NYSE Amends Shareholder Approval Rules for Easier Securities Transactions

By: Lucosky Brookman

In a recent development, the New York Stock Exchange (NYSE) has made changes to its shareholder approval rules, streamlining the process for listed companies to sell securities to passive existing shareholders without the need for additional shareholder approval. This amendment, which has been swiftly approved by the Securities and Exchange Commission (SEC), specifically targets Section 312.03(b)(i) of the NYSE's Listed Company Manual.

According to the existing rule, shareholder approval is mandatory before issuing common stock or securities convertible into common stock if the number of shares exceeds one percent of the total outstanding shares or one percent of the voting power before the issuance. However, the NYSE acknowledges that the current definition of "substantial security holder" encompasses holders who lack active involvement in the company's governance or management. 

In response to this, the NYSE has refined Section 312.03(b)(i) to narrow its application to "Active Related Parties" – individuals who hold a substantial interest in the company and have an affiliated person serving as an officer or director. The term "group" will be determined based on Schedule 13D or Schedule 13G filings, with the definition of "control" aligning with Rule 12b-2 of Regulation 12B under the NYSE Act.

The NYSE emphasizes the importance of protecting investors through shareholder approval requirements, especially in transactions involving officers, directors, or other control persons. However, the amendment recognizes that passive substantial security holders, who do not actively participate in the company's governance, pose lower risks of potential conflicts of interest. 

Under the revised Section 312.03(b)(i), shareholder approval will still be required for below-market sales exceeding one percent to Active Related Parties. On the other hand, below-market sales over one percent to substantial security holders who are not Active Related Parties will be permitted without shareholder approval under this section but will remain subject to other applicable shareholder approval requirements.

These changes aim to strike a balance between facilitating securities transactions for passive investors and maintaining the necessary safeguards to protect the interests of the company and its shareholders. The NYSE intends to update its internal procedures to efficiently determine whether shareholders participating in transactions qualify as Active Related Parties. 

This amendment marks a significant step toward adapting regulations to better suit the dynamics of modern securities transactions, offering companies increased flexibility in engaging with their passive shareholder base.