Self-Regulatory Organizations; New York Stock Exchange LLC; Order Granting Approval of a Proposed Rule Change Amending Sections 312.03 and 312.04 of the Listed Company Manual To Amend the Price Requirements for Certain Exceptions From the Shareholder Approval Rules, 11354-11357 [2019-05703]
Download as PDF
<![CDATA[
11354
Federal Register / Vol. 84, No. 58 / Tuesday, March 26, 2019 / Notices
no impact on intermarket competition,
as it applies to orders and quotes
submitted to the SPIKES Special
Settlement Auction the Exchange
conducts prior to the open of trading in
certain classes.
The Exchange believes that the
proposed rule change will relieve any
burden on, or otherwise promote,
competition. The Exchange believes the
proposed rule change will contribute to
price transparency and liquidity in
constituent options at the open on
SPIKES Index settlement days, and thus
to a fair and orderly opening on those
days. A fair and orderly opening, and
increased liquidity in these series
benefits all market participants who
trade in the SPIKES Index options and
the constituent options.
The proposed rule change to add the
term ‘‘expiring’’ to the definition of
SPIKES strategy orders has no impact on
competition, as it is merely a
codification of a current Exchange
interpretation and is consistent with the
definition of constituent options in the
current rule.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days after the date of
the filing, or such shorter time as the
Commission may designate, it has
become effective pursuant to 19(b)(3)(A)
of the Act 48 and Rule 19b–4(f)(6) 49
thereunder.
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
jbell on DSK30RV082PROD with NOTICES
48 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
49 17
VerDate Sep<11>2014
17:54 Mar 25, 2019
Jkt 247001
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:
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
MIAX–2019–12 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–MIAX–2019–12. 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–MIAX–2019–12 and should
be submitted on or before April 16,
2019.
PO 00000
CFR 200.30–3(a)(12).
Frm 00076
Fmt 4703
[FR Doc. 2019–05696 Filed 3–25–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
50 17
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.50
Eduardo A. Aleman,
Deputy Secretary.
Sfmt 4703
[Release No. 34–85374; File No. SR–NYSE–
2018–54]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Order
Granting Approval of a Proposed Rule
Change Amending Sections 312.03 and
312.04 of the Listed Company Manual
To Amend the Price Requirements for
Certain Exceptions From the
Shareholder Approval Rules
March 20, 2019.
I. Introduction
On December 3, 2018, 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 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
amend Sections 312.03 and 312.04 of
the NYSE Listed Company Manual
(‘‘Manual’’) to modify the price
requirements that companies must meet
to avail themselves of certain exceptions
from the shareholder approval
requirements set forth in Section 312.03.
The proposed rule change was
published for comment in the Federal
Register on December 20, 2018.3 On
January 30, 2019, pursuant to Section
19(b)(2) of the Act,4 the Commission
designated March 20, 2019, as the date
by which it should either approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether to
disapprove the proposed rule change.5
The Commission has received no
comment letters on the proposal. This
order approves the proposed rule
change.
II. Description of the Proposal
The Exchange has proposed to amend
Sections 312.03 and 312.04 of the
Manual to modify the price
requirements that companies must meet
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 84821
(Dec. 14, 2018), 83 FR 65378 (‘‘Notice’’).
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 85005
(Jan. 30, 2019), 84 FR 1812 (Feb. 5, 2019).
2 17
E:\FR\FM\26MRN1.SGM
26MRN1
jbell on DSK30RV082PROD with NOTICES
Federal Register / Vol. 84, No. 58 / Tuesday, March 26, 2019 / Notices
to avail themselves of certain exceptions
from the shareholder approval
requirements set forth in Section 312.03.
Currently, under Section 312.03(b),
the Exchange requires a NYSE-listed
company to obtain shareholder approval
prior to the issuance of common stock,
or of securities convertible into or
exercisable for common stock, in any
transaction or series of related
transactions, to a director, officer or
substantial security holder of the
company (each a ‘‘Related Party’’); a
subsidiary, affiliate or other closelyrelated person of a Related Party; or any
company or entity in which a Related
Party has a substantial direct or indirect
interest, if the number of shares of
common stock to be issued, or if the
number of shares of common stock into
which the securities may be convertible
or exercisable, exceeds either one
percent of the number of shares of
common stock or one percent of the
voting power outstanding before the
issuance (‘‘Related Party Transaction’’).6
However, if the Related Party involved
in the transaction is classified as such
solely because such person is a
substantial security holder (‘‘Substantial
Security Holder Transaction’’), and if
the issuance relates to a sale of stock for
cash at a price at least as great as each
of the book and market value of the
issuer’s common stock, then
shareholder approval would not be
required unless the number of shares of
common stock to be issued, or unless
the number of shares of common stock
into which the securities may be
convertible or exercisable, exceeds
either five percent of the number of
shares of common stock or five percent
of the voting power outstanding before
the issuance.7
In addition, under Section 312.03(c),
the Exchange currently requires a
NYSE-listed company to obtain
shareholder approval prior to the
issuance of common stock, or of
securities convertible into or exercisable
for common stock, in any transaction or
series of related transactions if: (1) The
common stock has, or will have upon
issuance, voting power equal to or in
excess of 20 percent of the voting power
outstanding before the issuance of such
stock or of securities convertible into or
exercisable for common stock or; (2) the
number of shares of common stock to be
issued is, or will be upon issuance,
equal to or in excess of 20 percent of the
number of shares of common stock
outstanding before the issuance of the
common stock or of securities
convertible into or exercisable for
6 See
7 See
Section 312.03(b) of the Manual.
id.
VerDate Sep<11>2014
17:54 Mar 25, 2019
Jkt 247001
common stock (‘‘20% Issuance’’).
However, shareholder approval would
not be required for any 20% Issuance
involving any bona fide private
financing,8 if such financing involves a
sale of common stock, for cash, at a
price at least as great as each of the book
and market value of the issuer’s
common stock or the sale of securities
convertible into or exercisable for
common stock, for cash, if the
conversion or exercise price is at least
as great as each of the book and market
value of the issuer’s common stock.9
‘‘Market value’’ of the issuer’s
common stock is defined in Section
312.04(i), for purposes of shareholder
approval required under Section 312.03,
as the official closing price on the
Exchange as reported to the
Consolidated Tape immediately
preceding the entering into of a binding
agreement to issue the securities.10 The
current rule provides that, for example,
if the transaction is entered into after
the close of the regular session at 4:00
p.m. Eastern Standard Time on a
Tuesday, then Tuesday’s official closing
price is used. If the transaction is
entered into at any time between the
close of the regular session on Monday
and the close of the regular session on
Tuesday, then Monday’s official closing
price is used.11 The current rule also
states that an average price over a period
of time is not acceptable as ‘‘market
value’’ for purposes of Section 312.03.12
The Exchange has proposed a new
measure of market value for purposes of
Section 312.03, to be known as the
‘‘Minimum Price,’’ which will be
defined as a price that is the lower of
(1) the Official Closing Price
immediately preceding the signing of
the binding agreement to issue the
securities or (2) the average Official
Closing Price for the five trading days
immediately preceding the signing of
the binding agreement to issue the
securities.13 The Exchange has proposed
to define ‘‘Official Closing Price’’ of the
8 ‘‘Bona fide private financing’’ is defined as a
sale in which either a registered broker-dealer
purchases the securities from the issuer with a view
to the private sale of such securities to one or more
purchasers; or the issuer sells the securities to
multiple purchasers, and not one such purchaser,
or group of related purchasers, acquires, or has the
right to acquire upon exercise or conversion of the
securities, more than five percent of the shares of
the issuer’s common stock or more than five percent
of the issuer’s voting power before the sale. See
Section 312.04(g) of the Manual.
9 See Section 312.03(c) of the Manual.
Shareholder approval is also not required for any
20% Issuance involving any public offering for
cash. See id.
10 See Section 312.04(i) of the Manual.
11 See id.
12 See id.
13 See proposed Section 312.04(i) of the Manual.
PO 00000
Frm 00077
Fmt 4703
Sfmt 4703
11355
issuer’s common stock as the official
closing price on the Exchange as
reported to the Consolidated Tape 14
immediately preceding the signing of a
binding agreement to issue the
securities.15 This definition is based on
the current definition of ‘‘Market Value’’
in Section 312.04(i), which currently
uses the official closing price as
reported to the Consolidated Tape in its
definition, with certain changes.16
Under the proposal, the exceptions to
the shareholder approval requirements
set forth in Sections 312.03(b) and (c)
described above 17 will only be available
for issuances that are priced at least as
great as the Minimum Price. In addition,
while the new definition of ‘‘Official
Closing Price’’ would retain the example
in the current definition of ‘‘Market
Value,’’ the Exchange proposed to delete
the statement that an average price over
a period of time is not acceptable as
‘‘market value’’ for purposes of Section
312.03.18 The Exchange stated that this
statement will no longer be accurate
upon approval of the proposed rule
change.19
In proposing to use a five-day average
closing price to determine if a
shareholder vote is required under
Sections 312.03(b) and (c), the Exchange
stated that it is a widespread practice in
commercial transactions involving the
issuance of securities to use a five-day
average when pricing transactions to
avoid unanticipated and inequitable
results that may occur with use of a
single day’s closing price if there is
unexpected price volatility.20 While the
Exchange noted that there are potential
negative consequences to using a fiveday average as the sole measure of
whether shareholder approval is
required,21 the Exchange stated that it
believes that the risks of using the fiveday average closing price are already
accepted by the market, as evidenced by
14 The Exchange states that the manner in which
the official closing price as reported to the
Consolidated Tape is determined is set forth in
NYSE Rule 123C(1)(e). See Notice, supra note 3, at
65379 n.6.
15 See proposed Section 312.04(j) of the Manual.
The Exchange proposes to renumber existing
subsections (j) and (k) as subsections (k) and (l),
respectively. See proposed Section 312.04(j)–(l) of
the Manual.
16 See supra notes 10–12 and accompanying text.
The new definition of ‘‘Official Closing Price’’
would replace all references to ‘‘entering into’’
agreements and/or transactions with ‘‘signing’’
agreements and/or transactions. The Exchange
stated in its proposal that this change would
conform the language used throughout the rule and
does not have any substantive effect. See Notice,
supra note 3, at 65379 n.7.
17 See supra notes 7–9 and accompanying text.
18 See proposed Section 312.04(j) of the Manual.
19 See Notice, supra note 3, at 65379.
20 See id.
21 See id.
E:\FR\FM\26MRN1.SGM
26MRN1
11356
Federal Register / Vol. 84, No. 58 / Tuesday, March 26, 2019 / Notices
the use of an average price in
transactions that do not require
shareholder approval, such as those
transactions where less than 20% of the
outstanding shares are being issued.22
Thus, the Exchange proposed to define
market value as the lower of the most
recent closing price or five-day average
closing price.23
In conjunction with its proposal to
redefine market value for purposes of
determining whether an exception to
the shareholder approval requirements
of Sections 312.03(b) and (c) is
available, the Exchange has also
proposed to eliminate the current
requirement that the price paid in a
Substantial Security Holder Transaction
or 20% Issuance qualifying for such
exceptions must not be less than book
value. Currently, as noted above, the
Exchange’s rules provide exceptions to
the shareholder approval requirements
in Sections 312.03(b) and (c) for certain
sales of common stock for cash at a
price at least as great as market and
book value. Under the proposal,
Substantial Security Holder
Transactions and 20% Issuances that
otherwise qualify for the exceptions to
the shareholder approval requirements
in Sections 312.03(b) and (c) and are
priced below book value but at or above
market value, as defined by the
Minimum Price, would no longer
require shareholder approval. In its
proposal, the Exchange stated that book
value is an accounting measure that is
based on the historic cost of assets
rather than their current value, and that
it believes it is not a meaningful
measure of whether a transaction is
dilutive or should otherwise require
shareholder approval.24
jbell on DSK30RV082PROD with NOTICES
III. Discussion and Commission
Findings
After careful review, the Commission
finds that the proposed rule change is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to a national
securities exchange.25 In particular, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act,26 which requires,
among other things, that the rules of a
national securities exchange be
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
22 See
id.
id.
24 See id.
25 15 U.S.C. 78f(b). In approving this proposed
rule change, the Commission has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
26 15 U.S.C. 78f(b)(5).
23 See
VerDate Sep<11>2014
17:54 Mar 25, 2019
Jkt 247001
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
are not designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.
The development and enforcement of
meaningful corporate governance listing
standards for a national securities
exchange is of substantial importance to
financial markets and the investing
public, especially given investor
expectations regarding the nature of
companies that have achieved an
exchange listing for their securities. The
corporate governance standards
embodied in the listing standards of
national securities exchanges, in
particular, play an important role in
assuring that exchange-listed companies
observe good governance practices
including safeguarding the interests of
shareholders with respect to certain
potentially dilutive transactions.27
As discussed above, the proposal
would, among other things, (i) change
the definition of market value, for
purposes of determining whether
exceptions to the shareholder approval
requirements under Sections 312.03(b)
and (c) are met, by proposing to use the
lower of the official closing price or
five-day average closing price and, as a
result, also remove the prohibition on
an average price over a period of time
being used as a measure of market value
for purposes of Section 312.03; and (ii)
eliminate the requirement for
shareholder approval under Sections
312.03(b) and (c) at a price that is less
than book value but at least as great as
market value. The Commission has
carefully considered the proposal and
finds that the proposed rule change is
consistent with the Act.
27 See, e.g., Securities Exchange Act Release Nos.
84287 (Sept. 26, 2018), 83 FR 49599 (Oct. 2, 2018)
(SR–NASDAQ–2018–008) (approving amendments
to change the definition of market value for
purposes of the shareholder approval rule and
eliminate the requirement for shareholder approval
of issuances at a price less than book value but
greater than market value); 76814 (Dec. 31, 2015),
81 FR 0820 (Jan. 7, 2016) (SR–NYSE–2015–02)
(approving amendments to the NYSE Listed
Company Manual to exempt early stage companies
from having to obtain shareholder approval in
certain circumstances); 48108 (June 30, 2003), 68
FR 39995 (July 3, 2003) (SR–NYSE–2002–46 and
SR–NASD–2002–140) (approving equity
compensation shareholder approval rules of both
the NYSE and the National Association of
Securities Dealers, Inc. n/k/a NASDAQ); and 58375
(Aug. 18, 2008), 73 FR 49498 (Aug. 21, 2008) (File
No. 10–182) (order approving registration of BATS
Exchange, Inc. noting that qualitative listing
requirements including shareholder approval rules
are designed to ensure that companies trading on
a national securities exchange will adequately
protect the interest of public shareholders).
PO 00000
Frm 00078
Fmt 4703
Sfmt 4703
The Commission believes that the
proposed change to the determination of
market value (proposed to be defined as
‘‘Minimum Price’’), to use the lower of
the official closing price or five-day
average closing price, for determining
whether certain exceptions to the
shareholder approval provisions apply
to Substantial Security Holder
Transactions in Section 312.03(b) and to
20% Issuances in Section 312.03(c), is
consistent with the Act.28 The
Commission notes that, according to the
Exchange, the five-day period for
establishing the average closing price is
related to the way transactions are
actually structured, in situations where
shareholder approval is not required, to
help smooth out price fluctuations.29
The Commission believes that the
proposal to eliminate the requirement
for shareholder approval under Sections
312.03(b) and (c) at a price that is less
than book value but at least as great as
market value is also consistent with the
Act. As noted by the Exchange,30 book
value may not be an appropriate
indicator of whether a transaction is
dilutive for purposes of the Exchange’s
shareholder approval rule.
The Commission notes, in approving
the changes to measure market value as
the lower of the closing price and fiveday average closing price and eliminate
the book value requirement, that the
ability of listed companies to issue
securities without shareholder approval
continues to remain limited by other
important Exchange rules.31 For
28 See infra notes 31—35 and accompanying text
for a discussion of other circumstances that may
require shareholder approval.
29 See Notice, supra note 3, at 65380. As noted
above, the rule proposal would also remove an
explicit provision in the Exchange’s rules that states
that an average price over a period of time is not
acceptable as market value for purposes of the
shareholder approval rules. The removal of this
prohibition is necessary in order for the Exchange
to adopt the same five-day average pricing period
that Nasdaq currently uses in its shareholder
approval rules. See infra note 36. In approving the
removal of this prohibition, the Commission notes
it is only doing so after finding that the five-day
average pricing period is consistent with the Act.
The deletion of the prohibition is not meant to
imply any other period of time to calculate average
pricing would be consistent with the Act, and any
proposal to do so would have to be analyzed on its
own merits pursuant to a proposed rule change
under Section 19(b) of the Act.
30 See Notice, supra note 3, at 65379.
31 See, e.g., Sections 312.03(a) and (d) of the
Manual. The Commission notes that, under
Exchange rules, if shareholder approval is not
required under the requirements in Sections
312.03(b) or (c) it could still be required under one
of the other shareholder approval provisions in
Section 312.03 of the Manual since these provisions
apply independently of each other. See Section
312.04(a) of the Manual (‘‘Shareholder approval is
required if any of the subparagraphs of Section
312.03 require such approval, notwithstanding the
fact that the transaction does not require approval
E:\FR\FM\26MRN1.SGM
26MRN1
Federal Register / Vol. 84, No. 58 / Tuesday, March 26, 2019 / Notices
jbell on DSK30RV082PROD with NOTICES
example, the Commission notes that any
discounted issuance of stock to a
company’s employees, directors, or
other service providers would require
shareholder approval under the
Exchange’s equity compensation
rules.32 In addition, shareholder
approval would continue to be required
if the issuance resulted in a change of
control,33 as well as for certain
issuances to Related Parties, such as
officers, directors and their affiliates,
among others.34 Finally, as discussed
above, Sections 312.03(b) and (c) set
forth circumstances under which
shareholder approval would be
required, and such approval would
continue to be required under the
proposal to the extent that an issuance
would not qualify for the exceptions
enumerated in those rules.35
The Commission further notes, in
approving the changes to measure
market value as the lower of the closing
price and five-day average closing price
and eliminate the book value
requirement, that the proposed
amendments are similar to the rules of
another national securities exchange
that the Commission found consistent
with the Act.36
The Commission believes that the
additional proposed amendments and
clarifications to the rule, including to
the definition of official closing price,
will add transparency to the Exchange’s
rules and are therefore consistent with
the Act.37
under one or more of the other subparagraphs.’’).
The Commission notes that the independent
application of these provisions includes the
provisions on shareholder approval for equity
compensation plans as set forth in Section 303A.08,
as referenced in Section 312.03(a) of the Manual.
32 See Sections 312.03(a) and 303A.08 of the
Manual. The Commission notes that Section
303A.08 uses the term ‘‘fair market value’’ for
purposes of determining whether an issuance of
stock would qualify for an exception from the
shareholder approval requirement in Section
303A.08. The Exchange has represented that for
purposes of qualifying for that exception, the
Exchange has always interpreted fair market value
as identical to the Official Closing Price definition
proposed to be adopted in Section 312.04, and, to
avoid any potential confusion, the Exchange will
submit a proposed rule filing to amend Section
303A.08 to codify this interpretation. See Notice,
supra note 3, at 65379–80. For any avoidance of
doubt, the Commission notes that the term
Minimum Price, as defined above by the Exchange
in its current proposal, is not applicable to the
equity compensation provisions in Section 303A.08
or Section 312.03(a).
33 See Section 312.03(d) of the Manual.
34 See Section 312.03(b) of the Manual.
35 See supra notes 6–9 and accompanying text.
36 See Securities Exchange Act Release No. 84287
(Sept. 26, 2018), 83 FR 49599 (Oct. 2, 2018) (SR–
NASDAQ–2018–008). See also NASDAQ Rule
5635(d).
37 The Commission notes that the Exchange has
indicated that the changes to the definition of
Official Closing Price were made to conform the
VerDate Sep<11>2014
17:54 Mar 25, 2019
Jkt 247001
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,38 that the
proposed rule change (SR–NYSE–2018–
54), be, and it hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.39
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–05703 Filed 3–25–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85372; File No. SR–
NASDAQ–2019–013]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Adopt a
New SCAR Routing Option
March 20, 2019.
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 March 6,
2019, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to adopt a
new SCAR routing option under Rule
4758.
The text of the proposed rule change
is available on the Exchange’s website at
https://nasdaq.cchwallstreet.com, 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
Exchange included statements
concerning the purpose of and basis for
definition to the language used throughout the rule
and does not have any substantive effect. See supra
note 16.
38 15 U.S.C. 78s(b)(2).
39 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
PO 00000
Frm 00079
Fmt 4703
Sfmt 4703
11357
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
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 aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange is proposing to adopt
SCAR, a new order routing 3 option
under Rule 4758(a)(1)(A). The Exchange
currently provides a variety of routing
options under Rule 4758(a)(1)(A).
Routing options may be combined with
all available Order Types and Times-inForce, with the exception of Order
Types and Times-in-Force whose terms
are inconsistent with the terms of a
particular routing option. The SCAR
routing option would allow members to
seek liquidity on the Exchange and the
other equity markets operated by
Nasdaq, Inc., the Nasdaq BX Equities
Market (‘‘BX’’) and Nasdaq PSX (‘‘PSX’’
and together with BX and the Exchange,
the ‘‘Nasdaq Affiliated Exchanges’’).
SCAR will operate in the same manner
as the current CART strategy, but will
differ in the initial order routing to the
Nasdaq Affiliated Exchanges. Whereas
CART orders route sequentially to BX,
PSX and then check the System,4 SCAR
orders will route simultaneously to all
three Nasdaq Affiliated Exchanges in
accordance with the System routing
table.5
3 Routing is an Order Attribute that allows a
Participant to designate an Order to employ one of
several Routing Strategies offered by Nasdaq, as
described in Rule 4758; such an Order may be
referred to as a ‘‘Routable Order.’’ Upon receipt of
an Order with the Routing Order Attribute, the
System will process the Order in accordance with
the applicable Routing Strategy. In the case of a
limited number of Routing Strategies, the Order will
be sent directly to other market centers for potential
execution. For most other Routing Strategies, the
Order will attempt to access liquidity available on
Nasdaq in the manner specified for the underlying
Order Type and will then be routed in accordance
with the applicable Routing Strategy. Shares of the
Order that cannot be executed are then returned to
Nasdaq, where they will (i) again attempt to access
liquidity available on Nasdaq and (ii) post to the
Nasdaq Book or be cancelled, depending on the
Time-in- Force of the Order. See Rule 4703(f).
4 See Rule 4758(a)(1)(A)(xi).
5 The term ‘‘System routing table’’ refers to the
proprietary process for determining the specific
trading venues to which the System routes orders
and the order in which it routes them. Nasdaq
reserves the right to maintain a different System
routing table for different routing options and to
modify the System routing table at any time without
notice. See Rule 4758(a)(1)(A).
E:\FR\FM\26MRN1.SGM
26MRN1
]]>Agencies
[Federal Register Volume 84, Number 58 (Tuesday, March 26, 2019)]
[Notices]
[Pages 11354-11357]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-05703]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85374; File No. SR-NYSE-2018-54]
Self-Regulatory Organizations; New York Stock Exchange LLC; Order
Granting Approval of a Proposed Rule Change Amending Sections 312.03
and 312.04 of the Listed Company Manual To Amend the Price Requirements
for Certain Exceptions From the Shareholder Approval Rules
March 20, 2019.
I. Introduction
On December 3, 2018, 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 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to amend Sections 312.03 and 312.04 of the NYSE
Listed Company Manual (``Manual'') to modify the price requirements
that companies must meet to avail themselves of certain exceptions from
the shareholder approval requirements set forth in Section 312.03. The
proposed rule change was published for comment in the Federal Register
on December 20, 2018.\3\ On January 30, 2019, pursuant to Section
19(b)(2) of the Act,\4\ the Commission designated March 20, 2019, as
the date by which it should either approve the proposed rule change,
disapprove the proposed rule change, or institute proceedings to
determine whether to disapprove the proposed rule change.\5\ The
Commission has received no comment letters on the proposal. 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. 84821 (Dec. 14,
2018), 83 FR 65378 (``Notice'').
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 85005 (Jan. 30,
2019), 84 FR 1812 (Feb. 5, 2019).
---------------------------------------------------------------------------
II. Description of the Proposal
The Exchange has proposed to amend Sections 312.03 and 312.04 of
the Manual to modify the price requirements that companies must meet
[[Page 11355]]
to avail themselves of certain exceptions from the shareholder approval
requirements set forth in Section 312.03.
Currently, under Section 312.03(b), the Exchange requires a NYSE-
listed company to obtain shareholder approval prior to the issuance of
common stock, or of securities convertible into or exercisable for
common stock, in any transaction or series of related transactions, to
a director, officer or substantial security holder of the company (each
a ``Related Party''); a subsidiary, affiliate or other closely-related
person of a Related Party; or any company or entity in which a Related
Party has a substantial direct or indirect interest, if the number of
shares of common stock to be issued, or if the number of shares of
common stock into which the securities may be convertible or
exercisable, exceeds either one percent of the number of shares of
common stock or one percent of the voting power outstanding before the
issuance (``Related Party Transaction'').\6\ However, if the Related
Party involved in the transaction is classified as such solely because
such person is a substantial security holder (``Substantial Security
Holder Transaction''), and if the issuance relates to a sale of stock
for cash at a price at least as great as each of the book and market
value of the issuer's common stock, then shareholder approval would not
be required unless the number of shares of common stock to be issued,
or unless the number of shares of common stock into which the
securities may be convertible or exercisable, exceeds either five
percent of the number of shares of common stock or five percent of the
voting power outstanding before the issuance.\7\
---------------------------------------------------------------------------
\6\ See Section 312.03(b) of the Manual.
\7\ See id.
---------------------------------------------------------------------------
In addition, under Section 312.03(c), the Exchange currently
requires a NYSE-listed company to obtain shareholder approval prior to
the issuance of common stock, or of securities convertible into or
exercisable for common stock, in any transaction or series of related
transactions if: (1) The common stock has, or will have upon issuance,
voting power equal to or in excess of 20 percent of the voting power
outstanding before the issuance of such stock or of securities
convertible into or exercisable for common stock or; (2) the number of
shares of common stock to be issued is, or will be upon issuance, equal
to or in excess of 20 percent of the number of shares of common stock
outstanding before the issuance of the common stock or of securities
convertible into or exercisable for common stock (``20% Issuance'').
However, shareholder approval would not be required for any 20%
Issuance involving any bona fide private financing,\8\ if such
financing involves a sale of common stock, for cash, at a price at
least as great as each of the book and market value of the issuer's
common stock or the sale of securities convertible into or exercisable
for common stock, for cash, if the conversion or exercise price is at
least as great as each of the book and market value of the issuer's
common stock.\9\
---------------------------------------------------------------------------
\8\ ``Bona fide private financing'' is defined as a sale in
which either a registered broker-dealer purchases the securities
from the issuer with a view to the private sale of such securities
to one or more purchasers; or the issuer sells the securities to
multiple purchasers, and not one such purchaser, or group of related
purchasers, acquires, or has the right to acquire upon exercise or
conversion of the securities, more than five percent of the shares
of the issuer's common stock or more than five percent of the
issuer's voting power before the sale. See Section 312.04(g) of the
Manual.
\9\ See Section 312.03(c) of the Manual. Shareholder approval is
also not required for any 20% Issuance involving any public offering
for cash. See id.
---------------------------------------------------------------------------
``Market value'' of the issuer's common stock is defined in Section
312.04(i), for purposes of shareholder approval required under Section
312.03, as the official closing price on the Exchange as reported to
the Consolidated Tape immediately preceding the entering into of a
binding agreement to issue the securities.\10\ The current rule
provides that, for example, if the transaction is entered into after
the close of the regular session at 4:00 p.m. Eastern Standard Time on
a Tuesday, then Tuesday's official closing price is used. If the
transaction is entered into at any time between the close of the
regular session on Monday and the close of the regular session on
Tuesday, then Monday's official closing price is used.\11\ The current
rule also states that an average price over a period of time is not
acceptable as ``market value'' for purposes of Section 312.03.\12\
---------------------------------------------------------------------------
\10\ See Section 312.04(i) of the Manual.
\11\ See id.
\12\ See id.
---------------------------------------------------------------------------
The Exchange has proposed a new measure of market value for
purposes of Section 312.03, to be known as the ``Minimum Price,'' which
will be defined as a price that is the lower of (1) the Official
Closing Price immediately preceding the signing of the binding
agreement to issue the securities or (2) the average Official Closing
Price for the five trading days immediately preceding the signing of
the binding agreement to issue the securities.\13\ The Exchange has
proposed to define ``Official Closing Price'' of the issuer's common
stock as the official closing price on the Exchange as reported to the
Consolidated Tape \14\ immediately preceding the signing of a binding
agreement to issue the securities.\15\ This definition is based on the
current definition of ``Market Value'' in Section 312.04(i), which
currently uses the official closing price as reported to the
Consolidated Tape in its definition, with certain changes.\16\ Under
the proposal, the exceptions to the shareholder approval requirements
set forth in Sections 312.03(b) and (c) described above \17\ will only
be available for issuances that are priced at least as great as the
Minimum Price. In addition, while the new definition of ``Official
Closing Price'' would retain the example in the current definition of
``Market Value,'' the Exchange proposed to delete the statement that an
average price over a period of time is not acceptable as ``market
value'' for purposes of Section 312.03.\18\ The Exchange stated that
this statement will no longer be accurate upon approval of the proposed
rule change.\19\
---------------------------------------------------------------------------
\13\ See proposed Section 312.04(i) of the Manual.
\14\ The Exchange states that the manner in which the official
closing price as reported to the Consolidated Tape is determined is
set forth in NYSE Rule 123C(1)(e). See Notice, supra note 3, at
65379 n.6.
\15\ See proposed Section 312.04(j) of the Manual. The Exchange
proposes to renumber existing subsections (j) and (k) as subsections
(k) and (l), respectively. See proposed Section 312.04(j)-(l) of the
Manual.
\16\ See supra notes 10-12 and accompanying text. The new
definition of ``Official Closing Price'' would replace all
references to ``entering into'' agreements and/or transactions with
``signing'' agreements and/or transactions. The Exchange stated in
its proposal that this change would conform the language used
throughout the rule and does not have any substantive effect. See
Notice, supra note 3, at 65379 n.7.
\17\ See supra notes 7-9 and accompanying text.
\18\ See proposed Section 312.04(j) of the Manual.
\19\ See Notice, supra note 3, at 65379.
---------------------------------------------------------------------------
In proposing to use a five-day average closing price to determine
if a shareholder vote is required under Sections 312.03(b) and (c), the
Exchange stated that it is a widespread practice in commercial
transactions involving the issuance of securities to use a five-day
average when pricing transactions to avoid unanticipated and
inequitable results that may occur with use of a single day's closing
price if there is unexpected price volatility.\20\ While the Exchange
noted that there are potential negative consequences to using a five-
day average as the sole measure of whether shareholder approval is
required,\21\ the Exchange stated that it believes that the risks of
using the five-day average closing price are already accepted by the
market, as evidenced by
[[Page 11356]]
the use of an average price in transactions that do not require
shareholder approval, such as those transactions where less than 20% of
the outstanding shares are being issued.\22\ Thus, the Exchange
proposed to define market value as the lower of the most recent closing
price or five-day average closing price.\23\
---------------------------------------------------------------------------
\20\ See id.
\21\ See id.
\22\ See id.
\23\ See id.
---------------------------------------------------------------------------
In conjunction with its proposal to redefine market value for
purposes of determining whether an exception to the shareholder
approval requirements of Sections 312.03(b) and (c) is available, the
Exchange has also proposed to eliminate the current requirement that
the price paid in a Substantial Security Holder Transaction or 20%
Issuance qualifying for such exceptions must not be less than book
value. Currently, as noted above, the Exchange's rules provide
exceptions to the shareholder approval requirements in Sections
312.03(b) and (c) for certain sales of common stock for cash at a price
at least as great as market and book value. Under the proposal,
Substantial Security Holder Transactions and 20% Issuances that
otherwise qualify for the exceptions to the shareholder approval
requirements in Sections 312.03(b) and (c) and are priced below book
value but at or above market value, as defined by the Minimum Price,
would no longer require shareholder approval. In its proposal, the
Exchange stated that book value is an accounting measure that is based
on the historic cost of assets rather than their current value, and
that it believes it is not a meaningful measure of whether a
transaction is dilutive or should otherwise require shareholder
approval.\24\
---------------------------------------------------------------------------
\24\ See id.
---------------------------------------------------------------------------
III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities
exchange.\25\ In particular, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act,\26\ which
requires, among other things, that the rules of a national securities
exchange be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect investors and the
public interest; and are not designed to permit unfair discrimination
between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\25\ 15 U.S.C. 78f(b). In approving this proposed rule change,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\26\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The development and enforcement of meaningful corporate governance
listing standards for a national securities exchange is of substantial
importance to financial markets and the investing public, especially
given investor expectations regarding the nature of companies that have
achieved an exchange listing for their securities. The corporate
governance standards embodied in the listing standards of national
securities exchanges, in particular, play an important role in assuring
that exchange-listed companies observe good governance practices
including safeguarding the interests of shareholders with respect to
certain potentially dilutive transactions.\27\
---------------------------------------------------------------------------
\27\ See, e.g., Securities Exchange Act Release Nos. 84287
(Sept. 26, 2018), 83 FR 49599 (Oct. 2, 2018) (SR-NASDAQ-2018-008)
(approving amendments to change the definition of market value for
purposes of the shareholder approval rule and eliminate the
requirement for shareholder approval of issuances at a price less
than book value but greater than market value); 76814 (Dec. 31,
2015), 81 FR 0820 (Jan. 7, 2016) (SR-NYSE-2015-02) (approving
amendments to the NYSE Listed Company Manual to exempt early stage
companies from having to obtain shareholder approval in certain
circumstances); 48108 (June 30, 2003), 68 FR 39995 (July 3, 2003)
(SR-NYSE-2002-46 and SR-NASD-2002-140) (approving equity
compensation shareholder approval rules of both the NYSE and the
National Association of Securities Dealers, Inc. n/k/a NASDAQ); and
58375 (Aug. 18, 2008), 73 FR 49498 (Aug. 21, 2008) (File No. 10-182)
(order approving registration of BATS Exchange, Inc. noting that
qualitative listing requirements including shareholder approval
rules are designed to ensure that companies trading on a national
securities exchange will adequately protect the interest of public
shareholders).
---------------------------------------------------------------------------
As discussed above, the proposal would, among other things, (i)
change the definition of market value, for purposes of determining
whether exceptions to the shareholder approval requirements under
Sections 312.03(b) and (c) are met, by proposing to use the lower of
the official closing price or five-day average closing price and, as a
result, also remove the prohibition on an average price over a period
of time being used as a measure of market value for purposes of Section
312.03; and (ii) eliminate the requirement for shareholder approval
under Sections 312.03(b) and (c) at a price that is less than book
value but at least as great as market value. The Commission has
carefully considered the proposal and finds that the proposed rule
change is consistent with the Act.
The Commission believes that the proposed change to the
determination of market value (proposed to be defined as ``Minimum
Price''), to use the lower of the official closing price or five-day
average closing price, for determining whether certain exceptions to
the shareholder approval provisions apply to Substantial Security
Holder Transactions in Section 312.03(b) and to 20% Issuances in
Section 312.03(c), is consistent with the Act.\28\ The Commission notes
that, according to the Exchange, the five-day period for establishing
the average closing price is related to the way transactions are
actually structured, in situations where shareholder approval is not
required, to help smooth out price fluctuations.\29\
---------------------------------------------------------------------------
\28\ See infra notes 31--35 and accompanying text for a
discussion of other circumstances that may require shareholder
approval.
\29\ See Notice, supra note 3, at 65380. As noted above, the
rule proposal would also remove an explicit provision in the
Exchange's rules that states that an average price over a period of
time is not acceptable as market value for purposes of the
shareholder approval rules. The removal of this prohibition is
necessary in order for the Exchange to adopt the same five-day
average pricing period that Nasdaq currently uses in its shareholder
approval rules. See infra note 36. In approving the removal of this
prohibition, the Commission notes it is only doing so after finding
that the five-day average pricing period is consistent with the Act.
The deletion of the prohibition is not meant to imply any other
period of time to calculate average pricing would be consistent with
the Act, and any proposal to do so would have to be analyzed on its
own merits pursuant to a proposed rule change under Section 19(b) of
the Act.
---------------------------------------------------------------------------
The Commission believes that the proposal to eliminate the
requirement for shareholder approval under Sections 312.03(b) and (c)
at a price that is less than book value but at least as great as market
value is also consistent with the Act. As noted by the Exchange,\30\
book value may not be an appropriate indicator of whether a transaction
is dilutive for purposes of the Exchange's shareholder approval rule.
---------------------------------------------------------------------------
\30\ See Notice, supra note 3, at 65379.
---------------------------------------------------------------------------
The Commission notes, in approving the changes to measure market
value as the lower of the closing price and five-day average closing
price and eliminate the book value requirement, that the ability of
listed companies to issue securities without shareholder approval
continues to remain limited by other important Exchange rules.\31\ For
[[Page 11357]]
example, the Commission notes that any discounted issuance of stock to
a company's employees, directors, or other service providers would
require shareholder approval under the Exchange's equity compensation
rules.\32\ In addition, shareholder approval would continue to be
required if the issuance resulted in a change of control,\33\ as well
as for certain issuances to Related Parties, such as officers,
directors and their affiliates, among others.\34\ Finally, as discussed
above, Sections 312.03(b) and (c) set forth circumstances under which
shareholder approval would be required, and such approval would
continue to be required under the proposal to the extent that an
issuance would not qualify for the exceptions enumerated in those
rules.\35\
---------------------------------------------------------------------------
\31\ See, e.g., Sections 312.03(a) and (d) of the Manual. The
Commission notes that, under Exchange rules, if shareholder approval
is not required under the requirements in Sections 312.03(b) or (c)
it could still be required under one of the other shareholder
approval provisions in Section 312.03 of the Manual since these
provisions apply independently of each other. See Section 312.04(a)
of the Manual (``Shareholder approval is required if any of the
subparagraphs of Section 312.03 require such approval,
notwithstanding the fact that the transaction does not require
approval under one or more of the other subparagraphs.''). The
Commission notes that the independent application of these
provisions includes the provisions on shareholder approval for
equity compensation plans as set forth in Section 303A.08, as
referenced in Section 312.03(a) of the Manual.
\32\ See Sections 312.03(a) and 303A.08 of the Manual. The
Commission notes that Section 303A.08 uses the term ``fair market
value'' for purposes of determining whether an issuance of stock
would qualify for an exception from the shareholder approval
requirement in Section 303A.08. The Exchange has represented that
for purposes of qualifying for that exception, the Exchange has
always interpreted fair market value as identical to the Official
Closing Price definition proposed to be adopted in Section 312.04,
and, to avoid any potential confusion, the Exchange will submit a
proposed rule filing to amend Section 303A.08 to codify this
interpretation. See Notice, supra note 3, at 65379-80. For any
avoidance of doubt, the Commission notes that the term Minimum
Price, as defined above by the Exchange in its current proposal, is
not applicable to the equity compensation provisions in Section
303A.08 or Section 312.03(a).
\33\ See Section 312.03(d) of the Manual.
\34\ See Section 312.03(b) of the Manual.
\35\ See supra notes 6-9 and accompanying text.
---------------------------------------------------------------------------
The Commission further notes, in approving the changes to measure
market value as the lower of the closing price and five-day average
closing price and eliminate the book value requirement, that the
proposed amendments are similar to the rules of another national
securities exchange that the Commission found consistent with the
Act.\36\
---------------------------------------------------------------------------
\36\ See Securities Exchange Act Release No. 84287 (Sept. 26,
2018), 83 FR 49599 (Oct. 2, 2018) (SR-NASDAQ-2018-008). See also
NASDAQ Rule 5635(d).
---------------------------------------------------------------------------
The Commission believes that the additional proposed amendments and
clarifications to the rule, including to the definition of official
closing price, will add transparency to the Exchange's rules and are
therefore consistent with the Act.\37\
---------------------------------------------------------------------------
\37\ The Commission notes that the Exchange has indicated that
the changes to the definition of Official Closing Price were made to
conform the definition to the language used throughout the rule and
does not have any substantive effect. See supra note 16.
---------------------------------------------------------------------------
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\38\ that the proposed rule change (SR-NYSE-2018-54), be, and it
hereby is, approved.
---------------------------------------------------------------------------
\38\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\39\
---------------------------------------------------------------------------
\39\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-05703 Filed 3-25-19; 8:45 am]
BILLING CODE 8011-01-P
