[Federal Register Volume 76, Number 46 (Wednesday, March 9, 2011)]
[Notices]
[Pages 13012-13014]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-5303]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64023; File No. SR-BX-2011-012]
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of
Filing and Order Granting Accelerated Approval of Proposed Rule Change
To Prohibit Members From Voting Uninstructed Shares on Certain Matters
March 3, 2011.
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 February 18, 2011, NASDAQ OMX BX, Inc. (the ``Exchange'' or ``BX'')
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 the
Substance of the Proposed Rule Change
The Exchange 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\
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\3\ Changes are marked to the rule text that appears in the
electronic manual of Nasdaq [sic] found at http://nasdaqomxbx.cchwallstreet.com.
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2251. Forwarding of Proxy and Other Issuer-Related Materials
(a)-(c) No change.
(d) Notwithstanding the foregoing, an Exchange 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, the Exchange 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 Exchange 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.
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\4\ 15 U.S.C. 78f(b)(10).
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[[Page 13013]]
BX Rule 2251 governs when BX 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 assure compliance, in all cases, with newly adopted Section
6(b)(10), the Exchange 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.
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\5\ The Commission notes that the FINRA rule, and by reference
BX'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).
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\6\ in general and with
Sections 6(b)(5) and 6(b)(10) of the Act,\7\ in particular. Section
6(b)(5) requires that the rules of a national securities exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in facilitating transactions in
securities, and to remove impediments to and perfect the mechanism of a
free and open market and a national market system. The proposed rule
change is consistent with this requirement in that it will protect
investors and the public interest by adopting the requirements of
Section 957 of the Dodd-Frank Act. 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) and
is therefore consistent with that provision.
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\6\ 15 U.S.C. 78f.
\7\ 15 U.S.C. 78f(b)(5) and (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
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, as amended, 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-BX-2011-012 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-BX-2011-012. 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 website 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 offices 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-BX-2011-012 and should be
submitted on or before March 30, 2011.
IV. Commission's Findings and Order Granting Accelerated Approval of
the Proposed Rule Change
In its filing, BX 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\
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\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).
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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.
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\9\ 15 U.S.C. 78f(b)(10).
\10\ 15 U.S.C. 78f(b)(5).
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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
[[Page 13014]]
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 BX compliant with the new
requirements of Section 6(b)(10) by specifically prohibiting, in BX'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.\12\
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\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 BX to adopt
coordinating rules promptly to comply with the statute.
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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\
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\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).
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Based on the above, the Commission finds that the BX 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 BX Rule
2251 to the requirements of Section 6(b)(10) of the Act. Moreover, the
Commission notes that BX's proposed rule change is identical to Nasdaq
Rule 2251(d), which was previously approved by the Commission and for
which no comments were received.\15\ Therefore, the Exchange's proposed
rule change raises no new regulatory issues.
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\14\ 15 U.S.C. 78s(b)(2).
\15\ See Securities Exchange Act Release No. 62992 (September
24, 2010), 75 FR 60844 (October 1, 2010) (SR-Nasdaq-2010-114).
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V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\16\ that the proposed rule change (SR-BX-2011-012) be, and it
hereby is, approved on an accelerated basis.
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\16\ 15 U.S.C. 78s(b)(2).
\17\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-5303 Filed 3-8-11; 8:45 am]
BILLING CODE 8011-01-P