
[Federal Register: September 19, 2008 (Volume 73, Number 183)]
[Notices]               
[Page 54442-54444]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19se08-108]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58550; File No. SR-NYSE-2008-68]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Approving Proposed Rule Change To Determine That a Company Meets the 
Exchange's Market Value Requirements by Relying on a Third-Party 
Valuation of the Company

September 15, 2008.

I. Introduction

    On July 31, 2008, the New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with 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 allow the Exchange, on a case by case basis, to 
exercise discretion to list a company whose stock is not previously 
registered under the Act and that is listing upon effectiveness of a 
selling shareholder registration statement without a related 
underwritten offering, by relying on an independent third-party 
valuation of the company and information regarding trading in a private 
placement trading market to determine that such a company has met its 
market value requirements. The proposed rule change was published for 
comment in the Federal Register on August 11, 2008.\3\ The Commission 
received no comments on the proposal. This order approves the proposed 
rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 58299 (August 4, 
2008), 73 FR 46670.
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II. Description of the Proposal

    Section 102.01B of the Exchange's Listed Company Manual 
(``Manual'') currently requires that companies listing on the Exchange 
in connection with their initial public offering (``IPO'') or as a 
result of a spin-off or under the Affiliated Company standard must 
demonstrate an aggregate market value of publicly-held shares of $60 
million at the time of listing. All other companies must demonstrate a 
market value of publicly-held shares of $100 million.\4\ In addition, 
the Valuation/Revenue with Cash Flow, Pure Valuation/Revenue, and 
Affiliated Company standards of Section 102.01C require a company to 
have a global market capitalization of $500 million, $750 million, and 
$500 million, respectively. Sections 102.01B and 102.01C of the Manual 
provide that, in connection with a company's IPO, the Exchange will 
rely on a written commitment from the underwriter to represent the 
anticipated value of the company's offering in order to determine a 
company's compliance with these listing standards. In the case of a 
spin-off, the company may rely on a letter from the parent company's 
investment banker or other financial adviser.
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    \4\ Shares held by directors, officers, or their immediate 
families and other concentrated holding of 10 percent or more are 
excluded in calculating the number of publicly-held shares.
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    The Exchange notes that it has been approached by a number of 
private companies that would like to list upon the effectiveness of a 
selling shareholder registration statement. NYSE represents that these 
private companies typically have sold a significant amount of common 
stock to qualified institutional buyers in one or more private 
placements and, as a condition to those sales, have agreed to file a 
registration statement to facilitate the resale of the privately-placed 
shares. These companies have not had any prior public market for their 
common stock and are not contemplating an underwritten offering in 
connection with their selling shareholder registration statement. As 
such, the company would not be able to obtain a written representation 
from an underwriter to determine compliance with the market value 
requirements, as a company would in the case of an IPO, and the 
Exchange cannot rely on trading on any predecessor public market to 
evaluate the company's market value, as would be possible with a 
company transferring from another market. Thus, while the company may 
meet all of the Exchange's other listing criteria, the company would 
not be able to satisfy NYSE's current market value requirements in 
Sections 102.01B and 102.01C of the Manual.
    The Exchange proposes to amend Sections 102.01B and 102.01C of the 
Manual to provide that the Exchange will, on a case by case basis, 
exercise discretion to list a company whose stock is not previously 
registered under the Exchange Act, where such company is listing, 
without a related underwritten offering, upon effectiveness of a

[[Page 54443]]

registration statement registering only the resale of shares sold by 
the company in earlier private placements. Specifically, the Exchange 
proposes that, for such companies, the Exchange will have the 
discretion to determine that the company has met the applicable market 
value requirements by attributing a market value to the company equal 
to the lesser of: (i) The value calculated based on an independent 
third-party valuation of the company (``Valuation''); and (ii) the 
value calculated based on the most recent trading price of the 
company's common stock in a trading system for unregistered securities 
operated by a national securities exchange or a registered broker-
dealer (``Private Placement Market'').
    The proposed rule change further provides that any Valuation used 
for this purpose must be provided by an entity that has significant 
experience and demonstrable competence in the provision of such 
valuations. The Valuation must be of a recent date as of the time of 
the approval of the company for listing, and the evaluator must have 
considered, among other factors, the annual financial statements 
required to be included in the registration statement and the financial 
statements for any completed fiscal quarters subsequent to the end of 
the last year of audited financials included in the registration 
statement.
    The proposed rule change also provides that the Exchange will 
consider any market factors, or factors particular to the listing 
applicant, that would cause concern that the value of the company had 
diminished since the date of the Valuation. In addition, the Exchange 
will continue to monitor the company and the appropriateness of relying 
on the Valuation up to the time of listing. In particular, the Exchange 
will examine the trading price trends for the stock in the Private 
Placement Market over a period of several months prior to listing and 
will only rely on a Private Placement Market price if it is consistent 
with a sustained history over that several month period evidencing a 
market value in excess of the applicable standard. The Exchange may 
withdraw its approval of the listing at any time prior to the listing 
date if it believes that the Valuation no longer accurately reflects 
the company's likely market value.
    Companies listed on the basis of these new provisions will be 
required to meet the $100 million test applied to companies 
transferring from another market under Section 102.01B, rather than the 
$60 million IPO standard. Companies listing under the Valuation/Revenue 
with Cash Flow standard of Section 102.01C(II)(a) of the Manual and the 
Affiliated Company standard of Section 102.01C(III) will be required to 
have a global market capitalization of $600 million, rather than the 
usual $500 million requirement. Companies listing under the Pure 
Valuation/Revenue standard of Section 102.01C(II)(b) will be required 
to have $900 million of global market capitalization, rather than the 
usual $750 million requirement.
    The Exchange also notes that any company listing in reliance upon 
this proposed amendment will still be required to meet the IPO 
distribution requirements of Section 102.01A, i.e., 400 beneficial 
holders of round lots of 100 shares and 1,100,000 publicly held shares. 
The Exchange states that it will rely upon information provided by the 
company's transfer agent in determining whether the company meets the 
holder requirement. The Exchange also states that it will be able to 
determine compliance with the 1,100,000 publicly held shares 
requirement by reviewing the disclosure in the company's registration 
statement.

III. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange 
and, in particular, with Section 6(b) of the Act \5\ and the rules and 
regulations thereunder. Specifically, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Act \6\ 
which requires, among other things, that the rules of a national 
securities 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 a national market system, to protect investors and the 
public interest, and are not designed to permit unfair discrimination 
between customers, issuers, brokers or dealers.\7\
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
    \7\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
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    The development and enforcement of adequate standards governing the 
initial and continued listing of securities on an exchange is an 
activity of critical importance to financial markets and the investing 
public. Listing standards, among other things, serve as a means for an 
exchange to screen issuers and to provide listed status only to bona 
fide companies that have or, in the case of an IPO, will have 
sufficient public float, investor base, and trading interest to provide 
the depth and liquidity necessary to promote fair and orderly markets. 
Adequate standards are especially important given the expectations of 
investors regarding exchange trading and the imprimatur of listing on a 
particular market. Once a security has been approved for initial 
listing, maintenance criteria allow an exchange to monitor the status 
and trading characteristics of that issue to ensure that it continues 
to meet the exchange's standards for market depth and liquidity so that 
fair and orderly markets can be maintained.
    The Commission believes that the proposed rule change will provide 
a means for a narrow category of companies whose stock is not 
previously registered under the Act and that are listing upon 
effectiveness of a selling shareholder registration statement, without 
a related underwritten offering, to list on the Exchange. In 
particular, for such companies that otherwise meet NYSE's listing 
standards,\8\ the proposed rule change will allow the Exchange to have 
the discretion to determine that a company has met the market value 
requirement by attributing a market value to the company equal to the 
lesser of the value calculated based on a third-party Valuation and the 
value calculated based on the most recent trading price in a Private 
Placement Market. The Commission believes that using the lesser of 
these values to determine the market value of the company provides a 
reasonable means of assessing the market value of the company in these 
special circumstances where a company's stock is not previously 
registered under the Act and is listing upon effectiveness of a selling 
shareholder registration statement, without a related underwritten 
offering.
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    \8\ Companies listing upon an effective registration statement 
would have to meet the distribution requirements set forth in 
Section 102.01A and comply with all applicable NYSE corporate 
governance requirements.
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    The Commission recognizes that each value, by itself, has 
limitations. As NYSE noted in its proposal, the Valuation is only an 
estimate of what a company's true market value will be upon 
commencement of public trading. Further, the most recent trading price 
in a Private Placement Market may be an imperfect indication as to the 
value of a security upon listing, in part because the Private Placement 
Markets generally do not have the depth and liquidity and price 
discovery mechanisms found on public trading markets. However,

[[Page 54444]]

recognizing these limitations, the Commission agrees with the Exchange 
that consideration of both of these values should provide the Exchange 
with an estimation of a company's market value that supports listing 
the company on the Exchange. In addition, the proposed rule is designed 
to ensure that the Valuation is reliable by providing that the 
Valuation must be provided by an entity that has significant experience 
and demonstrable competence in providing valuations of companies, and 
must be of a recent date as of the time of the approval of the company 
for listing. Further, by assuming a market value equal to the lesser of 
the Valuation and a value based on the most recent Private Placement 
Market trading, the Exchange will be using the more conservative 
estimate of a company's market value.
    In addition, the Commission notes that companies listing under this 
alternative provision will be required to meet higher market value 
standards. Specifically, companies will have to meet the $100 million 
transfer market value requirement, rather than the $60 million IPO 
requirement of Section 102.01B. Further, companies will be required to 
meet global market capitalization standards in Section 102.01C of the 
Manual that are 20% higher than the normal standards.\9\
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    \9\ See Section II, Description of the Proposal, supra.
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    The Commission notes that it expects the vast majority of companies 
to continue to list in connection with a firm commitment underwritten 
IPO, upon transfer from another market, or pursuant to a spin-off, and 
that this proposed alternative standard will be used by the Exchange at 
its discretion. In particular, in accordance with the terms of the 
proposed rule, the Exchange will apply this standard only for the very 
narrow category of companies that are seeking to list their common 
equity securities on the Exchange without an underwritten offering at 
the time of effectiveness of a registration statement registering only 
the resale of shares sold by the company in earlier private placements. 
Further, the Commission expects the Exchange to utilize its discretion 
only after thorough consideration and evaluation of the specific 
company and all relevant factors. Specifically, the proposed rule 
change requires the Exchange to consider the appropriateness of relying 
on Private Placement Market trading in light of the price trends for 
the stock over a period of several months and only rely on a Private 
Placement Market price if consistent with a sustained history 
evidencing a market value in excess of the listing requirement. In 
relying on such Private Placement Market, the Commission expects the 
NYSE to consider the trading characteristics of the stock, including 
its trading volume and price volatility over a sustained period of 
time. In addition, in relying on the Valuation, the Exchange must 
consider any market factors or factors particular to the listing 
applicant that would cause concern that the value of the company had 
diminished since the date of Valuation and continue to monitor the 
company and the appropriateness of relying on the Valuation up until 
the time of listing. The Commission expects that where these factors 
indicate that the value calculated may not be an accurate estimation of 
a company's market value, the Exchange will use its discretion to 
determine not to list such company pursuant to the proposed provisions. 
In general, the Commission expects that the Exchange will deny listing 
to any company seeking to list pursuant to the proposed rule change if 
the Exchange determines that the listing of any such company is not in 
the interests of the Exchange or the public interest.
    The Commission also notes that companies listing pursuant to the 
new proposed provision will still be required to meet the IPO 
distribution requirements of Section 102.01A of the Manual, i.e., that 
the company have 400 beneficial holders of round lots of 100 shares and 
1,100,000 publicly held shares. The Commission believes that these 
existing provisions will continue to help ensure that the company has 
the requisite liquidity for listing on the Exchange.\10\ The Exchange's 
reliance on the transfer agent for assurance that the holder 
requirement is met, and on the disclosure in the company's registration 
statement for assurance that the publicly held shares requirement is 
met, will ensure that these important liquidity requirements are 
verified before a company may qualify for listing.
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    \10\ See also note 8 supra. The Commission notes that once 
listed, the company would have to comply with the continued listing 
standards like other companies. The NYSE has not proposed any 
changes to the continued listing standards for companies listing 
under the provisions approved herein. See Section 802 of the Manual.
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    For the reasons set forth above, the Commission finds that the 
proposed rule change is consistent with the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-NYSE-2008-68) be, and hereby 
is, approved.
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    \11\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-21944 Filed 9-18-08; 8:45 am]

BILLING CODE 8010-01-P
