[Federal Register Volume 75, Number 190 (Friday, October 1, 2010)]
[Notices]
[Pages 60844-60846]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-24606]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62992; File No. SR-NASDAQ-2010-114]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Order Granting Accelerated Approval of Proposed
Rule Change To Prohibit Members From Voting Uninstructed Shares on
Certain Matters
September 24, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on September 14, 2010, The NASDAQ Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been substantially prepared by Nasdaq. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons and is approving the
proposed rule change on an accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
Nasdaq proposes to modify Rule 2251 to prohibit members from voting
on the election of a member of the board of directors of an issuer
(except for a vote with respect to the uncontested election of a member
of the board of directors of any investment company registered under
the Investment Company Act of 1940), executive compensation, or any
other significant matter, as determined by the Commission, unless
instructed by the beneficial owner of the shares. The text of the
proposed rule change is below. Proposed new language is in italics;
proposed deletions are in brackets.\3\
---------------------------------------------------------------------------
\3\ Changes are marked to the rule text that appears in the
electronic manual of Nasdaq found at http://nasdaqomx.cchwallstreet.com.
---------------------------------------------------------------------------
2251. Forwarding of Proxy and Other Issuer-Related Materials
(a)-(c) No change.
(d) Notwithstanding the foregoing, a Nasdaq Member that is not the
beneficial owner of a security registered under Section 12 of the Act
is prohibited from granting a proxy to vote the security in connection
with a shareholder vote on the election of a member of the board of
directors of an issuer (except for a vote with respect to the
uncontested election of a member of the board of directors of any
investment company registered under the Investment Company Act of
1940), executive compensation, or any other significant matter, as
determined by the Commission, by rule, unless the beneficial owner of
the security has instructed the member to vote the proxy in accordance
with the voting instructions of the beneficial owner.
* * * * *
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, Nasdaq included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item III below. Nasdaq has prepared summaries, set forth in Sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Section 957 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (the ``Dodd-Frank Act'') adopted new Section 6(b)(10) of
the Securities Exchange Act.\4\ This new provision requires all
national securities exchanges to adopt rules that prohibit their
members from voting on the election of a member of the board of
directors of an issuer (except for a vote with respect to the
uncontested election of a member of the board of directors of any
investment company registered under the Investment Company Act of
1940), executive compensation, or any other significant matter, as
determined by the Commission, unless the member receives voting
instructions from the beneficial owner of the shares.
---------------------------------------------------------------------------
\4\ 15 U.S.C. 78f(b)(10).
---------------------------------------------------------------------------
NASDAQ Rule 2251 governs when NASDAQ members may vote shares held
for customers by adopting the FINRA rule on this point. The FINRA rule,
in turn, prohibits members from voting any uninstructed shares, but
also permits the member to follow the rules of another SRO instead.\5\
In order to
[[Page 60845]]
assure compliance, in all cases, with newly adopted Section 6(b)(10),
NASDAQ proposes to modify Rule 2251 to provide that in no event could a
member vote uninstructed shares on the election of a member of the
board of directors of an issuer (except for a vote with respect to the
uncontested election of a member of the board of directors of any
investment company registered under the Investment Company Act of
1940), executive compensation, or any other significant matter, as
determined by the Commission, unless instructed by the beneficial owner
of the shares.
---------------------------------------------------------------------------
\5\ The Commission notes that the FINRA rule, and by reference
Nasdaq's rule, only allows a member to follow the rules of another
SRO of which it is a member, provided that the records of the member
clearly indicate the procedure it is following. See FINRA Rule
2251(c)(2).
---------------------------------------------------------------------------
2. Statutory Basis
Nasdaq believes that the proposed rule change is consistent with
the provisions of Section 6 of the Act,\6\ in general and with Section
6(b)(10) of the Act,\7\ in particular. Section 6(b)(10) requires that a
national securities exchange's rules must prohibit any member that is
not the beneficial owner of a security registered under Section 12 from
granting a proxy to vote the security in connection with a shareholder
vote on the election of a member of the board of directors of an issuer
(except for a vote with respect to the uncontested election of a member
of the board of directors of any investment company registered under
the Investment Company Act of 1940), executive compensation, or any
other significant matter, as determined by the Commission. The proposed
rule change will adopt the prohibition required by Section 6(b)(10).
---------------------------------------------------------------------------
\6\ 15 U.S.C. 78f.
\7\ 15 U.S.C. 78f(b)(10).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
Nasdaq does not believe that the proposed rule change will result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File Number SR-NASDAQ-2010-114 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2010-114. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for Web site
viewing and printing in the Commission's Public Reference Room, 100 F
Street, NE., Washington, DC 20549, on official business days between
the hours of 10 a.m. and 3 p.m. Copies of such filing also will be
available for inspection and copying at the principal office of Nasdaq.
All comments received will be posted without change; the Commission
does not edit personal identifying information from submissions. You
should submit only information that you wish to make available
publicly. All submissions should refer to File Number SR-NASDAQ-2010-
114 and should be submitted on or before October 22, 2010.
IV. Commission's Findings and Order Granting Accelerated Approval of
the Proposed Rule Change
In its filing, Nasdaq requested that the Commission approve the
proposal on an accelerated basis so that the Exchange could immediately
comply with the requirements imposed by the Dodd-Frank Act. After
careful consideration, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities exchange.\8\
---------------------------------------------------------------------------
\8\ In approving this rule change, the Commission notes that it
has considered the proposed rule's impact on efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f).
---------------------------------------------------------------------------
The Commission believes that the proposal is consistent with
Section 6(b)(10) \9\ of the Act, which requires that national
securities exchanges adopt rules prohibiting members that are not
beneficial holders of a security from voting uninstructed proxies with
respect to the election of a member of the board of directors of an
issuer (except for uncontested elections of directors for companies
registered under the Investment Company Act), executive compensation,
or any other significant matter, as determined by the Commission by
rule. The Commission also believes that the proposal is consistent with
Section 6(b)(5) \10\ of the Act, which provides, among other things,
that the rules of the Exchange must be designed to promote just and
equitable principles of trade, remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest, and are not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78f(b)(10).
\10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Commission believes that the proposal is consistent with
Section 6(b)(10) of the Act because it adopts revisions that comply
with that section. As noted in the accompanying Senate Report, Section
957, which adopts Section 6(b)(10), reflects the principle that ``final
vote tallies should reflect the wishes of the beneficial owners of the
stock and not be affected by the wishes of the broker that holds the
shares.'' \11\ The proposed rule change will make Nasdaq compliant with
the new requirements of Section 6(b)(10) by specifically prohibiting,
in Nasdaq's rule language, broker-dealers, who are not beneficial
owners of a security, from voting uninstructed shares in connection
with a shareholder vote on the election of a member of the board of
directors of an issuer (except for a vote with respect to the
uncontested election of a member of the board of directors of any
investment company registered under the Investment Company Act of
1940), executive compensation, or any other significant matter, as
determined by the Commission by rule, unless the member receives voting
instructions
[[Page 60846]]
from the beneficial owner of the shares.\12\
---------------------------------------------------------------------------
\11\ See S. Rep. No. 111-176, at 136 (2010).
\12\ The Commission has not, to date, adopted rules concerning
other significant matters where uninstructed broker votes should be
prohibited, although it may do so in the future. Should the
Commission adopt such rules, we would expect Nasdaq to adopt
coordinating rules promptly to comply with the statute.
---------------------------------------------------------------------------
The Commission believes that the proposal is consistent with
Section 6(b)(5) of the Act because the proposal will further investor
protection and the public interest by assuring that shareholder votes
on the election of the board of directors of an issuer (except for a
vote with respect to the uncontested election of a member of the board
of directors of any investment company registered under the Investment
Company Act of 1940) and on executive compensation matters are made by
those with an economic interest in the company, rather than by a broker
that has no such economic interest, which should enhance corporate
governance and accountability to shareholders.\13\
---------------------------------------------------------------------------
\13\ As the Commission stated in approving NYSE rules
prohibiting broker voting in the election of directors, having those
with an economic interest in the company vote the shares, rather
than the broker who has no such economic interest, furthers the goal
of enfranchising shareholders. See Securities Exchange Act Release
No. 60215 (July 1, 2009), 74 FR 33293 (July 10, 2009) (SR-NYSE-2006-
92).
---------------------------------------------------------------------------
Based on the above, the Commission finds that the Nasdaq proposal
will further the purposes of Sections 6(b)(5) and 6(b)(10) of the Act
because it should enhance corporate accountability to shareholders
while also serving to fulfill the Congressional intent in adopting
Section 6(b)(10) of the Act.
The Commission also finds good cause, pursuant to Section 19(b)(2)
of the Act,\14\ for approving the proposed rule change prior to the
30th day after the date of publication of notice in the Federal
Register. Section 6(b)(10) of the Act, enacted under Section 957 of the
Dodd-Frank Act, does not provide for a transition phase, and requires
rules of national securities exchanges to prohibit broker voting on the
election of a member of the board of directors of an issuer (except for
a vote with respect to the uncontested election of a member of the
board of directors of any investment company registered under the
Investment Company Act of 1940), executive compensation, or any other
significant matter, as determined by the Commission by rule. The
Commission believes that good cause exists to grant accelerated
approval to the Exchange's proposal, because it will conform Nasdaq
Rule 2251 to the requirements of Section 6(b)(10) of the Act.
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\15\ that the proposed rule change (SR-Nasdaq-2010-114) be, and it
hereby is, approved on an accelerated basis.
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
---------------------------------------------------------------------------
\16\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-24606 Filed 9-30-10; 8:45 am]
BILLING CODE 8010-01-P