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SEC Adopts Final Rules on Exchange Delisting, Deregistration

The SEC adopted amendments to its rules governing the removal from exchange listing and the deregistration of securities under Exchange Act Section 12(d). Under the final rules, amended Form 25 will constitute notice by issuers and national securities exchanges of delisting or deregistration and will be filed electronically with the SEC on the EDGAR system.

The SEC proposed the amendments to the delisting and deregistration process in June 2004 (2004 CCH Dec. 87,226) in order to make the process more transparent and efficient. The agency received three comment letters in response to the proposal and has adopted the amendments substantially as proposed. The rules are effective 30 days from the date of publication in the Federal Register. The exchanges will have three months to submit any required rule changes to the SEC to implement the amendments, and compliance with the amended rules will be required nine months from the date of publication in the Federal Register.

The SEC has amended Rule 12d2-2 to provide that a national securities exchange may strike a class of securities from listing or may withdraw the registration of the securities by filing an application on Form 25. The delisting of the security will be effective 10 days after the Form 25 is filed with the SEC. A withdrawal from registration will take effect 90 days after filing Form 25, unless the SEC determines otherwise.

An exchange must provide notice to an issuer of its decision to delist the securities and give the issuer an opportunity to appeal the decision. Exchanges also must provide notice to the public at least 10 days before the delisting becomes effective. The exchange's decision to delist a security must be announced in a press release and by posting the information on the exchange's Web site. If the exchange's rules do not currently comply with these provisions, it must amend its rules by the SEC's compliance date. The exchanges must also deliver a copy of the Form 25 application to the issuer, which the SEC contemplates will be done at the same time as the filing of the Form 25.

The SEC requires public notice that a security will be delisted at least 10 days prior to its effective date in order to give investors and the public time to take any permitted actions. The 10-day notification requirement is a minimum period. Exchanges may provide notice of a delisting determination prior to the filing of the Form 25 if they choose. The SEC seldom receives comments on delisting actions, but the final rules permit a person to petition the SEC for review of an exchange's decision. The SEC decision would then be subject to review by a federal court of appeals.

The SEC had sought comment on whether to eliminate the Form 8-K reporting requirement with respect to exchange-initiated delistings, but chose to leave the requirement in place. The SEC concluded that, since the new 8-K disclosure requirements have only recently become effective, it would not be prudent to adopt additional amendments at this time. In addition, the Form 8-K disclosure includes information that is not provided in the Form 25 such as the action the company plans to take as a result of the delisting. The SEC may reconsider the elimination of the 8-K disclosure at a future date.

Issuers that file a Form 25 to withdraw their securities from listing or registration on an exchange must comply with the exchange's rules for delisting, as well as any state laws. They must submit a written notification to the exchange no less than 10 days before filing the Form 25 and must provide public notice through a press release and on their Web site if they have one. The notices by issuers and exchanges that are posted on their Web sites must remain in place until the delisting becomes effective.

Any delays in the effectiveness of a delisting or deregistration will be reported to the exchange and the issuer by written notice from the Commission. The SEC will also provide notice of the delay to the public through its Web site or by a press release. To prevent an issuer from using the 90-day withdrawal period to circumvent its reporting obligations under Exchange Act Section 13(a), the rules require that, within 60 days of a delay, the issuer must file any reports that would have been required had the Form 25 not been filed. The issuer also will be required to timely file any subsequent reports for the duration of the delay.

The SEC has adopted instructions to Form 25, including the requirement that the form must be filed on EDGAR. The instructions also direct issuers to determine whether they have additional reporting requirements under Section 12(g) and reporting obligations under Section 15(d) once they file Form 25.

The SEC will no longer issue orders approving exchange delisting applications. The SEC amended Rule 19d-1 to provide that the filing of a Form 25 will serve as the notice of delisting under Exchange Act Section 19(d). The final rules also exempt from Section 12(d), on a permanent basis, standardized options and security futures products. The SEC found little practical benefit to requiring their compliance.