Document ID: SEC-2020-0680-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange, LLC
Posted Date: 2020-04-29T04:00Z

[Federal Register Volume 85, Number 83 (Wednesday, April 29, 2020)]
[Notices]
[Pages 23875-23878]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-09050]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88736; File No. SR-NYSE-2020-38]

Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Modify Its Application of the Proxy Delivery Requirements of NYSE Rule 
451(b)(1) Through and Including May 31, 2020

April 23, 2020.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that on April 23, 2020, New York Stock Exchange LLC (``NYSE'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to modify its application of the proxy 
delivery requirements of NYSE Rule 451(b)(1) through and including May 
31, 2020. The proposed rule change is available on the Exchange's 
website at www.nyse.com, at the principal office of the Exchange, and 
at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    NYSE Rule 452 provides for limited circumstances in which a member 
organization may vote shares it holds on behalf of its ``street'' name 
customers when the beneficial owner has not provided voting 
instructions with respect to certain ``routine'' matters. This ability 
on the part of member organizations is subject to certain limitations, 
including the requirement of Rule 451(b)(1) that the proxy materials 
mailed to beneficial holders include the following disclosure:

    A request for voting instructions and, as to matters which may 
be voted without instructions under Rule 452, a statement to the 
effect that, if such instructions are not received by the tenth day 
before the meeting, the proxy may be given at discretion by the 
owner of record of the stock; provided, however, that such statement 
may be made only when the proxy soliciting material is transmitted 
to the beneficial owner of the stock or to the beneficial owner's 
designated investment adviser, at least fifteen days before the 
meeting. When the proxy soliciting

[[Page 23876]]

material is transmitted to the beneficial owner of the stock or to 
the beneficial owner's designated investment adviser twenty-five 
days or more before the meeting, the statement accompanying such 
material shall be to the effect that the proxy may be given fifteen 
days before the meeting at the discretion of the owner of record of 
the stock.

    The ability of member organizations to vote on ``routine'' matters 
serves an important purpose for many public companies. The low level of 
voting response from ``street'' name account holders to proxy 
solicitations means that it is often difficult for companies to meet 
applicable quorum requirements under state law, the company's 
constitutive documents or stock exchange rules. However, the ability of 
member organizations to vote on routine items in the absence of 
beneficial owner proxy voting instructions enables beneficial owners to 
be counted as present for quorum purposes for the meeting as a whole 
even if they do not submit voting instructions and therefore enables 
companies to conduct all required business at their shareholder 
meetings. Generally, Rule 452 does not allow member organizations to 
vote uninstructed shares on nonroutine matters, so the voting of those 
shares by member organizations with respect to routine matters does not 
generally affect the outcome of any vote of any importance to the 
company and its shareholders, while facilitating the effective conduct 
of shareholder meetings.
    The Exchange has been made aware that the recent ongoing spread of 
the COVID-19 virus throughout the United States and the social 
distancing and stay-at-home measures imposed by many state and local 
governments has severely disrupted the operations of the primary 
intermediary responsible for distributing proxy materials on behalf of 
member organizations. The primary intermediary has informed the 
Exchange that it is having difficulty in some cases meeting the 
specification of Rule 451(b)(1) to transmit proxy materials to 
beneficial owners at least 15 days prior to shareholder meetings, due 
to delays in receiving the printed materials from issuers for 
distribution and also because its own processing times have been slowed 
down by reduced staffing levels caused by the disruption associated 
with the spread of COVID-19.
    The Exchange is concerned about the effect on the ability of 
companies to hold shareholder meetings that may arise out of the 
current difficulties being experienced in transmitting proxy materials 
no later than the 15 days in advance of the meeting specified in Rule 
451(b)(1). The Exchange notes that it has been the practice since at 
least the 1990s to apply Rule 451(b)(1) on the basis that member 
organizations may not vote any uninstructed shares if the mailing of 
any of the required physical proxy materials is made later than 15 days 
before the meeting, including shares whose beneficial owner opted for 
electronic delivery and to whom the materials are transmitted 
electronically on a timely basis.\4\ Consequently, many companies may 
have difficulty meeting applicable quorum requirements for their 
scheduled shareholder meetings.
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    \4\ The Exchange understands that proxy materials are delivered 
electronically to the beneficial owners of approximately 84% of all 
shares and approximately 43% of shares held by retail investors, 
according to data provided by the primary intermediary with respect 
to the 12 months ended June 30, 2018.
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    The primary intermediary has informed the Exchange that it would 
need to undertake significant systems development work to be able to 
differentiate for voting purposes those shares whose beneficial owners 
are sent timely electronic distributions from those shares whose 
beneficial owners are sent physical distributions that are mailed fewer 
than fifteen days before a shareholder meeting. As this development 
work would likely take months to complete, it is not possible during 
the upcoming proxy season, occurring during the current crisis, to 
allow the voting of uninstructed shares of a company where the 
materials are transmitted no later than 15 days in advance of the 
meeting and to disallow the voting on uninstructed shares where the 
materials were transmitted past that deadline.
    To alleviate the problem described above, the Exchange proposes to 
modify its application of Rule 451(b)(1) temporarily for shareholder 
meetings occurring on or before May 31, 2020. As proposed, the Exchange 
would permit member organizations to vote uninstructed shares as long 
as proxy materials are transmitted to beneficial owners no later than 
10 days prior to the shareholder meeting, rather than the fifteen day 
period required by the text of the rule. All of the other requirements 
and limitations associated with voting by member organizations would 
continue to be applied during this period. The Exchange expects that 
best efforts will be made to ensure that transmissions of proxy 
materials will continue to be made prior to the fifteenth day before 
the meeting whenever possible, either in whole or in part. In 
particular, the Exchange expects electronic transmissions of proxy 
materials to continue to be made within the normal time frames provided 
by the rule.
    In order to rely on the proposed relief, the intermediary acting as 
agent for the member organization will be required to post prominently 
on its website the following disclosures:
     that it is experiencing operational challenges as a result 
of the disruptive effects of COVID-19 and is therefore experiencing 
difficulty in some cases in transmitting proxy materials to beneficial 
owners at least 15 days prior to shareholder meeting dates;
     as a consequence, it is relying on relief provided by the 
NYSE to shorten from 15 days to 10 days the period required under Rule 
451(b)(1) that proxy materials must be transmitted to beneficial owners 
in order for the member organization to be permitted to vote its 
customers' uninstructed shares on routine matters; \5\
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    \5\ The intermediary should provide a link on its website to 
this filing as posted on nyse.com.
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     a list of the companies whose proxy distributions are 
affected, including the meeting date and the date on which the 
transmission was completed; and
     a statement encouraging beneficial owners to submit their 
voting instructions through the electronic or telephonic means, if any, 
described in the request for voting instructions sent by the member 
organization to ensure that such instructions are received in advance 
of the shareholder meeting.
    While the Exchange believes that the proposed temporary 
modification of Rule 451(b)(1) would provide significant relief to 
issuers during the ongoing COVID-19 crisis by enabling them to conduct 
their shareholder meetings as planned, it does not believe that it 
would have a significant effect on the voting right of beneficial 
owners or the outcome of any material proposals voted on at those 
meetings. First, a high percentage of ``street'' name shareholders of 
most public companies elect to receive electronic delivery of proxy 
materials and vote by electronic means. The electronic distributions to 
those shareholders would not be delayed as a result of the proposed 
accommodation. Second, a significant percentage of shareholders who 
receive physical distributions of proxy materials and vote, vote 
through the internet or by phone,\6\ so the Exchange believes that the 
rule as modified would continue to provide adequate time for most

[[Page 23877]]

beneficial owners to review their proxy materials and vote on a timely 
basis. The Exchange also notes that Rule 452 generally prohibits member 
organizations from voting material matters such as director elections 
(other than an uncontested election of a director of an investment 
company registered under the Investment Company Act of 1940 (the 
``Investment Company Act'')) \7\ and equity compensation plans and that 
member organizations can vote only on routine matters such as the 
ratification of auditors (which is generally included on a meeting 
agenda precisely to ensure the presence of all shares held in brokerage 
accounts for quorum purposes).
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    \6\ Based on information provided by the primary intermediary 
for the 12 months ended December 24, 2019, the Exchange understands 
that approximately 30% of the shares owned by retail shareholders 
are voted. Of the voted amount, 26% are voted by paper vote 
instruction form and 74% are voted by electronic methods including 
internet or phone.
    \7\ See Rule 452, Supplementary Material .11, subsections (2) 
and (19).
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    Rule 451(b) provides that the member organization as record holder 
may give a proxy to vote shares if the beneficial owner has not 
provided voting instructions before the tenth day preceding the 
shareholder meeting. However, the number of shares included in the 
member organization's proxy is adjusted over the period right up to the 
time of the meeting to reflect the ability of beneficial owners to 
continue to provide instructions throughout that period. Supplementary 
Material .20 to Rule 451 includes forms of letters to be sent to 
beneficial owners when soliciting voting instructions. The forms of 
letters provided include the following provision:

    If we do not hear from you by the tenth day before the meeting, 
we may vote your shares in our discretion to the extent permitted by 
the rules of the Exchange. If you are unable to communicate with us 
by such date, we will, nevertheless follow your voting instructions, 
even if our discretionary vote has already been given, provided your 
instructions are received prior to the stockholders' meeting.

    During the period of the proposed relief from the 15-day 
requirement, the forms of letters included in proxy mailings must 
clearly emphasize the ability of beneficial owners to provide voting 
instructions right up to the time of the meeting.

2. Statutory Basis

    The proposed rule change is consistent with Section 6(b) of the 
Act,\8\ in general, and furthers the objectives of Section 6(b)(5) of 
the Act,\9\ in particular, in that it is designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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    The proposed rule change is designed to provide significant relief 
to issuers during the ongoing COVID-19 crisis by enabling them to 
conduct their shareholder meetings as planned. The Exchange believes 
that the proposed rule change is consistent with the protection of 
investors because it would not have a significant effect on the voting 
rights of beneficial owners or the outcome of any material proposals 
voted on at shareholder meetings. The Exchange notes that a high 
percentage of ``street'' name shareholders of most public companies 
elect to receive electronic delivery of proxy materials and vote by 
electronic means. Electronic distributions to those shareholders would 
not be delayed as a result of the proposed accommodation. In addition, 
a significant percentage of shareholders who receive physical 
distributions of proxy materials and vote, vote through the internet or 
by phone, so the Exchange believes that the rule as modified would 
continue to provide adequate time for beneficial owners to review their 
proxy materials and vote on a timely basis. The Exchange also notes 
that Rule 452 generally prohibits member organizations from voting 
material matters such as director elections and equity compensation 
plans and that member organizations can vote only on routine matters 
such as the ratification of auditors (which is generally included on a 
meeting agenda precisely to ensure the presence of all shares held in 
brokerage accounts for quorum purposes).

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

    The Exchange does not believe that the proposed rule change would 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed rule change is 
not designed to address any competitive issues but rather is designed 
to provide limited relief to member organizations and issuers in 
relation to difficulties experienced in distributing proxy materials 
during the current ongoing COVID-19 crisis.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \10\ and Rule 19b-
4(f)(6) thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \12\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \13\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has asked the Commission to waive the 30-day operative delay so that 
the proposed rule change may become operative immediately upon filing. 
According to the Exchange, the proposed rule change would provide 
significant relief to issuers during the ongoing COVID-19 crisis by 
enabling them to conduct their shareholder meetings as planned given 
the current difficulties being experienced transmitting proxy 
materials. As noted above, the proposed rule change would temporarily 
permit member organizations until May 31, 2020 to vote uninstructed 
shares on routine matters pursuant to NYSE Rule 452 provided that such 
materials are transmitted to beneficial owners no later than 10 days 
prior to the shareholder meeting, instead of 15 days in advance of a 
meeting. The Exchange stated, among other things, that member 
organizations can only vote on routine matters under its rules and that 
the proposal would not have a significant effect on the outcome of any 
material proposals voted on at shareholder meetings. The Exchange 
further stated that the waiver of the 30-day operative delay will help 
companies plan, and meet quorum requirements, for shareholder meetings 
during the upcoming proxy season.
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    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ 17 CFR 240.19b-4(f)(6)(iii).

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[[Page 23878]]

    The Commission notes that while the proposed rule change provides 
temporary relief in the event that there are delays in distributing 
proxy materials as a result of COVID-19, the Exchange and the 
Commission expect that best efforts will be made to ensure that 
transmissions of proxy materials will continue to be made prior to the 
15th day before the meeting. To the extent that materials cannot be 
distributed prior to the 15th day, the Commission notes that the 
conditions set forth above requiring, in part, the intermediary acting 
on behalf of a member organization to disclose prominently on its 
website that it is experiencing operational challenges as a result of 
COVID-19, identify the companies whose proxy distributions are 
affected, and encourage beneficial owners to submit their vote by 
electronic or telephone means to ensure their instructions are received 
in advance of the shareholder meeting should help to ensure beneficial 
owners have adequate time to review their proxy material and vote on a 
timely basis.
    Moreover, the Commission notes that, as discussed above, proxy 
materials are delivered electronically to the beneficial owners of 84% 
of all shares,\14\ and that the Exchange expects electronic 
transmissions of proxy materials to continue to be made within the 
normal time frames provided by its rule. In addition, according to the 
Exchange, a significant percentage of shareholders who receive physical 
distributions of proxy materials and vote, vote through the internet or 
by phone, so the rule as modified would continue to provide adequate 
time for most beneficial owners to review their proxy materials and 
vote on a timely basis.\15\ The proposal also only continues to allow 
member organizations to vote uninstructed shares on routine matters in 
accordance with Exchange Rule 452. The Commission also notes that the 
proposal is a temporary measure designed to respond to current, unusual 
market conditions. For these reasons, the Commission believes that 
waiver of the 30-day operative delay is consistent with the protection 
of investors and the public interest. Therefore, the Commission hereby 
waives the operative delay and designates the proposal as operative 
upon filing.\16\
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    \14\ See supra note 4.
    \15\ See supra note 6 and accompanying text.
    \16\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments:

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSE-2020-38 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

    All submissions should refer to File Number SR-NYSE-2020-38. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSE-2020-38 and should be submitted on 
or before May 20, 2020.
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    \17\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-09050 Filed 4-28-20; 8:45 am]
BILLING CODE 8011-01-P