[Federal Register Volume 85, Number 133 (Friday, July 10, 2020)]
[Notices]
[Pages 41640-41644]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-14744]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89219; File No. SR-NYSE-2020-58]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Extend Its Waiver of the Application of Certain of the Shareholder
Approval Requirements in Section 312.03 of the NYSE Listed Company
Manual Through September 30, 2020 Subject to Certain Conditions
July 2, 2020.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on June 30, 2020, New York Stock Exchange LLC (``NYSE'' or
the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in
[[Page 41641]]
Items I and II below, which Items have been prepared by the self-
regulatory organization. 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\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to extend through and including September 30,
2020 its waiver, subject to certain conditions, of the application of
certain of the shareholder approval requirements set forth in Section
312.03 of the NYSE Listed Company Manual (``Manual''). The proposed
rule change is available on the Exchange's website at www.nyse.com, at
the principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
Pursuant to an earlier proposed rule change,\4\ the Exchange waived
through and including June 30, 2020, subject to certain conditions,
certain of the shareholder approval requirements set forth in Section
312.03 of the Manual (the ``Waiver''). The Exchange now proposes to
extend the Waiver through and including September 30, 2020.
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\4\ See Securities Exchange Act Release No. 34-88572 (April 6,
2020); 85 FR 20323 (April 10, 2020) (SR-NYSE-2020-30).
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The U.S. and global economies have experienced unprecedented
disruption as a result of the ongoing spread of COVID-19, including
severe limitations on companies' ability to operate their businesses,
volatility in the U.S. and global equity markets, and disruption in the
credit and capital markets. The Exchange implemented the Waiver because
it believed that it was likely that many listed companies would have
urgent liquidity needs during this crisis period due to lost revenues
and maturing debt obligations. In those circumstances, the Exchange
believed that listed companies would need to access additional capital
that might not be available in the public equity or credit markets.
Since the implementation of the Waiver a number of listed companies
have completed capital raising transactions that would not have been
possible without the flexibility provided by the Waiver. While equity
indices have recovered from much of the decline initially associated
with the COVID-19 crisis, ongoing economic disruption and uncertainty
associated with the pandemic have caused many listed companies to
continue to face circumstances in which their businesses and revenues
are severely curtailed. Such companies continue to experience
difficulty in accessing liquidity from the public markets.
Consequently, the Exchange believes it is appropriate to extend the
application of the Waiver for an additional period through and
including September 30, 2020, to provide more flexibility to listed
companies that need to access capital in the current unusual economic
conditions.
Section 312.03 of the Manual, which requires listed companies to
acquire shareholder approval prior to certain kinds of equity
issuances, imposes significant limitations on the ability of a listed
company to engage in the sort of large private placement transaction
described above. The most important limitations are as follows:
Issuance to a Related Party.
Subject to an exception for early stage companies set forth
therein, Section 312.03(b) of the Manual requires shareholder approval
of any issuance to a director, officer or substantial security holder
\5\ of the company (each a ``Related Party'') or to an affiliate of a
Related Party \6\ if the number of shares of common stock to be issued,
or if the number of shares of common stock into which the securities
may be convertible or exercisable, exceeds either 1% of the number of
shares of common stock or 1% of the voting power outstanding before the
issuance. A limited exception permits cash sales to Related Parties and
their affiliates that meet a market price test set forth in the rule
(the ``Minimum Price'') \7\ and that relate to no more than 5% of the
company's outstanding common stock. However, this exception may only be
used if the Related Party in question has Related Party status solely
because it is a substantial security holder of the company.
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\5\ For purposes of Section 312.03(b), Section 312.04(e)
provides that: ``An interest consisting of less than either five
percent of the number of shares of common stock or five percent of
the voting power outstanding of a company or entity shall not be
considered a substantial interest or cause the holder of such an
interest to be regarded as a substantial security holder.''
\6\ Under Section 312.03 of the Manual, a ``Related Party''
includes ``(1) a director, officer or substantial security holder of
the company (each a ``Related Party''); (2) a subsidiary, affiliate
or other closely-related person of a Related Party; or (3) any
company or entity in which a Related Party has a substantial direct
or indirect interest;''.
\7\ Section 312.04(i) defines the ``Minimum Price'' as follows:
``Minimum Price'' means a price that is the lower of: (i) The
Official Closing Price immediately preceding the signing of the
binding agreement; or (ii) the average Official Closing Price for
the five trading days immediately preceding the signing of the
binding agreement.
Section 312.04(j) defines ``Official Closing Price'' as follows:
``Official Closing Price'' of the issuer's common stock means the
official closing price on the Exchange as reported to the
Consolidated Tape immediately preceding the signing of a binding
agreement to issue the securities. For example, if the transaction
is signed after the close of the regular session at 4:00 p.m.
Eastern Standard Time on a Tuesday, then Tuesday's official closing
price is used. If the transaction is signed at any time between the
close of the regular session on Monday and the close if the regular
session on Tuesday, then Monday's official closing price is used.
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Transactions of 20% of More. Section 312.03(c) of the
Manual requires shareholder approval of any transaction relating to 20%
or more of the company's outstanding common stock or 20% of the voting
power outstanding before such issuance other than a public offering for
cash. Section 312.03(c) includes an exception for transactions
involving a cash sale of the company's securities that comply with the
Minimum Price requirement and also meet the following definition of a
``bona fide private financing,'' as set forth in Section 312.04(g):
``Bona fide private financing'' refers to a sale in which either:
[cir] a registered broker-dealer purchases the securities from the
issuer with a view to the private sale of such securities to one or
more purchasers; or
[cir] the issuer sells the securities to multiple purchasers, and
no one such purchaser, or group of related purchasers, acquires, or has
the right to acquire upon exercise or conversion of the securities,
more than five percent of the shares of the issuer's common stock or
more than five percent of the issuer's voting power before the sale.''
The Exchange expects that it will continue to be the case that
certain companies during the course of the ongoing unusual economic
conditions will urgently need to obtain new capital by selling equity
securities in private placements.
In many cases, such transactions may involve sales to existing
investors in the
[[Page 41642]]
company or their affiliates that would exceed the applicable 1% and 5%
limits of Section 312.03(b). Given the ongoing economic disruption
associated with the COVID-19 pandemic, the Exchange proposes to
continue its partial waiver of the application of Section 312.03(b) for
the period as of the date of this filing through and including
September 30, 2020, with the Waiver specifically limited to
transactions that involve the sale of the company's securities for cash
at a price that meets the Minimum Price requirement as set forth in
Section 312.04.\8\ In addition, to qualify for the Waiver, a
transaction must be reviewed and approved by the company's audit
committee or a comparable committee comprised solely of independent
directors.
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\8\ See supra note 7.
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This Waiver will continue to not be applicable to any transaction
involving the stock or assets of another company where any director,
officer or substantial security holder of the company has a 5% or
greater interest (or such persons collectively have a 10% or greater
interest), directly or indirectly, in the company or assets to be
acquired or in the consideration to be paid in the transaction or
series of related transactions and the present or potential issuance of
common stock, or securities convertible into or exercisable for common
stock, could result in an increase in outstanding common shares or
voting power of 5% or more (i.e., a transaction which would require
shareholder approval under NASDAQ Marketplace Rule 5635(a)).
Specifically, the Waiver will continue to not be applicable to a sale
of securities by a listed company to any person subject to the
provisions of Section 312.03(b) in a transaction, or series of
transactions, whose proceeds will be used to fund an acquisition of
stock or assets of another company where such person has a direct or
indirect interest in the company or assets to be acquired or in the
consideration to be paid for such acquisition.
The effect of the extension of the Waiver would be to allow
companies to sell their securities to Related Parties and other persons
subject to Section 312.03(b) \9\ without complying with the numerical
limitations of that rule, as long as the sale is in a cash transaction
that meets the Minimum Price requirement and also meets the other
requirements noted above. As provided by Section 312.03(a), any
transaction benefitting from the proposed waiver will still be subject
to shareholder approval if required under any other applicable rule,
including the equity compensation requirements of Section 303A.08 and
the change of control requirements of Section 312.03(d).
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\9\ See supra note 6.
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Existing large investors are often the only willing providers of
much-needed capital to companies undergoing difficulties and the
Exchange believes that it is appropriate to increase companies'
flexibility to access this source of capital for an additional limited
period. The Exchange notes that, as a result of the extension of the
Waiver, the Exchange's application of Section 312.03(b) will be
consistent with the application of NASDAQ Marketplace Rule 5635(a) \10\
to sales of a listed company's securities to related parties during the
Waiver period.
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\10\ If a company is raising capital through a transaction, or
series of transaction, via the waiver, they cannot use such capital
to fund an acquisition.
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Many private placement transactions under the current market
conditions may also exceed the 20% threshold established by Section
312.03(c). Therefore, given the ongoing economic disruption associated
with the COIVD-19 pandemic, the Exchange also proposes to continue for
the period through and including September 30, 2020, for purposes of
the bona fide financing exception to the 20% requirement, its waiver of
the 5% limitation for any sale to an individual investor in a bona fide
private financing pursuant to Section 312.03(c) and to permit companies
to undertake a bona fide private financing during that period in which
there is only a single purchaser. As provided by Section 312.03(a), any
transaction benefitting from the Waiver will still be subject to
shareholder approval if required under any other applicable rule,
including the equity compensation requirements of Section 303A.08 and
the change of control requirements of Section 312.03(d). Any
transaction benefitting from the Waiver must be a sale of the company's
securities for cash at a price that meets the Minimum Price
requirement.
The effect of the proposed extension of the Waiver would be that a
listed company would be exempt from the shareholder approval
requirement of Section 312.03(c) in relation to a private placement
transaction regardless of its size or the number of participating
investors or the amount of securities purchased by any single investor,
provided that the transaction is a sale of the company's securities for
cash at a price that meets the Minimum Price requirement. If any
purchaser in a transaction benefiting from this waiver is a Related
Party or other person subject to Section 312.03(b), such transaction
must be reviewed and approved by the company's audit committee or a
comparable committee comprised solely of independent directors. The
Exchange notes that, as a result of the proposed extension of the
Waiver, the Exchange's application of Section 312.03(c) will continue
to be consistent during the Waiver period with the application of
NASDAQ Marketplace Rule 5635(c) with respect to private placements
relating to 20% or more of a company's common stock or voting power
outstanding before such transaction.\11\
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\11\ See supra note 10 which also applies to the waivers
available under Section 312.03(c).
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The Exchange notes that these temporary emergency waivers would
simply continue to provide NYSE listed companies with the flexibility
on a temporary emergency basis to consummate transactions without
shareholder approval that would not require shareholder approval under
the rules of the NASDAQ Stock Market, as the specific limitations the
Exchange is proposing to waive do not exist in the applicable NASDAQ
rules.\12\
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\12\ See NASDAQ Marketplace Rule 5635, including specifically
subsections (a) and (c) thereof.
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2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Act,\13\ in general, and furthers the objectives of Section 6(b)(5) of
the Act,\14\ in particular, in that it is 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 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 the
public interest and the interests of investors, and because it is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(5).
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As a result of the economic disruption related to the ongoing
spread of the COVID-19 virus, certain listed companies may experience
urgent liquidity needs that they are unable to meet by raising funds in
the public equity or credit markets. The proposed rule change is
designed to provide temporary relief from certain of the NYSE's
shareholder approval requirements in relation to stock issuances to
provide companies with additional flexibility to raise funds by
[[Page 41643]]
selling equity in private placement transactions during the current
unusual economic conditions provided such transactions meet certain
conditions, such as the Minimum Price as defined in Section 312.04(i).
The proposed waivers are consistent with the protection of investors
because any transaction benefiting from the waivers will not, in the
Exchange's view, be dilutive to the company's existing shareholders as
it will be subject to a minimum market price requirement and because
the audit committee or a comparable committee comprised solely of
independent directors will review and approve any transaction
benefitting from a waiver that involves a Related Party or affiliates
of a Related Party. In addition, as provided by Section 312.03(a), any
transaction benefitting from the proposed waiver will still be subject
to shareholder approval if required under any other applicable rule,
including the equity compensation requirements of Section 303A.08 and
the change of control requirements of Section 312.03(d). All companies
listed on the Exchange would be eligible to take advantage of the
proposed temporary waivers.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change would
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed rule change is
not designed to address any competitive issues but rather is designed
to provide temporary relief from certain of the NYSE's shareholder
approval requirements in relation to stock issuances to provide
companies with additional flexibility to raise funds by selling equity
in private placement transactions during the current unusual economic
conditions. In addition, the proposed waivers will simply temporarily
conform the treatment of transactions benefitting from the waivers to
their treatment under the comparable NASDAQ rules.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \15\ and Rule 19b-4(f)(6) thereunder.\16\
Because the proposed rule change does not: (i) Significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act \17\ and Rule 19b-
4(f)(6)(iii) thereunder.\18\
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\15\ 15 U.S.C. 78s(b)(3)(A)(iii).
\16\ 17 CFR 240.19b-4(f)(6).
\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires the Exchange to give the Commission written notice of the
Exchange's intent to file the proposed rule change, along with a
brief description and text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission. The
Commission has waived the five business day notification requirement
for this proposed rule change.
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A proposed rule change filed under Rule 19b-4(f)(6) \19\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\20\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposal
may become operative immediately upon filing.
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\19\ 17 CFR 240.19b-4(f)(6).
\20\ 17 CFR 240.19b-4(f)(6)(iii).
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The Exchange believes that the Waiver of the operative delay would
be consistent with the protection of investors and the public interest
because, in the Exchange's view, the economic disruption caused by the
global spread of the COVID-19 virus may give rise to companies
experiencing urgent liquidity needs which they may need to meet by
undertaking transactions that would benefit from the proposed relief.
In support of its request to waive the 30-day operative delay, the
Exchange stated, among other things, its belief that the proposed
Waiver does not give rise to any novel investor protection concerns, as
the proposed rule change conforms the NYSE's shareholder approval
requirements temporarily to those of NASDAQ and would not permit any
transactions without shareholder approval that are not permitted on
another exchange. In addition, the Exchange stated that all
transactions utilizing the Waiver would have to satisfy the Minimum
Price requirement contained in the rule and be reviewed and approved by
the issuer's audit committee or comparable committee of the board
comprised entirely of independent directors if any transactions
benefitting from the Waiver involve a Related Party or affiliates of a
Related Party, as described above.\21\ Furthermore, the Exchange has
stated that, as provided by Section 312.04(a) of the Manual, any
transaction benefitting from the proposed Waiver will still be subject
to shareholder approval if required under any other applicable rule,
including the equity compensation requirements of Section 303A.08 of
the Manual and the change of control requirements of Section 312.03(d)
of the Manual. The Exchange also noted that the proposed Waiver is
temporary in nature and will only be applied through and including
September 30, 2020.
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\21\ The Commission notes that, as described in the purpose
section above, all transactions utilizing the Waiver for purposes of
Section 312.03(b) would be subject to review and approval by an
audit committee or comparable body of independent directors. As to
transactions utilizing the temporary Waiver under Section 312.03(c)
all transactions involving Related Parties or other persons subject
to Section 312.03(b), as described above, must be reviewed and
approved by the company's audit committee or a comparable committee
comprised solely of independent directors.
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The Commission notes that the proposed rule change would provide a
temporary waiver of certain shareholder approval requirements under
certain conditions in light of current economic conditions due to
COVID-19. As noted by NYSE, the Waiver is consistent with Nasdaq's
shareholder approval rules and would not permit any transactions
without shareholder approval that is not permitted on another
exchange.\22\ In addition, all transactions utilizing the Waiver would
have to satisfy the Minimum Price requirement which is a market related
price, as defined above.\23\ Further, all transactions subject to the
Waiver that involve Related Parties or affiliates of Related Parties
would have to be approved by the listed company's audit committee or
comparable committee of the board comprised entirely of independent
directors. In addition, the Commission notes that the Waiver of the
shareholder approval provisions only applies to the specific provisions
in Sections 312.03(b) and (c) of the Manual discussed above and any
transaction utilizing the Waiver would still be subject to all other
shareholder approval requirements including, for example, the equity
compensation requirements of Section 303A.08 and
[[Page 41644]]
the change of control requirements of Section 312.03(d). The Commission
also notes that the proposal is a temporary measure designed to allow
companies to raise necessary capital at market related prices without
shareholder approval under the limited conditions discussed above in
response to current, unusual economic conditions. For these reasons,
the Commission believes that waiver of the 30-day operative delay is
consistent with the protections of investors and the public interest.
According, the Commission hereby waives the 30-day operative delay and
designates the proposal operative upon filing.\24\
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\22\ In addition, as noted above, if a company is raising
capital through a transaction, or series of transactions, via the
Waiver, they cannot use such capital to fund an acquisition.
\23\ See supra note 7.
\24\ For purposed only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \25\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\25\ 15 U.S.C. 78s(b)(2)(B).
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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 (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSE-2020-58 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSE-2020-58. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSE-2020-58 and should be submitted on
or before July 31, 2020.
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\26\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-14744 Filed 7-9-20; 8:45 am]
BILLING CODE 8011-01-P