Notice2022-13042
Self-Regulatory Organizations; New York Stock Exchange LLC; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a 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
June 17, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 117 (Friday, June 17, 2022)</title>
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[Federal Register Volume 87, Number 117 (Friday, June 17, 2022)]
[Notices]
[Pages 36548-36551]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-13042]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95093; File No. SR-NYSE-2022-11]
Self-Regulatory Organizations; New York Stock Exchange LLC; Order
Instituting Proceedings To Determine Whether To Approve or Disapprove a
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
June 13, 2022.
I. Introduction
On February 23, 2022, New York Stock Exchange LLC (``Exchange'' or
``NYSE'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend Section 312.03 of the
NYSE Listing Company Manual (``LCM'' or ``Manual'') to provide an
exemption from certain shareholder approval requirements of that rule
for listed registered closed-end management investment companies
(``closed-end funds'') and business development companies (``BDCs'')
under certain circumstances. 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
amended by Amendment No. 1, was published for comment in the Federal
Register on March 15, 2022.\3\ The Commission has received no comments
on the proposed rule change. On April 26, 2022, pursuant to Section
19(b)(2) of the Exchange 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
disapprove the proposed rule change.\5\ This order institutes
proceedings pursuant to Section 19(b)(2)(B) of the Exchange Act \6\ to
determine whether to approve or disapprove the proposed rule change, as
modified by Amendment No. 1.
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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. 94388 (March 9,
2022), 87 FR 14589 (``Notice'').
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 94795, 87 FR 25689
(May 2, 2022). The Commission designated June 13, 2022, as the date
by which the Commission shall approve or disapprove, or institute
proceedings to determine whether to disapprove, the proposed rule
change, as modified by Amendment No. 1.
\6\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposal, as Modified by Amendment No. 1
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.\7\ However, shareholder approval will not be
required if such transaction is a cash sale for a price that is at
least the Minimum Price.\8\
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\7\ See NYSE LCM Section 312.03(b)(i).
\8\ See id. ``Minimum Price'' means a price that is the lower
of: (i) the Official Closing Price immediately preceding the signing
of the binding agreement; or (ii) the average Official Closing Price
for the five trading days immediately preceding the signing of the
binding agreement. See NYSE LCM Section 312.04(h). ``Official
Closing Price'' of the issuer's common stock means the official
closing price on the Exchange as reported to the Consolidated Tape
immediately preceding the signing of a binding agreement to issue
the securities. See NYSE LCM Section 312.04(i).
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According to the Exchange, 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.\9\
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\9\ See Notice, supra note 3, at 14590; NYSE LCM Section
312.03(b)(ii).
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The Exchange further states that Section 312.03(b)(iii) of the
Manual provides that any sale of stock to an
[[Page 36549]]
employee, director or service provider is also subject to the equity
compensation rules in Section 303A.08 of the Manual.\10\ For example,
according to the Exchange, a sale of stock to any 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 Section 312.03(b) or 312.03(c) of
the Manual.\11\
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\10\ See Notice, supra note 3, at 14590; NYSE LCM Section
312.03(b)(iii).
\11\ See id. Consequently, the company would be required to
either: (i) obtain shareholder approval of such sale, or (ii) issue
such shares under an equity compensation plan that had previously
been approved by shareholders and for which shareholder approval
under Section 303A.08 of the Manual is not otherwise required.
Moreover, shareholder approval is required if any of the
subparagraphs of Section 312.03 require such approval,
notwithstanding the fact that the transaction does not require
approval under Section 312.03(b) or one or more of the other
subparagraphs of Section 312.03. See NYSE LCM Section
312.03(b)(iii).
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According to the Exchange, Section 312.03(c) of the Manual also
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.\12\
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\12\ See Notice, supra note 3, at 14590; NYSE LCM Section
312.03(c). However, shareholder approval will not be required for
any such issuance involving: any public offering for cash; or any
other financing (that is not a public offering for cash) in which
the company is selling securities for cash, if such financing
involves a sale of common stock, or securities convertible into or
exercisable for common stock, at a price at least as great as the
Minimum Price, provided that if the securities in such financing are
issued in connection with an acquisition of the stock or assets of
another company, shareholder approval will be required if the
issuance of such securities alone or when combined with any other
present or potential issuance of common stock, or securities
convertible into common stock in connection with such acquisition,
is equal to or exceeds either 20 percent of the number of shares of
common stock or 20 percent of the voting power outstanding before
the issuance. See NYSE LCM Section 312.03(c).
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The Exchange states that it proposes to exempt closed-end funds and
BDCs with equity securities listed under Section 102.04 of the Manual
\13\ from having to comply with the shareholder approval requirements
in Sections 312.03(b) and (c) of the Manual 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 (``Rule 17a-8'') \14\ and does not otherwise require
shareholder approval under the 1940 Act or the rules thereunder or any
other Exchange rule.\15\ In support of its proposal, the Exchange
states it believes Rule 17a-8 provides protections that obviate the
need for a shareholder approval requirement in these circumstances.\16\
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\13\ See NYSE LCM Section 102.04 (providing minimum numerical
standards for closed-end management investment companies registered
under the Investment Company Act of 1940 (``1940 Act'') and closed-
end management investment companies that have filed an election to
be treated as a BDC under the 1940 Act).
\14\ 17 CFR 270.17a-8.
\15\ See Notice, supra note 3, at 14590; proposed NYSE LCM
Section 312.03(f).
\16\ See Notice, supra note 3, at 14590.
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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.\17\ Rule 17a-8 \18\ provides an exemption from
Sections 17(a)(1) and (2) of the 1940 Act for certain mergers of
affiliated companies, provided, among other things, 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.\19\ 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.\20\ The Exchange states in
its filing that Rule 17a-8 does not require the surviving company to
obtain shareholder approval in connection with the merger of an
affiliated company.\21\
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\17\ 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).
\18\ Section 57(i) of the 1940 Act makes Rule 17a-8 applicable
to BDCs. See 15 U.S.C. 80a-56(i) (providing that ``. . . the rules
and regulations of the Commission under subsections (a) and (d) of
section 17 applicable to registered closed-end investment companies
shall be deemed to apply to transactions subject to subsections (a)
and (d) of this section''); see also Investment Company Act Release
No. 26520 (July 27, 2004), 69 FR 46378 at nn. 9 & 27 (noting that
certain rules, including Rule 17a-8, ``apply to investment
companies, including registered investment companies and business
development companies, if they rely on these rules'').
\19\ 17 CFR 270.17a-8(a)(2).
\20\ 17 CFR 270.17a-8(a)(3).
\21\ See Notice, supra note 3, at 14590.
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The Exchange asserts that, 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.\22\
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\22\ See id.
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Notwithstanding the proposed exemption, the Exchange states that if
other provisions of Exchange rules and the 1940 Act and the rules
thereunder require shareholder approval, those will still apply.\23\
The Exchange also states 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.\24\
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\23\ See id. at 14591.
\24\ See id. at 14591, n.10 (citing Investment Company Act
Release No. 25666 (July 18, 2002), 67 FR 48512 (July 24, 2002) at
n.18).
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III. Proceedings To Determine Whether To Approve or Disapprove SR-NYSE-
2022-11, as Modified by Amendment No. 1, and Grounds for Disapproval
Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Exchange Act \25\ to determine whether the proposed
rule change, as modified by Amendment No. 1, should be approved or
disapproved. Institution of such proceedings is appropriate at this
time in view of the legal and policy issues raised by the proposed rule
change, as modified by Amendment No. 1. Institution of proceedings does
not indicate that the Commission has reached any conclusions with
respect to any of the issues involved.
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\25\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Exchange Act,\26\ the
Commission is providing notice of the grounds for disapproval under
consideration. The
[[Page 36550]]
Commission is instituting proceedings to allow for additional analysis
of the proposed rule change's consistency with the Exchange Act, and,
in particular, with Section 6(b)(5) of the Exchange Act, which
requires, among other things, that the rules of a national securities
exchange be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, 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 not be designed to permit unfair discrimination
between customers, issuers, brokers, or dealers.\27\
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\26\ Id.
\27\ 15 U.S.C. 78f(b)(5).
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As discussed above, the Exchange is proposing to exempt closed-end
funds and BDCs from the requirement to obtain shareholder approval
prior to issuances of securities in connection with the acquisition of
stock or assets of an affiliated company, provided that the transaction
complies with Rule 17a-8, which requires, among other things, that the
board of directors of each company participating in such a merger
determines that participation in the merger is in the best interests of
the company and that the interests of the company's shareholders will
not be diluted as a result of the merger. Although the Commission
previously approved a similar exemption for exchange-traded funds
(``ETFs''),\28\ there are differences between ETFs and closed-end funds
and BDCs. Shares of closed-end funds and BDCs often trade at prices
that are less than, or at a ``discount'' to, the fund's net asset value
per share. In contrast, ETFs may trade at a discount but often to a
much lesser degree than closed-end funds and BDCs. Due to these
circumstances, shareholders of closed-end funds and BDCs may have an
interest in expressing their views on a proposal by management to merge
the closed-end fund or BDC into an affiliated fund. In addition, unlike
shareholders of ETFs,\29\ shareholders of closed-end funds and BDCs
typically participate in annual shareholder meetings with respect to
the election of directors and other matters. The Exchange's proposal
therefore raises questions as to whether the elimination of the current
ability of shareholders of closed-end funds and BDCs to vote on mergers
with affiliated companies is consistent with Section 6(b)(5) of the
Exchange Act, which requires the rules of the Exchange to, among other
relevant provisions, protect investors and the public interest.\30\
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\28\ The Commission previously approved NYSE Arca, Inc.'s
proposal to exempt issuers of Unit Investment Trusts, Investment
Company Units, Exchange-Traded Fund Shares, Portfolio Depositary
Receipts, Managed Fund Shares, Active Proxy Portfolio Shares, and
Managed Portfolio Shares from the requirement to obtain shareholder
approval prior to the issuance of securities in connection with
certain acquisitions of the stock or assets of an affiliated
registered investment company in a transaction that complies with
Rule 17a-8. See Securities Exchange Act Release No. 91901 (May 14,
2021), 86 FR 27487 (May 20, 2021).
\29\ See id. at n.18.
\30\ 15 U.S.C. 78f(b)(5).
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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 thereunder . . . is on the self-
regulatory organization [`SRO'] that proposed the rule change.'' \31\
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,\32\ and any failure of an SRO to
provide this information may result in the Commission not having
sufficient basis to make an affirmative finding that a proposed rule
change is consistent with the Exchange Act and the applicable rule and
regulations.\33\
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\31\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR
201.700(b)(3).
\32\ See id.
\33\ See id.
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For these reasons, the Commission believes it is appropriate to
institute proceedings pursuant to Section 19(b)(2)(B) of the Exchange
Act \34\ to determine whether the proposal should be approved or
disapproved.
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\34\ 15 U.S.C. 78s(b)(2)(B).
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IV. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposed rule
change, as modified by Amendment No. 1, is consistent with Section
6(b)(5) or any other provision of the Exchange Act, or the rules and
regulations thereunder. Although there do not appear to be any issues
relevant to approval or disapproval that would be facilitated by an
oral presentation of views, data, and arguments, the Commission will
consider, pursuant to Rule 19b-4, any request for an opportunity to
make an oral presentation.\35\
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\35\ Section 19(b)(2) of the Exchange Act, as amended by the
Securities Act Amendments of 1975, Public Law 94-29 (June 4, 1975),
grants the Commission flexibility to determine what type of
proceeding--either oral or notice and opportunity for written
comments--is appropriate for consideration of a particular proposal
by a self-regulatory organization. See Securities Act Amendments of
1975, Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No.
75, 94th Cong., 1st Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change, as modified by
Amendment No. 1, should be approved or disapproved by July 8, 2022. Any
person who wishes to file a rebuttal to any other person's submission
must file that rebuttal by July 22, 2022.
The Commission asks that commenters address the sufficiency of the
Exchange's statements in support of the proposal, which are set forth
in Notice,\36\ in addition to any other comments they may wish to
submit about the proposed rule change.
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\36\ See Notice, supra note 3.
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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#98eaedf4fdb5fbf7f5f5fdf6ecebd8ebfdfbb6fff7ee"><span class="__cf_email__" data-cfemail="8af8ffe6efa7e9e5e7e7efe4fef9caf9efe9a4ede5fc">[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 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,
[[Page 36551]]
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 July 8, 2022. Rebuttal comments should be
submitted by July 22, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\37\
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\37\ 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-13042 Filed 6-16-22; 8:45 am]
BILLING CODE 8011-01-P
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