November 21, 2019

Joshua Rosner
917/379/0641
jrosner@graham-fisher.com
@joshrosner

GSEs: Why FHFA Should Direct the GSEs to Relist Today

Today, FHFA should immediately begin the process of relisting the GSEs on exchanges

(e.g. NYSE, NASDAQ) rather than letting them continue to be traded over-the-counter

(i.e. OTC). Such actions are clearly warranted under the Housing and Economic

Recovery Act of 2008 and would materially improve the capital positions of the GSEs,

increase the value of Treasury’s warrants in each GSE and provide other tangible benfits:

a. Relisting the GSEs now would support FHFA’s goals of improving the

safety and soundness of the GSEs and the Administration’s goal of ending

the conservatorships by:

i. Revealing to the FHFA, as prudential regulator, and to UST, as

backstop provider (and as investor, for now) the real bid-ask

spreads of the GSEs;

ii. Attracting market-makers and specialists;

iii. Attracting more research analyst coverage;

iv. Attracting institutional investor following and secondary

investment in the GSEs.

v. Reducing the risk of market manipulation;

vi. Sending a clear message of the Administration’s intent, thereby

socializing the plan and reducing the chances of a future

administration reversing course.

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Please refer to important disclosures at the end of this report.
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b. This would immediately benefit FHFA, UST and the GSEs by increasing

investor participation and liquidity.

i. While the stock of companies listed on exchanges is predominately

held by institutional investors, OTC stocks are owned and traded

almost exclusively by individual (“retail”) investors (Ang et al.,

2013). Institutional investors (pension funds, insurance companies,

asset managers & most hedge funds) generally won't touch them.

Academic research shows that institutional investors play a crucial

role in monitoring companies and encouraging better disclosure

and governance practices, and relisting draws in institutional

investors.

c. Relisting the GSE equity securities on exchanges does not need to, and

should not, wait until the capital rule and PSPA changes are complete.

While it needs to be done at latest simultaneously with a public offering

(i.e. it’s likely going to need to be done anyway), listing can precede an

offering.

d. The listing requirements can be easily met.

i. Both GSEs meet all of the requirements for listing on the NYSE

(where they were previously listed) except the share price

requirements, which could be achieved by a “reverse split” (i.e.

proportional consolidation of shares to increase the share price).

e. Background on listing on exchanges vs. OTC:

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i. Market prices for stocks traded on exchanges vs. OTC are

established in somewhat different ways.

1. The exchanges centralize trading in each security at one

location the floor of the exchange. There, auction principles

of trading establish the market price of a security based on

then-current buying and selling forces. If such forces do not

balance, designated floor members known as specialists are

expected to step in to buy or sell for their own account, to a

reasonable degree, as necessary to maintain an orderly

market.

2. OTC trades are bilateral matching bid-ask trades where

there are no market making specialists and therefore both

stated prices and liquidity are opaque. Empirical evidence

shows that OTC stocks are less liquid than those listed on a

national securities exchange such as the NYSE or Nasdaq

(Ang et al., 2013; Eraker and Ready, 2015; Brüggemann et

al., 2016).;

ii. OTC trading of securities is done through dealer networks,

between two counterparties, without the supervision of an

exchange regulator. Contrary to trading on formal exchanges, OTC

trading does not require trading of only standardized items (e.g.

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 November 2019

clearly defined range of quantity and quality of products). OTC

trade prices are not always published to the public.

iii. Pink sheets (i.e. a form of OTC, as the GSE equity securities trade

now) disallow trading on margin and make short selling difficult.

This further diminishes liquidity and reduces price transparency. In

the presence of constraints on short selling, stock prices do not

fully reflect the views of bearish investors and thus are less

informative about the true market value (Miller, 1977). In

equilibrium, this situation results in stock prices that are too high

(Jarrow, 1980) and increases the risk of large declines in stock

prices around bad news (Hong and Stein, 2003). Ang et al. (2013)

and Eraker and Ready (2015) argue that the short-selling of OTC

stocks is challenging for investors because of brokerage

restrictions and difficulties in locating OTC shares to sell short.

Ang et al. (2013) further suggest that negative risk-adjusted returns

due to short-sale constraints should be stronger for stocks with a

greater divergence in opinions between optimistic and pessimistic

investors.

iv. OTC stocks exhibit negative risk-adjusted returns (Ang et al.,

2013; Eraker and Ready, 2015; Brüggemann et al., 2016). Eraker

and Ready (2015) show that a portfolio of OTC stocks

underperforms a portfolio of exchange-listed stocks by about 2%

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November 2019

percent per month including transaction costs. As noted above,

Ang et al. (2013) find that even the most liquid OTC stocks still

generate a negative risk-adjusted return.

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  Draft
 Final
NEW YORK STOCK EXCHANGE
ORIGINAL LISTING APPLICATION
FOR EQUITY SECURITIES

Part I: Corporate Information

A. General Corporate Information

Complete Legal Corporate Name:

Address of Principal Executive Offices:

_________________________________________________

Company Telephone No.:

Contact Name and Title:

Contact Telephone No.: Contact Email:

State and Country of Incorporation: Date of Incorporation:

EDGAR CIK No.: SEC ‘34 Act File No.:

Foreign Private Issuer (yes/no): DRS Eligible (yes/no):

Website address: SIC Code:

CUSIP No. of Security(s) Being Listed:

Date of Fiscal Year End:

B. Corporate Contacts
Please list the full name, full title (if different from that indicated), address (if different from principal address
above), telephone number and email address of the following individual(s):

Chief Executive Officer 6

Chief Financial Officer

Corporate Secretary

General Counsel

Investor Relations Officer

Other Designated Contact

Part II: Security Information

A. Security(s) which the Applicant Issuer is applying to list (including par/stated value, warrant expiration
date, maturity date, etc.):

Shares Total Shares

Outstanding or Unissued, but
Security Class/Type Issue Description (incl. par Offered Reserved for
value) issuance*

*As of __________ (date), the following number of shares are unissued, but have been authorized
for issuance by the Applicant Issuer’s governing body for the purposes noted:

Date Purpose of Shares to be Issued Number of

Authorized Shares
Authorized

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 * Please note that NYSE’s rules require that, at such date in the future that any currently unissued but
authorized securities are issued, the Applicant Issuer must file a supplemental listing application to list
such securities on the applicable exchange.

Record date of the most recent dividend paid with respect to the shares:

_____________________
Payment date of the most recent dividend paid with respect to the shares:

_____________________
Amount per share of the most recent dividend paid with respect to the shares:

____________________
Are there any declared but unpaid dividends with respect to the shares:

_____________________
What is the record date for any such unpaid dividend:

_____________________
What is the payment date of any such unpaid dividend:

_____________________
What is the amount per share of any such unpaid dividend:

_____________________
Provide a description of any outstanding rights to subscribe to securities:

_____________________
If a record date is to be set in the near future for any purpose, please provide the anticipated date of the
record date and the reason the record date is being established.

_____________________
B. Transfer Agent/Registrar:
Name:

Address:

Phone No.: Facsimile No.: Email:

C. If listing American Depositary Shares, please provide the following information with respect to the
Depositary Bank:

Name:
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 Address:

Phone No.: Email:

D. Outside Counsel Contact with Respect to Listing Application, if any:

Name of Contact Person:
Firm Name:
Address:
Phone No.: Email:

E. Security Preferences
If the Applicant Issuer has any existing class of common stock or equity security entitling the
holder(s) to differential voting rights, dividend payments, or other preferences, please provide a
complete description of such preference(s):

Part III: Type of Listing

A. Listing in Connection with an Issuance of Securities
Please indicate the type of transaction:
 Initial Public Offering  Merger  Spin-off
 Follow On Offering  Reorganization  Exchange Offer 
Conversion  Other (please specify):
If spin-off, please provide name of parent entity:
Will the security(s) to be listed trade on a “when issued” basis? Yes  No 
Expected closing date of the transaction:
Expected listing date:
Investment Banker/Financial Advisor Contact(s), if any
Name of Contact Person:

Firm Name: ______

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Address:

Phone No.: Email: ________________________

B. Listing in Connection with a Transfer or Quotation

Name of current trading market, if any:
Current ticker symbol, if any:

Part IV: Additional Information

A. Exchange Requirements for Listing Consideration
To be considered for listing, the Applicant Issuer must meet the Exchange’s minimum listing requirements.
The Exchange has broad discretion regarding the listing of any security. Thus, the Exchange may deny listing
or apply additional or more stringent criteria based on any event, condition, or circumstance that makes the
listing of an Applicant Issuer’s security inadvisable or unwarranted in the opinion of the Exchange. Such
determination can be made even if the Applicant Issuer meets the Exchange’s listing standards. In connection
with the review of any listing application, the Exchange reserves the right to request such additional public or
non-public information or documentation as it may deem necessary and appropriate to make a determination
regarding the listing eligibility of the Applicant Issuer’s security, including, but not limited to, any material
provided to or received from the Securities and Exchange Commission or other appropriate regulatory
authority.

B. Regulatory Review
The Applicant Issuer must provide the Exchange with a letter signed by an executive officer of the company,
certifying that, to the company's knowledge, no officer*, board member, or non-institutional shareholder
with greater than 10% ownership of the company has been convicted of a felony or misdemeanor relating to
financial issues (e.g., embezzlement, fraud, theft) during the past ten years. To the extent that an officer,
board member, or non-institutional shareholder with greater than 10% ownership of the company has been
so convicted, provide a detailed description of all such matters. In addition to reviewing this letter, the
Exchange will review background materials available to it regarding the aforementioned individuals as part of
the eligibility review process.

*As such term is defined in Rule 16a-1(f) under the Securities Exchange Act of 1934, or any successor rule.

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 Part VI: Attestation
I, _______________________________, as__________________________________
Name of Authorized Executive Officer Title of Authorized Executive Officer

______________________________________________________, do hereby
Full Name of Company

attest that, at the time of the filing of this application, the Applicant Issuer is deemed to have read and
understood the Exchange’s listing and corporate governance rules and requirements and, if approved for
listing, intends to comply with all applicable listing and corporate governance rules and requirements on an
ongoing basis. Further, I certify that to the best of my knowledge and belief, the information contained within
this application and any materials provided to the Exchange in support of this application are true and correct.

Signature of Authorized Executive Officer

Date

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 Initial Listing Standards

Overview of NYSE Quantitative Initial Listing Standards –

The following charts provide an overview of the quantitative initial listing standards for the New York Stock
Exchange. See Section 1 of the NYSE Listed Company Manual for a more complete description of the initial listing
standards.

The NYSE has broad discretion in listing a company. The fact that a company meets the quantitative initial listing
standards does not necessarily mean that it will be approved for listing. The NYSE may deny listing or apply
additional more stringent criteria.

In addition to the minimum quantitative initial listing standards, there are certain qualitative standards such as the
corporate governance requirements that must be met (Section 303A).

 NYSE Quantitative Initial Listing Standards (Section 1)

 NYSE Other Quantitative Initial Listing Standards:

 Preferred Stock (Section 703.05)
 Warrants (Section 703.12)
 Other Securities (Section 703.19)

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 NYSE Quantitative Initial Listing Standards

Required to meet one of the following financial standards

I: Earnings Test II: Global Market Real Estate Investment Closed-end Management Business Development
Financial Standards Capitalization Test Trusts8 Investment Companies Companies
Rule 102.01C(I) Rule 102.01C(II) Rule 102.05 Rule 102.04A Rule 102.04B

Aggregate for last three fiscal years >=

Adjusted Pre-tax $10 mm1,2; Each of the two most recent
Income fiscal years >=$2 mm; Each of the prior
three fiscal years >$03

Global Market
$200 mm4 $75 mm
Capitalization

Shareholders’ Equity5 $60 mm

Market Value of
See chart below See chart below See chart below $60 mm $60 mm
Publicly Held Shares6

Required to meet all of the following distribution standards

Distribution Standards9,10
IPOs, Spin-offs, Carve-outs Transfer or Quotation All other listings
Rule 102.01A-B

Shareholders7 400 round lot 400 round lot 2,200 total 500 total 400 round lot

Publicly Held Shares6 1.1 mm 1.1 mm 1.1 mm 1.1 mm 1.1 mm

Market Value of Publicly Held Shares6 $40 mm $100 mm $100 mm $100 mm $100 mm

Minimum Share Price $4.00 $4.00 $4.00 $4.00 $4.00

Average Monthly Trading Volume (Shares) 100,000 100,000 1 mm

1 Under certain circumstances, companies may qualify with $10mm in aggregate for two years and nine months.
2 Two years if a company is an Emerging Growth Company under the JOBS Act and has only filed two years of financial statements.
3 If loss in third year, adjusted pre-tax of $12mm in aggregate is required, with at least $5mm in the most recent fiscal year, and $2mm in the next most recent fiscal year.
4 Existing public companies must meet the minimum global market capitalization for a minimum of 90 consecutive trading days prior to receipt of clearance to make application to list on the Exchange.
5 Pro forma for the offering.
6 Shares held by directors, officers, or their immediate family members and other concentrated holdings of 10% or more are excluded in calculating the number of publicly held shares and market value of
publicly held shares.
7 The number of shareholders includes shareholders of record and beneficial holders of shares held in street name.
8 For Real Estate Investment Trusts (REITs) that do not have a three-year operating history. REITs with more than three years of operating history must qualify under the earnings or global market
capitalization test.
9 When considering a listing application from a company organized under the laws of Canada, Mexico or the United States ("North America"), the Exchange will include all North American holders and North
American trading volume in applying the minimum shareholder and trading volume requirements.
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10 When listing a company from outside North America, the Exchange may, in its discretion, include holders and trading volume in the company's home country or primary trading market outside the United
States in applying the applicable listing standards, provided that such market is a regulated stock exchange.

See Section 102 of the NYSE Listed Company Manual for a complete discussion of the initial listing standards
 NYSE Quantitative Initial Listing Standards – Non-U.S. Companies*

Required to meet one of the following financial standards

Standard I: Earnings Test Standard II(a): Valuation/ Revenue Standard II(b): Pure Standard III: Affiliated
Financial Standards with Cash Flow Test Valuation/Revenue Test Company Test2
103.01B(I) 103.01B(II)(a) 103.01B(II)(b) 103.01B(III)

Aggregate for last three fiscal years >= $100

Adjusted Pre-tax Income mm1; Each of the two most recent fiscal
years >=$25mm

Aggregate for last three fiscal years

Adjusted Cash Flows >= $100 mm1; Each of the two most
recent fiscal years >= $25mm

Global Market
$500 mm $750 mm $500 mm
Capitalization3

$100 mm $75 mm
Revenues
(most recent 12-month period) (most recent fiscal year)

Operating History 12 months

Required to meet all of the following distribution standards

Distribution Standards
Affiliates2 All other listings
103.01A

Round Lot Shareholders4 5,000 worldwide 5,000 worldwide

Publicly Held Shares5 2.5 mm worldwide 2.5 mm worldwide

Market Value of Publicly Held Shares5 $60 mm worldwide $100 mm worldwide

Minimum Share Price $4.00 $4.00

* Foreign private issuers may also list under the NYSE’s Domestic Company Listing Standards
1 Two years if a company is an Emerging Growth Company under the JOBS Act and has only filed two years of financial statements.
2 Company’s parent or affiliate is a listed company in good standing; Parent or affiliate retains control of the company or is under common control with the company.
3 Global market capitalization for existing public companies is the average of the most recent six months of trading history in the case of the pure valuation/revenue test. For all other standards, the
measurement is at a “point in time” for an existing public company though trends are considered.
4 The number of shareholders includes shareholders of record and beneficial holders of shares held in street name.
5 Shares held by directors, officers, or their immediate family members and other concentrated holdings of 10% or more are excluded in calculating the number of publicly held shares and market value of
publicly held shares.

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See Section 103 of the NYSE Listed Company Manual for a complete discussion of the initial listing standards
 November 2019

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