[Federal Register Volume 81, Number 162 (Monday, August 22, 2016)]
[Notices]
[Pages 56717-56720]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-19897]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78589: File No. SR-NYSE-2016-55]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change Adopting Maximum Fees Member 
Organizations may Charge in Connection With the Distribution of 
Investment Company Shareholder Reports Pursuant to Any Electronic 
Delivery Rules Adopted by the Securities and Exchange Commission

August 16, 2016.
    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 15, 2016, New York Stock Exchange LLC (``NYSE'' 
or the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'' or the ``SEC'') 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 adopt maximum fees member organizations 
may charge in connection with the distribution of investment company 
shareholder reports pursuant to any electronic delivery rules adopted 
by the Securities and Exchange Commission. 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 56718]]

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
    On May 20, 2015, the SEC proposed new rules that would expand the 
information that registered investment companies are required to report 
(the ``Investment Company Proposal'').\4\ In addition to the expanded 
reporting requirements, the Investment Company Proposal includes 
proposed new Rule 30(e)-3, which would permit, but not require, 
investment companies to satisfy their annual and semiannual shareholder 
report delivery obligations under the Investment Company Act by making 
shareholder reports available on the investment company's Web site. 
Investment companies relying on this provision would be required to 
meet conditions relating to, among other things, prior shareholder 
consent to electronic access rather than paper delivery of reports and 
notice to shareholders of the availability of shareholder reports.
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    \4\ 80 FR 33590 (June 12, 2015); Investment Company Reporting 
Modernization, Securities Act Release No. 33-9776, Exchange Act 
Release No. 34-75002, Investment Company Act Release No. IC-31610 
(May 20, 2015).
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    Specifically, proposed Rule 30e-3 would require an investment 
company intending to rely on electronic access to reports to: (i) 
Transmit a statement to the shareholder at least 60 days prior to its 
reliance on proposed Rule 30e-3, notifying the shareholder of the 
issuer's intent to make future shareholder reports available on the 
issuer's Web site until the shareholder revokes consent; and (ii) send 
a notice within 60 days of the close of the fiscal period to 
shareholders who have consented to electronic transmission informing 
them that the report is available online. Proposed Rule 30e-3 would 
also require investment companies to send, at no cost to the requestor, 
a paper copy of any shareholder reports to any shareholder requesting 
such a copy.
    NYSE Rule 451 requires NYSE member organizations to distribute 
proxy and other materials on behalf of issuers to the beneficial owners 
of the issuers' securities on whose behalf member organizations hold 
securities in ``street name'' accounts. This obligation is conditioned 
on the member organization's receipt from the issuer of reimbursement 
of all out-of-pocket expenses, including reasonable clerical expenses, 
incurred by such member organization in connection with such 
distribution. Rule 451 establishes maximum fees which member 
organizations may charge for handling distributions required under the 
rule.
    Rule 451 also establishes maximum fees paid by issuers using the 
SEC's Notice and Access provisions pursuant to Rule 14a-16 under the 
proxy rules.\5\ When an issuer elects to utilize Notice and Access for 
a proxy distribution, there is an incremental fee based on all nominee 
accounts through which the issuer's securities are beneficially owned 
as follows:
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    \5\ 17 CFR 240.14a-16.
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     25 cents for each account up to 10,000 accounts;
     20 cents for each account over 10,000 accounts, up to 
100,000 accounts;
     15 cents for each account over 100,000 accounts, up to 
200,000 accounts;
     10 cents for each account over 200,000 accounts, up to 
500,000 accounts
     5 cents for each account over 500,000 accounts.\6\
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    \6\ To clarify, under this schedule, every issuer pays the tier 
one rate for the first 10,000 accounts, or portion thereof, with 
decreasing rates applicable only on additional accounts in the 
additional tiers.
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    While mutual funds are not listed on the NYSE, the fees set forth 
in Rule 451 are applied by NYSE members in relation to distributions to 
``street name'' holders of mutual fund and operating company shares. 
Mutual funds typically do not have to elect directors every year, and 
for this reason tend not to have shareholder meetings every year. 
However, every mutual fund is required by SEC rules to distribute each 
year both an annual and a semi-annual report to its shareholders, and 
so mutual funds pay the interim report fee set forth in Rule 451 of 15 
cents per account each time they distribute materials to shareholders 
who hold mutual fund shares in ``street name.'' In addition, mutual 
funds pay a Preference Management Fee of 10 cents for every account 
with respect to which a member organization has eliminated the need to 
send paper materials. Under the current rule, the Preference Management 
Fee is in addition to, and not in lieu of, the interim report fee.
    Under the rule as currently in effect, the Notice and Access fees 
in Rule 451 were intended to apply specifically to Notice and Access 
distributions under the SEC's proxy rules and they would not apply to 
electronic distributions under proposed Rule 30e-3 without a rule 
amendment. There have been a number of comment letters filed in 
relation to the Investment Company Proposal addressing the question of 
how the fees set forth in Rule 451 would apply to electronic 
distributions under proposed Rule 30e-3. The Investment Company 
Institute (``ICI'') submitted a comment letter on the Investment 
Company Proposal in which it noted that the NYSE ``appears to have 
little regulatory interest in fees brokers charge for delivery of fund 
materials'' and recommends that responsibility for the fees in relation 
to mutual fund distributions should be given instead to FINRA. As noted 
above, the Exchange has no involvement in the mutual fund industry and 
we therefore agree with the ICI that we may not be best positioned to 
take on the regulatory role in setting fees for mutual funds. To that 
end, we welcome the idea of considering whether FINRA should assume 
this role in the near future.\7\ However, we also understand that the 
success of the electronic delivery system in proposed Rule 30e-3 is 
significantly dependent on the establishment of reasonable and 
transparent levels of reimbursement to brokers for their role in the 
process. Given the potential immediacy of this need, the Exchange has 
agreed to a request from the SEC that we adopt fees specific to 
electronic distributions of investment company materials.\8\ We are 
doing so because the NYSE's historical role as the fee setter enables 
it to meet this need more efficiently in the short term than would be 
possible if that role were assumed by FINRA at this time.
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    \7\ The Exchange believes that consideration should be given to 
the question of whether it would be more appropriate for FINRA to 
become the primary regulator of all fees charged by brokers in 
connection with distributions (i.e., including operating company 
distributions and not just those of investment companies).
    \8\ These proposed fees would be effective only if the SEC 
adopts Rule 30e-3.
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    The electronic delivery process under proposed Rule 30e-3 would 
require additional work on the part of the member organizations and 
their agents. As the proposed process is very similar to the existing 
Notice and Access process for which the Exchange has

[[Page 56719]]

already adopted a fee schedule in Rule 451, the Exchange believes that 
it is appropriate to apply the existing Notice and Access fees to 
distributions under the SEC's proposed new rule. As such, the Exchange 
proposes to amend Section 5 of Rule 451.90 to specify that the Notice 
and Access fees set forth therein would also be charged with respect to 
the distribution of investment company shareholder reports pursuant to 
any ``notice and access'' rules adopted by the SEC in relation to such 
distributions.
    In applying the Notice and Access fees to deliveries under proposed 
Rule 30e-3, the Exchange proposes to modify their application in one 
significant respect. Specifically, the Notice and Access fee will not 
be charged for any account with respect to which the investment company 
pays a Preference Management Fee. A Preference Management Fee is paid 
whenever a broker or its agent is able to suppress the need to send a 
physical mailing to an account, for example through ``householding'' of 
accounts (i.e., the elimination of duplicative mailings to multiple 
accounts at the same address) or by getting account holders to agree to 
access materials through the broker's own enhanced broker's internet 
platform (or ``EBIP''). Under the current rule, an issuer utilizing 
Notice and Access pays Notice and Access fees with respect to all 
accounts, including those with respect to which it is paying a 
Preference Management Fee (and to which it is therefore not sending a 
notice). The Exchange proposes to amend Rule 451 to provide that 
investment companies utilizing any notice and access process 
established by the SEC will not be charged a Notice and Access fee for 
any account with respect to which they are being charged a Preference 
Management Fee. As such, funds will only pay Notice and Access fees 
with respect to accounts that actually receive Notice and Access 
mailings.\9\
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    \9\ The Exchange is not proposing any modifications to the 
amount or application of the Preference Management Fee at this time.
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    Mutual funds often issue multiple classes of shares, so it is 
necessary to be clear how the pricing tiers in the Notice and Access 
fees would be applied to investment company shareholder report 
distributions. Therefore, the Exchange proposes to amend the rule to 
clarify that, in calculating the rates at which the issuer will be 
charged Notice and Access fees for investment company shareholder 
report distributions, all accounts holding shares of any class of share 
of the applicable issuer eligible to receive an identical distribution 
will be aggregated in determining the appropriate pricing tier.

2. Statutory Basis

    The Exchange believes that its proposal is consistent with Section 
6(b) of the Securities Exchange Act of 1934 (the ``Act'') 
generally.\10\ Section 6(b)(4) \11\ requires that exchange rules 
provide for the equitable allocation of reasonable dues, fees, and 
other charges among its members and issuers and other persons using the 
facilities of an exchange. Section 6(b)(5) \12\ requires, among other 
things, that exchange rules promote just and equitable principles of 
trade and that they are not designed to permit unfair discrimination 
between issuers, brokers or dealers. Section 6(b)(8) \13\ prohibits any 
exchange rule from imposing any burden on competition that is not 
necessary or appropriate in furtherance of the purposes of the Act.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4).
    \12\ 15 U.S.C. 78f(b)(5).
    \13\ 15 U.S.C. 78f(b)(8).
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    The Exchange believes that the proposed amendment represents a 
reasonable allocation of fees among issuers as required by Section 
6(b)(4) and is not designed to permit unfair discrimination within the 
meaning of Section 6(b)(5), as all issuers are subject to the same fee 
schedule.\14\
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    \14\ The Exchange notes that the rules in this proposal do not 
involve dues, fees or other charges paid to the Exchange. 
Nonetheless, to the extent a Section 6(b)(4) analysis is 
appropriate, the Exchange has included one herein.
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    The Exchange believes that the proposed amendment does not impose 
any unnecessary burden on competition within the meaning of Section 
6(b)(8). Issuers are unable to make distributions themselves to 
``street name'' account holders, but must instead rely on the brokers 
that are record holders to make those distributions. In the Exchange's 
view, the proposed amendment does not create either any barriers to 
brokers being able to make their own distributions without an 
intermediary or any impediments to other intermediaries being able 
enter the market. For some time now a single intermediary has come to 
have a predominant role in the distribution of proxy material. The 
Exchange does not believe that the predominance of this existing single 
intermediary results from the level of the existing fees or that the 
proposed amended fees will change its competitive position or create 
any additional barriers to entry for potential new intermediaries. 
Moreover, brokers have the ultimate choice to use an intermediary of 
their choice, or perform the work themselves. Competitors are also free 
to establish relationships with brokers, and the proposed fees would 
not operate as a barrier to entry. For the foregoing reasons, the 
Exchange believes that its proposed fee schedule does not place any 
unnecessary burden on competition.

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 
Rule 451 as amended by the proposed amendments does not impose any 
burdens on competition. Under Rule 451, a member organization is 
required to forward proxy and other material to beneficial owners of an 
issuer's securities only if the issuer reimburses it for its reasonable 
expenses incurred in connection with these distributions. Consequently, 
in amending Rule 451 to establish fees to be charged in connection with 
the SEC's proposed rule permitting the electronic distribution of 
investment company shareholder reports, the Exchange intended to 
establish fees which represented a reasonable level of reimbursement. 
As the Exchange's purpose was to establish fees that reflected a 
reasonable expense reimbursement level, the Exchange does not believe 
that the proposed amended fees will have the effect of providing a 
competitive advantage to any particular broker or existing intermediary 
or creating any barriers to entry for potential new intermediaries. For 
some time now a single intermediary has come to have a predominant role 
in the distribution of proxy material. The Exchange does not believe 
that the predominance of this existing single intermediary results from 
the level of the existing fees or that the proposed amended fees will 
change its competitive position or create any additional barriers to 
entry for potential new intermediaries. Moreover, brokers have the 
ultimate choice to use an intermediary of their choice, or perform the 
work themselves. Competitors are also free to establish relationships 
with brokers, and the proposed fees would not operate as a barrier to 
entry.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange received one written comment relevant to the proposal 
prior

[[Page 56720]]

to its filing. This letter was from the ICI, in which it argued that 
the Exchange should interpret its existing rules as providing for the 
following:
     Investment companies should only have to pay interim 
report fees once per year rather than each time a report is delivered 
to shareholders;
     the Preference Management Fee should be charged only on a 
one-time basis in relation to any specific account;
     brokers should not be permitted to collect any fees 
whatsoever from investment companies in relation to fund shares held in 
managed accounts;
     brokers should not be allowed to receive any portion of 
the regulated fees collected by intermediaries conducting distributions 
on their behalf;
     the current rule should be interpreted as applying the 
Notice and Access fees to electronic deliveries under proposed Rule 
30e-3; and
     the Notice and Access Fees should not be payable in 
relation to any account that does not actually receive a Notice and 
Access delivery under proposed Rule 30e-3.
    The Exchange does not agree that there is any justification in the 
text of Rule 451 for regarding any of these positions as accurate 
interpretations of Rule 451 in its current form. The purpose of the 
current proposal is solely to amend Rule 451 to facilitate the SEC's 
potential finalization of proposed Rule 30e-3. Accordingly, and 
consistent with certain of ICI's recommendations, the Exchange is 
proposing changes to its rules to apply the Notice and Access fees with 
respect to the distribution of investment company shareholder reports 
pursuant to any ``notice and access'' rules adopted by the SEC in 
relation to such distributions. In addition, and also as recommended by 
the ICI in its letter, the Exchange's proposal would provide that the 
Notice and Access fee would only apply to accounts that actually 
receive Notice and Access deliveries under proposed Rule 30e-3 and not 
to accounts with respect to which investment companies are charged a 
Preference Management fee. The Exchange does not believe that the 
other, more substantial changes to the application of Rule 451 
suggested by the ICI are necessary to implementation of Rule 30e-3 if 
the SEC were to finalize its proposal and, thus the Exchange believes 
those proposals should be given separate consideration.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or up to 90 days (i) as the Commission may designate 
if it finds such longer period to be appropriate and publishes its 
reasons for so finding or (ii) as to which the self-regulatory 
organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

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

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-2016-55 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSE-2016-55. 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 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; 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-2016-55 and should be 
submitted on or before September 12, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-19897 Filed 8-19-16; 8:45 am]
 BILLING CODE 8011-01-P