82 FR 32413 - Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change To Amend the Listed Company Manual To Adopt Initial and Continued Listing Standards for Subscription Receipts

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 133 (July 13, 2017)

[Federal Register Volume 82, Number 133 (Thursday, July 13, 2017)]
[Notices]
[Pages 32413-32415]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-14669]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81102; File No. SR-NYSE-2017-31]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change To Amend the Listed Company 
Manual To Adopt Initial and Continued Listing Standards for 
Subscription Receipts

July 7, 2017.
    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 on 
June, 26, 2017, New York Stock Exchange LLC (``NYSE'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as 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 proposes to amend the Listed Company Manual (the 
``Manual'') to adopt initial and continued listing standards for 
subscription receipts. 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to adopt initial and continued listing 
standards for the listing of subscription receipts (``Subscription 
Receipts'').
    Subscription Receipts are a financing technique that has been used 
for many years by Canadian public companies. Typically, Canadian 
companies use Subscription Receipts as a means of providing cash 
consideration in merger or acquisition transactions. Subscription 
Receipts are sold in a public offering that occurs after the execution 
of an acquisition agreement. The proceeds of the Subscription Receipt 
offering are held in a custody account and, if the related acquisition 
closes, the Subscription Receipt holders receive a specified number of 
shares of the issuer. If the acquisition does not close, then the 
Subscription Receipts are redeemed for their original purchase price 
plus any interest accrued on the custody account. The benefit of 
Subscription Receipts to the issuer is that they provide a contingent 
form of financing that only becomes permanent if the acquisition is 
completed. By contrast, a company financing the cash consideration for 
an acquisition by means of a traditional equity or debt offering is at 
risk of having incurred unnecessary dilution of its shareholders or 
indebtedness if the related acquisition fails to close. Subscription 
Receipts provide investors with flexibility to elect to invest in the 
post-merger company and not in the company in its pre-merger form.
    A number of Canadian issuers whose common stock is listed on the 
Exchange have approached the Exchange in recent years about the 
possibility of dually-listing on the Exchange Subscription Receipts 
that they planned to list in Canada. More recently, market participants 
have also inquired about the possibility of the use of Subscription 
Receipts as a fundraising alternative for U.S. domestic issuers. As a 
result of this interest, the Exchange is now proposing to adopt 
proposed Section 102.08 of the Manual as a listing standard for 
Subscription Receipts.
    The Exchange will list Subscription Receipts pursuant to proposed 
Section 102.08 only if they meet the following requirements:
    (a) The issuer must be an NYSE listed company that is not currently 
non-compliant with any applicable continued listing standard.
    (b) The proceeds of the Subscription Receipts offering are 
designated solely for use in connection with the consummation of a 
specified acquisition that is the subject of a binding acquisition 
agreement (the ``Specified Acquisition'').
    (c) The proceeds of the Subscription Receipts offering will be held 
in an interest-bearing custody account by an independent custodian.
    (d) The Subscription Receipts will promptly be redeemed for cash 
(i) at any time the Specified Acquisition is terminated, or (ii) if the 
Specified Acquisition does not close within twelve months from the date 
of issuance of the Subscription Receipts, or such earlier time as is 
specified in the operative agreements. If the Subscription Receipts are 
redeemed, the holders will receive cash payments equal to their 
proportion share of the funds in the custody account, including any 
interest earned on those funds.
    (e) If the Specified Acquisition is consummated, the holders of the 
Subscription Receipts will receive the shares of common stock for which 
their Subscription Receipts are exchangeable.
    (f) At the time of initial listing, the Subscription Receipts must 
have a price per share of at least $4.00, a minimum total market value 
of publicly-held shares of $100 million, 1,100,000

[[Page 32414]]

publicly-held shares \3\ and 400 holders of round lots (i.e., 100 
securities).
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    \3\ For purposes of the initial and continued listing 
requirements for Subscription Receipts, shares held by directors, 
officers, or their immediate families and other concentrated 
holdings of 10 percent or more are excluded in calculating the 
number of publicly-held shares.
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    (g) The sale of the Subscription Receipts and the issuance of the 
common stock of the issuer in exchange for the Subscription Receipts 
must both be registered under the Securities Act.
    The Exchange proposes to amend Section 802.01B to include continued 
listing standards applicable to Subscription Receipts listed under 
proposed Section 102.08. The Exchange will consider initiating 
suspension and delisting procedures when the number of publicly-held 
shares is less than 100,000 or the number of holders is less than 100. 
In addition, Subscription Receipts will be subject to immediate 
suspension and delisting if (i) the total market capitalization of the 
Subscription Receipts is below $15 million over 30 consecutive trading 
days (ii) the related common equity security ceases to be listed or 
(iii) the issuer announces that the Specified Acquisition has been 
terminated. An issuer of Subscription Receipts will not be eligible to 
follow the procedures outlined in Section 802.01 [sic] with respect to 
these criteria, and any such security will be subject to delisting 
procedures as set forth in Section 804.
    In addition to the foregoing, Subscription Receipts will be subject 
to potential delisting for all of the reasons generally applicable to 
operating companies under Section 802.01. The Exchange notes that an 
issuer of Subscription Receipts may be subject to delisting at the time 
of closing of the related acquisition pursuant to the ``backdoor 
listing'' provisions of Section 703.08(E) of the Manual.
    The Exchange proposes to amend Section 202.06 of the Manual to 
provide that whenever it halts trading in a security of a listed 
company pending dissemination of material news or implements any other 
required regulatory trading halt, the Exchange will also halt trading 
in any listed Subscription Receipt that is exchangeable by its terms 
into the common stock of such company.
    The Exchange will monitor activity in Subscription Receipts to 
identify and deter any potential improper trading activity in such 
securities and will adopt enhanced surveillance procedures to enable it 
to monitor Subscription Receipts alongside the common equity securities 
into which they are convertible. Additionally, the Exchange will rely 
on its existing trading surveillances, administered by the Exchange, or 
the Financial Industry Regulatory Authority (``FINRA'') on behalf of 
the Exchange, which are designed to detect violations of Exchange rules 
and applicable federal securities laws.\4\
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    \4\ FINRA conducts cross-market surveillances on behalf of the 
Exchange pursuant to a regulatory services agreement. The Exchange 
is responsible for FINRA's performance under this regulatory 
services agreement.
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    Section 902.06 of the Manual sets forth listing fees for ``short-
term'' securities, i.e., securities with a life of seven years or less. 
As Subscription Receipts listed under proposed Section 102.08 would 
have a maximum life of 12 months, they would fall under Section 802.01B 
by its terms. For the avoidance of doubt, the Exchange proposes to 
amend Section 902.06 to make it explicit that it will apply to 
Subscription Receipts.
    The Exchange also proposes to amend Section 902.06 to remove a 
reference to the annual fees charged prior to January 1, 2017, as that 
reference is now irrelevant.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Exchange Act,\5\ in general, and furthers the 
objectives of Section 6(b)(5) of the Exchange Act,\6\ 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 and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed listing standard is 
consistent with Section 6(b)(5) of the Exchange Act in that it contains 
requirements in relation to the listing of Subscription Receipts that 
provide adequate protections for investors and the public interest. In 
particular, the Exchange believes that investors are significantly 
protected by the requirements in the proposed rule that: (i) The 
proceeds of the Subscription Receipt offering must be held in an 
interest-bearing custody account controlled by an independent custodian 
pending consummation of the Specified Acquisition, (ii) the custody 
account must be liquidated and the funds distributed pro rata to the 
Subscription Receipt holders if the Specified Acquisition is not 
consummated within 12 months, and (iii) any interest earned on the 
custody account must be distributed pro rata to the Subscription 
Receipt holders upon such liquidation.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
an additional type of security and that will enhance competition among 
market participants, to the benefit of investors and the marketplace.
    The Exchange believes that the proposed amendment to the fees set 
forth in Section 902.06 of the Manual is consistent with Section 
6(b)(4) \7\ of the Exchange Act, in particular, in that it is designed 
to provide for the equitable allocation of reasonable dues, fees, and 
other charges and is not designed to permit unfair discrimination among 
its members and issuers and other persons using its facilities. The 
proposed fees are the same as those applicable to other similar short-
term securities as currently applied under Section 902.06.
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    \7\ 15 U.S.C. 78f(b)(4).
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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 purposes of the Exchange Act. The purpose of the 
proposed rule is to enhance competition by providing issuers and 
investors with an additional type of listed security that is not 
currently available on any domestic listing exchange and, as such, the 
Exchange does not believe it imposes any 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 45 days of the date of publication of this notice in the 
Federal Register or up to 90 days (i) as the Commission may designate 
if it finds such longer period to be appropriate and publishes its 
reasons for so finding or (ii) as to which the self-regulatory

[[Page 32415]]

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-2017-31 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSE-2017-31. This file 
number should be included on the subject line if email 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/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, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. 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-2017-31, and should be 
submitted on or before August 3, 2017.
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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\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-14669 Filed 7-12-17; 8:45 am]
 BILLING CODE 8011-01-P