[Federal Register Volume 64, Number 134 (Wednesday, July 14, 1999)]
[Notices]
[Pages 38063-38064]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-17933]
[[Page 38063]]
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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'') filed with 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. 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:
* * * * *
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].
* * * * *
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 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.
A. 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.
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\3\ 15 U.S.C. 78f(b)(5).
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B. 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.
C. 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]]
III. 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.
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. 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 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 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\
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\4\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-17933 Filed 7-13-99; 8:45 am]
BILLING CODE 8010-01-M