Big Board may permit defections A listed company currently can't move to another market; Rule 500 under scrutiny; Securities

THE BALTIMORE SUN

NEW YORK -- The New York Stock Exchange is considering changing a rule to would allow listed companies to defect from the biggest U.S. exchange.

The Big Board's Rule 500 makes it almost impossible for a listed company to move to another market. Changing the rule could help it recruit companies leery about the difficulty of switching, an NYSE spokesman said.

Amending Rule 500 also would douse criticism that the Big Board tries to thwart competition among exchanges. Nasdaq stock market officials have complained that the NYSE rule unfairly locks up companies.

The Securities and Exchange Commission also is pressing for a review. It recommended that Rule 500 be modified in its 1994 "Market 2000" report and recently renewed the request.

"The NYSE leadership recognizes the issue is an Achilles' heel," said John Coffee, a Columbia University law professor and member of the NYSE's legal advisory committee. "The markets should compete the way Ford and General Motors do. Let the best market win."

Exchange officials said they're considering the change, after years of defending the rule as protecting shareholders, because they're listening to member companies. A decision on the change should be made by the end of the year, NYSE Chairman Richard Grasso told the Wall Street Journal.

"We've certainly heard from prospective companies that were unwilling to list on the NYSE because of Rule 500," said Bob Zito, senior vice president of the NYSE. "This is important to us because it puts us at a competitive disadvantage," he said.

"Any step that increases competition in our industry is beneficial for the investor and the issuer," Mike Shokouhi, a Nasdaq spokesman, said.

Rule 500 says that at least 66 percent of a listed company's shareholders must approve a move before an NYSE company can leave. At the same time, no more than 10 percent of the company's holders can object to the move.

The NYSE is considering the change as it battles for listings with the Nasdaq. In the past year, the NYSE attracted some of Nasdaq's top companies, including America Online Inc. and Gateway 2000 Inc. It also won Concert PLC, the company being created by British Telecommunication PLC's purchase of MCI Communications Corp.

That victory increased the pressure on the NYSE to consider a change. MCI had been an outspoken champion of Nasdaq and provided the electronic marketplace with its telecommunications network since its inception in 1971.

MCI Chairman Bert Roberts complained recently to SEC Chairman Arthur Levitt about the rule, according to a person familiar with the situation. MCI and the SEC had no comment.

The rule dates back to 1939, when it was written to protect shareholders from so-called asset-strippers -- corporate officers who delisted companies and sold off assets for personal gain. In the years since, the SEC has beefed up disclosure requirements and standards for corporate directors.

"The consensus is the present rule is an anachronism and doesn't work well and should be modified," said John Olson, a senior partner with the law firm Gibson, Dunn & Crutcher who also sits on the NYSE's legal committee. Nasdaq is a Gibson, Dunn client. "I think Dick Grasso has thought this was a problem for a while now."

Olson said members of the legal committee favor modifying Rule 500 so a company can defect as long a majority of corporate directors and independent directors agree. He said shareholders ought to be notified about a defection but need not approve it.

Pub Date: 7/07/97

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