Notice2021-18802
Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending the Term “Related Party Transactions” Under Section 314.00 of the NYSE Listed Company Manual
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
September 1, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 167 (Wednesday, September 1, 2021)</title>
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[Federal Register Volume 86, Number 167 (Wednesday, September 1, 2021)]
[Notices]
[Pages 49064-49066]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-18802]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92770; File No. SR-NYSE-2021-43]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Amending the Term ``Related Party Transactions'' Under Section 314.00
of the NYSE Listed Company Manual
August 26, 2021.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that on August 19, 2021, New York Stock Exchange LLC (``NYSE'' or
the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I
and II below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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[[Page 49065]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the provisions of Section 314.00 of
the NYSE Listed Company Manual (``Manual'') in relation to the review
and approval of related party transactions. The proposed rule change is
available on the Exchange's website at <a href="http://www.nyse.com">www.nyse.com</a>, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
Section 314.00 of the Manual provides that a company's audit
committee or another independent body of the board of directors, shall
conduct a reasonable prior review and oversight of all related party
transactions for potential conflicts of interest and will prohibit such
a transaction if it determines it to be inconsistent with the interests
of the company and its shareholders. For purposes of this rule, the
term ``related party transaction'' refers to transactions required to
be disclosed pursuant to Item 404 of Regulation S-K under the Act (but
without applying the transaction value threshold of that provision). In
the case of foreign private issuers, the term ``related party
transactions'' refers to transactions required to be disclosed pursuant
to Item 7.B of Form 20-F (but without regard to the materiality
threshold of that provision).
Item 404 of Regulation S-K and Item 7.B of Form 20-F set forth the
SEC's requirements for the disclosure of related party transactions by
domestic issuers and foreign private issuers respectively. Related
party transaction disclosures are required in a number of SEC filings,
including annual reports and, in the case of domestic issuers, annual
meeting proxy statements. Item 404 of Regulation S-K requires
disclosure of a related party transaction when the amount involved in
such transaction exceeds $120,000.\4\ Item 7.B of Form 20-F requires
disclosure of transactions that are ``material to the company or the
related party, or any transactions that are unusual in their nature or
conditions'' and also of the amount of outstanding loans (including
guarantees of any kind) made by the company, its parent or any of its
subsidiaries to or for the benefit of a related party. The Exchange
proposes to amend Section 314.00 to provide that the review and
approval requirement of that rule will be applicable only to
transactions that are required to be disclosed after taking into
account the transaction value and materiality thresholds set forth in
Item 404 of Regulation S-K or Item 7.B of Form 20-F, respectively, as
applicable.
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\4\ Item 404(c) separately sets forth the application of Item
404 to promoters and certain control persons. Item 404(d) separately
sets forth the application of Item 404 to smaller reporting
companies.
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The Exchange recently amended Section 314.00 to provide greater
clarity as to the types of transactions that were specifically subject
to review and approval under the rule.\5\ In adopting that amendment to
Section 314.00, the Exchange sought to create greater clarity and
certainty for issuers by specifying that the transactions subject to
review would be those that were required to be disclosed pursuant to
Item 404 of Regulation S-K or Form 20-F, Item 7.B, as applicable.
However, the Exchange also specified in that amendment that related
party transactions would be subject to review without regard to the
transaction value or materiality thresholds included in the SEC's
disclosure rules.
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\5\ See Securities Exchange Act Release No. 91471 (April 2,
2021); 86 FR 18362 (April 8, 2021) (SR-NYSE-2020-85).
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In the period since the adoption of that amendment, it has become
clear to the Exchange that the amended rule's exclusion of the
applicable transaction value and materiality thresholds is inconsistent
with the historical practice of many listed companies, and has had
unintended consequences. The Exchange has learned that many listed
companies have had a longstanding understanding that they were required
to subject related party transactions to the review process required by
Section 314.00 only if such transactions exceeded any applicable
transaction value or materiality thresholds in the applicable SEC rules
and therefore were required to be disclosed. This approach is embodied
in the written related party transaction policies of many listed
companies and is typically a part of the annual questionnaire completed
by directors and officers in connection with the company's annual
meeting. By not permitting the use of transaction value and materiality
thresholds, the amendment to Section 314.00 has had the unintended
effect of disrupting the normal course transactions of listed
companies. Because of the amendment, many companies have been required
to adopt for the first time two separate standards for related party
transactions--one for disclosure and another for review and approval of
transactions. This has created a significant compliance burden for
issuers with respect to small transactions that are considered
immaterial for purposes of other regulatory requirements. Furthermore,
the Exchange believes that the review and approval of large numbers of
immaterial transactions is not an effective use of the time of
independent directors who have many other time-consuming oversight
obligations with respect to matters that are higher risk and more
material to the company.
The Exchange notes that domestic listed companies are also required
to comply with the requirements of Section 303A of the Manual with
respect to director independence, including the bright line
independence tests set forth in Section 303A.02(b). This proposal does
not seek in any way to modify listed companies' obligation to comply
with the independence requirements of Section 303A or listed companies'
obligations to make disclosures to the Exchange with respect to their
compliance with those obligations.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b)(5) of the Act,\6\ in that it is designed to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest and is not designed to permit
unfair discrimination between customers, issuers, brokers, or dealers.
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\6\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that it is consistent with the protection of
[[Page 49066]]
investors to amend Section 314.00 to conform the related party
transactions that are subject to the review and approval requirements
of Section 314.00 to those transactions that are subject to the
applicable requirements of Item 404 of Regulation S-K and Item 7.B of
Form 20-F. In adopting the applicable provisions of Regulation S-K and
Form 20-F, the SEC determined which related party transactions must be
publicly disclosed. The Exchange believes it is therefore consistent
with the protection of investors to apply the same standards in
determining which transactions should be subject to review and approval
under Section 314.00. The Exchange notes that the Nasdaq Stock Market
takes such an approach in its rule with respect to the review of
related party transactions, which requires the review of transactions
subject to disclosure under Item 404 of Regulation S-K and Item 7.B of
Form 20-F, including the transaction value and materiality thresholds
of those regulations.\7\
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\7\ See Nasdaq Marketplace Rule 5630.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
Intramarket Competition
All companies listed on the NYSE will be subject to the amended
form of Section 314.00. Therefore, the Exchange does not believe that
the proposed amendment will have any meaningful effect on the
competition among issuers listed on the Exchange.
Intermarket Competition
The purpose of the proposed amendment is to provide for an
efficient and transparent framework for the review and approval of
related party transactions at all listed companies. As such, it is
focused solely on corporate governance and is not intended to confer
any commercial or competitive benefit on NYSE listed companies. In
addition, the proposal substantively conforms Section 314.00 to the
related party transaction approval rule of Nasdaq, the other primary
listing venue for operating companies in the United States. For the
foregoing reasons, the Exchange does not believe that the proposed
amendment will have any meaningful effect on intermarket competition
for the listing of operating companies.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \8\ and Rule 19b-4(f)(6) thereunder.\9\
Because the proposed rule change does not: (i) Significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act \10\ and Rule 19b-
4(f)(6) thereunder.\11\
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\8\ 15 U.S.C. 78s(b)(3)(A)(iii).
\9\ 17 CFR 240.19b-4(f)(6).
\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \12\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\12\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#ea989f868fc7898587878f849e99aa998f89c48d859c"><span class="__cf_email__" data-cfemail="4b393e272e66282426262e253f380b382e28652c243d">[email protected]</span></a>. Please include
File Number SR-NYSE-2021-43 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSE-2021-43. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSE-2021-43 and should be submitted on
or before September 22, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021-18802 Filed 8-31-21; 8:45 am]
BILLING CODE 8011-01-P
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