The Securities and Exchange Commission is seeking comment on a proposed rule change filed by the New York Stock Exchange that would make delistings mandatory for companies more than 12 months late in filing their annual report, rather than the NYSE’s current discretionary policy.
The proposed rule change, filed Dec. 14, would amend Section 802.01E of the Listed Company Manual to end the exchange’s discretion to continue listing companies that are 12 months late in filing their annual reports. If approved, the change would go into effect at the start of 2008.
Currently, if a company fails to file its annual report within six months from the filing due date, its securities can be traded for as long as an additional six months. Then, depending on the circumstances, if the company doesn't file its periodic annual report by the end of the one-year period, suspension and delisting procedures begin.
In certain circumstances, however, the NYSE can postpone suspension and delisting procedures if it believes that a delisting would be significantly contrary to the national interest and the interests of public investors, if it believes the company remains suitable for listing given its relative financial health and compliance with the NYSE’s other listing standards, and where there's a reasonable expectation that the company will be able to resume timely filings in the future.
The NYSE says that after discussions with the SEC staff, it determined that retaining its discretion to allow companies to continue listing beyond the initial 12-month period was unnecessary. Under the proposal, prior to December 31, 2007, if the exchange determines to continue listing a company beyond the initial 12-month period under the current rules, and the company fails to file its periodic annual report by Dec. 31, 2007, suspension and delisting procedures will commence.
Comments on the proposal are due 21 days after publication in the Federal Register.
Agencies Give Statement On Risk In Complex Finance Activities
Capping an effort more than two years in the making, the SEC and four other federal agencies have issued guidance in the form of a final statement aimed at helping large financial institutions identify, manage and address risks associated with “elevated-risk complex structured finance activities.”
The statement represents supervisory guidance for institutions supervised by the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision, and represents a policy statement for institutions supervised by the SEC. The agencies began their initial effort in 2004, prompted by Enron's collapse and the ensuing litigation.
The policy describes the types of internal controls and risk management procedures that should help financial institutions identify, manage, and address the heightened legal and reputational risks arising from elevated-risk CSFTs, transactions typically conducted by a limited number of large financial institutions. It won't affect or apply to the vast majority of financial institutions, including most small institutions.
Regulators said the statement, which takes a risk- and principles-based approach to addressing those risks, is substantially similar to a revised statement issued for comment in May 2006 with some clarifying changes.
It provides examples of transactions that may warrant additional scrutiny, including, among other things, transactions that appear to:
lack economic substance or business purpose;
to be designed or used primarily for questionable accounting, regulatory, or tax objectives, particularly when executed at the end of a reporting period for the customer;
or to raise concerns that the client will report or disclose the transaction in public filings or financial statements in a manner that is materially misleading or inconsistent with the substance of the transaction or applicable regulatory or accounting requirements.
The text of the interagency statement can be found in the box above, right.
Nasdaq Change To Reverse Merger Listings Is Approved
The SEC has approved a Nasdaq rule proposal that clarifies the process issuers must follow when applying for initial listing in connection with a reverse merger.
The change amends Nasdaq Rule 4340(a) and related interpretive material to say that an issuer must apply for initial listing prior to consummating a reverse merger—a transaction where the issuer combines with an entity that isn’t listed on Nasdaq, resulting in a change of control of the issuer and potentially allowing the non-Nasdaq entity to obtain a “backdoor listing” on Nasdaq.
The previous rule stated that an issuer had to apply for initial listing “following” a reverse merger. The change replaces the word “following” with the phrase “in connection with” and requires the issuer to submit an application for the post-transaction entity with “sufficient time to allow Nasdaq to complete its review before the transaction is completed.”
In its approval order, the SEC said that because the entity resulting from a reverse merger could be substantially different from the one originally approved for Nasdaq listing, Nasdaq can conduct a new listing review of the new entity and, for the new entity to keep the listing, to require sufficient time to complete the review before the reverse merger is completed.
The Nasdaq approval order can be found the box above, right.
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