82536 Federal Register / Vol. 85, No. 244 / Friday, December 18, 2020 / Notices 

23 15 U.S.C. 78s(b)(3)(A). 

24 17 CFR 240.19b-4(f)(2). 

25 15 U.S.C. 78s(b)(2)(B). 26 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 89901 

(Sept. 17, 2020), 85 FR 59836 (‘‘Notice’’). 

4 15 U.S.C. 78s(b)(2). 

5See Securities Exchange Act Release No. 90292, 

85 FR 70678 (Nov. 5, 2020). The Commission 

designated December 22, 2020, as the date by which 

the Commission shall approve or disapprove, or 

institute proceedings to determine whether to 

disapprove, the proposed rule change. 

6 15 U.S.C. 78s(b)(2)(B). 

7The Trust has filed a registration statement on 

Form S–1 under the Securities Act of 1933, dated 

August 26, 2020 (File No.333–248430) 

(‘‘Registration Statement’’). The Fund will not trade 

on the Exchange until the Registration Statement is 

effective. 

changes. Because ports are used by 

member organizations to trade 

electronically on the Exchange, fees 

associated with ports are subject to 

these same competitive forces. The 

Exchange therefore believes that the 

proposal would not impose an undue 

burden on intermarket competition 

because the purpose of this filing is not 

to change the rates charged for ports or 

to offset the Exchange’s continuing costs 

of supporting legacy ports but rather to 

provide member organizations with 

more time to effect an orderly transition 

to upgraded technology without needing 

to incur any additional costs. 

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 foregoing rule change is effective 

upon filing pursuant to Section 

19(b)(3)(A) 23 of the Act and 

subparagraph (f)(2) of Rule 19b-4 24

thereunder, because it establishes a due, 

fee, or other charge imposed by the 

Exchange. 

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. 

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–2020–99 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–2020–99. 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–2020–99, and 

should be submitted on or before 

January 8, 2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.26

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2020–27842 Filed 12–17–20; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–90659; File No. SRCboeBZX–2020–070] 

Self-Regulatory Organizations; Cboe 

BZX Exchange, Inc.; Order Instituting 

Proceedings to Determine Whether to 

Approve or Disapprove a Proposed 

Rule Change to List and Trade Shares 

of the –1x Short VIX Futures ETF, a 

Series of VS Trust, Under Rule 

14.11(f)(4) (‘‘Trust Issued Receipts’’) 

December 14, 2020. 

I. Introduction 

On September 4, 2020, Cboe BZX 

Exchange, Inc. (‘‘Exchange’’ or ‘‘BZX’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

to Section 19(b)(1) of the Securities 

Exchange Act of 1934 (‘‘Act’’) 1 and Rule 

19b–4 thereunder,2 a proposed rule 

change to list and trade shares 

(‘‘Shares’’) of the –1x Short VIX Futures 

ETF (‘‘Fund’’), a series of VS Trust 

(‘‘Trust’’), under BZX Rule 14.11(f)(4) 

(Trust Issued Receipts). The proposed 

rule change was published for comment 

in the Federal Register on September 

23, 2020.3 On October 30, 2020, 

pursuant to Section 19(b)(2) of the Act,4

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.5

The Commission has received no 

comments on the proposed rule change. 

The Commission is publishing this 

order to solicit comments on the 

proposed rule change from interested 

persons and to institute proceedings 

pursuant to Section 19(b)(2)(B) of the 

Act 6 to determine whether to approve 

or disapprove the proposed rule change. 

II. Description of the Proposed Rule 

Change 

The Exchange proposes to list and 

trade Shares of the Fund 7 under BZX 


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Federal Register / Vol. 85, No. 244 / Friday, December 18, 2020 / Notices 82537 

8Rule 14.11(f)(4) applies to Trust Issued Receipts 

that invest in ‘‘Financial Instruments,’’ defined in 

Rule 14.11(f)(4)(A)(iv) as any combination of 

investments, including cash; securities; options on 

securities and indices; futures contracts; options on 

futures contracts; forward contracts; equity caps, 

collars and floors; and swap agreements. 

9The Index is sponsored by Cboe Global Indexes. 

The Index sponsor is not a registered broker-dealer, 

but is affiliated with a broker-dealer and has 

implemented and will maintain a fire wall with 

respect to the broker-dealer affiliate regarding 

access to information concerning the composition 

of and/or changes to the Index. In addition, the 

Index Sponsor has implemented and will maintain 

procedures that are designed to prevent the use and 

dissemination of material, non-public information 

regarding the Index. 

10The Sponsor is not a broker-dealer or affiliated 

with a broker-dealer. In the event that (a) the 

Sponsor becomes a broker-dealer or newly affiliated 

with a broker-dealer, or (b) any new sponsor is a 

broker-dealer or becomes affiliated with a brokerdealer, it will implement and maintain a fire wall 

with respect to its relevant personnel or such 

broker-dealer affiliate, as applicable, regarding 

access to information concerning the composition 

and/or changes to the portfolio, and will be subject 

to procedures designed to prevent the use and 

dissemination of material non-public information 

regarding the portfolio. 

11The VIX is an index designed to measure the 

implied volatility of the S&P 500 over 30 days in 

the future. The VIX is calculated based on the 

prices of certain put and call options on the S&P 

500. The VIX is reflective of the premium paid by 

investors for certain options linked to the level of 

the S&P 500. 

12 VIX Futures Contracts are measures of the 

market’s expectation of the level of VIX at certain 

points in the future, and as such, will behave 

differently than current, or spot, VIX. While the VIX 

represents a measure of the current expected 

volatility of the S&P 500 over the next 30 days, the 

prices of VIX Futures Contracts are based on the 

current expectation of what the expected 30-day 

volatility will be at a particular time in the future 

(on the expiration date). 

13The roll period usually begins on the 

Wednesday falling 30 calendar days before the S&P 

500 option expiration for the following month 

(‘‘Cboe VIX Monthly Futures Settlement Date’’) and 

runs to the Tuesday prior to the subsequent month’s 

Cboe VIX Monthly Futures Settlement Date. 

14The Exchange states that because VIX Futures 

Contracts correlate to future volatility readings of 

VIX, while the VIX itself correlates to current 

volatility, the Index and the Fund should be 

expected to perform significantly different from the 

inverse of the VIX over all periods of time. Further, 

unlike the Index, the VIX, which is not a 

benchmark for the Fund, is calculated based on the 

prices of certain put and call options on the S&P 

500. While the Index does not correspond to the 

inverse of the VIX, as it seeks short exposure to VIX, 

the value of the Index, and by extension the Fund, 

will generally rise as the VIX falls and fall as the 

VIX rises. 

15The Exchange states the Fund’s NAV will be 

calculated at 4:00 p.m. E.T. 

16The VIX Swap Agreements in which the Fund 

may invest may or may not be cleared. The Fund 

would only enter into VIX Swap Agreements with 

counterparties that the Sponsor reasonably believes 

are capable of performing under the contract and 

will post collateral as required by the counterparty. 

The Fund would seek, where possible, to use 

counterparties, as applicable, whose financial status 

is such that the risk of default is reduced; however, 

the risk of losses resulting from default is still 

possible. The Sponsor would evaluate the 

creditworthiness of counterparties on a regular 

basis. In addition to information provided by credit 

agencies, the Sponsor would review approved 

counterparties using various factors, which may 

include the counterparty’s reputation, the Sponsor’s 

past experience with the counterparty and the 

price/market actions of debt of the counterparty. 

The Fund may use various techniques to minimize 

OTC counterparty credit risk including entering 

into arrangements with counterparties whereby 

both sides exchange collateral on a mark-to-market 

basis. Collateral posted by the Fund to a 

counterparty in connection with uncleared VIX 

Swap Agreements is generally held for the benefit 

of the counterparty in a segregated tri-party account 

at the custodian to protect the counterparty against 

non-payment by the Fund. 

17For purposes of the proposal, ‘‘Cash and Cash 

Equivalents’’ are short-term instruments with 

maturities of less than 3 months, including the 

following: (i) U.S. Government securities, including 

bills, notes, and bonds differing as to maturity and 

rates of interest, which are either issued or 

guaranteed by the U.S. Treasury or by U.S. 

Government agencies or instrumentalities; (ii) 

certificates of deposit issued against funds 

deposited in a bank or savings and loan association; 

(iii) bankers’ acceptances, which are short-term 

credit instruments used to finance commercial 

transactions; (iv) repurchase agreements and reverse 

repurchase agreements; (v) bank time deposits, 

which are monies kept on deposit with banks or 

savings and loan associations for a stated period of 

time at a fixed rate of interest; (vi) commercial 

paper, which are short-term unsecured promissory 

notes; and (vii) money market funds. 

18The Fund would collateralize its obligations 

with Cash and Cash Equivalents consistent with the 

1940 Act and interpretations thereunder. 

19The Exchange states that return of the Fund for 

a period longer than a single day is the result of its 

return for each day compounded over the period 

and usually would differ in amount and possibly 

even direction from either the inverse of the VIX or 

the inverse of a portfolio of short-term VIX Futures 

Contracts for the same period. These differences can 

be significant. 

Rule 14.11(f)(4), which governs the 

listing and trading of Trust Issued 

Receipts 8 on the Exchange. The Fund 

seeks to provide daily investment 

results (before fees and expenses) that 

correspond to the performance of the 

Short VIX Futures Index (SHORTVOL) 

(‘‘Index’’).9

Volatility Shares LLC (‘‘Sponsor’’), a 

Delaware limited liability company and 

a commodity pool operator, serves as 

the Sponsor of the Trust.10 Tidal ETF 

Services LLC serves as the 

administrator; U.S. Bank National 

Association serves as custodian of the 

Fund and the Shares; U.S. Bancorp 

Fund Services, LLC serves as the subadministrator and transfer agent; and 

Wilmington Trust Company is the sole 

trustee of the Trust. 

The Index measures the daily inverse 

performance of a theoretical portfolio of 

first- and second-month futures 

contracts on the Cboe Volatility Index 

(‘‘VIX’’).11 The Index is comprised of 

VIX futures contracts (‘‘VIX Futures 

Contracts’’).12 Specifically, the Index 

components represent the prices of the 

two near-term VIX Futures Contracts, 

replicating a position that rolls the 

nearest month VIX Futures Contract to 

the next month VIX Futures Contract on 

a daily basis in equal fractional 

amounts, resulting in a constant 

weighted average maturity of 

approximately one month.13 The Index 

seeks to reflect the returns that are 

potentially available from holding an 

unleveraged short position in first- and 

second- month VIX Futures Contracts.14

To pursue its investment objective, 

the Fund would primarily invest in VIX 

Futures Contracts based on components 

of the Index. The Fund would primarily 

acquire short exposure to the VIX 

through VIX Futures Contracts, such 

that the Fund has exposure intended to 

approximate the Index at the time of the 

net asset value (‘‘NAV’’) calculation of 

the Fund.15 However, in the event that 

the Fund is unable to meet its 

investment objective solely through 

investment in VIX Futures Contracts, it 

may invest in over-the-counter swaps 

referencing the Index or referencing 

particular VIX Futures Contracts 

comprising the Index (‘‘VIX Swap 

Agreements’’) 16 or in listed VIX options 

contracts (‘‘VIX Options Contracts,’’ 

and, together with VIX Futures 

Contracts and VIX Swap Agreements, 

‘‘VIX Derivative Products’’). The Fund 

may also invest in Cash or Cash 

Equivalents 17 that may serve as 

collateral to the Fund’s investments in 

VIX Derivative Products.18

The Fund would not be actively 

managed but rather would seek to 

remain fully invested in VIX Derivative 

Products (and Cash and Cash 

Equivalents as collateral) that provide 

exposure to the Index consistent with its 

investment objective without regard to 

market conditions, trends or direction. 

The Fund’s investment objective is a 

daily investment objective; that is, the 

Fund seeks to track the Index on a daily 

basis, not over longer periods.19

Accordingly, each day, the Fund will 

position its portfolio so that it can seek 

to track the Index. The direction and 

extent of the Index’s movements each 

day will dictate the direction and extent 

of the Fund’s portfolio rebalancing. For 

example, if the level of the Index falls 

on a given day, net assets of the Fund 

would fall. As a result, exposure to the 

Index, through futures positions held by 

the Fund, would need to be decreased. 

The opposite would be the case if the 

level of the Index rises on a given day. 

The time and manner in which the 

Fund would rebalance its portfolio is 

defined by the Index methodology but 

may vary from the Index methodology 

depending upon market conditions and 

other circumstances including the 

potential impact of the rebalance on the 

price of the VIX Futures Contracts. The 

Sponsor would seek to minimize the 


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82538 Federal Register / Vol. 85, No. 244 / Friday, December 18, 2020 / Notices 

20The Sponsor believes that the Fund would 

enter an Extended Rebalance Period most often 

during periods of extraordinary volatility or 

illiquidity in VIX futures contracts. 

21 15 U.S.C. 78s(b)(2)(B). 

22 Id. 

23 15 U.S.C. 78f(b)(5). 

24Section 19(b)(2) of the Act, as amended by the 

Securities Act Amendments of 1975, Public Law 

94–29 (June 4, 1975), grants 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 Act Amendments of 

1975, Senate Comm. on Banking, Housing & Urban 

Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30 

(1975). 

25See supra note 3. 

market impact of Fund rebalances on 

the price of VIX Futures Contracts by 

limiting the Fund’s participation, on 

any given day, in VIX Futures Contracts 

to no more than one-quarter of the 

contracts traded on Cboe Futures 

Exchange during any ‘‘Rebalance 

Period’’ (defined by the Index 

methodology as 3:45 p.m.–4 p.m., E.T.) 

(‘‘VIX Futures Contracts Limitation’’). If 

the Fund’s portfolio rebalance exceeds 

one-quarter of the futures’ volume 

between 3:45 p.m. and 4 p.m., E.T., the 

Sponsor would extend the rebalance 

period (the ‘‘Extended Rebalance 

Period) to include, for example, the 

period between 4 p.m. and 4:15 p.m., 

E.T. and the Trade At Settlement market 

(‘‘TAS’’). 

The Sponsor expects that allowing the 

Fund to participate in an Extended 

Rebalance Period would minimize the 

impact on the price of VIX Futures 

Contracts, and particularly minimize 

any impact of large Fund rebalances 

during periods of market illiquidity.20

The Exchange states that defining an 

explicit rebalancing methodology and 

limiting the Fund’s participation in the 

VIX Futures Contracts should reduce 

the impact of the Fund’s rebalancing on 

the price of VIX Futures Contracts. 

III. Proceedings To Determine Whether 

to Approve or Disapprove SRCboeBZX–2020–070 and Grounds for 

Disapproval Under Consideration 

The Commission is instituting 

proceedings pursuant to Section 

19(b)(2)(B) of the Act 21 to determine 

whether the proposed rule change 

should be approved or disapproved. 

Institution of such proceedings is 

appropriate at this time in view of the 

legal and policy issues raised by the 

proposal. Institution of proceedings 

does not indicate that the Commission 

has reached any conclusions with 

respect to any of the issues involved. 

Rather, as described below, the 

Commission seeks and encourages 

interested persons to provide comments 

on the proposed rule change. 

Pursuant to Section 19(b)(2)(B) of the 

Act,22 the Commission is providing 

notice of the grounds for disapproval 

under consideration. The Commission is 

instituting proceedings to allow for 

additional analysis of the proposal’s 

consistency with Section 6(b)(5) of the 

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,’’ and ‘‘to 

protect investors and the public 

interest.’’ 23

IV. Procedure: Request for Written 

Comments 

The Commission requests that 

interested persons provide written 

submissions of their views, data, 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) or any other provision of 

the 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 

views, data, and arguments, the 

Commission will consider, pursuant to 

Rule 19b-4, any request for an 

opportunity to make an oral 

presentation.24

Interested persons are invited to 

submit written data, views, and 

arguments regarding whether the 

proposed rule change should be 

approved or disapproved by January 8, 

2021. Any person who wishes to file a 

rebuttal to any other person’s 

submission must file that rebuttal by 

January 22, 2021. 

The Commission asks that 

commenters address the sufficiency of 

the Exchange’s statements in support of 

the proposal, which are set forth in the 

Notice,25 in addition to any other 

comments they may wish to submit 

about the proposed rule change. In this 

regard, the Commission seeks 

commenters’ views regarding whether 

the Exchange’s proposal to list and trade 

the Shares, which seek to provide daily 

investment results that correspond to 

the performance of an index that 

measures the daily inverse performance 

of a theoretical portfolio of first- and 

second-month VIX Futures Contracts, is 

adequately designed to prevent 

fraudulent and manipulative acts and 

practices, to promote just and equitable 

principles of trade, and to protect 

investors and the public interest, and is 

consistent with the maintenance of a 

fair and orderly market under the Act. 

The Commission also seeks 

commenters’ views regarding whether 

the Exchange has adequately described 

the potential impact of sudden 

fluctuations in market volatility on the 

Index and on the Fund’s operation and 

performance for the Commission to 

make a determination under Section 

6(b)(5) of the Act. In particular, the 

Commission seeks comment regarding 

the Fund’s operation during periods 

with large percentage increases in 

volatility, and whether the Sponsor’s 

proposed VIX Futures Contracts 

Limitation would sufficiently minimize 

the market impact of the Fund’s daily 

rebalance. 

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– 

CboeBZX–2020–070 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street, NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–CboeBZX–2020–070. 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 


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Federal Register / Vol. 85, No. 244 / Friday, December 18, 2020 / Notices 82539 

26 17 CFR 200.30–3(a)(57). 

1 15 U.S.C. 78s(b)(1). 

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

4The ownership of shares in street name means 

that a shareholder, or ‘‘beneficial owner,’’ has 

purchased shares through a broker-dealer or bank, 

also known as a ‘‘nominee.’’ In contrast to direct 

ownership, where shares are directly registered in 

the name of the shareholder, shares held in street 

name are registered in the name of the nominee, or 

in the nominee name of a depository, such as the 

Depository Trust Company. For more detail 

regarding share ownership, see Securities Exchange 

Act Release No. 62495 (July 14, 2010), 75 FR 42982 

(July 22, 2010) (Concept Release on the U.S. Proxy 

System) (‘‘Proxy Concept Release’’). 

5 17 CFR 240.14b–1; 17 CFR 240.14b–2. 6See, for example, FINRA Rule 2251. 

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–CboeBZX–2020–070 and 

should be submitted by January 8, 2021. 

Rebuttal comments should be submitted 

by January 22, 2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.26

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2020–27840 Filed 12–17–20; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–90653; File No. SR–NYSE– 

2020–98] 

Self-Regulatory Organizations; New 

York Stock Exchange LLC; Notice of 

Filing of Proposed Rule Change To 

Amend Its Rules To Prohibit Member 

Organizations From Seeking 

Reimbursement, in Certain 

Circumstances, From Issuers for 

Forwarding Proxy and Other Materials 

to Beneficial Owners 

December 14, 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 

November 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 Items I, II, and 

III 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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend its 

rules to prohibit member organizations 

from seeking reimbursement from 

issuers for forwarding proxy and other 

materials to beneficial owners who 

received shares from their broker at no 

cost or at a price substantially less than 

the market price in connection with a 

promotion by the broker. 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 451 requires NYSE 

member organizations that hold 

securities for beneficial owners in street 

name to solicit proxies from, and deliver 

proxy and issuer communication 

materials to, beneficial owners on behalf 

of issuers.4 For this service, issuers 

reimburse NYSE member organizations 

for out-of-pocket, reasonable clerical, 

postage and other expenses incurred for 

a particular distribution. This 

reimbursement structure stems from 

SEC Rules 14b–1 and 14b–2 under the 

Act,5 which impose obligations on 

companies and nominees to ensure that 

beneficial owners receive proxy 

materials and are given the opportunity 

to vote. These rules require companies 

to send their proxy materials to 

nominees, i.e., broker-dealers or banks 

that hold securities in street name, for 

forwarding to beneficial owners and to 

pay nominees for reasonable expenses, 

both direct and indirect, incurred in 

providing proxy information to 

beneficial owners. Similarly, Rule 465 

requires member organizations to 

forward issuer communications to 

beneficial owners on behalf of issuers 

subject to receipt of reimbursement of 

expenses. 

Recently, brokers providing retail 

brokerage services have developed a 

practice in which customers are given 

securities without charge as a 

commercial incentive (for example, 

upon opening a new account or 

referring a new customer to the broker). 

Typically, these incentives involve the 

transfer of a small number of shares to 

benefiting customers and result in the 

customer having a position in the 

company whose shares they receive that 

has a very small dollar value. Rule 451 

does not distinguish between these 

beneficial owners and beneficial owners 

that have paid for their shares, so 

brokers are required to solicit proxies 

from these accounts and are entitled to 

reimbursement of their expenses under 

Rules 451 and 465, as well as pursuant 

to the applicable rules of any other 

national securities exchange or national 

securities association of which the 

NYSE member organization is a 

member.6 As a consequence, issuers are 

billed under Exchange rules and the 

rules of other SROs for the 

reimbursement of expenses the broker 

incurs in making distributions to these 

beneficial owners who have very small 

positions, which they acquired from 

their broker without any payment by the 

customer. In certain cases, the issuer 

can experience a significant increase in 

its distribution reimbursement expenses 

solely due to its shares being included 

in these broker promotional schemes. 

While the distribution of shares in 

these broker promotions may result in a 

significant increase in the number of 

beneficial owners of an issuer’s stock, 

the generally very small size of each of 

these positions means that they usually 

represent a very small percentage of the 

voting power. As such, the costs the 

issuer incurs in reimbursing the broker 

for distributing proxies to these 

accounts is very disproportionate to the 

maximum potential vote such shares 

represent. By contrast, the broker using 

such a scheme chooses to engage in it 

because it believes that it will result in 

a commercial benefit to the broker. 

Consequently, the Exchange believes 

that it is more appropriate for the broker 

to bear these proxy distribution costs. 

Accordingly, the Exchange proposes 

new Rule 451A, which would provide 

that, notwithstanding the applicable 

provisions of Rules 451 or 465 or what 

may be permitted by the rules of any 

other national securities exchange or 

national securities association of which 

a member organization is also a 


khammond on DSKJM1Z7X2PROD with NOTICES