Document ID: SEC-2023-1134-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange, LLC
Posted Date: 2023-10-04T04:00Z

[Federal Register Volume 88, Number 191 (Wednesday, October 4, 2023)]
[Notices]
[Pages 68675-68677]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-22038]

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98662; File No. SR-NYSE-2023-34]

Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change To Amend Section 312.03(b) of 
the NYSE Listed Company Manual To Modify the Circumstances Under Which 
a Listed Company Must Obtain Shareholder Approval of a Sale of 
Securities Below the Minimum Price to a Substantial Security Holder of 
the Company

September 29, 2023.
    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 September 26, 2023, 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, 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.
---------------------------------------------------------------------------

    \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 Section 312.03(b) of the NYSE Listed 
Company Manual (``Manual'') to modify the circumstances under which a 
listed company must obtain shareholder approval of a sale of securities 
to a substantial security holder of the listed company. The text of the 
proposed rule change is set forth in Exhibit 5 attached [sic] hereto. 
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,

[[Page 68676]]

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 312.04(e) of the Manual provides that an interest 
consisting of less than either five percent of the number of shares of 
common stock or five percent of the voting power outstanding of a 
company or entity shall not be considered a substantial interest or 
cause the holder of such an interest to be regarded as a substantial 
security holder.
    Section 312.03(b)(i) of the Manual provides that shareholder 
approval is required prior to the issuance of common stock, or of 
securities convertible into or exercisable for common stock, in any 
transaction or series of related transactions, to a director, officer 
or substantial security holder of the company if the number of shares 
of common stock to be issued, or if the number of shares of common 
stock into which the securities may be convertible or exercisable, 
exceeds either one percent of the number of shares of common stock or 
one percent of the voting power outstanding before the issuance.
    The Manual provides an exception to the shareholder approval 
requirement if such transaction is a cash sale for a price that is at 
least the Minimum Price. Section 312.04(h) defines the Minimum Price as 
a price that is the lower of: (i) the Official Closing Price 
immediately preceding the signing of the binding agreement; or (ii) the 
average Official Closing Price for the five trading days immediately 
preceding the signing of the binding agreement. Section 312.04(i) 
defines the ``Official Closing Price'' of an issuer's common stock as 
the official closing price on the Exchange as reported to the 
Consolidated Tape immediately preceding the signing of a binding 
agreement to issue the securities.\3\
---------------------------------------------------------------------------

    \3\ For example, if the transaction is signed after the close of 
the regular session at 4:00 p.m. Eastern Standard Time on a Tuesday, 
then Tuesday's official closing price is used. If the transaction is 
signed at any time between the close of the regular session on 
Monday and the close of the regular session on Tuesday, then 
Monday's official closing price is used.
---------------------------------------------------------------------------

    Certain NYSE listed companies are significantly dependent on their 
ability to regularly raise additional capital to fund their operations 
or acquire new assets. For example, pre-revenue stage biotechnology 
companies regularly seek additional capital to fund their research and 
development activities and real estate investment trusts seek to fund 
the acquisition of new properties by selling equity securities in 
private placements or direct registered sales priced at a small 
discount to the prevailing market price. It is the Exchange's 
understanding that, in many cases, existing shareholders of the listed 
company are willing purchasers of securities in such circumstances, as 
they already understand the company's business and have a positive view 
of its future prospects. Sales to existing shareholders can also be 
advantageous to both the issuer and the shareholders because of the 
speed with which a direct sale to an existing shareholder can be 
completed if no shareholder approval is required. However, the benefits 
of low transaction costs and speed of execution that typically exist 
when conducting these transactions with existing shareholders face 
countervailing factors if the counterparty is deemed to be a 
substantial securityholder for purposes of Section 312.03(b)(i). In 
such cases, to mitigate potential conflicts of interest, Exchange rules 
require that any sale below the Minimum Price can relate to no more 
than one per cent of the shares of common stock or one percent of the 
voting power outstanding before the issuance. Any such transaction that 
relates to more than one per cent of the common stock is subject to 
shareholder approval, which imposes significant delay and additional 
costs on the issuer, thereby often making the sale impracticable. This 
one percent limitation is therefore a significant restriction on the 
ability of an NYSE listed company to raise capital from its existing 
shareholders. Notably, the NYSE is the only listing exchange in the 
United States that has such a limitation in its rules and NYSE 
companies are therefore at a disadvantage in raising additional capital 
when compared to their peers listed on other national securities 
exchanges.
    The Exchange believes there are significant benefits from the 
protection provided to a listed company's investors by the shareholder 
approval requirements in Section 312.03(b)(i) when a purchaser of the 
securities in a transaction is an officer or director or other control 
person of the company. In such cases, the potential exists for a 
related party purchaser to use their influence within the company to 
obtain superior terms from the company to the detriment of the 
company's shareholders as a whole. However, the current definition of 
substantial security holder used in the rule also applies to passive 
holders of a company's common stock who have no board or management 
representation and who may have acquired their position in the company 
entirely through secondary market trades. The Exchange believes that 
transactions with these kinds of passive holders do not give rise to 
the potential conflicts of interest in the determination of transaction 
terms that exist where the purchaser has a role in the listed company's 
board or management.
    In light of the foregoing, the Exchange proposes to amend Section 
312.03(b)(i) to limit its application to related parties whose interest 
in the company is not passive in nature. As proposed, Section 
312.03(b)(i) would be limited in application to sales to a director, 
officer, controlling shareholder or member of a control group or any 
other substantial security holder of the company that has an affiliated 
person who is an officer or director of the company. For purposes of 
determining the existence of a control group, the Exchange proposes to 
rely on the filings on Form 13D or 13G disclosing the existence of a 
group as defined in Exchange Act Rule 13D-5. The Exchange proposes to 
amend Section 312.04 to include a new definition for purposes of 
Section 312.03, providing that a ``control group'' means a group as 
defined in Exchange Act Rule 13D-5 that controls the listed company.
    The Exchange notes that any listed company selling securities in a 
private placement that does not meet the Minimum Price requirement to a 
passive investor will remain subject to the shareholder approval 
requirement of Section 312.03(c) if such transaction relates to 20 
percent or more of the issuer's common stock. In addition, any such 
transaction would remain subject to shareholder approval under Section 
312.03(e) if it resulted in a change of control. Finally, the Exchange 
notes that Section 312.03(b)(i) as proposed to be amended would 
continue to provide a significant protection to shareholders against 
conflicts of interest in sales of securities to related parties and 
that no other listing venue has such a protection in its rules.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\4\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \5\ in particular, in that it 
is designed to promote just and equitable principles of trade, to 
foster cooperation and coordination with persons engaged

[[Page 68677]]

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. The Exchange believes that 
proposed amended Section 312.03(b)(i) is consistent with the protection 
of investors and the public interest. Specifically, the amended rule 
continues to provide for shareholder approval of below-market sales of 
securities to related parties of a listed company where a potential 
conflict of interest exists that related parties could use their 
influence within the company to obtain superior terms from the company 
to the detriment of the company's shareholders as a whole. The proposed 
rule only modifies the existing rule to permit sales to passive 
investors with respect to whom the Exchange believes that the potential 
for such self-dealing does not exist. The Exchange believes that the 
proposed amendment would promote competition among listing venues by 
removing a limitation on capital raising by listed companies that does 
not exist for their peers on other listing exchanges.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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. The Exchange believes that 
the proposed amendment increases competition among listing venues by 
removing a limitation on capital raising by listed companies that does 
not exist for their peers on other listing exchanges.

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 within 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-NYSE-2023-34 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-2023-34. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-NYSE-2023-34 and should be 
submitted on or before October 25, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\6\
---------------------------------------------------------------------------

    \6\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-22038 Filed 10-3-23; 8:45 am]
BILLING CODE 8011-01-P