[Federal Register Volume 84, Number 105 (Friday, May 31, 2019)]
[Notices]
[Pages 25313-25315]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-11318]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85937; File No. SR-NYSE-2019-28]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Proposed Rule Change Amending Section 303A.08 of
the Listed Company Manual Relating to Shareholder Approval of Equity
Compensation Plans
May 24, 2019.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on May 13, 2019, New York Stock Exchange LLC (``NYSE'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Section 303A.08 of the Listed
Company Manual (the ``Manual'') to clarify the circumstances under
which certain sales of a listed company's securities will not be deemed
to be equity compensation for purposes of that rule and to make a
clarifying change in Section 312.04. 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 Exchange proposes to amend Section 303A.08 of the Manual to
clarify the circumstances under which certain sales of a listed
company's securities will not be deemed to be equity compensation for
purposes of that rule.
Section 303A.08 provides that an ``equity-compensation plan'' is a
plan or other arrangement that provides for the delivery of equity
securities (either newly issued or treasury shares) of the listed
company to any employee, director or other service provider as
compensation for services. The adoption of an equity compensation plan
under the rule--or any material revision to a plan--is subject to
shareholder approval. However, Section 303A.08
[[Page 25314]]
provides for certain exclusions from its definition of equity
compensation plan, including for:
Plans that merely allow employees, directors or other service
providers to elect to buy shares on the open market or from the listed
company for their current fair market value, regardless of whether:
--The shares are delivered immediately or on a deferred basis; or
--the payments for the shares are made directly or by giving up
compensation that is otherwise due (for example, through payroll
deductions).
The Exchange has always interpreted the above provision with
respect to the purchase of shares for fair market value as applying
only when the securities are acquired directly from the company, either
in the form of treasury shares or newly-issued shares. Plans that
merely allow their participants to elect to buy shares on the open
market do not give rise to any concern about diluting the economic
interests of the company's shareholders.
For purposes of the above exclusion from the definition of equity
compensation plan, the Exchange has always interpreted ``current fair
market value'' as requiring that the price used be the most recent
official closing price on the Exchange. For the avoidance of doubt, the
Exchange now proposes to include in Section 303A.08 text specifying how
the fair market value of the issuer's common stock should be calculated
for this purpose. ``Fair market value'' will be defined as the most
recent official closing price on the Exchange, as reported to the
Consolidated Tape, at the time of the issuance of the securities. For
example, if the securities are issued after the close of the regular
session at 4:00 p.m. Eastern Standard Time on a Tuesday, then Tuesday's
official closing price will be used. If the securities are issued at
any time between the close of the regular session on Monday and the
close of the regular session on Tuesday, then Monday's official closing
price will be used.
The proposed definition of fair market value under Section 303A.08
is modeled on the definition of ``Official Closing Price'' set forth in
Section 312.04(j), as such definition is proposed to be amended by this
filing (as discussed below).\3\ However, the definitions differ in one
material respect. The Official Closing Price as defined in Section
312.04(j) (as proposed to be amended) when used in calculating whether
a transaction qualifies for an applicable exemption from the
shareholder approval requirements of Sections 312.03(b) and (c) is
defined as the most recent official closing price on the Exchange, as
reported to the Consolidated Tape, at the time of the signing of a
binding agreement to issue the securities. By comparison, ``fair market
value'' for purposes of Section 303A.08 will be the most recent
official closing price on the Exchange, as reported to the Consolidated
Tape, at the time of the issuance of the securities themselves, rather
than most recently reported at the time of the signing of the binding
agreement.
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\3\ See Securities Exchange Act Release No. 85374 (SR-NYSE-2018-
54) (March 20, 2019); 84 FR 11354 (March 26, 2019).
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In particular, issuers may issue shares in lieu of cash at the
election of participants in a deferred compensation arrangement because
the exclusion from the definition of equity compensation plan applies
to plans that allow employees, directors and service providers to elect
to buy shares from the listed company for their current fair market
value regardless of whether the shares are issued immediately or on a
deferred basis. Arrangements of this type are common and they are
appropriate as they are primarily designed to ensure that the issuances
under the deferred compensation arrangement are not economically
dilutive to the other shareholders at the time of such issuance. For
example, a director compensation plan may require its participants to
defer receipt of a portion of their director fees until the director
retires from the board. Such arrangements may provide that an
individual director can elect to receive shares in lieu of the deferred
cash compensation, with the number of shares to which such director is
entitled representing the number of shares whose fair market value at
the time of issuance equals the amount of the deferred compensation.
Because any economic dilution to the issuer's shareholders would be
incurred at the time of the deferred issuance, requiring that the
shares are issued for fair market value measured at the time of
issuance of the shares rather than at the time the company incurs the
obligation ensures that the issuance is not economically dilutive.
The Exchange also proposes to clarify the definition of ``Official
Closing Price'' used in Section 312.04(j) of the Manual. That provision
currently reads in relevant part 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.
As amended, the provision will read as follows:
``Official Closing Price'' of the issuer's common stock means the
most recent official closing price on the Exchange, as reported to the
Consolidated Tape, at the time of the signing of a binding agreement to
issue the securities.
The purpose of this amendment is simply to clarify the meaning of
the provision and it is not intended to have any substantive effect.
In addition, the Exchange proposes to correct a typographical error
in Section 312.04(j) by replacing the word ``if'' with the word ``of''
in the last full line of that provision.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Exchange Act,\4\ in general, and furthers the
objectives of Section 6(b)(5) of the Exchange Act,\5\ in particular in
that it is designed to promote just and equitable principles of trade,
to foster cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect to,
and facilitating transactions in securities, to remove impediments to
and perfect the mechanism of a free and open market and a national
market system, and, in general, to protect investors and the public
interest and is not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\4\ 15 U.S.C. 78f(b).
\5\ 15 U.S.C. 78f(b)(5).
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The proposed definition of ``fair market value'' for purposes of
Section 303A.08 protects investors and the public interest because it
harmonizes the calculation of market value under Section 303A.08 with
the Official Closing Price definition set forth in Section 312.04(j)
(as amended by this proposal) and used for purposes of calculating the
qualification of transactions for price-based exemptions from the
shareholder approval requirements under Sections 312.03(b) and (c). The
proposed definition of ``fair market value'' is consistent with the
Exchange's interpretation of that provision since the original adoption
of the rule.
As discussed above, the proposed definition of ``fair market
value'' for purposes of Section 303A.08 differs in one respect from the
definition of Official Closing Price in Section 312.04(j) (as amended
by this proposal), in that the official closing price used is the most
recent official closing price on the Exchange, as reported to the
Consolidated Tape, at the time of
[[Page 25315]]
issuance of the securities rather than at the time of entry into a
binding agreement. This distinction is necessary to accommodate the
Exchange's longstanding interpretation under Section 303A.08 that the
issuance of shares in lieu of cash at the election of participants in a
deferred compensation arrangement is not subject to shareholder
approval under Section 303A.08 if the number of shares issued in lieu
of cash compensation is based on the fair market value of the shares at
the time of issuance. Arrangements of this type are common and they are
protective of investors as they are designed to ensure that the
issuances under the deferred compensation arrangement are not
economically dilutive to the other shareholders at the time of such
issuance.
The proposed amendments to Section 312.04(j) simply clarify the
rule text and has [sic] no substantive effect.
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 proposed rule change
would simply clarify the applicable rule to ensure that it will be
applied in a manner that is consistent with the Exchange's long
standing interpretation of that rule. As such, the amendment is neither
intended to, nor expected to, impose any burden on competition. The
proposed amendments to Section 312.04(j) clarify the rule text and have
no substantive effect.
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
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-2019-28 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-2019-28. 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 such 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-2019-28, and should be submitted on
or before June 21, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\6\
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\6\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-11318 Filed 5-30-19; 8:45 am]
BILLING CODE 8011-01-P