Federal Register / Vol. 74, No. 131 / Friday, July 10, 2009 / Notices 33293 

17 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release Nos. 30697 

(May 13, 1992), 57 FR 21434 (May 20, 1992) (SR– 

NYSE–92–05) (approval order) and 52569 (October 

6, 2005), 70 FR 60118 (October 14, 2005) (SR– 

NYSE–2005–61) (notice of filing and immediate 

effectiveness). 

4See Securities Exchange Act Release No. 59464 

(February 26, 2009), 74 FR 9864 (March 6, 2009) 

(‘‘Notice’’). 

5See Comment letters in the Commission’s Public 

Reference Room or on the Commission’s Web site 

at http://www.sec.gov. For a complete list of 

comment letters and the short cites to letters used 

here, see Appendix A, attached hereto. 

6The proposed change to NYSE Rule 452 would 

not apply to a meeting that was originally 

scheduled to be held prior to January 1, 2010, but 

was properly adjourned to a date on or after the 

effective date. 

7As discussed in more detail below, under 

current NYSE Rule 452 a broker can vote without 

instruction from the beneficial owner provided ‘‘the 

person in the member organization giving or 

authorizing the giving of the proxy 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.’’ See current NYSE Rule 

452.10(3). Items where a broker is allowed to vote 

without specific instructions from the beneficial 

owner under Rule 452 are often referred to as 

‘‘routine’’ matters. NYSE Rule 452 also currently 

contains a list of eighteen enumerated items where 

the broker may not vote without specific voting 

instructions from the beneficial owner. See Notice, 

supra note 4 and infra note 14. 

8The codification will place the interpretations 

into the rule text of Rule 452. 

9Final Report of the U.S. Securities and Exchange 

Commission on the Practice of Recording the 

Ownership of Securities in the Records of the Issuer 

in Other Than the Name of the Beneficial Owner 

of Such Securities (December 3, 1976), at 54. 

10This is due, among other things, to the advent 

of margin accounts, technological developments, 

and clearing efficiencies. 

the principal office of Nasdaq. 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–NASDAQ–2009–064 and 

should be submitted on or before July 

31, 2009. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.17

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. E9–16315 Filed 7–9–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60215; File No. SR–NYSE– 

2006–92] 

Self-Regulatory Organizations; New 

York Stock Exchange LLC; Order 

Approving Proposed Rule Change, as 

Modified by Amendment No. 4, To 

Amend NYSE Rule 452 and 

Corresponding Listed Company 

Manual Section 402.08 To Eliminate 

Broker Discretionary Voting for the 

Election of Directors, Except for 

Companies Registered Under the 

Investment Company Act of 1940, and 

To Codify Two Previously Published 

Interpretations That Do Not Permit 

Broker Discretionary Voting for 

Material Amendments to Investment 

Advisory Contracts With an Investment 

Company 

July 1, 2009. 

I. Introduction 

On October 24, 2006, the New York 

Stock Exchange LLC (‘‘Exchange’’ or 

‘‘NYSE’’) filed with the Securities and 

Exchange Commission (‘‘Commission’’), 

pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a 

proposed rule change to amend NYSE 

Rule 452 and corresponding Section 

402.08 of the Listed Company Manual 

(‘‘Manual’’) to eliminate broker 

discretionary voting for the election of 

directors. On May 23, 2007, the 

Exchange filed Amendment No. 1 to the 

proposed rule change to exempt 

companies registered under the 

Investment Company Act of 1940 

(‘‘1940 Act’’) from the ban on broker 

discretionary voting for the election of 

directors. On June 28, 2007, the 

Exchange filed Amendment No. 2 to the 

proposed rule change, to codify two 

previously published interpretations 3

that do not permit broker discretionary 

voting for material amendments to 

investment advisory contracts with an 

investment company. On February 26, 

2009, the Exchange filed and withdrew 

Amendment No. 3 to the proposed rule 

change for technical reasons. On 

February 26, 2009, the Exchange filed 

Amendment No. 4 to the proposed rule 

change. Amendment No. 4 superseded 

and replaced the proposal in its entirety. 

The Commission published the 

proposed rule change, as modified by 

Amendment No. 4, for comment in the 

Federal Register on March 6, 2009.4 The 

Commission received 153 comments 

from 137 commenters on the proposal.5

This order approves the proposed rule 

change, as modified by Amendment No. 

4. 

II. Description of the Proposal and 

Background 

A. Description of the Proposal 

The Exchange proposes amending 

NYSE Rule 452 and Section 402.08 of 

the Manual (together, ‘‘NYSE Rule 452’’) 

to eliminate broker discretionary voting 

for all elections of directors at 

shareholder meetings held on or after 

January 1, 2010,6 whether contested or 

not, except for companies registered 

under the 1940 Act. Currently, NYSE 

Rule 452 permits brokers to vote 

without voting instructions from the 

beneficial owner on uncontested 

elections of directors.7 Specifically, the 

NYSE proposal would add to the list of 

enumerated items for which a member 

generally may not give a proxy to vote 

without instructions from the beneficial 

owner, the ‘‘election of directors.’’ The 

proposal contains a specific exception, 

however, for companies registered 

under the 1940 Act. 

In addition, the Exchange proposes 

amending NYSE Rule 452 to codify two 

previously published interpretations.8

First, the NYSE proposes codifying that 

NYSE Rule 452 would preclude broker 

discretionary voting on a matter that 

materially amends an investment 

advisory contract with an investment 

company. Second, the NYSE proposes 

codifying that a material amendment to 

an investment advisory contract would 

include any proposal to obtain 

shareholder approval of an investment 

company’s investment advisory contract 

with a new investment adviser for 

which shareholder approval is required 

by the 1940 Act and the rules 

thereunder. 

B. Background 

A shareholder of a public company 

may hold shares either directly, as the 

record holder, or indirectly, as the 

beneficial holder, with the shares held 

in the name of the beneficial 

shareholder’s broker-dealer, bank 

nominee, or custodian (‘‘securities 

intermediary’’), which is the record 

holder. The latter generally is referred to 

as holding securities in ‘‘street name.’’ 

The NYSE’s discretionary voting rule 

dates back to 1937. Historically, the 

majority of shareholders held their 

shares directly as record holders. In 

1976, for example, shareholders held 

approximately 71% of securities of 

record (in their own name), while only 

approximately 29% of securities were 

held by securities intermediaries in 

street name.9 The number of beneficial 

owners holding securities in street 

name, however, has increased 

significantly since 1976,10 with the 

result that securities intermediaries, on 

behalf of beneficial owners, now hold a 

substantial majority of exchange traded 


sroberts on DSKD5P82C1PROD with NOTICES
33294 Federal Register / Vol. 74, No. 131 / Friday, July 10, 2009 / Notices 

11 It has been estimated that approximately 85% 

of exchange traded shares are held by securities 

intermediaries in street name. See Securities 

Exchange Act Release No. 50758 (November 30, 

2004), 69 FR 70852 (December 7, 2004) (noting that, 

at the end of 2002, the Depository Trust Company 

(‘‘DTC’’) had on deposit approximately 84% of the 

shares issued by domestic companies listed on the 

NYSE and approximately 88% of the shares issued 

by domestic companies listed on the Nasdaq Stock 

Exchange). Securities held in ‘‘street name’’ by 

securities intermediaries are deposited at the DTC. 

12See NYSE Rule 451(b)(1) (providing, in part, 

that for matters which may be voted without 

instructions under Rule 452, if voting instructions 

‘‘are not received by the tenth day before the 

meeting, the proxy may be given at discretion by 

the owner of record of the stock; provided * * * 

the proxy soliciting material is transmitted to the 

beneficial owner of the stock * * * at least fifteen 

days before the meeting.’’); see also Rule 14b–1, 17 

CFR 240.14b–1. Rule 14b–1 under the Act does not 

require brokers or dealers to request voting 

instructions from beneficial owners, but they are 

required under that Rule to forward the proxy 

materials to the beneficial owners within a certain 

timeframe. However, Rule 14b–2, 17 CFR 240.14b– 

2, which applies to banks that exercise fiduciary 

powers, requires banks to forward proxy materials 

to beneficial owners within a certain timeframe, as 

well as an executed proxy or a request for voting 

instructions. 

13See supra note 7. 

14See Notice, supra note 4. Presently, NYSE Rule 

452 lists 18 specific matters that cannot be voted 

by the broker without instructions and are often 

referred to as ‘‘non-routine’’ matters. These 18 

categories are a matter that: (1) Is not submitted to 

stockholders by means of a proxy statement 

comparable to that specified in Schedule 14–A of 

the Commission; (2) is the subject of a countersolicitation, or is part of a proposal made by a 

stockholder which is being opposed by 

management (i.e., a contest); (3) relates to a merger 

or consolidation (except when the company’s 

proposal is to merge with its own wholly owned 

subsidiary, provided its shareholders dissenting 

thereto do not have rights of appraisal); (4) involves 

right of appraisal; (5) authorizes mortgaging of 

property; (6) authorizes or creates indebtedness or 

increases the authorized amount of indebtedness; 

(7) authorizes or creates a preferred stock or 

increases the authorized amount of an existing 

preferred stock; (8) alters the terms or conditions of 

existing stock or indebtedness; (9) involves waiver 

or modification of preemptive rights (except when 

the company’s proposal is to waive such rights with 

respect to shares being offered pursuant to stock 

option or purchase plans involving the additional 

issuance of not more than 5% of the company’s 

outstanding common shares); (10) changes existing 

quorum requirements with respect to stockholder 

meetings; (11) alters voting provisions or the 

proportionate voting power of a stock, or the 

number of its votes per share (except where 

cumulative voting provisions govern the number of 

votes per share for election of directors and the 

company’s proposal involves a change in the 

number of its directors by not more than 10% or 

not more than one); (12) authorizes the 

implementation of any equity compensation plan, 

or any material revision to the terms of any existing 

equity compensation plan (whether or not 

stockholder approval of such plan is required by 

subsection 8 of Section 303A of the Exchange’s 

Listed Company Manual); (13) authorizes (a) a new 

profit-sharing or special remuneration plan, or a 

new retirement plan, the annual cost of which will 

amount to more than 10% of average annual income 

before taxes for the preceding five years, or (b) the 

amendment of an existing plan which would bring 

its cost above 10% of such average annual income 

before taxes, but exceptions may be made in cases 

of (a) retirement plans based on agreement or 

negotiations with labor unions (or which have been 

or are to be approved by such unions), and (b) any 

related retirement plan for benefit of non-union 

employees having terms substantially equivalent to 

the terms of such union-negotiated plan, which is 

submitted for action of stockholders concurrently 

with such union-negotiated plan; (14) changes the 

purposes or powers of a company to an extent 

which would permit it to change to a materially 

different line of business and it is the company’s 

stated intention to make such a change; (15) 

authorizes the acquisition of property, assets, or a 

company, where the consideration to be given has 

a fair value approximating 20% or more of the 

market value of the previously outstanding shares; 

(16) authorizes the sale or other disposition of 

assets or earning power approximating 20% or more 

of those existing prior to the transaction; (17) 

authorizes a transaction not in the ordinary course 

of business in which an officer, director or 

substantial security holder has a direct or indirect 

interest; and (18) reduces earned surplus by 51% 

or more, or reduces earned surplus to an amount 

less than the aggregate of three years’ common stock 

dividends computed at the current dividend rate. 

15See e.g., FSBA 2 Letter; see generally AFSCME 

Letter; CII 4 Letter; Colorado PERA Letter; CTW 

Letter; CTW 2 Letter; and FSBA Letter. 

16See CFA 2 Letter; CII 2 Letter; CII 4 Letter; 

Colorado PERA Letter; Cox Letter; CTW Letter; 

CTW 2 Letter; FSBA 2 Letter; Glass Lewis Letter; 

Hermes Equity Letter; NYSBA Sec. Reg. Letter; 

OPERS Letter; Relational Investors Letter; TIAA– 

CREF Letter; and Trillium Letter; see also Notice, 

supra note 4; Report and Recommendation of the 

Proxy Working Group, dated June 5, 2006 (‘‘PWG 

Report’’), at 9. 

17See Notice, supra note 4. 

18See NYSE Rule 452.11(2). 

19See Notice, supra note 4. 

20See AFSCME Letter; CalPERS 3 Letter; CtW 

Letter; CtW 2 Letter; FSBA Letter; FSBA 2 Letter; 

and Glass Lewis Letter; see also PWG Report, infra 

note 16, at 9. Several commenters stated that rather 

than eliminating the broker vote for all elections of 

directors the Commission should address the 

problem by making NYSE redefine what constitutes 

a contested election, see ABA Fed. Reg. Letter; ABC 

Letter; Alston Letter; BB&T Letter; see also 

Suburban Letter (urging further consideration of 

this alternative), and make alternative proxy contest 

strategies such as ‘‘just vote no’’ campaigns a 

contest that is not subject to broker discretionary 

voting under NYSE Rule 452. See ABC Letter; ABC 

2 Letter; ABC 3 Letter; Alston Letter; Broadridge 

Letter (suggesting that the NYSE rules be defined to 

eliminate broker votes where there is a controversy, 

such as a ‘‘just vote no’’ campaign); see also ABA 

Fed. Reg. Letter. The Commission notes that the 

Proxy Working Group, see infra note 21, considered 

this approach but noted that expanding the 

definition of contest to include ‘‘just vote no’’ 

campaigns, especially in light of the increased use 

of the internet to run proxy contests, could raise 

securities.11 As a result, NYSE’s 

discretionary voting rule has taken on 

increased significance in the voting of 

corporate shares at annual meetings. 

Under Rule 451, when a public 

company furnishes proxy materials to 

its record shareholders, securities 

intermediaries that hold securities in 

street name must deliver the proxy 

materials to the beneficial shareholders 

within a certain time frame and request 

voting instructions from the beneficial 

shareholders.12 If beneficial 

shareholders return voting instructions, 

the securities intermediaries vote their 

shares accordingly. However, if 

beneficial shareholders do not return 

voting instructions, securities 

intermediaries may, in certain 

situations, vote their shares at the 

intermediaries’ discretion. Specifically, 

if voting instructions have not been 

received by the tenth day preceding the 

meeting date, under current NYSE Rule 

452, brokers may vote on behalf of the 

beneficial shareholders on certain 

matters where there is no contest and 

the item does not include authorization 

for a merger, consolidation, or any 

matter which may substantially affect 

the rights or privileges of the stock.13

The rule also contains eighteen specific 

items on which the broker generally 

may not vote without instructions from 

the beneficial owner.14 Items where the 

broker can vote without instructions are 

referred to as ‘‘routine’’ matters. Among 

other matters, the ‘‘uncontested’’ 

election of directors is considered a 

‘‘routine’’ matter under current NYSE 

Rule 452, and thus can be voted by the 

broker in its discretion if the beneficial 

owner has not returned voting 

instructions within the required time 

period. 

With the large proportion of shares 

now held in street name, the impact of 

the broker vote on the election of 

directors has become increasingly 

significant.15 In the view of some 

commenters, brokers tend to vote in 

accordance with management’s 

recommendation.16 According to the 

NYSE, in recent years its interpretation 

of a ‘‘contested election’’ has been 

questioned by a variety of persons,17 as 

an increasing number of proxy 

campaigns have targeted the election of 

directors without a formal contest. 

These campaigns generally do not 

involve a competing slate of directors or 

a formal counter-solicitation opposed by 

management, and hence, are not 

considered ‘‘contests’’ by the NYSE 

under NYSE Rule 452.18 Examples of 

these campaigns include ‘‘just vote no’’ 

or ‘‘withhold’’ campaigns, where one or 

more investors express dissatisfaction 

with the performance of the company or 

its management, and urge shareholders 

to withhold their votes for one or more 

of management’s nominees for director. 

NYSE views director elections subject to 

these campaigns as eligible for broker 

discretionary voting under current Rule 

452.19 Concerns have been expressed 

that, in certain ‘‘just vote no’’ or 

‘‘withhold’’ campaigns, the broker vote 

for management has made the difference 

and allowed directors subject to these 

campaigns to be elected, which would 

not have happened but for NYSE’s 

discretionary voting rule.20


sroberts on DSKD5P82C1PROD with NOTICES
Federal Register / Vol. 74, No. 131 / Friday, July 10, 2009 / Notices 33295 

significant practical difficulties, such as defining 

what is a campaign or whether there are any 

limitations or other minimal requirements for a 

contest. See PWG Report, infra note 16, at 20. 

Moreover, the Commission notes that merely 

redefining what constitutes a contested election 

would still allow brokers who do not have an 

economic interest in the company to vote in 

director elections that are uncontested and would 

not further the goals of the proposed rule change. 

See infra notes 21 through 23 and accompanying 

text. Finally, the Commission notes that the NYSE, 

in making its proposal, reviewed the PWG Report, 

as well as comments submitted to the NYSE on the 

PWG recommendation. The NYSE states in its rule 

filing that its proposal on Rule 452 was being made 

in light of the recommendations of the Proxy 

Working Group and its own conclusions that the 

election of directors should no longer be deemed a 

‘‘routine matter’’ under its rules. 

21Members of the Proxy Working Group at the 

time of the PWG Report were: Larry W. Sonsini, 

Chairman, Wilson Sonsini Goodrich & Rosati; 

Rosemary Berkery, Executive Vice President and 

General Counsel, Merrill Lynch & Co., Inc., 

represented by Kevin Moynihan of Merrill Lynch & 

Co.; Glenn Booraem, Principal and Assistant Fund 

Controller, Vanguard Group; Peter Clapman, Senior 

Vice President and Chief Counsel for Corporate 

Governance, TIAA–CREF; Margaret Foran, Vice 

President-Corporate Governance & Corporate 

Secretary, Pfizer, Inc.; Gary Glynn, President, US. 

Steel Pension Fund; Amy Goodman, Partner, 

Gibson, Dunn & Crutcher LLP; Richard H. Koppes, 

Of Counsel, Jones Day; Jeffrey L. McWaters, 

Chairman and Chief Executive Officer, Amerigroup 

Corporation; Stephen P. Norman, Corporate 

Secretary, American Express Company; James E. 

Parsons, Corporate and Securities Counsel, Exxon 

Mobil Corporation; Judith Smith, Managing 

Director, Morgan Stanley & Co.; Esta Stecher, 

Executive Vice President and General Counsel, 

Goldman Sachs & Co., represented by Beverly 

O’Toole of Goldman Sachs & Co.; and Kurt Stocker, 

Professor, Northwestern University, Medill School 

of Journalism. See PWG Report, supra note 16. The 

Exchange attached the PWG Report as part of the 

proposal. In August 2007, the Proxy Working Group 

issued an addendum to its report (‘‘Addendum’’), 

available as part of the Exchange’s proposal. 

22 In particular, the Proxy Working Group looked 

at NYSE Rules 450 to 460 and 465. 

23See PWG Report, supra note 16, at 21 (citing 

Del. Code tit. 8, Section 141(b) (2005)). 

24See id. 

25See id. 

26See Addendum, supra note 21, at 3. 

27See supra note 5. NYSE also received 39 letters 

on the PWG Report and Recommendation related to 

amending Rule 452. NYSE submitted these letters 

as part of the proposal. See discussion in Notice, 

supra note 4, and Exhibit 2 to the NYSE’s proposed 

rule change. 

28See AFSCME Letter; BCIMC Letter; CalPERS 

Letter; CalPERS 2 Letter; CalPERS 3 Letter; CalSTRS 

Letter; CCGG Letter; CCGG 2 Letter; CFA Letter; 

CFA 2 Letter; City of London Letter; CII Letter; CII 

2 Letter; CII 3 Letter; CII 4 Letter; Colorado PERA 

Letter; Corporate Governance Letter; Cox Letter; 

CtW Letter; CtW 2 Letter; Dobkin Letter; FSBA 

Letter; FSBA 2 Letter; Glass Lewis Letter; 

GovernanceMetrics Letter; Gratzer Letter 

(‘‘[e]liminate the rule’’); Hagberg Letter; Hermes 

Equity Letter; ICI 4 Letter (supporting the proposal 

as amended); Newground Letter; OPERS Letter; 

PWG Letter (while the PWG continued to believe 

that the election of directors could no longer be 

considered a routine event in the life of a 

corporation, it also believed that the Commission 

should consider using the opportunity created by 

the NYSE’s proposal to review the broader proxy 

process) (see discussion at Section IV.F, 

Commission Consideration of the Entire Proxy 

Process, further below); Railpen Letter; Relational 

Investors Letter; Sod’ali Letter; TIAA–CREF Letter; 

and Trillium Letter. 

29See ABC Letter; ABC 2 Letter; ABC 3 Letter; 

Altman Letter; AmEx Letter; Astoria Financial 

Letter; BB&T Letter; Corning Letter; FedEx Letter; 

FPL Letter; NIRI Letter; Stanton Letter; Suffolk 

Letter; and UQM Letter. 

30See ABA Fed. Reg. Letter; Aetna Letter; Agilent 

Letter; Alcoa Letter; Alston Letter; Anadarko Letter; 

ArvinMeritor Letter; Avery Letter; Avis Letter; 

BNSF Letter; Broadridge Letter; Boeing Letter; 

Business Roundtable Letter; CA Letter; Cardinal 

Letter; Central Vermont Letter; Ceridian Letter; 

Chamber of Commerce 2 Letter; Chevron Letter; 

Cigna Letter; Cincinnati Financial Letter; 

Computershare Letter; Connecticut Water Letter; 

ConocoPhillips Letter; Continental Letter; Crescent 

Letter; CSX Letter; Cummins Letter; DTE Letter; 

Eaton Letter; Eli Lilly Letter; EV Letter; Exxon 

Mobil Letter; Fidelity Letter; First American Letter; 

First Financial Letter; Furniture Brands Letter; GE 

Letter; General Mills Letter; GM Letter; Governance 

Professionals Letter; Gulf Letter; Harman Letter; 

Helmerich Letter; Honeywell Letter; Illinois Stock 

Letter; International Paper Letter; Intel Letter; 

Jacksonville Letter; Johnson Letter; J.P. Morgan 

Letter; Manifest Letter; McKesson Letter; Medco 

Letter; MGE Letter; Monster Letter; NS Letter; Nucor 

Letter; NYSBA Sec. Reg. Letter; Office Depot Letter; 

OTC Letter; Otter Tail Letter; P&G Letter; Peabody 

Letter; Pfizer Letter; Platinum Letter; Praxair Letter; 

Provident Letter; Provident Financial Letter; Quest 

Letter; Realogy Letter; Routh Letter; Royal Gold 

Letter; Ryder Letter; S&C Letter; SCC Letter; Schwab 

Letter; Securities Transfer Letter; SIFMA Letter; 

STA Letter; Standard Letter; StockTrans Letter; 

Suburban Letter; Superlattice Letter; Sutherland 

Letter; Synalloy Letter; Textron Letter; TI Letter; 

Unitrin Letter; Veeco Letter; Verizon Letter; 

Wachtell Letter; Washington Banking Letter; 

Whirlpool Letter; Xcel Letter; Xerox Letter; and 

YRC Letter. 

31See ABA Fed. Reg. Letter; Aetna Letter; Agilent 

Letter; Alcoa Letter; Alston Letter; Anadarko Letter; 

ArvinMeritor Letter; Avery Letter; Avis Letter; 

BNSF Letter; Boeing Letter; Business Roundtable 

Letter; CA Letter; Cardinal Letter; Central Vermont 

Letter; Ceridian Letter; Chamber of Commerce 2 

Letter; Chevron Letter; Cigna Letter; Cincinnati 

Financial Letter; Computershare Letter; Connecticut 

Water Letter; ConocoPhillips Letter; Continental 

Letter; Crescent Letter; CSX Letter; Cummins Letter; 

DTE Letter; Eaton Letter; Eli Lilly Letter; EV Letter; 

Exxon Mobil Letter; Fidelity Letter; First American 

Letter; First Financial Letter; Furniture Brands 

Letter; GE Letter; General Mills Letter; GM Letter; 

Governance Professionals Letter; Gulf Letter; 

Harman Letter; Helmerich Letter; Honeywell Letter; 

Illinois Stock; Intel Letter; International Paper 

Letter; Jacksonville Letter; Johnson Letter; J.P. 

Morgan Letter; Manifest Letter; McKesson Letter; 

Medco Letter; MGE Letter; Monster Letter; NS 

Letter; Nucor Letter; NYSBA Sec. Reg. Letter; Office 

Depot Letter; OTC Letter; Otter Tail Letter; P&G 

Letter; Peabody Letter; Pfizer Letter; Platinum 

Letter; Praxair Letter; Provident Letter; Provident 

Financial Letter; Quest Letter; Realogy Letter; Routh 

Letter; Royal Gold Letter; Ryder Letter; S&C Letter; 

SCC Letter; SCC 2 Letter; Schwab Letter; Securities 

Transfer Letter; STA Letter; Standard Letter; 

StockTrans Letter; Suburban Letter; Superlattice 

Letter; Sutherland Letter; Synalloy Letter; Textron 

Letter; TI Letter; Unitrin Letter; Veeco Letter; 

Verizon Letter; Wachtell Letter; Washington 

Banking Letter; Whirlpool Letter; Xcel Letter; Xerox 

Letter; and YRC Letter. 

In April 2005, the NYSE formed a 

working group to review its rules 

regarding the proxy voting process 

(‘‘Proxy Working Group’’). The Proxy 

Working Group was composed of 

representatives from listed companies, 

NYSE member organizations, lawyers, 

institutional investors, and individual 

investors.21 The Proxy Working Group 

reviewed applicable NYSE rules relating 

to the proxy process and proxy fees, 

with a particular focus on NYSE Rule 

452.22 The Proxy Working Group 

ultimately issued a report 

recommending that the election of 

directors be ineligible for broker 

discretionary voting under NYSE Rule 

452, with the result that brokers holding 

shares in street name could not vote on 

the election of directors, whether the 

election is contested or uncontested, 

without specific voting instructions 

from the beneficial owners. The Proxy 

Working Group believed that the 

election of directors could no longer be 

viewed as a ‘‘routine’’ matter in the life 

of a corporation. According to the Proxy 

Working Group, it ‘‘is well established 

under law * * * [that] ‘the business and 

affairs of every corporation * * * shall 

be managed by or under the direction of’ 

the board of directors. Investors, courts, 

regulators and others expect directors to 

be accountable for the corporate 

decision-making process, and the 

primary way that accountability is 

expressed is through the director 

election process.’’ 23 The Proxy Working 

Group concluded that ‘‘[d]irectors are 

simply too important to the corporation 

for their election to ever be considered 

routine.’’ 24 Although the Proxy 

Working Group recognized that the 

proposed change to Rule 452 may result 

in increased costs, it believed that ‘‘it is 

a cost required to be paid for better 

corporate governance * * *.’’ 25

In August 2007, the Proxy Working 

Group issued an Addendum to its 

report, recommending that the proposed 

change to NYSE Rule 452 should not 

apply to investment companies 

registered under the 1940 Act. The 

Proxy Working Group concluded that an 

exception for registered investment 

companies was appropriate given the 

fact, among other things, that they are 

subject to a unique regulatory regime.26

III. Summary of Comments 

The Commission received 153 

comment letters from 137 

commenters.27 Twenty-eight 

commenters explicitly supported the 

proposal,28 and twelve commenters 

explicitly opposed the proposal.29

Ninety-seven of the commenters neither 

explicitly supported nor opposed the 

proposal.30 Ninety-five of these ninetyseven commenters expressed concerns 

with the proposal,31 and ninety-three 

urged that the Commission not take 


sroberts on DSKD5P82C1PROD with NOTICES
33296 Federal Register / Vol. 74, No. 131 / Friday, July 10, 2009 / Notices 

32See ABA Fed. Reg. Letter; Aetna Letter; Agilent 

Letter; Alcoa Letter; Alston Letter; Anadarko Letter; 

ArvinMeritor Letter; Avery Letter; Avis Letter; 

BNSF Letter; Boeing Letter; Business Roundtable 

Letter; CA Letter; Cardinal Letter; Central Vermont 

Letter; Ceridian Letter; Chamber of Commerce 2 

Letter; Chevron Letter; Cigna Letter; Cincinnati 

Financial Letter; Computershare Letter; Connecticut 

Water Letter; ConocoPhillips Letter; Continental 

Letter; Crescent Letter; CSX Letter; Cummins Letter; 

DTE Letter; Eaton Letter; Eli Lilly Letter; EV Letter; 

Exxon Mobil Letter; Fidelity Letter; First American 

Letter; First Financial Letter; Furniture Brands 

Letter; GE Letter; General Mills Letter; GM Letter; 

Governance Professionals Letter; Gulf Letter; 

Harman Letter; Helmerich Letter; Honeywell Letter; 

Illinois Stock Letter; Intel Letter; International 

Paper Letter; Jacksonville Letter; Johnson Letter; J.P. 

Morgan Letter; Manifest Letter; McKesson Letter; 

Medco Letter; MGE Letter; Monster Letter; NS 

Letter; Nucor Letter; NYSBA Sec. Reg. Letter; Office 

Depot Letter; OTC Letter; Otter Tail Letter; P&G 

Letter; Peabody Letter; Pfizer Letter; Platinum 

Letter; Praxair Letter; Provident Letter; Provident 

Financial Letter; Quest Letter; Realogy Letter; Routh 

Letter; Royal Gold Letter; Ryder Letter; S&C Letter; 

SCC Letter; Schwab Letter; Securities Transfer 

Letter; STA Letter; Standard Letter; StockTrans 

Letter; Superlattice Letter; Synalloy Letter; Textron 

Letter; TI Letter; Unitrin Letter; Veeco Letter; 

Verizon Letter; Wachtell Letter; Washington 

Banking Letter; Whirlpool Letter; Xcel Letter; Xerox 

Letter; and YRC Letter. 

33See SCC 2 Letter. 

34 In approving the proposed rule change, the 

Commission considered the proposed rule change’s 

impact on efficiency, competition, and capital 

formation. 15 U.S.C. 78c(f). The Commission notes 

that several commenters believed that the NYSE’s 

proposal would make the proxy voting system less 

efficient. See Central Vermont Letter; Connecticut 

Water Letter; First Financial Letter; Jacksonville 

Letter; McKesson Letter; Monster Letter; Nucor 

Letter; Provident Letter; Quest Letter; Synalloy 

Letter; and Veeco Letter; see also Astoria Financial 

Letter (‘‘[F]or many public companies, broker voting 

remains the most efficient means to obtain a 

quorum for shareholder meetings’’); BB&T Letter 

(cost of obtaining quorum absent broker 

discretionary voting would ‘‘be an enormous loss to 

investors,’’ and that ‘‘redefinition of what 

constitutes a ‘contested’ election is the most 

efficient manner to address the real corporate 

governance concerns implied by the Amendment’’); 

and Governance Professionals Letter (‘‘The focus 

should be on solutions that contain costs and make 

the proxy voting system more efficient, rather than 

on increased costs and inefficiency.’’); but see 

Relational Investors Letter (‘‘The new 

administrative burdens created by this amendment 

are far outweighed by the benefits to efficient and 

effective corporate governance.’’); see also PWG 

Report, supra note 16. As discussed further below, 

the Commission believes that the NYSE’s proposed 

rule change should better enfranchise shareholders, 

and thereby enhance corporate governance and 

accountability, by assuring that voting is 

determined by those with an economic interest in 

the company on matters as critical as the election 

of directors, rather than permitting brokers to cast 

votes without instructions for shares beneficially 

owned by their customers, when the broker has no 

economic interest in those shares. Therefore, the 

Commission believes the NYSE’s proposed rule 

change should protect investors and the public 

interest. Further, the Commission does not believe 

that the proposed change will necessarily make the 

voting process materially less efficient. The 

mechanics of the proxy voting procedure as to how 

beneficial owners return voting instructions to their 

brokers are not changing. NYSE Rule 452 would 

continue to allow the broker to vote on other 

routine matters, such as the ratification of 

independent auditors, which will help companies 

meet quorum requirements, and therefore alleviate 

the efficiency concerns raised by commenters. As 

discussed further below, pursuant to Section 19(b) 

and after reviewing the comments, the Commission 

believes the proposed rule change should be 

approved. 

35 15 U.S.C. 78f(b)(5). 

36See, e.g., Del. Code Ann. Tit. 8, Section 141(a) 

(‘‘The business and affairs of every corporation 

organized under this chapter shall be managed by 

or under the direction of a board of directors, except 

as may be otherwise provided in this chapter or in 

its certificate of incorporation.’’). 

37See e.g., PWG Report, supra note 16, at 21; see 

also Bruce A. Toth and Jason L. Booth, The Board 

of Directors, Corp. Prac. Series (BNA), at A–3. 

38See Toth and Booth, The Board of Directors, 

Corp. Prac. Series, at A–3. 

39See PWG Report, supra note 16, at 21. 

40Broker votes can distort election results both by 

changing the outcome of an election and by creating 

a perception that a candidate (or group of 

candidates) has greater support than would be the 

case considering only the votes of beneficial 

owners. That perception, and in particular an 

understanding of the lack of substantial support for 

a director, even if he or she receives enough votes 

to be elected, can affect the decisions of the board 

and shareholders. See e.g., PWG Report, supra note 

16, at 9 and n. 12. 

41See PWG Report, supra note 16, at 21. 

42The Commission recognizes that, even under 

the NYSE’s proposal, certain situations will 

continue to exist where a person with an economic 

interest in a company may not be able to vote the 

shares, such as when shares are purchased after the 

record date for a shareholder meeting. Nevertheless, 

the NYSE’s proposal should make substantial 

strides in aligning a securityholder’s voting 

decision on director elections with the economic 

interest in the shares, as it will prohibit a broker 

holding shares in street name, who does not have 

an economic interest in the company, from voting 

on behalf of the beneficial owner in director 

elections. 

action on the proposal at this time.32

One commenter stated that the proposal 

raised sufficient issues to warrant 

consideration by the full Commission at 

a public meeting, and that consideration 

of the proposal by delegated authority 

was inappropriate.33

IV. Discussion and Analysis of 

Comment Letters 

After careful review and 

consideration of the comment letters, 

the Commission finds that the proposed 

rule change, as modified by Amendment 

No. 4, is consistent with the Act and the 

rules and regulations thereunder 

applicable to a national securities 

exchange.34 In particular, the 

Commission finds that the proposed 

rule change is consistent with the 

requirements of Section 6(b)(5) of the 

Act,35 which provides that the rules of 

the exchange must be designed to 

prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, to foster 

cooperation and coordination with 

persons engaged in regulating, clearing, 

settling, processing information with 

respect to, and facilitating transactions 

in securities, to 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. 

The Commission, Congress, states, 

investors and other market participants 

have long recognized the critical role 

that directors play in a corporation. The 

board of directors has ultimate 

responsibility for the management of the 

business and the affairs of the 

company.36 Shareholders, through their 

vote, vest with the directors they elect 

this critical duty to manage the 

company with which they have 

entrusted their resources.37 The board of 

directors generally does not participate 

in the daily business affairs of the 

company. It delegates these 

responsibilities to management the 

board selects and supervises. The board, 

however, ultimately is accountable to 

shareholders for corporate decisions.38

The most fundamental way in which 

shareholders can ensure that directors 

remain accountable to them for the 

directors’ performance of these critical 

duties is through the director election 

process.39

As discussed below, the Commission 

believes that it is reasonable and 

consistent with the Act for NYSE to 

determine that the election of directors 

should no longer be an item eligible for 

broker discretionary voting, particularly 

given the large proportion of shares that 

today are held in street name, the 

importance of corporate governance and 

accountability expressed through the 

election process, and the concern that 

the broker vote could potentially distort 

election results.40 As the Proxy Working 

Group also concluded, the election of 

directors is not a ‘‘routine’’ issue for 

either the corporation or the 

shareholders; it is a key event in the 

operation and direction of the 

corporation and the shareholders’ 

exercise of their rights and interests as 

the owners of the corporation.41 As 

such, the Commission believes that 

NYSE’s proposal should better 

enfranchise shareholders by helping 

assure that votes on matters as critical 

as the election of directors are 

determined by those with an economic 

interest in the company,42 rather than 

the broker who has no such economic 

interest, and also should enhance 

corporate governance and accountability 

to shareholders. 

The Commission also believes that the 

NYSE’s proposed change codifying 

existing NYSE interpretations of NYSE 

Rule 452 is consistent with the 


sroberts on DSKD5P82C1PROD with NOTICES
Federal Register / Vol. 74, No. 131 / Friday, July 10, 2009 / Notices 33297 

43See supra note 3. Two commenters supported 

the proposal regarding investment advisory 

contracts. See CFA 2 Letter and ICI 4 Letter. 44 15 U.S.C. 78f(b)(5). 45See ABA Fed. Reg. Letter; ABC 3 Letter; Alston 

Letter; Altman Letter; Anadarko Letter; 

ArvinMeritor Letter; Avery Letter; Avis Letter; 

BNSF Letter; Boeing Letter; Business Roundtable 

Letter; CA Letter; Cardinal Letter; Ceridian Letter; 

Chamber of Commerce Letter; Chamber of 

Commerce 2 Letter; Cigna Letter; Computershare 

Letter; ConocoPhillips Letter; Crescent Letter; CSX 

Letter; Cummins Letter; Eaton Letter; Eli Lilly 

Letter; Exxon Mobil Letter; FPL Letter; General 

Mills Letter; GM Letter; Governance Professionals 

Letter; Harman Letter; Helmerich Letter; ICI Letter; 

ICI 2 Letter; ICI 3 Letter; ICI 4 Letter; Intel Letter; 

International Paper Letter; Johnson Letter; J.P. 

Morgan Letter; Medco Letter; NS Letter; NYSBA 

Sec. Reg. Letter; Office Depot Letter; Peabody Letter; 

Pfizer Letter; Royal Gold Letter; Ryder Letter; S&C 

Letter; Schwab Letter; Securities Transfer Letter; 

STA Letter; Suburban Letter; Textron Letter; TI 

Letter; Unitrin Letter; UQM Letter; Verizon Letter; 

Wachtell Letter; Washington Banking Letter; 

Whirlpool Letter; Xcel Letter; Xerox Letter; YRC 

Letter; see also CII Letter; and CII 2 Letter; see also 

Sutherland Letter. 

46See ICI Letter; ICI 2 Letter; ICI 3, and ICI 4 

Letter. 

47See Alston Letter; Intel Letter; S&C Letter; 

Suburban Letter; and Wachtell Letter. 

48See ABC Letter; Agilent Letter; Astoria 

Financial Letter; Central Vermont Letter; 

Connecticut Water Letter; First Financial Letter; ICI 

3 Letter; Jacksonville Letter; McKesson Letter; 

Monster Letter; Nucor Letter; Provident Letter; 

Quest Letter; Schwab Letter; Suburban Letter; 

Suffolk Bank Letter; Synalloy Letter; Veeco Letter; 

and Wachtell Letter; see also Sutherland Letter. 

49See ABC Letter; Chamber of Commerce Letter; 

Chamber of Commerce 2 Letter; Governance 

Professionals Letter; ICI 2 Letter; ICI 3 Letter; ICI 4 

Letter; NIRI Letter; Praxair Letter; Quest Letter; 

Realogy Letter; Ryder Letter; Schwab Letter; STA 

Letter; Suburban Letter; Suffolk Bank Letter; 

Textron Letter; and YRC Letter; see also ABC Letter. 

50See ABA Fed. Reg. Letter; ABC Letter; Aetna 

Letter; Aglient Letter; Alston Letter; Altman Letter; 

AmEx Letter; Anadarko Letter; ArvinMeritor Letter; 

Avery Letter; Avis Letter; BB&T Letter; BNSF Letter; 

Boeing Letter; Business Roundtable Letter; CA 

Letter; Ceridian Letter; Cigna Letter; ConocoPhillips 

Letter; CSX Letter; Cummins Letter; Eaton Letter; 

Eli Lilly Letter; FPL Letter; General Mills Letter; GM 

Letter; Governance Professionals Letter; Harman 

Letter; International Paper Letter; Jacksonville 

Letter; Johnson Letter; Medco Letter; MGE Letter; 

Monster Letter; NS Letter; Nucor Letter; Office 

Depot Letter; Peabody Letter; Pfizer Letter; Praxair 

Letter; Realogy Letter; Ryder Letter; SCC Letter; 

Synalloy Letter; Textron Letter; UQM Letter, 

Whirlpool Letter; Xerox Letter; and YRC Letter. 

51See FedEx Letter. 

52See Suburban Letter; see also ABC Letter 

(stating that in ‘‘2004, had the broker vote not been 

in effect, 85 percent of NYSE companies would 

have been working to reach quorum in the final 

nine days before their meetings while 23 percent 

would not have reached quorum by the meeting 

date. * * * [C]ompanies uncertain of their ability 

to reach quorum * * * would be forced to hire 

proxy solicitors. * * * ’’). 

53See ABC 3 Letter; Agilent Letter; Alston Letter; 

AmEx Letter; Central Vermont Letter; 

Computershare Letter; Connecticut Water Letter; 

First Financial Letter; Governance Professionals 

Letter; Jacksonville Letter; McKesson Letter; 

Monster Letter; Nucor Letter; Provident Letter; 

Quest Letter; SCC Letter; and Synalloy Letter; see 

also Sutherland Letter (stating that the exemption 

should also apply to business development 

companies). 

54See ABA Fed. Reg. Letter; ABC 3 Letter; Agilent 

Letter; Alston Letter; AmEx Letter; Astoria 

Financial Letter; Central Vermont Letter; Chamber 

of Commerce 2 Letter; Computershare Letter; 

Connecticut Water Letter; Crescent Letter; First 

Financial Letter; Governance Professionals Letter; 

Helmerich Letter; Jacksonville Letter; McKesson 

Letter; Monster Letter; Nucor Letter; Provident 

Letter; Quest Letter; Synalloy Letter; and 

Washington Banking Letter; see also Sutherland 

Letter. 

55See Alcoa Letter; Anadarko Letter; 

ArvinMeritor Letter; Avery Letter; Avis Letter; 

Boeing Letter; Business Roundtable Letter; CA 

Letter; Cardinal Letter; Ceridian Letter; Chevron 

Letter; Cincinnati Financial Letter; Computershare 

Letter; ConocoPhillips Letter; Continental Letter; 

Corning Letter; Crescent Letter; CSX Letter; 

Cummins Letter; Eaton Letter; Eli Lilly Letter; EV 

Letter; Exxon Mobil Letter; Fidelity Letter; First 

American Letter; FPL Letter; GE Letter; General 

Mills Letter; GM Letter; Gulf Letter; Helmerich 

Letter; Illinois Stock Letter; Intel Letter; 

International Paper Letter; Johnson Letter; Manifest 

Letter; Medco Letter; MGE Letter; NIRI Letter; NS 

Letter; Office Depot Letter; OTC Letter; Otter Tail 

Letter; Peabody Letter; Pfizer Letter; Platinum 

Letter; Praxair Letter; PWG Letter; Realogy Letter; 

Routh Letter; Royal Gold Letter; Ryder Letter; STA 

Letter; Securities Transfer Letter; Standard Letter; 

StockTrans Letter; Superlattice Letter; Textron 

Letter; Unitrin Letter; Verizon Letter; Washington 

Banking Letter; Whirlpool Letter; Xcel Letter; Xerox 

Letter; and YRC Letter. 

56See Aetna Letter; Anadarko Letter; 

ArvinMeritor Letter; Avery Letter; Avis Letter; 

BNSF Letter; Boeing Letter; Business Roundtable 

Letter; CA Letter; Cardinal Letter; Ceridian Letter; 

Chamber of Commerce 2 Letter; Cigna Letter; 

Cincinnati Financial Letter; Computershare Letter; 

ConocoPhillips Letter; Continental Letter; Corning 

Letter; Crescent Letter; CSX Letter; Cummins Letter; 

Eaton Letter; Eli Lilly Letter; EV Letter; Exxon 

Mobil Letter; FedEx Letter; Fidelity Letter; First 

American Letter; GE Letter; General Mills Letter; 

GM Letter; Gulf Letter; Helmerich Letter; Honeywell 

Letter; Illinois Stock Letter; Intel Letter; 

International Paper Letter; Johnson Letter; NS 

Letter; Office Depot Letter; OTC Letter; Otter Tail 

Letter; P&G Letter; Peabody Letter; Pfizer Letter; 

Platinum Letter; Praxair Letter; Realogy Letter; 

Routh Letter; Ryder Letter; STA Letter; Securities 

Transfer Letter; Standard Letter; StockTrans Letter; 

Superlattice Letter; Textron Letter; TI Letter; 

Unitrin Letter; Verizon Letter; Washington Banking 

Letter; Whirlpool Letter; Xcel Letter; Xerox Letter; 

and YRC Letter. 

57See Alcoa Letter; Corning Letter; and NIRI 

Letter. 

OBOs are shareholders who object to having their 

names and addresses disclosed to companies whose 

shares they own. 

58See Alcoa Letter; Computershare Letter; 

Corning Letter; ICI Letter; ICI 2 Letter; NIRI Letter; 

PWG Letter; STA Letter; and TI Letter; see also 

Chamber of Commerce 2 Letter (stating that any 

amendment to Rule 452 should be accompanied by 

an improved shareholder communication system). 

59See ICI 2 Letter. 

requirements of the Act. As discussed 

below, these proposed amendments will 

codify two previous interpretations that 

were adopted by the NYSE to help 

ensure the full and effective voting 

rights of investment company 

shareholders on material matters.43 The 

Commission believes that these changes 

are consistent with the requirements 

under Section 6(b)(5) of the Act44 that 

the rules of the Exchange be designed 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. 

A. Increased Costs for Companies To 

Achieve Quorum 

Several commenters believed that the 

NYSE’s proposal to eliminate the broker 

discretionary vote would make it more 

difficult for companies to obtain a 

quorum45 and elect directors.46 Some 

commenters believed that the relatively 

low retail shareholder participation rate 

in corporate elections would increase 

the difficulty of obtaining a quorum 

under NYSE’s proposal.47 Commenters 

also stated that the proposal would 

increase the cost to a company of 

obtaining a quorum,48 by requiring them 

to incur higher proxy solicitation 

costs 49 in order to communicate with 

shareholders, urge them to participate in 

director elections 50 and support boardnominated candidates.51 For example, 

one commenter believed that it would 

need ‘‘to retain a proxy solicitor even in 

the absence of a ‘contest’ * * * just to 

attempt to achieve a quorum.’’ 52 Several 

commenters noted that smaller issuers, 

in particular, would be negatively 

affected by the NYSE proposal, given 

their tendency to have a higher 

proportion of retail shareholders,53 so 

that smaller issuers would have to 

expend a disproportionate amount of 

additional resources to solicit 

shareholder votes, and obtain a 

quorum.54

Some commenters also expressed 

concern with, or noted the shortcomings 

of, the current system of communicating 

with shareholders,55 and stated that the 

proposal should be evaluated in 

connection with a review of shareholder 

communication rules.56 Three 

commenters expressed concern that the 

proposed rule change could magnify the 

difficulties issuers have in 

communicating with shareholders, 

especially with objecting beneficial 

owners (‘‘OBOs’’).57 Commenters 

recommended that Commission rules be 

revised to facilitate the ability of issuers 

to contact shareholders directly.58

According to one commenter, 

‘‘[p]ermitting issuers to communicate 

with their shareholders * * * will 

enable them to ‘get out the vote,’ 

enhancing their ability to obtain needed 

quorums and successfully re-solicit 

shareholders, if necessary.’’ 59

Other commenters believed that 

quorum concerns were not a valid 

reason for allowing brokers to continue 

to vote uninstructed shares in the 


sroberts on DSKD5P82C1PROD with NOTICES
33298 Federal Register / Vol. 74, No. 131 / Friday, July 10, 2009 / Notices 

60See CII 4 Letter; Colorado PERA Letter; FSBA 

Letter; FSBA 2 Letter; Glass Lewis Letter; Hagberg 

Letter; and TIAA–CREF Letter; see also CCGG Letter 

(elimination of U.S. broker non-votes would not 

adversely impact the ability of Canadian issuers to 

obtain quorum). 

61See Glass Lewis Letter. 

62See Hagberg Letter; Glass Lewis Letter; and 

TIAA–CREF Letter. 

63See CII Letter; CII 2 Letter; CII 4 Letter; 

Colorado PERA Letter; Glass Lewis Letter; Hagberg 

Letter; and TIAA–CREF Letter; contra ICI 3 Letter 

(stating that ‘‘[a]sking funds to take this action for 

the sole purpose of achieving a quorum’’ is 

unacceptable since funds have not been required to 

ratify the selection of fund auditors since 2001.). 

64See CalPERS Letter; Computershare Letter; 

FSBA 2 Letter; ICI 2 Letter; S&C Letter; Sod’ali 

Letter; and TIAA–CREF Letter; see also Suburban 

Letter (urging further consideration of this 

alternative). 

65See SIFMA Letter. 

66See Addendum, supra note 21, at 3; see also 

PWG Report, supra note 16, at 21. 

67See CII Letter; CII 2 Letter; CII 4 Letter; 

Colorado PERA Letter; Glass Lewis Letter; Hagberg 

Letter; and TIAA–CREF Letter. 

68See CII 4 Letter (stating that including an 

auditor ratification ‘‘resolution on the proxy is a 

step that many corporations already take on their 

own and one that the Council believes is a best 

practice for all public companies’’). 

69See Broadridge Letter and attached report, 

Updated Analysis of the Broker Vote, dated 

February 3, 2009. Moreover, the Commission notes 

that NYSE’s proposed rule change is consistent 

with the rules of other self-regulatory organizations. 

For example, the Financial Industry Regulatory 

Authority, Inc. (‘‘FINRA’’) and The NASDAQ Stock 

Market LLC (‘‘Nasdaq’’) do not permit broker 

discretionary voting for their members, unless they 

do so pursuant to the rules of another national 

securities exchange of which they are also a 

member and the member clearly indicates which 

rule it is following. See National Association of 

Securities Dealers, Inc. (‘‘NASD’’) Rule 2260 and 

Nasdaq Rule 2260. We note that NYSE Rule 452 is 

a member rule. Accordingly, NYSE members would 

follow the NYSE rule regardless of where a security 

is listed. Further, while other self-regulatory 

organizations currently allow discretionary voting, 

we would expect these markets to make changes to 

conform to the NYSE’s new rules to eliminate any 

disparities involving voting depending on where 

shares are held. See NYSE Amex Equities Rule 452 

and Chicago Board Options Exchange, Incorporated 

Rule 31.74. 

70See PWG Report, supra note 16, at 21 and 

Notice, supra note 4. With respect to concerns 

raised by commenters regarding communications 

with shareholders, the Commission notes that the 

proposed rule change would not alter the existing 

system of shareholder communications, which is 

outside the scope of NYSE’s proposed rule change. 

71See infra Section IV.D., Shareholder Education. 

72See Aetna Letter; Alcoa Letter; Altman Letter; 

AmEx Letter; Andarko Letter; Arvin Meritor Letter; 

Avery Letter; Avis Letter; BNSF Letter; Boeing 

Letter; Business Roundtable Letter; CA Letter; 

Cardinal Letter; Ceridian Letter; Chamber of 

Commerce 2 Letter; Chevron Letter; Cigna Letter; 

Cincinnati Financial Letter; Continental Letter; 

ConocoPhillips Letter; Corning Letter; Crescent 

Letter; CSX Letter; Cummins Letter; DTE Letter; 

Eaton Letter; Eli Lilly Letter; EV Letter; Fidelity 

Letter; First Financial Letter; FPL Letter; Furniture 

Brands Letter; General Mills Letter; GM Letter; Gulf 

Letter; Harman Letter; Illinois Stock Letter; Intel 

Letter; International Paper Letter; Jacksonville 

Letter; Johnson Letter; J.P. Morgan Letter; McKesson 

Letter; Medco Letter; MGE Letter; Monster Letter; 

NS Letter; Nucor Letter; Office Depot Letter; OTC 

Letter; Otter Tail Letter; Peabody Letter; Pfizer 

Letter; Platinum Letter; Praxair Letter; Provident 

Letter; Provident Financial Letter; Quest Letter; 

Realogy Letter; Routh Letter; Ryder Letter; SCC 

Letter; STA Letter; Standard Letter; Stanton Letter; 

StockTrans Letter; Superlattice Letter; Synalloy 

Letter; Textron Letter; TI Letter; Veeco Letter; 

Verizon Letter; Wachtell Letter; Whirlpool Letter; 

Xcel Letter; Xerox Letter; and YRC Letter. 

73See Aetna Letter; Alcoa Letter; AmEx Letter; 

Anadarko Letter; ArvinMeritor Letter; Avery Letter; 

Avis Letter; BNSF Letter; Boeing Letter; Business 

Roundtable Letter; CA Letter; Cardinal Letter; 

Ceridian Letter; Cigna Letter; ConocoPhillips Letter; 

Crescent Letter; CSX Letter; Cummins Letter; Eaton 

Letter; Eli Lilly Letter; FPL Letter; General Mills 

Letter; GM Letter; Harman Letter; International 

Paper Letter; Johnson Letter; Medco Letter; NS 

Letter; Office Depot Letter; Peabody Letter; Pfizer 

Letter; Praxair Letter; Realogy Letter; Ryder Letter; 

STA Letter; Textron Letter; Verizon Letter; Wachtell 

Letter; Whirlpool Letter; Xcel Letter; Xerox Letter; 

and YRC Letter. 

74See UQM Letter. 

75See Astoria Financial Letter; Chamber of 

Commerce 2 Letter; and S&C Letter. 

76See Chamber of Commerce Letter and Chamber 

of Commerce 2 Letter. 

election of directors.60 For example, one 

commenter believed that the 

participation of institutional investors 

would assure a quorum for most issuers, 

except for a limited number of small 

companies.61 Moreover, several 

commenters believed that quorum 

concerns could be addressed simply by 

including a ‘‘routine’’ item on the 

ballot,62 such as the ratification of 

auditors,63 or with appropriate changes 

in state law to permit shares held by 

brokers to count solely for purposes of 

establishing quorum.64 Also, another 

commenter believed that ‘‘issuers can 

communicate effectively to shareholders 

through established, robust and efficient 

systems currently in place.’’ 65

The Commission acknowledges 

commenters’ concerns regarding the 

potential for the proposed rule change 

to impact the ability of some companies 

to achieve quorum. For example, the 

Proxy Working Group recognized that 

smaller issuers may have certain 

increased costs in obtaining quorum due 

to the high percentage of shares held by 

retail investors.66 However, as noted by 

several commenters, issuers with a large 

institutional shareholder base or with 

another routine matter on their proxies, 

such as ratification of independent 

auditors, should not face material 

additional difficulties in achieving a 

quorum.67 The Commission notes that a 

majority of companies other than 

registered investment companies 

include the ratification of independent 

auditors as a matter for shareholders to 

approve, even though such approval is 

not required by law,68 so that these 

companies should not, as a practical 

matter, encounter the quorum issue as 

articulated by the commenters. Quorum 

concerns for other companies, including 

small companies, may be addressed to 

the extent that these companies include 

an item on their ballot that may be 

considered a routine matter. The 

Commission also notes a report showing 

that, if NYSE’s proposal were 

implemented, most companies would 

nevertheless achieve quorum, albeit at a 

date closer to their annual meetings 

than previously.69 More fundamentally, 

however, although issuers may incur 

increased proxy solicitation costs under 

the NYSE’s proposal, the Commission 

agrees with the NYSE and the Proxy 

Working Group that these costs are 

justified by, among other things, 

assuring voting on matters as critical as 

the election of directors can no longer 

be determined by brokers without 

instructions from the beneficial owner, 

thereby enhancing corporate governance 

and accountability.70 Moreover, to the 

extent there are issues regarding 

establishing a quorum, we do not 

believe having uninstructed votes cast 

on the election of a director by brokerdealers who lack the shareholders’ 

economic interests in the corporation is 

the appropriate way to address the 

issue. 

As discussed further below,71 the 

Commission believes that shareholder 

education is important for encouraging 

retail shareholders to vote, and could 

play a key role both in reducing any 

additional proxy solicitation costs 

incurred by companies, as well as 

achieving the policy goal of fostering 

investor participation in corporate 

governance. The Commission notes that 

the Proxy Working Group has 

established an Investor Education SubCommittee. The Commission supports 

the Proxy Working Group’s efforts to 

develop, and encourages the NYSE and 

its member firms to implement, an 

investor education effort to inform 

investors about the amendments to 

NYSE Rule 452, the proxy voting 

process, and the importance of voting. 

B. Disenfranchising Retail Shareholders 

and Growing Influence of Third Parties 

Several commenters stated that the 

proposal could disenfranchise 

individual shareholders,72 because 

eliminating broker discretionary voting 

may be counter to shareholders’ 

assumptions that their brokers would 

vote on their behalf if they did not 

vote.73 Other commenters believed that 

the proposed rule change would shift 

voting power toward small blocks of 

voters 74 and special interest groups 

wishing to use minority stock positions 

to pursue their own special interests,75

and non-investment objectives.76

Moreover, several commenters 


sroberts on DSKD5P82C1PROD with NOTICES
Federal Register / Vol. 74, No. 131 / Friday, July 10, 2009 / Notices 33299 

77See Agilent Letter; Alcoa Letter; Alston Letter; 

Altman Letter; Central Vermont Letter; Chevron 

Letter; Computershare Letter; Connecticut Water 

Letter; Corporate Governance Letter; DTE Letter; Eli 

Lilly Letter; Exxon Mobil Letter; First Financial 

Letter; Furniture Brands Letter; Governance 

Professionals Letter; McKesson Letter; Medco 

Letter; Monster Letter; Nucor Letter; NYSBA Sec. 

Reg. Letter; Provident Letter; Provident Financial 

Letter; Quest Letter; S&C Letter; Synalloy Letter; 

Veeco Letter; and Wachtell Letter. 78See AFSCME Letter; Agilent Letter; Alcoa 

Letter; Alston Letter; Altman Letter; Central 

Vermont Letter; Chevron Letter; CII 4 Letter; 

Colorado PERA Letter; Connecticut Water Letter; 

Corporate Governance Letter; DTE Letter; Exxon 

Mobil Letter; First Financial Letter; Furniture 

Brands Letter; Governance Professionals Letter; 

McKesson Letter; Monster Letter; Nucor Letter; 

NYSBA Sec. Reg. Letter; Provident Letter; Provident 

Financial Letter; Quest Letter; S&C Letter; Synalloy 

Letter; and Wachtell Letter. 79See Agilent Letter; Altman Letter; AmEx Letter; 

BB&T Letter; Central Vermont Letter; Chevron 

Letter; Connecticut Water Letter; Corning Letter; 

DTE Letter; First Financial Letter; Furniture Brands 

Letter; Governance Professionals Letter; Intel Letter; 

Jacksonville Letter; J.P. Morgan Letter; McKesson 

Letter; Medco Letter; Monster Letter; Nucor Letter; 

Provident Letter; Provident Financial Letter; Quest 

Letter; Stanton Letter; Synalloy Letter; Veeco Letter; 

and Wachtell Letter. 80See Alston Letter and NIRI Letter. Another 

commenter opined that the proposal confuses civic 

governance with corporate governance. See Suffolk 

Bank Letter. 81See Aetna Letter; Agilent Letter; Alcoa Letter; 

Altman Letter; Anadarko Letter; ArvinMeritor 

Letter; Avery Letter; Avis Letter; Boeing Letter; 

Business Roundtable Letter; CA Letter; Central 

Vermont Letter; Ceridian Letter; Chamber of 

Commerce 2 Letter; Cigna Letter; Connecticut Water 

Letter; ConocoPhillips Letter; CSX Letter; Cummins 

Letter; DTE Letter; Eaton Letter; Eli Lilly Letter; 

First Financial Letter; FPL Letter; Furniture Brands 

Letter; General Mills Letter; GM Letter; Governance 

Professionals Letter; Harman Letter; Intel Letter; 

International Paper Letter; Jacksonville Letter; 

Johnson Letter; J.P. Morgan Letter; McKesson Letter; 

Medco Letter; Monster Letter; NIRI Letter; NS 

Letter; Nucor Letter; Office Depot Letter; Peabody 

Letter; Pfizer Letter; Praxair Letter; Provident Letter; 

Provident Financial Letter; Quest Letter; Ryder 

Letter; SCC Letter; Synalloy Letter; Textron Letter; 

Veeco Letter; Wachtell Letter; Whirlpool Letter; 

Xcel Letter; Xerox Letter; and YRC Letter. Another 

commenter stated that the proposal might result in 

a conflict of interest for proxy advisory firms. See 

Cardinal Letter. 

82See Cincinnati Financial Letter; Computershare 

Letter; Continental Letter; Corning Letter; Crescent 

Letter; EV Letter; Exxon Mobil Letter; Fidelity 

Letter; First American Letter; Gulf Letter; Helmerich 

Letter; Honeywell Letter; Illinois Stock Letter; 

Manifest Letter; MGE Letter; OTC Letter; Otter Tail 

Letter; Platinum Letter; Routh Letter; Royal Gold 

Letter; S&C Letter; Securities Transfer Letter; 

Standard Letter; StockTrans Letter; Superlattice 

Letter; TI Letter; and Washington Banking Letter. 

Other commenters noted the lack of competition 

in the current proxy distribution process. See SCC 

Letter; and STA Letter. Some commenters suggested 

that the role of proxy service providers be evaluated 

in conjunction with the proposal. See Cincinnati 

Financial Letter; Continental Letter; Crescent Letter; 

EV Letter; Fidelity Letter; First American Letter; 

Gulf Letter, Illinois Stock Letter; MGE Letter; OTC 

Letter; Otter Tail Letter; Platinum Letter; Routh 

Letter; S&C Letter; Securities Transfer Letter; 

Standard Letter; StockTrans letter; and Superlattice 

Letter. The Commission notes that these issues are 

outside the scope of NYSE’s proposal. 

83See Alcoa Letter; Cardinal Letter; Cincinnati 

Financial Letter; Continental Letter; Crescent Letter; 

EV Letter; Fidelity Letter; First American Letter; 

Gulf Letter; Helmerich Letter; Illinois Stock Letter; 

MGE Letter; OTC Letter; Otter Tail Letter; Platinum 

Letter; Routh Letter; Royal Gold Letter; Securities 

Transfer Letter; SCC Letter; STA Letter; Standard 

Letter; StockTrans Letter; Superlattice Letter; 

Unitrin Letter; and Washington Banking Letter. 

84See Cardinal Letter; Cincinnati Financial 

Letter; Continental Letter; Crescent Letter; EV 

Letter; Fidelity Letter; First American Letter; Gulf 

Letter; Helmerich Letter; Illinois Stock Letter; MGE 

Letter; OTC Letter; Otter Tail Letter; Platinum 

Letter; Routh Letter; Royal Gold Letter; Securities 

Transfer Letter; SCC Letter; STA Letter; Standard 

Letter; StockTrans Letter; Superlattice Letter; 

Unitrin Letter; and Washington Banking Letter; 

contra SIFMA Letter. Over-voting occurs when a 

broker-dealer casts more votes on behalf of itself 

and its customers than it is entitled to cast. An 

under-vote occurs when the broker-dealer casts less 

votes on behalf of itself and its customers than it 

is entitled to cast. 

85See Cardinal Letter; Cincinnati Financial 

Letter; Continental Letter; Crescent Letter; EV 

Letter; Fidelity Letter; First American Letter; Gulf 

Letter; Helmerich Letter; Illinois Stock Letter; 

Manifest Letter; OTC Letter; Otter Tail Letter; 

Platinum Letter, Routh Letter; Royal Gold Letter; 

Securities Transfer Letter; STA Letter; Standard 

Letter; StockTrans Letter; Superlattice Letter; 

Unitrin Letter; and Washington Banking Letter. One 

commenter, however, stated that brokers are able to 

accurately calculate the number of equity shares 

eligible for voting, as ‘‘broker-dealers are required 

to have robust and precise accounting systems in 

place to ensure the integrity of their records of share 

ownership.’’ See SIFMA Letter. 

86See AFSCME Letter; CCGG Letter; CCGG 2 

Letter; CII 2 Letter; CII 4 Letter; Colorado PERA 

Letter; FSBA Letter; FSBA 2 Letter; Glass Lewis 

Letter; Hagberg Letter; OPERS Letter; Railpen Letter; 

see also CalPERS Letter (proposal would ‘‘increase 

the credibility and fairness of the election 

process’’); CtW Letter; CtW 2 Letter; and Trillium 

Letter. 

87See CtW Letter; CtW 2 Letter; FSBA Letter; 

FSBA 2 Letter; Glass Lewis Letter; Railpen Letter; 

Relational Investors Letter (also noting that brokers 

do not have direct economic interest); and Trillium 

Letter. 88See CCGG 2 Letter. 89See CII 4 Letter; Colorado PERA Letter; CtW 

Letter; Hermes Equity Letter; Railpen Letter; and 

TIAA–CREF Letter. 90See AFSCME Letter; CalPERS 3 Letter; CtW 

Letter; CtW 2 Letter; FSBA Letter; FSBA 2 Letter; 

and Glass Lewis Letter. 

91See Investor Attitudes Study, attached as 

Exhibit B to the NYSE’s proposal, at page 18 

(‘‘Investor Attitudes Study’’). The Investor Attitudes 

Study showed that while 37 percent of stockholders 

believed that if they did not vote their proxy on 

routine matters their shares may be voted by their 

brokers; 30 percent of stockholders believed that if 

they did not vote their proxy, their shares would 

not be voted. The Investor Attitudes Study showed 

that even those stockholders who understood that 

their broker may vote their shares failed to 

completely understand how those shares could be 

voted. Out of the 37 percent cited to in the Investor 

Attitudes Study, 10 percent of stockholders 

believed that their shares would be voted by their 

brokerage firm based on the firm’s preference; while 

27 percent believed that their brokerage firm would 

vote in accordance with the Board of Director’s or 

the company’s recommendations. See Investor 

Attitudes Study at 18. 

expressed concern that retail 

shareholder participation in company 

elections has decreased in recent 

years,77 especially under e-proxy,78 so 

that the NYSE’s proposal would shift 

disproportionate weight to institutional 

investors,79 and increase power in the 

hands of the few shareholders who 

vote.80

Several commenters also believed that 

eliminating broker discretionary voting 

could increase the influence of proxy 

advisory firms, which provide, among 

other things, voting recommendations to 

their institutional investor clients.81 A 

number of commenters expressed 

concerns about the degree of influence 

that proxy advisory firms have in 

corporate elections.82 Other commenters 

expressed concern that stock lending 

and financial derivatives,83 as well as 

the impact of over-voting and undervoting,84 distort the shareholder voting 

process. Commenters urged the 

Commission to consider these issues in 

conjunction with the proposal.85

However, other commenters believed 

that the proposal would ensure that 

voting results were not distorted by 

broker votes 86 and that the true owners 

of corporations were not 

disenfranchised.87 For example, one 

commenter stated that ‘‘eliminating the 

ability of brokers to vote uninstructed 

client shares for the election of directors 

is an important first step in improving 

shareholder democracy and enhancing 

the integrity of the proxy voting 

system.’’ 88 Several commenters opined 

that continuing to count broker votes 

would diminish the strides being made 

toward more effective corporate 

governance, and stressed the importance 

of shareholder participation as more 

issuers move towards majority voting 

standards for the election of directors.89

Commenters also suggested that the 

broker vote may have impacted the 

result in some recent corporate 

elections.90

The Commission does not believe that 

the proposal would disenfranchise retail 

shareholders, but would instead be 

enfranchising since it helps assure that 

only those with an economic interest in 

a company may vote on matters as 

critical as the election of directors. 

Moreover, the Commission notes that 

research conducted on behalf of the 

Proxy Working Group indicates that the 

NYSE’s proposal may, in fact, be 

consistent with an assumption of many 

shareholders that only they can vote 

their shares.91 As noted above, the 

Commission also encourages the efforts 

of the Proxy Working Group to develop 

an investor education effort to inform 

investors about the amendments to 

NYSE Rule 452, the proxy voting 

process, and the importance of voting. 

As to the concerns that the proposal 

could increase the impact of special 

interest groups holding minority share 


sroberts on DSKD5P82C1PROD with NOTICES
33300 Federal Register / Vol. 74, No. 131 / Friday, July 10, 2009 / Notices 

92See notes supra 81 and 82 and accompanying 

text. 

93 15 U.S.C. 78f(b)(5). 

94See, e.g., 29 U.S.C. 1104 (setting forth the 

fiduciary duties under the Employee Retirement 

Income Security Act). 

95See supra notes 83, 84, 85 and accompanying 

text. 

96See also supra note 42. 

97See Aetna Letter; Alcoa Letter; Anadarko 

Letter; ArvinMeritor Letter; Astoria Financial Letter; 

Avery Letter; Avis Letter; BB&T Letter; BNSF Letter; 

Boeing Letter; Business Roundtable Letter; CA 

Letter; Ceridian Letter; Cigna Letter; ConocoPhillips 

Letter; CSX Letter; Cummins Letter; Eaton Letter; 

Eli Lilly Letter; FedEx Letter; FPL Letter; GE Letter; 

General Mills Letter; GM Letter; Harman Letter; 

Helmerich Letter; International Paper Letter; 

Johnson Letter; J.P. Morgan Letter; Medco Letter; NS 

Letter; Office Depot Letter; Peabody Letter; Pfizer 

Letter; Praxair Letter; Royal Gold Letter; Ryder 

Letter; S&C Letter; Textron Letter; TI Letter; Unitrin 

Letter; Washington Banking Letter; Whirlpool 

Letter; Xcel Letter; Xerox Letter; and YRC Letter. 

98Some companies have also adopted a policy 

that requires a director to resign if not elected by 

a majority of the votes cast, since under the laws 

of certain states, if an incumbent director is not 

elected, he or she continues to serve as a holdover 

director until a successor is duly elected and 

qualified. See generally S&C Letter. See also 

Delaware General Corporation Law Section 141(b) 

(‘‘Each director shall hold office until such 

director’s successor is elected and qualified or until 

such director’s earlier resignation or removal.’’) and 

California Corporation Code Section 301(b) (‘‘Each 

director, including a director elected to fill a 

vacancy, shall hold office until the expiration of the 

term for which elected and until a successor has 

been elected and qualified.’’). 

99See PWG Report, supra note 16, at 12–13. Many 

companies with a majority vote standard for 

election of directors retain a plurality vote standard 

in the event of a contested election of directors. As 

noted by commenters, in recent years, a trend 

toward majority voting has emerged. See text 

accompanying note 89, supra. 

100See FedEx Letter; Helmerich Letter; Royal 

Gold Letter; Unitrin Letter; Wachtell Letter; and 

Washington Banking Letter. 

101See Alcoa Letter and S&C Letter. 

102See BB&T Letter. 

103See NYSBA Sec. Reg. Letter and Wachtell 

Letter. 

104See Broadridge Letter and attached analysis. 

The Corporate Library reports that as of December 

2008, 49.5 percent of companies in the S&P 500 had 

made the switch to majority voting for director 

elections and another 18.4 percent had, while 

retaining a plurality standard, adopted a policy 

requiring that a director who does not receive 

majority support must submit his or her resignation. 

On the other hand, the plurality voting standard is 

still the standard at the majority of smaller 

companies in the Russell 1000 and 3000 indices, 

with 54.5 percent of companies in the Russell 1000 

and 74.9 percent of the companies in the Russell 

3000 still using a straight plurality voting standard. 

See The Corporate Library Analyst Alert, December 

2008. As noted earlier, under a plurality vote 

standard, the person receiving the most votes will 

serve as the director. Thus, companies that elect 

directors under a plurality vote standard would 

have less difficulty in obtaining votes to overcome 

a ‘‘just vote no’’ or ‘‘withhold’’ campaign. 

105Broadridge also found that seven directors out 

of 2,718 directors received greater than or equal to 

50 percent withhold votes based on proportional 

voting. See id. 

positions, the Commission believes that 

it is not a basis for not approving the 

proposed rule change. Even if this is the 

result in some cases, it remains 

consistent with the purposes of the 

proposed rule change, including 

assuring that investors with an 

economic interest in the company vote 

on matters as critical as the election of 

directors, thereby enhancing corporate 

governance and accountability. 

With regard to the concern that proxy 

advisory firm recommendations could 

have increased influence on director 

elections,92 the Commission notes that 

issues relating to the use of proxy 

advisory services by institutions and 

others, and whether that use should be 

further regulated, is a matter that will be 

considered by the Commission as it 

examines broader proxy issues. It is not, 

however, germane to, and does not need 

to be resolved to approve, the NYSE’s 

proposal. While the Commission 

acknowledges the possibility that, with 

the elimination of the broker vote, the 

vote of institutions or others that use 

proxy advisory services may, at least in 

the short term, represent a larger 

percentage of the votes returned in 

director elections, the Commission 

believes the goals of the NYSE’s 

proposal, as described above, are 

consistent with Section 6(b)(5) of the 

Act 93 in that the proposal should 

protect investors and the public interest 

by barring brokers from voting on behalf 

of investors in uncontested elections of 

directors when they have no economic 

interest in the corporation or the 

outcome. The Commission further notes 

that institutional investors, whether 

relying on proxy advisory firms or not, 

must vote the institutions’ own shares 

and, in so doing, must discharge their 

fiduciary duties to act in the best 

interest of their investors and avoid 

conflicts of interest; institutions are not 

relieved of their fiduciary 

responsibilities simply by following the 

recommendations of a proxy advisor.94

The Commission has also considered 

the various other concerns raised by 

commenters about the broader proxy 

process, including the impact of stock 

lending and financial derivatives, and 

over-voting and under-voting issues.95

While the Commission will separately 

address issues such as these as it 

examines proxy and voting matters 

generally, they do not directly implicate 

the NYSE’s proposal. The fact that there 

may be more to be done in these areas 

is not a reason for disapproving the 

NYSE’s proposal if, as the Commission 

believes, the NYSE’s proposed rule 

change is consistent with Section 6(b)(5) 

of the Act.96

C. Impact on Companies With Majority 

Vote Standards for Election of Directors 

Several commenters raised concerns 

about the particular impact the proposal 

could have on companies that have 

adopted a majority vote standard for the 

election of directors.97 Typically, 

companies that have adopted a majority 

vote standard require each director to 

receive a majority of the votes cast in 

order to be elected.98 Historically, most 

public companies elected directors 

under a plurality vote standard, 

meaning that the person(s) receiving the 

most votes would serve as a director 

regardless of whether the shares voted 

for that person constituted a majority of 

the shares cast.99

Several commenters believed that 

companies employing a majority vote 

standard for director elections may have 

particular difficulty in obtaining 

majority support for director nominees 

were NYSE’s proposal to be 

approved.100 Specifically, commenters 

noted that the elimination of broker 

discretionary voting, coupled with 

majority voting, would make it more 

difficult for these companies to obtain 

adequate votes to overcome a ‘‘vote no’’ 

campaign by activist shareholders,101

and thus would disproportionately 

empower minority shareholder 

groups.102 Two commenters suggested 

that the difficulty of obtaining a 

majority vote without broker 

discretionary voting might discourage 

issuers from adopting a majority vote 

standard.103

According to an analysis submitted by 

one commenter, however, in calendar 

year 2007, 373 NYSE-listed companies 

had majority vote standard for the 

election of directors.104 Analyzing the 

elections of those majority vote 

companies, the analysis found that only 

eight out of 2,718 directors received at 

least 50 percent withhold votes based 

on actual votes from returned proxy 

cards by shareholders, while six 

directors received at least 50 percent 

withhold votes using broker voting.105

Thus, according to the commenter, only 

two more directors out of 2,718 failed to 

receive a majority without broker votes. 

While NYSE’s proposal may make it 

somewhat more difficult for a director 

in a majority vote company to survive 

a ‘‘just vote no’’ or similar campaign, the 

Commission continues to believe the 

proposal is consistent with the 

requirements of Section 6(b)(5) of the 

Act, which requires that the rules of an 

exchange be designed to protect 

investors and the public interest, by 

assuring that voting on matters as 

critical as the election of directors can 

no longer be determined by brokers 

without instructions from the beneficial 

owner, thereby enhancing corporate 


sroberts on DSKD5P82C1PROD with NOTICES
Federal Register / Vol. 74, No. 131 / Friday, July 10, 2009 / Notices 33301 

106See Business Roundtable Letter; Chamber of 

Commerce 2 Letter; Crescent Letter; GE Letter; and 

PWG Letter. But see Suburban Letter. 107See Chamber of Commerce 2 Letter; 

Governance Professionals Letter; ICI Letter; and ICI 

2 Letter. 108See NYSBA Sec. Reg. Letter. 109See ICI Letter and ICI 2 Letter. 110See Sod’ali Letter; and Verizon Letter. 111See Corporate Governance Letter (also 

encouraging the Commission to encourage 

institutional investors to announce their proxy 

votes in advance of meetings and facilitating the 

development of systems like the Investor Suffrage 

Movement and ProxyDemocracy) and NIRI Letter. 112See Broadridge Letter. 113See Computershare Letter; Newground Letter; 

and S&C Letter. 

114Proportional voting may be implemented in 

two ways. Each broker would vote based on the 

proportion of the votes cast: (1) Held by such broker 

or (2) held by all brokers. Proportional voting also 

could reflect the entirety of votes cast, not just the 

retail vote. 

115See ABA Fed. Reg. Letter; ABC Letter; ABC 3 

Letter; Agilent Letter; AmEx Letter; Connecticut 

Water Letter; DTE Letter; Exxon Mobil Letter; First 

Financial Letter; Furniture Brands Letter; GE Letter; 

Governance Professionals Letter; Honeywell Letter; 

ICI Letter; ICI 2 Letter; Jacksonville Letter; J.P. 

Morgan Letter; McKesson Letter; Medco Letter; 

Monster Letter; Nucor Letter; NYSBA Sec. Reg. 

Letter; Provident Letter; Provident Financial Letter; 

Quest Letter; S&C Letter; Schwab Letter; SIFMA 

Letter; Synalloy Letter; TI Letter; Veeco Letter; and 

Wachtell Letter; see also PWG Letter (no objection 

to members of SIFMA implementing proportional 

voting). 

116See ABA Sec. Reg. Letter; ABC Letter 

(supporting proportional voting on a broker-bybroker basis); ABC 2 Letter (supporting proportional 

voting on a broker-by-broker basis); ABC 3 Letter; 

Agilent Letter; Alston Letter; BB&T Letter; 

Broadridge Letter; Business Roundtable Letter; 

Connecticut Water Letter; DTE Letter; First 

Financial Letter; Furniture Brands Letter; ICI Letter; 

ICI 2 Letter (recommending proportional voting 

only in instances where a minimum number of 

beneficial owners vote, or alternatively, a minimum 

percentage of shares outstanding are voted); 

Jacksonville Letter; McKesson Letter; Monster 

Letter; Nucor Letter; Provident Letter; Provident 

Financial Letter; Quest Letter; S&C Letter; Schwab 

Letter (proportional voting is a ‘‘better first step’’ 

than eliminating discretionary broker voting); 

Synalloy Letter; TI Letter; Unitrin Letter; and Veeco 

Letter. 

117See AmEx Letter; Chamber of Commerce 2 

Letter; Governance Professionals Letter; and 

Honeywell Letter. Other commenters believed that 

proportional voting and/or client directed voting 

should be considered in conjunction with any 

change to NYSE Rule 452. See Exxon Mobil Letter; 

and J.P. Morgan Letter. 

118See ABA Fed. Reg. Letter; Agilent Letter; 

Business Roundtable Letter; Connecticut Water 

Letter; DTE Letter; First Financial Letter; Furniture 

Brands Letter; GE Letter; Governance Professionals 

Letter; Jacksonville Letter; J.P. Morgan Letter; 

McKesson Letter; Medco Letter; Monster Letter; 

Nucor Letter; Provident Letter; Provident Financial 

Letter; Quest Letter; Synalloy Letter; Veeco Letter; 

and Wachtell Letter; see also Intel Letter. 

119See ABA Fed. Reg. Letter; ABC 3 Letter; 

Chevron Letter; Connecticut Water Letter; First 

Financial Letter; Furniture Brands Letter; GE Letter; 

Jacksonville Letter; J.P. Morgan Letter; McKesson 

Letter; Medco Letter; Monster Letter; Nucor Letter; 

NYSBA Sec. Reg. Letter; Provident Letter; Provident 

Financial Letter; Quest Letter; Synalloy Letter; and 

Veeco Letter. 

120See ABA Fed. Reg. Letter; ABC 2 Letter; ABC 

3 Letter; Agilent Letter; Business Roundtable Letter; 

Chamber of Commerce 2 Letter; Connecticut Water 

Letter; DTE Letter; First Financial Letter; Furniture 

Brands Letter; GE Letter; Intel Letter; Jacksonville 

Letter; McKesson Letter; Monster Letter; Nucor 

Letter; Provident Letter; Provident Financial Letter; 

Quest Letter; Synalloy Letter; and Veeco Letter. 

121See AmEx Letter; Governance Professionals 

Letter; Honeywell Letter; and J.P. Morgan Letter; 

and SCC Letter. 

122See ABC 2 Letter; ABC 3 Letter; GE Letter; and 

Jacksonville Letter. 

123See CalSTRS Letter, CCGG 2 Letter; CII Letter; 

CII 2 Letter; CII 4 Letter; Colorado PERA Letter; 

Continued 

governance and accountability. In 

making this determination, the 

Commission recognizes that the 

increasing percentage of shares held in 

street name, in conjunction with the 

greater use of just vote no or withhold 

vote campaigns may have resulted in 

broker voting under Rule 452 affecting 

voting on certain non-contested director 

elections in ways not contemplated in 

1937. Accordingly, in light of these 

developments and concerns, we believe 

it is consistent with Section 6(b)(5) of 

the Act for the NYSE to determine that 

their member brokers should no longer 

be voting without instructions on behalf 

of their customers in director elections. 

D. Shareholder Education 

Several commenters believed that 

shareholder education was a critical 

component to making NYSE’s proposal 

workable,106 and shareholders would 

need to be educated about the proxy 

process and the importance of voting 

before the proposal could be 

implemented.107 One commenter stated 

that the ‘‘potential adverse effects’’ of 

the proposal were increased if the 

proposal were adopted without 

shareholder education.108 Another 

commenter believed that director 

elections should only become ineligible 

for broker voting when the NYSE and 

other constituents were satisfied that 

shareholders would exercise their 

voting rights.109 Commenters 

emphasized the importance of 

shareholder education with respect to 

voting rights and director elections,110

and some commenters urged the 

Commission (either alone or in 

conjunction with others) to undertake 

educational efforts designed to increase 

voting participation by retail 

shareholders.111 One commenter stated 

that shareholders would generally 

benefit from shareholder education 

about broker discretionary voting,112

while other commenters indicated that 

approval of the proposal should be in 

conjunction with a shareholder 

education initiative.113

As noted above, the Commission 

supports the Proxy Working Group’s 

efforts to develop, and encourages NYSE 

and its member firms to implement, an 

investor education effort to inform 

investors about the amendments to 

NYSE Rule 452, the proxy voting 

process, and the importance of voting. 

The Commission believes the proposal 

offers substantial investor benefits, as 

noted above, so that its implementation 

should not be delayed. In addition, 

because implementation of the proposal 

will not occur until January 2010, there 

should be sufficient time for NYSE to 

inform market participants of the 

changes to its rules on broker 

discretionary voting. 

E. Alternatives of Proportional Voting 

and Client Directed Voting 

While not part of the NYSE’s 

proposal, several commenters discussed 

proportional voting in their letters. In 

general, under proportional voting, a 

broker would vote shares held by it in 

street name, for which voting 

instructions for directors have not been 

received, in proportion to the votes cast 

by other retail clients of that broker.114

Some commenters endorsed the concept 

of proportional voting in general,115 and 

several supported proportional voting as 

an alternative to the NYSE’s 

proposal.116 Other commenters stated 

that proportional voting should be 

considered as part of a comprehensive 

review of the proxy voting system.117

Several commenters were concerned 

that proportional voting, although 

potentially effective, would be 

eliminated under the proposal.118

Commenters stated that proportional 

voting could provide an even more 

accurate reflection of the sentiment of 

retail shareholders than eliminating 

broker discretionary voting.119

Several commenters also discussed 

client directed voting as an alternative 

to the proposal,120 or believed that 

client directed voting should be 

considered in conjunction with the 

proposal.121 Under client directed 

voting, for those elections where the 

beneficial owners fail to return specific 

voting instructions, brokers would vote 

the shares according to the beneficial 

owners’ standing directions. These 

standing directions could be given by 

beneficial owners at the time they sign 

their brokerage agreements, or 

periodically thereafter. Some 

commenters believed that client 

directed voting had merit, either to 

complement the NYSE’s proposal or as 

an alternative.122

On the other hand, several 

commenters stated that eliminating 

broker discretionary voting is preferable 

to these alternative approaches, 

including proportional voting.123 Some 


sroberts on DSKD5P82C1PROD with NOTICES
33302 Federal Register / Vol. 74, No. 131 / Friday, July 10, 2009 / Notices 

FSBA 2 Letter; Hagberg Letter; Sod’ali Letter; and 

TIAA–CREF Letter. 

124See CII Letter; CII 2 Letter; CII 4 Letter; 

Colorado PERA Letter; and TIAA–CREF Letter. 

125See CCGG 2 Letter. 

126See Hagberg Letter. 

127See CalSTRS Letter; CII 4 Letter; Colorado 

PERA Letter; Sod’ali Letter; and TIAA–CREF Letter. 

128See ABA Fed. Reg. Letter; Alston Letter; 

CalPERS Letter (recommending proportional voting 

for those matters requiring a majority or more to 

pass); Suburban Letter. 

129For example, of the 11 largest brokerage firms 

using proportional voting, only five of these firms 

used only the votes of retail account holders when 

‘‘mirroring’’ votes for uninstructed retail shares. See 

Broadridge Letter. According to Broadridge, for 

purposes of its analysis, all uninstructed brokerage 

shares were voted on the basis of the instructions 

received from all brokerage account holders, 

including those of ‘‘professional’’ investors. Id. 

130See PWG Report, supra note 16, at 17–18. 

131 15 U.S.C. 78(f)(b)(5). The Commission notes 

that, in this regard, Section 19(b) of the Act 

requires, among other things, that ‘‘[t]he 

Commission shall approve a proposed rule change 

of a self-regulatory organization if it finds that such 

proposed rule change is consistent with the 

requirements of this title and the rules and 

regulations thereunder applicable to such 

organizations.’’ 15 U.S.C. 78s(b)(2). 

132See Alcoa Letter; Alston Letter; Anadarko 

Letter; Arvin Letter; Avery Letter; BNSF Letter; 

Boeing Letter; Business Roundtable Letter; CA 

Letter; Cardinal Letter; Ceridian Letter; Cigna Letter; 

Cincinnati Financial Letter; Computershare Letter; 

Continental Letter; Corning Letter; Crescent Letter; 

CSX Letter; Cummins Letter; DTE Letter; Eaton 

Letter; Eli Lilly Letter; EV Letter; Exxon Mobil 

Letter; Fidelity Letter; First American Letter; First 

Financial Letter; Furniture Brands Letter; GE Letter; 

General Mills Letter; GM Letter; Gulf Letter; 

Harman Letter; Helmerich Letter; Honeywell Letter; 

Illinois Stock Letter; Intel Letter; International 

Paper Letter; Jacksonville Letter; Johnson Letter; J.P. 

Morgan Letter; Manifest Letter; Medco Letter; MGE 

Letter; Monster Letter; NS Letter; Nucor Letter; 

Office Depot Letter; OTC Letter; Otter Tail Letter; 

P&G Letter; Peabody Letter; Pfizer Letter; Platinum 

Letter; Praxair Letter; Provident Letter; Provident 

Financial Letter; Quest Letter; Realogy Letter; Routh 

Letter; Ryder Letter; S&C Letter; SCC Letter; 

Securities Transfer Letter; STA Letter; Standard 

Letter; StockTrans Letter; Superlattice Letter; 

Synalloy Letter; Textron Letter; TI Letter; Unitrin 

Letter; Veeco Letter; Verizon Letter; Washington 

Banking Letter; Whirlpool Letter; Xcel Letter; Xerox 

Letter; and YRC Letter. 

133See e.g., Aetna Letter; Agilent Letter; GE 

Letter; and McKesson Letter. 

134See NYSBA Sec. Reg. Letter and Wachtell 

Letter. 

135See Wachtell Letter. 

136See Central Vermont Letter; and Chevron 

Letter. 

137See Aetna Letter; Agilent Letter; Anadarko 

Letter; ArvinMeritor Letter; Avery Letter; Avis 

Letter; BNSF Letter; Boeing Letter; Business 

Roundtable Letter; CA Letter; Ceridian Letter; 

Chamber of Commerce 2 Letter; Cigna Letter; 

Cincinnati Financial Letter; Connecticut Water 

Letter; Conoco Phillips Letter; Continental Letter; 

Crescent Letter; CSX Letter; Cummins Letter; DTE 

Letter; Eaton Letter; Eli Lilly Letter; EV Letter; 

Exxon Mobil Letter; Fidelity Letter; First American 

Letter; First Financial Letter; Furniture Brands 

Letter; GE Letter; General Mills Letter; GM Letter; 

Gulf Letter; Harman Letter; Helmerich Letter; 

Honeywell Letter; Illinois Stock Letter; Intel Letter; 

International Paper Letter; Jacksonville Letter; 

Johnson Letter; J.P. Morgan Letter; Manifest Letter; 

Medco Letter; MGE Letter; Monster Letter; NS 

Letter; Nucor Letter; Office Depot Letter; OTC 

Letter; Otter Tail Letter; P&G Letter; Peabody Letter; 

Pfizer Letter; Platinum Letter; Praxair Letter; 

Provident Letter; Provident Financial Letter; Quest 

Letter; Realogy Letter; Routh Letter; Ryder Letter; 

S&C Letter; SCC Letter; Securities Transfer Letter; 

STA Letter; Standard Letter; StockTrans Letter; 

Superlattice Letter; Synalloy Letter; Textron Letter; 

TI Letter; Unitrin Letter; Veeco Letter; Verizon 

Letter; Washington Banking Letter; Whirlpool 

Letter; Xcel Letter; Xerox Letter; and YRC Letter. 

138See NIRI Letter (‘‘Some of these consequences 

include the potential for increased costs to public 

companies to ensure a quorum is achieved, an 

increased influence of proxy advisory firms through 

their voting recommendations, additional power in 

the hands of the few shareholders who vote, and a 

magnification of the shareholder communications 

limitations associated with objecting beneficial 

owners (OBO) who may be unsure of the meaning 

of this status and are unable to receive direct 

corporate communications.’’). 

139See Computershare Letter. 

140 Id. 

141See Dobkin Letter and Hagberg Letter. 

commenters believed that proportional 

voting could complicate the proxy 

voting process and result in abuses,124

continue to compromise the integrity of 

proxy voting,125 or provide ‘‘a 

disproportionate weight to the votes of 

disaffected shareholders.’’ 126 Other 

commenters stated that proportional 

voting violates the ‘‘one share, one vote’’ 

principle.127 Still other commenters 

recommended further research and 

consideration on this alternative.128

For the reasons discussed above, the 

Commission continues to believe that it 

is consistent with the requirements of 

Section 6(b)(5) of the Act to protect 

investors and the public interest for 

NYSE to eliminate broker discretionary 

voting in director elections. While 

several commenters believed that 

proportional voting would most 

accurately represent the retail vote, the 

Commission notes that proportional 

voting could have a distortive impact, 

depending on how it is implemented.129

In addition, proportional voting would 

allow votes to be cast by someone other 

than the person with an economic 

interest in the security.130 With respect 

to client directed voting, the 

Commission notes that it raises a variety 

of questions and concerns, such as 

requiring shareholders to make a voting 

determination in advance of receiving a 

proxy statement with the disclosures 

mandated under the federal securities 

laws and without consideration of the 

issues to be voted upon. Finally, the 

Commission notes that the fact that 

there may be other reasonable 

alternatives does not mean that the rule 

change proposed by the NYSE is 

inconsistent with Section 6(b)(5) of the 

Act.131 For the reasons discussed above, 

the Commission finds the proposed rule 

change consistent with the requirements 

of the Act. 

F. Commission Consideration of the 

Entire Proxy Process 

Many commenters believed that 

NYSE’s proposal to amend NYSE Rule 

452 should not be viewed in isolation, 

but should be considered by the 

Commission as part of a comprehensive 

review of the proxy voting and 

shareholder communication system.132

Certain commenters also raised 

concerns regarding the efficiency of 

shareholder communications and the 

proxy voting process as a whole, as well 

as the merits of other possible 

alternatives.133 Commenters stated that 

the proposal should be examined in 

light of current circumstances,134 such 

as the rapidly shifting corporate 

governance environment,135 and in 

conjunction with alternatives.136

Commenters urged the Commission not 

to take action on the proposal until the 

Commission completed its 

comprehensive review.137 For example, 

one commenter believed that the 

implementation of the NYSE’s proposal 

without other changes to the proxy 

system could have ‘‘unintended and 

devastating consequences’’ in the form 

of increased costs to public companies 

to ensure quorum, undue influence of 

minority shareholders, and the like.138

Moreover, another commenter noted 

that the Commission may be 

considering two proposals that relate to 

the proxy system: requiring companies 

to include shareholder-selected 

nominees in the company’s proxy 

materials and allowing shareholders to 

vote on executive compensation (‘‘sayon-pay’’).139 This commenter believed 

that the Commission should consider 

NYSE’s proposal at the same time as 

these two proposals, because the issues 

they raise are intertwined.140

In contrast, other commenters saw no 

reason to delay NYSE’s proposal until 

other issues relating to the proxy voting 

system had been considered, as 

sufficient time and resources have been 

spent on the proposal’s development, 

and it is justifiable as a stand-alone 

initiative.141

The Commission has analyzed and 

reviewed NYSE’s proposal in light of 

the current proxy process, and with full 

knowledge that a variety of proxy and 

shareholder communication issues are 

under review. Given the benefits to 

investors of the proposal as discussed 

above, including assuring that voting on 

matters as critical as the election of 

directors can no longer be determined 

by brokers without instructions from the 

beneficial owner, thereby enhancing 

corporate governance and 

accountability, the Commission does 


sroberts on DSKD5P82C1PROD with NOTICES
Federal Register / Vol. 74, No. 131 / Friday, July 10, 2009 / Notices 33303 

142See Securities Act Release No. 9046 (June 10, 

2009) (File No. S7–10–09). 

143 15 U.S.C. 78s(b). See also supra note 131. 

144See 15 U.S.C. 78s(b)(2); see also supra note 

131. 

145See Altman Letter; CalPERS Letter; CFA 2 

Letter; CII Letter; FSBA Letter; FSBA 2 Letter; ICI 

4 Letter (supporting amended proposal); and 

Sutherland Letter. 

146See CalPERS Letter (‘‘CalPERS is not opposed 

to exempting investment companies from this 

proposed rule change in the short term’’); CII Letter 

(‘‘Given the corporate governance concerns 

surrounding mutual funds, we believe the proposed 

change should also apply to investment companies 

at some point in the not-too-distant future.’’); FSBA 

Letter (proposed exemption for investment 

companies ‘‘poses no problem, but this should be 

re-evaluated at some point’’); and FSBA 2 Letter 

(proposed exemption ‘‘is currently warranted, but 

this should be re-evaluated in the future’’). 

147See ICI 4 Letter and Sutherland Letter. 

148See Altman Letter (requesting an exemption 

for issuers with similar circumstances to those of 

investment companies, such as those ‘‘with a high 

percentage of retail ownership and burdensome cost 

concerns’’); see also Suburban Letter (requesting an 

exemption for Master Limited Partnerships because 

of the ‘‘disparate impact that such amendment 

would have on MLPs’’). 

However, one commenter did not support 

approval of NYSE’s proposal under any 

circumstances and questioned NYSE’s rationale for 

letting ‘‘investment companies off the hook.’’ See 

ABC 2 Letter (stating that it ‘‘does not support an 

expansion of the ‘carve out’ to include smaller 

public companies. By and large, we believe that 

‘carve outs’ are bad public policy.’’); see also ABC 

3 Letter (stating opposition to NYSE’s proposal). 

This commenter noted that ‘‘the predicament of 

small and midsize public companies is identical to 

that of small and midsize investment companies 

* * * . It is hard to see, on the merits, why the 

NYSE provides relief to one group and not to the 

other.’’ See ABC 2 Letter. 

149See Alcoa Letter. 

150See City of London Letter. The commenter 

noted that closed-end funds typically trade at a 

discount to net asset value, and suggested that 

investors in closed-end funds do not view 

themselves as having the option of ‘‘voting with 

[their] feet.’’ Id. 

151 Id. But see ICI 2 Letter, which states that retail 

investors own ninety-eight percent of the value of 

closed-end funds. See also further discussion below 

on the basis for exempting registered investment 

companies under the 1940 Act from the NYSE’s 

proposal. 

152See Rule 32a–4 under the 1940 Act, 17 CFR 

270.32a–4, and infra note 156 and accompanying 

text. 

153 15 U.S.C. 78f(b)(5). 154See Altman Group Letter; ICI 4 Letter; and 

Sutherland Letter. 155See 15 U.S.C. 80a–31(a) and 15 U.S.C. 80a–59. 

See 17 CFR 270.32a–4. 

156Rule 32a–4 under the 1940 Act. See 17 CFR 

270.32a–4. 

not believe it is appropriate to delay 

action on the NYSE’s proposal pending 

consideration of the myriad important 

and difficult issues relating to 

shareholder director nominations, proxy 

voting, and shareholder communication, 

which are outside the scope of NYSE’s 

proposed rule change.142 The 

Commission believes that approval of 

the proposal is warranted pursuant to 

Section 19(b) of the Act 143 even as it 

considers broader proxy issues in the 

near future. We do not believe that 

action on those issues will undermine 

the fundamental concept that decisions 

as significant as the election of the 

board of directors should be made by 

those with an economic interest in the 

company, rather than the brokers who 

have no such economic interest. 

Further, as noted earlier, under Section 

19(b)(2) of the Act, the Commission 

must approve the proposal presented by 

NYSE if it finds the proposed rule 

change consistent with the Act and 

applicable rules and regulations 

thereunder.144

G. Exemptions for Registered Investment 

Companies Under the Investment 

Company Act of 1940 and Requests for 

Additional Exemptions 

Seven commenters either supported 

or did not oppose the exemption for 

registered investment companies.145

However, some of these commenters, 

who support the exemption, 

recommended that it be reconsidered at 

a later date.146

In addition, three commenters 

requested the exemption also include 

business development companies 

(‘‘BDCs’’) 147 or smaller issuers, which 

tend to have a high percentage of retail 

ownership.148 Another commenter 

believed the exemption favored 

registered investment companies over 

other issuers that face similar increased 

proxy solicitation costs and an 

increased risk of failed elections.149 Yet 

another commenter stated that the 

proposed exemption was over-broad, as 

it included closed-end funds.150 That 

commenter argued that unlike open-end 

funds, closed-end funds typically have 

institutional bases, and do not have the 

same issues establishing quorum at 

shareholder meetings.151

The Commission believes that it is 

reasonable and consistent with the Act 

for the Exchange to exempt registered 

investment companies from the 

prohibition in NYSE Rule 452 on broker 

discretionary voting in director 

elections. NYSE relied on the Proxy 

Working Group’s conclusion that the 

unique regulatory regime governing 

registered investment companies 

differentiated them from operating 

companies. In recommending the 

exemption for registered investment 

companies, the Proxy Working Group 

considered the heightened problems 

that registered investment companies 

face because of their disproportionately 

large retail shareholder base, that they 

often do not include other routine 

matters on the ballot,152 which would 

allow a broker vote to count for quorum 

purposes, and that they are subject to 

the 1940 Act, which, among other 

things, also regulates shareholder 

participation in key decisions. The 1940 

Act, for example, requires that a 

registered investment company obtain 

the approval of a majority of its voting 

securities before changing the nature of 

its business so as to cease to be an 

investment company, deviating from its 

concentration policy with respect to 

investments in any particular industry 

or group of industries, or changing its 

subclassification as an open-end 

company or closed-end company. The 

Commission believes that the different 

regulatory regime for registered 

investment companies supports the 

exemption, and finds the exemption 

should, among other things, further the 

public interest and the protection of 

investors, consistent with Section 

6(b)(5) of the Act.153

While the Commission understands 

the concerns raised by commenters 

urging NYSE to broaden the exemption, 

the Commission believes that there are 

sufficient differences between registered 

investment companies and other entities 

to conclude that NYSE’s proposal is 

consistent with the Act.154 For example, 

the regulation of BDCs and registered 

investment companies under the 1940 

Act differs significantly. Particularly 

relevant here, the 1940 Act requires a 

BDC to seek ratification of the 

independent auditor, which is a routine 

item under NYSE Rule 452, at each 

annual meeting.155 Adoption of the 

amendment will therefore have no effect 

on a BDC’s ability to obtain a quorum, 

and expansion of the exemption for 

registered investment companies to 

include BDCs is unnecessary. A 

registered investment company, 

however, is exempt from the 1940 Act’s 

auditor ratification requirement if it 

relies on a conditional exemptive rule 

under the 1940 Act.156 That exemptive 

rule is not available to BDCs. 

The Commission finds it reasonable 

for the NYSE to distinguish between 

registered investment companies and 

smaller issuers that may have a large 

retail shareholder base for purposes of 

allowing broker discretionary voting on 

director elections. While the 

Commission recognizes that small 

issuers could face similar concerns as 

registered investment companies as a 

result of the proposed changes to Rule 

452, there are significant differences 

between small issuers and registered 

investment companies. For example, as 

noted by the Proxy Working Group, ‘‘the 

unique regulatory regime governing 

investment companies made such 

companies sufficiently different from 


sroberts on DSKD5P82C1PROD with NOTICES
33304 Federal Register / Vol. 74, No. 131 / Friday, July 10, 2009 / Notices 

157See Addendum, supra note 21, at 3. 

158See supra Section IV.A, Increased Costs for 

Companies to Achieve Quorum. 

159NYSE also stated that in the event the 

proposal is not approved by the Commission on or 

before August 31, 2009, NYSE would delay the 

effective date to a date which is at least four months 

after the approval date, and which does not fall 

within the first six months of the calendar year. See 

Notice, supra note 4. 

160See ABA Fed. Reg. Letter. 

161See AFSCME Letter (recommending 

immediate implementation); CII 4 Letter 

(recommending immediate implementation); 

Colorado PERA Letter (requesting that the proposal 

become effective upon final approval); FSBA 2 

Letter (recommending that the proposal be 

implemented earlier than 2010); Hermes Equity 

Letter (requesting that the Commission ‘‘allow the 

amendment to take effect as soon as possible’’); 

OPERS Letter (recommending that the proposal be 

implemented earlier than 2010); and Sod’ali Letter 

(recommending that the proposal be immediately 

effective). 

162See Securities Exchange Act Release Nos. 

30697, supra note 3 (interpreting Rule 452 to allow 

members organizations to give a proxy on the initial 

approval of an investment advisory contract if the 

beneficial holder does not exercise his right to vote, 

but precluding members organizations from giving 

proxies on material amendments to the investment 

advisory contracts without specific client 

instructions) and 52569, supra note 3 (interpreting 

Rule 452 to preclude member organizations from 

giving proxies on any proposal to obtain 

shareholder approval of an investment company’s 

investment advisory contract with a new 

investment adviser, which approval is required by 

the 1940 Act, without specific beneficial owners’ 

voting instructions). 

163See CFA 2 Letter and ICI 4 Letter. 

164 Id. 

165See ICI 4 Letter. 

166See Release No. 30697, supra note 3. 

167See supra note 3. 

168 15 U.S.C. 78f(b)(5). 

operating companies (regardless of size) 

that it was appropriate to treat such 

companies differently.’’ 157 Further, 

operating companies frequently place an 

item that permits broker discretionary 

voting, such as the ratification of 

independent auditors, on the ballot, 

which will help them obtain quorum.158

In contrast, pursuant to NYSE Rule 452, 

for registered investment companies, 

only the election of directors would 

qualify as a routine matter on their 

ballot for purposes of establishing 

quorum. 

Because of these differences, the 

Commission believes that it is 

reasonable for the NYSE to distinguish 

between registered investment 

companies and other entities in defining 

the scope of the exemption, and 

therefore, believes the proposal is 

consistent with the requirements of 

Section 6(b)(5) of the Act, which, among 

other things, requires that the rules of an 

exchange be designed to protect 

investors and the public interest and are 

not designed to permit unfair 

discrimination between customers, 

issuers, brokers, or dealers. 

H. Implementation Date 

The NYSE’s proposal to eliminate 

broker discretionary voting for the 

election of directors would apply to 

shareholder meetings held on or after 

January 1, 2010, except to the extent 

that a meeting was originally scheduled 

to be held prior to that date but was 

properly adjourned to a date on or after 

it.159 The Commission received several 

comments relating to the NYSE’s 

proposed implementation date. One 

commenter recommended that, if the 

Commission approved the proposal, it 

should initially make the proposal 

applicable only to large accelerated 

filers, so as to not ‘‘unfairly burden 

smaller public companies and to 

provide time to observe the effect of the 

proposed amendments in operation.’’ 160

However, other commenters 

recommended that the proposed rule 

change be implemented earlier.161

The Commission believes that the 

NYSE’s proposed implementation date 

is reasonable and consistent with the 

Act. The Commission believes that it is 

reasonable for the NYSE to implement 

the proposed rule to apply to all affected 

issuers at the same time because the 

NYSE appears to have provided 

sufficient time for these issuers to adjust 

to the proposed rule change. The 

Commission also believes that it is 

reasonable for the NYSE to delay the 

effective date of the proposed rule to 

shareholder meetings held on or after 

January 1, 2010. The Commission 

recognizes that, given the significance of 

the NYSE’s proposed rule change, 

issuers may need additional time to 

prepare their proxy materials and 

inform investors of the changes 

resulting from the NYSE’s proposal. 

Accordingly, the Commission believes 

that the NYSE’s proposal to apply the 

proposed rule change to shareholder 

meetings held on or after January 1, 

2010 is consistent with the Act. 

I. Prior Interpretations to Rule 452 

The Exchange proposes amending 

NYSE Rule 452 to codify two previously 

published interpretations, which were 

filed with the Commission pursuant to 

Section 19(b)(2) of the Act.162 First, the 

NYSE proposes codifying that NYSE 

Rule 452 would preclude broker 

discretionary voting on a matter that 

materially amends an investment 

advisory contract with an investment 

company. Second, the NYSE proposes 

codifying that a material amendment to 

an investment advisory contract would 

include any proposal to obtain 

shareholder approval of an investment 

company’s investment advisory contract 

with a new investment adviser, which 

approval is required by the 1940 Act 

and the rules thereunder. 

The Commission received two 

comment letters on NYSE’s codification 

of its prior interpretations.163 Both 

commenters supported this proposal.164

For example, ICI stated that ‘‘[w]e agree 

that these matters are the types of nonroutine matters on which investment 

company shareholders should be 

required to vote * * *. When investors 

become shareholders of an investment 

company, they already have chosen the 

adviser in the context of the disclosures 

in the investment company’s prospectus 

and other documents * * *. Given the 

importance of the identity of the adviser 

and the services it provides to 

investment company shareholders, we 

believe the benefits of shareholders’ 

voting on material amendment to an 

advisory contract or an advisory 

contract with a new investment adviser 

outweigh the costs associated with such 

a requirement.’’ 165

The Commission believes that the 

NYSE’s codification of previously 

published interpretations is consistent 

with the Act and the rules and 

regulations thereunder. As the 

Commission has previously stated, 

‘‘[f]ull and effective voting rights of 

investment company shareholders are 

an important aspect of the investment 

company structure.’’ 166 The 

Commission believes that the NYSE, by 

codifying its prior interpretations to 

Rule 452, is providing greater 

transparency and ensuring the 

consistent application of its 

interpretations. Further, the proposed 

amendments codify existing NYSE 

interpretations, which were the subject 

of two prior rule filings.167 Accordingly, 

these changes raise no new regulatory 

issues, and are consistent with the Act. 

J. Conclusion 

The Commission finds, for the reasons 

set forth above, that the Exchange’s 

proposal, as modified by Amendment 

No. 4, is consistent with the 

requirements of the Act. In particular, 

the Commission finds that the proposed 

rule change is consistent with the 

requirements of Section 6(b)(5) of the 

Act,168 which provides that the rules of 

the exchange must be designed to 

protect investors and the public interest, 

and are not designed to permit unfair 

discrimination between customers, 

issuers, brokers, or dealers. 

The Commission believes that it is 

reasonable and consistent with the Act 

for the NYSE to determine that the 

election of directors should no longer be 


sroberts on DSKD5P82C1PROD with NOTICES
Federal Register / Vol. 74, No. 131 / Friday, July 10, 2009 / Notices 33305 

169As discussed above, NYSE does not propose 

to eliminate broker discretionary voting for 

registered investment companies under the 1940 

Act. 

170 15 U.S.C. 78s(b)(2). 

an item eligible for broker discretionary 

voting. As noted above, the most 

fundamental way for shareholders to 

hold directors accountable for their 

performance of critical corporate duties 

is through the director election process. 

Given the large proportion of shares that 

today are held in street name, the 

importance of corporate governance 

matters, and the concern that the broker 

vote can distort election results, the 

Commission believes it is appropriate 

for the NYSE to eliminate broker 

discretionary voting in director 

elections.169 In making this 

determination, the Commission believes 

that the NYSE’s proposal, among other 

things, furthers the protection of 

investors and the public interest by 

assuring that voting on matters as 

critical as the election of directors can 

no longer be determined by brokers 

without instructions from the beneficial 

owner, and thus should enhance 

corporate governance and accountability 

to shareholders. 

The Commission also believes that the 

NYSE’s proposed change codifying prior 

NYSE interpretations of NYSE Rule 452 

is consistent with the requirements of 

the Act. These proposed amendments 

help to ensure the full and effective 

voting rights of investment company 

shareholders on material matters, and 

further, codify existing NYSE 

interpretations. 

V. Conclusion 

It is therefore ordered, that pursuant 

to Section 19(b)(2) of the Act,170 the 

proposed rule change, as modified by 

Amendment No. 4, is hereby approved. 

By the Commission. 

Elizabeth M. Murphy, 

Secretary. 

Appendix A 

List of comment letters received: 

Letter from Keith F. Higgins, Chair, 

Committee on Federal Regulation of 

Securities, American Bar Association, dated 

April 3, 2009 (‘‘ABA Fed. Reg. Letter’’); John 

Endean, President, American Business 

Conference, dated January 16, 2007 (‘‘ABC 

Letter’’); John Endean, President, American 

Business Conference, dated June 25, 2007 

(‘‘ABC 2 Letter’’); John Endean, President, 

American Business Conference, dated March 

31, 2009 (‘‘ABC 3 Letter’’); Judith H. Jones, 

Vice President and Corporate Secretary, 

Aetna Inc., dated March 26, 2009 (‘‘Aetna 

Letter’’); Charles Jurgonis, Plan Secretary, 

American Federation of State, County and 

Municipal Employees, AFL–CIO, dated 

March 26, 2009 (‘‘AFSCME Letter’’); D. Craig 

Nordlund, Senior Vice President, General 

Counsel and Secretary, Agilent Technologies, 

Inc., dated March 24, 2009 (‘‘Agilent Letter’’); 

Donna Dabney, Vice-President, Secretary, 

and Corporate Governance Counsel, Alcoa, 

Inc., dated March 24, 2009 (‘‘Alcoa Letter’’); 

David E. Brown, Mark F. McElreath, Justin R. 

Howard, and William S. Ortwein, Alston & 

Bird LLP, dated April 1, 2009 (‘‘Alston 

Letter’’); Kenneth L. Altman, President, The 

Altman Group, Inc., dated March 27, 2009 

(‘‘Altman Letter’’); Stephen P. Norman, 

Secretary, American Express Company, dated 

March 27, 2009 (‘‘AmEx Letter’’); David L. 

Siddall, Vice President, Deputy General 

Counsel and Corporate Secretary, Anadarko 

Petroleum Corporation, dated March 25, 2009 

(‘‘Anadarko Letter’’); Charles G. McClure, 

Chairman, Chief Executive Officer and 

President, ArvinMeritor, Inc., dated March 

17, 2009 (‘‘ArvinMeritor Letter’’); Peter M. 

Finn, First Vice President, Regulatory Affairs, 

Astoria Financial Corporation, dated March 

25, 2009 (‘‘Astoria Financial Letter’’); Dean 

A. Scarborough, President and Chief 

Executive Officer, Avery Dennison, dated 

March 16, 2009 (‘‘Avery Letter’’); Ronald L. 

Nelson, Chairman and Chief Executive 

Officer, Avis Budget Group, Inc., dated 

March 23, 2009 (‘‘Avis Letter’’); Frances B. 

Jones, Executive Vice President, Secretary, 

General Counsel and Chief Corporate 

Governance Officer, BB&T Corporation, dated 

March 26, 2009 (‘‘BB&T Letter’’); Doug 

Pearce, Chief Executive Officer and Chief 

Investment Officer, British Columbia 

Investment Management Corporation, dated 

March 31, 2009 (‘‘BCIMC Letter’’); Matthew 

K. Rose, Chairman, President and Chief 

Executive Officer, Burlington Northern Santa 

Fe Corporation, dated March 27, 2009 

(‘‘BNSF Letter’’); Robert Schifellite, 

President, Investor Communication 

Solutions, Broadridge Financial Solutions, 

Inc., dated March 27, 2009 (‘‘Broadridge 

Letter’’); W. James McNerney, Jr., Chairman 

of the Board, President and Chief Executive 

Officer, The Boeing Company, dated March 

26, 2009 (‘‘Boeing Letter’’); Anne M. 

Mulcahy, Chair, Corporate Leadership 

Initiative, Business Roundtable, dated March 

25, 2009 (Business Roundtable Letter’’); 

Clifford DuPree, Vice President, Corporate 

Governance and Corporate Secretary, CA, 

Inc., dated March 27, 2009 (‘‘CA Letter’’); 

Peter H. Mixon, General Counsel, CalPERS, 

dated June 25, 2007 (‘‘CalPERS Letter’’); Peter 

H. Mixon, General Counsel, CalPERS, dated 

October 26, 2007 (‘‘CalPERS 2 Letter’’); 

Dennis A. Johnson, Senior Portfolio Manager, 

CalPERS Corporate Governance, dated April 

29, 2008 (‘‘CalPERS 3 Letter’’); Anne 

Sheehan, Director, Corporate Governance, 

California State Teacher’s Retirement System, 

dated March 27, 2009 (‘‘CalSTRS Letter’’); 

Sally J. Curley, Senior Vice President, 

Cardinal Health, Inc., dated March 30, 2009 

(‘‘Cardinal Letter’’); Doug Pearce, Chairman, 

Canadian Coalition for Good Governance, 

dated January 19, 2009 (‘‘CCGG Letter’’); 

Stephen Griggs, Executive Director, Canadian 

Coalition for Good Governance, dated March 

27, 2009 (‘‘CCGG 2 Letter’’); Dale A. 

Rocheleau, Senior Vice President, General 

Counsel and Corporate Secretary, Central 

Vermont Public Service Corporation, dated 

March 27, 2009 (‘‘Central Vermont Letter’’); 

Kathryn V. Marinello, Chairman and Chief 

Executive Officer; Ceridian Corporation, 

dated March 25, 2009 (‘‘Ceridian Letter’’); 

Kurt N. Schacht, Executive Director, CFA 

Institute Centre for Financial Market 

Integrity, dated March 31, 2008 (‘‘CFA 

Letter’’); Kurt N. Schacht, Managing Director, 

and James C. Allen, Director, CFA Institute 

Centre for Financial Market Integrity, dated 

March 27, 2009 (‘‘CFA 2 Letter’’); David 

Chavern, Senior Vice President and Chief 

Legal Officer, Chamber of Commerce of the 

United States of America, dated November 

13, 2006 (‘‘Chamber of Commerce Letter’’); 

David T. Hirshmann, President and Chief 

Executive Officer, Center for Capital Markets 

Competitiveness, United States Chamber of 

Commerce, dated March 27, 2009 (‘‘Chamber 

of Commerce 2 Letter’’); Lydia I. Beebe, 

Corporate Secretary and Chief Governance 

Officer, Chevron, dated March 27, 2009 

(‘‘Chevron Letter’’); H. Edward Hanway, 

Chairman and Chief Executive Officer, Cigna 

Corporation, dated March 26, 2009 (‘‘Cigna 

Letter’’); Ann Yerger, Executive Director, 

Council of Institutional Investors, dated June 

5, 2007 (‘‘CII Letter’’); Amy Borrus, Deputy 

Director, Council of Institutional Investors, 

dated November 5, 2007 (‘‘CII 2 Letter’’); Ann 

Yerger, Executive Director, Council of 

Institutional Investors, dated April 17, 2008 

(‘‘CII 3 Letter’’); Jonathan D. Urick, Research 

Analyst, Council of Institutional Investors, 

dated March 19, 2009 (‘‘CII 4 Letter’’); Steven 

J. Johnston, Chief Financial Officer, Secretary 

and Treasurer, Cincinnati Financial 

Corporation, dated March 25, 2009 

(‘‘Cincinnati Financial Letter’’); Barry M. 

Olliff, Chief Investment Officer, City of 

London Investment Company Limited, dated 

March 27, 2009 (‘‘City of London Letter’’) 

(also requesting that the proposal not exempt 

closed-end funds registered under the 

Investment Company Act of 1940); Gregory 

W. Smith, General Counsel, Colorado Public 

Employees’ Retirement Association, dated 

March 26, 2009 (‘‘Colorado PERA Letter’’); 

Paul Conn, President, Global Capital Markets, 

Computershare Limited, and David Drake, 

President, Georgeson Inc., dated March 27, 

2009 (‘‘Computershare Letter’’); Daniel J. 

Meaney, Corporate Secretary, Connecticut 

Water Company, dated March 25, 2009 

(‘‘Connecticut Water Letter’’); J.J. Mulva, 

Chairman and Chief Executive Officer, 

ConocoPhillips, dated March 26, 2009 

(‘‘ConocoPhillips Letter’’); Steven G. Nelson, 

President and Chairman of the Board, 

Continental Stock Transfer and Trust 

Company, dated March 24, 2009 

(‘‘Continental Letter’’); James B. Flaws, Vice 

Chairman and Chief Financial Officer, 

Corning Incorporated, dated March 24, 2009 

(‘‘Corning Letter’’); James McRitchie, 

Publisher, Corporate Governance, dated 

March 13, 2009 (‘‘Corporate Governance 

Letter’’); Marc Cox, dated April 26, 2009 

(‘‘Cox Letter’’); Barbara Trivedi, Shareholder 

Services Manager, Crescent Banking 

Company, dated March 25, 2009 (‘‘Crescent 

Letter’’); Ellen M. Fitzsimmons, Senior Vice 

President—Law and Public Affairs and 

General Counsel, CSX Corporation, dated 

March 18, 2009 (‘‘CSX Letter’’); William B. 

Patterson, Executive Director, CtW 


sroberts on DSKD5P82C1PROD with NOTICES
33306 Federal Register / Vol. 74, No. 131 / Friday, July 10, 2009 / Notices 

Investment Group, dated June 6, 2007 (‘‘CtW 

Letter’’); William B. Patterson, Executive 

Director, CtW Investment Group, dated April 

17, 2008 (‘‘CtW 2 Letter’’); Tim Solso, 

Chairman and Chief Executive Officer, 

Cummins Inc., dated March 25, 2009 

(‘‘Cummins Letter’’); David M. Dobkin, dated 

March 27, 2009 (‘‘Dobkin Letter’’); Patrick B. 

Carey, Associate General Counsel & Assistant 

Corporate Secretary, DTE Energy, dated 

March 27, 2009 (‘‘DTE Letter’’); Alexander M. 

Cutler, Chairman and Chief Executive 

Officer, Eaton Corporation, dated March 13, 

2009 (‘‘Eaton Letter’’); Bronwen L Mantlo, 

Associate General Counsel and Assistant 

Secretary, dated March 26, 2009 (‘‘Eli Lilly 

Letter’’); Holly Roseberry, President, EV 

Innovations, Inc., dated March 25, 2009 (‘‘EV 

Letter’’); David S. Rosenthal, Vice President, 

Investor Relations and Secretary, Exxon 

Mobil Corporation, dated March 27, 2009 

(‘‘Exxon Mobil Letter’’); Christine P. 

Richards, Executive Vice President, General 

Counsel and Secretary, FedEx Corporation, 

dated March 26, 2009 (‘‘FedEx Letter’’); 

Kevin Kopaunik, President, Fidelity Transfer 

Company, dated March 24, 2009 (‘‘Fidelity 

Letter’’); Salli Marinov, President and Chief 

Executive Officer, First American Stock 

Transfer, Inc., dated March 24, 2009 (‘‘First 

American Letter’’); Dorothy B. Wright, Vice 

President and Corporate Secretary, First 

Financial Holdings, Inc., dated March 24, 

2009 (‘‘First Financial Letter’’); Alissa E. 

Ballot, Vice President and Corporate 

Secretary, FPL Group, Inc., dated March 23, 

2009 (‘‘FPL Letter’’); Michael McCauley, 

Director, Office of Corporate Governance, 

State Board of Administration of Florida, 

dated June 13, 2007 (‘‘FSBA Letter’’); Ashbel 

C. Williams, Executive Director and Chief 

Executive Officer, State Board of 

Administration of Florida, dated March 27, 

2009 (‘‘FSBA 2 Letter’’); Jon D. Botsford, 

Senior Vice President, General Counsel and 

Secretary, Furniture Brands International, 

dated March 23, 2009 (‘‘Furniture Brands 

Letter’’); Michael R. McAlevey, Vice 

President and Chief Corporate, Securities and 

Finance Counsel, General Electric Company, 

dated April 13, 2009 (‘‘GE Letter’’); Roderick 

A. Palmore, Executive Vice President, 

General Counsel and Chief Compliance and 

Risk Management Officer, General Mills, 

dated March 17, 2009 (‘‘General Mills 

Letter’’); Robert McCormick, Chief Policy 

Officer, Glass Lewis & Co., dated March 13, 

2009 (‘‘Glass Lewis Letter’’); G. Richard 

Wagoner, Jr., Chairman and Chief Executive 

Officer, General Motors Corporation, dated 

March 27, 2009 (‘‘GM Letter’’); Brian 

Connolly, Director of Sales, 

GovernanceMetrics International 

(‘‘GovernanceMetrics Letter’’); Neila B. 

Radin, Chair, Securities Law Committee, The 

Society of Corporate Secretaries and 

Governance Professionals, dated March 20, 

2009 (‘‘Governance Professionals Letter’’); 

Steven Gratzer, dated April 27, 2009 

(‘‘Gratzer Letter’’); William A. Little III, 

President, Gulf Registrar and Transfer 

Corporation, dated March 24, 2009 (‘‘Gulf 

Letter’’); Carl T. Hagberg, Chairman and CEO, 

Carl T. Hagberg and Associates, dated March 

27, 2009 (‘‘Hagberg Letter’’); Dinesh C. 

Paliwal, Chairman and Chief Executive 

Officer, Harman International, dated March 

26, 2009 (‘‘Harman Letter’’); Steven R. 

Mackey, Executive Vice President, Secretary 

and General Counsel, Helmerich & Payne, 

Inc., dated March 24, 2009 (‘‘Helmerich 

Letter’’); Bess Joffe, Associate Director, 

Hermes Equity Ownership Services Limited, 

dated March 20, 2009 (‘‘Hermes Equity 

Letter’’); Thomas F. Larkins, Vice President, 

Corporate Secretary and General Counsel, 

Honeywell, dated March 27, 2009 

(‘‘Honeywell Letter’’); Paul Schott Stevens, 

President, Investment Company Institute, 

dated November 20, 2006 (‘‘ICI Letter’’); Paul 

Schott Stevens, President, Investment 

Company Institute, dated December 18, 2006 

(‘‘ICI 2 Letter’’); Paul Schott Stevens, 

President, Investment Company Institute, 

dated February 20, 2007 (‘‘ICI 3 Letter’’); 

Karrie McMillian, General Counsel, 

Investment Company Institute, dated March 

27, 2009 (‘‘ICI 4 Letter’’) (supporting the 

proposal, as amended to exempt investment 

companies); Robert G. Pearson, President and 

Chief Executive Officer, Illinois Stock 

Transfer Company, dated March 24, 2009 

(‘‘Illinois Stock Letter’’); Maura Abelin 

Smith, Senior Vice President, General 

Counsel and Corporate Secretary, 

International Paper Company, dated March 

24, 2009 (‘‘International Paper Letter’’); Cary 

Klafter, Vice President, Legal and Corporate 

Affairs, Intel Corporation, dated March 26, 

2009 (‘‘Intel Letter’’); Gilbert J. Pomar, III, 

President and Chief Executive Officer, and 

Valerie A. Kendall, EVP and Chief Financial 

Officer, Jacksonville Bancorp Inc., dated 

March 26, 2009 (‘‘Jacksonville Letter’’); 

Stephen A. Roell, Chairman and Chief 

Executive Officer, Johnson Controls, Inc., 

dated March 25, 2009 (‘‘Johnson Letter’’); 

Anthony J. Horan, Corporate Secretary, 

J.P.Morgan Chase & Co., dated March 27, 

2009 (‘‘J.P. Morgan Letter’’); Sarah Wilson, 

Chief Executive, Manifest, dated March 27, 

2009 (‘‘Manifest Letter’’); McKesson 

Corporation, dated March 27, 2009 

(‘‘McKesson Letter’’); Thomas M. Moriaty, 

General Counsel, Secretary and SVP, Medco 

Health Solutions, Inc., dated March 26, 2009 

(‘‘Medco Letter’’); Kenneth G. Frassetto, 

Director—Treasury Management and 

Shareholder Services, MGE Energy, Inc., 

dated March 26, 2009 (‘‘MGE Letter’’); 

Michael C. Miller, Executive Vice President, 

General Counsel and Secretary, Monster 

Worldwide, Inc., dated March 24, 2009 

(‘‘Monster Letter’’); Larry S. Dohrs, Vice 

President, Newground Social Investment, 

dated March 27, 2009 (‘‘Newground Letter’’); 

Jeffrey D. Morgan, CAE, President & CEO, 

National Investor Relations Institute, dated 

March 16, 2009 (‘‘NIRI Letter’’); C.W. 

Moorman, Chairman, President and Chief 

Executive Officer, Norfolk Southern 

Corporation, dated March 23, 2009 (‘‘NS 

Letter’’); Daniel R. DiMicco, Chairman, 

President and Chief Executive Officer, Nucor 

Corporation, dated March 25, 2009 (‘‘Nucor 

Letter’’); Jeffrey W. Rubin, Chair, Business 

Law Section, Committee on Securities 

Regulation, New York State Bar Association, 

dated March 27, 2009 (‘‘NYSBA Sec. Reg. 

Letter’’); Elisa D. Garcia, Executive Vice 

President and General Counsel, Office Depot, 

Inc., dated March 24, 2009 (‘‘Office Depot 

Letter’’); Chris DeRose, Chief Executive 

Officer, Ohio Public Employees Retirement 

System, dated March 24, 2009 (‘‘OPERS 

Letter’’); Toni Zaks, President, OTC 

Corporate Transfer Service, dated March 24, 

2009 (‘‘OTC Letter’’); Loren K. Hanson, 

Assistant Secretary, Otter Tail Corporation, 

dated March 24, 2009 (‘‘Otter Tail Letter’’); E. 

J. Wunsch, Assistant Secretary and Associate 

General Counsel, The Procter & Gamble 

Company, dated March 27, 2009 (‘‘P&G 

Letter’’); Alexander C. Schoch, Executive 

Vice President, Chief Legal Officer and 

Secretary, Peabody Energy, dated March 17, 

2009 (‘‘Peabody Letter’’); Matthew Lepore, 

Vice President, Chief President-Corporate 

Governance, Pfizer, dated March 27, 2009 

(‘‘Pfizer Letter’’); Laura J. Cataldo, President 

and Chief Executive Officer, Platinum Stock 

Transfer, dated March 24, 2009 (‘‘Platinum 

Letter’’); James T. Breedlove, Senior Vice 

President, General Counsel and Secretary, 

Praxair, dated March 27, 2009 (‘‘Praxair 

Letter’’); Daniel Rothstein, Executive Vice 

President, Provident Bank, dated March 27, 

2009 (‘‘Provident Letter’’); John F. Kuntz, 

General Counsel and Corporate Secretary, 

Provident Financial Services, Inc. 

(‘‘Provident Financial Letter’’); Larry W. 

Sonsini, Chairman, Proxy Working Group, 

dated March 25, 2009 (‘‘PWG Letter’’); 

William J. O’Shaughnessy, Jr., Assistant 

General Counsel and Corporate Secretary, 

Quest Diagnostics Incorporated, dated March 

25, 2009 (‘‘Quest Letter’’); Frank Curtiss, 

Head of Corporate Governance, Railways 

Pension Trustee Company Limited, dated 

April 15, 2009 (‘‘Railpen Letter’’); Marilyn 

Wasser, Executive Vice President and 

General Counsel, Realogy Corporation, dated 

April 2, 2009 (‘‘Realogy Letter’’); Ralph V. 

Whitworth, Principal, Relational Investors 

LLC, dated March 12, 2009 (‘‘Relational 

Investors Letter’’); Jason Freeman, President, 

Routh Stock Transfer, Inc., dated March 24, 

2009 (‘‘Routh Letter’’); Karen Gross, Vice 

President and Secretary, Royal Gold, Inc., 

dated March 23, 2009 (‘‘Royal Gold Letter’’); 

Robert D. Fatovic, Executive Vice President, 

Chief Legal Officer and Corporate Secretary, 

Ryder, dated March 26, 2009 (‘‘Ryder 

Letter’’); Sullivan & Cromwell LLP, dated 

March 27, 2009 (‘‘S&C Letter’’); Niels Holch, 

Executive Director, Shareholder 

Communications Coalition, dated March 27, 

2009 (‘‘SCC Letter’’); Niels Holch, Executive 

Director, Shareholder Communications 

Coalition, dated April 24, 2009 (‘‘SCC 2 

Letter’’); R. Scott McMillen, Vice President 

and Associate General Counsel, The Charles 

Schwab Corporation, dated March 27, 2009 

(‘‘Schwab Letter’’); George Johnson, Vice 

President, Securities Transfer Corporation, 

dated March 24, 2009 (‘‘Securities Transfer 

Letter’’); Thomas F. Price, Managing Director, 

Securities Industry and Financial Markets 

Association (‘‘SIFMA Letter’’) (noting that 

some of the assertions made by other 

commenters were ‘‘inaccurate and promote 

confusion,’’ and presenting its own 

observations on those issues); John C. 

Wilcox, Chairman, Sod’ali, dated March 27, 

2009 (‘‘Sod’ali Letter’’); Charles V. Rossi, 

President, The Securities Transfer 

Association, Inc., dated March 27, 2009 

(‘‘STA Letter’’); Mary Cleo Fernandez, 


sroberts on DSKD5P82C1PROD with NOTICES
Federal Register / Vol. 74, No. 131 / Friday, July 10, 2009 / Notices 33307 

1 15 U.S.C. 78s(b)(1). 

2 15 U.S.C. 78s(b)(3)(A)(iii). 

3 17 CFR 240.19b–4(f)(4). 

4Securities Exchange Act Release No. 59413 (Feb. 

18, 2009), 74 FR 8298 (Feb. 24, 2009). 

5 15 U.S.C. 78q–1. 

6 15 U.S.C. 78s(b)(3)(A)(ii). 

7 17 CFR 240.19b–4(f)(2). 

Transfer Agent, Standard Registrar Transfer 

Agency, Inc., dated March 24, 2009 

(‘‘Standard Letter’’); Robert M. Stanton, dated 

March 25, 2009 (‘‘Stanton Letter’’); Jonathan 

Miller, President, StockTrans, Inc., dated 

March 24, 2009 (‘‘StockTrans Letter’’); Paul 

Abel, General Counsel and Secretary, 

Suburban Propane Partners, L.P., dated 

November 16, 2006 (‘‘Suburban Letter’’) 

(resubmitted on March 3, 2009); Douglas Ian 

Shaw, Senior Vice President and Corporate 

Secretary, Suffolk County National Bank, 

Suffolk Bancorp, dated March 13, 2009 

(‘‘Suffolk Letter’’); Holly Roseberry, Director, 

Superlattice Power, Inc., dated March 25, 

2009 (‘‘Superlattice Letter’’); Steven B. 

Boehm and Cynthia M. Krus, Sutherland 

Asbill and Brennan LLP, dated March 31, 

2009 (‘‘Sutherland Letter’’); Cheryl C. Carter, 

Corporate Secretary, Synalloy Corporation, 

dated March 25, 2009 (‘‘Synalloy Letter’’); 

Lewis B. Campbell, Chairman and Chief 

Executive Officer, Textron Inc., dated March 

30, 2009 (‘‘Textron Letter’’); Cynthia H. 

Haynes, Vice President, Assistant Secretary 

and Assistant General Counsel, Texas 

Instruments Incorporated, dated March 26, 

2009 (‘‘TI Letter’’); Hye-Won Choi, Senior 

Vice President and Head of Corporate 

Governance, TIAA–CREF, dated March 27, 

2009 (‘‘TIAA–CREF Letter’’); Jonas Kron, 

Senior Social Research Analyst, Trillium 

Asset Management, dated March 17, 2009 

(‘‘Trillium Letter’’); Scott Renwick, Senior 

Vice President and General Counsel, Unitrin, 

dated March 27, 2009 (‘‘Unitrin Letter’’); 

Donald A. French, Treasurer, UQM 

Technologies, Inc., dated March 26, 2009 

(‘‘UQM Letter’’); Gregory A. Robbins, Senior 

Vice President and General Counsel, Veeco 

Instruments Inc., dated March 26, 2009 

(‘‘Veeco Letter’’); Marianne Drost, Senior 

Vice President, Deputy General Counsel and 

Corporate Secretary, Verizon 

Communications Inc., dated March 27, 2009 

(‘‘Verizon Letter’’); David A. Katz, Wachtell, 

Lipton, Rosen & Katz, dated March 26, 2009 

(‘‘Wachtell Letter’’); Shelly L. Angus, Senior 

Vice President, Investor Relations, 

Washington Banking Company, dated March 

23, 2009 (‘‘Washington Banking Letter’’); 

Robert J. LaForest, Vice President and 

Associate General Counsel, Whirlpool 

Corporation, dated March 26, 2009 

(‘‘Whirlpool Letter’’); Michael C. Connelly, 

Vice President and General Counsel, Xcel 

Energy, dated March 27, 2009 (‘‘Xcel Letter’’); 

Anne M. Mulcahy, Chairman and Chief 

Executive Officer, Xerox Corporation, dated 

March 25, 2009 (‘‘Xerox Letter’’); and 

William D. Zollars, Chairman of the Board, 

President and Chief Executive Officer, and 

YRC Worldwide Inc., dated March 25, 2009 

(‘‘YRC Letter’’). 

[FR Doc. E9–16318 Filed 7–9–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60234; File No. SR–NSCC– 

2009–04] 

Self-Regulatory Organizations; 

National Securities Clearing 

Corporation; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change Relating to Addendum O 

July 2, 2009. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 notice is hereby given that on 

June 19, 2009, the National Securities 

Clearing Corporation (‘‘NSCC’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I, II, and III below, which Items 

have been prepared primarily by NSCC. 

NSCC filed the proposed rule change 

pursuant to Section 19(b)(3)(A)(iii) of 

the Act 2 and Rule 19b–4(f)(4) 

thereunder 3 so that the proposal was 

effective upon filing with the 

Commission. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The proposed rule change amends 

Addendum O to NSCC’s rules to correct 

Footnote 1 to make the footnote 

consistent with recently filed and 

effective changes to Addendum O. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

NSCC 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. NSCC 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 

The proposed rule change amends 

Footnote 1 of Addendum O 

(‘‘Admission of Non-US Entities as 

Direct NSCC Members’’) to NSCC’s 

rules. The new footnote will state that 

Addendum O is not applicable to nonU.S. insurance companies. 

NSCC inadvertently failed to update 

Footnote 1 when it amended Addendum 

O earlier this year to permit non-U.S. 

entities to apply to be Mutual Fund/ 

Insurance Services Members, Fund 

Members, and Insurance Carrier/ 

Retirement Services Members.4 Those 

changes had the effect of making 

Addendum O inapplicable only to nonU.S. insurance companies since NSCC 

did not establish membership standards 

for non-U.S. insurance companies. This 

current rule change updates Footnote 1. 

NSCC states that the proposed rule 

change is consistent with the 

requirements of Section 17A of the Act 5

and the rules and regulations 

promulgated thereunder by making 

technical corrections to NSCC’s rules for 

internal consistency. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

NSCC does not believe that the 

proposed rule change will have any 

impact or impose any burden on 

competition. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

NSCC has not solicited or received 

written comments relating to the 

proposed rule change. NSCC will notify 

the Commission of any written 

comments it receives. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change has become 

effective pursuant to Section 

19(b)(3)(A)(iii) of the Act 6 and Rule 

19b–4(f)(4) 7 thereunder because it 

effects a change in an existing service of 

a registered clearing agency that does 

not adversely affect the safeguarding of 

securities and funds in the custody or 

control of the clearing agency or for 

which it is responsible and does not 

significantly affect the respective rights 

or obligations of the clearing agency or 

persons using the service. At any time 

within 60 days of the filing of the 

proposed rule change, the Commission 

may summarily abrogate such rule 

change if it appears to the Commission 

that such action is necessary or 

appropriate in the public interest, for 

the protection of investors, or otherwise 


sroberts on DSKD5P82C1PROD with NOTICES