[Federal Register Volume 85, Number 70 (Friday, April 10, 2020)]
[Notices]
[Pages 20323-20326]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07557]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88572; File No. SR-NYSE-2020-30]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Waive the Application of Certain of the Shareholder Approval
Requirements in Section 312.03 of the NYSE Listed Company Manual
Through June 30, 2020 Subject to Certain Conditions
April 6, 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 April 3, 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 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 waive through and including June 30, 2020
the application of certain of the shareholder approval requirements set
forth in Section 312.03 of the NYSE Listed Company Manual (``Manual'')
subject to certain conditions. 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
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,
dramatic market declines and volatility in the U.S. and global equity
markets, and severe disruption in the credit markets. The Exchange
believes that it is likely that many listed companies will have urgent
liquidity needs in the coming months due to lost revenues and maturing
debt obligations. In those circumstances, listed companies will need to
access additional capital that may not be available in the public
equity or credit markets. When similar conditions existed after the
financial crisis of 2008-09, the Exchange observed that many companies
sought capital by selling significant amounts of equity in private
placement transactions to a single investor or small group of
investors, in many cases limited to or including existing major
shareholders in the company. The Exchange notes that companies raising
capital in that manner at that time were often limited by the NYSE's
shareholder approval requirements with respect to the size and
structure of the transactions they were able to undertake.
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 \4\ of the company (each a
[[Page 20324]]
``Related Party'') or to an affiliate of a Related Party \5\ 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'') \6\ 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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\4\ 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.''
\5\ 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;''
\6\ 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% or 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 certain companies during the course of
the current unusual economic and market 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 company or their affiliates that would exceed the
applicable 1% and 5% limits of Section 312.03(b). Given the
extraordinary nature of the current circumstances, the Exchange
proposes a partial waiver of the application of Section 312.03(b) for
the period as of the date of this filing through and including June 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.\7\ In
addition, to qualify for this 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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\7\ See supra note 6.
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This waiver will 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
proposed waiver will 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 above-described proposed waiver would be to allow
companies to sell their securities to Related Parties and other persons
subject to Section 312.03(b) \8\ 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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\8\ See supra note 5.
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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 a limited period. The
Exchange notes that, as a result of the proposed waiver, the Exchange's
application of Section 312.03(b) will be consistent with the
application of NASDAQ Marketplace Rule 5635(a) \9\ to sales of a listed
company's securities to related parties.
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\9\ 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 extraordinary nature of the current
circumstances, the Exchange also proposes to waive through and
including June 30, 2020, for purposes of the bona fide financing
exception to the 20% requirement, 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 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). Any
transaction benefitting from this waiver must be a sale of the
company's securities for cash at a price that meets the Minimum Price
requirement.
The effect of this proposed waiver would be that a listed company
would
[[Page 20325]]
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 waiver, the Exchange's application of Section
312.03(c) will be consistent 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.\10\
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\10\ See supra note 9 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 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.\11\
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\11\ 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,\12\ in general, and furthers the objectives of Section 6(b)(5) of
the Act,\13\ 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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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
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As a result of market and general 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
selling equity in private placement transactions during the current
extraordinary market and 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 extraordinary
market and general 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 \14\ and Rule 19b-4(f)(6) thereunder.\15\
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 \16\ and Rule 19b-
4(f)(6)(iii) thereunder.\17\
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\14\ 15 U.S.C. 78s(b)(3)(A)(iii).
\15\ 17 CFR 240.19b-4(f)(6).
\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 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) \18\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\19\ 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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\18\ 17 CFR 240.19b-4(f)(6).
\19\ 17 CFR 240.19b-4(f)(6)(iii).
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The Exchange believes that waiver of the operative delay would be
consistent with the protection of investors and the public interest
because, in the Exchange's view, the market and general 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
[[Page 20326]]
Exchange stated 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 \20\ 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 waivers are temporary in nature
and will only be applied through and including June 30, 2020. 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.\22\
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\20\ The Commission notes that the Minimum Price is related to
minimum market price requirements as defined above. See supra note
6.
\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.
\22\ 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) \23\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\23\ 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 rule-comments@sec.gov. Please include
File Number SR-NYSE-2020-30 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-2020-30. 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-2020-30 and should be submitted on
or before May 1, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-07557 Filed 4-9-20; 8:45 am]
BILLING CODE 8011-01-P