Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Amendment No. 1 and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change, as Modified by Amendment No. 1, To Amend NYSE Arca Rule 5.3-E To Exempt Registered Investment Companies That List Certain Categories of the Securities Defined as Derivative and Special Purpose Securities Under NYSE Arca Rules 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, 83121-83125 [2020-28008]
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Federal Register / Vol. 85, No. 245 / Monday, December 21, 2020 / Notices
on competition among brokers, as they
will all continue to be subject to the
same maximum fee schedule. For the
same reason there will be no effect on
the competition among issuers resulting
from the proposed rule change, as all
issuers will remain subject to the same
maximum fee schedule as applied under
the FINRA rule. As all of the issuers
listed on all of the national securities
exchanges are currently obligated to pay
the same maximum fees under the
current NYSE rules and FIRNA Rule
2251, the proposal will also have no
effect on the competition for listings
among the national securities
exchanges. For the foregoing reasons,
the Exchange believes that the proposal
does not impose any burden on
competition that that is not necessary or
appropriate in furtherance of the
purposes of the Act.
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 of the
NYSE member organizations that are
subject to the fee schedule in the current
forms of Rules 451 and 465 are also
subject to the identical provisions of
FINRA Rule 2251. Consequently, the
proposed rule change will have no effect
on competition among brokers, as they
will all continue to be subject to the
same maximum fee schedule. For the
same reason there will be no effect on
the competition among issuers resulting
from the proposed rule change, as all
issuers will remain subject to the same
maximum fee schedule as applied under
the FINRA rule. As all of the issuers
listed on all of the national securities
exchanges are currently obligated to pay
the same maximum fees under the
current NYSE rules and FIRNA Rule
2251, the proposal will also have no
effect on the competition for listings
among the national securities
exchanges. For the foregoing reasons,
the Exchange believes that the proposal
does not impose any burden on
competition that that is not necessary or
appropriate in furtherance of the
purposes of the Act.
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.
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III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or up to 90 days (i) as the
Commission may designate if it finds
such longer period to be appropriate
and publishes its reasons for so finding
or (ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
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–2020–96 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–2020–96. 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
Frm 00095
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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–2020–96 and should
be submitted on or before January 11,
2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–28010 Filed 12–18–20; 8:45 am]
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:
PO 00000
83121
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90675; File No. SR–
NYSEArca–2020–54]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of
Amendment No. 1 and Order Instituting
Proceedings To Determine Whether To
Approve or Disapprove a Proposed
Rule Change, as Modified by
Amendment No. 1, To Amend NYSE
Arca Rule 5.3–E To Exempt Registered
Investment Companies That List
Certain Categories of the Securities
Defined as Derivative and Special
Purpose Securities Under NYSE Arca
Rules 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
December 15, 2020.
I. Introduction
On August 28, 2020, NYSE Arca, Inc.
(‘‘Exchange’’ or ‘‘NYSE Arca’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’ or
‘‘Exchange Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
amend NYSE Arca Rule 5.3–E
(Corporate Governance and Disclosure
Policies) 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
assets of another company. The
14 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 85, No. 245 / Monday, December 21, 2020 / Notices
proposed rule change was published for
comment in the Federal Register on
September 17, 2020.3 On October 30,
2020, pursuant to Section 19(b)(2) of the
Exchange Act,4 the Commission
designated a longer period within which
to approve the proposed rule change,
disapprove the proposed rule change, or
institute proceedings to determine
whether to disapprove the proposed
rule change.5 On December 1, 2020, the
Exchange filed Amendment No. 1 to the
proposed rule change, which
superseded the proposed rule change as
originally filed.6 The Commission has
received no comments on the proposed
rule change. The Commission is
publishing this notice and order to
solicit comments on the proposed rule
change, as modified by Amendment No.
1, from interested persons, and to
institute proceedings pursuant to
Section 19(b)(2)(B) of the Exchange Act 7
to determine whether to approve or
disapprove the proposed rule change, as
modified by Amendment No. 1.
II. The Exchange’s Description of the
Proposed Rule Change, as Modified by
Amendment No. 1
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.
3 See Securities Exchange Act Release No. 89834
(September 11, 2020), 85 FR 58090 (‘‘Original
Proposal’’).
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 90297,
85 FR 70701 (November 5, 2020). The Commission
designated December 16, 2020, as the date by which
the Commission shall approve or disapprove, or
institute proceedings to determine whether to
disapprove, the proposed rule change.
6 In Amendment No. 1, the Exchange: (1)
Removed from the proposed rule text a condition
that the proposed exemption from the Exchange’s
shareholder approval requirement would apply
only to a transaction that does not require
shareholder approval under Rule 17a–8 (as defined
herein); (2) removed the related discussion in the
proposed rule change about why the Exchange
believed it would have been appropriate to only
exempt transactions that do not require shareholder
approval under Rule 17a–8; (3) removed statements
in its purpose section that incorrectly stated that
Rule 17a–8 exempts the acquiring company from
obtaining shareholder approval under certain
conditions; (4) supplemented its discussion of why
the Exchange believes it is appropriate to exempt
an issuer of 1940 Act Securities (as defined herein)
from obtaining shareholder approval in the context
of a merger of affiliated companies in light of its
revised discussion of Rule 17a–8’s shareholder
approval requirements; and (5) made other
clarifications, corrections, and technical changes.
Amendment No. 1 is available on the Commission’s
website at https://www.sec.gov/rules/sro/
nysearca.htm.
7 15 U.S.C. 78s(b)(2)(B).
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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 8 from
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 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
8 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) (ExchangeTraded 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’’).
PO 00000
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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 Rule 17a–8 9 (Mergers of
affiliated companies) under the 1940
Act (‘‘Rule 17a–8’’), the Exchange
believes that these concerns are limited
with respect to the holders of such
securities. Therefore, 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.10 Rule 17a–8 exempts such
issuers from prohibitions under the
1940 Act on certain transactions with
affiliated persons, provided that, in
connection with the merger with an
affiliated investment company, the
board of directors, including a majority
of the directors that are not interested
persons, 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.11 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.12 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
9 17
CRF 270.17a–8.
88% of securities listed on the
Exchange are issued by investment companies
registered under the 1940 Act.
11 17 CRF 270.17a–8.
12 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.
10 Approximately
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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, there is reduced concern
that existing shareholders will be
disenfranchised as a result of the
Exchange’s proposed exemption.
Under Rule 17a–8 shareholders of
funds being acquired by an affiliated
company have the opportunity to vote
on the proposed merger unless certain
conditions are met. However, Rule 17a–
8 does not require the acquiring fund
(i.e., the fund issuing shares in the
merger) to obtain the approval of its
shareholders. When the Securities and
Exchange Commission (the
‘‘Commission’’) proposed amendments
to Rule 17a–8, it specifically sought
comment on whether the outstanding
voting securities of the fund that will
survive the merger should also be
required to approve the merger.13
Importantly, the Commission ultimately
did not include a requirement of
approval of shareholders of an acquiring
fund in its final rule.
Given that the Commission’s rules do
not require an issuer of 1940 Act
Securities to obtain shareholder
approval in the context of a merger of
affiliated companies, the Exchange
believes it is appropriate to exempt such
issuers of 1940 Act Securities from
having to comply with NYSE Arca Rule
5.3–E(d)(9).
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.
Notwithstanding the proposed
exemption, the Exchange notes that
13 See Investment Company Act Release No.
25259 at Section II(A)(2)(a): ‘‘Should the
outstanding voting securities of the fund that will
survive the merger also be required to approve the
merger?’’
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22:33 Dec 18, 2020
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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,14 in
general, and furthers the objectives of
Section 6(b)(5) of the Exchange Act,15 in
particular in that it is designed to
promote just and equitable principles of
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. 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
14 15
15 15
PO 00000
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
Frm 00097
Fmt 4703
Sfmt 4703
83123
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.
Rule 17a–8 proscribes when
shareholder approval is required in the
context of a merger of affiliated
companies. Although shareholders of
the company being acquired have a right
to vote on the merger under certain
circumstances, Rule 17a–8 does not
require the shareholders of the acquiring
company to approve the transaction.
Accordingly, the Exchange believes it is
appropriate to exempt issuers of 1940
Act Securities from the requirements of
NYSE Arca Rule 5.3–E(d)(9) in this
same limited circumstance.
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 merger with an
affiliated company, 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
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Federal Register / Vol. 85, No. 245 / Monday, December 21, 2020 / Notices
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. Proceedings To Determine Whether
To Approve or Disapprove SR–
NYSEArca–2020–54, as Modified by
Amendment No. 1, and Grounds for
Disapproval Under Consideration
The Commission is instituting
proceedings pursuant to Section
19(b)(2)(B) of the Exchange Act 16 to
determine whether the proposed rule
change, as modified by Amendment No.
1, should be approved or disapproved.
Institution of such proceedings is
appropriate at this time in view of the
legal and policy issues raised by the
proposed rule change. Institution of
proceedings does not indicate that the
Commission has reached any
conclusions with respect to any of the
issues involved. Rather, as described
below, the Commission seeks and
encourages interested persons to
provide comments on the proposed rule
change to inform the Commission’s
analysis of whether to approve or
disapprove the proposal.
Pursuant to Section 19(b)(2)(B) of the
Exchange Act,17 the Commission is
providing notice of the grounds for
disapproval under consideration. The
Commission is instituting proceedings
to allow for additional analysis of the
proposed rule change’s consistency with
the Exchange Act, and, in particular,
with Section 6(b)(5) of the Exchange
Act, which requires, among other
things, that the rules of a national
securities exchange be designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest.18
As discussed above, the Exchange is
proposing to exempt issuers of
registered investment companies that
list certain categories of derivative and
special purpose securities, including
ETFs, from the requirement to obtain
shareholder approval prior to
substantial issuances of securities in
connection with the acquisition of stock
or assets of an affiliated company. The
Exchange conditions its proposed
exemption on, among other things, the
transaction complying with Rule 17a–8
under the Investment Company Act of
1940, which requires that the board of
directors of each company participating
in such a merger determine that
participation in the merger is in the best
interests of the company and that the
interests of the company’s shareholders
will not be diluted as a result of the
merger. In its Original Proposal,
however, the Exchange erroneously
described Rule 17a–8 as exempting an
acquiring company from its shareholder
approval requirements subject to certain
conditions, when in fact that provision
only applies to the non-surviving
acquired company, and the Exchange
justified its proposal in part on that
misunderstanding. On December 1,
2020, the Exchange filed Amendment
No. 1 that replaced and superseded its
Original Proposal, and attempted to
correct the erroneous description of
Rule 17a–8.19 The Exchange also made
related changes to its proposed rule text
and justification. Given the filing of this
recent amendment, the Commission is
seeking additional public comment on
the proposed rule change in order to
determine whether it is consistent with
the requirements of Section 6(b)(5) of
the Act.
The Commission notes that, under the
Commission’s Rules of Practice, the
‘‘burden to demonstrate that a proposed
rule change is consistent with the
Exchange Act and the rules and
regulations thereunder . . . is on the
self-regulatory organization [‘SRO’] that
proposed the rule change.’’ 20 The
description of a proposed rule change,
its purpose and operation, its effect, and
a legal analysis of its consistency with
applicable requirements must all be
sufficiently detailed and specific to
support an affirmative Commission
finding,21 and any failure of an SRO to
provide this information may result in
the Commission not having sufficient
basis to make an affirmative finding that
a proposed rule change is consistent
with the Exchange Act and the
applicable rule and regulations.22
For these reasons, the Commission
believes it is appropriate to institute
19 See
supra note 6.
700(b)(3), Commission Rules of Practice,
17 CFR 201.700(b)(3).
21 See id.
22 See id.
20 Rule
16 15
U.S.C. 78s(b)(2)(B).
17 Id.
18 15
U.S.C. 78f(b)(5).
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22:33 Dec 18, 2020
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proceedings pursuant to Section
19(b)(2)(B) of the Exchange Act 23 to
determine whether the proposal should
be approved or disapproved.
IV. Procedure: Request for Written
Comments
The Commission requests that
interested persons provide written
submissions of their views, data, and
arguments with respect to the issues
identified above, as well as any other
concerns they may have with the
proposal. In particular, the Commission
invites the written views of interested
persons concerning whether the
proposed rule change, as modified by
Amendment No. 1, is consistent with
Section 6(b)(5) or any other provision of
the Exchange Act, or the rules and
regulations thereunder. Although there
do not appear to be any issues relevant
to approval or disapproval that would
be facilitated by an oral presentation of
views, data, and arguments, the
Commission will consider, pursuant to
Rule 19b–4, any request for an
opportunity to make an oral
presentation.24
Interested persons are invited to
submit written data, views, and
arguments regarding whether the
proposed rule change, as modified by
Amendment No. 1, should be approved
or disapproved by January 11, 2021.
Any person who wishes to file a rebuttal
to any other person’s submission must
file that rebuttal by January 25, 2021.
The Commission asks that
commenters address the sufficiency of
the Exchange’s statements in support of
the proposal, which are set forth in
Amendment No. 1,25 in addition to any
other comments they may wish to
submit about the proposed rule change.
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.
23 15
U.S.C. 78s(b)(2)(B).
19(b)(2) of the Exchange Act, as
amended by the Securities Act Amendments of
1975, Pub. L. 94–29 (June 4, 1975), grants the
Commission flexibility to determine what type of
proceeding—either oral or notice and opportunity
for written comments—is appropriate for
consideration of a particular proposal by a selfregulatory organization. See Securities Act
Amendments of 1975, Senate Comm. on Banking,
Housing & Urban Affairs, S. Rep. No. 75, 94th
Cong., 1st Sess. 30 (1975).
25 See supra note 6.
24 Section
E:\FR\FM\21DEN1.SGM
21DEN1
Federal Register / Vol. 85, No. 245 / Monday, December 21, 2020 / Notices
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEArca–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
January 11, 2021. Rebuttal comments
should be submitted by January 25,
2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–28008 Filed 12–18–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meeting; Cancellation
FEDERAL REGISTER CITATION OF PREVIOUS
ANNOUNCEMENT: 85 FR 81258, December
PREVIOUSLY ANNOUNCED TIME AND DATE OF
THE MEETING: Thursday, December 17,
2020 at 3:00 p.m.
The Closed
Meeting scheduled for Thursday,
December 17, 2020 at 3:00 p.m., has
been cancelled.
CHANGES IN THE MEETING:
CONTACT PERSON FOR MORE INFORMATION:
For further information; please contact
Vanessa A. Countryman from the Office
of the Secretary at (202) 551–5400.
Dated: December 17, 2020.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2020–28243 Filed 12–17–20; 4:15 pm]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90668; File No. SR–
NYSEARCA–2020–107]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend the NYSE Arca
Equities Fees and Charges
December 15, 2020.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on December
3, 2020, NYSE Arca, Inc. (‘‘NYSE Arca’’
or the ‘‘Exchange’’) 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 self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
NYSE Arca Equities Fees and Charges
(‘‘Fee Schedule’’) to adjust the credits
applicable to a step up tier for ETP
Holders adding liquidity in Round Lots
and Odd Lots in Tapes A, B and C
securities with a per share price below
$1.00. The Exchange proposes to
implement the fee changes effective
December 3, 2020. 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.
15, 2020.
1 15
26 17
CFR 200.30–3(a)(12) and 17 CFR 200.30–
3(a)(57).
VerDate Sep<11>2014
22:33 Dec 18, 2020
Jkt 253001
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
PO 00000
Frm 00099
Fmt 4703
Sfmt 4703
83125
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 to amend the
Fee Schedule to adjust the credits
applicable to a step up tier for ETP
Holders 4 adding liquidity in Round
Lots and Odd Lots in Tapes A, B and C
securities with a per share price below
$1.00.
The proposed changes are intended to
address an inadvertent mistake
regarding the level of credits applicable
to the step up tier adopted by the
Exchange in August 2020.5
The Exchange proposes to implement
the fee changes effective December 3,
2020.
Background
The Exchange operates in a highly
competitive market. The Commission
has repeatedly expressed its preference
for competition over regulatory
intervention in determining prices,
products, and services in the securities
markets. In Regulation NMS, the
Commission highlighted the importance
of market forces in determining prices
and SRO revenues and, also, recognized
that current regulation of the market
system ‘‘has been remarkably successful
in promoting market competition in its
broader forms that are most important to
investors and listed companies.’’ 6
While Regulation NMS has enhanced
competition, it has also fostered a
‘‘fragmented’’ market structure where
trading in a single stock can occur
across multiple trading centers. When
4 All references to ETP Holders in connection
with this proposed fee change include Market
Makers.
5 See Securities Exchange Act Release No. 89607
(August 18, 2020), 85 FR 52179 (August 24, 2020)
(SR–NYSEArca–2020–75).
6 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(File No. S7–10–04) (Final Rule) (‘‘Regulation
NMS’’).
E:\FR\FM\21DEN1.SGM
21DEN1
]]>Agencies
[Federal Register Volume 85, Number 245 (Monday, December 21, 2020)]
[Notices]
[Pages 83121-83125]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28008]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-90675; File No. SR-NYSEArca-2020-54]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Amendment No. 1 and Order Instituting Proceedings To Determine
Whether To Approve or Disapprove a Proposed Rule Change, as Modified by
Amendment No. 1, To Amend NYSE Arca Rule 5.3-E To Exempt Registered
Investment Companies That List Certain Categories of the Securities
Defined as Derivative and Special Purpose Securities Under NYSE Arca
Rules 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
December 15, 2020.
I. Introduction
On August 28, 2020, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to amend NYSE Arca Rule 5.3-E (Corporate
Governance and Disclosure Policies) 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 assets of another
company. The
[[Page 83122]]
proposed rule change was published for comment in the Federal Register
on September 17, 2020.\3\ On October 30, 2020, pursuant to Section
19(b)(2) of the Exchange Act,\4\ the Commission designated a longer
period within which to approve the proposed rule change, disapprove the
proposed rule change, or institute proceedings to determine whether to
disapprove the proposed rule change.\5\ On December 1, 2020, the
Exchange filed Amendment No. 1 to the proposed rule change, which
superseded the proposed rule change as originally filed.\6\ The
Commission has received no comments on the proposed rule change. The
Commission is publishing this notice and order to solicit comments on
the proposed rule change, as modified by Amendment No. 1, from
interested persons, and to institute proceedings pursuant to Section
19(b)(2)(B) of the Exchange Act \7\ to determine whether to approve or
disapprove the proposed rule change, as modified by Amendment No. 1.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 89834 (September 11,
2020), 85 FR 58090 (``Original Proposal'').
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 90297, 85 FR 70701
(November 5, 2020). The Commission designated December 16, 2020, as
the date by which the Commission shall approve or disapprove, or
institute proceedings to determine whether to disapprove, the
proposed rule change.
\6\ In Amendment No. 1, the Exchange: (1) Removed from the
proposed rule text a condition that the proposed exemption from the
Exchange's shareholder approval requirement would apply only to a
transaction that does not require shareholder approval under Rule
17a-8 (as defined herein); (2) removed the related discussion in the
proposed rule change about why the Exchange believed it would have
been appropriate to only exempt transactions that do not require
shareholder approval under Rule 17a-8; (3) removed statements in its
purpose section that incorrectly stated that Rule 17a-8 exempts the
acquiring company from obtaining shareholder approval under certain
conditions; (4) supplemented its discussion of why the Exchange
believes it is appropriate to exempt an issuer of 1940 Act
Securities (as defined herein) from obtaining shareholder approval
in the context of a merger of affiliated companies in light of its
revised discussion of Rule 17a-8's shareholder approval
requirements; and (5) made other clarifications, corrections, and
technical changes. Amendment No. 1 is available on the Commission's
website at https://www.sec.gov/rules/sro/nysearca.htm.
\7\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
II. The Exchange's Description of the Proposed Rule Change, as Modified
by Amendment No. 1
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 \8\ from 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
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 Rule 17a-8 \9\ (Mergers of affiliated companies) under the 1940
Act (``Rule 17a-8''), the Exchange believes that these concerns are
limited with respect to the holders of such securities. Therefore, 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.
---------------------------------------------------------------------------
\8\ 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'').
\9\ 17 CRF 270.17a-8.
---------------------------------------------------------------------------
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.\10\ Rule 17a-8 exempts such issuers from prohibitions
under the 1940 Act on certain transactions with affiliated persons,
provided that, in connection with the merger with an affiliated
investment company, the board of directors, including a majority of the
directors that are not interested persons, 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.\11\
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.\12\ 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
[[Page 83123]]
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.
---------------------------------------------------------------------------
\10\ Approximately 88% of securities listed on the Exchange are
issued by investment companies registered under the 1940 Act.
\11\ 17 CRF 270.17a-8.
\12\ 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.
---------------------------------------------------------------------------
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, there is reduced
concern that existing shareholders will be disenfranchised as a result
of the Exchange's proposed exemption.
Under Rule 17a-8 shareholders of funds being acquired by an
affiliated company have the opportunity to vote on the proposed merger
unless certain conditions are met. However, Rule 17a-8 does not require
the acquiring fund (i.e., the fund issuing shares in the merger) to
obtain the approval of its shareholders. When the Securities and
Exchange Commission (the ``Commission'') proposed amendments to Rule
17a-8, it specifically sought comment on whether the outstanding voting
securities of the fund that will survive the merger should also be
required to approve the merger.\13\ Importantly, the Commission
ultimately did not include a requirement of approval of shareholders of
an acquiring fund in its final rule.
---------------------------------------------------------------------------
\13\ See Investment Company Act Release No. 25259 at Section
II(A)(2)(a): ``Should the outstanding voting securities of the fund
that will survive the merger also be required to approve the
merger?''
---------------------------------------------------------------------------
Given that the Commission's rules do not require an issuer of 1940
Act Securities to obtain shareholder approval in the context of a
merger of affiliated companies, the Exchange believes it is appropriate
to exempt such issuers of 1940 Act Securities from having to comply
with NYSE Arca Rule 5.3-E(d)(9).
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. 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,\14\ in general, and furthers the
objectives of Section 6(b)(5) of the Exchange Act,\15\ in particular in
that it is designed to promote just and equitable principles of 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.
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78f(b).
\15\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
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. 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.
Rule 17a-8 proscribes when shareholder approval is required in the
context of a merger of affiliated companies. Although shareholders of
the company being acquired have a right to vote on the merger under
certain circumstances, Rule 17a-8 does not require the shareholders of
the acquiring company to approve the transaction. Accordingly, the
Exchange believes it is appropriate to exempt issuers of 1940 Act
Securities from the requirements of NYSE Arca Rule 5.3-E(d)(9) in this
same limited circumstance.
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
merger with an affiliated company, 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
[[Page 83124]]
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. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEArca-2020-54, as Modified by Amendment No. 1, and Grounds for
Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Exchange Act \16\ to determine whether the proposed
rule change, as modified by Amendment No. 1, should be approved or
disapproved. Institution of such proceedings is appropriate at this
time in view of the legal and policy issues raised by the proposed rule
change. Institution of proceedings does not indicate that the
Commission has reached any conclusions with respect to any of the
issues involved. Rather, as described below, the Commission seeks and
encourages interested persons to provide comments on the proposed rule
change to inform the Commission's analysis of whether to approve or
disapprove the proposal.
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
Pursuant to Section 19(b)(2)(B) of the Exchange Act,\17\ the
Commission is providing notice of the grounds for disapproval under
consideration. The Commission is instituting proceedings to allow for
additional analysis of the proposed rule change's consistency with the
Exchange Act, and, in particular, with Section 6(b)(5) of the Exchange
Act, which requires, among other things, that the rules of a national
securities exchange be designed to prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles of trade,
to remove impediments to and perfect the mechanism of a free and open
market and a national market system, and, in general, to protect
investors and the public interest.\18\
---------------------------------------------------------------------------
\17\ Id.
\18\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
As discussed above, the Exchange is proposing to exempt issuers of
registered investment companies that list certain categories of
derivative and special purpose securities, including ETFs, from the
requirement to obtain shareholder approval prior to substantial
issuances of securities in connection with the acquisition of stock or
assets of an affiliated company. The Exchange conditions its proposed
exemption on, among other things, the transaction complying with Rule
17a-8 under the Investment Company Act of 1940, which requires that the
board of directors of each company participating in such a merger
determine that participation in the merger is in the best interests of
the company and that the interests of the company's shareholders will
not be diluted as a result of the merger. In its Original Proposal,
however, the Exchange erroneously described Rule 17a-8 as exempting an
acquiring company from its shareholder approval requirements subject to
certain conditions, when in fact that provision only applies to the
non-surviving acquired company, and the Exchange justified its proposal
in part on that misunderstanding. On December 1, 2020, the Exchange
filed Amendment No. 1 that replaced and superseded its Original
Proposal, and attempted to correct the erroneous description of Rule
17a-8.\19\ The Exchange also made related changes to its proposed rule
text and justification. Given the filing of this recent amendment, the
Commission is seeking additional public comment on the proposed rule
change in order to determine whether it is consistent with the
requirements of Section 6(b)(5) of the Act.
---------------------------------------------------------------------------
\19\ See supra note 6.
---------------------------------------------------------------------------
The Commission notes that, under the Commission's Rules of
Practice, the ``burden to demonstrate that a proposed rule change is
consistent with the Exchange Act and the rules and regulations
thereunder . . . is on the self-regulatory organization [`SRO'] that
proposed the rule change.'' \20\ The description of a proposed rule
change, its purpose and operation, its effect, and a legal analysis of
its consistency with applicable requirements must all be sufficiently
detailed and specific to support an affirmative Commission finding,\21\
and any failure of an SRO to provide this information may result in the
Commission not having sufficient basis to make an affirmative finding
that a proposed rule change is consistent with the Exchange Act and the
applicable rule and regulations.\22\
---------------------------------------------------------------------------
\20\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR
201.700(b)(3).
\21\ See id.
\22\ See id.
---------------------------------------------------------------------------
For these reasons, the Commission believes it is appropriate to
institute proceedings pursuant to Section 19(b)(2)(B) of the Exchange
Act \23\ to determine whether the proposal should be approved or
disapproved.
---------------------------------------------------------------------------
\23\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
IV. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposed rule
change, as modified by Amendment No. 1, is consistent with Section
6(b)(5) or any other provision of the Exchange Act, or the rules and
regulations thereunder. Although there do not appear to be any issues
relevant to approval or disapproval that would be facilitated by an
oral presentation of views, data, and arguments, the Commission will
consider, pursuant to Rule 19b-4, any request for an opportunity to
make an oral presentation.\24\
---------------------------------------------------------------------------
\24\ Section 19(b)(2) of the Exchange Act, as amended by the
Securities Act Amendments of 1975, Pub. L. 94-29 (June 4, 1975),
grants the Commission flexibility to determine what type of
proceeding--either oral or notice and opportunity for written
comments--is appropriate for consideration of a particular proposal
by a self-regulatory organization. See Securities Act Amendments of
1975, Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No.
75, 94th Cong., 1st Sess. 30 (1975).
---------------------------------------------------------------------------
Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change, as modified by
Amendment No. 1, should be approved or disapproved by January 11, 2021.
Any person who wishes to file a rebuttal to any other person's
submission must file that rebuttal by January 25, 2021.
The Commission asks that commenters address the sufficiency of the
Exchange's statements in support of the proposal, which are set forth
in Amendment No. 1,\25\ in addition to any other comments they may wish
to submit about the proposed rule change.
---------------------------------------------------------------------------
\25\ See supra note 6.
---------------------------------------------------------------------------
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.
[[Page 83125]]
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-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 January 11, 2021. Rebuttal comments should be submitted by
January 25, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12) and 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-28008 Filed 12-18-20; 8:45 am]
BILLING CODE 8011-01-P
