Order Affirming Action by Delegated Authority Approving SR-NYSE-2016-55 and Discontinuing Stay, 27050-27054 [2018-12435]
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Federal Register / Vol. 83, No. 112 / Monday, June 11, 2018 / Notices
Shares and may obtain information via
ISG from other exchanges that are
members of ISG or with which the
Exchange has entered into a
comprehensive surveillance sharing
agreement. In addition, investors will
have ready access to information
regarding the IIV and quotation and last
sale information for the Shares. Trade
price and other information relating to
municipal bonds is available through
the MSRB’s EMMA system.
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 purpose of the Act. The Exchange
notes that the proposed rule change will
facilitate the continued listing and
trading of exchange-traded products that
hold municipal securities and that will
enhance competition among market
participants, to the benefit of investors
and the marketplace.
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.
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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:
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEArca–2018–38 on the subject line.
Paper Comments
• 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–NYSEArca–2018–38. 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 (https://www.sec.gov/
rules/sro.shtml). 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–NYSEArca–2018–38 and
should be submitted on or before July 2,
2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.36
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–12430 Filed 6–8–18; 8:45 am]
BILLING CODE 8011–01–P
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
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SECURITIES AND EXCHANGE
COMMISSION
[Securities Exchange Act of 1934; Release
No. 83378/June 5, 2018]
Order Affirming Action by Delegated
Authority Approving SR–NYSE–2016–
55 and Discontinuing Stay
In the Matter of the New York Stock
Exchange LLC
For an Order Granting the Approval of
Proposed Rule Change Adopting
Maximum Fees Member
Organizations May Charge in
Connection with the Distribution of
Investment Company Shareholder
Reports Pursuant to Any Electronic
Delivery Rules Adopted by the
Securities and Exchange Commission
I.
On August 15, 2016, the New York
Stock Exchange LLC (’’NYSE’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Exchange
Act’’) 1 and Rule 19b–4 thereunder,2 a
proposed rule change to adopt
maximum fees NYSE member
organizations may charge in connection
with the distribution of investment
company shareholder reports pursuant
to any ‘‘notice and access’’ electronic
delivery rules adopted by the
Commission. The proposed rule change
was published for comment in the
Federal Register on August 22, 2016.3
The Commission received fourteen
comment letters on the proposal. On
October 5, 2016, the Commission
extended the time period for
Commission action on the proposal to
November 20, 2016.4
On November 18, 2016, the Division
of Trading and Markets took action,
pursuant to delegated authority, 17 CFR
200.30–3(a)(12), approving the proposed
rule change (‘‘Approval Order’’).5
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Notice of Filing of Proposed Rule Change
Adopting Maximum Fees Member Organizations
may Charge in Connection with the Distribution of
Investment Company Shareholder Reports Pursuant
to Any Electronic Delivery Rules Adopted by the
Securities and Exchange Commission, Securities
Exchange Act Release No. 78589 (August 16, 2016),
81 FR 56717 (August 22, 2016) (SR–NYSE–2016–
55).
4 Notice of Designation of a Longer Period for
Commission Action on Proposed Rule Change
Adopting Maximum Fees Member Organizations
May Charge in Connection with the Distribution of
Investment Company Shareholder Reports Pursuant
to Any Electronic Delivery Rules Adopted by the
Securities and Exchange Commission, Securities
Exchange Act Release No. 79051 (October 5, 2016),
81 FR 70449 (October 12, 2016).
5 Order Granting Approval of Proposed Rule
Change Adopting Maximum Fees Member
2 17
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Federal Register / Vol. 83, No. 112 / Monday, June 11, 2018 / Notices
Pursuant to Exchange Act Section 4A 6
and Commission Rule of Practice 431,7
the Approval Order has been stayed,
and the Commission has reviewed the
delegated action.
On November 21, 2016, the
Commission issued an Order
Scheduling Filing of Statements on
Review of the Approval Order (‘‘Order
for Review’’).8 The Order for Review
ordered that the Approval Order remain
stayed pending further order by the
Commission and that by December 7,
2016, any party or other person may file
any additional statement.9 The
Commission received no additional
statements.
II.
On review, the Commission affirms
the issuance of the Approval Order and
adopts the findings and reasoning set
forth in the Approval Order. The
Commission also is ordering that the
stay of the Approval Order be
discontinued.
Accordingly, IT IS ORDERED that the
Approval Order be, and hereby is,
affirmed.10
It is further ORDERED that the stay of
the Approval Order be, and hereby is,
discontinued.11
By the Commission.
Brent J. Fields,
Secretary.
SECURITIES AND EXCHANGE
COMMISSION
(Release No. 34–79355; File No. SR–
NYSE–2016–55)
November 18, 2016
Self-Regulatory Organizations; New
York Stock Exchange LLC; Order
Granting Approval of Proposed Rule
Change Adopting Maximum Fees
Member Organizations May Charge in
Connection with the Distribution of
Investment Company Shareholder
Reports Pursuant to Any Electronic
Delivery Rules Adopted by the
Securities and Exchange Commission
I. Introduction
On August 15, 2016, New York Stock
Exchange LLC (‘‘NYSE’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Exchange Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to adopt maximum fees NYSE
member organizations may charge in
connection with the distribution of
investment company shareholder
reports pursuant to any ‘‘notice and
access’’ electronic delivery rules
adopted by the Commission. The
proposed rule change was published for
comment in the Federal Register on
August 22, 2016.3 The Commission
received fourteen comment letters on
the proposal.4 On October 5, 2016, the
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 78589
(August 16, 2016), 81 FR 56717 (‘‘Notice’’).
4 See letters to Brent J. Fields, Secretary,
Commission from: James R. Rooney, Chief Financial
Officer and Treasurer, Ariel Investment Trust, dated
September 8, 2016 (‘‘Ariel Letter’’); Mortimer J.
Buckley, Chief Investment Officer, Vanguard, dated
September 12, 2016 (‘‘Vanguard Letter’’); Barbara
Novick, Vice Chairman, and Benjamin Archibald,
Managing Director, BlackRock, Inc., dated
September 12, 2016 (‘‘BlackRock Letter’’); Charles
V. Callan, SVP Regulatory Affairs, Broadridge
Financial Solutions, Inc., dated September 12, 2016
(‘‘Broadridge Letter’’); John Zerr, Managing Director
and General Counsel, Invesco Advisers, Inc., dated
September 12, 2016 (‘‘Invesco Letter’’); Amy B.R.
Lancellotta, Managing Director, Independent
Directors Council, dated September 12, 2016 (‘‘IDC
Letter’’); David G. Booth, President and Co-Chief
Executive Officer, Dimensional Fund Advisers LP,
dated September 12, 2016 (‘‘Dimensional Letter’’);
David W. Blass, General Counsel, Investment
Company Institute, dated September 12, 2016 (‘‘ICI
Letter’’); Darrell N. Braman, Vice President &
Managing Counsel, T. Rowe Price Associates, Inc.,
dated September 12, 2016 (‘‘T. Rowe Letter’’); Mark
N. Polebaum, Executive Vice President and General
Counsel, MFS Investment Management, dated
September 12, 2016 (‘‘MFS Letter’’); Thomas E.
Faust Jr., Chairman and Chief Executive Officer,
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2 17
Organizations May Charge in Connection with the
Distribution of Investment Company Shareholder
Reports Pursuant to Any Electronic Delivery Rules
Adopted by the Securities and Exchange
Commission, Securities Exchange Act Release No.
79355 (November 18, 2016), 81 FR 85291
(November 25, 2016).
6 15 U.S.C. 78d–1
7 17 CFR 201.431.
8 In the Matter of the New York Stock Exchange
LLC for an Order Granting the Approval of
Proposed Rule Change Adopting Maximum Fees
Member Organizations May Charge in Connection
With the Distribution of Investment Company
Shareholder Reports Pursuant to Any Electronic
Delivery Rules Adopted by the Securities and
Exchange Commission; Order Scheduling Filing of
Statements on Review, Securities Exchange Act
Release No. 79370 (November 21, 2016), 81 FR
85655 (November 28, 2016).
9 See 17 CFR 201.431(d).
10 See 17 CFR 201.431(a). The Approval Order is
attached.
11 See 17 CFR 201.431(e).
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27051
Commission extended the time period
for Commission action on the proposal
to November 20, 2016.5 This order
approves the proposed rule change.
II. Description of the Proposed Rule
Change
A. Background
Pursuant to NYSE Rule 451, NYSE
member organizations that hold
securities in street name 6 are required
to deliver, on behalf of an issuer, proxy
and other materials to beneficial owners
if they are assured they will receive
reasonable reimbursement of expenses
for such distributions from the issuer.7
For this service, issuers reimburse NYSE
member organizations for all out-ofpocket expenses, including reasonable
clerical expenses, as well as actual
postage costs and other actual costs
incurred for a particular distribution.8
NYSE Rule 451 establishes the
maximum approved rates 9 that a
member organization can charge an
issuer for distribution of proxies and
other materials absent prior notification
to and consent of the issuer.10 Although
Eaton Vance Corp., dated September 12, 2016
(‘‘Eaton Vance Letter’’); Ellen Greene, Managing
Director, Securities Industry and Financial Markets
Association, dated September 15, 2016 (‘‘SIFMA
Letter’’); Christopher O. Petersen, President,
Columbia Mutual Funds, Columbia Threadneedle
Investments, dated September 15, 2016 (‘‘Columbia
Letter’’); and Rodney D. Johnson, Chairman, The
Independent Directors of the Blackrock EquityLiquidity Funds, dated September 27, 2016
(‘‘Blackrock Directors Letter’’).
5 See Securities Exchange Act Release No. 79051
(October 5, 2016), 81 FR 70449 (October 12, 2016).
6 The ownership of shares in street name means
that a shareholder, or ‘‘beneficial owner,’’ holds the
shares through a broker-dealer or bank, also known
as a ‘‘nominee.’’ In contrast to registered ownership
(also known as record holders), where shares are
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.
For more detail regarding share ownership, see
Securities Exchange Act Release No. 62495 (July 14,
2010), 75 FR 42982 (July 22, 2010) (Concept Release
on the U.S. Proxy System) (‘‘Proxy Concept
Release’’).
7 In this order, we refer to ‘‘issuer’’ to mean an
investment company registered under the
Investment Company Act of 1940 (the ‘‘Investment
Company Act’’) and an issuer of a class of securities
registered pursuant to Section 12 of the Exchange
Act.
8 See NYSE Rules 451(a)(2) and 451.90. See also
infra note 9.
9 In addition to the specified charges discussed in
this order and as set forth in NYSE Rule 451,
member organizations also are entitled to receive
reimbursement for: (i) actual postage costs
(including return postage at the lowest available
rate); (ii) the actual cost of envelopes (provided they
are not furnished by the person soliciting proxies);
and (iii) any actual communication expenses
(excluding overhead) incurred in receiving voting
returns either telephonically or electronically. See
NYSE Rule 451.90.
10 See NYSE Rules 451.90 (schedule of approved
charges by member organizations in connection
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member organizations may seek
reimbursement from an issuer for less
than the established rates,11 the
Commission understands that in
practice most issuers are billed at the
established rates.12
The vast majority of broker-dealers
that distribute issuer proxy and other
materials to beneficial owners are
entitled to reimbursement at the NYSE
fee schedule rates because most are
NYSE members, and those that are not
are members of the Financial Industry
Regulatory Authority (‘‘FINRA’’), which
has similar rules.13 Over time, NYSE
member organizations increasingly have
outsourced their proxy delivery and
other distribution obligations to thirdparty service providers, which are
generally called ‘‘intermediaries,’’ rather
than handling this processing
internally.14
In addition to the distribution of
proxy materials, the reimbursement
rates set forth in NYSE Rule 451 apply
to the distribution of annual and semiannual shareholder reports.15 In this
regard, the reimbursement rates set forth
with proxy solicitations and the processing of proxy
and other material) and 451.93 (stating that a
member organization may request reimbursement of
expenses at less than the approved rates; however,
no member organization may seek reimbursement at
rates higher than the approved rates without the
prior notification and consent of the person
soliciting proxies or the company). In adopting the
direct shareholder communications rules in the
early 1980s, the Commission left the determination
of reasonable costs to the self-regulatory
organizations (‘‘SROs’’) (subject to submission of an
SRO rule proposal to the Commission pursuant to
Section 19(b) of the Exchange Act), stating that ‘‘the
Commission continues to believe that, because the
[SROs] represent the interests of both issuers and
brokers, they are in the best position to make a fair
allocation of all the expenses associated with the
amendments, including start-up and overhead
costs.’’ See Securities Exchange Act Release No.
20021 (July 28, 1983), 48 FR 35082 (August 3,
1983); see also Securities Exchange Act Release No.
45644 (March 25, 2002), 67 FR 15440, 15440, n.8
(April 1, 2002) (order approving NYSE program
revising reimbursement rates) (‘‘2002 Approval
Order’’).
11 See NYSE Rule 451.93.
12 See Securities Exchange Act Release No. 70720
(October 18, 2013), 78 FR 63530, 63531 (October 24,
2013) (order approving an amendment to the fees
set forth in NYSE Rules 451 and 465).
13 See FINRA Rule 2251. See also Proxy Concept
Release, 75 FR at 42995, n.110.
14 See 2002 Approval Order, 67 FR at 15540.
According to the NYSE, this shift was attributable
to the fact that NYSE member firms believed that
these distributions were not a core broker-dealer
business and that capital could be better used
elsewhere. Id. At the present time, a single
intermediary, Broadridge Financial Solutions, Inc.
(‘‘Broadridge’’), handles almost all processing and
distribution of proxy and other material to
beneficial owners holding shares in the United
States. See Notice, 81 FR at 56719; see also Proxy
Concept Release, 75 FR at 42988, n. 57, and at
42996, n.129.
15 See NYSE Rules 451.10 and 451.90(3); see also
NYSE Rule 465 (Processing and Transmission of
Interim Reports and Other Material).
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in Rule 451 apply to the distribution of
investment company (‘‘fund’’)
shareholder reports and other materials
to the beneficial owners of fund
shares.16 For example, as the Exchange
noted, a fund pays an interim report fee
of 15 cents per account when a broker
distributes an annual or semi-annual
report to the accounts of shareholders
holding its shares as beneficial owners.
Funds also pay a preference
management fee of 10 cents for every
account with respect to which a member
organization has eliminated the need to
send paper materials.17
While NYSE Rule 451 also establishes
the fees that member firms can charge
issuers for proxy materials distributed
through the notice and access method,18
those fees would not apply to the
electronic distribution of investment
company shareholder reports. With
respect to notice and access
distributions of proxy materials, NYSE
Rule 451 sets forth an incremental,
tiered fee structure based on the number
of nominee broker-dealer accounts
through which the issuer’s securities are
beneficially owned.19
16 See Notice, 81 FR at 56718. In its filing, NYSE
stated that mutual funds are not listed on NYSE but
that the fees in Rule 451 are applied by NYSE
members in relation to distributions in beneficial
owners of mutual funds and operating company
shares. See also 402.07 (A) under the NYSE’s Listed
Company Manual, which states that Exchange Rules
450–460 apply to both listed and unlisted securities
unless the context otherwise limits application.
17 See NYSE Rule 451.90(4); see also Notice, 81
FR at 56718. The preference management fee
applies to each shareholder account for which the
nominee has eliminated the need to send materials
in paper format through the mails or by courier
service. See NYSE Rule 451.90(4); see also Notice,
81 FR at 56719.
18 See NYSE Rule 451.90(3); see also Notice, 81
FR at 56718. Pursuant to Rule 14a–16 under the
Exchange Act, issuers may distribute proxy material
electronically through the ‘‘notice and access’’
method. See 17 CFR 240.14a–16; see also Proxy
Concept Release, 75 FR at 42986, n.32. The ‘‘notice
and access’’ method for proxy distributions permits
issuers to send shareholders what is called a
‘‘Notice of Internet Availability of Proxy Materials’’
in lieu of the traditional paper mailing of proxy
materials. See Proxy Concept Release, 75 FR at
42986, n.32. The notice and access model works in
tandem with electronic delivery—although an
issuer electing to send a notice in lieu of a full
proxy package would be required to send a paper
copy of that notice, it may send that notice
electronically to a shareholder who has provided to
its broker an affirmative consent to electronic
delivery. Id.
19 Specifically, when an issuer elects to utilize
notice and access for a proxy distribution, there is
an incremental fee based on all nominee accounts
through which the issuer’s securities are
beneficially owned as follows: (1) 25 cents for each
account up to 10,000 accounts; (2) 20 cents for each
account over 10,000 accounts, up to 100,000
accounts; (3) 15 cents for each account over 100,000
accounts, up to 200,000 accounts; (4) 10 cents for
each account over 200,000 accounts, up to 500,000
accounts; (5) 5 cents for each account over 500,000
accounts. Under this schedule, every issuer will pay
the tier one rate for the first 10,000 accounts, or
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On May 20, 2015, the Commission
proposed new Rule 30e–3 under the
Investment Company Act, which,
among other things, would permit, but
not require, funds to satisfy their annual
and semi-annual shareholder report
delivery obligations by making
shareholder reports available
electronically on a website.20 Funds
relying on this provision would be
required, among other things, to meet
conditions relating to the provision of
notice to shareholders of the internet
availability of shareholder reports.21
B. Proposed Changes to NYSE Rule
451.90(5)
Accordingly, the Exchange has
proposed to amend Rule 451.90(5) to
specify that the notice and access fees
set forth therein for distribution of
proxy materials also will be charged
with respect to distributions of fund
shareholder reports pursuant to any
notice and access rules adopted by the
Commission in relation to such
distributions.22 The Exchange noted
that the notice and access process under
proposed Rule 30e–3 is similar to the
existing proxy notice and access process
for which the Exchange has already
adopted a fee schedule in Rule 451, and
thus the Exchange believes that it would
be appropriate to apply the existing
notice and access fees, with certain
modifications, to fund shareholder
report distributions, if the Commission
ultimately adopts proposed Rule 30e–
3.23
The Exchange also has proposed to set
forth in Rule 451 that the notice and
access fee will not be charged for any
account with respect to which a fund
pays a ‘‘preference management fee’’ in
connection with a distribution of fund
reports.24 As a result, funds would be
charged notice and access fees only with
respect to accounts that actually receive
a notice and access mailing.25
portion thereof, with decreasing rates applicable
only on additional accounts in the additional tiers.
See NYSE Rule 451.90(5).
20 See Notice, 81 FR at 56718; see also Securities
Act Release No. 9776, Securities Exchange Act
Release No. 75002, Investment Company Act
Release No. 316180, 80 FR 33590 (June 12, 2015)
(Investment Company Reporting Modernization;
Proposed Rule).
21 See Notice, 81 FR at 56718
22 See proposed NYSE Rule 451.90(5).
23 See Notice, 81 FR at 56718–19. The Exchange
stated that the proposed notice and access fees for
fund distributions will be effective only if the
Commission adopts Rule 30e–3. See Notice, 81 FR
at 56718, n.8.
24 See proposed Rule 451.90(5).
25 See Notice, 81 FR at 56719. The Exchange
stated that this is a departure from the current
practice under NYSE Rule 451.90(5), where an
issuer utilizing notice and access for proxy
distributions pays the notice and access fee for all
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In addition, because funds often issue
multiple classes of shares, the Exchange
believes it is necessary to be clear how
the pricing tiers in Rule 451 would be
applied to fund shareholder reports.26
Specifically, the Exchange has proposed
to set forth in Rule 451 that, in
calculating the rates at which a fund
will be charged notice and access fees
for shareholder report distributions, all
accounts holding shares of any class of
stock of the fund eligible to receive the
same report distribution will be
aggregated in determining the
appropriate pricing tier.27
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III. Summary of Comments Received
As noted above, the Commission
received a total of fourteen comment
letters on the Exchange’s proposed rule
change.28 In general, commenters
broadly supported the proposed rule
change.29 Two commenters, however,
expressed concern about making a
determination on the fees without a
final Commission rule in place that
permitted notice and access for fund
report distributions.30
Several commenters took the position
that the proposed rates set forth in
NYSE’s proposal would help realize the
cost savings meant to be achieved
through notice and access delivery of
fund shareholder reports.31 Some
pointed out that shareholder report
delivery is an expense that fund
shareholders bear, and asserted that the
cost savings would directly benefit fund
shareholders.32 One commenter also
noted that the three changes being
proposed by the NYSE would resolve
ambiguity in the NYSE’s fee schedule as
it would apply to notice and access
delivery of fund shareholder reports,
potentially paving the way for the
Commission to move forward with its
proposal.33 According to this
commenter, the NYSE’s proposal would
ensure significant cost savings for fund
shareholders if the Commission were to
adopt a notice and access proposal.34
shareholder accounts, including those for which it
also pays a preference management fee. Id. See also
supra note 17 (describing the current application of
the preference management fee).
26 See Notice, 81 FR at 56719.
27 See proposed Rule 451.90(5).
28 See supra note 4.
29 Id.
30 See SIFMA Letter; Broadridge Letter.
31 See ICI Letter; Eaton Vance Letter; Vanguard
Letter; Blackrock Letter; Invesco Letter; IDC Letter;
Dimensional Letter; MFS Letter; Blackrock Directors
Letter.
32 See ICI Letter; Blackrock Directors Letter;
Blackrock Letter; Invesco Letter; Colombia Letter.
33 See ICI Letter. See also MFS Letter (stating that
NYSE’s proposal would clarify certain ambiguities
of Rule 451 and provide a reasonable means of
conformance to proposed Rule 30e–3).
34 See ICI Letter.
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This commenter also suggested that,
absent NYSE’s proposed rule change,
these cost savings could be erased.35
Similarly, another commenter asserted
that, absent adoption of NYSE’s
proposal, Rule 451 would be applied in
a manner that diminished Rule 30e–3
shareholder cost savings, or even
increased shareholder costs.36 In
addition, this commenter was of the
view that each element of proposed
Rule 451.90(5) was logical and fair.37
Another commenter believed that the
proposed rule would ensure cost
savings under proposed Rule 30e–3 and
provide needed explanation on how
Rule 451 would apply to electronic
delivery of fund shareholder reports.38
Two commenters, however, expressed
concerns about commenting on the
NYSE fee proposal before proposed Rule
30e–3 was finally adopted. One
commenter indicated that it could not
definitively conclude whether the
proposed fee structure was appropriate
without a final rule specifying the
details of the broker-dealer processing
requirements for notice and access
delivery.39 Another commenter, the
largest provider of shareholder
communication services, stated that it
performed an analysis in order to
estimate the costs of a notice and access
distribution of fund shareholder reports,
but noted that it had to make certain
assumptions that could change based on
the final requirements of proposed Rule
30e–3.40
Finally, several commenters
commented on issues concerning the
fees and the Exchange’s role in setting
those fees that are outside the scope of
the Exchange’s proposal.41
35 Id.
See also Eaton Vance Letter.
MFS Letter.
36 See
37 Id.
38 See
Vanguard Letter.
SIFMA Letter.
40 See Broadridge Letter. While the commenter
stated that NYSE’s proposal would generally
support the development of notice and access
services for annual and semi-annual fund reports
held by beneficial owners, the commenter noted
that ultimately the work and costs involved are
dependent on several factors including the final
requirements of proposed Rule 30e–3, the number
and size of fund distributions pursuant to a notice
and access method, and the number and mode of
investor requests for hard copy reports.
41 Several commenters supported the transition of
responsibility for setting shareholder distribution
fees from the NYSE to FINRA. See ICI Letter; Ariel
Letter; T. Rowe Letter; MFS Letter; Invesco Letter;
Dimensional Letter; Columbia Letter. The other
comments outside the scope of the proposal are as
follows: Invesco Letter (the reasonableness and
application of the current fee structure); Ariel Letter
(reasonableness of the current fee structure);
Columbia Letter (reasonableness of the current fee
structure); MFS Letter (preference management fee
in the context of managed accounts); Dimensional
Letter (due to a virtual monopoly in the market for
third-party service providers, funds have little to no
39 See
PO 00000
Frm 00109
Fmt 4703
Sfmt 4703
27053
IV. Discussion and Commission
Findings
After careful review, the Commission
finds that the proposed rule change is
consistent with the requirements of the
Exchange Act and rules and regulations
thereunder applicable to a national
securities exchange.42 In particular, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(4) of the Exchange Act,43 which
requires that an exchange have rules
that provide for the equitable allocation
of reasonable dues, fees and other
charges among its members, issuers and
other persons using its facilities; Section
6(b)(5) of the Exchange Act,44 which
requires that the rules of an exchange be
designed, among other things, 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;
and Section 6(b)(8) of the Exchange
Act,45 which prohibits any exchange
rule from imposing a burden on
competition that is not necessary or
appropriate in furtherance of the
Exchange Act.
Under the Exchange’s proposal, the
reimbursement rates set forth in NYSE
Rule 451.90(5), which currently only
apply to proxy distributions where the
issuer elects to use notice and access,
would become applicable to
distributions of fund shareholder
reports, pursuant to any notice and
access rules adopted by the
Commission.46 Although the
control over the fees incurred for shareholder report
distribution). Further, the Blackrock Directors Letter
commented about providing a one year or
reasonable transition period for to shift to on-line
delivery of reports and providing a phone number
for shareholders to call if they prefer to receive
paper. We note that this comment also does not
refer to the NYSE fee proposal being considered
herein.
42 In approving the proposed rule changes, the
Commission has considered their impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
43 15 U.S.C. 78f(b)(4).
44 15 U.S.C. 78f(b)(5).
45 15 U.S.C. 78f(b)(8).
46 See proposed NYSE Rule 451.90(5). The
Commission notes that the proposed fees for notice
and access delivery of fund shareholder reports
would only become applicable if the Commission
adopts rules providing for notice and access
delivery of investment company shareholder
reports. Such rules could be in the form of Rule
30e–3, if adopted, or another Commission
rulemaking establishing notice and access as an
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daltland on DSKBBV9HB2PROD with NOTICES
27054
Federal Register / Vol. 83, No. 112 / Monday, June 11, 2018 / Notices
Commission has not adopted a notice
and access rule, the Commission
believes that it is appropriate and
consistent with the Exchange Act to
have in place rules that set forth the
maximum reimbursement rates that
funds may be charged for notice and
access distributions should the
Commission adopt a notice and access
rule for fund shareholder reports.
The Commission believes that the
application of the currently approved
reimbursement rates for notice and
access proxy distributions to fund
shareholder report distributions, with
the proposed amendments described
herein, should establish a reasonable
and practical reimbursement structure,
if notice and access distribution of fund
shareholder reports is authorized. In
this regard, the Commission notes that
the notice and access process for proxy
distributions is similar in many respects
to the notice and access process for fund
shareholder report distributions
proposed under Rule 30e–3.47 In
addition, the approval of the NYSE’s fee
proposal should facilitate any future
Commission consideration of notice and
access distributions for fund
shareholder reports, by providing clarity
on the maximum reimbursement rates
for such distributions.
The Commission also believes that it
is reasonable and appropriate for
proposed Rule 451.90(5) to specify that
funds utilizing notice and access will
not be charged a notice and access fee
for any account with respect to which
they are being charged a preference
management fee in connection with a
distribution of shareholder reports.
Today under NYSE Rule 451.90(4),
issuers, including funds, are charged a
preference management fee for each
account for which the need to send
materials in paper format through the
mails (or by courier service) has been
eliminated.48 In the context of notice
and access distributions of proxy
materials under Rule 451.90(5),
however, issuers are charged a notice
and access fee for all accounts through
which the issuer’s securities are
beneficially owned, with the result that
issuers could be charged both
preference management fees and notice
and access fees with respect to the same
account. The Exchange’s proposal
would eliminate this potential doubleacceptable distribution method for fund reports,
should Rule 30e–3 not be adopted.
47 See Notice, 81 FR at 56718–19.
48 See Notice, 81 FR at 56719; see also NYSE Rule
451.90(4); Securities Exchange Act Release No.
68936 (February 15, 2013), 78 FR 12381, 12386
(‘‘2013 Proxy Fee Notice’’).
VerDate Sep<11>2014
19:19 Jun 08, 2018
Jkt 244001
charging in the context of fund
distributions of shareholder reports, in
that the notice and access fee will not
be charged for any account for which a
preference management fee is already
paid due to the elimination of the need
for a paper mailing.49 The Commission
understands that the preference
management fee generally is intended to
reimburse intermediaries for the
processing work and costs involved in
keeping track of each account holder’s
election to eliminate paper mailings.50
Accordingly, as the Exchange noted,
funds will only pay notice and access
fees with respect to accounts that
actually receive notice and access
mailings.51 The Commission believes
that this result is consistent with
Section 6(b) of the Exchange Act.
In addition, the Commission believes
that it is consistent with the Exchange
Act for proposed Rule 451.90(5) to
clarify that, in determining the
appropriate pricing tier for notice and
access fees in connection with
investment company shareholder report
distributions, all accounts holding
shares of any share class that is eligible
to receive the same report distribution
will be aggregated. This clarification
should resolve the ambiguity as to
whether pricing tiers would be
calculated by share class, resulting in
potentially higher fees than if the
accounts are aggregated as proposed.
The Commission further believes this
clarification is reasonable because it
recognizes the unique nature of the fund
industry in treating distributions with
respect to a common group of
shareholders as a single distribution for
purposes of the fee tiers.
The Commission understands that, in
setting the reimbursement rates in Rule
451.90, the Exchange balances the
competing interests of issuers who must
pay for distributions of shareholder
reports and brokers who need assurance
of adequate reimbursement for making
such distributions on their behalf.52 The
49 See supra note 17. For example, if a beneficial
account holder has affirmatively consented to
receive fund shareholder material electronically,
such accounts would, under the NYSE’s proposal,
be charged a preference management fee, but not a
notice and access fee, since no paper mailings of a
notice of internet availability would be sent to such
account holder.
50 See 2013 Proxy Fee Notice, 78 FR at 12386.
51 See Notice, 81 FR at 56719.
52 The Commission notes that the Exchange and
certain commenters suggested that FINRA may be
better positioned than the Exchange to perform the
regulatory role of setting the reimbursement rates
for mutual fund report distributions. See Notice, 81
FR at 56718; see also ICI Letter; Ariel Letter; T.
Rowe Letter; MFS Letter; Invesco Letter;
Dimensional Letter; Columbia Letter. The issue of
PO 00000
Frm 00110
Fmt 4703
Sfmt 4703
Commission notes that all commenters
broadly supported NYSE’s proposal.53
As discussed above, two commenters
expressed some concern with assessing
the details of the NYSE’s proposal
before a final decision is made on
proposed Rule 30e–3. However, given
that the Exchange’s rule is applicable to
the ‘‘distribution of investment
company shareholder reports pursuant
to any ‘notice and access’ rules adopted
by the [Commission] in relation to such
distributions’’ as well as the functional
similarities between notice and access
processing for proxy and investment
company report distributions,54 the
Commission believes, for the reasons
discussed above, that it is appropriate at
this time to approve substantially
similar reimbursement rates, with the
proposed amendments described herein,
which should establish a reasonable and
practical reimbursement structure, if
notice and access distribution of
investment company shareholder
reports is authorized.
For the reasons discussed above, the
Commission believes that the proposed
rule change is consistent with the
Exchange Act.
V. Conclusion
IT IS THEREFORE ORDERED,
pursuant to Section 19(b)(2) of the
Exchange Act 55 that the proposed rule
change (SR–NYSE–2016–55) be, and
hereby is, approved.
For the Commission, by the Division
of Trading and Markets, pursuant to
delegated authority.56
Brent J. Fields,
Secretary
[FR Doc. 2018–12435 Filed 6–8–18; 8:45 am]
BILLING CODE 8011–01–P
whether FINRA would be better positioned than the
Exchange to perform this regulatory role is outside
the scope of the Commission’s consideration of
whether to approve the Exchange’s proposed rule
change. See Section 19(b)(2)(C) of the Exchange Act
(‘‘The Commission shall approve a proposed rule
change of a self-regulatory organization if it finds
that such proposed rule change is consistent with
the requirements of this title and the rules and
regulations applicable to such organization.’’).
53 See supra note 4.
54 See Broadridge Letter (stating that processing
work for investment company shareholder report
distribution using notice and access is functionally
similar in many respects to proxy report
distribution through notice and access, although
many of the underlying systems and production
operations would be different).
55 15 U.S.C. 78f(b)(2).
56 17
E:\FR\FM\11JNN1.SGM
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]]>Agencies
[Federal Register Volume 83, Number 112 (Monday, June 11, 2018)]
[Notices]
[Pages 27050-27054]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-12435]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Securities Exchange Act of 1934; Release No. 83378/June 5, 2018]
Order Affirming Action by Delegated Authority Approving SR-NYSE-
2016-55 and Discontinuing Stay
In the Matter of the New York Stock Exchange LLC
For an Order Granting the Approval of Proposed Rule Change Adopting
Maximum Fees Member Organizations May Charge in Connection with the
Distribution of Investment Company Shareholder Reports Pursuant to Any
Electronic Delivery Rules Adopted by the Securities and Exchange
Commission
I.
On August 15, 2016, the New York Stock Exchange LLC (''NYSE'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule
change to adopt maximum fees NYSE member organizations may charge in
connection with the distribution of investment company shareholder
reports pursuant to any ``notice and access'' electronic delivery rules
adopted by the Commission. The proposed rule change was published for
comment in the Federal Register on August 22, 2016.\3\ The Commission
received fourteen comment letters on the proposal. On October 5, 2016,
the Commission extended the time period for Commission action on the
proposal to November 20, 2016.\4\
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Notice of Filing of Proposed Rule Change Adopting Maximum
Fees Member Organizations may Charge in Connection with the
Distribution of Investment Company Shareholder Reports Pursuant to
Any Electronic Delivery Rules Adopted by the Securities and Exchange
Commission, Securities Exchange Act Release No. 78589 (August 16,
2016), 81 FR 56717 (August 22, 2016) (SR-NYSE-2016-55).
\4\ Notice of Designation of a Longer Period for Commission
Action on Proposed Rule Change Adopting Maximum Fees Member
Organizations May Charge in Connection with the Distribution of
Investment Company Shareholder Reports Pursuant to Any Electronic
Delivery Rules Adopted by the Securities and Exchange Commission,
Securities Exchange Act Release No. 79051 (October 5, 2016), 81 FR
70449 (October 12, 2016).
---------------------------------------------------------------------------
On November 18, 2016, the Division of Trading and Markets took
action, pursuant to delegated authority, 17 CFR 200.30-3(a)(12),
approving the proposed rule change (``Approval Order'').\5\
[[Page 27051]]
Pursuant to Exchange Act Section 4A \6\ and Commission Rule of Practice
431,\7\ the Approval Order has been stayed, and the Commission has
reviewed the delegated action.
---------------------------------------------------------------------------
\5\ Order Granting Approval of Proposed Rule Change Adopting
Maximum Fees Member Organizations May Charge in Connection with the
Distribution of Investment Company Shareholder Reports Pursuant to
Any Electronic Delivery Rules Adopted by the Securities and Exchange
Commission, Securities Exchange Act Release No. 79355 (November 18,
2016), 81 FR 85291 (November 25, 2016).
\6\ 15 U.S.C. 78d-1
\7\ 17 CFR 201.431.
---------------------------------------------------------------------------
On November 21, 2016, the Commission issued an Order Scheduling
Filing of Statements on Review of the Approval Order (``Order for
Review'').\8\ The Order for Review ordered that the Approval Order
remain stayed pending further order by the Commission and that by
December 7, 2016, any party or other person may file any additional
statement.\9\ The Commission received no additional statements.
---------------------------------------------------------------------------
\8\ In the Matter of the New York Stock Exchange LLC for an
Order Granting the Approval of Proposed Rule Change Adopting Maximum
Fees Member Organizations May Charge in Connection With the
Distribution of Investment Company Shareholder Reports Pursuant to
Any Electronic Delivery Rules Adopted by the Securities and Exchange
Commission; Order Scheduling Filing of Statements on Review,
Securities Exchange Act Release No. 79370 (November 21, 2016), 81 FR
85655 (November 28, 2016).
\9\ See 17 CFR 201.431(d).
---------------------------------------------------------------------------
II.
On review, the Commission affirms the issuance of the Approval
Order and adopts the findings and reasoning set forth in the Approval
Order. The Commission also is ordering that the stay of the Approval
Order be discontinued.
Accordingly, IT IS ORDERED that the Approval Order be, and hereby
is, affirmed.\10\
---------------------------------------------------------------------------
\10\ See 17 CFR 201.431(a). The Approval Order is attached.
---------------------------------------------------------------------------
It is further ORDERED that the stay of the Approval Order be, and
hereby is, discontinued.\11\
---------------------------------------------------------------------------
\11\ See 17 CFR 201.431(e).
By the Commission.
Brent J. Fields,
Secretary.
SECURITIES AND EXCHANGE COMMISSION
(Release No. 34-79355; File No. SR-NYSE-2016-55)
November 18, 2016
Self-Regulatory Organizations; New York Stock Exchange LLC; Order
Granting Approval of Proposed Rule Change Adopting Maximum Fees Member
Organizations May Charge in Connection with the Distribution of
Investment Company Shareholder Reports Pursuant to Any Electronic
Delivery Rules Adopted by the Securities and Exchange Commission
I. Introduction
On August 15, 2016, New York Stock Exchange LLC (``NYSE'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to adopt maximum fees NYSE member
organizations may charge in connection with the distribution of
investment company shareholder reports pursuant to any ``notice and
access'' electronic delivery rules adopted by the Commission. The
proposed rule change was published for comment in the Federal Register
on August 22, 2016.\3\ The Commission received fourteen comment letters
on the proposal.\4\ On October 5, 2016, the Commission extended the
time period for Commission action on the proposal to November 20,
2016.\5\ This order approves the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 78589 (August 16,
2016), 81 FR 56717 (``Notice'').
\4\ See letters to Brent J. Fields, Secretary, Commission from:
James R. Rooney, Chief Financial Officer and Treasurer, Ariel
Investment Trust, dated September 8, 2016 (``Ariel Letter'');
Mortimer J. Buckley, Chief Investment Officer, Vanguard, dated
September 12, 2016 (``Vanguard Letter''); Barbara Novick, Vice
Chairman, and Benjamin Archibald, Managing Director, BlackRock,
Inc., dated September 12, 2016 (``BlackRock Letter''); Charles V.
Callan, SVP Regulatory Affairs, Broadridge Financial Solutions,
Inc., dated September 12, 2016 (``Broadridge Letter''); John Zerr,
Managing Director and General Counsel, Invesco Advisers, Inc., dated
September 12, 2016 (``Invesco Letter''); Amy B.R. Lancellotta,
Managing Director, Independent Directors Council, dated September
12, 2016 (``IDC Letter''); David G. Booth, President and Co-Chief
Executive Officer, Dimensional Fund Advisers LP, dated September 12,
2016 (``Dimensional Letter''); David W. Blass, General Counsel,
Investment Company Institute, dated September 12, 2016 (``ICI
Letter''); Darrell N. Braman, Vice President & Managing Counsel, T.
Rowe Price Associates, Inc., dated September 12, 2016 (``T. Rowe
Letter''); Mark N. Polebaum, Executive Vice President and General
Counsel, MFS Investment Management, dated September 12, 2016 (``MFS
Letter''); Thomas E. Faust Jr., Chairman and Chief Executive
Officer, Eaton Vance Corp., dated September 12, 2016 (``Eaton Vance
Letter''); Ellen Greene, Managing Director, Securities Industry and
Financial Markets Association, dated September 15, 2016 (``SIFMA
Letter''); Christopher O. Petersen, President, Columbia Mutual
Funds, Columbia Threadneedle Investments, dated September 15, 2016
(``Columbia Letter''); and Rodney D. Johnson, Chairman, The
Independent Directors of the Blackrock Equity-Liquidity Funds, dated
September 27, 2016 (``Blackrock Directors Letter'').
\5\ See Securities Exchange Act Release No. 79051 (October 5,
2016), 81 FR 70449 (October 12, 2016).
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II. Description of the Proposed Rule Change
A. Background
Pursuant to NYSE Rule 451, NYSE member organizations that hold
securities in street name \6\ are required to deliver, on behalf of an
issuer, proxy and other materials to beneficial owners if they are
assured they will receive reasonable reimbursement of expenses for such
distributions from the issuer.\7\ For this service, issuers reimburse
NYSE member organizations for all out-of-pocket expenses, including
reasonable clerical expenses, as well as actual postage costs and other
actual costs incurred for a particular distribution.\8\
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\6\ The ownership of shares in street name means that a
shareholder, or ``beneficial owner,'' holds the shares through a
broker-dealer or bank, also known as a ``nominee.'' In contrast to
registered ownership (also known as record holders), where shares
are 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. For more
detail regarding share ownership, see Securities Exchange Act
Release No. 62495 (July 14, 2010), 75 FR 42982 (July 22, 2010)
(Concept Release on the U.S. Proxy System) (``Proxy Concept
Release'').
\7\ In this order, we refer to ``issuer'' to mean an investment
company registered under the Investment Company Act of 1940 (the
``Investment Company Act'') and an issuer of a class of securities
registered pursuant to Section 12 of the Exchange Act.
\8\ See NYSE Rules 451(a)(2) and 451.90. See also infra note 9.
---------------------------------------------------------------------------
NYSE Rule 451 establishes the maximum approved rates \9\ that a
member organization can charge an issuer for distribution of proxies
and other materials absent prior notification to and consent of the
issuer.\10\ Although
[[Page 27052]]
member organizations may seek reimbursement from an issuer for less
than the established rates,\11\ the Commission understands that in
practice most issuers are billed at the established rates.\12\
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\9\ In addition to the specified charges discussed in this order
and as set forth in NYSE Rule 451, member organizations also are
entitled to receive reimbursement for: (i) actual postage costs
(including return postage at the lowest available rate); (ii) the
actual cost of envelopes (provided they are not furnished by the
person soliciting proxies); and (iii) any actual communication
expenses (excluding overhead) incurred in receiving voting returns
either telephonically or electronically. See NYSE Rule 451.90.
\10\ See NYSE Rules 451.90 (schedule of approved charges by
member organizations in connection with proxy solicitations and the
processing of proxy and other material) and 451.93 (stating that a
member organization may request reimbursement of expenses at less
than the approved rates; however, no member organization may seek
reimbursement at rates higher than the approved rates without the
prior notification and consent of the person soliciting proxies or
the company). In adopting the direct shareholder communications
rules in the early 1980s, the Commission left the determination of
reasonable costs to the self-regulatory organizations (``SROs'')
(subject to submission of an SRO rule proposal to the Commission
pursuant to Section 19(b) of the Exchange Act), stating that ``the
Commission continues to believe that, because the [SROs] represent
the interests of both issuers and brokers, they are in the best
position to make a fair allocation of all the expenses associated
with the amendments, including start-up and overhead costs.'' See
Securities Exchange Act Release No. 20021 (July 28, 1983), 48 FR
35082 (August 3, 1983); see also Securities Exchange Act Release No.
45644 (March 25, 2002), 67 FR 15440, 15440, n.8 (April 1, 2002)
(order approving NYSE program revising reimbursement rates) (``2002
Approval Order'').
\11\ See NYSE Rule 451.93.
\12\ See Securities Exchange Act Release No. 70720 (October 18,
2013), 78 FR 63530, 63531 (October 24, 2013) (order approving an
amendment to the fees set forth in NYSE Rules 451 and 465).
---------------------------------------------------------------------------
The vast majority of broker-dealers that distribute issuer proxy
and other materials to beneficial owners are entitled to reimbursement
at the NYSE fee schedule rates because most are NYSE members, and those
that are not are members of the Financial Industry Regulatory Authority
(``FINRA''), which has similar rules.\13\ Over time, NYSE member
organizations increasingly have outsourced their proxy delivery and
other distribution obligations to third-party service providers, which
are generally called ``intermediaries,'' rather than handling this
processing internally.\14\
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\13\ See FINRA Rule 2251. See also Proxy Concept Release, 75 FR
at 42995, n.110.
\14\ See 2002 Approval Order, 67 FR at 15540. According to the
NYSE, this shift was attributable to the fact that NYSE member firms
believed that these distributions were not a core broker-dealer
business and that capital could be better used elsewhere. Id. At the
present time, a single intermediary, Broadridge Financial Solutions,
Inc. (``Broadridge''), handles almost all processing and
distribution of proxy and other material to beneficial owners
holding shares in the United States. See Notice, 81 FR at 56719; see
also Proxy Concept Release, 75 FR at 42988, n. 57, and at 42996,
n.129.
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In addition to the distribution of proxy materials, the
reimbursement rates set forth in NYSE Rule 451 apply to the
distribution of annual and semi-annual shareholder reports.\15\ In this
regard, the reimbursement rates set forth in Rule 451 apply to the
distribution of investment company (``fund'') shareholder reports and
other materials to the beneficial owners of fund shares.\16\ For
example, as the Exchange noted, a fund pays an interim report fee of 15
cents per account when a broker distributes an annual or semi-annual
report to the accounts of shareholders holding its shares as beneficial
owners. Funds also pay a preference management fee of 10 cents for
every account with respect to which a member organization has
eliminated the need to send paper materials.\17\
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\15\ See NYSE Rules 451.10 and 451.90(3); see also NYSE Rule 465
(Processing and Transmission of Interim Reports and Other Material).
\16\ See Notice, 81 FR at 56718. In its filing, NYSE stated that
mutual funds are not listed on NYSE but that the fees in Rule 451
are applied by NYSE members in relation to distributions in
beneficial owners of mutual funds and operating company shares. See
also 402.07 (A) under the NYSE's Listed Company Manual, which states
that Exchange Rules 450-460 apply to both listed and unlisted
securities unless the context otherwise limits application.
\17\ See NYSE Rule 451.90(4); see also Notice, 81 FR at 56718.
The preference management fee applies to each shareholder account
for which the nominee has eliminated the need to send materials in
paper format through the mails or by courier service. See NYSE Rule
451.90(4); see also Notice, 81 FR at 56719.
---------------------------------------------------------------------------
While NYSE Rule 451 also establishes the fees that member firms can
charge issuers for proxy materials distributed through the notice and
access method,\18\ those fees would not apply to the electronic
distribution of investment company shareholder reports. With respect to
notice and access distributions of proxy materials, NYSE Rule 451 sets
forth an incremental, tiered fee structure based on the number of
nominee broker-dealer accounts through which the issuer's securities
are beneficially owned.\19\
---------------------------------------------------------------------------
\18\ See NYSE Rule 451.90(3); see also Notice, 81 FR at 56718.
Pursuant to Rule 14a-16 under the Exchange Act, issuers may
distribute proxy material electronically through the ``notice and
access'' method. See 17 CFR 240.14a-16; see also Proxy Concept
Release, 75 FR at 42986, n.32. The ``notice and access'' method for
proxy distributions permits issuers to send shareholders what is
called a ``Notice of Internet Availability of Proxy Materials'' in
lieu of the traditional paper mailing of proxy materials. See Proxy
Concept Release, 75 FR at 42986, n.32. The notice and access model
works in tandem with electronic delivery--although an issuer
electing to send a notice in lieu of a full proxy package would be
required to send a paper copy of that notice, it may send that
notice electronically to a shareholder who has provided to its
broker an affirmative consent to electronic delivery. Id.
\19\ Specifically, when an issuer elects to utilize notice and
access for a proxy distribution, there is an incremental fee based
on all nominee accounts through which the issuer's securities are
beneficially owned as follows: (1) 25 cents for each account up to
10,000 accounts; (2) 20 cents for each account over 10,000 accounts,
up to 100,000 accounts; (3) 15 cents for each account over 100,000
accounts, up to 200,000 accounts; (4) 10 cents for each account over
200,000 accounts, up to 500,000 accounts; (5) 5 cents for each
account over 500,000 accounts. Under this schedule, every issuer
will pay the tier one rate for the first 10,000 accounts, or portion
thereof, with decreasing rates applicable only on additional
accounts in the additional tiers. See NYSE Rule 451.90(5).
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On May 20, 2015, the Commission proposed new Rule 30e-3 under the
Investment Company Act, which, among other things, would permit, but
not require, funds to satisfy their annual and semi-annual shareholder
report delivery obligations by making shareholder reports available
electronically on a website.\20\ Funds relying on this provision would
be required, among other things, to meet conditions relating to the
provision of notice to shareholders of the internet availability of
shareholder reports.\21\
---------------------------------------------------------------------------
\20\ See Notice, 81 FR at 56718; see also Securities Act Release
No. 9776, Securities Exchange Act Release No. 75002, Investment
Company Act Release No. 316180, 80 FR 33590 (June 12, 2015)
(Investment Company Reporting Modernization; Proposed Rule).
\21\ See Notice, 81 FR at 56718
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B. Proposed Changes to NYSE Rule 451.90(5)
Accordingly, the Exchange has proposed to amend Rule 451.90(5) to
specify that the notice and access fees set forth therein for
distribution of proxy materials also will be charged with respect to
distributions of fund shareholder reports pursuant to any notice and
access rules adopted by the Commission in relation to such
distributions.\22\ The Exchange noted that the notice and access
process under proposed Rule 30e-3 is similar to the existing proxy
notice and access process for which the Exchange has already adopted a
fee schedule in Rule 451, and thus the Exchange believes that it would
be appropriate to apply the existing notice and access fees, with
certain modifications, to fund shareholder report distributions, if the
Commission ultimately adopts proposed Rule 30e-3.\23\
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\22\ See proposed NYSE Rule 451.90(5).
\23\ See Notice, 81 FR at 56718-19. The Exchange stated that the
proposed notice and access fees for fund distributions will be
effective only if the Commission adopts Rule 30e-3. See Notice, 81
FR at 56718, n.8.
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The Exchange also has proposed to set forth in Rule 451 that the
notice and access fee will not be charged for any account with respect
to which a fund pays a ``preference management fee'' in connection with
a distribution of fund reports.\24\ As a result, funds would be charged
notice and access fees only with respect to accounts that actually
receive a notice and access mailing.\25\
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\24\ See proposed Rule 451.90(5).
\25\ See Notice, 81 FR at 56719. The Exchange stated that this
is a departure from the current practice under NYSE Rule 451.90(5),
where an issuer utilizing notice and access for proxy distributions
pays the notice and access fee for all shareholder accounts,
including those for which it also pays a preference management fee.
Id. See also supra note 17 (describing the current application of
the preference management fee).
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[[Page 27053]]
In addition, because funds often issue multiple classes of shares,
the Exchange believes it is necessary to be clear how the pricing tiers
in Rule 451 would be applied to fund shareholder reports.\26\
Specifically, the Exchange has proposed to set forth in Rule 451 that,
in calculating the rates at which a fund will be charged notice and
access fees for shareholder report distributions, all accounts holding
shares of any class of stock of the fund eligible to receive the same
report distribution will be aggregated in determining the appropriate
pricing tier.\27\
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\26\ See Notice, 81 FR at 56719.
\27\ See proposed Rule 451.90(5).
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III. Summary of Comments Received
As noted above, the Commission received a total of fourteen comment
letters on the Exchange's proposed rule change.\28\ In general,
commenters broadly supported the proposed rule change.\29\ Two
commenters, however, expressed concern about making a determination on
the fees without a final Commission rule in place that permitted notice
and access for fund report distributions.\30\
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\28\ See supra note 4.
\29\ Id.
\30\ See SIFMA Letter; Broadridge Letter.
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Several commenters took the position that the proposed rates set
forth in NYSE's proposal would help realize the cost savings meant to
be achieved through notice and access delivery of fund shareholder
reports.\31\ Some pointed out that shareholder report delivery is an
expense that fund shareholders bear, and asserted that the cost savings
would directly benefit fund shareholders.\32\ One commenter also noted
that the three changes being proposed by the NYSE would resolve
ambiguity in the NYSE's fee schedule as it would apply to notice and
access delivery of fund shareholder reports, potentially paving the way
for the Commission to move forward with its proposal.\33\ According to
this commenter, the NYSE's proposal would ensure significant cost
savings for fund shareholders if the Commission were to adopt a notice
and access proposal.\34\ This commenter also suggested that, absent
NYSE's proposed rule change, these cost savings could be erased.\35\
Similarly, another commenter asserted that, absent adoption of NYSE's
proposal, Rule 451 would be applied in a manner that diminished Rule
30e-3 shareholder cost savings, or even increased shareholder
costs.\36\ In addition, this commenter was of the view that each
element of proposed Rule 451.90(5) was logical and fair.\37\ Another
commenter believed that the proposed rule would ensure cost savings
under proposed Rule 30e-3 and provide needed explanation on how Rule
451 would apply to electronic delivery of fund shareholder reports.\38\
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\31\ See ICI Letter; Eaton Vance Letter; Vanguard Letter;
Blackrock Letter; Invesco Letter; IDC Letter; Dimensional Letter;
MFS Letter; Blackrock Directors Letter.
\32\ See ICI Letter; Blackrock Directors Letter; Blackrock
Letter; Invesco Letter; Colombia Letter.
\33\ See ICI Letter. See also MFS Letter (stating that NYSE's
proposal would clarify certain ambiguities of Rule 451 and provide a
reasonable means of conformance to proposed Rule 30e-3).
\34\ See ICI Letter.
\35\ Id. See also Eaton Vance Letter.
\36\ See MFS Letter.
\37\ Id.
\38\ See Vanguard Letter.
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Two commenters, however, expressed concerns about commenting on the
NYSE fee proposal before proposed Rule 30e-3 was finally adopted. One
commenter indicated that it could not definitively conclude whether the
proposed fee structure was appropriate without a final rule specifying
the details of the broker-dealer processing requirements for notice and
access delivery.\39\ Another commenter, the largest provider of
shareholder communication services, stated that it performed an
analysis in order to estimate the costs of a notice and access
distribution of fund shareholder reports, but noted that it had to make
certain assumptions that could change based on the final requirements
of proposed Rule 30e-3.\40\
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\39\ See SIFMA Letter.
\40\ See Broadridge Letter. While the commenter stated that
NYSE's proposal would generally support the development of notice
and access services for annual and semi-annual fund reports held by
beneficial owners, the commenter noted that ultimately the work and
costs involved are dependent on several factors including the final
requirements of proposed Rule 30e-3, the number and size of fund
distributions pursuant to a notice and access method, and the number
and mode of investor requests for hard copy reports.
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Finally, several commenters commented on issues concerning the fees
and the Exchange's role in setting those fees that are outside the
scope of the Exchange's proposal.\41\
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\41\ Several commenters supported the transition of
responsibility for setting shareholder distribution fees from the
NYSE to FINRA. See ICI Letter; Ariel Letter; T. Rowe Letter; MFS
Letter; Invesco Letter; Dimensional Letter; Columbia Letter. The
other comments outside the scope of the proposal are as follows:
Invesco Letter (the reasonableness and application of the current
fee structure); Ariel Letter (reasonableness of the current fee
structure); Columbia Letter (reasonableness of the current fee
structure); MFS Letter (preference management fee in the context of
managed accounts); Dimensional Letter (due to a virtual monopoly in
the market for third-party service providers, funds have little to
no control over the fees incurred for shareholder report
distribution). Further, the Blackrock Directors Letter commented
about providing a one year or reasonable transition period for to
shift to on-line delivery of reports and providing a phone number
for shareholders to call if they prefer to receive paper. We note
that this comment also does not refer to the NYSE fee proposal being
considered herein.
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IV. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Exchange Act and
rules and regulations thereunder applicable to a national securities
exchange.\42\ In particular, the Commission finds that the proposed
rule change is consistent with Section 6(b)(4) of the Exchange Act,\43\
which requires that an exchange have rules that provide for the
equitable allocation of reasonable dues, fees and other charges among
its members, issuers and other persons using its facilities; Section
6(b)(5) of the Exchange Act,\44\ which requires that the rules of an
exchange be designed, among other things, 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; and Section 6(b)(8) of the Exchange Act,\45\ which prohibits
any exchange rule from imposing a burden on competition that is not
necessary or appropriate in furtherance of the Exchange Act.
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\42\ In approving the proposed rule changes, the Commission has
considered their impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
\43\ 15 U.S.C. 78f(b)(4).
\44\ 15 U.S.C. 78f(b)(5).
\45\ 15 U.S.C. 78f(b)(8).
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Under the Exchange's proposal, the reimbursement rates set forth in
NYSE Rule 451.90(5), which currently only apply to proxy distributions
where the issuer elects to use notice and access, would become
applicable to distributions of fund shareholder reports, pursuant to
any notice and access rules adopted by the Commission.\46\ Although the
[[Page 27054]]
Commission has not adopted a notice and access rule, the Commission
believes that it is appropriate and consistent with the Exchange Act to
have in place rules that set forth the maximum reimbursement rates that
funds may be charged for notice and access distributions should the
Commission adopt a notice and access rule for fund shareholder reports.
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\46\ See proposed NYSE Rule 451.90(5). The Commission notes that
the proposed fees for notice and access delivery of fund shareholder
reports would only become applicable if the Commission adopts rules
providing for notice and access delivery of investment company
shareholder reports. Such rules could be in the form of Rule 30e-3,
if adopted, or another Commission rulemaking establishing notice and
access as an acceptable distribution method for fund reports, should
Rule 30e-3 not be adopted.
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The Commission believes that the application of the currently
approved reimbursement rates for notice and access proxy distributions
to fund shareholder report distributions, with the proposed amendments
described herein, should establish a reasonable and practical
reimbursement structure, if notice and access distribution of fund
shareholder reports is authorized. In this regard, the Commission notes
that the notice and access process for proxy distributions is similar
in many respects to the notice and access process for fund shareholder
report distributions proposed under Rule 30e-3.\47\ In addition, the
approval of the NYSE's fee proposal should facilitate any future
Commission consideration of notice and access distributions for fund
shareholder reports, by providing clarity on the maximum reimbursement
rates for such distributions.
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\47\ See Notice, 81 FR at 56718-19.
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The Commission also believes that it is reasonable and appropriate
for proposed Rule 451.90(5) to specify that funds utilizing notice and
access will not be charged a notice and access fee for any account with
respect to which they are being charged a preference management fee in
connection with a distribution of shareholder reports. Today under NYSE
Rule 451.90(4), issuers, including funds, are charged a preference
management fee for each account for which the need to send materials in
paper format through the mails (or by courier service) has been
eliminated.\48\ In the context of notice and access distributions of
proxy materials under Rule 451.90(5), however, issuers are charged a
notice and access fee for all accounts through which the issuer's
securities are beneficially owned, with the result that issuers could
be charged both preference management fees and notice and access fees
with respect to the same account. The Exchange's proposal would
eliminate this potential double-charging in the context of fund
distributions of shareholder reports, in that the notice and access fee
will not be charged for any account for which a preference management
fee is already paid due to the elimination of the need for a paper
mailing.\49\ The Commission understands that the preference management
fee generally is intended to reimburse intermediaries for the
processing work and costs involved in keeping track of each account
holder's election to eliminate paper mailings.\50\ Accordingly, as the
Exchange noted, funds will only pay notice and access fees with respect
to accounts that actually receive notice and access mailings.\51\ The
Commission believes that this result is consistent with Section 6(b) of
the Exchange Act.
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\48\ See Notice, 81 FR at 56719; see also NYSE Rule 451.90(4);
Securities Exchange Act Release No. 68936 (February 15, 2013), 78 FR
12381, 12386 (``2013 Proxy Fee Notice'').
\49\ See supra note 17. For example, if a beneficial account
holder has affirmatively consented to receive fund shareholder
material electronically, such accounts would, under the NYSE's
proposal, be charged a preference management fee, but not a notice
and access fee, since no paper mailings of a notice of internet
availability would be sent to such account holder.
\50\ See 2013 Proxy Fee Notice, 78 FR at 12386.
\51\ See Notice, 81 FR at 56719.
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In addition, the Commission believes that it is consistent with the
Exchange Act for proposed Rule 451.90(5) to clarify that, in
determining the appropriate pricing tier for notice and access fees in
connection with investment company shareholder report distributions,
all accounts holding shares of any share class that is eligible to
receive the same report distribution will be aggregated. This
clarification should resolve the ambiguity as to whether pricing tiers
would be calculated by share class, resulting in potentially higher
fees than if the accounts are aggregated as proposed. The Commission
further believes this clarification is reasonable because it recognizes
the unique nature of the fund industry in treating distributions with
respect to a common group of shareholders as a single distribution for
purposes of the fee tiers.
The Commission understands that, in setting the reimbursement rates
in Rule 451.90, the Exchange balances the competing interests of
issuers who must pay for distributions of shareholder reports and
brokers who need assurance of adequate reimbursement for making such
distributions on their behalf.\52\ The Commission notes that all
commenters broadly supported NYSE's proposal.\53\ As discussed above,
two commenters expressed some concern with assessing the details of the
NYSE's proposal before a final decision is made on proposed Rule 30e-3.
However, given that the Exchange's rule is applicable to the
``distribution of investment company shareholder reports pursuant to
any `notice and access' rules adopted by the [Commission] in relation
to such distributions'' as well as the functional similarities between
notice and access processing for proxy and investment company report
distributions,\54\ the Commission believes, for the reasons discussed
above, that it is appropriate at this time to approve substantially
similar reimbursement rates, with the proposed amendments described
herein, which should establish a reasonable and practical reimbursement
structure, if notice and access distribution of investment company
shareholder reports is authorized.
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\52\ The Commission notes that the Exchange and certain
commenters suggested that FINRA may be better positioned than the
Exchange to perform the regulatory role of setting the reimbursement
rates for mutual fund report distributions. See Notice, 81 FR at
56718; see also ICI Letter; Ariel Letter; T. Rowe Letter; MFS
Letter; Invesco Letter; Dimensional Letter; Columbia Letter. The
issue of whether FINRA would be better positioned than the Exchange
to perform this regulatory role is outside the scope of the
Commission's consideration of whether to approve the Exchange's
proposed rule change. See Section 19(b)(2)(C) of the Exchange Act
(``The Commission shall approve a proposed rule change of a self-
regulatory organization if it finds that such proposed rule change
is consistent with the requirements of this title and the rules and
regulations applicable to such organization.'').
\53\ See supra note 4.
\54\ See Broadridge Letter (stating that processing work for
investment company shareholder report distribution using notice and
access is functionally similar in many respects to proxy report
distribution through notice and access, although many of the
underlying systems and production operations would be different).
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For the reasons discussed above, the Commission believes that the
proposed rule change is consistent with the Exchange Act.
V. Conclusion
IT IS THEREFORE ORDERED, pursuant to Section 19(b)(2) of the
Exchange Act \55\ that the proposed rule change (SR-NYSE-2016-55) be,
and hereby is, approved.
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\55\ 15 U.S.C. 78f(b)(2).
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For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\56\
\56\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary
[FR Doc. 2018-12435 Filed 6-8-18; 8:45 am]
BILLING CODE 8011-01-P
