Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change To Amend NYSE Arca Rule 5.3-E to Exempt Issuers of Certain Derivative and Special Purpose Securities From Having To Obtain Shareholder Approval Prior to the Issuance of Securities in Connection With Certain Acquisitions of the Stock or Assets of an Affiliated Company, 58090-58093 [2020-20474]
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12. Director Independence. No
Independent Director (including the
non-interested members of each
Independent Party) of a Regulated Fund
will also be a director, general partner,
managing member or principal, or
otherwise be an ‘‘affiliated person’’ (as
defined in the Act) of any Affiliated
Fund.
13. Expenses. The expenses, if any,
associated with acquiring, holding or
disposing of any securities acquired in
a Co-Investment Transaction (including,
without limitation, the expenses of the
distribution of any such securities
registered for sale under the Securities
Act) will, to the extent not payable by
the Advisers under their respective
advisory agreements with the Regulated
Funds and the Affiliated Funds, be
shared by the Regulated Funds and the
participating Affiliated Funds in
proportion to the relative amounts of the
securities held or being acquired or
disposed of, as the case may be.
14. Transaction Fees.30 Any
transaction fee (including break-up,
structuring, monitoring or commitment
fees but excluding brokerage or
underwriting compensation permitted
by Section 17(e) or 57(k)) received in
connection with any Co-Investment
Transaction will be distributed to the
participants on a pro rata basis based on
the amounts they invested or
committed, as the case may be, in such
Co-Investment Transaction. If any
transaction fee is to be held by an
Adviser pending consummation of the
transaction, the fee will be deposited
into an account maintained by the
Adviser at a bank or banks having the
qualifications prescribed in Section
26(a)(1), and the account will earn a
competitive rate of interest that will also
be divided pro rata among the
participants. None of the Advisers, the
Affiliated Funds, the other Regulated
Funds or any affiliated person of the
Affiliated Funds or the Regulated Funds
will receive any additional
compensation or remuneration of any
kind as a result of or in connection with
a Co-Investment Transaction other than
(i) in the case of the Regulated Funds
and the Affiliated Funds, the pro rata
transaction fees described above and
fees or other compensation described in
Condition 2(c)(iii)(B)(z), (ii) brokerage or
underwriting compensation permitted
by Section 17(e) or 57(k) or (iii) in the
case of the Advisers, investment
advisory compensation paid in
accordance with investment advisory
30 Applicants
are not requesting and the
Commission is not providing any relief for
transaction fees received in connection with any
Co-Investment Transaction.
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agreements between the applicable
Regulated Fund(s) or Affiliated Fund(s)
and its Adviser.
15. Independence. If the Holders own
in the aggregate more than 25 percent of
the Shares of a Regulated Fund, then the
Holders will vote such Shares in the
same percentages as the Regulated
Fund’s other shareholders (not
including the Holders) when voting on
(1) the election of directors; (2) the
removal of one or more directors; or (3)
any other matter under either the Act or
applicable State law affecting the
Board’s composition, size or manner of
election.
For the Commission, by the Division of
Investment Management, under delegated
authority.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–20451 Filed 9–16–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–89834; File No. SR–
NYSEArca–2020–54]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change To Amend NYSE Arca
Rule 5.3–E to Exempt Issuers of
Certain Derivative and Special Purpose
Securities From Having To Obtain
Shareholder Approval Prior to the
Issuance of Securities in Connection
With Certain Acquisitions of the Stock
or Assets of an Affiliated Company
September 11, 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 August
28, 2020, NYSE Arca, Inc. (‘‘NYSE
Arca’’ or the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the 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 amend
NYSE Arca Rule 5.3–E to exempt certain
categories of derivative and special
purpose securities from the requirement
to obtain shareholder approval prior to
1 15
U.S.C.78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
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the issuance of securities in connection
with certain acquisitions of the stock or
asset of another company. The proposed
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
NYSE Arca Rule 5.3–E(d)(9) requires
issuers to obtain shareholder approval
in connection with the acquisition of
the stock or assets of another company,
in the following circumstances:
(i) If any director, officer, or
substantial shareholder of the listed
company has a 5% or greater interest (or
such persons collectively have a 10% or
greater interest), directly or indirectly,
in the company or assets to be acquired
or in the consideration to be paid in the
transaction (or series of related
transactions) and the present or
potential issuance of common stock, or
securities convertible into or exercisable
for common stock, could result in an
increase in outstanding common shares
or voting power of 5% or more; or
(ii) where the present or potential
issuance of common stock, or securities
convertible into or exercisable for
common stock (other than in a public
offering for cash), could result in an
increase in outstanding common shares
of 20% or more or could represent 20%
or more of the voting power outstanding
before the issuance of such stock or
securities.
The Exchange proposes to exempt
issuers of certain categories of derivative
and special purpose securities 4 from
4 The Exchange proposes to exempt the following
categories of derivative and special purpose
securities: Securities listed pursuant to Rules 5.2–
E(h) (Unit Investment Trusts), 5.2–E(j)(3)
(Investment Company Units), 5.2–E(j)(8) (Exchange-
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having to comply with this requirement
when they issue securities in
connection with the acquisition of the
stock or assets of an affiliated company
in a transaction that does not require
shareholder approval under Rule 17a–
8 5 (Mergers of affiliated companies)
under 1940 Act (‘‘Rule 17a–8’’). In
general, the requirement to obtain
shareholder approval prior to the
issuance of securities in connection
with certain acquisitions of the stock or
asset of another company is designed to
give existing shareholders a vote on the
issuance of stock that may dilute their
voting or economic rights. The
Exchange notes that NYSE Arca Rule
5.3–E(d)(9) is also intended to give
shareholders a vote on transactions
where a director, officer, or substantial
shareholder of the listed company has a
significant interest in the company or
assets to be acquired or the
consideration to be paid and therefore
may benefit from the transaction. Due to
the unique nature of 1940 Act Securities
as well as the requirements under Rule
17a–8, the Exchange believes that these
concerns are limited with respect to the
holders of such securities. Therefore, if
shareholder approval is not required
under Rule 17a–8, the Exchange
believes it is appropriate to exempt
issuers of 1940 Act Securities from
having to obtain shareholder approval
under Exchange rules which can be both
time consuming and expensive.
The Exchange believes that the
potential economic dilution concerns
sometimes associated with a large share
issuance are unlikely to be present
when an issuer of a 1940 Act Security
issues shares in connection with the
acquisition of the stock or assets of an
affiliated company. As described above,
the proposed exemption will only apply
to issuers of derivative and special
purpose securities organized under the
1940 Act.6 Rule 17a–8 specifies that in
connection with the merger of affiliated
investment companies, the board of
directors of each investment company,
including a majority of the directors that
are not interested persons of the
respective investment company, must
affirmatively determine that (i)
participation in the merger is in the best
Traded Fund Shares), 8.100–E (Portfolio Depositary
Receipts), 8.600–E (Managed Fund Shares), 8.601–
E (Active Proxy Portfolio Shares) and 8.900–E
(Managed Portfolio Shares) (collectively, the ‘‘1940
Act Securities’’). Each of the aforementioned
categories of derivative and special purpose
securities are issued by an entity organized under
the Investment Company Act of 1940 (the ‘‘1940
Act’’).
5 17 CRF 270.17a–8.
6 Approximately 88% of securities listed on the
Exchange are issued by investment companies
registered under the 1940 Act.
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interest of their respective investment
company, and (ii) the interests of their
shareholders will not be diluted as a
result of the transaction.7 Because the
board of directors must make an
affirmative determination that the
merger is not dilutive to existing
shareholders, the shares issued by the
acquiring investment company are
issued at a price equal to the fund’s net
asset value.8 While the Exchange notes
that the shares are issued at a fund’s net
asset value when the fund is registered,
the requirements of Rule 17a–8 also
protect against dilution when the fund
to be acquired is unregistered.
Specifically, Rule 17a–8(a)(2)(iii)
requires that where a fund is acquiring
the assets of an unregistered fund, the
board have procedures in place for the
valuation of assets. Such procedures
must include procedures that provide
for a report to be prepared by an
independent evaluator to provide a
valuation for assets to be acquired.
The Exchange believes that the same
provisions of Rule 17a–8 that protect
against economic dilution also provide
safeguards for existing shareholders
when the transaction involves a
director, officer, or substantial
shareholder of the listed company that
has a significant interest in the company
or assets to be acquired or the
consideration to be paid and therefore
may benefit from the transaction.
Because the board must make an
affirmative decision that the transaction
is in the best interest of its shareholders
and that the transaction will not result
in economic dilution for existing
shareholders, the is reduced concern
that existing shareholders will be
disenfranchised as a result of the
Exchange’s proposed exemption.
The Exchange further believes that it
is appropriate to exempt an issuer of
1940 Act Securities from the
shareholder approval requirements of
NYSE Arca Rule 5.3–E(d)(9) in the very
limited circumstance where a company
issues securities in connection with the
acquisition of the stock or assets of an
affiliated company in a transaction that
does not require shareholder approval
under Rule 17a–8. In fact, Rule 17a–8
already considered whether
shareholders of 1940 Act Securities
should have the right to vote on a
transaction that falls under this rule and
enumerates circumstances when
shareholder approval is required and
7 17
CRF 270.17a–8.
Exchange notes that the proposing releases
for Rule 17a–8 specifically contemplated that, in
certain circumstances, the price paid may deviate
from a fund’s net asset value due to adjustments for
tax purposes. See Investment Company Act Release
No. 25259 at Footnote 26.
8 The
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58091
when it is not. Specifically, Rule17a–8
exempts the acquiring company from
obtaining shareholder approval in such
scenario if: (i) No policy of the acquiring
company that could not be changed
without a vote of its outstanding voting
securities is materially different from a
policy of the merged company, (ii) no
advisory contract between the acquiring
company and any investment adviser
thereof is materially different from an
advisory contract between the merged
company and any investment adviser
thereof, except for the identity of the
investment companies as a party to the
contract, (iii) directors of the acquiring
company, who are not interested
persons of the acquiring company, and
who were elected by the shareholders of
the acquiring company, will comprise a
majority of the directors of the merged
company, who are not interested
persons of the merged company, and
(iv) any distribution fees (as a
percentage of the company’s average net
assets) authorized to be paid by the
merged company pursuant to a plan
adopted in accordance with Rule 12b–
1 under the 1940 Act are no greater than
the distribution fee (as a percentage of
the company’s average net assets)
authorized to be paid by the acquiring
company, pursuant to such plan. Given
that the 1940 Act already prescribes
when an issuer of 1940 Act Securities
must obtain shareholder approval in the
context of a merger of affiliated
companies, the Exchange believes it is
appropriate to exempt issuers of 1940
Act Securities from having to comply
with NYSE Arca Rule 5.3–E(d)(9) when
completing a transaction that does not
require shareholder approval under
Rule 17a–8.
As described above, the Exchange
only proposes to exempt issuers of 1940
Act Securities from having to comply
with NYSE Arca Rule 5.3–E(d)(9) if they
are issuing shares to acquire the stock or
assets of an affiliated company and such
issuance would not require shareholder
approval under Rule 17a–8.
Notwithstanding the proposed
exemption, the Exchange notes that
other provisions of Exchange rules or
the 1940 Act may require shareholder
approval and will still apply.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Exchange Act,9 in
general, and furthers the objectives of
Section 6(b)(5) of the Exchange Act,10 in
particular in that it is designed to
promote just and equitable principles of
9 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
10 15
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trade, to foster cooperation and
coordination with persons engaged in
regulating, clearing, settling, processing
information with respect to, and
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest and is not designed to
permit unfair discrimination between
customers, issuers, brokers, or dealers.
The Exchange believes that the
proposed amendment is consistent with
the protection of investors, as the
unique nature of 1940 Act Securities, as
well as protections afforded by Rule
17a–8, means that (i) there is little risk
of economic dilution to existing
shareholders as a result of an issuance
of shares by an issuer of 1940 Act
Securities in connection with the
acquisition of the stock or assets of an
affiliated company, and (ii) existing
shareholders are unlikely to be
disenfranchised as a result of a Rule
17a–8—compliant transaction that
involves a director, officer, or
substantial shareholder of the listed
company that has a significant interest
in the company or assets to be acquired
or the consideration to be paid.
The Exchange further believes its
proposal is consistent with the
protection of investors because its
proposal is limited to issuers of
derivative and special purpose
securities that are organized under the
1940 Act that are completing a
transaction that does not require
shareholder approval under Rule 17a–8.
In the case of a merger of affiliated
investment companies, the board of
directors of each investment company,
including a majority of the directors that
are not interested persons of the
respective investment company, must
affirmatively determine that (i)
participation in the merger is in the best
interest of their respective investment
company, and (ii) the interests of their
shareholders will not be diluted as a
result of the transaction. Because the
interests of shareholders in such a
transaction cannot be diluted, shares
issues by one investment company to
acquire the stock or assets of an
affiliated investment company are
issued at a price equal to the acquiring
fund’s net asset value. Because of the
safeguards embedded in Rule 17a–8, as
described above, the Exchange also
believes that there are reduced concerns
about economic dilution when the
transaction involves a merger with an
affiliate unregistered fund.
The Exchange believes that the same
provisions of Rule 17a–8 that protect
against economic dilution also provide
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safeguards for existing shareholders
when the transaction involves a
director, officer, or substantial
shareholder of the listed company that
has a significant interest in the company
or assets to be acquired or the
consideration to be paid and therefore
may benefit from the transaction.
Because the board must make an
affirmative decision that the transaction
is in the best interest of its shareholders
and that the transaction will not result
in economic dilution for existing
shareholders, the is reduced concern
that existing shareholders will be
disenfranchised as a result of the
Exchange’s proposed exemption.
In addition to requiring the board
determinations described above, Rule
17a–8 also exempts the acquiring
company from having to obtain
shareholder approval prior to merging
with an affiliated company provided
certain conditions are met. Specifically,
Rule 17a–8 exempts the acquiring
company from obtaining shareholder
approval in such scenario if: (i) No
policy of the acquiring company that
could not be changed without a vote of
its outstanding voting securities is
materially different from a policy of the
merged company, (ii) no advisory
contract between the acquiring company
and any investment adviser thereof is
materially different from an advisory
contract between the merged company
and any investment adviser thereof,
except for the identity of the investment
companies as a party to the contract,
(iii) directors of the acquiring company,
who are not interested persons of the
acquiring company, and who were
elected by the shareholders of the
acquiring company, will comprise a
majority of the directors of the merged
company, who are not interested
persons of the merged company, and
(iv) any distribution fees (as a
percentage of the company’s average net
assets) authorized to be paid by the
merged company pursuant to a plan
adopted in accordance with Rule 12b–
1 under the 1940 Act are no greater than
the distribution fee (as a percentage of
the company’s average net assets)
authorized to be paid by the acquiring
company, pursuant to such plan.
Notwithstanding the proposed
exemption described above, the
Exchange notes that other provisions of
Exchange rules or the 1940 Act may
require shareholder approval and will
still apply.
The Exchange believes it is not
unfairly discriminatory to offer the
exemption only to issuers of 1940 Act
Securities completing a transaction in
compliance with Rule 17a–8, as
opposed to all issuers of derivative and
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special purpose securities, because only
1940 Act Securities are subject to the
requirements of the 1940 Act which
offer the protections against dilution
and self-dealing described herein.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed amendment will not impose
any burden on competition, as they
simply propose to offer 1940 Act
Securities a limited exemption for the
Exchange’s shareholder approval rule in
a specific circumstance where the
Exchange believes there is a low risk of
dilution to existing shareholders.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• 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–
NYSEArca–2020–54 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.
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All submissions should refer to File
Number SR–NYSEArca–2020–54. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NYSEArca–2020–54 and
should be submitted on or before
October 8, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–20474 Filed 9–16–20; 8:45 am]
BILLING CODE 8011–01–P
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[Release No. 34–89830; File No. SR–CBOE–
2020–085]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change Relating To Adopt Fees
for a Recently Adopted New Version of
the Silexx Platform
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
11 17
CFR 200.30–3(a)(12).
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe Exchange, Inc. (the ‘‘Exchange’’
or ‘‘Cboe Options’’) proposes to adopt
fees for a recently adopted new version
of the Silexx platform. The text of the
proposed rule change is provided in
Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://www.cboe.com/
AboutCBOE/
CBOELegalRegulatoryHome.aspx), at
the Exchange’s Office of the Secretary,
and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
September 11, 2020.
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on
September 1, 2020, Cboe Exchange, Inc.
(the ‘‘Exchange’’ or ‘‘Cboe Options’’)
filed with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III 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. Purpose
The Exchange proposes to adopt fees
for a new version of the Silexx platform
(‘‘Cboe Silexx’’), effective October 1,
2020. By way of background, the Silexx
platform consists of a ‘‘front-end’’ order
entry and management trading platform
(also referred to as the ‘‘Silexx
terminal’’) for listed stocks and options
that supports both simple and complex
orders,3 and a ‘‘back-end’’ platform
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 The platform also permits users to submit orders
for commodity futures, commodity options and
2 17
PO 00000
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58093
which provides a connection to the
infrastructure network. From the Silexx
platform (i.e., the collective front-end
and back-end platform), a Silexx user
has the capability to send option orders
to U.S. options exchanges, send stock
orders to U.S. stock exchanges (and
other trading centers), input parameters
to control the size, timing, and other
variables of their trades, and also
includes access to real-time options and
stock market data, as well as access to
certain historical data. The Silexx
platform is designed so that a user may
enter orders into the platform to send to
an executing broker (including Trading
Permit Holders (‘‘TPHs’’)) of its choice
with connectivity to the platform, which
broker will then send the orders to Cboe
Options (if the broker is a TPH) or other
U.S. exchanges (and trading centers) in
accordance with the user’s instructions.
Historically, users could not directly
route orders through any of the thencurrent versions of Silexx to an
exchange or trading center nor is the
platform integrated into or directly
connected to Cboe Option’s System. In
2019, the Exchange made available an
additional version of the Silexx
platform, Silexx FLEX, which supports
the trading of FLEX Options and allows
authorized Users with direct access to
the Exchange.4 Most recently, the
Exchange made a new version of the
Silexx platform available, Cboe Silexx,
which supports the trading of non-FLEX
Options and allows authorized Users
with direct access to the Exchange.5 The
Silexx front-end and back-end platforms
are a software application that is
installed locally on a user’s desktop.
Silexx grants users licenses to use the
platform, and a firm or individual does
not need to be a TPH to license the
platform. Use of any version of the
Silexx platform is completely optional.
The Exchange proposes to adopt fees
for the recently adopted Cboe Silexx.
Particularly, the Exchange proposes to
adopt a monthly fee of $275 per Login
Id for the first 8 Login IDs (i.e., Logins
Ids 1–8), a fee of $100 per each
additional Login ID for the next 8 Login
Ids (i.e., Login Ids 9–16), and provide
that each Login Id thereafter would be
free (i.e., 17+ Login Ids). The Exchange
proposes to provide that the fee will
also be waived for the first month for
other non-security products to be sent to designated
contract markets, futures commission merchants,
introducing brokers or other applicable destinations
of the users’ choice.
4 See Securities Exchange Act Release No. 87028
(September 19, 2019) 84 FR 50529 (September 25,
2019) (SR–CBOE–2019–061).
5 See Securities Exchange Act Release No. 88741
(April 24, 2020) 85 FR 24045 (April 30, 2020) (SR–
CBOE–2020–040).
E:\FR\FM\17SEN1.SGM
17SEN1
]]>Agencies
[Federal Register Volume 85, Number 181 (Thursday, September 17, 2020)]
[Notices]
[Pages 58090-58093]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-20474]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89834; File No. SR-NYSEArca-2020-54]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change To Amend NYSE Arca Rule 5.3-E to Exempt Issuers
of Certain Derivative and Special Purpose Securities From Having To
Obtain Shareholder Approval Prior to the Issuance of Securities in
Connection With Certain Acquisitions of the Stock or Assets of an
Affiliated Company
September 11, 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 August 28, 2020, NYSE Arca, Inc. (``NYSE Arca'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C.78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend NYSE Arca Rule 5.3-E to exempt
certain categories of derivative and special purpose securities from
the requirement to obtain shareholder approval prior to the issuance of
securities in connection with certain acquisitions of the stock or
asset of another company. The proposed 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
NYSE Arca Rule 5.3-E(d)(9) requires issuers to obtain shareholder
approval in connection with the acquisition of the stock or assets of
another company, in the following circumstances:
(i) If any director, officer, or substantial shareholder of the
listed company has a 5% or greater interest (or such persons
collectively have a 10% or greater interest), directly or indirectly,
in the company or assets to be acquired or in the consideration to be
paid in the transaction (or series of related transactions) and the
present or potential issuance of common stock, or securities
convertible into or exercisable for common stock, could result in an
increase in outstanding common shares or voting power of 5% or more; or
(ii) where the present or potential issuance of common stock, or
securities convertible into or exercisable for common stock (other than
in a public offering for cash), could result in an increase in
outstanding common shares of 20% or more or could represent 20% or more
of the voting power outstanding before the issuance of such stock or
securities.
The Exchange proposes to exempt issuers of certain categories of
derivative and special purpose securities \4\ from
[[Page 58091]]
having to comply with this requirement when they issue securities in
connection with the acquisition of the stock or assets of an affiliated
company in a transaction that does not require shareholder approval
under Rule 17a-8 \5\ (Mergers of affiliated companies) under 1940 Act
(``Rule 17a-8''). In general, the requirement to obtain shareholder
approval prior to the issuance of securities in connection with certain
acquisitions of the stock or asset of another company is designed to
give existing shareholders a vote on the issuance of stock that may
dilute their voting or economic rights. The Exchange notes that NYSE
Arca Rule 5.3-E(d)(9) is also intended to give shareholders a vote on
transactions where a director, officer, or substantial shareholder of
the listed company has a significant interest in the company or assets
to be acquired or the consideration to be paid and therefore may
benefit from the transaction. Due to the unique nature of 1940 Act
Securities as well as the requirements under Rule 17a-8, the Exchange
believes that these concerns are limited with respect to the holders of
such securities. Therefore, if shareholder approval is not required
under Rule 17a-8, the Exchange believes it is appropriate to exempt
issuers of 1940 Act Securities from having to obtain shareholder
approval under Exchange rules which can be both time consuming and
expensive.
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\4\ The Exchange proposes to exempt the following categories of
derivative and special purpose securities: Securities listed
pursuant to Rules 5.2-E(h) (Unit Investment Trusts), 5.2-E(j)(3)
(Investment Company Units), 5.2-E(j)(8) (Exchange-Traded Fund
Shares), 8.100-E (Portfolio Depositary Receipts), 8.600-E (Managed
Fund Shares), 8.601-E (Active Proxy Portfolio Shares) and 8.900-E
(Managed Portfolio Shares) (collectively, the ``1940 Act
Securities''). Each of the aforementioned categories of derivative
and special purpose securities are issued by an entity organized
under the Investment Company Act of 1940 (the ``1940 Act'').
\5\ 17 CRF 270.17a-8.
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The Exchange believes that the potential economic dilution concerns
sometimes associated with a large share issuance are unlikely to be
present when an issuer of a 1940 Act Security issues shares in
connection with the acquisition of the stock or assets of an affiliated
company. As described above, the proposed exemption will only apply to
issuers of derivative and special purpose securities organized under
the 1940 Act.\6\ Rule 17a-8 specifies that in connection with the
merger of affiliated investment companies, the board of directors of
each investment company, including a majority of the directors that are
not interested persons of the respective investment company, must
affirmatively determine that (i) participation in the merger is in the
best interest of their respective investment company, and (ii) the
interests of their shareholders will not be diluted as a result of the
transaction.\7\ Because the board of directors must make an affirmative
determination that the merger is not dilutive to existing shareholders,
the shares issued by the acquiring investment company are issued at a
price equal to the fund's net asset value.\8\ While the Exchange notes
that the shares are issued at a fund's net asset value when the fund is
registered, the requirements of Rule 17a-8 also protect against
dilution when the fund to be acquired is unregistered. Specifically,
Rule 17a-8(a)(2)(iii) requires that where a fund is acquiring the
assets of an unregistered fund, the board have procedures in place for
the valuation of assets. Such procedures must include procedures that
provide for a report to be prepared by an independent evaluator to
provide a valuation for assets to be acquired.
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\6\ Approximately 88% of securities listed on the Exchange are
issued by investment companies registered under the 1940 Act.
\7\ 17 CRF 270.17a-8.
\8\ The Exchange notes that the proposing releases for Rule 17a-
8 specifically contemplated that, in certain circumstances, the
price paid may deviate from a fund's net asset value due to
adjustments for tax purposes. See Investment Company Act Release No.
25259 at Footnote 26.
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The Exchange believes that the same provisions of Rule 17a-8 that
protect against economic dilution also provide safeguards for existing
shareholders when the transaction involves a director, officer, or
substantial shareholder of the listed company that has a significant
interest in the company or assets to be acquired or the consideration
to be paid and therefore may benefit from the transaction. Because the
board must make an affirmative decision that the transaction is in the
best interest of its shareholders and that the transaction will not
result in economic dilution for existing shareholders, the is reduced
concern that existing shareholders will be disenfranchised as a result
of the Exchange's proposed exemption.
The Exchange further believes that it is appropriate to exempt an
issuer of 1940 Act Securities from the shareholder approval
requirements of NYSE Arca Rule 5.3-E(d)(9) in the very limited
circumstance where a company issues securities in connection with the
acquisition of the stock or assets of an affiliated company in a
transaction that does not require shareholder approval under Rule 17a-
8. In fact, Rule 17a-8 already considered whether shareholders of 1940
Act Securities should have the right to vote on a transaction that
falls under this rule and enumerates circumstances when shareholder
approval is required and when it is not. Specifically, Rule17a-8
exempts the acquiring company from obtaining shareholder approval in
such scenario if: (i) No policy of the acquiring company that could not
be changed without a vote of its outstanding voting securities is
materially different from a policy of the merged company, (ii) no
advisory contract between the acquiring company and any investment
adviser thereof is materially different from an advisory contract
between the merged company and any investment adviser thereof, except
for the identity of the investment companies as a party to the
contract, (iii) directors of the acquiring company, who are not
interested persons of the acquiring company, and who were elected by
the shareholders of the acquiring company, will comprise a majority of
the directors of the merged company, who are not interested persons of
the merged company, and (iv) any distribution fees (as a percentage of
the company's average net assets) authorized to be paid by the merged
company pursuant to a plan adopted in accordance with Rule 12b-1 under
the 1940 Act are no greater than the distribution fee (as a percentage
of the company's average net assets) authorized to be paid by the
acquiring company, pursuant to such plan. Given that the 1940 Act
already prescribes when an issuer of 1940 Act Securities must obtain
shareholder approval in the context of a merger of affiliated
companies, the Exchange believes it is appropriate to exempt issuers of
1940 Act Securities from having to comply with NYSE Arca Rule 5.3-
E(d)(9) when completing a transaction that does not require shareholder
approval under Rule 17a-8.
As described above, the Exchange only proposes to exempt issuers of
1940 Act Securities from having to comply with NYSE Arca Rule 5.3-
E(d)(9) if they are issuing shares to acquire the stock or assets of an
affiliated company and such issuance would not require shareholder
approval under Rule 17a-8. Notwithstanding the proposed exemption, the
Exchange notes that other provisions of Exchange rules or the 1940 Act
may require shareholder approval and will still apply.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Exchange Act,\9\ in general, and furthers the
objectives of Section 6(b)(5) of the Exchange Act,\10\ in particular in
that it is designed to promote just and equitable principles of
[[Page 58092]]
trade, to foster cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect to,
and facilitating transactions in securities, to remove impediments to
and perfect the mechanism of a free and open market and a national
market system, and, in general, to protect investors and the public
interest and is not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed amendment is consistent
with the protection of investors, as the unique nature of 1940 Act
Securities, as well as protections afforded by Rule 17a-8, means that
(i) there is little risk of economic dilution to existing shareholders
as a result of an issuance of shares by an issuer of 1940 Act
Securities in connection with the acquisition of the stock or assets of
an affiliated company, and (ii) existing shareholders are unlikely to
be disenfranchised as a result of a Rule 17a-8--compliant transaction
that involves a director, officer, or substantial shareholder of the
listed company that has a significant interest in the company or assets
to be acquired or the consideration to be paid.
The Exchange further believes its proposal is consistent with the
protection of investors because its proposal is limited to issuers of
derivative and special purpose securities that are organized under the
1940 Act that are completing a transaction that does not require
shareholder approval under Rule 17a-8. In the case of a merger of
affiliated investment companies, the board of directors of each
investment company, including a majority of the directors that are not
interested persons of the respective investment company, must
affirmatively determine that (i) participation in the merger is in the
best interest of their respective investment company, and (ii) the
interests of their shareholders will not be diluted as a result of the
transaction. Because the interests of shareholders in such a
transaction cannot be diluted, shares issues by one investment company
to acquire the stock or assets of an affiliated investment company are
issued at a price equal to the acquiring fund's net asset value.
Because of the safeguards embedded in Rule 17a-8, as described above,
the Exchange also believes that there are reduced concerns about
economic dilution when the transaction involves a merger with an
affiliate unregistered fund.
The Exchange believes that the same provisions of Rule 17a-8 that
protect against economic dilution also provide safeguards for existing
shareholders when the transaction involves a director, officer, or
substantial shareholder of the listed company that has a significant
interest in the company or assets to be acquired or the consideration
to be paid and therefore may benefit from the transaction. Because the
board must make an affirmative decision that the transaction is in the
best interest of its shareholders and that the transaction will not
result in economic dilution for existing shareholders, the is reduced
concern that existing shareholders will be disenfranchised as a result
of the Exchange's proposed exemption.
In addition to requiring the board determinations described above,
Rule 17a-8 also exempts the acquiring company from having to obtain
shareholder approval prior to merging with an affiliated company
provided certain conditions are met. Specifically, Rule 17a-8 exempts
the acquiring company from obtaining shareholder approval in such
scenario if: (i) No policy of the acquiring company that could not be
changed without a vote of its outstanding voting securities is
materially different from a policy of the merged company, (ii) no
advisory contract between the acquiring company and any investment
adviser thereof is materially different from an advisory contract
between the merged company and any investment adviser thereof, except
for the identity of the investment companies as a party to the
contract, (iii) directors of the acquiring company, who are not
interested persons of the acquiring company, and who were elected by
the shareholders of the acquiring company, will comprise a majority of
the directors of the merged company, who are not interested persons of
the merged company, and (iv) any distribution fees (as a percentage of
the company's average net assets) authorized to be paid by the merged
company pursuant to a plan adopted in accordance with Rule 12b-1 under
the 1940 Act are no greater than the distribution fee (as a percentage
of the company's average net assets) authorized to be paid by the
acquiring company, pursuant to such plan.
Notwithstanding the proposed exemption described above, the
Exchange notes that other provisions of Exchange rules or the 1940 Act
may require shareholder approval and will still apply.
The Exchange believes it is not unfairly discriminatory to offer
the exemption only to issuers of 1940 Act Securities completing a
transaction in compliance with Rule 17a-8, as opposed to all issuers of
derivative and special purpose securities, because only 1940 Act
Securities are subject to the requirements of the 1940 Act which offer
the protections against dilution and self-dealing described herein.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed amendment will
not impose any burden on competition, as they simply propose to offer
1940 Act Securities a limited exemption for the Exchange's shareholder
approval rule in a specific circumstance where the Exchange believes
there is a low risk of dilution to existing shareholders.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
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-NYSEArca-2020-54 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.
[[Page 58093]]
All submissions should refer to File Number SR-NYSEArca-2020-54. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSEArca-2020-54 and should be submitted
on or before October 8, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-20474 Filed 9-16-20; 8:45 am]
BILLING CODE 8011-01-P
