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NYSE Revisions to Related Party Transaction Approval Rule

July 21, 2021

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

Amendments to Section 314.00 of the NYSE Listed Company Manual were approved by the Securities and Exchange Commission (SEC) this April. The amended rule now:
● defines a “related party transaction” to be a transaction required to be disclosed under Item 404 of Regulation S-K (but without applying the $120,000 transaction value threshold);
● provides that the audit committee (or comparable independent body) of the board must hold an independent private review of all related party transactions; and
● requires that the audit committee (or comparable independent body) prohibit related party transactions it determines to be inconsistent with the interests of the company and its shareholders.

Due to the NYSE’s exclusion of the $120,000 transaction value threshold, the scope of related party transactions requiring review and pre-approval have been broadened. NYSE listed companies should review their related party transaction policies and procedures to ensure they conform to the amended NYSE rule.

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