

[Federal Register: April 2, 2007 (Volume 72, Number 62)]
[Notices]               
[Page 15747-15749]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02ap07-126]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55528; File No. SR-NYSE-2007-28]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change To Exempt Limited Partnerships 
From Certain of Its Shareholder Approval Rules

March 26, 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 March 9, 2007, New York Stock Exchange LLC (the ``NYSE'' 
or the ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule changes as described in Items I, II, 
and III below, which items have been substantially prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule changes from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Exchange's Listed Company Manual 
(the ``Manual'') to exempt limited partnerships from the obligation to 
obtain shareholder approval under the circumstances set forth in 
Sections 312.03(b), (c), and (d) for the issuance of common stock and 
securities convertible into or exchangeable for common stock.\4\
---------------------------------------------------------------------------

    \4\ NYSE-listed limited partnerships would still be subject to 
the Exchange's shareholder approval requirements for equity 
compensation plans. See NYSE Listed Company Manual Sections 303A.08 
and 312.03(a).
---------------------------------------------------------------------------

    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.nyse.com, the Office of the Secretary, 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 Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The NYSE 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
    The Exchange proposes to exempt limited partnerships from the 
obligation to obtain shareholder approval under the circumstances set 
forth in Manual Sections 312.03(b), (c), and (d) for the issuance of 
common stock and securities convertible into or exchangeable for common 
stock.\5\
---------------------------------------------------------------------------

    \5\ See supra note 4.
---------------------------------------------------------------------------

    Subject to certain exceptions specified therein, Manual Sections 
312.03(b), (c), and (d) require listed issuers to obtain shareholder 
approval prior to the issuance of common stock or securities 
convertible into or exchangeable for common stock in any transaction or 
series of related transactions in the following situations:

     Where the potential dilution exceeds either one percent 
of the number of shares of common stock or one percent of the voting 
power outstanding before the issuance to: (a) a director, officer or 
substantial security holder of the company (each a ``Related 
Party''); (b) a subsidiary, affiliate or other closely-related 
person of a Related Party; or (c) any company or entity in which a 
Related Party has a substantial direct or indirect interest.
     If the Related Party involved in a transaction covered 
by the preceding bullet is classified as such solely because such 
person is a substantial security holder, and if the issuance relates 
to a sale of stock for cash at a price at least as great as each of 
the book and market value of the issuer's common stock, then 
shareholder approval will not be required unless the number of 
shares of common stock to be issued, or unless the number of shares 
of common stock into which the securities may be convertible or 
exercisable, exceeds either five percent of the number of shares of 
common stock or five percent of the voting power outstanding before 
the issuance.
     If: (a) the common stock has, or will have upon 
issuance, voting power equal to or in

[[Page 15748]]

excess of 20 percent of the voting power outstanding before the 
issuance of such stock or of securities convertible into or 
exercisable for common stock; or (b) the number of shares of common 
stock to be issued is, or will be upon issuance, equal to or in 
excess of 20 percent of the number of shares of common stock 
outstanding before the issuance of the common stock or of securities 
convertible into or exercisable for common stock.
     If the issuance will result in a change of control of 
the issuer.

    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 similar shareholder approval requirements to those 
of the NYSE. However, Nasdaq exempts limited partnerships (``LPs'') 
from those requirements,\6\ which the Exchange believes has placed it 
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 Exchange believes that 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 the Exchange in attracting and retaining listings of 
LPs.
---------------------------------------------------------------------------

    \6\ 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 
Securities 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 Securities 
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).
---------------------------------------------------------------------------

    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, the 
Exchange believes that 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 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) \7\ of the 
Act in general, and furthers the objectives of Section 6(b)(5),\8\ 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.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 Act.

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

    Written comments were neither solicited nor received.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

[[Page 15749]]

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or     Send an e-mail to rulecomments@sec.gov. Please include 

File Number SR-NYSE-2007-28 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-NYSE-2007-28. 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 
filing also will be available for inspection and copying at the 
principal office of the NYSE. 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-2007-28 and should be submitted on or before April 
23, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
---------------------------------------------------------------------------

    \9\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-5964 Filed 3-30-07; 8:45 am]

BILLING CODE 8010-01-P
