August 19, 2021

SEC Rejects NYSE’s Proposal to Shed Responsibility for Proxy Distribution Fee Schedule

Lynn blogged a few months ago that the NYSE wanted FINRA to start taking the lead in setting the fee schedule that brokers use to get reimbursed for proxy distribution costs. The problem was, FINRA didn’t want the responsibility either, and nobody besides the NYSE was very enthused about a change.

Yesterday, the SEC issued this order to disapprove the proposed rule change. The order basically says the NYSE is doing too good of a job here, and it bears the burden of showing that a change to the status quo would still allow issuers’ interests to be continued to be fairly considered. Here’s an excerpt:

The Commission is not foreclosing the possibility that issuers’ interests could be adequately considered in a reimbursement rate-setting 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, 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. 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.

Approval of NYSE’s proposed elimination of its rate schedule therefore would do more than simply conform NYSE’s rules to those of other exchanges; it would result in NYSE’s relinquishment of an important market-wide regulatory function that it currently performs, and without there being evidence in the record of this filing of an available and equally viable alternative for that function.

Earlier this week, I wrote on our Proxy Season Blog about a different NYSE rule relating to proxy distribution costs that the SEC did approve, which may give some relief to companies that saw those costs skyrocket last year.

Liz Dunshee