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Self-Regulatory Organizations; The New York Stock Exchange, Inc.; Order Granting Approval of a Proposed Rule Change to Amend Rule 227 Regarding Depository Eligibility

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Information about this document as published in the Federal Register.

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Start Preamble May 28, 2002.

On August 21, 2001, the New York Stock Exchange, Inc. (“NYSE”) filed with the Securities and Exchange Commission (“Commission”) a proposed rule change (File No. SR-NYSE-2001-30) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”).[1] Notice of the proposed rule change was published in the Federal Register on April 25, 2002.[2] No comment letters were received. For the reasons discussed below, the Commission is granting approval of the proposed rule change.

I. Description

The NYSE adopted Rule 227 on June 1, 1995, for the purpose of facilitating implementation of Rule 15c6-1 of the Act that established a three-day settlement period for most securities transactions.[3] Rule 227, which required that domestic issuers' securities be depository eligible before they would be listed, set forth specific requirements for depository eligibility for issuers in order to facilitate the book-entry settlement of initial public offerings and to reducing the risks inherent in settling securities transactions.

On May 13, 1996, approximately one year after Rule 227 was approved, the Commission approved a rule change filed by The Depository Trust Company (“DTC”) [4] allowing DTC to implement its Initial Public Offering (“IPO”) Tracking System.[5] The IPO Tracking System enables lead managers and syndicate members of equity underwritings to monitor repurchases of distributed shares in an automated book-entry environment.

Currently before an issue of securities can be listed, Rule 227(a) requires each domestic issuer to represent to the NYSE that a CUSIP number identifying the security has been included in the file of eligible issuers maintained by a securities depository registered with the Commission as a clearing agency. The proposed amendments would delete the references to “domestic” and “foreign” issuers in paragraph (a). Exclusion of foreign issuers is no longer necessary because they have the capacity to comply with Rule 227 and have been doing so voluntarily for several years.

Rule 227(b) states that a security depository's inclusion of a CUSIP number in its file of eligible issues does not render a security “depository eligible” unless (1) the securities depository has an electronic system for monitoring repurchases of distributed shares at the time such shares commence trading on the Exchange or (2) when a managing underwriter elects not to deposit the securities on distribution date, it notifies the Start Printed Page 38539securities depository no later than three months after the commencement of trading on the NYSE. Rule 227(b) will be deleted as it is no longer relevant since DTC has implemented its IPO Tracking System, which is monitoring repurchases of distributed shares.

II. Discussion

Section 6(b)(5) [6] of the Act requires that the rules of a national securities exchange be designed to remove impediments to and perfect the mechanism of a free and open market and a national market system. Deleting differences relating to “domestic” and “foreign” issuers with respect to depository eligibility of listed issues eliminates an unnecessary difference in the treatment of U.S. issuers and foreign issuers and thereby helps to perfect the mechanism of a free and open market and a national market system. Therefore, the Commission finds that the rule change is consistent with the NYSE's obligations under Section 6(b)(5).

III. Conclusion

On the basis of the foregoing, the Commission finds that the proposed rule change is consistent with the requirements of the Act and in particular Section 6 of the Act and the rules and regulations thereunder.

It is therefore ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (File No. SR-NYSE-2001-30) be and hereby is approved.

Start Signature

For the Commission by the Division of Market Regulation, pursuant to delegated authority.[7]

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble


2.  Securities Exchange Act Release No. 45789 (April 19, 2002), 67 FR 20568.

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3.  Securities Exchange Act Release No. 35798 (June 1, 1995), 60 FR 30909 (June 12, 1995)[File No. SR-NYSE-95-19] (order approving the adoption of NYSE Rule 227 setting forth requirements on issuers seeking to have their shares listed on the Exchange).

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4.  DTC is a securities depository registered with the Commission under Sections 17A and 19 of the Act as a clearing agency.

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5.  Securities Exchange Act Release No. 37208 (May 13, 1996), 61 FR 25253 (May 20, 1996)[File No. SR-DTC-95-27] (order approving implementation of DTC's IPO Tracking System).

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[FR Doc. 02-13869 Filed 6-3-02; 8:45 am]