[Federal Register Volume 75, Number 56 (Wednesday, March 24, 2010)]
[Notices]
[Pages 14231-14233]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-6514]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61732; File No. SR-CBOE-2010-027]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend CBOE Rule 31.85 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
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on March 4, 2010, the Chicago Board Options Exchange, Incorporated
(the ``Exchange'' or ``CBOE'') filed with the Securities and Exchange
Commission (the ``Commission'') the proposed rule change as described
in Items I and II below, which Items have been prepared by the
Exchange. 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.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
CBOE proposes to amend CBOE Rule 31.85 to eliminate broker
discretionary voting for all elections of directors at shareholder
meetings, whether contested or not, except for companies registered
under the Investment Company Act of 1940 (the ``1940 Act''), to amend
CBOE Rule 31.85 to preclude broker discretionary voting on a matter
that materially amends an investment advisory contract with an
investment company, and to define 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 advisor The text of the proposed rule
change is available on the Exchange's Web site (http://www.cboe.org/legal), at the Exchange's Office of the Secretary, and at the
Commission.
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 those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
A shareholder of a public company may hold shares either directly,
as the record holder, or indirectly, as the beneficial holder, with the
shares held in the name of the beneficial shareholder's broker-dealer,
bank nominee, or custodian (``securities intermediary''), which is the
record holder.\5\ The latter generally is referred to as holding
securities in ``street name.'' \6\ The number of beneficial owners
holding securities in street name has increased significantly over the
past thirty-three years.
---------------------------------------------------------------------------
\5\ See Commission Release No. 34-60215 (July 1, 2009).
\6\ See supra note 2 [sic].
---------------------------------------------------------------------------
Currently, CBOE Rule 31.85 permits brokers to vote without voting
instructions from the beneficial owner on uncontested elections of
directors.\7\ Rule 31.85 also lays out a list of enumerated items for
which a member may not give a proxy to vote without instructions from
the beneficial owner.\8\ This list does not include the election of
directors. Due to the increase in the holding of securities in street
name, the impact of the broker vote on the election of directors has
become increasingly significant. At the same time, the number of proxy
campaigns, such as ``just vote no'' or ``withhold'' campaigns, that
have targeted the election of directors without a formal contest has
also increased. This has made the ``uncontested'' election of directors
a more controversial, as opposed to routine, matter.\9\
---------------------------------------------------------------------------
\7\ See CBOE Rule 31.85(a), which explains the process and
situations in which brokers may vote without voting instructions
from the beneficial owner.
\8\ See CBOE Rule 31.85(b).
\9\ See supra note 2 [sic].
---------------------------------------------------------------------------
In light of this development, the New York Stock Exchange proposed
a rule filing to declare the election of directors ineligible for
broker discretionary voting.\10\ The Commission approved this filing,
as amended, on July 1, 2009.\11\ Correspondingly, CBOE proposes to
amend CBOE Rule 31.85 to add all elections of directors at shareholder
meetings whether contested or not, except for companies registered
under the 1940 Act, to the list of enumerated items for which a member
may not give a proxy to vote without instructions from the beneficial
owner.
---------------------------------------------------------------------------
\10\ See SR-NYSE-2006-92.
\11\ See supra note 2 [sic].
---------------------------------------------------------------------------
CBOE also proposes to amend CBOE Rule 31.85 to preclude broker
discretionary voting on a matter that materially amends an investment
advisory contract with an investment company and to define 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 advisor for which
shareholder approval is required by the 1940 Act and the rules
thereunder. These proposed amendments will help ensure the full and
effective voting rights of investment company shareholders on material
matters.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the
[[Page 14232]]
Securities Exchange Act of 1934 (the ``Act'') \12\ and the rules and
regulations thereunder and, in particular, the requirements of Section
6(b) of the Act.\13\ The Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \14\ requirements that the rules of
an exchange be designed to promote just and equitable principles of
trade, to prevent fraudulent and manipulative acts, to remove
impediments to and to perfect the mechanism for a free and open market
and a national market system, and, in general, to protect investors and
the public interest. Specifically, the Exchange believes that the
proposed rule change will protect investors and the public interest by
ensuring better corporate governance and transparency of the election
process for directors and by promoting greater uniformity with the
proxy rules of other exchanges.\15\ In particular, for Exchange member
firms that are also members of other exchanges, confusion might arise
as to which exchange's proxy voting rules are applicable to a company
listed on the Exchange if there are disparities between proxy voting
rules of different exchanges.\16\ The proposed rule change will better
enfranchise shareholders and enhance corporate governance and
accountability to shareholders.\17\
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78s(b)(1).
\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(5).
\15\ See Securities Exchange Act Release No. 34-61292 (January
5, 2010), 75 FR 1664 (January 12, 2010) (SR-NYSEAmex-2009-93).
\16\ See supra note 12 [sic].
\17\ See supra note 2 [sic].
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
CBOE does not believe that the proposed rule change will impose any
burden on competition 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
No written comments were solicited or received with respect to the
proposed rule change.
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 \18\ and Rule 19b-4(f)(6) thereunder.\19\
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
\20\ and Rule 19b-4(f)(6)(iii) thereunder.\21\
---------------------------------------------------------------------------
\18\ 15 U.S.C. 78s(b)(3)(A)(iii).
\19\ 17 CFR 240.19b-4(f)(6).
\20\ 15 U.S.C. 78s(b)(3)(A).
\21\ 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.
---------------------------------------------------------------------------
A proposed rule change filed under Rule 19b-4(f)(6) \22\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b4(f)(6)(iii),\23\ 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 and NYSE Amex. The Exchange stated that waiver of the 30-
day operative delay will allow the change to become operative
immediately and conform to the Commission's desire to eliminate any
disparities involving voting.
---------------------------------------------------------------------------
\22\ 17 CFR 240.19b-4(f)(6).
\23\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------
The Commission believes that the waiver of the 30-day operative
delay period is consistent with the protection of investors and the
public interest.\24\ 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 conform the Exchange's rule to the NYSE's rule with
respect to voting on investment advisory contracts. Moreover, the
Commission notes that the NYSE's adopted rule changes were subject to
full notice and comment, and considered and approved by the
Commission.\25\ 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.
---------------------------------------------------------------------------
\24\ 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).
\25\ See supra note 5.
---------------------------------------------------------------------------
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-CBOE-2010-027 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-CBOE-2010-027. 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
[[Page 14233]]
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-CBOE-2010-027 and should be
submitted on or before April 14, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
---------------------------------------------------------------------------
\26\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-6514 Filed 3-23-10; 8:45 am]
BILLING CODE 8011-01-P