[Federal Register Volume 76, Number 61 (Wednesday, March 30, 2011)]
[Notices]
[Pages 17728-17730]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-7458]
[[Page 17728]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64121; File No. SR-CHX-2011-01]
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.;
Notice of Filing and Order Granting Accelerated Approval of a Proposed
Change to Rules Regarding Proxy Voting by Participants
March 24, 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 March 15, 2011, the Chicago Stock Exchange, Inc. (``CHX'' or 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 CHX. 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
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 that
Participants are prohibited from voting uninstructed shares if the
matter voted on relates to executive compensation, in accordance with
provisions of Section 957 of the Dodd-Frank Act, which was signed by
the President on July 21, 2010. 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 III
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
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 that
Participants are prohibited from voting uninstructed shares if the
matter voted on relates to executive compensation, in accordance with
provisions of Section 957 of the Dodd-Frank Act, which was signed by
the President on July 21, 2010. Because Section 957 of the Dodd-Frank
Act does not provide for a transition phase, the Exchange is proposing
to adopt the proposed rule changes pursuant to Section 19(b) of the Act
to comply with Section 957 of the Dodd-Frank Act and is requesting that
the Commission approve the proposal on an accelerated basis. We are
also proposing to correct an incorrect cross reference in subsection
(a) as well as adding the words ``or authorize'' in certain places
throughout the rule to clarify that the rule includes not only the
giving of a proxy but also the authorization of such proxy.
Current Requirements of CHX Article 8, Rule 14
Under current CHX and Commission proxy rules, brokers 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 a broker may vote on
certain matters when the broker has no knowledge of any contest as to
the action to be taken at the meeting and provided such action is
adequately disclosed to stockholders, and does not include
authorization for a merger, consolidation or any matter which may
affect substantially the rights or privileges of such stock. In
addition, the Rule currently identifies 20 matters with respect to
which brokers may not vote without instructions from beneficial owners.
Enactment of the Dodd-Frank Wall Street Reform and Consumer Protection
Act
Prior to the July 21, 2010 enactment of the Dodd-Frank Act, under
Rule 14 and the Exchange's prior interpretations, Participants were
permitted to cast votes on some matters, including some executive
compensation proposals, without specific instructions from beneficial
owners of the stock. However, the Dodd-Frank Act contains a provision
explicitly requiring the elimination of broker discretionary voting on
matters related to executive compensation.
Section 957 of the Dodd-Frank Act amends Section 6(b) \3\ of 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 (i) with respect to 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 of 1940 (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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The Exchange prohibits Participants from voting uninstructed shares
if the matter voted on is the election of directors (other than in the
case of an issuer registered under the Investment Company Act, provided
the matter is not the subject of a counter-solicitation). In addition,
the Commission has not at this time identified other significant
matters with respect to which the Exchange must prohibit member
organizations from voting uninstructed shares. Accordingly, in order to
carry out the requirements of Section 957 of the Dodd-Frank Act, the
Exchange proposes to amend CHX Article 8, Rule 14 to prohibit
Participants from voting uninstructed shares if the matter voted on
relates to executive compensation.
Specifically, the Exchange is proposing to add a new Item (u) and
accompanying commentary to CHX Article 8, Rule 14 (Proxies) to provide
that a Participant may not give or authorize a proxy to vote without
instructions from the beneficial owner when the matter to be voted upon
relates to executive compensation.
The proposed commentary to Item (u) would clarify that a matter
relating to executive compensation would include, among other things,
the items referred to in Section 14A of the Exchange Act (added by
Section 951 of the Dodd-Frank Act), including (i) an advisory vote to
approve the compensation of
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executives, (ii) a vote on whether to hold such an advisory vote every
one, two or three years, and (iii) an advisory vote to approve any type
of compensation (whether present, deferred, or contingent) that is
based on or otherwise relates to an acquisition, merger, consolidation,
sale, or other disposition of all or substantially all of the assets of
an issuer and the aggregate total of all such compensation that may
(and the conditions upon which it may) be paid or become payable to or
on behalf of an executive officer. In addition, a Participant may not
give or authorize a proxy to vote without instructions on a matter
relating to executive compensation, even if such matter would otherwise
qualify for an exception from the requirements of Item (l), Item (m) or
any other Item under CHX Article 8, Rule 14. The Exchange also proposes
to add cross reference commentary to Items (l) and (m) to further
clarify this point. Any vote on these or similar executive
compensation-related matters would be subject to the requirements of
CHX Article 8, Rule 14, as amended.
The Exchange notes that the foregoing change is based upon the
change that has been adopted by the New York Stock Exchange and that
has been previously approved by the Commission.\5\
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\5\ See Securities Act Release No. 62874 (September 9, 2010), 75
FR 56152 (September 15, 2010) (SR-NYSE-2010-59).
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (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 the proposed rule change is consistent with
the Section 6(b)(5) \9\ 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 the proposed rule changes to comply with the
requirements of Section 957 of the Dodd-Frank Act, and therefore
believes the proposed rule changes to be consistent with Section
6(b)(5) of 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).
\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. 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-2011-01 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-CHX-2011-01. 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 CHX. 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 publicly available. All
submissions should refer to File Number SR-CHX-2011-01 and should be
submitted on or before April 20, 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. The Exchange stated that it
believed good cause existed to grant accelerated approval because
Section 957 of the Dodd-Frank Act does not provide for a transition
period.
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\ The Commission believes that the proposal is consistent
with Section 6(b)(10) \11\ 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) \12\ of the Act, which provides, among other things,
that the rules of the Exchange
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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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\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).
\11\ 15 U.S.C. 78f(b)(10).
\12\ 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 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.'' \13\ The proposed rule change will make CHX rules compliant
with the new requirements of Section 6(b)(10) by prohibiting broker-
dealers, who are not beneficial owners of a security, from voting
uninstructed shares with respect to any matter on executive
compensation.\14\
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\13\ See S. Rep. No. 111-176, at 136 (2010).
\14\ As noted above, Section 6(b)(10) also prohibits broker
voting for director elections, except for uncontested director
elections of registered investment companies, and also ``any other
significant matter, as determined by the Commission, by rule.'' CHX
already prohibits broker voting in director elections except for
uncontested director elections for registered investment companies.
See CHX Article 8, Rule 14(c)(4)(s) and note 15, infra. As to other
matters, 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 CHX 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 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.\15\
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\15\ 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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The Commission notes that the CHX's new rule prohibiting
uninstructed broker votes on executive compensation covers the specific
items identified in Section 951 of the Dodd-Frank Act, as well as any
other matter concerning executive compensation, and has been drafted
broadly to reflect the requirements of Section 6(b)(10) of the Act. The
proposed rule language also specifically states that a broker vote on
any executive compensation matter would not be permitted even it would
otherwise qualify for an exception from any item under Article 8, Rule
14. The Commission believes this provision will make clear that any
past practice or interpretation that may have permitted a broker vote
on an executive compensation matter, under existing rules, will no
longer be applicable and is superseded by the newly adopted provisions.
Finally, the Commission notes that the change to reflect that the
CHX rules prohibit not only the giving of a proxy, but also the
authorization of the proxy, should help to clarify the intent of the
CHX proxy rules and is consistent with the requirements of Section 6 of
the Act.
Based on the above, the Commission believes that CHX's proposal
will further the purposes of Sections 6(b)(5) and 6(b)(10) of the Act
by ensuring that brokers, holding shares on behalf of beneficial
owners, are not voting uninstructed shares on matters relating to
executive compensation, which should enhance corporate accountability
to shareholders. The rule filing should also serve 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,\16\ for approving the proposed rule change prior to the
30th day after the date of publication of notice in the Federal
Register. As noted above, 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,
among other things, broker voting on executive compensation. The
Commission believes that good cause exists to grant accelerated
approval to the Exchange's proposal, because it will conform Article 8,
Rule 14 to the requirements of Section 6(b)(10) of the Act. Moreover,
the Commission notes that the proposed changes are based on NYSE Rule
452.\17\
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\16\ 15 U.S.C. 78s(b)(2).
\17\ See supra note 5.
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V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\18\ that the proposed rule change (SR-CHX-2011-01) be, and it
hereby is, approved on an accelerated basis.
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\18\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-7458 Filed 3-29-11; 8:45 am]
BILLING CODE 8011-01-P