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Federal Register / Vol. 86, No. 161 / Tuesday, August 24, 2021 / Notices
role in this area. The Commission is not foreclosing the possibility that issuers interests could be adequately considered in a reimbursement ratesetting process that the Exchange does not lead; however, in the Notice and in its response to the Order Instituting Proceedings, the Exchange did not provide sufficient information in the record on this point. In particular, while the Exchange acknowledges that the impact of eliminating the reimbursement rate schedule from its rules would be that FINRA becomes the de facto lead SRO for rate setting,43 the Exchange does not articulate or provide any information to suggest how FINRA, notwithstanding its lack of regulatory relationships with issuers, could potentially consider issuers interests if FINRA were to become the industry standard-bearer.44 Nor does the Exchange identify any other existing mechanism through which the interests of issuers could be adequately considered if proposed updates to the rates were to be developed under a FINRA-led regime.
In contrast, for the many years that the Exchange has been the lead SRO in this area, it has demonstrated the ability, as a primary listing market that has relationships with both brokers and issuers, to consider the interests of both 43 See
Notice, supra note 3, 85 FR at 83120.
along with several other commenters, opposed the proposal because FINRA, unlike the Exchange, has no regulatory relationship with issuers. See letters from: Marcia E. Asquith, Executive Vice President, FINRA, dated January 11, 2021 First FINRA Letter, at 5, and dated April 14, 2021 Second FINRA Letter, at 3; Niels Holch, Executive Director, Shareholder Communications Coalition, dated January 20, 2021
SCC Letter, at 5; Todd J. May, President, Securities Transfer Association, Inc., dated March 1, 2021 First STA Letter, at 2, and dated April 14, 2021 Second STA Letter, at 5; Paul Conn, President, Global Capital Markets, Computershare, dated January 11, 2021 First Computershare Letter, at 34, and dated April 14, 2021 Second Computershare Letter, at 1. FINRA also stated that it is not in a better position than NYSE to become the lead SRO in this area, and that, should the Commission determine to approve the Exchanges proposal, FINRA would be strongly inclined to rescind its fee schedule as well. See First FINRA
Letter at 56; Second FINRA Letter at 3. The Commission notes that any FINRA proposal to rescind its fee schedule would be subject to the rule filing process and Commission approval.
Commenters were divided on the desirability of retaining a fixed maximum rate schedule. See letters from: Thomas F. Price, Managing Director, Operations, Technology, Cyber & BCP, Securities Industry and Financial Markets Association, dated April 14, 2021, at 5 recommending that the Commission ensure that at least one significant SRO
retains a fixed maximum fee schedule; Sarah A.
Bessin, Associate General Counsel, Securities Regulation, and Joanne Kane, Senior Director, Operations and Transfer Agency, Investment Company Institute, dated May 13, 2021 Second ICI Letter, at 4 stating that retaining a fixed SRO
rate schedule would be an inappropriate means of broader reform. See also infra note 52.

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of these important constituencies when it periodically develops proposals to update the reimbursement rate schedule pursuant to Section 19b2 of the Act.
In so doing, the Exchange performs an important SRO function of generating proposals that provide a basis for the Commission to find that the proposed updated rates constitute an equitable allocation of reasonable fees.45 As an outgrowth of this process and as approved by the Commission, the NYSE
rate schedule sets the maximum level of reasonable reimbursement that is accepted as the industry standard for what may be sought by any broker and must be paid by any issuer. In turn, as a consensus product representing broker and issuer interests, the NYSE rate schedule helps ensure that beneficial owners receive proxy and other issuer materials in a timely manner and as required by the Commissions rules.
The Exchanges statements regarding FINRAs ability to consider brokers costs do not evince a similar ability on FINRAs part to consider both broker and issuer interests in performing this SRO function. Moreover, while the Exchange asserts that its listing relationships with issuers do not provide it with a meaningful advantage in the reimbursement rate-setting process, the consideration of issuers interests has been a fundamental part of the Exchanges process for determining what reimbursement rates would be reasonable. Throughout the history of the NYSE reimbursement rates, which were formally established by rule in 1952 and have been updated periodically since then,46 both issuers and brokers have been involved in the process of reaching a workable consensus as to what constitutes reasonable reimbursement.47 The Exchanges own, most recent history on this point is illustrative. In 2010, the Exchange formed a Proxy Fee Advisory Committee, comprised of representatives of issuers, brokerdealers, and shareholders, to make recommendations for changes to the Exchanges then-existing reimbursement schedule; 48 and in 2013, when the last major revisions to the reimbursement schedule were proposed, the Exchange acknowledged that it has long operated under the assumption that these fees 45 See
15 U.S.C. 78fb4.
Concept Release on the U.S. Proxy Systems, Securities Exchange Act Release No.
62495 July 14, 2010, 75 FR 42981, 42995 July 22, 2010 Proxy Plumbing Release.
47 See 2013 Approval Order, supra note 10, 78 FR
at 63538 n.164.
48 See Securities Exchange Release No. 68936
February 15, 2013, 78 FR 12381, 12382 February 22, 2013 SRNYSE201307.
46 See
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should represent a consensus view of the issuers and the broker-dealers involved. 49 The Exchanges historical approach underscores that the ability to duly consider both brokers and issuers interestsan ability that, based on the record here, FINRA does not possess is critical to an equitable and fair process for determining what rates would constitute reasonable reimbursement, and helps assure that the rates are set in a manner that, consistent with Section 6b5, promotes just and equitable principles of trade, protects investors and the public interest, and does not permit unfair discrimination between customers, issuers, brokers, or dealers.
In addition, the Exchange argued that its proposal would simply conform its rules to substantively identical rules of other exchanges, such as Cboe BZX
Exchange and the Investors Exchange, that do not specify a schedule of maximum permitted reimbursement rates.50 The mere fact that other exchanges rules do not specify a reimbursement rate schedule does not demonstrate that the Exchanges proposal is consistent with the Act and must be approved, or that the circumstances that make those other exchanges rules consistent with the Act apply equally to the Exchange.51 Indeed, the circumstances underpinning this proposal are unique because, as noted above, the NYSE rate schedule is the product of a NYSE-led process that considers broker and issuer interests 49 See id. In fact, issuers may provide perspective not just based on their experience paying the NYSE
reimbursement rates, but also based on their experience paying to distribute materials to registered owners who do not hold their shares in street name, which distributions do not involve brokers and are not subject to the NYSE rates. See Proxy Plumbing Release, supra note 46, 75 FR at 42986. Issuers typically contract directly with thirdparty service providers for distributions to registered owner accounts, just as brokers typically contract with third-party service providers for distributions to street name accounts. See id. While these different types of distributions might involve different costs and processes, issuers have insight into what it costs to pay a service provider to distribute proxies or other issuer materials that is relevant to the reimbursement rate-setting process.
See, e.g., letter from Dorothy M. Donohue, Deputy General Counsel, Securities Regulation, and Joanne Kane, Senior Director, Operations and Transfer Agency, Investment Company Institute, dated January 8, 2021 First ICI Letter, at 2 and Second ICI Letter at 23 comparing the costs that funds pay when they distribute materials through intermediaries to what they pay when they distribute materials directly to shareholders.
50 See NYSE Response Letter at 2.
51 We note that, as set forth in Commission Rule of Practice 700b3 17 CFR 201.700b3, a mere assertion . . . that another self-regulatory organization has a similar rule in place is not sufficient to explain why the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a self-regulatory organization.

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