Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt New Section 312.03T of the NYSE Listed Company Manual To Provide a Temporary Exception Through June 30, 2020 From the Application of Certain Shareholder Approval Requirements Set Forth in Sections 312.03 and 303A.08 of the Manual, 30755-30759 [2020-10818]
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Federal Register / Vol. 85, No. 98 / Wednesday, May 20, 2020 / Notices
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–NYSEAMER–2020–35 and
should be submitted on or before June
10, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.23
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–10813 Filed 5–19–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88875; File No. SR–NYSE–
2020–43]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Adopt New
Section 312.03T of the NYSE Listed
Company Manual To Provide a
Temporary Exception Through June
30, 2020 From the Application of
Certain Shareholder Approval
Requirements Set Forth in Sections
312.03 and 303A.08 of the Manual
May 14, 2020.
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 May 13,
2020, New York Stock Exchange LLC
(‘‘NYSE’’ or the ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I 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 [sic] new
Section 312.03T of the NYSE Listed
Company Manual (the ‘‘Manual’’) to
23 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.
17:51 May 19, 2020
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes new Section
312.03T of the Manual to provide a
temporary exception through June 30,
2020 from the application of certain of
the shareholder approval requirements
under Sections 312.03 and 303A.08 as
described below.
The U.S. and global economies have
experienced unprecedented disruption
as a result of the ongoing spread of
COVID–19, including severe limitations
on companies’ ability to operate their
businesses, dramatic market declines
and volatility in the U.S. and global
equity markets, and severe disruption in
the credit markets. Many listed
companies are experiencing urgent
liquidity needs during this period of
crisis due to lost revenues and maturing
debt obligations. In these circumstances,
listed companies frequently need to
access additional capital that may not be
available in the public equity or credit
markets.
In response to this unprecedented
emergency and to facilitate companies
in quickly accessing necessary capital,
the Exchange proposes to temporarily
modify certain of its shareholder
approval requirements for share
issuances.4 Specifically, the Exchange
4 The Exchange waived certain of the
requirements under Section 312.03 through June 30,
2020 pursuant to an earlier rule filing. Specifically,
the Exchange waived: (i) The provision in Section
1 15
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provide a temporary exception through
June 30, 2020 from the application of
certain of the shareholder approval
requirements set forth in Sections
312.03 and 303A.08 of the Manual. 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.
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30755
proposes to adopt Section 312.03T to
provide a limited temporary, exception
to the shareholder approval
requirements in Section (c) 5 and, in
certain narrow circumstances, a limited
exception to 312.03(b) 6 and the
312.03(b) limiting a Related Party or other
purchaser affiliated with a Related Party to
purchasing securities representing no more than 5%
of the company’s then-outstanding shares or 5% of
the company’s voting power before the issuance in
a transaction meeting the Minimum Price Test; and
(ii) certain of the requirements for meeting the Bona
Fide Financing exception to Section 312.03(c) (i.e.,
the requirements that there must be multiple
purchasers in the transaction and that no purchaser
may acquire securities representing more than 5%
of the company’s then-outstanding shares or 5% of
its voting power before the issuance). See Exchange
Act Release No. 34–88572 (April 6, 2020); 85 FR
20323 (April 10, 2020) (SR–NYSE–2020–30).
5 Section 312.03(c) requires 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. However, shareholder approval will
not be required for any such issuance involving:
Any public offering for cash; any bona fide private
financing, if such financing involves a sale of:
Common stock, for cash, at a price at least as great
as the Minimum Price; or securities convertible into
or exercisable for common stock, for cash, if the
conversion or exercise price is at least as great as
the Minimum Price.
Section 312.04(i) defines the Minimum Price as
follows: ‘‘Minimum Price’’ means a price that is the
lower of: (i) The Official Closing Price immediately
preceding the signing of the binding agreement; or
(ii) the average Official Closing Price for the five
trading days immediately preceding the signing of
the binding agreement. Section 312.04(j) defines the
Official Closing Price as follows: ‘‘Official Closing
Price’’ of the issuer’s common stock means the
official closing price on the Exchange as reported
to the Consolidated Tape immediately preceding
the signing of a binding agreement to issue the
securities. For example, if the transaction is signed
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 signed at any time between the close
of the regular session on Monday and the close if
the regular session on Tuesday, then Monday’s
official closing price is used.
6 Section 312.03(b) of the Manual requires
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: (1) A director,
officer or substantial security holder of the
company (each a ‘‘Related Party’’); (2) a subsidiary,
affiliate or other closely-related person of a Related
Party; or (3) 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.
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requirements with respect to equity
compensation set forth in Sections
312.03(a) and 303A.08 of the Manual.7
Difficulties Posed by Shareholder
Approval Requirements in Current
Crisis
One unavoidable consequence of the
actions being taken to reduce the spread
of COVID–19 is a reduction, or complete
interruption, in revenue for many
companies. For example, many
communities have mandated that all
restaurants and entertainment facilities
close for a period of time. Similarly,
companies in the travel sector have seen
significant declines in bookings even if
they are allowed to continue to operate.
Thus, these businesses have no or
greatly reduced revenue to offset the
operating costs or increased costs
associated with the crisis. As such,
investors may be reluctant to enter into
new equity transactions, unless they are
compensated for the risk through
discounts to the trading price of a
security, and companies may be forced
by current circumstances to raise money
through equity financings that require
shareholder approval under the
Exchange’s rules. At the same time,
other companies have sudden,
unexpected cash needs as they
undertake new or accelerated initiatives
designed to address the loss of business
and supply shortages caused by COVID–
19.
While an exception is currently
available under Section 312.05 of the
Manual for companies in financial
distress where the delay in securing
stockholder approval would seriously
jeopardize the financial viability of the
company, that exception is not helpful
in most situations arising from the
COVID–19 pandemic.8 For example,
However, if the Related Party involved in the
transaction is classified as such solely because such
person is a substantial security holder, and if the
issuance relates to a sale of stock for cash at a price
at least as great as the Minimum Price, then
shareholder approval will 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.
Section 312.03(b) includes an exemption for
companies that meet the Exchange’s definition of an
Early Stage Company.
7 Section 303A.08 requires shareholder approval,
with certain exceptions, prior to the issuance of
securities when a stock option or purchase plan is
to be established or materially amended or other
equity compensation arrangement made or
materially amended, pursuant to which stock may
be acquired by officers, directors, employees, or
consultants. Section 312.03(a) incorporates the
requirements of Section 303A.08 into Section
312.03.
8 Section 312.05 provides as follows: Exceptions
may be made to the shareholder approval policy in
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17:51 May 19, 2020
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while a company may need additional
cash so that it can continue to pay
employees during a period of decreased
or no revenue, the company’s viability
may not otherwise be in jeopardy.
Further, the accelerated need for funds,
as well as the significantly curtailed
operations of many businesses, may
make impractical the requirement to
mail notice to all shareholders.
Proposed COVID–19 Exception
In light of the difficulties experienced
by certain listed companies during the
current crisis, the Exchange proposes a
limited, temporary exception from the
shareholder approval requirements in
Section 312.03(c), accompanied, in
certain narrow circumstances, by a
limited exception from Sections
312.03(a) and (b) and Section 303A.08.
This proposed exception in Section
312.03T would be available until and
including June 30, 2020. To rely on this
exception, the company must submit
the related supplemental listing
application and certification pursuant to
Section 312.03T(b)(5)(A) (as described
below) and obtain the Exchange’s
approval of its utilization of the
exception pursuant to Section
312.03T(b)(5)(B) (as described below)
and thereafter sign a binding agreement
no later than June 30, 2020. If the
company satisfies such conditions, the
issuance of the securities governed by
such agreement in reliance on the
exception in Section 312.03T may occur
after June 30, 2020, provided the
issuance takes place no later than 30
calendar days following the date of the
binding agreement. If the company does
not issue securities within 30 calendar
days, as described above, it may no
longer rely on the exception in Section
312.03T.
Under proposed Section 312.03T, the
exception would be limited to
circumstances where the delay in
securing shareholder approval would (i)
have a material adverse impact on the
company’s ability to maintain
operations under its pre-COVID–19
business plan; (ii) result in workforce
reductions; (iii) adversely impact the
company’s ability to undertake new
initiatives in response to COVID–19; or
Para. 312.03 upon application to the Exchange
when (1) the delay in securing stockholder approval
would seriously jeopardize the financial viability of
the enterprise and (2) reliance by the company on
this exception is expressly approved by the Audit
Committee of the Board. A company relying on this
exception must mail to all shareholders not later
than 10 days before issuance of the securities a
letter alerting them to its omission to seek the
shareholder approval that would otherwise be
required under the policy of the Exchange and
indicating that the Audit Committee of the Board
has expressly approved the exception.
PO 00000
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(iv) seriously jeopardize the financial
viability of the enterprise. In addition to
demonstrating that the transaction
meets one of the foregoing requirements,
the company would have to
demonstrate to the Exchange that the
need for the transaction is due to
circumstances related to COVID–19, that
the proceeds would not be used to fund
any acquisition transaction, and that the
company undertook a process designed
to ensure that the proposed transaction
represents the best terms available to the
company. The Exchange also proposes,
similar to the requirement for the
financial viability exception, to require
that the company’s audit committee or
a comparable committee comprised
solely of independent, disinterested
directors expressly approve reliance on
this exception. The Exchange also
proposes to require such committee or
a comparable committee comprised
solely of independent, disinterested
directors to determine that the
transaction is in the best interest of
shareholders.9
The company must submit a
supplemental listing application as
required by Section 703.01(part one)(A)
in relation to the applicable transaction
along with a certification to the
Exchange that it complies with all
requirements of Section 312.03T(b) (and
Section 312.03T(c) if applicable) and
describing with specificity how it
complies. In such certification, the
Exchange expects such company to
describe with specificity how it
complies with Section 312.03T(b) and
(c), if applicable. The Exchange must
approve all transactions by
countersigned application in advance of
any issuance of securities in reliance on
Section 312.03T and such approval of a
company’s reliance on the exception
will be based on a review of whether the
company has established that it
complies with the requirements of
Section 312.03T(b) (and Section
312.03T(c) if applicable). Given the fact
that the Exchange must undertake a
detailed review before approving any
use of this exception, the Exchange
advises companies to commence
discussions with the Exchange and
provide the required documentation as
far in advance of the proposed
transaction as is possible.
Section 312.03T(e) will provide that
issuances pursuant to Section 312.03T
must comply with all other
requirements of applicable Exchange
rules, except as provided for therein.
9 The Exchange notes that the proposed relief will
not override any requirements arising under
applicable laws or a company’s own governance
documents that would otherwise require a company
to obtain shareholder approval for a transaction.
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Such requirements include the
shareholder approval requirements in
Sections 312.03(b) and (c) in relation to
issuances other than sales of securities
for cash, the change of control provision
of Section 312.03(d) and the equity
compensation requirements set forth in
sections 312.03(a) and 303A.08 subject
to the limited exceptions set forth
therein. In addition, funds raised from
the issuance of securities pursuant to
Section 312.03T may not be used to
fund acquisition transactions.
To provide shareholders with advance
notice of the transaction, the Exchange
proposes Section 312.03T(d), which
would require a company relying on the
proposed exception to make a public
announcement by filing a Form 8–K,
where required by SEC rules, or by
issuing a press release disclosing as
promptly as possible, but no later than
two business days before the issuance of
the securities:
• The terms of the transaction
(including the number of shares of
common stock that could be issued and
the consideration received);
• that shareholder approval would
ordinarily be required under Exchange
shareholder approval rules; and
• that the audit committee or a
comparable committee comprised solely
of independent, disinterested directors
expressly approved reliance on the
exception and determined that the
transaction is in the best interest of
shareholders.10
In addition to the limitations on
issuances to related parties set forth in
Section 312.03(b), the Exchange has
long interpreted Section 303A.08 to
require shareholder approval for certain
sales to officers, directors, employees, or
consultants when such issuances could
be considered a form of ‘‘equity
compensation.’’ The Exchange has
heard from market participants that
investors often require a company’s
senior management to put their personal
capital at risk and participate in a
capital raising transaction alongside the
unaffiliated investors. The Exchange
believes that as a result of uncertainty
related to the ongoing spread of the
COVID–19 virus, listed companies
seeking to raise capital may face such
requests. Accordingly, the Exchange
proposes that the temporary exception
allow such investments under limited
circumstances.
To that end, the Exchange proposes
Section 312.03T(c), which would
provide for an exception from
10 See Section 312.05 requiring similar disclosure,
for a transaction for which a company relied on the
financial viability exception, alerting shareholders
to the omission to seek the shareholder approval
that would otherwise be required.
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17:51 May 19, 2020
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shareholder approval under Sections
312.03(b) and Sections 312.03(a) and
303A.08 for participation in the
transaction described in Section
312.03T(b) by any person whose
participation would otherwise be
subject to shareholder approval under
Section 312.03(b) or Sections 312.03(a)
and 303A.08 (an ‘‘Affiliated
Purchaser’’), provided the Affiliated
Purchaser’s participation in the
transaction was specifically required by
unaffiliated investors. In addition, to
further protect against self-dealing,
proposed Section 312.03T(c) would
limit such participation to a de-minimis
level—each Affiliated Purchaser’s
participation must be less than 5% of
the transaction and all Affiliated
Purchasers’ participation collectively
must be less than 10% of the
transaction. Finally, any Affiliated
Purchaser investing in the transaction
must not have participated in
negotiating the economic terms of the
transaction.
Finally, the Exchange proposes to
aggregate issuances of securities in
reliance on the exception in Section
312.03T with any subsequent issuance
by the company, other than a public
offering for cash, at a discount to the
Minimum Price 11 if the binding
agreement governing the subsequent
issuance is executed within 90 days of
the prior issuance. Accordingly, if,
following the subsequent issuance, the
aggregate issuance (including shares
issued in reliance on the exception)
equals or exceeds 20% of the total
shares or the voting power outstanding
before the initial issuance, then
shareholder approval would be required
under Section 312.03(c) before the
issuance can occur.
2. Statutory Basis
The proposed rule change is
consistent with Section 6(b) of the
Act,12 in general, and furthers the
objectives of Section 6(b)(5) of the Act,13
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 the public interest
and the interests of investors, and
because it is not designed to permit
11 See footnote 6 [sic] supra for the definition of
Minimum Price.
12 15 U.S.C. 78f(b).
13 15 U.S.C. 78f(b)(5).
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unfair discrimination between
customers, issuers, brokers, or dealers.
As a result of uncertainty related to the
ongoing spread of the COVID–19 virus,
the prices of securities listed on U.S.
exchanges are experiencing significant
volatility. The Exchange believes that
the proposed rule change is designed to
remove an impediment to companies
addressing certain immediate capital
needs as a result of the COVID–19
pandemic and reduce uncertainty
regarding the ability of companies to
raise money quickly through equity
financings during the current highly
unusual market conditions and general
economic disruptions. The Exchange
believes that in this way, the proposed
rule change will protect investors,
facilitate transactions in securities, and
remove an impediment to a free and
open market. All companies listed on
the Exchange would be eligible to take
advantage of the proposed rule.
In addition, the Exchange believes the
proposed rule change is designed to
protect investors by limiting the
exception from the shareholder
approval requirements to situations
where the need for the transaction is
due to circumstances related to COVID–
19 and the proceeds will not be used to
fund any acquisition transactions [sic]
that the company undertook a process
designed to ensure that the proposed
transaction represents the best terms
available to the company. The exception
is also limited to circumstances where
the delay in securing shareholder
approval would (i) have a material
adverse impact on the company’s ability
to maintain operations under its
preCOVID–19 business plan; (ii) result
in workforce reductions; (iii) adversely
impact the company’s ability to
undertake new initiatives in response to
COVID–19; or (iv) seriously jeopardize
the financial viability of the enterprise.
Further, the proposed rule requires that
the company’s audit committee or a
comparable committee comprised solely
of independent, disinterested directors
expressly approve reliance on this
exception and determine that the
transaction is in the best interest of
shareholders.
Notwithstanding the proposed
exception from certain shareholder
approval requirements, as described
above, important investor protections
will remain as the proposed exception
would not be available for the
shareholder approval requirements
related to equity compensation in
Section 312.03(a) and Section 303A.08
(except for the limited circumstances
described above for insider participation
in transactions covered by the proposed
exception), transactions other than sales
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of securities for cash under Sections
312.03(b) and (c) and a change of
control under Section 312.03(d). In
addition, funds raised from the issuance
of securities pursuant to Section
312.03T may not be used to fund
acquisition transactions.
Finally, the Exchange notes that the
proposed rule is a temporary exception
from certain shareholder approval
requirements, as described above,
operative through, and including, June
30, 2020.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. All
companies listed on the Exchange
would be eligible to take advantage of
the proposed rule. In addition, the
proposed rule change is not designed to
have any effect on intermarket
competition but instead seeks to address
concerns the Exchange has observed
surrounding the application of the
shareholder approval requirements, as
described above, to companies listed on
the Exchange. Other exchanges can craft
relief based on their own rules and
observations.14
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
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) of the Act 15 and Rule 19b–
4(f)(6) thereunder.16
14 Nasdaq has already adopted relief under its
comparable shareholder approval requirements. See
SR–NASDAQ–2020–025.
15 15 U.S.C. 78s(b)(3)(A).
16 17 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.
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A proposed rule change filed under
Rule 19b–4(f)(6) 17 normally does not
become operative for 30 days after the
date of the filing. However, pursuant to
Rule 19b–4(f)(6)(iii),18 the Commission
may 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
operative immediately upon filing. The
Exchange stated that waiver of the
operative delay would allow companies
to quickly raise money through equity
financings to maintain operations, avoid
jeopardizing its financial viability,
compensate its workforce, or undertake
new initiatives in response to COVID–
19 during the current highly unusual
market and economic conditions and
ongoing uncertainty relating to the
global spread of the COVID–19 virus. In
addition, the Exchange stated that the
proposed exception from the
shareholder approval requirements is
limited to situations where the need for
the transaction is due to circumstances
related to COVID–19, the proceeds will
not be used to fund any acquisition
transactions, and the company
undertook a process designed to ensure
that the proposed transaction represents
the best terms available to the company.
The Exchange stated that the proposed
exception is further limited to
circumstances where the delay in
securing shareholder approval would (i)
have a material adverse impact on the
company’s ability to maintain
operations under its pre-COVID–19
business plan; (ii) result in workforce
reductions; (iii) adversely impact the
company’s ability to undertake new
initiatives in response to COVID–19; or
(iv) seriously jeopardize the financial
viability of the enterprise. The Exchange
also noted that the proposed rule
requires that the company’s audit
committee or a comparable committee
comprised solely of independent,
disinterested directors expressly
approve reliance on this exception and
determine that the transaction is in the
best interest of shareholders. Finally,
the Exchange stated that the proposed
exception would not be available for the
shareholder approval requirements
related to equity compensation in in
Sections 312.02(a) and 303A.08 (except
for the limited circumstances described
above for insider participation in
transactions covered by the proposed
exception), transactions other than sales
of securities for cash under Sections
312.03(b) and (c) and a change of
17 17
18 17
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CFR 240.19b–4(f)(6).
CFR 240.19b–4(f)(6)(iii).
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Sfmt 4703
control under Section 312.03(d). In
addition, funds raised from the issuance
of securities pursuant to Section
312.03T may not be used to fund
acquisition transactions.
The Commission notes that while the
proposed rule change would provide a
temporary exception to certain
shareholder approval requirements, it is
limited to situations where the need for
the transaction is related to COVID–19
circumstances and the proceeds will not
be used to fund any acquisition
transaction, and only where the delay in
obtaining shareholder approval meets
one of the four specified conditions for
the transaction set forth in the
temporary rule and described above. In
addition, the Commission notes that
there are important investor protections
built into the proposed temporary rule.
For example, the Exchange must
approve all transactions in advance of
any issuance of securities in reliance on
Section 312.03T and the Exchange has
stated that it will undertake a detailed
review of whether the company has
established that it complies with the
requirements of Section 312.03T(b) (and
Section 312.03T(c) if applicable) before
approving any use of the exception.
Additionally, the exception from the
shareholder approval requirements is
limited to situations where the company
undertook a process designed to ensure
that the proposed transaction represents
the best terms available to the company.
The proposed rule change also requires
that the company’s audit committee or
a comparable committee comprised
solely of independent, disinterested
directors expressly approve reliance on
the exception and determine that the
transaction is in the best interest of
shareholders. Further, the Commission
notes that shareholder approval would
continue to be required for transactions
that do not qualify for the proposed
temporary exception, such as for equity
compensation (Sections 312.02(a) and
303A.08), except for the limited
circumstances described above for
insider participation in transactions
covered by the proposed exception);
transactions other than sales of
securities for cash under Sections
312.03(b) and (c); a change of control
under Section 312.03(d). In addition,
funds raised from the issuance of
securities pursuant to Section 312.03T
may not be used to fund acquisition
transactions. Therefore, securities
issued to raise capital to fund an
acquisition would be subject, as such
transactions currently are, to any
applicable Exchange shareholder
approval requirements. The
Commission also notes that the proposal
E:\FR\FM\20MYN1.SGM
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Federal Register / Vol. 85, No. 98 / Wednesday, May 20, 2020 / Notices
is a temporary measure designed to
allow companies to raise necessary
capital quickly in response to current,
unusual market conditions. For these
reasons, the Commission believes that
waiver of the 30-day operative delay is
consistent with the protection of
investors and the public interest.
Accordingly, the Commission hereby
waives the 30-day operative delay and
designates the proposal operative upon
filing.19
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. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 20 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
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–NYSE–2020–43 and should
be submitted on or before June 10, 2020.
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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.21
J. Matthew DeLesDernier,
Assistant Secretary.
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–
NYSE–2020–43 on the subject line.
SECURITIES AND EXCHANGE
COMMISSION
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–NYSE–2020–43. 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
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736.
19 For purposes only of waiving the 30-day
operative delay, the Commission has considered the
proposed rule change’s impact on efficiency,
competition, and capital formation. See 15 U.S.C.
78c(f).
20 15 U.S.C. 78s(b)(2)(B).
VerDate Sep<11>2014
17:51 May 19, 2020
Jkt 250001
[FR Doc. 2020–10818 Filed 5–19–20; 8:45 am]
BILLING CODE 8011–01–P
[SEC File No. 270–087, OMB Control No.
3235–0078]
Proposed Collection; Comment
Request
Extension:
Rule 15c3–3
Notice is hereby given that pursuant
to the Paperwork Reduction Act of 1995
(‘‘PRA’’) (44 U.S.C. 3501 et seq.), the
Securities and Exchange Commission
(‘‘Commission’’) is soliciting comments
on the existing collection of information
provided for in Rule 15c3–3 (17 CFR
240.15c3–3), under the Securities
Exchange Act of 1934 (15 U.S.C. 78a et
seq.). The Commission plans to submit
this existing collection of information to
the Office of Management and Budget
(‘‘OMB’’) for extension and approval.
Furthermore, notice is given regarding
new collections of information that were
21 17
PO 00000
CFR 200.30–3(a)(12).
Frm 00078
Fmt 4703
Sfmt 4703
30759
previously proposed in Rule 18a–4
(OMB No. 3235–0700) and that are
being moved to this Rule 15c3–3 (OMB
No. 3235–0078) based on comments
received during the rulemaking process.
With respect to the extension of the
previously approved collection of
information, Rule 15c3–3 requires that a
broker-dealer that holds customer
securities obtain and maintain
possession and control of fully-paid and
excess margin securities they hold for
customers. In addition, the Rule
requires that a broker-dealer that holds
customer funds make either a weekly or
monthly computation to determine
whether certain customer funds need to
be segregated in a special reserve bank
account for the exclusive benefit of the
firm’s customers. It also requires that a
broker-dealer maintain a written
notification from each bank where a
Special Reserve Bank Account is held
acknowledging that all assets in the
account are for the exclusive benefit of
the broker-dealer’s customers, and to
provide written notification to the
Commission (and its designated
examining authority) under certain,
specified circumstances. Finally, brokerdealers that sell securities futures
products (‘‘SFP’’) to customers must
provide certain notifications to
customers and make a record of any
changes of account type.
A broker-dealer required to maintain
the Special Reserve Bank Account
prescribed by Rule 15c3–3 must obtain
and retain a written notification from
each bank in which it has a Special
Reserve Bank Account to evidence the
bank’s acknowledgement that assets
deposited in the Account are being held
by the bank for the exclusive benefit of
the broker-dealer’s customers. In
addition, a broker-dealer must
immediately notify the Commission and
its designated examining authority if it
fails to make a required deposit to its
Special Reserve Bank Account. Finally,
a broker-dealer that effects transactions
in SFPs for customers also will have
paperwork burdens to make a record of
each change in account type.
The Commission staff estimates a total
annual time burden of approximately
625,490 hours and a total annual cost
burden of approximately $1,440,513 to
comply with the existing information
collection requirements of the rule.
With respect to the new collections of
information, in 2019, the Commission
adopted amendments to establish
segregation and notice requirements for
broker-dealers with respect to their
security-based swap activity. The
Commission staff estimates a total
annual time burden of approximately
96,601 hours and a total annual cost
E:\FR\FM\20MYN1.SGM
20MYN1
]]>Agencies
[Federal Register Volume 85, Number 98 (Wednesday, May 20, 2020)]
[Notices]
[Pages 30755-30759]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-10818]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88875; File No. SR-NYSE-2020-43]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Adopt New Section 312.03T of the NYSE Listed Company Manual To Provide
a Temporary Exception Through June 30, 2020 From the Application of
Certain Shareholder Approval Requirements Set Forth in Sections 312.03
and 303A.08 of the Manual
May 14, 2020.
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 May 13, 2020, New York Stock Exchange LLC (``NYSE'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I 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
The Exchange proposes to [sic] new Section 312.03T of the NYSE
Listed Company Manual (the ``Manual'') to provide a temporary exception
through June 30, 2020 from the application of certain of the
shareholder approval requirements set forth in Sections 312.03 and
303A.08 of the Manual. 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 statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes new Section 312.03T of the Manual to provide
a temporary exception through June 30, 2020 from the application of
certain of the shareholder approval requirements under Sections 312.03
and 303A.08 as described below.
The U.S. and global economies have experienced unprecedented
disruption as a result of the ongoing spread of COVID-19, including
severe limitations on companies' ability to operate their businesses,
dramatic market declines and volatility in the U.S. and global equity
markets, and severe disruption in the credit markets. Many listed
companies are experiencing urgent liquidity needs during this period of
crisis due to lost revenues and maturing debt obligations. In these
circumstances, listed companies frequently need to access additional
capital that may not be available in the public equity or credit
markets.
In response to this unprecedented emergency and to facilitate
companies in quickly accessing necessary capital, the Exchange proposes
to temporarily modify certain of its shareholder approval requirements
for share issuances.\4\ Specifically, the Exchange proposes to adopt
Section 312.03T to provide a limited temporary, exception to the
shareholder approval requirements in Section (c) \5\ and, in certain
narrow circumstances, a limited exception to 312.03(b) \6\ and the
[[Page 30756]]
requirements with respect to equity compensation set forth in Sections
312.03(a) and 303A.08 of the Manual.\7\
---------------------------------------------------------------------------
\4\ The Exchange waived certain of the requirements under
Section 312.03 through June 30, 2020 pursuant to an earlier rule
filing. Specifically, the Exchange waived: (i) The provision in
Section 312.03(b) limiting a Related Party or other purchaser
affiliated with a Related Party to purchasing securities
representing no more than 5% of the company's then-outstanding
shares or 5% of the company's voting power before the issuance in a
transaction meeting the Minimum Price Test; and (ii) certain of the
requirements for meeting the Bona Fide Financing exception to
Section 312.03(c) (i.e., the requirements that there must be
multiple purchasers in the transaction and that no purchaser may
acquire securities representing more than 5% of the company's then-
outstanding shares or 5% of its voting power before the issuance).
See Exchange Act Release No. 34-88572 (April 6, 2020); 85 FR 20323
(April 10, 2020) (SR-NYSE-2020-30).
\5\ Section 312.03(c) requires 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. However, shareholder approval will not be required for any
such issuance involving: Any public offering for cash; any bona fide
private financing, if such financing involves a sale of: Common
stock, for cash, at a price at least as great as the Minimum Price;
or securities convertible into or exercisable for common stock, for
cash, if the conversion or exercise price is at least as great as
the Minimum Price.
Section 312.04(i) defines the Minimum Price as follows:
``Minimum Price'' means a price that is the lower of: (i) The
Official Closing Price immediately preceding the signing of the
binding agreement; or (ii) the average Official Closing Price for
the five trading days immediately preceding the signing of the
binding agreement. Section 312.04(j) defines the Official Closing
Price as follows: ``Official Closing Price'' of the issuer's common
stock means the official closing price on the Exchange as reported
to the Consolidated Tape immediately preceding the signing of a
binding agreement to issue the securities. For example, if the
transaction is signed 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 signed at any time
between the close of the regular session on Monday and the close if
the regular session on Tuesday, then Monday's official closing price
is used.
\6\ Section 312.03(b) of the Manual requires 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: (1) A director, officer or
substantial security holder of the company (each a ``Related
Party''); (2) a subsidiary, affiliate or other closely-related
person of a Related Party; or (3) 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. However, if the Related Party involved in the
transaction is classified as such solely because such person is a
substantial security holder, and if the issuance relates to a sale
of stock for cash at a price at least as great as the Minimum Price,
then shareholder approval will 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. Section 312.03(b) includes an exemption for companies
that meet the Exchange's definition of an Early Stage Company.
\7\ Section 303A.08 requires shareholder approval, with certain
exceptions, prior to the issuance of securities when a stock option
or purchase plan is to be established or materially amended or other
equity compensation arrangement made or materially amended, pursuant
to which stock may be acquired by officers, directors, employees, or
consultants. Section 312.03(a) incorporates the requirements of
Section 303A.08 into Section 312.03.
---------------------------------------------------------------------------
Difficulties Posed by Shareholder Approval Requirements in Current
Crisis
One unavoidable consequence of the actions being taken to reduce
the spread of COVID-19 is a reduction, or complete interruption, in
revenue for many companies. For example, many communities have mandated
that all restaurants and entertainment facilities close for a period of
time. Similarly, companies in the travel sector have seen significant
declines in bookings even if they are allowed to continue to operate.
Thus, these businesses have no or greatly reduced revenue to offset the
operating costs or increased costs associated with the crisis. As such,
investors may be reluctant to enter into new equity transactions,
unless they are compensated for the risk through discounts to the
trading price of a security, and companies may be forced by current
circumstances to raise money through equity financings that require
shareholder approval under the Exchange's rules. At the same time,
other companies have sudden, unexpected cash needs as they undertake
new or accelerated initiatives designed to address the loss of business
and supply shortages caused by COVID-19.
While an exception is currently available under Section 312.05 of
the Manual for companies in financial distress where the delay in
securing stockholder approval would seriously jeopardize the financial
viability of the company, that exception is not helpful in most
situations arising from the COVID-19 pandemic.\8\ For example, while a
company may need additional cash so that it can continue to pay
employees during a period of decreased or no revenue, the company's
viability may not otherwise be in jeopardy. Further, the accelerated
need for funds, as well as the significantly curtailed operations of
many businesses, may make impractical the requirement to mail notice to
all shareholders.
---------------------------------------------------------------------------
\8\ Section 312.05 provides as follows: Exceptions may be made
to the shareholder approval policy in Para. 312.03 upon application
to the Exchange when (1) the delay in securing stockholder approval
would seriously jeopardize the financial viability of the enterprise
and (2) reliance by the company on this exception is expressly
approved by the Audit Committee of the Board. A company relying on
this exception must mail to all shareholders not later than 10 days
before issuance of the securities a letter alerting them to its
omission to seek the shareholder approval that would otherwise be
required under the policy of the Exchange and indicating that the
Audit Committee of the Board has expressly approved the exception.
---------------------------------------------------------------------------
Proposed COVID-19 Exception
In light of the difficulties experienced by certain listed
companies during the current crisis, the Exchange proposes a limited,
temporary exception from the shareholder approval requirements in
Section 312.03(c), accompanied, in certain narrow circumstances, by a
limited exception from Sections 312.03(a) and (b) and Section 303A.08.
This proposed exception in Section 312.03T would be available until and
including June 30, 2020. To rely on this exception, the company must
submit the related supplemental listing application and certification
pursuant to Section 312.03T(b)(5)(A) (as described below) and obtain
the Exchange's approval of its utilization of the exception pursuant to
Section 312.03T(b)(5)(B) (as described below) and thereafter sign a
binding agreement no later than June 30, 2020. If the company satisfies
such conditions, the issuance of the securities governed by such
agreement in reliance on the exception in Section 312.03T may occur
after June 30, 2020, provided the issuance takes place no later than 30
calendar days following the date of the binding agreement. If the
company does not issue securities within 30 calendar days, as described
above, it may no longer rely on the exception in Section 312.03T.
Under proposed Section 312.03T, the exception would be limited to
circumstances where the delay in securing shareholder approval would
(i) have a material adverse impact on the company's ability to maintain
operations under its pre-COVID-19 business plan; (ii) result in
workforce reductions; (iii) adversely impact the company's ability to
undertake new initiatives in response to COVID-19; or (iv) seriously
jeopardize the financial viability of the enterprise. In addition to
demonstrating that the transaction meets one of the foregoing
requirements, the company would have to demonstrate to the Exchange
that the need for the transaction is due to circumstances related to
COVID-19, that the proceeds would not be used to fund any acquisition
transaction, and that the company undertook a process designed to
ensure that the proposed transaction represents the best terms
available to the company. The Exchange also proposes, similar to the
requirement for the financial viability exception, to require that the
company's audit committee or a comparable committee comprised solely of
independent, disinterested directors expressly approve reliance on this
exception. The Exchange also proposes to require such committee or a
comparable committee comprised solely of independent, disinterested
directors to determine that the transaction is in the best interest of
shareholders.\9\
---------------------------------------------------------------------------
\9\ The Exchange notes that the proposed relief will not
override any requirements arising under applicable laws or a
company's own governance documents that would otherwise require a
company to obtain shareholder approval for a transaction.
---------------------------------------------------------------------------
The company must submit a supplemental listing application as
required by Section 703.01(part one)(A) in relation to the applicable
transaction along with a certification to the Exchange that it complies
with all requirements of Section 312.03T(b) (and Section 312.03T(c) if
applicable) and describing with specificity how it complies. In such
certification, the Exchange expects such company to describe with
specificity how it complies with Section 312.03T(b) and (c), if
applicable. The Exchange must approve all transactions by countersigned
application in advance of any issuance of securities in reliance on
Section 312.03T and such approval of a company's reliance on the
exception will be based on a review of whether the company has
established that it complies with the requirements of Section
312.03T(b) (and Section 312.03T(c) if applicable). Given the fact that
the Exchange must undertake a detailed review before approving any use
of this exception, the Exchange advises companies to commence
discussions with the Exchange and provide the required documentation as
far in advance of the proposed transaction as is possible.
Section 312.03T(e) will provide that issuances pursuant to Section
312.03T must comply with all other requirements of applicable Exchange
rules, except as provided for therein.
[[Page 30757]]
Such requirements include the shareholder approval requirements in
Sections 312.03(b) and (c) in relation to issuances other than sales of
securities for cash, the change of control provision of Section
312.03(d) and the equity compensation requirements set forth in
sections 312.03(a) and 303A.08 subject to the limited exceptions set
forth therein. In addition, funds raised from the issuance of
securities pursuant to Section 312.03T may not be used to fund
acquisition transactions.
To provide shareholders with advance notice of the transaction, the
Exchange proposes Section 312.03T(d), which would require a company
relying on the proposed exception to make a public announcement by
filing a Form 8-K, where required by SEC rules, or by issuing a press
release disclosing as promptly as possible, but no later than two
business days before the issuance of the securities:
The terms of the transaction (including the number of
shares of common stock that could be issued and the consideration
received);
that shareholder approval would ordinarily be required
under Exchange shareholder approval rules; and
that the audit committee or a comparable committee
comprised solely of independent, disinterested directors expressly
approved reliance on the exception and determined that the transaction
is in the best interest of shareholders.\10\
---------------------------------------------------------------------------
\10\ See Section 312.05 requiring similar disclosure, for a
transaction for which a company relied on the financial viability
exception, alerting shareholders to the omission to seek the
shareholder approval that would otherwise be required.
---------------------------------------------------------------------------
In addition to the limitations on issuances to related parties set
forth in Section 312.03(b), the Exchange has long interpreted Section
303A.08 to require shareholder approval for certain sales to officers,
directors, employees, or consultants when such issuances could be
considered a form of ``equity compensation.'' The Exchange has heard
from market participants that investors often require a company's
senior management to put their personal capital at risk and participate
in a capital raising transaction alongside the unaffiliated investors.
The Exchange believes that as a result of uncertainty related to the
ongoing spread of the COVID-19 virus, listed companies seeking to raise
capital may face such requests. Accordingly, the Exchange proposes that
the temporary exception allow such investments under limited
circumstances.
To that end, the Exchange proposes Section 312.03T(c), which would
provide for an exception from shareholder approval under Sections
312.03(b) and Sections 312.03(a) and 303A.08 for participation in the
transaction described in Section 312.03T(b) by any person whose
participation would otherwise be subject to shareholder approval under
Section 312.03(b) or Sections 312.03(a) and 303A.08 (an ``Affiliated
Purchaser''), provided the Affiliated Purchaser's participation in the
transaction was specifically required by unaffiliated investors. In
addition, to further protect against self-dealing, proposed Section
312.03T(c) would limit such participation to a de-minimis level--each
Affiliated Purchaser's participation must be less than 5% of the
transaction and all Affiliated Purchasers' participation collectively
must be less than 10% of the transaction. Finally, any Affiliated
Purchaser investing in the transaction must not have participated in
negotiating the economic terms of the transaction.
Finally, the Exchange proposes to aggregate issuances of securities
in reliance on the exception in Section 312.03T with any subsequent
issuance by the company, other than a public offering for cash, at a
discount to the Minimum Price \11\ if the binding agreement governing
the subsequent issuance is executed within 90 days of the prior
issuance. Accordingly, if, following the subsequent issuance, the
aggregate issuance (including shares issued in reliance on the
exception) equals or exceeds 20% of the total shares or the voting
power outstanding before the initial issuance, then shareholder
approval would be required under Section 312.03(c) before the issuance
can occur.
---------------------------------------------------------------------------
\11\ See footnote 6 [sic] supra for the definition of Minimum
Price.
---------------------------------------------------------------------------
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Act,\12\ in general, and furthers the objectives of Section 6(b)(5) of
the Act,\13\ 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 the
public interest and the interests of investors, and because it is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers. As a result of uncertainty related to the ongoing
spread of the COVID-19 virus, the prices of securities listed on U.S.
exchanges are experiencing significant volatility. The Exchange
believes that the proposed rule change is designed to remove an
impediment to companies addressing certain immediate capital needs as a
result of the COVID-19 pandemic and reduce uncertainty regarding the
ability of companies to raise money quickly through equity financings
during the current highly unusual market conditions and general
economic disruptions. The Exchange believes that in this way, the
proposed rule change will protect investors, facilitate transactions in
securities, and remove an impediment to a free and open market. All
companies listed on the Exchange would be eligible to take advantage of
the proposed rule.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
In addition, the Exchange believes the proposed rule change is
designed to protect investors by limiting the exception from the
shareholder approval requirements to situations where the need for the
transaction is due to circumstances related to COVID-19 and the
proceeds will not be used to fund any acquisition transactions [sic]
that the company undertook a process designed to ensure that the
proposed transaction represents the best terms available to the
company. The exception is also limited to circumstances where the delay
in securing shareholder approval would (i) have a material adverse
impact on the company's ability to maintain operations under its
preCOVID-19 business plan; (ii) result in workforce reductions; (iii)
adversely impact the company's ability to undertake new initiatives in
response to COVID-19; or (iv) seriously jeopardize the financial
viability of the enterprise. Further, the proposed rule requires that
the company's audit committee or a comparable committee comprised
solely of independent, disinterested directors expressly approve
reliance on this exception and determine that the transaction is in the
best interest of shareholders.
Notwithstanding the proposed exception from certain shareholder
approval requirements, as described above, important investor
protections will remain as the proposed exception would not be
available for the shareholder approval requirements related to equity
compensation in Section 312.03(a) and Section 303A.08 (except for the
limited circumstances described above for insider participation in
transactions covered by the proposed exception), transactions other
than sales
[[Page 30758]]
of securities for cash under Sections 312.03(b) and (c) and a change of
control under Section 312.03(d). In addition, funds raised from the
issuance of securities pursuant to Section 312.03T may not be used to
fund acquisition transactions.
Finally, the Exchange notes that the proposed rule is a temporary
exception from certain shareholder approval requirements, as described
above, operative through, and including, June 30, 2020.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. All companies listed on the
Exchange would be eligible to take advantage of the proposed rule. In
addition, the proposed rule change is not designed to have any effect
on intermarket competition but instead seeks to address concerns the
Exchange has observed surrounding the application of the shareholder
approval requirements, as described above, to companies listed on the
Exchange. Other exchanges can craft relief based on their own rules and
observations.\14\
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\14\ Nasdaq has already adopted relief under its comparable
shareholder approval requirements. See SR-NASDAQ-2020-025.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
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) of the Act \15\ and Rule 19b-
4(f)(6) thereunder.\16\
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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 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.
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A proposed rule change filed under Rule 19b-4(f)(6) \17\ normally
does not become operative for 30 days after the date of the filing.
However, pursuant to Rule 19b-4(f)(6)(iii),\18\ the Commission may
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 operative immediately upon filing. The Exchange
stated that waiver of the operative delay would allow companies to
quickly raise money through equity financings to maintain operations,
avoid jeopardizing its financial viability, compensate its workforce,
or undertake new initiatives in response to COVID-19 during the current
highly unusual market and economic conditions and ongoing uncertainty
relating to the global spread of the COVID-19 virus. In addition, the
Exchange stated that the proposed exception from the shareholder
approval requirements is limited to situations where the need for the
transaction is due to circumstances related to COVID-19, the proceeds
will not be used to fund any acquisition transactions, and the company
undertook a process designed to ensure that the proposed transaction
represents the best terms available to the company. The Exchange stated
that the proposed exception is further limited to circumstances where
the delay in securing shareholder approval would (i) have a material
adverse impact on the company's ability to maintain operations under
its pre-COVID-19 business plan; (ii) result in workforce reductions;
(iii) adversely impact the company's ability to undertake new
initiatives in response to COVID-19; or (iv) seriously jeopardize the
financial viability of the enterprise. The Exchange also noted that the
proposed rule requires that the company's audit committee or a
comparable committee comprised solely of independent, disinterested
directors expressly approve reliance on this exception and determine
that the transaction is in the best interest of shareholders. Finally,
the Exchange stated that the proposed exception would not be available
for the shareholder approval requirements related to equity
compensation in in Sections 312.02(a) and 303A.08 (except for the
limited circumstances described above for insider participation in
transactions covered by the proposed exception), transactions other
than sales of securities for cash under Sections 312.03(b) and (c) and
a change of control under Section 312.03(d). In addition, funds raised
from the issuance of securities pursuant to Section 312.03T may not be
used to fund acquisition transactions.
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\17\ 17 CFR 240.19b-4(f)(6).
\18\ 17 CFR 240.19b-4(f)(6)(iii).
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The Commission notes that while the proposed rule change would
provide a temporary exception to certain shareholder approval
requirements, it is limited to situations where the need for the
transaction is related to COVID-19 circumstances and the proceeds will
not be used to fund any acquisition transaction, and only where the
delay in obtaining shareholder approval meets one of the four specified
conditions for the transaction set forth in the temporary rule and
described above. In addition, the Commission notes that there are
important investor protections built into the proposed temporary rule.
For example, the Exchange must approve all transactions in advance of
any issuance of securities in reliance on Section 312.03T and the
Exchange has stated that it will undertake a detailed review of whether
the company has established that it complies with the requirements of
Section 312.03T(b) (and Section 312.03T(c) if applicable) before
approving any use of the exception. Additionally, the exception from
the shareholder approval requirements is limited to situations where
the company undertook a process designed to ensure that the proposed
transaction represents the best terms available to the company. The
proposed rule change also requires that the company's audit committee
or a comparable committee comprised solely of independent,
disinterested directors expressly approve reliance on the exception and
determine that the transaction is in the best interest of shareholders.
Further, the Commission notes that shareholder approval would continue
to be required for transactions that do not qualify for the proposed
temporary exception, such as for equity compensation (Sections
312.02(a) and 303A.08), except for the limited circumstances described
above for insider participation in transactions covered by the proposed
exception); transactions other than sales of securities for cash under
Sections 312.03(b) and (c); a change of control under Section
312.03(d). In addition, funds raised from the issuance of securities
pursuant to Section 312.03T may not be used to fund acquisition
transactions. Therefore, securities issued to raise capital to fund an
acquisition would be subject, as such transactions currently are, to
any applicable Exchange shareholder approval requirements. The
Commission also notes that the proposal
[[Page 30759]]
is a temporary measure designed to allow companies to raise necessary
capital quickly in response to current, unusual market conditions. For
these reasons, the Commission believes that waiver of the 30-day
operative delay is consistent with the protection of investors and the
public interest. Accordingly, the Commission hereby waives the 30-day
operative delay and designates the proposal operative upon filing.\19\
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\19\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule change's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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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. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \20\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\20\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
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-NYSE-2020-43 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-NYSE-2020-43. 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-NYSE-2020-43 and should be submitted on
or before June 10, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-10818 Filed 5-19-20; 8:45 am]
BILLING CODE 8011-01-P
