[Federal Register Volume 90, Number 108 (Friday, June 6, 2025)]
[Notices]
[Pages 24172-24177]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-10283]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103166; File No. SR-CboeBZX-2025-072]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To Exempt Closed-End Management
Investment Companies Registered Under the Investment Company Act of
1940 That Are Listed as of or After May 20, 2025 From the Annual
Meeting of Shareholders Requirement Set Forth in Exchange Rule 14.10(f)
June 2, 2025.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on May 20, 2025, Cboe BZX Exchange, Inc. (the ``Exchange'' or
``BZX'') filed with the Securities and Exchange Commission (the
``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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 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
Cboe BZX Exchange, Inc. (``BZX'' or the ``Exchange'') is filing
with the Securities and Exchange Commission (``Commission'' or ``SEC'')
a proposed rule change to exempt closed-end management investment
companies registered under the Investment Company Act of 1940 that are
listed as of or after May 20, 2025 from the annual meeting of
Shareholders requirement set forth in Exchange Rule 14.10(f). The text
[[Page 24173]]
of the proposed rule change is provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, 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 Exchange 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 these 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 aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Exchange Rule 14.10(f) requires that each Company \3\ listing
common stock or voting preferred stock, and their equivalents, shall
hold an annual meeting of Shareholders \4\ (hereinafter referred to as
the ``annual shareholder meeting'') no later than one year after the
end of the Company's fiscal year-end, unless such Company is a limited
partnership that meets the requirements of Rule 14.10(e)(1)(D)(iii).
Now, the Exchange is proposing \5\ to exempt closed-end management
investment companies registered under the Investment Company Act of
1940 (``Closed-End Funds'') listed as of or after May 20, 2025 from the
requirements of Rule 14.10(f).\6\ The Exchange believes that providing
an exemption to the annual shareholder meeting requirement exclusively
to Closed-End Funds listed as of or after May 20, 2025 achieves a
balance by maintaining existing voting rights for shareholders in
established funds while giving new funds an option to avoid the
potentially costly and detrimental outcomes often associated with
annual shareholder meetings for listed Closed-End Funds. Although the
proposal would eliminate the Exchange requirement for annual
shareholder meetings for Closed-End Funds listed as of or after May 20,
2025,\7\ new funds would still have the option to voluntarily include
annual meeting requirements in their own bylaws if they choose to do
so.
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\3\ See Exchange Rule 14.1(a)(3).
\4\ ``Shareholder'' means a record or beneficial owner of a
security listed or applying to list. See Exchange Rule 14.1(a)(28).
\5\ The Exchange previously submitted a similar proposed rule
change that proposed to exempt all closed-end funds from the annual
shareholder meeting requirement. See Securities Exchange Act No.
100473 (July 9, 2024) 89 FR 579491 (July 15, 2024) (SR-CboeBZX-2024-
055) (Notice of Filing of a Proposed Rule Change, as Modified by
Amendment No. 1, To Exempt Closed-End Management Investment
Companies Registered Under the Investment Company Act of 1940 From
the Annual Meeting of Shareholders Requirement Set Forth in Exchange
Rule 14.10(f)) (the ``Prior Proposal''). The Commission issued an
order instituting proceedings to determine whether to approve or
disapprove the proposal, but the Exchange ultimately withdrew the
Prior Proposal before the Commission issued a final order. See
Securities Exchange Act Nos. 101322 89 FR 83724 (October 17, 2024)
(Order Instituting Proceedings To Determine Whether To Approve or
Disapprove a Proposed Rule Change, as Modified by Amendment No. 1,
To Exempt Closed-End Management Investment Companies Registered
Under the Investment Company Act of 1940 From the Annual Meeting of
Shareholders Requirement Set Forth in Exchange Rule 14.10(f)) (the
``Prior Proposal OIP''); 102327 (January 31, 2025)[sic] 90 FR 9175
(February 7, 2025) (Notice of Withdrawal of a Proposed Rule Change,
as Modified by Amendment No. 1, To Exempt Closed-End Management
Investment Companies Registered Under the Investment Company Act of
1940 From the Annual Meeting of Shareholders Requirement Set Forth
in Exchange Rule 14.10(f)).
\6\ Closed-End Funds that transfer to the Exchange from another
listing exchange where they were previously subject to an annual
requirement would continue to be required to comply with the annual
shareholder meeting requirements. As of the filing date, the
Exchange does not list any Closed-End Funds; therefore, there is no
proposed provision to apply the annual shareholder meeting
requirements to Closed-End Funds currently listed on the Exchange.
\7\ Currently, no Closed-End Funds are listed on the Exchange.
Existing Interpretation and Policy .15 to Rule 14.10 Rule 14.10(f)
requires that each Company listing common stock or voting preferred
stock, and their equivalents, hold an annual meeting of Shareholders
within one year of the end of each fiscal year. Given this, any
Closed-End Fund listed as of or after May 20, 2025 fund would not be
required to hold an annual meeting until one year after its first
fiscal year-end following listing. Therefore, funds listed on or
after May 20, 2025 would not face annual meeting requirements until
after the Commission's final decision on this proposal. The Exchange
believes applying the proposed exemption to Closed-End Funds listed
as of or after May 20, 2025 would provide potential benefits without
requiring the funds to delay listing or undergo a merger or
reorganization after an exemption from annual meeting requirements
is adopted. This approach allows eligible funds to utilize the
proposed exemption while preserving the rights of shareholders in
existing Closed-End Funds. Such funds would remain subject to
existing annual meeting requirements under Exchange Rules until the
Commission approves an Exchange Rule that specifically exempts them
from this obligation.
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Background
The annual meeting requirement applicable to Closed-End Funds
originates only from exchange listing rules and is not otherwise
required under the Investment Company Act of 1940 (``1940 Act'') or
applicable state laws. Under Exchange Rules Closed-End Funds are the
only registered investment companies that are required to hold annual
shareholder meetings. Generally, the main purpose of the annual
shareholder meeting is to allow Shareholders to elect the directors who
are responsible for the oversight of the company and its strategic
direction. The annual shareholder meeting requirement dates back to
1909 and derives from a provision included in individually negotiated
listing agreements on New York Stock Exchange (``NYSE'').\8\ NYSE began
listing investment companies in 1929, by which time the annual
shareholder meeting requirement was enmeshed in its listing rules and
therefore also applied to investment companies. Since that time, the
annual shareholder meeting requirement has been memorialized across all
listing exchange rules applicable to Closed-End Funds, including
Exchange Rules.\9\
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\8\ See Special Study Group of the Committee on Federal
Regulation of Securities, ABA Section of Business Law, Special Study
on Market Structure, Listing Standards and Corporate Governance, 57
Bus. Law. 1487, 1497 (2002).
\9\ The Exchange adopted listing standards for Closed-End Funds
in 2018, which were based on existing criteria applicable to Closed-
End Funds listed on NYSE American LLC (``NYSE American''). See
Securities Exchange Act Nos. 83596 (July 5, 2018) 83 FR 32162 (July
11, 2018) (SR-CboeBZX-2018-047) (Notice of Filing of a Proposed Rule
Change To Amend BZX Rule 14.8, General Listings Requirements--Tier
I); 84377 (October 5, 2018) 83 FR 51747 (October 12, 2018) (Notice
of Filing of Amendment Nos. 2 and 4 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 2
and 4, To Amend BZX Rule 14.8, General Listings Requirements--Tier
I, To Adopt Listing Standards for Closed-End Funds).
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Although the annual shareholder meeting requirement dates back to
1909, the requirement was not memorialized in the 1940 Act. The 1940
Act is generally designed to protect the interests of Shareholders with
respect to all critical aspects of the structure and operation of a
fund. Nonetheless, when Congress considered requiring that registered
investment companies hold annual meetings it declined to adopt the
requirement.\10\ The ``1935 Investment
[[Page 24174]]
Company Study'' \11\ served as the basis of the 1940 Act and
highlighted a critical vulnerability in requiring an annual shareholder
meeting for registered investment companies with widely dispersed
retail ownership. The vulnerability could provide investment company
shareholders with minority interests disproportionate control voting
outcomes to the detriment of long-term investors.\12\ The vulnerability
was particularly pronounced in director elections, where voting
thresholds were considerably lower than the requirement typically
mandated by state law for major corporate actions like mergers.
Ultimately, the 1940 Act omitted an annual meeting requirement for
registered investment companies after careful legislative
consideration.
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\10\ See Investment Trusts and Investment Companies: Hearings on
H.R. 10065 Before the House Subcomm. on Interstate and Foreign
Commerce, 76th Cong., 3d Sess. 43 (1940) at 502 (testimony of
Merrill Griswold, Chairman, Massachusetts Investors Trust of Boston)
(noting that the initial bill proposed to give shareholders the
right to elect directors at annual meetings). Commission staff also
later confirmed that the 1940 Act does not impose a requirement to
hold annual meetings in a 1986 no-action letter. See John Nuveen &
Co. Inc. (pub. avail. Nov. 18, 1986). The letter took the position
that the necessity for annual meetings was generally a question of
state law.
\11\ See Investment Trusts and Investment Companies--Report of
the SEC Pursuant to Section 30 of the Public Utility Holding Company
Act of 1935.
\12\ This problem stemmed from typically low retail investor
participation rates and the difficulty in organizing widely
dispersed shareholders to counterbalance a concentrated minority
position with significant proxy influence.
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Policy Considerations
1940 Act Offers Other Protections
While the 1940 Act does not require an annual shareholder meeting,
it otherwise provides various mechanisms designed to protect the
interest of Closed-End Fund Shareholder interests. Like other types of
corporations, trusts, or partnerships, an investment company must be
operated for the benefit of its owners. Unlike most business
organizations, however, investment companies are typically organized
and operated by an investment adviser that is responsible for the day-
to-day operations of the fund. In most cases, the investment adviser is
separate and distinct from the fund it advises, with primary
responsibility and loyalty to its own Shareholders. Because the
structure of a fund differs from a company, the board of directors
plays an important role in fund governance by overseeing the
performance of service providers that run the fund's day-to-day
operations (including the fund's adviser) and monitoring for potential
conflicts of interests.
The 1940 Act protects Closed-End Fund Shareholders by preserving
their ability to elect directors who are responsible for the oversight
of the fund. Specifically, the 1940 Act requires a Closed-End Fund to
hold a Shareholder meeting in two instances: (1) to elect the initial
board of directors; and (2) to fill all existing vacancies on the board
if Shareholders have elected less than a majority of the board.
Further, the 1940 Act requires that Shareholders fill any director
vacancies if they have elected less than two-thirds of the directors
holding office.\13\
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\13\ See Section 16(a) of the 1940 Act.
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NAV Premium/Discount Is Operational Feature of Closed-End Funds
As noted above, listed Closed-End Funds are the only registered
investment companies that are required to hold annual shareholder
meetings. In the Prior Proposal OIP, the Commission indicated that the
structural differences between ETFs and Closed-End Funds could
potentially create unique investor protection issues for Closed-End
Fund Shareholders if their annual meeting rights were eliminated--
concerns that might not exist for shareholders of exchange-traded funds
(``ETFs'') listed on the Exchange.\14\ This distinction stems primarily
from the fact that Closed-End Funds frequently trade at market prices
below their net asset value (``NAV'') per share, commonly referred to
as trading at a ``discount''.\15\
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\14\ See the Prior Proposal OIP at 83727.
\15\ Id.
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The Exchange believes that the argument that retail investors seek
to exit their investment at NAV incorrectly assumes that investors
purchased shares with that expectation. This assumption is contradicted
by actual investor behavior, as many investors deliberately purchase
listed Closed-End Fund shares on the secondary market when they are
trading at a discount to NAV.\16\ Listed Closed-End Funds provide
retail investors access to less-liquid investments through a retail-
focused wrapper with 1940 Act protections. These funds may trade at
premiums or discounts for various reasons unrelated to management
quality. Academic research suggests that discounts may reflect several
factors, including: the uncapitalized expenses and time value required
to liquidate less liquid portfolios and unwind leveraged positions,
investor sentiment fluctuations, or potential tax liabilities from
unrealized capital gains.\17\ The fact that most listed Closed-End
Funds generally trade at a discount demonstrates that such discounts
are an operational characteristic, rather than a flaw, of the listed
Closed-End Fund structure. For many investors, these discounts
represent buying opportunities, allowing them to acquire shares or
reinvest dividends below NAV, which boosts their dividend yield and
potential total return.\18\ Indeed, data from approximately 3.6 million
Closed-End Fund-owning households in 2024 shows that eight out of ten
are pleased to reinvest dividends when a Closed-End Fund they own
trades at a discount, and seven out of ten consider buying additional
shares under these circumstances.\19\ This purchasing and reinvestment
behavior at discount prices clearly indicates that many shareholders
invest in Closed-End Funds primarily for yield and distributions rather
than any expectation of exiting at NAV. Furthermore, the Closed-End
Fund structure allows for the possibility of trading at a premium to
NAV, potentially enabling exits above NAV.
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\16\ See Section 1 of the letter from ICI dated November 5,
2024, regarding SR-CboeBZX-2024-055 (``Second ICI Letter'').
\17\ Id. See also cf., Martin Cherkes, Jacob Sagi, and Richard
Stanton, A Liquidity-Based Theory of Closed-End Funds, The Review of
Financial Studies, Vol. 22, Issue 1 at 257-97 (Jan. 2009) (``This
paper develops a rational, liquidity-based model of closed-end funds
(CEFs) that provides an economic motivation for the existence of
this organizational form: They offer a means for investors to buy
illiquid securities, without facing the potential costs associated
with direct trading and without the externalities imposed by an
open-end fund structure. Our theory predicts the . . . observed
behavior of the CEF discount, which results from a tradeoff between
the liquidity benefits of investing in the CEF and the fees charged
by the fund's managers.'').
\18\ See Section 1 of the Second ICI Letter. See also Catherine
Gillis, Are Discounts Really a Problem?, Morningstar Closed-End
Funds (Mar. 13, 1992) (``The funds' inclination to trade at premiums
and more often than not, at discounts to their net asset values, has
yielded many profit opportunities to astute investors[.]'').
\19\ See Section 1 of the Second ICI Letter at footnote 15.
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Importantly, to the extent there are reasons the Closed-End Fund is
trading at a discount for non-market driven reasons Congress delineated
a function to oversee discount management: Independent directors of the
Closed-End Fund. Independent Directors monitor a Closed-End Funds
discount and can--and have--enacted changes if the fund is trading at a
discount for reasons unrelated to market conditions.\20\ For example,
several boards have pursued liquidations, discount management programs,
and/or share buy-back programs on their own volition. Independent
directors are the congressionally mandated oversight to monitor
discounts thus rendering the annual meeting requirement superfluous for
any discount management reason. Congress affirmatively heard testimony
regarding an annual meeting requirement and concurrent testimony of the
abuses that could arise from such a requirement for
[[Page 24175]]
a retail investment product with a widely dispersed shareholder base
when adopting the 1940 Act. Independent director oversight was what
Congress decided on without any annual meeting requirement.\21\
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\20\ See Section 4 of the letter from ICI dated January 24,
2025, regarding SR-CboeBZX-2024-055 (``Third ICI Letter'').
\21\ See Sections 2 and 3.2 of the letter from ICI dated August
2, 2024, regarding SR-CboeBZX-2024-055 (``First ICI Letter'').
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Retail Shareholder Engagement in Annual Shareholder Meeting
According to data presented by ICI, retail shareholders show
minimal participation in annual meetings.\22\ When retail investors do
engage with proxy materials and cast votes, they predominantly support
existing management rather than activist agendas. This evidence
suggests that eliminating the annual meeting requirement would not
significantly disadvantage retail shareholders, as their participation
is already limited, and when they do participate, they typically
endorse the fund's current investment approach, management team, and
board structure.\23\
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\22\ See Section 2 of the Second ICI Letter.
\23\ Id.
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While retail Shareholders would face little disadvantage from
removing annual meetings, the current requirement actually creates
vulnerability by providing recurring opportunities for concentrated
minority Shareholders to implement changes detrimental to the broader
Shareholder base. As demonstrated in ICI's previous analysis of the
Voya Prime Rate Trust case, approximately one-third of shareholders
abstained from voting, enabling a minority interest to gain control and
fundamentally alter both the fund's investment strategy and portfolio
composition.
This one-third non-participation rate is historically significant,
mirroring almost exactly the proportion of non-voting shares observed
by the SEC and Congress in their 1930s studies when similar takeovers
occurred. This pattern of retail disengagement and subsequent takeover
vulnerability led regulators in 1940, when crafting the 1940 Act, to
conclude that mandatory annual meetings could potentially harm retail
investors more than help them. Despite nine decades of technological
advancement retail investors' voting behavior remains largely
unchanged, perpetuating the same vulnerabilities.
Removes the Harms of Activism
Despite the benefits Closed-End Funds provide to long-term retail
investors, activist entities have increasingly targeted these funds
using discount arbitrage strategies.\24\ Specifically, following
periods of significant market volatility when Closed-End Funds trade at
wider discounts, activist investors can establish relatively small
positions yet wield disproportionate influence to implement strategies
that undermine protections the 1940 Act was designed to create. This
approach mirrors the Atlas Corporation tactics documented in the 1935
Investment Company Study. Today's activists, like Atlas during the
Great Depression, deploy capital from other funds to exploit the price-
to-NAV discount by acquiring and ultimately controlling listed Closed-
End Funds. The SEC and Congress identified 90 years ago that retail
investors' limited participation in voting creates vulnerability to
these tactics. Once activists gain control, they typically transform
the fund's investment strategy, fundamentally altering what long-term
retail shareholders originally purchased.
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\24\ See section 4.3 of the First ICI Letter which illustrates
the harms of activism in the Voya Prime Rate Trust example.
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This activity has not only caused the specific harms that the 1940
Act sought to prevent but has contributed to a significant decline in
the number of listed Closed-End Funds available to investors.\25\ There
were zero listed Closed-End Fund initial public offerings (``IPOs'') in
2023 and only three listed Closed-End Fund IPOs in 2024. Yet, ETFs and
unlisted Closed-End Funds, where activism is not an issue because there
is no annual meeting requirement, boomed in both years in IPOs. The
Exchange believes that removing the annual meeting requirement for
Closed-End Funds listed as of or after May 20, 2025 will remove the
activist threat and generate capital formation by re-opening the listed
Closed-End Fund IPO market, which will allow investors to better
utilize the benefits of the Closed-End Fund structure.\26\ Given that
listed Closed-End Funds are one of the safest wrappers to provide
retail access to private markets, and given companies are staying
private for longer, it is critical to align regulatory requirements in
a manner that helps facilitate capital formation and investor access.
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\25\ See section 4.3 of the First ICI Letter and figure 6 of the
Second ICI Letter.
\26\ Listed Closed-End Funds provide retail investors access to
less-liquid investments with 1940 Act protections. Closed-End Funds
often trade at discounts, which can benefit long-term investors
through enhanced dividend yields and total returns. Closed-End Funds
offer structural advantages including greater leverage potential
than mutual funds or ETFs and allow portfolio managers to maintain
investment strategy conviction during market volatility. See Section
4.2 of the First ICI Letter.
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Preserves Existing Shareholder Rights
Not only will the removal of the annual shareholder meeting
requirement for Closed-End Funds list as of or after May 20, 2025
provide benefits to shareholders, the proposal would not eliminate any
existing rights since it only affects future closed-end funds that list
after implementation. Since these funds haven't been created yet and no
investors have purchased shares in them, no current shareholders would
lose any voting privileges they currently possess.\27\ Furthermore,
eliminating the exchange listing requirement for annual meetings
doesn't prohibit Closed-End Funds from holding them as funds would
still have the option to maintain annual meetings through their own
bylaws if they choose to do so.
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\27\ An existing Closed-End Fund that merges or reorganizes into
a new Closed-End Fund will be subject to the by-laws and listing
standards applicable to the new fund.
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Proposal
Rule 14.10(e) provides for the exemptions from the corporate
governance rules afforded to certain types of companies. Specifically,
Rule 14.10(e)(1)(E) sets forth exemptions from the corporate governance
rules specifically applicable to management investment companies. The
Exchange proposes to adopt Rule 14.10(e)(1)(E)(iv) which would provide
that management investment companies listed as of or after May 20, 2025
that are Closed-End Funds, as defined in Rule 14.8(a), are exempt from
the requirements relating to Meetings of Shareholders (as set forth in
Rule 14.10(f)). The Exchange proposes to amend Interpretation and
Policy .13 (Management Investment Companies) and .15 (Meetings of
Shareholders or Partners) to reiterate that that Closed-End Funds
listed as of or after May 20, 2025 are exempt from the Meetings of
Shareholders requirement under Rule 14.10(f). The Exchange also
proposes to amend Interpretation and Policy .13 (Management Investment
Companies) and .15 (Meetings of Shareholders or Partners) to provide
that Closed-End Funds that transfer from another listing exchange will
continue to be subject to the Meetings of Annual Shareholders
requirements under Rule 14.10(f). An existing Closed-End Fund that
merges or reorganizes into a new Closed-End Fund does not constitute a
listing transfer for purposes of Rule 14.10.
[[Page 24176]]
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Exchange Act and the rules and regulations thereunder applicable to
the Exchange and, in particular, the requirements of Section 6(b) of
the Exchange Act.\28\ Specifically, the Exchange believes the proposed
rule change is consistent with the Section 6(b)(5) \29\ requirements
that the rules of an exchange be designed to prevent fraudulent and
manipulative acts and practices, 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.
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\28\ 15 U.S.C. 78f(b).
\29\ 15 U.S.C. 78f(b)(5).
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In the Exchange's view, limiting the annual shareholder meeting
exemption to Closed-End Funds listed as of or after May 20, 2025
strikes an appropriate balance in preserving existing shareholder
voting rights in established funds while offering new funds a pathway
to avoid the potentially adverse and expensive consequences often
associated with annual shareholder meetings. While the proposal would
remove the Exchange's annual shareholder meeting mandate for Closed-End
Funds listed as of or after May 20, 2025, these new funds would retain
the flexibility to voluntarily incorporate annual meeting provisions
into their organizational bylaws should they elect to do so.
The investor protections under the 1940 Act will continue to apply
to Closed-End Funds listed as of or after May 20, 2025. The Exchange
believes that because the 1940 Act preserves Shareholder ability to
elect Directors, requires Independent Directors to approve significant
actions, and requires a Shareholder vote on material governance and
policy changes, the Exchange's requirement to hold an annual
shareholder meeting is unnecessary.
Given that annual shareholder meetings are not mandated for any
other registered investment companies on the Exchange, the Exchange
believes that imposing this requirement specifically on Closed-End
Funds lacks substantive justification. The Exchange believes that
eliminating the annual shareholder meeting obligation would not
undermine investor protection, as the tendency for Closed-End Funds to
trade at NAV discounts represents an inherent structural feature that
investors both recognize and frequently leverage strategically, rather
than an issue that would be remedied through annual meetings.
The Exchange believes that the proposal enhances investor
protection by removing a mechanism (i.e., annual shareholder meetings)
that historically and currently enables activist exploitation of retail
investor disengagement, rather than serving as a meaningful protection
for the average retail investor. The Exchange believes that removing
the annual shareholder meeting requirement would better fulfill the
original protective intent of the 1940 Act by preventing exploitation
of retail investor non-participation, reducing opportunities for
minority interests to override the fund's established investment
approach, and protecting the fund structure and strategy that retail
investors initially chose when investing.
Further, removing the annual meeting requirement would remove
operational costs of the Closed-End Fund, which are ultimately born by
retail investors. Data shows that on average annual meetings burden
retail shareholders in listed Closed-End Funds with costs ranging from
$32,000, for routine meetings, to $761,000, for contested matters,
annually.\30\ Given these costs relate to performing a function i.e.,
the annual meeting, that draws limited participation from retail
shareholders, removing these costs would lower expense ratios and
directly benefit retail shareholders.
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\30\ See figure 2 from Second ICI Letter.
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Currently, no Closed-End Funds are listed on the Exchange. Existing
Interpretation and Policy .15 to Rule 14.10 Rule 14.10(f) requires that
each Company listing common stock or voting preferred stock, and their
equivalents, hold an annual meeting of Shareholders within one year of
the end of each fiscal year. Given this, any Closed-End Fund listed as
of or after May 20, 2025 fund would not be required to hold an annual
meeting until one year after its first fiscal year-end following
listing. Therefore, funds listed on or after May 20, 2025 would not
face annual meeting requirements until after the Commission's final
decision on this proposal. The Exchange believes applying the proposed
exemption to Closed-End Funds listed as of or after May 20, 2025 would
provide potential benefits without requiring the funds to delay listing
or undergo a merger or reorganization after an exemption from annual
meeting requirements is adopted. This approach allows eligible funds to
utilize the proposed exemption while preserving the rights of
shareholders in existing Closed-End Funds. Such funds would remain
subject to existing annual meeting requirements under Exchange Rules
until the Commission approves an Exchange Rule that specifically
exempts them from this obligation. The Exchange believes investor
protection is preserved through the proposal's carefully designed
grandfathering and optionality mechanisms. By applying the change
exclusively to future Closed-End Funds that list on the Exchange, the
proposal ensures no existing shareholders lose any voting privileges
they currently possess. This forward-looking approach means current
investors in existing Closed-End Funds maintain all their rights, while
future investors will enter new funds with full knowledge of the
governance structure, enabling informed investment decisions.
Importantly, eliminating the Exchange listing requirement for annual
meetings doesn't prohibit funds from holding them; new Closed-End Funds
would still have the option to maintain annual meetings through their
own bylaws if they choose to do so. This creates a market-based
approach where funds can differentiate themselves based on governance
structures, potentially using annual meetings as a competitive feature
if they believe it provides value. This non-disruptive, forward-looking
approach respects existing rights while creating flexibility for new
market entrants, allowing for innovation in fund governance while
ensuring transparency for investors rather than mandating a one-size-
fits-all approach.
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 Exchange Act. The purpose of the
proposal is to eliminate the annual shareholder meeting requirement for
Closed-End Funds listed as of or after May 20, 2025 and would apply
equally to all similarly situated funds listed on the Exchange. The
Exchange believes that the proposal may enhance competition as it
establishes a competitive landscape where funds may distinguish
themselves through their chosen governance frameworks, potentially
highlighting annual meetings as a value-adding feature when deemed
beneficial. The Exchange further believes that removing the annual
shareholder
[[Page 24177]]
meeting requirement for Closed-End Funds listed as of or after May 20,
2025 will remove the activist threat and generate capital formation by
re-opening the listed Closed-End Funds IPO market.
The Exchange notes that other listing venues can adopt similar
rules if they so desire. As such, the Exchange does not believe that
the proposal imposes any burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on 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 within such longer period 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 Exchange consents, the Commission will:
A. by order approve or disapprove such 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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-CboeBZX-2025-072 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-CboeBZX-2025-072. 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 (https://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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-CboeBZX-2025-072 and should
be submitted on or before June 27, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
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\31\ 17 CFR 200.30-3(a)(12).
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Stephanie Fouse,
Assistant Secretary.
[FR Doc. 2025-10283 Filed 6-5-25; 8:45 am]
BILLING CODE 8011-01-P