[Federal Register Volume 76, Number 36 (Wednesday, February 23, 2011)]
[Notices]
[Pages 10076-10078]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-3983]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63918; File No. SR-C2-2011-005]
Self-Regulatory Organizations; C2 Options Exchange, Incorporated;
Notice of Filing and Order Granting Accelerated Approval of Proposed
Rule Change to Adopt Supplemental Rule (a) to Chapter 4 Relating to
Proxy Voting
February 16, 2011.
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 February 10, 2011, the C2 Options Exchange, Incorporated
(``Exchange'' or ``C2'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule change as described in
Items I and II below, which Items have been 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to adopt Supplemental Rule (a), Proxy Voting,
to C2 Chapter 4 in accordance with provisions of Section 957 of the
Dodd-Frank Wall Street Reform and Consumer Protection Act (the ``Dodd-
Frank Act''). The text of the rule proposal 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
Section 957 of the Dodd-Frank Act adopted new Section 6(b)(10) of
the Act,\3\ which requires the rules of each national securities
exchange to prohibit any member that is not the beneficial owner of a
security registered under Section 12 of the Act \4\ from granting a
proxy to vote the security in connection with certain shareholder
votes, 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. The shareholder 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 (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
(the ``Investment Company Act''), (ii) executive compensation, or (iii)
any other significant matter, as determined by the Commission, by
rule.\5\
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\3\ 15 U.S.C. 78f(b)(10).
\4\ 15 U.S.C. 78l.
\5\ 15 U.S.C. 78f(b)(10)(B).
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Accordingly, in order to carryout the requirements of Section 957
of the Dodd-Frank Act, the Exchange is proposing to adopt Supplemental
Rule (a) to C2 Chapter 4. Paragraph (1) of the proposed rule provides
that a C2 Permit Holder is prohibited from giving a proxy to vote stock
that is registered in its name, unless: (i) Such Permit Holder 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 Permit Holder clearly indicate the
procedure it is following. The Exchange is proposing to adopt these
provisions 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 C2
Permit Holder that is also a member of another national securities
exchange or association may vote shares held for a customer when
allowed under its membership at another national securities exchange or
association, provided that the records of the C2 Permit Holder clearly
indicate the procedure it is following.
Notwithstanding the above, paragraph (2) of the proposed rule
provides that a C2 Permit Holder 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 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 Permit Holder
to vote the proxy in accordance with the voting instructions of the
beneficial owner.
[[Page 10077]]
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act \6\ and the rules and regulations thereunder and, in
particular, the requirements of Section 6(b) of the Act.\7\
Specifically, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(10) \8\ requirements that all national
securities exchanges adopt rules prohibiting members from voting,
without receiving instructions from the beneficial owner of shares, on
the election of a member of a 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
Exchange also believes that the proposed rule changes is consistent
with the Section 6(b)(5) requirements that an exchange have rules that
are designed 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.
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\6\ 15 U.S.C. 78a et seq.
\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(10).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange 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
The Exchange neither solicited nor received comments on the
proposal.
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-C2-2011-005 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-C2-2011-005. 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-C2-2011-005 and should be
submitted on or before March 16, 2011.
IV. Commission's Findings and Order Granting Accelerated Approval of
the Proposed Rule Change
In its filing, C2 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 International Securities Exchange
(``ISE'') Rule 421.\9\ 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.\10\
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\9\ See Securities Exchange Act Release 63139 (October 20,
2010), 75 FR 65680 (October 26. 2010).
\10\ 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).
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The Commission believes that proposed Supplemental Rule (a) to
Chapter 4 is consistent with Section 6(b)(5) \11\ 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.
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\11\ 15 U.S.C. 78f(b)(5).
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Under proposed Supplemental Rule (a)(1), a Permit Holder shall be
prohibited from voting uninstructed shares unless (1) that Permit
Holder 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 Permit Holder's records clearly
indicate the procedure it is following. This provision is based upon
ISE Rule 421, which was previously approved by the Commission.\12\ The
Commission notes that the proposed change will provide clarity to C2
Permit Holders going forward on whether broker discretionary voting is
permitted by C2 Permit Holders under limited circumstances when the
Permit Holder is also a member of another national securities exchange
that permits broker discretionary voting. In approving this portion of
the C2 proposal, the Commission notes that Supplemental Rule (a)(1) is
consistent with the approach taken under the rules of other national
securities exchanges or national securities association, and for C2
Permit Holders who are not also members of another national securities
exchange prohibits broker discretionary voting on any matter,
consistent with
[[Page 10078]]
investor protection and the public interest.
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\12\ See supra note 9. See also NYSE Arca Rule 9.4 and FINRA
Rule 2251, which are similar and previously approved by the
Commission. 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.'').
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The Commission believes that proposed Supplemental Rule (a)(2) is
consistent with Section 6(b)(10) \13\ 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.
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\13\ 15 U.S.C. 78f(b)(10).
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The Commission believes that proposed Supplemental Rule (a)(2) 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.'' \14\ The proposed rule change will make
C2 compliant with the new requirements of Section 6(b)(10) by
specifically prohibiting, in C2'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.\15\
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\14\ See S. Rep. No. 111-176, at 136 (2010).
\15\ 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 C2 to adopt
coordinating rules promptly to comply with the statute.
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The Commission also believes that proposed Supplemental Rule (a)(2)
is consistent with Section 6(b)(5) \16\ 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.
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\16\ 15 U.S.C. 78f(b)(5).
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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.\17\
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\17\ 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).
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Based on the above, the Commission finds that the C2 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,\18\ 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 Supplemental Rule (a)(1), because this
proposed rule will conform the C2 rule to ISE Rule 421, 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.\19\ Because proposed Supplemental Rule (a)(1)
is substantially similar to the ISE, NYSE Arca and FINRA rules, it
raises no new regulatory issues.
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\18\ 15 U.S.C. 78s(b)(2).
\19\ See supra notes 9 and 12.
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The Commission also believes that good cause exists to grant
accelerated approval to proposed Supplemental Rule (a)(2), which
conforms the C2 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 accelerated
approval to proposed Supplemental Rule (a)(2), because it will conform
the C2 rule 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,\20\ that the proposed rule change (SR-C2-2011-005) be, and it
hereby is, approved on an accelerated basis.
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\20\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-3983 Filed 2-22-11; 8:45 am]
BILLING CODE 8011-01-P