[Federal Register Volume 86, Number 66 (Thursday, April 8, 2021)]
[Notices]
[Pages 18362-18368]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-07198]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91471; File No. SR-NYSE-2020-85]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Amendment No. 1 and Order Granting Accelerated 
Approval to a Proposed Rule Change, as Modified by Amendment No. 1, To 
Amend the NYSE Listed Company Manual To Revise the Shareholder Approval 
Requirements in Sections 312.03 and 312.04 and the Requirements for 
Related Party Transactions in Section 314.00

April 2, 2021.
    On December 16, 2020, 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 amend the NYSE Listed Company 
Manual (``Manual'') to revise the shareholder approval requirements in 
Sections 312.03 and 312.04 and the requirements for related party 
transactions in Section 314.00. The Commission published notice of the 
proposed rule change in the Federal Register on January 4, 2021.\3\ On 
February 12, 2021, 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\ The Commission has received no comment letters on the 
proposal. On March 30, 2021, the Exchange filed Amendment No. 1 to the 
proposed rule change.\6\ The Commission is publishing notice of the 
filing of Amendment No. 1 to solicit comment from interested persons 
and is approving the proposed rule change, as modified by Amendment No. 
1, on an accelerated basis.
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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. 90803 (December 28, 
2020), 86 FR 0148.
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 91126, 86 FR 10362 
(February 19, 2021).
    \6\ In Amendment No. 1, the Exchange: (1) Revised the proposed 
rule text in Section 312.03(b)(3) of the Manual to state that 
shareholder approval would be required for issuances of stock to 
Related Parties that exceed one percent of the common stock or the 
voting power outstanding before the issuance, other than cash sales 
for a price that is at least the Minimum Price (defined herein); (2) 
revised the proposed rule text in Section 312.03(c)(2) of the Manual 
to state that shareholder approval is required for securities issued 
in connection with an acquisition of the stock or assets of another 
company if the issuance of securities, when alone or 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 before 
the issuance; (3) revised the proposed rule text in Section 314.00 
of the Manual to state that a company's audit committee or another 
independent body of the board of directors shall conduct a 
reasonable prior review of related party transactions, and will 
prohibit a transaction if it determines it to be inconsistent with 
the interests of the company and its shareholders; (4) revised the 
proposed rule text in Section 314.00 of the Manual to state that, 
for the purposes of Section 314.00, the term ``related party 
transactions'' will not apply the transaction value threshold under 
Item 404 of Regulation S-K or the materiality threshold under Form 
20-F, Item 7.B, as applicable; (5) clarified the discussion 
regarding the applicability of Section 312.03(b); (6) clarified 
that, under Nasdaq and NYSE American rules, stock sales may be 
subject to shareholder approval under equity compensation rules; (7) 
deleted a description of certain requirements of Section 312.03(b) 
that the Exchange has proposed to delete because they relate to the 
early stage company exemption that would no longer be applicable; 
(8) clarified that the Exchange believes that Section 312.03(c) 
would cause any significantly economically dilutive transaction to 
be subject to shareholder approval; (9) clarified that the 
amendments to Section 312.03(c) would remove a limitation that 
participation in a financing under the exception is available only 
to multiple purchasers; and (10) made other clarifying, conforming, 
and technical changes. Amendment No. 1 is available at https://www.sec.gov/rules/sro/nyse/nysearchive/nysearchive2020.htm.
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I. Description of the Proposal, as Modified by Amendment No. 1

    The Exchange is proposing to amend its shareholder approval rules 
for issuances of securities to certain related parties, as set forth in 
Section 312.03(b) of the Manual. Section 312.03(b) of the Manual 
currently requires shareholder approval prior to certain issuances of 
common stock, or securities convertible into or exercisable for common 
stock, to: (1) A director, officer, or substantial security holder \7\ 
of the company (each a ``related party'' for purposes of current 
Section 312.03(b)); (2) a subsidiary, affiliate, or other closely 
related person of a related party; or (3) any company or entity in 
which a related party has a substantial direct or indirect interest. 
Such shareholder approval is subject to an exemption for early stage 
companies set forth in Section 312.03(b) of the Manual.
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    \7\ For purposes of Section 312.03, Section 312.04(e) provides 
that: ``[a]n interest consisting of less than either five percent of 
the number of shares of common stock or five percent of the voting 
power outstanding of a company or entity shall not be considered a 
substantial interest or cause the holder of such an interest to be 
regarded as a substantial security holder.''
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    Under Section 312.03(b) of the Manual, prior shareholder approval 
is currently required 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. A limited exception to 
these shareholder approval requirements permits cash sales relating to 
no more than five percent of the number of shares of common stock or 
voting power outstanding that meet a minimum price test set forth in 
the rule (``Minimum Price'') \8\ if the related party in the 
transaction has related party status solely because it is a substantial 
security holder of the company.
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    \8\ Section 312.04(i) defines the ``Minimum Price'' as follows: 
``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. As proposed, Section 312.04(j) defines ``Official 
Closing Price'' 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. For 
example, if the transaction is signed after the close of the regular 
session at 4:00 p.m. Eastern Standard Time on a Tuesday, then 
Tuesday's official closing price is used. If the transaction is 
signed 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 is used. The Exchange is proposing 
to correct a typographical error in the definition of ``Official 
Closing Price.''
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    The Exchange is proposing several changes to Section 312.03(b) of 
the Manual. The Exchange states that these changes would bring its 
shareholder approval requirements into closer alignment with those of 
Nasdaq and NYSE American.\9\ First, the Exchange proposes to modify the 
class of persons with respect to which an issuance of common stock 
would require a listed

[[Page 18363]]

company to seek shareholder approval. Specifically, Section 312.03(b) 
as amended would require prior shareholder approval for certain 
issuances of common stock to directors, officers, and substantial 
security holders of the company (each a ``Related Party'') and would no 
longer require such approval for issuances to such Related Parties' 
subsidiaries, affiliates or other closely related persons or to any 
companies or entities in which a Related Party has a substantial 
interest (except where a Related Party has a five percent or greater 
interest in the counterparty, as described below).
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    \9\ See Amendment No. 1, supra note 6, at 4.
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    In addition, the Exchange has proposed to amend Section 312.03(b) 
to require shareholder approval of cash sales to Related Parties only 
if the price is less than the Minimum Price. Issuances to Related 
Parties in non-cash transactions relating to more than one percent of 
the issuer's common stock or voting power outstanding before the 
issuance would continue to be subject to shareholder approval.\10\ Cash 
sales to a Related Party relating to more than one percent of the 
issuer's common stock or voting power prior to the issuance for prices 
below the Minimum Price would continue to be subject to shareholder 
approval under Section 312.03(b). Cash sales to Related Parties that 
meet the Minimum Price requirement would be subject to the same 
limitations as cash sales to all other investors under the proposed 
amended Section 312.03(c), as described below. In addition, certain 
issuances to a Related Party that meet the Minimum Price could also be 
subject to shareholder approval under proposed Section 312.03(b)(ii). 
The Exchange proposes Section 312.03(b)(ii) to require shareholder 
approval of any transaction or series of related transactions in which 
any Related Party has a five percent or greater interest (or such 
persons collectively have a 10 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 and the present or 
potential issuance of common stock, or securities convertible into 
common stock, could result in an increase in either the number of 
shares of common stock or voting power outstanding of five percent or 
more before the issuance.
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    \10\ See id. at 4.
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    Finally, the Exchange proposes to delete from Section 312.03(b) two 
provisions that it states will no longer be relevant as they relate to 
transactions that benefit from exemptions from shareholder approval 
under current Section 312.03(b), but would be exempt from shareholder 
approval under the general application of Section 312.03(b) as proposed 
to be amended. These provisions relate to: (1) Cash sales meeting the 
Minimum Price test and relating to no more than five percent of the 
number of shares of common stock or five percent of the voting power 
outstanding before the issuance to a Related Party where the Related 
Party involved in the transaction is classified as such solely because 
such person is a substantial security holder; and (2) the early stage 
company exemption, to which the Exchange proposes to remove the 
reference from Section 312.04. The Exchange states that, for the same 
reason, the Exchange proposes to delete from Section 312.03(b) a 
sentence that provides that the early stage company exemption is not 
applicable to a sale of securities by the listed company to any person 
subject to the provisions of Section 312.03(b) in a transaction, or 
series of transactions, whose proceeds will be used to fund an 
acquisition of stock or assets of another company where such person has 
a direct or indirect interest in the company or assets to be acquired 
or in the consideration to be paid for such acquisition.
    The Exchange states that Section 312.03(b) would continue to 
require that any sale of stock to an employee, director, or service 
provider is also subject to the equity compensation rules in Section 
303A.08 of the Manual and that shareholder approval would be required 
if any of the subparagraphs of Section 312.03 require such approval, 
notwithstanding that the transaction does not require approval under 
Section 312.03(b) or one or more of the other subparagraphs.
    In addition, the Exchange is proposing changes to Section 312.03(c) 
of the Manual, which currently requires shareholder approval of any 
transaction relating to 20 percent or more of the company's outstanding 
common stock or 20 percent of the voting power outstanding before such 
issuance, but provides the following exceptions: (1) Any public 
offering for cash; and (2) any bona fide private financing involving a 
cash sale of the company's securities that comply with the Minimum 
Price requirement. As set forth in Section 312.04(g), a ``bona fide 
private financing'' refers to a sale in which either: (1) A registered 
broker-dealer purchases the securities from the issuer with a view to 
the private sale of such securities to one or more purchasers; or (2) 
the issuer sells the securities to multiple purchasers, and no one such 
purchaser, or group of related purchasers, acquires, or has the right 
to acquire upon exercise or conversion of the securities, more than 
five percent of the shares of the issuer's common stock or more than 
five percent of the issuer's voting power before the sale.
    The Exchange proposes to replace the reference to ``bona fide 
private financing'' in Section 312.03(c) with ``other financing (that 
is not a public offering for cash) in which the company is selling 
securities for cash.'' \11\ This change would eliminate the requirement 
that, for the exception, the issuer sell the securities to multiple 
purchasers, and that no one such purchaser, or group of related 
purchasers, acquires more than five percent of the issuer's common 
stock or voting power.\12\ In addition, the Exchange states that, 
because any sale to a broker-dealer under the current bona fide private 
financing exception would also qualify for an exception to shareholder 
approval under the proposed amended exception, there is no need to 
retain a separate provision for sales made to broker-dealers.\13\ The 
Exchange also proposes to amend Section 312.03(c) to provide that, if 
the securities in a financing (that is not a public offering for cash) 
in which the company is selling securities for cash are issued in 
connection with an acquisition of the stock or assets of another 
company, shareholder approval will be required if the issuance of the 
securities alone or when combined with any other present or potential 
issuance of 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. 
Additionally, as the ``bona fide private financing'' term will no 
longer be used in Section 312.03(c), the Exchange proposes to delete 
the definition of that term in Section 312.04(g). The Exchange states 
that these changes would bring its shareholder requirements into closer 
alignment with those of Nasdaq and NYSE American.\14\
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    \11\ As described above, Section 312.03(c) of the Manual also 
provides an exception from the shareholder approval requirements of 
Section 312.03(c) for any public offering for cash.
    \12\ NYSE stated in its proposal that while the proposed amended 
exemption would not limit the size of any transaction that meets the 
Minimum Price test, any such transaction giving rise to a change of 
control will be subject to shareholder approval under Section 
312.03(d). See Amendment No. 1, supra note 6, at n. 9.
    \13\ See id. at 9.
    \14\ See Amendment No. 1, supra note 6, at 4.
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    The Exchange is also proposing to delete Section 312.03T, which was 
adopted to provide temporary relief from certain of the requirements of 
Section 312.03 during the COVID-19 pandemic, and which was applicable 
by

[[Page 18364]]

its terms through June 30, 2020. As that date has passed, the Exchange 
has proposed to delete Section 312.03T in its entirety, as it is no 
longer applicable.
    Finally, the Exchange is proposing to amend Section 314.00 of the 
Manual, which currently provides that related party transactions 
normally include transactions between officers, directors, and 
principal shareholders and the company and that each related party 
transaction is to be reviewed and evaluated by an appropriate group 
within the listed company involved. The current rule further states 
that, while the Exchange does not specify who should review related 
party transactions, the Exchange believes that the audit committee or 
another comparable body might be considered as an appropriate forum for 
this task.
    The Exchange proposes to amend the first paragraph of Section 
314.00 \15\ by stating that, for purposes of Section 314.00, the term 
``related party transaction'' refers to transactions required to be 
disclosed pursuant to Item 404 of Regulation S-K under the Exchange Act 
(but without applying the transaction value threshold under that 
provision), and, in the case of foreign private issuers, the term 
``related party transaction'' refers to transactions required to be 
disclosed pursuant to Form 20-F, Item 7.B (but without regard to the 
materiality threshold of that provision).\16\
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    \15\ The second paragraph of Section 314.00 will be retained in 
its entirety. It reads as follows: ``The Exchange will continue to 
review proxy statements and other SEC filings disclosing related 
party transactions and where such situations continue year after 
year, the Exchange will remind the listed company of its obligation, 
on a continuing basis, to evaluate each related party transaction 
and determine whether or not it should be permitted to continue.''
    \16\ See Item 404 of Regulation S-K (Transactions with related 
persons, promoters and certain control persons) [17 CFR 229.404] and 
Item 7.B of Form 20-F (Related party transactions) [referenced in 17 
CFR 249.220f].
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    In addition, the Exchange proposes to amend Section 314 to state 
that the company's audit committee \17\ or another independent body of 
the board of directors shall conduct a reasonable prior review and 
oversight of all related party transactions for potential conflicts of 
interest and will prohibit such a transaction if it determines it to be 
inconsistent with the interests of the company and its 
shareholders.\18\
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    \17\ Section 303A.07 of the Manual requires that all members of 
an audit committee must satisfy independence requirements set out in 
Section 303A.02 of the Manual and, in the absence of an applicable 
exemption, Rule 10A-3(b)(1) of the Exchange Act.
    \18\ The Exchange proposes to delete from Section 314.00 a 
sentence that reads as follows: ``Following the review, the company 
should determine whether or not a particular relationship serves the 
best interests of the company and its shareholders and whether the 
relationship should be continued or eliminated.'' The Exchange 
states that this sentence is no longer necessary; the proposed 
amended rule requires the audit committee or other independent body 
of the board to prohibit any related party transaction it reviews if 
it determines it to be inconsistent with the interests of the 
company and its shareholders. See Amendment No. 1, supra note 6, at 
n. 11.
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II. Discussion and Commission Findings

    The Commission has carefully reviewed the proposed rule change, as 
modified by Amendment No. 1, and finds that it is consistent with the 
requirements of the Exchange Act and the rules and regulations 
thereunder applicable to a national securities exchange.\19\ In 
particular, the Commission finds that the proposed rule change, as 
modified by Amendment No 1, is consistent with Section 6(b)(5) of the 
Exchange Act,\20\ which requires, among other things, that the rules of 
a national securities exchange be designed to prevent fraudulent and 
manipulative acts and practices, 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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    \19\ 15 U.S.C. 78f. 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).
    \20\ 15 U.S.C. 78f(b)(4) and (5).
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    The development and enforcement of meaningful corporate governance 
listing standards for a national securities exchange is of substantial 
importance to financial markets and the investing public, especially 
given investor expectations regarding the nature of companies that have 
achieved an exchange listing for their securities. The corporate 
governance standards embodied in the listing standards of national 
securities exchanges, in particular, play an important role in assuring 
that exchange-listed companies observe good governance practices 
including safeguarding the interests of shareholders with respect to 
certain potentially dilutive transactions.\21\
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    \21\ See, e.g., Securities Exchange Act Release No. 84287 
(September 26, 2018), 83 FR 49599 (October 2, 2018) (NASDAQ-2018-
008) (approving a Nasdaq proposal to change to the definition of 
market value for purposes of the shareholder approval rule and 
eliminate the requirement for shareholder approval of issuances at 
less than book value but greater than market value); Securities 
Exchange Act Release No. 76814 (December 31, 2015), 81 FR 0820 
(January 7, 2016) (NYSE-2015-02) (approving amendments to the Manual 
to exempt early stage companies from requirements to obtain 
shareholder approval in certain circumstances) (``2015 Approval 
Order''). See also Securities Exchange Act Release No. 48108 (June 
30, 2003), 68 FR 39995 (July 3, 2003) (approving equity compensation 
shareholder approval rules of both the NYSE and the National 
Association of Securities Dealers, Inc. n/k/a NASDAQ); and 
Securities Exchange Act Release No. 58375 (August 18, 2008), 73 FR 
49498 (August 21, 2008) (approving registration of BATS Exchange, 
Inc. noting that qualitative listing requirements including 
shareholder approval rules are designed to ensure that companies 
trading on a national securities exchange will adequately protect 
the interest of public shareholders).
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    As discussed above, the Exchange has proposed to limit the 
shareholder approval requirements of Section 312.03(b) to a Related 
Party that is a director, officer, or substantial security holder,\22\ 
and no longer require shareholder approval under this provision for 
issuances to subsidiaries, affiliates, or other closely-related persons 
of the Related Party or any company or entity in which a Related Party 
has a substantial interest except where the Related Party has a five 
percent or greater interest in the company or assets to be acquired or 
in the consideration to be paid and the issuance falls within the scope 
of proposed Section 312.03(b)(ii). Section 312.03(b) would also no 
longer require shareholder approval for cash sales to Related Parties 
at or above the Minimum Price.\23\ Under proposed Section 
312.03(b)(ii), shareholder approval would be required for an issuance 
of common stock or 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 any Related 
Party has a five percent or greater interest (or such persons 
collectively have a 10 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 and the present or 
potential issuance of common stock, or securities convertible into 
common stock, could result in an increase in outstanding common shares 
of five percent or more, or where otherwise required under the

[[Page 18365]]

Exchange's rules.\24\ The Exchange states that it believes that current 
requirements in Section 312.03(b) can make it unnecessarily difficult 
for listed companies to raise necessary capital in private placement 
transactions that are in the interests of the company and its 
shareholders.\25\
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    \22\ See supra note 7 (defining ``substantial security 
holder'').
    \23\ Specifically, Section 312.03(b) would no longer require 
shareholder approval of cash sales at or above Minimum Price where 
the number of shares of common stock into which the securities may 
be convertible or exercisable, exceeds: (i) One percent of the 
number of shares of common stock or one percent of the voting power 
outstanding before the issuance; or (ii) in the case of a cash sale 
to a Related Party that has that status solely because such person 
is a substantial security holder, five percent of the number of 
shares of common stock or five percent of the voting power 
outstanding before the issuance. The Exchange would continue to 
require shareholder approval for all non-cash sales to Related 
Parties that exceed one percent of the number of shares of common 
stock or one percent of the voting power outstanding before the 
issuance.
    \24\ The Exchange temporarily waived certain requirements under 
Section 312.03 to provide listed companies with greater flexibility 
to raise capital during the COVID-19 crisis from April 6, 2020 
through March 31, 2021. Particularly, pursuant to the waiver, the 
Exchange allowed companies to sell their securities for cash to 
related parties and other persons subject to Section 312.03(b) under 
certain conditions without complying with the numerical limitations 
of that rule, as long as the sale in the cash transaction met the 
Minimum Price requirements, and other applicable requirements of the 
Exchange's rules. See Securities Exchange Act Release No. 88572 
(April 6, 2020), 85 FR 20323 (April 10, 2020) (SR-NYSE-2020-30) 
(waiving certain requirements of Section 312.03 through June 30, 
2020). See also Securities Exchange Act Release No. 89219 (July 2, 
2020), 85 FR 41640 (July 10, 2020) (SR-NYSE-2020-58) (extending the 
waiver through September 30, 2020). See also Securities Exchange Act 
Release No. 90020 (September 28, 2020), 85 FR 62357 (October 2, 
2020) (SR-NYSE-2020-79) (extending the waiver through December 31, 
2020). See also Securities Exchange Act Release No. 2712 (January 7, 
2021), 86 FR 2712 (January 13, 2021) (SR-NYSE-2020-108) (extending 
the waiver through March 31, 2021) (``Waiver''). The Exchange also 
temporarily waived certain requirements for meeting the bona fide 
financing exception under Section 312.03(c). See infra note 44.
    \25\ See Amendment No. 1, supra note 6, at 4.
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    The Exchange states that the proposed changes would bring its 
shareholder approval requirements into closer alignment with other 
exchanges, namely Nasdaq and NYSE American.\26\ The Exchange notes that 
Nasdaq and NYSE American rules contain substantively identical 
requirements to those the Exchange is proposing for transactions in 
which a Related Party has an interest in the company or assets to be 
acquired or the consideration to be paid in the transaction.\27\ The 
Exchange also states that, unlike NYSE, Nasdaq and NYSE American rules 
do not have a separate shareholder approval requirement for cash sales 
to a Related Party that do not meet the Minimum Price requirement and 
that relate to more than one percent of the issuer's common stock or 
voting power, although such sales may also be subject to shareholder 
approval requirements under the exchanges' equity compensation 
rules.\28\ In addition, Nasdaq and NYSE American rules do not include 
shareholder approval requirements specifically for issuances to 
subsidiaries, affiliates, or closely related persons of Related Parties 
or to companies or entities in which a Related Party has a substantial 
interest unless the Related Party has a five percent or greater 
interest in the company or assets to be acquired or consideration to be 
paid in the transaction.\29\ Accordingly, the Exchange states that it 
believes that its proposal to limit the Related Party requirements to 
directors, officers, and substantial security holders would harmonize 
its rules with Nasdaq and NYSE American requirements.\30\
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    \26\ See id. See also Nasdaq Marketplace Rule 5635 and NYSE 
American Company Guide Sections 712 and 713.
    \27\ See Amendment No. 1, supra note 6, at 8. See proposed 
Section 312.03(b)(ii).
    \28\ See Amendment No. 1, supra note 6, at 6.
    \29\ See Nasdaq Marketplace Rule 5635 and NYSE American Company 
Guide Sections 712 and 713.
    \30\ See Amendment No. 1, supra note 6, at 6.
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    The Commission believes that the proposed amendments to Section 
312.03(b) to change the circumstances under which shareholder approval 
is required for issuances to Related Parties, and where shareholder 
approval is required for issuances based on certain relationships with 
a Related Party, are consistent with Section 6(b)(5) of the Exchange 
Act. Although the circumstances of when shareholder approval is 
required under Section 312.03(b) of the Manual will be modified by the 
proposal, there will continue to be other protections for shareholders. 
The Exchange's rules provide that, notwithstanding that the transaction 
does not require approval under Section 312.03(b), shareholder approval 
is required if any of the subparagraphs of Section 312.03 require such 
approval.\31\ As described above, regardless of the Minimum Price, the 
Exchange is proposing to require shareholder approval of any 
transaction or series of related transactions in which any Related 
Party has a five percent or greater interest (or such persons 
collectively have a 10 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 and the present or 
potential issuance of common stock, or securities convertible into 
common stock, could result in an increase in outstanding common shares 
of five percent or more.\32\ This provision therefore would require 
shareholder approval under the conditions described above in 
circumstances where the transaction is priced at or above the Minimum 
Price as well as below the Minimum Price.\33\ Section 312.03(c) would 
also continue to require shareholder approval for any non-cash 
issuances of 20 percent or more of the issuer's common stock or voting 
power and any financing (that is not a public offering for cash) 
involving cash sales relating to 20 percent or more of the issuer's 
common stock or voting power for less than the Minimum Price.\34\ Under 
the proposal, Section 312.03(c) will also require shareholder approval 
of all cash sales in connection with an acquisition of the stock or 
assets of another company relating to 20 percent of the issuer's common 
stock or voting power even if the issuance meets the Minimum Price.\35\ 
The Exchange also states that Section 312.03(c) applies to any 
transaction or series of related transactions, which provides 
shareholders with further protection by ensuring that a company cannot 
avoid the shareholder approval requirement by separating an overall 
transaction into smaller separate transactions that would not 
individually require shareholder approval. In addition, any sale that 
gives rise to a change of control will be subject to shareholder 
approval under Section 312.03(d), a sale of stock to an employee, 
director, or service provider would continue to be subject to the 
equity compensation shareholder approval rules in Section 303A.08 of 
the Manual, and shareholder approval will be required if a vote is 
required under any other applicable provision of the Exchange's rules. 
As to cash sales of more than one percent of common stock or voting 
power to directors, officers, and substantial security holders below 
Minimum Price, Section 312.03(b) will continue to require shareholder 
approval for such issuances to these Related Parties.\36\ Section 
312.03(b) will also continue to require shareholder approval for non-
cash issuances of more than one percent of the number of shares of 
common stock or the voting power outstanding before the issuance to 
such Related Parties.\37\
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    \31\ See proposed Section 312.03(b)(iii). See also Section 
312.04(a).
    \32\ See proposed Section 312.03(b)(ii). The Exchange notes that 
this limitation is substantively identical to a limitation placed 
specifically on issuances to related parties in the Nasdaq and NYSE 
American rules. See Amendment No. 1, supra note 6, at 7
    \33\ Although NYSE is deleting its specific requirement for 
shareholder approval issuances to a subsidiary, affiliate, or other 
closely-related person of a Related Party, and any company or entity 
in which a Related Party has a substantial direct or indirect 
interest, shareholder approval for issuances to such entities could 
still be required if they meet the requirements of this new 
provision.
    \34\ See infra note 36 and accompanying text (discussing when 
shareholder approval is required for cash sales to Related Parties 
for below Minimum Price).
    \35\ See proposed Section 312.03(c). In determining whether the 
issuance is equal to or exceeds 20 percent, the rule provides that 
the issuance is combined with any other present or potential 
issuance of common stock or securities convertible into common stock 
in connection with the acquisition.
    \36\ See Section 312.03(b)(i).
    \37\ See supra note 10 and accompanying text.
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    Furthermore, Section 314.00 of the Manual, concerning review of 
related party transactions, as proposed to be

[[Page 18366]]

amended, states that a company's audit committee or another independent 
body of the board of directors shall conduct a reasonable prior review 
and oversight of all related party transactions required to be reviewed 
\38\ for potential conflicts of interest and will prohibit a related 
party transaction if it determines it to be inconsistent with the 
interests of the company and its shareholders.\39\ The Commission has 
long acknowledged the important role an independent board committee has 
in protecting shareholders from potential conflicts of interest.\40\ 
The Commission believes that prior independent committee review and 
oversight of certain related party transactions for conflicts of 
interest, with the requirement to prohibit transactions that are 
determined to be inconsistent with the interests of the company and its 
shareholders, is an additional safeguard to protect shareholder 
interests. Additionally, the Exchange has proposed to expand the types 
of related parties whose transactions will be subject to review under 
Section 314.00 of the Manual, as discussed in more detail below. This 
should help to ensure that related party transactions that can present 
conflicts of interest are within the scope of the Exchange's rule and 
will be reviewed by the audit committee or another independent body of 
the board.\41\
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    \38\ See infra note 49 and accompanying text (describing 
proposed revisions to the related party transactions that must be 
reviewed under Section 314.00).
    \39\ See supra note 16.
    \40\ See 2015 Approval Order, supra note 21, 81 FR at n. 88.
    \41\ As discussed above, under Section 314.00 of the Manual, 
issuers have an obligation on a continuing basis to evaluate each 
related party transaction and determine whether or not it should be 
permitted to continue. See supra note 15.
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    The Commission believes that the continued requirements for 
shareholder approval described above, including, among others, the new 
provision in Section 312.02(b)(ii), and the changes to the review of 
related party transactions in Section 314.00 of the Manual including, 
among others, expanding the scope of related parties whose transactions 
are covered by the rule,\42\ on balance, should help to ensure 
continued shareholder protections. The Commission also notes that the 
changes to Section 312.03(b) of the Manual described above are 
consistent with the rules of two other national securities exchanges, 
Nasdaq and NYSE American.\43\
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    \42\ See supra notes 15-18 and accompanying text. See also infra 
note 49 and accompanying text.
    \43\ See Nasdaq Marketplace Rule 5635 and NYSE American Company 
Guide Sections 712 and 713.
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    The Commission believes that the proposed amendments to Section 
312.03(c) are consistent with Section 6(b)(5) of the Exchange Act. The 
proposed amendments to Section 312.03(c) do not change the rule as it 
relates to shareholder approval for issuances of 20 percent or more of 
the number of shares of the voting power or common stock outstanding 
before the issuance in non-cash transactions or to cash transactions 
for a price below the Minimum Price. The amendments would remove the 
requirements, under the bona fide private placement exception to 
Section 312.03(c), that cash sales at a price at least as great as 
Minimum Price must be to multiple purchasers and that a single 
purchaser may not acquire, or have the right to acquire more than five 
percent of the shares of the issuer's common stock or voting power.\44\ 
The Exchange states that it believes that current Section 312.03(c) of 
the Manual can make it unnecessarily difficult for listed companies to 
raise necessary capital in private placement transactions that are in 
the interests of the company and its shareholders,\45\ and that the 
proposed requirements would allow companies additional flexibility. The 
Exchange states that it believes that this change is consistent with 
the protection of investors because the Minimum Price requirement 
provides protection against economic dilution, while the separately 
applicable requirements of Section 312.03(d) provide that shareholders 
will have a vote on any transaction that would result in a change of 
control. The proposal also adds a new condition to the financing 
exception to the shareholder vote requirements under Section 312.03(c) 
by requiring shareholder approval if the securities being issued are in 
connection with an acquisition of the stock or assets of another 
company and the issuance either alone or in combination with any other 
present or potential issuance of common stock or securities convertible 
into common stock is equal to or exceeds 20 percent of the common stock 
or voting power outstanding before the issuance. Under the current bona 
fide private financing exception under the Exchange's existing rules, 
there was no such requirement. The new requirement will ensure that if 
a financing, other than a public offering for cash, involving a 20 
percent issuance is for an acquisition, even if at the Minimum Price, 
there will be a shareholder vote on the matter. This new requirement 
can help to ensure that shareholders will get to vote on potentially 
dilutive transactions, whether voting dilution or otherwise, that may 
occur due to the acquisition.
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    \44\ The Exchange had temporarily waived these requirements of 
Section 312.03(c) due to the COVID-19 crisis under certain 
conditions. See Waiver, supra note 24 (providing that a listed 
company would be exempt from the shareholder approval requirement of 
Section 312.03(c) in relation to a private placement transaction 
regardless of its size or the number of participating investors or 
the amount of securities purchased by any single investor, provided 
that the transaction is a sale of the company's securities for cash 
at a price that meets the Minimum Price requirement). The waiver did 
not apply to any sales of a listed company's securities where the 
use of the proceeds was to fund an acquisition. See id.
    \45\ See Amendment No. 1, supra note 6 at 4.
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    The Exchange further states that the proposed amendments would make 
the Exchange's rules for cash sales of securities that meet the Minimum 
Price test substantively identical to those of Nasdaq and NYSE 
American.\46\ The Commission is cognizant of the fact that the 
exchanges operate in a highly competitive environment, including with 
respect to the listing of issuers. In addition, shareholder approval 
will still be required if any issuance under the new financing 
provision results in a change of control or if a vote is required under 
any other applicable provisions, such as the equity compensation rules 
or the new Related Party provisions of Section 312.03(b)(ii).\47\ The 
proposal will allow listed companies more flexibility to raise capital 
at market related prices without shareholder approval under Section 
312.03(c) while still preserving protections for shareholders through 
the other shareholder approval requirements as well as promoting fair 
competition among exchanges given that NASDAQ and NYSE American have 
substantially identical provisions.
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    \46\ See Amendment No. 1, supra note 6, at 9.
    \47\ See Section 312.04(a) (providing that. for the purpose of 
Section 312.03, 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 one or more of the other subparagraphs).
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    Additionally, the proposed amendments to Section 314.00 are 
consistent with investor protection pursuant to Section 6(b)(5) of the 
Exchange Act. By defining the term ``related party transaction'' by 
reference to the Commission's disclosure rules, as discussed below, the 
amendment would provide greater clarity and transparency to when the 
review of a related party transaction would be required. The related 
party transactions required to be reviewed also would be expanded when 
compared to the current rule requirement which states ``related party 
transactions normally include transactions between officers, directors 
and principal shareholders and the

[[Page 18367]]

company.'' \48\ Under the revised provisions, related party 
transactions refer to transactions required to be disclosed pursuant to 
Item 404 of Regulation S-K (but without applying the transaction value 
threshold of that provision) or for a foreign private issuer 
transactions required to be disclosed pursuant to Form 20-F, Item 7.B 
(but without regard to the materiality threshold of that provision) and 
these provisions include a broader group of persons than that listed in 
the current Exchange rule.\49\ By proposing to require that 
transactions under the rule must be subject to prior review by either 
the audit committee or another body of independent directors, and that 
such body shall prohibit such a transaction if it determines it to be 
inconsistent with the interests of the company and its shareholders, 
the Exchange is adding more clarity to the rule's requirements. By 
removing the ambiguous language in the current rule that allowed a 
listed company flexibility in the kind of committee that it could 
choose to review related party transactions, as the Exchange stated in 
its proposal, this change will prevent a listed issuer from giving the 
role of reviewing transactions to any group that is not entirely made 
up of independent directors.\50\
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    \48\ See current Section 314.00 of the Manual.
    \49\ Among other disclosures, Item 404 of Regulation S-K 
generally requires a description of any transaction in which the 
issuer was or is to be a participant that meets certain transaction 
value thresholds and in which any related party (including, for 
example, directors, executive officers, beneficial owners of more 
than five percent of any class of the issuer's voting securities, 
and their immediate family members) had or will have a direct or 
indirect material interest. Item 7.B of Form 20-F generally requires 
disclosure of transactions and loans between a foreign private 
issuer and certain categories of related parties (including, for 
example, directors, senior management, individuals with significant 
voting influence over the issuer, close family members of those 
categories of persons, and enterprises under common control). 
Required disclosure under Item 7.B includes the nature and extent of 
any transactions that are material to the company or the related 
party or that are unusual in their nature or conditions.
    \50\ See Amendment No. 1, supra note 6, at 12.
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    Finally, it is consistent with the Exchange Act for the Exchange to 
remove Rule 312.03T, which is now obsolete, from the Exchange's rule 
text in order to provide greater transparency to the Exchange's rules 
and to avoid confusion.

III. Solicitation of Comments on Amendment No. 1 to the Proposed Rule 
Change

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment No. 1 to the proposed rule 
change is consistent with the Exchange 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-2020-85 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-2020-85. 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 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-2020-85, and should be submitted on 
or before April 29, 2021.

IV. Accelerated Approval of the Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the thirtieth day 
after the date of publication of notice of the filing of Amendment No. 
1 in the Federal Register. The Commission notes that Amendment No. 1 
clarifies the proposed rule change. Among other things, Amendment No. 1 
amends the proposal to state or to clarify in the rule text: (1) That 
shareholder approval would be required for issuances of stock to 
Related Parties that exceed one percent of the common stock or the 
voting power outstanding before the issuance, except that shareholder 
approval will not be required if such transaction is a cash sale for a 
price that is at least the Minimum Price; (2) that shareholder approval 
is required for securities issued in connection with an acquisition of 
the stock or assets of another company if the issuance of 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 
before the issuance; (3) that a company's audit committee or another 
independent body of the board of directors shall conduct a reasonable 
prior review of related party transactions, and will prohibit a 
transaction if it determines it to be inconsistent with the interests 
of the company and its shareholders; and (4) that, for the purposes of 
Section 314.00, the term ``related party transactions'' will not apply 
the transaction value threshold under Item 404 of Regulation S-K or the 
materiality threshold under Form 20-F, Item 7.B, as applicable.\51\ The 
Exchange also made clarifying, conforming, and technical changes in the 
filing of the proposed rule change.\52\ The Commission believes that 
the changes in Amendment No. 1 provide greater clarity to the proposal 
and should help to avoid any confusion as to the scope or application 
of the rule changes being adopted herein. Accordingly, the Commission 
finds good cause, pursuant to Section 19(b)(2) of the Exchange Act,\53\ 
to approve the proposed rule change, as modified by Amendment No. 1, on 
an accelerated basis.
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    \51\ See supra note 6.
    \52\ See id.
    \53\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\54\ that the proposed rule change (SR-NYSE-2020-85), as 
modified by Amendment No. 1, be, and it hereby is, approved on an 
accelerated basis.
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    \54\ 15 U.S.C. 78s(b)(2).


[[Page 18368]]


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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\55\
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    \55\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-07198 Filed 4-7-21; 8:45 am]
BILLING CODE 8011-01-P