[Federal Register Volume 89, Number 1 (Tuesday, January 2, 2024)]
[Notices]
[Pages 113-119]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-28796]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99238; File No. SR-NYSE-2023-34]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Amendment No. 1 and Order Granting Accelerated 
Approval of Proposed Rule Change, as Modified by Amendment No. 1, 
Amending Sections 312.03(b) and 312.04 of the NYSE Listed Company 
Manual To Modify the Circumstances Under Which a Listed Company Must 
Obtain Shareholder Approval of a Sale of Securities Below the Minimum 
Price to a Substantial Security Holder of the Company

December 26, 2023.

I. Introduction

    New York Stock Exchange LLC (``NYSE'' or the ``Exchange'') filed on 
September 26, 2023, 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 modify the circumstances under which a listed 
company must obtain shareholder approval of a sale of securities to a 
substantial security holder of the listed company. The proposed rule 
change was published for comment in the Federal Register on October 4, 
2023.\3\ On November 16, 2023, the Commission designated a longer 
period for Commission action on the proposed rule change.\4\ On 
December 21, 2023, the Exchange filed Amendment No. 1 to the proposed 
rule change, which amended and superseded the original filing in its 
entirety.\5\ The

[[Page 114]]

Commission has received no comment letters on the proposal. The 
Commission is publishing this notice to solicit comments on Amendment 
No. 1 from interested persons and is approving the proposed rule 
change, as modified by Amendment No. 1, on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 98662 (September 29, 
2023), 88 FR 68675 (October 4, 2023) (``Notice'').
    \4\ See Securities Exchange Act Release No. 98967 (November 16, 
2023), 88 FR 81462 (November 22, 2023) (extending the time period 
for Commission action to January 2, 2024).
    \5\ In Amendment No. 1, the Exchange revised the proposal to: 
(1) adopt a new definition of an ``Active Related Party'' in Section 
312.03(b)(i) of the NYSE Listed Company Manual (``Manual'') and to 
retain the current definition of Related Party for purposes of 
Section 312.03(b)(ii) of the Manual; (2) adopt in Section 312.04 of 
the Manual definitions of ``control'' and ``group'' for purposes of 
proposed amended Section 312.03(b)(i) of the Manual; (3) include 
additional explanation of why the Exchange is proposing the rule 
change and believes that it is appropriate; (4) explain that the 
proposal would not have any substantive effect on the application of 
Section 312.03(b)(ii) of the Manual and that a listed company 
selling securities to a Related Party under the circumstances set 
forth in 312.03(b)(ii) of the Manual, as amended, would remain 
subject to the shareholder approval requirements therein; and (5) 
make other clarifying and conforming changes. Amendment No. 1 is 
available at https://www.sec.gov/comments/sr-nyse-2023-34/srnyse202334-320179-832762.pdf.
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II. The Exchange's Description of the Proposed Rule Change, as Modified 
by Amendment No. 1 <SUP>6</SUP>
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    \6\ This Section II reproduces Amendment No. 1, as filed by the 
Exchange.
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    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 NYSE previously filed a proposed rule filing to amend Section 
312.03(b) of the Manual to modify the circumstances under which a 
listed company must obtain shareholder approval of a sale of securities 
to a substantial security holder of the listed company.\7\ The proposed 
rule change was published for comment in the Federal Register on 
October 4, 2023.\8\ This Amendment No. 1 supersedes the original filing 
in its entirety.
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    \7\ See SR-NYSE-2023-34 (September 26, 2023).
    \8\ See Securities Exchange Act Release No. 98662 (September 29, 
2023), 88 FR 68675 (October 4. 2023).
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    Amendment No. 1 includes in the Purpose and Statutory Basis 
sections additional explanation of why the Exchange is proposing the 
rule change and believes that it is appropriate, specifically 
discussing the Exchange's belief that there is a lesser possibility 
that a substantial security holder may exercise influence over the 
terms of a transaction with the company if such substantial security 
holder does not have representation on the board or in management. In 
addition, Amendment No. 1 amends the rule text to adopt a new 
definition of an ``Active Related Party'' in Section 312.03(b)(i) and 
to retain the current definition of Related Party for purposes of 
Section 312.03(b)(ii).\9\ The Purpose section is amended to describe 
these proposed amendments, as well as to explain that their purpose is 
to ensure that the proposal would not have any substantive effect on 
the application of Section 312.03(b)(ii). A listed company selling 
securities to a Related Party under the circumstances set forth in the 
rule as amended would remain subject to the shareholder approval 
requirements in 312.03(b)(ii). Finally, Amendment No. 1 amends the rule 
text to adopt in Section 312.04 definitions of ``control'' and 
``group'' for purposes of proposed amended Section 312.03(b)(i), 
providing clarity as to the meaning of the terms ``controlling 
shareholder'' and ``control group'' in that provision as amended. The 
Purpose section is amended to describe the addition of those new 
defined terms and to include footnotes explaining how ``control'' is 
defined and the standards to be applied in determining whether or not a 
``group'' exists.
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    \9\ Section 312.03(b)(ii) provides that shareholder approval is 
required prior to the issuance of common stock, or of securities 
convertible into or exercisable for common stock, where such 
securities are issued as consideration in a transaction or series of 
related transactions in which a Related Party has a five percent or 
greater interest (or such persons collectively have a ten percent 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 common 
stock, could result in an issuance that exceeds either five percent 
of the number of shares of common stock or five percent of the 
voting power outstanding before the issuance.
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    Section 312.04(e) of the Manual 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.
    Section 312.03(b)(i) of the Manual provides that shareholder 
approval is required prior to the issuance of common stock, or of 
securities convertible into or exercisable for common stock, in any 
transaction or series of related transactions, to a director, officer 
or substantial security holder of the company 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 one percent of the number of shares of common stock or 
one percent of the voting power outstanding before the issuance.
    The Manual provides an exception to the shareholder approval 
requirement if such transaction is a cash sale for a price that is at 
least the Minimum Price. Section 312.04(h) defines the Minimum Price as 
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(i) 
defines the ``Official Closing Price'' of an issuer's common stock as 
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.\10\
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    \10\ 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 of the regular session on Tuesday, 
then Monday's official closing price is used.
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    Certain NYSE listed companies are significantly dependent on their 
ability to regularly raise additional capital to fund their operations 
or acquire new assets. For example, pre-revenue stage biotechnology 
companies regularly seek additional capital to fund their research and 
development activities and real estate investment trusts seek to fund 
the acquisition of new properties by selling equity securities in 
private placements or direct registered sales priced at a small 
discount to the prevailing market price. It is the Exchange's 
understanding that, in many cases, existing shareholders of the listed 
company are willing purchasers of securities in such circumstances, as 
they already understand the company's business and have a positive view 
of its future prospects. Sales to existing shareholders can also be 
advantageous to both the issuer and the shareholders because of the 
speed with which a direct sale to an existing shareholder can be 
completed if no shareholder approval is required. However, the benefits 
of low transaction costs and speed of execution that typically exist 
when conducting these transactions with existing shareholders face 
countervailing factors if the counterparty is deemed to be a 
substantial securityholder for purposes of Section 312.03(b)(i). In 
such cases, to mitigate potential conflicts of interest, Exchange rules 
require that any sale below the Minimum Price can relate to no more 
than one per cent of the shares of common stock or one percent of the 
voting power outstanding before the issuance. Any such transaction that 
relates to more than one per cent of the

[[Page 115]]

common stock is subject to shareholder approval, which imposes 
significant delay and additional costs on the issuer, thereby often 
making the sale impracticable. This one percent limitation is therefore 
a significant restriction on the ability of an NYSE listed company to 
raise capital from its existing shareholders. Notably, the NYSE is the 
only listing exchange in the United States that has such a limitation 
in its rules and NYSE companies are therefore at a disadvantage in 
raising additional capital when compared to their peers listed on other 
national securities exchanges.
    The Exchange believes there are significant benefits from the 
protection provided to a listed company's investors by the shareholder 
approval requirements in Section 312.03(b)(i) when a purchaser of the 
securities in a transaction is an officer or director or other control 
person of the company. In such cases, the potential exists for a 
related party purchaser to use their influence within the company to 
obtain superior terms from the company to the detriment of the 
company's shareholders as a whole. However, the current definition of 
substantial security holder used in the rule also applies to holders of 
a company's common stock who do not participate in the governance or 
management of the company through board or management representation. 
The Exchange believes that transactions with these kinds of 
shareholders who do not participate in the governance or management of 
the company generally do not give rise to the potential conflicts of 
interest in the determination of transaction terms that exist where the 
purchaser has a role in the listed company's board or management. The 
Exchange believes that these shareholders that do not participate 
actively in the company in this way generally do not have the same 
ability to participate in and influence decision making as is the case 
with a related party that directly participates in the governance or 
management of the company.\11\ As discussed below the Exchange will be 
adopting the definition contained in Rule 12b-2 under Regulation 12B of 
the Exchange Act to define control for purposes of the proposed amended 
rule.
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    \11\ The Exchange recognizes that substantial shareholders who 
are not represented on the board or in management are likely to vote 
their shares at shareholder meetings but believes that this in 
itself is generally not sufficient to create a relationship with the 
company that would give a substantial shareholder the ability to 
influence inappropriately the terms of any transaction it enters 
into with the company.
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    In light of the foregoing, the Exchange proposes to amend Section 
312.03(b)(i) to limit its application to related parties whose interest 
in the company is not passive in nature. As proposed, Section 
312.03(b)(i) would be limited in application to sales to a director, 
officer, controlling shareholder or member of a control group or any 
other substantial security holder of the company that has an affiliated 
person \12\ who is an officer or director of the company (each an 
``Active Related Party''). For purposes of determining the existence of 
a group, the Exchange proposes to rely on the filings on Schedule 13D 
or Schedule 13G disclosing the existence of a group as determined under 
Section 13(d)(3) or Section 13(g)(3) of the Exchange Act, along with 
any additional follow-up inquiry that is needed.\13\ The Exchange 
proposes to amend Section 312.04 to include new definitions for 
purposes of Section 312.03, providing that: (i) a ``group'' means a 
group as determined under Section 13(d)(3) or Section 13(g)(3) of the 
Exchange Act; and (ii) ``control'' has the same meaning as defined in 
Rule 12b-2 of Regulation 12B under the Exchange Act.\14\ The Exchange 
intends to revise its internal procedures in reviewing proposed 
transactions to the extent necessary to obtain the necessary 
information to make determinations with respect to whether shareholders 
participating in transactions are Active Related Parties.
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    \12\ In determining whether a person is an affiliated person for 
purposes of the definition of an Active Related Party, the Exchange 
will consider all relevant facts and circumstances, including, but 
not limited to, whether such person is an affiliate within the 
meaning of that term under provisions of the federal securities laws 
and the rules thereunder.
    \13\ Section 13(d)(3) or Section 13(g)(3) provide: ``When two or 
more persons act as a [ ] group for the purpose of acquiring, 
holding, or disposing of [equity] securities of an issuer, the group 
shall be deemed a `person'. . . .'' The determination under Sections 
13(d)(3) and 13(g)(3) as to whether two or more persons are acting 
as a group does not depend solely on the presence of an express 
agreement. Depending on the particular facts and circumstances, 
concerted actions by two or more persons for the purpose of 
acquiring, holding--which includes voting--or disposing of 
securities of an issuer are sufficient to constitute the formation 
of a group.
    \14\ Rule 12b-2 under Regulation 12B of the Exchange Act 
provides that ``[t]he term `control' (including the terms 
`controlling,' `controlled by' and `under common control with') 
means the possession, direct or indirect, of the power to direct or 
cause the direction of the management and policies of a person, 
whether through the ownership of voting securities, by contract, or 
otherwise.''
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    In addition to the proposed definition of Active Related Party in 
the proposed amended version of Section 312.03(b)(i), the Exchange 
proposes for purposes of Section 312.03(b)(ii) to retain the broader 
definition of a Related Party included in the current rule (i.e., ``a 
director, officer or substantial security holder of the company''). 
Consequently, this proposal would not have any substantive effect on 
the application of Section 312.03(b)(ii) and a listed company selling 
securities to a Related Party under the circumstances set forth in the 
rule as amended remains subject to the shareholder approval 
requirements in that provision.\15\
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    \15\ See note 9 supra for a description of Section 
312.03(b)(ii).
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    The Exchange also notes that any listed company selling securities 
in a private placement that does not meet the Minimum Price requirement 
will remain subject to the shareholder approval requirement of Section 
312.03(c) if such transaction relates to 20 percent or more of the 
issuer's common stock. In addition, if the securities in such financing 
are issued in connection with an acquisition of the stock or assets of 
another company, shareholder approval will be required if the issuance 
of such securities alone or when combined with any other present or 
potential issuance of common stock, or securities convertible into 
common stock in connection with such acquisition, is equal to or 
exceeds either 20 percent of the number of shares of common stock or 20 
percent of the voting power outstanding before the issuance. Sales of 
securities will also continue to be subject to all other shareholder 
approval requirements set forth in Section 312.03 (including 
limitations with respect to equity compensation under Section 312.03(a) 
and Section 303A.08) and the change of control requirement of Section 
312.03(d). The Exchange notes that Section 312.04(a) provides that 
shareholder approval is required if any of the subparagraphs of Section 
312.03 require such approval, notwithstanding the fact that the 
transaction does not require approval under one or more of the other 
subparagraphs. Finally, the Exchange notes that Section 312.03(b)(i) as 
proposed to be amended would continue to provide a significant 
protection to shareholders against conflicts of interest in sales of 
securities to Active Related Parties and that no other listing venue 
has such a protection in its rules. The Exchange notes that its 
shareholder approval requirements are as stringent in every respect as 
those of its competitor listing venues.\16\
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    \16\ See, for example, Nasdaq Stock Market Rule 5635.
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    Under the proposal the Exchange will continue to require 
shareholder approval for below market sales (i.e., below the Minimum 
Price) over one

[[Page 116]]

percent to Active Related Parties. However, as a consequence of the 
proposed amendment, below market sales over one percent to substantial 
securityholders who are not Active Related Parties will be permitted 
without shareholder approval under 312.03(b)(i), but will continue to 
be subject to all the other applicable shareholder approval 
requirements under 312.03.
1. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\17\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \18\ in particular, in that it 
is designed to promote just and equitable principles of trade, to 
foster cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
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 investors and the public interest 
and is not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that proposed amended Section 312.03(b)(i) is 
consistent with the protection of investors and the public interest. 
Specifically, the amended rule continues to provide for shareholder 
approval of below-market sales of securities to Active Related Parties 
of a listed company where a potential conflict of interest exists that 
Active Related Parties could use their influence within the company to 
obtain superior terms from the company to the detriment of the 
company's shareholders as a whole. The current definition of 
substantial security holder used in the rule extends to holders of a 
company's common stock who do not participate in the governance or 
management of the company through board or management representation. 
The Exchange believes that transactions with these kinds of 
shareholders who do not participate in the governance or management of 
the company (except by voting at shareholder meetings) in and of 
themselves generally do not give rise to the potential conflicts of 
interest in the determination of transaction terms that exist where the 
purchaser has a role in the listed company's board or management. The 
Exchange believes that these shareholders that do not participate 
actively in the company in this way do not generally have the same 
ability to participate in and influence decision making as is the case 
with a related party that directly participates in the governance or 
management of the company. The proposed rule only modifies the existing 
rule to permit sales to investors who are not a director, officer, a 
controlling shareholder or member of a control group or any other 
substantial security holder of the company that has an affiliated 
person who is an officer or director of the company and with respect to 
whom the Exchange therefore believes that the potential for such self-
dealing does not exist.
    The Exchange proposes to use definitions of ``control'' and 
``group'' in the proposed amended rule that are used in the federal 
securities laws and the rules thereunder and, consequently, the 
Exchange believes that the use of such definitions is consistent with 
the Act.
    The Exchange believes that the proposed amendment would promote 
competition among listing venues by removing a limitation on capital 
raising by listed companies that does not exist for their peers on 
other listing exchanges.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange believes that 
the proposed amendment increases competition among listing venues by 
removing a limitation on capital raising by listed companies that does 
not exist for their peers on other listing exchanges.

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. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\19\ In particular, the 
Commission finds that the proposed rule change, as modified by 
Amendment No. 1, is consistent with Section 6(b)(5) of the Act,\20\ 
which requires, among other things, that the rules of a national 
securities exchange be designed to prevent fraudulent and manipulative 
acts and practices, to promote just and equitable principles of trade, 
to foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and 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 investors and the public 
interest; and are not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \19\ 15 U.S.C. 78f(b). In approving this proposed rule change, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \20\ 15 U.S.C. 78f(b)(5).
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    The development and enforcement of meaningful corporate governance 
listing standards for a national securities exchange is of substantial 
importance to financial markets and the investing public, especially 
given investor expectations regarding the nature of companies that have 
achieved an exchange listing for their securities. The corporate 
governance standards embodied in the listing standards of national 
securities exchanges, in particular, play an important role in assuring 
that exchange-listed companies observe good governance practices, 
including safeguarding the interests of shareholders with respect to 
certain potentially dilutive transactions.\21\
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    \21\ See, e.g., Securities Exchange Act Release Nos. 91471 (Apr. 
2, 2021), 86 FR 18362 (NYSE-2020-85) (revising the shareholder 
approval requirements in Sections 312.03 and 312.04 and the 
requirements for related party transactions in Section 314.00); 
85374 (Mar. 20, 2019) 84 FR 11354 (Mar. 26, 2019) (NYSE-2018-54) 
(modifying the price requirements that companies must meet to avail 
themselves of certain exceptions from the shareholder approval 
requirements in Section 312.03); 84287 (Sept. 26, 2018) 83 FR 49599 
(Oct. 2, 2018) (Nasdaq-2018-008) (approving a Nasdaq proposal to 
change to the definition of market value for purposes of the 
shareholder approval rule and eliminate the requirement for 
shareholder approval of issuances at less than book value but 
greater than market value); 76814 (Dec. 31, 2015), 81 FR 0820 (Jan. 
7, 2016) (NYSE-2015-02) (approving amendments to the NYSE Listed 
Company Manual to exempt early stage companies from having to obtain 
shareholder approval in certain circumstances). See also Securities 
Exchange Act Release Nos. 48108 (June 30, 2003), 68 FR 39995 (Jul. 
3, 2003) (approving equity compensation shareholder approval rules 
of both the NYSE and the National Association of Securities Dealers, 
Inc. n/k/a NASDAQ); and 65225 (Aug. 30, 2011), 76 FR 55148 (Sept. 6, 
2011) (approving rules for the qualification, listing and delisting 
of companies on BATS, noting that qualitative listing requirements 
including shareholder approval rules are designed to ensure that 
companies trading on a national securities exchange will adequately 
protect the interest of public shareholders).
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    As discussed above, the Exchange proposes to amend Section 
312.03(b)(i)

[[Page 117]]

of the Manual to modify its application. Specifically, the Exchange 
proposes to limit the shareholder approval requirements of Section 
312.03(b)(i) of the Manual, which applies to issuances of common stock 
exceeding either one percent of the number of shares of common stock or 
one percent of the voting power outstanding before the issuance for a 
price below the Minimum Price,\22\ to require shareholder approval only 
for issuances to Active Related Parties, defined as directors, 
officers, controlling shareholders or members of a control group or any 
other substantial security holders \23\ of the company that have an 
affiliated person who is an officer or director of the company,\24\ and 
to no longer require shareholder approval under this provision for such 
issuances to Related Parties \25\ that are not Active Related Parties 
(i.e., substantial security holders that are not controlling 
shareholders or a member of a control group or that do not have an 
affiliated person who is an officer or director of the company). 
According to the Exchange, this change would allow substantial security 
holders who do not participate in the governance or management of the 
company (and who are thus not in the newly defined Active Related Party 
category) to acquire additional stock below the Minimum Price without 
the need for shareholder approval under Section 312.01(b(i), thus 
making it less burdensome for NYSE listed companies to raise additional 
capital quickly.\26\ The Exchange states its belief that transactions 
with substantial security holders that are not Active Related Parties 
generally do not give rise to the potential conflicts of interest in 
the determination of transaction terms that exist where the purchaser 
has a role in the listed company's board or management, as there is a 
lesser possibility that a substantial security holder that is not an 
Active Related Party may exercise influence over the terms of a 
transaction with the company if such substantial security holder does 
not have representation on the board or in management.\27\ The Exchange 
also proposes to adopt two new definitions under the revised rule for 
purposes of defining ``control'' and ``group.'' ``Control'' would be 
defined using the definition in Rule 12b-2 under the Act \28\ and 
``group'' (for purposes of control group) would be defined as a group 
as determined under Section 13(d)(3) or Section 13(g)(3) of the 
Act.\29\
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    \22\ ``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. See Section 312.04(h) of the Manual.
    \23\ Section 312.04(e) of the Manual provides that ``[a]n 
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.''
    \24\ See proposed amended Section 312.03(b)(i) of the Manual 
defining ``Active Related Party.''
    \25\ See Section 312.03(b)(i) of the Manual and proposed amended 
Section 312.03(b)(ii) of the Manual defining Related Party. In each 
case, ``Related Party'' is defined as ``a director, officer or 
substantial security holder of the company.''
    \26\ See supra Section II.A. Shareholder approval is required if 
any of the subparagraphs of Section 312.03 of the Manual apply 
notwithstanding the fact that the transaction does not require 
approval under on or more of the other subparagraphs. See Section 
312.04(a). As discussed below, these other shareholder approval 
provisions require approval for certain sales of discounted stock 
(i.e., below the Minimum Price) in private placements as well as 
sales of stock under certain situations regardless of whether or not 
such sale is below the Minimum Price.
    \27\ See supra Section II.A.
    \28\ Rule 12b-2 under Regulation 12B of the Exchange Act 
provides that ``[t]he term `control' (including the terms 
`controlling,' `controlled by' and `under common control with') 
means the possession, direct or indirect, of the power to direct or 
cause the direction of the management and policies of a person, 
whether through the ownership of voting securities, by contract, or 
otherwise.'' See supra note 14 and accompanying text.
    \29\ Section 13(d)(3) or Section 13(g)(3) provide: ``When two or 
more persons act as a [ ] group for the purpose of acquiring, 
holding, or disposing of [equity] securities of an issuer, the group 
shall be deemed a `person'. . . .'' The determination under Sections 
13(d)(3) and 13(g)(3) as to whether two or more persons are acting 
as a group does not depend solely on the presence of an express 
agreement. Depending on the particular facts and circumstances, 
concerted actions by two or more persons for the purpose of 
acquiring, holding--which includes voting--or disposing of 
securities of an issuer are sufficient to constitute the formation 
of a group. See supra note 13 and accompanying text.
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    After careful consideration, the Commission finds that the proposed 
rule change is consistent with the Act. As stated by the Exchange, the 
shareholder approval requirement in Section 312.03(b)(i) of the Manual 
protects against a potential conflict of interest when the acquirer of 
additional stock may have enough influence within the company to obtain 
superior terms from the company to the detriment of the company's 
shareholders as a whole.\30\ As amended, the shareholder approval 
requirement in Section 312.03(b)(i) of the Manual would continue to 
apply to below market sales of securities of greater than 1% to Active 
Related Parties (i.e., directors, officers, controlling shareholders or 
members of a control group or any other substantial security holders of 
the company that have an affiliated person \31\ who is an officer or 
director of the company). As a result, these Active Related Parties, 
that have a role in the listed company's board or management or are 
substantial security holders that exercise control and thus have a 
potential conflict of interest in connection with the negotiation of 
any purchase of stock, will continue to be subject to the shareholder 
approval requirements under Section 312.03(b)(i) of the Manual. 
Moreover, even though substantial security holders that are not Active 
Related Parties will no longer be subject to the shareholder approval 
requirement in Section 312.03(b)(i) of the Manual, they will continue 
to be subject to the other shareholder approval requirements set forth 
in Section 312.03 of the Manual, to the extent applicable.
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    \30\ See supra Section II.A.
    \31\ In determining whether a person is an affiliated person, 
the Exchange will consider all relevant facts and circumstances, 
including, but not limited to whether such person is an affiliate 
within the meaning of that term under the federal securities laws 
and rules thereunder. See supra note 12.
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    To make it clear that there are no changes being made to the 
application of the other shareholder approval requirements in Section 
312.03 of the Manual, the Exchange has specifically amended Section 
312.03(b)(ii) of the Manual to retain the definition of Related Party 
in order to clarify that a listed company selling securities to a 
Related Party (that includes a substantial security holder) \32\ under 
the circumstances set forth in that rule as amended would remain 
subject to the shareholder approval requirements set forth therein.\33\ 
By amending the proposal so that the substantive requirements of 
Section 312.03(b)(ii) of the Manual remain unchanged, the provision 
will continue to provide important investor protections for 
shareholders when a listed company is selling securities to a Related 
Party that has an interest, directly or indirectly, in

[[Page 118]]

the company or assets to be acquired or consideration to be paid.
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    \32\ See supra note 23.
    \33\ See supra Section II.A and proposed Section 312.03(b)(ii) 
of the Manual, as modified by Amendment No. 1. As discussed above, 
Section 312.03(b)(ii) of the Manual provides that shareholder 
approval is required prior to the issuance of common stock, or of 
securities convertible into or exercisable for common stock, where 
such securities are issued as consideration in a transaction or 
series of related transactions in which a Related Party has a five 
percent or greater interest (or such persons collectively have a ten 
percent 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 
common stock, could result in an issuance that exceeds either five 
percent of the number of shares of common stock or five percent of 
the voting power outstanding before the issuance.
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    The Commission also finds that the Exchange's proposed definitions 
of ``group'' and ``control'' in Sections 312.04(k) and (l) of the 
Manual for purposes of Section 312.03 of the Manual are consistent with 
the Act.\34\ The Exchange's proposed use of the standards under 
Sections 13(d)(3) and 13(g)(3) to determine the existence of a group is 
consistent with the guidance given by the Commission that ``[t]he 
appropriate legal standard for determining whether a group is formed is 
found in sections 13(d)(3) and 13(g)(3) [of the Act].'' \35\ The 
Commission further stated that ``[t]he determination depends on an 
analysis of all the relevant facts and circumstances and not solely on 
the presence or absence of an express agreement, as two or more persons 
may take concerted action or agree informally.'' \36\ The Exchange's 
proposed use of Rule 12b-2 to determine the existence of control also 
is reasonable and consistent with the Act given that definition applies 
to ``all reports filed pursuant to section[ ] 13 [ ] of the Act. . . 
.'' \37\
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    \34\ In its proposal, the Exchange stated that it will revise 
its internal procedures in reviewing proposed transactions as 
necessary to obtain the information necessary to determine whether 
shareholders participating in transaction are Active Related 
Parties. In addition, the Exchange stated that it will rely on the 
filings on Schedule 13D or Schedule 13G for purposes of determining 
the existence of a group, along with any additional follow-up 
inquiry that is needed. See supra Section II.A. The Commission 
believes this is reasonable and will help the Exchange ensure 
compliance with the revised rule.
    \35\ See Securities Exchange Act Release No. 98704 (Oct. 10, 
2023), 88 FR 76896 (Nov. 7, 2023), 76933.
    \36\ See id.
    \37\ See Rule 12b-1, which sets forth the scope of Regulation 
12B and provides that all rules contained in Regulation 12B, 
including Rule 12b-2, apply to such filings. For example, the 
Commission has enforced violations of Rule 12b-2 in Regulation 12B 
against beneficial owners for disclosure deficiencies in their 
Schedule 13D filings.
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    The Commission notes, in approving the proposal to amend the 
shareholder approval requirement in Section 312.03(b)(i) of the Manual, 
that the ability of listed companies to sell securities without 
shareholder approval continues to remain limited by other important 
Exchange rules.\38\ For example, the Commission notes that any 
discounted issuance of stock to a company's officers, directors, 
employees, or consultants would require shareholder approval under the 
Exchange's equity compensation rules.\39\ In addition, any listed 
company selling securities in a private placement that does not meet 
the Minimum Price requirement will remain subject to the shareholder 
approval requirement of Section 312.03(c) of the Manual if such 
transaction relates to 20 percent or more of the issuer's common stock 
or voting power.\40\ Section 312.03(c) of the Manual also requires 
shareholder approval for issuances of 20% or more of the common stock 
or the voting power in connection with an acquisition of the stock or 
assets of another company irrespective of whether the price meets or 
exceeds the Minimum Price. Furthermore, shareholder approval would be 
required if the issuance resulted in a change of control and, as 
discussed above, for the acquisition of stock or assets of another 
company where the issuance increases voting power or common shares by 
5% or more and a Related Party has a 5% direct or indirect interest (or 
collectively 10%) in the company or assets to be acquired.\41\
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    \38\ See, e.g., Section 312.03(a), (b)(ii), (b)(iii), (c) and 
(d) of the Manual. The Commission notes that if shareholder approval 
was not required under Section 312.03(b)(i) of the Manual, it could 
still be required under one of the other shareholder approval 
provisions in Section 312.03 of the Manual since these provisions 
apply independently of each other. See Section 312.04(a) of the 
Manual.
    \39\ See Sections 312.03(a), 312.03(b)(iii) and 303A.08 of the 
Manual.
    \40\ See Section 312.03(c) of the Manual.
    \41\ See Sections 312.03(d) and 312.03(b)(ii) of the Manual. See 
also, supra note 33 and accompanying text concerning Section 
312.03(b)(ii).
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    Finally, the Exchange also states its belief that Section 
312.03.(b)(i) as proposed to be amended would continue to provide a 
significant protection to shareholders against conflicts of interest in 
sales of securities to Active Related Parties and that no other listing 
exchange has such a requirement.\42\ The Exchange also represents that 
its shareholder approval requirements are as stringent as those of its 
competitor listing venues.\43\ The Commission is cognizant of the fact 
that the Exchange operates in a highly competitive environment 
including with respect to the listing of issuers. While the proposal 
would allow below market sales (i.e., below the Minimum Price) over one 
percent by listed companies to substantial security holders that are 
not Active Related Parties without shareholder approval, the other 
shareholder approval requirements remain unchanged and provide 
additional protections on the amount of shares that can be issued 
without a shareholder vote.\44\ Importantly, Active Related Parties, 
that have a role in the listed company's board or management or are 
substantial security holders that exercise control and thus have a 
potential conflict of interest in connection with the negotiation of 
any purchase of stock, will continue to be subject to the shareholder 
approval requirements under Section 312.03(b)(i) of the Manual. The 
proposal also will promote fair competition among listing exchanges. 
For the reasons discussed above, the Commission believes that the 
proposed rule change, as modified by Amendment No. 1, is consistent 
with the Act.
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    \42\ See, e.g., Nasdaq Rule 5635; NYSE American LLC Company 
Guide, Section 711-713.
    \43\ See supra Section II.A at note 16 and accompanying text.
    \44\ See, for example, Section 312 (b)(ii), (c) and (d) and 
supra notes 39-42 and accompanying text.
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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, as modified by Amendment No. 1, is consistent with the Act. 
Comments may be submitted by any of the following methods:

Electronic Comments

    <bullet> Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#f587809990d8969a9898909b8186b5869096db929a83"><span class="__cf_email__" data-cfemail="5022253c357d333f3d3d353e2423102335337e373f26">[email protected]</span></a>. Please include 
file number SR-NYSE-2023-34 on the subject line.

Paper Comments

    <bullet> 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-2023-34. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the 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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the

[[Page 119]]

Exchange. Do not include personal identifiable information in 
submissions; you should submit only information that you wish to make 
available publicly. We may redact in part or withhold entirely from 
publication submitted material that is obscene or subject to copyright 
protection. All submissions should refer to file number SR-NYSE-2023-34 
and should be submitted on or before January 23, 2024.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause, pursuant to Section 19(b)(2) of 
the Act, to approve the proposed rule change, as modified by Amendment 
No. 1, prior to the 30th day after the date of publication of Amendment 
No. 1 in the Federal Register. As discussed above, Amendment No. 1, the 
Exchange revised the proposal to: (1) adopt a new definition of an 
``Active Related Party'' in Section 312.03(b)(i) of the Manual and to 
retain the current definition of ``Related Party'' for purposes of 
Section 312.03(b)(ii) of the Manual; (2) adopt in Section 312.04 of the 
Manual definitions of ``control'' and ``group'' for purposes of 
proposed amended Section 312.03(b)(i) of the Manual; (3) include 
additional explanation of why the Exchange is proposing the rule change 
and believes that it is appropriate; (4) explain that the proposal 
would not have any substantive effect on the application of Section 
312.03(b)(ii) of the Manual and that a listed company selling 
securities to a Related Party under the circumstances set forth in 
312.03(b)(ii) of the Manual, as amended, would remain subject to the 
shareholder approval requirements therein; and (5) make other 
clarifying and conforming changes. The Commission believes that these 
revisions provide greater clarity on the application of the proposal 
and its scope and the circumstances under which shareholder approval is 
still required under Section 312.03 of the Manual. The additional 
explanation in support of the proposal as well as the amended rule 
language in Amendment No. 1 assist the Commission in evaluating the 
Exchange's proposal and in determining that it is consistent with the 
Act.
    Accordingly, the Commission finds good cause for approving the 
proposed rule change, as modified by Amendment No. 1, on an accelerated 
basis, pursuant to Section 19(b)(2) of the Act.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\45\ that the proposed rule change (SR-NYSE-2023-34), as modified by 
Amendment No. 1, be, and hereby is, approved.
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    \45\ 15 U.S.C. 78f(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\46\
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    \46\ 17 CFR 200.30-3(a)(12).
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Christina Z. Milnor,
Assistant Secretary.
[FR Doc. 2023-28796 Filed 12-29-23; 8:45 am]
BILLING CODE 8011-01-P


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