Notice2024-15037
Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change Amending Section 302.00 of the NYSE Listed Company Manual To Exempt Closed-End Funds Registered Under the Investment Company Act of 1940 From the Requirement To Hold Annual Shareholder Meetings
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
July 9, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 131 (Tuesday, July 9, 2024)</title>
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[Federal Register Volume 89, Number 131 (Tuesday, July 9, 2024)]
[Notices]
[Pages 56447-56449]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-15037]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100460; File No. SR-NYSE-2024-35]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Proposed Rule Change Amending Section 302.00 of the
NYSE Listed Company Manual To Exempt Closed-End Funds Registered Under
the Investment Company Act of 1940 From the Requirement To Hold Annual
Shareholder Meetings
July 3, 2024.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 21, 2024, New York Stock Exchange LLC (``NYSE'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III 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\ 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 302.00 of the NYSE Listed
Company Manual (``Manual'') to exempt closed-end funds registered under
the 1940 Act from the requirement to hold annual shareholder meetings.
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
Closed-end funds (``CEFs'') are a category of investment companies
that are registered under the Investment Company Act of 1940 (``1940
Act'') \3\ and listed by the NYSE under Section 102.04A of the Manual.
Section 302.00 of the Manual provides that companies listing common
stock or voting preferred stock and their equivalents are required to
hold an annual shareholders' meeting for the holders of such securities
during each fiscal year.\4\ CEFs are presently required to comply with
the annual shareholder meeting requirement. The Exchange now proposes
to amend Section 302.00 of the Manual to include CEFs among the
categories of issuers that are exempt from this requirement.
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\3\ 15 U.S.C. 80a-1 et seq.
\4\ Section 302.00 of the Manual exempts from this requirement
companies whose only securities listed on the Exchange are non-
voting preferred and debt securities, passive business organizations
(such as royalty trusts), or securities listed pursuant to Rule
5.2(j)(2) (Equity Linked Notes), Rule 5.2(j)(3) (Investment Company
Units), Rule 5.2(j)(4) (Index-Linked Exchangeable Notes), Rule
5.2(j)(5) (Equity Gold Shares), Rule 5.2(j)(6) (Equity-Index Linked
Securities, Commodity-Linked Securities, Currency-Linked Securities,
Fixed Income Index-Linked Securities, Futures-Linked Securities and
Multifactor Index-Linked Securities), Rule 5.2(j)(8) (Exchange-
Traded Fund Shares), Rule 8.100 (Portfolio Depositary Receipts),
Rule 8.200 (Trust Issued Receipts), Rule 8.201 (Commodity-Based
Trust Shares), Rule 8.202 (Currency Trust Shares), Rule 8.203
(Commodity Index Trust Shares), Rule 8.204 (Commodity Futures Trust
Shares), Rule 8.300 (Partnership Units), Rule 8.400 (Paired Trust
Shares), Rule 8.600 (Managed Fund Shares), Rule 8.601 (Active Proxy
Portfolio Shares), Rule 8.700 (Managed Trust Securities), and 8.900
(Managed Portfolio Shares).
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The Exchange notes that, in addition to the listing under Section
102.04A of the Manual of CEFs registered under the 1940 Act, the
Exchange also lists under Section 102.04B of the Manual business
development companies (``BDCs''). A BDC is a closed-end management
investment company that is registered under the Exchange Act and that
has filed an election to be treated as a business development company
under the 1940 Act. The Exchange does not at this time propose to
provide an exemption from the annual meeting requirement of Section
302.00 to BDCs.
The Exchange notes that there are significant differences between
CEFs and listed operating companies that justify exempting CEFs from
the Exchange's annual meeting requirement. In particular, the Exchange
notes that the 1940 Act includes specific requirements with respect to
the election of directors by CEF shareholders, while there is no such
requirement under federal law for listed operating companies.
Specifically, Section 16(a) of the 1940 Act \5\ specifies the right of
CEF shareholders to elect directors as follows:
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\5\ 15 U.S.C. 80a-16(a).
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No person shall serve as a director of a registered investment
company unless elected to that office by the holders of the outstanding
voting securities of such company, at an annual or a special meeting
duly called for that purpose; except that vacancies occurring between
such meetings may be filled in any otherwise legal manner if
immediately after filling any such vacancy at least two-thirds of the
directors then holding office shall have been elected to such office by
the holders of the outstanding voting securities of the company at such
an annual or special meeting. In the event that at any time less than a
majority of the directors of such company holding office at that time
were so elected by the holders of the outstanding voting securities,
the board of directors or proper officer of such company shall
forthwith cause to be held as promptly as possible and in any event
within sixty days a meeting of such holders for the purpose of electing
directors to fill any existing vacancies in the board of directors
unless the Commission shall by order extend such period. The foregoing
provisions of this subsection shall not apply to members of an advisory
board.
The Exchange also notes that the 1940 Act requires that directors
who are not ``interested persons'' \6\ (``1940 Act Interested
Persons'') must comprise at least 40% of an investment company's
board.\7\ In the Exchange's experience, a large majority of listed CEFs
exceed this requirement by having boards on which more than 50% of
members are not 1940 Act Interested Persons.
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\6\ The term ``interested person'' is defined in Section
2(a)(19) of the 1940 Act.
\7\ 15 U.S.C. 80a-2(a)(19).
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In addition to the director election provisions described above,
the 1940 Act requires that a majority of directors who are not 1940 Act
Interested Persons approve significant actions, such as approval of the
investment advisory agreement between a CEF and its investment
advisor.\8\ Specifically, the following types of actions require
approval of a majority of a CEF's directors who are not 1940 Act
Interested Persons: approval of advisory agreements; \9\ approval of
underwriting
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agreements; \10\ selection of independent public accountant; \11\
acquisition of securities by a CEF from an underwriting syndicate of
which the CEF's advisor or certain other affiliates are members; \12\
the purchase or sale of securities between CEFs that have the same
investment advisor; \13\ mergers or asset acquisitions involving CEFs
that have the same investment advisor; \14\ use of an affiliate broker-
dealer to effect portfolio transactions on a national securities
exchange; \15\ and approval of the CEF's fidelity bond coverage.\16\
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\8\ See Section 15 of the 1940 Act. 15 U.S.C. 80a-15.
\9\ Ibid.
\10\ Ibid.
\11\ See Section 32 of the 1940 Act. 15 U.S.C. 80a-32.
\12\ See 1940 Act Rule 10f-3(h).
\13\ See 1940 Act Rule 17a-7(e).
\14\ See 1940 Act Rule 17a-8(e).
\15\ See 1940 Act Rule 17e-1(b).
\16\ See 1940 Act Rule 17g-1(d).
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There are also a number of material matters with respect to which
the 1940 Act requires registered investment companies, including CEFs,
to obtain shareholder approval. These matters include: a new investment
management agreement or a material amendment to an investment
management agreement; \17\ a change from closed-end to open-end status
or vice versa; \18\ a change from diversified company to non-
diversified company; \19\ a change in a policy with respect to
borrowing money, issuing senior securities; underwriting securities
that other persons issue, purchasing or selling real estate or
commodities or making loans to other persons, except in each case in
accordance with the recitals of policy contained in its registration
statement in respect thereto; \20\ a deviation from a policy in respect
of concentration of investments in any particular industry or
fundamental investment policy; \21\ and a change in the nature of the
investment company's business so as to cease to be an investment
company.\22\
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\17\ See U.S.C. 80a-15.
\18\ See U.S.C. 80a-13.
\19\ Ibid.
\20\ Ibid.
\21\ Ibid.
\22\ Ibid.
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In light of the above-described significant statutory protections
under the 1940 Act provided to the shareholders of CEFs, for which
there are no parallel legal protections for the shareholders of public
operating companies, the Exchange believes that it is appropriate to
exempt CEFs from the annual shareholder meeting requirements of Section
302.00 of the Manual. The Exchange notes that all of the categories of
investment companies for which the Exchange has listing standards other
than CEFs are already explicitly exempt from the annual shareholder
meeting requirement of Section 302.00 of the Manual.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\23\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\24\ in particular, because it
is designed to prevent fraudulent and manipulative acts and practices,
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 because it is not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\23\ 15 U.S.C. 78f(b).
\24\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed exemption of CEFs from the
annual shareholder meeting requirement of Section 302.00 of the Manual
is consistent with the protection of investors and the public interest
because of the provisions in the 1940 Act providing significant
protection of CEF shareholders, including by requiring: (i) the
election of directors by the CEF's shareholders when the number of 1940
Act Interested Persons on the board exceed specified levels; (ii) the
approval of certain specified material matters by a majority of the
directors who are not 1940 Act Interested Persons ; and (ii) the
approval of certain specified material matters by the shareholders.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes that the proposal will not impose any burden
on competition that is not necessary or appropriate in furtherance of
the purposes of the Act.
The Exchange believes that the proposal will not impose a burden on
either intramarket or intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The proposed
rule change is designed to permit CEFs to rely on the shareholder
voting requirements under the 1940 Act rather than complying with the
annual meeting requirement of Section 302.00 of the Manual. As all CEFs
listed on the NYSE would be treated the same under the proposed amended
rule, the Exchange does not believe that the proposal would impose any
burden on intramarket competition. Any other market that lists CEFs
could seek to amend its own annual meeting requirements applicable to
CEFs and, as such, the Exchange does not believe that the proposal
places any undue burden on intermarket competition.
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 within such longer period 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 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="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#0f7d7a636a226c6062626a617b7c4f7c6a6c21686079"><span class="__cf_email__" data-cfemail="0a787f666f27696567676f647e794a796f69246d657c">[email protected]</span></a>. Please include
file number SR-NYSE-2024-35 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-2024-35. 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="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>). Copies of the
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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 a.m. and 3
p.m. Copies of the filing also will be available for inspection and
copying at the principal office of the Exchange. Do not include
personal identifiable information in submissions; you should submit
only information that you wish to make available publicly. We may
redact in part or withhold entirely from publication submitted material
that is obscene or subject to copyright protection. All submissions
should refer to file number SR-NYSE-2024-35 and should be submitted on
or before July 30, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-15037 Filed 7-8-24; 8:45 am]
BILLING CODE 8011-01-P
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