NYSE Arca Receives Approval for Proposed Rule Change to Exempt Funds from Shareholder Approval Requirements in Connection with Certain Acquisitions

May 26, 2021

On May 14, 2021, the NYSE Arca, Inc. (NYSE Arca) received approval from the SEC to implement a proposed rule change to exclude certain listed funds, including ETFs, from a requirement in NYSE Arca’s corporate governance rules (Rule 5.3-E(d)(9)) to obtain shareholder approvals for the issuance of securities by a listed fund in connection with certain acquisitions of stock or assets.  The exception applies where the acquisition of stock or assets by a listed fund is of an affiliated fund in a transaction that complies with Rule 17a-8 under the 1940 Act and the acquisition is not subject to shareholder approval under any other provision of the 1940 Act or rule thereunder or any other NYSE Arca rule.  The rule change is currently effective.

Rule 17a-8 under the 1940 Act permits mergers of affiliated funds subject to certain procedural conditions and requires a shareholder vote in some instances.  Rule 5.3(d)(9) ordinarily generally requires a listed fund to obtain shareholder approval in connection with the acquisition of stock or assets of another company (i) if any director, officer, or substantial shareholder of the listed fund has a 5% or greater interest (or such persons collectively have a 10% or greater interest) in the company or assets to be acquired or in the consideration to be paid in the transaction and the issuance of common stock could result in an increase in outstanding common shares or voting power of 5% or more; or (ii) where the issuance of common stock could result in an increase in outstanding common shares of 20% or more or could represent 20% or more of the voting power outstanding before the issuance of such stock.

Funds or ETFs that are listed under NYSE Arca rules 5.2-E(h) (Unit Investment Trusts), 5.2-E(j)(3) (Investment Company Units), 5.2-E(j)(8) (Exchange-Traded Fund Shares), 8.100-E (Portfolio Depositary Receipts), 8.600-E (Managed Fund Shares), 8.601-E (Active Proxy Portfolio Shares) and 8.900-E (Managed Portfolio Shares) are eligible for the exclusion.

The SEC’s order approving the proposed rule change is available here: https://www.sec.gov/rules/sro/nysearca/2021/34-91901.pdf 


Categories

Compliance, Exchange-Traded Funds (ETFs), Investment Companies, Miscellaneous, Regulatory