[Federal Register Volume 87, Number 50 (Tuesday, March 15, 2022)]
[Notices]
[Pages 14589-14592]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-05371]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94388; File No. SR-NYSE-2022-11]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 
1, To Amend the NYSE Listed Company Manual To Provide a Limited 
Exemption From the Shareholder Approval Requirements for Closed-End 
Management Investment Companies With Equity Securities Listed Under 
Section 102.04 of the Listed Company Manual

March 9, 2022.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on February 23, 2022, New York Stock Exchange LLC (``NYSE'' 
or the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change. On March 8, 2022, the 
Exchange filed Amendment No. 1 to the proposed rule change, which 
amended and replaced the proposed rule change in its entirety. The 
proposed rule change, as modified by Amendment No. 1, is 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, as modified by Amendment No. 1, from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Section 312.03 of the NYSE Listed 
Company Manual (``Manual'') to provide a limited exemption from the 
shareholder approval requirements of that rule for listed closed-end 
funds. 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
Amendment No. 1
    The Exchange has previously submitted to the SEC a proposal to 
amend Section 312.03 of the Manual to provide a limited exemption from 
the shareholder approval requirements of that rule for listed closed-
end funds.\4\ This Amendment No. 1 replaces and supersedes the original 
filing in its entirety.\5\ This Amendment No. 1 is being filed to:
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    \4\ See SR-NYSE-2022-11 (February 23, 2022).
    \5\ Amendment No. 1 does not make any changes to the rule text 
as presented in Exhibit 5 of the original filing.
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     Make clarifications with respect to the description of the 
text of Section 312.03(b) of the Manual and Section 102.04 of the 
Manual;

[[Page 14590]]

     correct some typographical errors;
     clarify in the Statutory Basis section that there is a 
reduced risk of disenfranchisement of existing shareholders as a result 
of a Rule 17a-8-compliant transaction that involves a director, 
officer, or substantial shareholder of the listed company that has a 
significant interest in the company or assets to be acquired or the 
consideration to be paid, rather than stating that there is no risk of 
disenfranchisement at all; and
     replace a sentence in the Statutory Basis section of the 
Form 19b-4 that states that the interests of shareholders of the 
acquiring fund will not be diluted where the shares issued by the 
surviving fund are issued at a price equal to the surviving fund's net 
asset value. The deleted sentence is replaced with the following:
    To the Exchange's knowledge, the shares of the surviving Fund in a 
merger of affiliated Funds are generally issued at a price equal to the 
surviving Fund's net asset value, thereby ensuring that the transaction 
is not dilutive to the surviving Fund's shareholders. As described 
above, if the shares in such a merger are issued at any price other 
than net asset value, in order to rely on Rule 17a-8, the board of 
directors of the surviving Fund would have to make an affirmative 
determination that such price was not dilutive to the interests of its 
existing shareholders. Consequently, the Exchange believes that the 
proposed exemption would not result in issuances that are economically 
dilutive to the shareholders of the surviving Fund.
    Section 312.03(b)(i) of the Manual requires listed issuers to 
obtain shareholder approval prior to the issuance of common stock, or 
of securities convertible into or exercisable for common stock, in any 
transaction or series of related transactions, to a director, officer 
or substantial security holder of the company (each a ``Related 
Party'') 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. Section 312.03(b) affords an exception for cash 
sales that meet a market price test.
    Section 312.03(b)(ii) of the Manual provides that shareholder 
approval is also required prior to the issuance of common stock, or of 
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 a Related Party has a five percent or 
greater interest (or such persons collectively have a ten 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 or 
series of related transactions and the present or potential issuance of 
common stock, or securities convertible into common stock, could result 
in an issuance that exceeds either five percent of the number of shares 
of common stock or five percent of the voting power outstanding before 
the issuance.
    Section 312.03(b)(iii) of the Manual provides 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. For 
example, a sale of stock to any of such parties at a discount to the 
then market price would be treated as equity compensation under Section 
303A.08 notwithstanding that shareholder approval may not be required 
under Sections 312.03(b) or 312.03(c).
    Similarly, Section 312.03(c) of the Manual requires listed issuers 
to obtain shareholder approval prior to the issuance of common stock, 
or of securities convertible into or exercisable for common stock, in 
any transaction or series of related transactions if:
    (1) The common stock has, or will have upon issuance, voting power 
equal to or in excess of 20 percent of the voting power outstanding 
before the issuance of such stock or of securities convertible into or 
exercisable for common stock; or
    (2) the number of shares of common stock to be issued is, or will 
be upon issuance, equal to or in excess of 20 percent of the number of 
shares of common stock outstanding before the issuance of the common 
stock or of securities convertible into or exercisable for common 
stock.
    The Exchange proposes to exempt closed end management companies 
that are registered under the Investment Company Act of 1940 (``1940 
Act'') \6\ (consisting of closed-end funds listed under Section 
102.04.A. and business development companies listed under Section 
102.04.B) (collectively, ``Funds''), from having to comply with the 
shareholder approval requirement in Sections 312.03(b) and (c) in 
connection with the acquisition of the stock or assets of an affiliated 
registered investment company in a transaction that complies with Rule 
17a-8 under the 1940 Act (Mergers of affiliated companies) (``Rule 17a-
8'') \7\ and does not otherwise require shareholder approval under the 
1940 Act or the rules thereunder or any other Exchange rule. As 
described below, the Exchange believes Rule 17a-8 provides protections 
that obviate the need for a shareholder approval requirement in these 
circumstances.
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    \6\ 15 U.S.C. 80a-1.
    \7\ 17 CFR 270.17a-8.
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    Sections 17(a)(1) and (2) of the 1940 Act prohibit, among other 
things, certain transactions between registered investment companies 
and affiliated persons. Rule 17a-8 provides an exemption from Sections 
17(a)(1)-(2) of the 1940 Act for certain mergers of affiliated 
companies, provided, among other things, that the board of directors of 
each investment company, including a majority of the directors that are 
not interested persons of the respective investment company or of any 
other company or series participating in the transaction, must 
determine that (i) participation in the merger is in the best interests 
of its respective investment company, and (ii) the interests of the 
company's existing shareholders will not be diluted as a result of the 
transaction.\8\ In addition, under Rule 17a-8, an affiliated merger 
must be approved by a majority of the outstanding voting securities of 
the merging company that is not the surviving company unless certain 
conditions are met.\9\ Rule 17a-8 does not require the surviving 
company to obtain shareholder approval in connection with the merger of 
an affiliated company.
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    \8\ See 15 U.S.C. 80a-17(a)(1)--(2). See also the definition of 
``affiliated person'' in the 1940 Act, 15 U.S.C 80a-2(a)(3).
    \9\ 17 CFR 270.17a-8(a)(3).
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    Because the board of each merging company must make an affirmative 
decision that the transaction is in the best interest of its respective 
company and that the transaction will not result in dilution for 
existing shareholders, the Exchange believes the provisions of Rule 
17a-8 protect against dilution and also provide safeguards for existing 
shareholders when the transaction involves a director, officer, or 
substantial shareholder of the listed company that has a significant 
interest in the company or assets to be acquired or the consideration 
to be paid and therefore may benefit from the transaction. The Exchange 
therefore believes that it is appropriate to exempt issuers of Funds 
from having to comply with the shareholder approval requirement in 
Section 312.03(c) in connection with the acquisition of the stock or 
assets of an affiliated registered investment company in a transaction 
that complies with Rule 17a-8, which

[[Page 14591]]

can be both time consuming and expensive.
    Notwithstanding the proposed exemption, if other provisions of 
Exchange rules and the 1940 Act and the rules thereunder require 
shareholder approval, those would still apply. The Exchange also notes 
that the adopting release for Rule 17a-8 specifically noted that 
nothing in Rule 17a-8 relieves a fund of its obligation to obtain 
shareholder approval as may be required by state law or a fund's 
organizational documents.\10\
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    \10\ See Investment Company Act Release No. 25666, 67 FR 48511 
(July 24, 2002) at n. 18.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b)(5) of the Act,\11\ 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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    \11\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed amendment is consistent 
with the protection of investors, as protections afforded by Rule 17a-8 
mean that (i) there is no risk of dilution to existing shareholders as 
a result of an issuance of shares by a Fund in connection with the 
acquisition of the stock or assets of an affiliated company, and (ii) 
there is a reduced risk of disenfranchisement of existing shareholders 
as a result of a Rule 17a-8-compliant transaction that involves a 
director, officer, or substantial shareholder of the listed company 
that has a significant interest in the company or assets to be acquired 
or the consideration to be paid. Because the board of each merging 
company must make an affirmative determination that the transaction is 
in the best interest of its investment company and that the transaction 
will not result in dilution for existing shareholders, there is reduced 
concern the existing shareholders will be disenfranchised as a result 
of the Exchange's proposed exemption.
    The Exchange further believes its proposal is consistent with the 
protection of investors because its proposal is limited to registered 
investment companies that are organized under the 1940 Act. In the case 
of a merger of affiliated investment companies, the board of directors 
of each investment company, including a majority of the directors that 
are not interested persons of the respective investment company, must 
affirmatively determine that (i) participation in the merger is in the 
best interest of their respective investment company, and (ii) the 
interests of their shareholders will not be diluted as a result of the 
transaction. To the Exchange's knowledge, the shares of the surviving 
Fund in a merger of affiliated Funds are generally issued at a price 
equal to the surviving Fund's net asset value, thereby ensuring that 
the transaction is not dilutive to the surviving Fund's shareholders. 
The Exchange understands that this exchange ratio is publicly disclosed 
in the proxy statement soliciting proxies from the acquired Fund's 
shareholders, as well as in other disclosure documents. As described 
above, if the shares in such a merger are issued at any price other 
than net asset value, in order to rely on Rule 17a-8, the board of 
directors of the surviving Fund would nonetheless be required to make 
an affirmative determination that such price was not dilutive to the 
interests of its existing shareholders. Consequently, the Exchange 
believes that the proposed exemption would not result in issuances that 
are dilutive to the shareholders of the surviving Fund.
    The Exchange notes that while shareholders of the non-surviving 
company must approve the merger under certain circumstances, Rule 17a-8 
does not require the shareholders of the surviving company to approve 
the transaction. Accordingly, the Exchange believes it is appropriate 
to exempt Funds from the requirements of Sections 312.03(b) and (c) in 
this same limited circumstance.
    Notwithstanding the proposed exemption described above, the 
Exchange notes that other provisions of Exchange rules or the 1940 Act 
and the rules thereunder may require shareholder approval and will 
still apply. In particular, the Exchange notes that the adopting 
release for Rule 17a-8 specifically noted that nothing in Rule 17a-8 
relieves a fund of its obligation to obtain shareholder approval as may 
be required by state law or a Fund's organizational documents.
    The Exchange believes it is not unfairly discriminatory to offer 
the exemption only to Funds completing a merger with an affiliated 
registered investment company, as opposed to all issuers, because the 
protections against dilution and self-dealing described herein are 
embedded in the 1940 Act and do not apply to those other issuers.\12\
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    \12\ The Exchange does not currently have any listed companies 
that are registered under the Investment Company Act other than 
closed-end funds and business development companies listed under 
Section 102.04.
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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 amendment would 
offer Funds a limited exemption for the Exchange's shareholder approval 
rule in a specific circumstance where the Exchange believes there is a 
low risk of dilution to existing shareholders.

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, as modified by Amendment No. 1, 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-2022-11 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange

[[Page 14592]]

Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSE-2022-11. 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-2022-11 and should be submitted on 
or before April 5, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-05371 Filed 3-14-22; 8:45 am]
BILLING CODE 8011-01-P