Document ID: SEC-2010-0450-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Stock Exchange, Inc.
Posted Date: 2010-03-24T04:00Z

[Federal Register: March 24, 2010 (Volume 75, Number 56)]
[Notices]               
[Page 14219-14221]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24mr10-130]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61733; File No. SR-CHX-2010-06]

 
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend CHX Article 8, Rule 14 To, Among Other Things, Prohibit Broker 
Discretionary Voting on the Elections of Directors

March 18, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on March 9, 2010, the Chicago Stock Exchange, Inc. (``CHX'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the CHX. The 
Exchange filed the proposal as a ``non-controversial'' proposed rule 
change pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 
19b-4(f)(6) thereunder.\4\ The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CHX proposes to amend Article 8, Rule 14 regarding proxy voting by 
Participants which hold stock on behalf of the beneficial owner. 
Specifically, the Exchange would like to enumerate in its rules certain 
matters that affect substantially the rights and privileges of stock 
and therefore should not be voted on by Participants without 
instructions from the beneficial owner. The text of this proposed rule 
change is available on the Exchange's Web site at (http://www.chx.com) 
and in the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the CHX included statements 
concerning the purpose of and basis for the proposed rule changes and 
discussed any comments it received regarding the proposal. The text of 
these statements may be examined at the places specified in Item IV 
below. The CHX has prepared summaries, set forth in sections A, B and C 
below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Changes

1. Purpose
    The CHX is proposing to amend Article 8, Rule 14 regarding proxy 
voting by Participants which hold stock on behalf of the beneficial 
owner. Specifically, the Exchange would like to enumerate in its rules 
certain matters that affect substantially the rights and privileges of 
stock and therefore should not be voted on by Participants without 
instructions from the beneficial owner.
    Under the current CHX and SEC proxy rules, Participants must 
deliver proxy materials to beneficial owners and request voting 
instructions in return. If voting instructions have not been received 
by the tenth day preceding the meeting date, Rule 14 provides that 
Participants may vote on certain matters deemed ``routine'' by the CHX. 
One of the most important results of Participant votes of uninstructed 
shares is their use in establishing a quorum at shareholder meetings.
    At present, matters considered routine by the CHX are those in 
which the person signing the proxy has no knowledge of any contest as 
to the action to be taken at the meeting and provided such action does 
not include authorization for a merger, consolidation or any other 
matter which may affect substantially the legal rights or privileges of 
such stock. In addition to this guidance, CHX rules specifically state 
that a Participant may not give a proxy to vote when the matter to be 
voted upon authorizes the implementation of any equity compensation 
plan, or any material revision to the terms of any existing equity 
compensation plan.
    With this rule filing, CHX would like to amend its rules to conform 
to the NYSE's rules \5\ to eliminate any disparities involving voting 
depending on where the shares are held.\6\ CHX would also like to 
enumerate in its rules certain matters that affect substantially the 
rights and privileges of stock and therefore should not be voted on by 
Participants without instructions from the beneficial owner. These 
include: Any matter that is not submitted to stockholders by means of a 
proxy statement comparable to that specified in Schedule 14-A of 
Securities and Exchange Commission; any matter that is the subject of a 
counter-solicitation or is part of a proposal made by a stockholder 
which is being opposed by management (i.e., a contest); any matter that 
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); and, 
matters that involve a right of appraisal. Additionally, matters that 
authorize mortgaging of property, authorize or create indebtedness or 
increase the authorized amount of indebtedness, authorize or create a 
preferred stock or increase the authorized amount of an existing 
preferred stock or alter the terms or conditions of existing stock or 
indebtedness will also be prohibited

[[Page 14220]]

from being voted by a Participant without instruction.
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    \5\ See NYSE Rule 452.
    \6\ The Commission has indicated that, while other self-
regulatory organizations currently allow discretionary voting, it 
expects these markets to make changes to conform to the NYSE's rules 
to eliminate any disparities involving voting depending on where 
shares are held. See Securities Exchange Act Release No. 34-60215 
(July 1, 2009).
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    Other matters that affect substantially the rights and privileges 
of stock and therefore should not be voted on by Participants without 
instructions from the beneficial owner are those involving a 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), those 
changing existing quorum requirements with respect to stockholder 
meetings, those altering voting provisions or the proportionate voting 
power of a stock, or those altering 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).
    Additionally, Participants will be prohibited from voting, absent 
instructions, on any matter that authorizes 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 the amendment of an existing plan 
which would bring its cost above 10% of such average annual income 
before taxes; however, exceptions may be made to these general 
prohibitions in the cases of retirement plans based on agreement or 
negotiations with labor unions (or which have been or are to be 
approved by such unions) and 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.
    Further matters that may not be voted by Participants without the 
beneficial owner's instructions include: Those that change 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; those that authorize 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; those that authorize the sale or other 
disposition of assets or earning power approximating 20% or more of 
those existing prior to the transaction; those that authorize 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, those that reduce 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.
    The Exchange also believes that Participants should not vote 
uninstructed stock for the election of directors, provided, however, 
that this prohibition shall not apply in the case of a company 
registered under the Investment Company Act of 1940.
    Finally, the Exchange proposes to prohibit voting, without 
instruction from the beneficial owner, on material amendments to an 
investment advisory contract with an investment company. The Exchange 
will also add commentary on this item indicating 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 Investment Company Act of 1940, as amended (the ``1940 
Act''), and the rules thereunder. Such approval will be deemed to be a 
``matter which may affect substantially the rights or privileges of 
such stock'' for purposes of this rule so that a Participant may not 
give a proxy to vote shares registered in its name absent instruction 
from the beneficial holder of the shares. As a result, for example, a 
Participant may not give a proxy to vote shares registered in its name, 
absent instruction from the beneficial holder of the shares, on any 
proposal to obtain shareholder approval required by the 1940 Act of an 
investment advisory contract between an investment company and a new 
investment adviser due to an assignment of the investment company's 
investment advisory contract, including an assignment caused by a 
change in control of the investment adviser that is party to the 
assigned contract.
    The Exchange notes that the foregoing matters are substantially 
similar to the list of matters that have been adopted by the New York 
Stock Exchange and that have been previously approved by the 
Commission.\7\
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    \7\ See NYSE Rule 452 * * * Supplementary Material .11.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act in general,\8\ and furthers the objectives 
of Section 6(b)(5) in particular,\9\ in that it is designed to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transaction in 
securities, to remove impediments and perfect the mechanisms of a free 
and open market, and, in general, to protect investors and the public 
interest by allowing CHX to amend Article 8, Rule 14 regarding proxy 
voting by Participants which hold stock on behalf of the beneficial 
owner. The Exchange believes that certain matters that affect 
substantially the rights and privileges of stock should not be voted on 
by Participants without instructions from the beneficial owner.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement of Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments Regarding the 
Proposed Rule Changes Received From Members, Participants or Others

    No written comments were either solicited or received.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \10\ and Rule 19b-4(f)(6) thereunder.\11\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) by its terms, become 
operative prior to 30 days from the date on which it was filed, or such 
shorter time as the Commission may designate, if consistent with the 
protection of investors and the public interest, the proposed rule 
change has become effective pursuant to Section 19(b)(3)(A) of the Act 
\12\ and Rule 19b-4(f)(6)(iii) thereunder.\13\
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    \10\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires the Exchange to give the Commission written 
notice of the Exchange's intent to file the proposed rule change, 
along with a brief description and text of the proposed rule change, 
at least five business days prior to the date of filing of the 
proposed rule change, or such shorter time as designated by the 
Commission. The Exchange has satisfied the pre-filing requirement.

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[[Page 14221]]

    A proposed rule change filed under Rule 19b-4(f)(6) \14\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b4(f)(6)(iii),\15\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has 
requested the Commission to waive the 30-day operative delay so that 
the proposal may become operative immediately upon filing. In making 
this request, the Exchange stated that the proposal is based upon the 
rules of NYSE.
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    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that the waiver of the 30-day operative 
delay period is consistent with the protection of investors and the 
public interest.\16\ The proposal would permit the Exchange to comply 
with the Commission's stated goal that self-regulatory organizations 
who currently allow members to use discretionary voting for director 
elections conform their rules to the NYSE's rules to eliminate any 
voting disparities depending on where the shares are held. Further, the 
proposal would update and conform the Exchange's proxy voting rule to 
reflect the recent changes to NYSE's rule on broker discretionary 
voting on the election of directors, as well as material amendments to 
investment advisory contracts. Moreover, the Commission notes that 
these recent changes to NYSE's rules were subject to full notice and 
comment, and considered and approved by the Commission.\17\ Based on 
the above, the Commission finds that waiving the 30-day operative delay 
period is consistent with the protection of investors and the public 
interest and the proposal is therefore deemed effective upon filing.
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    \16\ For purposes only of waiving the operative delay for this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \17\ See supra note 6.
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    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 
in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-CHX-2010-06 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-CHX-2010-06. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/
sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-CHX-2010-06 and should be 
submitted on or before April 14, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-6512 Filed 3-23-10; 8:45 am]
BILLING CODE 8011-01-P