[Federal Register Volume 83, Number 112 (Monday, June 11, 2018)]
[Notices]
[Pages 27050-27054]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-12435]


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SECURITIES AND EXCHANGE COMMISSION

[Securities Exchange Act of 1934; Release No. 83378/June 5, 2018]


Order Affirming Action by Delegated Authority Approving SR-NYSE-
2016-55 and Discontinuing Stay

In the Matter of the New York Stock Exchange LLC
For an Order Granting the Approval 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

I.

    On August 15, 2016, the New York Stock Exchange LLC (''NYSE'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule 
change to adopt maximum fees NYSE member organizations may charge in 
connection with the distribution of investment company shareholder 
reports pursuant to any ``notice and access'' electronic delivery rules 
adopted by the Commission. The proposed rule change was published for 
comment in the Federal Register on August 22, 2016.\3\ The Commission 
received fourteen comment letters on the proposal. On October 5, 2016, 
the Commission extended the time period for Commission action on the 
proposal to November 20, 2016.\4\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 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, Securities Exchange Act Release No. 78589 (August 16, 
2016), 81 FR 56717 (August 22, 2016) (SR-NYSE-2016-55).
    \4\ Notice of Designation of a Longer Period for Commission 
Action on 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, 
Securities Exchange Act Release No. 79051 (October 5, 2016), 81 FR 
70449 (October 12, 2016).
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    On November 18, 2016, the Division of Trading and Markets took 
action, pursuant to delegated authority, 17 CFR 200.30-3(a)(12), 
approving the proposed rule change (``Approval Order'').\5\

[[Page 27051]]

Pursuant to Exchange Act Section 4A \6\ and Commission Rule of Practice 
431,\7\ the Approval Order has been stayed, and the Commission has 
reviewed the delegated action.
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    \5\ Order Granting Approval 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, Securities Exchange Act Release No. 79355 (November 18, 
2016), 81 FR 85291 (November 25, 2016).
    \6\ 15 U.S.C. 78d-1
    \7\ 17 CFR 201.431.
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    On November 21, 2016, the Commission issued an Order Scheduling 
Filing of Statements on Review of the Approval Order (``Order for 
Review'').\8\ The Order for Review ordered that the Approval Order 
remain stayed pending further order by the Commission and that by 
December 7, 2016, any party or other person may file any additional 
statement.\9\ The Commission received no additional statements.
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    \8\ In the Matter of the New York Stock Exchange LLC for an 
Order Granting the Approval 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; Order Scheduling Filing of Statements on Review, 
Securities Exchange Act Release No. 79370 (November 21, 2016), 81 FR 
85655 (November 28, 2016).
    \9\ See 17 CFR 201.431(d).
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II.

    On review, the Commission affirms the issuance of the Approval 
Order and adopts the findings and reasoning set forth in the Approval 
Order. The Commission also is ordering that the stay of the Approval 
Order be discontinued.
    Accordingly, IT IS ORDERED that the Approval Order be, and hereby 
is, affirmed.\10\
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    \10\ See 17 CFR 201.431(a). The Approval Order is attached.
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    It is further ORDERED that the stay of the Approval Order be, and 
hereby is, discontinued.\11\
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    \11\ See 17 CFR 201.431(e).

    By the Commission.
Brent J. Fields,
 Secretary.
SECURITIES AND EXCHANGE COMMISSION
(Release No. 34-79355; File No. SR-NYSE-2016-55)
November 18, 2016
Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Granting Approval 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
I. Introduction
    On August 15, 2016, New York Stock Exchange LLC (``NYSE'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to adopt maximum fees NYSE member 
organizations may charge in connection with the distribution of 
investment company shareholder reports pursuant to any ``notice and 
access'' electronic delivery rules adopted by the Commission. The 
proposed rule change was published for comment in the Federal Register 
on August 22, 2016.\3\ The Commission received fourteen comment letters 
on the proposal.\4\ On October 5, 2016, the Commission extended the 
time period for Commission action on the proposal to November 20, 
2016.\5\ This order approves the proposed rule change.
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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. 78589 (August 16, 
2016), 81 FR 56717 (``Notice'').
    \4\ See letters to Brent J. Fields, Secretary, Commission from: 
James R. Rooney, Chief Financial Officer and Treasurer, Ariel 
Investment Trust, dated September 8, 2016 (``Ariel Letter''); 
Mortimer J. Buckley, Chief Investment Officer, Vanguard, dated 
September 12, 2016 (``Vanguard Letter''); Barbara Novick, Vice 
Chairman, and Benjamin Archibald, Managing Director, BlackRock, 
Inc., dated September 12, 2016 (``BlackRock Letter''); Charles V. 
Callan, SVP Regulatory Affairs, Broadridge Financial Solutions, 
Inc., dated September 12, 2016 (``Broadridge Letter''); John Zerr, 
Managing Director and General Counsel, Invesco Advisers, Inc., dated 
September 12, 2016 (``Invesco Letter''); Amy B.R. Lancellotta, 
Managing Director, Independent Directors Council, dated September 
12, 2016 (``IDC Letter''); David G. Booth, President and Co-Chief 
Executive Officer, Dimensional Fund Advisers LP, dated September 12, 
2016 (``Dimensional Letter''); David W. Blass, General Counsel, 
Investment Company Institute, dated September 12, 2016 (``ICI 
Letter''); Darrell N. Braman, Vice President & Managing Counsel, T. 
Rowe Price Associates, Inc., dated September 12, 2016 (``T. Rowe 
Letter''); Mark N. Polebaum, Executive Vice President and General 
Counsel, MFS Investment Management, dated September 12, 2016 (``MFS 
Letter''); Thomas E. Faust Jr., Chairman and Chief Executive 
Officer, Eaton Vance Corp., dated September 12, 2016 (``Eaton Vance 
Letter''); Ellen Greene, Managing Director, Securities Industry and 
Financial Markets Association, dated September 15, 2016 (``SIFMA 
Letter''); Christopher O. Petersen, President, Columbia Mutual 
Funds, Columbia Threadneedle Investments, dated September 15, 2016 
(``Columbia Letter''); and Rodney D. Johnson, Chairman, The 
Independent Directors of the Blackrock Equity-Liquidity Funds, dated 
September 27, 2016 (``Blackrock Directors Letter'').
    \5\ See Securities Exchange Act Release No. 79051 (October 5, 
2016), 81 FR 70449 (October 12, 2016).
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II. Description of the Proposed Rule Change
A. Background
    Pursuant to NYSE Rule 451, NYSE member organizations that hold 
securities in street name \6\ are required to deliver, on behalf of an 
issuer, proxy and other materials to beneficial owners if they are 
assured they will receive reasonable reimbursement of expenses for such 
distributions from the issuer.\7\ For this service, issuers reimburse 
NYSE member organizations for all out-of-pocket expenses, including 
reasonable clerical expenses, as well as actual postage costs and other 
actual costs incurred for a particular distribution.\8\
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    \6\ The ownership of shares in street name means that a 
shareholder, or ``beneficial owner,'' holds the shares through a 
broker-dealer or bank, also known as a ``nominee.'' In contrast to 
registered ownership (also known as record holders), where shares 
are registered in the name of the shareholder, shares held in street 
name are registered in the name of the nominee, or in the nominee 
name of a depository, such as the Depository Trust Company. For more 
detail regarding share ownership, see Securities Exchange Act 
Release No. 62495 (July 14, 2010), 75 FR 42982 (July 22, 2010) 
(Concept Release on the U.S. Proxy System) (``Proxy Concept 
Release'').
    \7\ In this order, we refer to ``issuer'' to mean an investment 
company registered under the Investment Company Act of 1940 (the 
``Investment Company Act'') and an issuer of a class of securities 
registered pursuant to Section 12 of the Exchange Act.
    \8\ See NYSE Rules 451(a)(2) and 451.90. See also infra note 9.
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    NYSE Rule 451 establishes the maximum approved rates \9\ that a 
member organization can charge an issuer for distribution of proxies 
and other materials absent prior notification to and consent of the 
issuer.\10\ Although

[[Page 27052]]

member organizations may seek reimbursement from an issuer for less 
than the established rates,\11\ the Commission understands that in 
practice most issuers are billed at the established rates.\12\
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    \9\ In addition to the specified charges discussed in this order 
and as set forth in NYSE Rule 451, member organizations also are 
entitled to receive reimbursement for: (i) actual postage costs 
(including return postage at the lowest available rate); (ii) the 
actual cost of envelopes (provided they are not furnished by the 
person soliciting proxies); and (iii) any actual communication 
expenses (excluding overhead) incurred in receiving voting returns 
either telephonically or electronically. See NYSE Rule 451.90.
    \10\ See NYSE Rules 451.90 (schedule of approved charges by 
member organizations in connection with proxy solicitations and the 
processing of proxy and other material) and 451.93 (stating that a 
member organization may request reimbursement of expenses at less 
than the approved rates; however, no member organization may seek 
reimbursement at rates higher than the approved rates without the 
prior notification and consent of the person soliciting proxies or 
the company). In adopting the direct shareholder communications 
rules in the early 1980s, the Commission left the determination of 
reasonable costs to the self-regulatory organizations (``SROs'') 
(subject to submission of an SRO rule proposal to the Commission 
pursuant to Section 19(b) of the Exchange Act), stating that ``the 
Commission continues to believe that, because the [SROs] represent 
the interests of both issuers and brokers, they are in the best 
position to make a fair allocation of all the expenses associated 
with the amendments, including start-up and overhead costs.'' See 
Securities Exchange Act Release No. 20021 (July 28, 1983), 48 FR 
35082 (August 3, 1983); see also Securities Exchange Act Release No. 
45644 (March 25, 2002), 67 FR 15440, 15440, n.8 (April 1, 2002) 
(order approving NYSE program revising reimbursement rates) (``2002 
Approval Order'').
    \11\ See NYSE Rule 451.93.
    \12\ See Securities Exchange Act Release No. 70720 (October 18, 
2013), 78 FR 63530, 63531 (October 24, 2013) (order approving an 
amendment to the fees set forth in NYSE Rules 451 and 465).
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    The vast majority of broker-dealers that distribute issuer proxy 
and other materials to beneficial owners are entitled to reimbursement 
at the NYSE fee schedule rates because most are NYSE members, and those 
that are not are members of the Financial Industry Regulatory Authority 
(``FINRA''), which has similar rules.\13\ Over time, NYSE member 
organizations increasingly have outsourced their proxy delivery and 
other distribution obligations to third-party service providers, which 
are generally called ``intermediaries,'' rather than handling this 
processing internally.\14\
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    \13\ See FINRA Rule 2251. See also Proxy Concept Release, 75 FR 
at 42995, n.110.
    \14\ See 2002 Approval Order, 67 FR at 15540. According to the 
NYSE, this shift was attributable to the fact that NYSE member firms 
believed that these distributions were not a core broker-dealer 
business and that capital could be better used elsewhere. Id. At the 
present time, a single intermediary, Broadridge Financial Solutions, 
Inc. (``Broadridge''), handles almost all processing and 
distribution of proxy and other material to beneficial owners 
holding shares in the United States. See Notice, 81 FR at 56719; see 
also Proxy Concept Release, 75 FR at 42988, n. 57, and at 42996, 
n.129.
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    In addition to the distribution of proxy materials, the 
reimbursement rates set forth in NYSE Rule 451 apply to the 
distribution of annual and semi-annual shareholder reports.\15\ In this 
regard, the reimbursement rates set forth in Rule 451 apply to the 
distribution of investment company (``fund'') shareholder reports and 
other materials to the beneficial owners of fund shares.\16\ For 
example, as the Exchange noted, a fund pays an interim report fee of 15 
cents per account when a broker distributes an annual or semi-annual 
report to the accounts of shareholders holding its shares as beneficial 
owners. Funds also 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.\17\
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    \15\ See NYSE Rules 451.10 and 451.90(3); see also NYSE Rule 465 
(Processing and Transmission of Interim Reports and Other Material).
    \16\ See Notice, 81 FR at 56718. In its filing, NYSE stated that 
mutual funds are not listed on NYSE but that the fees in Rule 451 
are applied by NYSE members in relation to distributions in 
beneficial owners of mutual funds and operating company shares. See 
also 402.07 (A) under the NYSE's Listed Company Manual, which states 
that Exchange Rules 450-460 apply to both listed and unlisted 
securities unless the context otherwise limits application.
    \17\ See NYSE Rule 451.90(4); see also Notice, 81 FR at 56718. 
The preference management fee applies to each shareholder account 
for which the nominee has eliminated the need to send materials in 
paper format through the mails or by courier service. See NYSE Rule 
451.90(4); see also Notice, 81 FR at 56719.
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    While NYSE Rule 451 also establishes the fees that member firms can 
charge issuers for proxy materials distributed through the notice and 
access method,\18\ those fees would not apply to the electronic 
distribution of investment company shareholder reports. With respect to 
notice and access distributions of proxy materials, NYSE Rule 451 sets 
forth an incremental, tiered fee structure based on the number of 
nominee broker-dealer accounts through which the issuer's securities 
are beneficially owned.\19\
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    \18\ See NYSE Rule 451.90(3); see also Notice, 81 FR at 56718. 
Pursuant to Rule 14a-16 under the Exchange Act, issuers may 
distribute proxy material electronically through the ``notice and 
access'' method. See 17 CFR 240.14a-16; see also Proxy Concept 
Release, 75 FR at 42986, n.32. The ``notice and access'' method for 
proxy distributions permits issuers to send shareholders what is 
called a ``Notice of Internet Availability of Proxy Materials'' in 
lieu of the traditional paper mailing of proxy materials. See Proxy 
Concept Release, 75 FR at 42986, n.32. The notice and access model 
works in tandem with electronic delivery--although an issuer 
electing to send a notice in lieu of a full proxy package would be 
required to send a paper copy of that notice, it may send that 
notice electronically to a shareholder who has provided to its 
broker an affirmative consent to electronic delivery. Id.
    \19\ Specifically, 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: (1) 25 cents for each account up to 
10,000 accounts; (2) 20 cents for each account over 10,000 accounts, 
up to 100,000 accounts; (3) 15 cents for each account over 100,000 
accounts, up to 200,000 accounts; (4) 10 cents for each account over 
200,000 accounts, up to 500,000 accounts; (5) 5 cents for each 
account over 500,000 accounts. Under this schedule, every issuer 
will pay 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. See NYSE Rule 451.90(5).
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    On May 20, 2015, the Commission proposed new Rule 30e-3 under the 
Investment Company Act, which, among other things, would permit, but 
not require, funds to satisfy their annual and semi-annual shareholder 
report delivery obligations by making shareholder reports available 
electronically on a website.\20\ Funds relying on this provision would 
be required, among other things, to meet conditions relating to the 
provision of notice to shareholders of the internet availability of 
shareholder reports.\21\
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    \20\ See Notice, 81 FR at 56718; see also Securities Act Release 
No. 9776, Securities Exchange Act Release No. 75002, Investment 
Company Act Release No. 316180, 80 FR 33590 (June 12, 2015) 
(Investment Company Reporting Modernization; Proposed Rule).
    \21\ See Notice, 81 FR at 56718
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B. Proposed Changes to NYSE Rule 451.90(5)
    Accordingly, the Exchange has proposed to amend Rule 451.90(5) to 
specify that the notice and access fees set forth therein for 
distribution of proxy materials also will be charged with respect to 
distributions of fund shareholder reports pursuant to any notice and 
access rules adopted by the Commission in relation to such 
distributions.\22\ The Exchange noted that the notice and access 
process under proposed Rule 30e-3 is similar to the existing proxy 
notice and access process for which the Exchange has already adopted a 
fee schedule in Rule 451, and thus the Exchange believes that it would 
be appropriate to apply the existing notice and access fees, with 
certain modifications, to fund shareholder report distributions, if the 
Commission ultimately adopts proposed Rule 30e-3.\23\
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    \22\ See proposed NYSE Rule 451.90(5).
    \23\ See Notice, 81 FR at 56718-19. The Exchange stated that the 
proposed notice and access fees for fund distributions will be 
effective only if the Commission adopts Rule 30e-3. See Notice, 81 
FR at 56718, n.8.
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    The Exchange also has proposed to set forth in Rule 451 that the 
notice and access fee will not be charged for any account with respect 
to which a fund pays a ``preference management fee'' in connection with 
a distribution of fund reports.\24\ As a result, funds would be charged 
notice and access fees only with respect to accounts that actually 
receive a notice and access mailing.\25\
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    \24\ See proposed Rule 451.90(5).
    \25\ See Notice, 81 FR at 56719. The Exchange stated that this 
is a departure from the current practice under NYSE Rule 451.90(5), 
where an issuer utilizing notice and access for proxy distributions 
pays the notice and access fee for all shareholder accounts, 
including those for which it also pays a preference management fee. 
Id. See also supra note 17 (describing the current application of 
the preference management fee).

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[[Page 27053]]

    In addition, because funds often issue multiple classes of shares, 
the Exchange believes it is necessary to be clear how the pricing tiers 
in Rule 451 would be applied to fund shareholder reports.\26\ 
Specifically, the Exchange has proposed to set forth in Rule 451 that, 
in calculating the rates at which a fund will be charged notice and 
access fees for shareholder report distributions, all accounts holding 
shares of any class of stock of the fund eligible to receive the same 
report distribution will be aggregated in determining the appropriate 
pricing tier.\27\
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    \26\ See Notice, 81 FR at 56719.
    \27\ See proposed Rule 451.90(5).
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III. Summary of Comments Received
    As noted above, the Commission received a total of fourteen comment 
letters on the Exchange's proposed rule change.\28\ In general, 
commenters broadly supported the proposed rule change.\29\ Two 
commenters, however, expressed concern about making a determination on 
the fees without a final Commission rule in place that permitted notice 
and access for fund report distributions.\30\
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    \28\ See supra note 4.
    \29\ Id.
    \30\ See SIFMA Letter; Broadridge Letter.
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    Several commenters took the position that the proposed rates set 
forth in NYSE's proposal would help realize the cost savings meant to 
be achieved through notice and access delivery of fund shareholder 
reports.\31\ Some pointed out that shareholder report delivery is an 
expense that fund shareholders bear, and asserted that the cost savings 
would directly benefit fund shareholders.\32\ One commenter also noted 
that the three changes being proposed by the NYSE would resolve 
ambiguity in the NYSE's fee schedule as it would apply to notice and 
access delivery of fund shareholder reports, potentially paving the way 
for the Commission to move forward with its proposal.\33\ According to 
this commenter, the NYSE's proposal would ensure significant cost 
savings for fund shareholders if the Commission were to adopt a notice 
and access proposal.\34\ This commenter also suggested that, absent 
NYSE's proposed rule change, these cost savings could be erased.\35\ 
Similarly, another commenter asserted that, absent adoption of NYSE's 
proposal, Rule 451 would be applied in a manner that diminished Rule 
30e-3 shareholder cost savings, or even increased shareholder 
costs.\36\ In addition, this commenter was of the view that each 
element of proposed Rule 451.90(5) was logical and fair.\37\ Another 
commenter believed that the proposed rule would ensure cost savings 
under proposed Rule 30e-3 and provide needed explanation on how Rule 
451 would apply to electronic delivery of fund shareholder reports.\38\
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    \31\ See ICI Letter; Eaton Vance Letter; Vanguard Letter; 
Blackrock Letter; Invesco Letter; IDC Letter; Dimensional Letter; 
MFS Letter; Blackrock Directors Letter.
    \32\ See ICI Letter; Blackrock Directors Letter; Blackrock 
Letter; Invesco Letter; Colombia Letter.
    \33\ See ICI Letter. See also MFS Letter (stating that NYSE's 
proposal would clarify certain ambiguities of Rule 451 and provide a 
reasonable means of conformance to proposed Rule 30e-3).
    \34\ See ICI Letter.
    \35\ Id. See also Eaton Vance Letter.
    \36\ See MFS Letter.
    \37\ Id.
    \38\ See Vanguard Letter.
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    Two commenters, however, expressed concerns about commenting on the 
NYSE fee proposal before proposed Rule 30e-3 was finally adopted. One 
commenter indicated that it could not definitively conclude whether the 
proposed fee structure was appropriate without a final rule specifying 
the details of the broker-dealer processing requirements for notice and 
access delivery.\39\ Another commenter, the largest provider of 
shareholder communication services, stated that it performed an 
analysis in order to estimate the costs of a notice and access 
distribution of fund shareholder reports, but noted that it had to make 
certain assumptions that could change based on the final requirements 
of proposed Rule 30e-3.\40\
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    \39\ See SIFMA Letter.
    \40\ See Broadridge Letter. While the commenter stated that 
NYSE's proposal would generally support the development of notice 
and access services for annual and semi-annual fund reports held by 
beneficial owners, the commenter noted that ultimately the work and 
costs involved are dependent on several factors including the final 
requirements of proposed Rule 30e-3, the number and size of fund 
distributions pursuant to a notice and access method, and the number 
and mode of investor requests for hard copy reports.
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    Finally, several commenters commented on issues concerning the fees 
and the Exchange's role in setting those fees that are outside the 
scope of the Exchange's proposal.\41\
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    \41\ Several commenters supported the transition of 
responsibility for setting shareholder distribution fees from the 
NYSE to FINRA. See ICI Letter; Ariel Letter; T. Rowe Letter; MFS 
Letter; Invesco Letter; Dimensional Letter; Columbia Letter. The 
other comments outside the scope of the proposal are as follows: 
Invesco Letter (the reasonableness and application of the current 
fee structure); Ariel Letter (reasonableness of the current fee 
structure); Columbia Letter (reasonableness of the current fee 
structure); MFS Letter (preference management fee in the context of 
managed accounts); Dimensional Letter (due to a virtual monopoly in 
the market for third-party service providers, funds have little to 
no control over the fees incurred for shareholder report 
distribution). Further, the Blackrock Directors Letter commented 
about providing a one year or reasonable transition period for to 
shift to on-line delivery of reports and providing a phone number 
for shareholders to call if they prefer to receive paper. We note 
that this comment also does not refer to the NYSE fee proposal being 
considered herein.
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IV. Discussion and Commission Findings
    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Exchange Act and 
rules and regulations thereunder applicable to a national securities 
exchange.\42\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(4) of the Exchange Act,\43\ 
which requires that an exchange have rules that provide for the 
equitable allocation of reasonable dues, fees and other charges among 
its members, issuers and other persons using its facilities; Section 
6(b)(5) of the Exchange Act,\44\ which requires that the rules of an 
exchange be designed, among other things, 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; and Section 6(b)(8) of the Exchange Act,\45\ which prohibits 
any exchange rule from imposing a burden on competition that is not 
necessary or appropriate in furtherance of the Exchange Act.
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    \42\ In approving the proposed rule changes, the Commission has 
considered their impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \43\ 15 U.S.C. 78f(b)(4).
    \44\ 15 U.S.C. 78f(b)(5).
    \45\ 15 U.S.C. 78f(b)(8).
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    Under the Exchange's proposal, the reimbursement rates set forth in 
NYSE Rule 451.90(5), which currently only apply to proxy distributions 
where the issuer elects to use notice and access, would become 
applicable to distributions of fund shareholder reports, pursuant to 
any notice and access rules adopted by the Commission.\46\ Although the

[[Page 27054]]

Commission has not adopted a notice and access rule, the Commission 
believes that it is appropriate and consistent with the Exchange Act to 
have in place rules that set forth the maximum reimbursement rates that 
funds may be charged for notice and access distributions should the 
Commission adopt a notice and access rule for fund shareholder reports.
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    \46\ See proposed NYSE Rule 451.90(5). The Commission notes that 
the proposed fees for notice and access delivery of fund shareholder 
reports would only become applicable if the Commission adopts rules 
providing for notice and access delivery of investment company 
shareholder reports. Such rules could be in the form of Rule 30e-3, 
if adopted, or another Commission rulemaking establishing notice and 
access as an acceptable distribution method for fund reports, should 
Rule 30e-3 not be adopted.
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    The Commission believes that the application of the currently 
approved reimbursement rates for notice and access proxy distributions 
to fund shareholder report distributions, with the proposed amendments 
described herein, should establish a reasonable and practical 
reimbursement structure, if notice and access distribution of fund 
shareholder reports is authorized. In this regard, the Commission notes 
that the notice and access process for proxy distributions is similar 
in many respects to the notice and access process for fund shareholder 
report distributions proposed under Rule 30e-3.\47\ In addition, the 
approval of the NYSE's fee proposal should facilitate any future 
Commission consideration of notice and access distributions for fund 
shareholder reports, by providing clarity on the maximum reimbursement 
rates for such distributions.
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    \47\ See Notice, 81 FR at 56718-19.
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    The Commission also believes that it is reasonable and appropriate 
for proposed Rule 451.90(5) to specify that funds utilizing notice and 
access will not be charged a notice and access fee for any account with 
respect to which they are being charged a preference management fee in 
connection with a distribution of shareholder reports. Today under NYSE 
Rule 451.90(4), issuers, including funds, are charged a preference 
management fee for each account for which the need to send materials in 
paper format through the mails (or by courier service) has been 
eliminated.\48\ In the context of notice and access distributions of 
proxy materials under Rule 451.90(5), however, issuers are charged a 
notice and access fee for all accounts through which the issuer's 
securities are beneficially owned, with the result that issuers could 
be charged both preference management fees and notice and access fees 
with respect to the same account. The Exchange's proposal would 
eliminate this potential double-charging in the context of fund 
distributions of shareholder reports, in that the notice and access fee 
will not be charged for any account for which a preference management 
fee is already paid due to the elimination of the need for a paper 
mailing.\49\ The Commission understands that the preference management 
fee generally is intended to reimburse intermediaries for the 
processing work and costs involved in keeping track of each account 
holder's election to eliminate paper mailings.\50\ Accordingly, as the 
Exchange noted, funds will only pay notice and access fees with respect 
to accounts that actually receive notice and access mailings.\51\ The 
Commission believes that this result is consistent with Section 6(b) of 
the Exchange Act.
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    \48\ See Notice, 81 FR at 56719; see also NYSE Rule 451.90(4); 
Securities Exchange Act Release No. 68936 (February 15, 2013), 78 FR 
12381, 12386 (``2013 Proxy Fee Notice'').
    \49\ See supra note 17. For example, if a beneficial account 
holder has affirmatively consented to receive fund shareholder 
material electronically, such accounts would, under the NYSE's 
proposal, be charged a preference management fee, but not a notice 
and access fee, since no paper mailings of a notice of internet 
availability would be sent to such account holder.
    \50\ See 2013 Proxy Fee Notice, 78 FR at 12386.
    \51\ See Notice, 81 FR at 56719.
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    In addition, the Commission believes that it is consistent with the 
Exchange Act for proposed Rule 451.90(5) to clarify that, in 
determining the appropriate pricing tier for notice and access fees in 
connection with investment company shareholder report distributions, 
all accounts holding shares of any share class that is eligible to 
receive the same report distribution will be aggregated. This 
clarification should resolve the ambiguity as to whether pricing tiers 
would be calculated by share class, resulting in potentially higher 
fees than if the accounts are aggregated as proposed. The Commission 
further believes this clarification is reasonable because it recognizes 
the unique nature of the fund industry in treating distributions with 
respect to a common group of shareholders as a single distribution for 
purposes of the fee tiers.
    The Commission understands that, in setting the reimbursement rates 
in Rule 451.90, the Exchange balances the competing interests of 
issuers who must pay for distributions of shareholder reports and 
brokers who need assurance of adequate reimbursement for making such 
distributions on their behalf.\52\ The Commission notes that all 
commenters broadly supported NYSE's proposal.\53\ As discussed above, 
two commenters expressed some concern with assessing the details of the 
NYSE's proposal before a final decision is made on proposed Rule 30e-3. 
However, given that the Exchange's rule is applicable to the 
``distribution of investment company shareholder reports pursuant to 
any `notice and access' rules adopted by the [Commission] in relation 
to such distributions'' as well as the functional similarities between 
notice and access processing for proxy and investment company report 
distributions,\54\ the Commission believes, for the reasons discussed 
above, that it is appropriate at this time to approve substantially 
similar reimbursement rates, with the proposed amendments described 
herein, which should establish a reasonable and practical reimbursement 
structure, if notice and access distribution of investment company 
shareholder reports is authorized.
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    \52\ The Commission notes that the Exchange and certain 
commenters suggested that FINRA may be better positioned than the 
Exchange to perform the regulatory role of setting the reimbursement 
rates for mutual fund report distributions. See Notice, 81 FR at 
56718; see also ICI Letter; Ariel Letter; T. Rowe Letter; MFS 
Letter; Invesco Letter; Dimensional Letter; Columbia Letter. The 
issue of whether FINRA would be better positioned than the Exchange 
to perform this regulatory role is outside the scope of the 
Commission's consideration of whether to approve the Exchange's 
proposed rule change. See Section 19(b)(2)(C) of the Exchange Act 
(``The Commission shall approve a proposed rule change of a self-
regulatory organization if it finds that such proposed rule change 
is consistent with the requirements of this title and the rules and 
regulations applicable to such organization.'').
    \53\ See supra note 4.
    \54\ See Broadridge Letter (stating that processing work for 
investment company shareholder report distribution using notice and 
access is functionally similar in many respects to proxy report 
distribution through notice and access, although many of the 
underlying systems and production operations would be different).
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    For the reasons discussed above, the Commission believes that the 
proposed rule change is consistent with the Exchange Act.
V. Conclusion
    IT IS THEREFORE ORDERED, pursuant to Section 19(b)(2) of the 
Exchange Act \55\ that the proposed rule change (SR-NYSE-2016-55) be, 
and hereby is, approved.
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    \55\ 15 U.S.C. 78f(b)(2).
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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\56\

    \56\ 17 CFR 200.30-3(a)(12).

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Brent J. Fields,

Secretary

[FR Doc. 2018-12435 Filed 6-8-18; 8:45 am]
 BILLING CODE 8011-01-P