[Federal Register Volume 75, Number 206 (Tuesday, October 26, 2010)]
[Notices]
[Pages 65680-65683]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-26993]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63139; File No. SR-ISE-2010-99]
Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing and Order Granting Accelerated Approval of
Proposed Rule Change To Adopt ISE Rule 421 Relating to Proxy Voting
October 20, 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 October 6, 2010, the International Securities Exchange, LLC (``ISE''
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 the Exchange.
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
The Exchange proposes to adopt Rule 421 (Proxy Voting), in
accordance with the provisions of Section 957 of the Dodd-Frank Wall
Street Reform and Consumer Protection Act (the ``Dodd-Frank Act'').
The text of the proposed rule change is available on the Exchange's
Internet Web site at http://www.ise.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
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 IV below. The self-regulatory organization
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
The Exchange is proposing to adopt ISE Rule 421 (Proxy Voting), in
accordance with the provisions of Section 957 of the Dodd-Frank Act, to
prohibit Members from voting uninstructed shares if the matter voted on
relates to (i) the election of a member of the board of directors of an
issuer (other than an uncontested election of a director of an
investment company registered under the Investment Company Act of 1940
(the ``Investment Company Act'')), (ii) executive compensation, or
(iii) any other significant matter, as determined by the Commission, by
rule.
Section 957 of the Dodd-Frank Act amends Section 6(b) \3\ of the
Act to
[[Page 65681]]
require the rules of each national securities exchange to prohibit any
member organization that is not the beneficial owner of a security
registered under Section 12 \4\ of the Act from granting a proxy to
vote the security in connection with certain stockholder votes, unless
the beneficial owner of the security has instructed the member
organization to vote the proxy in accordance with the voting
instructions of the beneficial owner. The stockholder votes covered by
Section 957 include any vote with respect to (i) the election of a
member of the board of directors of an issuer (other than an
uncontested election of a director of an investment company registered
under the Investment Company Act), (ii) executive compensation, or
(iii) any other significant matter, as determined by the Commission, by
rule.
---------------------------------------------------------------------------
\3\ 15 U.S.C. 78f(b).
\4\ 15 U.S.C. 781.
---------------------------------------------------------------------------
Accordingly, in order to carry out the requirements of Section 957
of the Dodd-Frank Act, the Exchange proposes to adopt proposed ISE Rule
421 to prohibit any Member from giving a proxy to vote stock that is
registered in its name, unless: (i) Such Member is the beneficial owner
of such stock; (ii) pursuant to the written instructions of the
beneficial owner; or (iii) pursuant to the rules of any national
securities exchange or association of which it is a member provided
that the records of the Member clearly indicate the procedure it is
following. The Exchange is proposing to adopt these rules because other
national securities exchanges and associations do allow proxy voting
under certain limited circumstances while the current Exchange Rules
are silent on such matters. Therefore, a Member that is also a member
of another national securities exchange or association may vote the
shares held for a customer when allowed under its membership at another
national securities exchange or association, provided that the records
of the Member clearly indicate the procedure it is following.
More specifically, a 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 with respect to the election of a member of the board of directors
of an issuer (except for a vote with respect to uncontested election of
a member of the board of directors of any investment company registered
under the Investment Company Act), 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.
Because Section 957 of the Dodd-Frank Act does not provide for a
transition phase, the Exchange is proposing to adopt the proposed rule
change pursuant to Section 19(b) of the Act to comply with Section 957
of the Dodd-Frank Act and is requesting that the Commission approve the
proposal on an accelerated basis. Additionally, proposed ISE Rule
421(a) is based on NYSE Arca, Inc. (``NYSE Arca'') rule 9.4 and
Financial Industry Regulatory Authority (``FINRA'') rule 2251 and
proposed ISE Rule 421(b) is based on Nasdaq rule 2251(d).
2. Statutory Basis
The basis under the Act for these proposed rule changes is the
requirement under Section 6(b)(5) \5\ to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to remove impediments to, and perfect the
mechanism of a free and open market and, in general, to protect
investors and the public interest. The Exchange is adopting this
proposed rule change to comply with the requirements of Section 957 of
the Dodd-Frank Act, and therefore believes the proposed rule change to
be consistent with the Act, particularly with respect to the protection
of investors and the public interest.
---------------------------------------------------------------------------
\5\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change does not impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any unsolicited written comments from members or other interested
parties.
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-ISE-2010-99 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-ISE-2010-99. 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 ISE. 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-ISE-2010-99 and should be
submitted on or before November 16, 2010.
IV. Commission's Findings and Order Granting Accelerated Approval of
the Proposed Rule Change
In its filing, ISE 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, and because
the proposed rule text is based upon NYSE Arca Rule 9.4, FINRA Rule
2251, and Nasdaq Rule 2251(d). After careful consideration, the
Commission finds that the proposed
[[Page 65682]]
rule change is consistent with the requirements of the Act and the
rules and regulations thereunder applicable to a national securities
exchange.\6\
---------------------------------------------------------------------------
\6\ 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 proposed Rule 421(a) is consistent
with Section 6(b)(5) \7\ 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.
---------------------------------------------------------------------------
\7\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Under proposed Rule 421(a), a Member shall be prohibited from
voting uninstructed shares unless: (1) That member is the beneficial
owner of the stock; (2) pursuant to the written instructions of the
beneficial owner; or (3) pursuant to the rules of any national
securities exchange or association of which it is also a member,
provided that the member's records clearly indicate the procedure it is
following. This provision is based upon NYSE Arca Rule 9.4 and FINRA
Rule 2251, which were previously approved by the Commission.\8\ The
Commission notes that the proposed change to Rule 421(a) will provide
clarity to ISE members going forward on whether broker discretionary
voting is permitted by ISE members under limited circumstances when the
ISE member is also a member of another national securities exchange
that permits broker discretionary voting. In approving this portion of
the ISE proposal, the Commission notes that it does not go outside the
scope of the rules of other national securities exchanges or national
securities association, and for ISE members who are not also members of
another national securities exchange prohibits broker discretionary
voting on any matter, consistent with investor protection and the
public interest.
---------------------------------------------------------------------------
\8\ See Securities Exchange Act Release No. 48735 (October 31,
2003), 68 FR 63173 (November 7, 2003) (SR-PCX-2003-50); 61052
(November 23, 2009), 74 FR 62857 (December 1, 2009) (SR-FINRA-2009-
066) (finding that the proposed rule change was consistent with the
Act because the Rule ``will continue to provide FINRA members with
guidance on the forwarding of proxy and other issuer-related
materials.'').
---------------------------------------------------------------------------
The Commission believes that proposed Rule 421(b) 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.
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78f(b)(10).
---------------------------------------------------------------------------
The Commission believes that proposed Rule 421(b) 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 enacted 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.'' \10\ The proposed rule change will make ISE
compliant with the new requirements of Section 6(b)(10) by specifically
prohibiting, in ISE'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 from the beneficial owner of the shares.\11\
---------------------------------------------------------------------------
\10\ See S. Rep. No. 111-176, at 136 (2010).
\11\ 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 ISE to adopt
coordinating rules promptly to comply with the statute.
---------------------------------------------------------------------------
The Commission also believes that proposed Rule 421(b) is
consistent with Section 6(b)(5) \12\ 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.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Commission believes that the rule assures 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 ISE 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. The Commission believes that good cause exists to grant
accelerated approval to proposed Rule 421(a), because this proposed
rule will conform the ISE rule to NYSE Arca Rule 9.4 and FINRA Rule
2251, which were published for public comment in the Federal Register
and approved by the Commission, and for which no comments were
received.\15\ Because proposed Rule 421(a) is substantially similar to
the NYSE Arca and FINRA rules, it raises no new regulatory issues.
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78s(b)(2).
\15\ See note 8 supra.
---------------------------------------------------------------------------
The Commission also believes that good cause exists to grant
accelerated approval to proposed Rule 421(b), which conforms the ISE
rules to the requirements of Section 6(b)(10) of the Act. 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
[[Page 65683]]
accelerated approval to proposed Rule 421(b), because it will conform
the ISE rules to the requirements of Section 6(b)(10) of the Act.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\16\ that the proposed rule change (SR-ISE-2010-99) be, and it
hereby is, approved on an accelerated basis.
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
---------------------------------------------------------------------------
\17\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-26993 Filed 10-25-10; 8:45 am]
BILLING CODE 8011-01-P