
[Federal Register Volume 77, Number 181 (Tuesday, September 18, 2012)]
[Notices]
[Pages 57627-57630]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-22964]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67847; File No. SR-NYSE-2012-43]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Amending Sections 902.02 and 902.03 of the Listed Company Manual of the 
New York Stock Exchange LLC

September 12, 2012.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on August 30, 2012, New York Stock Exchange LLC (``NYSE'' 
or the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C.78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Sections 902.02 and 902.03 of the 
Listed Company Manual (the ``Manual'') to provide that, where both of 
the companies that form an umbrella partnership real estate investment 
trust (``UPREIT'') structure are listed on the Exchange, Listing and 
Annual Fees for the two related listed issuers will be subject to a 
single fee cap at the time of original listing and on an annual basis. 
The text of the proposed rule change is available on the Exchange's Web 
site at www.nyse.com, at the principal office of the Exchange, and at 
the Commission's Public Reference Room.

[[Page 57628]]

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Sections 902.02 and 902.03 of the 
Manual to provide that, where both of the companies that form an UPREIT 
structure are listed on the Exchange, Listing and Annual Fees for the 
two related listed companies will be subject to a single fee cap at the 
time of original listing and on an annual basis.
    Many listed real estate investment trusts (``REITs'') form part of 
what is known as an ``umbrella partnership real estate investment 
trust'' or ``UPREIT'' structure.\4\ In connection with the creation of 
an UPREIT structure, the owners of a portfolio of real estate assets 
contribute those assets to a limited partnership (the ``Operating 
Partnership'') in exchange for common equity interests in the Operating 
Partnership (``OP Units''). The sole general partner of the Operating 
Partnership is an entity which elects to be taxed as a real estate 
investment trust (the ``REIT''). The partnership agreement of the 
Operating Partnership grants the REIT (as general partner) sole control 
over the Operating Partnership and, consequently, the Operating 
Partnership has no board of directors. In addition, the Operating 
Partnership has no employees of its own and its operations are managed 
entirely by the management and employees of the REIT. In conjunction 
with the contribution of the initial portfolio of real estate assets, 
the REIT typically raises additional capital in an initial public 
offering.\5\ In exchange for contributing the proceeds of the IPO and 
any subsequent offerings to the Operating Partnership, the REIT 
receives a number of OP Units corresponding to the number of shares 
sold by the REIT itself. Shareholders of the REIT receive exactly the 
same cash dividends as are paid to OP Unit holders, as the REIT passes 
through to its own shareholders the dividends it receives in relation 
to the OP Units it owns. After a specified period of time (typically 
one year after the IPO), the limited partners have the ability at any 
time to require the REIT to redeem their OP Units for a cash amount 
equal to the then market price of the REIT's common stock, subject to 
the REIT's right to satisfy that redemption requirement by issuing 
shares of its own common stock on a one-for-one basis in exchange for 
the OP Units.\6\
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    \4\ While the terms ``umbrella partnership real estate 
investment trust'' and ``UPREIT'' are not defined in the Internal 
Revenue Code, those terms are generally used to describe the 
specific structure set forth in Treas. Reg. Sec.  1.701-2(d), ex. 4. 
(``Example 4''). For purposes of this rule filing and the proposed 
amendments, the Exchange uses those terms solely to describe a 
structure which is consistent with the structure described in 
Example 4 to a degree sufficient to qualify for the tax treatment 
described in Example 4 as in effect on the date of this filing (or 
any successor provision in the Internal Revenue Code which describes 
a structure which is materially identical to the structure described 
in Example 4).
    \5\ A pre-existing REIT may also enter into an UPREIT structure, 
generally by contributing its assets to a new Operating Partnership 
in exchange for interests in the Operating Partnership and in 
conjunction with the contribution of real estate assets by third 
parties in exchange for OP Units. The Operating Partnership of an 
UPREIT structure can acquire additional portfolios of real estate 
assets in exchange for OP Units at any time after its inception.
    \6\ Generally, the REIT will elect to satisfy all redemption 
requests by issuing its own stock rather than by making cash 
payments.
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    As is apparent from the above description, OP Units and shares of 
common stock of the REIT effectively have the same economic rights. 
Each OP Unit represents the same proportionate share in the assets of 
the Operating Partnership as a corresponding common share of the REIT 
and is exchangeable for either a share of the REIT or an amount in cash 
equal to the market value of a share of the REIT. It is the Exchange's 
understanding that the securities industry typically views the 
Operating Partnership as the relevant entity for analysis rather than 
the REIT, as the common stock of the REIT effectively functions as an 
indirect means of owning an equity interest in the overall enterprise 
represented by the Operating Partnership.
    The question as to how the Exchange should treat the REIT and the 
Operating Partnership components of an UPREIT for fee purposes when 
both are listed companies has not previously arisen. One reason for 
this is that typically the Operating Partnership has very few direct 
investors and would therefore not qualify for listing. However, the 
possibility that both the REIT and the Operating Partnership might both 
be listed is not precluded by Exchange rules.\7\
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    \7\ The Exchange has a significant number of listed limited 
partnerships which are listed under the initial listing standards 
for operating companies set forth in Section 102.01 of the Manual. 
As such, subject to compliance with all applicable listing 
requirements, the Operating Partnership component of an UPREIT could 
list under the existing listing standards for operating companies 
set forth in Section 102.01. As the Operating Partnership is not 
itself a REIT, it could not list under the REIT listing standard set 
forth in Section 102.05.
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    The Exchange believes that the REIT and the Operating Partnership 
in an UPREIT structure are effectively a single entity, as they 
represent economic interests in the same enterprise and have a single 
management and board of directors, with the Operating Partnership 
relying entirely on the REIT for its management and corporate 
governance. Consequently, there are significant efficiencies for the 
Exchange in the listing and regulation of the two listed entities that 
constitute an UPREIT structure. In particular, the Exchange notes that 
a significant proportion of the regulatory cost it incurs in connection 
with the initial and continued listing of an issuer relates to the 
review by NYSE Regulation staff of the issuer's compliance with the 
board composition and board committee requirements set forth in Section 
303A of the Manual.\8\ As a limited partnership, the Operating 
Partnership component of an UPREIT structure is exempt from the 
Exchange's board and committee requirements with the exception of 
Section 303A.06, which requires the Operating Partnership to

[[Page 57629]]

have an independent audit committee as required by SEC Rule 10A-3, and 
the additional audit committee requirements in Section 303A.07. As the 
Operating Partnership is controlled by the REIT in its capacity as 
general partner, the Operating Partnership is able to rely on the audit 
committee of the REIT's board for its compliance with Sections 303A.06 
and 303A.07.\9\ Consequently, for all practical purposes, NYSE 
Regulation staff can rely on their corporate governance compliance 
reviews of the REIT as a means of effectively monitoring the Operating 
Partnership's compliance.\10\ The Exchange believes it is appropriate 
to recognize these cost efficiencies by providing some limited relief 
from its initial and annual listing fees to the two issuers that form 
an UPREIT structure if both are listed on the Exchange. Section 902.03 
of the Manual provides that the minimum and maximum initial listing 
fees the first time an issuer lists a class of common shares are 
$125,000 and $250,000, respectively. The Exchange proposes to amend 
Section 902.03 to provide that, when the REIT and the Operating 
Partnership components of an UPREIT structure list at the same time, 
these minimum and maximum fee amounts will be applied to the aggregate 
fees payable by both issuers. In cases where the fees payable by the 
REIT and Operating Partnership components of an UPREIT are determined 
based on either the minimum or maximum fee levels, the fees will be 
allocated between the two issuers based on the percentage of the total 
outstanding OP Units represented by the OP Units owned by the REIT. In 
addition, the Exchange proposes to treat the REIT and Operating 
Partnership components of an UPREIT as a single issuer when applying 
the $500,000 cap on all listing and annual fees payable by an issuer in 
a calendar year as set forth in Section 902.02 and to allocate those 
fees between the two issuers in the manner described in the immediately 
preceding sentence. The Exchange does not believe that the limitation 
of the proposed amendments to the fee caps to issuers that are related 
as the component parts of an UPREIT structure is unfairly 
discriminatory. The UPREIT structure is distinctive in the degree to 
which the two component issuers function as a single economic 
enterprise with one management team and board. As the expectation is 
that these sorts of listings will be rare, the Exchange does not 
anticipate that it will experience any meaningful diminution in revenue 
as a result of the proposed amendments and therefore does not believe 
that the proposed amendments would in any way negatively affect its 
ability to continue to adequately fund its regulatory program or the 
services the Exchange provides to issuers. The Exchange also notes that 
the initial and annual listing fees applicable to all other REITs and 
operating companies are remaining unchanged, so no company that is not 
eligible to benefit from the proposed amendments is being asked to pay 
higher fees than it is currently paying.
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    \8\ The Exchange also incurs regulatory costs in reviewing 
compliance by listed issuers with the Exchange's initial and 
continued financial listing standards, which largely consists of a 
review of the issuer's financial statements. The Exchange believes 
that there would also be regulatory efficiencies in conducting 
financial compliance reviews of UPREITs, as the financial statements 
of the two entities are directly related, in that the REIT's 
financial statements simply represent its percentage ownership 
interest in the Operating Partnership. In particular, the Exchange 
notes that because the two entities' financial condition is directly 
interrelated, any significant deterioration in the financial 
condition or stock price of either issuer which causes that issuer 
to fall below compliance with the Exchange's financial listing 
standards would likely also cause the same compliance problem for 
the other issuer. As a consequence, if both the REIT and the 
Operating Partnership fall below compliance with the Exchange's 
ongoing financial listing standards, any compliance plan submissions 
would be virtually identical and therefore the NYSE Regulation 
staff's review, approval and ongoing monitoring of such plans would 
require substantially fewer resources than would normally be the 
case for two independent companies. Similarly, the Exchange believes 
that non-regulatory efficiencies would exist, as the Exchange's 
listings client service group, which communicates with listed 
issuers on a regular basis, would interact with one management team 
instead of two.
    \9\ See Exchange Act Rule 10A-3(e)(3), which provides that 
``[I]n the case of a listed issuer that is a limited partnership or 
limited liability company where such entity does not have a board of 
directors or equivalent body, the term board of directors means the 
board of directors of the managing general partner, managing member 
or equivalent body.'' See also the discussion at page 18790 of the 
adopting release for Rule 10A-3. Release Nos. 33-8220 and 34-47654, 
68 FR 18788 (April 16, 2003).
    \10\ The Exchange notes that NYSE Regulation's corporate 
governance compliance program relies largely on a review of required 
disclosures in issuers' annual meeting proxy statements. As the OP 
Unit holders do not have the right to elect directors, the Operating 
Partnership does not have an annual meeting proxy statement and the 
staff will rely on a review of the REIT's proxy statement as the 
basis for a combined review of both the REIT and the Operating 
Partnership.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Securities Exchange Act of 1934 (the 
``Act''),\11\ in general, and furthers the objectives of Section 
6(b)(4) and 6(b)(5) of the Act,\12\ in particular, because it provides 
for the equitable allocation of reasonable dues, fees, and other 
charges among its members, issuers and other persons using its 
facilities and does not unfairly discriminate between customers, 
issuers, brokers or dealers. The Exchange also believes that the 
proposed rule change is consistent with Section 6(b)(5) of the Act, 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.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(4) and 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change is consistent 
with Section 6(b)(5) of the Act in that it does not unfairly 
discriminatory [sic] among listed companies because there is a 
reasonable justification for charging UPREITs different fees from those 
charged to other issuers and there are cost efficiencies for the 
Exchange in that the two listed issuers associated with an UPREIT 
represent essentially a single enterprise with a single management and 
board. In particular, the Exchange notes that a significant proportion 
of the regulatory cost it incurs in connection with the initial and 
continued listing of an issuer relates to the review by NYSE Regulation 
staff of the issuer's compliance with the board composition and board 
committee requirements set forth in Section 303A of the Manual. As the 
Operating Partnership is controlled by the REIT in its capacity as 
general partner, the Operating Partnership is able to rely on the audit 
committee of the REIT's board for its compliance with Sections 303A.06 
and 303A.07.\13\ Consequently, for all practical purposes, NYSE 
Regulation staff can rely on their corporate governance compliance 
reviews of the REIT as a means of effectively monitoring the Operating 
Partnership's compliance.\14\
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    \13\ See note 9, supra.
    \14\ As noted above, the Exchange believes that there are also 
regulatory efficiencies in its financial compliance review process 
in regards to UPREITs, particularly because if both the REIT and the 
Operating Partnership fall below compliance with the Exchange's 
ongoing financial listing standards, any compliance plan submissions 
would be virtually identical and therefore the NYSE Regulation 
staff's review, approval and ongoing monitoring of such plans would 
require substantially fewer resources than were they for two 
independent companies. Similarly, the Exchange believes that non-
regulatory efficiencies would exist, as the Exchange's listings 
client service group would interact with one management team instead 
of two. See note 10, supra.
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    The Exchange also notes that no other company will be required to 
pay higher fees as a result of the proposed amendments.
    The Exchange believes that the proposed rule change is reasonable 
in light of the fact that the two listed issuers associated with an 
UPREIT share a single board of directors and management team and the 
listed securities represent equivalent economic interests in a single 
enterprise. In light of the regulatory and client service efficiencies 
and resultant cost savings to the Exchange resulting from this 
distinctive overlapping of corporate governance and economic interests 
in the UPREIT structure, the Exchange believes that it would be more 
equitable to establish an overall cap on what these affiliated entities 
would be required to pay for listing services. Moreover, the Exchange 
believes that the proposal is not unfairly discriminatory in that it 
will be available to all UPREITs; other listed companies do not present 
the same sort of overlapping economic interests and

[[Page 57630]]

governance structures that warrant common treatment of UPREITs for fee 
cap purposes.

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.

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

    The foregoing rule change is effective upon filing pursuant to 
Section 19(b)(3)(A) \15\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \16\ thereunder, because it establishes a due, fee, or other 
charge imposed by the NYSE.
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSE-2012-43 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSE-2012-43. 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 Web site (http://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 Web site viewing and 
printing in the Commission's Public Reference Section, 100 F Street 
NE., Washington, DC 20549-1090, on official business days between the 
hours of 10:00 a.m. and 3:00 p.m. Copies of the filing will also be 
available for Web site viewing and printing at the NYSE's principal 
office and on its Internet Web site at www.nyse.com. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSE-2012-43 and should be 
submitted on or before October 9, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-22964 Filed 9-17-12; 8:45 am]
BILLING CODE 8011-01-P


