Document ID: SEC-2018-0154-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange, LLC
Posted Date: 2018-01-26T05:00Z

[Federal Register Volume 83, Number 18 (Friday, January 26, 2018)]
[Notices]
[Pages 3794-3797]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-01420]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82566; File No. SR-NYSE-2018-04]

Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Its Listing Standard for Warrants in Section 703.12 of the 
Exchange's Listed Company Manual

January 22, 2018.
    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 January 11, 2018, New York Stock Exchange LLC (``NYSE'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the Exchange. 
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\ 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 amend its listing standard for warrants as 
set forth in Section 703.12 of the Exchange's Listed Company Manual 
(the ``Manual'') to create an exception to the prohibition on reducing 
the exercise price of listed warrants so as to permit exercise price 
reductions that are widely publicized and that continue in effect for 
at least 20 business days \3\ (or such longer period as may be required 
under the tender offer rules of the Securities and Exchange

[[Page 3795]]

Commission (``SEC'' or ``Commission'') and otherwise comply with any 
other applicable tender offer regulatory provisions under the federal 
securities laws, including Section 13(e) \4\ of the Act and Rule 13e-4 
\5\ under the Act. 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.
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    \3\ The term ``business day'' is used as defined in Rule 14d-
1(g)(3) under the Act (17 CFR 240.14d-1(g)(3)).
    \4\ 15 U.S.C. 78m(e).
    \5\ 17 CFR 240.13e-4.
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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
    The NYSE proposes to amend its listing standard for warrants as set 
forth in Section 703.12 of the Manual to create an exception to the 
prohibition on reducing the exercise price of listed warrants so as to 
permit exercise price reductions that are widely publicized and that 
continue in effect for at least 20 business days (or such longer period 
as may be required under the SEC's tender offer rules) and otherwise 
comply with any other applicable tender offer regulatory provisions 
under the federal securities laws, including Section 13(e) \6\ of the 
Act and Rule 13e-4 \7\ under the Act.\8\
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    \6\ 15 U.S.C. 78m(e).
    \7\ 17 CFR 240.13e-4.
    \8\ In order to be listed on the Exchange under Section 703.12, 
warrants must be issued to purchase a common equity security that is 
already listed or that will be listed concurrent with the warrants.
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    The Exchange's initial listing standards for warrants are set forth 
in Section 703.12(A) of the Manual. Section 703.12(A) of the Manual 
provides that the terms of listed warrants must not give the company 
the right to reduce the established price (i.e., the exercise price) 
for periods of time, or from time to time, during the life of the 
warrants. The Exchange has interpreted this prohibition broadly as 
prohibiting the taking of any other action which has the same economic 
effect as a reduction in the exercise price of the warrant.\9\
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    \9\ For example, the Exchange would view an exchange of common 
stock for outstanding warrants as a transaction prohibited by the 
rule if the economic benefit to the warrant holder of participating 
in the exchange was effectively the same as the benefit to the 
holder of exercising the warrants at a reduced exercise price. 
Similarly, an increase in the number of shares for which a warrant 
is exercisable without a related increase in the warrant exercise 
price is economically equivalent to a reduction in the exercise 
price.
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    The warrant listing standards of other exchanges either contain no 
limitation on the repricing of listed warrants \10\ or permit companies 
to reduce the price of their listed warrants subject to certain 
conditions.\11\ Specifically, the warrant listing standard of the 
Nasdaq Global Market (``Nasdaq'') set forth in Nasdaq Marketplace Rule 
5410 does not in any way restrict companies from reducing the exercise 
price of listed warrants. Separately, NYSE American permits reductions, 
but only if the reductions meet specific criteria. Specifically, 
Section 105(a) of the NYSE American Company Guide provides that NYSE 
American will not list warrants containing provisions which give the 
company the right, at its discretion, to reduce the exercise price of 
the warrants for periods of time, or from time to time, during the life 
of the warrants unless the company establishes a minimum period of ten 
business days within which such price reduction will be in effect. 
Section 105(a) specifies that this policy does not preclude the listing 
of warrants for which regularly scheduled and specified changes in the 
exercise price have been previously established.\12\
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    \10\ See Nasdaq Marketplace Rule 5410.
    \11\ See NYSE American Company Guide Section 105(a).
    \12\ While the applicable Nasdaq and NYSE American rules do not 
address the requirements of the SEC's tender offer rules with 
respect to temporary reductions in the exercise price of warrants, 
companies listed on Nasdaq and NYSE American that reduce the 
exercise price of listed warrants are required to comply with the 
twenty business day minimum offering period required under the 
tender offer rules. The applicable SEC tender offer rules are 
described in detail below.
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    The Exchange proposes to amend Section 703.12(A) to provide an 
exception to its prohibition on the reduction in the exercise price of 
listed warrants subject to similar conditions to those set forth in the 
warrant listing standard of NYSE American, except that any reduction in 
the exercise price of a listed series of warrants would be required to 
be in effect for a minimum period of 20 business days rather than the 
10 day period required by the NYSE American rule. In addition, the 
Exchange proposes to require any company that reduces the exercise 
price of a listed series of warrants to promptly give public notice of 
the reduction in exercise price in a manner consistent with the 
Exchange's immediate release policy set forth in Section 202.06 of the 
Manual.\13\ The Exchange also proposes to add to Section 703.12(A) a 
statement that these policies will not preclude the listing of warrant 
issues for which regularly scheduled and specified changes in the 
exercise price have been previously established at the time of issuance 
of the warrants. Notwithstanding the foregoing, the Exchange will not 
list any warrants under Section 703.12 whose exercise price is subject 
to possible modification for reasons other than scheduled and specified 
changes established at the time of issuance.
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    \13\ The Exchange proposes to include text in the proposed 
amended rule: (i) Specifying that it will apply these requirements 
to the taking of any other action which has the same economic effect 
as a reduction in the exercise price of a listed warrant and (ii) 
requiring that any issuer of listed warrants including a provision 
providing for repricings must undertake to comply with any 
applicable tender offer regulatory provisions under the federal 
securities laws, including a minimum period of 20 business days 
within which such price reduction will be in effect (or such longer 
period as may be required under the SEC's tender offer rules).
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    A reduction in the exercise price of publicly-traded warrants for a 
limited time period is deemed to be a tender offer by the SEC staff and 
is therefore subject to the requirements of the SEC's tender offer 
rules as set forth in Regulation 14E under the Exchange Act.\14\ SEC 
Rule 14e-1(a) \15\ requires that any tender offer subject to Regulation 
14E be held open for at least 20 business days. SEC Rule 14e-1(b) \16\ 
provides for certain circumstances in which a tender offer period must 
be extended beyond that initial 20 business day period. Rule 14e-1(c) 
\17\ under the Act requires securityholders to be paid promptly after 
tendering their securities into a tender offer. In addition, all tender 
offers for listed warrants will be subject to Section 13(e) of the Act, 
Rule 13e-4 under the Act, Section 14(e) of the Act, and Regulation 14E 
under the Act.
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    \14\ 17 CFR 240.14e-1 et seq.
    \15\ 17 CFR 240.14e-1(a).
    \16\ 17 CFR 240.14e-1(b).
    \17\ 17 CFR 240.14e-1(c).
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    The Exchange's proposal that any repricing of listed warrants be 
held open for at least 20 business days, or such longer period as may 
be required by the SEC's tender offer rules, would be consistent with 
the SEC's tender offer rules. The Exchange also believes that the 
proposed 20 business day minimum notice requirement would ensure that 
warrant holders have a reasonable

[[Page 3796]]

amount of time to consider the advisability of exercising their 
warrants during the period in which the reduced exercise price is in 
effect and that warrant holders will therefore not be under 
unreasonable pressure to make a hasty, ill-informed investment 
decision. The Exchange also proposes to require that any listed company 
that reduces the exercise price of listed warrants announce that fact 
in a manner consistent with the Exchange's policies with respect to the 
dissemination of material news as set forth in Section 202.06 of the 
Manual. The Exchange believes that this requirement would give all 
warrant holders appropriate notice and the ability to avail themselves 
of the lower exercise price if they so desire.
    The Exchange's warrant listing standard has been in place for many 
years and the Exchange has not been able to ascertain the basis for 
inclusion in that listing standard of the provision which it proposes 
to amend in this filing. However, the Exchange notes that the American 
Stock Exchange (``Amex'') had a similar requirement in its own warrant 
listing standard until it adopted the rule currently in effect at NYSE 
American in 1986. In the SEC's notice of that Amex filing,\18\ the SEC 
noted that the Amex had stated in its filing that:
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    \18\ See Securities Exchange Act Release No. 22581 (October 29, 
1985); 50 FR 46376 (November 7, 1985) (SR-Amex-85-35). The filing 
was approved in Securities Exchange Act Release No. 22777 (January 
8, 1986); 51 FR 2613 (January 17, 1986).

    The primary impetus for adopting this prohibition arose from a 
perception that management's unfettered ability to temporarily 
reduce the exercise price would add a further element of speculation 
to an instrument already viewed as having inherent speculative 
qualities. Today, however, with the growth of new securities and 
commodities products, warrants are no longer viewed as being the 
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speculative instruments they once were.

    The Exchange notes that there may be valid reasons for a reduction 
in the exercise price of listed warrants, that such reductions are not 
uncommon among companies listed on other listing exchanges, and that it 
has found no evidence that these exercise price reductions have 
generally been controversial. The Exchange believes that the board of a 
listed company is best positioned to determine whether a reduction in 
the exercise price of the company's outstanding warrants is in the best 
interests of shareholders and therefore believes that a general 
prohibition on such reductions is unnecessarily restrictive as it 
completely deprives a listed company board of the discretion to make 
such a determination. The Exchange believes it is appropriate to 
provide companies with the flexibility to make these determinations and 
that the state law fiduciary duties of officers and directors of listed 
companies would provide significant protection to shareholders against 
the possibility of inappropriate exercises of discretion by company 
boards and management in relation to reductions in warrant exercise 
prices. Given (i) the significant protections afforded to shareholders 
by the fiduciary duties of the boards and management of listed 
companies, (ii) the protections provided to warrant holders by the 
inclusion of a notice requirement and a minimum period, and (iii) the 
fact that the proposed amendment is consistent with the tender offer 
rules, the Exchange believes that the proposed amendment is consistent 
with the protection of investors and the public interest.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) \19\ of the Act, in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\20\ 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.
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    \19\ 15 U.S.C. 78f(b).
    \20\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed amendment is consistent 
with the investor protection objectives of Section 6(b)(5) because: (i) 
There may be valid business reasons for a listed company to reduce the 
exercise price of its listed warrants and the company's board is best 
positioned to make this determination in light of its fiduciary duties, 
so a general prohibition is not in the best interests of shareholders; 
(ii) the proposed requirement that the price reduction must stay in 
effect for 20 business days or such longer period as required by the 
SEC's tender offer rules would give the warrant holders a reasonable 
amount of time to consider the advisability of exercising their 
warrants during the period in which the reduced exercise price was in 
effect and warrant holders would therefore not be under unreasonable 
pressure to make a hasty, ill-informed investment decision; and (iii) 
the proposed requirement that any listed company which reduces the 
exercise price of listed warrants must announce that fact in a manner 
consistent with the Exchange's material news dissemination policies 
would give all warrant holders appropriate notice and the ability to 
avail themselves of the lower exercise price if they so desired.
    The requirement that any warrant repricing under the proposed 
amendment must be held open for at least 20 business days (or such 
longer period as is required under the SEC's tender offer rules) and 
that the company must undertake to comply with applicable tender offer 
regulatory provisons [sic] would ensure that any warrant repricing 
under the proposed amendment would be in compliance with Section 13(e) 
of the Act, Rule 13e-4 under the Act, Section 14(e) of the Act, and 
Regulation 14E under the Act.
    The addition to the rule of language stating that the Exchange will 
apply its requirements with respect to warrant repricings to the taking 
of any other action which has the same economic effect as a reduction 
in the exercise price of a listed warrant is consistent with the Act as 
it simply codifies a longstanding interpretation of the rule by the 
Exchange.

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 purpose of the Act. The purpose of the proposed 
rule change is to permit listed companies to adjust the exercise price 
of listed warrants in a manner that is consistent with the SEC's tender 
offer rules and permitted by the rules of the other listing markets. As 
such, the Exchange believes the proposed rule change does not impose 
any burden on competition.

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) of the Act \21\ and Rule 19b-4(f)(6) thereunder.\22\ 
Because the proposed rule change does not: (i)

[[Page 3797]]

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 and Rule 19b-
4(f)(6) thereunder.\23\
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    \21\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \22\ 17 CFR 240.19b-4(f)(6).
    \23\ 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 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.

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 [email protected]. Please include 
File Number SR-NYSE-2018-04 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-2018-04. 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 such 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-2018-04, and should be submitted on 
or before February 16, 2018.
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    \24\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-01420 Filed 1-25-18; 8:45 am]
 BILLING CODE 8011-01-P