[Federal Register Volume 75, Number 56 (Wednesday, March 24, 2010)]
[Notices]
[Pages 14219-14221]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-6512]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61733; File No. SR-CHX-2010-06]
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend CHX Article 8, Rule 14 To, Among Other Things, Prohibit Broker
Discretionary Voting on the Elections of Directors
March 18, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given
that on March 9, 2010, the Chicago Stock Exchange, Inc. (``CHX'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I and II below, which Items have been prepared by the CHX. The
Exchange filed the proposal as a ``non-controversial'' proposed rule
change pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule
19b-4(f)(6) thereunder.\4\ The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
CHX proposes to amend Article 8, Rule 14 regarding proxy voting by
Participants which hold stock on behalf of the beneficial owner.
Specifically, the Exchange would like to enumerate in its rules certain
matters that affect substantially the rights and privileges of stock
and therefore should not be voted on by Participants without
instructions from the beneficial owner. The text of this proposed rule
change is available on the Exchange's Web site at (http://www.chx.com)
and in 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 CHX included statements
concerning the purpose of and basis for the proposed rule changes and
discussed any comments it received regarding the proposal. The text of
these statements may be examined at the places specified in Item IV
below. The CHX 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 Changes
1. Purpose
The CHX is proposing to amend Article 8, Rule 14 regarding proxy
voting by Participants which hold stock on behalf of the beneficial
owner. Specifically, the Exchange would like to enumerate in its rules
certain matters that affect substantially the rights and privileges of
stock and therefore should not be voted on by Participants without
instructions from the beneficial owner.
Under the current CHX and SEC proxy rules, Participants must
deliver proxy materials to beneficial owners and request voting
instructions in return. If voting instructions have not been received
by the tenth day preceding the meeting date, Rule 14 provides that
Participants may vote on certain matters deemed ``routine'' by the CHX.
One of the most important results of Participant votes of uninstructed
shares is their use in establishing a quorum at shareholder meetings.
At present, matters considered routine by the CHX are those in
which the person signing the proxy has no knowledge of any contest as
to the action to be taken at the meeting and provided such action does
not include authorization for a merger, consolidation or any other
matter which may affect substantially the legal rights or privileges of
such stock. In addition to this guidance, CHX rules specifically state
that a Participant may not give a proxy to vote when the matter to be
voted upon authorizes the implementation of any equity compensation
plan, or any material revision to the terms of any existing equity
compensation plan.
With this rule filing, CHX would like to amend its rules to conform
to the NYSE's rules \5\ to eliminate any disparities involving voting
depending on where the shares are held.\6\ CHX would also like to
enumerate in its rules certain matters that affect substantially the
rights and privileges of stock and therefore should not be voted on by
Participants without instructions from the beneficial owner. These
include: Any matter that is not submitted to stockholders by means of a
proxy statement comparable to that specified in Schedule 14-A of
Securities and Exchange Commission; any matter that is the subject of a
counter-solicitation or is part of a proposal made by a stockholder
which is being opposed by management (i.e., a contest); any matter that
relates to a merger or consolidation (except when the company's
proposal is to merge with its own wholly owned subsidiary, provided its
shareholders dissenting thereto do not have rights of appraisal); and,
matters that involve a right of appraisal. Additionally, matters that
authorize mortgaging of property, authorize or create indebtedness or
increase the authorized amount of indebtedness, authorize or create a
preferred stock or increase the authorized amount of an existing
preferred stock or alter the terms or conditions of existing stock or
indebtedness will also be prohibited
[[Page 14220]]
from being voted by a Participant without instruction.
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\5\ See NYSE Rule 452.
\6\ The Commission has indicated that, while other self-
regulatory organizations currently allow discretionary voting, it
expects these markets to make changes to conform to the NYSE's rules
to eliminate any disparities involving voting depending on where
shares are held. See Securities Exchange Act Release No. 34-60215
(July 1, 2009).
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Other matters that affect substantially the rights and privileges
of stock and therefore should not be voted on by Participants without
instructions from the beneficial owner are those involving a waiver or
modification of preemptive rights (except when the company's proposal
is to waive such rights with respect to shares being offered pursuant
to stock option or purchase plans involving the additional issuance of
not more than 5% of the company's outstanding common shares), those
changing existing quorum requirements with respect to stockholder
meetings, those altering voting provisions or the proportionate voting
power of a stock, or those altering the number of its votes per share
(except where cumulative voting provisions govern the number of votes
per share for election of directors and the company's proposal involves
a change in the number of its directors by not more than 10% or not
more than one).
Additionally, Participants will be prohibited from voting, absent
instructions, on any matter that authorizes a new profit-sharing or
special remuneration plan, or a new retirement plan, the annual cost of
which will amount to more than 10% of average annual income before
taxes for the preceding five years or the amendment of an existing plan
which would bring its cost above 10% of such average annual income
before taxes; however, exceptions may be made to these general
prohibitions in the cases of retirement plans based on agreement or
negotiations with labor unions (or which have been or are to be
approved by such unions) and any related retirement plan for benefit of
non-union employees having terms substantially equivalent to the terms
of such union-negotiated plan, which is submitted for action of
stockholders concurrently with such union negotiated plan.
Further matters that may not be voted by Participants without the
beneficial owner's instructions include: Those that change the purposes
or powers of a company to an extent which would permit it to change to
a materially different line of business and it is the company's stated
intention to make such a change; those that authorize the acquisition
of property, assets, or a company, where the consideration to be given
has a fair value approximating 20% or more of the market value of the
previously outstanding shares; those that authorize the sale or other
disposition of assets or earning power approximating 20% or more of
those existing prior to the transaction; those that authorize a
transaction not in the ordinary course of business in which an officer,
director or substantial security holder has a direct or indirect
interest; and, those that reduce earned surplus by 51% or more, or
reduces earned surplus to an amount less than the aggregate of three
years' common stock dividends computed at the current dividend rate.
The Exchange also believes that Participants should not vote
uninstructed stock for the election of directors, provided, however,
that this prohibition shall not apply in the case of a company
registered under the Investment Company Act of 1940.
Finally, the Exchange proposes to prohibit voting, without
instruction from the beneficial owner, on material amendments to an
investment advisory contract with an investment company. The Exchange
will also add commentary on this item indicating that a material
amendment to an investment advisory contract would include any proposal
to obtain shareholder approval of an investment company's investment
advisory contract with a new investment adviser, which approval is
required by the Investment Company Act of 1940, as amended (the ``1940
Act''), and the rules thereunder. Such approval will be deemed to be a
``matter which may affect substantially the rights or privileges of
such stock'' for purposes of this rule so that a Participant may not
give a proxy to vote shares registered in its name absent instruction
from the beneficial holder of the shares. As a result, for example, a
Participant may not give a proxy to vote shares registered in its name,
absent instruction from the beneficial holder of the shares, on any
proposal to obtain shareholder approval required by the 1940 Act of an
investment advisory contract between an investment company and a new
investment adviser due to an assignment of the investment company's
investment advisory contract, including an assignment caused by a
change in control of the investment adviser that is party to the
assigned contract.
The Exchange notes that the foregoing matters are substantially
similar to the list of matters that have been adopted by the New York
Stock Exchange and that have been previously approved by the
Commission.\7\
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\7\ See NYSE Rule 452 * * * Supplementary Material .11.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act in general,\8\ and furthers the objectives
of Section 6(b)(5) in particular,\9\ in that it is designed to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in facilitating transaction in
securities, to remove impediments and perfect the mechanisms of a free
and open market, and, in general, to protect investors and the public
interest by allowing CHX to amend Article 8, Rule 14 regarding proxy
voting by Participants which hold stock on behalf of the beneficial
owner. The Exchange believes that certain matters that affect
substantially the rights and privileges of stock should not be voted on
by Participants without instructions from the beneficial owner.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement of Burden on Competition
The Exchange does not believe that the proposed rule change will
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 Regarding the
Proposed Rule Changes Received From Members, Participants or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \10\ and Rule 19b-4(f)(6) thereunder.\11\
Because the proposed rule change does not: (i) Significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) by its terms, become
operative prior to 30 days from the date on which it was filed, or such
shorter time as the Commission may designate, if consistent with the
protection of investors and the public interest, the proposed rule
change has become effective pursuant to Section 19(b)(3)(A) of the Act
\12\ and Rule 19b-4(f)(6)(iii) thereunder.\13\
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\10\ 15 U.S.C. 78s(b)(3)(A)(iii).
\11\ 17 CFR 240.19b-4(f)(6).
\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires the Exchange to give the Commission written
notice of the Exchange's intent to file the proposed rule change,
along with a brief description and text of the proposed rule change,
at least five business days prior to the date of filing of the
proposed rule change, or such shorter time as designated by the
Commission. The Exchange has satisfied the pre-filing requirement.
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[[Page 14221]]
A proposed rule change filed under Rule 19b-4(f)(6) \14\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b4(f)(6)(iii),\15\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has
requested the Commission to waive the 30-day operative delay so that
the proposal may become operative immediately upon filing. In making
this request, the Exchange stated that the proposal is based upon the
rules of NYSE.
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\14\ 17 CFR 240.19b-4(f)(6).
\15\ 17 CFR 240.19b-4(f)(6)(iii).
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The Commission believes that the waiver of the 30-day operative
delay period is consistent with the protection of investors and the
public interest.\16\ The proposal would permit the Exchange to comply
with the Commission's stated goal that self-regulatory organizations
who currently allow members to use discretionary voting for director
elections conform their rules to the NYSE's rules to eliminate any
voting disparities depending on where the shares are held. Further, the
proposal would update and conform the Exchange's proxy voting rule to
reflect the recent changes to NYSE's rule on broker discretionary
voting on the election of directors, as well as material amendments to
investment advisory contracts. Moreover, the Commission notes that
these recent changes to NYSE's rules were subject to full notice and
comment, and considered and approved by the Commission.\17\ Based on
the above, the Commission finds that waiving the 30-day operative delay
period is consistent with the protection of investors and the public
interest and the proposal is therefore deemed effective upon filing.
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\16\ For purposes only of waiving the operative delay for this
proposal, the Commission has considered the proposed rule's impact
on efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\17\ See supra note 6.
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At any time within 60 days of the filing of the proposed rule
change, the Commission may summarily abrogate such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act.
IV. 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-CHX-2010-06 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-CHX-2010-06. 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 the Exchange. 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-CHX-2010-06 and should be
submitted on or before April 14, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-6512 Filed 3-23-10; 8:45 am]
BILLING CODE 8011-01-P