[Federal Register Volume 85, Number 83 (Wednesday, April 29, 2020)]
[Notices]
[Pages 23875-23878]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-09050]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88736; File No. SR-NYSE-2020-38]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Modify Its Application of the Proxy Delivery Requirements of NYSE Rule
451(b)(1) Through and Including May 31, 2020
April 23, 2020.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that on April 23, 2020, New York Stock Exchange LLC (``NYSE'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in 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 modify its application of the proxy
delivery requirements of NYSE Rule 451(b)(1) through and including May
31, 2020. 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
NYSE Rule 452 provides for limited circumstances in which a member
organization may vote shares it holds on behalf of its ``street'' name
customers when the beneficial owner has not provided voting
instructions with respect to certain ``routine'' matters. This ability
on the part of member organizations is subject to certain limitations,
including the requirement of Rule 451(b)(1) that the proxy materials
mailed to beneficial holders include the following disclosure:
A request for voting instructions and, as to matters which may
be voted without instructions under Rule 452, a statement to the
effect that, if such instructions are not received by the tenth day
before the meeting, the proxy may be given at discretion by the
owner of record of the stock; provided, however, that such statement
may be made only when the proxy soliciting material is transmitted
to the beneficial owner of the stock or to the beneficial owner's
designated investment adviser, at least fifteen days before the
meeting. When the proxy soliciting
[[Page 23876]]
material is transmitted to the beneficial owner of the stock or to
the beneficial owner's designated investment adviser twenty-five
days or more before the meeting, the statement accompanying such
material shall be to the effect that the proxy may be given fifteen
days before the meeting at the discretion of the owner of record of
the stock.
The ability of member organizations to vote on ``routine'' matters
serves an important purpose for many public companies. The low level of
voting response from ``street'' name account holders to proxy
solicitations means that it is often difficult for companies to meet
applicable quorum requirements under state law, the company's
constitutive documents or stock exchange rules. However, the ability of
member organizations to vote on routine items in the absence of
beneficial owner proxy voting instructions enables beneficial owners to
be counted as present for quorum purposes for the meeting as a whole
even if they do not submit voting instructions and therefore enables
companies to conduct all required business at their shareholder
meetings. Generally, Rule 452 does not allow member organizations to
vote uninstructed shares on nonroutine matters, so the voting of those
shares by member organizations with respect to routine matters does not
generally affect the outcome of any vote of any importance to the
company and its shareholders, while facilitating the effective conduct
of shareholder meetings.
The Exchange has been made aware that the recent ongoing spread of
the COVID-19 virus throughout the United States and the social
distancing and stay-at-home measures imposed by many state and local
governments has severely disrupted the operations of the primary
intermediary responsible for distributing proxy materials on behalf of
member organizations. The primary intermediary has informed the
Exchange that it is having difficulty in some cases meeting the
specification of Rule 451(b)(1) to transmit proxy materials to
beneficial owners at least 15 days prior to shareholder meetings, due
to delays in receiving the printed materials from issuers for
distribution and also because its own processing times have been slowed
down by reduced staffing levels caused by the disruption associated
with the spread of COVID-19.
The Exchange is concerned about the effect on the ability of
companies to hold shareholder meetings that may arise out of the
current difficulties being experienced in transmitting proxy materials
no later than the 15 days in advance of the meeting specified in Rule
451(b)(1). The Exchange notes that it has been the practice since at
least the 1990s to apply Rule 451(b)(1) on the basis that member
organizations may not vote any uninstructed shares if the mailing of
any of the required physical proxy materials is made later than 15 days
before the meeting, including shares whose beneficial owner opted for
electronic delivery and to whom the materials are transmitted
electronically on a timely basis.\4\ Consequently, many companies may
have difficulty meeting applicable quorum requirements for their
scheduled shareholder meetings.
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\4\ The Exchange understands that proxy materials are delivered
electronically to the beneficial owners of approximately 84% of all
shares and approximately 43% of shares held by retail investors,
according to data provided by the primary intermediary with respect
to the 12 months ended June 30, 2018.
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The primary intermediary has informed the Exchange that it would
need to undertake significant systems development work to be able to
differentiate for voting purposes those shares whose beneficial owners
are sent timely electronic distributions from those shares whose
beneficial owners are sent physical distributions that are mailed fewer
than fifteen days before a shareholder meeting. As this development
work would likely take months to complete, it is not possible during
the upcoming proxy season, occurring during the current crisis, to
allow the voting of uninstructed shares of a company where the
materials are transmitted no later than 15 days in advance of the
meeting and to disallow the voting on uninstructed shares where the
materials were transmitted past that deadline.
To alleviate the problem described above, the Exchange proposes to
modify its application of Rule 451(b)(1) temporarily for shareholder
meetings occurring on or before May 31, 2020. As proposed, the Exchange
would permit member organizations to vote uninstructed shares as long
as proxy materials are transmitted to beneficial owners no later than
10 days prior to the shareholder meeting, rather than the fifteen day
period required by the text of the rule. All of the other requirements
and limitations associated with voting by member organizations would
continue to be applied during this period. The Exchange expects that
best efforts will be made to ensure that transmissions of proxy
materials will continue to be made prior to the fifteenth day before
the meeting whenever possible, either in whole or in part. In
particular, the Exchange expects electronic transmissions of proxy
materials to continue to be made within the normal time frames provided
by the rule.
In order to rely on the proposed relief, the intermediary acting as
agent for the member organization will be required to post prominently
on its website the following disclosures:
that it is experiencing operational challenges as a result
of the disruptive effects of COVID-19 and is therefore experiencing
difficulty in some cases in transmitting proxy materials to beneficial
owners at least 15 days prior to shareholder meeting dates;
as a consequence, it is relying on relief provided by the
NYSE to shorten from 15 days to 10 days the period required under Rule
451(b)(1) that proxy materials must be transmitted to beneficial owners
in order for the member organization to be permitted to vote its
customers' uninstructed shares on routine matters; \5\
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\5\ The intermediary should provide a link on its website to
this filing as posted on nyse.com.
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a list of the companies whose proxy distributions are
affected, including the meeting date and the date on which the
transmission was completed; and
a statement encouraging beneficial owners to submit their
voting instructions through the electronic or telephonic means, if any,
described in the request for voting instructions sent by the member
organization to ensure that such instructions are received in advance
of the shareholder meeting.
While the Exchange believes that the proposed temporary
modification of Rule 451(b)(1) would provide significant relief to
issuers during the ongoing COVID-19 crisis by enabling them to conduct
their shareholder meetings as planned, it does not believe that it
would have a significant effect on the voting right of beneficial
owners or the outcome of any material proposals voted on at those
meetings. First, a high percentage of ``street'' name shareholders of
most public companies elect to receive electronic delivery of proxy
materials and vote by electronic means. The electronic distributions to
those shareholders would not be delayed as a result of the proposed
accommodation. Second, a significant percentage of shareholders who
receive physical distributions of proxy materials and vote, vote
through the internet or by phone,\6\ so the Exchange believes that the
rule as modified would continue to provide adequate time for most
[[Page 23877]]
beneficial owners to review their proxy materials and vote on a timely
basis. The Exchange also notes that Rule 452 generally prohibits member
organizations from voting material matters such as director elections
(other than an uncontested election of a director of an investment
company registered under the Investment Company Act of 1940 (the
``Investment Company Act'')) \7\ and equity compensation plans and that
member organizations can vote only on routine matters such as the
ratification of auditors (which is generally included on a meeting
agenda precisely to ensure the presence of all shares held in brokerage
accounts for quorum purposes).
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\6\ Based on information provided by the primary intermediary
for the 12 months ended December 24, 2019, the Exchange understands
that approximately 30% of the shares owned by retail shareholders
are voted. Of the voted amount, 26% are voted by paper vote
instruction form and 74% are voted by electronic methods including
internet or phone.
\7\ See Rule 452, Supplementary Material .11, subsections (2)
and (19).
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Rule 451(b) provides that the member organization as record holder
may give a proxy to vote shares if the beneficial owner has not
provided voting instructions before the tenth day preceding the
shareholder meeting. However, the number of shares included in the
member organization's proxy is adjusted over the period right up to the
time of the meeting to reflect the ability of beneficial owners to
continue to provide instructions throughout that period. Supplementary
Material .20 to Rule 451 includes forms of letters to be sent to
beneficial owners when soliciting voting instructions. The forms of
letters provided include the following provision:
If we do not hear from you by the tenth day before the meeting,
we may vote your shares in our discretion to the extent permitted by
the rules of the Exchange. If you are unable to communicate with us
by such date, we will, nevertheless follow your voting instructions,
even if our discretionary vote has already been given, provided your
instructions are received prior to the stockholders' meeting.
During the period of the proposed relief from the 15-day
requirement, the forms of letters included in proxy mailings must
clearly emphasize the ability of beneficial owners to provide voting
instructions right up to the time of the meeting.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Act,\8\ in general, and furthers the objectives of Section 6(b)(5) of
the Act,\9\ 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, and to
remove impediments to and perfect the mechanism of a free and open
market and a national market system.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
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The proposed rule change is designed to provide significant relief
to issuers during the ongoing COVID-19 crisis by enabling them to
conduct their shareholder meetings as planned. The Exchange believes
that the proposed rule change is consistent with the protection of
investors because it would not have a significant effect on the voting
rights of beneficial owners or the outcome of any material proposals
voted on at shareholder meetings. The Exchange notes that a high
percentage of ``street'' name shareholders of most public companies
elect to receive electronic delivery of proxy materials and vote by
electronic means. Electronic distributions to those shareholders would
not be delayed as a result of the proposed accommodation. In addition,
a significant percentage of shareholders who receive physical
distributions of proxy materials and vote, vote through the internet or
by phone, so the Exchange believes that the rule as modified would
continue to provide adequate time for beneficial owners to review their
proxy materials and vote on a timely basis. The Exchange also notes
that Rule 452 generally prohibits member organizations from voting
material matters such as director elections and equity compensation
plans and that member organizations can vote only on routine matters
such as the ratification of auditors (which is generally included on a
meeting agenda precisely to ensure the presence of all shares held in
brokerage accounts for quorum purposes).
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 limited relief to member organizations and issuers in
relation to difficulties experienced in distributing proxy materials
during the current ongoing COVID-19 crisis.
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
Because the foregoing 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 for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \10\ and Rule 19b-
4(f)(6) thereunder.\11\
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\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its 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 Exchange has satisfied this requirement.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \12\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \13\ permits the
Commission to 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 proposed rule change may become operative immediately upon filing.
According to the Exchange, the proposed rule change would provide
significant relief to issuers during the ongoing COVID-19 crisis by
enabling them to conduct their shareholder meetings as planned given
the current difficulties being experienced transmitting proxy
materials. As noted above, the proposed rule change would temporarily
permit member organizations until May 31, 2020 to vote uninstructed
shares on routine matters pursuant to NYSE Rule 452 provided that such
materials are transmitted to beneficial owners no later than 10 days
prior to the shareholder meeting, instead of 15 days in advance of a
meeting. The Exchange stated, among other things, that member
organizations can only vote on routine matters under its rules and that
the proposal would not have a significant effect on the outcome of any
material proposals voted on at shareholder meetings. The Exchange
further stated that the waiver of the 30-day operative delay will help
companies plan, and meet quorum requirements, for shareholder meetings
during the upcoming proxy season.
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\12\ 17 CFR 240.19b-4(f)(6).
\13\ 17 CFR 240.19b-4(f)(6)(iii).
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[[Page 23878]]
The Commission notes that while the proposed rule change provides
temporary relief in the event that there are delays in distributing
proxy materials as a result of COVID-19, the Exchange and the
Commission expect that best efforts will be made to ensure that
transmissions of proxy materials will continue to be made prior to the
15th day before the meeting. To the extent that materials cannot be
distributed prior to the 15th day, the Commission notes that the
conditions set forth above requiring, in part, the intermediary acting
on behalf of a member organization to disclose prominently on its
website that it is experiencing operational challenges as a result of
COVID-19, identify the companies whose proxy distributions are
affected, and encourage beneficial owners to submit their vote by
electronic or telephone means to ensure their instructions are received
in advance of the shareholder meeting should help to ensure beneficial
owners have adequate time to review their proxy material and vote on a
timely basis.
Moreover, the Commission notes that, as discussed above, proxy
materials are delivered electronically to the beneficial owners of 84%
of all shares,\14\ and that the Exchange expects electronic
transmissions of proxy materials to continue to be made within the
normal time frames provided by its rule. In addition, according to the
Exchange, a significant percentage of shareholders who receive physical
distributions of proxy materials and vote, vote through the internet or
by phone, so the rule as modified would continue to provide adequate
time for most beneficial owners to review their proxy materials and
vote on a timely basis.\15\ The proposal also only continues to allow
member organizations to vote uninstructed shares on routine matters in
accordance with Exchange Rule 452. The Commission also notes that the
proposal is a temporary measure designed to respond to current, unusual
market conditions. For these reasons, the Commission believes that
waiver of the 30-day operative delay is consistent with the protection
of investors and the public interest. Therefore, the Commission hereby
waives the operative delay and designates the proposal as operative
upon filing.\16\
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\14\ See supra note 4.
\15\ See supra note 6 and accompanying text.
\16\ For purposes only of waiving the 30-day operative delay,
the Commission also 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 the 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 to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments:
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSE-2020-38 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-2020-38. 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-2020-38 and should be submitted on
or before May 20, 2020.
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\17\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-09050 Filed 4-28-20; 8:45 am]
BILLING CODE 8011-01-P