The Securities and Exchange Commission approved a new rule today that allows companies to more easily leave the New York Stock Exchange. But the National Association of Securities Dealers, the Big Board's most staunch rival, threatened to take the issue to the courts or Congress.
"The change is hardly a change at all, but more of a cosmetic move designed to give people the impression it's a change," Frank G. Zarb, NASD's chairman and chief executive, said in an interview today. "We had hoped the SEC would voluntarily eliminate it, in name of the markets. Markets perform better when there's competition."
At issue is the Big Board's Rule 500, which was put in place in 1939 to keep unscrupulous management from delisting to skirt shareholder-protection rules required by the NYSE. Dubbed the "roach motel" rule by some NASD staffers, Rule 500 makes it very difficult for companies to leave the NYSE, requiring that companies get approval from 66 2/3 percent of shareholders and that they receive objections from fewer than 10 percent of shareholders. The NASD, by contrast, doesn't require its listed companies to contact shareholders before they move to another market.
According to the SEC, over the past 60 years, only one company, MacMillan Bloedel Ltd., has delisted from the NYSE. Last year, the Big Board added 66 companies that had voluntarily delisted from the Nasdaq Stock Market and 17 from the American Stock Exchange, both NASD units.
Under the new rule, a company can voluntarily leave the NYSE by getting approval from an audit committee and providing written notice to at least 35 of its biggest shareholders. It also must wait 20 to 60 days.
"If I'm the New York Stock Exchange, I'll start calling those institutions," Zarb bristled. "It gives you time to go in and sway their decision. It's simply designed for anti-competitive reasons."
The NYSE would not respond to Zarb's comments. "It is fair," a spokesperson said of the new rule. "It will make the market more competitive."
The SEC said the new rules are consistent with securities laws. But it concluded that the rule still creates a more onerous impediment to delisting than most markets and recommended that the NYSE "continue to assess the rule's operation in order to determine whether it is appropriate to further eliminate impediments to voluntary delistings."
Zarb said the NASD's attorneys are studying how to have the rule overturned in the courts, or perhaps bring the matter to Congress to reform the securities law.
In the past two years, Zarb said, there have been several companies that said they wanted to leave NYSE and could not. "They wanted to be here for the same reason Microsoft, Dell, Starbucks want to stay" on the Nasdaq, he said. "Their decision shouldn't be made by the exchange."