[Federal Register Volume 84, Number 141 (Tuesday, July 23, 2019)]
[Notices]
[Pages 35431-35433]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-15637]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86406; File No. SR-NYSE-2019-20]
Self-Regulatory Organizations; New York Stock Exchange LLC; Order
Granting Approval of a Proposed Rule Change Amending Section 302 of the
Listed Company Manual To Provide Exemptions for the Issuers of Certain
Categories of Securities From the Obligation To Hold Annual
Shareholders' Meetings
July 18, 2019.
I. Introduction
On May 6, 2019, New York Stock Exchange LLC (``NYSE'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to amend Section 302 of the NYSE Listed Company
Manual (``Manual'') regarding the annual shareholder meeting
requirement. The proposed rule change was published for comment in the
Federal Register on May 23, 2019.\3\ The Commission has received no
comment letters on the proposal. On July 3, 2019, pursuant to Section
19(b)(2) of the 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
approve or disapprove the proposed rule change.\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. 85889 (May 17,
2019), 84 FR 23815 (``Notice'').
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 86291 (July 3,
2019), 84 FR 32802 (July 9, 2019). The Commission designated August
21, 2019, as the date by which the Commission shall approve the
proposed rule change, disapprove the proposed rule change, or
institute proceedings to determine whether to approve or disapprove
the proposed rule change.
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II. Description of the Proposal
Section 302 of the Manual provides that listed companies are
required to
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hold an annual shareholders' meeting during each fiscal year. The
Exchange has proposed to amend Section 302 of the Manual to provide
that the annual meeting requirement does not apply to companies whose
only securities listed on the Exchange are non-voting preferred and
debt, passive business organizations (such as royalty trusts), or
securities listed pursuant to Rules 5.2(j)(2) (Equity Linked notes),
5.2(j)(3) (Investment Company Units), 5.2(j)(4) (Index-Linked
Exchangeable Notes), 5.2(j)(5) (Equity Gold Shares), 5.2(j)(6) (Equity
Index-Linked Securities, Commodity-Linked Securities, Currency-Linked
Securities, Fixed Income Index-Linked Securities, Futures-Linked
Securities and Multifactor Index-Linked Securities), 8.100 (Portfolio
Depositary Receipts), 8.200 (Trust Issued Receipts), 8.201 (Commodity-
Based Trust Shares), 8.202 (Currency Trust Shares), 8.203 (Commodity
Index Trust Shares), 8.204 (Commodity Futures Trust Shares), 8.300
(Partnership Units), 8.400 (Paired Trust Shares), 8.600 (Managed Fund
Shares) and 8.700 (Managed Trust Securities). The Exchange also
proposed to amend the rule text to make clear that, if an issuer also
lists common stock (which the Commission notes can be either voting or
non-voting common stock), or voting preferred stock, or their
equivalent, such issuer must still hold an annual meeting for the
holders of that common stock or voting preferred stock, or their
equivalent.\6\
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\6\ See NYSE Arca, Inc. Rule 5.3-E(e) and Rule IM-5620 of The
Nasdaq Stock Market LLC.
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According to the Exchange, holders of non-voting preferred and debt
securities, securities of passive business organizations (such as
royalty trusts) and derivative and special purpose securities either do
not have the right to elect directors at annual meetings or have the
right to elect directors only in very limited circumstances.\7\ For
example, holders of non-voting preferred securities may have the right
to temporarily elect directors if dividends on such securities have not
been paid for a specified period of time.\8\ The Exchange stated in its
proposal that absent such special circumstances, in no event do holders
of the securities listed above elect directors on an annual basis.\9\
The Exchange further stated that despite the fact that there is no
matter with respect to which holders of these securities have an annual
voting right under state law or their governing documents, NYSE rules
currently do not exclude the issuers of such securities from the
requirement that they hold an annual meeting of shareholders.\10\
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\7\ See Notice, supra note 3, at 23815.
\8\ See id.
\9\ See id.
\10\ See Notice, supra note 3, at 23815-16.
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The Exchange further stated that shareholders of ETFs and
derivative securities products listed on the Exchange receive regular
disclosure documents describing the pricing mechanism for their
securities and detailing how they can value their holdings.\11\ In
addition, the Exchange noted that the net asset value of the categories
of ETFs and other derivative securities products listed above is
determined by the market price of each fund's underlying securities or
other reference asset.\12\ The Exchange stated that it believes that
there is less need for shareholders to engage management at an annual
meeting because shareholders can value their investments on an ongoing
basis.\13\ The Exchange further stated that, while holders of such
securities may have the right to vote in certain limited circumstances,
they do not have the right to vote on the annual election of a board of
directors, further eliminating the need for an annual meeting.\14\
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\11\ See Notice, supra note 3, at 23816.
\12\ See id.
\13\ See id.
\14\ See id.
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The Exchange stated in its proposal that, notwithstanding the
existence of an exemption from the Exchange's annual shareholder
meeting requirement as proposed to be amended, issuers of listed
securities will remain subject to any applicable state and federal
securities laws with respect to the holding of annual meetings and any
other types of shareholder meetings.\15\ For example, the Exchange
noted that ETFs are registered under, and remain subject to, the
Investment Company Act of 1940 (``Investment Company Act''), which
imposes various shareholder-voting requirements that may be applicable
to such funds.\16\ The Exchange further noted that any security listed
under Section 703.19 of the Manual that has the attributes of common
stock or voting preferred stock, or their equivalents, would still be
subject to the Exchange's annual meeting requirements.\17\
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\15\ See id.
\16\ See, e.g., Section 16 of the Investment Company Act, which
requires, among other things, an investment company's initial board
of directors to be elected by the shareholders at an annual or
special meeting. 15 U.S.C. 80a-16(a).
\17\ See Notice, supra note 3, at 23816.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities
exchange.\18\ In particular, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act,\19\ 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 are not designed to permit unfair discrimination
between customers, issuers, brokers, or dealers.
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\18\ 15 U.S.C. 78f(b). In approving this proposed rule change,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\19\ 15 U.S.C. 78f(b)(5).
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The Commission believes that the Exchange's proposal to exclude
issuers of certain categories of securities from the obligation to hold
annual shareholders' meetings is consistent with the Act. The
Commission believes the right of shareholders to vote at an annual
meeting is an essential and important one. The Commission, however,
believes that the requirement to hold an annual shareholder meeting may
not be necessary for certain issuers of specific types of securities
because the holders of such securities do not directly participate as
equity holders and vote in the annual election of directors or
generally on the operations or policies of the listed company.
The Commission notes that NYSE's amended annual shareholder meeting
requirement remains subject to any applicable state and federal
securities laws that relate to such annual meetings. As a result, a
company that lists one or more of the types of securities set forth in
amended Section 302 of the Manual may still be required to hold annual
shareholder meetings in accordance with such state and federal
securities laws. In addition, the Commission notes that issuers of NYSE
listed securities, including the types of securities set forth in
amended Section 302 of the Manual, remain subject to state and federal
securities laws that may require other types of shareholder meetings,
such as special meetings of shareholders. For example, exchange traded
funds, that are open-ended
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management investment companies, are registered under, and remain
subject to, the Investment Company Act, which imposes various
shareholder-voting requirements that may be applicable to such
funds.\20\
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\20\ See e.g., Section 16 of the Investment Company Act, which
requires, among others, an investment company's initial board of
directors to be elected by the shareholders at an annual or special
meeting. 15 U.S.C. 80a-16(a). The Commission notes that closed-end
management investment companies are still required to hold annual
meetings under Section 302 of the Manual.
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The proposal also clarifies that the right not to hold an annual
shareholder meeting, as set forth in amended Section 302 of the Manual,
applies only with respect to the particular securities specified in
amended Section 302. Thus, although the proposed rule change excludes a
particular NYSE listed company from holding an annual shareholder
meeting with respect to, and as a result of listing, the specific type
of security specified in amended Section 302 of the Manual, if such
company also lists other common stock or voting preferred stock, or
their equivalent, such company must nevertheless hold an annual meeting
for the holders of such securities during each fiscal year.\21\
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\21\ The Commission notes, for example, that some of the
companies issuing one of the enumerated listed securities excluded
from the annual meeting requirement may also have their common stock
listed on the NYSE and in that case would, as noted above, be
subject to the annual meeting requirement in Section 302 of the
Manual.
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The proposed changes to Section 302 of the Manual will also
continue to require companies listing common stock to hold an annual
meeting irrespective of whether the listed class of common stock is
voting or non-voting stock. This is consistent with the rules of other
national securities exchanges and will ensure that all common stock
shareholders, whether holders of voting or non-voting common stock,
have an opportunity at a shareholder meeting to engage with management
to discuss company affairs as well as, if required by a listed
company's governing documents, to elect directors.\22\
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\22\ See Securities Exchange Act Release Nos. 57268 (February 4,
2008), 73 FR 7614, 7616 (February 8, 2008) (SR-Amex-2006-31) and
53578 (March 30, 2006), 66 FR 17532, 17533 (April 6, 2006) (SR-NASD-
2005-073).
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Given the limited rights and other interests of the holders of
those securities specified in amended Section 302 of the Manual and the
applicability of federal and state securities laws that govern
shareholder meetings, the Commission believes that the proposed rule
change reasonably sets forth the scope of the annual shareholder
meeting requirement and will ensure that the appropriate NYSE listed
companies are required to hold annual shareholder meetings under NYSE
rules, for the benefit of investors and the public interest.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\23\ that the proposed rule change (SR-NYSE-2019-20), be, and it
hereby is, approved.
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\23\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-15637 Filed 7-22-19; 8:45 am]
BILLING CODE 8011-01-P