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NYSE Further Amends Related Party Rules

By | August 24, 2021

The NYSE recently amended its related party transaction rules to align with Regulation S-K Item 404.  The one key difference from Regulation S-K was that the NYSE did not apply the $120,000 transaction threshold which qualifies Regulation S-K.  Therefore, theoretically, a $1 transaction could trip the NYSE rule, although that was unlikely because it would be doubtful a related party would have a material interest in a $1 transaction as required by Regulation S-K.

Having seen the error it its ways, the NYSE has now modified it related party rules to include the $120,000 transaction threshold.

The rule change is effective upon filing, subject to SEC review.

In its rule filing the NYSE noted that in the period since the adoption of the previous amendment, it became clear to the Exchange that the amended rule’s exclusion of the applicable transaction value and materiality thresholds was inconsistent with the historical practice of many listed companies, and had unintended consequences. The Exchange learned that many listed companies  had a longstanding understanding that they were required to subject related party transactions to the review process required by the NYSE’s rules only if such transactions exceeded any applicable transaction value or materiality thresholds in the applicable SEC rules and therefore were required to be disclosed. This approach is embodied in the written related party transaction policies of many listed companies and is typically a part of the annual questionnaire completed by directors and officers in connection with the company’s annual meeting. By not permitting the use of transaction value and materiality thresholds, the previous amendment had the unintended effect of disrupting the normal course transactions of listed companies. Because of the previous amendment, many companies have been required to adopt for the first time two separate standards for related party transactions — one for disclosure and another for review and approval of transactions. This has created a significant compliance burden for issuers with respect to small transactions that are considered immaterial for purposes of other regulatory requirements. Furthermore, the Exchange believes that the review and approval of large numbers of immaterial transactions is not an effective use of the time of independent directors who have many other time-consuming oversight obligations with respect to matters that are higher risk and more material to the company.

Contact Steve Quinlivan for more information.