
[Federal Register: June 9, 2008 (Volume 73, Number 111)]
[Notices]               
[Page 32610-32611]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09jn08-84]                         


[[Page 32610]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57903; File No. SR-NYSE-2008-43]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Exclude From its Earnings Standard Gains or Losses from Extinguishment 
of Debt Prior to Maturity on a Three-Month Pilot Basis

June 2, 2008.
    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 that 
on May 20, 2008, the New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') 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 the Exchange. 
The Exchange has designated the proposed rule change as ``non-
controversial'' under Section 19(b)(3)(A)(iii) \3\ of the Act and Rule 
19b-4(f)(6) thereunder,\4\ which renders the proposal 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\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 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

    The NYSE proposes to amend the earnings standard of Section 
102.01C(I) of the Exchange's Listed Company Manual (``Manual''). The 
amendment will enable the Exchange to adjust the earnings of companies 
for purposes of its pre-tax earnings standard by excluding gains or 
losses recognized in connection with the extinguishment of debt prior 
to its maturity. The proposed amendment was originally filed with the 
Commission as a pilot program (``Pilot Program'') \5\ which has since 
expired and this filing seeks to renew the Pilot Program for an 
additional three months. The text of the proposed rule changes is 
available on the Exchange's Web site (http://www.nyse.com), at the 
Exchange's Office of the Secretary, and at the Commission's Public 
Reference Room.
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    \5\ See Securities Exchange Act Release No. 56195 (August 2, 
2007), 72 FR 44904 (August 9, 2007) (SR-NYSE-2007-71).
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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 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
    The Exchange proposes to amend the earnings standard of Section 
102.01C(I) of the Manual. The amendment will enable the Exchange to 
adjust the earnings of companies for purposes of its pre-tax earnings 
standard by excluding gains or losses recognized in connection with the 
extinguishment of debt prior to its maturity. The adjustment will 
relate only to gains or losses incurred in the three-year period under 
examination for purposes of the earnings standard. The proposed 
amendment was originally filed with the Commission for a six-month 
period as a Pilot Program.\6\ The Pilot Program has expired and this 
filing seeks to renew the Pilot Program for an additional three months.
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    \6\ Id.
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    Prior to the promulgation of Statement of Financial Accounting 
Standards No. 145 (``SFAS No. 145'') in 2002, Financial Accounting 
Standards Board Statement No. 4 (``FASB No. 4'') required that gains 
and losses from the extinguishment of debt prior to its maturity that 
were included in the determination of net income be aggregated and, if 
material, classified as an extraordinary item, net of related income 
tax effect. SFAS No. 145 rescinded FASB No. 4 and, as a result, gains 
or losses in connection with the extinguishment of debt prior to its 
maturity are now generally included in the calculation of operating 
earnings under generally accepted accounting principles (``GAAP''). As 
a result, some companies that would not otherwise be qualified to list 
may qualify as a result of the inclusion in pre-tax income of gains 
from the extinguishment of debt prior to its maturity. In addition, 
some prospective listed companies whose operating earnings would have 
met the requirements of the Exchange's pre-tax earnings test prior to 
2002 are now not qualified to list as they are required to include 
losses from the extinguishment of debt prior to its maturity in pre-tax 
income. In the Exchange's experience, these gains and losses are 
primarily non-cash in nature. The gains generally represent the 
accelerated accrual of original issue discount, while the losses 
generally represent the remaining unamortized portion of costs incurred 
at the time of initial borrowing.
    The Exchange believes that it is appropriate to return to its pre-
2002 approach of excluding gains and losses from debt extinguishment 
from pre-tax earnings as calculated for purposes of its earnings 
standard. The purpose of the earnings standard is to determine the 
suitability for listing of companies on a forward-looking basis in 
light of a sustained demonstration of strong earnings. As such, the 
Exchange does not believe that it is relevant to include in pre-tax 
earnings gains and losses from the extinguishment of debt prior to its 
maturity that are principally nonrecurring in nature. Additionally, the 
Exchange notes that the analyst community also routinely exclude these 
gains and losses from their analyses in making recommendations as to 
the desirability of investing in companies' publicly-traded equity 
securities. The Exchange believes that adjusting company earnings for 
gains and losses from the extinguishment of debt prior to its maturity 
is consistent with the adjustments that are currently permitted under 
Section 102.01C for a number of other nonrecurring charges to earnings 
that are included in net income as recorded under GAAP, such as the 
exclusion of impairment charges on long-lived assets, the exclusion of 
gains and losses on sales of a subsidiary's or investee's stock and the 
exclusion of in-process purchased research and development charges. The 
Exchange also believes that this adjustment is reasonable given the 
purpose of the earnings standard, which is to determine the suitability 
for listing of companies on a forward-looking basis.
    As with all companies listed on the Exchange, the Financial 
Compliance staff of NYSE Regulation will monitor on an ongoing basis 
the compliance with the Exchange's continued listing standards of any 
companies listed in reliance upon the proposed amendment. Such 
companies will be subject to delisting if they are found at any time to 
be below the Exchange's continued listing standards.

[[Page 32611]]

2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\7\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\8\ 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. 
The Exchange believes that the proposed amendment is consistent with 
the investor protection objectives of the Act in that it provides for 
an adjustment to list applicants' historical financial results that is 
consistent with other adjustments already permitted under the 
Exchange's earnings standard and is reasonable given the purpose of the 
earnings standard, which is to determine the suitability for listing of 
companies on a forward-looking basis.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 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 purposes of the Act.

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

    Because the proposed rule change does not: (i) Significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days after the date of 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 \9\ and subparagraph (f)(6) of Rule 
19b-4 thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under 19b-4(f)(6) normally may not 
become operative prior to 30 days after the date of filing.\11\ 
However, Rule 19b-4(f)(6)(iii) \12\ 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 pre-operative delay and designate the 
proposed rule change to become operative upon filing.
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    \11\ 17 CFR 240.19b-4(f)(6)(iii).
    \12\ Id.
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because the proposed rule change is consistent with other adjustments 
the Exchange makes when evaluating applicants on a forward-looking, 
post-IPO basis under the existing earnings standard in Section 
102.01C(I) of the Listed Company Manual, and the proposal will take 
effect as a Pilot Program, allowing the Commission to evaluate the 
suitability of the proposal during the pilot period. The Commission 
designates the proposal to become effective and operative upon 
filing.\13\
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    \13\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the impact of the proposed rule on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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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 the furtherance of the purposes of the Act.

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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-NYSE-2008-43 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-2008-43. 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 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-2008-43 and should be submitted on or before June 30, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-12796 Filed 6-6-08; 8:45 am]

BILLING CODE 8010-01-P
