[Federal Register Volume 78, Number 130 (Monday, July 8, 2013)]
[Notices]
[Pages 40816-40819]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-16289]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69914; File No. SR-NYSE-2013-40]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Proposed Rule Change Amending 303A.00 of the
Exchange's Listed Company Manual To Provide a One-Year Transition
Period To Comply With the Internal Audit Requirement of Section
303A.07(c) for Companies Listing in Connection With An Initial Public
Offering, as New Registrants or by Means of a Carve-Out or Spin-Off
Transaction
July 2, 2013.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on June 18, 2013, New York Stock Exchange LLC (``NYSE'' or
the ``Exchange'') filed with the Securities and Exchange
[[Page 40817]]
Commission (the ``Commission'') the proposed rule change as described
in Items I, II, and III below, which Items have been prepared by the
self-regulatory organization. The Commission is publishing this notice
to solicit comments on the proposed rule change from interested
persons.
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\1\ 15 U.S.C.78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange proposes to amend 303A.00 of the Exchange's Listed
Company Manual (the ``Manual'') to provide a one-year transition period
to comply with the internal audit requirement of Section 303A.07(c) for
companies listing in connection with an initial public offering
(``IPO''), as new registrants or by means of a carve-out or spin-off
transaction. The text of the proposed rule change is available on the
Exchange's Web site at www.nyse.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
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 self-regulatory organization
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 those 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 parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Section 303A.07(c) of the Listed Company Manual requires that any
listed company which is subject to Section 303A.07 must have an
internal audit function to provide management and the audit committee
with ongoing assessments of the listed company's risk management
processes and system of internal control. A listed company may choose
to outsource this function to a third party service provider other than
its independent auditor.
Consistent with the transition provisions of Section 303A.00, any
company listing upon transfer from another national securities exchange
that does not have an internal audit requirement has one year from the
date of listing to comply with the internal audit function requirement
of Section 303A.07(c). Neither the Nasdaq Stock Market LLC (``Nasdaq'')
nor NYSE MKT LLC (``NYSE MKT'') has an internal audit requirement.
Consequently, any company transferring from Nasdaq or NYSE MKT to the
NYSE has one year from the date of listing to comply with the
requirement specifically set forth in its rules. By contrast, Section
303A.00 does not provide any transition period for compliance with the
internal audit requirement to a company which is listing in connection
with: (i) Its IPO \4\ or whose common stock has not previously been
registered under the Exchange Act or (ii) by means of a carve-out or
spin-off transaction.\5\ The Exchange believes that the lack of a
transition period in relation to the internal audit requirement for
these categories of newly-listed companies is anomalous in light of the
treatment of companies transferring from other markets. Accordingly,
the Exchange proposes to amend Section 303A.00 to extend the
application of the one-year transition period to comply with the
internal audit function requirement to such companies.
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\4\ For purposes of Section 303A other than Sections 303A.06
(which incorporates Exchange Act Rule 10A-3 by reference) and
303A.12(b), Section 303A.00 currently provides that a company is
considered to be listing in conjunction with an IPO if, immediately
prior to listing, it does not have a class of common stock
registered under the Exchange Act. Conseqently [sic], a company
whose common stock has not previously been registered under the
Exchange Act is eligible to avail itself of the IPO transition
periods in Section 303A.00 regardless of whether that company is
conducting a public offering at the time of its initial listing. The
Exchange's proposed amendment would provide a one-year transition
period for compliance with the internal audit function requirement
to all companies currently eligible for the IPO transition periods
in Section 303A.00.
\5\ Section 102.01B of the Manual defines a carve-out as the
initial offering of an equity security to the public by a publicly
traded company for an underlying interest in its existing business
(which may be subsidiary, division, or business unit). For all
practical purposes, a carve-out is the same as an IPO, as it
involves the listing of a newly-public company in connection with
the initial public offering of its common stock. A spin-off involves
the distribution by a listed company of all of the outstanding
common stock of a subsidiary to the listed company's shareholders
and the listing of the new company, generally without any concurrent
offering.
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The Exchange believes that providing a transition period to comply
with the internal audit function requirement to companies listing in
connection with their IPO, as new registrants or by mean of a carve-out
or spin-off transaction does not give rise to any novel regulatory
issues that do not arise in connection with the existing transition
provision for companies transferring from another national securities
exchange. The Exchange believes that providing a transitional period
after listing for a newly public company to establish its internal
audit function would benefit investors by making the company's
implementation of the internal audit function more effective and
efficient and reducing the costs that a company faces in its first year
as a public company. The proposed transition period would also limit
any interference by the Exchange's internal audit requirement with a
company's business decision regarding the timing and use of resources
relating to its initial listing. In that regard, the Exchange notes
that newly-public companies are typically in the process of upgrading
their accounting systems and internal controls and hiring additional
staff to meet the greater demands placed on public companies. In
addition, many such companies appoint a number of new directors at the
time of listing to comply with NYSE independence requirements.
Frequently, a newly-listed company will appoint a completely new audit
committee on the date of listing. As the audit committee has an
oversight role with respect to internal audit and risk management, it
is appropriate for that newly-constituted committee to have a
significant role in the design and implementation of the company's
internal audit function. A one-year transition period would give a
newly-appointed audit committee an opportunity to become familiar with
the internal controls and risk management of the company and determine
what kind of internal audit function is suitable for the company given
its specific circumstances.
Given the limited scope of the proposed transition provision and
the fact that other national securities exchanges do not have
comparable rules, the Exchange believes that the extension of the
transition provision to IPOs, new registrants, carve-outs and spin-offs
is consistent with the protection of investors and the public interest.
Moreover, given that any company which would be able to avail itself of
the proposed transition could list on Nasdaq without ever having to
comply with an internal audit requirement, the Exchange believes that
investors would be at least as well protected by having these companies
listed on the Exchange, where they would be subject to such a
requirement after the transition period. After adoption of the proposed
amendment, all companies that are subject to Section 303A.07 would
continue to be required to have an internal audit function no later
than one year after their listing
[[Page 40818]]
date. The Exchange proposes to amend Section 303A.07 to include a
sentence explicitly stating this fact.
The Exchange notes that there are several provisions in Section
303A.07 that set forth duties of the audit committee with respect to
the internal audit function. The Exchange proposes to amend those
provisions to clarify the duties of the audit committee with respect to
the internal audit function during any transition period applicable to
IPOs, new registrants, transfers from another national securities
exchange, carve-outs and spin-offs. The proposed amendments are as
follows:
Section 303A.07(b)(i)(A) provides that the audit
committee's charter must provide that the committee will assist board
oversight of (1) the integrity of the listed company's financial
statements, (2) the listed company's compliance with legal and
regulatory requirements, (3) the independent auditor's qualifications
and independence, and (4) the performance of the listed company's
internal audit function and independent auditors. The proposed
amendment would provide that if the listed company does not yet have an
internal audit function because it is availing itself of a transition
period pursuant to Section 303A.00, the charter must provide that the
committee will assist board oversight of the design and implementation
of the internal audit function) [sic].
Section 303A.07(b)(i)(E) provides that the audit
committee's charter must provide that the committee will meet
separately, periodically, with management, with internal auditors (or
other personnel responsible for the internal audit function) and with
independent auditors. The proposed amendment would provide that if the
listed company does not yet have an internal audit function because it
is availing itself of a transition period pursuant to Section 303A.00,
the committee must meet periodically with the company personnel
primarily responsible for the design and implementation of the internal
audit function.
Section 303A.07(b)(i)(F) provides that the audit
committee's charter must provide that the committee will review with
the independent auditor any audit problems or difficulties and
management's response. This review is required to include discussion of
the responsibilities, budget and staffing of the listed company's
internal audit function. The proposed amendment would provide that if
the listed company does not yet have an internal audit function because
it is availing itself of a transition period pursuant to Section
303A.00, the review should include discussion of management's plans
with respect to the responsibilities, budget and staffing of the
internal audit function and its plans for the implementation of the
internal audit function.
Section 303A.07(b)(i)(H) provides that the audit
committee's charter must provide that the committee will report
regularly to the board of directors to review, among other things, the
performance of the company's internal audit function. The proposed
amendment would provide that if the listed company does not yet have an
internal audit function because it is availing itself of a transition
period pursuant to Section 303A.00, the committee should review with
the board management's activities with respect to the design and
implementation of the internal audit function.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) \6\ of the Securities Exchange Act of 1934 (the
``Act''), in general, and furthers the objectives of Section 6(b)(5) of
the Act,\7\ in particular in that 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. The Exchange believes that
the proposed amendment is consistent with the investor protection
objectives of Section 6(b)(5) of the Act in that the proposed amendment
would provide an appropriate transition period to comply with the
internal audit requirement to companies listing in connection with an
IPO, as a new registrant, or by means of a carve-out or spin-off
transaction, while retaining its general requirement that all such
companies must have an internal audit function no later than one year
from the company's listing date. The Exchange notes that during any
transition period the audit committee would continue to have a role in
overseeing the listed company's financial systems and internal controls
and would also be involved in overseeing the design and implementation
of the company's internal audit function during that period.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act, as it simply provides a
transition period for newly-listed companies to comply with the
Exchange's internal audit requirement.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 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 or disapprove the 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, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSE-2013-40 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSE-2013-40. This file
number should be included on the subject line if email is used.
[[Page 40819]]
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/sro.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 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 Web site
viewing and printing in the Commission's Public Reference Room on
official business days between the hours of 10:00 a.m. and 3:00 p.m.
Copies of such filing also will be available for inspection and copying
at the principal offices of NYSE. 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 Number SR-NYSE-2013-40, and should be submitted on or before July
29, 2013.
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\8\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\8\
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-16289 Filed 7-5-13; 8:45 am]
BILLING CODE 8011-01-P