Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend FINRA Rule 2251 (Processing and Forwarding of Proxy and Other Issuer-Related Materials), 71936-71940 [2021-27418]

Download as PDF khammond on DSKJM1Z7X2PROD with NOTICES 71936 Federal Register / Vol. 86, No. 241 / Monday, December 20, 2021 / Notices that may influence their order routing decisions to be 15 hours, for a total annual time burden of approximately 6,600 hours (25 × 264). Therefore, the estimated total annual time burden to comply with Rule 606(a)(1) is 48,840 hours (42,240 + 6,600). Clearing brokers generally bear the burden of responding to individual customer requests under Rule 606(b)(1) for order handling information. The Commission staff estimates that an average clearing broker incurs an annual burden of 400 hours (2000 responses × 0.2 hours/response) to prepare, disseminate, and retain responses to customers required by Rule 606(b)(1). With an estimated 186 clearing brokers subject to Rule 606(b)(1), the total industry-wide time burden per year to comply with the customer response requirement in Rule 606(b)(1) is estimated to be 74,400 hours (186 × 400). The Commission estimates that approximately 200 broker-dealers are involved in routing orders subject to the disclosure requirements of Rule 606(b)(3). The Commission believes that some such broker-dealers will respond to requests for customer-specific reports in house, while others will engage a third-party service provider to do so. The Commission estimates that approximately 135 broker-dealers will respond in-house to individual customer requests for information on order handling under Rule 606(b)(3), and that for each, the individual annual time burden will be 400 hours (200 responses × 2 hours/response), with a total annual time burden of 54,000 hours (400 × 135). The Commission estimates that approximately 65 broker-dealers will engage a third party to respond to individual customer requests, and that for each, the individual annual time burden will be 200 hours (200 responses × 1 hour/response), with a total annual time burden of 13,000 hours (200 × 65). The total annual cost burden associated with engaging such third parties is approximately $1,300,000 (65 × 200 annual requests × $100 per request to engage a third-party service provider). Therefore, the estimated total annual burden to comply with Rule 606(b)(3) is 67,000 hours (54,000 + 13,000) and $1,300,000. The total annual time burden associated with Rule 606 is thus approximately 190,240 hours per year (48,840 + 74,400 + 67,000) and the total annual cost burden associated with Rule 606 is approximately $1,300,000 per year. Written comments are invited on: (a) Whether the proposed collection of VerDate Sep<11>2014 19:34 Dec 17, 2021 Jkt 256001 information is necessary for the proper performance of the functions of the Commission, including whether the information will have practical utility; (b) the accuracy of the Commission’s estimate of the burden of the collection of information; (c) ways to enhance the quality, utility, and clarity of the information collected; and (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. Consideration will be given to comments and suggestions submitted in writing within 60 days of this publication. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information under the PRA unless it displays a currently valid OMB control number Please direct your written comments to David Bottom, Director/Chief Information Officer, Securities and Exchange Commission, c/o John Pezzullo, 100 F Street NE, Washington, DC 20549; or send an email to: PRA_ Mailbox@sec.gov. Dated: December 15, 2021. J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2021–27497 Filed 12–17–21; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–93769; File No. SR–FINRA– 2021–032] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend FINRA Rule 2251 (Processing and Forwarding of Proxy and Other Issuer-Related Materials) December 14, 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 December 7, 2021, the Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by FINRA. FINRA has designated the proposed rule change as constituting a ‘‘non-controversial’’ rule change under paragraph (f)(6) of 1 15 2 17 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00071 Fmt 4703 Sfmt 4703 Rule 19b–4 under the Act,3 which renders the proposal effective upon receipt of this filing by the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change FINRA is proposing to amend the provisions of FINRA Rule 2251 (Processing and Forwarding of Proxy and Other Issuer-Related Materials) relating to seeking reimbursement from issuers for forwarding proxy and other materials and to make minor conforming revisions. The text of the proposed rule change is available on FINRA’s website at https://www.finra.org, at the principal office of FINRA 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, FINRA 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. FINRA 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 FINRA Rule 2251 requires FINRA members to transmit proxy materials and other communications to beneficial owners of securities and limits the circumstances in which FINRA members may vote proxies without instructions from those beneficial owners.4 The Supplementary Material under FINRA Rule 2251 (FINRA Rule 2251.01) sets forth the rate reimbursement provisions pursuant to which FINRA members are entitled to 3 17 CFR 240.19b–4(f)(6). Rule 2251 was adopted as a consolidation of former NASD Rule 2260 and IM– 2260 as part of FINRA’s rulebook consolidation process. See Securities Exchange Act Release No. 61052 (November 23, 2009), 74 FR 62857 (December 1, 2009) (Order Granting Approval of Proposed Rule Change to Adopt FINRA Rule 2251 (Forwarding of Proxy and Other Issuer-Related Materials) in the Consolidated FINRA Rulebook; File No. SR–FINRA–2009–066). 4 FINRA E:\FR\FM\20DEN1.SGM 20DEN1 Federal Register / Vol. 86, No. 241 / Monday, December 20, 2021 / Notices receive fees in connection with the rule’s forwarding obligations. FINRA has previously indicated that, in the interest of ensuring regulatory clarity and harmonization with respect to proxy rate reimbursement, it intends to conform the rate reimbursement provisions of FINRA Rule 2251 with the New York Stock Exchange (‘‘NYSE’’) provisions in this area.5 Consistent with this approach, FINRA is proposing amendments to Supplementary Material .01 under Rule 2251, as described further below, in alignment with rulemakings by the NYSE that have amended certain provisions under NYSE rules. i. Proposed ‘‘Notice and Access’’ Amendments In 2018, the SEC adopted 6 Investment Company Act (‘‘ICA’’) Rule 30e–3,7 which permits specified registered investment companies to satisfy their shareholder report delivery obligations by making the reports available electronically on a website using a ‘‘notice and access’’ process, subject to conditions as set forth in the rule. When Rule 30e–3 was proposed, but not yet adopted by the SEC, the NYSE proposed 8 to adopt amendments under NYSE Rule 451 that set maximum fees its member organizations could charge to issuers utilizing a notice and access process for proxy distribution. The NYSE noted that, absent amendment to NYSE Rule 451, the notice and access fees under the NYSE rule would not VerDate Sep<11>2014 19:34 Dec 17, 2021 Jkt 256001 change, would provide: ‘‘The Notice and Access fees set forth herein will also be charged with respect to the distribution of investment company shareholder reports pursuant to the SEC’s ‘notice and access’ rules in relation to such distributions. The Notice and Access fee will not be charged for any account with respect to which an investment company pays a Preference Management Fee in connection with a distribution of investment company shareholder reports.’’ 14 Further, the rule as revised would provide: ‘‘In calculating the rates at which the issuer will be charged Notice and Access fees for investment company shareholder report distributions, all accounts holding shares of any class of stock of the applicable issuer eligible to receive the same distribution will be aggregated in determining the appropriate pricing tier under this Supplementary Material .01(a)(6).’’ 15 ii. Proposed Prohibition on Processing Fees for Securities Transferred at No Cost On August 13, 2021, the SEC approved a proposed rule change by the NYSE 16 that, in connection with forwarding proxy and related materials to beneficial owners, prohibits NYSE member organizations from imposing a fee 17 for a nominee 18 account that contains only shares or units of the securities involved that were transferred to the account holder by the member organization at no cost.19 The NYSE 14 See Exhibit 5. Exhibit 5. 16 See Securities Exchange Act Release No. 92667 (August 13, 2021), 86 FR 46733 (August 19, 2021) (Order Granting Approval of Proposed Rule Change, as Modified by Amendment Nos. 2 and 3, 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; File No. SR–NYSE– 2020–98) (the ‘‘Prohibited Fee Approval Order’’). See also Securities Exchange Act Release No. 90653 (December 14, 2020), 85 FR 82539 (December 18, 2020) (Notice of Filing of 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; File No. SR–NYSE–2020–98). 17 The NYSE stated that the prohibition on ‘‘fees’’ does not apply to reimbursements for postage, envelope and voting return communication expenses incurred in connection with a distribution of proxy and other materials. See 86 FR 46733, 46734. The same would be the case under FINRA’s corresponding amendments pursuant to this rule filing. 18 The term ‘‘nominee’’ is defined under NYSE Rule 451.90, and correspondingly under FINRA Rule 2251.01, to mean a broker or bank subject to SEA Rule 14b–1 or SEA Rule 14b–2, respectively. 19 The NYSE stated that the rule would not limit a broker’s right to reimbursement for distributions 15 See 5 See khammond on DSKJM1Z7X2PROD with NOTICES Securities Exchange Act Release No. 71272 (January 9, 2014), 79 FR 2741 (January 15, 2014) (Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Amend FINRA Rule 2251 (Forwarding of Proxy and Other Issuer-Related Materials), Which Includes Fees for Processing and Forwarding Proxy and Other Issuer Communications to Beneficial Owners, and Establish a Fee Under Certain Conditions for an Enhanced Brokers’ internet Platform; File No. SR– FINRA–2013–056); see also Securities Exchange Act Release No. 47392 (February 21, 2003), 68 FR 9730 (February 28, 2003) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the National Association of Securities Dealers, Inc. Relating to an Amendment to NASD Interpretive Material 2260 (‘‘IM–2260’’); File No. SR–NASD–2003–019). 6 See Securities Exchange Act Release No. 83380 (June 5, 2018), 83 FR 29158 (June 22, 2018) (Final Rule: Optional internet Availability of Investment Company Shareholder Reports). 7 17 CFR 270.30e–3 (hereinafter referred to as ‘‘Rule 30e–3’’). 8 See Securities Exchange Act Release No. 78589 (August 16, 2016), 81 FR 56717 (August 22, 2016) (Notice of Filing of Proposed Rule Change Adopting Maximum Fees Member Organizations May Charge in Connection with the Distribution of Investment Company Shareholder Reports Pursuant to Any Electronic Delivery Rules Adopted by the Securities and Exchange Commission; File No. SR–NYSE– 2016–55). apply to the distribution of investment company shareholder reports.9 The SEC approved 10 the NYSE’s proposal to amend the notice and access fee provisions under NYSE Rule 451 to provide that the notice and access fees set forth under the rule apply with respect to the distribution of investment company shareholder reports pursuant to any notice and access rules adopted by the SEC in relation to such distributions. The amendments provide that NYSE member organizations may not charge the notice and access fee for any account with respect to which an investment company pays a ‘‘preference management fee’’ in connection with a distribution of investment company shareholder reports.11 In addition, to address investment companies that issue multiple classes of shares, the NYSE amendments also provide that all accounts holding shares of any class of stock of the investment company eligible to receive the same report distribution will be aggregated in determining the appropriate pricing tier as specified under the notice and access fee provisions of the rule.12 FINRA Rule 2251.01(a)(6) sets forth the notice and access fees that are designed to correspond with NYSE Rule 451.90(5). FINRA proposes to amend FINRA Rule 2251.01(a)(6) to conform the rule, in virtually identical language,13 with the NYSE’s notice and access amendments. FINRA believes this is appropriate to ensure harmonized treatment of notice and access fees under NYSE and FINRA rules. As such, FINRA Rule 2251.01(a)(6), as proposed to be revised pursuant to this rule 71937 9 See supra note 8, at 81 FR 56717, 56718. Securities Exchange Act Release No. 79355 (November 18, 2016), 81 FR 85291 (November 25, 2016) (Order Granting Approval of Proposed Rule Change Adopting Maximum Fees Member Organizations May Charge in Connection with the Distribution of Investment Company Shareholder Reports Pursuant to Any Electronic Delivery Rules Adopted by the Securities and Exchange Commission; File No. SR–NYSE–2016–55) (the ‘‘Notice and Access Fee Approval Order’’). 11 Under the NYSE rule, and corresponding FINRA Rule 2251.01(a)(5), a ‘‘preference management fee’’ refers to specified fees that the member may charge for each account for which the need to send materials in paper format through the mails or by courier service has been eliminated. The Notice and Access Fee Approval Order noted that, as a result of the rule change, notice and access fees would only be charged with respect to accounts that actually receive a notice and access mailing. Prior to the rule change, an issuer utilizing notice and access for proxy distributions would pay the notice and access fee for all shareholder accounts, including those for which it also would pay the preference management fee. See supra note 10, at 81 FR 85291, 85293. 12 See supra note 10, at 81 FR 85291, 85293; see also NYSE Rule 451.90(5). 13 The proposed rule change makes minor adjustments to the NYSE rule provisions to conform with FINRA rules. 10 See PO 00000 Frm 00072 Fmt 4703 Sfmt 4703 E:\FR\FM\20DEN1.SGM Continued 20DEN1 71938 Federal Register / Vol. 86, No. 241 / Monday, December 20, 2021 / Notices khammond on DSKJM1Z7X2PROD with NOTICES stated that the rule is meant to address a recent practice in which retail brokers provide customers, without charge, a small number of shares with a very small dollar value as a commercial incentive, for example, upon opening a new account or referring a new customer to the broker.20 The NYSE said that, in certain cases, issuers can experience a significant increase in their distribution reimbursement expenses solely due to their shares being included in these broker promotional schemes, and that it would be more appropriate for the broker to bear the proxy distribution costs in these circumstances.21 FINRA believes that some member firms that are not NYSE members engage in the promotional practices as described by the NYSE, and the costs to affected issuers may be significant. FINRA believes that it is appropriate to amend FINRA Rule 2251 to align with the NYSE’s new rule provision, both for the reasons provided by the NYSE and, as discussed above, in the interest of ensuring regulatory clarity and harmonization with respect to proxy rate reimbursement. As such, FINRA proposes to amend FINRA Rule 2251.01(a)(7) by adding, in language virtually identical to the corresponding NYSE provision,22 a sentence stating: ‘‘Further, notwithstanding any other provision of this Supplementary Material, no fee shall be imposed for a nominee account that contains only shares or units of the securities involved that were transferred to the account holder by the member at no cost.’’ 23 FINRA has filed the proposed rule change for immediate effectiveness and has requested that the SEC waive the 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. The NYSE also stated that the new rule would not limit a broker’s right to receive reimbursement under NYSE Rules 451 and 465 unless that broker itself transferred the issuer’s shares without charge into the account of the beneficial owner. Further, the NYSE stated that NYSE 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 the new rule. See 86 FR 46733, 46735. These statements would apply under FINRA’s corresponding amendments pursuant to this rule filing. 20 See 86 FR 46733, 46734. 21 See supra note 20. 22 The proposed rule change makes minor adjustments to the NYSE rule provisions to conform with FINRA rules. 23 FINRA notes that the proposed rule change would not impact members that are funding portals and would not impact members that have elected to be treated as capital acquisition brokers (‘‘CABs’’). These members are not subject to FINRA Rule 2251. VerDate Sep<11>2014 19:34 Dec 17, 2021 Jkt 256001 requirement that the proposed rule change not become operative for 30 days after the date of the filing, so FINRA can implement the proposed rule change immediately. 2. Statutory Basis FINRA believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act,24 which requires, among other things, that FINRA rules must be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest. FINRA believes that, by conforming the rate reimbursement provisions under FINRA Rule 2251 with the NYSE proxy rate rules, as amended pursuant to the Notice and Access Fee Approval Order and the Prohibited Fee Approval Order, and thereby establishing these requirements under the FINRA rule, the proposed rule change would help to ensure regulatory clarity and harmonization with respect to proxy rate reimbursement. This will facilitate the processing and transmittal of proxy and other issuer-related materials to investors and conduce to the orderly administration of the Commission’s proxy rules. Further, for the reasons set forth in the Notice and Access Fee Approval Order and the Prohibited Fee Approval Order, the Commission found that the NYSE proxy rate rule amendments as set forth pursuant to those respective rulemakings are, with respect to the Notice and Access Fee Approval Order, consistent with the requirements of Section 6(b)(4),25 Section 6(b)(5) 26 and Section 6(b)(8) 27 of the Act and, with respect to the Prohibited Fee Approval Order, consistent with Section 6(b)(4) and Section 6(b)(5) of the Act. Because the proposed rule change conforms with the NYSE’s proxy rate reimbursement amendments, FINRA believes that the proposed rule change is consistent with U.S.C. 78o–3(b)(6). U.S.C. 78f(b)(4). Section 6(b)(4) requires that an exchange have rules that provide for the equitable allocation of reasonable dues, fees and other charges among its members, issuers and other persons using its facilities. 26 15 U.S.C. 78f(b)(5). Section 6(b)(5) requires that the rules of an exchange be designed, among other things, 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 not be designed to permit unfair discrimination between customers, issuers, brokers or dealers. 27 15 U.S.C. 78f(b)(8). Section 6(b)(8) prohibits any exchange rule from imposing any burden on competition that is not necessary or appropriate in furtherance of the Act. the corresponding provisions under Section 15A(b)(5),28 Section 15A(b)(6) 29 and Section 15A(b)(9) 30 of the Act. B. Self-Regulatory Organization’s Statement on Burden on Competition FINRA does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. Economic Impact Assessment Issuers have an obligation to distribute certain communications to their shareholders of record; however, they typically lack contact information for shareholders who hold their stock in ‘‘street name’’ (beneficial owners) with a broker-dealer. As discussed above, SEA Rule 14b–1 requires a broker-dealer to forward issuer communications to beneficial owners of the issuer’s stock, unless the issuer does not provide assurance of reimbursement of the broker-dealer’s reasonable expenses incurred in connection with performing this obligation. The proposed rule change will conform FINRA Rule 2251 to changes made by the NYSE to its rules regarding the reimbursement of expenses concerning the processing and forwarding of issuer communications to beneficial owners. i. Proposed ‘‘Notice and Access’’ Amendments As discussed above, Rule 30e–3 permits specified registered investment companies to satisfy their shareholder report delivery obligations by making the reports available electronically on a website using a ‘‘notice and access’’ process, subject to conditions as set forth in the rule. The NYSE’s processing fee rule applies the notice and access maximum fee schedule to shareholder reports from investment companies that choose to rely on Rule 30e–3. Under the NYSE rule, the notice and access fee may not be charged if the preference management fee is charged.31 While 24 15 25 15 PO 00000 Frm 00073 Fmt 4703 Sfmt 4703 28 15 U.S.C. 78o–3(b)(5). Section 15A(b)(5) requires that FINRA rules provide for the equitable allocation of reasonable dues, fees, and other charges among members and issuers and other persons using any facility or system that FINRA operates or controls. Relatedly, SEA Rule 14b–1 conditions a broker-dealer’s obligation to forward issuer proxy materials to beneficial owners on the issuer’s assurance that it will reimburse the brokerdealer’s reasonable expenses, both direct and indirect, incurred in connection with performing that obligation. See 17 CFR 240.14b–1. 29 15 U.S.C. 78o–3(b)(6). 30 15 U.S.C. 78o–3(b)(9). 31 As noted earlier, under the NYSE rule as revised, notice and access fees would only be charged with respect to accounts that actually receive a notice and access mailing. See supra note 11. E:\FR\FM\20DEN1.SGM 20DEN1 Federal Register / Vol. 86, No. 241 / Monday, December 20, 2021 / Notices FINRA Rule 2251 currently has a notice and access maximum fee schedule for proxy materials, absent amendment to align the rule with the NYSE provisions, the notice and access portion of the fee schedules under Rule 2251 would not apply to fund shareholder reports. The proposed rule change could impact any investment companies electing to distribute shareholder reports using notice and access through member broker-dealers that charge fees higher than the notice and access maximum fee schedule.32 Several factors in addition to notice and access impact fees charged to investment companies for distributing shareholder reports. Thus, it is not possible to determine whether costs would increase or decrease for any individual investment company. FINRA has been informed that a substantial majority of eligible registered investment companies rely on Rule 30e–3. khammond on DSKJM1Z7X2PROD with NOTICES ii. Proposed Prohibition on Processing Fees for Securities Transferred at No Cost Recently, certain retail broker-dealers have begun offering free shares of stock as a commercial incentive, in many cases to acquire new customers or reward current customers who refer a new customer. A broker-dealer may choose to engage in such a practice because it believes it will result in a benefit to the firm. By so doing, the recent proliferation of this practice has led to substantial increases for certain issuers in their shareholder rolls as well as costs for distributing communications to those shareholders.33 Many of these shareholders own very few shares and thus have little voting power at these issuers and do little to affect the liquidity of the issuers’ stock.34 Further, 32 FINRA understands that most, if not all, firms outsource the distribution of shareholder reports to third party vendors and that the majority of those vendors already use the notice and access fee schedules. 33 For example, see Letter from Patrick J. McEnany, Chairman and CEO, Catalyst Pharmaceuticals, Inc., to Vanessa Countryman, Secretary, SEC, dated June 9, 2021 (‘‘Catalyst’’) (letter commenting on File No. SR–NYSE–2020–98). Catalyst estimates that the number of beneficial owners increased from approximately 25,000 in 2019 to about 280,000 in 2020, largely due to free shares given to investors by Robinhood Markets, Inc. Distributing materials to those additional shareholders increased Catalyst’s costs by 1779%, approximately $221,500 in one year. While this is only one example, it is likely illustrative of the potential increase in costs that issuers may experience due to broker-dealer stock promotions. 34 The average number of Catalyst shares held by shareholders through Robinhood was less than 1.25. Id. See also Letter from Kim O. Warnica, Senior Vice President, General Counsel and Secretary, Marathon Oil Corporation, to Vanessa A. Countryman, Secretary, SEC, dated April 27, 2021 (‘‘Marathon Oil’’) (letter commenting on File No. VerDate Sep<11>2014 19:34 Dec 17, 2021 Jkt 256001 FINRA notes that customers of at least one broker-dealer do not independently select an issuer’s shares, as the firm selects issuers’ free shares randomly. Therefore, issuers would likely incur significant costs to communicate with shareholders having limited voting power. The proposed rule change will transfer the fee-related costs of providing shareholder communications from issuers to broker-dealers in the instance where an account contains only shares of stock transferred at no cost to the account holder by the brokerdealer. This transfer would more closely align the cost burden with the benefits received from the practice. FINRA estimates that approximately 12 to 15 member firms will be impacted by the proposed change.35 The amount by which these firms will be impacted depends on the number of accounts that contain only the free promotional stock and the costs for the firms to process and forward issuer-related communications. Given the voluntary nature of the practice, firms may decide to modify or eliminate free stock promotions if the costs outweigh the benefits. FINRA notes that the firms engaging in this practice today represent a limited set of business models. Thus, to the extent that shifting these costs to the broker-dealer is material, it could have a competitive impact. These broker-dealers, however, may identify alternative inducements that retain most of their intended benefit. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act 36 and Rule 19b– 4(f)(6) thereunder.37 SR–NYSE–2020–98). Marathon Oil estimates that as of 2020, 80% of Robinhood’s Marathon Oil stockholder base held fewer than five shares. 35 FINRA has approximately 1,370 member firms with retail clients. 36 15 U.S.C. 78s(b)(3)(A). 37 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6)(iii) requires a self-regulatory organization to PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 71939 A proposed rule change filed under Rule 19b–4(f)(6) 38 normally does not become operative prior to 30 days after the date of the filing. However, pursuant to Rule 19b–4(f)(6)(iii),39 the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. FINRA has asked the Commission to waive the 30-day operative delay so that FINRA can implement the proposed rule change immediately, in the interest of regulatory clarity and harmonization. The Commission previously approved substantively similar rule changes on NYSE and found them consistent with Section 6(b)(5) of the Act.40 For these reasons, the Commission believes that the proposed rule change presents no novel issues and that waiver of the 30day operative delay is consistent with the protection of investors and the public interest. Accordingly, the Commission hereby waives the 30-day operative delay and designates the proposal operative upon filing.41 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B) 42 of the Act to determine whether the proposed rule change should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: give the Commission written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. FINRA has satisfied this requirement. 38 17 CFR 240.19b–4(f)(6). 39 17 CFR 240.19b–4(f)(6)(iii). 40 See supra notes 10 and 16. 41 For purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule change’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 42 15 U.S.C. 78s(b)(2)(B). E:\FR\FM\20DEN1.SGM 20DEN1 71940 Federal Register / Vol. 86, No. 241 / Monday, December 20, 2021 / Notices 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– FINRA–2021–032 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. khammond on DSKJM1Z7X2PROD with NOTICES All submissions should refer to File Number SR–FINRA–2021–032. 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 FINRA. 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–FINRA– 2021–032 and should be submitted on or before January 10, 2022. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.43 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2021–27418 Filed 12–17–21; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–93771; File No. SR–MIAX– 2021–60] Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule To Adopt a Tiered-Pricing Structure for Additional Limited Service MIAX Express Interface Ports December 14, 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 December 1, 2021, Miami International Securities Exchange, LLC (‘‘MIAX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange is filing a proposal to amend the MIAX Options Fee Schedule (the ‘‘Fee Schedule’’) to amend certain port fees. The text of the proposed rule change is available on the Exchange’s website at https://www.miaxoptions.com/rulefilings, at MIAX’s principal office, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. 1 15 43 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 19:34 Dec 17, 2021 2 17 Jkt 256001 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00075 Fmt 4703 Sfmt 4703 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 the Fee Schedule to adopt a tiered-pricing structure for additional Limited Service MIAX Express Interface (‘‘MEI’’) Ports 3 available to Market Makers.4 The Exchange believes a tiered-pricing structure will encourage Market Makers to be more efficient and economical when determining how to connect to the Exchange. This should also enable the Exchange to better monitor and provide access to the Exchange’s network to ensure sufficient capacity and headroom in the System.5 The Exchange initially filed the proposed fee changes on August 2, 2021, with the changes being immediately effective.6 The First Proposed Rule Change was published for comment in the Federal Register on August 19, 2021.7 The Commission received one comment letter on the First Proposed Rule Change.8 The Exchange withdrew the First Proposed Rule Change on September 28, 2021 and resubmitted its proposal (‘‘Second Proposed Rule Change’’).9 The Second Proposed Rule Change was published for comment in the Federal Register on October 5, 2021.10 The Second Proposed Rule Change provided additional justification for the proposed fee changes and addressed certain points raised in the single comment letter that was submitted on the First Proposed Rule Change. The Commission received four comment letters from three separate commenters on the Second Proposed Rule Change.11 The Commission 3 MIAX Express Interface is a connection to MIAX systems that enables Market Makers to submit simple and complex electronic quotes to MIAX. See Fee Schedule, note 26. 4 The term ‘‘Market Makers’’ refers to Lead Market Makers (‘‘LMMs’’), Primary Lead Market Makers (‘‘PLMMs’’), and Registered Market Makers (‘‘RMMs’’) collectively. See Exchange Rule 100. 5 The term ‘‘System’’ means the automated trading system used by the Exchange for the trading of securities. See Exchange Rule 100. 6 See Securities Exchange Act Release No. 92661 (August 13, 2021), 86 FR 46737 (August 19, 2021) (SR–MIAX–2021–37). 7 Id. 8 See Letter from Richard J. McDonald, Susquehanna International Group, LLC (‘‘SIG’’), to Vanessa Countryman, Secretary, Commission, dated September 7, 2021 (‘‘SIG Letter 1’’). 9 See Securities Exchange Act Release No. 93185 (September 29, 2021), 86 FR 55093 (October 5, 2021) (SR–MIAX–2021–43). 10 Id. 11 See letters from Richard J. McDonald, SIG, to Vanessa Countryman, Secretary, Commission, dated October 1, 2021 (‘‘SIG Letter 2’’) and October 26, 2021 (‘‘SIG Letter 3’’); and Ellen Green, Managing E:\FR\FM\20DEN1.SGM 20DEN1

Agencies

[Federal Register Volume 86, Number 241 (Monday, December 20, 2021)]
[Notices]
[Pages 71936-71940]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-27418]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93769; File No. SR-FINRA-2021-032]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend FINRA Rule 2251 (Processing and 
Forwarding of Proxy and Other Issuer-Related Materials)

December 14, 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 December 7, 2021, the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by FINRA. FINRA has designated 
the proposed rule change as constituting a ``non-controversial'' rule 
change under paragraph (f)(6) of Rule 19b-4 under the Act,\3\ which 
renders the proposal effective upon receipt of this filing by the 
Commission. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to amend the provisions of FINRA Rule 2251 
(Processing and Forwarding of Proxy and Other Issuer-Related Materials) 
relating to seeking reimbursement from issuers for forwarding proxy and 
other materials and to make minor conforming revisions.
    The text of the proposed rule change is available on FINRA's 
website at https://www.finra.org, at the principal office of FINRA 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, FINRA 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. FINRA 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
    FINRA Rule 2251 requires FINRA members to transmit proxy materials 
and other communications to beneficial owners of securities and limits 
the circumstances in which FINRA members may vote proxies without 
instructions from those beneficial owners.\4\ The Supplementary 
Material under FINRA Rule 2251 (FINRA Rule 2251.01) sets forth the rate 
reimbursement provisions pursuant to which FINRA members are entitled 
to

[[Page 71937]]

receive fees in connection with the rule's forwarding obligations. 
FINRA has previously indicated that, in the interest of ensuring 
regulatory clarity and harmonization with respect to proxy rate 
reimbursement, it intends to conform the rate reimbursement provisions 
of FINRA Rule 2251 with the New York Stock Exchange (``NYSE'') 
provisions in this area.\5\ Consistent with this approach, FINRA is 
proposing amendments to Supplementary Material .01 under Rule 2251, as 
described further below, in alignment with rulemakings by the NYSE that 
have amended certain provisions under NYSE rules.
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    \4\ FINRA Rule 2251 was adopted as a consolidation of former 
NASD Rule 2260 and IM-2260 as part of FINRA's rulebook consolidation 
process. See Securities Exchange Act Release No. 61052 (November 23, 
2009), 74 FR 62857 (December 1, 2009) (Order Granting Approval of 
Proposed Rule Change to Adopt FINRA Rule 2251 (Forwarding of Proxy 
and Other Issuer-Related Materials) in the Consolidated FINRA 
Rulebook; File No. SR-FINRA-2009-066).
    \5\ See Securities Exchange Act Release No. 71272 (January 9, 
2014), 79 FR 2741 (January 15, 2014) (Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change to Amend FINRA Rule 2251 
(Forwarding of Proxy and Other Issuer-Related Materials), Which 
Includes Fees for Processing and Forwarding Proxy and Other Issuer 
Communications to Beneficial Owners, and Establish a Fee Under 
Certain Conditions for an Enhanced Brokers' internet Platform; File 
No. SR-FINRA-2013-056); see also Securities Exchange Act Release No. 
47392 (February 21, 2003), 68 FR 9730 (February 28, 2003) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change by the 
National Association of Securities Dealers, Inc. Relating to an 
Amendment to NASD Interpretive Material 2260 (``IM-2260''); File No. 
SR-NASD-2003-019).
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i. Proposed ``Notice and Access'' Amendments
    In 2018, the SEC adopted \6\ Investment Company Act (``ICA'') Rule 
30e-3,\7\ which permits specified registered investment companies to 
satisfy their shareholder report delivery obligations by making the 
reports available electronically on a website using a ``notice and 
access'' process, subject to conditions as set forth in the rule. When 
Rule 30e-3 was proposed, but not yet adopted by the SEC, the NYSE 
proposed \8\ to adopt amendments under NYSE Rule 451 that set maximum 
fees its member organizations could charge to issuers utilizing a 
notice and access process for proxy distribution. The NYSE noted that, 
absent amendment to NYSE Rule 451, the notice and access fees under the 
NYSE rule would not apply to the distribution of investment company 
shareholder reports.\9\
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    \6\ See Securities Exchange Act Release No. 83380 (June 5, 
2018), 83 FR 29158 (June 22, 2018) (Final Rule: Optional internet 
Availability of Investment Company Shareholder Reports).
    \7\ 17 CFR 270.30e-3 (hereinafter referred to as ``Rule 30e-
3'').
    \8\ See Securities Exchange Act Release No. 78589 (August 16, 
2016), 81 FR 56717 (August 22, 2016) (Notice of Filing of Proposed 
Rule Change Adopting Maximum Fees Member Organizations May Charge in 
Connection with the Distribution of Investment Company Shareholder 
Reports Pursuant to Any Electronic Delivery Rules Adopted by the 
Securities and Exchange Commission; File No. SR-NYSE-2016-55).
    \9\ See supra note 8, at 81 FR 56717, 56718.
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    The SEC approved \10\ the NYSE's proposal to amend the notice and 
access fee provisions under NYSE Rule 451 to provide that the notice 
and access fees set forth under the rule apply with respect to the 
distribution of investment company shareholder reports pursuant to any 
notice and access rules adopted by the SEC in relation to such 
distributions. The amendments provide that NYSE member organizations 
may not charge the notice and access fee for any account with respect 
to which an investment company pays a ``preference management fee'' in 
connection with a distribution of investment company shareholder 
reports.\11\ In addition, to address investment companies that issue 
multiple classes of shares, the NYSE amendments also provide that all 
accounts holding shares of any class of stock of the investment company 
eligible to receive the same report distribution will be aggregated in 
determining the appropriate pricing tier as specified under the notice 
and access fee provisions of the rule.\12\
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    \10\ See Securities Exchange Act Release No. 79355 (November 18, 
2016), 81 FR 85291 (November 25, 2016) (Order Granting Approval of 
Proposed Rule Change Adopting Maximum Fees Member Organizations May 
Charge in Connection with the Distribution of Investment Company 
Shareholder Reports Pursuant to Any Electronic Delivery Rules 
Adopted by the Securities and Exchange Commission; File No. SR-NYSE-
2016-55) (the ``Notice and Access Fee Approval Order'').
    \11\ Under the NYSE rule, and corresponding FINRA Rule 
2251.01(a)(5), a ``preference management fee'' refers to specified 
fees that the member may charge for each account for which the need 
to send materials in paper format through the mails or by courier 
service has been eliminated. The Notice and Access Fee Approval 
Order noted that, as a result of the rule change, notice and access 
fees would only be charged with respect to accounts that actually 
receive a notice and access mailing. Prior to the rule change, an 
issuer utilizing notice and access for proxy distributions would pay 
the notice and access fee for all shareholder accounts, including 
those for which it also would pay the preference management fee. See 
supra note 10, at 81 FR 85291, 85293.
    \12\ See supra note 10, at 81 FR 85291, 85293; see also NYSE 
Rule 451.90(5).
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    FINRA Rule 2251.01(a)(6) sets forth the notice and access fees that 
are designed to correspond with NYSE Rule 451.90(5). FINRA proposes to 
amend FINRA Rule 2251.01(a)(6) to conform the rule, in virtually 
identical language,\13\ with the NYSE's notice and access amendments. 
FINRA believes this is appropriate to ensure harmonized treatment of 
notice and access fees under NYSE and FINRA rules. As such, FINRA Rule 
2251.01(a)(6), as proposed to be revised pursuant to this rule change, 
would provide: ``The Notice and Access fees set forth herein will also 
be charged with respect to the distribution of investment company 
shareholder reports pursuant to the SEC's `notice and access' rules in 
relation to such distributions. The Notice and Access fee will not be 
charged for any account with respect to which an investment company 
pays a Preference Management Fee in connection with a distribution of 
investment company shareholder reports.'' \14\ Further, the rule as 
revised would provide: ``In calculating the rates at which the issuer 
will be charged Notice and Access fees for investment company 
shareholder report distributions, all accounts holding shares of any 
class of stock of the applicable issuer eligible to receive the same 
distribution will be aggregated in determining the appropriate pricing 
tier under this Supplementary Material .01(a)(6).'' \15\
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    \13\ The proposed rule change makes minor adjustments to the 
NYSE rule provisions to conform with FINRA rules.
    \14\ See Exhibit 5.
    \15\ See Exhibit 5.
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ii. Proposed Prohibition on Processing Fees for Securities Transferred 
at No Cost
    On August 13, 2021, the SEC approved a proposed rule change by the 
NYSE \16\ that, in connection with forwarding proxy and related 
materials to beneficial owners, prohibits NYSE member organizations 
from imposing a fee \17\ for a nominee \18\ account that contains only 
shares or units of the securities involved that were transferred to the 
account holder by the member organization at no cost.\19\ The NYSE

[[Page 71938]]

stated that the rule is meant to address a recent practice in which 
retail brokers provide customers, without charge, a small number of 
shares with a very small dollar value as a commercial incentive, for 
example, upon opening a new account or referring a new customer to the 
broker.\20\ The NYSE said that, in certain cases, issuers can 
experience a significant increase in their distribution reimbursement 
expenses solely due to their shares being included in these broker 
promotional schemes, and that it would be more appropriate for the 
broker to bear the proxy distribution costs in these circumstances.\21\
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    \16\ See Securities Exchange Act Release No. 92667 (August 13, 
2021), 86 FR 46733 (August 19, 2021) (Order Granting Approval of 
Proposed Rule Change, as Modified by Amendment Nos. 2 and 3, 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; File No. SR-NYSE-
2020-98) (the ``Prohibited Fee Approval Order''). See also 
Securities Exchange Act Release No. 90653 (December 14, 2020), 85 FR 
82539 (December 18, 2020) (Notice of Filing of 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; File No. SR-NYSE-
2020-98).
    \17\ The NYSE stated that the prohibition on ``fees'' does not 
apply to reimbursements for postage, envelope and voting return 
communication expenses incurred in connection with a distribution of 
proxy and other materials. See 86 FR 46733, 46734. The same would be 
the case under FINRA's corresponding amendments pursuant to this 
rule filing.
    \18\ The term ``nominee'' is defined under NYSE Rule 451.90, and 
correspondingly under FINRA Rule 2251.01, to mean a broker or bank 
subject to SEA Rule 14b-1 or SEA Rule 14b-2, respectively.
    \19\ The NYSE stated that the rule 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. The NYSE also stated that the new rule would 
not limit a broker's right to receive reimbursement under NYSE Rules 
451 and 465 unless that broker itself transferred the issuer's 
shares without charge into the account of the beneficial owner. 
Further, the NYSE stated that NYSE 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 the new rule. 
See 86 FR 46733, 46735. These statements would apply under FINRA's 
corresponding amendments pursuant to this rule filing.
    \20\ See 86 FR 46733, 46734.
    \21\ See supra note 20.
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    FINRA believes that some member firms that are not NYSE members 
engage in the promotional practices as described by the NYSE, and the 
costs to affected issuers may be significant. FINRA believes that it is 
appropriate to amend FINRA Rule 2251 to align with the NYSE's new rule 
provision, both for the reasons provided by the NYSE and, as discussed 
above, in the interest of ensuring regulatory clarity and harmonization 
with respect to proxy rate reimbursement. As such, FINRA proposes to 
amend FINRA Rule 2251.01(a)(7) by adding, in language virtually 
identical to the corresponding NYSE provision,\22\ a sentence stating: 
``Further, notwithstanding any other provision of this Supplementary 
Material, no fee shall be imposed for a nominee account that contains 
only shares or units of the securities involved that were transferred 
to the account holder by the member at no cost.'' \23\
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    \22\ The proposed rule change makes minor adjustments to the 
NYSE rule provisions to conform with FINRA rules.
    \23\ FINRA notes that the proposed rule change would not impact 
members that are funding portals and would not impact members that 
have elected to be treated as capital acquisition brokers 
(``CABs''). These members are not subject to FINRA Rule 2251.
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    FINRA has filed the proposed rule change for immediate 
effectiveness and has requested that the SEC waive the requirement that 
the proposed rule change not become operative for 30 days after the 
date of the filing, so FINRA can implement the proposed rule change 
immediately.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\24\ which requires, among 
other things, that FINRA rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest. FINRA believes that, by conforming the rate 
reimbursement provisions under FINRA Rule 2251 with the NYSE proxy rate 
rules, as amended pursuant to the Notice and Access Fee Approval Order 
and the Prohibited Fee Approval Order, and thereby establishing these 
requirements under the FINRA rule, the proposed rule change would help 
to ensure regulatory clarity and harmonization with respect to proxy 
rate reimbursement. This will facilitate the processing and transmittal 
of proxy and other issuer-related materials to investors and conduce to 
the orderly administration of the Commission's proxy rules. Further, 
for the reasons set forth in the Notice and Access Fee Approval Order 
and the Prohibited Fee Approval Order, the Commission found that the 
NYSE proxy rate rule amendments as set forth pursuant to those 
respective rulemakings are, with respect to the Notice and Access Fee 
Approval Order, consistent with the requirements of Section 
6(b)(4),\25\ Section 6(b)(5) \26\ and Section 6(b)(8) \27\ of the Act 
and, with respect to the Prohibited Fee Approval Order, consistent with 
Section 6(b)(4) and Section 6(b)(5) of the Act. Because the proposed 
rule change conforms with the NYSE's proxy rate reimbursement 
amendments, FINRA believes that the proposed rule change is consistent 
with the corresponding provisions under Section 15A(b)(5),\28\ Section 
15A(b)(6) \29\ and Section 15A(b)(9) \30\ of the Act.
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    \24\ 15 U.S.C. 78o-3(b)(6).
    \25\ 15 U.S.C. 78f(b)(4). Section 6(b)(4) requires that an 
exchange have rules that provide for the equitable allocation of 
reasonable dues, fees and other charges among its members, issuers 
and other persons using its facilities.
    \26\ 15 U.S.C. 78f(b)(5). Section 6(b)(5) requires that the 
rules of an exchange be designed, among other things, 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 
not be designed to permit unfair discrimination between customers, 
issuers, brokers or dealers.
    \27\ 15 U.S.C. 78f(b)(8). Section 6(b)(8) prohibits any exchange 
rule from imposing any burden on competition that is not necessary 
or appropriate in furtherance of the Act.
    \28\ 15 U.S.C. 78o-3(b)(5). Section 15A(b)(5) requires that 
FINRA rules provide for the equitable allocation of reasonable dues, 
fees, and other charges among members and issuers and other persons 
using any facility or system that FINRA operates or controls. 
Relatedly, SEA Rule 14b-1 conditions a broker-dealer's obligation to 
forward issuer proxy materials to beneficial owners on the issuer's 
assurance that it will reimburse the broker-dealer's reasonable 
expenses, both direct and indirect, incurred in connection with 
performing that obligation. See 17 CFR 240.14b-1.
    \29\ 15 U.S.C. 78o-3(b)(6).
    \30\ 15 U.S.C. 78o-3(b)(9).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.
Economic Impact Assessment
    Issuers have an obligation to distribute certain communications to 
their shareholders of record; however, they typically lack contact 
information for shareholders who hold their stock in ``street name'' 
(beneficial owners) with a broker-dealer. As discussed above, SEA Rule 
14b-1 requires a broker-dealer to forward issuer communications to 
beneficial owners of the issuer's stock, unless the issuer does not 
provide assurance of reimbursement of the broker-dealer's reasonable 
expenses incurred in connection with performing this obligation. The 
proposed rule change will conform FINRA Rule 2251 to changes made by 
the NYSE to its rules regarding the reimbursement of expenses 
concerning the processing and forwarding of issuer communications to 
beneficial owners.
i. Proposed ``Notice and Access'' Amendments
    As discussed above, Rule 30e-3 permits specified registered 
investment companies to satisfy their shareholder report delivery 
obligations by making the reports available electronically on a website 
using a ``notice and access'' process, subject to conditions as set 
forth in the rule. The NYSE's processing fee rule applies the notice 
and access maximum fee schedule to shareholder reports from investment 
companies that choose to rely on Rule 30e-3. Under the NYSE rule, the 
notice and access fee may not be charged if the preference management 
fee is charged.\31\ While

[[Page 71939]]

FINRA Rule 2251 currently has a notice and access maximum fee schedule 
for proxy materials, absent amendment to align the rule with the NYSE 
provisions, the notice and access portion of the fee schedules under 
Rule 2251 would not apply to fund shareholder reports. The proposed 
rule change could impact any investment companies electing to 
distribute shareholder reports using notice and access through member 
broker-dealers that charge fees higher than the notice and access 
maximum fee schedule.\32\ Several factors in addition to notice and 
access impact fees charged to investment companies for distributing 
shareholder reports. Thus, it is not possible to determine whether 
costs would increase or decrease for any individual investment company. 
FINRA has been informed that a substantial majority of eligible 
registered investment companies rely on Rule 30e-3.
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    \31\ As noted earlier, under the NYSE rule as revised, notice 
and access fees would only be charged with respect to accounts that 
actually receive a notice and access mailing. See supra note 11.
    \32\ FINRA understands that most, if not all, firms outsource 
the distribution of shareholder reports to third party vendors and 
that the majority of those vendors already use the notice and access 
fee schedules.
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ii. Proposed Prohibition on Processing Fees for Securities Transferred 
at No Cost
    Recently, certain retail broker-dealers have begun offering free 
shares of stock as a commercial incentive, in many cases to acquire new 
customers or reward current customers who refer a new customer. A 
broker-dealer may choose to engage in such a practice because it 
believes it will result in a benefit to the firm. By so doing, the 
recent proliferation of this practice has led to substantial increases 
for certain issuers in their shareholder rolls as well as costs for 
distributing communications to those shareholders.\33\ Many of these 
shareholders own very few shares and thus have little voting power at 
these issuers and do little to affect the liquidity of the issuers' 
stock.\34\ Further, FINRA notes that customers of at least one broker-
dealer do not independently select an issuer's shares, as the firm 
selects issuers' free shares randomly. Therefore, issuers would likely 
incur significant costs to communicate with shareholders having limited 
voting power.
---------------------------------------------------------------------------

    \33\ For example, see Letter from Patrick J. McEnany, Chairman 
and CEO, Catalyst Pharmaceuticals, Inc., to Vanessa Countryman, 
Secretary, SEC, dated June 9, 2021 (``Catalyst'') (letter commenting 
on File No. SR-NYSE-2020-98). Catalyst estimates that the number of 
beneficial owners increased from approximately 25,000 in 2019 to 
about 280,000 in 2020, largely due to free shares given to investors 
by Robinhood Markets, Inc. Distributing materials to those 
additional shareholders increased Catalyst's costs by 1779%, 
approximately $221,500 in one year. While this is only one example, 
it is likely illustrative of the potential increase in costs that 
issuers may experience due to broker-dealer stock promotions.
    \34\ The average number of Catalyst shares held by shareholders 
through Robinhood was less than 1.25. Id. See also Letter from Kim 
O. Warnica, Senior Vice President, General Counsel and Secretary, 
Marathon Oil Corporation, to Vanessa A. Countryman, Secretary, SEC, 
dated April 27, 2021 (``Marathon Oil'') (letter commenting on File 
No. SR-NYSE-2020-98). Marathon Oil estimates that as of 2020, 80% of 
Robinhood's Marathon Oil stockholder base held fewer than five 
shares.
---------------------------------------------------------------------------

    The proposed rule change will transfer the fee-related costs of 
providing shareholder communications from issuers to broker-dealers in 
the instance where an account contains only shares of stock transferred 
at no cost to the account holder by the broker-dealer. This transfer 
would more closely align the cost burden with the benefits received 
from the practice. FINRA estimates that approximately 12 to 15 member 
firms will be impacted by the proposed change.\35\ The amount by which 
these firms will be impacted depends on the number of accounts that 
contain only the free promotional stock and the costs for the firms to 
process and forward issuer-related communications. Given the voluntary 
nature of the practice, firms may decide to modify or eliminate free 
stock promotions if the costs outweigh the benefits. FINRA notes that 
the firms engaging in this practice today represent a limited set of 
business models. Thus, to the extent that shifting these costs to the 
broker-dealer is material, it could have a competitive impact. These 
broker-dealers, however, may identify alternative inducements that 
retain most of their intended benefit.
---------------------------------------------------------------------------

    \35\ FINRA has approximately 1,370 member firms with retail 
clients.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \36\ and Rule 19b-
4(f)(6) thereunder.\37\
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    \36\ 15 U.S.C. 78s(b)(3)(A).
    \37\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
FINRA has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \38\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\39\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. FINRA has asked the 
Commission to waive the 30-day operative delay so that FINRA can 
implement the proposed rule change immediately, in the interest of 
regulatory clarity and harmonization. The Commission previously 
approved substantively similar rule changes on NYSE and found them 
consistent with Section 6(b)(5) of the Act.\40\ For these reasons, the 
Commission believes that the proposed rule change presents no novel 
issues and that waiver of the 30-day operative delay is consistent with 
the protection of investors and the public interest. Accordingly, the 
Commission hereby waives the 30-day operative delay and designates the 
proposal operative upon filing.\41\
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    \38\ 17 CFR 240.19b-4(f)(6).
    \39\ 17 CFR 240.19b-4(f)(6)(iii).
    \40\ See supra notes 10 and 16.
    \41\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule change's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \42\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \42\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

[[Page 71940]]

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-FINRA-2021-032 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-FINRA-2021-032. 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 FINRA. 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-FINRA-2021-032 and should be submitted 
on or before January 10, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\43\
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    \43\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-27418 Filed 12-17-21; 8:45 am]
BILLING CODE 8011-01-P
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