Self-Regulatory Organizations; New York Stock Exchange, Inc.; Order Approving Proposed Rule Change and Amendment Nos. 1 and 2 Relating to Voluntary Delistings by Listed Companies

[Federal Register Volume 64, Number 143 (Tuesday, July 27, 1999)]
[Notices]
[Pages 40633-40638]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-19102]



[[Page 40633]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41634; File No. SR-NYSE-97-31]


Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Order Approving Proposed Rule Change and Amendment Nos. 1 and 2 
Relating to Voluntary Delistings by Listed Companies

July 21, 1999.

I. Introduction

    On November 17, 1997, the New York Stock Exchange, Inc. (``NYSE'' 
or ``Exchange'') submitted to the Securities and Exchange Commission 
(``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 revise the procedures a NYSE-listed company 
must follow to voluntarily delist its securities from the Exchange. On 
December 3, 1997, the NYSE submitted Amendment No. 1 to the proposed 
rule change.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Letter from James E. Buck, Senior Vice President and 
Secretary, NYSE, to Jonathan G. Katz, Secretary, Commission, dated 
December 1, 1997 (``Amendment No. 1''). In Amendment No. 1, the NYSE 
proposed to amend the proposal to require an issuer to provide the 
Exchange with a copy of the notice provided to its shareholders and 
a copy of the delisting application submitted to the Commission.
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    The proposed rule change, as amended, was published for comment in 
the Federal Register on December 10, 1997.\4\ The Commission received 
23 comment letters on the proposal.\5\ On February 13, 1998, the NYSE 
submitted its response to the comment letters received by the 
Commission.\6\ On November 9, 1998, the NYSE submitted Amendment No. 2 
to the proposed rule change.\7\ Amendment No. 2 was published for 
comment in the Federal Register on November 18, 1998.\8\ The Commission 
received 16 comment letters on Amendment No. 2.\9\ For the reasons 
discussed below, this order approves the proposed rule change, as 
amended.
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    \4\ See Securities Exchange Act Release No. 39394 (December 3, 
1997), 62 FR 65116.
    \5\ See Letters to Jonathan G. Katz, Secretary, Commission, 
from: Junius W. Peake, Monfort Distinguished Professor of Finance, 
University of Northern Colorado, dated December 12, 1997; Frank G. 
Zarb, Chairman, President and Chief Executive Officer, National 
Association of Securities Dealers, Inc., dated January 6, 1998 
(``NASD I''); Sarah A.B. Teslik, Executive Director, Council of 
Institutional Investors, dated January 12, 1998 (``CII''); George B. 
Brunt, Vice President, Secretary and General Counsel, DSC 
Communications Corporation, dated January 20, 1998 (``DSC''); James 
J. Angel, Ph.D., Assistant Professor of Finance, Georgetown 
University School of Business, dated January 22, 1998; William G. 
Christie, Associate Professor of Management, Vanderbilt University, 
dated January 25, 1998; John Markese, Ph.D., President, American 
Association of Individual Investors, dated January 26, 1998 
(``AAII''); John J. McConnell, Professor of Finance, Purdue 
University, dated January 21, 1998; Eric D. Roiter, Vice President 
and General Counsel, Fidelity Management and Research Company, dated 
January 30, 1998 (``Fidelity I''); Bernard W. Schotters, Senior Vice 
President and Treasurer, Tele-Communications, Inc., dated January 
30, 1998 (``TCI''); Jim Tolonen, Chief Financial Officer, Novell, 
dated February 2, 1998 (``Novell''); John C. Wilcox, Esq., Chairman, 
and Dr. Richard A. Wines, Senior Managing Director, Georgeson & 
Company, Inc., dated February 6, 1998 (``Georgeson''); Richard H. 
Koppes, Jones, Day, Reavis & Pogue, dated February 17, 1998; Charles 
M. Leighton, Chair, and Peter N. Larson, Vice Chair, NYSE Listed 
Company Advisory Committee, dated February 19, 1998 ``NYSE Listed 
Company Advisory Committee''); Edward F. Green, Chairman, and Harvey 
J. Goldschmid, Chairman, NYSE Legal Advisory Committee, dated 
February 27, 1998 (``NYSE Legal Advisory Committee''); Myra R. 
Drucker, Chair, NYSE Pension Managers Advisory Committee, dated 
February 18, 1998 (``NYSE Pension Managers Advisory Committee''); 
James F. Rothenberg, President, Capital Research and Management Co., 
dated March 6, 1998 (``Capital Research''); Patrick J. Healy, 
President, The Issuer Network, dated March 16, 1998 (``Issuer 
Network''); Henry H. Hopkins, Managing Director and Chief Legal 
Counsel, T. Rowe Price Associates, Inc., dated March 25, 1998 (``T. 
Rowe Price''); and Eric D. Roiter, Vice President and General 
Counsel, Fidelity Management and Research Company, dated May 7, 1998 
(``Fidelity II''). See also Letters to The Honorable Arthur Levitt, 
Chairman, Commission, from; Michael G. Oxley, Chairman, Subcommittee 
on Finance and Hazardous Materials, Committee on Commerce, United 
States House of Representatives, dated January 27, 1998; Senators 
Christopher J. Dodd and Alfonse M. D'Amato, Chairman, Committee on 
Banking, Housing, and Urban Affairs, United States Senate, dated 
February 9, 1998; and Congressman Edward J. Markey, United States 
House of Representatives, dated February 24, 1998.
    \6\ See Letter from James E. Buck, Senior Vice President and 
Secretary, NYSE, to Jonathan G. Katz, Secretary, Commission, dated 
February 12, 1998 (``NYSE Response Letter'').
    \7\ See Letter from James E. Buck, Senior Vice President and 
Secretary, NYSE, to Richard C. Strasser, Assistant Director, 
Division of Market Regulation (``Division''), Commission, dated 
November 6, 1998 (``Amendment No. 2''). For a discussion of 
Amendment No. 2, see text accompanying note 23.
    \8\ See Securities Exchange Act Release No. 40688 (November 9, 
1998), 63 FR 65626.
    \9\ See Letter from Joan C. Conley, Vice President and Corporate 
Secretary, NASD, to Jonathan G. Katz, Secretary, Commission, dated 
January 13, 1999 (``NASD II''); Robert C. Pozen, President and Chief 
Executive Officer, Fidelity Management and Research Company, to 
Arthur C. Levitt, Chairman, Commission, dated January 21, 1999 
(``Fidelity III''); Yi-Hsin Chang, dated January 20, 1999; Steve 
Aakhus, dated January 21, 1999; James C. Finn, dated January 21, 
1999; Brook A. Mancinelli, dated January 21, 1999; Randy Goering, 
dated January 21, 1999; Thomas E. Chaddock, dated January 21, 1999; 
Peter Carucci, dated January 21, 1999; John Rice, dated January 21, 
1999; Jon H. Halberg, English Education Department, Kangwon National 
University, dated January 22, 1999; Russell Peter, Packaging 
Engineer, Trim Systems, LLC, dated January 22, 1999; Gregory Cain, 
dated January 21, 1999; Robin Reagler, dated January 22, 1999; 
Carole A. Werling, dated January 23, 1999; Tom Purdy, dated January 
23, 1999; and J.A. McCarthy, dated January 21, 1999.
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II. Background

    According to the Exchange, the NYSE adopted the existing Rule 500 
in 1939 as a corporate governance safeguard. At that time, an issuer's 
decision to delist from the NYSE generally resulted in the loss of a 
public market for a security. NYSE Rule 500 requires supermajority 
shareholder approval (i.e., , two-thirds of outstanding shares) before 
a listed company could delist its securities. \10\In addition, no more 
than ten percent of the issuer's shareholders may object to the 
delisting. The NYSE states that these provisions ensured that 
shareholders had a voice in a public company's decision to leave the 
NYSE.
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    \10\ The Commission notes that the NYSE's current rules 
governing voluntary delisting are substantially more onerous than 
the rules adopted by most other U.S. securities markets. For 
example, the Nasdaq Stock Market requires only that written notice 
be sent to the NASQ. See NASD Rule 4480. See also PCX Rule 3.4 and 
Phlx Rule 809 (generally requiring only that an issuer submit a 
certified copy of a resolution adopted by the issuer's Board of 
Directors authorizing withdrawal from listing and a statement 
detailing the reasons for the proposed withdrawal). Only the rules 
of the Chicago Stock Exchange (``CHX'') are modeled on the NYSE's 
Rule 500. See CHX Article XXVIII, Rule 4. The Division of Market 
Regulation, by letter dated July 20, 1999, has requested the CHX 
submit a proposal amending its rule.
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    With the development of other established securities markets, many 
of the concerns that gave rise to the adoption of Rule 500 were 
rendered obsolete. Indeed, over the past decade, a number of markets 
have challenged the NYSE for listings. One of these, the Nasdaq Stock 
Market, approaches, and by some measures, has surpassed the NYSE in the 
number of companies and annual share volume. \11\ In this environment, 
the NYSE's Rule 500 has been challenged as a deterrent to intermarket 
competition rather than a necessary investor protection provision.
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    \11\ See 1998 Securities Industry Factbook, Securities Industry 
Association, at 48-51 (1998).
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    Over the past sixty years, only one issuer \12\ has delisted its 
securities from the NYSE. Recognizing the potential anti-competitive 
impact of the rule, the Commission and its staff have repeatedly 
encouraged the NYSE to amend Rule 500 to enhance intermarket 
competition for listings. For example, in January 1994, Commission 
staff published a study that reviewed, among other things, market 
practices and

[[Page 40634]]

structures. \13\ In the Market 2000 Study, the staff stated that the 
NYSE's voluntary delisting provisions ``represent a barrier to 
delisting that is too onerous.'' \14\ The staff recommended that the 
NYSE submit a proposed rule change to modify NYSE Rule 500 \15\ to 
allow decisions about voluntary delisting to be made by the listed 
company's board of directors, rather than by its shareholders. \16\
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    \12\ See Application of MacMillan Bloedel Limited (March 25, 
1986) 51 FR 11129, (April 1, 1986), (File No. 1-7902). In contrast, 
in 1998 alone, the NYSE listed 66 companies that had voluntarily 
delisted from the Nasdaq Stock Market and 17 companies that had 
voluntarily delisted from the American Stock Exchange.
    \13\ Division of Market Regulation, Market 2000: An Examination 
of Current Equity Market Developments (January 1994) (``Market 2000 
Study'').
    \14\ Id., at 31.
    \15\ The staff recommended that the NYSE modify, rather than 
rescind Rule 500 in its entirety. The Division recognized that 
``withdrawing securities from listing is an important corporate 
decision and that it is reasonable to ensure that careful management 
consideration is given to this decision.'' See market 2000 Study, 
supra note 13.
    \16\ Id. The Division suggested that ``new standards could 
require approval by the board of directors and a majority of the 
independent directors, or it could require a review of the delisting 
decision by the board's audit committee.'' The Commission notes that 
the proposal initially filed by the NYSE would have approval of a 
majority of the issuer's full board of directors and its audit 
committee.
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    By letter to the NYSE dated May 27, 1997, the Commission reiterated 
the staff's request that the Exchange reexamine Rule 500. The 
Commission requested that the NYSE determine whether the rule remained 
relevant in light of the current competitive environment in which the 
differences among the markets regarding the availability of quotation 
and transaction information, disclosure requirements, and listing 
criteria have been reduced.\17\ In the May 1997 Letter, the Commission 
noted that NYSE Rule 500: may place an unnecessary limitation on 
competition for listings by imposing a significant barrier for issuers 
that wish to withdraw securities from listing on the NYSE. As a result, 
listed companies may find it difficult to move to another exchange or 
Nasdaq even though the companies believe that it is or would be in the 
best interest of their shareholders.
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    \17\ See Letter from Jonathan G. Katz, Secretary, Commission, to 
Richard Grasso, Chairman and Chief Executive Officer, NYSE, dated 
May 27, 1997 (``May 1997 Letter'').
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    The Commission again urged the Exchange to consider possible 
modification to NYSE Rule 500 that could reduce potential anti-
competitive effects.\18\ In response, in November 1997, the Exchange 
submitted a proposed rule change to revise NYSE Rule 500.\19\
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    \18\ Id.
    \19\ According to the NYSE, beginning in May 1997, the Exchange 
consulted with two committees of its Board: its Public Policy 
Committee and its Quality of Markets Committee, as well as a number 
of NYSE advisory committees, including its Legal, Listed Company, 
Pension Managers, and Individual Investors Advisory Committees, 
about modifying NYSE Rule 500. The NYSE also consulted with other 
Exchange constitutents, including representatives of the Council of 
Individual Investors, the American Bar Association Task Force on 
Listing Standards, and various institutional investors. The NYSE 
represented to the Commission that these constituents overwhelmingly 
supported the revision, rather than the repeal, of Rule 500. See 
NYSE Response Letter, supra note 6, at 1-2.
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III. Description of the Proposal

    The purpose of the proposed rule change, as amended, is to revise 
the procedures a NYSE-listed company must follow to voluntarily delist 
its securities from the Exchange. As discussed above, NYSE Rule 500 
currently requires supermajority shareholder approval before a listed 
company can delist its securities from the Exchange: holders of 66\2/3\ 
percent of the securities must approve the delisting, and ten percent 
or more of the shareholders cannot object to the delisting .
    The NYSE initially proposed, in November 1997, to require a listed 
company that wished to delist from the Exchange to obtain the approval 
of a majority of: (1) the company's full board of directors; and (2) 
the company's audit committee. The issuer would also have to provide 
its shareholders with between 45 and 60 calendar days written notice of 
the delisting. A non-U.S. issuer would only have to obtain board 
approval to delist its stock. A non-U.S. issuer also would have to 
provide holders with reasonable notice of its intention to delist, 
which would require the issuer to send written notice to U.S. holders 
and to follow home country practice to provide notice to non-U.S. 
holders.\20\ An issuer's board of directors would be required to 
approve an application to delist listed bonds. Finally, the NYSE 
proposed to require an issuer to provide the Exchange with a copy of 
the notice provided to its shareholders and a copy of the delisting 
application submitted to the Commission.\21\
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    \20\ As initially proposed, domestic and non-U.S. issuers would 
be required to request Exchange members to transmit the notice of 
proposed delisting to beneficial stockholders. An issuer would be 
required to provide members with copies of the notice and to 
reimburse associated expenses. This requirement was subsequently 
deleted by the NYSE. See Amendment No. 2, supra note 7.
    \21\ See Amendment No. 1, supra note 3.
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    In response to the Commission's request for comment on the original 
proposal, the Commission received a number of comments, discussed below 
in Section IV, both for and against the proposal. As a result of those 
comments and discussions with Commission staff, the Exchange submitted 
Amendment No. 2 to the proposed rule change in November, 1998.\22\
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    \22\ See Amendment No. 2, supra note 7.
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Current Proposal

    Amendment No. 2 modifies several aspects of the NYSE's initial 
filing. First, as amended, the proposal would require a listed company 
to obtain approval of its board of directors according to applicable 
state law requirements on majority votes, rather than requiring 
approval by a majority of the entire board. Generally, under states 
law, the majority of a quorum of a company's board of directors is 
sufficient for corporate decision.\23\ The Exchange would continue to 
require audit committee approval. Second, the amended proposal would 
modify the proposed notice provision to require U.S. companies to 
provide actual written notice to no less than 35 of their largest 
record holders, rather than to all holders. A foreign issuer would have 
to provide such notice to its 35 largest U.S. shareholders. Third, the 
amended proposal would require both U.S. and foreign companies to issue 
a press release to inform shareholders generally of the proposed 
delisting. Finally, the minimum waiting period before a security could 
be delisted from the Exchange would be reduced from 45 calendar days to 
20 business days after the later of the date the notice is sent or the 
press release is issued, and the maximum waiting period would be 
increased from 60 calendar days to 60 business days. Listed companies 
would have the right to request an extension of the waiting period, 
subject to approval by the Exchange.
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    \23\ See e.g., DEL. CODE ANN. tit. 8, sec. 141 (1991).
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IV. Summary of Comments

    The Commission received 23 comment letters on the proposed rule 
change, as initially proposed.\24\ The broad range of commenters 
included six corporations, two trade associations representing 
individual and institutional investors, two senators and two 
congressmen, four professors, three advisory committees to the NYSE, 
and the NASD. All commenters supported at least some change to the 
existing rule. Eight commenters generally supported the rule change as 
initially proposed, believing that it maintained a reasonable balance 
between providing companies with greater flexibility in listing 
decisions and ensuring sufficient

[[Page 40635]]

shareholder protection.\25\ Two commenters stated that the proposal 
generally did not provide sufficient shareholder protection.\26\
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    \24\ See note 5, supra. Comment received by the Commission on 
Amendment No. 2 are discussed at Part IV.B., below.
    \25\ See Letters from Professor Angel, Richard Koppes, Senators 
Dodd and D'Amato, NYSE Listed Company Advisory Committee, 
Congressman Markey, NYSE Legal Advisory Committee, NYSE Pension 
Managers Advisory Committee, and Issuer Network, supra note 5.
    \26\ See Letters from CII, and Fidelity I and II, supra note 5.
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    As discussed below, many commenters expressed a number of concerns 
regarding the necessity and practicality of the requirements in the 
original proposal.\27\ These commenters stated that the proposed 
requirements relating to the approval process, shareholder 
notification, and the mandatory waiting period were still anti-
competitive, unduly burdensome, and costly for issuers.\28\ Finally, 
four commenters expressed a desire to see all barriers to delisting 
removed and, therefore, advocated the repeal of NYSE Rule 500.\29\
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    \27\ See letters from Professor Peake, NASD I, DSC, Professor 
Christie, AAII, TCI, Novell, Congressman Oxley, Georgeson, Capital 
Research, and T. Rowe Price, supra note 5.
    \28\ Id.
    \29\ See Letters from TCI, Novell, and Georgeson, supra note 5. 
See also NASD II Letter, supra note 9.
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A. Board of Directors Vote

    Nine comment letters stated that the approval of a company's board 
of directors is reasonable because the decision to delist is within the 
purview of the issuer's business judgment.\30\ Two commenters, however, 
contended that requiring a vote of a majority of the full board of 
directors is both unnecessary and inconsistent with the Exchange's 
listing standards, which require a simple vote of the board of 
directors to list on the Exchange.\31\ One commenter further noted the 
disparate treatment between domestic and foreign issuers with respect 
to this requirement.\32\
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    \30\ See Letters from DSC, Professor Christie, AAII, Professor 
McConnell, Fidelity I and II, TCI, Congressman Oxley, and NYSE 
Pension Managers Advisory Committee, supra note 5.
    \31\ See Letters from Professor Peake and NASD I, supra note 5.
    \32\ See Letter from Professor Peake, supra note 5.
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    In response, the Exchange proposes to modify its proposal to permit 
a listed company to obtain approval of its board of directors according 
to the applicable state law requirements on majority votes, rather than 
requiring approval by a majority of the entire board.\33\
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    \33\ See Amendment No. 2, supra note 7.
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B. Elimination of Shareholder Approval Requirements

    While most commenters agreed that the current supermajority 
shareholder approval requirement is onerous and unnecessary, some 
commenters believed that the proposed approval process did not provide 
sufficient shareholder protection.\34\ One commenter noted that the 45 
to 60 day notice period is meaningless for listed companies that have 
eliminated their shareholders' right to call a special meeting 
protesting a delisting decision.\35\ Three comment letters further 
expressed the concern that, under the proposal, the potential exists 
for issuers to delist in an attempt to circumvent shareholder voting 
rights under NYSE rules.\36\ Accordingly, several commenters believed 
that majority shareholder approval requirements should be retained.\37\
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    \34\ See Letters from CII, Fidelity I and II, and Senators Dodd 
and D'Amato, supra note 5.
    \35\ See CII Letter, supra note 5.
    \36\ See Letters from CII and Fidelity I and II, supra note 5.
    \37\ See Letters from CII and Senators Dodd and D'Amato, supra 
note 5.
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    The Exchange did not modify its proposal in response to these 
comments, noting that its proposal reflected its efforts to balance its 
competing interests by ``provid[ing] appropriate protection for 
shareholders, while granting companies greater flexibility as they make 
decisions on the trading markets for their stock.'' \38\
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    \38\ See NYSE Response Letter, supra note 6.
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C. Audit Committee Vote

    Three commenters questioned the necessity of requiring the audit 
committee to approve the delisting of a stock.\39\ One commenter stated 
that a company's audit committee is an unsuitable venue for reviewing 
external matters \40\ and another commenter stated that board approval 
should be sufficient.\41\ One commenter noted that this requirement 
could operate as a veto power over a full board majority vote to delist 
from the Exchange.\42\
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    \39\ See Letters from NASD I, Professor McConnell, and T. Rowe 
Price, supra note 5.
    \40\ See Letter from Professor McConnell, supra note 5.
    \41\ See Letter from T. Rowe Price, supra note 5.
    \42\ See Letter from NASD I, supra note 5.
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    While the Exchange considered these comments, it ultimately 
retained the requirement of audit committee approval.\43\ The Exchange 
reasoned that an issuer's audit committee, composed entirely of 
independent directors, would be ``the best possible proxy for 
shareholders'' because the audit committee members could consider a 
proposed delisting ``independently of any other reasons that may 
influence members of a company's board with closer ties to the 
company.'' \44\ The NYSE Pension Managers Advisory Committee supported 
the NYSE's decision to require audit committee approval, stating that 
audit committee approval, combined with board approval, would ``provide 
substantial and sufficient shareholder protection.'' \45\
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    \43\ See NYSE Response Letter, supra note 6.
    \44\ Id. at 6.
    \45\ See NYSE Pension Managers Advisory Committee, supra note 6.
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D. Shareholder Notification Requirements

    Seven comment letters supported requiring issuers to provide 
written notice of intent to delist to all shareholders of record.\46\ 
Several commenters, however, believed that the proposed notification 
requirements would be anti-competitive, burdensome, and costly.\47\ Two 
of these commenters believed that shareholder notification may 
wrongfully imply that delisting from the NYSE is harmful to 
investors.\48\ One commenter noted that written notice to shareholders 
is not required under state law for ordinary business decisions,\49\ 
and two commenters suggested some type of media notice would be a 
reasonable alternative.\50\
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    \46\ See Letters from Professor McConnell, Richard Koppes, 
Senators Dodd and D'Amato, NYSE Listed Company Advisory Committee, 
Congressman Markey, NYSE Legal Advisory Committee, and NYSE Pension 
Managers Advisory Committee, supra note 5.
    \47\ See Letters from NASD I, DSC, TCI, and Congressman Oxley, 
supra note 5.
    \48\ See Letters from NASD I and DSC, supra note 5.
    \49\ See Letter from NASD I, supra note 5.
    \50\ See Letters from NASD I and Congressman Oxley, supra note 
5.
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    In response to the expressed concerns, the Exchange modified its 
proposal to require domestic issuers to provide written notice to no 
fewer than 35 of their largest record holders.\51\ Foreign issuers 
would have to provide written notice to no fewer than 35 of their 
largest U.S. shareholders.\52\ In addition, the Exchange modified its 
proposal to require all listed companies to issue a press release 
informing their shareholders of the proposed delisting.\53\
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    \51\ See Amendment No. 2, supra note 7.
    \52\ Id.
    \53\ Id.
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E. Waiting Period After Shareholder Notification

    At one end of the spectrum, five commenters stated that the 
proposed 45 to 60 day waiting period would be insufficient, in certain 
circumstances, to

[[Page 40636]]

protect shareholder interests.\54\ Four of these commenters noted that 
the notice period would be sufficient if the issuer represents to the 
Exchange that it will list on a market that has comparable shareholder 
voting rights.\55\ If the market is not comparable, the commenters 
recommended lengthening the notice period to six months to allow 
shareholders a reasonable time to convene a special meeting.\56\ Four 
commenters further stated that the proposed waiting period would not 
provide sufficient time to allow institutional investors to liquidate 
portfolios without sizable and unnecessary losses.\57\
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    \54\ See Letters from CII, Professor Angel, Fidelity I and II, 
and Congressman Markey, supra note 5.
    \55\ See Letters from Professor Angel, Fidelity I and II, and 
Congressman Markey, supra note 5.
    \56\ Id.
    \57\ See Letters from CII, Fidelity I and II, and Congressman 
Markey, supra note 5.
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    At the other end of the spectrum, several commenters opposed any 
waiting period on the grounds that it would be anti-competitive.\58\ 
Some of these commenters contended that an issuer's decision to delist 
is an ordinary business decision and, therefore, does not require 
shareholder notification or a waiting period.\59\ These commenters also 
noted that the Exchange does not have a similar requirement for 
companies that desire to list on the NYSE.\60\
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    \58\ See Letters from NASD I, DSC, AAII, TCI, Congressman Oxley, 
Capital Research, and T. Rowe Price, supra note 5.
    \59\ See Letters from NASD I, DSC, AAII, TCI, Congressman Oxley, 
and T. Rowe Price, supra note 5.
    \60\ See Letters from NASD I, Capital Research, and T. Rowe 
Price, supra note 5.
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    In response, the Exchange modified its proposal to reduce the 
minimum waiting period before delisting from 45 calendar days to 20 
business days, after actual written notice is sent or the press release 
is issued, whichever occurs later.\61\ The Exchange also proposes to 
increase the maximum waiting period from 60 calendar days to 60 
business days.\62\ Finally, the amended proposal would allow companies 
to request an extension of the waiting period, subject to approval by 
the Exchange.\63\
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    \61\ See Amendment No. 2, supra note 7.
    \62\Id.
    \63\Id.
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F. Comments on Amendment No. 2 to the Proposed Rule Change

    The Commission received 16 comment letters on the proposed 
modifications to the initial filing contained in Amendment No. 2 to the 
proposed rule change.\64\ All but two\65\ of the commenters generally 
supported the proposed modifications to NYSE rule 500. Specifically, 
Fidelity supported the amended proposal only under certain 
circumstances.\66\ Fidelity reiterated its concern that, under the 
amended proposal, the potential exists for issuers to delist in an 
attempt to circumvent shareholder voting rights under the NYSE's 
rules.\67\ Fidelity believed that the 20-day notice period would be 
sufficient if the issuer represents to the Exchange that it will list 
on a market that has comparable shareholder voting rights.\68\ If the 
market is not comparable, Fidelity recommended, as a condition of 
delisting from the NYSE, that the issuer should be required to submit 
to the shareholders within the first year of delisting any proposal 
that would have been submitted to the shareholders within the first 
year under the NYSE's rules.\69\
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    \64\ See note 9. supra.
    \65\ See Letters from NASD II and Fidelity III, supra note 9.
    \66\ See Fidelity III Letter, supra note 9.
    \67\Id.
    \68\Id.
    \69\Id.
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    Finally, the NASD opposed all aspects of the amended proposal and 
advocated the complete repeal of NYSE Rule 500.\70\ The NASD contended 
that, even as amended, Rule 500 is anti-competitive and unduly 
burdensome in that it ``significantly limits an issuer's discretion to 
delist from the NYSE, excludes competition from rival stock markets, 
harms investors, undermines the purposes of the Exchange Act, and 
discriminates among issuers.'' \71\ The NASD reiterated its contention 
in an earlier comment letter that audit committee approval is 
unnecessary, hinders the delisting decision, and is inconsistent with 
most state law requirements.\72\ The NASD further stated that a 
delisting decision is an ordinary business decision that warrants 
neither written shareholder notification nor a waiting period.\73\
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    \70\ See NASD II Letter, supra note 9. The Commission's 
consideration of the NYSE's amendments to Rule 500 under Section 
19(b) of the Act, however, does not raise the question whether the 
Commission should take steps to remove NYSE Rule 500. In the matter 
before us, we consider only whether to approve or disapprove the 
proposed rule change, based on whether we find that the proposed 
rule change is consistent with the Act. 17 U.S.C. 19(b)(2).
    \71\Id.
    \72\Id.
    \73\Id.
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V. Discussion

    The Commission finds that the proposed rule change, as amended, is 
consistent with the requirements of Section 6 of the Act \74\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.\75\ In particular, the Commission believes that the proposed 
rule change is consistent with and furthers the objectives of Sections 
6(b)(5) and 6(b)(8) of the Act.\76\ Section 6(b)(5) of the Act 
requires, among other things, that the rules of an exchange be designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to remove impediments to and 
perfect the mechanism of a free and open market, and to protect 
investors and the public interest.\77\ Section 6(b)(5) also requires 
that the rules of an exchange must not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers.\78\ In 
addition, Section 6(b)(8) of the Act prohibits the rules of an exchange 
from imposing any burden on competition not necessary or appropriate in 
furtherance of the purposes of the statute.\79\
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    \74\ 15 U.S.C. 78f.
    \75\ In approving this rule, the Commission has considered the 
proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \76\ 15 U.S.C. 78f(b)(5) and (8).
    \77\ 15 U.S.C. 78f(b)(5).
    \78\ Id.
    \79\ 15 U.S.C. 78f(b)(8).
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    As discussed above, over the last several years, the Commission and 
its staff have repeatedly expressed to the Exchange their concerns 
regarding the potentially anti-competitive effects of NYSE Rule 500. 
The commission's regulatory concerns centered upon its belief that the 
NYSE's rules governing voluntary delisting created nearly 
insurmountable obstacles to listed companies desiring to delist their 
securities from the Exchange, and as such, impeded competition between 
securities markets. The Commission believes that the amended proposal 
represents an important step toward easing the more onerous 
restrictions on voluntary delistings, while helping to ensure that 
shareholders will be given an opportunity to participate in the 
delisting decisionmaking process. As a result, the Commission believes 
that the NYSE's proposed revision of Rule 500 is consistent with the 
provisions of the Act discussed above. The voluntary delisting 
procedures proposed by the NYSE in Amendment No. 2 represent a 
significant and positive change over both the current delisting process 
and the delisting procedures proposed in the Exchange's initial filing, 
particularly with respect to the proposed approval

[[Page 40637]]

requirements, notification requirements, and mandatory waiting period.

A. Approval Process

    The NYSE proposes to eliminate Rule 500's existing shareholder 
approval requirements.\80\ Instead, the proposed amendment to NYSE Rule 
500 would require the approval of a listed company's audit committee, 
as well as approval by an issuer's board of directors. The proposal, as 
amended, would allow the applicable state law to govern the issue of 
what constitutes a majority vote for corporate decisionmaking. The 
Commission anticipates that for the majority of listed companies, a 
proposal to delist could be approved by the majority of a quorum of the 
issuer's board.\81\
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    \80\ Although the proposal would eliminate the requirement that 
NYSE-listed companies obtain shareholder approval of a proposed 
delisting, the proposal would establish shareholder notification 
procedures to afford shareholders an opportunity to express their 
views on delisting decisions and take any action they deem 
necessary. See Section III for a detailed description of the 
proposed shareholder notification requirements.
    \81\ The requirements would, therefore, mirror those proposed by 
the NYSE for the voluntary delisting of listed bonds.
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    The Commission recognizes the significance of an issuer's decision 
regarding the appropriate market in which to list its securities. The 
Commission believes that issuers should carefully consider the best 
interests of their shareholders in both listing and delisting 
decisions, and that the NYSE's proposal should help to ensure that due 
consideration is given to a decision regarding whether to delist 
securities from the Exchange. While approval by the audit committee in 
addition to Board approval may not prove necessary to ensure careful 
decisonmaking, the Commission at this time does not believe that this 
requirement is unreasonably onerous. Moreover, these requirements are 
considerably less burdensome than either the existing supermajority 
shareholder approval requirements of the NYSE's initial proposal, which 
would have required a majority of the issuer's full board of directors. 
Ultimately, the Commission believes that the proposed requirements 
should ensure that careful consideration is given to the various 
factors influencing a company's decision regarding the appropriate 
market in which to list its securities. The Commission, however, 
expects the NYSE to continue to monitor the practical application of 
these requirements to ensure that they do not represent a significant 
and unnecessary impediment to delisting.

B. Shareholder Notification Requirements

    Thge NYSE's proposal would eliminate the existing shareholder 
approval requirements, and instead, establish shareholder notification 
requirements. As initially proposed, the NYSE would have required 
issuers to provide actual written notice of their intent to delist 
their securities from the Exchange to all holders of record. Amendment 
No. 2 subsequently modified the proposal to require domestic issuers to 
provide actual written notice to no fewer than 35 of their largest 
record holders, rather than to all holders. Foreign issuers would have 
to provide such notice to no fewer than 35 of their largest U.S. 
shareholders. In addition, the amended proposal would require both U.S. 
and foreign companies to issue a press release to inform shareholders 
generally of the proposed delisting.
    The Commission considers beneficial the proposed requirement that 
listed companies issue a press release to notify their shareholders of 
the proposed delisting. What is gained by mandating actual written 
notice to no less than the 35 largest holders of record is less clear, 
considering that such shareholders may be those most likely to keep 
abreast of the latest news regarding the issuer. The Commission 
believes that publishing a press release may achieve the same goal of 
informing an issuer's shareholders of the delisting decision without 
incurring the costs associated with actual written notice. Nonetheless, 
the Commission believes that the proposed shareholder notification 
requirement is a significant improvement over the original proposal and 
a reasonable means of addressing concerns raised by certain 
commenters.\82\
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    \82\ See Letters from CII and Fidelity I, supra note 5.
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    Therefore, although the Commission does not believe that the 
requirement of actual written notice to certain shareholders will prove 
necessary, we do not believe at this time that the requirement is 
inconsistent with the Act. That being said, however, the Commission 
urges the NYSE to review periodically the shareholder notification 
requirements of Rule 500 to determine whether the requirement of 
written notice to an issuer's largest shareholders continues to be 
warranted and consistent with the protection of investors.

C. Waiting Period After Shareholder Notification

    Finally, the amended proposal would reduce the minimum waiting 
period before an issuer could apply to delist its securities from the 
Exchange, from 45 calendar days to 20 business days after the later of 
the date the written notice is sent or the press release is issued.\83\ 
The amended proposal would also increase the maximum waiting period 
from 60 calendar days to 60 business days. The amended proposal would, 
however, permit NYSE-listed companies to request that the Exchange 
grant an extension of the waiting period.
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    \83\ The proposal ties the date on which an issuer may delist to 
the later of the date the actual written ``notice is sent or the 
press release is issued.'' Although this language may be interpreted 
to suggest that either the actual written notice or the press 
release may be issued first, the Commission cautions that notifying 
the largest shareholders of a decision to delist before issuing a 
press release may raise regulatory concerns regarding the fair 
access of information to all investors and may impose certain 
requirements on those shareholders that receive the notice before it 
is disseminated to the public. As a result, the Commission strongly 
urges the listed companies to issue the press release before sending 
written notice to the largest shareholders or to do both 
simultaneously.
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    The required waiting period following shareholder notification is 
designed to ensure that shareholders have a reasonable opportunity to 
communicate with a listed company's management regarding any concerns 
they may have regarding a proposed delisting. The Commission believes 
that reducing the minimum waiting period from 45 calender days to 20 
business days is reasonable, as it should reduce the delay of the 
waiting period on listed companies that are anxious to delist their 
securities without significantly reducing the time period for investors 
to consider the implications of the delisting decision. In addition, 
the Commission believes that increasing the maximum waiting period and 
permitting listed companies to extend the period beyond that time frame 
is reasonable, as the proposed modification should provide listed 
companies with some flexibility in complying with the notification 
procedures. In particular, in those instances where it appeared that an 
issuer's decision to delist might face significant shareholder 
opposition, an issuer would be able to delay the delisting to ensure 
that shareholders are given an opportunity to play a meaningful role in 
the decisionmaking process.

VI. Conclusion

    Because the proposed amendments to NYSE Rule 500 greatly ease the 
existing restrictions on NYSE-listed companies that wish to voluntarily 
delist their securities from the Exchange, the Commission believes that 
the proposal, as amended, is consistent with the Act.

[[Page 40638]]

Although the Commission is approving the amended proposal because on 
balance the proposed changes represent a significant improvement over 
existing Rule 500, the Commission believes that the Exchange should 
continue to assess the rule's operation in order to determine whether 
it is appropriate to further eliminate impediments to voluntary 
delistings. We note that, even as amended, the NYSE's voluntary 
delisting rules continue to be more onerous than those of most other 
domestic markets.\84\ Therefore, the Commission expects the NYSE to 
review the rule's restrictions on an ongoing basis to determine if they 
are necessary to protect investors, or whether they unnecessarily 
impede an issuer in changing marketplaces.
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    \84\ See note 10, supra.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\85\ that the proposed rule change (SR-NYSE-97-31), including 
Amendment Nos. 1 and 2, is approved.
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    \85\ 15 U.S.C. 78s(b)(2).

    By the Coommission.
Jonathan G. Katz,
Secretary.
[FR Doc. 99-19102 Filed 7-26-99; 8:45 am]
BILLING CODE 8010-01-M