Notice2021-18119
Self-Regulatory Organizations; New York Stock Exchange LLC; Order Disapproving a Proposed Rule Change To Amend Its Rules Establishing Maximum Fee Rates To Be Charged by Member Organizations for Forwarding Proxy and Other Materials to Beneficial Owners
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
August 24, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 161 (Tuesday, August 24, 2021)</title>
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[Federal Register Volume 86, Number 161 (Tuesday, August 24, 2021)]
[Notices]
[Pages 47351-47355]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-18119]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92700; File No. SR-NYSE-2020-96]
Self-Regulatory Organizations; New York Stock Exchange LLC; Order
Disapproving a Proposed Rule Change To Amend Its Rules Establishing
Maximum Fee Rates To Be Charged by Member Organizations for Forwarding
Proxy and Other Materials to Beneficial Owners
August 18, 2021.
I. Introduction
On December 2, 2020, New York Stock Exchange LLC (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to delete the maximum fee rates
for forwarding proxy and other materials to beneficial owners set forth
in NYSE Rules 451 and 465 and Section 402.10 of the NYSE Listed Company
Manual (``Manual''), and establish in their place a requirement for
member organizations to comply with any schedule of approved charges
set forth in the rules of any other national securities exchange or
association of which such member organization is a member. The proposed
rule change was published for comment in the Federal Register on
December 21, 2020.\3\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 90677 (December 15,
2020), 85 FR 83119 (December 21, 2020) (``Notice''). Comments
received on the proposal are available on the Commission's website
at: <a href="https://www.sec.gov/comments/sr-nyse-2020-96/srnyse202096.htm">https://www.sec.gov/comments/sr-nyse-2020-96/srnyse202096.htm</a>.
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On February 1, 2021, pursuant to Section 19(b)(2) of the Act,\4\
the Commission designated a longer period within which to approve the
proposed rule change, disapprove the proposed rule change, or institute
proceedings to determine whether to approve or
[[Page 47352]]
disapprove the proposed rule change.\5\ On March 18, 2021, the
Commission instituted proceedings under Section 19(b)(2)(B) of the Act
\6\ to determine whether to approve or disapprove the proposed rule
change.\7\ On June 11, 2021, the Commission designated a longer period
for Commission action on the proposed rule change.\8\
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\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 91025 (February 1,
2021), 86 FR 8420 (February 5, 2021).
\6\ 15 U.S.C. 78s(b)(2)(B).
\7\ See Securities Exchange Act Release No. 91359 (March 18,
2021), 86 FR 15734 (March 24, 2021) (``Order Instituting
Proceedings'').
\8\ See Securities Exchange Act Release No. 92154 (June 11,
2021), 86 FR 32301 (June 17, 2021).
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This order disapproves the proposed rule change because, as
discussed below, the Exchange has not met its burden under the Act and
the Commission's Rules of Practice to demonstrate that its proposal is
consistent with the requirements of Section 6(b)(5) of the Act and, in
particular, the requirements that the rules of a national securities
exchange be designed to promote just and equitable principles of trade
and to protect investors and the public interest, and not be designed
to permit unfair discrimination between customers, issuers, brokers, or
dealers.\9\
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\9\ 15 U.S.C. 78f(b)(5).
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II. Description of the Proposal
NYSE Rules 451 and 465, and the related provisions in Section
402.10 of the Manual, require NYSE member organizations that hold
securities for beneficial owners in street name to solicit proxies
from, and deliver proxy and other materials to, beneficial owners on
behalf of issuers.\10\ For this service, issuers reimburse NYSE member
organizations for out-of-pocket, reasonable clerical, postage, and
other expenses incurred for a particular distribution.\11\ This
reimbursement structure stems from Rules 14b-1 and 14b-2 under the
Act,\12\ which impose obligations on issuers and nominees to ensure
that beneficial owners receive proxy materials. These rules require
issuers to send their proxy materials to broker-dealers or banks that
hold securities in street name, for forwarding to beneficial owners,
and to pay nominees for reasonable expenses, both direct and indirect,
incurred in providing proxy information to beneficial owners.\13\ The
Commission's rules do not specify the fees that nominees can charge
issuers for proxy distribution; rather, they state that issuers must
reimburse the nominees for ``reasonable expenses'' incurred.\14\
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\10\ See NYSE Rules 451 and 465, and Section 402.10 of the
Manual; Notice, supra note 3, 85 FR at 83119. The ownership of
shares in street name means that a shareholder, or ``beneficial
owner,'' has purchased shares through a broker-dealer or bank, also
known as a ``nominee.'' In contrast to direct ownership, where
shares are directly registered in the name of the shareholder,
shares held in street name are registered in the name of the
nominee, or in the nominee name of a depository, such as the
Depository Trust Company. See Securities Exchange Act Release No.
70720 (October 18, 2013), 78 FR 63530, 63531 n.14 (October 24, 2013)
(order approving SR-NYSE-2013-07) (``2013 Approval Order'').
\11\ See NYSE Rules 451 and 465, and Section 402.10 of the
Manual; 2013 Approval Order, supra note 10, 78 FR at 63531.
\12\ 17 CFR 240.14b-1; 17 CFR 240.14b-2.
\13\ See 17 CFR 240.14b-1 and 14b-2; see also 2013 Approval
Order, supra note 10, 78 FR at 63531.
\14\ See 17 CFR 240.14b-1 and 14b-2; see also 2013 Approval
Order, supra note 10, 78 FR at 63531.
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Currently, the Supplementary Material to NYSE Rule 451, which is
cross-referenced by the Supplementary Material to NYSE Rule 465 and
Section 402.10 of the Manual, establishes the maximum rates at which a
NYSE member organization may be reimbursed for certain expenses
incurred in connection with distributing proxy and other materials to
beneficial owners. FINRA Rule 2251 also sets forth a schedule of
maximum rates that is substantively identical to the rate schedule
specified in NYSE Rule 451.\15\ As a result, any broker that is a FINRA
member but not also a NYSE member is subject to the same maximum
reimbursement rates as NYSE members. The rules of other self-regulatory
organizations (``SROs'') generally provide that member organizations
must forward proxy and other materials if they receive ``reasonable''
reimbursement, but they do not specify any schedule of maximum
permitted charges.\16\
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\15\ See Notice, supra note 3, 85 FR at 83119. The Exchange
stated that FINRA Rule 2251 differs from NYSE Rule 451 in one
respect. Specifically, FINRA has not adopted the Notice and Access
fees for investment company shareholder report distributions set
forth in Section 5 (Notice and Access Fees) of Supplementary
Material .90 to NYSE Rule 451 as part of FINRA Rule 2251. See id.,
85 FR at 83119 n.8.
\16\ See id., 85 FR at 83119. But see NYSE American LLC Rule
576.80 (setting forth a schedule of approved charges by member
organizations in connection with proxy solicitations).
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The Exchange has proposed to amend Supplementary Materials .90-.96
to NYSE Rule 451 by deleting the provisions setting maximum
reimbursement rates and replacing them with rule text stating that
member organizations must comply with any schedule of approved charges
set forth in the rules of any other national securities exchange or
association of which such member organization is a member.\17\ The
Exchange also has proposed to delete the cross-reference to NYSE Rule
451.90-.96 in Supplementary Material .20 to NYSE Rule 465 and replace
it with rule text that is identical to the proposed new language in
Supplementary Material .90 to NYSE Rule 451.\18\ The Exchange stated
that the proposed rule change is not intended to take a position on the
appropriateness of the fee schedules for proxy and other distributions
currently set forth in NYSE Rules 451 and 465 or in the rules of any
other SRO.\19\
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\17\ See proposed Supplementary Material .90 to NYSE Rule 451.
The Exchange also proposes to delete Section 402.10 of the Manual,
which replicates the fee schedule set forth in Supplementary
Materials .90-.96 to NYSE Rule 451.
\18\ See proposed Supplementary Material .20 to NYSE Rule 465.
\19\ See Notice, supra note 3, 85 FR at 83120. As noted above,
FINRA and NYSE American LLC presently are the only SROs besides NYSE
with rules that set forth a fee schedule.
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According to the Exchange, since all NYSE member organizations that
are subject to the fee schedule set forth in NYSE Rule 451 (and cross-
referenced by NYSE Rule 465) are also FINRA member firms, the proposal
would effectively require member organizations to comply with the fee
schedule set forth in FINRA Rule 2251.\20\ The Exchange acknowledged
that it has historically taken the lead in establishing the maximum
proxy distribution reimbursement rates, but stated that it does not
believe the Exchange is best positioned to retain this responsibility
going forward.\21\ The Exchange stated that all of the brokers who hold
shares on behalf of customers in street name are FINRA members, while
only a subset of them are members of the Exchange.\22\ The Exchange
also stated that a large and increasing number of the affected issuers
are listed on Nasdaq, CBOE, or other non-NYSE Group exchanges or are
traded solely over the counter.\23\ The Exchange further stated that
the development of the mutual fund industry has led to the existence of
a large number of issuers that are not listed on any exchange.\24\
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\20\ See id.
\21\ See id., 85 FR at 83119.
\22\ See id., 85 FR at 83120.
\23\ See id.
\24\ See id., 85 FR at 83119-20.
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III. Discussion and Commission Findings
Under Section 19(b)(2)(C) of the Act,\25\ the Commission shall
approve a proposed rule change of an SRO if it finds that such proposed
rule change is consistent with the requirements of the Act and the
rules and regulations thereunder that are applicable to such
organization.\26\ The Commission shall disapprove a proposed rule
change if it
[[Page 47353]]
does not make such a finding.\27\ The Commission's Rules of Practice,
under Rule 700(b)(3), state that the ``burden to demonstrate that a
proposed rule change is consistent with the [Exchange] Act and the
rules and regulations issued thereunder . . . is on the self-regulatory
organization that proposed the rule change'' and that a ``mere
assertion that the proposed rule change is consistent with those
requirements . . . is not sufficient.'' \28\
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\25\ See 15 U.S.C. 78s(b)(2)(C).
\26\ See 15 U.S.C. 78s(b)(2)(C)(i).
\27\ See 15 U.S.C. 78s(b)(2)(C)(ii); see also 17 CFR
201.700(b)(3).
\28\ See 17 CFR 201.700(b)(3).
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The description of a proposed rule change, its purpose and
operation, its effect, and a legal analysis of its consistency with
applicable requirements must all be sufficiently detailed and specific
to support an affirmative Commission finding,\29\ and any failure of an
SRO to provide this information may result in the Commission not having
a sufficient basis to make an affirmative finding that a proposed rule
change is consistent with the Act and the applicable rules and
regulations.\30\ Moreover, ``unquestioning reliance'' on an SRO's
representations in a proposed rule change is not sufficient to justify
Commission approval of a proposed rule change.\31\
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\29\ See id.
\30\ See id.
\31\ Susquehanna Int'l Group, LLP v. Securities and Exchange
Commission, 866 F.3d 442, 447 (D.C. Cir. 2017).
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For the reasons discussed below, the Commission is disapproving the
proposed rule change because the information before the Commission is
insufficient to support a finding that the proposed rule change is
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities exchange.
Specifically, the Commission concludes that it does not have sufficient
information to determine that the proposed rule change is consistent
with Section 6(b)(5) of the Act and, in particular, the requirements
that a national securities exchange's rules be designed to promote just
and equitable principles of trade and to protect investors and the
public interest, and not be designed to permit unfair discrimination
between customers, issuers, brokers, or dealers.
As an SRO, the Exchange bears the burden to demonstrate that any
proposed rule change--whether a proposed new rule, or a proposed
elimination of an existing rule--is consistent with the Act.\32\ As
discussed above, the Exchange has proposed to delete its long-standing
and currently (and widely) relied-upon provisions setting maximum
reimbursement rates, and instead provide that a NYSE member
organization must comply with any schedule of approved charges set
forth in the rules of any other national securities exchange or
association of which such organization is a member. This effectively
would make the maximum reimbursement rates set forth in FINRA rules the
industry standard, and establish FINRA as the lead SRO in this
area.\33\ Accordingly, the Exchange bears the burden to demonstrate
that approval of its proposal--which would result in a FINRA-led
regime--would be consistent with the Act.
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\32\ See Rule 700(b)(3), Commission Rules of Practice, 17 CFR
201.700(b)(3).
\33\ See supra note 20 and accompanying text.
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In the Notice, the Exchange expressed the view that FINRA is in a
better position to take the lead in setting maximum reimbursement rates
for the distribution of proxy and other issuer materials to beneficial
owners because (1) all broker-dealers that hold shares in street name
for customers are FINRA members, while only a subset of them are NYSE
members, and (2) a large number of affected issuers are not listed on
the Exchange.\34\ In the Order Instituting Proceedings, the Commission
stated that, because NYSE is a primary listing market, it has
relationships with issuers as well as broker-dealers, and thus is well-
positioned to take into account the views of both major stakeholder
groups when reviewing and updating the maximum reimbursement rates.\35\
The Commission stated that, unlike NYSE, FINRA does not have a
relationship with issuers, who ultimately pay the reimbursement
rates.\36\ Further, the Commission stated that the Exchange had not
explained why, in the absence of a relationship with this important
constituency, FINRA is in a better position than NYSE to assume the
leadership role in this area.\37\ The Commission also stated that the
Exchange had not explained why the fact that all broker-dealers are
FINRA members puts FINRA in a materially better position to assume the
leadership role in this area, or the significance of the fact that only
a subset of impacted issuers are listed on NYSE, and only a subset of
impacted broker-dealers are NYSE members, given that NYSE would appear
well-positioned to consider the views of both of these constituencies,
whereas FINRA would not appear well-positioned to consider issuers'
views.\38\
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\34\ See Notice, supra note 3, 85 FR at 83119-20.
\35\ See Order Instituting Proceedings, supra note 7, 86 FR at
15737.
\36\ See id.
\37\ See id.
\38\ See id.
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In response to the Order Instituting Proceedings, the Exchange
argued that being a listing exchange does not give it a meaningful
advantage in the reimbursement rate-setting process because whether
such rates are ``reasonable'' is necessarily based on the actual costs
incurred by brokers, of which issuers have no first-hand knowledge.\39\
In addition, the Exchange argued that FINRA is uniquely well-positioned
to set reimbursement rates because, as the common regulator for all
brokers whose business includes servicing street-name account holders,
FINRA can review the actual costs incurred by brokers across the entire
industry and their intermediaries.\40\ The Exchange stated, in this
regard, that only a subset of brokers that hold shares on behalf of
customers in street name are NYSE members, and the NYSE members who
engage in retail brokerage services primarily consist of larger, more
established brokers, whereas FINRA's membership is more diverse,
including smaller regional brokers and digital-only brokers that
concentrate on serving retail customers.\41\
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\39\ See letter from John Carey, Senior Director, NYSE, dated
April 28, 2021 (``NYSE Response Letter''), at 2.
\40\ See id. In this context, the Commission understands the
Exchange's reference to ``intermediaries'' to be a reference to
proxy service providers that coordinate the distribution of proxy or
other materials for multiple nominees. See Section 1(a)(ii) of
Supplementary Material .90 to Rule 451 (defining the term
``intermediary'').
\41\ See NYSE Response Letter at 2.
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A broker bears an obligation to forward proxies and other issuer
materials to beneficial owners with street name holdings, but that
obligation is conditioned upon the broker receiving assurance from the
issuer of reimbursement of the broker's reasonable expenses incurred in
connection with performing that obligation.\42\ Under this framework,
brokers and issuers are both inextricably involved in ensuring that
beneficial owners with street name holdings receive proxies and other
issuer materials.
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\42\ See 17 CFR 240.14b-1.
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The Exchange's arguments do not provide a sufficient basis for the
Commission to find that the proposed rule change would be consistent
with Section 6(b)(5) of the Act because the Exchange has not
demonstrated how issuers' interests would continue to be adequately
considered, and not unfairly discriminated against, in the
reimbursement rate-setting process if the Exchange were to relinquish
its lead
[[Page 47354]]
role in this area. The Commission is not foreclosing the possibility
that issuers' interests could be adequately considered in a
reimbursement rate-setting process that the Exchange does not lead;
however, in the Notice and in its response to the Order Instituting
Proceedings, the Exchange did not provide sufficient information in the
record on this point. In particular, while the Exchange acknowledges
that the impact of eliminating the reimbursement rate schedule from its
rules would be that FINRA becomes the de facto lead SRO for rate
setting,\43\ the Exchange does not articulate or provide any
information to suggest how FINRA, notwithstanding its lack of
regulatory relationships with issuers, could potentially consider
issuers' interests if FINRA were to become the industry standard-
bearer.\44\ Nor does the Exchange identify any other existing mechanism
through which the interests of issuers could be adequately considered
if proposed updates to the rates were to be developed under a FINRA-led
regime.
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\43\ See Notice, supra note 3, 85 FR at 83120.
\44\ FINRA, along with several other commenters, opposed the
proposal because FINRA, unlike the Exchange, has no regulatory
relationship with issuers. See letters from: Marcia E. Asquith,
Executive Vice President, FINRA, dated January 11, 2021 (``First
FINRA Letter''), at 5, and dated April 14, 2021 (``Second FINRA
Letter''), at 3; Niels Holch, Executive Director, Shareholder
Communications Coalition, dated January 20, 2021 (``SCC Letter''),
at 5; Todd J. May, President, Securities Transfer Association, Inc.,
dated March 1, 2021 (``First STA Letter''), at 2, and dated April
14, 2021 (``Second STA Letter''), at 5; Paul Conn, President, Global
Capital Markets, Computershare, dated January 11, 2021 (``First
Computershare Letter''), at 3-4, and dated April 14, 2021 (``Second
Computershare Letter''), at 1. FINRA also stated that it is not in a
better position than NYSE to become the lead SRO in this area, and
that, should the Commission determine to approve the Exchange's
proposal, FINRA would be strongly inclined to rescind its fee
schedule as well. See First FINRA Letter at 5-6; Second FINRA Letter
at 3. The Commission notes that any FINRA proposal to rescind its
fee schedule would be subject to the rule filing process and
Commission approval.
Commenters were divided on the desirability of retaining a
fixed maximum rate schedule. See letters from: Thomas F. Price,
Managing Director, Operations, Technology, Cyber & BCP, Securities
Industry and Financial Markets Association, dated April 14, 2021, at
5 (recommending that the Commission ensure that at least one
significant SRO retains a fixed maximum fee schedule); Sarah A.
Bessin, Associate General Counsel, Securities Regulation, and Joanne
Kane, Senior Director, Operations and Transfer Agency, Investment
Company Institute, dated May 13, 2021 (``Second ICI Letter''), at 4
(stating that retaining a fixed SRO rate schedule would be an
inappropriate means of broader reform). See also infra note 52.
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In contrast, for the many years that the Exchange has been the lead
SRO in this area, it has demonstrated the ability, as a primary listing
market that has relationships with both brokers and issuers, to
consider the interests of both of these important constituencies when
it periodically develops proposals to update the reimbursement rate
schedule pursuant to Section 19(b)(2) of the Act. In so doing, the
Exchange performs an important SRO function of generating proposals
that provide a basis for the Commission to find that the proposed
updated rates constitute an equitable allocation of reasonable
fees.\45\ As an outgrowth of this process and as approved by the
Commission, the NYSE rate schedule sets the maximum level of
``reasonable'' reimbursement that is accepted as the industry standard
for what may be sought by any broker and must be paid by any issuer. In
turn, as a consensus product representing broker and issuer interests,
the NYSE rate schedule helps ensure that beneficial owners receive
proxy and other issuer materials in a timely manner and as required by
the Commission's rules.
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\45\ See 15 U.S.C. 78f(b)(4).
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The Exchange's statements regarding FINRA's ability to consider
brokers' costs do not evince a similar ability on FINRA's part to
consider both broker and issuer interests in performing this SRO
function. Moreover, while the Exchange asserts that its listing
relationships with issuers do not provide it with a meaningful
advantage in the reimbursement rate-setting process, the consideration
of issuers' interests has been a fundamental part of the Exchange's
process for determining what reimbursement rates would be
``reasonable.'' Throughout the history of the NYSE reimbursement rates,
which were formally established by rule in 1952 and have been updated
periodically since then,\46\ both issuers and brokers have been
involved in the process of reaching a workable consensus as to what
constitutes ``reasonable'' reimbursement.\47\ The Exchange's own, most
recent history on this point is illustrative. In 2010, the Exchange
formed a Proxy Fee Advisory Committee, comprised of representatives of
issuers, broker-dealers, and shareholders, to make recommendations for
changes to the Exchange's then-existing reimbursement schedule; \48\
and in 2013, when the last major revisions to the reimbursement
schedule were proposed, the Exchange acknowledged that it has ``long
operated under the assumption that these fees should represent a
consensus view of the issuers and the broker-dealers involved.'' \49\
The Exchange's historical approach underscores that the ability to duly
consider both brokers' and issuers' interests--an ability that, based
on the record here, FINRA does not possess--is critical to an equitable
and fair process for determining what rates would constitute reasonable
reimbursement, and helps assure that the rates are set in a manner
that, consistent with Section 6(b)(5), promotes just and equitable
principles of trade, protects investors and the public interest, and
does not permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\46\ See Concept Release on the U.S. Proxy Systems, Securities
Exchange Act Release No. 62495 (July 14, 2010), 75 FR 42981, 42995
(July 22, 2010) (``Proxy Plumbing Release'').
\47\ See 2013 Approval Order, supra note 10, 78 FR at 63538
n.164.
\48\ See Securities Exchange Release No. 68936 (February 15,
2013), 78 FR 12381, 12382 (February 22, 2013) (SR-NYSE-2013-07).
\49\ See id. In fact, issuers may provide perspective not just
based on their experience paying the NYSE reimbursement rates, but
also based on their experience paying to distribute materials to
registered owners who do not hold their shares in street name, which
distributions do not involve brokers and are not subject to the NYSE
rates. See Proxy Plumbing Release, supra note 46, 75 FR at 42986.
Issuers typically contract directly with third-party service
providers for distributions to registered owner accounts, just as
brokers typically contract with third-party service providers for
distributions to street name accounts. See id. While these different
types of distributions might involve different costs and processes,
issuers have insight into what it costs to pay a service provider to
distribute proxies or other issuer materials that is relevant to the
reimbursement rate-setting process. See, e.g., letter from Dorothy
M. Donohue, Deputy General Counsel, Securities Regulation, and
Joanne Kane, Senior Director, Operations and Transfer Agency,
Investment Company Institute, dated January 8, 2021 (``First ICI
Letter''), at 2 and Second ICI Letter at 2-3 (comparing the costs
that funds pay when they distribute materials through intermediaries
to what they pay when they distribute materials directly to
shareholders).
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In addition, the Exchange argued that its proposal would simply
conform its rules to substantively identical rules of other exchanges,
such as Cboe BZX Exchange and the Investors Exchange, that do not
specify a schedule of maximum permitted reimbursement rates.\50\ The
mere fact that other exchanges' rules do not specify a reimbursement
rate schedule does not demonstrate that the Exchange's proposal is
consistent with the Act and must be approved, or that the circumstances
that make those other exchanges' rules consistent with the Act apply
equally to the Exchange.\51\ Indeed, the circumstances underpinning
this proposal are unique because, as noted above, the NYSE rate
schedule is the product of a NYSE-led process that considers broker and
issuer interests
[[Page 47355]]
and is the industry standard that all brokers with street name accounts
and issuers rely upon. Approval of NYSE's proposed elimination of its
rate schedule therefore would do more than simply conform NYSE's rules
to those of other exchanges; it would result in NYSE's relinquishment
of an important market-wide regulatory function that it currently
performs, and without there being evidence in the record of this filing
of an available and equally viable alternative for that function.
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\50\ See NYSE Response Letter at 2.
\51\ We note that, as set forth in Commission Rule of Practice
700(b)(3) (17 CFR 201.700(b)(3)), a ``mere assertion . . . that
another self-regulatory organization has a similar rule in place''
is ``not sufficient'' to ``explain why the proposed rule change is
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a self-regulatory
organization.''
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When assessing this proposed rule change, the Commission must
consider its consistency with the Act and the applicable rules and
regulations issued thereunder.\52\ As stated above, under the
Commission's Rules of Practice, the ``burden to demonstrate that a
proposed rule change is consistent with the [Exchange] Act and the
rules and regulations issued thereunder . . . is on the self-regulatory
organization that proposed the rule change.'' \53\ For the foregoing
reasons, the Exchange has not met its burden to demonstrate that it
would be consistent with the Act for the Exchange to relinquish its
current role in setting the maximum reimbursement rates that establish
the industry standard. In particular, the Exchange has not adequately
demonstrated that, in its absence from that role, issuer interests
would continue to be considered and not unfairly discriminated against.
As a result, the Commission does not have sufficient information to
find that the Exchange's proposal would promote just and equitable
principles of trade and protect investors and the public interest, and
not permit unfair discrimination between customers, issuers, brokers,
or dealers. Accordingly, the Commission must disapprove the proposal
because the Exchange has not met its burden to demonstrate that the
proposal is consistent with Section 6(b)(5) of the Act.\54\
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\52\ The Commission notes that almost all commenters urged
comprehensive, Commission-led reform to the current reimbursement
structure. See First FINRA Letter, Second FINRA Letter, First STA
Letter, Second STA Letter, First Computershare Letter, Second
Computershare Letter, SCC Letter, First ICI Letter, Second ICI
Letter. See also letters from: Timothy W. McHale, Senior Vice
President & Senior Counsel, Capital Research and Management Company,
and Anthony M. Seiffert, Chief Compliance Officer, American Funds
Service Company, dated January 11, 2021; Catherine L. Newell,
General Counsel and Executive Vice President, Dimensional Fund
Advisors LP, dated January 11, 2021; Peter J. Germain, Chief Legal
Officer, Federated Hermes, Inc., dated January 11, 2021; Basil K.
Fox, Jr., President, Franklin Templeton Investor Services, LLC,
dated January 11, 2021; Heidi Hardin, Executive Vice President and
General Counsel, MFS Investment Management, dated January 11, 2021;
Thomas E. Faust Jr., Chairman and Chief Executive Officer, Eaton
Vance Corp., dated January 14, 2021; Noah Hamman, Chief Executive
Officer, AdvisorShares Investments, LLC, dated January 14, 2021;
Timothy W. McHale, Senior Vice President & Senior Counsel, Capital
Research and Management Company, and Anthony M. Seiffert, Chief
Compliance Officer, American Funds Service Company, dated May 18,
2021; and Heidi Hardin, Executive Vice President and General
Counsel, MFS Investment Management, dated May 19, 2021. The
Commission must consider the proposed rule change that was filed,
and thus such reform is beyond the scope of this proposed rule
change. As noted above, the Exchange stated that the proposed rule
change is not intended to take a position on the appropriateness of
the fee schedules for proxy and other distributions currently set
forth in NYSE Rules 451 and 465 or in the rules of any other SRO.
See supra note 19 and accompanying text.
\53\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR
201.700(b)(3).
\54\ In disapproving this proposed rule change, the Commission
has considered the proposed rule's impact on efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f).
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IV. Conclusion
For the reasons set forth above, the Commission does not find,
pursuant to Section 19(b)(2) of the Act, that the proposed rule change
is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities exchange,
and in particular, with Section 6(b)(5) of the Act.\55\
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\55\ 15 U.S.C. 78f(b)(5).
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\56\ that the proposed rule change (SR-NYSE-2020-96) is
disapproved.
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\56\ 15 U.S.C. 78s(b)(2).
\57\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\57\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021-18119 Filed 8-23-21; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on August 24, 2021.
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