[Federal Register: July 6, 2007 (Volume 72, Number 129)]
[Notices]
[Page 37067-37069]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06jy07-118]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-55974; File No. SR-NYSE-2007-52]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to
Exclude Interest Expense on Financial Instruments Classified Under GAAP
as Liabilities From the Exchange's Earnings Standard
June 28, 2007.
Pursuant to Section 19(b)(1)\1\ of the Securities Act of 1934 (the
``Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is hereby given that
on June 11, 2007, New York Stock Exchange LLC (the ``NYSE'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule changes as described in
Items I and II 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 earnings standard of Section
102.01C(I) of the Exchange's Listed Company Manual (the ``Manual'').
The amendment will enable the Exchange to adjust companies'' earnings
for purposes of the earnings standard to exclude actual historical
interest expense paid on financial instruments classified as
liabilities under generally accepted accounting principles (``GAAP'')
that are either retired with the proceeds of an offering occurring in
conjunction with the listing or converted into common stock in
conjunction with the company's initial public offering (``IPO'') at the
time of listing. The text of the proposed rule change 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.
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 amend the earnings standard of Section
102.01C(I) of the Manual. The amendment will enable the Exchange to
adjust the earnings of companies listing in conjunction with an IPO by
excluding actual historical interest expense paid on financial
instruments classified as liabilities under GAAP that are either
retired with the proceeds of an offering occurring in conjunction with
the listing or converted into common stock in conjunction with the
company's IPO at the time of listing.
Nonpublic companies engaging in pre-IPO financings often raise
capital through the sale of preferred stock. Preferred stock is also
sometimes issued by pre-IPO companies to service providers in lieu of
cash compensation. At the time of the company's IPO, the preferred
stock may be converted into common stock. Companies may also redeem
some or all of the outstanding preferred stock with a portion of the
proceeds from the IPO.
Section 102.01C(I) currently provides that a company's historical
earnings may be adjusted for purposes of the earnings standard to
reflect the elimination of the actual historical interest on debt
retired with offering proceeds. If the event giving rise to the
adjustment occurred during a time period such that pro forma amounts
are not set forth in the SEC registration statement, the company must
prepare the relevant adjusted financial data to reflect the adjustment
to its historical financial data, and its outside audit firm must
provide a report of having applied agreed-upon procedures with respect
to such adjustments. Such report must be prepared in accordance with
the standards established by the American Institute of Certified Public
Accountants. Preferred stock generally entitles the holders to the
payment of regular dividends. Prior to the adoption of FASB Statement
No. 150, many companies treated accreted dividends on preferred stock
as a charge to stockholders' equity. Under FASB
[[Page 37068]]
Statement No. 150, companies are now required to treat certain
preferred stock as a liability and, accordingly, any dividends accrued
or paid on such preferred stock are treated as interest expense on the
income statement. The Exchange believes that it is appropriate to allow
the same adjustment to all retired financial instruments classified as
liabilities under GAAP as is made for interest paid on retired debt so
as to eliminate the effect of dividend payments that are classified as
interest expense on earnings when the instrument is retired out of the
proceeds of the offering. The Exchange also believes that it is logical
to apply the same treatment to the interest associated with any debt or
other financial instrument which is converted into common stock at the
time of a company's IPO occurring in conjunction with its listing, as
the instrument that has given rise to the obligation to pay interest is
extinguished at that time. The Exchange believes that this extension is
reasonable given the purpose of the earnings standard, which is to
determine the suitability for listing of companies on a forward-looking
basis. The Exchange anticipates that this amendment will primarily
benefit companies retiring preferred stock in connection with their
IPOs.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) \4\ of the Act,\5\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\6\ 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.
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\4\ 15 U.S.C. 78f(b).
\5\ 15 U.S.C. 78a.
\6\ 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
Because the foregoing proposed rule change does not: (1)
Significantly affect the protection of investors or the public
interest; (2) impose any significant burden on competition; and (3)
become operative for 30 days after the date of the filing, or such
shorter time as the Commission may designate if consistent with the
protection of investors and the public interest,\7\ it has become
effective pursuant to Section 19(b)(3)(A) of the Act \8\ and Rule 19b-
4(f)(6) thereunder.\9\
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\7\ Rule 19b-4(f)(6)(iii) requires that a self-regulatory
organization submit to the Commission written notice of its intent
to file the proposed rule change, along with a brief description and
text of the proposed rule change, at least five business days prior
to the date of filing of the proposed rule change, or such shorter
time as designated by the Commission. The Exchange has satisfied the
five-day pre-filing notice requirement.
\8\ 15 U.S.C. 78s(b)(3)(A).
\9\ 17 CFR 240.19b-4(f)(6).
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Under Rule 19b-4(f)(6) of the Act,\10\ the proposal does not become
operative for 30 days after the date of its filing, or such shorter
time as the Commission may designate if consistent with the protection
of investors and the public interest. NYSE has requested that the
Commission waive the 30-day operative delay so that it may immediately
implement this proposal. The Commission believes that it is consistent
with the protection of investors and the public interest to waive the
30-day operative delay and make this proposed rule change immediately
effective.\11\
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\10\ Id.
\11\ For purposes only of waiving the operative delay for this
proposal, the Commission has considered the proposed rule's impact
on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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The Commission notes that, according to the Exchange, Manual
Section 102.01(C)(I)(a)(i) already provides for certain adjustments to
reflect the net proceeds of an offering, and the intended application
of such proceeds to pay off a company's existing debt, including the
elimination of actual historical interest on debt being retired with
offering proceeds or by conversion into common stock. The proposed rule
change would add language to the Manual to clarify that such
adjustments to ``debt'' may properly be made to exclude interest
expense on any financial instrument classified under GAAP as a
liability. In this respect, the Commission believes that the change
represents an effort by the Exchange to interpret the term ``debt'' as
being consistent with the treatment of certain financial instruments
considered liabilities under GAAP. Moreover, the proposal will extend
the interest expense exclusion from the Exchange's earnings standard to
interest associated with debt extinguished by conversion into common
stock at the time of a company's IPO occurring in connection with
listing. Given the purpose of the Exchange's earnings standard, which
is to determine the suitability of applicants for listing on a forward-
looking basis, the Commission believes that this change is consistent
with such purposes and is reasonable.
At any time within 60 days of the filing of such 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 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, as amended, 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 e-mail to rule-comments@sec.gov. Please include File
Number SR-NYSE-2007-52 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-2007-52. 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
[[Page 37069]]
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, 100 F Street, NE., Washington, DC
20549, on official business days between the hours of 10 a.m. and 3
p.m. Copies of such filing will also 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-2007-52 and should be submitted on
or before July 27, 2007.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\12\
Florence E. Harmon,
Deputy Secretary.
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\12\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E7-13069 Filed 7-5-07; 8:45 am]
BILLING CODE 8010-01-P