Self-Regulatory Organizations; New York Stock Exchange LLC; Order Granting Approval of Proposed Rule Change, as Modified by Amendment No. 1, To Adopt an Initial Listing Standard Applicable Only to Companies Transferring From NYSE Arca
Table of Contents Back to Top
November 12, 2008.
I. Introduction Back to Top
On October 1, 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”)  and Rule 19b-4 thereunder,  a proposed rule change amending Section 102.01C of the Exchange's Listed Company Manual (“Manual”) to adopt an initial listing standard that will be applicable only to companies that are listed on NYSE Arca, Inc. (“NYSE Arca”) as of October 1, 2008 and that transfer to the Exchange on or before March 31, 2009. On October 10, 2008, the proposed rule change was published for comment in the Federal Register.  On November 10, 2008, NYSE filed Amendment No. 1 to the proposed rule change.  The Commission received no comments on the proposed rule change. This order approves the proposed rule change, as modified by Amendment No. 1.
II. Description of the Proposal Back to Top
The Exchange has proposed to amend Section 102.01C of the Manual to adopt an initial listing standard that will be applicable only to companies that are listed on NYSE Arca as of October 1, 2008 and that transfer to the Exchange on or before March 31, 2009. The Exchange also has proposed to apply the continued listing standard applicable under Section 802.01B to companies listed under the Earnings Test  to companies listed under the proposed new initial listing standard.
NYSE Euronext has three equity listing markets: the NYSE; NYSE Arca; and NYSE Alternext US.  NYSE Euronext management made a business decision to move forward with only two operating company equity listing markets and, consequently, decided to discontinue the operating company equity listing program on NYSE Arca. As part of this transition, the Exchange wants to offer the opportunity for all suitable NYSE Arca companies to list on the NYSE. NYSE notes that NYSE Arca listed companies wishing to transfer to the NYSE will be required to submit a listing application and be subject to the same listing application process as all other applicant companies. In its filing, the NYSE noted that not all NYSE Arca companies qualify to list under any of the existing NYSE initial listing standards.  In order to list these companies, the Exchange proposes to adopt a special listing standard applicable only to those companies listed on NYSE Arca on the date of initial submission of this filing, that transfer their listing to NYSE on or before March 31, 2009.
Companies transferring from NYSE Arca under the proposed standard (“NYSE Arca Transfer Standard”) would be required to have $75 million in total market capitalization for 90 consecutive days prior to applying for listing and $20 million in market value of publicly held shares (but not the $100 million market value of publicly held shares requirement of Section 102.01B). Such companies would have to meet the same holder, publicly held share and trading volume requirements as set forth in Section 102.01A as companies that list under the existing initial listing standards and the $4 stock price requirement of Section 102.01B.  Upon listing, the NYSE is also proposing to apply the current continued listing standards set forth in Section 802.01B for companies listing under the Exchange's Earning Test to companies transferring from NYSE Arca under the newly proposed standard in Section 102.01C. Accordingly, Arca transfers will be considered below compliance if their average global market capitalization over a consecutive 30 trading-day period is less than $75,000,000 and, at the same time, total stockholders' equity is less than $75,000,000.  In addition, other requirements of Section 802, such as the requirement that all listed companies maintain a minimum of $25 million in global market capitalization  and that all listed companies maintain a $1.00 minimum stock price,  would also apply to NYSE Arca transfers. The Exchange has also represented that the holder, trading volume and publicly held share requirements of Section 802.01A along with the requirements of Sections 802.01D (“Other Criteria”) and 802.01E (“SEC Annual Report Timely Filing Criteria”) would also apply.
In its filing, the Exchange stated that it believes it is appropriate to adopt a short-term listing standard applicable only to NYSE Arca companies. In support of this, the Exchange noted that these companies listed on NYSE Arca on the assumption that it would exist as a permanent listing market and it is solely because of a business decision made by NYSE Euronext that these companies will need to transfer their listings. Further, NYSE noted that many of these companies listed on NYSE Arca because of its association with the NYSE and in the expectation that they would ultimately switch their listing to the NYSE when they met the NYSE's listing standards. As such, the Exchange believes that fairness dictates that it should seek to list these companies on the NYSE where, in its view, such a listing is appropriate and in the interests of the investing public.
In its filing, the NYSE stated that it will only list companies under the NYSE Arca Transfer Standard if it believes that those companies are suitable for trading on the NYSE. NYSE also noted that all of the companies that would be listed under the NYSE Arca Transfer Standard will far exceed the NYSE's continued listing standards at the time of initial listing and will be in compliance with NYSE Arca continued listing standards. In addition, the same staff in NYSE Regulation's Financial Compliance and Corporate Governance groups is responsible for ongoing compliance reviews of both NYSE and NYSE Arca companies. As such, according to the NYSE, the NYSE Regulation staff involved in making initial listing determinations on the NYSE is extremely familiar with the companies currently listed on NYSE Arca and is uniquely positioned to determine whether those companies are suitable for listing on the NYSE. The Exchange believes its depth of knowledge with respect to NYSE Arca companies makes it appropriate to list them on this one time basis under a less onerous standard than the Exchange applies to other listing applicants. As noted above, companies listing under the new NYSE Arca Transfer Standard will be subject to the standard listing application and review process applicable to all listing applicants and, if Exchange staff determine that an NYSE Arca company is not suitable for listing on the NYSE—notwithstanding its qualification under the numerical requirements of the NYSE Arca Transfer Standard—the Exchange will not list that company.
In its proposal, NYSE represented that the requirements of the NYSE Arca Transfer Standard will exceed those established by the Exchange Act Rule 3a51-1(a)(2) (the “Penny Stock Rule”).  The proposed standard's requirement that an applicant have $75 million in global market capitalization for 90 days prior to transferring from NYSE Arca exceeds the $50 million market capitalization for 90 days prior to listing option in the Penny Stock Rule, as well as the $50 million market capitalization requirement of Rule 3a51-1(a)(2)(i)(B). In addition, companies listing under the NYSE Arca Transfer Standard will be required at the time of transfer to have a $4 stock price, 400 round lot holders and 1.1 million publicly held shares, thereby meeting or exceeding all of the Penny Stock Rule's remaining requirements.
Companies listing under the NYSE Arca Transfer Standard will have to comply with all other applicable Exchange listing rules, including the Exchange's corporate governance requirements. As with all other listing applicants, the Exchange reserves the right to deny listing to any company seeking to list under the NYSE Arca Transfer Standard if the Exchange determines that the listing of any such company is not in the interests of the Exchange or the public interest.
III. Discussion Back to Top
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)(5) of the Act,  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 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, and to not permit unfair discrimination between customers, issuers, brokers, or dealers. 
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, including those applicable to companies transferring from another exchange, serve as a means for an exchange to screen issuers and to provide listed status only to bona fide companies that 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 common stock is currently listed on NYSE Arca, to list on the Exchange. In particular, for companies that otherwise meet NYSE's distribution, market value, and price listing requirements,  the proposed rule change will allow the Exchange the discretion to list companies that meet the proposed standards. In addition, 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.
In accordance with the terms of the proposed rule, the Exchange will apply this standard only for the very narrow category of companies, listed on NYSE Arca as of October 1, 2008, that transfer to the Exchange on or before March 31, 2009. Since NYSE Regulation's Financial Compliance and Corporate Governance groups are responsible for ongoing compliance reviews of both NYSE and NYSE Arca companies, the Commission believes the Exchange should be sufficiently familiar with companies seeking to transfer to be able to determine if any such company is an appropriate transfer candidate. While the new standards are lower than those previously applied to new NYSE listings, the Commission believes that the new criteria, coupled with the existing applicable listing requirements in Sections 102.01(A) and (B),  should help to ensure a minimum level of depth and liquidity to maintain fair and orderly markets.
In approving the proposal, the Commission recognizes that the new standard is applicable only to a small segment of transfers from a single market for a limited time. The Commission believes that this is reasonable and consistent with the Act given the business plans of the Exchange, but more importantly the compliance expertise of NYSE staff in evaluating the potential NYSE Arca transfers. The Commission expects the NYSE to only list those NYSE Arca transfers which they believe, through their past expertise reviewing these companies, are suitable for trading on the NYSE and the maintenance of fair and orderly markets.
For the reasons set forth above, the Commission finds that the proposed rule change is consistent with the Act.
IV. Conclusion Back to Top
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,  that the proposed rule change (SR-NYSE-2008-97), as modified by Amendment No. 1, be, and hereby is, approved.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority. 
Florence E. Harmon,
[FR Doc. E8-27424 Filed 11-18-08; 8:45 am]
BILLING CODE 8011-01-P
Footnotes Back to Top
4. Amendment No. 1 shows how Setion 802.01B would be effected by changes proposed in SR-NYSE-2008-98. Because Amendment No. 1 is technical in nature, the Commission is not required to publish the amendment for comment.Back to Context
5. See Manual Section 802.01B(1).Back to Context
6. NYSE Alternext US LLC (“Alternext”) is the sucessor to the Amex, after being acquired by the NYSE. See Securities Exchange Act Release No. 58673 (September 29, 2008), 73 FR 57707 (October 3, 2008) (SR-Amex-2008-63 and SR-NYSE-2008-60).Back to Context
7. See Manual Section 102.Back to Context
8. The total market capitalization and market value of publicly held shares requirements of the NYSE Arca Transfer Standard equal those of Amex Initial Listing Standard 4 (Amex Company Guide Section 101(d)).Back to Context
9. See Manual Section 802.01B(I).Back to Context
10. See Manual Section 802.01B.Back to Context
11. See Manual Section 802.01C.Back to Context
14. In approving this rule, the Commission has considered its impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).Back to Context
15. Companies listing under this standard would still have to meet all the requirements set forth in Section 102.01A and the price listing requirement in Section 102.01B. Those sections include distribution, market value and price requirements. The Commission believes that these requirements will help ensure that the company has requisite liquidity for listing on the Exchange. Companies would also have to comply with all applicable NYSE corporate governance requirements.Back to Context
16. Only the price requirement in 102.01B would apply to NYSE Arca transfers. See supra note 8 and accompanying text.Back to Context