Document ID: SEC-2021-1182-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange, LLC
Posted Date: 2021-09-01T04:00Z

[Federal Register Volume 86, Number 167 (Wednesday, September 1, 2021)]
[Notices]
[Pages 49064-49066]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-18802]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92770; File No. SR-NYSE-2021-43]

Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Amending the Term ``Related Party Transactions'' Under Section 314.00 
of the NYSE Listed Company Manual

August 26, 2021.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on August 19, 2021, New York Stock Exchange LLC (``NYSE'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I 
and II below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.

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[[Page 49065]]

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

    The Exchange proposes to amend the provisions of Section 314.00 of 
the NYSE Listed Company Manual (``Manual'') in relation to the review 
and approval of related party transactions. 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
    Section 314.00 of the Manual provides that a company's audit 
committee or another independent body of the board of directors, shall 
conduct a reasonable prior review and oversight of all related party 
transactions for potential conflicts of interest and will prohibit such 
a transaction if it determines it to be inconsistent with the interests 
of the company and its shareholders. For purposes of this rule, the 
term ``related party transaction'' refers to transactions required to 
be disclosed pursuant to Item 404 of Regulation S-K under the Act (but 
without applying the transaction value threshold of that provision). In 
the case of foreign private issuers, the term ``related party 
transactions'' refers to transactions required to be disclosed pursuant 
to Item 7.B of Form 20-F (but without regard to the materiality 
threshold of that provision).
    Item 404 of Regulation S-K and Item 7.B of Form 20-F set forth the 
SEC's requirements for the disclosure of related party transactions by 
domestic issuers and foreign private issuers respectively. Related 
party transaction disclosures are required in a number of SEC filings, 
including annual reports and, in the case of domestic issuers, annual 
meeting proxy statements. Item 404 of Regulation S-K requires 
disclosure of a related party transaction when the amount involved in 
such transaction exceeds $120,000.\4\ Item 7.B of Form 20-F requires 
disclosure of transactions that are ``material to the company or the 
related party, or any transactions that are unusual in their nature or 
conditions'' and also of the amount of outstanding loans (including 
guarantees of any kind) made by the company, its parent or any of its 
subsidiaries to or for the benefit of a related party. The Exchange 
proposes to amend Section 314.00 to provide that the review and 
approval requirement of that rule will be applicable only to 
transactions that are required to be disclosed after taking into 
account the transaction value and materiality thresholds set forth in 
Item 404 of Regulation S-K or Item 7.B of Form 20-F, respectively, as 
applicable.
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    \4\ Item 404(c) separately sets forth the application of Item 
404 to promoters and certain control persons. Item 404(d) separately 
sets forth the application of Item 404 to smaller reporting 
companies.
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    The Exchange recently amended Section 314.00 to provide greater 
clarity as to the types of transactions that were specifically subject 
to review and approval under the rule.\5\ In adopting that amendment to 
Section 314.00, the Exchange sought to create greater clarity and 
certainty for issuers by specifying that the transactions subject to 
review would be those that were required to be disclosed pursuant to 
Item 404 of Regulation S-K or Form 20-F, Item 7.B, as applicable. 
However, the Exchange also specified in that amendment that related 
party transactions would be subject to review without regard to the 
transaction value or materiality thresholds included in the SEC's 
disclosure rules.
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    \5\ See Securities Exchange Act Release No. 91471 (April 2, 
2021); 86 FR 18362 (April 8, 2021) (SR-NYSE-2020-85).
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    In the period since the adoption of that amendment, it has become 
clear to the Exchange that the amended rule's exclusion of the 
applicable transaction value and materiality thresholds is inconsistent 
with the historical practice of many listed companies, and has had 
unintended consequences. The Exchange has learned that many listed 
companies have had a longstanding understanding that they were required 
to subject related party transactions to the review process required by 
Section 314.00 only if such transactions exceeded any applicable 
transaction value or materiality thresholds in the applicable SEC rules 
and therefore were required to be disclosed. This approach is embodied 
in the written related party transaction policies of many listed 
companies and is typically a part of the annual questionnaire completed 
by directors and officers in connection with the company's annual 
meeting. By not permitting the use of transaction value and materiality 
thresholds, the amendment to Section 314.00 has had the unintended 
effect of disrupting the normal course transactions of listed 
companies. Because of the amendment, many companies have been required 
to adopt for the first time two separate standards for related party 
transactions--one for disclosure and another for review and approval of 
transactions. This has created a significant compliance burden for 
issuers with respect to small transactions that are considered 
immaterial for purposes of other regulatory requirements. Furthermore, 
the Exchange believes that the review and approval of large numbers of 
immaterial transactions is not an effective use of the time of 
independent directors who have many other time-consuming oversight 
obligations with respect to matters that are higher risk and more 
material to the company.
    The Exchange notes that domestic listed companies are also required 
to comply with the requirements of Section 303A of the Manual with 
respect to director independence, including the bright line 
independence tests set forth in Section 303A.02(b). This proposal does 
not seek in any way to modify listed companies' obligation to comply 
with the independence requirements of Section 303A or listed companies' 
obligations to make disclosures to the Exchange with respect to their 
compliance with those obligations.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b)(5) of the Act,\6\ 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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    \6\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that it is consistent with the protection of

[[Page 49066]]

investors to amend Section 314.00 to conform the related party 
transactions that are subject to the review and approval requirements 
of Section 314.00 to those transactions that are subject to the 
applicable requirements of Item 404 of Regulation S-K and Item 7.B of 
Form 20-F. In adopting the applicable provisions of Regulation S-K and 
Form 20-F, the SEC determined which related party transactions must be 
publicly disclosed. The Exchange believes it is therefore consistent 
with the protection of investors to apply the same standards in 
determining which transactions should be subject to review and approval 
under Section 314.00. The Exchange notes that the Nasdaq Stock Market 
takes such an approach in its rule with respect to the review of 
related party transactions, which requires the review of transactions 
subject to disclosure under Item 404 of Regulation S-K and Item 7.B of 
Form 20-F, including the transaction value and materiality thresholds 
of those regulations.\7\
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    \7\ See Nasdaq Marketplace Rule 5630.
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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.
Intramarket Competition
    All companies listed on the NYSE will be subject to the amended 
form of Section 314.00. Therefore, the Exchange does not believe that 
the proposed amendment will have any meaningful effect on the 
competition among issuers listed on the Exchange.
Intermarket Competition
    The purpose of the proposed amendment is to provide for an 
efficient and transparent framework for the review and approval of 
related party transactions at all listed companies. As such, it is 
focused solely on corporate governance and is not intended to confer 
any commercial or competitive benefit on NYSE listed companies. In 
addition, the proposal substantively conforms Section 314.00 to the 
related party transaction approval rule of Nasdaq, the other primary 
listing venue for operating companies in the United States. For the 
foregoing reasons, the Exchange does not believe that the proposed 
amendment will have any meaningful effect on intermarket competition 
for the listing of operating companies.

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

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

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \8\ and Rule 19b-4(f)(6) thereunder.\9\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \10\ and Rule 19b-
4(f)(6) thereunder.\11\
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    \8\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \9\ 17 CFR 240.19b-4(f)(6).
    \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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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \12\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \12\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSE-2021-43 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-2021-43. 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-2021-43 and should be submitted on 
or before September 22, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021-18802 Filed 8-31-21; 8:45 am]
BILLING CODE 8011-01-P