[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]
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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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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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\
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\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).
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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\
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\5\ See supra note 4.
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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.
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\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).
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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.
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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
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\
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\9\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-5964 Filed 3-30-07; 8:45 am]
BILLING CODE 8010-01-P