[Federal Register Volume 76, Number 69 (Monday, April 11, 2011)]
[Notices]
[Pages 20067-20070]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-8477]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64187; File No. SR-EDGA-2011-08]
Self-Regulatory Organizations; EDGA Exchange, Inc.; Notice of
Filing and Order Granting Accelerated Approval of Proposed Rule Change
To Adopt Rule 3.22 (Proxy Voting), in Accordance With the Provisions of
Section 957 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act
April 5, 2011.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Exchange Act'' or ``Act''),\1\ and Rule 19b-4 thereunder,\2\
notice is hereby given that on March 24, 2011, EDGA Exchange, Inc. (the
``Exchange'' or ``EDGA'') 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 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 Rule 3.22 (Proxy Voting), in
accordance with the provisions 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 attached as Exhibit 5 and is
available on the Exchange's Web site at http://www.directedge.com, at
the Exchange's principal office, and at the Public Reference Room of
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 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 III 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
Purpose
The Exchange is proposing to adopt EDGA Rule 3.22 (Proxy Voting),
in accordance with the provisions of Section 957 of the Dodd-Frank Act,
to prohibit Members 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 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 Securities and
Exchange Commission (the ``Commission''), by rule.
Section 957 of the Dodd-Frank Act amends Section 6(b) \3\ of the
Securities Exchange Act of 1934 (the ``Exchange Act'') [sic] to require
the rules of each national securities exchange to prohibit any member
organization that is not the beneficial owner of a security registered
[[Page 20068]]
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 EDGA
Rule 3.22 to prohibit any Member from giving a proxy to vote stock that
is registered in its name, unless: (i) Such Member 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 Member 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 Member 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 Member clearly indicate the procedure it is following.
Notwithstanding the foregoing, a Member 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 Member 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, proposed
EDGA Rule 3.22(a) is based on NYSE Arca, Inc. (``NYSE Arca'') rule 9.4
and Financial Industry Regulatory Authority (``FINRA'') rule 2251,
International Securities Exchange, LLC (``ISE'') rule 421(a) and
proposed EDGA Rule 3.22(b) is based on Nasdaq rule 2251(d) and ISE rule
421(b).
Basis
The Exchange believes the proposed rule change is consistent with
the Act \5\ and the rules and regulations thereunder and, in
particular, the requirements of Section 6(b) of the Act.\6\
Specifically, the Exchange believes the proposed rule change is
consistent with Section 6(b)(10) \7\ 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 change is consistent with
the requirements under Section 6(b)(5) \8\ 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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\5\ 15 U.S.C. 78a et seq.
\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(10).
\8\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change does not 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 on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any unsolicited written comments from members or other interested
parties.
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-EDGA-2011-08 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-EDGA-2011-08. 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
[[Page 20069]]
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-EDGA-2011-08 and should be
submitted on or before May 2, 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, FINRA
Rule 2251, Nasdaq Rule 2251(d), and NYSE Arca Rule 9.4.\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) (SR-ISE-2010-99); 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.''); 62992 (September 24, 2010), 75 FR 60844 (October 1,
2010) (SR-NASDAQ-2010-114); and 48735 (October 31, 2003), 68 FR
63173 (November 7, 2003) (SR-PCX-2003-50).
\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 Rule 3.22(a) 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 Rule 3.22(a), a Member shall be prohibited from
voting uninstructed shares unless (1) That Member 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 Member's records clearly indicate the procedure it is
following. This provision is based on ISE Rule 421, FINRA Rule 2251 and
NYSE Arca Rule 9.4, which were previously approved by the
Commission.\12\ The Commission notes that the proposed change will
provide clarity to Exchange Members going forward on whether broker
discretionary voting is permitted by Exchange Members under limited
circumstances when the Member is also a member of another national
securities exchange that permits broker discretionary voting. In
approving this portion of the proposal, the Commission notes that Rule
3.22(a) is consistent with the approach taken under the rules of other
national securities exchanges or national securities association, and
for Exchange Members 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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\12\ See supra note 9.
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The Commission believes that proposed Rule 3.22(b) 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 Rule 3.22(b) 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 the
Exchange compliant with the new requirements of Section 6(b)(10) by
specifically prohibiting 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 the Exchange to adopt
coordinating rules promptly to comply with the statute.
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The Commission also believes that proposed Rule 3.22(b) 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 Exchange's
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 Rule 3.22(a), because this proposed
rule will conform the Exchange rule to ISE Rule
[[Page 20070]]
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 Rule
3.22(a) 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.
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The Commission also believes that good cause exists to grant
accelerated approval to proposed Rule 3.22(b), which conforms the
Exchange's 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 Rule 3.22(b), because it will conform the Exchange
rule to the requirements of Section 6(b)(10) of the Act. Moreover,
proposed Rule 3.22(b) is substantially similar to ISE Rule 421 and
Nasdaq Rule 2251.\20\
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\20\ See supra note 9.
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V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\21\ that the proposed rule change (SR-EDGA-2011-08) be, and it
hereby is, approved on an accelerated basis.
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\21\ 15 U.S.C. 78s(b)(2).
\22\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-8477 Filed 4-8-11; 8:45 am]
BILLING CODE 8011-01-P