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Federal Register / Vol. 86, No. 158 / Thursday, August 19, 2021 / Notices
lotter on DSK11XQN23PROD with NOTICES1

forwarding proxy and other materials to beneficial owners. The proposed rule change was published for comment in the Federal Register on December 18, 2020.3 On January 29, 2021, pursuant to Section 19b2 of the Act,4 the Commission designated a longer period within which to either approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change.5
On March 17, 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 April 6, 2021, the Exchange filed Amendment No. 1 to the proposed rule change; the Exchange withdrew that amendment on April 16, 2021. On April 16, 2021, the Exchange filed Amendment No. 2 to the proposed rule change, which superseded the proposed rule change as originally filed. The proposed rule change, as modified by Amendment No.
2, was published for comment in the Federal Register on April 29, 2021.8 On June 11, 2021, the Commission designated a longer period for Commission action on proceedings to determine whether to approve or disapprove the proposed rule change.9
On June 22, 2021, the Exchange filed partial Amendment No. 3 to the proposed rule change.10 This order 3 See Securities Exchange Act Release No. 90653
December 14, 2020, 85 FR 82539 December 18, 2020 Original Notice. Comments received on the proposal are available on the Commissions website at: https www.sec.gov/comments/sr-nyse2020-98/srnyse202098.htm.
4 15 U.S.C. 78sb2.
5 See Securities Exchange Act Release No. 91011
January 29, 2021, 86 FR 8246 February 4, 2021.
6 15 U.S.C. 78sb2B.
7 See Securities Exchange Act Release No. 91343
March 17, 2021, 86 FR 15536 March 23, 2021
Order Instituting Proceedings.
8 See Securities Exchange Act Release No. 91663
April 23, 2021, 86 FR 22725 April 29, 2021
Amendment No. 2.
9 See Securities Exchange Act Release No. 92155
June 11, 2021, 86 FR 32302 June 17, 2021.
10 In Amendment No. 3, the Exchange stated that proposed Rule 451A, in specifically stating that no fee shall be imposed, is meant to apply to the charges that are specified in Rule 451, and would not limit a member organizations eligibility to receive reimbursement for other expenses that are not covered by the specified charges, namely i actual postage costs including return postage at the lowest available rate; ii the actual cost of envelopes provided they are not furnished by the person soliciting proxies; and iii any actual communication expenses excluding overhead incurred in receiving voting returns either telephonically or electronically. The Exchange further stated that this approach is consistent with the application of existing fee exclusions under Rule 451. Because Amendment No. 3 does not materially alter the substance of the proposed rule change, Amendment No. 3 is not subject to notice and comment. The full text of Amendment No. 3

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approves the proposed rule change, as modified by Amendment Nos. 2 and 3.
II. Description of the Proposal, as Modified by Amendment Nos. 2 and 3
NYSE Rules Rule 451 and 465
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.11 For this service, issuers reimburse NYSE member organizations for out-of-pocket, reasonable clerical, postage, and other expenses incurred for a particular distribution.12 This reimbursement structure stems from Rules 14b1 and 14b2 under the Act,13
which impose obligations on issuers and nominees to ensure that beneficial owners receive proxy materials. These rules require 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.14 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.15
The Exchange has proposed to adopt Rule 451A, pursuant to which, notwithstanding the applicable provisions of Rules 451 or 465 or what may be permitted by the rules of any other national securities exchange or national securities association of which a member organization is also a is available on the Commissions website at: https
www.sec.gov/comments/sr-nyse-2020-98/
srnyse202098-8944033-245707.pdf.
11 See Rules 451 and 465; Amendment No. 2, supra note 8, 86 FR at 22726. 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 SRNYSE201307 2013 Approval Order.
12 See Rules 451 and 465; 2013 Approval Order, supra note 11, 78 FR at 63531.
13 17 CFR 240.14b1; 17 CFR 240.14b2.
14 See 17 CFR 240.14b1 and 14b2; see also 2013
Approval Order, supra note 11, 78 FR at 63531.
15 See 17 CFR 240.14b1 and 14b2; see also 2013
Approval Order, supra note 11, 78 FR at 63531.
Currently, the Supplementary Material to Rule 451, which is cross-referenced by the Supplementary Material to Rule 465, establishes maximum rates at which a NYSE member organization may be reimbursed for expenses incurred in connection with distributing proxy and other materials to beneficial owners.

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member, no fee shall be imposed for a nominee account that contains only shares or units of the securities involved that were transferred to the account holder by the member organization at no cost.16
According to the Exchange, the proposed rule is meant to address a recent practice in which retail brokers provide customers, without charge, a small number of shares with a very small dollar value as a commercial incentive for example, upon opening a new account or referring a new customer to the broker.17 The Exchange stated that Rule 451 does not distinguish between these beneficial owners and beneficial owners that have paid for their shares, so brokers are required to solicit proxies from these accounts and are entitled to reimbursement of their expenses under NYSE and other self-regulatory organization rules.18 The Exchange further stated that, in certain cases, the issuer can experience a significant increase in its distribution reimbursement expenses solely due to its shares being included in these broker promotional schemes.19
The Exchange believes that it would be more appropriate for the broker to bear the proxy distribution costs in these circumstances.20 According to the Exchange, while the distribution of shares in these broker promotions may result in a significant increase in the number of beneficial owners of an issuers stock, the generally very small size of each of these positions means that they usually represent a very small percentage of the voting power.21 As such, according to the Exchange, the costs the issuer incurs in reimbursing the broker for distributing proxies to these accounts is disproportionate to the 16 See proposed Rule 451A. None of the fees in the schedule in the Supplementary Material .90 to Rule 451 would be imposable on issuers in these circumstances, but issuers would still be responsible for reimbursing member organizations for any actual postage costs, envelope costs, and communication expenses excluding overhead incurred in receiving voting returns, which is consistent with what occurs currently in other contexts where no fees are imposed, i.e., a managed account that contains five or fewer shares or units of the security involved or an account that contains only a fractional share. See Amendment No. 3, supra note 10. Accordingly, references herein to the distribution costs or expenses for which member organizations are prohibited from seeking reimbursement from issuers under the proposal are meant to refer to the charges specified in Supplementary Material .90 to Rule 451.
17 See Amendment No. 2, supra note 8, 86 FR at 22726.
18 See id.; see also, e.g., FINRA Rule 2251.
19 See Amendment No. 2, supra note 8, 86 FR at 22726.
20 See id.
21 See id.

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