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Navistar International Corp., Exchange Act Rel. 56769, November 8, 2007

NYSE appeal.

Time from appeal to decision - 9 months
Time from last brief to decision - 5 months, 23 days
Pages - 16


Navistar appealed the decision of the NYSE to remove its common stock and other securities from listing and registration on the exchange.  The exchange took this action because the company failed to file its fiscal year 2005 annual report with the Commission and was unable to come into compliance within a twelve month cure period.  The dismissed the proceeding, finding the NYSE had acted properly.

NYSE rules require listed companies to file timely their annual reports with the Commission as a condition for continued exchange listing.  The rules provide for a six month grace period and an additional discretionary extension of six months.  Absent extraordinary circumstances, the Exchange begins suspension and delisting procedures at the end of the second six month extension.  Here, Navistar was unable to file its 2005 annual report, and sought an additional six month extension after it was unable to file timely during the initial six months.  The NYSE granted the discretionary second six month extension.

NYSE rules permit an extension beyond the twelve month extension if due to the nature of the issuer's business and its very large market capitalization a delisting would be significantly contrary to the national interest and the interests of public investors.  The rule provides the Exchange may extend the listing on this basis "at its sole discretion."

During discussions with Navistar, NYSE staff informed the company that the SEC was "uncomfortable" with the invocation of the national interest exception noted above and had discussed removing the exception from NYSE rules.  As a result the NYSE staff told Navistar none of its delinquent filers would be considered for a national interest exception.

Thereafter Navistar met with SEC staff and argued that the national interest exception should be invoked.  The SEC staff informed the company that the decision on whether to invoke the national interest exception was for the NYSE to determine.  At a later meeting with NYSE staff, the company was informed that the exchange would begin delisting procedures if the company was not timely in its filings after twelve months.  

Navistar appealed the exchange staff decision to the NYSE board of directors.  During the pendency of the appeal, the exchange permitted the stock to continue to trade.  At the evidentiary hearing, the company admitted that delisting would not trigger any defaults.  NYSE staff argued that Navistar was not one of the largest companies on the exchange and there was no evidence that delisting would have a negative impact on the national economy.   NYSE sustained the delisting decision.  To date, Navistar has not filed its 2005 annual report.

The Commission found that NYSE based the delisting on specific grounds that exist in fact, namely that the company was untimely in filing its annual report.  Further, the Commission found that the delisting was in accordance with exchange rules.  The exchange's rules give it sole discretion to provide exemptions from listing requirements and provide that exemptions will be granted only in "very rare circumstances."  It noted that the national interest exception should only apply when there is an adverse impact not only on the issuer, but also the "country as a whole."  Further, the Commission found that Navistar did not meet the threshold requirements of the exemption because its market capitalization was $2.5 billion, not enough to be included in the S&P 500.  Although large, Navistar's size did not make it "extraordinary."  Nor was there evidence based on the company's business, that delisting would effect the national interest.  Although a defense contractor, Navistar admitted at the hearing that the delisting would not endanger those contracts.

Navistar argued that NYSE staff had claimed that the exemption only applied to Fannie Mae and had therefore acted discriminatorily.  It referred to congressional testimony by the SEC chairman who referred to the NYSE rule as a "unique exception for Fannie Mae" and stated that the SEC had encouraged NYSE to amend the rule to place an expiration date on it.  The Commission rejected this argument, stating that both it and NYSE had considered and rejected Navistar's claim to the national interest exception on the merits.  The Commission also rejected Navistar's claim that there was no reason for giving an exception to Fannie Mae, but denying one to Navistar.  It noted that Fannie Mae's capitalization was twenty-one times larger than Navistar's and that Fannie Mae has a unique market position and that a loss of investor confidence in it could in fact impact the national economy.  The opinion adopted this formulation - the exemption can be properly invoked if delisting would have a "fundamental, profound, systematic effect on the national interest."  Here, there was no evidence that the delisting would seriously impair Navistar's business.  Therefore, arguments by Navistar about the impact of delisting on the national economy were moot.

Finally, the Commission found that NYSE applied the rule consistent with the intent of the Exchange Act.  It noted that timely financial information is critical to the proper operation of the financial markets.  It found that although delisting might have a negative effect on the issuer's current shareholders, potential future investors would not be well served by allowing continued exchange trading by an untimely filer.  Last, the Commission noted the national interest exception will be no longer available for issuers who are delinquent after 2007.