Document ID: SEC-2020-1364-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2020-08-25T04:00Z

[Federal Register Volume 85, Number 165 (Tuesday, August 25, 2020)]
[Notices]
[Pages 52392-52394]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-18559]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89615; File No. SR-NYSE-2020-67]

Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change To Amend Article IV, Section 
4.05 of the Thirteenth Amended and Restated Operating Agreement of the 
Exchange

August 19, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on August 7, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Article IV, Section 4.05 of the 
Thirteenth Amended and Restated Operating Agreement of the Exchange 
(``Operating Agreement''), to allow the use of regulatory fines for 
charitable donations, and to make additional conforming and non-
substantive edits. 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Article IV, Section 4.05 (Limitation 
on Distributions) of the Exchange's Operating Agreement to allow the 
use of regulatory fines for charitable donations, and to make 
additional conforming and non-substantive edits.
    Currently, regulatory fines and other regulatory income may only be 
used to fund the Exchange's legal, regulatory and surveillance 
operations, and may not be distributed.\3\ However, the size of a 
regulatory fine is not related to the regulatory or legal budget of the 
Exchange. Rather, it is tailored to address the misconduct at issue in 
the matter for which it is levied. As a result, there may be times when 
the amount of the regulatory fines collected by the Exchange regulatory 
staff, when combined with regulatory fees and other regulatory income, 
is greater than the amount needed to fund the legal, regulatory and 
surveillance operations. The Exchange proposes that on such occasions 
it be able to distribute money obtained from regulatory fines to 
charity.
---------------------------------------------------------------------------

    \3\ See Thirteenth Amended and Restated Operating Agreement of 
New York Stock Exchange LLC, Art. IV, Sec. 4.05; see also Securities 
Exchange Act Release No. 79115 (October 18, 2016), 81 FR 73187 
(October 24, 2016) (SR-NYSE-2016-66) (Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change Amending Article IV, Section 
4.05 of the Tenth Amended and Restated Operating Agreement of the 
Exchange).
---------------------------------------------------------------------------

    The Exchange proposes that any such charitable donations be subject 
to approval by the Regulatory Oversight Committee (``ROC''). All ROC 
members are members of the Board of Directors that meet the 
requirements of the independence policy of the Exchange, and the ROC is 
charged with reviewing the regulatory budget of the Exchange and 
inquiring into the adequacy of resources available in the budget for 
regulatory activities.\4\
---------------------------------------------------------------------------

    \4\ See Operating Agreement, Article II, Section 2.03(h)(ii) and 
Securities Exchange Act Release No. 75288 (June 24, 2015), 80 FR 
37316 (June 30, 2015) (SR- NYSE-2015-27) (Notice of Filing of 
Proposed Rule Change Amending the Eighth Amended and Restated 
Operating Agreement of the Exchange To Establish a Regulatory 
Oversight Committee as a Committee of the Board of Directors of the 
Exchange and Make Certain Conforming Amendments to Exchange Rules). 
The independence policy is subject to Commission review. See 
Securities Exchange Act Release No. 85913 (May 22, 2019), 84 FR 
24853 (May 29, 2019) (SR-NYSE-2019-27) (Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change To Amend the 
Independence Policy of the Board of Directors of the Exchange).

---------------------------------------------------------------------------

[[Page 52393]]

    Accordingly, the Exchange proposes to amend Section 4.05 as follows 
---------------------------------------------------------------------------
(proposed additions italicized):

    Any regulatory assets or any regulatory fees, fines or penalties 
collected by the Company's regulatory staff will be applied to fund 
the legal, regulatory and surveillance operations of the Company, 
and the Company shall not distribute such assets, fees, fines or 
penalties to the Member or any other entity, with the exception that 
regulatory fines may be used to make charitable donations, subject 
to approval by the ROC.

    The Exchange believes that the proposed change would be consistent 
with previous rules of the Exchange regarding fine income. 
Specifically, between 2007 and 2016 the Exchange was subject to certain 
internal procedures regarding the use of fine income (the ``Fine Income 
Procedures'').\5\ The Fine Income Procedures provided that the NYSE 
Regulation, Inc. Board of Directors could determine to use unused fine 
income that had accumulated beyond a level reasonably necessary for 
future contingencies for a charitable purpose.\6\ The ROC assumed that 
responsibility from the Board of Directors of NYSE Regulation, Inc.\7\
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 78326 (July 14, 
2016), 81 FR 47184 (July 20, 2016) (SR-NYSE-2016-37) (Order 
Approving Proposed Rule Change Removing From Its Rules Certain 
Internal Procedures Regarding the Use of Fine Income).
    \6\ See Securities Exchange Act Release No. 77899 (May 24, 
2016), 81 FR 34393 (May 31, 2016) (SR-NYSE-2016-37) (Notice of 
Filing of Proposed Rule Change Removing From Its Rules Certain 
Internal Procedures Regarding the Use of Fine Income).
    \7\ See 80 FR 37316, supra note 4, at note 25.
---------------------------------------------------------------------------

    The Exchange proposes to make technical and conforming changes to 
the recitals and signature page of the Operating Agreement.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Exchange Act \8\ in general, and Section 
6(b)(1) \9\ in particular, in that it enables the Exchange to be so 
organized as to have the capacity to be able to carry out the purposes 
of the Exchange Act and to comply, and to enforce compliance by its 
exchange members and persons associated with its exchange members, with 
the provisions of the Exchange Act, the rules and regulations 
thereunder, and the rules of the Exchange. The Exchange believes that 
the proposed rule change also is consistent with Section 6(b)(4),\10\ 
which requires that the rules of the exchange provide for the equitable 
allocation of reasonable dues, fees, and other charges among the 
exchange's members and issuers and other persons using its facilities, 
and Section 6(b)(5),\11\ which requires that the rules of the 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.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(1).
    \10\ 15 U.S.C. 78f(b)(4).
    \11\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed change would allow the 
Exchange to be so organized as to comply, and to enforce compliance by 
its exchange members and persons associated with its exchange members, 
with the provisions of the Exchange Act, the rules and regulations 
thereunder, and the rules of the Exchange, because the proposed change 
would recognize that the size of a regulatory fine is not related to 
the regulatory or legal budget of the Exchange, and as a result there 
may be times when the amount of the regulatory fines collected by the 
Exchange regulatory staff, when combined with regulatory fees and other 
regulatory income, is greater than the amount needed to fund the legal, 
regulatory and surveillance operations. In such a case, the proposed 
change would give the Exchange the option to make charitable donations 
using regulatory fines.
    The Exchange believes that it would be appropriate to permit 
charitable donations because such donations would not be commercial in 
nature. Indeed, by keeping them unavailable for commercial 
distributions or other commercial purposes, the proposed amended 
Section 4.05 would continue to ``guard against the possibility that 
fines may be assessed to respond to budgetary needs rather than to 
serve a disciplinary purpose.'' \12\ It would ``continue to help ensure 
that the Exchange does not inappropriately use its regulatory assets, 
fees, fines or penalties for commercial purposes or to distribute such 
assets, fees, fines or penalties to its direct parent, NYSE Group, 
Inc., or to any other entity.'' \13\
---------------------------------------------------------------------------

    \12\ 81 FR 34393, supra note 6, at 34395, citing Securities 
Exchange Act Release No. 55216 (January 31, 2007), 72 FR 5779 
(February 7, 2007) (NYSE-2006-109), at 5780.
    \13\ 81 FR 47184, supra note 5, at 47187.
---------------------------------------------------------------------------

    For the same reasons, the Exchange believes that the proposed 
change would provide for the equitable allocation of reasonable dues, 
fees, and other charges among the Exchange's members.
    The Exchange believes that the proposed change would promote just 
and equitable principles of trade, remove impediments to, and perfect 
the mechanism of a free and open market and a national market system 
and, in general, protect investors and the public interest because 
requiring ROC approval would facilitate an independent assessment of 
proposed charitable donations using regulatory fines. The Exchange 
believes that it is appropriate to have the ROC evaluate proposed 
charitable donations not only because its members are independent, but 
also because the ROC is responsible for overseeing the Exchange's 
regulatory and self-regulatory organization responsibilities and 
assessing its regulatory performance, including reviewing the 
regulatory budget of the Exchange and inquiring into the adequacy of 
resources available in the budget for regulatory activities.\14\ As a 
result, the ROC would be able to evaluate a proposed charitable 
donation within the context of the Exchange's regulatory 
responsibilities and resources. Indeed, as it has previously noted, the 
Exchange ``believes that the responsibility to assure the proper 
exercise by Exchange regulatory staff of the Exchange's power to fine 
member organizations . . . properly lies with the ROC . . . .'' \15\ 
That responsibility extends to the proposed use of regulatory fines.
---------------------------------------------------------------------------

    \14\ See Operating Agreement, Article II, Section 2.03(h)(ii).
    \15\ 81 FR 34393, supra note 6, at 34397.
---------------------------------------------------------------------------

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 Exchange Act. The proposed rule 
change is not intended to address competitive issues but rather is 
concerned solely with the administration and functioning of the 
Exchange.

[[Page 52394]]

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

    Within 45 days of the date of publication of this notice in the 
Federal Register, or such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be 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-2020-67 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-2020-67. 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-2020-67, and should be submitted on 
or before September 15, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
---------------------------------------------------------------------------

    \16\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-18559 Filed 8-24-20; 8:45 am]
BILLING CODE 8011-01-P