[Federal Register Volume 85, Number 70 (Friday, April 10, 2020)]
[Notices]
[Pages 20323-20326]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07557]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88572; File No. SR-NYSE-2020-30]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Waive the Application of Certain of the Shareholder Approval 
Requirements in Section 312.03 of the NYSE Listed Company Manual 
Through June 30, 2020 Subject to Certain Conditions

April 6, 2020.
    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 April 3, 2020, 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 
and II below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule 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 waive through and including June 30, 2020 
the application of certain of the shareholder approval requirements set 
forth in Section 312.03 of the NYSE Listed Company Manual (``Manual'') 
subject to certain conditions. The proposed rule change is available on 
the Exchange's website at www.nyse.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The U.S. and global economies have experienced unprecedented 
disruption as a result of the ongoing spread of COVID-19, including 
severe limitations on companies' ability to operate their businesses, 
dramatic market declines and volatility in the U.S. and global equity 
markets, and severe disruption in the credit markets. The Exchange 
believes that it is likely that many listed companies will have urgent 
liquidity needs in the coming months due to lost revenues and maturing 
debt obligations. In those circumstances, listed companies will need to 
access additional capital that may not be available in the public 
equity or credit markets. When similar conditions existed after the 
financial crisis of 2008-09, the Exchange observed that many companies 
sought capital by selling significant amounts of equity in private 
placement transactions to a single investor or small group of 
investors, in many cases limited to or including existing major 
shareholders in the company. The Exchange notes that companies raising 
capital in that manner at that time were often limited by the NYSE's 
shareholder approval requirements with respect to the size and 
structure of the transactions they were able to undertake.
    Section 312.03 of the Manual, which requires listed companies to 
acquire shareholder approval prior to certain kinds of equity 
issuances, imposes significant limitations on the ability of a listed 
company to engage in the sort of large private placement transaction 
described above. The most important limitations are as follows:
     Issuance to a Related Party. Subject to an exception for 
early stage companies set forth therein, Section 312.03(b) of the 
Manual requires shareholder approval of any issuance to a director, 
officer or substantial security holder \4\ of the company (each a

[[Page 20324]]

``Related Party'') or to an affiliate of a Related Party \5\ 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 1% of the number of shares of common stock 
or 1% of the voting power outstanding before the issuance. A limited 
exception permits cash sales to Related Parties and their affiliates 
that meet a market price test set forth in the rule (the ``Minimum 
Price'') \6\ and that relate to no more than 5% of the company's 
outstanding common stock. However, this exception may only be used if 
the Related Party in question has Related Party status solely because 
it is a substantial security holder of the company.
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    \4\ For purposes of Section 312.03(b), Section 312.04(e) 
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.''
    \5\ Under Section 312.03 of the Manual, a ``Related Party'' 
includes ``(1) a director, officer or substantial security holder of 
the company (each a ``Related Party''); (2) a subsidiary, affiliate 
or other closely-related person of a Related Party; or (3) any 
company or entity in which a Related Party has a substantial direct 
or indirect interest;''
    \6\ Section 312.04(i) Defines the ``Minimum Price'' as follows: 
``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.
    Section 312.04(j) defines ``Official Closing Price'' as follows: 
``Official Closing Price'' of the issuer's common stock means 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. 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 if the regular 
session on Tuesday, then Monday's official closing price is used.
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     Transactions of 20% or More. Section 312.03(c) of the 
Manual requires shareholder approval of any transaction relating to 20% 
or more of the company's outstanding common stock or 20% of the voting 
power outstanding before such issuance other than a public offering for 
cash. Section 312.03(c) includes an exception for transactions 
involving a cash sale of the company's securities that comply with the 
Minimum Price requirement and also meet the following definition of a 
``bona fide private financing,'' as set forth in Section 312.04(g): 
``Bona fide private financing'' refers to a sale in which either:
    [cir] A registered broker-dealer purchases the securities from the 
issuer with a view to the private sale of such securities to one or 
more purchasers; or
    [cir] the issuer sells the securities to multiple purchasers, and 
no one such purchaser, or group of related purchasers, acquires, or has 
the right to acquire upon exercise or conversion of the securities, 
more than five percent of the shares of the issuer's common stock or 
more than five percent of the issuer's voting power before the sale.''
    The Exchange expects that certain companies during the course of 
the current unusual economic and market conditions will urgently need 
to obtain new capital by selling equity securities in private 
placements.
    In many cases, such transactions may involve sales to existing 
investors in the company or their affiliates that would exceed the 
applicable 1% and 5% limits of Section 312.03(b). Given the 
extraordinary nature of the current circumstances, the Exchange 
proposes a partial waiver of the application of Section 312.03(b) for 
the period as of the date of this filing through and including June 30, 
2020, with the waiver specifically limited to transactions that involve 
the sale of the company's securities for cash at a price that meets the 
Minimum Price requirement as set forth in Section 312.04.\7\ In 
addition, to qualify for this waiver, a transaction must be reviewed 
and approved by the company's audit committee or a comparable committee 
comprised solely of independent directors.
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    \7\ See supra note 6.
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    This waiver will not be applicable to any transaction involving the 
stock or assets of another company where any director, officer or 
substantial security holder of the company has a 5% or greater interest 
(or such persons collectively have a 10% 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 or exercisable for common stock, could 
result in an increase in outstanding common shares or voting power of 
5% or more (i.e., a transaction which would require shareholder 
approval under NASDAQ Marketplace Rule 5635(a)). Specifically, the 
proposed waiver will not be applicable to a sale of securities by a 
listed company to any person subject to the provisions of Section 
312.03(b) in a transaction, or series of transactions, whose proceeds 
will be used to fund an acquisition of stock or assets of another 
company where such person has a direct or indirect interest in the 
company or assets to be acquired or in the consideration to be paid for 
such acquisition.
    The effect of the above-described proposed waiver would be to allow 
companies to sell their securities to Related Parties and other persons 
subject to Section 312.03(b) \8\ without complying with the numerical 
limitations of that rule, as long as the sale is in a cash transaction 
that meets the Minimum Price requirement and also meets the other 
requirements noted above. As provided by Section 312.03(a), any 
transaction benefitting from the proposed waiver will still be subject 
to shareholder approval if required under any other applicable rule, 
including the equity compensation requirements of Section 303A.08 and 
the change of control requirements of Section 312.03(d).
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    \8\ See supra note 5.
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    Existing large investors are often the only willing providers of 
much-needed capital to companies undergoing difficulties and the 
Exchange believes that it is appropriate to increase companies' 
flexibility to access this source of capital for a limited period. The 
Exchange notes that, as a result of the proposed waiver, the Exchange's 
application of Section 312.03(b) will be consistent with the 
application of NASDAQ Marketplace Rule 5635(a) \9\ to sales of a listed 
company's securities to related parties.
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    \9\ If a company is raising capital through a transaction, or 
series of transaction, via the waiver, they cannot use such capital 
to fund an acquisition.
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    Many private placement transactions under the current market 
conditions may also exceed the 20% threshold established by Section 
312.03(c). Therefore, given the extraordinary nature of the current 
circumstances, the Exchange also proposes to waive through and 
including June 30, 2020, for purposes of the bona fide financing 
exception to the 20% requirement, the 5% limitation for any sale to an 
individual investor in a bona fide private financing pursuant to 
Section 312.03(c) and to permit companies to undertake a bona fide 
private financing during that period in which there is only a single 
purchaser. As provided by Section 312.03(a), any transaction 
benefitting from the proposed waiver will still be subject to 
shareholder approval if required under any other applicable rule, 
including the equity compensation requirements of Section 303A.08 and 
the change of control requirements of Section 312.03(d). Any 
transaction benefitting from this waiver must be a sale of the 
company's securities for cash at a price that meets the Minimum Price 
requirement.
    The effect of this proposed waiver would be that a listed company 
would

[[Page 20325]]

be exempt from the shareholder approval requirement of Section 
312.03(c) in relation to a private placement transaction regardless of 
its size or the number of participating investors or the amount of 
securities purchased by any single investor, provided that the 
transaction is a sale of the company's securities for cash at a price 
that meets the Minimum Price requirement. If any purchaser in a 
transaction benefiting from this waiver is a Related Party or other 
person subject to Section 312.03(b), such transaction must be reviewed 
and approved by the company's audit committee or a comparable committee 
comprised solely of independent directors. The Exchange notes that, as 
a result of the proposed waiver, the Exchange's application of Section 
312.03(c) will be consistent with the application of NASDAQ Marketplace 
Rule 5635(c) with respect to private placements relating to 20% or more 
of a company's common stock or voting power outstanding before such 
transaction.\10\
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    \10\ See supra note 9 which also applies to the waivers 
available under Section 312.03(c).
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    The Exchange notes that these temporary emergency waivers would 
simply provide NYSE listed companies with the flexibility on a 
temporary emergency basis to consummate transactions without 
shareholder approval that would not require shareholder approval under 
the rules of the NASDAQ Stock Market, as the specific limitations the 
Exchange is proposing to waive do not exist in the applicable NASDAQ 
rules.\11\
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    \11\ See NASDAQ Marketplace Rule 5635, including specifically 
subsections (a) and (c) thereof.
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\12\ in general, and furthers the objectives of Section 6(b)(5) of 
the Act,\13\ in particular, in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general, to protect the 
public interest and the interests of investors, and because it is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    As a result of market and general economic disruption related to 
the ongoing spread of the COVID-19 virus, certain listed companies may 
experience urgent liquidity needs that they are unable to meet by 
raising funds in the public equity or credit markets. The proposed rule 
change is designed to provide temporary relief from certain of the 
NYSE's shareholder approval requirements in relation to stock issuances 
to provide companies with additional flexibility to raise funds by 
selling equity in private placement transactions during the current 
extraordinary market and economic conditions provided such transactions 
meet certain conditions, such as the Minimum Price as defined in 
Section 312.04(i). The proposed waivers are consistent with the 
protection of investors because any transaction benefiting from the 
waivers will not, in the Exchange's view, be dilutive to the company's 
existing shareholders as it will be subject to a minimum market price 
requirement and because the audit committee or a comparable committee 
comprised solely of independent directors will review and approve any 
transaction benefitting from a waiver that involves a Related Party or 
affiliates of a Related Party. In addition, as provided by Section 
312.03(a), any transaction benefitting from the proposed waiver will 
still be subject to shareholder approval if required under any other 
applicable rule, including the equity compensation requirements of 
Section 303A.08 and the change of control requirements of Section 
312.03(d). All companies listed on the Exchange would be eligible to 
take advantage of the proposed temporary waivers.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed rule change is 
not designed to address any competitive issues but rather is designed 
to provide temporary relief from certain of the NYSE's shareholder 
approval requirements in relation to stock issuances to provide 
companies with additional flexibility to raise funds by selling equity 
in private placement transactions during the current extraordinary 
market and general economic conditions. In addition, the proposed 
waivers will simply temporarily conform the treatment of transactions 
benefitting from the waivers to their treatment under the comparable 
NASDAQ rules.

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 Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \14\ and Rule 19b-4(f)(6) thereunder.\15\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \16\ and Rule 19b-
4(f)(6)(iii) thereunder.\17\
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    \14\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \15\ 17 CFR 240.19b-4(f)(6).
    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change, along with a 
brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Commission has waived the five business day notification requirement 
for this proposed rule change.
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    A proposed rule change filed under Rule 19b-4(f)(6) \18\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\19\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing.
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    \18\ 17 CFR 240.19b-4(f)(6).
    \19\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Exchange believes that waiver of the operative delay would be 
consistent with the protection of investors and the public interest 
because, in the Exchange's view, the market and general economic 
disruption caused by the global spread of the COVID-19 virus may give 
rise to companies experiencing urgent liquidity needs which they may 
need to meet by undertaking transactions that would benefit from the 
proposed relief. In support of its request to waive the 30-day 
operative delay, the

[[Page 20326]]

Exchange stated its belief that the proposed waiver does not give rise 
to any novel investor protection concerns, as the proposed rule change 
conforms the NYSE's shareholder approval requirements temporarily to 
those of NASDAQ and would not permit any transactions without 
shareholder approval that are not permitted on another exchange. In 
addition, the Exchange stated that all transactions utilizing the 
waiver would have to satisfy the Minimum Price requirement contained in 
the rule \20\ and be reviewed and approved by the issuer's audit 
committee or comparable committee of the board comprised entirely of 
independent directors if any transactions benefitting from the waiver 
involve a Related Party or affiliates of a Related Party, as described 
above.\21\ Furthermore, the Exchange has stated that, as provided by 
Section 312.04(a) of the Manual, any transaction benefitting from the 
proposed waiver will still be subject to shareholder approval if 
required under any other applicable rule, including the equity 
compensation requirements of Section 303A.08 of the Manual and the 
change of control requirements of Section 312.03(d) of the Manual. The 
Exchange also noted that the proposed waivers are temporary in nature 
and will only be applied through and including June 30, 2020. For these 
reasons, the Commission believes that waiver of the 30-day operative 
delay is consistent with the protections of investors and the public 
interest. According, the Commission hereby waives the 30-day operative 
delay and designates the proposal operative upon filing.\22\
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    \20\ The Commission notes that the Minimum Price is related to 
minimum market price requirements as defined above. See supra note 
6.
    \21\ The Commission notes that, as described in the purpose 
section above, all transactions utilizing the waiver for purposes of 
Section 312.03(b) would be subject to review and approval by an 
audit committee or comparable body of independent directors. As to 
transactions utilizing the temporary waiver under Section 312.03(c) 
all transactions involving Related Parties or other persons subject 
to Section 312.03(b), as described above, must be reviewed and 
approved by the company's audit committee or a comparable committee 
comprised solely of independent directors.
    \22\ For purposed only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of 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. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \23\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \23\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

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

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-2020-30 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSE-2020-30. 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 (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 website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSE-2020-30 and should be submitted on 
or before May 1, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-07557 Filed 4-9-20; 8:45 am]
BILLING CODE 8011-01-P


