[Federal Register Volume 87, Number 117 (Friday, June 17, 2022)]
[Notices]
[Pages 36548-36551]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-13042]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95093; File No. SR-NYSE-2022-11]


Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Instituting Proceedings To Determine Whether To Approve or Disapprove a 
Proposed Rule Change, as Modified by Amendment No. 1, To Amend the NYSE 
Listed Company Manual To Provide a Limited Exemption From the 
Shareholder Approval Requirements for Closed-End Management Investment 
Companies With Equity Securities Listed Under Section 102.04 of the 
Listed Company Manual

June 13, 2022.

I. Introduction

    On February 23, 2022, New York Stock Exchange LLC (``Exchange'' or 
``NYSE'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend Section 312.03 of the 
NYSE Listing Company Manual (``LCM'' or ``Manual'') to provide an 
exemption from certain shareholder approval requirements of that rule 
for listed registered closed-end management investment companies 
(``closed-end funds'') and business development companies (``BDCs'') 
under certain circumstances. On March 8, 2022, the Exchange filed 
Amendment No. 1 to the proposed rule change, which amended and replaced 
the proposed rule change in its entirety. The proposed rule change, as 
amended by Amendment No. 1, was published for comment in the Federal 
Register on March 15, 2022.\3\ The Commission has received no comments 
on the proposed rule change. On April 26, 2022, pursuant to Section 
19(b)(2) of the Exchange Act,\4\ the Commission designated a longer 
period within which to approve the proposed rule change, disapprove the 
proposed rule change, or institute proceedings to determine whether to 
disapprove the proposed rule change.\5\ This order institutes 
proceedings pursuant to Section 19(b)(2)(B) of the Exchange Act \6\ to 
determine whether to approve or disapprove the proposed rule change, as 
modified by Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 94388 (March 9, 
2022), 87 FR 14589 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 94795, 87 FR 25689 
(May 2, 2022). The Commission designated June 13, 2022, as the date 
by which the Commission shall approve or disapprove, or institute 
proceedings to determine whether to disapprove, the proposed rule 
change, as modified by Amendment No. 1.
    \6\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposal, as Modified by Amendment No. 1

    Section 312.03(b)(i) of the Manual requires listed issuers to 
obtain shareholder approval 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 (each a ``Related 
Party'') 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.\7\ However, shareholder approval will not be 
required if such transaction is a cash sale for a price that is at 
least the Minimum Price.\8\
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    \7\ See NYSE LCM Section 312.03(b)(i).
    \8\ See id. ``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 NYSE LCM Section 312.04(h). ``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. See NYSE LCM Section 312.04(i).
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    According to the Exchange, Section 312.03(b)(ii) of the Manual 
provides that shareholder approval is also 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.\9\
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    \9\ See Notice, supra note 3, at 14590; NYSE LCM Section 
312.03(b)(ii).
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    The Exchange further states that Section 312.03(b)(iii) of the 
Manual provides that any sale of stock to an

[[Page 36549]]

employee, director or service provider is also subject to the equity 
compensation rules in Section 303A.08 of the Manual.\10\ For example, 
according to the Exchange, a sale of stock to any such parties at a 
discount to the then market price would be treated as equity 
compensation under Section 303A.08 notwithstanding that shareholder 
approval may not be required under Section 312.03(b) or 312.03(c) of 
the Manual.\11\
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    \10\ See Notice, supra note 3, at 14590; NYSE LCM Section 
312.03(b)(iii).
    \11\ See id. Consequently, the company would be required to 
either: (i) obtain shareholder approval of such sale, or (ii) issue 
such shares under an equity compensation plan that had previously 
been approved by shareholders and for which shareholder approval 
under Section 303A.08 of the Manual is not otherwise required. 
Moreover, 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 Section 312.03(b) or one or more of the other 
subparagraphs of Section 312.03. See NYSE LCM Section 
312.03(b)(iii).
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    According to the Exchange, Section 312.03(c) of the Manual also 
requires listed issuers to obtain shareholder approval 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 if: (1) the common stock has, or will have upon issuance, 
voting power equal to or in excess of 20 percent of the voting power 
outstanding before the issuance of such stock or of securities 
convertible into or exercisable for common stock; or (2) the number of 
shares of common stock to be issued is, or will be upon issuance, equal 
to or in excess of 20 percent of the number of shares of common stock 
outstanding before the issuance of the common stock or of securities 
convertible into or exercisable for common stock.\12\
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    \12\ See Notice, supra note 3, at 14590; NYSE LCM Section 
312.03(c). However, shareholder approval will not be required for 
any such issuance involving: any public offering for cash; or any 
other financing (that is not a public offering for cash) in which 
the company is selling securities for cash, if such financing 
involves a sale of common stock, or securities convertible into or 
exercisable for common stock, at a price at least as great as the 
Minimum Price, provided that 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. See NYSE LCM Section 312.03(c).
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    The Exchange states that it proposes to exempt closed-end funds and 
BDCs with equity securities listed under Section 102.04 of the Manual 
\13\ from having to comply with the shareholder approval requirements 
in Sections 312.03(b) and (c) of the Manual in connection with the 
acquisition of the stock or assets of an affiliated registered 
investment company in a transaction that complies with Rule 17a-8 under 
the 1940 Act (``Rule 17a-8'') \14\ and does not otherwise require 
shareholder approval under the 1940 Act or the rules thereunder or any 
other Exchange rule.\15\ In support of its proposal, the Exchange 
states it believes Rule 17a-8 provides protections that obviate the 
need for a shareholder approval requirement in these circumstances.\16\
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    \13\ See NYSE LCM Section 102.04 (providing minimum numerical 
standards for closed-end management investment companies registered 
under the Investment Company Act of 1940 (``1940 Act'') and closed-
end management investment companies that have filed an election to 
be treated as a BDC under the 1940 Act).
    \14\ 17 CFR 270.17a-8.
    \15\ See Notice, supra note 3, at 14590; proposed NYSE LCM 
Section 312.03(f).
    \16\ See Notice, supra note 3, at 14590.
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    Sections 17(a)(1) and (2) of the 1940 Act prohibit, among other 
things, certain transactions between registered investment companies 
and affiliated persons.\17\ Rule 17a-8 \18\ provides an exemption from 
Sections 17(a)(1) and (2) of the 1940 Act for certain mergers of 
affiliated companies, provided, among other things, the board of 
directors of each investment company, including a majority of the 
directors that are not interested persons of the respective investment 
company or of any other company or series participating in the 
transaction, must determine that (i) participation in the merger is in 
the best interests of its respective investment company, and (ii) the 
interests of the company's existing shareholders will not be diluted as 
a result of the transaction.\19\ In addition, under Rule 17a-8, an 
affiliated merger must be approved by a majority of the outstanding 
voting securities of the merging company that is not the surviving 
company unless certain conditions are met.\20\ The Exchange states in 
its filing that Rule 17a-8 does not require the surviving company to 
obtain shareholder approval in connection with the merger of an 
affiliated company.\21\
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    \17\ See 15 U.S.C. 80a-17(a)(1)-(2). See also the definition of 
``affiliated person'' in the 1940 Act, 15 U.S.C. 80a-2(a)(3).
    \18\ Section 57(i) of the 1940 Act makes Rule 17a-8 applicable 
to BDCs. See 15 U.S.C. 80a-56(i) (providing that ``. . . the rules 
and regulations of the Commission under subsections (a) and (d) of 
section 17 applicable to registered closed-end investment companies 
shall be deemed to apply to transactions subject to subsections (a) 
and (d) of this section''); see also Investment Company Act Release 
No. 26520 (July 27, 2004), 69 FR 46378 at nn. 9 & 27 (noting that 
certain rules, including Rule 17a-8, ``apply to investment 
companies, including registered investment companies and business 
development companies, if they rely on these rules'').
    \19\ 17 CFR 270.17a-8(a)(2).
    \20\ 17 CFR 270.17a-8(a)(3).
    \21\ See Notice, supra note 3, at 14590.
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    The Exchange asserts that, because the board of each merging 
company must make an affirmative decision that the transaction is in 
the best interest of its respective company and that the transaction 
will not result in dilution for existing shareholders, the Exchange 
believes the provisions of Rule 17a-8 protect against dilution and also 
provide safeguards for existing shareholders when the transaction 
involves a director, officer, or substantial shareholder of the listed 
company that has a significant interest in the company or assets to be 
acquired or the consideration to be paid and therefore may benefit from 
the transaction.\22\
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    \22\ See id.
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    Notwithstanding the proposed exemption, the Exchange states that if 
other provisions of Exchange rules and the 1940 Act and the rules 
thereunder require shareholder approval, those will still apply.\23\ 
The Exchange also states that the adopting release for Rule 17a-8 
specifically noted that nothing in Rule 17a-8 relieves a fund of its 
obligation to obtain shareholder approval as may be required by state 
law or a fund's organizational documents.\24\
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    \23\ See id. at 14591.
    \24\ See id. at 14591, n.10 (citing Investment Company Act 
Release No. 25666 (July 18, 2002), 67 FR 48512 (July 24, 2002) at 
n.18).
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III. Proceedings To Determine Whether To Approve or Disapprove SR-NYSE-
2022-11, as Modified by Amendment No. 1, and Grounds for Disapproval 
Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Exchange Act \25\ to determine whether the proposed 
rule change, as modified by Amendment No. 1, should be approved or 
disapproved. Institution of such proceedings is appropriate at this 
time in view of the legal and policy issues raised by the proposed rule 
change, as modified by Amendment No. 1. Institution of proceedings does 
not indicate that the Commission has reached any conclusions with 
respect to any of the issues involved.
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    \25\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Exchange Act,\26\ the 
Commission is providing notice of the grounds for disapproval under 
consideration. The

[[Page 36550]]

Commission is instituting proceedings to allow for additional analysis 
of the proposed rule change's consistency with the Exchange Act, and, 
in particular, with Section 6(b)(5) of the Exchange Act, 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 remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest and not be designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers.\27\
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    \26\ Id.
    \27\ 15 U.S.C. 78f(b)(5).
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    As discussed above, the Exchange is proposing to exempt closed-end 
funds and BDCs from the requirement to obtain shareholder approval 
prior to issuances of securities in connection with the acquisition of 
stock or assets of an affiliated company, provided that the transaction 
complies with Rule 17a-8, which requires, among other things, that the 
board of directors of each company participating in such a merger 
determines that participation in the merger is in the best interests of 
the company and that the interests of the company's shareholders will 
not be diluted as a result of the merger. Although the Commission 
previously approved a similar exemption for exchange-traded funds 
(``ETFs''),\28\ there are differences between ETFs and closed-end funds 
and BDCs. Shares of closed-end funds and BDCs often trade at prices 
that are less than, or at a ``discount'' to, the fund's net asset value 
per share. In contrast, ETFs may trade at a discount but often to a 
much lesser degree than closed-end funds and BDCs. Due to these 
circumstances, shareholders of closed-end funds and BDCs may have an 
interest in expressing their views on a proposal by management to merge 
the closed-end fund or BDC into an affiliated fund. In addition, unlike 
shareholders of ETFs,\29\ shareholders of closed-end funds and BDCs 
typically participate in annual shareholder meetings with respect to 
the election of directors and other matters. The Exchange's proposal 
therefore raises questions as to whether the elimination of the current 
ability of shareholders of closed-end funds and BDCs to vote on mergers 
with affiliated companies is consistent with Section 6(b)(5) of the 
Exchange Act, which requires the rules of the Exchange to, among other 
relevant provisions, protect investors and the public interest.\30\
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    \28\ The Commission previously approved NYSE Arca, Inc.'s 
proposal to exempt issuers of Unit Investment Trusts, Investment 
Company Units, Exchange-Traded Fund Shares, Portfolio Depositary 
Receipts, Managed Fund Shares, Active Proxy Portfolio Shares, and 
Managed Portfolio Shares from the requirement to obtain shareholder 
approval prior to the issuance of securities in connection with 
certain acquisitions of the stock or assets of an affiliated 
registered investment company in a transaction that complies with 
Rule 17a-8. See Securities Exchange Act Release No. 91901 (May 14, 
2021), 86 FR 27487 (May 20, 2021).
    \29\ See id. at n.18.
    \30\ 15 U.S.C. 78f(b)(5).
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    Under the Commission's Rules of Practice, the ``burden to 
demonstrate that a proposed rule change is consistent with the Exchange 
Act and the rules and regulations thereunder . . . is on the self-
regulatory organization [`SRO'] that proposed the rule change.'' \31\ 
The description of a proposed rule change, its purpose and operation, 
its effect, and a legal analysis of its consistency with applicable 
requirements must all be sufficiently detailed and specific to support 
an affirmative Commission finding,\32\ and any failure of an SRO to 
provide this information may result in the Commission not having 
sufficient basis to make an affirmative finding that a proposed rule 
change is consistent with the Exchange Act and the applicable rule and 
regulations.\33\
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    \31\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR 
201.700(b)(3).
    \32\ See id.
    \33\ See id.
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    For these reasons, the Commission believes it is appropriate to 
institute proceedings pursuant to Section 19(b)(2)(B) of the Exchange 
Act \34\ to determine whether the proposal should be approved or 
disapproved.
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    \34\ 15 U.S.C. 78s(b)(2)(B).
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IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposed rule 
change, as modified by Amendment No. 1, is consistent with Section 
6(b)(5) or any other provision of the Exchange Act, or the rules and 
regulations thereunder. Although there do not appear to be any issues 
relevant to approval or disapproval that would be facilitated by an 
oral presentation of views, data, and arguments, the Commission will 
consider, pursuant to Rule 19b-4, any request for an opportunity to 
make an oral presentation.\35\
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    \35\ Section 19(b)(2) of the Exchange Act, as amended by the 
Securities Act Amendments of 1975, Public Law 94-29 (June 4, 1975), 
grants the Commission flexibility to determine what type of 
proceeding--either oral or notice and opportunity for written 
comments--is appropriate for consideration of a particular proposal 
by a self-regulatory organization. See Securities Act Amendments of 
1975, Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 
75, 94th Cong., 1st Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule change, as modified by 
Amendment No. 1, should be approved or disapproved by July 8, 2022. Any 
person who wishes to file a rebuttal to any other person's submission 
must file that rebuttal by July 22, 2022.
    The Commission asks that commenters address the sufficiency of the 
Exchange's statements in support of the proposal, which are set forth 
in Notice,\36\ in addition to any other comments they may wish to 
submit about the proposed rule change.
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    \36\ See Notice, supra note 3.
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    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 [email protected]. Please include 
File Number SR-NYSE-2022-11 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-2022-11. 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,

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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-2022-11 and should be 
submitted on or before July 8, 2022. Rebuttal comments should be 
submitted by July 22, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\37\
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    \37\ 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-13042 Filed 6-16-22; 8:45 am]
BILLING CODE 8011-01-P


