Notice2022-05371
Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 1, To Amend the NYSE Listed Company Manual To Provide a Limited Exemption From the Shareholder Approval Requirements for Closed-End Management Investment Companies With Equity Securities Listed Under Section 102.04 of the 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
March 15, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 50 (Tuesday, March 15, 2022)</title>
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[Federal Register Volume 87, Number 50 (Tuesday, March 15, 2022)]
[Notices]
[Pages 14589-14592]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-05371]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94388; File No. SR-NYSE-2022-11]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Proposed Rule Change, as Modified by Amendment No.
1, To Amend the NYSE Listed Company Manual To Provide a Limited
Exemption From the Shareholder Approval Requirements for Closed-End
Management Investment Companies With Equity Securities Listed Under
Section 102.04 of the Listed Company Manual
March 9, 2022.
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 February 23, 2022, New York Stock Exchange LLC (``NYSE''
or the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change. On March 8, 2022, the
Exchange filed Amendment No. 1 to the proposed rule change, which
amended and replaced the proposed rule change in its entirety. The
proposed rule change, as modified by Amendment No. 1, is described in
Items I, II, and III below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change, as modified by Amendment No. 1, 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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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Section 312.03 of the NYSE Listed
Company Manual (``Manual'') to provide a limited exemption from the
shareholder approval requirements of that rule for listed closed-end
funds. 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
Amendment No. 1
The Exchange has previously submitted to the SEC a proposal to
amend Section 312.03 of the Manual to provide a limited exemption from
the shareholder approval requirements of that rule for listed closed-
end funds.\4\ This Amendment No. 1 replaces and supersedes the original
filing in its entirety.\5\ This Amendment No. 1 is being filed to:
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\4\ See SR-NYSE-2022-11 (February 23, 2022).
\5\ Amendment No. 1 does not make any changes to the rule text
as presented in Exhibit 5 of the original filing.
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<bullet> Make clarifications with respect to the description of the
text of Section 312.03(b) of the Manual and Section 102.04 of the
Manual;
[[Page 14590]]
<bullet> correct some typographical errors;
<bullet> clarify in the Statutory Basis section that there is a
reduced risk of disenfranchisement of existing shareholders as a result
of a Rule 17a-8-compliant transaction that involves a director,
officer, or substantial shareholder of the listed company that has a
significant interest in the company or assets to be acquired or the
consideration to be paid, rather than stating that there is no risk of
disenfranchisement at all; and
<bullet> replace a sentence in the Statutory Basis section of the
Form 19b-4 that states that the interests of shareholders of the
acquiring fund will not be diluted where the shares issued by the
surviving fund are issued at a price equal to the surviving fund's net
asset value. The deleted sentence is replaced with the following:
To the Exchange's knowledge, the shares of the surviving Fund in a
merger of affiliated Funds are generally issued at a price equal to the
surviving Fund's net asset value, thereby ensuring that the transaction
is not dilutive to the surviving Fund's shareholders. As described
above, if the shares in such a merger are issued at any price other
than net asset value, in order to rely on Rule 17a-8, the board of
directors of the surviving Fund would have to make an affirmative
determination that such price was not dilutive to the interests of its
existing shareholders. Consequently, the Exchange believes that the
proposed exemption would not result in issuances that are economically
dilutive to the shareholders of the surviving Fund.
Section 312.03(b)(i) of the Manual requires listed issuers to
obtain shareholder approval prior to the issuance of common stock, or
of securities convertible into or exercisable for common stock, in any
transaction or series of related transactions, to a director, officer
or substantial security holder of the company (each a ``Related
Party'') if the number of shares of common stock to be issued, or if
the number of shares of common stock into which the securities may be
convertible or exercisable, exceeds either one percent of the number of
shares of common stock or one percent of the voting power outstanding
before the issuance. Section 312.03(b) affords an exception for cash
sales that meet a market price test.
Section 312.03(b)(ii) of the Manual provides that shareholder
approval is also required prior to the issuance of common stock, or of
securities convertible into or exercisable for common stock, where such
securities are issued as consideration in a transaction or series of
related transactions in which a Related Party has a five percent or
greater interest (or such persons collectively have a ten percent or
greater interest), directly or indirectly, in the company or assets to
be acquired or in the consideration to be paid in the transaction or
series of related transactions and the present or potential issuance of
common stock, or securities convertible into common stock, could result
in an issuance that exceeds either five percent of the number of shares
of common stock or five percent of the voting power outstanding before
the issuance.
Section 312.03(b)(iii) of the Manual provides that any sale of
stock to an employee, director or service provider is also subject to
the equity compensation rules in Section 303A.08 of the Manual. For
example, a sale of stock to any of such parties at a discount to the
then market price would be treated as equity compensation under Section
303A.08 notwithstanding that shareholder approval may not be required
under Sections 312.03(b) or 312.03(c).
Similarly, Section 312.03(c) of the Manual requires listed issuers
to obtain shareholder approval prior to the issuance of common stock,
or of securities convertible into or exercisable for common stock, in
any transaction or series of related transactions if:
(1) The common stock has, or will have upon issuance, voting power
equal to or in excess of 20 percent of the voting power outstanding
before the issuance of such stock or of securities convertible into or
exercisable for common stock; or
(2) the number of shares of common stock to be issued is, or will
be upon issuance, equal to or in excess of 20 percent of the number of
shares of common stock outstanding before the issuance of the common
stock or of securities convertible into or exercisable for common
stock.
The Exchange proposes to exempt closed end management companies
that are registered under the Investment Company Act of 1940 (``1940
Act'') \6\ (consisting of closed-end funds listed under Section
102.04.A. and business development companies listed under Section
102.04.B) (collectively, ``Funds''), from having to comply with the
shareholder approval requirement in Sections 312.03(b) and (c) in
connection with the acquisition of the stock or assets of an affiliated
registered investment company in a transaction that complies with Rule
17a-8 under the 1940 Act (Mergers of affiliated companies) (``Rule 17a-
8'') \7\ and does not otherwise require shareholder approval under the
1940 Act or the rules thereunder or any other Exchange rule. As
described below, the Exchange believes Rule 17a-8 provides protections
that obviate the need for a shareholder approval requirement in these
circumstances.
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\6\ 15 U.S.C. 80a-1.
\7\ 17 CFR 270.17a-8.
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Sections 17(a)(1) and (2) of the 1940 Act prohibit, among other
things, certain transactions between registered investment companies
and affiliated persons. Rule 17a-8 provides an exemption from Sections
17(a)(1)-(2) of the 1940 Act for certain mergers of affiliated
companies, provided, among other things, that the board of directors of
each investment company, including a majority of the directors that are
not interested persons of the respective investment company or of any
other company or series participating in the transaction, must
determine that (i) participation in the merger is in the best interests
of its respective investment company, and (ii) the interests of the
company's existing shareholders will not be diluted as a result of the
transaction.\8\ In addition, under Rule 17a-8, an affiliated merger
must be approved by a majority of the outstanding voting securities of
the merging company that is not the surviving company unless certain
conditions are met.\9\ Rule 17a-8 does not require the surviving
company to obtain shareholder approval in connection with the merger of
an affiliated company.
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\8\ See 15 U.S.C. 80a-17(a)(1)--(2). See also the definition of
``affiliated person'' in the 1940 Act, 15 U.S.C 80a-2(a)(3).
\9\ 17 CFR 270.17a-8(a)(3).
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Because the board of each merging company must make an affirmative
decision that the transaction is in the best interest of its respective
company and that the transaction will not result in dilution for
existing shareholders, the Exchange believes the provisions of Rule
17a-8 protect against dilution and also provide safeguards for existing
shareholders when the transaction involves a director, officer, or
substantial shareholder of the listed company that has a significant
interest in the company or assets to be acquired or the consideration
to be paid and therefore may benefit from the transaction. The Exchange
therefore believes that it is appropriate to exempt issuers of Funds
from having to comply with the shareholder approval requirement in
Section 312.03(c) in connection with the acquisition of the stock or
assets of an affiliated registered investment company in a transaction
that complies with Rule 17a-8, which
[[Page 14591]]
can be both time consuming and expensive.
Notwithstanding the proposed exemption, if other provisions of
Exchange rules and the 1940 Act and the rules thereunder require
shareholder approval, those would still apply. The Exchange also notes
that the adopting release for Rule 17a-8 specifically noted that
nothing in Rule 17a-8 relieves a fund of its obligation to obtain
shareholder approval as may be required by state law or a fund's
organizational documents.\10\
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\10\ See Investment Company Act Release No. 25666, 67 FR 48511
(July 24, 2002) at n. 18.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b)(5) of the Act,\11\ 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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\11\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed amendment is consistent
with the protection of investors, as protections afforded by Rule 17a-8
mean that (i) there is no risk of dilution to existing shareholders as
a result of an issuance of shares by a Fund in connection with the
acquisition of the stock or assets of an affiliated company, and (ii)
there is a reduced risk of disenfranchisement of existing shareholders
as a result of a Rule 17a-8-compliant transaction that involves a
director, officer, or substantial shareholder of the listed company
that has a significant interest in the company or assets to be acquired
or the consideration to be paid. Because the board of each merging
company must make an affirmative determination that the transaction is
in the best interest of its investment company and that the transaction
will not result in dilution for existing shareholders, there is reduced
concern the existing shareholders will be disenfranchised as a result
of the Exchange's proposed exemption.
The Exchange further believes its proposal is consistent with the
protection of investors because its proposal is limited to registered
investment companies that are organized under the 1940 Act. In the case
of a merger of affiliated investment companies, the board of directors
of each investment company, including a majority of the directors that
are not interested persons of the respective investment company, must
affirmatively determine that (i) participation in the merger is in the
best interest of their respective investment company, and (ii) the
interests of their shareholders will not be diluted as a result of the
transaction. To the Exchange's knowledge, the shares of the surviving
Fund in a merger of affiliated Funds are generally issued at a price
equal to the surviving Fund's net asset value, thereby ensuring that
the transaction is not dilutive to the surviving Fund's shareholders.
The Exchange understands that this exchange ratio is publicly disclosed
in the proxy statement soliciting proxies from the acquired Fund's
shareholders, as well as in other disclosure documents. As described
above, if the shares in such a merger are issued at any price other
than net asset value, in order to rely on Rule 17a-8, the board of
directors of the surviving Fund would nonetheless be required to make
an affirmative determination that such price was not dilutive to the
interests of its existing shareholders. Consequently, the Exchange
believes that the proposed exemption would not result in issuances that
are dilutive to the shareholders of the surviving Fund.
The Exchange notes that while shareholders of the non-surviving
company must approve the merger under certain circumstances, Rule 17a-8
does not require the shareholders of the surviving company to approve
the transaction. Accordingly, the Exchange believes it is appropriate
to exempt Funds from the requirements of Sections 312.03(b) and (c) in
this same limited circumstance.
Notwithstanding the proposed exemption described above, the
Exchange notes that other provisions of Exchange rules or the 1940 Act
and the rules thereunder may require shareholder approval and will
still apply. In particular, the Exchange notes that the adopting
release for Rule 17a-8 specifically noted that nothing in Rule 17a-8
relieves a fund of its obligation to obtain shareholder approval as may
be required by state law or a Fund's organizational documents.
The Exchange believes it is not unfairly discriminatory to offer
the exemption only to Funds completing a merger with an affiliated
registered investment company, as opposed to all issuers, because the
protections against dilution and self-dealing described herein are
embedded in the 1940 Act and do not apply to those other issuers.\12\
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\12\ The Exchange does not currently have any listed companies
that are registered under the Investment Company Act other than
closed-end funds and business development companies listed under
Section 102.04.
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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. The proposed amendment would
offer Funds a limited exemption for the Exchange's shareholder approval
rule in a specific circumstance where the Exchange believes there is a
low risk of dilution to existing shareholders.
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
Within 45 days of the date of publication of this notice in the
Federal Register or up to 90 days (i) as the Commission may designate
if it finds such longer period to be appropriate and publishes its
reasons for so finding or (ii) as to which the self-regulatory
organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change, as modified by Amendment No. 1, 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#1b696e777e36787476767e756f685b687e78357c746d"><span class="__cf_email__" data-cfemail="156760797038767a7878707b6166556670763b727a63">[email protected]</span></a>. Please include
File Number SR- NYSE-2022-11 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange
[[Page 14592]]
Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSE-2022-11. 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-2022-11 and should be submitted on
or before April 5, 2022.
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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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-05371 Filed 3-14-22; 8:45 am]
BILLING CODE 8011-01-P
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