[Federal Register Volume 76, Number 36 (Wednesday, February 23, 2011)]
[Notices]
[Pages 10078-10081]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-3982]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63917; File No. SR-CBOE-2011-017]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Order Granting Accelerated Approval 
of a Proposed Rule Change To Amend an Exchange Rule Relating to Giving 
Proxies

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 Chicago Board Options Exchange, 
Incorporated (``Exchange'' or ``CBOE'') 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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[[Page 10079]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its proxy voting rules 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 carry out the requirements of Section 957 
of the Dodd-Frank Act, the Exchange is proposing to amend CBOE Rule 
31.85, Giving Proxies by TPH Organizations, which governs when Trading 
Permit Holder Organizations (``TPH Organizations'') may and may not 
give a proxy to vote stock without instructions from the beneficial 
owner of the shares. First, Item 19 of CBOE Rule 31.85(b) already 
prohibits TPH Organizations from giving a proxy to vote shares without 
instructions from beneficial owners when the matter to be voted upon 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). Therefore the Exchange is 
proposing to simply amend Item 19 so that the text is consistent with 
the language in Section 6(b)(10)(B) of the Act.\6\
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    \6\ See 15 U.S.C. 78f(b)(10)(B).
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    Second, the Exchange proposes to add new Item 21 (and related 
commentary) to CBOE Rule 31.85(b) to provide that a TPH Organization 
may not give a proxy or authorize a proxy to vote without instructions 
from beneficial owners when the matter to be voted upon relates to 
executive compensation. The proposed commentary to Item 21 would 
clarify that a matter relating to executive compensation would include, 
among other things, the items referred to in Section 14A of the Act 
(added by Section 951 of the Dodd-Frank Act), including (i) an advisory 
vote to approve the compensation of 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 TPH Organization 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 12, Item 13 or any other Item under CBOE Rule 
31.85. Any vote on these or similar executive compensation-related 
matters would be subject to the requirements of CBOE Rule 31.85, as 
amended.\7\
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    \7\ The Exchange is also proposing to add cross-referencing 
commentary related to new Item 21 in Items 12 and 13. The Exchange 
is also proposing a non-substantive change to include a heading for 
the commentary to Item 20 so there is consistent formatting of the 
various commentaries that appear throughout the rule.
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    Third, the Exchange proposes to add new Item 22 to Rule 31.85(b) to 
provide that a TPH Organization may not give a proxy or authorize a 
proxy to vote without instructions from beneficial owners when the 
matter to be voted upon involves any other significant matter, as 
determined by the Commission, by rule.\8\
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    \8\ The Exchange notes that the Commission has not at this time 
identified other significant matters with respect to which TPH 
Organizations should be prohibited from voting uninstructed shares.
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    Fourth, the Exchange is proposing to add the words ``or authorize'' 
in certain places throughout CBOE Rule 31.85 to clarify that the rule 
includes not only the giving of a proxy but also the authorization of 
such proxy.
    Finally, the Exchange is proposing to amend Appendix A to the rules 
of the CBOE Stock Exchange, LLC (``CBSX,'' the CBOE's stock trading 
facility). Appendix A lists the rules contained in Chapters 1 through 
29 of the Exchange Rules that are applicable to the trading of equity 
securities on CBSX. The Exchange is proposing to amend Appendix A to 
include a cross reference to CBOE Rule 31.85 in order to make clear 
that CBOE Rule 31.85 regarding the giving of proxies by TPH 
Organizations applies to CBSX TPH Organizations as well as CBOE TPH 
Organizations.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act \9\ and the rules and regulations thereunder and, in 
particular, the requirements of Section 6(b) of the Act.\10\ 
Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(10) \11\ 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) \12\ requirements that an exchange have

[[Page 10080]]

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. Finally, the Exchange believes the 
proposed changes to Appendix A of the CBSX Rules to incorporate a cross 
reference to CBOE Rule 31.85 is consistent with Section 6(b)(5) of the 
Act, particularly with respect to the protection of investors and the 
public interest, because the changes would make it clear that CBOE Rule 
31.85 (regarding the giving of proxies by TPH Organizations) applies to 
CBSX TPH Organizations as well as CBOE TPH Organizations.
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    \9\ 15 U.S.C. 78a et seq.
    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(10).
    \12\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    CBOE 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

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an e-mail to <a href="/cdn-cgi/l/email-protection#8dfff8e1e8a0eee2e0e0e8e3f9fecdfee8eea3eae2fb"><span class="__cf_email__" data-cfemail="6d1f180108400e0200000803191e2d1e080e430a021b">[email protected]</span></a>. Please include 
File Number SR-CBOE-2011-017 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-CBOE-2011-017. 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 
CBOE. 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-
CBOE-2011-017 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, 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 and because the proposed rule text is based upon New York Stock 
Exchange (``NYSE'') Rule 452.\13\
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    \13\ See Securities Exchange Act Release 62874 (September 9, 
2010), 75 FR 56152 (September 15, 2010).
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    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.\14\ The Commission believes that the proposal is consistent 
with Section 6(b)(10) \15\ 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) \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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    \14\ 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).
    \15\ 15 U.S.C. 78f(b)(10).
    \16\ 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.'' \17\ The proposed rule change will make CBOE 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 or any other significant matter, as determined by the 
Commission, by rule.\18\
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    \17\ See S. Rep. No. 111-176, at 136 (2010).
    \18\ As noted above, Section 6(b)(10) also prohibits broker 
voting for director elections, except for uncontested director 
elections of registered investment companies. The Commission notes 
that the Exchange already prohibits broker voting in director 
elections except for uncontested director elections for registered 
investment companies and is merely proposing to amend Item 19 so 
that the text is consistent with the language in Section 6(b)(10) of 
the Act. See CBOE Rule 31.85(b)(19). As to other matters, as 
determined by the Commission, by rule, 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 believes that the proposal is consistent with 
Section

[[Page 10081]]

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.\19\
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    \19\ 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 CBOE'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 if it 
would otherwise qualify for an exception from any item under Rule 
31.85. 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 changes to reflect (i) that 
the CBOE rules prohibit not only the giving of a proxy, but also the 
authorization of the proxy and (ii) that CBOE Rule 31.85 regarding the 
giving of proxies by TPH Organizations applies to CBSX TPH 
Organizations as well as CBOE TPH Organization, should help to clarify 
the intent of the CBOE proxy rules and is consistent with the 
requirements of Section 6 of the Act.
    Based on the above, the Commission believes 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. 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,\20\ 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 CBOE Rule 
31.85 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.\21\
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    \20\ 15 U.S.C. 78s(b)(2).
    \21\ See note 13, supra.
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\22\ that the proposed rule change (SR-CBOE-2011-017) be, and it 
hereby is, approved on an accelerated basis.
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    \22\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-3982 Filed 2-22-11; 8:45 am]
BILLING CODE 8011-01-P


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