Self-Regulatory Organizations; New York Stock Exchange LLC; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Amend Its Rules Establishing Maximum Fee Rates To Be Charged by Member Organizations for Forwarding Proxy and Other Materials to Beneficial Owners, 15734-15738 [2021-06000]
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Federal Register / Vol. 86, No. 55 / Wednesday, March 24, 2021 / Notices
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construction for terms that are defined
either in the Act itself or elsewhere in
the Commission’s rules and regulations.
Finally, rule 0–1 defines terms that
serve as conditions to the availability of
certain of the Commission’s exemptive
rules. More specifically, the term
‘‘independent legal counsel,’’ as defined
in rule 0–1, sets out conditions that
funds must meet in order to rely on any
of ten exemptive rules (‘‘exemptive
rules’’) under the Act.4
The Commission amended rule 0–1 to
include the definition of the term
‘‘independent legal counsel’’ in 2001.5
This amendment was designed to
enhance the effectiveness of fund boards
of directors and to better enable
investors to assess the independence of
those directors. The Commission also
amended the exemptive rules to require
that any person who serves as legal
counsel to the independent directors of
any fund that relies on any of the
exemptive rules must be an
‘‘independent legal counsel.’’ This
requirement was added because
independent directors can better
perform the responsibilities assigned to
them under the Act and the rules if they
have the assistance of truly independent
legal counsel.
If the board’s counsel has represented
the fund’s investment adviser, principal
underwriter, administrator (collectively,
‘‘management organizations’’) or their
‘‘control persons’’ 6 during the past two
years, rule 0–1 requires that the board’s
independent directors make a
determination about the adequacy of the
counsel’s independence. A majority of
the board’s independent directors are
required to reasonably determine, in the
exercise of their judgment, that the
counsel’s prior or current representation
of the management organizations or
their control persons was sufficiently
limited to conclude that it is unlikely to
adversely affect the counsel’s
professional judgment and legal
representation. Rule 0–1 also requires
that a record for the basis of this
determination is made in the minutes of
the directors’ meeting. In addition, the
independent directors must have
4 The relevant exemptive rules are: Rule 10f–3 (17
CFR 270.10f–3), rule 12b–1 (17 CFR 270.12b–1),
rule 15a–4(b)(2) (17 CFR 270.15a–4(b)(2)), rule 17a–
7 (17 CFR 270.17a–7), rule 17a–8 (17 CFR 270.17a–
8), rule 17d–1(d)(7) (17 CFR 270.17d–1(d)(7)), rule
17e–1(c) (17 CFR 270.17e–1(c)), rule 17g–1 (17 CFR
270.17g–1), rule 18f–3 (17 CFR 270.18f–3), and rule
23c–3 (17 CFR 270.23c–3).
5 See Role of Independent Directors of Investment
Companies, Investment Company Act Release No.
24816 (Jan. 2, 2001) (66 FR 3735 (Jan. 16, 2001)).
6 A ‘‘control person’’ is any person—other than a
fund—directly or indirectly controlling, controlled
by, or under common control, with any of the
fund’s management organizations. See 17 CFR
270.01(a)(6)(iv)(B).
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obtained an undertaking from the
counsel to provide them with the
information necessary to make their
determination and to update promptly
that information when the person begins
to represent a management organization
or control person, or when he or she
materially increases his or her
representation. Generally, the
independent directors must re-evaluate
their determination no less frequently
than annually.
Any fund that relies on one of the
exemptive rules must comply with the
requirements in the definition of
‘‘independent legal counsel’’ under rule
0–1. We assume that approximately
3035 funds rely on at least one of the
exemptive rules annually.7 We further
assume that the independent directors
of approximately one-third (1,010) of
those funds would need to make the
required determination in order for their
counsel to meet the definition of
independent legal counsel.8 We
estimate that each of these 1,010 funds
would be required to spend, on average,
0.75 hours annually to comply with the
recordkeeping requirement associated
with this determination, for a total
annual burden of approximately 758
hours. Based on this estimate, the total
annual cost for all funds’ compliance
with this rule is approximately
$175,523. To calculate this total annual
cost, the Commission staff assumed that
approximately two-thirds of the total
annual hour burden (505 hours) would
be incurred by a compliance manager
with an average hourly wage rate of
$312 per hour,9 and one-third of the
annual hour burden (253 hours) would
be incurred by compliance clerk with an
on statistics compiled by Commission
staff, we estimate that there are approximately 3,373
funds that could rely on one or more of the
exemptive rules (this figure reflects the three-year
average of open-end and closed-end funds (3,269)
and business development companies (104)). Of
those funds, we assume that approximately 90
percent (3,035) actually rely on at least one
exemptive rules annually.
8 We assume that the independent directors of the
remaining two-thirds of those funds will choose not
to have counsel, or will rely on counsel who has
not recently represented the fund’s management
organizations or control persons. In both
circumstances, it would not be necessary for the
fund’s independent directors to make a
determination about their counsel’s independence.
9 The estimated hourly wages used in this PRA
analysis were derived from the Securities Industry
and Financial Markets Association Reports on
Management and Professional Earnings in the
Securities Industry (2013) (modified to account for
an 1800-hour work year and multiplied by 5.35 to
account for bonuses, firm size, employee benefits
and overhead) (adjusted for inflation), and Office
Salaries in the Securities Industry (2013) (modified
to account for an 1800-hour work year and
multiplied by 2.93 to account for bonuses, firm size,
employee benefits and overhead) (adjusted for
inflation).
average hourly wage rate of $71 per
hour.10
These burden hour estimates are
based upon the Commission staff’s
experience and discussions with the
fund industry. The estimates of average
burden hours are made solely for the
purposes of the Paperwork Reduction
Act. These estimates are not derived
from a comprehensive or even a
representative survey or study of the
costs of Commission rules.
Compliance with the collection of
information requirements of the rule is
mandatory and is necessary to comply
with the requirements of the rule in
general. An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a currently valid
control number.
The public may view background
documentation for this information
collection at the following website:
>www.reginfo.gov<. Find this particular
information collection by selecting
‘‘Currently under 30-day Review—Open
for Public Comments’’ or by using the
search function. Written comments and
recommendations for the proposed
information collection should be sent
within 30 days of publication of this
notice to (i) >www.reginfo.gov/public/
do/PRAMain< and (ii) David Bottom,
Director/Chief Information Officer,
Securities and Exchange Commission,
c/o Cynthia Roscoe, 100 F Street NE,
Washington, DC 20549, or by sending an
email to: PRA_Mailbox@sec.gov.
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2021–06013 Filed 3–23–21; 8:45 am]
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91359; File No. SR–NYSE–
2020–96]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Order
Instituting Proceedings To Determine
Whether To Approve or Disapprove a
Proposed Rule Change To Amend Its
Rules Establishing Maximum Fee
Rates To Be Charged by Member
Organizations for Forwarding Proxy
and Other Materials to Beneficial
Owners
March 18, 2021.
I. Introduction
On December 2, 2020, New York
Stock Exchange LLC (‘‘NYSE’’ or
10 (505 × $312/hour) + (253 × $71/hour) =
$175,523.
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Federal Register / Vol. 86, No. 55 / Wednesday, March 24, 2021 / Notices
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
delete the maximum fee rates for
forwarding proxy and other materials to
beneficial owners set forth in NYSE
Rules 451 and 465 and Section 402.10
of the NYSE Listed Company Manual
(‘‘Manual’’), and establish in their place
a requirement for member organizations
to comply with any schedule of
approved charges set forth in the rules
of any other national securities
exchange or association of which such
member organization is a member. The
proposed rule change was published for
comment in the Federal Register on
December 21, 2020.3 On February 1,
2021, pursuant to Section 19(b)(2) of the
Act,4 the Commission designated a
longer period within which to either
approve the proposed rule change,
disapprove the proposed rule change, or
institute proceedings to determine
whether to disapprove the proposed
rule change.5 This order institutes
proceedings under Section 19(b)(2)(B) of
the Act 6 to determine whether to
approve or disapprove the proposed
rule change.
II. Description of the Proposal
NYSE Rules 451 and 465, and the
related provisions in Section 402.10 of
the Manual, require NYSE member
organizations that hold securities for
beneficial owners in street name to
solicit proxies from, and deliver proxy
and issuer communication materials to,
beneficial owners on behalf of issuers.7
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 90677
(December 15, 2020), 85 FR 83119 (‘‘Notice’’).
Comments received on the proposed rule change
are available at: https://www.sec.gov/comments/srnyse-2020-96/srnyse202096.htm.
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 91025,
86 FR 8246 (February 4, 2021). The Commission
designated March 21, 2021, as the date by which
it should approve, disapprove, or institute
proceedings to determine whether to disapprove the
proposed rule change.
6 15 U.S.C. 78s(b)(2)(B).
7 See NYSE Rules 451 and 465, and Section
402.10 of the Manual; Notice, supra note 3, 85 FR
at 83119. The ownership of shares in street name
means that a shareholder, or ‘‘beneficial owner,’’
has purchased shares through a broker-dealer or
bank, also known as a ‘‘nominee.’’ See Securities
Exchange Act Release No. 70720 (October 18, 2013),
78 FR 63530, 63531 n.14 (October 24, 2013) (SR–
NYSE–2013–07) (Order Granting Approval to
Proposed Rule Change Amending NYSE Rules 451
and 465, and the Related Provisions of Section
402.10 of the NYSE Listed Company Manual)
(‘‘2013 Approval Order’’). In contrast to direct
ownership, where shares are directly registered in
the name of the shareholder, shares held in street
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For this service, issuers reimburse NYSE
member organizations for out-of-pocket,
reasonable clerical, postage and other
expenses incurred for a particular
distribution.8 This reimbursement
structure stems from SEC Rules 14b–1
and 14b–2 under the Act,9 which
impose obligations on companies and
nominees to ensure that beneficial
owners receive proxy materials. These
rules require companies to send their
proxy materials to broker-dealers or
banks, as nominees that hold securities
in street name, for forwarding to
beneficial owners, and to pay nominees
for reasonable expenses, both direct and
indirect, incurred in providing proxy
information to beneficial owners.10 The
Commission’s rules do not specify the
fees that nominees can charge issuers
for proxy distribution; rather, they state
that issuers must reimburse the
nominees for ‘‘reasonable expenses’’
incurred.11
Currently, the Supplementary
Material to NYSE Rule 451, which is
cross-referenced by the Supplementary
Material to Rule 465 and Section 402.10
of the Manual, establish the maximum
rates at which an NYSE member
organization may be reimbursed for
expenses incurred in connection with
distributing proxy and other issuer
communication materials to beneficial
holders. FINRA Rule 2251 also sets forth
a schedule of maximum rates that is
substantively identical to the rate
schedule specified in NYSE Rule 451.12
The rules of other self-regulatory
organizations (‘‘SROs’’) generally
provide that member organizations must
forward proxy and other issuer
communication materials if they receive
‘‘reasonable’’ reimbursement, but they
do not specify any schedule of
maximum permitted charges.13
name are registered in the name of the nominee, or
in the nominee name of a depository, such as the
Depository Trust Company. Id.
8 See NYSE Rules 451 and 465, and Section
402.10 of the Manual; 2013 Approval Order, supra
note 7, 78 FR at 63531.
9 17 CFR 240.14b–1; 17 CFR 240.14b–2.
10 See 17 CFR 240.14b–1 and 14b–2; see also 2013
Approval Order, supra note 7, 78 FR at 63531.
11 See 17 CFR 240.14b–1 and 14b–2; see also 2013
Approval Order, supra note 7, 78 FR at 63531.
12 See Notice, supra note 3, 85 FR at 83120. The
Exchange states that FINRA Rule 2251 differs from
NYSE Rule 451 in one respect. See id., 85 FR at
83119, n.8. Specifically, FINRA has not adopted the
Notice and Access fees for investment company
shareholder report distributions set forth in Section
5 (Notice and Access Fees) of Supplementary
Material .90 to NYSE Rule 451 as part of FINRA
Rule 2251. Id.
13 See Notice, supra note 3, 85 FR at 83119. But
see NYSE American LLC Rule 576.80 (setting forth
a schedule of approved charges by member
organizations in connection with proxy
solicitations).
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15735
The Exchange proposes to amend
Supplementary Materials .90–.96 to
NYSE Rule 451 by deleting the
provisions setting maximum
reimbursement rates and replacing them
with rule text stating that member
organizations must comply with any
schedule of approved charges set forth
in the rules of any other national
securities exchange or association of
which such member organization is a
member.14 The Exchange also proposes
to delete the cross-references to NYSE
Rule 451.90–96 in Supplementary
Material .20 to NYSE Rule 465 and
replace it with rule text that is identical
to the proposed new language in
Supplementary Material .90 to NYSE
Rule 451.15 The Exchange states that the
proposed rule change is not intended to
take a position on the appropriateness of
the fee schedules for proxy and other
distributions currently set forth in NYSE
Rules 451 and 465 or in the rules of any
other SRO.16
According to the Exchange, since all
NYSE member organizations that are
subject to the fee schedule set forth in
NYSE Rule 451 (and cross referenced by
NYSE Rule 465) are also FINRA member
firms, the proposal would effectively
require member organizations to comply
with the fee schedule set forth in FINRA
Rule 2251.17 The Exchange
acknowledges that it has historically
taken the lead in establishing the
maximum proxy distribution
reimbursement rates, but states that it
no longer believes the Exchange is best
positioned to retain this role going
forward.18 The Exchange states that all
of the brokers who hold shares on behalf
of customers in street name are FINRA
members, while only a subset of them
are members of the NYSE.19 The
Exchange also notes that a large and
increasing number of the affected
issuers are listed on Nasdaq, CBOE or
other non-NYSE Group exchanges or are
traded solely over the counter.20 The
Exchange further states that the
development of the mutual fund
industry has led to the existence of a
14 See proposed Supplementary Material .90 to
NYSE Rule 451. The Exchange also proposes to
delete Section 402.10 of the Manual, which
replicates the fee schedule set forth in
Supplementary Material .90–.96 to NYSE Rule 451.
15 See proposed Supplementary Material .20 to
NYSE Rule 465.
16 See Notice, supra note 3, 85 FR at 83120. As
noted above, FINRA and NYSE American LLC
presently are the only SROs besides NYSE with
rules that set forth a fee schedule.
17 See id.
18 See id., 85 FR at 83119.
19 See id., 85 FR at 83120.
20 See id., 85 FR at 83120.
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huge number of issuers who are not
listed on any exchange.21
III. Summary of Comment Letters
Received
Several commenters support the
proposal.22 One commenter believes the
Commission should approve the
proposed rule change ‘‘[g]iven the
technical nature of the change and
NYSE’s lack of interest in reforming, or
even examining, the current fee
system.’’ 23 This commenter, however,
believes it is imperative for the
Commission to take this opportunity to
reform the current system relating to
processing fees for shareholder
materials, including by facilitating
competition in the distribution of
shareholder materials through greater
issuer participation in the selection
process or, barring that, by reforming
the processing fee schedule.24 A number
of commenters from the fund industry
agree with the views expressed by this
commenter.25
Several other commenters oppose the
proposal. One commenter expressed the
view that ‘‘the most appropriate
approach is to retain NYSE in the role
and accelerate discussions about
fundamental reform of the proxy
communication process, abolishing the
need for reimbursement fees and
facilitating issuer-directed
communications.’’ 26 This commenter
explained that ‘‘NYSE has played a
longstanding, central role in the
21 See
id., 85 FR at 8319–20.
letters from Dorothy M. Donohue, Deputy
General Counsel, Securities Regulation, and Joanne
Kane, Senior Director, Operations and Transfer
Agency, Investment Company Institute, dated
January 8, 2021, at 2 (‘‘ICI Letter’’); Timothy W.
McHale, Senior Vice President & Senior Counsel,
Capital Research and Management Company, and
Anthony M. Seiffert, Chief Compliance Officer,
American Funds Service Company, Capital Group,
dated January 11, 2021; Catherine L. Newell,
General Counsel and Executive Vice President,
Dimensional Fund Advisors LP, dated January 11,
2021; Peter J. Germain, Chief Legal Officer,
Federated Hermes, Inc., dated January 11, 2021;
Basil K. Fox, Jr., President, Franklin Templeton
Investor Services, LLC, dated January 11, 2021;
Heidi Hardin, Executive Vice President and General
Counsel, MFS Investment Management, dated
January 11, 2021; Thomas E. Faust Jr., Chairman
and Chief Executive Officer, Eaton Vance Corp.,
dated January 14, 2021; and Noah Hamman, Chief
Executive Officer, AdvisorShares Investments, LLC,
dated January 14, 2021.
23 See ICI Letter at 2.
24 Id. at 2–4. This commenter also urged the
Commission to emphasize that the existing fee
schedules represent the maximum rates for
‘‘reasonable’’ processing fees, rather than an
obligation to pay those exact fees. Several
commenters from the fund industry agreed with the
views expressed in the ICI Letter.
25 See supra note 22.
26 See letter from Paul Conn, President, Global
Capital Markets, Computershare, dated January 11,
2021, at 4.
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22 See
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industry dialogue on proxy reform and
the fee-setting process, given its
representation of both issuers and
brokers,’’ and so the commenter
‘‘continue[s] to believe that its
leadership will be critical to any
transition to new arrangements for
proxy communications and associated
fees.’’ 27 Another commenter stated that
‘‘[i]nstead of approving a rule proposal
that transfers regulatory oversight of
proxy fees from one Self-Regulatory
Organization to another,’’ the
Commission should reform the proxy
processing system by ‘‘replacing the
current regulatory framework with one
in which market forces determine fees
for proxy distribution and other
services.’’ 28 This commenter added
that, ‘‘[u]nlike the stock exchanges,
FINRA has no regulatory relationship
with public companies, or other issuers
of securities, and certainly cannot
represent their interests or provide a
mechanism for a balanced oversight
process.’’ 29 Similarly, a third
commenter endorsed the ‘‘marketdriven solution’’ advocated by other
commenters, and ‘‘does not support the
proposal to transfer responsibility for
the maximum fee-setting process to
FINRA, whose membership represents
the broker side of the industry but not
the issuer side.’’ 30
Finally, FINRA opposes the proposal
on the grounds that it ‘‘is premature and
incorrectly predicated on FINRA
assuming primary responsibility for a
regulatory regime that it has never led,
and which FINRA is not best equipped
to lead.’’ 31 FINRA notes that
‘‘historically the NYSE has taken the
lead on proxy distribution fee
schedules,’’ and that FINRA has
‘‘amend[ed] its proxy distribution rule
fee schedule to conform with [NYSE’s]
in the interest of ensuring regulatory
clarity and harmonization.’’ 32 FINRA
adds that ‘‘[i]n light of the NYSE’s
historical experience with these rules
derived in part from its listing
relationship with many issuers, which
FINRA lacks,’’ FINRA would ‘‘give
strong consideration to rescinding its fee
schedule’’ if the Commission were to
approve NYSE’s proposal.33 FINRA
suggests that, ‘‘prior to approving or
27 See
id.
letter from Niels Holch, Executive Director,
Shareholder Communications Coalition, dated
January 20, 2021, at 4.
29 See id. at 5.
30 See letter from Todd J. May, President,
Securities Transfer Association, Inc., dated March
1, 2021, at 2.
31 See letter from Marcia Asquith, Executive Vice
President, Board & External Relations, FINRA,
dated January 11, 2021, at 6.
32 See id. at 4.
33 See id. at 5–6.
28 See
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disapproving the NYSE proposal, the
Commission organize a public dialogue
on the appropriate regulation of
reimbursement of broker-dealer
expenses for forwarding issuer
documents.’’ 34
IV. Proceedings To Determine Whether
To Approve or Disapprove SR–NYSE–
2020–96 and Grounds for Disapproval
Under Consideration
The Commission is instituting
proceedings pursuant to Section
19(b)(2)(B) of the Act to determine
whether the proposal should be
approved or disapproved.35 Institution
of such proceedings is appropriate at
this time in view of the legal and policy
issues raised by the proposed rule
change, as discussed below. Institution
of disapproval proceedings does not
indicate that the Commission has
reached any conclusions with respect to
any of the issues involved.
Pursuant to Section 19(b)(2)(B) of the
Act, the Commission is providing notice
of the grounds for disapproval under
consideration. The Commission is
instituting proceedings to allow for
additional analysis and input
concerning the proposed rule change’s
consistency with the Act and, in
particular, with Section 6(b)(5) of the
Act,36 which requires, among other
things, that the rules of a national
securities exchange be designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest; and are not designed to
permit unfair discrimination between
customers, issuers, brokers, or dealers.37
As acknowledged by both the
Exchange and commenters, the NYSE
historically has taken the lead in
establishing and updating the maximum
rates of reimbursement for ‘‘reasonable
expenses’’ that broker-dealers may seek
from issuers in connection with the
distribution of proxy and other
materials to beneficial owners.38 The
34 See id. at 6. FINRA also formally petitions the
Commission to consider amending Rule 14b–1 to
prescribe the fees charged for these expenses if the
Commission determines that prescription of
specific broker-dealer reimbursement fees is
appropriate. See id.
35 15 U.S.C. 78s(b)(2)(B).
36 15 U.S.C. 78f(b)(5).
37 Id.
38 Since 1937, NYSE has required issuers, as a
matter of policy, to reimburse its members for out
of pocket costs for forwarding materials. See
Concept Release on the U.S. Proxy System,
Securities Exchange Act Release No. 62495 (July 14,
2010), 75 FR 42982, 42995 (July 22, 2010) (‘‘Proxy
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NYSE has periodically engaged in a
formal process to review and update
these maximum reimbursement rates,
with the goal of ensuring that they are
related to the reasonable proxy expenses
of member firms,39 and accordingly has
gained considerable expertise in this
area.40 Further, because NYSE is a
primary listing market, it has
relationships with issuers as well as
broker-dealers, and thus is wellpositioned to take into account the
views of both major stakeholder
groups.41
NYSE is proposing to remove the
provisions setting maximum
reimbursement rates from its rules, and
replace them with a requirement that an
NYSE member firm comply with any
schedule of approved charges set forth
in the rules of any other SRO of which
it is a member. This effectively would
make the maximum reimbursement
rates set forth in FINRA rules the
industry reference, and establish FINRA
as the lead SRO in this area.
In its proposal, NYSE expresses the
view that FINRA is in a better position
to take the lead in setting maximum
reimbursement rates for the distribution
of proxy and other issuer materials to
beneficial owners because (1) all brokerdealers that hold shares in street name
for customers are FINRA members,
while only a subset of them are NYSE
members, and (2) a large number of
affected issuers are not listed on the
NYSE. Unlike NYSE, however, FINRA
does not have a relationship with
issuers, who ultimately pay the
reimbursement rates set forth in these
rules. NYSE does not explain why, in
the absence of a relationship with this
Concept Release’’). NYSE’s reimbursement rates
were formally established by rule in 1952, and have
been revised periodically since then. See id.
39 Today’s maximum rates set forth in NYSE
Rules 451 and 465 are the product of several multiyear efforts lead by NYSE. The current fee structure
was first established by NYSE as part of a pilot
program in 1997 that was permanently approved by
the Commission in 2002 and this basic fee
structure, with some updates, remains in place
today on the NYSE. The most recent NYSE review
of the fees involved the establishment of NYSE’s
Proxy Fee Advisory Committee (‘‘PFAC’’) in 2010,
which provided a report and recommendations to
NYSE. NYSE proposed to adopt the PFAC fee
recommendations and the Commission approved
these changes in 2013. See 2013 Approval Order,
supra note 7.
40 See 2013 Approval Order, supra note 7. The
rules of national securities exchanges and FINRA
follow the NYSE fee schedule as reasonable rates
of reimbursement for distribution of proxy and
other material to beneficial owners. See Securities
Exchange Act Release No. 71272 (January 9, 2014),
79 FR 2741 (January 15, 2014) (SR–FINRA–2013–
056) (Notice of Filing and Immediate Effectiveness
of a Proposed Rule Change to Amend FINRA Rule
2251).
41 See Proxy Concept Release, supra note 38, 75
FR at 42995.
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important constituency, FINRA is in a
better position than NYSE to assume the
leadership role in this area. Further,
NYSE has not explained the significance
of the fact that only a subset of impacted
broker-dealers are NYSE members,
given that NYSE would appear wellpositioned to consider the views of this
constituency, or why the fact that all
such broker-dealers are FINRA members
puts FINRA in a materially better
position to assume the leadership role
in this area. Similarly, NYSE has not
explained the significance of the fact
that only a subset of impacted issuers
are listed on NYSE, given that NYSE
would appear well-positioned to
consider the views of this constituency
and, as discussed above, FINRA would
not. As a result, the Commission
believes there are questions as to
whether NYSE’s proposal is consistent
with Section 6(b)(5) of the Act and, in
particular, its requirements that the
rules of the Exchange be designed to
promote just and equitable principles of
trade and, in general, to protect
investors and the public interest, and
not be designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.
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 issued thereunder . . . is on
the self-regulatory organization [‘SRO’]
that proposed the rule change.’’ 42 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,43 and any failure of an SRO to
provide this information may result in
the Commission not having a sufficient
basis to make an affirmative finding that
a proposed rule change is consistent
with the Act and the applicable rules
and regulations.44
For these reasons, the Commission
believes it is appropriate to institute
proceedings pursuant to Section
19(b)(2)(B) of the Act 45 to determine
whether the proposal should be
approved or disapproved.
V. Commission’s Solicitation of
Comments
The Commission requests that
interested persons provide written
42 Rule 700(b)(3), Commission Rules of Practice,
17 CFR 201.700(b)(3).
43 See id.
44 See id.
45 15 U.S.C. 78s(b)(2)(B).
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Frm 00098
Fmt 4703
Sfmt 4703
15737
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 view of interested
persons concerning whether the
proposal is consistent with Section
6(b)(5) or any other provision of the 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.46
Interested persons are invited to
submit written data, views, and
arguments regarding whether the
proposal should be approved or
disapproved by April 14, 2021. Any
person who wishes to file a rebuttal to
any other person’s submission must file
that rebuttal by April 28, 2021.
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–
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
46 Section 19(b)(2) of the Act, as amended by the
Securities Act Amendments of 1975, Public Law
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).
E:\FR\FM\24MRN1.SGM
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15738
Federal Register / Vol. 86, No. 55 / Wednesday, March 24, 2021 / Notices
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NYSE–2020–96 and should
be submitted on or before April 14,
2021. Rebuttal comments should be
submitted by April 28, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.47
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2021–06000 Filed 3–23–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91350; File No. SR–NSCC–
2021–002]
Self-Regulatory Organizations;
National Securities Clearing
Corporation; Notice of Filing of
Proposed Rule Change To Amend the
Supplemental Liquidity Deposit
Requirements
March 18, 2021.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on March 5,
2021, National Securities Clearing
Corporation (‘‘NSCC’’) 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 clearing agency.3 The
khammond on DSKJM1Z7X2PROD with NOTICES
47 17
CFR 200.30–3(a)(57).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 NSCC filed this proposed rule change as an
advance notice (File No. SR–NSCC–2021–801) with
the Commission pursuant to Section 806(e)(1) of
Title VIII of the Dodd-Frank Wall Street Reform and
Consumer Protection Act entitled the Payment,
Clearing, and Settlement Supervision Act of 2010,
12 U.S.C. 5465(e)(1), and Rule 19b–4(n)(1)(i) under
the Act, 17 CFR 240.19b–4(n)(1)(i). A copy of the
1 15
VerDate Sep<11>2014
16:30 Mar 23, 2021
Jkt 253001
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
The proposed rule change consists of
modifications to Rule 4(A)
(Supplemental Liquidity Deposits) of
the NSCC’s Rules & Procedures
(‘‘Rules’’) to (1) calculate and collect,
when applicable, supplemental
liquidity deposits to NSCC’s Clearing
Fund (‘‘Supplemental Liquidity
Deposits,’’ or ‘‘SLD’’) on a daily basis
rather than only in advance of the
monthly expiration of stock options
(defined in Rule 4(A) as ‘‘Options
Expiration Activity Period’’); (2)
establish an intraday SLD obligation
that would apply in advance of Options
Expiration Activity Periods and may
also be applied on other days, as
needed; (3) implement an alternative
pro rata calculation of Members’ SLD
obligations that may apply in certain
circumstances; and (4) simplify and
improve the transparency of the
description of the calculation, collection
and treatment of SLD in Rule 4(A) of the
Rules, as described in greater detail
below.4
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission, the
clearing agency 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
clearing agency has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
1. Purpose
NSCC is proposing to enhance its
management of the liquidity risks that
arise in or are borne by it by calculating
and collecting, when applicable, SLD on
each Business Day rather than only in
advance of Options Expiration Activity
Periods. The proposed changes would
establish an intraday SLD obligation
that would apply in advance of Options
advance notice is available at https://www.dtcc.com/
legal/sec-rule-filings.aspx.
4 Capitalized terms not defined herein are defined
in the Rules, available at https://dtcc.com/∼/media/
Files/Downloads/legal/rules/nscc_rules.pdf.
PO 00000
Frm 00099
Fmt 4703
Sfmt 4703
Expiration Activity Periods and may be
applicable on any Business Day, as
needed. The proposal would also
implement an alternative pro rata
calculation of Members’ SLD obligations
that may apply in certain circumstances.
Finally, in connection with these
proposed changes, NSCC would
simplify and improve the description of
the calculation, collection and treatment
of SLD in Rule 4(A). These proposed
rule changes are described in greater
detail below.
(i) Overview of the NSCC Liquidity Risk
Management
NSCC, along with its affiliates, The
Depository Trust Company and Fixed
Income Clearing Corporation, maintains
a Clearing Agency Liquidity Risk
Management Framework (‘‘Framework’’)
that sets forth the manner in which
NSCC measures, monitors and manages
the liquidity risks that arise in or are
borne by it.5 As a central counterparty,
NSCC’s liquidity needs are driven by
the requirement to complete end-of-day
money settlement, on an ongoing basis,
in the event NSCC ceases to act for a
Member (hereinafter referred to as a
‘‘default’’).6 If a Member defaults, NSCC
needs to complete settlement of
guaranteed transactions on the defaulted
Member’s behalf from the date of default
through the remainder of the settlement
cycle. As such, and as provided for in
the Framework, NSCC measures the
sufficiency of its qualifying liquid
resources through daily liquidity studies
across a range of scenarios, including
amounts NSCC would need in the event
the Member or Member family with the
largest aggregate liquidity exposure
defaults.7
As described in the Framework, NSCC
seeks to maintain qualifying liquid
resources in an amount sufficient to
cover this risk. These resources
currently include (1) cash deposits to
the NSCC Clearing Fund; 8 (2) the
proceeds of the issuance and private
5 See Securities Exchange Act Release No. 82377
(December 21, 2017), 82 FR 61617 (December 28,
2017) (File Nos. SR–DTC–2017–004; SR–FICC–
2017–008; SR–NSCC–2017–005).
6 The Rules identify when NSCC may cease to act
for a Member and the types of actions NSCC may
take. For example, NSCC may suspend a firm’s
membership with NSCC or prohibit or limit a
Member’s access to NSCC’s services in the event
that Member defaults on a financial or other
obligation to NSCC. See Rule 46 (Restrictions on
Access to Services) of the Rules, supra note 4.
7 ‘‘Qualifying liquid resources’’ are defined in
Rule 17Ad–22(a)(14) under the Act. 17 CFR
240.17Ad–22(a)(14). The Framework also includes
a definition of qualifying liquid resources that
incorporates by reference Rule 17Ad–22(a)(14). See
supra note 5.
8 See Rule 4 (Clearing Fund) and Procedure XV
(Clearing Fund Formula and Other Matters) of the
Rules, supra note 4.
E:\FR\FM\24MRN1.SGM
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]]>Agencies
[Federal Register Volume 86, Number 55 (Wednesday, March 24, 2021)]
[Notices]
[Pages 15734-15738]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-06000]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-91359; File No. SR-NYSE-2020-96]
Self-Regulatory Organizations; New York Stock Exchange LLC; Order
Instituting Proceedings To Determine Whether To Approve or Disapprove a
Proposed Rule Change To Amend Its Rules Establishing Maximum Fee Rates
To Be Charged by Member Organizations for Forwarding Proxy and Other
Materials to Beneficial Owners
March 18, 2021.
I. Introduction
On December 2, 2020, New York Stock Exchange LLC (``NYSE'' or
[[Page 15735]]
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to delete the maximum fee rates
for forwarding proxy and other materials to beneficial owners set forth
in NYSE Rules 451 and 465 and Section 402.10 of the NYSE Listed Company
Manual (``Manual''), and establish in their place a requirement for
member organizations to comply with any schedule of approved charges
set forth in the rules of any other national securities exchange or
association of which such member organization is a member. The proposed
rule change was published for comment in the Federal Register on
December 21, 2020.\3\ On February 1, 2021, pursuant to Section 19(b)(2)
of the Act,\4\ the Commission designated a longer period within which
to either approve the proposed rule change, disapprove the proposed
rule change, or institute proceedings to determine whether to
disapprove the proposed rule change.\5\ This order institutes
proceedings under Section 19(b)(2)(B) of the Act \6\ to determine
whether to approve or disapprove the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 90677 (December 15,
2020), 85 FR 83119 (``Notice''). Comments received on the proposed
rule change are available at: https://www.sec.gov/comments/sr-nyse-2020-96/srnyse202096.htm.
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 91025, 86 FR 8246
(February 4, 2021). The Commission designated March 21, 2021, as the
date by which it should approve, disapprove, or institute
proceedings to determine whether to disapprove the proposed rule
change.
\6\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
II. Description of the Proposal
NYSE Rules 451 and 465, and the related provisions in Section
402.10 of the Manual, require NYSE member organizations that hold
securities for beneficial owners in street name to solicit proxies
from, and deliver proxy and issuer communication materials to,
beneficial owners on behalf of issuers.\7\ For this service, issuers
reimburse NYSE member organizations for out-of-pocket, reasonable
clerical, postage and other expenses incurred for a particular
distribution.\8\ This reimbursement structure stems from SEC Rules 14b-
1 and 14b-2 under the Act,\9\ which impose obligations on companies and
nominees to ensure that beneficial owners receive proxy materials.
These rules require companies to send their proxy materials to broker-
dealers or banks, as nominees that hold securities in street name, for
forwarding to beneficial owners, and to pay nominees for reasonable
expenses, both direct and indirect, incurred in providing proxy
information to beneficial owners.\10\ The Commission's rules do not
specify the fees that nominees can charge issuers for proxy
distribution; rather, they state that issuers must reimburse the
nominees for ``reasonable expenses'' incurred.\11\
---------------------------------------------------------------------------
\7\ See NYSE Rules 451 and 465, and Section 402.10 of the
Manual; Notice, supra note 3, 85 FR at 83119. The ownership of
shares in street name means that a shareholder, or ``beneficial
owner,'' has purchased shares through a broker-dealer or bank, also
known as a ``nominee.'' See Securities Exchange Act Release No.
70720 (October 18, 2013), 78 FR 63530, 63531 n.14 (October 24, 2013)
(SR-NYSE-2013-07) (Order Granting Approval to Proposed Rule Change
Amending NYSE Rules 451 and 465, and the Related Provisions of
Section 402.10 of the NYSE Listed Company Manual) (``2013 Approval
Order''). In contrast to direct ownership, where shares are directly
registered in the name of the shareholder, shares held in street
name are registered in the name of the nominee, or in the nominee
name of a depository, such as the Depository Trust Company. Id.
\8\ See NYSE Rules 451 and 465, and Section 402.10 of the
Manual; 2013 Approval Order, supra note 7, 78 FR at 63531.
\9\ 17 CFR 240.14b-1; 17 CFR 240.14b-2.
\10\ See 17 CFR 240.14b-1 and 14b-2; see also 2013 Approval
Order, supra note 7, 78 FR at 63531.
\11\ See 17 CFR 240.14b-1 and 14b-2; see also 2013 Approval
Order, supra note 7, 78 FR at 63531.
---------------------------------------------------------------------------
Currently, the Supplementary Material to NYSE Rule 451, which is
cross-referenced by the Supplementary Material to Rule 465 and Section
402.10 of the Manual, establish the maximum rates at which an NYSE
member organization may be reimbursed for expenses incurred in
connection with distributing proxy and other issuer communication
materials to beneficial holders. FINRA Rule 2251 also sets forth a
schedule of maximum rates that is substantively identical to the rate
schedule specified in NYSE Rule 451.\12\ The rules of other self-
regulatory organizations (``SROs'') generally provide that member
organizations must forward proxy and other issuer communication
materials if they receive ``reasonable'' reimbursement, but they do not
specify any schedule of maximum permitted charges.\13\
---------------------------------------------------------------------------
\12\ See Notice, supra note 3, 85 FR at 83120. The Exchange
states that FINRA Rule 2251 differs from NYSE Rule 451 in one
respect. See id., 85 FR at 83119, n.8. Specifically, FINRA has not
adopted the Notice and Access fees for investment company
shareholder report distributions set forth in Section 5 (Notice and
Access Fees) of Supplementary Material .90 to NYSE Rule 451 as part
of FINRA Rule 2251. Id.
\13\ See Notice, supra note 3, 85 FR at 83119. But see NYSE
American LLC Rule 576.80 (setting forth a schedule of approved
charges by member organizations in connection with proxy
solicitations).
---------------------------------------------------------------------------
The Exchange proposes to amend Supplementary Materials .90-.96 to
NYSE Rule 451 by deleting the provisions setting maximum reimbursement
rates and replacing them with rule text stating that member
organizations must comply with any schedule of approved charges set
forth in the rules of any other national securities exchange or
association of which such member organization is a member.\14\ The
Exchange also proposes to delete the cross-references to NYSE Rule
451.90-96 in Supplementary Material .20 to NYSE Rule 465 and replace it
with rule text that is identical to the proposed new language in
Supplementary Material .90 to NYSE Rule 451.\15\ The Exchange states
that the proposed rule change is not intended to take a position on the
appropriateness of the fee schedules for proxy and other distributions
currently set forth in NYSE Rules 451 and 465 or in the rules of any
other SRO.\16\
---------------------------------------------------------------------------
\14\ See proposed Supplementary Material .90 to NYSE Rule 451.
The Exchange also proposes to delete Section 402.10 of the Manual,
which replicates the fee schedule set forth in Supplementary
Material .90-.96 to NYSE Rule 451.
\15\ See proposed Supplementary Material .20 to NYSE Rule 465.
\16\ See Notice, supra note 3, 85 FR at 83120. As noted above,
FINRA and NYSE American LLC presently are the only SROs besides NYSE
with rules that set forth a fee schedule.
---------------------------------------------------------------------------
According to the Exchange, since all NYSE member organizations that
are subject to the fee schedule set forth in NYSE Rule 451 (and cross
referenced by NYSE Rule 465) are also FINRA member firms, the proposal
would effectively require member organizations to comply with the fee
schedule set forth in FINRA Rule 2251.\17\ The Exchange acknowledges
that it has historically taken the lead in establishing the maximum
proxy distribution reimbursement rates, but states that it no longer
believes the Exchange is best positioned to retain this role going
forward.\18\ The Exchange states that all of the brokers who hold
shares on behalf of customers in street name are FINRA members, while
only a subset of them are members of the NYSE.\19\ The Exchange also
notes that a large and increasing number of the affected issuers are
listed on Nasdaq, CBOE or other non-NYSE Group exchanges or are traded
solely over the counter.\20\ The Exchange further states that the
development of the mutual fund industry has led to the existence of a
[[Page 15736]]
huge number of issuers who are not listed on any exchange.\21\
---------------------------------------------------------------------------
\17\ See id.
\18\ See id., 85 FR at 83119.
\19\ See id., 85 FR at 83120.
\20\ See id., 85 FR at 83120.
\21\ See id., 85 FR at 8319-20.
---------------------------------------------------------------------------
III. Summary of Comment Letters Received
Several commenters support the proposal.\22\ One commenter believes
the Commission should approve the proposed rule change ``[g]iven the
technical nature of the change and NYSE's lack of interest in
reforming, or even examining, the current fee system.'' \23\ This
commenter, however, believes it is imperative for the Commission to
take this opportunity to reform the current system relating to
processing fees for shareholder materials, including by facilitating
competition in the distribution of shareholder materials through
greater issuer participation in the selection process or, barring that,
by reforming the processing fee schedule.\24\ A number of commenters
from the fund industry agree with the views expressed by this
commenter.\25\
---------------------------------------------------------------------------
\22\ See letters from Dorothy M. Donohue, Deputy General
Counsel, Securities Regulation, and Joanne Kane, Senior Director,
Operations and Transfer Agency, Investment Company Institute, dated
January 8, 2021, at 2 (``ICI Letter''); Timothy W. McHale, Senior
Vice President & Senior Counsel, Capital Research and Management
Company, and Anthony M. Seiffert, Chief Compliance Officer, American
Funds Service Company, Capital Group, dated January 11, 2021;
Catherine L. Newell, General Counsel and Executive Vice President,
Dimensional Fund Advisors LP, dated January 11, 2021; Peter J.
Germain, Chief Legal Officer, Federated Hermes, Inc., dated January
11, 2021; Basil K. Fox, Jr., President, Franklin Templeton Investor
Services, LLC, dated January 11, 2021; Heidi Hardin, Executive Vice
President and General Counsel, MFS Investment Management, dated
January 11, 2021; Thomas E. Faust Jr., Chairman and Chief Executive
Officer, Eaton Vance Corp., dated January 14, 2021; and Noah Hamman,
Chief Executive Officer, AdvisorShares Investments, LLC, dated
January 14, 2021.
\23\ See ICI Letter at 2.
\24\ Id. at 2-4. This commenter also urged the Commission to
emphasize that the existing fee schedules represent the maximum
rates for ``reasonable'' processing fees, rather than an obligation
to pay those exact fees. Several commenters from the fund industry
agreed with the views expressed in the ICI Letter.
\25\ See supra note 22.
---------------------------------------------------------------------------
Several other commenters oppose the proposal. One commenter
expressed the view that ``the most appropriate approach is to retain
NYSE in the role and accelerate discussions about fundamental reform of
the proxy communication process, abolishing the need for reimbursement
fees and facilitating issuer-directed communications.'' \26\ This
commenter explained that ``NYSE has played a longstanding, central role
in the industry dialogue on proxy reform and the fee-setting process,
given its representation of both issuers and brokers,'' and so the
commenter ``continue[s] to believe that its leadership will be critical
to any transition to new arrangements for proxy communications and
associated fees.'' \27\ Another commenter stated that ``[i]nstead of
approving a rule proposal that transfers regulatory oversight of proxy
fees from one Self-Regulatory Organization to another,'' the Commission
should reform the proxy processing system by ``replacing the current
regulatory framework with one in which market forces determine fees for
proxy distribution and other services.'' \28\ This commenter added
that, ``[u]nlike the stock exchanges, FINRA has no regulatory
relationship with public companies, or other issuers of securities, and
certainly cannot represent their interests or provide a mechanism for a
balanced oversight process.'' \29\ Similarly, a third commenter
endorsed the ``market-driven solution'' advocated by other commenters,
and ``does not support the proposal to transfer responsibility for the
maximum fee-setting process to FINRA, whose membership represents the
broker side of the industry but not the issuer side.'' \30\
---------------------------------------------------------------------------
\26\ See letter from Paul Conn, President, Global Capital
Markets, Computershare, dated January 11, 2021, at 4.
\27\ See id.
\28\ See letter from Niels Holch, Executive Director,
Shareholder Communications Coalition, dated January 20, 2021, at 4.
\29\ See id. at 5.
\30\ See letter from Todd J. May, President, Securities Transfer
Association, Inc., dated March 1, 2021, at 2.
---------------------------------------------------------------------------
Finally, FINRA opposes the proposal on the grounds that it ``is
premature and incorrectly predicated on FINRA assuming primary
responsibility for a regulatory regime that it has never led, and which
FINRA is not best equipped to lead.'' \31\ FINRA notes that
``historically the NYSE has taken the lead on proxy distribution fee
schedules,'' and that FINRA has ``amend[ed] its proxy distribution rule
fee schedule to conform with [NYSE's] in the interest of ensuring
regulatory clarity and harmonization.'' \32\ FINRA adds that ``[i]n
light of the NYSE's historical experience with these rules derived in
part from its listing relationship with many issuers, which FINRA
lacks,'' FINRA would ``give strong consideration to rescinding its fee
schedule'' if the Commission were to approve NYSE's proposal.\33\ FINRA
suggests that, ``prior to approving or disapproving the NYSE proposal,
the Commission organize a public dialogue on the appropriate regulation
of reimbursement of broker-dealer expenses for forwarding issuer
documents.'' \34\
---------------------------------------------------------------------------
\31\ See letter from Marcia Asquith, Executive Vice President,
Board & External Relations, FINRA, dated January 11, 2021, at 6.
\32\ See id. at 4.
\33\ See id. at 5-6.
\34\ See id. at 6. FINRA also formally petitions the Commission
to consider amending Rule 14b-1 to prescribe the fees charged for
these expenses if the Commission determines that prescription of
specific broker-dealer reimbursement fees is appropriate. See id.
---------------------------------------------------------------------------
IV. Proceedings To Determine Whether To Approve or Disapprove SR-NYSE-
2020-96 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act to determine whether the proposal should be
approved or disapproved.\35\ Institution of such proceedings is
appropriate at this time in view of the legal and policy issues raised
by the proposed rule change, as discussed below. Institution of
disapproval proceedings does not indicate that the Commission has
reached any conclusions with respect to any of the issues involved.
---------------------------------------------------------------------------
\35\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
Pursuant to Section 19(b)(2)(B) of the Act, the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis and input concerning the proposed rule change's consistency
with the Act and, in particular, with Section 6(b)(5) of the Act,\36\
which requires, among other things, that the rules of a national
securities exchange be designed to prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles of trade,
to remove impediments to and perfect the mechanism of a free and open
market and a national market system, and, in general, to protect
investors and the public interest; and are not designed to permit
unfair discrimination between customers, issuers, brokers, or
dealers.\37\
---------------------------------------------------------------------------
\36\ 15 U.S.C. 78f(b)(5).
\37\ Id.
---------------------------------------------------------------------------
As acknowledged by both the Exchange and commenters, the NYSE
historically has taken the lead in establishing and updating the
maximum rates of reimbursement for ``reasonable expenses'' that broker-
dealers may seek from issuers in connection with the distribution of
proxy and other materials to beneficial owners.\38\ The
[[Page 15737]]
NYSE has periodically engaged in a formal process to review and update
these maximum reimbursement rates, with the goal of ensuring that they
are related to the reasonable proxy expenses of member firms,\39\ and
accordingly has gained considerable expertise in this area.\40\
Further, because NYSE is a primary listing market, it has relationships
with issuers as well as broker-dealers, and thus is well-positioned to
take into account the views of both major stakeholder groups.\41\
---------------------------------------------------------------------------
\38\ Since 1937, NYSE has required issuers, as a matter of
policy, to reimburse its members for out of pocket costs for
forwarding materials. See Concept Release on the U.S. Proxy System,
Securities Exchange Act Release No. 62495 (July 14, 2010), 75 FR
42982, 42995 (July 22, 2010) (``Proxy Concept Release''). NYSE's
reimbursement rates were formally established by rule in 1952, and
have been revised periodically since then. See id.
\39\ Today's maximum rates set forth in NYSE Rules 451 and 465
are the product of several multi-year efforts lead by NYSE. The
current fee structure was first established by NYSE as part of a
pilot program in 1997 that was permanently approved by the
Commission in 2002 and this basic fee structure, with some updates,
remains in place today on the NYSE. The most recent NYSE review of
the fees involved the establishment of NYSE's Proxy Fee Advisory
Committee (``PFAC'') in 2010, which provided a report and
recommendations to NYSE. NYSE proposed to adopt the PFAC fee
recommendations and the Commission approved these changes in 2013.
See 2013 Approval Order, supra note 7.
\40\ See 2013 Approval Order, supra note 7. The rules of
national securities exchanges and FINRA follow the NYSE fee schedule
as reasonable rates of reimbursement for distribution of proxy and
other material to beneficial owners. See Securities Exchange Act
Release No. 71272 (January 9, 2014), 79 FR 2741 (January 15, 2014)
(SR-FINRA-2013-056) (Notice of Filing and Immediate Effectiveness of
a Proposed Rule Change to Amend FINRA Rule 2251).
\41\ See Proxy Concept Release, supra note 38, 75 FR at 42995.
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NYSE is proposing to remove the provisions setting maximum
reimbursement rates from its rules, and replace them with a requirement
that an NYSE member firm comply with any schedule of approved charges
set forth in the rules of any other SRO of which it is a member. This
effectively would make the maximum reimbursement rates set forth in
FINRA rules the industry reference, and establish FINRA as the lead SRO
in this area.
In its proposal, NYSE expresses the view that FINRA is in a better
position to take the lead in setting maximum reimbursement rates for
the distribution of proxy and other issuer materials to beneficial
owners because (1) all broker-dealers that hold shares in street name
for customers are FINRA members, while only a subset of them are NYSE
members, and (2) a large number of affected issuers are not listed on
the NYSE. Unlike NYSE, however, FINRA does not have a relationship with
issuers, who ultimately pay the reimbursement rates set forth in these
rules. NYSE does not explain why, in the absence of a relationship with
this important constituency, FINRA is in a better position than NYSE to
assume the leadership role in this area. Further, NYSE has not
explained the significance of the fact that only a subset of impacted
broker-dealers are NYSE members, given that NYSE would appear well-
positioned to consider the views of this constituency, or why the fact
that all such broker-dealers are FINRA members puts FINRA in a
materially better position to assume the leadership role in this area.
Similarly, NYSE has not explained the significance of the fact that
only a subset of impacted issuers are listed on NYSE, given that NYSE
would appear well-positioned to consider the views of this constituency
and, as discussed above, FINRA would not. As a result, the Commission
believes there are questions as to whether NYSE's proposal is
consistent with Section 6(b)(5) of the Act and, in particular, its
requirements that the rules of the Exchange be designed to promote just
and equitable principles of trade and, in general, to protect investors
and the public interest, and not be designed to permit unfair
discrimination between customers, issuers, brokers, or dealers.
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 issued
thereunder . . . is on the self-regulatory organization [`SRO'] that
proposed the rule change.'' \42\ 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,\43\
and any failure of an SRO to provide this information may result in the
Commission not having a sufficient basis to make an affirmative finding
that a proposed rule change is consistent with the Act and the
applicable rules and regulations.\44\
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\42\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR
201.700(b)(3).
\43\ See id.
\44\ See id.
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For these reasons, the Commission believes it is appropriate to
institute proceedings pursuant to Section 19(b)(2)(B) of the Act \45\
to determine whether the proposal should be approved or disapproved.
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\45\ 15 U.S.C. 78s(b)(2)(B).
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V. Commission's Solicitation of 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
view of interested persons concerning whether the proposal is
consistent with Section 6(b)(5) or any other provision of the 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.\46\
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\46\ Section 19(b)(2) of the Act, as amended by the Securities
Act Amendments of 1975, Public Law 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).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposal should be approved or
disapproved by April 14, 2021. Any person who wishes to file a rebuttal
to any other person's submission must file that rebuttal by April 28,
2021.
Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSE-2020-96 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
[[Page 15738]]
Commission and any person, other than those that may be withheld from
the public in accordance with the provisions of 5 U.S.C. 552, will be
available for website viewing and printing in the Commission's Public
Reference Room, 100 F Street NE, Washington, DC 20549, on official
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of
such filing also will be available for inspection and copying at the
principal office of the Exchange. All comments received will be posted
without change. Persons submitting comments are cautioned that we do
not redact or edit personal identifying information from comment
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-
NYSE-2020-96 and should be submitted on or before April 14, 2021.
Rebuttal comments should be submitted by April 28, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\47\
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\47\ 17 CFR 200.30-3(a)(57).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2021-06000 Filed 3-23-21; 8:45 am]
BILLING CODE 8011-01-P
