NYSE Provides Temporary COVID-19 Exception From Shareholder Approval Requirements Under 20% Rule

Sullivan & Cromwell LLP - May 21, 2020

In light of the impact of the COVID-19 pandemic, the New York Stock Exchange LLC (“NYSE”) filed notice of a proposed rule change on May 14 with the Securities and Exchange Commission (“SEC”), which became effective immediately. Specifically, Section 312.03T (the “Temporary Rule”) of the NYSE Listed Company Manual (the “Manual”) provides a limited temporary exception from the application of the shareholder approval requirements in Section 312.03 of the Manual—also known as the “20% Rule”—and a limited attendant exception from the requirements of Section 303A.08 of the Manual (Shareholder Approval of Equity Compensation Plans). The Temporary Rule is substantially similar to Nasdaq Listing Rule 5636T, which was filed by The Nasdaq Stock Market LLC on May 4, 2020 (the “Nasdaq Rule”). Like the Nasdaq Rule, any securities issued in reliance on the exception must be issued by the later of June 30, 2020 and 30 calendar days following the date of the binding agreement governing the issuance, in each case, after the company has submitted a certification of its compliance with the requirements of the Temporary Rule and received approval from NYSE. Unlike the Nasdaq Rule, the Temporary Rule requires that a company certify that the proceeds of any issuance made pursuant to the Temporary Rule will not be used to fund any acquisition transaction and does not include a “safe harbor” provision waiving the requirement to obtain NYSE prior approval for transactions that meet specified conditions. The SEC is soliciting comments on the Temporary Rule for 21 days following publication in the Federal Register.