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Federal Register / Vol. 86, No. 158 / Thursday, August 19, 2021 / Notices maximum potential vote such shares represent.22 The Exchange stated that, by contrast, the broker using such a scheme chooses to engage in it because it believes that it will result in a commercial benefit to the broker.23 In addition, the Exchange stated that recipients of shares without charge from the broker as part of such schemes typically will not be given any choice as to which shares they receive and are therefore not making any investment decision.24
The Exchange stated that proposed Rule 451A would not limit a brokers right to reimbursement for distributions to any beneficial owner if any part of that beneficial owners position in an issuers securities was received by any means other than a transfer without charge from the broker.25 The Exchange also stated that proposed Rule 451A
would not limit a brokers right to receive reimbursement under Rules 451
and 465 unless that broker itself transferred the issuers shares without charge into the account of the beneficial owner.26 The Exchange further stated that Rules 451 and 465 would continue to apply to all distributions, so the broker would continue to be fully obligated to solicit votes from, and make other distributions on behalf of issuers to, all beneficial owners notwithstanding the limitations on reimbursement of expenses imposed by proposed Rule 451A.27
III. Discussion and Commission Findings After careful review, the Commission finds that the proposed rule change, as modified by Amendment Nos. 2 and 3, is consistent with the requirements of the Act and the rules and regulations thereunder.28 In particular, the Commission finds that the proposed rule change, as modified by Amendment Nos. 2 and 3, is consistent with Section 6b4 of the Act,29 which requires that an exchange have rules that provide for the equitable allocation of reasonable dues, fees, and other charges among its members, issuers, and other persons
lotter on DSK11XQN23PROD with NOTICES1

22 See
id.
23 See id.
24 See id., 86 FR at 22727.
25 See id., 86 FR at 22726.
26 See id. Specifically, the Exchange stated that if a beneficial owner transferred shares received in this manner into an account at another broker, Rule 451A would not preclude that other broker from claiming reimbursement under Rules 451 and 465.
27 See id.
28 In approving this proposed rule change, as modified by Amendment Nos. 2 and 3, the Commission has considered the proposed rules impact on efficiency, competition, and capital formation. See 15 U.S.C. 78cf.
29 15 U.S.C. 78fb4.

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using its facilities; and with Section 6b5 of the Act,30 which requires, among other things, that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, 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 not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. The Commission also believes that the proposal as modified is consistent with Rule 14b1 under the Act.31
The Commission raised concerns about the proposal in the Order Instituting Proceedings,32 but the Commission believes that the Exchange has amended the proposal adequately to address those concerns. Originally, proposed Rule 451A would have prohibited an NYSE member organization from imposing distribution fees on an issuer in cases where the member provided the shares or units of the securities held in the beneficial owners account at no cost or at a price substantially less than the market price. 33 In the Order Instituting Proceedings, the Commission stated that the Exchange did not explain how it would determine whether a price is substantially less than the market price or otherwise provide guidance on the meaning of that term.34 In Amendment No. 2, the Exchange addressed the Commissions concern by eliminating that term from the proposed rule, resulting in a rule with a more clearly defined application to nominee accounts that contain only shares or units of the securities involved that were transferred to the account holder by the member at no cost.
The Commission also stated in the Order Instituting Proceedings that the initial proposal did not explain why it is consistent with the Act for the proposed reimbursement prohibition not to apply if a customer transferred its account to a new broker or held any shares of the issuer in its account other than those received through a belowmarket price transfer from the member seeking reimbursement.35 Additionally, the Commission stated that the initial proposal did not address the feasibility 30 15

U.S.C. 78fb5.
CFR 240.14b1.
32 See Order Instituting Proceedings, supra note 7.
33 See Original Notice, supra note 3.
34 See Order Instituting Proceedings, supra note 7, 86 FR at 15537.
35 See id., 86 FR at 1553738.
31 17

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of tracking shares held by a particular beneficial owner where the eligibility for reimbursement may change over time.36 The Exchange addressed these concerns in Amendment No. 2 by clarifying that it would be impossible for the new broker in these circumstances to track whether the shares of a specific issuer transferred into its custody had all been received by the beneficial owner without charge from another broker.37 In addition, according to the Exchange, the new broker would not have received the same commercial benefit as the original broker that transferred the shares without charge to its customers.38 For these reasons, the Exchange stated that it is impracticable to extend the proposed reimbursement prohibition to the new broker and reasonable to limit its application to the original broker that transferred the shares without charge.39
Further, in the Order Instituting Proceedings, the Commission stated that the Exchange had not explained how the proposal would be consistent with Rule 14b1 under the Act 40 in light of the fact that a broker-dealer would be required to distribute proxies or other materials but be precluded from seeking reimbursement of its expenses in the applicable circumstances.41 In Amendment No. 2, the Exchange stated that any broker that is prohibited from charging fees under the proposal would continue to be reimbursed for its aggregate expenses with respect to proxy distribution, as the prohibition on distribution fees would be limited to those accounts in which the only shares of the applicable issuer are shares received without charge from that broker.42 The Exchange stated that, as such, the effect of the proposal would be to reduce the overall reimbursement received by that broker for a distribution, but not to eliminate that reimbursement.43
Commenters broadly supported the proposal.44 One commenter stated that 36 See 37 See
id., 86 FR at 15538.
Amendment No. 2, supra note 8, 86 FR at
22726.
38 See id., 86 FR at 2272627.
39 See id., 86 FR at 22727.
40 17 CFR 240.14b1.
41 See Order Instituting Proceedings, supra note 7, 86 FR at 15538.
42 See Amendment No. 2, supra note 8, 86 FR at 22727.
43 See id.
44 See letters from: Paul Conn, President, Global Capital Markets, Computershare, dated January 11, 2021 First Computershare Letter, at 23; Niels Holch, Executive Director, Shareholder Communications Coalition, dated January 20, 2021
Coalition Letter, at 5 n.14; Paul Conn, President, Global Capital Markets, Computershare, dated April 14, 2021 Second Computershare Letter, at 4;

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