is consistent with other adjustments the Exchange makes when evaluating applicants on a forward-looking, post-IPO basis under the existing earnings standard in section 102.01C(I) of the Manual and is reasonable given the purpose of the earnings standard, which is to determine the suitability for listing of companies on a forward-looking basis. The Commission notes that these changes to the earnings standards will allow the Exchange to adjust the earnings of companies for purposes of satisfying the Exchange’s pre-tax earnings standard, by excluding gains or losses recognized in connection with the extinguishment of debt prior to its maturity, and will not impact the preparation of financial statements by the company listing on the Exchange. In addition, the Commission notes that the Exchange will monitor companies listing using this new adjustment and notes that the Exchange has agreed to discuss the standard with the Commission should it prove difficult for such companies to comply with the Exchange’s continued listing standards. IV. Conclusion It is therefore ordered, pursuant to section 19(b)(2) of the Act,8 that the proposed rule change (SR–NYSE–2008– 58) be, and hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.9 Florence E. Harmon, Acting Secretary. [FR Doc. E8–21543 Filed 9–15–08; 8:45 am] BILLING CODE 8010–01–P 6 15 U.S.C. 78f(b)(5). approving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 8 15 U.S.C. 78s(b)(2). 9 17 CFR 200.30–3(a)(12). 7 In E:\FR\FM\16SEN1.SGM 16SEN1

Agencies

[Federal Register Volume 73, Number 180 (Tuesday, September 16, 2008)]
[Notices]
[Pages 53469-53470]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-21543]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58499; File No. SR-NYSE-2008-58]


Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Approving Proposed Rule Change To Make Permanent a Pilot Program Under 
Which the Exchange Excludes From Its Earnings Standard Gains or Losses 
From Extinguishment of Debt Prior to Maturity

September 9, 2008.

I. Introduction

    On July 22, 2008, the New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') 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 
proposed rule change to enable the Exchange to adjust the earnings of 
companies for purposes of the Exchange's pre-tax earnings standard by 
excluding gains or losses recognized in connection with the 
extinguishment of debt prior to its maturity. The proposed rule change 
was published for comment in the Federal Register on August 5, 2008.\3\ 
The Commission received no comments on the proposal. This order 
approves the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 58254 (July 30, 
2008), 73 FR 45511.
---------------------------------------------------------------------------

II. Description of the Proposal

    The Exchange proposes to amend the earnings standard of section 
102.01C(I) of the Exchange's Listed Company Manual (``Manual'') to 
enable the Exchange to adjust the earnings of companies for purposes of 
its pre-tax earnings standard by excluding gains or losses recognized 
in connection with the extinguishment of debt prior to its maturity. 
The adjustment would relate

[[Page 53470]]

only to gains or losses incurred in the three-year period under 
examination for purposes of the earnings standard. The proposed 
amendment was originally implemented for a six-month period as a Pilot 
Program.\4\ The Pilot Program expired and was subsequently renewed for 
an additional three months, expiring on September 2, 2008.\5\
---------------------------------------------------------------------------

    \4\ See Exchange Act Release No. 56195 (August 2, 2007), 72 FR 
44904 (August 9, 2007) (SR-NYSE-2007-71).
    \5\ See Exchange Act Release No. 57903 (June 2, 2008), 73 FR 
32610 (June 9, 2008) (SR-NYSE-2008-43).
---------------------------------------------------------------------------

    Prior to the promulgation of Statement of Financial Accounting 
Standards No. 145 (``SFAS No. 145'') in 2002, Financial Accounting 
Standards Board Statement No. 4 (``FASB No. 4'') required that gains 
and losses from the extinguishment of debt prior to its maturity that 
were included in the determination of net income be aggregated and, if 
material, classified as an extraordinary item, net of related income 
tax effect. SFAS No. 145 rescinded FASB No. 4 and, as a result, gains 
or losses in connection with the extinguishment of debt prior to its 
maturity are now generally included in the calculation of operating 
earnings under generally accepted accounting principles (``GAAP''). As 
a result, the Exchange has stated that some companies that would not 
otherwise be qualified to list may qualify as a result of the inclusion 
in pre-tax income of gains from the extinguishment of debt prior to its 
maturity. In addition, according to the Exchange, some prospective 
listed companies whose operating earnings would have met the 
requirements of the Exchange's pre-tax earnings test prior to 2002 are 
now not qualified to list as they are required to include losses from 
the extinguishment of debt prior to its maturity in pre-tax income. In 
its proposal, the Exchange stated that in its experience, these gains 
and losses are primarily noncash in nature and that the gains generally 
represent the accelerated accrual of original issue discount, while the 
losses generally represent the remaining unamortized portion of costs 
incurred at the time of initial borrowing.
    The Exchange believes that it is appropriate to return to its pre-
2002 approach of excluding gains and losses from debt extinguishment 
from pre-tax earnings as calculated for purposes of its earnings 
standard. In its proposal, the Exchange stated that the purpose of the 
earnings standard is to determine the suitability for listing of 
companies on a forward-looking basis in light of a sustained 
demonstration of strong earnings. The Exchange does not believe that it 
is relevant to include in pre-tax earnings gains and losses from the 
extinguishment of debt prior to its maturity that are principally 
nonrecurring in nature. Additionally, the Exchange believes that the 
analyst community routinely excludes these gains and losses from their 
analyses in making recommendations as to the desirability of investing 
in companies' publicly-traded equity securities. The Exchange believes 
that adjusting company earnings for gains and losses from the 
extinguishment of debt prior to its maturity is consistent with the 
adjustments that are currently permitted under section 102.01C for a 
number of other nonrecurring charges to earnings that are included in 
net income as recorded under GAAP, such as the exclusion of impairment 
charges on long-lived assets, the exclusion of gains and losses on 
sales of a subsidiary's or investee's stock and the exclusion of in-
process purchased research and development charges. The Exchange also 
believes that this adjustment is reasonable given the purpose of the 
earnings standard, which is to determine the suitability for listing of 
companies on a forward-looking basis.
    The Exchange has stated that, as with all companies listed on the 
Exchange, the Financial Compliance staff of NYSE Regulation, Inc. will 
monitor on an ongoing basis the compliance with the Exchange's 
continued listing standards of any companies listed in reliance upon 
the proposed amendment. The Exchange represents that such companies 
will be subject to delisting if they are found at any time to be below 
the Exchange's continued listing standards.
    In its proposal, the Exchange stated that as it gains experience in 
listing companies in reliance upon the proposed amendment, it will 
continue to carefully reevaluate the appropriateness of the amendment. 
If the Exchange becomes aware that companies listed pursuant to the 
proposed amendment have difficulty complying with the Exchange's 
continued listing standards, it will inform the Commission and discuss 
with the Commission the desirability of the continued use of the 
provision.

III. Discussion and Commission Findings

    After careful review, 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 
and, in particular, with section 6(b)(5) of the Act,\6\ which requires, 
among other things, that the rules of a national securities exchange be 
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.\7\
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b)(5).
    \7\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    The Commission believes that the proposed rule change is consistent 
with other adjustments the Exchange makes when evaluating applicants on 
a forward-looking, post-IPO basis under the existing earnings standard 
in section 102.01C(I) of the Manual and is reasonable given the purpose 
of the earnings standard, which is to determine the suitability for 
listing of companies on a forward-looking basis. The Commission notes 
that these changes to the earnings standards will allow the Exchange to 
adjust the earnings of companies for purposes of satisfying the 
Exchange's pre-tax earnings standard, by excluding gains or losses 
recognized in connection with the extinguishment of debt prior to its 
maturity, and will not impact the preparation of financial statements 
by the company listing on the Exchange. In addition, the Commission 
notes that the Exchange will monitor companies listing using this new 
adjustment and notes that the Exchange has agreed to discuss the 
standard with the Commission should it prove difficult for such 
companies to comply with the Exchange's continued listing standards.

IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\8\ that the proposed rule change (SR-NYSE-2008-58) be, and hereby 
is, approved.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
---------------------------------------------------------------------------

    \9\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-21543 Filed 9-15-08; 8:45 am]
BILLING CODE 8010-01-P