NYSE Proposes Rule Change to Exempt Registered Closed-End Funds From Requirement to Hold Annual Shareholder Meetings

Who may be interested: Closed-End Funds; Investment Advisers

Quick Take: The New York Stock Exchange LLC (“NYSE”) filed an application with the SEC proposing amendments to Section 302.00 of its Listed Company Manual (“Manual”). Currently, Section 302.00 requires a closed-end fund (“CEF”) listed on the NYSE to hold an annual shareholder meeting during each fiscal year. If the rule change is approved, CEFs listed on the NYSE would no longer be required to hold annual shareholder meetings. This would make it significantly more difficult for activist investors to nominate and elect directors and trustees to a CEF’s board.

Most CEFs are organized in Delaware, Maryland or Massachusetts. Neither state corporate laws nor the federal securities laws require CEFs to hold annual shareholder meetings. The requirements originate from rules promulgated by national securities exchanges.

The NYSE argues that it would be appropriate to exempt CEFs from annual shareholder meeting requirements because CEF investors already have “significant statutory protections under the 1940 Act…for which there are no parallel legal protections for the shareholders of public operating companies.” The NYSE also notes that certain other listed registered investment companies (e.g., ETFs) are exempted from the annual shareholder meeting requirement. The NYSE’s proposed rule change would not alter the requirement for BDCs to hold annual shareholder meetings.

The NYSE’s application will be open to public comment through July 30, 2024. The NYSE’s application was published in the Federal Register on July 9, 2024. Within 45 days of that publication date (or up to 90 days as the SEC may designate or as to which the NYSE may consent) the SEC must approve, disapprove, or institute proceedings to determine whether the proposed rule change should be disapproved.

The NYSE’s application is available here. The full NYSE manual can be found here.