New York Stock Exchange Revises Rules on Approval of Related-Party Transactions

2021-07-21 09:36:00

Until recently, the New York Stock Exchange required listed companies to have an "appropriate body" internally to review related-party transactions. However, "related-party transactions" were not explicitly defined in the NYSE Listed Company Manual and were generally understood to refer to transactions requiring disclosure under Item 404 of Regulation S-K. Item 404 requires disclosure when (i) the amount involved exceeds $120,000 and the related party has or (ii) will have a direct or indirect material interest in the transaction.

In April of this year, the U.S. Securities and Exchange Commission (SEC) approved amendments to Section 314.00 of the NYSE Listed Company Manual. The revised rules now:

• Define "related-party transactions" as those requiring disclosure under Item 404 of Regulation S-K (but without applying the $120,000 transaction value threshold);

• Stipulate that the board's audit committee (or a similar independent body) must conduct an independent, private review of all related-party transactions;

• Require the audit committee (or a similar independent body) to prohibit any related-party transactions it deems not in the best interests of the company and its shareholders.

By excluding the $120,000 transaction value threshold, the NYSE has expanded the scope of related-party transactions subject to review and pre-approval. NYSE-listed companies should review their related-party transaction policies and procedures to ensure compliance with the revised NYSE rules.