New York Stock Exchange Proposes To Eliminate Rule 500: Recommends Rescinding Requirements For Voluntary Delisting

The New York Stock Exchange's board of directors today approved a proposal to eliminate NYSE Rule 500 and allow the board of a listed company to make the determination on a voluntary delisting of a company's securities. The recommendation, which will be submitted to the Securities and Exchange Commission for review, reflects the new corporate-governance environment of expanded board independence.

When it was first adopted in 1939, Rule 500 required two-thirds of a company's outstanding shares to be voted in favor of a delisting, with no more than 10 percent of the shares opposing. In 1999 the requirement of a shareholder vote was eliminated, and the rule currently requires only board and audit committee approval, prior written notice to the company's 35 largest holders, and a press release.

In approving the changes in 1999, the SEC requested that the NYSE review periodically the shareholder-notification requirement of Rule 500 to determine whether it remained warranted and consistent with investor protection. In light of this and the work the Exchange has done in re-examining its standards of corporate governance for listed companies, the NYSE determined that a reassessment of Rule 500 was in order.

"The rationale for requiring separate audit-committee approval of a delisting was to ensure that independent directors approved the decision," said Catherine R. Kinney, president and co-chief operating officer. "In our work on listing standards, we have seen that a majority-independent board has already become the norm among many of our companies. After our currently pending governance proposals become final, a majority-independent board will become an Exchange standard. As a result, we believe that in this new environment, board approval of a transfer should suffice, and the rule is no longer necessary."

Mrs. Kinney also noted that neither advance notification to shareholders nor a company press release need be mandated any longer under NYSE rules, since the transferring companies and the market to which they are transferring publicize such events. In addition, companies are obligated to disclose material events, and pending SEC changes will require an 8-K filing when a company takes definitive action to terminate a listing, including for reason of a transfer to another market. Practical considerations such as the need to make brokers and investors aware of a change in ticker symbol also serve to ensure that a planned move is visible. Should a transferring company miss filing the 8-K or issuing a press release, the NYSE itself would issue a release.