Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of Proposed Rule Change, as Modified by Amendment No. 1, Amending Sections 312.03(b) and 312.04 of the NYSE Listed Company Manual To Modify the Circumstances Under Which a Listed Company Must Obtain Shareholder Approval of a Sale of Securities Below the Minimum Price to a Substantial Security Holder of the Company, 113-119 [2023-28796]
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Federal Register / Vol. 89, No. 1 / Tuesday, January 2, 2024 / Notices
subject to federal registration
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15:59 Dec 29, 2023
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Issued in Washington, DC.
Gordon Hartogensis,
Director, Pension Benefit Guaranty
Corporation.
[FR Doc. 2023–28803 Filed 12–29–23; 8:45 am]
BILLING CODE 7709–02–P
RAILROAD RETIREMENT BOARD
Actuarial Advisory Committee With
Respect to the Railroad Retirement
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Notice is hereby given in accordance
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information on how to join the virtual
meeting can be provided.
Dated: December 27, 2023.
Stephanie Hillyard,
Secretary to the Board.
[FR Doc. 2023–28821 Filed 12–29–23; 8:45 am]
BILLING CODE 7905–01–P
PO 00000
113
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–99238; File No. SR–NYSE–
2023–34]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing of Amendment No. 1 and Order
Granting Accelerated Approval of
Proposed Rule Change, as Modified by
Amendment No. 1, Amending Sections
312.03(b) and 312.04 of the NYSE
Listed Company Manual To Modify the
Circumstances Under Which a Listed
Company Must Obtain Shareholder
Approval of a Sale of Securities Below
the Minimum Price to a Substantial
Security Holder of the Company
December 26, 2023.
I. Introduction
New York Stock Exchange LLC
(‘‘NYSE’’ or the ‘‘Exchange’’) filed on
September 26, 2023, with the Securities
and Exchange Commission
(‘‘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
modify the circumstances under which
a listed company must obtain
shareholder approval of a sale of
securities to a substantial security
holder of the listed company. The
proposed rule change was published for
comment in the Federal Register on
October 4, 2023.3 On November 16,
2023, the Commission designated a
longer period for Commission action on
the proposed rule change.4 On
December 21, 2023, the Exchange filed
Amendment No. 1 to the proposed rule
change, which amended and superseded
the original filing in its entirety.5 The
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 98662
(September 29, 2023), 88 FR 68675 (October 4,
2023) (‘‘Notice’’).
4 See Securities Exchange Act Release No. 98967
(November 16, 2023), 88 FR 81462 (November 22,
2023) (extending the time period for Commission
action to January 2, 2024).
5 In Amendment No. 1, the Exchange revised the
proposal to: (1) adopt a new definition of an
‘‘Active Related Party’’ in Section 312.03(b)(i) of the
NYSE Listed Company Manual (‘‘Manual’’) and to
retain the current definition of Related Party for
purposes of Section 312.03(b)(ii) of the Manual; (2)
adopt in Section 312.04 of the Manual definitions
of ‘‘control’’ and ‘‘group’’ for purposes of proposed
amended Section 312.03(b)(i) of the Manual; (3)
include additional explanation of why the
Exchange is proposing the rule change and believes
that it is appropriate; (4) explain that the proposal
would not have any substantive effect on the
application of Section 312.03(b)(ii) of the Manual
and that a listed company selling securities to a
Related Party under the circumstances set forth in
312.03(b)(ii) of the Manual, as amended, would
remain subject to the shareholder approval
2 17
Continued
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Federal Register / Vol. 89, No. 1 / Tuesday, January 2, 2024 / Notices
Commission has received no comment
letters on the proposal. The Commission
is publishing this notice to solicit
comments on Amendment No. 1 from
interested persons and is approving the
proposed rule change, as modified by
Amendment No. 1, on an accelerated
basis.
II. The Exchange’s Description of the
Proposed Rule Change, as Modified by
Amendment No. 1 6
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
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1. Purpose
The NYSE previously filed a proposed
rule filing to amend Section 312.03(b) of
the Manual to modify the circumstances
under which a listed company must
obtain shareholder approval of a sale of
securities to a substantial security
holder of the listed company.7 The
proposed rule change was published for
comment in the Federal Register on
October 4, 2023.8 This Amendment No.
1 supersedes the original filing in its
entirety.
Amendment No. 1 includes in the
Purpose and Statutory Basis sections
additional explanation of why the
Exchange is proposing the rule change
and believes that it is appropriate,
specifically discussing the Exchange’s
belief that there is a lesser possibility
that a substantial security holder may
exercise influence over the terms of a
transaction with the company if such
substantial security holder does not
have representation on the board or in
management. In addition, Amendment
No. 1 amends the rule text to adopt a
new definition of an ‘‘Active Related
Party’’ in Section 312.03(b)(i) and to
retain the current definition of Related
requirements therein; and (5) make other clarifying
and conforming changes. Amendment No. 1 is
available at https://www.sec.gov/comments/sr-nyse2023-34/srnyse202334-320179-832762.pdf.
6 This Section II reproduces Amendment No. 1,
as filed by the Exchange.
7 See SR–NYSE–2023–34 (September 26, 2023).
8 See Securities Exchange Act Release No. 98662
(September 29, 2023), 88 FR 68675 (October 4.
2023).
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Party for purposes of Section
312.03(b)(ii).9 The Purpose section is
amended to describe these proposed
amendments, as well as to explain that
their purpose is to ensure that the
proposal would not have any
substantive effect on the application of
Section 312.03(b)(ii). A listed company
selling securities to a Related Party
under the circumstances set forth in the
rule as amended would remain subject
to the shareholder approval
requirements in 312.03(b)(ii). Finally,
Amendment No. 1 amends the rule text
to adopt in Section 312.04 definitions of
‘‘control’’ and ‘‘group’’ for purposes of
proposed amended Section 312.03(b)(i),
providing clarity as to the meaning of
the terms ‘‘controlling shareholder’’ and
‘‘control group’’ in that provision as
amended. The Purpose section is
amended to describe the addition of
those new defined terms and to include
footnotes explaining how ‘‘control’’ is
defined and the standards to be applied
in determining whether or not a
‘‘group’’ exists.
Section 312.04(e) of the Manual
provides that an interest consisting of
less than either five percent of the
number of shares of common stock or
five percent of the voting power
outstanding of a company or entity shall
not be considered a substantial interest
or cause the holder of such an interest
to be regarded as a substantial security
holder.
Section 312.03(b)(i) of the Manual
provides that shareholder approval is
required prior to the issuance of
common stock, or of securities
convertible into or exercisable for
common stock, in any transaction or
series of related transactions, to a
director, officer or substantial security
holder of the company if the number of
shares of common stock to be issued, or
if the number of shares of common stock
into which the securities may be
convertible or exercisable, exceeds
either one percent of the number of
shares of common stock or one percent
of the voting power outstanding before
the issuance.
9 Section 312.03(b)(ii) provides that shareholder
approval is required prior to the issuance of
common stock, or of securities convertible into or
exercisable for common stock, where such
securities are issued as consideration in a
transaction or series of related transactions in
which a Related Party has a five percent or greater
interest (or such persons collectively have a ten
percent or greater interest), directly or indirectly, in
the company or assets to be acquired or in the
consideration to be paid in the transaction or series
of related transactions and the present or potential
issuance of common stock, or securities convertible
into common stock, could result in an issuance that
exceeds either five percent of the number of shares
of common stock or five percent of the voting power
outstanding before the issuance.
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The Manual provides an exception to
the shareholder approval requirement if
such transaction is a cash sale for a
price that is at least the Minimum Price.
Section 312.04(h) defines the Minimum
Price as a price that is the lower of: (i)
the Official Closing Price immediately
preceding the signing of the binding
agreement; or (ii) the average Official
Closing Price for the five trading days
immediately preceding the signing of
the binding agreement. Section 312.04(i)
defines the ‘‘Official Closing Price’’ of
an issuer’s common stock as the official
closing price on the Exchange as
reported to the Consolidated Tape
immediately preceding the signing of a
binding agreement to issue the
securities.10
Certain NYSE listed companies are
significantly dependent on their ability
to regularly raise additional capital to
fund their operations or acquire new
assets. For example, pre-revenue stage
biotechnology companies regularly seek
additional capital to fund their research
and development activities and real
estate investment trusts seek to fund the
acquisition of new properties by selling
equity securities in private placements
or direct registered sales priced at a
small discount to the prevailing market
price. It is the Exchange’s understanding
that, in many cases, existing
shareholders of the listed company are
willing purchasers of securities in such
circumstances, as they already
understand the company’s business and
have a positive view of its future
prospects. Sales to existing shareholders
can also be advantageous to both the
issuer and the shareholders because of
the speed with which a direct sale to an
existing shareholder can be completed if
no shareholder approval is required.
However, the benefits of low transaction
costs and speed of execution that
typically exist when conducting these
transactions with existing shareholders
face countervailing factors if the
counterparty is deemed to be a
substantial securityholder for purposes
of Section 312.03(b)(i). In such cases, to
mitigate potential conflicts of interest,
Exchange rules require that any sale
below the Minimum Price can relate to
no more than one per cent of the shares
of common stock or one percent of the
voting power outstanding before the
issuance. Any such transaction that
relates to more than one per cent of the
10 For example, if the transaction is signed after
the close of the regular session at 4:00 p.m. Eastern
Standard Time on a Tuesday, then Tuesday’s
official closing price is used. If the transaction is
signed at any time between the close of the regular
session on Monday and the close of the regular
session on Tuesday, then Monday’s official closing
price is used.
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common stock is subject to shareholder
approval, which imposes significant
delay and additional costs on the issuer,
thereby often making the sale
impracticable. This one percent
limitation is therefore a significant
restriction on the ability of an NYSE
listed company to raise capital from its
existing shareholders. Notably, the
NYSE is the only listing exchange in the
United States that has such a limitation
in its rules and NYSE companies are
therefore at a disadvantage in raising
additional capital when compared to
their peers listed on other national
securities exchanges.
The Exchange believes there are
significant benefits from the protection
provided to a listed company’s investors
by the shareholder approval
requirements in Section 312.03(b)(i)
when a purchaser of the securities in a
transaction is an officer or director or
other control person of the company. In
such cases, the potential exists for a
related party purchaser to use their
influence within the company to obtain
superior terms from the company to the
detriment of the company’s
shareholders as a whole. However, the
current definition of substantial security
holder used in the rule also applies to
holders of a company’s common stock
who do not participate in the
governance or management of the
company through board or management
representation. The Exchange believes
that transactions with these kinds of
shareholders who do not participate in
the governance or management of the
company generally do not give rise to
the potential conflicts of interest in the
determination of transaction terms that
exist where the purchaser has a role in
the listed company’s board or
management. The Exchange believes
that these shareholders that do not
participate actively in the company in
this way generally do not have the same
ability to participate in and influence
decision making as is the case with a
related party that directly participates in
the governance or management of the
company.11 As discussed below the
Exchange will be adopting the
definition contained in Rule 12b–2
under Regulation 12B of the Exchange
Act to define control for purposes of the
proposed amended rule.
11 The Exchange recognizes that substantial
shareholders who are not represented on the board
or in management are likely to vote their shares at
shareholder meetings but believes that this in itself
is generally not sufficient to create a relationship
with the company that would give a substantial
shareholder the ability to influence inappropriately
the terms of any transaction it enters into with the
company.
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In light of the foregoing, the Exchange
proposes to amend Section 312.03(b)(i)
to limit its application to related parties
whose interest in the company is not
passive in nature. As proposed, Section
312.03(b)(i) would be limited in
application to sales to a director, officer,
controlling shareholder or member of a
control group or any other substantial
security holder of the company that has
an affiliated person 12 who is an officer
or director of the company (each an
‘‘Active Related Party’’). For purposes of
determining the existence of a group,
the Exchange proposes to rely on the
filings on Schedule 13D or Schedule
13G disclosing the existence of a group
as determined under Section 13(d)(3) or
Section 13(g)(3) of the Exchange Act,
along with any additional follow-up
inquiry that is needed.13 The Exchange
proposes to amend Section 312.04 to
include new definitions for purposes of
Section 312.03, providing that: (i) a
‘‘group’’ means a group as determined
under Section 13(d)(3) or Section
13(g)(3) of the Exchange Act; and (ii)
‘‘control’’ has the same meaning as
defined in Rule 12b–2 of Regulation 12B
under the Exchange Act.14 The
Exchange intends to revise its internal
procedures in reviewing proposed
transactions to the extent necessary to
obtain the necessary information to
make determinations with respect to
whether shareholders participating in
transactions are Active Related Parties.
In addition to the proposed definition
of Active Related Party in the proposed
amended version of Section 312.03(b)(i),
the Exchange proposes for purposes of
Section 312.03(b)(ii) to retain the
broader definition of a Related Party
12 In determining whether a person is an affiliated
person for purposes of the definition of an Active
Related Party, the Exchange will consider all
relevant facts and circumstances, including, but not
limited to, whether such person is an affiliate
within the meaning of that term under provisions
of the federal securities laws and the rules
thereunder.
13 Section 13(d)(3) or Section 13(g)(3) provide:
‘‘When two or more persons act as a [ ] group for
the purpose of acquiring, holding, or disposing of
[equity] securities of an issuer, the group shall be
deemed a ‘person’. . . .’’ The determination under
Sections 13(d)(3) and 13(g)(3) as to whether two or
more persons are acting as a group does not depend
solely on the presence of an express agreement.
Depending on the particular facts and
circumstances, concerted actions by two or more
persons for the purpose of acquiring, holding—
which includes voting—or disposing of securities of
an issuer are sufficient to constitute the formation
of a group.
14 Rule 12b–2 under Regulation 12B of the
Exchange Act provides that ‘‘[t]he term ‘control’
(including the terms ‘controlling,’ ‘controlled by’
and ‘under common control with’) means the
possession, direct or indirect, of the power to direct
or cause the direction of the management and
policies of a person, whether through the
ownership of voting securities, by contract, or
otherwise.’’
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115
included in the current rule (i.e., ‘‘a
director, officer or substantial security
holder of the company’’). Consequently,
this proposal would not have any
substantive effect on the application of
Section 312.03(b)(ii) and a listed
company selling securities to a Related
Party under the circumstances set forth
in the rule as amended remains subject
to the shareholder approval
requirements in that provision.15
The Exchange also notes that any
listed company selling securities in a
private placement that does not meet
the Minimum Price requirement will
remain subject to the shareholder
approval requirement of Section
312.03(c) if such transaction relates to
20 percent or more of the issuer’s
common stock. In addition, if the
securities in such financing are issued
in connection with an acquisition of the
stock or assets of another company,
shareholder approval will be required if
the issuance of such securities alone or
when combined with any other present
or potential issuance of common stock,
or securities convertible into common
stock in connection with such
acquisition, is equal to or exceeds either
20 percent of the number of shares of
common stock or 20 percent of the
voting power outstanding before the
issuance. Sales of securities will also
continue to be subject to all other
shareholder approval requirements set
forth in Section 312.03 (including
limitations with respect to equity
compensation under Section 312.03(a)
and Section 303A.08) and the change of
control requirement of Section
312.03(d). The Exchange notes that
Section 312.04(a) provides that
shareholder approval is required if any
of the subparagraphs of Section 312.03
require such approval, notwithstanding
the fact that the transaction does not
require approval under one or more of
the other subparagraphs. Finally, the
Exchange notes that Section 312.03(b)(i)
as proposed to be amended would
continue to provide a significant
protection to shareholders against
conflicts of interest in sales of securities
to Active Related Parties and that no
other listing venue has such a protection
in its rules. The Exchange notes that its
shareholder approval requirements are
as stringent in every respect as those of
its competitor listing venues.16
Under the proposal the Exchange will
continue to require shareholder
approval for below market sales (i.e.,
below the Minimum Price) over one
15 See note 9 supra for a description of Section
312.03(b)(ii).
16 See, for example, Nasdaq Stock Market Rule
5635.
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Federal Register / Vol. 89, No. 1 / Tuesday, January 2, 2024 / Notices
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percent to Active Related Parties.
However, as a consequence of the
proposed amendment, below market
sales over one percent to substantial
securityholders who are not Active
Related Parties will be permitted
without shareholder approval under
312.03(b)(i), but will continue to be
subject to all the other applicable
shareholder approval requirements
under 312.03.
1. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act,17 in general, and
furthers the objectives of Section 6(b)(5)
of the Act 18 in particular, in that it is
designed to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest and is
not designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.
The Exchange believes that proposed
amended Section 312.03(b)(i) is
consistent with the protection of
investors and the public interest.
Specifically, the amended rule
continues to provide for shareholder
approval of below-market sales of
securities to Active Related Parties of a
listed company where a potential
conflict of interest exists that Active
Related Parties could use their influence
within the company to obtain superior
terms from the company to the
detriment of the company’s
shareholders as a whole. The current
definition of substantial security holder
used in the rule extends to holders of a
company’s common stock who do not
participate in the governance or
management of the company through
board or management representation.
The Exchange believes that transactions
with these kinds of shareholders who do
not participate in the governance or
management of the company (except by
voting at shareholder meetings) in and
of themselves generally do not give rise
to the potential conflicts of interest in
the determination of transaction terms
that exist where the purchaser has a role
in the listed company’s board or
management. The Exchange believes
that these shareholders that do not
participate actively in the company in
17 15
18 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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15:59 Dec 29, 2023
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this way do not generally have the same
ability to participate in and influence
decision making as is the case with a
related party that directly participates in
the governance or management of the
company. The proposed rule only
modifies the existing rule to permit
sales to investors who are not a director,
officer, a controlling shareholder or
member of a control group or any other
substantial security holder of the
company that has an affiliated person
who is an officer or director of the
company and with respect to whom the
Exchange therefore believes that the
potential for such self-dealing does not
exist.
The Exchange proposes to use
definitions of ‘‘control’’ and ‘‘group’’ in
the proposed amended rule that are
used in the federal securities laws and
the rules thereunder and, consequently,
the Exchange believes that the use of
such definitions is consistent with the
Act.
The Exchange believes that the
proposed amendment would promote
competition among listing venues by
removing a limitation on capital raising
by listed companies that does not exist
for their peers on other listing
exchanges.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange believes that the proposed
amendment increases competition
among listing venues by removing a
limitation on capital raising by listed
companies that does not exist for their
peers on other listing exchanges.
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. Discussion and Commission
Findings
After careful review, the Commission
finds that the proposed rule change, as
modified by Amendment No. 1, is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to a national
securities exchange.19 In particular, the
Commission finds that the proposed
19 15 U.S.C. 78f(b). In approving this proposed
rule change, the Commission has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
PO 00000
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Sfmt 4703
rule change, as modified by Amendment
No. 1, is consistent with Section 6(b)(5)
of the Act,20 which requires, among
other things, that the rules of a national
securities exchange be designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in regulating, clearing,
settling, processing information with
respect to, and facilitating transactions
in securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest; and
are not designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.
The development and enforcement of
meaningful corporate governance listing
standards for a national securities
exchange is of substantial importance to
financial markets and the investing
public, especially given investor
expectations regarding the nature of
companies that have achieved an
exchange listing for their securities. The
corporate governance standards
embodied in the listing standards of
national securities exchanges, in
particular, play an important role in
assuring that exchange-listed companies
observe good governance practices,
including safeguarding the interests of
shareholders with respect to certain
potentially dilutive transactions.21
As discussed above, the Exchange
proposes to amend Section 312.03(b)(i)
20 15
U.S.C. 78f(b)(5).
e.g., Securities Exchange Act Release Nos.
91471 (Apr. 2, 2021), 86 FR 18362 (NYSE–2020–85)
(revising the shareholder approval requirements in
Sections 312.03 and 312.04 and the requirements
for related party transactions in Section 314.00);
85374 (Mar. 20, 2019) 84 FR 11354 (Mar. 26, 2019)
(NYSE–2018–54) (modifying the price requirements
that companies must meet to avail themselves of
certain exceptions from the shareholder approval
requirements in Section 312.03); 84287 (Sept. 26,
2018) 83 FR 49599 (Oct. 2, 2018) (Nasdaq–2018–
008) (approving a Nasdaq proposal to change to the
definition of market value for purposes of the
shareholder approval rule and eliminate the
requirement for shareholder approval of issuances
at less than book value but greater than market
value); 76814 (Dec. 31, 2015), 81 FR 0820 (Jan. 7,
2016) (NYSE–2015–02) (approving amendments to
the NYSE Listed Company Manual to exempt early
stage companies from having to obtain shareholder
approval in certain circumstances). See also
Securities Exchange Act Release Nos. 48108 (June
30, 2003), 68 FR 39995 (Jul. 3, 2003) (approving
equity compensation shareholder approval rules of
both the NYSE and the National Association of
Securities Dealers, Inc. n/k/a NASDAQ); and 65225
(Aug. 30, 2011), 76 FR 55148 (Sept. 6, 2011)
(approving rules for the qualification, listing and
delisting of companies on BATS, noting that
qualitative listing requirements including
shareholder approval rules are designed to ensure
that companies trading on a national securities
exchange will adequately protect the interest of
public shareholders).
21 See,
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of the Manual to modify its application.
Specifically, the Exchange proposes to
limit the shareholder approval
requirements of Section 312.03(b)(i) of
the Manual, which applies to issuances
of common stock exceeding either one
percent of the number of shares of
common stock or one percent of the
voting power outstanding before the
issuance for a price below the Minimum
Price,22 to require shareholder approval
only for issuances to Active Related
Parties, defined as directors, officers,
controlling shareholders or members of
a control group or any other substantial
security holders 23 of the company that
have an affiliated person who is an
officer or director of the company,24 and
to no longer require shareholder
approval under this provision for such
issuances to Related Parties 25 that are
not Active Related Parties (i.e.,
substantial security holders that are not
controlling shareholders or a member of
a control group or that do not have an
affiliated person who is an officer or
director of the company). According to
the Exchange, this change would allow
substantial security holders who do not
participate in the governance or
management of the company (and who
are thus not in the newly defined Active
Related Party category) to acquire
additional stock below the Minimum
Price without the need for shareholder
approval under Section 312.01(b(i), thus
making it less burdensome for NYSE
listed companies to raise additional
capital quickly.26 The Exchange states
its belief that transactions with
22 ‘‘Minimum Price’’ means a price that is the
lower of: (i) the Official Closing Price immediately
preceding the signing of the binding agreement; or
(ii) the average Official Closing Price for the five
trading days immediately preceding the signing of
the binding agreement. See Section 312.04(h) of the
Manual.
23 Section 312.04(e) of the Manual provides that
‘‘[a]n interest consisting of less than either five
percent of the number of shares of common stock
or five percent of the voting power outstanding of
a company or entity shall not be considered a
substantial interest or cause the holder of such an
interest to be regarded as a substantial security
holder.’’
24 See proposed amended Section 312.03(b)(i) of
the Manual defining ‘‘Active Related Party.’’
25 See Section 312.03(b)(i) of the Manual and
proposed amended Section 312.03(b)(ii) of the
Manual defining Related Party. In each case,
‘‘Related Party’’ is defined as ‘‘a director, officer or
substantial security holder of the company.’’
26 See supra Section II.A. Shareholder approval is
required if any of the subparagraphs of Section
312.03 of the Manual apply notwithstanding the
fact that the transaction does not require approval
under on or more of the other subparagraphs. See
Section 312.04(a). As discussed below, these other
shareholder approval provisions require approval
for certain sales of discounted stock (i.e., below the
Minimum Price) in private placements as well as
sales of stock under certain situations regardless of
whether or not such sale is below the Minimum
Price.
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substantial security holders that are not
Active Related Parties generally do not
give rise to the potential conflicts of
interest in the determination of
transaction terms that exist where the
purchaser has a role in the listed
company’s board or management, as
there is a lesser possibility that a
substantial security holder that is not an
Active Related Party may exercise
influence over the terms of a transaction
with the company if such substantial
security holder does not have
representation on the board or in
management.27 The Exchange also
proposes to adopt two new definitions
under the revised rule for purposes of
defining ‘‘control’’ and ‘‘group.’’
‘‘Control’’ would be defined using the
definition in Rule 12b–2 under the
Act 28 and ‘‘group’’ (for purposes of
control group) would be defined as a
group as determined under Section
13(d)(3) or Section 13(g)(3) of the Act.29
After careful consideration, the
Commission finds that the proposed
rule change is consistent with the Act.
As stated by the Exchange, the
shareholder approval requirement in
Section 312.03(b)(i) of the Manual
protects against a potential conflict of
interest when the acquirer of additional
stock may have enough influence within
the company to obtain superior terms
from the company to the detriment of
the company’s shareholders as a
whole.30 As amended, the shareholder
approval requirement in Section
312.03(b)(i) of the Manual would
continue to apply to below market sales
of securities of greater than 1% to
Active Related Parties (i.e., directors,
officers, controlling shareholders or
members of a control group or any other
substantial security holders of the
company that have an affiliated
27 See
supra Section II.A.
28 Rule 12b–2 under Regulation 12B of the
Exchange Act provides that ‘‘[t]he term ‘control’
(including the terms ‘controlling,’ ‘controlled by’
and ‘under common control with’) means the
possession, direct or indirect, of the power to direct
or cause the direction of the management and
policies of a person, whether through the
ownership of voting securities, by contract, or
otherwise.’’ See supra note 14 and accompanying
text.
29 Section 13(d)(3) or Section 13(g)(3) provide:
‘‘When two or more persons act as a [ ] group for
the purpose of acquiring, holding, or disposing of
[equity] securities of an issuer, the group shall be
deemed a ‘person’. . . .’’ The determination under
Sections 13(d)(3) and 13(g)(3) as to whether two or
more persons are acting as a group does not depend
solely on the presence of an express agreement.
Depending on the particular facts and
circumstances, concerted actions by two or more
persons for the purpose of acquiring, holding—
which includes voting—or disposing of securities of
an issuer are sufficient to constitute the formation
of a group. See supra note 13 and accompanying
text.
30 See supra Section II.A.
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117
person 31 who is an officer or director of
the company). As a result, these Active
Related Parties, that have a role in the
listed company’s board or management
or are substantial security holders that
exercise control and thus have a
potential conflict of interest in
connection with the negotiation of any
purchase of stock, will continue to be
subject to the shareholder approval
requirements under Section 312.03(b)(i)
of the Manual. Moreover, even though
substantial security holders that are not
Active Related Parties will no longer be
subject to the shareholder approval
requirement in Section 312.03(b)(i) of
the Manual, they will continue to be
subject to the other shareholder
approval requirements set forth in
Section 312.03 of the Manual, to the
extent applicable.
To make it clear that there are no
changes being made to the application
of the other shareholder approval
requirements in Section 312.03 of the
Manual, the Exchange has specifically
amended Section 312.03(b)(ii) of the
Manual to retain the definition of
Related Party in order to clarify that a
listed company selling securities to a
Related Party (that includes a
substantial security holder) 32 under the
circumstances set forth in that rule as
amended would remain subject to the
shareholder approval requirements set
forth therein.33 By amending the
proposal so that the substantive
requirements of Section 312.03(b)(ii) of
the Manual remain unchanged, the
provision will continue to provide
important investor protections for
shareholders when a listed company is
selling securities to a Related Party that
has an interest, directly or indirectly, in
31 In determining whether a person is an affiliated
person, the Exchange will consider all relevant facts
and circumstances, including, but not limited to
whether such person is an affiliate within the
meaning of that term under the federal securities
laws and rules thereunder. See supra note 12.
32 See supra note 23.
33 See supra Section II.A and proposed Section
312.03(b)(ii) of the Manual, as modified by
Amendment No. 1. As discussed above, Section
312.03(b)(ii) of the Manual provides that
shareholder approval is required prior to the
issuance of common stock, or of securities
convertible into or exercisable for common stock,
where such securities are issued as consideration in
a transaction or series of related transactions in
which a Related Party has a five percent or greater
interest (or such persons collectively have a ten
percent or greater interest), directly or indirectly, in
the company or assets to be acquired or in the
consideration to be paid in the transaction or series
of related transactions and the present or potential
issuance of common stock, or securities convertible
into common stock, could result in an issuance that
exceeds either five percent of the number of shares
of common stock or five percent of the voting power
outstanding before the issuance.
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the company or assets to be acquired or
consideration to be paid.
The Commission also finds that the
Exchange’s proposed definitions of
‘‘group’’ and ‘‘control’’ in Sections
312.04(k) and (l) of the Manual for
purposes of Section 312.03 of the
Manual are consistent with the Act.34
The Exchange’s proposed use of the
standards under Sections 13(d)(3) and
13(g)(3) to determine the existence of a
group is consistent with the guidance
given by the Commission that ‘‘[t]he
appropriate legal standard for
determining whether a group is formed
is found in sections 13(d)(3) and 13(g)(3)
[of the Act].’’ 35 The Commission further
stated that ‘‘[t]he determination depends
on an analysis of all the relevant facts
and circumstances and not solely on the
presence or absence of an express
agreement, as two or more persons may
take concerted action or agree
informally.’’ 36 The Exchange’s
proposed use of Rule 12b–2 to
determine the existence of control also
is reasonable and consistent with the
Act given that definition applies to ‘‘all
reports filed pursuant to section[ ] 13 [ ]
of the Act. . . .’’ 37
The Commission notes, in approving
the proposal to amend the shareholder
approval requirement in Section
312.03(b)(i) of the Manual, that the
ability of listed companies to sell
securities without shareholder approval
continues to remain limited by other
important Exchange rules.38 For
example, the Commission notes that any
discounted issuance of stock to a
company’s officers, directors,
employees, or consultants would
34 In its proposal, the Exchange stated that it will
revise its internal procedures in reviewing proposed
transactions as necessary to obtain the information
necessary to determine whether shareholders
participating in transaction are Active Related
Parties. In addition, the Exchange stated that it will
rely on the filings on Schedule 13D or Schedule
13G for purposes of determining the existence of a
group, along with any additional follow-up inquiry
that is needed. See supra Section II.A. The
Commission believes this is reasonable and will
help the Exchange ensure compliance with the
revised rule.
35 See Securities Exchange Act Release No. 98704
(Oct. 10, 2023), 88 FR 76896 (Nov. 7, 2023), 76933.
36 See id.
37 See Rule 12b–1, which sets forth the scope of
Regulation 12B and provides that all rules
contained in Regulation 12B, including Rule 12b–
2, apply to such filings. For example, the
Commission has enforced violations of Rule 12b–
2 in Regulation 12B against beneficial owners for
disclosure deficiencies in their Schedule 13D
filings.
38 See, e.g., Section 312.03(a), (b)(ii), (b)(iii), (c)
and (d) of the Manual. The Commission notes that
if shareholder approval was not required under
Section 312.03(b)(i) of the Manual, it could still be
required under one of the other shareholder
approval provisions in Section 312.03 of the
Manual since these provisions apply independently
of each other. See Section 312.04(a) of the Manual.
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require shareholder approval under the
Exchange’s equity compensation
rules.39 In addition, any listed company
selling securities in a private placement
that does not meet the Minimum Price
requirement will remain subject to the
shareholder approval requirement of
Section 312.03(c) of the Manual if such
transaction relates to 20 percent or more
of the issuer’s common stock or voting
power.40 Section 312.03(c) of the
Manual also requires shareholder
approval for issuances of 20% or more
of the common stock or the voting
power in connection with an acquisition
of the stock or assets of another
company irrespective of whether the
price meets or exceeds the Minimum
Price. Furthermore, shareholder
approval would be required if the
issuance resulted in a change of control
and, as discussed above, for the
acquisition of stock or assets of another
company where the issuance increases
voting power or common shares by 5%
or more and a Related Party has a 5%
direct or indirect interest (or collectively
10%) in the company or assets to be
acquired.41
Finally, the Exchange also states its
belief that Section 312.03.(b)(i) as
proposed to be amended would
continue to provide a significant
protection to shareholders against
conflicts of interest in sales of securities
to Active Related Parties and that no
other listing exchange has such a
requirement.42 The Exchange also
represents that its shareholder approval
requirements are as stringent as those of
its competitor listing venues.43 The
Commission is cognizant of the fact that
the Exchange operates in a highly
competitive environment including
with respect to the listing of issuers.
While the proposal would allow below
market sales (i.e., below the Minimum
Price) over one percent by listed
companies to substantial security
holders that are not Active Related
Parties without shareholder approval,
the other shareholder approval
requirements remain unchanged and
provide additional protections on the
amount of shares that can be issued
without a shareholder vote.44
Importantly, Active Related Parties, that
39 See Sections 312.03(a), 312.03(b)(iii) and
303A.08 of the Manual.
40 See Section 312.03(c) of the Manual.
41 See Sections 312.03(d) and 312.03(b)(ii) of the
Manual. See also, supra note 33 and accompanying
text concerning Section 312.03(b)(ii).
42 See, e.g., Nasdaq Rule 5635; NYSE American
LLC Company Guide, Section 711–713.
43 See supra Section II.A at note 16 and
accompanying text.
44 See, for example, Section 312 (b)(ii), (c) and (d)
and supra notes 39–42 and accompanying text.
PO 00000
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have a role in the listed company’s
board or management or are substantial
security holders that exercise control
and thus have a potential conflict of
interest in connection with the
negotiation of any purchase of stock,
will continue to be subject to the
shareholder approval requirements
under Section 312.03(b)(i) of the
Manual. The proposal also will promote
fair competition among listing
exchanges. For the reasons discussed
above, the Commission believes that the
proposed rule change, as modified by
Amendment No. 1, is consistent with
the Act.
IV. 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.
1, 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–2023–34 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–2023–34. 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
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
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Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–NYSE–2023–34 and should be
submitted on or before January 23, 2024.
VI. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act 45 that the
proposed rule change (SR–NYSE–2023–
34), as modified by Amendment No. 1,
be, and hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.46
Christina Z. Milnor,
Assistant Secretary.
V. Accelerated Approval of Proposed
Rule Change, as Modified by
Amendment No. 1
[FR Doc. 2023–28796 Filed 12–29–23; 8:45 am]
The Commission finds good cause,
pursuant to Section 19(b)(2) of the Act,
to approve the proposed rule change, as
modified by Amendment No. 1, prior to
the 30th day after the date of
publication of Amendment No. 1 in the
Federal Register. As discussed above,
Amendment No. 1, the Exchange
revised the proposal to: (1) adopt a new
definition of an ‘‘Active Related Party’’
in Section 312.03(b)(i) of the Manual
and to retain the current definition of
‘‘Related Party’’ for purposes of Section
312.03(b)(ii) of the Manual; (2) adopt in
Section 312.04 of the Manual
definitions of ‘‘control’’ and ‘‘group’’ for
purposes of proposed amended Section
312.03(b)(i) of the Manual; (3) include
additional explanation of why the
Exchange is proposing the rule change
and believes that it is appropriate; (4)
explain that the proposal would not
have any substantive effect on the
application of Section 312.03(b)(ii) of
the Manual and that a listed company
selling securities to a Related Party
under the circumstances set forth in
312.03(b)(ii) of the Manual, as amended,
would remain subject to the shareholder
approval requirements therein; and (5)
make other clarifying and conforming
changes. The Commission believes that
these revisions provide greater clarity
on the application of the proposal and
its scope and the circumstances under
which shareholder approval is still
required under Section 312.03 of the
Manual. The additional explanation in
support of the proposal as well as the
amended rule language in Amendment
No. 1 assist the Commission in
evaluating the Exchange’s proposal and
in determining that it is consistent with
the Act.
Accordingly, the Commission finds
good cause for approving the proposed
rule change, as modified by Amendment
No. 1, on an accelerated basis, pursuant
to Section 19(b)(2) of the Act.
SMALL BUSINESS ADMINISTRATION
BILLING CODE 8011–01–P
Reporting and Recordkeeping
Requirements Under OMB Review
ACTION:
The Small Business
Administration (SBA) is seeking
approval from the Office of Management
and Budget (OMB) for the information
collection described below. In
accordance with the Paperwork
Reduction Act and OMB procedures,
SBA is publishing this notice to allow
all interested member of the public an
additional 30 days to provide comments
on the proposed collection of
information.
SUMMARY:
Submit comments on or before
February 1, 2024.
ADDRESSES: Written comments and
recommendations for this information
collection request should be sent within
30 days of publication of this notice to
www.reginfo.gov/public/do/PRAMain.
Find this particular information
collection request by selecting ‘‘Small
Business Administration’’; ‘‘Currently
Under Review,’’ then select the ‘‘Only
Show ICR for Public Comment’’
checkbox. This information collection
can be identified by title and/or OMB
Control Number.
FOR FURTHER INFORMATION CONTACT: You
may obtain a copy of the information
collection and supporting documents
from the Agency Clearance Office at
Curtis.Rich@sba.gov; (202) 205–7030, or
from www.reginfo.gov/public/do/
PRAMain.
DATES:
Small
Business Administration collects this
information from lenders who
participate in the secondary market
program. The information is used to
facilitate and administer secondary
market transactions in accordance with
SUPPLEMENTARY INFORMATION:
45 15
46 17
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Small Business Administration.
30-Day notice.
AGENCY:
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CFR 200.30–3(a)(12).
Frm 00077
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119
15 U.S.C. 634(f)3 and to monitor the
program for compliance with 15 U.S.C.
639(h).
Solicitation of Public Comments
Comments may be submitted on (a)
whether the collection of information is
necessary for the agency to properly
perform its functions; (b) whether the
burden estimates are accurate; (c)
whether there are ways to minimize the
burden, including through the use of
automated techniques or other forms of
information technology; and (d) whether
there are ways to enhance the quality,
utility, and clarity of the information.
OMB Control No. 3245–0185.
Title: Secondary Participation
Guaranty Agreement.
Description of Respondents: Small
Business Lending Companies.
SBA Form Number: SBA Forms 1086,
1502.
Estimated Number of Respondents:
4,000.
Estimated Annual Responses: 4,000.
Estimated Annual Hour Burden:
60,000.
Curtis Rich,
Agency Clearance Officer.
[FR Doc. 2023–28837 Filed 12–29–23; 8:45 am]
BILLING CODE 8026–09–P
SMALL BUSINESS ADMINISTRATION
Data Collection Available for Public
Comments
60-Day notice and request for
comments.
ACTION:
The Small Business
Administration (SBA) intends to request
approval, from the Office of
Management and Budget (OMB) for the
collection of information described
below. The Paperwork Reduction Act
(PRA) requires federal agencies to
publish a notice in the Federal Register
concerning each proposed collection of
information before submission to OMB,
and to allow 60 days for public
comment in response to the notice. This
notice complies with that requirement.
DATES: Submit comments on or before
March 3, 2023.
ADDRESSES: Send all comments to
Terrance Moultrie, Supervisor Business
Operations Specialist, Government
Contracting, Small Business
Administration.
FOR FURTHER INFORMATION CONTACT:
Terrance Moultrie, Supervisor Business
Operations Specialist, Government
Contracting, 202–389–6644,
terrence.moultrieSr@sba.gov or Curtis B.
Rich, Agency Clearance Officer,
curtis.rich@sba.gov.
SUMMARY:
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]]>Agencies
[Federal Register Volume 89, Number 1 (Tuesday, January 2, 2024)]
[Notices]
[Pages 113-119]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-28796]
=======================================================================
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99238; File No. SR-NYSE-2023-34]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Amendment No. 1 and Order Granting Accelerated
Approval of Proposed Rule Change, as Modified by Amendment No. 1,
Amending Sections 312.03(b) and 312.04 of the NYSE Listed Company
Manual To Modify the Circumstances Under Which a Listed Company Must
Obtain Shareholder Approval of a Sale of Securities Below the Minimum
Price to a Substantial Security Holder of the Company
December 26, 2023.
I. Introduction
New York Stock Exchange LLC (``NYSE'' or the ``Exchange'') filed on
September 26, 2023, with the Securities and Exchange Commission
(``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 modify the circumstances under which a listed
company must obtain shareholder approval of a sale of securities to a
substantial security holder of the listed company. The proposed rule
change was published for comment in the Federal Register on October 4,
2023.\3\ On November 16, 2023, the Commission designated a longer
period for Commission action on the proposed rule change.\4\ On
December 21, 2023, the Exchange filed Amendment No. 1 to the proposed
rule change, which amended and superseded the original filing in its
entirety.\5\ The
[[Page 114]]
Commission has received no comment letters on the proposal. The
Commission is publishing this notice to solicit comments on Amendment
No. 1 from interested persons and is approving the proposed rule
change, as modified by Amendment No. 1, on an accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 98662 (September 29,
2023), 88 FR 68675 (October 4, 2023) (``Notice'').
\4\ See Securities Exchange Act Release No. 98967 (November 16,
2023), 88 FR 81462 (November 22, 2023) (extending the time period
for Commission action to January 2, 2024).
\5\ In Amendment No. 1, the Exchange revised the proposal to:
(1) adopt a new definition of an ``Active Related Party'' in Section
312.03(b)(i) of the NYSE Listed Company Manual (``Manual'') and to
retain the current definition of Related Party for purposes of
Section 312.03(b)(ii) of the Manual; (2) adopt in Section 312.04 of
the Manual definitions of ``control'' and ``group'' for purposes of
proposed amended Section 312.03(b)(i) of the Manual; (3) include
additional explanation of why the Exchange is proposing the rule
change and believes that it is appropriate; (4) explain that the
proposal would not have any substantive effect on the application of
Section 312.03(b)(ii) of the Manual and that a listed company
selling securities to a Related Party under the circumstances set
forth in 312.03(b)(ii) of the Manual, as amended, would remain
subject to the shareholder approval requirements therein; and (5)
make other clarifying and conforming changes. Amendment No. 1 is
available at https://www.sec.gov/comments/sr-nyse-2023-34/srnyse202334-320179-832762.pdf.
---------------------------------------------------------------------------
II. The Exchange's Description of the Proposed Rule Change, as Modified
by Amendment No. 1 6
---------------------------------------------------------------------------
\6\ This Section II reproduces Amendment No. 1, as filed by the
Exchange.
---------------------------------------------------------------------------
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The NYSE previously filed a proposed rule filing to amend Section
312.03(b) of the Manual to modify the circumstances under which a
listed company must obtain shareholder approval of a sale of securities
to a substantial security holder of the listed company.\7\ The proposed
rule change was published for comment in the Federal Register on
October 4, 2023.\8\ This Amendment No. 1 supersedes the original filing
in its entirety.
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\7\ See SR-NYSE-2023-34 (September 26, 2023).
\8\ See Securities Exchange Act Release No. 98662 (September 29,
2023), 88 FR 68675 (October 4. 2023).
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Amendment No. 1 includes in the Purpose and Statutory Basis
sections additional explanation of why the Exchange is proposing the
rule change and believes that it is appropriate, specifically
discussing the Exchange's belief that there is a lesser possibility
that a substantial security holder may exercise influence over the
terms of a transaction with the company if such substantial security
holder does not have representation on the board or in management. In
addition, Amendment No. 1 amends the rule text to adopt a new
definition of an ``Active Related Party'' in Section 312.03(b)(i) and
to retain the current definition of Related Party for purposes of
Section 312.03(b)(ii).\9\ The Purpose section is amended to describe
these proposed amendments, as well as to explain that their purpose is
to ensure that the proposal would not have any substantive effect on
the application of Section 312.03(b)(ii). A listed company selling
securities to a Related Party under the circumstances set forth in the
rule as amended would remain subject to the shareholder approval
requirements in 312.03(b)(ii). Finally, Amendment No. 1 amends the rule
text to adopt in Section 312.04 definitions of ``control'' and
``group'' for purposes of proposed amended Section 312.03(b)(i),
providing clarity as to the meaning of the terms ``controlling
shareholder'' and ``control group'' in that provision as amended. The
Purpose section is amended to describe the addition of those new
defined terms and to include footnotes explaining how ``control'' is
defined and the standards to be applied in determining whether or not a
``group'' exists.
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\9\ Section 312.03(b)(ii) provides that shareholder approval is
required prior to the issuance of common stock, or of securities
convertible into or exercisable for common stock, where such
securities are issued as consideration in a transaction or series of
related transactions in which a Related Party has a five percent or
greater interest (or such persons collectively have a ten percent or
greater interest), directly or indirectly, in the company or assets
to be acquired or in the consideration to be paid in the transaction
or series of related transactions and the present or potential
issuance of common stock, or securities convertible into common
stock, could result in an issuance that exceeds either five percent
of the number of shares of common stock or five percent of the
voting power outstanding before the issuance.
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Section 312.04(e) of the Manual provides that an interest
consisting of less than either five percent of the number of shares of
common stock or five percent of the voting power outstanding of a
company or entity shall not be considered a substantial interest or
cause the holder of such an interest to be regarded as a substantial
security holder.
Section 312.03(b)(i) of the Manual provides that shareholder
approval is required prior to the issuance of common stock, or of
securities convertible into or exercisable for common stock, in any
transaction or series of related transactions, to a director, officer
or substantial security holder of the company if the number of shares
of common stock to be issued, or if the number of shares of common
stock into which the securities may be convertible or exercisable,
exceeds either one percent of the number of shares of common stock or
one percent of the voting power outstanding before the issuance.
The Manual provides an exception to the shareholder approval
requirement if such transaction is a cash sale for a price that is at
least the Minimum Price. Section 312.04(h) defines the Minimum Price as
a price that is the lower of: (i) the Official Closing Price
immediately preceding the signing of the binding agreement; or (ii) the
average Official Closing Price for the five trading days immediately
preceding the signing of the binding agreement. Section 312.04(i)
defines the ``Official Closing Price'' of an issuer's common stock as
the official closing price on the Exchange as reported to the
Consolidated Tape immediately preceding the signing of a binding
agreement to issue the securities.\10\
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\10\ For example, if the transaction is signed after the close
of the regular session at 4:00 p.m. Eastern Standard Time on a
Tuesday, then Tuesday's official closing price is used. If the
transaction is signed at any time between the close of the regular
session on Monday and the close of the regular session on Tuesday,
then Monday's official closing price is used.
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Certain NYSE listed companies are significantly dependent on their
ability to regularly raise additional capital to fund their operations
or acquire new assets. For example, pre-revenue stage biotechnology
companies regularly seek additional capital to fund their research and
development activities and real estate investment trusts seek to fund
the acquisition of new properties by selling equity securities in
private placements or direct registered sales priced at a small
discount to the prevailing market price. It is the Exchange's
understanding that, in many cases, existing shareholders of the listed
company are willing purchasers of securities in such circumstances, as
they already understand the company's business and have a positive view
of its future prospects. Sales to existing shareholders can also be
advantageous to both the issuer and the shareholders because of the
speed with which a direct sale to an existing shareholder can be
completed if no shareholder approval is required. However, the benefits
of low transaction costs and speed of execution that typically exist
when conducting these transactions with existing shareholders face
countervailing factors if the counterparty is deemed to be a
substantial securityholder for purposes of Section 312.03(b)(i). In
such cases, to mitigate potential conflicts of interest, Exchange rules
require that any sale below the Minimum Price can relate to no more
than one per cent of the shares of common stock or one percent of the
voting power outstanding before the issuance. Any such transaction that
relates to more than one per cent of the
[[Page 115]]
common stock is subject to shareholder approval, which imposes
significant delay and additional costs on the issuer, thereby often
making the sale impracticable. This one percent limitation is therefore
a significant restriction on the ability of an NYSE listed company to
raise capital from its existing shareholders. Notably, the NYSE is the
only listing exchange in the United States that has such a limitation
in its rules and NYSE companies are therefore at a disadvantage in
raising additional capital when compared to their peers listed on other
national securities exchanges.
The Exchange believes there are significant benefits from the
protection provided to a listed company's investors by the shareholder
approval requirements in Section 312.03(b)(i) when a purchaser of the
securities in a transaction is an officer or director or other control
person of the company. In such cases, the potential exists for a
related party purchaser to use their influence within the company to
obtain superior terms from the company to the detriment of the
company's shareholders as a whole. However, the current definition of
substantial security holder used in the rule also applies to holders of
a company's common stock who do not participate in the governance or
management of the company through board or management representation.
The Exchange believes that transactions with these kinds of
shareholders who do not participate in the governance or management of
the company generally do not give rise to the potential conflicts of
interest in the determination of transaction terms that exist where the
purchaser has a role in the listed company's board or management. The
Exchange believes that these shareholders that do not participate
actively in the company in this way generally do not have the same
ability to participate in and influence decision making as is the case
with a related party that directly participates in the governance or
management of the company.\11\ As discussed below the Exchange will be
adopting the definition contained in Rule 12b-2 under Regulation 12B of
the Exchange Act to define control for purposes of the proposed amended
rule.
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\11\ The Exchange recognizes that substantial shareholders who
are not represented on the board or in management are likely to vote
their shares at shareholder meetings but believes that this in
itself is generally not sufficient to create a relationship with the
company that would give a substantial shareholder the ability to
influence inappropriately the terms of any transaction it enters
into with the company.
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In light of the foregoing, the Exchange proposes to amend Section
312.03(b)(i) to limit its application to related parties whose interest
in the company is not passive in nature. As proposed, Section
312.03(b)(i) would be limited in application to sales to a director,
officer, controlling shareholder or member of a control group or any
other substantial security holder of the company that has an affiliated
person \12\ who is an officer or director of the company (each an
``Active Related Party''). For purposes of determining the existence of
a group, the Exchange proposes to rely on the filings on Schedule 13D
or Schedule 13G disclosing the existence of a group as determined under
Section 13(d)(3) or Section 13(g)(3) of the Exchange Act, along with
any additional follow-up inquiry that is needed.\13\ The Exchange
proposes to amend Section 312.04 to include new definitions for
purposes of Section 312.03, providing that: (i) a ``group'' means a
group as determined under Section 13(d)(3) or Section 13(g)(3) of the
Exchange Act; and (ii) ``control'' has the same meaning as defined in
Rule 12b-2 of Regulation 12B under the Exchange Act.\14\ The Exchange
intends to revise its internal procedures in reviewing proposed
transactions to the extent necessary to obtain the necessary
information to make determinations with respect to whether shareholders
participating in transactions are Active Related Parties.
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\12\ In determining whether a person is an affiliated person for
purposes of the definition of an Active Related Party, the Exchange
will consider all relevant facts and circumstances, including, but
not limited to, whether such person is an affiliate within the
meaning of that term under provisions of the federal securities laws
and the rules thereunder.
\13\ Section 13(d)(3) or Section 13(g)(3) provide: ``When two or
more persons act as a [ ] group for the purpose of acquiring,
holding, or disposing of [equity] securities of an issuer, the group
shall be deemed a `person'. . . .'' The determination under Sections
13(d)(3) and 13(g)(3) as to whether two or more persons are acting
as a group does not depend solely on the presence of an express
agreement. Depending on the particular facts and circumstances,
concerted actions by two or more persons for the purpose of
acquiring, holding--which includes voting--or disposing of
securities of an issuer are sufficient to constitute the formation
of a group.
\14\ Rule 12b-2 under Regulation 12B of the Exchange Act
provides that ``[t]he term `control' (including the terms
`controlling,' `controlled by' and `under common control with')
means the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of a person,
whether through the ownership of voting securities, by contract, or
otherwise.''
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In addition to the proposed definition of Active Related Party in
the proposed amended version of Section 312.03(b)(i), the Exchange
proposes for purposes of Section 312.03(b)(ii) to retain the broader
definition of a Related Party included in the current rule (i.e., ``a
director, officer or substantial security holder of the company'').
Consequently, this proposal would not have any substantive effect on
the application of Section 312.03(b)(ii) and a listed company selling
securities to a Related Party under the circumstances set forth in the
rule as amended remains subject to the shareholder approval
requirements in that provision.\15\
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\15\ See note 9 supra for a description of Section
312.03(b)(ii).
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The Exchange also notes that any listed company selling securities
in a private placement that does not meet the Minimum Price requirement
will remain subject to the shareholder approval requirement of Section
312.03(c) if such transaction relates to 20 percent or more of the
issuer's common stock. In addition, if the securities in such financing
are issued in connection with an acquisition of the stock or assets of
another company, shareholder approval will be required if the issuance
of such securities alone or when combined with any other present or
potential issuance of common stock, or securities convertible into
common stock in connection with such acquisition, is equal to or
exceeds either 20 percent of the number of shares of common stock or 20
percent of the voting power outstanding before the issuance. Sales of
securities will also continue to be subject to all other shareholder
approval requirements set forth in Section 312.03 (including
limitations with respect to equity compensation under Section 312.03(a)
and Section 303A.08) and the change of control requirement of Section
312.03(d). The Exchange notes that Section 312.04(a) provides that
shareholder approval is required if any of the subparagraphs of Section
312.03 require such approval, notwithstanding the fact that the
transaction does not require approval under one or more of the other
subparagraphs. Finally, the Exchange notes that Section 312.03(b)(i) as
proposed to be amended would continue to provide a significant
protection to shareholders against conflicts of interest in sales of
securities to Active Related Parties and that no other listing venue
has such a protection in its rules. The Exchange notes that its
shareholder approval requirements are as stringent in every respect as
those of its competitor listing venues.\16\
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\16\ See, for example, Nasdaq Stock Market Rule 5635.
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Under the proposal the Exchange will continue to require
shareholder approval for below market sales (i.e., below the Minimum
Price) over one
[[Page 116]]
percent to Active Related Parties. However, as a consequence of the
proposed amendment, below market sales over one percent to substantial
securityholders who are not Active Related Parties will be permitted
without shareholder approval under 312.03(b)(i), but will continue to
be subject to all the other applicable shareholder approval
requirements under 312.03.
1. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\17\ in general, and furthers the
objectives of Section 6(b)(5) of the Act \18\ in particular, in that it
is designed to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, to protect investors and the public interest
and is not designed to permit unfair discrimination between customers,
issuers, brokers, or dealers.
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\17\ 15 U.S.C. 78f(b).
\18\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that proposed amended Section 312.03(b)(i) is
consistent with the protection of investors and the public interest.
Specifically, the amended rule continues to provide for shareholder
approval of below-market sales of securities to Active Related Parties
of a listed company where a potential conflict of interest exists that
Active Related Parties could use their influence within the company to
obtain superior terms from the company to the detriment of the
company's shareholders as a whole. The current definition of
substantial security holder used in the rule extends to holders of a
company's common stock who do not participate in the governance or
management of the company through board or management representation.
The Exchange believes that transactions with these kinds of
shareholders who do not participate in the governance or management of
the company (except by voting at shareholder meetings) in and of
themselves generally do not give rise to the potential conflicts of
interest in the determination of transaction terms that exist where the
purchaser has a role in the listed company's board or management. The
Exchange believes that these shareholders that do not participate
actively in the company in this way do not generally have the same
ability to participate in and influence decision making as is the case
with a related party that directly participates in the governance or
management of the company. The proposed rule only modifies the existing
rule to permit sales to investors who are not a director, officer, a
controlling shareholder or member of a control group or any other
substantial security holder of the company that has an affiliated
person who is an officer or director of the company and with respect to
whom the Exchange therefore believes that the potential for such self-
dealing does not exist.
The Exchange proposes to use definitions of ``control'' and
``group'' in the proposed amended rule that are used in the federal
securities laws and the rules thereunder and, consequently, the
Exchange believes that the use of such definitions is consistent with
the Act.
The Exchange believes that the proposed amendment would promote
competition among listing venues by removing a limitation on capital
raising by listed companies that does not exist for their peers on
other listing exchanges.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange believes that
the proposed amendment increases competition among listing venues by
removing a limitation on capital raising by listed companies that does
not exist for their peers on other listing exchanges.
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. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change, as modified by Amendment No. 1, is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange.\19\ In particular, the
Commission finds that the proposed rule change, as modified by
Amendment No. 1, is consistent with Section 6(b)(5) of the Act,\20\
which requires, among other things, that the rules of a national
securities exchange be designed to prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles of trade,
to foster cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect to,
and facilitating transactions in securities, to remove impediments to
and perfect the mechanism of a free and open market and a national
market system, and, in general, to protect investors and the public
interest; and are not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\19\ 15 U.S.C. 78f(b). In approving this proposed rule change,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\20\ 15 U.S.C. 78f(b)(5).
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The development and enforcement of meaningful corporate governance
listing standards for a national securities exchange is of substantial
importance to financial markets and the investing public, especially
given investor expectations regarding the nature of companies that have
achieved an exchange listing for their securities. The corporate
governance standards embodied in the listing standards of national
securities exchanges, in particular, play an important role in assuring
that exchange-listed companies observe good governance practices,
including safeguarding the interests of shareholders with respect to
certain potentially dilutive transactions.\21\
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\21\ See, e.g., Securities Exchange Act Release Nos. 91471 (Apr.
2, 2021), 86 FR 18362 (NYSE-2020-85) (revising the shareholder
approval requirements in Sections 312.03 and 312.04 and the
requirements for related party transactions in Section 314.00);
85374 (Mar. 20, 2019) 84 FR 11354 (Mar. 26, 2019) (NYSE-2018-54)
(modifying the price requirements that companies must meet to avail
themselves of certain exceptions from the shareholder approval
requirements in Section 312.03); 84287 (Sept. 26, 2018) 83 FR 49599
(Oct. 2, 2018) (Nasdaq-2018-008) (approving a Nasdaq proposal to
change to the definition of market value for purposes of the
shareholder approval rule and eliminate the requirement for
shareholder approval of issuances at less than book value but
greater than market value); 76814 (Dec. 31, 2015), 81 FR 0820 (Jan.
7, 2016) (NYSE-2015-02) (approving amendments to the NYSE Listed
Company Manual to exempt early stage companies from having to obtain
shareholder approval in certain circumstances). See also Securities
Exchange Act Release Nos. 48108 (June 30, 2003), 68 FR 39995 (Jul.
3, 2003) (approving equity compensation shareholder approval rules
of both the NYSE and the National Association of Securities Dealers,
Inc. n/k/a NASDAQ); and 65225 (Aug. 30, 2011), 76 FR 55148 (Sept. 6,
2011) (approving rules for the qualification, listing and delisting
of companies on BATS, noting that qualitative listing requirements
including shareholder approval rules are designed to ensure that
companies trading on a national securities exchange will adequately
protect the interest of public shareholders).
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As discussed above, the Exchange proposes to amend Section
312.03(b)(i)
[[Page 117]]
of the Manual to modify its application. Specifically, the Exchange
proposes to limit the shareholder approval requirements of Section
312.03(b)(i) of the Manual, which applies to issuances of common stock
exceeding either one percent of the number of shares of common stock or
one percent of the voting power outstanding before the issuance for a
price below the Minimum Price,\22\ to require shareholder approval only
for issuances to Active Related Parties, defined as directors,
officers, controlling shareholders or members of a control group or any
other substantial security holders \23\ of the company that have an
affiliated person who is an officer or director of the company,\24\ and
to no longer require shareholder approval under this provision for such
issuances to Related Parties \25\ that are not Active Related Parties
(i.e., substantial security holders that are not controlling
shareholders or a member of a control group or that do not have an
affiliated person who is an officer or director of the company).
According to the Exchange, this change would allow substantial security
holders who do not participate in the governance or management of the
company (and who are thus not in the newly defined Active Related Party
category) to acquire additional stock below the Minimum Price without
the need for shareholder approval under Section 312.01(b(i), thus
making it less burdensome for NYSE listed companies to raise additional
capital quickly.\26\ The Exchange states its belief that transactions
with substantial security holders that are not Active Related Parties
generally do not give rise to the potential conflicts of interest in
the determination of transaction terms that exist where the purchaser
has a role in the listed company's board or management, as there is a
lesser possibility that a substantial security holder that is not an
Active Related Party may exercise influence over the terms of a
transaction with the company if such substantial security holder does
not have representation on the board or in management.\27\ The Exchange
also proposes to adopt two new definitions under the revised rule for
purposes of defining ``control'' and ``group.'' ``Control'' would be
defined using the definition in Rule 12b-2 under the Act \28\ and
``group'' (for purposes of control group) would be defined as a group
as determined under Section 13(d)(3) or Section 13(g)(3) of the
Act.\29\
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\22\ ``Minimum Price'' means a price that is the lower of: (i)
the Official Closing Price immediately preceding the signing of the
binding agreement; or (ii) the average Official Closing Price for
the five trading days immediately preceding the signing of the
binding agreement. See Section 312.04(h) of the Manual.
\23\ Section 312.04(e) of the Manual provides that ``[a]n
interest consisting of less than either five percent of the number
of shares of common stock or five percent of the voting power
outstanding of a company or entity shall not be considered a
substantial interest or cause the holder of such an interest to be
regarded as a substantial security holder.''
\24\ See proposed amended Section 312.03(b)(i) of the Manual
defining ``Active Related Party.''
\25\ See Section 312.03(b)(i) of the Manual and proposed amended
Section 312.03(b)(ii) of the Manual defining Related Party. In each
case, ``Related Party'' is defined as ``a director, officer or
substantial security holder of the company.''
\26\ See supra Section II.A. Shareholder approval is required if
any of the subparagraphs of Section 312.03 of the Manual apply
notwithstanding the fact that the transaction does not require
approval under on or more of the other subparagraphs. See Section
312.04(a). As discussed below, these other shareholder approval
provisions require approval for certain sales of discounted stock
(i.e., below the Minimum Price) in private placements as well as
sales of stock under certain situations regardless of whether or not
such sale is below the Minimum Price.
\27\ See supra Section II.A.
\28\ Rule 12b-2 under Regulation 12B of the Exchange Act
provides that ``[t]he term `control' (including the terms
`controlling,' `controlled by' and `under common control with')
means the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of a person,
whether through the ownership of voting securities, by contract, or
otherwise.'' See supra note 14 and accompanying text.
\29\ Section 13(d)(3) or Section 13(g)(3) provide: ``When two or
more persons act as a [ ] group for the purpose of acquiring,
holding, or disposing of [equity] securities of an issuer, the group
shall be deemed a `person'. . . .'' The determination under Sections
13(d)(3) and 13(g)(3) as to whether two or more persons are acting
as a group does not depend solely on the presence of an express
agreement. Depending on the particular facts and circumstances,
concerted actions by two or more persons for the purpose of
acquiring, holding--which includes voting--or disposing of
securities of an issuer are sufficient to constitute the formation
of a group. See supra note 13 and accompanying text.
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After careful consideration, the Commission finds that the proposed
rule change is consistent with the Act. As stated by the Exchange, the
shareholder approval requirement in Section 312.03(b)(i) of the Manual
protects against a potential conflict of interest when the acquirer of
additional stock may have enough influence within the company to obtain
superior terms from the company to the detriment of the company's
shareholders as a whole.\30\ As amended, the shareholder approval
requirement in Section 312.03(b)(i) of the Manual would continue to
apply to below market sales of securities of greater than 1% to Active
Related Parties (i.e., directors, officers, controlling shareholders or
members of a control group or any other substantial security holders of
the company that have an affiliated person \31\ who is an officer or
director of the company). As a result, these Active Related Parties,
that have a role in the listed company's board or management or are
substantial security holders that exercise control and thus have a
potential conflict of interest in connection with the negotiation of
any purchase of stock, will continue to be subject to the shareholder
approval requirements under Section 312.03(b)(i) of the Manual.
Moreover, even though substantial security holders that are not Active
Related Parties will no longer be subject to the shareholder approval
requirement in Section 312.03(b)(i) of the Manual, they will continue
to be subject to the other shareholder approval requirements set forth
in Section 312.03 of the Manual, to the extent applicable.
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\30\ See supra Section II.A.
\31\ In determining whether a person is an affiliated person,
the Exchange will consider all relevant facts and circumstances,
including, but not limited to whether such person is an affiliate
within the meaning of that term under the federal securities laws
and rules thereunder. See supra note 12.
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To make it clear that there are no changes being made to the
application of the other shareholder approval requirements in Section
312.03 of the Manual, the Exchange has specifically amended Section
312.03(b)(ii) of the Manual to retain the definition of Related Party
in order to clarify that a listed company selling securities to a
Related Party (that includes a substantial security holder) \32\ under
the circumstances set forth in that rule as amended would remain
subject to the shareholder approval requirements set forth therein.\33\
By amending the proposal so that the substantive requirements of
Section 312.03(b)(ii) of the Manual remain unchanged, the provision
will continue to provide important investor protections for
shareholders when a listed company is selling securities to a Related
Party that has an interest, directly or indirectly, in
[[Page 118]]
the company or assets to be acquired or consideration to be paid.
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\32\ See supra note 23.
\33\ See supra Section II.A and proposed Section 312.03(b)(ii)
of the Manual, as modified by Amendment No. 1. As discussed above,
Section 312.03(b)(ii) of the Manual provides that shareholder
approval is required prior to the issuance of common stock, or of
securities convertible into or exercisable for common stock, where
such securities are issued as consideration in a transaction or
series of related transactions in which a Related Party has a five
percent or greater interest (or such persons collectively have a ten
percent or greater interest), directly or indirectly, in the company
or assets to be acquired or in the consideration to be paid in the
transaction or series of related transactions and the present or
potential issuance of common stock, or securities convertible into
common stock, could result in an issuance that exceeds either five
percent of the number of shares of common stock or five percent of
the voting power outstanding before the issuance.
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The Commission also finds that the Exchange's proposed definitions
of ``group'' and ``control'' in Sections 312.04(k) and (l) of the
Manual for purposes of Section 312.03 of the Manual are consistent with
the Act.\34\ The Exchange's proposed use of the standards under
Sections 13(d)(3) and 13(g)(3) to determine the existence of a group is
consistent with the guidance given by the Commission that ``[t]he
appropriate legal standard for determining whether a group is formed is
found in sections 13(d)(3) and 13(g)(3) [of the Act].'' \35\ The
Commission further stated that ``[t]he determination depends on an
analysis of all the relevant facts and circumstances and not solely on
the presence or absence of an express agreement, as two or more persons
may take concerted action or agree informally.'' \36\ The Exchange's
proposed use of Rule 12b-2 to determine the existence of control also
is reasonable and consistent with the Act given that definition applies
to ``all reports filed pursuant to section[ ] 13 [ ] of the Act. . .
.'' \37\
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\34\ In its proposal, the Exchange stated that it will revise
its internal procedures in reviewing proposed transactions as
necessary to obtain the information necessary to determine whether
shareholders participating in transaction are Active Related
Parties. In addition, the Exchange stated that it will rely on the
filings on Schedule 13D or Schedule 13G for purposes of determining
the existence of a group, along with any additional follow-up
inquiry that is needed. See supra Section II.A. The Commission
believes this is reasonable and will help the Exchange ensure
compliance with the revised rule.
\35\ See Securities Exchange Act Release No. 98704 (Oct. 10,
2023), 88 FR 76896 (Nov. 7, 2023), 76933.
\36\ See id.
\37\ See Rule 12b-1, which sets forth the scope of Regulation
12B and provides that all rules contained in Regulation 12B,
including Rule 12b-2, apply to such filings. For example, the
Commission has enforced violations of Rule 12b-2 in Regulation 12B
against beneficial owners for disclosure deficiencies in their
Schedule 13D filings.
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The Commission notes, in approving the proposal to amend the
shareholder approval requirement in Section 312.03(b)(i) of the Manual,
that the ability of listed companies to sell securities without
shareholder approval continues to remain limited by other important
Exchange rules.\38\ For example, the Commission notes that any
discounted issuance of stock to a company's officers, directors,
employees, or consultants would require shareholder approval under the
Exchange's equity compensation rules.\39\ In addition, any listed
company selling securities in a private placement that does not meet
the Minimum Price requirement will remain subject to the shareholder
approval requirement of Section 312.03(c) of the Manual if such
transaction relates to 20 percent or more of the issuer's common stock
or voting power.\40\ Section 312.03(c) of the Manual also requires
shareholder approval for issuances of 20% or more of the common stock
or the voting power in connection with an acquisition of the stock or
assets of another company irrespective of whether the price meets or
exceeds the Minimum Price. Furthermore, shareholder approval would be
required if the issuance resulted in a change of control and, as
discussed above, for the acquisition of stock or assets of another
company where the issuance increases voting power or common shares by
5% or more and a Related Party has a 5% direct or indirect interest (or
collectively 10%) in the company or assets to be acquired.\41\
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\38\ See, e.g., Section 312.03(a), (b)(ii), (b)(iii), (c) and
(d) of the Manual. The Commission notes that if shareholder approval
was not required under Section 312.03(b)(i) of the Manual, it could
still be required under one of the other shareholder approval
provisions in Section 312.03 of the Manual since these provisions
apply independently of each other. See Section 312.04(a) of the
Manual.
\39\ See Sections 312.03(a), 312.03(b)(iii) and 303A.08 of the
Manual.
\40\ See Section 312.03(c) of the Manual.
\41\ See Sections 312.03(d) and 312.03(b)(ii) of the Manual. See
also, supra note 33 and accompanying text concerning Section
312.03(b)(ii).
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Finally, the Exchange also states its belief that Section
312.03.(b)(i) as proposed to be amended would continue to provide a
significant protection to shareholders against conflicts of interest in
sales of securities to Active Related Parties and that no other listing
exchange has such a requirement.\42\ The Exchange also represents that
its shareholder approval requirements are as stringent as those of its
competitor listing venues.\43\ The Commission is cognizant of the fact
that the Exchange operates in a highly competitive environment
including with respect to the listing of issuers. While the proposal
would allow below market sales (i.e., below the Minimum Price) over one
percent by listed companies to substantial security holders that are
not Active Related Parties without shareholder approval, the other
shareholder approval requirements remain unchanged and provide
additional protections on the amount of shares that can be issued
without a shareholder vote.\44\ Importantly, Active Related Parties,
that have a role in the listed company's board or management or are
substantial security holders that exercise control and thus have a
potential conflict of interest in connection with the negotiation of
any purchase of stock, will continue to be subject to the shareholder
approval requirements under Section 312.03(b)(i) of the Manual. The
proposal also will promote fair competition among listing exchanges.
For the reasons discussed above, the Commission believes that the
proposed rule change, as modified by Amendment No. 1, is consistent
with the Act.
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\42\ See, e.g., Nasdaq Rule 5635; NYSE American LLC Company
Guide, Section 711-713.
\43\ See supra Section II.A at note 16 and accompanying text.
\44\ See, for example, Section 312 (b)(ii), (c) and (d) and
supra notes 39-42 and accompanying text.
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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, as modified by Amendment No. 1, 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-2023-34 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-2023-34. 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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the
[[Page 119]]
Exchange. Do not include personal identifiable information in
submissions; you should submit only information that you wish to make
available publicly. We may redact in part or withhold entirely from
publication submitted material that is obscene or subject to copyright
protection. All submissions should refer to file number SR-NYSE-2023-34
and should be submitted on or before January 23, 2024.
V. Accelerated Approval of Proposed Rule Change, as Modified by
Amendment No. 1
The Commission finds good cause, pursuant to Section 19(b)(2) of
the Act, to approve the proposed rule change, as modified by Amendment
No. 1, prior to the 30th day after the date of publication of Amendment
No. 1 in the Federal Register. As discussed above, Amendment No. 1, the
Exchange revised the proposal to: (1) adopt a new definition of an
``Active Related Party'' in Section 312.03(b)(i) of the Manual and to
retain the current definition of ``Related Party'' for purposes of
Section 312.03(b)(ii) of the Manual; (2) adopt in Section 312.04 of the
Manual definitions of ``control'' and ``group'' for purposes of
proposed amended Section 312.03(b)(i) of the Manual; (3) include
additional explanation of why the Exchange is proposing the rule change
and believes that it is appropriate; (4) explain that the proposal
would not have any substantive effect on the application of Section
312.03(b)(ii) of the Manual and that a listed company selling
securities to a Related Party under the circumstances set forth in
312.03(b)(ii) of the Manual, as amended, would remain subject to the
shareholder approval requirements therein; and (5) make other
clarifying and conforming changes. The Commission believes that these
revisions provide greater clarity on the application of the proposal
and its scope and the circumstances under which shareholder approval is
still required under Section 312.03 of the Manual. The additional
explanation in support of the proposal as well as the amended rule
language in Amendment No. 1 assist the Commission in evaluating the
Exchange's proposal and in determining that it is consistent with the
Act.
Accordingly, the Commission finds good cause for approving the
proposed rule change, as modified by Amendment No. 1, on an accelerated
basis, pursuant to Section 19(b)(2) of the Act.
VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\45\ that the proposed rule change (SR-NYSE-2023-34), as modified by
Amendment No. 1, be, and hereby is, approved.
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\45\ 15 U.S.C. 78f(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\46\
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\46\ 17 CFR 200.30-3(a)(12).
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Christina Z. Milnor,
Assistant Secretary.
[FR Doc. 2023-28796 Filed 12-29-23; 8:45 am]
BILLING CODE 8011-01-P
