American Stock Exchange:

More Changes Needed in Screening Emerging Companies for the Marketplace

GGD-94-72: Published: May 25, 1994. Publicly Released: May 31, 1994.

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Pursuant to a congressional request, GAO provided information on the American Stock Exchange's (Amex) Emerging Companies Marketplace, focusing on how Amex: (1) assesses the reputation of the management and stockholders of companies seeking a Marketplace listing; and (2) ensures that Marketplace companies meet all required criteria for approval.

GAO found that: (1) Amex developed the Marketplace listing for companies that are too small to qualify for a standard Amex listing; (2) Amex obtained information for assessing companies' Marketplace eligibility from annual reports, proxy statements, and other documents required by the Securities and Exchange Commission (SEC); (3) Amex did not always follow its own published rules and listed qualitative requirements, which were not always clear, for assessing companies' Marketplace eligibility; (4) Amex did not adequately document that approved Marketplace companies complied with all quantitative requirements; (5) an April 1993 SEC investigation of Marketplace listing procedures identified similar problems; and (6) following allegations that individuals with histories of criminal and regulatory violations were associated with some Marketplace companies, Amex improved its assessment of companies' management reputation, expanded its information sources for assessing companies, and improved Marketplace eligibility decisionmaking procedures. GAO believes that weaknesses remain in the Marketplace screening process, since Amex has: (1) waived, without SEC approval, some mandatory quantitative requirements; (2) approved units for trading without incorporating in its rules a provision allowing it to do so; and (3) failed to maintain adequate documentation ensuring that companies approved for Marketplace listing met all quantitative requirements.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Amex has filed an amended rule with SEC and is awaiting approval. SEC approved Amex's amendments to the Marketplace on December 15, 1994. The amendments require that Amex will publish a more comprehensive statement of its qualitative listing factors, including the significance given to each factor.

    Recommendation: The Chairman, SEC, should require Amex to publish a more comprehensive statement of its qualitative listing factors, including the significance of each to the final listing decisions.

    Agency Affected: United States Securities and Exchange Commission

  2. Status: Closed - Implemented

    Comments: Amex has filed a revision to its rules with SEC and is awaiting approval. As part of its revised rules, Amex will define the quantitative requirements warrants have to meet for listing on the Marketplace.

    Recommendation: The Chairman, SEC, should require Amex to modify Marketplace rules to define the quantitative requirements warrants have to meet for listing.

    Agency Affected: United States Securities and Exchange Commission

  3. Status: Closed - Implemented

    Comments: Amex has filed a revision to its rules with SEC and is awaiting approval. SEC approved Amex rules to allow trading of units on the Marketplace.

    Recommendation: The Chairman, SEC, should require Amex to establish Marketplace rules regarding the listing and trading of units.

    Agency Affected: United States Securities and Exchange Commission

  4. Status: Closed - Implemented

    Comments: Amex has filed an amendment to its rules with SEC and is awaiting approval. SEC has approved Amex rules that require Amex to have documentation that all quantitative requirements have been met before a company begins trading on the Marketplace.

    Recommendation: The Chairman, SEC, should require Amex to ensure that the resume for each company fully documents that all quantitative requirements have been met before a company is traded on the Marketplace.

    Agency Affected: United States Securities and Exchange Commission

 

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