[Federal Register Volume 90, Number 176 (Monday, September 15, 2025)]
[Notices]
[Pages 44425-44429]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-17723]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103931; File No. SR-NYSE-2025-20]
Self-Regulatory Organizations; New York Stock Exchange LLC; Order
Instituting Proceedings To Determine Whether To Approve or Disapprove a
Proposed Rule Change Amending Section 302.00 of the NYSE Listed Company
Manual To Exempt Closed-End Funds Registered Under the Investment
Company Act of 1940 From the Requirement To Hold Annual Shareholder
Meetings
September 10, 2025.
I. Introduction
On June 6, 2025, the New York Stock Exchange LLC (``NYSE'' 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 amend Section 302.00 of the
NYSE Listed Company Manual (``Manual'') to exempt closed-end funds
registered under the Investment Company Act of 1940 (``1940 Act'') \3\
from the requirement to hold annual shareholder meetings. The proposed
rule change was published for comment in the Federal Register on June
17, 2025.\4\ On July 25, 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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\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. 103244 (June 12,
2025), 90 FR 25659 (``Notice''). Comments on the proposed rule
change are available at: https://www.sec.gov/comments/sr-nyse-2025-20/srnyse202520.htm.
\5\ 15 U.S.C. 78s(b)(2).
\6\ See Securities Exchange Act Release No. 103549, 90 FR 35946
(July 30, 2025). The Commission designated September 15, 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
Section 102.04A of the Manual sets forth listing requirements for
closed-end management investment companies registered under the 1940
Act (``CEFs''). Section 302.00 of the Manual (``Section 302.00'')
provides that companies listing common stock or voting preferred stock
and their equivalents are required to hold an annual shareholders'
meeting for the holders of such securities during each fiscal year.
Section 302.00 also sets forth certain exemptions from this annual
shareholder meeting requirement.\8\ CEFs listed on the Exchange are
currently required to comply with the Section 302.00 annual shareholder
meeting requirement and are not subject to an exemption. The Exchange
proposes to amend Section 302.00 to exempt CEFs listed under Section
102.04A of the Manual that initially list on the Exchange after the
date of approval of this proposal from the requirement to hold an
annual shareholder meeting.\9\ The Exchange states that any CEF listed
prior to approval of the proposal would remain subject to the
Exchange's annual shareholder meeting requirement.\10\ The Exchange
states that an existing CEF that merges or reorganizes into a new CEF
will be subject to the by-laws and listing standards applicable to the
new fund.\11\
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\8\ Specifically, Section 302.00 exempts from this requirement
companies whose only securities listed on the Exchange are non-
voting preferred and debt securities, passive business organizations
(such as royalty trusts), or securities listed pursuant to NYSE Rule
5.2(j)(2) (Equity Linked Notes), Rule 5.2(j)(3) (Investment Company
Units), Rule 5.2(j)(4) (Index-Linked Exchangeable Notes), Rule
5.2(j)(5) (Equity Gold Shares), Rule 5.2(j)(6) (Equity-Index Linked
Securities, Commodity-Linked Securities, Currency-Linked Securities,
Fixed Income Index-Linked Securities, Futures-Linked Securities and
Multifactor Index-Linked Securities), Rule 5.2(j)(8) (Exchange-
Traded Fund Shares), Rule 8.100 (Portfolio Depositary Receipts),
Rule 8.200 (Trust Issued Receipts), Rule 8.201 (Commodity-Based
Trust Shares), Rule 8.202 (Currency Trust Shares), Rule 8.203
(Commodity Index Trust Shares), Rule 8.204 (Commodity Futures Trust
Shares), Rule 8.300 (Partnership Units), Rule 8.400 (Paired Trust
Shares), Rule 8.600 (Managed Fund Shares), Rule 8.601 (Active Proxy
Portfolio Shares), Rule 8.700 (Managed Trust Securities), and Rule
8.900 (Managed Portfolio Shares).
\9\ The Exchange lists closed-end management investment
companies that have filed an election to be treated as a business
development company under the 1940 Act (``BDCs'') under Section
102.04B of the Manual. The Exchange is not proposing to exempt BDCs
listed under Section 102.04B of the Manual from the annual
shareholder meeting requirement set forth in Section 302.00. See
Notice, supra note 4, at 25660.
\10\ See id.
\11\ See id. at 25662 n.36.
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III. Proceedings To Determine Whether To Approve or Disapprove SR-NYSE-
2025-20 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
[[Page 44426]]
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
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 Section 302.00.\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 there are
significant statutory protections under the 1940 Act provided to the
shareholders of CEFs, for which there are no parallel legal protections
for shareholders of public operating companies, and that these
protections justify exempting listed CEFs from the Exchange's annual
shareholder meeting requirement.\21\ Specifically, the shareholder
protections applicable to CEFs include requirements with respect to the
election of directors by CEF shareholders, a requirement that directors
who are not ``interested persons'' \22\ comprise at least 40% of the
board, requirements that certain specified material matters be approved
by a majority of the directors who are not ``interested persons,'' and
requirements that certain specified material matters be approved by the
shareholders.\23\
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\21\ See Notice, supra note 4, at 25660-61.
\22\ The term ``interested person'' is defined in Section
2(a)(19) of the 1940 Act, 15 U.S.C. 80a-2(a)(19).
\23\ See Notice, supra note 4, at 25660-61.
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The Exchange also states that all other categories of investment
companies for which the Exchange has listing standards are already
exempt from the annual shareholder meeting
[[Page 44427]]
requirement of Section 302.00.\24\ According to the Exchange, the
tendency for CEFs to trade at a discount to NAV represents an
``operational characteristic, rather than a flaw of the listed CEF
structure'' that many investors recognize as buying opportunities, and
investors purchasing and reinverting in CEFs indicates that many
shareholders invest in CEFs primarily for yield and distributions
rather than any expectation of exiting at NAV.\25\ The Exchange also
states that the annual shareholder meeting requirement is superfluous
for any discount management reason because independent directors, which
CEFs are required to have under the 1940 Act, oversee discounts and can
enact changes to address such discounts, if necessary.\26\
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\24\ See id. at 25661. When justifying its prior proposal to
exempt ETFs listed on the Exchange from the annual shareholder
meeting requirement of Section 302.00, the Exchange stated, among
other things, that the net asset value (``NAV'') of such products is
determined by the market price of each fund's underlying securities
or other reference asset; and that because shareholders can value
their investments in such products on an ongoing basis, the Exchange
believes that there is less need for such shareholders to engage
management at an annual meeting. See Securities Exchange Act Release
No. 85889 (May 17, 2019), 84 FR 23815, 23816 (May 23, 2019) (SR-
NYSE-2019-20) (Notice of Filing of 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). See also NYSE 2019 Order at
35432.
\25\ See Notice, supra note 4, at 25661. 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 for
many investors these discounts represent buying opportunities that
allow investors to acquire shares or reinvest dividends below NAV,
thereby boosting their dividend yield and potential return. See id.
\26\ See id.
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The Exchange states that eliminating the annual shareholder meeting
requirement would not significantly disadvantage retail shareholders,
as retail shareholder participation in annual meetings is limited and,
when retail shareholders do participate, they typically endorse the
CEF's current investment approach, management team, and board
structure.\27\ In addition, the Exchange states that removing the
annual shareholder meeting requirement for newly-listed CEFs will
remove the opportunity for concentrated minority shareholders to wield
disproportionate influence over CEFs and will facilitate capital
formation by bringing more CEFs to the public market.\28\
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\27\ See id. (citing Letter from Paul G. Cellupica, General
Counsel, and Kevin Ercoline, Assistant General Counsel, Investment
Company Institute (``ICI'') dated Oct. 31, 2024, regarding SR-NYSE-
2024-35, available at https://www.sec.gov/comments/sr-nyse-2024-35/srnyse202435-536435-1537902.pdf.)
\28\ See id.
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Finally, the Exchange states that its proposal will ensure that no
existing CEF shareholders lose any voting privileges they currently
possess because the proposal only applies to CEFs listed after approval
of the proposed rule change.\29\ The Exchange states that CEFs listed
after approval of the proposed rule change would retain the flexibility
to voluntarily incorporate annual meeting provisions into their
organizational bylaws should they elect to do so.\30\
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\29\ See id. at 25662.
\30\ See id.
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The Commission received comments supporting the proposal.\31\ 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.\32\ 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.\33\ 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.\34\ 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.\35\ 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.\36\ 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.\37\
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\31\ See Letters from Paul G. Cellupica, General Counsel, and
Kevin Ercoline, Assistant General Counsel, Investment Company
Institute (``ICI''), dated July 8, 2025 (``ICI Letter''); James P.
McKay, dated July 22, 2025 (``McKay Letter''); and David Young,
dated July 25, 2025 (``Young Letter'').
\32\ 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 9
(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'')).
\33\ See ICI Letter at 3.
\34\ See id. at 4. See also id. at 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.
\35\ 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).
\36\ See ICI Letter at 4.
\37\ See id. at 4-5. 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 4.
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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).\38\ 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.\39\ 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.\40\ This commenter stated that a CEF
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.\41\
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\38\ See id. at 6.
\39\ See id.
\40\ See id. at 7.
\41\ See id. at 3.
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The Commission also received comments opposing the proposal.\42\
[[Page 44428]]
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.\43\ One commenter
stated that the annual shareholder meeting requirement facilitates
transparency and promotes the protection of investors and the public
interest, and that the Exchange has not demonstrated ``how this
fundamental shareholder right . . . fails to ultimately protect
investors.'' \44\ Another 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.\45\ One commenter stated that the safeguards in the 1940 Act
complement, but do not replace, a shareholder's right to participate in
the election of directors.\46\
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\42\ 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 July 3, 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''); James Elbaor, Managing Partner, Marlton LLC,
dated July 23, 2025 (``Marlton Letter'').
\43\ 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'').
\44\ Marlton Letter at 2.
\45\ See Bulldog Letter. See also CorpGov.net Letter.
\46\ See Marlton Letter at 2-3 (``[w]hile such [1940 Act]
provisions and safeguards address specific potential conflicts and
fund-specific issues, annual meetings address the fundamental need
for shareholder oversight and director accountability'').
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Several 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.\47\ 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.\48\
Commenters also 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.\49\
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\47\ See, e.g., Saba Letter at 6-7; Karpus Letter; Haven Letter;
Marlton Letter at 3.
\48\ See, e.g., Saba Letter at 6-7; Karpus Letter; Haven Letter;
Marlton Letter at 3 (``[u]nlike ETF shareholders who more readily
may `vote with their feet' because of their ability to continuously
redeem shares at or close to NAV, CEF shareholders `vote with their
voice' via critically important annual shareholder meetings'').
\49\ See, e.g., ATG Letter at 1; SLK Letter; Letter from Devin
Hanrahan, dated July 23, 2025. See also Saba Letter at 8-9; Marlton
Letter at 5 (stating that action by concentrated minority
shareholders to bring change is ``an important counterweight'' when
advisers or boards are unwilling or unable to address issues with
CEFs that persistently trade at deep discounts or underperform). 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).
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One commenter explained that without annual shareholder meetings,
shareholders cannot avail themselves of the shareholder proposal
process provided for in Rule 14a-8 of the Exchange Act \50\ because
shareholders cannot submit proposals if there is no shareholder meeting
at which to present them.\51\ In turn, the commenter stated, if Rule
14a-8 becomes moot, shareholders would also lose their right provided
for in Section 15(a)(3) of the 1940 Act \52\ to approve and terminate
investment advisory agreements because such proposals are typically
submitted as Rule 14a-8 proposals or as business at an annual
shareholder meeting.\53\
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\50\ 17 CFR 240.14a-8. Rule 14a-8 requires companies that are
subject to the federal proxy rules to include shareholder proposals
in companies' proxy statements, subject to certain procedural and
substantive requirements.
\51\ See Marlton Letter at 3.
\52\ 15 U.S.C. 80a-15.
\53\ See Marlton Letter at 3.
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Commenters also stated that although the Exchange contends that the
proposal will not affect shareholders of existing CEFs, existing CEFs
will just merge or reorganize into new CEFs in order to be exempt from
the annual shareholder meeting requirements.\54\ One commenter stated
that the proposal fails to justify why one group of investors (those
that invested in CEFs after approval of the proposal) should be
entitled to fewer rights than other group of investors (those that
invested in CEFs prior to approval of the proposal).\55\
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\54\ See, e.g. Saba Letter at 1-2; Marlton Letter at 4; Letter
from Timothy Fischer, dated July 24, 2025. See also Saba Letter at
3-6.
\55\ See Marlton Letter at 4.
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The Commission has concerns about whether NYSE's proposal to exempt
CEFs that are listed on the Exchange after approval of the proposed
rule change from the annual shareholder meeting requirement set forth
in Section 302.00 of the Manual is designed to protect investors and
the public interest, as required by Section 6(b)(5) of the Exchange
Act.\56\ Although NYSE's rules provide a similar exemption for ETFs
listed on the Exchange,\57\ 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.\58\ The Exchange states that the tendency for CEFs to trade at a
discount to NAV represents an operational characteristic of CEFs, that
shareholders invest in CEFs primarily for yield and distributions
rather than any expectation of exiting at NAV, and that, in any case,
the annual meeting requirement is superfluous for discount management
because independent directors will address such discounts, if
necessary.\59\ 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.\60\ 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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\56\ 15 U.S.C. 78f(b)(5).
\57\ See NYSE 2019 Order, supra note 17.
\58\ 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 23.
\59\ See supra notes 24-25 and accompanying text.
\60\ See supra notes 48-49 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
after approval of its proposed rule change,\61\ the Exchange also
states that an existing CEF that merges or reorganizes into a new CEF
will be subject to the by-laws and listing standards applicable to the
new fund.\62\
[[Page 44429]]
Thus, any CEF listed on NYSE or another exchange prior to approval of
the proposed rule that merges or reorganizes into a new CEF listed on
NYSE following approval of the proposed rule change would be exempt
from the Exchange's 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.\63\
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\61\ See supra note 28 and accompanying text.
\62\ See supra note 11 and accompanying text.
\63\ 15 U.S.C. 78f(b)(5).
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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 \64\ 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 \65\ to
determine whether the proposal should be approved or disapproved.
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\64\ Id.
\65\ 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 \66\ 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,\67\ any
request for an opportunity to make an oral presentation.\68\
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\66\ 15 U.S.C. 78f(b)(5).
\67\ 17 CFR 240.19b-4.
\68\ 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 October 6, 2025. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
October 20, 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-NYSE-2025-20 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-NYSE-2025-20. 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-NYSE-2025-20 and should be submitted on
or before October 6, 2025. Rebuttal comments should be submitted by
October 20, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\69\
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\69\ 17 CFR 200.30-3(a)(57).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-17723 Filed 9-12-25; 8:45 am]
BILLING CODE 8011-01-P