[Federal Register Volume 59, Number 173 (Thursday, September 8, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-22039]
[[Page Unknown]]
[Federal Register: September 8, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34615; File No. SR-Amex-94-14]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by American Stock Exchange, Inc. Relating to the Exchange's
Rules for the Emerging Company Marketplace
August 30, 1994.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on May 9,
1994, the American Stock Exchange, Inc. (``Amex'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change, and on August 26, 1994 filed Amendment No. 1 to
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.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Amex is proposing to amend the rules of the Emerging Company
Marketplace (``ECM'') to clarify certain provisions regarding the
listing process and the types of securities which are eligible to be
listed on the ECM, and to memorialize in one central location certain
established Exchange policies which were previously set forth in other
documents issued by the Exchange.
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 these statements may be examined at
the places specified in Item IV below. The self-regulatory organization
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 Exchange established the ECM in March 1992 so that companies
too small for its regular list could realize the benefits of the
auction market. Since that time, the Exchange has gained significant
experience with the ECM listing process. In light of that, the Exchange
has determined that it would be appropriate to expand or clarify
certain aspects of the original rules, in particular, those provisions
which concern the listing process and the types of securities which are
eligible for listing on the ECM.
Unlike listing on the regular list, where all listing decisions are
made by the staff, listing on the ECM is a multi-step process which
also requires the separate concurrence of the ECM Listing Committee
(the ``Committee''). The Committee applies its subjective expertise in
evaluating the listing eligibility of ECM prospect companies. While no
company which is rejected by the ECM Listing Committee may be listed,
the final decision on listing eligibility is, in each case, made by the
Exchange staff. This, of course, precludes the listing of any issuer
which falls short of the ECM listing criteria subsequent to its
approval by the Committee. The proposed new rules clarify the ECM
Listing Committee's role in the ECM listing process.
Specifically, the amended ECM Guidelines provide that, in
evaluating listing eligibility, the Exchange and the ECM Listing
Committee will consider the specified numerical criteria, as well as
such subjective, qualitative factors as may be relevant, including the
nature of the applicant company's business, its commercial prospects
and future outlook, the reputation of its management,\1\ its historical
record and pattern of growth, and its financial integrity. The amended
Guidelines further note that these subjective criteria are applied on
an individual basis, that different criteria may have more or less
significance depending upon the business characteristics of the
applicant, and that, as a general matter, the relative maturity of a
company will also influence the factors considered in its
evaluation.\2\ For example, with a developmental stage company, greater
weight will likely be given to its future prospects than to its
historical performance. Although the Guidelines reference certain
qualitative factors, the Guidelines, both present and as amended, state
that those particular qualitative factors are not an exclusive list of
what may be considered in evaluating applicants.
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\1\The Exchange routinely screens all officers, directors,
principal shareholders, underwriters, consultants and other
significant individuals associated with each prospect company
through a variety of regulatory and commercial databases.
\2\In fact, no two analysts view a company in exactly the same
way, and the factors they utilize are not generally susceptible of
precise definition.
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The qualitative factors are also applied to each applicant on a
case-by-case basis. Which factors are of greatest significance will
likely be a function of the nature of the company's business, the
company's maturity, and the relative level of commercial acceptance of
its products or services. Due to the high cost of business or product
development, for example, young companies are often without positive
cash flow or earnings, so that the prospects and future outlook of such
companies must lie at the heart of their qualitative analysis. Whether
the company is providing a service, developing a new product or
technology, or exploiting new ones, and the company's plans to raise
capital and expand through future contracts or otherwise would also
likely be relevant to the analysis of the applicant. The absence of a
strong historical record or pattern of growth should not, in and of
itself, preclude listing on the ECM if the company satisfies the
quantitative requirements and in the view of the Exchange staff and the
ECM Listing Committee, has the potential to demonstrate future
success.\3\ On the other hand, with a more mature company, the Exchange
would give added consideration to the company's historical record in
evaluating its suitability for listing.
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\3\Inevitably some young companies considered for the ECM have
``going concern'' opinions from their independent auditors. The
Exchange recognizes that such a qualified opinion is a cautionary
flag which relates to the issuer's financial integrity. While a
going concern opinion will not automatically preclude a listing, the
Exchange staff and the ECM Listing Committee will consider carefully
why such an opinion was given and how likely the qualifier is to be
lifted in the near term.
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In addition to clarifying the ECM Listing Committee's role, the new
rules also make clear that the Exchange may present companies to the
Committee prior to the time that they satisfy each of the numerical
listing criteria, although, as noted above, all companies must meet
each of the numerical guidelines before trading commences. For example,
it is not unusual for a company to satisfy virtually all of the
numerical guidelines but have a shortfall in stockholders' equity which
it plans to remedy through an imminent private placement. This issuer
would want to know whether it would be eligible to list upon completion
of the offering. Indeed, knowledge that it would be approved might be
useful to the company in determining whether or how to secure
financing. In these cases, there is no reason to defer presenting the
company for the ECM Listing Committee's consideration until after the
completion of the financing transaction. This is no different than what
happens whenever an initial public offering (``IPO'') is listed on any
marketplace.
The new rules also note that while the ECM Listing Committee does
not ordinarily attach conditions to its approval of a company, if it
does do so the company may not commence trading on the ECM until such
conditions are met, or until the company is reconsidered and approved
by the ECM Listing Committee. The new rules also specify that if, prior
to trading, a company which was approved by the Committee experiences a
negative change affecting its business, the Exchange staff shall
consult with the Chairman of the Committee who shall determine whether
the change is sufficiently significant so that the company must be
resubmitted to the full Committee for its review. Finally, if a company
approved by the ECM Listing Committee has not commenced trading within
two quarters, the Exchange will resubmit the company to the Committee
for further review.
In addition, the ECM rules have been expanded to specifically
reflect certain matters that were previously covered only in other
Exchange rules or in the ECM listing agreement, namely that ECM listed
companies are not eligible to take advantage of the state securities
(``blue sky'') exemptions which are available to Amex-listed companies,
and that their listed securities are not automatically marginable.
Among the other changes are the following:
a new section has been added to discuss the process of
transferring to the regular list, and to confirm that Amex companies
may not transfer ``down'' to the ECM;
new sections have been added to provide specific
guidelines for the listing of units, preferred stock and debt
securities,\4\ and to clarify that the listing of warrants is not
subject to the price and market value guidelines for common stock; and
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\4\To date, no debt securities have been listed on the ECM.
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a technical change is being made to clarify that
``shareholders'' includes record holders, as well as beneficial
(``street'' name) holders.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the Act
in general and furthers the objectives of Section 6(b)(5) in particular
in that it is designed 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.
B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change will impose no burden on competition.
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 35 days of the publication of this notice in the Federal
Register or within such other 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 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. 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. Sec. 552, will be available for inspection and copying at
the Commission's Public Reference Section, 450 Fifth Street, NW.,
Washington, DC 20549. Copies of such filing will also be available for
inspection and copying at the principal office of the Amex. All
submissions should refer to File No. SR-Amex-94-14 and should be
submitted by September 29, 1994.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-22039 Filed 9-7-94; 8:45 am]
BILLING CODE 8010-01-M