Mr. Chairman, and Ranking Member Jeffords and Members of the Committee, I am Richard P. Bernard, Executive Vice President and General Counsel of the New York Stock Exchange (NYSE or Exchange). On behalf of the New York Stock Exchange and our President Catherine Kinney, thank you for inviting me to testify today before the Committee. The NYSE greatly appreciates your leadership in establishing the nation’s policies on matters affecting the environment and public works. The issues you address today surrounding the activities of environmental activist groups are both timely and important, to business and consumers alike. I hope that the information we can provide related to this topic will be of use to you and to the Committee.
1. Listing on the New York Stock Exchange.
The New York Stock Exchange is the world's largest cash equities market. We serve 90 million investors, the institutional community and over 2,700 of the world's leading corporations. The companies listed on the NYSE have a total global market capitalization of $21 trillion. During the first nine months of 2005, our average daily trading volume was 1.61 billion shares, worth over $55 billion a day.
By way of background, I would like to describe the process by which a company becomes listed on the Exchange, including the information considered by the Exchange and the bases upon which the Exchange makes a decision that a company is qualified to list on the Exchange.
Companies seeking to list on the Exchange are subject to review from several perspectives. There are, of course, a number of specific financial and corporate governance criteria that must be met in order for a company to qualify to list. These are specified in the Exchange’s Listed Company Manual, in which we have codified the Exchange’s rules that relate to listed companies. Beyond these specified criteria, however, the Exchange has broad discretion regarding the listing of a company. The Listed Company Manual states that “the Exchange may deny listing or apply additional or more stringent criteria based on any event, condition or circumstance that makes the listing of the company inadvisable or unwarranted in the opinion of the Exchange. Such determination can be made even if the company meets the standards [in the Manual].” (See NYSE Listed Company Manual Section 101.00.)
The process of determining whether a company is qualified to list is one that is conducted in confidence. Section 101.00 of the Listed Company Manual states that: “Prospective applicants for listing are invited to take advantage of the Exchange’s free confidential review process to learn whether or not the company is eligible for listing and what additional conditions, if any, might first have to be satisfied.” Section 104.01 of the Listed Company Manual, for domestic companies, and Section 104.02, for non-U.S. companies, then give an outline of the information needed for the purpose of conducting a confidential eligibility review.
The process is confidential in order to protect the privacy of the company. Especially in view of the fact that the Exchange can exercise discretion to decline to list a company that appears to satisfy the objective criteria, the Exchange has historically been concerned that companies might be reluctant to investigate listing if a determination of non-eligibility was likely to become public. The negative implication of such a determination could have an impact on investors’ assessment of the company, even when such a reaction would be unwarranted.
And such a reaction might very well be unwarranted. The Exchange may determine, for example, that a company is too close to the line from a financial point of view to warrant listing at this time, although the Exchange may counsel the company that it would welcome a further inquiry from the company after a period of time. Or it may be difficult to determine with certainty whether the company has the number of public shareholders that the Exchange requires. Neither of these circumstances should concern investors, but a negative implication may nonetheless attach to a disinclination to list by the Exchange, if that were to become public.
In another circumstance there may be a historical issue with the company, fully disclosed, but which causes the Exchange to decline to list the company. If the Exchange had to be concerned about the public impact of such a determination, it could chill the ability or willingness of the Exchange’s management to make what is often a close and difficult “call”.
2. Life Sciences Research.
A predecessor of the company, Huntingdon Life Sciences Group plc, was listed on the Exchange for approximately twelve years, beginning on February 16, 1989. That company was removed from listing on the Exchange in December 2000 for failure to remain in compliance with the Exchange’s financial continued listing requirements. At the time the company indicated that its financial reversals were attributable to “economic terrorism” by animal rights activists. Regardless of the cause, given the financial situation in which the company found itself, the Exchange’s rules dictated that the company should be delisted.
Life Sciences Research was incorporated on July 19, 2001 and was the vehicle that was used to acquire the business of Huntingdon Life Sciences Research and continue its business through a U.S.-based company. After several years of trading on the over the counter bulletin board, management of the company approached the Exchange regarding listing in mid-July of this year.
In mid-August of this year, following a typical eligibility review, the Exchange staff informed Life Sciences Research that the company was acceptable for listing. In a press release dated August 22, 2005, the company announced that it would list. Following that announcement, reactions from persons associated with member organizations and others focused our attention on information that we should have considered in determining the advisability of listing Life Sciences Research’s common stock on the Exchange. To provide an adequate opportunity for us to evaluate that information, we informed Life Sciences Research on September 7, 2005 that its listing must be postponed. It is unfortunate that our attention was not focused sufficiently far in advance to enable us to reconsider the listing prior to the day the company was scheduled to list and out of the public eye. We sincerely regret the circumstances, and clearly would have preferred to have been able to make the postponement decision earlier than we did.
The reaction to the announcement of the listing of Life Sciences Research, and to its postponement, has clearly focused public attention on the very serious concerns that have confronted Life Sciences Research for a number of years now, and which you and your Committee are working to address. Unfortunately, such publicity is quite at odds with our policy of affording applicants a confidential listing evaluation. That policy is the reason why we have limited our public response to an acknowledgement that the listing of Life Sciences Research has been postponed. We will continue to try to conduct our evaluation in confidence, difficult as that may be in the current circumstances.
Thank you again for inviting us to testify.