[Federal Register Volume 76, Number 46 (Wednesday, March 9, 2011)]
[Notices]
[Pages 13014-13017]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-5304]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64024; File No. SR-BX-2011-011]
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of
Filing and Order Granting Accelerated Approval of Proposed Rule Change
To Adopt Section 16 (Proxy Voting) to Chapter III of the BOX Trading
Rules Concerning Broker Voting
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'') 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 self-regulatory organization. The Commission is
publishing this notice to solicit comments on the proposed rule 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 add Section 16 (Proxy Voting) to Chapter
III, of the Rules of the Boston Options Exchange Group, LLC (``BOX'')
in accordance with the provision 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 from the principal office
of the Exchange, at the Commission's Public Reference Room and also on
the Exchange's Internet Web site at http://nasdaqomxbx.cchwallstreet.com/NASDAQOMXBX/Filings/.
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
In accordance with Section 957 of the Dodd-Frank Act, the Exchange
is proposing to adopt Section 16 (Proxy Voting) to Chapter III of the
BOX Trading Rules. As proposed, this section will codify a provision to
prohibit Participants 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
[[Page 13015]]
uncontested election of a director of an investment company registered
under the Investment Company Act of 1940 (``Investment Company Act'');
(ii) executive compensation, or (iii) any other significant matter, as
determined by the Securities and Exchange Commission (the
``Commission''), by rule.
Section 957 of the Dodd-Frank Act amended Section 6 (b) \3\ of the
Securities Exchange Act of 1934 (the ``Exchange Act'') to 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 Exchange 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.
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\3\ 15 U.S.C. 78f(b).
\4\ 15 U.S.C. 781.
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Accordingly, in order to carry out the requirements of Section 957
of the Dodd-Frank Act, the Exchange proposes to adopt proposed Section
16 to Chapter III of the BOX Trading Rules to prohibit any Participant
from giving a proxy to vote stock that is registered in its name,
unless: (i) Such Participant 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
Participant 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 Participant 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 Participant clearly indicate the procedure it is following.
Notwithstanding the above, under the proposal, a Participant that
is not the beneficial owner of a security registered under Section 12
of the Exchange 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 Participant 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 Exchange 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, the
proposed adoption of Section 16 to Chapter III of the BOX Trading Rules
is based upon International Securities Exchange, LLC (``ISE'') Rule
421.
2. Statutory Basis
The basis under the Exchange 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 Exchange Act, particularly with respect to the
protection of investors and the public interest.
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\5\ 15 U.S.C. 78f(b)(5).
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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 has neither solicited nor received comments on the
proposed rule change.
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-BX-2011-011 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-2011-011. 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
[[Page 13016]]
should refer to File Number SR-BX-2011-011 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, the Exchange 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 ISE Rule 421. 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.\6\
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\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).
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The Commission believes that proposed Section 16(a) to Chapter III
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.
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\7\ 15 U.S.C. 78f(b)(5).
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Under proposed Section 16(a) to Chapter III, a Participant shall be
prohibited from voting uninstructed shares unless (1) that Participant
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 Participant's records clearly indicate the
procedure it is following. This provision is based upon ISE Rule 421,
which was previously approved by the Commission.\8\ The Commission
notes that the proposed change to Section 16(a) to Chapter III will
provide clarity to Exchange Participants going forward on whether
broker discretionary voting is permitted by Exchange Participants under
limited circumstances when the Exchange Participant is also a member of
another national securities exchange that permits broker discretionary
voting. In approving this portion of the Exchange proposal, the
Commission notes that proposed Section 16(a) to Chapter III is
consistent with the approach taken under the rules of other national
securities exchanges or national securities association, and for
Exchange Participants 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.
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\8\ See Securities Exchange Act Release No. 63139 (October 20,
2010), 75 FR 65680 (October 26, 2010) (SR-ISE-2010-99). 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 Section 16(b) to Chapter III
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.
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\9\ 15 U.S.C. 78f(b)(10).
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The Commission believes that proposed Section 16(b) to Chapter III
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 the Exchange compliant with the new requirements of Section
6(b)(10) by specifically prohibiting, in the Exchange'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
Participant receives voting instructions from the beneficial owner of
the shares.\11\
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\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 the Exchange to adopt
coordinating rules promptly to comply with the statute.
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The Commission also believes that proposed Section 16(b) to Chapter
III 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.
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\12\ 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.\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 Exchange 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 Section 16(a) to Chapter III, because
this proposed rule will conform the BOX 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
[[Page 13017]]
comments were received.\15\ Because proposed Section 16(a) is
substantially similar to the ISE, NYSE Arca, and FINRA rules, it raises
no new regulatory issues.
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\14\ 15 U.S.C. 78s(b)(2).
\15\ See note 8 supra.
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The Commission also believes that good cause exists to grant
accelerated approval to proposed Section 16(b) to Chapter III, which
conforms the Exchange rule 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 Section 16(b) to Chapter III, because it will
conform the Box 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-BX-2011-011) be, and it
hereby is, approved on an accelerated basis.
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\16\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-5304 Filed 3-8-11; 8:45 am]
BILLING CODE 8011-01-P