83 FR 25076 - Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend NYSE Arca Rule 5.3-E To Exclude Certain Categories of Issuers From the Exchange's Annual Meeting Requirement

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 105 (May 31, 2018)

[Federal Register Volume 83, Number 105 (Thursday, May 31, 2018)]
[Notices]
[Pages 25076-25079]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-11614]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83324; File No. SR-NYSEArca-2018-31]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend NYSE Arca 
Rule 5.3-E To Exclude Certain Categories of Issuers From the Exchange's 
Annual Meeting Requirement

May 24, 2018.
    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 May 16, 2018, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C.78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 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 NYSE Arca Rule 5.3-E to exclude 
certain categories of issuers from the Exchange's annual meeting 
requirement. 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
    NYSE Arca proposes to amend NYSE Arca Rule 5.3-E to exclude certain 
categories of issuers from the Exchange's annual meeting requirement.
    NYSE Arca Rule 5.3-E(e) provides that a listed company is required 
to hold an annual meeting of shareholders to elect directors and to 
take action on other corporate matters in accordance with its charter, 
by-laws and applicable state or other laws. The preamble to Rule 5.3-E 
provides that preferred and debt listings, passive business 
organizations (such as royalty trusts), derivative and special purpose 
securities \4\ are not required to comply with certain of the Corporate 
Governance and Disclosure Policies set forth in NYSE Arca Rule 5.3-
E.\5\ However, the preamble does not exclude the obligation to hold an 
annual meeting pursuant to NYSE Arca Rule 5.3-E(e) from those 
requirements with which such issuers must comply.
---------------------------------------------------------------------------

    \4\ Derivative and special purpose securities are securities 
listed pursuant to Rules 5.2-E(h), 5.2-E(j)(2)-(6) and Rule 8-E 
(8.100-E, 8.200-E, 8.201-E, 8.202-E, 8.203-E, 8.204-E, 8.300-E, 
8.400-E, 8.600-E and 8.700-E), including Exchange Traded Funds 
(``ETFs'') and similar products.
    \5\ See Securities Exchange Act Release No. 49810 (June 4, 
2004), 69 FR 32647 (June 10, 2004).
---------------------------------------------------------------------------

    Holders of non-voting preferred and debt securities, securities of 
passive business organizations (such as royalty trusts) and derivative 
and special purpose securities either do not have the right to elect 
directors at annual meetings or have the right to elect directors only 
in very limited circumstances. For example, holders of non-voting 
preferred securities may have the right to temporarily elect directors 
if dividends on such securities have not been paid for a specified 
period of time. Absent such special circumstances, in no event do 
holders of the securities listed above elect directors on an annual 
basis. Despite the fact that there is no matter with respect to which 
holders of these securities have an annual voting right under state law 
or their governing documents, NYSE Arca rules currently do not exclude 
the issuers of such securities from the requirement that they hold an 
annual meeting of shareholders.
    NYSE Arca now proposes to change the preamble to Rule 5.3-E to 
provide that issuers of these securities would not need to satisfy the 
requirement to hold an annual meeting under Rule 5.3-E(e)(1). The 
Exchange also proposes to clarify that the exclusions for preferred 
stock set forth in that provision are specifically applicable only to 
non-voting preferred stock. Notwithstanding the exclusions noted above, 
if an issuer also lists common stock or voting preferred stock, or 
their equivalent, such issuer must still hold an annual meeting for the 
holders of that common stock or voting preferred stock, or their 
equivalent. The Exchange further proposes to clarify NYSE Arca Rule 
5.3-E(e)(1) by specifying that the annual meeting requirement contained 
in such rule is applicable to issuers listing common stock or voting 
preferred stock, and their equivalents \6\ and that such annual meeting 
requirement is inapplicable to preferred and debt listings, passive 
business organizations (such as royalty trusts), and certain categories 
of derivative and special purpose securities listed pursuant to Rules 
5.2-E(h), 5.2-E(j)(2)-(6) and 8-E (8.100-E, 8.200-E, 8.201-E, 8.202-E, 
8.203-E, 8.204-E, 8.300-E, 8.400-E, 8.600-E and 8.700-E).
---------------------------------------------------------------------------

    \6\ This language is identical to that used in the NASDAQ annual 
meeting rule. See NASDAQ Marketplace Rules IM-5620.
---------------------------------------------------------------------------

    The Exchange notes that the listing rules of the NASDAQ Stock 
Market LLC (``NASDAQ''), Cboe BZX Exchange, Inc. (``Cboe BZX'') and 
NYSE American LLC (``NYSE American'') all provide explicit exclusions 
for issuers of ETFs and other derivative securities products from the 
annual meeting requirements in their

[[Page 25077]]

rules.\7\ The following are rules for derivative and special purpose 
securities listed on the Exchange and, in each case, a reference to a 
rule of either NYSE American or NASDAQ providing for the listing of 
similar securities on NYSE American or NASDAQ that are explicitly 
excluded from the annual meeting requirement on such exchange: \8\
---------------------------------------------------------------------------

    \7\ See NASDAQ Marketplace Rules IM-5620, Cboe BZX Rule 14.10, 
Interpretations and Policies 15; and NYSE American Company Guide 
Section 704, Commentary .01.
    \8\ The NYSE American and NASDAQ rule references are 
illustrative and are not intended as an indication that no other 
national securities exchange has a listing rule for the applicable 
security type with an explicit exclusion from its annual meeting 
requirement.
---------------------------------------------------------------------------

     NYSE Arca Rule 5.2-E(h) (Unit Investment Trusts) and NYSE 
American Company Guide Section 118 (Investment Trusts);
     NYSE Arca Rule 5.2-E(j)(2) (Equity Linked Notes) and NYSE 
American Company Guide Section 107B (Equity Linked Term Notes);
     NYSE Arca Rule 5.2-E(j)(3) (Investment Company Units) and 
NYSE American Rule 1002A (Index Fund Shares);
     NYSE Arca Rule 5.2-E(j)(4) (Index Linked Exchangeable 
Notes) and NYSE American Company Guide Section 107C (Index Linked 
Exchangeable Notes);
     NYSE Arca Rule 5.2-E(j)(5) (Equity Gold Shares) and NASDAQ 
Marketplace Rule 5711(b) (Equity Gold Shares);
     NYSE Arca Rule 5.2-E(j)(6) (Index Linked Securities) and 
NYSE American Company Guide Sections 107D (Index-Linked Securities, 
107E (Commodity-Linked Securities), 107F (Currency-Linked Securities), 
107G (Fixed Income-Linked Securities), 107H (Futures-Linked 
Securities), and 107I (Combination-Linked Securities);
     NYSE Arca Rule 8.100-E (Portfolio Depositary Receipts) and 
NYSE American Rule 1000A (Portfolio Depository Receipts);
     NYSE Arca Rule 8.200-E (Trust Issued Receipts) and NYSE 
American Rule 1202 (Trust Issued Receipts);
     NYSE Arca Rule 8.201-E (Commodity Based Trust Shares) and 
NYSE American Rule 1200A (Commodity Based Trust Shares);
     NYSE Arca Rule 8.202-E (Currency Trust Shares) and NYSE 
American Rule 1202B (Currency Trust Shares);
     NYSE Arca Rule 8.203-E (Commodity-Index Trust Shares) and 
NASDAQ Marketplace Rule 5711(f) (Commodity Index Shares);
     NYSE Arca Rule 8.204-E (Commodity Futures Trust Shares) 
and NASDAQ Marketplace Rule 5711(g)(Commodity Futures Trust Shares);
     NYSE Arca Rule 8.300-E (Partnership Units) and NYSE 
American Rule 1502 (Partnership Units);
     NYSE Arca Rule 8.400-E (Paired Trust Shares) and NYSE 
American Rule 1402 (Paired Trust Shares).
    Shareholders of ETFs and derivative securities products listed on 
the Exchange receive regular disclosure documents describing the 
pricing mechanism for their securities and detailing how they can value 
their holdings. Moreover, the net asset value of the categories of ETFs 
and other derivative securities products listed above is determined by 
the market price of each fund's underlying securities or other 
reference asset. Because shareholders can value their investments on an 
ongoing basis, the Exchange believes that there is less need for 
shareholders to engage management at an annual meeting. In addition, 
while holders of such securities may have the right to vote in certain 
limited circumstances, they do not have the right to vote on the annual 
election of a board of directors, further reducing the need for an 
annual meeting. Further, although the Exchange proposes to exclude 
issuers of such securities from holding an annual meeting, such issuers 
may still be required to hold special meetings as required by state law 
or their governing documents.
    The Exchange proposes to include securities listed pursuant to NYSE 
Arca Rules 5.2-E(j)(4)-(6) in the types of derivative and special 
purpose securities that are excluded from certain corporate governance 
requirements.\9\ The Exchange believes it is appropriate to exclude 
index-linked exchangeable notes listed pursuant to NYSE Arca Rule 5.2-
E(j)(4) and exchange-traded notes listed pursuant to NYSE Arca Rule 
5.2-E(j)(6) from the same corporate governance requirements that debt 
securities are currently excluded as each class of security is simply a 
different form of unsecured debt obligation of an issuer. Similarly, 
the Exchange believes it is appropriate to exclude Equity Gold Shares 
listed pursuant to NYSE Arca Rule 5.2-E(j)(5) from the same corporate 
governance requirements as it currently excludes other categories of 
commodity-based derivative and special purpose securities. Like such 
other classes of derivative and special purpose securities, Equity Gold 
Shares are passive investment vehicles that hold an interest in a 
specified commodity and continuously create and redeem shares at the 
trust's net asset value and their governing documents do not require 
that they hold an annual meeting. Further, NYSE Arca Rule 5.2-E(j)(5) 
specifically states that all NYSE Arca rules that reference Investment 
Company Units shall include Equity Gold Shares. Therefore, the Exchange 
believes it is appropriate to provide the same corporate governance 
exclusions to Equity Gold Shares as NYSE Arca Rule 5.3-E currently 
provides to Investment Company Units.
---------------------------------------------------------------------------

    \9\ Such classes of securities are excluded from complying with 
the annual meeting requirements of other national securities 
exchanges. NYSE American Rule 704, for example, provides that its 
annual meeting requirement is not applicable to index-linked 
exchangeable notes, index-linked securities, currency-linked 
securities and commodity-linked securities. With respect to Equity 
Gold Shares, the Exchange believes that Nasdaq would exclude such 
securities from holding an annual meeting pursuant to Nasdaq 
Marketplace Rule 5711(b).
---------------------------------------------------------------------------

    The Exchange is proposing amendments to the rules for the following 
two categories of derivative and special purpose securities for which 
it has not identified explicit exclusions from the annual meeting 
requirement of any of the other listing exchanges:
     Managed Fund Shares (listed under NYSE Arca Rule 8.600-E), 
and
     Managed Trust Shares (listed under NYSE Arca Rule 8.700-
E).
    The Exchange believes it is appropriate to provide these exclusions 
for these categories of securities on the same basis as the other 
categories of listed derivative and special securities.
    Managed Fund Shares and Managed Trust Shares share fundamental 
characteristics with Investment Company Units. Exchange rules require 
that they provide for the creation and redemption of the listed 
securities on a continuous basis in a manner similar to Investment 
Company Units. This mechanism is an important investor protection that 
helps to ensure that the trading price of the securities remains close 
to their net asset value and provides investors with an ability to 
readily dispose of their investment. In light of these protections and 
the fact that investors regularly receive disclosure documents, the 
Exchange believes that--like Investment Company Units--there is a 
reduced need for shareholders of Managed Fund Shares and Managed Trust 
Shares to engage directly with management at an annual meeting. 
Further, issuers of Managed Fund Shares and Managed Trust shares are 
subject to the requirements of state law and their governing documents 
as they relate to the requirement to hold shareholder meetings.
    The Exchange proposes to remove securities listed pursuant to Rule 
5.2-E(j)(1) (Other Securities), 8.3-E (Currency and Index Warrants) and

[[Page 25078]]

8.500-E (Trust Units) from those derivative and special purpose 
securities that are excluded from certain corporate governance 
requirements. The Exchange believes this amendment is appropriate 
because the attributes of such Other Securities that might be listed 
pursuant to Rule 5.2-E(j)(1) are presently unknown and therefore the 
Exchange cannot determine whether issuers of such securities should be 
excluded from complying with certain corporate governance requirements. 
Further, the Exchange does not presently list any security under the 
Other Securities, Currency and Index Warrants or Trust Units standards 
and has not done so in many years.\10\
---------------------------------------------------------------------------

    \10\ Should the Exchange list securities under the Other 
Securities, Currency and Index Warrants or Trust Units standards in 
the future, it may consider whether to amend its rules at that time 
to allow for certain corporate governance exclusions applicable to 
such classes of securities.
---------------------------------------------------------------------------

    The Exchange proposes to amend Rule 5.3-E to clarify that, with 
respect to requirements for independent directors and board committees, 
registered management investment companies (except for registered 
management investment companies that qualify as derivative and special 
purpose securities) are only exempt from complying with the corporate 
governance requirements in Rule 5.3-E(k)(2)-(4) and 5.3-E(k)(6). Such 
issuers are required to comply with all other provisions of Rule 5.3-
E(k), including the preamble to such section.
    The Exchange also proposes to make non-substantive formatting 
changes to Rule 5.3-E to improve readability. The Exchange also 
proposes to amend Rule 5.3-E(e) to divide it into subsections to make 
clear that issuers of preferred and debt listings, passive business 
organizations and certain derivative and special purpose securities are 
only excluded from the annual meeting requirement contained in such 
rule. The rule will further specify that regardless of whether an 
issuer is excluded from the annual meeting requirement, all issuers 
must comply with the Exchange's advance notification requirement for 
all shareholders meetings, including special meetings.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\11\ in general, and furthers the 
objectives of Sections 6(b)(5) \12\ of the Act, 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. 
The Exchange believes that the proposed amendment is consistent with 
the protection of investors, as the holders of non-voting preferred 
stock, bonds, the listed shares of passive business organizations (such 
as royalty trusts), ETFs and certain other derivative and special 
purpose securities do not have voting rights with respect to the 
election of directors except in very limited circumstances as required 
by state law or their governing documents. In addition, the net asset 
value of the categories of ETFs and other derivative securities 
products that the Exchange proposes to exclude from its annual meeting 
requirement is determined by the market price of each fund's underlying 
securities or other reference asset. Shareholders of such ETFs and 
derivative securities products listed on the Exchange receive regular 
disclosure documents describing the pricing mechanism for their 
securities and detailing how they can value their holdings. 
Accordingly, holders of such securities can value their investment on 
an ongoing basis. Because of these factors, the Exchange believes there 
is a reduced need for shareholders to engage with management of issuers 
of these securities and thus no need for the issuers of such securities 
to hold annual shareholder meetings absent the existence of other 
listed securities with director election voting rights. Further, 
although the Exchange proposes to exclude issuers of such securities 
from holding an annual meeting, such issuers may still be required to 
hold special meetings as required by state law or their governing 
documents.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes it is appropriate to include securities 
listed pursuant to NYSE Arca Rules 5.2-E(j)(4)-(6) in the definition of 
derivative and special purpose securities that are excluded from 
certain corporate governance requirements. With respect to the annual 
meeting requirement, the Exchange believes that such classes of 
securities are excluded from complying with the annual meeting 
requirements of other national securities exchanges.\13\ The Exchange 
believes it is appropriate to exclude index-linked exchangeable notes 
listed pursuant to NYSE Arca Rule 5.2-E(j)(4) and exchange-traded notes 
listed pursuant to NYSE Arca Rule 5.2-E(j)(6) from the same corporate 
governance requirements that debt securities are currently excluded as 
each class of security is simply a different form of unsecured debt 
obligation of an issuer. Similarly, the Exchange believes it is 
appropriate to exclude Equity Gold Shares listed pursuant to NYSE Arca 
Rule 5.2-E(j)(5) from the same corporate governance requirements as it 
currently excludes other categories of commodity-based derivative and 
special purpose securities. Like such other classes of derivative and 
special purpose securities, Equity Gold Shares are passive investment 
vehicles that hold an interest in a specified commodity and 
continuously create and redeem shares at the trust's net asset value 
and their governing documents do not require that they hold an annual 
meeting. Further, NYSE Arca Rule 5.2-E(j)(5) specifically states that 
all NYSE Arca rules that reference Investment Company Units shall 
include Equity Gold Shares. Therefore, the Exchange believes it is 
appropriate to provide the same corporate governance exclusions to 
Equity Gold Shares as NYSE Arca Rule 5.3-E currently provides to 
Investment Company Units. For the reasons stated above, the Exchange 
believes the proposal to exclude securities listed pursuant to NYSE 
Arca Rules 5.2-E(j)(4)-(6) from certain corporate governance 
requirements is consistent with the investor protection goals of 
Section 6(b)(5) of the Act.
---------------------------------------------------------------------------

    \13\ See Footnote 9, supra.
---------------------------------------------------------------------------

    The Exchange believes it is appropriate to remove securities listed 
pursuant to Rule 5.2-E(j)(1) (Other Securities), 8.3-E (Currency and 
Index Warrants) and 8.500-E (Trust Units) from those derivative and 
special purpose securities that are excluded from certain corporate 
governance requirements. With respect to Other Securities, the Exchange 
does not have enough information about such securities to determine 
whether any exclusion is appropriate and with respect to Currency and 
Index Warrants and Trust Units, the Exchange does not anticipate 
listing such securities in the near future.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed amendments will 
not impose any burden on competition, as they simply conform NYSE 
Arca's rules to those of its competitors in the market for the listing 
of the specified types of securities. The additional categories of

[[Page 25079]]

securities that the Exchange proposes to exclude (i.e., Managed Fund 
Shares and Managed Trust Shares) have similar characteristics to the 
categories of securities that are already excluded on other national 
securities exchanges. Therefore, the Exchange does not believe that it 
will impose any burden on competition to exclude them.

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

    Because the foregoing 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 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 \14\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\15\
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
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.
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the 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-NYSEArca-2018-31 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-NYSEArca-2018-31. 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-NYSEArca-2018-31 and should be submitted 
on or before June 21, 2018.
---------------------------------------------------------------------------

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

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-11614 Filed 5-30-18; 8:45 am]
 BILLING CODE 8011-01-P