[Federal Register Volume 74, Number 203 (Thursday, October 22, 2009)]
[Notices]
[Pages 54610-54612]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-25427]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60824; File No. SR-FINRA-2009-066]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change To Adopt 
FINRA Rule 2251 (Forwarding of Proxy and Other Issuer-Related 
Materials) in the Consolidated FINRA Rulebook

October 14, 2009.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``SEA'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby 
given that on October 2, 2009, Financial Industry Regulatory Authority, 
Inc. (``FINRA'') (f/k/a National Association of Securities Dealers, 
Inc. (``NASD'')) filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by FINRA. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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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

    FINRA is proposing to adopt without material change NASD Rule 2260 
(Forwarding of Proxy and Other Materials) and NASD IM-2260 (Approved 
Rates of Reimbursement) in the consolidated FINRA rulebook. The 
proposed rule change would combine NASD Rule 2260 and NASD IM-2260 into 
a single rule that would be renumbered as FINRA Rule 2251 in the 
consolidated FINRA rulebook.
    The text of the proposed rule change is available on FINRA's Web 
site at http://www.finra.org, at the principal office of FINRA and at 
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, FINRA 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. FINRA 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
    As part of the process of developing a new consolidated rulebook 
(``Consolidated FINRA Rulebook''),\3\ FINRA is proposing to adopt 
without material change NASD Rule 2260 (Forwarding of Proxy and Other 
Materials) and NASD Interpretive Material (``IM'') 2260 (Approved Rates 
of Reimbursement) in the Consolidated FINRA Rulebook. The proposed rule 
change would combine NASD Rule 2260 and NASD IM-2260 into a single rule 
that would be renumbered as FINRA Rule 2251 in the Consolidated FINRA 
Rulebook.
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    \3\ The current FINRA rulebook consists of: (1) FINRA Rules; (2) 
NASD Rules; and (3) rules incorporated from NYSE (``Incorporated 
NYSE Rules'') (together, the NASD Rules and Incorporated NYSE Rules 
are referred to as the ``Transitional Rulebook''). While the NASD 
Rules generally apply to all FINRA members, the Incorporated NYSE 
Rules apply only to those members of FINRA that are also members of 
the NYSE (``Dual Members''). The FINRA Rules apply to all FINRA 
members, unless such rules have a more limited application by their 
terms. For more information about the rulebook consolidation 
process, see Information Notice, March 12, 2008 (Rulebook 
Consolidation Process).
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(A) Background
    NASD Rule 2260 sets forth certain requirements with respect to the 
transmission of proxy materials and other communications to beneficial 
owners of securities and the limited circumstances in which members are 
permitted to vote proxies without instructions from those beneficial 
owners. NASD IM-2260 regulates the reimbursement that members are 
entitled to receive in connection with forwarding proxy materials and 
other communications.
(1) NASD Rule 2260
    NASD Rule 2260(a) sets forth the general obligation of members to 
transmit proxy and related materials. The rule provides that members 
must, in connection with an equity security, forward promptly \4\ or, 
in connection with a debt security, make reasonable efforts to forward 
promptly certain information to the beneficial owner,\5\ or

[[Page 54611]]

the beneficial owner's designated investment adviser,\6\ if the member 
carries the account in which the security is held for the beneficial 
owner and the security is registered in a name other than the name of 
the beneficial owner (i.e., the member holds the security in ``street 
name'').
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    \4\ SEA Rule 14b-1(b)(2) requires that broker-dealers must 
forward proxy and other specified materials no later than five 
business days after receipt.
    \5\ Under paragraph (e) of the rule, a member's duty under Rule 
2260(a) applies provided the member: is furnished with sufficient 
copies of the material (e.g., annual reports, information statements 
or other material sent to security holders) by the issuer, 
stockholder or trustee; is requested by the issuer, stockholder or 
trustee to forward the material to security holders; and receives 
satisfactory assurance that it will be reimbursed by the issuer, 
stockholder or trustee for all out-of-pocket expenses, including 
reasonable clerical expenses. Rule 2260(e)(2) provides that 
paragraph (e) does not apply to beneficial owners residing outside 
the U.S. The rule states that members may voluntarily comply with 
the rule's provisions with respect to such persons if they wish.
    \6\ The term ``designated investment adviser'' is defined in 
paragraph (f) of the rule.
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    With respect to proxy materials, NASD Rule 2260(c)(1) generally 
requires that whenever an issuer or stockholder of the issuer 
soliciting proxies timely furnishes to a member sufficient copies of 
all soliciting material, as well as satisfactory assurance that it will 
reimburse the member for all out-of-pocket expenses, the member must 
transmit promptly to each beneficial owner of stock of the issuer that 
is in its possession or control all the material furnished. The rule 
addresses what must be included with the proxy materials and 
incorporates by reference certain recordkeeping requirements under SEA 
Rule 17a-4.
    NASD Rule 2260(b) generally prohibits a member from giving a proxy 
to vote stock that is registered in its name unless the member is the 
beneficial owner of the stock (i.e., the rule generally bars members 
from giving proxies to vote without instructions from the beneficial 
owner). However, the rule sets forth certain exceptions. Rule 
2260(c)(2) provides that a member may give a proxy to vote any stock 
pursuant to the rules of any national securities exchange to which the 
member is also responsible \7\ provided that the records of the member 
clearly indicate the procedure it is following.\8\ (Similar to Rule 
2260(e)(2), Rule 2260(c)(3) provides that the rule's proxy transmission 
requirements do not apply to beneficial owners residing outside the 
U.S. The rule states that members may voluntarily comply with the 
rule's provisions with respect to such persons if they wish.) Rule 
2260(d)(1) provides that a member may give a proxy to vote any stock 
registered in its name if the member holds the stock as executor, 
administrator, guardian, trustee, or in a similar representative or 
fiduciary capacity with authority to vote. Rule 2260(d)(3) generally 
permits any member designated by a named Employee Retirement Income 
Security Act of 1974 (as amended) (``ERISA'') Plan fiduciary as the 
investment manager of stock held as assets of the ERISA Plan to vote 
the proxies in accordance with the ERISA Plan fiduciary 
responsibilities, subject to certain conditions. Further, the rule 
permits designated investment advisers to vote the proxies.
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    \7\ The phrase ``national securities exchange to which the 
member is also responsible'' refers to a national securities 
exchange to which the member belongs. See Securities Exchange Act 
Release No. 35681 (May 5, 1995), 60 FR 25749 (May 12, 1995) (Order 
Approving Proposed Rule Change; File No. SR-NASD-95-06); see also 
Notice to Members 95-45 (June 1995).
    \8\ FINRA notes that, with respect to compliance by Dual 
Members, the SEC recently approved amendments to non-Incorporated 
NYSE Rules (i.e., NYSE Rules that were not incorporated by FINRA 
into its rulebook) that eliminate discretionary voting by brokers 
under certain circumstances. See Securities Exchange Act Release No. 
60215 (July 1, 2009), 74 FR 33293 (July 10, 2009) (Order Approving 
Proposed Rule Change; File No. SR-NYSE-2006-92).
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(2) NASD IM-2260
    IM-2260 addresses the rates of reimbursement that are considered 
reasonable for purposes of Rule 2260 in connection with the rule's 
forwarding obligations. The IM has been amended a number of times, most 
recently in 2003 for the purpose of aligning the IM's requirements with 
the fee structures adopted by the NYSE and Amex.\9\ Broadly, the IM 
addresses three areas:
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    \9\ See Securities Exchange Act Release No. 47392 (February 21, 
2003), 68 FR 9730 (February 28, 2003) (Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change; File No. SR-NASD-
2003-019).
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    <bullet> IM-2260(a) provides that members, in addition to charges 
specified in IM-2260(a)(1) through (5),\10\ also are entitled to 
receive reimbursement for certain postage and stationery costs, as well 
as certain communication expenses incurred in receiving voting returns 
either telephonically or electronically;
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    \10\ IM-2260(a)(1) through (5) specify the charges for: (1) 
initial proxy and/or annual report mailings; (2) proxy follow-up 
mailings; (3) providing beneficial ownership information; (4) 
interim report, post meeting report and other material mailings; and 
(5) incentive fees (fees with respect to each account where the 
member has eliminated the need to send materials in paper format 
through the mails).
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    <bullet> IM-2260(b) reminds members that NASD Rule 2430 requires 
that any charges must be reasonable.\11\ The IM provides that members 
may request reimbursement of expenses at less than the approved rates; 
however, no member may seek reimbursement at rates higher than the 
approved rates or for items or services not specifically listed in the 
IM without the prior notification to and consent of the person 
soliciting proxies or the company;
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    \11\ NASD Rule 2430 provides, among other things, that charges 
for services performed must be ``reasonable'' and ``not unfairly 
discriminatory between customers.'' (FINRA will address Rule 2430 at 
a later phase in the rulebook consolidation process.)
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    <bullet> IM-2260(c) generally permits members to avoid transmitting 
multiple copies of materials to beneficial owners having more than one 
account or sharing the same address, provided members comply with 
applicable SEC rules.
(B) Proposal
    FINRA believes that NASD Rule 2260 and IM-2260 provide effective 
protection to investors. Accordingly, FINRA proposes to combine the two 
rules, without material change, into a single rule that would be 
renumbered as FINRA Rule 2251 in the Consolidated FINRA Rulebook.\12\ 
The proposed rule change would make minor clarifying changes and other 
changes primarily to reflect the new formatting and terminology 
conventions of the Consolidated FINRA Rulebook.\13\ In addition, 
because a number of requirements set forth by the rule also are 
addressed by the SEC's proxy rules, the proposed rule change would add 
language where appropriate to remind members that they are obligated to 
comply both with the FINRA rule and applicable SEC rules and/or 
guidance. With respect to the requirement set forth in NASD Rule 
2260(a) that members forward those materials that are properly 
furnished to the member, the proposed rule change would clarify that 
firms are required to forward the materials subject to paragraphs (c) 
and (e) of the rule, as applicable. With respect to NASD Rule 
2260(c)(2)'s provisions allowing a member to give a proxy to vote any 
stock pursuant to the rules of ``any national securities exchange to 
which the member is also responsible,'' proposed FINRA Rule 2251 would 
read ``any national securities exchange of which it is a member.'' 
FINRA believes the latter expression is clearer and reflects FINRA's 
longstanding interpretation of the rule language.\14\
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    \12\ NASD IM-2260 would be redesignated as Supplementary 
Material within proposed FINRA Rule 2251.
    \13\ For example, the language in NASD Rule 2260(a) stating that 
a member ``has an inherent duty'' to forward materials would be 
revised to state that a member ``shall'' forward such materials. 
Further, the proposed rule change would move the footnoted 
provisions defining the terms ``ERISA'' and ``state'' to the rule 
text, and the footnoted provision regarding verification of 
investment advisers would be redesignated as Supplementary Material.
    \14\ See note 7 supra.
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    FINRA will announce the implementation date of the proposed

[[Page 54612]]

rule change in a Regulatory Notice to be published no later than 90 
days following Commission approval.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\15\ which requires, among 
other things, that FINRA rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest. FINRA believes that the proposed rule change would 
further the purposes of the Act because, as part of the Consolidated 
FINRA Rulebook, the proposed rule change will protect investors and the 
public interest by addressing the forwarding of proxy and other issuer-
related materials.
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    \15\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA 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.

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. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) by order approve such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. 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#7e0c0b121b531d1113131b100a0d3e0d1b1d50191108"><span class="__cf_email__" data-cfemail="5d2f283138703e3230303833292e1d2e383e733a322b">[email protected]</span></a>. Please include 
File Number SR-FINRA-2009-066 on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Florence E. Harmon, 
Deputy Secretary, Securities and Exchange Commission, 100 F Street, 
NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2009-066. 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 inspection 
and copying 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 FINRA. 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-FINRA-2009-066 and should be 
submitted on or before November 12, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-25427 Filed 10-21-09; 8:45 am]
BILLING CODE 8011-01-P


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