Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 2, To Amend Its Rules To Prohibit Member Organizations From Seeking Reimbursement, in Certain Circumstances, From Issuers for Forwarding Proxy and Other Materials to Beneficial Owners, 22725-22728 [2021-08905]
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Federal Register / Vol. 86, No. 81 / Thursday, April 29, 2021 / Notices
Hearings (with no Rebuttal Case)
June 2 to 4, 2021
Hearings (with Rebuttal Case, but no authorized Surrebuttal
June 9 to 11, 2021
22725
Case)
Hearings (with Rebuttal Case and authorized Surrebuttal
June 14 to 16, 2021
Case)
Filing of Initial Briefs (with no Rebuttal Case)
June 11, 2021
Filing of Reply Briefs (with no Rebuttal Case)
June 18, 2021
Filing of Statement of Position (with no Rebuttal Case)
June 11, 2021
Filing of Advisory Opinion (absent determination of good
July 20, 2021
cause for extension)
BILLING CODE 7710–FW–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91663; File No. SR–NYSE–
2020–98]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing of Proposed Rule Change, as
Modified by Amendment No. 2, To
Amend Its Rules To Prohibit Member
Organizations From Seeking
Reimbursement, in Certain
Circumstances, From Issuers for
Forwarding Proxy and Other Materials
to Beneficial Owners
jbell on DSKJLSW7X2PROD with NOTICES
April 23, 2021.
On November 30, 2020, New York
Stock Exchange LLC (‘‘NYSE’’ or
‘‘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
amend its rules to prohibit member
organizations from seeking
reimbursement, in certain
circumstances, from issuers for
forwarding proxy and other materials to
beneficial owners. The proposed rule
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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change was published for comment in
the Federal Register on December 18,
2020.3 On January 29, 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
On March 17, 2021, the Commission
instituted proceedings under Section
19(b)(2)(B) of the Act to determine
whether to approve or disapprove the
proposed rule change.6 On April 6,
2021, the Exchange filed Amendment
No. 1 to the proposed rule change; the
Exchange withdrew that amendment on
April 16, 2021. On April 16, 2021, the
Exchange filed Amendment No. 2 to the
proposed rule change, which
superseded the proposed rule change as
originally filed, and is described in
Items I and II below, which Items have
been prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
3 See Securities Exchange Act Release No. 90653
(December 14, 2020), 85 FR 82539 (December 18,
2020). Comments received on the proposed rule
change are available on the Commission’s website
at: https://www.sec.gov/comments/sr-nyse-2020-98/
srnyse202098.htm.
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 91011
(January 29, 2021), 86 FR 8246 (February 4, 2021).
6 See Securities Exchange Act Release No. 91343
(March 17, 2021), 86 FR 15536 (March 23, 2021).
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change, as modified by Amendment No.
2, from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend its
rules to prohibit member organizations
from seeking reimbursement from
issuers for forwarding proxy and other
materials to beneficial owners who
received shares from their broker at no
cost in connection with a promotion by
the broker. This Amendment No. 2
amends and restates the original filing
in its entirety.7 The proposed rule
7 The NYSE previously filed a proposed rule
filing to amend its rules to prohibit member
organizations from seeking reimbursement from
issuers for forwarding proxy and other materials to
beneficial owners who received shares from their
broker at no cost or at a substantially discounted
price in connection with a promotion by the broker.
See SR–NYSE–2020–98 (November 30, 2020). The
proposed rule change was published for comment
in the Federal Register on December 18, 2020. See
Securities Exchange Act Release No. 90653
(December 14, 2020), 85 FR 82539 (December 18.
2020). On January 29, 2021, pursuant to Section
19(b)(2) of the Exchange Act, 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. See Securities Exchange Act Release No.
91011 (January 29, 2021), 86 FR 8246 (February 4,
2021). By an order dated March 17, 2021, the
Commission instituted proceedings under Section
19(b)(2)(B) to determine whether to approve or
disapprove the proposed rule change. See Securities
Exchange Act Release No. 91343 (March 17, 2021),
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Federal Register / Vol. 86, No. 81 / Thursday, April 29, 2021 / Notices
change is available on the Exchange’s
website at www.nyse.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
jbell on DSKJLSW7X2PROD with NOTICES
1. Purpose
This Amendment No. 2 amends and
restates the original filing in its
entirety.8
NYSE Rule 451 requires 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.9 For this service, issuers
reimburse NYSE member organizations
86 FR 15536 (March 23, 2021). The Exchange
previously withdrew Amendment No. 1 to the
filing. Amendment No. 1 [sic] is being filed to: (1)
Remove from the filing the prohibition on brokers
claiming reimbursement from issuers for
distributions to any beneficial owner when the
shares of the issuer held in such beneficial owner’s
account were purchased from that broker at a
substantially discounted price; (2) explain why the
proposal does not apply by its terms to a broker
claiming reimbursement for distributions relating to
shares that the beneficial owner transferred into an
account at such broker from an account at another
broker that had transferred those shares to the
beneficial owner without charge; and (3) explain
why the Exchange believes the proposal is
consistent with the requirement of Rules 14b–1 and
14b–2 under the Act that brokers are entitled to
receive ‘‘reasonable reimbursement’’ for making
proxy distributions on behalf of issuers.
8 See note 7 supra for details of how Amendment
No. 2 differs from the original filing.
9 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.’’ 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. For more detail
regarding share ownership, see Securities Exchange
Act Release No. 62495 (July 14, 2010), 75 FR 42982
(July 22, 2010) (Concept Release on the U.S. Proxy
System) (‘‘Proxy Concept Release’’).
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for out-of-pocket, reasonable clerical,
postage and other expenses incurred for
a particular distribution. This
reimbursement structure stems from
SEC Rules 14b–1 and 14b–2 under the
Act,10 which impose obligations on
companies and nominees to ensure that
beneficial owners receive proxy
materials and are given the opportunity
to vote. These rules require companies
to send their proxy materials to
nominees, i.e., broker-dealers or banks
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. Similarly, Rule 465
requires member organizations to
forward issuer communications to
beneficial owners on behalf of issuers
subject to receipt of reimbursement of
expenses.
Recently, brokers providing retail
brokerage services have developed a
practice in which customers are given
securities without charge as a
commercial incentive (for example,
upon opening a new account or
referring a new customer to the broker).
Typically, these incentives involve the
transfer of a small number of shares to
benefiting customers and result in the
customer having a position in the
company whose shares they receive that
has a very small dollar value. Rule 451
does not distinguish between these
beneficial owners and beneficial owners
that have paid for their shares, so
brokers are required to solicit proxies
from these accounts and are entitled to
reimbursement of their expenses under
Rules 451 and 465, as well as pursuant
to the applicable rules of any other
national securities exchange or national
securities association of which the
NYSE member organization is a
member.11 As a consequence, issuers
are billed under Exchange rules and the
rules of other SROs for the
reimbursement of expenses the broker
incurs in making distributions to these
beneficial owners who have very small
positions, which they acquired from
their broker without any payment by the
customer. In certain cases, the issuer
can experience a significant increase in
its distribution reimbursement expenses
solely due to its shares being included
in these broker promotional schemes.
While the distribution of shares in
these broker promotions may result in a
significant increase in the number of
beneficial owners of an issuer’s stock,
the generally very small size of each of
these positions means that they usually
10 17
CFR 240.14b–1; 17 CFR 240.14b–2.
for example, FINRA Rule 2251.
11 See,
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represent a very small percentage of the
voting power. As such, the costs the
issuer incurs in reimbursing the broker
for distributing proxies to these
accounts is very disproportionate to the
maximum potential vote such shares
represent. By contrast, the broker using
such a scheme chooses to engage in it
because it believes that it will result in
a commercial benefit to the broker.
Consequently, the Exchange believes
that it is more appropriate for the broker
to bear these proxy distribution costs.
Accordingly, the Exchange proposes
new Rule 451A, which would provide
that, notwithstanding the applicable
provisions of Rules 451 or 465 or what
may be permitted by the rules of any
other national securities exchange or
national securities association of which
a member organization is also a
member, no member shall seek to be
reimbursed for expenses incurred in
connection with the distribution of
proxies or other materials on behalf of
issuers to the beneficial owners of
shares or units of an issuer’s securities
in a nominee account if those shares or
units were transferred to the account
holder by the member organization at no
cost.
As proposed, Rule 451A would not
limit a broker’s right to reimbursement
for distributions to any beneficial owner
if any part of that beneficial owner’s
position in an issuer’s securities was
received by any means other than a
transfer without charge from the broker.
Rules 451 and 465 would continue to
apply to all distributions, so the broker
would continue to be fully obligated to
solicit votes from, and make other
distributions on behalf of issuers to, all
beneficial owners notwithstanding the
limitations on reimbursement of
expenses imposed by Rule 451A.
The Exchange’s proposal does not
limit the right of a broker to receive
reimbursement under Rules 451 and 465
unless that broker had itself transferred
those shares without charge into the
account of the beneficial owner.
Specifically, if a beneficial owner
transferred shares received in this
manner into an account at another
broker, Rule 451A would not preclude
that other broker from claiming
reimbursement under Rules 451 and
465. The Exchange notes that it would
be impossible for the receiving broker in
these circumstances to track whether
the shares of a specific issuer transferred
into its custody had all been received by
the beneficial owner without charge
from another broker. Moreover, that
broker would not have received the
commercial benefit from the
promotional scheme that would accrue
to the broker that had given the shares
E:\FR\FM\29APN1.SGM
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Federal Register / Vol. 86, No. 81 / Thursday, April 29, 2021 / Notices
jbell on DSKJLSW7X2PROD with NOTICES
without charge to its customers. For the
foregoing reasons, the Exchange believes
that it is impracticable to extend the
application of Rule 451A to the broker
to whom the shares are transferred in
these circumstances and that it is
reasonable to limit its application to the
broker that had chosen to transfer those
shares without charge.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Securities Exchange Act of 1934
(the ‘‘Act’’) generally.12 Section
6(b)(4) 13 requires that exchange rules
provide for the equitable allocation of
reasonable dues, fees, and other charges
among its members and issuers and
other persons using the facilities of an
exchange. Section 6(b)(5) 14 requires,
among other things, that exchange rules
are designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect the public interest
and the interests of investors, promote
just and equitable principles of trade
and that they are not designed to permit
unfair discrimination between issuers,
brokers or dealers.
The Exchange believes that the
proposal is consistent with Sections
6(b)(4) and 6(b)(5) of the Act as it would
only limit the reimbursement of
distribution expenses in circumstances
where a broker distributes the shares to
its customers as part of a voluntary
promotional strategy by the broker from
which it derives a commercial benefit.
The Exchange notes that the recipients
of shares without charge as part of such
schemes typically will not be given any
choice as to which shares they receive
and are therefore not making any
investment decision. As the broker
typically has sole control over the
allocation of these shares to its
customers and derives a commercial
benefit from doing so, the Exchange
believes that the proposal is not unfairly
discriminatory and does not represent
an inequitable allocation of the costs of
the distribution of proxy and other
issuer materials.
The Exchange notes that brokers will
continue to be required to distribute
proxy and other materials on behalf of
issuers notwithstanding the fact that
12 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4).
14 15 U.S.C. 78f(b)(5).
13 15
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brokers will not be entitled to any
reimbursement of expenses and believes
that the proposal is therefore consistent
with Rules 14b–1 and 14b–2 under the
Act, which impose obligations on
companies and nominees to ensure that
beneficial owners receive proxy
materials and are given the opportunity
to vote. The Exchange also believes that
its proposal is consistent with the
requirement of Rules 14b-1 and 14b-2
that brokers are entitled to ‘‘reasonable
reimbursement’’ of expenses in
connection with making proxy
distributions on behalf of issuers. First,
the Exchange notes that any broker that
is prohibited from charging fees under
this proposal would continue to be
reimbursed for its aggregate expenses
with respect to proxy distribution, as
the prohibition on distribution fees
would be limited to those accounts in
which the only shares of the applicable
issuer are shares received without
charge from that broker. As such, the
effect of the proposal would be to
reduce the overall reimbursement
received by that broker for a
distribution, but not to eliminate that
reimbursement. The Exchange believes
that this reduced level of reimbursement
is reasonable in light of the fact that the
beneficial owners in question would
have received the shares without charge
as part of a voluntary commercial
scheme initiated by the broker and
which the broker undertook because it
believed that it was in its own business
interest.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change would impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed limitation on distribution
expense reimbursement would apply to
any broker that adopts a commercial
strategy of distributing shares to account
holders free of charge. Brokers that
adopt this strategy do so because they
believe that they derive a commercial
and competitive advantage from doing
so. As such, the Exchange believes that
any burden on competition associated
with this proposal is appropriate in light
of the fact that brokers will only be
subject to any such burden as a
consequence of voluntarily adopting a
strategy that they believe is beneficial
for their business. There would be no
effect on the competition among issuers
resulting from the proposed rule change,
as all issuers would benefit from the
proposed restriction in the same manner
if their shares have been distributed
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22727
without charge as part of such a
commercial arrangement.
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. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change, as modified by Amendment No.
2, is consistent with the Act. Comments
may be submitted by any of the
following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSE–2020–98 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–2020–98. 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
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Federal Register / Vol. 86, No. 81 / Thursday, April 29, 2021 / Notices
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NYSE–2020–98 and should
be submitted on or before May 20, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–08905 Filed 4–28–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91656; File No. SR–BOX–
2021–10]
Self-Regulatory Organizations; BOX
Exchange LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend the Short Term
Option Series Program To Permit
Monday and Wednesday Expirations
for Options Listed Pursuant to the
Short Term Option Series Program on
the Invesco QQQ Trust SM Series ETF
Trust
April 23, 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 April 21,
2021, BOX Exchange LLC (the
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
from interested persons.
jbell on DSKJLSW7X2PROD with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend IM–
5050–6 (Short Term Option Series
Program) to permit Monday and
Wednesday expirations for options
listed pursuant to the Short Term
Option Series Program on the Invesco
QQQ TrustSM Series (‘‘QQQ’’) ETF
Trust. The text of the proposed rule
change is available from the principal
office of the Exchange, at the
Commission’s Public Reference Room
and also on the Exchange’s internet
website at https://boxoptions.com.
15 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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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 these statements may be examined at
the places specified in Item IV below.
The self-regulatory organization has
prepared summaries, set forth in
Sections A, B, and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend IM–
5050–6 (Short Term Option Series
Program) to permit Monday and
Wednesday expirations for options
listed pursuant to the Short Term
Option Series Program on the Invesco
QQQ TrustSM Series (‘‘QQQ’’) ETF
Trust. This is a competitive filing that
is based on a proposal recently
submitted by Nasdaq Phlx LLC
(‘‘Phlx’’).3
A Short Term Option Series means a
series in an option class that is
approved for listing and trading on the
Exchange in which the series is opened
for trading on any Monday, Tuesday,
Wednesday, Thursday or Friday that is
a business day and that expires on the
Monday, Wednesday or Friday of the
next business week, or, in the case of a
series that is listed on a Friday and
expires on a Monday, is listed one
business week and one business day
prior to that expiration.4 The Exchange
is proposing to amend IM–5050–6 to
3 See Securities Exchange Act Release No. 91238
(March 2, 2021) (Notice of Filing of Proposed Rule
Change to Permit Monday and Wednesday
expirations for options listed pursuant to the Short
Term Option Series Program on the Invesco QQQ
TrustSM Series (‘‘QQQ’’) ETF Trust).
4 BOX Rule 100(a)(65) provides the term ‘‘Short
Term Option Series’’ which states that a series in
an option class that is approved for listing and
trading on BOX in which the series is opened for
trading on any Monday, Tuesday, Wednesday,
Thursday or Friday that is a business day and that
expires on the Monday, Wednesday or Friday of the
next business week, or, in the case of a series that
is listed on a Friday and expires on a Monday, is
listed one business week and one business day
prior to that expiration. If a Tuesday, Wednesday,
Thursday or Friday is not a business day, the series
may be opened (or shall expire) on the first business
day immediately prior to that Tuesday, Wednesday,
Thursday or Friday, respectively. For a series listed
pursuant to this section for Monday expiration, if
a Monday is not a business day, the series shall
expire on the first business day immediately
following that Monday.
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Frm 00104
Fmt 4703
Sfmt 4703
permit the listing of options series that
expire on Mondays and Wednesdays in
QQQ.
Monday Expirations
As proposed, with respect to Monday
QQQ Expirations within IM–5050–6(d),
the Exchange may open for trading on
any Friday or Monday that is a business
day series of options on QQQ to expire
on any Monday of the month that is a
business day and is not a Monday in
which Quarterly Options Series on the
same class expire (‘‘Monday QQQ
Expirations’’), provided that Monday
QQQ Expirations that are listed on a
Friday must be listed at least one
business week and one business day
prior to the expiration. The Exchange
may list up to five consecutive Monday
QQQ Expirations at one time; the
Exchange may have no more than a total
of five Monday QQQ Expirations.
Wednesday Expirations
As proposed, with respect to
Wednesday QQQ Expirations within
IM–5050–6(c), the Exchange may open
for trading on any Tuesday or
Wednesday that is a business day series
of options on QQQ to expire on any
Wednesday of the month that is a
business day and is not a Wednesday in
which Quarterly Options Series on the
same class expire (‘‘Wednesday QQQ
Expirations’’). The Exchange may list up
to five consecutive Wednesday QQQ
Expirations at one time; the Exchange
may have no more than a total of five
Wednesday QQQ Expirations.
Monday and Wednesday Expirations
The interval between strike prices for
the proposed Monday and Wednesday
QQQ Expirations will be the same as
those for the current Short Term Option
Series for Wednesday and Friday
expirations applicable to the Program.5
Specifically, the Monday and
Wednesday QQQ Expirations will have
a $0.50 strike interval minimum.6 As is
the case with other equity options series
listed pursuant to the Program, the
Monday and Wednesday QQQ
Expiration series will be P.M.-settled.
Pursuant to BOX Rule 100(a)(65), with
respect to the Program, if Monday is not
a business day the series shall expire on
the first business day immediately
following that Monday. This procedure
differs from the expiration date of
Wednesday expiration series that are
scheduled to expire on a holiday.
Pursuant to BOX Rule 100(a)(65), a
Wednesday expiration series shall
expire on the first business day
5 See
6 See
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IM–5050–6(b)(5).
IM–5050–6(b)(5).
29APN1
]]>Agencies
[Federal Register Volume 86, Number 81 (Thursday, April 29, 2021)]
[Notices]
[Pages 22725-22728]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-08905]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-91663; File No. SR-NYSE-2020-98]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Proposed Rule Change, as Modified by Amendment No.
2, To Amend Its Rules To Prohibit Member Organizations From Seeking
Reimbursement, in Certain Circumstances, From Issuers for Forwarding
Proxy and Other Materials to Beneficial Owners
April 23, 2021.
On November 30, 2020, New York Stock Exchange LLC (``NYSE'' or
``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 amend its rules to prohibit
member organizations from seeking reimbursement, in certain
circumstances, from issuers for forwarding proxy and other materials to
beneficial owners. The proposed rule change was published for comment
in the Federal Register on December 18, 2020.\3\ On January 29, 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\ On March
17, 2021, the Commission instituted proceedings under Section
19(b)(2)(B) of the Act to determine whether to approve or disapprove
the proposed rule change.\6\ On April 6, 2021, the Exchange filed
Amendment No. 1 to the proposed rule change; the Exchange withdrew that
amendment on April 16, 2021. On April 16, 2021, the Exchange filed
Amendment No. 2 to the proposed rule change, which superseded the
proposed rule change as originally filed, and is described in Items I
and II below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change, as modified by Amendment No. 2, from interested
persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 90653 (December 14,
2020), 85 FR 82539 (December 18, 2020). Comments received on the
proposed rule change are available on the Commission's website at:
https://www.sec.gov/comments/sr-nyse-2020-98/srnyse202098.htm.
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 91011 (January 29,
2021), 86 FR 8246 (February 4, 2021).
\6\ See Securities Exchange Act Release No. 91343 (March 17,
2021), 86 FR 15536 (March 23, 2021).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend its rules to prohibit member
organizations from seeking reimbursement from issuers for forwarding
proxy and other materials to beneficial owners who received shares from
their broker at no cost in connection with a promotion by the broker.
This Amendment No. 2 amends and restates the original filing in its
entirety.\7\ The proposed rule
[[Page 22726]]
change is available on the Exchange's website at www.nyse.com, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.
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\7\ The NYSE previously filed a proposed rule filing to amend
its rules to prohibit member organizations from seeking
reimbursement from issuers for forwarding proxy and other materials
to beneficial owners who received shares from their broker at no
cost or at a substantially discounted price in connection with a
promotion by the broker. See SR-NYSE-2020-98 (November 30, 2020).
The proposed rule change was published for comment in the Federal
Register on December 18, 2020. See Securities Exchange Act Release
No. 90653 (December 14, 2020), 85 FR 82539 (December 18. 2020). On
January 29, 2021, pursuant to Section 19(b)(2) of the Exchange Act,
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. See Securities Exchange Act Release No.
91011 (January 29, 2021), 86 FR 8246 (February 4, 2021). By an order
dated March 17, 2021, the Commission instituted proceedings under
Section 19(b)(2)(B) to determine whether to approve or disapprove
the proposed rule change. See Securities Exchange Act Release No.
91343 (March 17, 2021), 86 FR 15536 (March 23, 2021). The Exchange
previously withdrew Amendment No. 1 to the filing. Amendment No. 1
[sic] is being filed to: (1) Remove from the filing the prohibition
on brokers claiming reimbursement from issuers for distributions to
any beneficial owner when the shares of the issuer held in such
beneficial owner's account were purchased from that broker at a
substantially discounted price; (2) explain why the proposal does
not apply by its terms to a broker claiming reimbursement for
distributions relating to shares that the beneficial owner
transferred into an account at such broker from an account at
another broker that had transferred those shares to the beneficial
owner without charge; and (3) explain why the Exchange believes the
proposal is consistent with the requirement of Rules 14b-1 and 14b-2
under the Act that brokers are entitled to receive ``reasonable
reimbursement'' for making proxy distributions on behalf of issuers.
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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
This Amendment No. 2 amends and restates the original filing in its
entirety.\8\
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\8\ See note 7 supra for details of how Amendment No. 2 differs
from the original filing.
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NYSE Rule 451 requires 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.\9\ For this service, issuers
reimburse NYSE member organizations for out-of-pocket, reasonable
clerical, postage and other expenses incurred for a particular
distribution. This reimbursement structure stems from SEC Rules 14b-1
and 14b-2 under the Act,\10\ which impose obligations on companies and
nominees to ensure that beneficial owners receive proxy materials and
are given the opportunity to vote. These rules require companies to
send their proxy materials to nominees, i.e., broker-dealers or banks
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.
Similarly, Rule 465 requires member organizations to forward issuer
communications to beneficial owners on behalf of issuers subject to
receipt of reimbursement of expenses.
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\9\ 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.'' 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. For more detail regarding share
ownership, see Securities Exchange Act Release No. 62495 (July 14,
2010), 75 FR 42982 (July 22, 2010) (Concept Release on the U.S.
Proxy System) (``Proxy Concept Release'').
\10\ 17 CFR 240.14b-1; 17 CFR 240.14b-2.
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Recently, brokers providing retail brokerage services have
developed a practice in which customers are given securities without
charge as a commercial incentive (for example, upon opening a new
account or referring a new customer to the broker). Typically, these
incentives involve the transfer of a small number of shares to
benefiting customers and result in the customer having a position in
the company whose shares they receive that has a very small dollar
value. Rule 451 does not distinguish between these beneficial owners
and beneficial owners that have paid for their shares, so brokers are
required to solicit proxies from these accounts and are entitled to
reimbursement of their expenses under Rules 451 and 465, as well as
pursuant to the applicable rules of any other national securities
exchange or national securities association of which the NYSE member
organization is a member.\11\ As a consequence, issuers are billed
under Exchange rules and the rules of other SROs for the reimbursement
of expenses the broker incurs in making distributions to these
beneficial owners who have very small positions, which they acquired
from their broker without any payment by the customer. In certain
cases, the issuer can experience a significant increase in its
distribution reimbursement expenses solely due to its shares being
included in these broker promotional schemes.
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\11\ See, for example, FINRA Rule 2251.
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While the distribution of shares in these broker promotions may
result in a significant increase in the number of beneficial owners of
an issuer's stock, the generally very small size of each of these
positions means that they usually represent a very small percentage of
the voting power. As such, the costs the issuer incurs in reimbursing
the broker for distributing proxies to these accounts is very
disproportionate to the maximum potential vote such shares represent.
By contrast, the broker using such a scheme chooses to engage in it
because it believes that it will result in a commercial benefit to the
broker. Consequently, the Exchange believes that it is more appropriate
for the broker to bear these proxy distribution costs. Accordingly, the
Exchange proposes new Rule 451A, which would provide that,
notwithstanding the applicable provisions of Rules 451 or 465 or what
may be permitted by the rules of any other national securities exchange
or national securities association of which a member organization is
also a member, no member shall seek to be reimbursed for expenses
incurred in connection with the distribution of proxies or other
materials on behalf of issuers to the beneficial owners of shares or
units of an issuer's securities in a nominee account if those shares or
units were transferred to the account holder by the member organization
at no cost.
As proposed, Rule 451A would not limit a broker's right to
reimbursement for distributions to any beneficial owner if any part of
that beneficial owner's position in an issuer's securities was received
by any means other than a transfer without charge from the broker.
Rules 451 and 465 would continue to apply to all distributions, so the
broker would continue to be fully obligated to solicit votes from, and
make other distributions on behalf of issuers to, all beneficial owners
notwithstanding the limitations on reimbursement of expenses imposed by
Rule 451A.
The Exchange's proposal does not limit the right of a broker to
receive reimbursement under Rules 451 and 465 unless that broker had
itself transferred those shares without charge into the account of the
beneficial owner. Specifically, if a beneficial owner transferred
shares received in this manner into an account at another broker, Rule
451A would not preclude that other broker from claiming reimbursement
under Rules 451 and 465. The Exchange notes that it would be impossible
for the receiving broker in these circumstances to track whether the
shares of a specific issuer transferred into its custody had all been
received by the beneficial owner without charge from another broker.
Moreover, that broker would not have received the commercial benefit
from the promotional scheme that would accrue to the broker that had
given the shares
[[Page 22727]]
without charge to its customers. For the foregoing reasons, the
Exchange believes that it is impracticable to extend the application of
Rule 451A to the broker to whom the shares are transferred in these
circumstances and that it is reasonable to limit its application to the
broker that had chosen to transfer those shares without charge.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Securities Exchange Act of 1934 (the ``Act'')
generally.\12\ Section 6(b)(4) \13\ requires that exchange rules
provide for the equitable allocation of reasonable dues, fees, and
other charges among its members and issuers and other persons using the
facilities of an exchange. Section 6(b)(5) \14\ requires, among other
things, that exchange rules are designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect the public
interest and the interests of investors, promote just and equitable
principles of trade and that they are not designed to permit unfair
discrimination between issuers, brokers or dealers.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(4).
\14\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposal is consistent with Sections
6(b)(4) and 6(b)(5) of the Act as it would only limit the reimbursement
of distribution expenses in circumstances where a broker distributes
the shares to its customers as part of a voluntary promotional strategy
by the broker from which it derives a commercial benefit. The Exchange
notes that the recipients of shares without charge as part of such
schemes typically will not be given any choice as to which shares they
receive and are therefore not making any investment decision. As the
broker typically has sole control over the allocation of these shares
to its customers and derives a commercial benefit from doing so, the
Exchange believes that the proposal is not unfairly discriminatory and
does not represent an inequitable allocation of the costs of the
distribution of proxy and other issuer materials.
The Exchange notes that brokers will continue to be required to
distribute proxy and other materials on behalf of issuers
notwithstanding the fact that brokers will not be entitled to any
reimbursement of expenses and believes that the proposal is therefore
consistent with Rules 14b-1 and 14b-2 under the Act, which impose
obligations on companies and nominees to ensure that beneficial owners
receive proxy materials and are given the opportunity to vote. The
Exchange also believes that its proposal is consistent with the
requirement of Rules 14b-1 and 14b-2 that brokers are entitled to
``reasonable reimbursement'' of expenses in connection with making
proxy distributions on behalf of issuers. First, the Exchange notes
that any broker that is prohibited from charging fees under this
proposal would continue to be reimbursed for its aggregate expenses
with respect to proxy distribution, as the prohibition on distribution
fees would be limited to those accounts in which the only shares of the
applicable issuer are shares received without charge from that broker.
As such, the effect of the proposal would be to reduce the overall
reimbursement received by that broker for a distribution, but not to
eliminate that reimbursement. The Exchange believes that this reduced
level of reimbursement is reasonable in light of the fact that the
beneficial owners in question would have received the shares without
charge as part of a voluntary commercial scheme initiated by the broker
and which the broker undertook because it believed that it was in its
own business interest.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change would
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The proposed limitation on
distribution expense reimbursement would apply to any broker that
adopts a commercial strategy of distributing shares to account holders
free of charge. Brokers that adopt this strategy do so because they
believe that they derive a commercial and competitive advantage from
doing so. As such, the Exchange believes that any burden on competition
associated with this proposal is appropriate in light of the fact that
brokers will only be subject to any such burden as a consequence of
voluntarily adopting a strategy that they believe is beneficial for
their business. There would be no effect on the competition among
issuers resulting from the proposed rule change, as all issuers would
benefit from the proposed restriction in the same manner if their
shares have been distributed without charge as part of such a
commercial arrangement.
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. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change, as modified by Amendment No. 2, is consistent with the Act.
Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSE-2020-98 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-2020-98. 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
[[Page 22728]]
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSE-2020-98 and should be
submitted on or before May 20, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-08905 Filed 4-28-21; 8:45 am]
BILLING CODE 8011-01-P
