Self-Regulatory Organizations; New York Stock Exchange, Inc.; Order Granting Approval To Proposed Rule Change Relating To Continued Listing Criteria for Capital or Common Stock

[Federal Register Volume 61, Number 119 (Wednesday, June 19, 1996)]
[Notices]
[Pages 31208-31209]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-15576]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37307; File No. SR-NYSE-96-07]


Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Order Granting Approval To Proposed Rule Change Relating To Continued 
Listing Criteria for Capital or Common Stock

June 12, 1996.
    On March 18, 1996, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') submitted to the Securities and Exchange Commission 
(``SEC'' or ``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 amend the criteria for 
continued listing on the Exchange for capital or common stock.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    The proposed rule change was published for comment in Securities 
Exchange Act Release No. 3707 (Apr. 1, 1996), 61 FR 15548 (Apr. 8, 
1996). No comments were received on the proposal.
    In 1995, the Exchange amended its domestic listing standards by 
making changes to the numerical criteria.\3\ One of the proposals 
adopted an alternate demonstrated earnings power standard for companies 
that have a market capitalization of at least $500 million and revenues 
of at least $200 million in their most recent fiscal year. Under this 
new alternative, such companies are able to qualify for listing if 
their adjusted net income is positive for each of the last three fiscal 
years and not less than $25 million in the aggregate for such period. 
At the same time, the NYSE also amended its domestic listing standards 
by increasing the listing standard regarding aggregate market value of 
publicly-held shares and net tangible assets from $18 million to $40 
million and added an alternate liquidity standard of 500 total 
stockholders and average monthly trading volume of 1,000,000 shares.\4\ 
When the Commission approved these amendments to the initial listing 
standards, it noted that the Exchange committed to propose 
corresponding continued listing criteria.\5\
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    \3\ See Securities Exchange Act Release No. 35571 (Apr. 5, 
1995), 60 FR 18649 (Apr. 12, 1995) (order approving proposed rule 
change relating to domestic listing standards).
    \4\ Previously, the NYSE required that the company have at least 
2,200 total stockholders together with an average monthly trading 
volume of 100,000 shares for the most recent six months, or 2,000 
round-lot holders.
    \5\ See Securities Exchange Act Release No. 35571 n. 19 (Apr. 5, 
1995), 60 FR 18649 (Apr. 12, 1995).
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    Currently, Paragraph 802 of the NYSE's Listed Company Manual 
(``Manual'') sets forth the standards for companies that want their 
equity securities to remain listed on the Exchange. These standards 
require companies to maintain the following minimum numerical criteria 
for their capital or common stock. First, the company must have at 
least 1,200 holders of 100 shares or more (or of a unit of trading if 
less than 100 shares). Second, the number of publicly-held shares must 
be at least 600,000. Third, the aggregate market value of publicly-held 
shares must be at least $5,000,000. Fourth, the company must have at 
least $8,000,000 in aggregate market value of shares outstanding 
(excluding treasury stock) and in net tangible assets available to 
common stock. The current NYSE continued listing standards, however, do 
not provide for continue listing standards for companies that were 
listed by satisfying the alternate demonstrated earnings power standard 
or under the alternate liquidity standard. In its proposed rule change, 
the NYSE proposes to adopt new continued listing criteria to parallel 
the adjusted net income listing standard and to amend its current 
continued listing criteria to reflect the changes made in 1995 to the 
initial listing standards.\6\
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    \6\ According to the Exchange, a small number of companies that 
initially listed on the Exchange by satisfying the minimum aggregate 
market value of both publicly held shares and net tangible assets 
before the original listing standards were increased to their 
current levels are above the current continued listing criteria, but 
are below the proposed criteria. Upon the Commission's approval of 
the proposed rule change, the Exchange will notify these companies 
of the new continued listing criteria and inform such companies that 
the Exchange expects them to be in compliance with the new criteria 
within 18 months of their effective date. The Exchange will consider 
those companies that do not meet these new standards by such date to 
be below the continued listing criteria at that time.
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Adjusted Net Income Continued Listing Criteria

    Under the proposal, for companies that are currently valued on a 
``cash flow'' basis under Paragraph 102.01 of the Manual, the aggregate 
market value of shares outstanding, excluding treasury stock, must be 
at least $25,000,000 and average adjusted net income for the past 3 
years must be at least $6,500,000.\7\
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    \7\ Companies may currently be valued on a ``cash flow'' basis 
by either on listing demonstrating earning power by meeting the 
minimum levels of adjusted income or after being listed on the 
Exchange switching from a reported income to a ``cash flow'' basis.
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Earnings and Liquidity Continued Listing Criteria

    Under the proposal, the NYSE will require that the company maintain 
at least 400 total stockholders or 1,200 total stockholders if the 
average monthly trading volume in the common stock is less than 100,000 
shares for the most recent 12 months.\8\ The Exchange will also require 
that the company maintain an aggregate market value of publicly-held 
shares of $8,000,000 for its common stock. With respect to earnings, 
the Exchange proposes to require that the company maintain an aggregate 
market value of shares outstanding (excluding treasury stock) of at 
least $12,000,000 and average net income after taxes for the past three 
years of at least $600,000. The Exchange will also require the net 
tangible assets available to common stock to be at least $12,000,000 
and average net income after taxes for the past 3 years to be at least 
$600,000.
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    \8\ As described above, the Exchange currently requires 1,200 
round-lot holders.
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    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 the requirements of Section 6(b).\9\ Specifically, the 
Commission believes the proposal is consistent with the Section 6(b)(5) 
requirements that the rules of an exchange be designed to promote just 
and equitable principles of trade, to prevent fraudulent and 
manipulative acts, and, in general, to protect investors and the public 
interest; and are not designed to permit unfair discrimination between 
issuers.
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    \9\ 15 U.S.C. Sec. 78f(b).
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    The Commission believes that the development and enforcement of 
adequate standards governing the listing of securities on an exchange 
is an activity of critical importance to exchange markets and to the 
investing public. Listing standards serve as a means for the self-
regulatory organizations (``SROs'') to screen issuers and to provide 
listed status only to bona fide companies with substantial float, 
investor base, and trading interest to ensure sufficient liquidity for 
fair and orderly markets. Listing standards also enable an exchange to 
assure itself of

[[Page 31209]]

the bona fides of the company and its past trading history. In this 
regard, the Exchange previously proposed, and the Commission approved, 
amendments to its initial listing standards that provided for an 
alternate method by which a company could meet the ``demonstrated 
earnings'' listing standard, increased the numerical criteria for the 
aggregate market value of both publicly-held shares and net tangible 
assets, and adopted an alternate shareholder distribution standard for 
companies whose shares are very actively traded.\10\
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    \10\ See Securities Exchange Act Release No. 35571, supra note 
3.
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    With this rule proposal, the Exchange proposes to amend the 
continued listing criteria for common stock to reflect the amendments 
made to the initial listing standards in 1995. The Commission believes 
that adequate maintenance standards are of equal importance to the 
development of adequate standards for initial inclusion on an exchange. 
The Commission notes that once an issue has been initially approved for 
listing, the Exchange must monitor continually the status and trading 
characteristics of that issue to ensure that it continues to meet 
exchange standards for trading depth and liquidity.
    Specifically, with respect to the new adjusted net income criteria, 
the Commission believes that it is appropriate to establish specific 
continued listing criteria that correlate to the alternate method for 
satisfying the demonstrated earnings requirement of the initial listing 
standard. Under the new standards, companies that are valued on a 
``cash flow'' basis must have at least an aggregate market value of 
$25,000,000 (which is higher than the proposed standard of $12,000,000 
aggregate market value for other companies) as well as satisfy an 
average adjusted net income for the past three years of $6,500,000.
    Under the proposal, the Exchange is also increasing the minimum 
requirements for aggregate market value of publicly-held shares from 
$5,000,000 to $8,000,000; aggregate market value of shares outstanding 
(excluding treasury stocks) from $8,000,000 to $12,000,000; and net 
tangible assets available to common stock from $8,000,000 to 
$12,000,000. The Commission believes that these substantial increases 
significantly upgrade the NYSE's continued listing criteria and 
strengthen the Exchange's securities listing process by adding 
continued listing standards that more appropriately correspond to the 
initial listing standards. Moreover, the Commission believes that the 
stringent maintenance criteria, established by the rule proposal, 
should help to ensure the stability of the marketplace, as well as 
protect investors, by enabling the NYSE to identify listed companies 
that may not have sufficient liquidity and financial resources to 
warrant continued listing. This, in turn, will allow the NYSE to take 
appropriate action.
    Finally, the NYSE proposes to amend the investor base and public 
float requirements of its continued listing criteria. Although the 
minimum number of investors required has decreased, the Commission 
believes that establishing a minimum of at least 400 total stockholders 
in conjunction with an average monthly trading volume of at least 
100,000 shares will not significantly weaken the high standards that 
the Exchange wants to maintain. The requirement for an average monthly 
trading volume will ensure that listed companies with a smaller 
shareholder base should have sufficient interest to support a liquid 
market. Moreover, the Exchange requirement that listed companies have 
at least 1,200 total stockholders if the average monthly trading volume 
is less than 100,000 also will ensure that there is sufficient 
shareholder base to support a liquid market. Although the Exchange 
previously required at least 1,200 round-lot holders, the Commission 
believes that the new shareholder distribution standard in conjunction 
with the updated numerical criteria will permit the Exchange to monitor 
its listed companies to ensure continued depth and liquidity.
    In conclusion, based upon the analysis set forth above, the 
Commission believes this rule change will continue to ensure that NYSE 
listed companies have adequate depth and liquidity to support trading 
on the NYSE. Accordingly, the Commission believes that this rule change 
adequately protects investors and the public interest.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-NYSE-96-07) is approved.

    \11\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-15576 Filed 6-18-96; 8:45 am]
BILLING CODE 8010-01-M