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Federal Register / Vol. 86, No. 161 / Tuesday, August 24, 2021 / Notices
disapprove the proposed rule change.5
On March 18, 2021, the Commission instituted proceedings under Section 19b2B of the Act 6 to determine whether to approve or disapprove the proposed rule change.7 On June 11, 2021, the Commission designated a longer period for Commission action on the proposed rule change.8
This order disapproves the proposed rule change because, as discussed below, the Exchange has not met its burden under the Act and the Commissions Rules of Practice to demonstrate that its proposal is consistent with the requirements of Section 6b5 of the Act and, in particular, the requirements that the rules of a national securities exchange be designed to promote just and equitable principles of trade and to protect investors and the public interest, and not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers.9

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II. Description of the Proposal NYSE Rules 451 and 465, and the related provisions in Section 402.10 of the Manual, require NYSE member organizations that hold securities for beneficial owners in street name to solicit proxies from, and deliver proxy and other materials to, beneficial owners on behalf of issuers.10 For this service, issuers reimburse NYSE
member organizations for out-of-pocket, reasonable clerical, postage, and other expenses incurred for a particular distribution.11 This reimbursement structure stems from Rules 14b1 and 14b2 under the Act,12 which impose obligations on issuers and nominees to ensure that beneficial owners receive proxy materials. These rules require 5 See Securities Exchange Act Release No. 91025
February 1, 2021, 86 FR 8420 February 5, 2021.
6 15 U.S.C. 78sb2B.
7 See Securities Exchange Act Release No. 91359
March 18, 2021, 86 FR 15734 March 24, 2021
Order Instituting Proceedings.
8 See Securities Exchange Act Release No. 92154
June 11, 2021, 86 FR 32301 June 17, 2021.
9 15 U.S.C. 78fb5.
10 See NYSE Rules 451 and 465, and Section 402.10 of the Manual; Notice, supra note 3, 85 FR
at 83119. 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.
See Securities Exchange Act Release No. 70720
October 18, 2013, 78 FR 63530, 63531 n.14
October 24, 2013 order approving SRNYSE
201307 2013 Approval Order.
11 See NYSE Rules 451 and 465, and Section 402.10 of the Manual; 2013 Approval Order, supra note 10, 78 FR at 63531.
12 17 CFR 240.14b1; 17 CFR 240.14b2.

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issuers to send their proxy materials to 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.13 The Commissions 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.14
Currently, the Supplementary Material to NYSE Rule 451, which is cross-referenced by the Supplementary Material to NYSE Rule 465 and Section 402.10 of the Manual, establishes the maximum rates at which a NYSE
member organization may be reimbursed for certain expenses incurred in connection with distributing proxy and other materials to beneficial owners. FINRA Rule 2251 also sets forth a schedule of maximum rates that is substantively identical to the rate schedule specified in NYSE Rule 451.15
As a result, any broker that is a FINRA
member but not also a NYSE member is subject to the same maximum reimbursement rates as NYSE members.
The rules of other self-regulatory organizations SROs generally provide that member organizations must forward proxy and other materials if they receive reasonable reimbursement, but they do not specify any schedule of maximum permitted charges.16
The Exchange has proposed to amend Supplementary Materials .90.96 to NYSE Rule 451 by deleting the provisions setting maximum reimbursement rates and replacing them with rule text stating 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.17 The Exchange also has 13 See 17 CFR 240.14b1 and 14b2; see also 2013
Approval Order, supra note 10, 78 FR at 63531.
14 See 17 CFR 240.14b1 and 14b2; see also 2013
Approval Order, supra note 10, 78 FR at 63531.
15 See Notice, supra note 3, 85 FR at 83119. The Exchange stated that FINRA Rule 2251 differs from NYSE Rule 451 in one respect. Specifically, FINRA
has not adopted the Notice and Access fees for investment company shareholder report distributions set forth in Section 5 Notice and Access Fees of Supplementary Material .90 to NYSE Rule 451 as part of FINRA Rule 2251. See id., 85 FR at 83119 n.8.
16 See id., 85 FR at 83119. But see NYSE
American LLC Rule 576.80 setting forth a schedule of approved charges by member organizations in connection with proxy solicitations.
17 See proposed Supplementary Material .90 to NYSE Rule 451. The Exchange also proposes to delete Section 402.10 of the Manual, which
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proposed to delete the cross-reference to NYSE Rule 451.90.96 in Supplementary Material .20 to NYSE
Rule 465 and replace it with rule text that is identical to the proposed new language in Supplementary Material .90
to NYSE Rule 451.18 The Exchange stated that the proposed rule change is not intended to take a position on the appropriateness of the fee schedules for proxy and other distributions currently set forth in NYSE Rules 451 and 465 or in the rules of any other SRO.19
According to the Exchange, since all NYSE member organizations that are subject to the fee schedule set forth in NYSE Rule 451 and cross-referenced by NYSE Rule 465 are also FINRA member firms, the proposal would effectively require member organizations to comply with the fee schedule set forth in FINRA
Rule 2251.20 The Exchange acknowledged that it has historically taken the lead in establishing the maximum proxy distribution reimbursement rates, but stated that it does not believe the Exchange is best positioned to retain this responsibility going forward.21 The Exchange stated that all of the brokers who hold shares on behalf of customers in street name are FINRA members, while only a subset of them are members of the Exchange.22 The Exchange also stated that 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.23 The Exchange further stated that the development of the mutual fund industry has led to the existence of a large number of issuers that are not listed on any exchange.24
III. Discussion and Commission Findings Under Section 19b2C of the Act,25 the Commission shall approve a proposed rule change of an SRO if it finds that such proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder that are applicable to such organization.26 The Commission shall disapprove a proposed rule change if it replicates the fee schedule set forth in Supplementary Materials .90.96 to NYSE Rule 451.
18 See proposed Supplementary Material .20 to NYSE Rule 465.
19 See Notice, supra note 3, 85 FR at 83120. As noted above, FINRA and NYSE American LLC
presently are the only SROs besides NYSE with rules that set forth a fee schedule.
20 See id.
21 See id., 85 FR at 83119.
22 See id., 85 FR at 83120.
23 See id.
24 See id., 85 FR at 8311920.
25 See 15 U.S.C. 78sb2C.
26 See 15 U.S.C. 78sb2Ci.

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