Alert May 16, 2017

Proposed NYSE Amendments: Dividend Notices and non-IPO Listings

Summary

The NYSE has recently proposed two notable amendments to its rules. The first proposal would require listed companies to notify the NYSE at least 10 minutes before the company announces any dividend or stock distribution, rather than the current policy that requires such notice only when the NYSE immediate release policy is in effect (generally between 7:00 a.m. ET and 4:00 p.m. ET).

The second proposal would more broadly permit companies to list equity securities without a concurrent underwritten offering or sustained secondary trading history in a market for unregistered securities if they provide an independent third-party valuation evidencing a market value of publicly held shares of at least $250 million.

Advance Notice of All Dividend and Stock Distribution Announcements

As summarized in a previous Goodwin alert, the NYSE immediate release policy currently requires listed companies that release material news between 7:00 AM ET and the close of trading on the NYSE (generally 4:00 PM ET) to call the NYSE Market Watch group at least 10 minutes before announcing material news to discuss the content of the announcement, and to email a copy of the proposed announcement to Market Watch at least 10 minutes before public release of the announcement. NYSE rules require listed companies that announce dividends during these hours to comply with the immediate release policy.

The NYSE proposes to require listed companies to notify the NYSE at least 10 minutes before the announcement of a dividend made at any time, rather than just during the period when the NYSE immediate release policy is in effect as is currently the case, by amending NYSE Rule 204.12, which requires listed companies to give prompt notice of any action relating to a dividend or stock distribution in connection with a listed stock, and Rule 204.21, which requires listed companies to give prompt notice when they fix a record date or close the transfer books with respect to a listed security.

The NYSE states in its proposal that it believes that ensuring that the NYSE has access to dividend information prior to public announcement in all cases, rather than only during the period when the immediate release policy is in effect, will avoid marketplace confusion if there is contradictory information available from multiple sources or uncertainty as to whether news reports of dividends are accurate. When the proposed amendments become effective, NYSE-listed companies should be prepared to take appropriate action to comply with the amended notice requirements.

Non-IPO Listings

Generally, NYSE rules require companies seeking to list their common equity securities on the NYSE to demonstrate an aggregate market value of publicly held shares of $100 million if the listing is not occurring in connection with an IPO or a spin-off transaction. NYSE rules further provide that, for companies listing in connection with the effectiveness of a resale registration statement filed under the Securities Act, the NYSE will determine whether the company has met this $100 million requirement based on both an independent valuation and recent trading prices for the company’s common equity securities on a market for unregistered securities, such as the OTC market. The NYSE has filed a proposal to amend these provisions to eliminate the requirement for trading on a market for unregistered securities if the company provides an independent third-party valuation evidencing a market value of publicly held shares of at least $250 million and to extend the application of these provisions to companies registering their securities under the Securities Exchange Act (but not filing a Securities Act registration statement). The SEC recently extended the date for SEC action on this proposal to June 29, 2017.

Currently, Footnote (E) to Section 102.01B of the NYSE rules provides that the NYSE will, on a case by case basis, exercise discretion regarding the listing of securities in connection with a resale registration statement filed under the Securities Act by companies that have not previously registered their common equity securities under the Securities Exchange Act. Footnote (E) provides that, in exercising this discretion, the NYSE will determine whether the company has met this $100 million requirement based on both (1) the value calculable based on an independent third-party valuation of the company and (2) the most recent trading price for the company’s common equity securities on a market for unregistered securities. Footnote (E) further provides that the NYSE will only rely on trading prices if there is sustained trading history over a several month period evidencing aggregate market value in excess of $100 million. As the NYSE notes in its proposed rulemaking filing, because Footnote (E) requires the NYSE to rely on both a valuation and recent trading prices, it causes difficulties for companies seeking to list on the NYSE if their securities have not historically been traded on a market for unregistered securities or where trading is too limited to support valuation under NYSE rules. In addition, Footnote (E) does not currently provide any method for listing in connection with the effectiveness of a Securities Exchange Act registration statement such as a Form 10 in the absence of the effectiveness of a Securities Act registration statement (IPO or resale).

In order to address the difficulties that the current NYSE valuation requirements relating to recent trading prices impose on some companies “that are otherwise clearly qualified for listing,” the NYSE proposes to amend Footnote (E) to provide that, in the absence of recent trading, the NYSE will determine that the company has met the requirement relating to the market value of publicly held shares if the company provides an independent third-party valuation evidencing a market value of publicly held shares of at least $250 million. The NYSE also proposes to amend Footnote (E) of Section 102.01B so that it applies to both (1) companies listing upon effectiveness of a Securities Exchange Act registration statement without any concurrent Securities Act registration statement and (2) companies listing in connection with the effectiveness of a resale registration statement filed under the Securities Act.

This proposal may be attractive for companies seeking to list on the NYSE that have sold securities in private placements or Rule 144A offerings but whose securities are not actively traded or do not trade at all. It is important to note that the NYSE does not intend this proposed amendment to change the NYSE’s existing process for the initial listing of common equity securities of nontraded REITs that had previously registered the initial public offering of their common equity securities under the Securities Act and were current reporting companies under the Securities Exchange Act prior to the initial listing.