[Federal Register Volume 90, Number 170 (Friday, September 5, 2025)]
[Notices]
[Pages 42991-42995]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-17003]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103824; File No. SR-CboeBZX-2025-072]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order
Instituting Proceedings To Determine Whether To Approve or Disapprove 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)
September 2, 2025.
I. Introduction
On May 20, 2025, Cboe BZX Exchange, Inc. (``BZX'' or ``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 exempt closed-end management investment companies registered
under the Investment Company Act of 1940 (``1940 Act'') \3\ 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
proposed rule change was published for comment in the Federal Register
on June 6, 2025.\4\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 80a-1 et seq.
\4\ See Securities Exchange Act Release No. 103166 (June 2,
2025), 90 FR 24172 (``Notice''). Comments on the proposed rule
change are available at: https://www.sec.gov/comments/sr-cboebzx-2025-072/srcboebzx2025072.htm.
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On July 14, 2025, pursuant to Section 19(b)(2) of the Exchange
Act,\5\ 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.\6\ The Commission is instituting proceedings
pursuant to Section 19(b)(2)(B) of the Exchange Act \7\ to determine
whether to approve or disapprove the proposed rule change.
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\5\ 15 U.S.C. 78s(b)(2).
\6\ See Securities Exchange Act Release No. 103452, 90 FR 33449
(July 17, 2025). The Commission designated September 4, 2025, as the
date by which the Commission shall approve or disapprove, or
institute proceedings to determine whether to disapprove, the
proposed rule change.
\7\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposed Rule Change
BZX Rule 14.8 (General Listing Requirements--Tier I) sets forth
listing
[[Page 42992]]
requirements for closed-end management investment companies registered
under the 1940 Act (``CEFs'').\8\ BZX Rule 14.10(f) generally requires
that each Company \9\ listing common stock or voting preferred stock,
and their equivalents, shall hold an annual meeting of shareholders
\10\ no later than one year after the end of the Company's fiscal year-
end. BZX Rule 14.10(e) sets forth certain exemptions from certain
corporate governance requirements, including certain exemptions to the
annual shareholder meeting requirement in BZX Rule 14.10(f).\11\ Any
CEF that is listed on the Exchange is required to comply with the
annual shareholder meeting requirement set forth in BZX Rule 14.10(f)
and is not subject to an exemption. The Exchange proposes to amend BZX
Rule 14.10(e)(1)(E) to exempt CEFs that are listed on the Exchange as
of or after May 20, 2025 from the BZX Rule 14.10(f) requirement to hold
annual shareholder meetings. The Exchange also proposes to amend
Interpretations and Policies .13 (Management Investment Companies) and
.15 (Meetings of Shareholders or Partners) to BZX Rule 14.10 to specify
that (i) CEFs listed on the Exchange as of or after May 20, 2025 are
exempt from the annual shareholder meeting requirement set forth in BZX
Rule 14.10(f); (ii) CEFs that were listed on another exchange prior to
May 20, 2025 and transfer their listing to the Exchange will continue
to be subject to the annual shareholder meeting requirement set forth
in BZX Rule 14.10(f); and (iii) an existing CEF that merges or
reorganizes into a new CEF does not constitute a listing transfer for
purposes of BZX Rule 14.10.
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\8\ See BZX Rules 14.8(e) and (i). The Exchange states that
there are currently no CEFs listed on the Exchange. See Notice,
supra note 4, at 24173 n.7.
\9\ The term ``Company'' means the issuer of a security listed
or applying to list on the Exchange. See BZX Rule 14.1(a)(3).
\10\ The term ``Shareholder'' means a record or beneficial owner
of a security listed or applying to list. See BZX Rule 14.1(a)(28).
\11\ Specifically, BZX Rule 14.10(e)(1)(F)(i) exempts from this
annual shareholder meeting requirement issuers whose only securities
listed on the Exchange are nonvoting preferred securities, debt
securities, or Derivative Securities. BZX Rule 14.10(e)(1)(F)(ii)
defines ``Derivative Securities'' as Commodity Futures Trust Shares
(Rule 14.11(e)(7)), Commodity Index Trust Shares (Rule 14.11(e)(6)),
Commodity-Based Trust Shares (Rule 14.11(e)(4)), Commodity-Linked
Securities (Rule 14.11(d)(K)(ii)), Currency Trust Shares (Rule
14.11(e)(5)), Equity Gold Shares (Rule 14.11(e)(2)), Equity Index-
Linked Securities (Rule 14.11(d)(K)(i)), ETF Shares (Rule 14.11(l)),
Fixed Income Index-Linked Securities (Rule 14.11(d)(K)(iii)),
Futures-Linked Securities (Rule 14.11(d)(K)(iv)), Index Fund Shares
(Rule 14.11(c)), Index-Linked Exchangeable Notes (Rule 14.11(e)(1)),
Managed Fund Shares (Rule 14.11(i)), Managed Portfolio Shares (Rule
14.11(k)), Managed Trust Securities (Rule 14.11(e)(10)), Multifactor
Index-Linked Securities (Rule 14.11(d)(K)(v)), Partnership Units
(Rule 14.11(e)(8)), Portfolio Depository Receipts (Rule 14.11(b)),
SEEDS (Rule 14.11(e)(12)), Tracking Fund Shares (Rule 14.11(m)),
Trust Certificates (Rule 14.11(e)(3)), and Trust Issued Receipts
(Rule 14.11(f)).
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III. Proceedings To Determine Whether To Approve or Disapprove SR-
CboeBZX-2025-072 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Exchange Act \12\ to determine whether the proposed
rule change should be approved or disapproved. Institution of
proceedings is appropriate at this time in view of the legal and policy
issues raised by the proposed rule change. Institution of proceedings
does not indicate that the Commission has reached any conclusions with
respect to any of the issues involved.
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\12\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Exchange Act,\13\ the
Commission is providing notice of the grounds for disapproval under
consideration. The Commission is instituting proceedings to allow for
additional analysis of the proposed rule change's consistency with the
Exchange Act and, in particular, with Section 6(b)(5) of the Exchange
Act, which requires, among other things, that the rules of a national
securities exchange be designed to prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles of trade,
to remove impediments to and perfect the mechanism of a free and open
market and a national market system, and, in general, to protect
investors and the public interest, and not be designed to permit unfair
discrimination between customers, issuers, brokers, or dealers.\14\
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\13\ See id.
\14\ 15 U.S.C. 78f(b)(5).
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The development and enforcement of meaningful corporate governance
exchange listing standards 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 and the role of an exchange in
overseeing its market and ensuring compliance with its listing
standards.\15\ The corporate governance standards embodied in exchange
listing standards play an important role in assuring that listed
companies observe good governance practices, including safeguarding the
interests of shareholders.\16\
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\15\ See, e.g., Securities Exchange Act Release Nos. 99238 (Dec.
26, 2023), 89 FR 113, 116 (Jan. 2, 2024) (SR-NYSE-2023-34) (Notice
of Filing of Amendment No. 1 and Order Granting Accelerated Approval
of Proposed Rule Change, as Modified by Amendment No. 1, Amending
Sections 312.03(b) and 312.04 of the NYSE Listed Company Manual To
Modify the Circumstances Under Which a Listed Company Must Obtain
Shareholder Approval of a Sale of Securities Below the Minimum Price
to a Substantial Security Holder of the Company) (``NYSE 2023
Order''); 100816 (Aug. 26, 2024), 89 FR 70674, 70677-78 (Aug. 30,
2024) (SR-NASDAQ-2024-019) (Order Granting Approval of a Proposed
Rule Change, to Rules 5605, 5615 and 5810 To Amend Phase-In
Schedules for Certain Corporate Governance Requirements and
Applicability of Certain Cure Periods) (``Nasdaq Order'').
\16\ See e.g., NYSE 2023 Order at 116; NASDAQ Order at 70678;
Securities and Exchange Act Release No. 91517 (Apr. 14, 2021), 86 FR
20556 (Apr. 20, 2021) (SR-NASDAQ-2020-100) (Notice of Filing of
Amendment No. 1 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 1, to Modify the
Quorum Requirement). Strong qualitative corporate governance
requirements that serve to safeguard the interests of public
shareholders are consistent with Section 6(b)(5) of the Exchange
Act, in that they are, among other things, designed to protect
investors and the public interest. See, e.g., Securities Exchange
Act Release Nos. 48108 (June 30, 2003), 68 FR 39995, 40005 (July 3,
2003) (SR-NYSE-2002-46 and SR-NASD-2002-140) (Order Approving NYSE
and Nasdaq Proposed Rule Changes and Notice of Filing and Order
Granting Accelerated Approval to NYSE Amendments No. 1 and 2 and
Nasdaq Amendments No. 2 and 3 Thereto Relating to Equity
Compensation Plans) (stating that the exchanges' proposals, which
require shareholder approval of equity compensation plans, should
have the effect of safeguarding the interests of shareholders);
65225 (Aug. 30, 2011), 76 FR 55148, 55152 (Sept. 6, 2011) (SR-BATS-
2011-018) (Order Approving Proposed Rule Change to Adopt Rules for
the Qualification, Listing and Delisting of Companies on the
Exchange) (stating 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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In particular, the Commission has consistently recognized the
importance of the annual shareholder meeting requirement to the
protection of investors and the public interest.\17\ Among other
things, annual shareholder meetings allow the shareholders of a company
the opportunity to elect directors and meet with, and engage,
management to discuss company affairs.\18\ The Commission has
[[Page 42993]]
recognized that, in limited circumstances, the exchange requirement to
hold an annual shareholder meeting may not be necessary for certain
issuers of specific types of securities where the holders of such
securities do not directly participate as equity holders or vote in the
annual election of directors or generally on the affairs, operations,
or policies of the listed company.\19\ However, when approving a prior
exchange proposal for specific exemptions from the annual shareholder
meeting requirement, which included an exemption for exchange-traded
funds (``ETFs''), the Commission expressly stated that CEFs are still
required to hold annual meetings under that exchange's rules.\20\
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\17\ The Commission has stated that the right of shareholders to
vote at an annual meeting is an essential and important one. See,
e.g., Securities Exchange Act Release Nos. 86406 (July 18, 2019), 84
FR 35431, 35432 (July 23, 2019) (SR-NYSE-2019-20) (Order Granting
Approval of a Proposed Rule Change Amending Section 302 of the
Listed Company Manual To Provide Exemptions for the Issuers of
Certain Categories of Securities From the Obligation To Hold Annual
Shareholders' Meetings) (``NYSE 2019 Order''); 57268 (Feb. 4, 2008),
73 FR 7614, 7616 (Feb. 8, 2008) (SR-Amex-2006-31) (Order Approving
Proposed Rule Change, as Modified by Amendment Nos. 1, 2, and 3
Thereto, Relating to Annual Shareholder Meeting Requirements)
(``Amex Order'').
\18\ See, e.g., Amex Order at 7614; Securities Exchange Act
Release No. 53578 (Mar. 30, 2006), 71 FR 17532 (Apr. 6, 2006) (SR-
NASD-2005-073) (Order Granting Approval of a Proposed Rule Change
and Amendment Nos. 1 and 2 Thereto and Notice of Filing and Order
Granting Accelerated Approval of Amendment No. 3 Thereto Relating to
Rule 4350(e) To Amend the Annual Shareholder Meeting Requirement)
(``NASD Order'').
\19\ See NYSE 2019 Order at 35432; Amex Order at 7616. See also
NASD Order at 17533. The Commission has also stated that where an
exchange has exempted issuers of certain categories of securities
from the exchange requirement to hold an annual meeting, such
issuers would remain subject to any applicable state and federal
securities laws that relate to annual meetings and may still be
required to hold annual shareholder meetings in accordance with such
state and federal securities laws. See NYSE 2019 Order at 35432;
Amex Order at 7616; NASD Order at 17533. In addition, such issuers
would remain subject to state and federal securities laws that may
require other types of shareholder meetings, such as special
meetings of shareholders. See NYSE 2019 Order at 35432; NASD Order
at 17533. The Commission has also stated that the exemptions apply
only with respect to particular securities, and that if a company
also lists other common stock or voting preferred stock, or their
equivalent, such company must nevertheless hold an annual meeting
for the holders of such securities during each fiscal year. See NYSE
2019 Order at 35433; Amex Order at 7616; NASD Order at 17533.
\20\ See NYSE 2019 Order at 35433 n.20.
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The Exchange states in support of its proposal that it believes the
annual shareholder meeting requirement is unnecessary for CEFs 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.\21\ The
Exchange states that it believes that since no other registered
investment companies listed on the Exchange are required to hold an
annual shareholder meeting, there is no substantive justification for
imposing such a requirement on CEFs.\22\ According to the Exchange, the
tendency for CEFs 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 by
annual shareholder meetings.\23\
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\21\ See Notice, supra note 4, at 24176.
\22\ See id. When justifying its prior proposal to exempt ETFs
listed on the Exchange from the annual shareholder meeting
requirement of BZX Rule 14.10(f), the Exchange stated, among other
things, that such securities are issued by an open-end investment
company registered under the 1940 Act that are available for
creation and redemption on a continuous basis, and require
dissemination of an intraday portfolio value; that these
requirements provide important investor protections and ensure that
the net asset value (``NAV'') and the market price remain closely
tied to one another while maintaining a liquid market for the
security; and that these protections, along with the disclosure
documents regularly received by investors, allow their shareholders
to value their holdings on an ongoing basis and lessen the need for
such shareholders to directly deal with management at an annual
meeting. See Securities Exchange Act Release No. 99524 (Feb. 13,
2024), 89 FR 12919, 12930 (Feb. 20, 2024) (SR-CboeBZX-2024-010)
(Notice of Filing and Immediate Effectiveness of a Proposed Rule
Change To Amend Its Corporate Governance Requirements, as Provided
Under Exchange Rule 14.10 and Make Certain Other Changes to Its
Listing Rules as Provided Under Exchange Rules 14.3, 14.6, 14.7, and
14.12) (``BZX ETF Filing'').
\23\ See Notice, supra note 4, at 24176. The Exchange further
states that many investors deliberately purchase listed CEFs on the
secondary market when they are trading at a discount to NAV and
these discounts may represent buying opportunities that allow
investors to acquire shares or reinvest dividends below NAV, thereby
boosting their dividend yield and potential return. See id. at
24174.
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The Exchange also states that retail shareholder participation in
annual meetings is limited and the current annual shareholder meeting
requirement provides opportunities for concentrated minority
shareholders to wield disproportionate influence over CEFs.\24\ In
addition, the Exchange states that removing the annual shareholder
meeting requirement would enhance investor protection by preventing the
exploitation of retail shareholder non-participation at annual meetings
and reducing opportunities for minority interests to change a fund's
established investment approach.\25\ The Exchange further states that
removing the annual shareholder meeting requirement will facilitate
capital formation by bringing more CEFs to the public market and will
reduce operational costs for CEFs.\26\
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\24\ See id. at 24175.
\25\ See id. at 24176.
\26\ See id. at 24175, 24176.
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Finally, the Exchange states that its proposal will preserve
existing CEF shareholders' rights because the proposal only applies to
CEFs listed as of or after May 20, 2025.\27\ The Exchange also states
that CEFs listed as of or after May 20, 2025 would retain the
flexibility to voluntarily incorporate annual meeting provisions into
their organizational bylaws should they elect to do so.\28\
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\27\ See id. at 24175. According to the Exchange, a CEF listed
as of or after May 20, 2025 would not be required to hold an annual
meeting until one year after its first fiscal year-end following
listing, which would be after the Commission's final decision on
this proposal. See id. The Exchange states that it believes that
applying the proposed exemption to the annual shareholder meeting
requirement to CEFs listed as of or after May 20, 2025 would provide
potential benefits without requiring funds to delay listing or
undergo a merger or reorganization after adoption of the proposal.
See id.
\28\ See id. at 24176.
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The Commission received comments supporting the proposal.\29\ One
commenter stated that CEFs are investment vehicles that allow retail
investors to access the private equity markets while still being
afforded protections under the 1940 Act.\30\ Because these products are
not designed to provide for daily investor redemptions, managers are
able to fully invest in an underlying investment strategy that may
focus on less liquid investments.\31\ This commenter stated that
certain shareholders have engaged in practices that undermine these
purposes, and that removing the annual shareholder meeting for CEFs
would eliminate the ability of such shareholders to use annual
shareholder meetings as a means to take over funds.\32\ This commenter
also stated that certain investors exploit the current annual
shareholder meeting requirement for their own gain--for example, by
forcing a liquidity event and then exiting their position, but not
focusing on any change to governance.\33\
[[Page 42994]]
This commenter further stated that removing the annual shareholder
meeting requirement would hamper the ability of certain shareholders to
engage in activity that prevents the capital formation of products.\34\
This commenter also stated that exempting CEFs from the requirement to
hold annual shareholder meetings would remove ``a key disincentive'' to
listing new CEFs by protecting them from such actors.\35\
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\29\ See Letters from Paul G. Cellupica, General Counsel, and
Kevin Ercoline, Assistant General Counsel, Investment Company
Institute (``ICI''), dated June 27, 2025 (``ICI Letter''); James P.
McKay, dated July 22, 2025 (``McKay Letter''); and David Young,
dated July 25, 2025 (``Young Letter'').
\30\ See ICI Letter at 3. This commenter stated that it provided
data that it believes demonstrates that retail investors often buy
shares of listed CEFs at a discount and reinvest dividends when CEFs
continue to trade at a discount, showing that some shareholders buy
and hold shares of listed CEFs for the yield and distributions as
opposed to any future opportunity to exit at NAV. See id. at 8
(citing Letter from Paul G. Cellupica, General Counsel, and Kevin
Ercoline, Assistant General Counsel, ICI, dated Nov. 5, 2024, at 3-5
(``2024 ICI Letter'')).
\31\ See ICI Letter at 3.
\32\ See id. at 4. See also id. at 8-9 (citing 2024 ICI Letter,
which discussed data concerning shareholder engagement and
shareholder activism, and citing Letter from Paul G. Cellupica,
General Counsel, Kevin Ercoline, Assistant General Counsel, and
Shelly Antoniewicz, Chief Economist, ICI, dated Jan. 24, 2025, which
discussed prior academic literature on shareholder activism).
Another commenter that supports the proposal stated that large
minority investors liquidate CEFs at low prices, thwarting his
investment strategy to hold the CEF as a long-term investment. See
McKay Letter.
\33\ See ICI Letter at 5. See also Young Letter (stating that
certain investors hurt CEFs' value to realize short-term profits, at
the expense of long-term shareholders).
\34\ See ICI Letter at 4.
\35\ See id. This commenter stated that the campaigns of certain
minority activists have negatively impacted the market for CEF IPOs,
noting that no CEFs launched in 2023, only three launched in 2024,
and none have launched yet in 2025, as compared to the rates of
launches for other products that do not require an annual
shareholder meeting requirement (e.g., 518 ETFs launched in 2023 and
757 launched in 2024). See id. at 3.
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This commenter also stated that if a CEF chose not to hold annual
shareholder meetings it would still have protections as provided in the
1940 Act (e.g., independent directors who would maintain their
fiduciary duty to monitor discounts and direct changes).\36\ This
commenter further stated that exempting CEFs from the Exchange's annual
shareholder meeting requirement would allow the decision regarding
whether to hold such a meeting to be determined by state law and the
CEF's organizational documents.\37\ In addition, this commenter stated
that because the exemption from the requirement to hold annual
shareholder meetings would only be available to new funds that do not
yet have shareholders, no existing ``right'' to a meeting would be
taken away under the proposal.\38\ This commenter stated that a CEF
registered after May 20, 2025 would still have the ability to preserve
the right to an annual shareholder meeting in its by-laws if it
determines that retail shareholders value that right.\39\
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\36\ See id. at 6.
\37\ See id. at 5-6.
\38\ See id. at 6.
\39\ See id. at 2.
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The Commission also received comments opposing the proposal.\40\
Comment letters from individuals opposing the proposal generally
requested that the Commission not allow their voting rights to be taken
away and stated that annual shareholder meetings are necessary to hold
managers accountable so that CEFs are not devalued.\41\ One commenter
stated that the historical backdrop of the adoption of the 1940 Act,
when at the time an annual meeting was required by every state's laws,
makes clear that Congress never contemplated elimination of an annual
shareholder meeting for CEFs, regardless of the other shareholder
protections set forth in the 1940 Act.\42\ Other commenters stated that
CEFs are different from other registered investment companies,
including ETFs listed on the Exchange, which are not required to hold
annual shareholder meetings.\43\ In particular, commenters stated that,
unlike ETFs which trade at or near their NAV, CEFs commonly trade at
significant discounts to their NAV, meaning that CEF shareholders
cannot trade out of their shares if they are dissatisfied with
management without incurring large losses.\44\ Several commenters
stated that annual shareholder meetings are essential in order to hold
the directors of CEFs accountable and that, without this
accountability, boards will be less responsive to shareholder concerns
and discounts to NAV will widen.\45\ Other commenters stated that
although the Exchange contends that the proposal will not affect
shareholders of CEFs listed as of or after May 20, 2025, existing CEFs
will just merge or reorganize into new CEFs in order to be exempt from
the annual shareholder meeting requirements.\46\
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\40\ See, e.g., Letters from Michael D'Angelo, Saba Capital
Management, LP, dated June 27, 2025 (``Saba Letter''); Phillip
Goldstein, Managing Partner, Bulldog Investors LLP, dated July 5,
2025 (``Bulldog Letter''); Gabi Gliksberg, ATG Capital Management
LLC, dated June 27, 2025 (``ATG Letter''); Hank Krakover, SLK
Private Wealth, dated July 8, 2025 (``SLK Letter''); Ben Brostoff,
dated July 4, 2025 (``Brostoff Letter''); James Ritchie,
CorpGov.net, dated July 7, 2025 (``CorpGov.net Letter''); Kenneth
Chance, dated July 8, 2025 (``Chance Letter''); Tom Kerr, dated July
10, 2025 (``Kerr Letter'').
\41\ See, e.g., Brostoff Letter; Chance Letter; Kerr Letter;
Letters from Daniel Lippincott, President and Chief Investment
Officer, Karpus Investment Management, dated July 18, 2025 (``Karpus
Letter''); Bernard Haven, dated July 22, 2025 (``Haven Letter'').
\42\ See Bulldog Letter. See also CorpGov.net Letter; Letter
from Devin Hanrahan, dated July 23, 2025 (``Hanarahan Letter'').
\43\ See, e.g., Saba Letter at 6-7; Karpus Letter; Haven Letter.
\44\ See, e.g., Saba Letter at 6-7; Karpus Letter; Haven Letter.
\45\ See, e.g., ATG Letter at 1; SLK Letter; Hanrahan Letter.
See also Saba Letter at 8-9. One commenter referenced letters from
academics on a prior iteration of proposal that, among other things,
discussed data on the costs of director entrenchment, reasons CEFs
trade at NAV discounts, and shareholder activism. See Saba Letter at
9 (citing Letters from Profs. Lucian A. Bebchuk, Harvard School of
Law, and Robert J. Jackson, Jr., NYU School of Law, dated July 30,
2024; Profs. Daniel J. Taylor, The Wharton School, Edwin Hu,
University of Virginia Law School, Shiva Rajgopal, Columbia Business
School, Robert E. Bishop, Duke School of Law, Bradford Levy, Chicago
Booth School of Business, and Jonathon Zytnick, Georgetown
University Law Center, on behalf of the Working Group on Market
Efficiency and Investor Protection in Closed-End Funds, dated July
30, 2024; Prof. Robert J. Jackson, Jr., dated Nov. 14, 2024).
\46\ See, e.g. Saba Letter at 1-2; Letter from Timothy Fischer,
dated July 24, 2025. See also Saba Letter at 3-6.
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The Commission has concerns about whether BZX's proposal to exempt
CEFs listed on the Exchange as of or after May 20, 2025 from the annual
shareholder meeting requirement set forth in BZX Rule 14.10(f) is
designed to protect investors and the public interest, as required by
Section 6(b)(5) of the Exchange Act.\47\ Although BZX's rules provide a
similar exemption for ETFs listed on the Exchange,\48\ there are
important differences between CEFs and ETFs. Shares of CEFs often trade
at prices that are less than, or at a ``discount'' to, the funds' NAV
per share. In contrast, while ETFs may trade at a discount, it is often
to a much lesser degree than CEFs.\49\ The Exchange states that
eliminating the annual shareholder meeting requirement would not
undermine investor protection because the tendency for CEFs to trade at
NAV discounts represents an operational characteristic that investors
recognize and frequently leverage strategically.\50\ However, certain
commenters disagree and state that shareholders of CEFs may have an
interest in expressing their views at annual shareholder meetings in
order to hold CEF managers accountable, particularly because CEF
shareholders may not be able to trade out of their positions without
incurring losses.\51\ As a result, the Commission believes there may be
investor protection concerns for CEF shareholders with respect to
eliminating the right to an annual shareholder meeting that may not be
present for shareholders of ETFs listed on the Exchange.
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\47\ 15 U.S.C. 78f(b)(5).
\48\ See BZX ETF Filing, supra note 22.
\49\ See Securities Act Release No. 10695, Investment Company
Act Release No. 33646, S7-15-18 (Sept. 25, 2019), 84 FR 57162, 57165
(Oct. 24, 2019) (Exchange-Traded Funds Final Rule) (``The
combination of the creation and redemption process with secondary
market trading in ETF shares and underlying securities provides
arbitrage opportunities that are designed to help keep the market
price of ETF shares at or close to the NAV per share of the ETF.'').
See also supra note 22.
\50\ See supra note 23 and accompanying text.
\51\ See supra notes 44-45 and accompanying text.
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In addition, while the Exchange states that the proposal would
maintain existing voting rights for shareholders in established CEFs
because it would only be applicable to CEFs listed on the Exchange as
of or after May 20, 2025,\52\ the Exchange's proposal also provides
that an existing CEF that merges or reorganizes into a new CEF would
not constitute a listing transfer for purposes
[[Page 42995]]
of BZX Rule 14.10. Thus, any CEF previously listed on another exchange
prior to May 20, 2025 that mergers or reorganizes into a new CEF listed
on the Exchange would be exempt from the Exchange's annual shareholder
meeting requirement. Similarly, a CEF listed on BZX would be able to
merge or reorganize into a new CEF that is not subject to the annual
shareholder meeting requirement. As a result, the proposal could allow
for the elimination of the rights of existing CEF shareholders to
engage management at an annual shareholder meeting, a right which a
shareholder may have relied on when purchasing the CEF shares and which
may be particularly important to existing shareholders given the
tendency of CEF shares to trade at a discount to NAV. The Exchange has
not addressed how this potential elimination of the rights of existing
shareholders is consistent with the protection of investors and the
public interest, as required by Section 6(b)(5) of the Exchange Act.
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\52\ See supra note 27 and accompanying text.
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The Commission also has concerns about whether the application of
the proposal to CEFs that list on the Exchange after the date of filing
of this proposed rule change (i.e., May 20, 2025) but before Commission
action on the proposal is consistent with the protection of investors
under Section 6(b)(5) of the Exchange Act because whether such CEFs
would be subject to an annual shareholder meeting requirement may be
unknown at the time that shareholders purchase the CEF shares.
As a result, the Commission believes there are questions as to
whether the proposal is consistent with Section 6(b)(5) of the Exchange
Act \53\ and its requirement, among other things, that the rules of a
national securities exchange be designed to protect investors and the
public interest. For this reason, it is appropriate to institute
proceedings pursuant to Section 19(b)(2)(B) of the Exchange Act \54\ to
determine whether the proposal should be approved or disapproved.
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\53\ 15 U.S.C. 78f(b)(5).
\54\ 15 U.S.C. 78s(b)(2)(B).
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IV. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their data, views, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposed rule change
is consistent with Section 6(b)(5) of the Exchange Act \55\ or any
other provision of the Exchange Act, or the rules and regulations
thereunder. Although there do not appear to be any issues relevant to
approval or disapproval that would be facilitated by an oral
presentation of data, views, and arguments, the Commission will
consider, pursuant to Rule 19b-4 under the Exchange Act,\56\ any
request for an opportunity to make an oral presentation.\57\
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\55\ 15 U.S.C. 78f(b)(5).
\56\ 17 CFR 240.19b-4.
\57\ Section 19(b)(2) of the Exchange Act, as amended by the
Securities Acts Amendments of 1975, Public Law 94-29 (June 4, 1975),
grants to the Commission flexibility to determine what type of
proceeding--either oral or notice and opportunity for written
comments--is appropriate for consideration of a particular proposal
by a self-regulatory organization. See Securities Acts Amendments of
1975, Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No.
75, 94th Cong., 1st Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change should be approved
or disapproved by September 26, 2025. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
October 10, 2025. The Commission asks that commenters address the
sufficiency of the Exchange's statements in support of the proposal, in
addition to any other comments they may wish to submit about the
proposed rule change. 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 filing 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 September 26, 2025. Rebuttal comments should be submitted
by October 10, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\58\
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\58\ 17 CFR 200.30-3(a)(57).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-17003 Filed 9-4-25; 8:45 am]
BILLING CODE 8011-01-P