LEGALcurrents®

In early April 2020, the Securities and Exchange Commission (the “SEC”) approved the New York Stock Exchange’s (“NYSE”) temporary, partial waiver of certain shareholder approval requirements set forth in Section 312.03 of the NYSE Listed Company Manual through June 30, 2020. The partial waiver impacts the shareholder approvals generally required for (1) non-public issuances of 20% or more of a company’s listed securities (“20% Rule”) and (2) issuances to related parties.

As discussed in our earlier LEGALcurrents, the waiver was intended to assist companies that are facing revenue shortfalls as a result of the COVID-19 pandemic. As a result of the ongoing COVID-19 pandemic, on July 2, 2020, the SEC approved, with immediate effectiveness, an extension of this waiver through September 30, 2020.

Partial Waiver to 20% Rule 

The NYSE’s 20% Rule contains an exception for “bona fide private financings” at or above the current market price, calculated as set forth in the NYSE Listed Company Manual. A bona fide private financing is a sale in which either (i) a registered broker-dealer purchases the securities from the listed company with a view to the private sale of such securities to one or more purchasers or (ii) the listed company sells the securities to multiple purchasers and no single purchaser acquires more than 5% of the company’s listed securities.

The NYSE has waived through September 30, 2020, the 5% limitation for purposes of the bona fide financing exception to permit companies to undertake a bona fide private financing in which there is only a single purchaser. The effect of the NYSE’s waiver is that a listed company is exempt from the shareholder approval requirement of the 20% Rule in relation to a private placement transaction regardless of size, the number of participating investors, or the amount of securities purchased by any single investor, so long as the sale is at or above the current market price. 

Partial Waiver to Limit on Issuances to Related Parties

Section 312.03(b) of the NYSE Listed Company Manual requires shareholder approval of any issuance to a related party if the number of common shares or voting power of the shares exceeds 1% before the issuance. There is a limited exception for issuances of securities for cash to substantial shareholders that are related parties only because they are substantial shareholders.

In addition to the waiver discussed above, the NYSE extended the waiver of these requirements for related party issuances through September 30, 2020, provided that the issuances (i) satisfy the minimum price test and (ii) have been reviewed and approved by the company’s audit committee. The NYSE stated that this waiver is not applicable to certain transactions involving acquisitions of the stock or assets of another company that require shareholder approval under the Nasdaq Stock Market LLC’s (“Nasdaq”) rules.

The NYSE believes it is appropriate to extend this relief through September 30, 2020, to provide NYSE-listed companies continued flexibility to access capital during the volatile economic conditions related to the ongoing COVID-19 pandemic. The waiver of these shareholder approval requirements does not affect Nasdaq or NYSE American-listed companies as these specific limitations do not exist in the applicable Nasdaq or NYSE American rules. With the waiver in place until the end of September, NYSE-listed companies may have greater opportunity to raise additional funds from a limited group of purchasers while the capital markets remain receptive to new deals.

If you have questions as to how this waiver may impact your business, please reach out to a member of our Securities and Capital Markets team. The SEC’s July 2, 2020, approval of the extension of the NYSE’s waiver is available at this link and the NYSE’s original waiver is discussed in this LEGALcurrents.


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