Self-Regulatory Organizations; Investors Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify the Listing Requirements Contained in Rule 14.412 To Change the Definition of Market Value for Purposes of the Shareholder Approval Rules and Eliminate the Requirement for Shareholder Approval of Issuances at a Price Less Than Book Value but Greater Than Market Value, 15265-15269 [2019-07370]
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Federal Register / Vol. 84, No. 72 / Monday, April 15, 2019 / Notices
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 from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A)(iii) of the Act 8 and
subparagraph (f)(6) of Rule 19b–4
thereunder.9
A proposed rule change filed under
Rule 19b–4(f)(6) 10 normally does not
become operative prior to 30 days after
the date of the filing. However, Rule
19b–4(f)(6)(iii) 11 permits the
Commission to designate a shorter time
if such action is consistent with the
protection of investors and the public
interest. The Exchange has asked the
Commission to waive the 30-day
operative delay so that the proposed
rule change may become effective and
operative immediately upon filing. The
Commission believes that waiving the
30-day operative delay is consistent
with the protection of investors and the
public interest, as it will allow the
current options pilots linked to the Plan
to continue uninterrupted, without any
changes, while the Exchange and the
other national securities exchanges
consider and develop a permanent
proposal for these options pilots. For
this reason, the Commission hereby
waives the 30-day operative delay and
designates the proposed rule change as
operative upon filing.12
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: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
8 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and text of 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.
10 17 CFR 240.19b–4(f)(6).
11 17 CFR 240.19b–4(f)(6)(iii).
12 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
• 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–
PEARL–2019–14 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–PEARL–2019–14. 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–PEARL–2019–14 and
should be submitted on or before May
6, 2019.
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–07367 Filed 4–12–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85566; File No. SR–IEX–
2019–03]
Electronic Comments
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Self-Regulatory Organizations;
Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Modify the
Listing Requirements Contained in
Rule 14.412 To Change the Definition
of Market Value for Purposes of the
Shareholder Approval Rules and
Eliminate the Requirement for
Shareholder Approval of Issuances at
a Price Less Than Book Value but
Greater Than Market Value
April 9, 2019.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that on March 26,
2019, Investors Exchange LLC (‘‘IEX’’ or
the ‘‘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
Pursuant to the provisions of Section
19(b)(1) under the Securities Exchange
Act of 1934 (‘‘Act’’),4 and Rule 19b–4
thereunder,5 IEX is filing with the
Commission a proposed rule change to
modify the listing requirements
contained in IEX Rule 14.412(d) to
change the definition of market value
for purposes of the shareholder approval
rules and to eliminate the requirement
for shareholder approval of issuances at
a price less than book value but greater
than market value. The Exchange has
designated this proposal as noncontroversial and provided the
Commission with the notice required by
13 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
4 15 U.S.C. 78s(b)(1).
5 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 84, No. 72 / Monday, April 15, 2019 / Notices
Rule 19b–4(f)(6)(iii) under the Act.6 The
text of the proposed rule change is
available at the Exchange’s website at
www.iextrading.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 the
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of
and basis for the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of these statement may be examined at
the places specified in Item IV below.
The self-regulatory organization 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 the
Statutory Basis for, the Proposed Rule
Change
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1. Purpose
IEX Rule 14.412(d) requires
shareholder approval for security
issuances for less than the greater of
book or market value (other than in the
context of a public offering) if either (a)
an issuance equals 20% or more of the
outstanding common stock or
outstanding voting power or (b) a
smaller issuance coupled with sales by
officers, directors or substantial
shareholders meets or exceeds the 20%
threshold. IEX Rule 14.002(a)(21)
defines ‘‘market value’’ as the
consolidated closing bid price
(multiplied by the measure to be
valued). As described more fully below,
IEX proposes to amend Rule 14.412(d)
to change the definition of market value
for purposes of the shareholder approval
rules and to eliminate the requirement
for shareholder approval of issuances at
a price less than book value but greater
than market value. This proposed
amendment is substantially similar to
an amendment NASDAQ recently made
to its own shareholder approval
requirements.7
I. Definition of Market Value
IEX Rule 14.412(d) requires an IEXlisted company to obtain shareholder
approval when issuing common stock or
securities convertible into or exercisable
for common stock, which alone or
together with sales by officers, directors
6 17
CFR 240.19b–4(f)(6)(iii).
Exchange Act Release No. 34–84287
(September 26, 2018) (SR–NASDAQ–2018–008); 83
FR 49599 (October 2, 2018).
7 See
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or Substantial Shareholders of the
Company,8 equals 20% or more of the
common shares or 20% or more of the
voting power outstanding at a price less
than the greater of the book value or
market value of that stock. Rule
14.002(a)(21) defines ‘‘market value’’ as
the consolidated closing bid price
(multiplied by the measure to be
valued).
The Exchange believes that the
consolidated closing bid price may not
be transparent to companies and
investors and does not always reflect an
actual price at which a security has
traded. The Exchange also believes that,
generally speaking, the price of an
executed trade is viewed as a more
reliable indicator of value than a bid
quotation, and the more shares
executed, the more reliable the price is
considered. Further, it is the Exchange’s
understanding that in structuring
transactions, investors and companies
often rely on an average price over a
prescribed period of time for pricing
issuances because it can smooth out
unusual fluctuations in price.9
Accordingly, IEX proposes to modify
the measure of market value for
purposes of Rule 14.412(d) from the
consolidated closing bid price to the
lower of: (i) The closing price (as
reflected on iextrading.com)
immediately preceding the signing of a
binding agreement; or (ii) the average
closing price of the common stock (as
reflected on iextrading.com) for the five
trading days immediately preceding the
signing of a binding agreement.
In addition, the ability of an IEXlisted company to issue securities in a
private placement without shareholder
approval will continue to be limited by
other important IEX rules.10 For
example, any discounted issuance of
stock to a company’s officers, directors,
employees, or consultants would
require shareholder approval under the
Exchange’s equity compensation
rules.11 In addition, shareholder
approval would be required if the
issuance resulted in a change of control
and for the acquisition of stock or assets
of another company, including where an
issuance increases voting power or
8 See
IEX Rule 14.412(e)(3).
e.g., Exchange Act Release No. 84287
(September 26, 2018) (SR–NASDAQ–2018–008); 83
FR 49599 (October 2, 2018) at 49601 and Exchange
Act Release No. 84821 (December 14, 2018) (SR–
NYSE–2018–54); 83 FR 65378 (December 20, 2018)
at 65380.
10 See, e.g., IEX Rule 14.412(a), (b) and (c). If
shareholder approval is not required under IEX
Rule 14.412(d) it could still be required under one
of the other shareholder approval provisions of IEX
Rule 14.412 since these provisions apply
independently of each other.
11 See IEX Rule 14.412(c).
9 See,
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common shares by 5% or more and an
officer or director or substantial security
holder has a 5% direct or indirect
interest (or collectively 10%) in the
company or assets to be acquired.12
A. Closing Price
The closing price reported on
iextrading.com is the IEX Official
Closing Price.13 In the case of an IEXlisted security, the IEX Official Closing
Price is the price of the Closing
Auction.14 The IEX closing auction is
designed to gather the maximum
liquidity available for execution at the
close of trading, and to maximize the
number of shares executed at a single
price at the close of the trading day. The
closing auction promotes accurate
closing prices by offering specialized
orders available only during the closing
auction and integrating those orders
with regular orders submitted during
the trading day that are still available at
the close. The closing auction is made
highly transparent to all investors
through the widespread dissemination
of stock-by-stock information about the
closing auction, including the potential
price and size of the closing auction.
IEX believes its closing auction is a
valuable pricing tool for issuers, traders,
and investors alike. For these reasons,
IEX believes that the closing price
reported on iextrading.com is a better
reflection of the market price of a
security than the closing bid price. This
proposal is consistent with the approach
of other exchanges.15
Further, IEX believes it is appropriate
to codify in Rule 14.412(d) that
iextrading.com is the appropriate source
for closing price information in view of
the variety of available market data
sources.16
B. Five-Day Average Price
As noted above, the Exchange
understands that in structuring
12 See
IEX Rule 14.412(a) and (b).
IEX Rules 1.160(v) and 11.350(d)(2)(B).
14 In the event that there is no Closing Auction,
the IEX Official Closing Price will be the price of
the Final Last Sale Eligible Trade. See IEX Rule
11.350(d)(2)(B). See also, IEX Rule 11.350(a)(7)
which defines ‘‘Final Last Sale Eligible Trade’’.
15 See Nasdaq Rule 5635(d)(1) and Section
312.04(i) of the New York Stock Exchange Listed
Company Manual, each of which utilize the closing
price for purposes of determining market value for
purposes of comparable shareholder approval
requirements.
16 The closing price in each IEX-listed security is
published on iextrading.com in near real time and
is available without registration or a fee. IEX does
not currently intend to charge a fee for access to
closing price information or otherwise restrict
availability of this information. In the event that
IEX subsequently determines to do so, it will file
a proposed rule change under Section 19(b) of the
Act with respect to such change and address any
impact to compliance with Rule 14.412(d) thereto.
13 See
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transactions involving the issuance of
securities of a listed company, investors
and companies often rely on an average
price over a prescribed period of time
for pricing issuances because it can
smooth out unusual fluctuations in
price on a single day. However, there
are potential negative consequences to
using a five-day average as the sole
measure of whether shareholder
approval is required. For example, in a
declining market, the five-day average
price will always be above the current
market price, thus making it difficult for
companies to close transactions because
investors could buy shares in the market
at a price below the five-day average
price. Conversely, in a rising market, the
five-day average price will appear to be
a discount to the closing price. In
addition, if material news is announced
during the five-day period, the average
could be a worse reflection of the
market value than the closing price after
the news is disclosed. Nonetheless, IEX
believes that these risks are already
accepted in the market, as evidenced by
the use of an average price in
transactions that do not require
shareholder approval under other
exchanges’ listing rules,17 such as where
less than 20% of the outstanding shares
are issuable in the transaction,
notwithstanding the risk of possible
unfavorable price movements borne by
both the issuer and the purchaser of the
securities during the time between
when the agreement is executed and the
closing of the transaction. However, the
Exchange believes that concerns
regarding the use of solely a five-day
average price are valid, and as such,
proposes to amend Rule 14.412(d) to
define market value as the lower of the
closing price immediately preceding the
signing of the binding agreement or the
five-day average of the closing price as
the measure of market value for
purposes of the shareholder approval
rules. Thus, an issuance would not
require an approval by the company’s
shareholders, so long as it is at a price
that is greater than the lower of those
measures.18 To improve the readability
of the rule, IEX proposes to define this
new concept as the ‘‘Minimum Price’’
17 See e.g., Nasdaq Rule 5635 and Section 312.03
of the NYSE Listed Company Manual.
18 Issuances below Market Value to officers,
directors, employees, or consultants are, and will
continue to be, subject to the requirements of Rule
14.412(c). IEX will continue to use the definition of
Market Value in Rule 14.002(a)(21), which provides
that Market Value means the consolidated closing
bid price multiplied by the measure to be valued,
for purposes of Rule 14.412(c) as well as other IEX
listing rules that include a Market Value
component.
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and eliminate references to book value
and market value from Rule 14.412(d).
II. Book Value
Consistent with the proposed use of
the Minimum Price to determine
whether shareholder approval is
required for an issuance of securities
under Rule 14.412, IEX proposes to
eliminate the requirement for
shareholder approval of issuances at a
price less than book value but greater
than market value. Book value is an
accounting measure and its calculation
is based on the historic cost of assets,
not their current value. As such, the
Exchange does not believe it is an
appropriate measure of whether a
transaction is dilutive or should
otherwise require shareholder approval.
IEX understands that when the market
price is below the book value, the book
value test can appear arbitrary and have
a disproportionate impact on companies
in certain industries and at certain
times. For example, during the financial
crisis in 2008 and 2009, many banks
and finance-related companies
temporarily traded below book value.
Similarly, companies that make large
investments in infrastructure may trade
below the accounting carrying value of
those assets. In these circumstances, the
Exchange believes that companies are
precluded based on purely accounting
reasons from quickly raising capital on
terms that are at or above the market
price. Further, the Exchange is not
aware that shareholders of listed
companies consider book value to be a
material factor when they are asked to
vote to approve a proposed transaction.
III. Other Changes
To improve the readability of Rule
14.412(d) IEX proposes to define ‘‘20%
Issuance’’ as ‘‘a transaction, other than
a public offering as defined in
Supplementary Material .03, involving
the sale, issuance or potential issuance
by the Company of common stock (or
securities convertible into or exercisable
for common stock), which alone or
together with sales by officers, directors
or Substantial Shareholders of the
Company, equals 20% or more of the
common stock or 20% or more of the
voting power outstanding before the
issuance.’’ This definition combines the
situations described in existing Rule
14.412(d)(1) and (d)(2) and makes no
substantive change but for the change to
the pricing tests, as described above,
such that shareholder approval would
be required under the same
circumstances for a 20% Issuance as
under existing Rule 14.412(d).
IEX also proposes to amend the title
of Rule 14.412(d) and the preamble to
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15267
Rule 14.412 to replace references to
‘‘private placements’’ to ‘‘transactions
other than public offerings’’ to conform
the language in the title of Rule
14.412(d) and the preamble to the
language in the rule text and that of
Supplementary Material .03, which
provides the definition of a public
offering. Of course, private placements
would continue to be considered
‘‘transactions other than public
offerings.’’
Finally, IEX proposes to amend
Supplementary Material .03 and .04,
which describe how IEX applies the
shareholder approval requirements, to
conform references to book and market
value with the new definition of
Minimum Price, as described above, and
to utilize the newly defined term ‘‘20%
Issuance.’’
2. Statutory Basis
IEX believes that the proposed rule
change is consistent with Section 6(b) 19
of the Act in general, and furthers the
objectives of Section 6(b)(5) of the Act,20
in particular, in that it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in facilitating
transactions in securities, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system and, in
general, to protect investors and the
public interest; and is not designed to
permit unfair discrimination between
customers, issuers, brokers, or dealers.
Definition of Market Value
The proposed rule change will modify
the minimum price at which a 20%
Issuance would not need shareholder
approval from the closing bid price to
the lower of: (i) The closing price (as
reflected on iextrading.com)
immediately preceding the signing of a
binding agreement; or (ii) the average
closing price of the common stock (as
reflected on iextrading.com) for the five
trading days immediately preceding the
signing of the binding agreement.
IEX believes that allowing issuers to
price transactions at the closing price
(as reflected on iextrading.com) rather
than closing consolidated bid price will
perfect the mechanism of a free and
open market, and protect investors and
the public interest because the closing
price will represent an actual sale at the
most liquid time of the day, which
generally occurs at the same or greater
19 15
20 15
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U.S.C. 78f(b)(5).
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price than the bid price.21 As discussed
in the Purpose section, the closing price
is generally derived from the IEX
closing auction, which is designed to
gather the maximum liquidity available
for execution at the close of trading, and
to maximize the number of shares
executed at a single price at the close of
the trading day. The closing auction is
made highly transparent to all investors
through the widespread dissemination
of stock-by-stock information about the
closing auction, including the potential
price and size of the closing auction.
IEX thus believes its closing auction is
a valuable pricing tool for issuers,
traders, and investors alike. For these
reasons, IEX believes that the closing
price reported on iextrading.com is a
better reflection of the market price of
a security than the closing bid price, for
purposes of determining whether a 20%
Issuance requires shareholder approval,
and is thus consistent with perfecting
the mechanism of a free and open
market, and protection of investors and
the public interest.
Allowing share issuances to be priced
at the five-day average of the closing
price will further align IEX’s
requirements with how many
transactions are structured, such as
transactions where Rule 14.412(d) is not
implicated because the issuance is for
less than 20% of the common stock and
the parties rely on the five-day average
for pricing to smooth out unusual
fluctuations in price. In so doing, the
proposed rule change will perfect the
mechanism of a free and open market.
Further, allowing a five-day average
price continues to protect investors and
the public interest because it will allow
companies and investors to price
transactions in a manner designed to
eliminate aberrant pricing resulting
from unusual transactions on the day of
a transaction. Maintaining the allowable
average at just a five-day period also
protects investors by ensuring the
period is not too long, such that it
would result in the price being distorted
by ordinary past market movements and
other outdated events. In a market that
rises each day of the period, the five-day
average will be less than the price at the
end of the period, but would still be
higher than the price at the start of such
period. Further, IEX understands that
when selecting the appropriate price for
a transaction, company officers and
directors also have to consider their
state law structural safeguards,
including fiduciary responsibilities,
intended to protect shareholder
interests.
21 Sales typically take place between the bid and
ask prices.
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In addition, because prices could be
displayed from numerous data sources
on different websites, to provide
certainty about the appropriate price,
IEX proposes to codify within the rule
that iextrading.com is the appropriate
source of the closing price information,
which is available in near real time and
without registration or fee. Because the
closing bid price is not included in
many public data feeds, this
requirement will promote just and
equitable principles of trade and remove
impediments to and perfect the
mechanism of a free and open market
because it will improve the
transparency of the rule and provide
additional certainty to all market
participants about the appropriate price
to be used in determining if shareholder
approval is required.
Additionally, IEX believes that where
two alternative measures of value exist
that both reasonably approximate the
value of listed securities, defining the
Minimum Price as the lower of those
values allows issuers the flexibility to
use either measure because they can
also sell securities at a price greater than
the Minimum Price without needing
shareholder approval. In the Exchange’s
view, this flexibility, and the certainty
that a transaction can be structured at
either value in a manner that will not
require shareholder approval, further
perfects the mechanism of a free and
open market without diminishing the
existing investor protections of the Rule
14.412(d).
Book Value
IEX also believes that eliminating the
requirement for shareholder approval of
issuances at a price less than book value
but greater than market value does not
diminish the existing investor
protections of Rule 14.412(d). Book
value is primarily an accounting
measure calculated based on historic
cost and is generally perceived as an
inappropriate measure of the current
value of a stock. IEX also understands
that the existing book value test can
appear arbitrary and have a
disproportionate impact on companies
in certain industries and at certain
times. For example, during the financial
crisis in 2008 and 2009, many banks
and finance-related companies traded
below book value. Similarly, companies
that make large investments in
infrastructure may trade below the
accounting carrying value of those
assets. Because the Exchange believes
that book value is not an appropriate
measure of the current value of a stock,
the elimination of the requirement for
shareholder approval of issuances at a
price less than book value but greater
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than market value will remove an
impediment to, and perfect the
mechanism of, a free and open market,
which currently unfairly burdens
companies in certain industries, without
meaningfully diminishing the investor
protections of Rule 14.412(d).
Other Changes
To improve the readability of Rule
14.412(d), IEX proposes to define ‘‘20%
Issuance’’ as ‘‘a transaction, other than
a public offering as defined in
Supplementary Material .03 to Rule
14.412(d), involving the sale, issuance
or potential issuance by the Company of
common stock (or securities convertible
into or exercisable for common stock),
which alone or together with sales by
officers, directors or Substantial
Shareholders of the Company, equals
20% or more of common stock or 20%
or more of the voting power outstanding
before the issuance.’’ This definition
combines the situations described in
existing Rule 14.412(d)(1) and (d)(2) but
makes no substantive change to the
meaning of the rule. Under the proposed
rule, but for the separate change to the
pricing test, shareholder approval
would be required under the same
circumstances for a 20% Issuance as
under existing Rule 14.412(d). IEX
believes that the improved readability of
the rule will perfect the mechanism of
a free and open market by making the
rule easier to understand and apply.
IEX also believes that amending the
title of Rule 14.412(d) and the preamble
to Rule 14.412 to replace references to
‘‘private placements’’ to ‘‘transactions
other than public offerings’’ to conform
to the language in the rule text and
Supplementary Material .03 to Rule
14.412(d), which provides the definition
of a public offering, will perfect the
mechanism of a free and open market by
making the rule easier to understand
and apply. Finally, IEX believes that
amending Supplementary Material .03
and .04 to Rule 14.412, which describe
how IEX applies the shareholder
approval requirements, to conform
references to book and market value
with the new definition of Minimum
Price, as described above, and to utilize
the newly defined term ‘‘20% Issuance’’
will perfect the mechanism of a free and
open market by eliminating confusion
caused by references to a measure that
is no longer applicable and by making
the rule easier to understand and apply.
The Exchange also notes that the
proposed rule change is substantially
identical to existing Nasdaq rules that
were approved by the Commission.22
The Exchange believes that the same
22 See
E:\FR\FM\15APN1.SGM
supra note 7.
15APN1
Federal Register / Vol. 84, No. 72 / Monday, April 15, 2019 / Notices
factors and analysis that led to the
Commission’s approval of the
comparable Nasdaq rule change are
applicable to IEX’s proposed rule
change. Consequently, the Exchange
does not believe that the proposed rule
change raises any new or novel issues.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
IEX does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed rule change is designed to
promote consistent and fair regulation,
rather than for any competitive purpose.
The proposed rule change would revise
requirements that could burden issuers
by unnecessarily limiting the
circumstances where they can sell
securities without shareholder approval.
With respect to intramarket
competition, all listed companies would
be affected in the same manner by these
changes. With respect to intermarket
competition, the Exchange does not
believe that the proposed change will
result in a burden on competition since
other listing exchanges have comparable
rules and listed companies have a
choice of where to list. As such, these
changes are neither intended to, nor
expected to, impose any burden on
competition.
amozie on DSK9F9SC42PROD with NOTICES
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
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A) of the Act 23 and Rule 19b–
4(f)(6) thereunder.24 Because the
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 from the date on which it
was filed, or such shorter time as the
Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act and Rule 19b–
4(f)(6) thereunder.25
23 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
25 In addition, Rule 19b–4(f)(6)(iii) requires a selfregulatory 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
24 17
VerDate Sep<11>2014
17:16 Apr 12, 2019
Jkt 247001
At any time within 60 days of the
filing of such 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.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• 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–
IEX–2019–03 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–IEX–2019–03. 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 such
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–IEX–2019–03, and should
be submitted on or before May 6, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–07370 Filed 4–12–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85564; File No. SR–
NYSEAMER–2019–14]
Self-Regulatory Organizations; NYSE
American LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Extend the Pilot
Related to Rule 7.12E, Trading Halts
Due to Extraordinary Market Volatility
April 9, 2019.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that on April 5,
2019, NYSE American LLC (‘‘NYSE
American’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to extend the
pilot related to Rule 7.12E, Trading
Halts Due to Extraordinary Market
Volatility, to the close of business on
October 18, 2019. The proposed rule
change is available on the Exchange’s
website at www.nyse.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
self-regulatory organization included
26 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
shorter time as designated by the Commission. The
Exchange has satisfied this requirement.
PO 00000
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]]>Agencies
[Federal Register Volume 84, Number 72 (Monday, April 15, 2019)]
[Notices]
[Pages 15265-15269]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-07370]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85566; File No. SR-IEX-2019-03]
Self-Regulatory Organizations; Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Modify
the Listing Requirements Contained in Rule 14.412 To Change the
Definition of Market Value for Purposes of the Shareholder Approval
Rules and Eliminate the Requirement for Shareholder Approval of
Issuances at a Price Less Than Book Value but Greater Than Market Value
April 9, 2019.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that on March 26, 2019, Investors Exchange LLC (``IEX'' or the
``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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Pursuant to the provisions of Section 19(b)(1) under the Securities
Exchange Act of 1934 (``Act''),\4\ and Rule 19b-4 thereunder,\5\ IEX is
filing with the Commission a proposed rule change to modify the listing
requirements contained in IEX Rule 14.412(d) to change the definition
of market value for purposes of the shareholder approval rules and to
eliminate the requirement for shareholder approval of issuances at a
price less than book value but greater than market value. The Exchange
has designated this proposal as non-controversial and provided the
Commission with the notice required by
[[Page 15266]]
Rule 19b-4(f)(6)(iii) under the Act.\6\ The text of the proposed rule
change is available at the Exchange's website at www.iextrading.com, at
the principal office of the Exchange, and at the Commission's Public
Reference Room.
---------------------------------------------------------------------------
\4\ 15 U.S.C. 78s(b)(1).
\5\ 17 CFR 240.19b-4.
\6\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------
II. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of and basis for the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of these statement may be examined at
the places specified in Item IV below. The self-regulatory organization
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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
IEX Rule 14.412(d) requires shareholder approval for security
issuances for less than the greater of book or market value (other than
in the context of a public offering) if either (a) an issuance equals
20% or more of the outstanding common stock or outstanding voting power
or (b) a smaller issuance coupled with sales by officers, directors or
substantial shareholders meets or exceeds the 20% threshold. IEX Rule
14.002(a)(21) defines ``market value'' as the consolidated closing bid
price (multiplied by the measure to be valued). As described more fully
below, IEX proposes to amend Rule 14.412(d) to change the definition of
market value for purposes of the shareholder approval rules and to
eliminate the requirement for shareholder approval of issuances at a
price less than book value but greater than market value. This proposed
amendment is substantially similar to an amendment NASDAQ recently made
to its own shareholder approval requirements.\7\
---------------------------------------------------------------------------
\7\ See Exchange Act Release No. 34-84287 (September 26, 2018)
(SR-NASDAQ-2018-008); 83 FR 49599 (October 2, 2018).
---------------------------------------------------------------------------
I. Definition of Market Value
IEX Rule 14.412(d) requires an IEX-listed company to obtain
shareholder approval when issuing common stock or securities
convertible into or exercisable for common stock, which alone or
together with sales by officers, directors or Substantial Shareholders
of the Company,\8\ equals 20% or more of the common shares or 20% or
more of the voting power outstanding at a price less than the greater
of the book value or market value of that stock. Rule 14.002(a)(21)
defines ``market value'' as the consolidated closing bid price
(multiplied by the measure to be valued).
---------------------------------------------------------------------------
\8\ See IEX Rule 14.412(e)(3).
---------------------------------------------------------------------------
The Exchange believes that the consolidated closing bid price may
not be transparent to companies and investors and does not always
reflect an actual price at which a security has traded. The Exchange
also believes that, generally speaking, the price of an executed trade
is viewed as a more reliable indicator of value than a bid quotation,
and the more shares executed, the more reliable the price is
considered. Further, it is the Exchange's understanding that in
structuring transactions, investors and companies often rely on an
average price over a prescribed period of time for pricing issuances
because it can smooth out unusual fluctuations in price.\9\
Accordingly, IEX proposes to modify the measure of market value for
purposes of Rule 14.412(d) from the consolidated closing bid price to
the lower of: (i) The closing price (as reflected on iextrading.com)
immediately preceding the signing of a binding agreement; or (ii) the
average closing price of the common stock (as reflected on
iextrading.com) for the five trading days immediately preceding the
signing of a binding agreement.
---------------------------------------------------------------------------
\9\ See, e.g., Exchange Act Release No. 84287 (September 26,
2018) (SR-NASDAQ-2018-008); 83 FR 49599 (October 2, 2018) at 49601
and Exchange Act Release No. 84821 (December 14, 2018) (SR-NYSE-
2018-54); 83 FR 65378 (December 20, 2018) at 65380.
---------------------------------------------------------------------------
In addition, the ability of an IEX-listed company to issue
securities in a private placement without shareholder approval will
continue to be limited by other important IEX rules.\10\ For example,
any discounted issuance of stock to a company's officers, directors,
employees, or consultants would require shareholder approval under the
Exchange's equity compensation rules.\11\ In addition, shareholder
approval would be required if the issuance resulted in a change of
control and for the acquisition of stock or assets of another company,
including where an issuance increases voting power or common shares by
5% or more and an officer or director or substantial security holder
has a 5% direct or indirect interest (or collectively 10%) in the
company or assets to be acquired.\12\
---------------------------------------------------------------------------
\10\ See, e.g., IEX Rule 14.412(a), (b) and (c). If shareholder
approval is not required under IEX Rule 14.412(d) it could still be
required under one of the other shareholder approval provisions of
IEX Rule 14.412 since these provisions apply independently of each
other.
\11\ See IEX Rule 14.412(c).
\12\ See IEX Rule 14.412(a) and (b).
---------------------------------------------------------------------------
A. Closing Price
The closing price reported on iextrading.com is the IEX Official
Closing Price.\13\ In the case of an IEX-listed security, the IEX
Official Closing Price is the price of the Closing Auction.\14\ The IEX
closing auction is designed to gather the maximum liquidity available
for execution at the close of trading, and to maximize the number of
shares executed at a single price at the close of the trading day. The
closing auction promotes accurate closing prices by offering
specialized orders available only during the closing auction and
integrating those orders with regular orders submitted during the
trading day that are still available at the close. The closing auction
is made highly transparent to all investors through the widespread
dissemination of stock-by-stock information about the closing auction,
including the potential price and size of the closing auction. IEX
believes its closing auction is a valuable pricing tool for issuers,
traders, and investors alike. For these reasons, IEX believes that the
closing price reported on iextrading.com is a better reflection of the
market price of a security than the closing bid price. This proposal is
consistent with the approach of other exchanges.\15\
---------------------------------------------------------------------------
\13\ See IEX Rules 1.160(v) and 11.350(d)(2)(B).
\14\ In the event that there is no Closing Auction, the IEX
Official Closing Price will be the price of the Final Last Sale
Eligible Trade. See IEX Rule 11.350(d)(2)(B). See also, IEX Rule
11.350(a)(7) which defines ``Final Last Sale Eligible Trade''.
\15\ See Nasdaq Rule 5635(d)(1) and Section 312.04(i) of the New
York Stock Exchange Listed Company Manual, each of which utilize the
closing price for purposes of determining market value for purposes
of comparable shareholder approval requirements.
---------------------------------------------------------------------------
Further, IEX believes it is appropriate to codify in Rule 14.412(d)
that iextrading.com is the appropriate source for closing price
information in view of the variety of available market data
sources.\16\
---------------------------------------------------------------------------
\16\ The closing price in each IEX-listed security is published
on iextrading.com in near real time and is available without
registration or a fee. IEX does not currently intend to charge a fee
for access to closing price information or otherwise restrict
availability of this information. In the event that IEX subsequently
determines to do so, it will file a proposed rule change under
Section 19(b) of the Act with respect to such change and address any
impact to compliance with Rule 14.412(d) thereto.
---------------------------------------------------------------------------
B. Five-Day Average Price
As noted above, the Exchange understands that in structuring
[[Page 15267]]
transactions involving the issuance of securities of a listed company,
investors and companies often rely on an average price over a
prescribed period of time for pricing issuances because it can smooth
out unusual fluctuations in price on a single day. However, there are
potential negative consequences to using a five-day average as the sole
measure of whether shareholder approval is required. For example, in a
declining market, the five-day average price will always be above the
current market price, thus making it difficult for companies to close
transactions because investors could buy shares in the market at a
price below the five-day average price. Conversely, in a rising market,
the five-day average price will appear to be a discount to the closing
price. In addition, if material news is announced during the five-day
period, the average could be a worse reflection of the market value
than the closing price after the news is disclosed. Nonetheless, IEX
believes that these risks are already accepted in the market, as
evidenced by the use of an average price in transactions that do not
require shareholder approval under other exchanges' listing rules,\17\
such as where less than 20% of the outstanding shares are issuable in
the transaction, notwithstanding the risk of possible unfavorable price
movements borne by both the issuer and the purchaser of the securities
during the time between when the agreement is executed and the closing
of the transaction. However, the Exchange believes that concerns
regarding the use of solely a five-day average price are valid, and as
such, proposes to amend Rule 14.412(d) to define market value as the
lower of the closing price immediately preceding the signing of the
binding agreement or the five-day average of the closing price as the
measure of market value for purposes of the shareholder approval rules.
Thus, an issuance would not require an approval by the company's
shareholders, so long as it is at a price that is greater than the
lower of those measures.\18\ To improve the readability of the rule,
IEX proposes to define this new concept as the ``Minimum Price'' and
eliminate references to book value and market value from Rule
14.412(d).
---------------------------------------------------------------------------
\17\ See e.g., Nasdaq Rule 5635 and Section 312.03 of the NYSE
Listed Company Manual.
\18\ Issuances below Market Value to officers, directors,
employees, or consultants are, and will continue to be, subject to
the requirements of Rule 14.412(c). IEX will continue to use the
definition of Market Value in Rule 14.002(a)(21), which provides
that Market Value means the consolidated closing bid price
multiplied by the measure to be valued, for purposes of Rule
14.412(c) as well as other IEX listing rules that include a Market
Value component.
---------------------------------------------------------------------------
II. Book Value
Consistent with the proposed use of the Minimum Price to determine
whether shareholder approval is required for an issuance of securities
under Rule 14.412, IEX proposes to eliminate the requirement for
shareholder approval of issuances at a price less than book value but
greater than market value. Book value is an accounting measure and its
calculation is based on the historic cost of assets, not their current
value. As such, the Exchange does not believe it is an appropriate
measure of whether a transaction is dilutive or should otherwise
require shareholder approval. IEX understands that when the market
price is below the book value, the book value test can appear arbitrary
and have a disproportionate impact on companies in certain industries
and at certain times. For example, during the financial crisis in 2008
and 2009, many banks and finance-related companies temporarily traded
below book value. Similarly, companies that make large investments in
infrastructure may trade below the accounting carrying value of those
assets. In these circumstances, the Exchange believes that companies
are precluded based on purely accounting reasons from quickly raising
capital on terms that are at or above the market price. Further, the
Exchange is not aware that shareholders of listed companies consider
book value to be a material factor when they are asked to vote to
approve a proposed transaction.
III. Other Changes
To improve the readability of Rule 14.412(d) IEX proposes to define
``20% Issuance'' as ``a transaction, other than a public offering as
defined in Supplementary Material .03, involving the sale, issuance or
potential issuance by the Company of common stock (or securities
convertible into or exercisable for common stock), which alone or
together with sales by officers, directors or Substantial Shareholders
of the Company, equals 20% or more of the common stock or 20% or more
of the voting power outstanding before the issuance.'' This definition
combines the situations described in existing Rule 14.412(d)(1) and
(d)(2) and makes no substantive change but for the change to the
pricing tests, as described above, such that shareholder approval would
be required under the same circumstances for a 20% Issuance as under
existing Rule 14.412(d).
IEX also proposes to amend the title of Rule 14.412(d) and the
preamble to Rule 14.412 to replace references to ``private placements''
to ``transactions other than public offerings'' to conform the language
in the title of Rule 14.412(d) and the preamble to the language in the
rule text and that of Supplementary Material .03, which provides the
definition of a public offering. Of course, private placements would
continue to be considered ``transactions other than public offerings.''
Finally, IEX proposes to amend Supplementary Material .03 and .04,
which describe how IEX applies the shareholder approval requirements,
to conform references to book and market value with the new definition
of Minimum Price, as described above, and to utilize the newly defined
term ``20% Issuance.''
2. Statutory Basis
IEX believes that the proposed rule change is consistent with
Section 6(b) \19\ of the Act in general, and furthers the objectives of
Section 6(b)(5) of the Act,\20\ in particular, in that it is designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system and, in general, to
protect investors and the public interest; and is not designed to
permit unfair discrimination between customers, issuers, brokers, or
dealers.
---------------------------------------------------------------------------
\19\ 15 U.S.C. 78f.
\20\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Definition of Market Value
The proposed rule change will modify the minimum price at which a
20% Issuance would not need shareholder approval from the closing bid
price to the lower of: (i) The closing price (as reflected on
iextrading.com) immediately preceding the signing of a binding
agreement; or (ii) the average closing price of the common stock (as
reflected on iextrading.com) for the five trading days immediately
preceding the signing of the binding agreement.
IEX believes that allowing issuers to price transactions at the
closing price (as reflected on iextrading.com) rather than closing
consolidated bid price will perfect the mechanism of a free and open
market, and protect investors and the public interest because the
closing price will represent an actual sale at the most liquid time of
the day, which generally occurs at the same or greater
[[Page 15268]]
price than the bid price.\21\ As discussed in the Purpose section, the
closing price is generally derived from the IEX closing auction, which
is designed to gather the maximum liquidity available for execution at
the close of trading, and to maximize the number of shares executed at
a single price at the close of the trading day. The closing auction is
made highly transparent to all investors through the widespread
dissemination of stock-by-stock information about the closing auction,
including the potential price and size of the closing auction. IEX thus
believes its closing auction is a valuable pricing tool for issuers,
traders, and investors alike. For these reasons, IEX believes that the
closing price reported on iextrading.com is a better reflection of the
market price of a security than the closing bid price, for purposes of
determining whether a 20% Issuance requires shareholder approval, and
is thus consistent with perfecting the mechanism of a free and open
market, and protection of investors and the public interest.
---------------------------------------------------------------------------
\21\ Sales typically take place between the bid and ask prices.
---------------------------------------------------------------------------
Allowing share issuances to be priced at the five-day average of
the closing price will further align IEX's requirements with how many
transactions are structured, such as transactions where Rule 14.412(d)
is not implicated because the issuance is for less than 20% of the
common stock and the parties rely on the five-day average for pricing
to smooth out unusual fluctuations in price. In so doing, the proposed
rule change will perfect the mechanism of a free and open market.
Further, allowing a five-day average price continues to protect
investors and the public interest because it will allow companies and
investors to price transactions in a manner designed to eliminate
aberrant pricing resulting from unusual transactions on the day of a
transaction. Maintaining the allowable average at just a five-day
period also protects investors by ensuring the period is not too long,
such that it would result in the price being distorted by ordinary past
market movements and other outdated events. In a market that rises each
day of the period, the five-day average will be less than the price at
the end of the period, but would still be higher than the price at the
start of such period. Further, IEX understands that when selecting the
appropriate price for a transaction, company officers and directors
also have to consider their state law structural safeguards, including
fiduciary responsibilities, intended to protect shareholder interests.
In addition, because prices could be displayed from numerous data
sources on different websites, to provide certainty about the
appropriate price, IEX proposes to codify within the rule that
iextrading.com is the appropriate source of the closing price
information, which is available in near real time and without
registration or fee. Because the closing bid price is not included in
many public data feeds, this requirement will promote just and
equitable principles of trade and remove impediments to and perfect the
mechanism of a free and open market because it will improve the
transparency of the rule and provide additional certainty to all market
participants about the appropriate price to be used in determining if
shareholder approval is required.
Additionally, IEX believes that where two alternative measures of
value exist that both reasonably approximate the value of listed
securities, defining the Minimum Price as the lower of those values
allows issuers the flexibility to use either measure because they can
also sell securities at a price greater than the Minimum Price without
needing shareholder approval. In the Exchange's view, this flexibility,
and the certainty that a transaction can be structured at either value
in a manner that will not require shareholder approval, further
perfects the mechanism of a free and open market without diminishing
the existing investor protections of the Rule 14.412(d).
Book Value
IEX also believes that eliminating the requirement for shareholder
approval of issuances at a price less than book value but greater than
market value does not diminish the existing investor protections of
Rule 14.412(d). Book value is primarily an accounting measure
calculated based on historic cost and is generally perceived as an
inappropriate measure of the current value of a stock. IEX also
understands that the existing book value test can appear arbitrary and
have a disproportionate impact on companies in certain industries and
at certain times. For example, during the financial crisis in 2008 and
2009, many banks and finance-related companies traded below book value.
Similarly, companies that make large investments in infrastructure may
trade below the accounting carrying value of those assets. Because the
Exchange believes that book value is not an appropriate measure of the
current value of a stock, the elimination of the requirement for
shareholder approval of issuances at a price less than book value but
greater than market value will remove an impediment to, and perfect the
mechanism of, a free and open market, which currently unfairly burdens
companies in certain industries, without meaningfully diminishing the
investor protections of Rule 14.412(d).
Other Changes
To improve the readability of Rule 14.412(d), IEX proposes to
define ``20% Issuance'' as ``a transaction, other than a public
offering as defined in Supplementary Material .03 to Rule 14.412(d),
involving the sale, issuance or potential issuance by the Company of
common stock (or securities convertible into or exercisable for common
stock), which alone or together with sales by officers, directors or
Substantial Shareholders of the Company, equals 20% or more of common
stock or 20% or more of the voting power outstanding before the
issuance.'' This definition combines the situations described in
existing Rule 14.412(d)(1) and (d)(2) but makes no substantive change
to the meaning of the rule. Under the proposed rule, but for the
separate change to the pricing test, shareholder approval would be
required under the same circumstances for a 20% Issuance as under
existing Rule 14.412(d). IEX believes that the improved readability of
the rule will perfect the mechanism of a free and open market by making
the rule easier to understand and apply.
IEX also believes that amending the title of Rule 14.412(d) and the
preamble to Rule 14.412 to replace references to ``private placements''
to ``transactions other than public offerings'' to conform to the
language in the rule text and Supplementary Material .03 to Rule
14.412(d), which provides the definition of a public offering, will
perfect the mechanism of a free and open market by making the rule
easier to understand and apply. Finally, IEX believes that amending
Supplementary Material .03 and .04 to Rule 14.412, which describe how
IEX applies the shareholder approval requirements, to conform
references to book and market value with the new definition of Minimum
Price, as described above, and to utilize the newly defined term ``20%
Issuance'' will perfect the mechanism of a free and open market by
eliminating confusion caused by references to a measure that is no
longer applicable and by making the rule easier to understand and
apply.
The Exchange also notes that the proposed rule change is
substantially identical to existing Nasdaq rules that were approved by
the Commission.\22\ The Exchange believes that the same
[[Page 15269]]
factors and analysis that led to the Commission's approval of the
comparable Nasdaq rule change are applicable to IEX's proposed rule
change. Consequently, the Exchange does not believe that the proposed
rule change raises any new or novel issues.
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\22\ See supra note 7.
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B. Self-Regulatory Organization's Statement on Burden on Competition
IEX does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The proposed rule change is
designed to promote consistent and fair regulation, rather than for any
competitive purpose. The proposed rule change would revise requirements
that could burden issuers by unnecessarily limiting the circumstances
where they can sell securities without shareholder approval. With
respect to intramarket competition, all listed companies would be
affected in the same manner by these changes. With respect to
intermarket competition, the Exchange does not believe that the
proposed change will result in a burden on competition since other
listing exchanges have comparable rules and listed companies have a
choice of where to list. As such, these changes are neither intended
to, nor expected to, impose any burden on competition.
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
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A) of the Act \23\ and Rule 19b-4(f)(6) thereunder.\24\
Because the 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 from the date on which it was filed, or such shorter time as the
Commission may designate, it has become effective pursuant to Section
19(b)(3)(A) of the Act and Rule 19b-4(f)(6) thereunder.\25\
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\23\ 15 U.S.C. 78s(b)(3)(A)(iii).
\24\ 17 CFR 240.19b-4(f)(6).
\25\ In addition, Rule 19b-4(f)(6)(iii) 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.
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At any time within 60 days of the filing of such 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.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-IEX-2019-03 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-IEX-2019-03. 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 such 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-IEX-2019-03, and should be submitted on
or before May 6, 2019.
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\26\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-07370 Filed 4-12-19; 8:45 am]
BILLING CODE 8011-01-P
