Document ID: SEC-2020-2027-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2020-12-21T05:00Z

[Federal Register Volume 85, Number 245 (Monday, December 21, 2020)]
[Notices]
[Pages 83119-83121]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28010]

[[Page 83119]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90677; File No. SR-NYSE-2020-96]

Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change Amending Its Rules 
Establishing Maximum Fee Rates To Be Charged by Member Organizations 
for Forwarding Proxy and Other Materials to Beneficial Owners

December 15, 2020.
    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 December 2, 2020, 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, 
II, and III 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 amend its rules establishing maximum fee 
rates to be charged by member organizations for forwarding proxy 
materials to beneficial owners. 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
    Rule 451 requires NYSE member organizations that hold securities 
for beneficial owners in street name to solicit proxies from, and 
deliver proxy and issuer communication materials to, beneficial owners 
on behalf of issuers.\4\ For this service, issuers reimburse NYSE 
member organizations for out-of-pocket, reasonable clerical, postage 
and other expenses incurred for a particular distribution. This 
reimbursement structure stems from SEC Rules 14b-1 and 14b-2 under the 
Act,\5\ which impose obligations on companies and nominees to ensure 
that beneficial owners receive proxy materials and are given the 
opportunity to vote. These rules require companies to send their proxy 
materials to nominees, i.e., broker-dealers or banks that hold 
securities in street name, for forwarding to beneficial owners and to 
pay nominees for reasonable expenses, both direct and indirect, 
incurred in providing proxy information to beneficial owners. The 
Commission's rules do not specify the fees that nominees can charge 
issuers for proxy distribution; rather, they state that issuers must 
reimburse the nominees for ``reasonable expenses'' incurred.\6\
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    \4\ The ownership of shares in street name means that a 
shareholder, or ``beneficial owner,'' has purchased shares through a 
broker-dealer or bank, also known as a ``nominee.'' In contrast to 
direct ownership, where shares are directly registered in the name 
of the shareholder, shares held in street name are registered in the 
name of the nominee, or in the nominee name of a depository, such as 
the Depository Trust Company. For more detail regarding share 
ownership, see Securities Exchange Act Release No. 62495 (July 14, 
2010), 75 FR 42982 (July 22, 2010) (Concept Release on the U.S. 
Proxy System) (``Proxy Concept Release'').
    \5\ 17 CFR 240.14b-1; 17 CFR 240.14b-2.
    \6\ In adopting the direct shareholder communications rules in 
the early 1980s, the Commission left the determination of reasonable 
costs to the self-regulatory organizations (``SROs'') because they 
were deemed to be in the best position to make fair evaluations and 
allocations of costs associated with these rules. See Securities 
Exchange Act Release No. 20021 (July 28, 1983), 48 FR 35082 (August 
3, 1983); see also Securities Exchange Act Release No. 45644 (March 
25, 2002), 67 FR 15440, 15440 n.8 (April 1, 2002).
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    Currently, the Supplementary Material to NYSE Rules 451 and 465 
establish the fee structure for which a NYSE member organization may be 
reimbursed for expenses incurred in connection with distributing proxy 
materials to beneficial shareholders. This fee structure is also 
replicated in Section 402.10 of the NYSE Listed Company Manual. The 
NYSE fee structure represents the maximum approved rates that an issuer 
can be billed for proxy distribution services absent prior notification 
to and consent of the issuer.
    All the SROs whose member organizations hold securities on behalf 
of street name holders have rules requiring their member organizations 
to forward proxy materials and other distributions on behalf of 
companies to street name account holders. The rules of all other 
exchanges simply provide that member organizations must undertake this 
activity if they receive ``reasonable'' reimbursement, without 
specifying any schedule of maximum permitted charges.\7\ By contrast, 
FINRA includes a specific schedule of maximum charges that is 
substantively identical to that of the NYSE.\8\
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    \7\ See, e.g., BZX Exchange, Inc. Rule 13.3; see also Investors 
Exchange Rulebook 6.130.
    \8\ See FINRA Rule 2251. The Exchange notes that FINRA Rule 2251 
differs from Rule 451 in one respect. Section 5 (Notice and Access 
Fees) of Supplementary Material .90 of Rule 451 provides that the 
Notice and Access fees set forth therein will also be charged with 
respect to the distribution of investment company shareholder 
reports pursuant to any ``notice and access'' rules adopted by the 
SEC in relation to such distributions and that such fee will not be 
charged for any account with respect to which an investment company 
pays a Preference Management Fee in connection with a distribution 
of investment company shareholder reports. It further provides that, 
in calculating the rates at which the issuer will be charged Notice 
and Access fees for investment company shareholder report 
distributions, all accounts holding shares of any class of stock of 
the applicable issuer eligible to receive the same distribution will 
be aggregated in determining the appropriate pricing tier under this 
Section 5 (Notice and Access Fees) of Supplementary Material .90 of 
Rule 451. FINRA has not adopted this text as part of FINRA Rule 
2251. Pursuant to Rule 30e-3 under the Investment Company Act of 
1940, the SEC has adopted a ``notice and access'' rule for 
investment companies. Investment companies that have met the 
requirements of Rule 30e-3(i)(1)(i) are permitted to utilize this 
``notice and access'' approach for distributions to beneficial 
owners beginning January 1, 2021. See also Rule 30e-3(i)(1)(ii) for 
other transition period requirements.
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    Given the significant evolution of the securities industry during 
the period in which the NYSE has taken the lead in establishing proxy 
distribution reimbursement rates, the NYSE does not believe that it is 
best positioned to retain this responsibility going forward. All the 
NYSE member organizations that are subject to the NYSE fee schedule are 
also members of FINRA. In addition, all of the brokers who are not NYSE 
members but who hold shares on behalf of street name account holders 
are also FINRA members. Furthermore, a large percentage of the affected 
listed issuers are listed on Nasdaq, CBOE or other non-NYSE Group 
exchanges or are not listed on any national securities exchange, while 
the development of the

[[Page 83120]]

mutual fund industry has led to the existence of a huge number of 
issuers who must pay these costs but have no relationship with any 
listing exchange.
    The current fee schedule has been in place since 2013 \9\ and a 
comprehensive review of fee levels may be necessary in the near future 
to respond to the continuing evolution in both technology and the 
securities ownership patterns of investors since that time. All of the 
brokers who hold shares on behalf of street name account holders are 
FINRA members, while only a subset of them are members of the NYSE. 
Furthermore, a large and increasing number of the affected issuers are 
listed on Nasdaq, CBOE or other non-NYSE Group exchanges or are traded 
solely over the counter, while the development of the mutual fund 
industry has led to the existence of a huge number of issuers who are 
not listed on any exchange.
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    \9\ See Securities Exchange Act Release No. 70720 (October 18, 
2013), 78 FR 63530 (October 24, 2013) (SR-NYSE-2013-07) (order 
approving the most recent comprehensive amendments to the NYSE fee 
schedule).
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    In response to the developments described above. the NYSE proposes 
to amend Rule 451 by deleting the fee schedule and replacing it with 
text comparable to that of other exchanges providing that member 
organizations are entitled to receive fair and reasonable rates of 
reimbursement for all out-of-pocket expenses, including reasonable 
clerical expenses, incurred in connection with proxy solicitations and 
the processing of proxy and other material required under Rule 451. In 
addition, the amended rule text will provide that member organizations 
must comply with any schedule of approved charges set forth in the 
rules of any other national securities exchange or association of which 
such member organization is a member. As all NYSE member organizations 
subject to the NYSE fee schedule are also members of FINRA, this 
provision will effectively require member organizations to comply with 
the fee schedule set forth in FINRA Rule 2551.
    The Exchange proposes to delete Section 402.10 of the Manual in its 
entirety as it is identical to provisions with respect to issuers other 
than mutual funds as set forth in Rule 451 and is therefore redundant.
    Rule 465 governs the role of NYSE member organizations in 
distributing on behalf of issuers interim reports and other materials 
to ``street name'' account holders. Supplementary Material .20 to Rule 
465 specifies that these distributions are subject to the fee schedule 
set forth in Supplementary Material 90-95 to Rule 451. The Exchange 
proposes to delete the current text of Supplementary Material .20 to 
Rule 465 and replace it with a paragraph that parallels the proposed 
new form of Supplementary Material .90 to Rule 451, providing that, in 
determining fair and reasonable rates of reimbursement for all out-of-
pocket expenses, including reasonable clerical expenses, incurred in 
connection with copies of interim reports of earnings or other material 
being sent to stockholders pursuant to Rule 465, member organizations 
must comply with any schedule of approved charges set forth in the 
rules of any other national securities exchange or association of which 
such member organization is a member.
    The Exchange notes that this proposal is in no way intended to take 
a position on the appropriateness of the fee schedules for proxy and 
other distributions currently set forth in Rules 451 and 465 or in the 
rules of any other national securities exchange or national securities 
association. The sole purpose of this proposal is obtain approval to 
delete the fee schedules from the NYSE rules and establish in their 
place a requirement to comply with the fee provisions set forth in the 
rules of any other national securities organization or national 
securities association of which an NYSE member organization is a 
member.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Securities Exchange Act of 1934 (the ``Act'') 
generally.\10\ Section 6(b)(4) \11\ requires that exchange rules 
provide for the equitable allocation of reasonable dues, fees, and 
other charges among its members and issuers and other persons using the 
facilities of an exchange. Section 6(b)(5) \12\ requires, among other 
things, that exchange rules are 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, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect the public 
interest and the interests of investors, promote just and equitable 
principles of trade and that they are not designed to permit unfair 
discrimination between issuers, brokers or dealers. Section 6(b)(8) 
\13\ prohibits any exchange rule from imposing any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4).
    \12\ 15 U.S.C. 78f(b)(5).
    \13\ 15 U.S.C. 78f(b)(8).
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    The Exchange believes that the proposal is consistent with Sections 
6(b)(4) and 6(b)(5) of the Act as it will not result in any substantive 
change in the reimbursement rates received by member organizations for 
proxy and other document distributions on behalf of issuers, as all 
NYSE member organizations are also subject to the fee schedule set 
forth in FINRA rules.
    The Exchange believes that the proposal is also consistent with 
Section 6(b)(5) of the Act in that it is designed to promote just and 
equitable principles of trade, perfect the mechanism of a free and open 
market and promote just and equitable principles of trade. The maximum 
reimbursement rates brokers receive for making distributions of proxies 
and other materials on behalf of issuers will continue to be determined 
by FINRA, the self-regulatory organization of which all affected 
brokers are members.
    As discussed above, all NYSE member organizations subject to these 
rules are also members of FINRA and, consequently, subject to the fee 
schedule set forth in FINRA Rule 2251. As the schedule set forth in 
FINRA Rule 2251 is substantively identical to the NYSE's current fee 
schedule, there will be no substantive change in the maximum rates NYSE 
member organizations may charge as a result of the proposed amendments.
    All of the brokers who hold shares on behalf of street name account 
holders are FINRA members, while only a subset of them are also members 
of the NYSE. Furthermore, a large and increasing number of the affected 
issuers are listed on Nasdaq, CBOE or other non-NYSE Group exchanges or 
are traded solely over the counter, while the development of the mutual 
fund industry has led to the existence of a huge number of issuers who 
must pay these costs but have no relationship with any listing 
exchange. Notably, while mutual funds are not listed on any exchange, 
they are all held primarily in ``street name'' accounts at brokers that 
are members of FINRA.
    The Exchange believes that the proposal is consistent with Section 
6(b)(8), as it does not impose any burden on competition that is not 
necessary or appropriate in furtherance of the purposes of the Act. All 
of the NYSE member organizations that are subject to the fee schedule 
in the current forms of Rules 451 and 465 are also subject to the 
identical provisions of FINRA Rule 2251. Consequently, the proposed 
rule change will have no effect

[[Page 83121]]

on competition among brokers, as they will all continue to be subject 
to the same maximum fee schedule. For the same reason there will be no 
effect on the competition among issuers resulting from the proposed 
rule change, as all issuers will remain subject to the same maximum fee 
schedule as applied under the FINRA rule. As all of the issuers listed 
on all of the national securities exchanges are currently obligated to 
pay the same maximum fees under the current NYSE rules and FIRNA Rule 
2251, the proposal will also have no effect on the competition for 
listings among the national securities exchanges. For the foregoing 
reasons, the Exchange believes that the proposal does not impose any 
burden on competition that that is not necessary or appropriate in 
furtherance of the purposes of the Act.

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 not necessary or appropriate in 
furtherance of the purposes of the Act. All of the NYSE member 
organizations that are subject to the fee schedule in the current forms 
of Rules 451 and 465 are also subject to the identical provisions of 
FINRA Rule 2251. Consequently, the proposed rule change will have no 
effect on competition among brokers, as they will all continue to be 
subject to the same maximum fee schedule. For the same reason there 
will be no effect on the competition among issuers resulting from the 
proposed rule change, as all issuers will remain subject to the same 
maximum fee schedule as applied under the FINRA rule. As all of the 
issuers listed on all of the national securities exchanges are 
currently obligated to pay the same maximum fees under the current NYSE 
rules and FIRNA Rule 2251, the proposal will also have no effect on the 
competition for listings among the national securities exchanges. For 
the foregoing reasons, the Exchange believes that the proposal does not 
impose any burden on competition that that is not necessary or 
appropriate in furtherance of the purposes of the Act.

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 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-2020-96 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-2020-96. 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-2020-96 and should be submitted on 
or before January 11, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-28010 Filed 12-18-20; 8:45 am]
BILLING CODE 8011-01-P