[Federal Register: January 28, 2004 (Volume 69, Number 18)]
[Notices]
[Page 4196-4198]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28ja04-107]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-49112; File No. SR-NYSE-2003-40]
Self-Regulatory Organizations; Order Approving Proposed Rule
Change by the New York Stock Exchange, Inc. Relating to the Listing and
Trading of Certain 7\3/4\% PEPSSM Units Under Section 703.19
January 21, 2004.
I. Introduction
On November 26, 2003, the New York Stock Exchange, Inc. (``NYSE''
or ``Exchange'') filed with the Securities and Exchange Commission
(``Commission'' or ``SEC'') pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4
thereunder,\2\ the proposed rule change to list and trade 7\3/4\%
Premium Equity Participating Security Units (PEPSSM Units),
Series B (``Units''). The proposed rule change was published for
comment in the Federal Register on December 19, 2003.\3\
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s (b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 48918 (December 12,
2003), 68 FR 70851.
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
The NYSE proposes to list and trade the Units pursuant to Section
703.19 of the Listed Company Manual (``Manual'').\4\ Each of the Units
consists of (1) a purchase contract (``Purchase Contract'') issued by
PPL Corporation (``PPL'') and (2) a 2.5% undivided beneficial ownership
interest in a $1,000 principal amount note (``Note'') due May 2006
issued by PPL Capital Funding, Inc. (``PPL Capital'') and guaranteed by
PPL.\5\
---------------------------------------------------------------------------
\4\ Under Section 703.19 of the Manual, the Exchange may approve
for listing and trading securities not otherwise covered by the
criteria of Sections 1 and 7 of the Manual, provided the issue is
suited for auction market trading. See Securities Exchange Act
Release No. 28217 (July 18, 1990), 55 FR 30056-01 (July 24, 1990).
\5\ See Registration No. 333-108450. The Registration Statement
became effective on January 8, 2004.
---------------------------------------------------------------------------
The Units are being offered pursuant to an exchange offer, the full
terms of which are set out in the Registration Statement.\6\
Specifically, PPL offers to exchange the Units and a cash payment of
$0.375 for each validly tendered and accepted 7\3/4\% Premium Equity
Participating Security Unit (collectively referred to as the ``Old
Units''), subject to, among other things, the condition that the Old
Units remain listed on the Exchange.
---------------------------------------------------------------------------
\6\ The Exchange represents that the Registration Statement
provides a detailed discussion and comparison of the Old Units and
the Units so that holders can evaluate whether it is in their best
interests to participate in the exchange offer.
---------------------------------------------------------------------------
Each Purchase Contract obligates the holder of a Unit to purchase
from PPL, no later than May 18, 2004 (the ``Contract Settlement
Date''), for a price of $25, the following number of shares of PPL
common stock, $0.01 par value: (a) if the average of the closing prices
of PPL's common stock over the 20-trading day period ending on the
third trading day prior to the Contract Settlement Date multiplied by
1.017 is equal to or greater than $65.03, 0.3910 shares; (b) if the
average of the closing prices of PPL's common stock over the same
period multiplied by 1.017 is less than $65.03 but greater than $53.30,
a number of shares, between 0.3910 and 0.4770 shares, having a value,
based on the 20-trading day average of the closing prices, equal to
$25; and (c) if the average of the closing prices of PPL's common stock
over the same period multiplied by 1.017 is less than or equal to
$53.30, 0.4770 shares. PPL will also pay Unit holders a quarterly fixed
amount in cash, called a contract adjustment payment, at a rate of
0.46% per year of the stated amount of $25 per Unit, or $0.1150 per
year.
From the date of issuance until the Contract Settlement Date, the
Notes will constitute subordinated obligations of PPL Capital and will
be guaranteed on a subordinated basis by PPL. On or after Contract
Settlement Date, the Notes will constitute senior obligations of PPL
Capital and will be guaranteed on a senior basis by PPL. Prior to the
Contract Settlement Date, the ownership interest in the Notes will be
pledged to secure the Unit holders' obligation to purchase PPL's common
stock under the purchase contract. PPL has appointed a remarketing
agent to remarket, or sell on behalf of Unit holders, the Notes to
third party investors on a date (the ``Remarketing Date'') just prior
to the Contract Settlement Date. Unit holders may choose to opt out of
the remarketing of the Notes to third party investors to satisfy their
payment obligations on the Contract Settlement Date. A Unit holder who
opts out of the remarketing of the Notes would be required to settle
each Purchase Contract for $25.00 in cash.
PPL Capital will also pay Unit holders interest at a rate of 7.29%
per year on the principal amount of the Note. If there is a successful
remarketing of the Notes, the interest rate will be reset and may be
greater or less than 7.29% per year. PPL unconditionally guarantees the
payment of principal and interest on the Notes of PPL Capital.
The Units represent both an equity and fixed income investment in
PPL. The equity investment is in the form of the Purchase Contract,
which, unless earlier terminated, requires a Unit holder to purchase a
variable number of shares of PPL common stock. The fixed income
investment is in the form of a trust preferred security that represents
an undivided beneficial interest in the subordinated Notes of PPL
Capital which are guaranteed on a subordinated basis by PPL.
The Units will conform to the issuer listing criteria under Section
703.19 of the Manual and be subject to the relevant continuing listing
criteria under Section 801 and 802 of the Manual.\7\ The Exchange will
impose the issuer listing requirements of Section 703.19(1) of the
Manual on PPL.\8\ The Exchange represents that PPL is an NYSE-listed
company in good standing. The Units will also meet the listing
standards found in Section 703.19(2) of the Manual, except that the
Units will not have the minimum life of one year required for
listings.\9\
---------------------------------------------------------------------------
\7\ Section 801.00 of the Manual provides, in relevant part,
that when an issuer that has fallen below any of the continued
listing criteria has more than one class of securities listed, the
Exchange will give consideration to delisting all such classes.
Section 802.01D of the Manual states, in relevant part, that
delisting of specialized securities will be considered when the
number of publicly-held shares is less than 100,000; the number of
holders is less than 100; and aggregate market value of shares
outstanding is less than $1 million. The Exchange also notes that it
may, at any time, suspend a security if it believes that continued
dealings in the security on the Exchange are not advisable.
\8\ The issuer listing standards require: (1) If the issuer is a
NYSE-listed company, the issuer must be a company in good standing;
(2) if the issuer is an affiliate of an NYSE-listed company, the
NYSE-listed company must be a company in good standing; and (3) if
not listed, the issuer must meet NYSE original listing standards as
set forth in Sections 102.01-102.03 and 103.01-05 of the Manual.
\9\ The equity listing standards require: (1) At least 1 million
securities outstanding; (2) at least 400 holders; (3) minimum life
of one year; and (4) at least $4 million market value. The Units
will not have a minimum life of one year because the Contract
Settlement Date is May 18, 2004. The Exchange notes that it does not
believe that the Units will raise any significant new regulatory
issues. Because the Units will meet or exceed the other requirements
under Section 703.19 of the Manual, the Exchange believes that the
Units will have sufficient liquidity and depth of market, even if
listed for a period shorter than one year. The Exchange also notes
that the underlying PPL common stock from which the value of the
Unit is in part derived will remain outstanding and listed on the
Exchange following maturity of the Units.
---------------------------------------------------------------------------
[[Page 4197]]
The Exchange's existing equity trading rules apply to trading of
the Units. The Exchange will also have in place certain other
requirements to provide additional investor protection. First, pursuant
to Exchange Rule 405, the Exchange will impose a duty of due diligence
on its members and member firms to learn the essential facts relating
to every customer prior to trading the Units.\10\ Second, the Units
will be subject to the equity margin rules of the Exchange.\11\ Third,
the Exchange will, prior to trading the Units, distribute a circular to
the membership providing guidance with regard to member firm compliance
responsibilities (including suitability recommendations) when handling
transactions in the Units and highlighting the special risks and
characteristics of the Units. With respect to suitability
recommendations and risks, the Exchange will require members, member
organizations and employees thereof recommending a transaction in the
Units: (1) To determine that such transaction is suitable for the
customer, and (2) to have a reasonable basis for believing that the
customer can evaluate the special characteristics of, and is able to
bear the financial risks of, such transaction.
---------------------------------------------------------------------------
\10\ NYSE Rule 405 requires that every member, member firm or
member corporation use due diligence to learn the essential facts
relative to every customer and to every order or account accepted.
\11\ See NYSE Rule 431.
---------------------------------------------------------------------------
The Exchange represents that its surveillance procedures are
adequate to properly monitor the trading of the Units. Specifically,
the Exchange will rely on its existing surveillance procedures
governing equity, which have been deemed adequate under the Act.
III. Discussion
After careful consideration, 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 the requirements of Section 6(b)(5)
of the Act.\12\ Accordingly, the Commission finds that the listing and
trading of the Units is consistent with the Act and will promote just
and equitable principles of trade, foster cooperation and coordination
with persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, and, in general, protect investors and the public interest
consistent with Section 6(b)(5) of the Act.\13\
---------------------------------------------------------------------------
\12\ Id.
\13\ 15 U.S.C. 78f(b)(5). In approving this rule, the Commission
notes that it has considered the proposed rule's impact on
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
---------------------------------------------------------------------------
As described more fully above, the Exchange proposes to list and
trade the Units, which represent both an equity and fixed income
investment in PPL. The equity investment is in the form of the Purchase
Contract, which, unless earlier terminated, requires a Unit holder to
purchase a variable number of shares of PPL common stock at a specified
price, both to be determined at the time of termination. The fixed
income investment is in the form of a trust preferred security that
represents an undivided beneficial interest in the subordinated Notes
of PPL Capital which are guaranteed on a subordinated basis by PPL. The
Units are being offered pursuant to an exchange offer which will reduce
the interest paid on the Notes by Unit holders as compared to the Old
Units.\14\ The Exchange represents that the value of the Units is in
part derived from the underlying PPL common stock. Unit holders are
guaranteed at least the principal amount the payment of principal and
interest on the Notes of PPL Capital. PPL will also pay Unit holders a
quarterly fixed amount in cash, called a contract adjustment payment,
at a rate of 0.46% per year of the stated amount of $25 per Unit, or
$0.1150 per year.
---------------------------------------------------------------------------
\14\ See supra note 5.
---------------------------------------------------------------------------
The Commission notes that the Exchange's rules and procedures
address the special concerns attendant to the trading of certain types
of hybrid securities. In particular, by imposing the listing standards
for certain types of hybrid securities, suitability, disclosure, and
compliance requirements noted above, the Commission believes the
Exchange has addressed adequately the potential problems that could
arise from the hybrid nature of the Units. The Commission notes that
the Exchange will distribute a circular to its members regarding member
firm compliance responsibilities when handling transactions in the
Units and highlighting the special risks and characteristics of the
Units. Moreover, the Commission notes that the Exchange will distribute
a prospectus to the holders of the Old Units calling attention to the
specific risks associated with the purchase of the Units.
The Exchange's ``Other Securities'' listing standards in Section
703.19 of the Manual provide that issuers satisfying earnings and net
tangible assets requirements may issue securities such as the Units
provided that the issue is suited for auction market trading. The
Commission notes that the Exchange has represented the following in
accordance with the listing standards of Section 703.19 of the Manual:
(1) That PPL is an NYSE-listed company in good standing; (2) there will
be at least 1 million securities outstanding; (3) at least 400 holders;
and (4) at least $4 million from which the value of the Unit is in part
derived will remain outstanding and listed on the Exchange following
maturity of the Units. The Commission notes that the Units will meet
all of the relevant listing standards found in Section 703.19 of the
Manual except that the Units will not have the minimum life of one
year.\15\ Because the Units are being offered in connection with an
exchange offer, the Commission believes that the Units will have
sufficient liquidity and depth of market, even if listed for a period
of shorter than one year. The Exchange will also provide each of the
holders of the Old Units with a registration statement outlining the
specific risks associated with the purchase of the Units. Consequently,
the Commission does not believe that the Units will raise any
significant regulatory issues.
---------------------------------------------------------------------------
\15\ See supra notes 8 and 9.
---------------------------------------------------------------------------
Because the issuer of the Unit is PPL (the Purchase Contract issued
by PPL and the Note issued by PPL Capital and guaranteed by PPL), the
Commission does not object to the Exchange's reliance on PPL to meet
the issuer listing requirements of Section 703.19 of the Manual. The
Units will conform to the listing guidelines under 703.19 of the
Manual, except for the life of one year requirement, and the continued
listing guidelines under Sections 801 and 802 of the Manual. The
Commission also believes that the listing and trading of the Units
should not unduly impact the market for the Units or raise manipulative
concerns because the Exchange's existing equity trading rules and
equity margin rules will apply to trading of the Units. As discussed
more fully above, the Exchange will also have in place certain other
requirements to provide additional investor protection. The Exchange
represents that its surveillance procedures are adequate to properly
monitor the trading of the Units. The Commission notes that the
Exchange will rely on its existing surveillance procedures governing
equity, which the Exchange represents
[[Page 4198]]
have been deemed adequate under the Act.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\16\ that the proposed rule change (SR-NYSE-2003-40), be, and
hereby is, approved.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\17\
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78s(b)(2).
\17\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-1757 Filed 1-27-04; 8:45 am]
BILLING CODE 8010-01-P