

[Federal Register: March 15, 2007 (Volume 72, Number 50)]
[Notices]               
[Page 12240-12242]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15mr07-115]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55423; File No. SR-NYSEArca-2007-21]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Relating to an 
Exemption from Certain of the Exchange's Shareholder Approval 
Requirements for Limited Partnerships

March 8, 2007.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on February 23, 2007, NYSE Arca, Inc. (the ``Exchange''), 
through its wholly owned subsidiary, NYSE Arca Equities, Inc. (``NYSE 
Arca Equities''), filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been substantially prepared by Exchange. The 
Exchange has designated this proposal as non-controversial under 
Section 19(b)(3)(A)(iii) of the Act \4\ and Rule 19b-4(f)(6) 
thereunder,\5\ which renders the proposed rule change effective upon 
filing with the Commission. 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\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NYSE Arca is proposing to exempt limited partnerships (``LPs'') 
from the obligations to obtain shareholder approval for the issuance of 
common stock and related securities in the circumstances set forth in 
subsections (8) through (11) of NYSE Arca Equities Rule 5.3(d). The 
text of this proposed rule change is available on the Exchange's Web 
site (http://www.nyse.com/RegulationFrameset.html? displayPage=http://www.nysearca.com/
 nysearca--reg/prf.asp), at the Exchange's Office of 
's Office of 

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 changes and 
discussed any comments it received regarding the proposal. 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
    NYSE Arca is proposing to exempt limited partnerships (``LPs'') 
from the obligations to obtain shareholder approval for the issuance of 
common stock and related securities in the circumstances set forth in 
subsections (8) through (11) of NYSE Arca Equities Rule 5.3(d).\6\ The 
proposed amendment does not affect investors in any currently listed 
company, as there are currently no LPs listed on the Exchange.
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    \6\ This filing does not in any way limit the applicability of 
the provisions of NYSE Arca Equities Rule 5.2(i) to limited 
partnership rollups (as defined in Section 14(h) of the Securities 
Exchange Act of 1934) or the continued applicability of any other 
rule that is currently applicable to LPs.
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    Subsections (8) through (11) of NYSE Arca Equities Rule 5.3(d) 
require listed issuers to obtain shareholder approval prior to the 
issuance of designated securities in the following situations:
     Issuances that will result in a change of control of the 
issuer.
     In connection with the acquisition of the stock or assets 
of another company, shareholder approval is needed in the following 
circumstances:
     If any director, officer, or substantial shareholder of 
the listed company has a 5% or greater interest (or such persons 
collectively have a 10% or greater interest), directly or indirectly, 
in the company or assets to be acquired or in the consideration to be 
paid in the transaction (or series of related

[[Page 12241]]

transactions) and the present or potential issuance of common stock, or 
securities convertible into or exercisable for common stock, could 
result in an increase in outstanding common shares or voting power of 
5% or more; or
     Where the present or potential issuance of common stock, 
or securities convertible into or exercisable for common stock (other 
than in a public offering for cash), could result in an increase in 
outstanding common shares of 20% or more or could represent 20% or more 
of the voting power outstanding before the issuance of such stock or 
securities.
     In connection with a transaction other than a public 
offering involving:
     The sale or issuance by the company of common stock (or 
securities convertible into or exercisable for common stock) at a price 
less than the greater of book or market value, which together with 
sales by officers, directors or principal shareholders of the company 
equals 20% or more of presently outstanding common stock, or 20% or 
more of the presently outstanding voting power; or
     The sale or issuance by the company of common stock (or 
securities convertible into or exercisable for common stock) equal to 
20% or more of presently outstanding stock or voting power for less 
than the greater of book or market value of the stock.
    The policy underlying these requirements is that shareholders 
should have the right to vote on any issuance of common stock that is 
materially dilutive of either their voting or economic interest in the 
company. Nasdaq has essentially identical shareholder approval 
requirements to those of the NYSE Arca. However, Nasdaq exempts LPs 
from those requirements,\7\ which has placed NYSE Arca at a significant 
disadvantage in competing with Nasdaq for initial public offerings and 
transfers of LPs. To be treated as a partnership for federal tax 
purposes, an LP must ensure that 90% of its income is derived from 
``qualified sources,'' which generally refers only to income derived 
from natural resource-related activities. Most listed LPs are engaged 
in energy-related businesses. The typical business model of LPs in the 
energy industry is to use their capital to acquire assets (e.g., 
pipelines) that produce predictable revenue streams and to commit in 
their partnership agreements to distribute most of their profits to the 
LP's unit holders. These LPs acquire assets frequently on an 
opportunistic basis and pay for them by issuing additional LP units. 
The ability of an LP listed on Nasdaq to issue additional LP units 
without the expense and uncertainty of obtaining shareholder approval 
provides Nasdaq with a significant advantage over NYSE Arca in 
attracting and retaining listings of LPs.
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    \7\ See Nasdaq Marketplace Rule 4360 (``Qualitative Listing 
Requirements for Nasdaq Issuers That Are Limited Partnerships''), 
which does not include the shareholder approval requirements found 
in Nasdaq Marketplace Rule 4350 (``Qualitative Listing Requirements 
for Nasdaq Issuers That Are Not Limited Partnerships''). See also 
Exchange Act Release No. 30811 (June 15, 1992); 57 FR 28542 (June 
25, 1992) (SR-NASD-91-58) (approving the NASD's adoption of non-
quantitative listing standards for partnerships, which did not 
include shareholder approval requirements). See also Exchange Act 
Release No. 34533 (August 15, 1994); 59 FR 43147 (August 22, 1994) 
(SR-NASD-93-3) (approving the NASD's adoption of the predecessor 
rule to Rule 4360, which also did not include shareholder approval 
requirements for listed limited partnerships).
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    The Exchange believes that an analysis of the policies regarding 
voting and economic dilution underpinning its shareholder approval 
requirements demonstrates that it is appropriate to exempt LPs from 
their application. Listed LPs generally provide very limited voting 
rights to their unit holders. Typically, control of the LP resides with 
the general partner (``GP'') and the LP's board is that of the GP. The 
owner of the GP appoints the board and the common unit holders of the 
LP have no voting rights with respect to the election of directors. LP 
partnership agreements generally provide that LP unit holders can vote 
only on a merger or dissolution of the LP or on any amendment to the 
partnership agreement that is adverse to their interests. As such, 
investors who buy LP units have no expectation that they will be able 
to vote and, therefore, the policy that shareholders should be able to 
vote on any stock issuances that are materially dilutive of their 
voting power is of less relevance to LPs than to regular corporations. 
Furthermore, because LP unit holders generally do not have the right to 
elect directors, most LPs do not hold annual meetings. Therefore, it 
would not be possible for an LP to arrange for shareholder approval to 
be obtained in conjunction with an annual meeting, as would be possible 
for a regular company. Rather, an LP would have to call a special 
meeting every time it needed approval of an issuance pursuant to the 
shareholder approval rules.
    The Exchange also believes that the economic dilution concerns 
underpinning the shareholder approval rules are also less relevant in 
the case of LPs. Listed LPs typically are required under their 
partnership agreements to distribute almost all of their earnings to 
their unit holders and specify a minimum quarterly distribution that 
the LP is required to make. As such, LPs will only invest in new assets 
if they know that those assets will be sufficiently accretive to 
earnings to pay the minimum quarterly distribution required for the 
additional units that are sold to raise the capital to pay for those 
assets. A failure to pay the minimum quarterly distribution, or a 
reduction in the actual distribution level historically paid, would 
likely, in the Exchange's view, have a negative effect on the trading 
price of a listed LP, imposing a market discipline on management to 
ensure that any additional issuances will not be economically dilutive.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \8\ of the 
Act in general, and furthers the objectives of Section 6(b)(5) \9\ in 
particular in that it is 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 facilitating transactions in securities, and to 
remove impediments to and perfect the mechanisms of a free and open 
market and a national market system. The Exchange believes that the 
proposed rule change will increase competition among listing markets 
and will remove a competitive disadvantage the Exchange currently has 
vis a vis Nasdaq and is therefore designed to perfect the mechanism of 
a free and open market.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 9 15 U.S.C. 78f(b)(5).
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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 purpose of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Written comments on the proposed rule change were neither solicited 
nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the proposed rule change does not: (1) Significantly affect 
the protection of investors or the public interest; (2) impose any 
significant burden on competition; and (3) become operative for 30 days 
after the date of

[[Page 12242]]

the filing, or such shorter time as the Commission may designate if 
consistent with the protection of investors and the public interest, 
the proposed rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(6) thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.
    A proposed rule change normally may not become operative prior to 
30 days after the date of filing.\12\ However, Rule 19b-4(f)(iii) \13\ 
permits the Commission to designate a shorter time if such action is 
consistent with the protection of investors and the public interest. 
The Exchange has requested that the Commission waive the 30-day 
operative delay. The Commission believes that waiver of the 30 day 
operative delay is consistent with the protection of investors and the 
public interest.\14\ The Commission notes that because there are no LPs 
presently listed on the NYSE Arca, there are no shareholders 
retroactively or currently impacted by the proposed rule change. 
Further, the proposed rule change will eliminate the competitive 
disadvantage to the NYSE Arca resulting from the present disparity in 
shareholder approval requirements between the NYSE Arca's and Nasdaq's 
treatment of LPs, while still retaining for NYSE Arca-listed LPs the 
provisions of the Exchange's rules relating to shareholder approval of 
equity compensation plans.\15\
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    \12\ 17 CFR 240.19b-4(f)(6)(iii). Rule 19b-4(f)(6)(iii) requires 
hat a self-regulatory organization submit to the Commission written 
notice of its intent to file the proposed rule change, along with a 
brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange satisfied this requirement.
    \13\ 17 CFR 240.19b-4(f)(6)(iii).
    \14\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \15\ See NYSE Arca Rule 5.3(d)(1)-(7) (setting forth the 
Exchange's rules with respect to shareholder approval of equity 
compensation plans). The proposed rule change would only eliminate 
the application of subparagraphs (8) through (11) to Rule 5.3(d) to 
limited partnerships. The Commission believes that it is desirable 
for the Exchange to have retained the requirements pertaining to 
shareholder approval of equity compensation plans for NYSEArca-
listed limited partnerships.
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, 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 e-mail to rule-comments@sec.gov. Please include File 

Number SR-NYSEArca-2007-21 on the subject line.

Paper Comments

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

All submissions should refer to file Number SR-NYSEArca-2007-21. This 
file number should be included on the subject line if e-mail 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 inspection 
and copying in the Commission's Public Reference Room. Copies of such 
filings will also 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-NYSEArca-2007-21 and should be submitted by April 5, 
2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-4692 Filed 3-14-07; 8:45 am]

BILLING CODE 8010-01-P
