NYSE American Compliance Guidance MEMO

by Laura Anthony, Esq. on February 26, 2019 in IPO, NASDAQ, NASDAQ Listing Requirements, NYSE

In January, NYSE Regulation sent out its yearly Compliance Guidance Memo to NYSE American listed companies. The annual letter updates companies on any rule changes from the year and reminds companies of items the NYSE deems important enough to warrant such a reminder.

The only new item in this year’s letter relates to advance notice of stock dividends and distributions. Effective February 1, 2018, the NYSE requires listed companies to provide ten minutes’ advance notice to the exchange of any announcement with respect to a dividend or stock distribution, whether the announcement is during or outside exchange traded hours. This change is consistent with other NYSE and Nasdaq rules which generally require notifications of announcements, including press releases, that could impact trading, at least 10 minutes prior to such notification.

The NYSE letter also provides a list of important reminders to all exchange listed companies, starting with the requirement to provide a timely alert of all material news. Part 4 of the Company Guide requires listed companies to promptly release to the public any news or information which might reasonably be expected to materially affect the market for its securities. Listed companies may comply with the NYSE’s Timely Alert/Material News policy by disseminating material news via a press release or any other Regulation FD compliant method. Furthermore, for news being released between 7:00 a.m. and 4:00 p.m. Eastern time, a company must call the NYSE’s Market Watch Group (i) ten minutes before the dissemination of news that is deemed to be of a material nature or that may have an impact on trading in the company’s securities; or (ii) at the time the company becomes aware of a material event having occurred and take steps to promptly release the news to the public and provide a copy of any written form of that announcement at the same time via email. As noted above, where the news is related to a dividend or stock distribution, advance notice must be provided regardless of the time of the announcement.

The NYSE includes examples of material news such as earnings, mergers/acquisitions, executive changes, redemptions/conversions, securities offerings and pricings related to these offerings, major product launches, regulatory rulings, new patent approvals and dividend or major repurchase announcements. Once notified, NYSE Marketwatch will determine if a temporary trading halt should be effected to allow the market time to fully absorb the news. Also, if the news is being released between 7:00 a.m. and 9:25 a.m., the company can request a temporary trading halt.

Furthermore, the requirement to provide the exchange with advance notice of the public release of information also applies to verbal information such as part of a management presentation, investor call or investor conference. In practice, companies usually file their scripts and any presentation materials via a Form 8-K immediately prior to the verbal release of information.

Similarly, NYSE believes that a change in the earnings announcement date can sometimes affect the trading price of a company’s stock and/or related securities and those market participants who are in possession of this information before it is broadly disseminated may have an advantage over other market participants. Consequently, listed companies are required to promptly and broadly disseminate to the market, news of the scheduling of their earnings announcements or any change in that schedule and to avoid selective disclosure of that information prior to its broad dissemination.

The purpose of these rules is to prevent insider trading or even a jump-start advantage to trading on material information. It is widely believed that insider trading rules are in need of an overhaul. Generally, insider trading refers to buying or selling a security in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. Insider trading violations may also include “tipping” such information, securities trading by the person “tipped,” and securities trading by those who misappropriate such information. For more information, see HERE.

The compliance letter also addresses the following matters:

Annual Meeting RequirementsIf an annual meeting is postponed or adjourned, such as if quorum is not reached, the company will not be in compliance with Section 704 of the Company Guide, which requires that a company hold an annual meeting during each fiscal year.

Record Date NotificationListed companies are required to notify the NYSE at least ten calendar days in advance of all record dates set for any purpose or changes to a set date.  Record dates should be set for business days.

Redemption and Conversion of Listed Securities – Advance notice must be provided to the NYSE of any call redemptions or conversions of a listed security.  The NYSE tracks redemptions and conversions to ensure that any reduction in securities outstanding does not result in noncompliance with the Exchange’s distribution and market capitalization continued listing standards.

Annual Report Website Posting RequirementSection 610(a) of the Company Guide requires that a company post its annual report on its website simultaneously with the filing of the report with the SEC.

Corporate Governance RequirementsAll listed companies must file an annual affirmation that it is in compliance with the corporate governance requirements.  The affirmation must be filed no later than 30 days after the company’s annual meeting and if no meeting is held, 30 days after the filing of its annual report (10-K, 20-F, 40-F or N-CSR) with the SEC.

Transactions Requiring Supplemental Listing Applications – A company is required to file a Listing of Additional Securities (“LAS”) application to obtain authorization from the NYSE for a variety of corporate events, including (i) the issuance or reserve for issuance of additional shares of a listed security; (ii) the issuance or reserve for issuance of additional shares of a listed security that are issuable upon conversion of another security; (iii) change in corporate name, state of incorporation or par value; and/or (iv) the listing of a new security (such as preferred stock or warrants).  No additional securities can be issued until the NYSE authorizes the LAS.  Moreover, authorization is required whether the securities will be issued privately or through a registration and even if conversion is not possible until some future date.  Authorization takes approximately 2 weeks.

Broker Search CardsSEC Rule 14a-13 requires any company soliciting proxies in connection with a shareholder meeting to send a search card to any entity that the company knows is holding shares for beneficial owners.  The search card must be sent: (i) at least 20 business days before the record date for the annual meeting; or (ii) such later time as permitted by the rules of the national exchange on which the securities are listed.  The NYSE American does not have any rules allowing for a later search card and accordingly, all listed companies must comply with the Rule 14a-13 20-day requirement.

NYSE American Rule 452, Voting by Member OrganizationsThe Exchange reviews all listed company proxy materials to determine whether NYSE American member organizations that hold customer securities in “street name” accounts as brokers are allowed to vote on proxy matters without having received specific client instructions.  The Exchange recommends that listed companies submit their preliminary proxies for preliminary, confidential review.

Shareholder Approval and Voting Rights RequirementsSections 711 through 713 of the Company Guide outline the Exchange’s shareholder approval requirements including the 20% rules.  Listed companies are strongly encouraged to consult the Exchange prior to entering into a transaction that may require shareholder approval including, but not limited to, the issuance of securities: (i) with anti-dilution price protection features; (ii) that may result in a change of control; (iii) to a related party; (iv) in excess of 19.9% of the pre-transaction shares outstanding; and (v) in an underwritten public offering in which a significant percentage of the shares sold may be to a single investor or to a small number of investors (as this may be deemed a private offering requiring approval).

Listed companies are also encouraged to consult the Exchange prior to entering into a transaction that may adversely impact the voting rights of existing shareholders of the listed class of common stock, as such transactions may violate the Exchange’s voting rights. Examples of transactions which adversely affect the voting rights of shareholders of the listed common stock include transactions which result in a particular shareholder having: (i) board representation that is out of proportion to that shareholder’s investment in the company; or (ii) special rights pertaining to items that normally are subject to shareholder approval under either state or federal securities laws, such as the right to block mergers, acquisitions, disposition of assets, voluntary liquidation, or certain amendments to the company’s organizational/governing documents.