Document ID: SEC-2011-0325-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX BX, Inc.
Posted Date: 2011-03-09T05:00Z

[Federal Register Volume 76, Number 46 (Wednesday, March 9, 2011)]
[Notices]
[Pages 13014-13017]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-5304]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64024; File No. SR-BX-2011-011]

Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Order Granting Accelerated Approval of Proposed Rule Change 
To Adopt Section 16 (Proxy Voting) to Chapter III of the BOX Trading 
Rules Concerning Broker Voting

March 3, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on February 18, 2011, NASDAQ OMX BX, Inc. (the ``Exchange'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I and II below, which Items have been 
prepared by the self-regulatory organization. The Commission is 
publishing this notice to solicit comments on the proposed rule from 
interested persons, and is approving the proposed rule change on an 
accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to add Section 16 (Proxy Voting) to Chapter 
III, of the Rules of the Boston Options Exchange Group, LLC (``BOX'') 
in accordance with the provision of Section 957 of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act (the ``Dodd-Frank Act''). The 
text of the proposed rule change is available from the principal office 
of the Exchange, at the Commission's Public Reference Room and also on 
the Exchange's Internet Web site at http://nasdaqomxbx.cchwallstreet.com/NASDAQOMXBX/Filings/.

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

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

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

1. Purpose
    In accordance with Section 957 of the Dodd-Frank Act, the Exchange 
is proposing to adopt Section 16 (Proxy Voting) to Chapter III of the 
BOX Trading Rules. As proposed, this section will codify a provision to 
prohibit Participants from voting uninstructed shares if the matter 
voted on relates to (i) the election of a member of the board of 
directors of an issuer (other than an

[[Page 13015]]

uncontested election of a director of an investment company registered 
under the Investment Company Act of 1940 (``Investment Company Act''); 
(ii) executive compensation, or (iii) any other significant matter, as 
determined by the Securities and Exchange Commission (the 
``Commission''), by rule.
    Section 957 of the Dodd-Frank Act amended Section 6 (b) \3\ of the 
Securities Exchange Act of 1934 (the ``Exchange Act'') to require the 
rules of each national securities exchange to prohibit any member 
organization that is not the beneficial owner of a security registered 
under Section 12 \4\ of the Exchange Act from granting a proxy to vote 
the security in connection with certain stockholder votes, unless the 
beneficial owner of the security has instructed the member organization 
to vote the proxy in accordance with the voting instructions of the 
beneficial owner. The stockholder votes covered by Section 957 include 
any vote with respect to (i) the election of a member of the board of 
directors of an issuer (other than an uncontested election of a 
director of an investment company registered under the Investment 
Company Act), (ii) executive compensation, or (iii) any other 
significant matter, as determined by the Commission, by rule.
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    \3\ 15 U.S.C. 78f(b).
    \4\ 15 U.S.C. 781.
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    Accordingly, in order to carry out the requirements of Section 957 
of the Dodd-Frank Act, the Exchange proposes to adopt proposed Section 
16 to Chapter III of the BOX Trading Rules to prohibit any Participant 
from giving a proxy to vote stock that is registered in its name, 
unless: (i) Such Participant is the beneficial owner of such stock; 
(ii) pursuant to the written instructions of the beneficial owner; or 
(iii) pursuant to the rules of any national securities exchange or 
association of which it is a member provided that the records of the 
Participant clearly indicate the procedure it is following. The 
Exchange is proposing to adopt these rules because other national 
securities exchanges and associations do allow proxy voting under 
certain limited circumstances while the current Exchange Rules are 
silent on such matters. Therefore, a Participant that is also a member 
of another national securities exchange or association may vote the 
shares held for a customer when allowed under its membership at another 
national securities exchange or association, provided that the records 
of the Participant clearly indicate the procedure it is following.
    Notwithstanding the above, under the proposal, a Participant that 
is not the beneficial owner of a security registered under Section 12 
of the Exchange Act is prohibited from granting a proxy to vote the 
security in connection with a shareholder vote with respect to the 
election of a member of the board of directors of an issuer (except for 
a vote with respect to uncontested election of a member of the board of 
directors of any investment company registered under the Investment 
Company Act), executive compensation, or any other significant matter, 
as determined by the Commission, by rule, unless the beneficial owner 
of the security has instructed the Participant to vote the proxy in 
accordance with the voting instructions of the beneficial owner.
    Because Section 957 of the Dodd-Frank Act does not provide for a 
transition phase, the Exchange is proposing to adopt the proposed rule 
change pursuant to Section 19(b) of the Exchange Act to comply with 
Section 957 of the Dodd-Frank Act and is requesting that the Commission 
approve the proposal on an accelerated basis. Additionally, the 
proposed adoption of Section 16 to Chapter III of the BOX Trading Rules 
is based upon International Securities Exchange, LLC (``ISE'') Rule 
421.
2. Statutory Basis
    The basis under the Exchange Act for these proposed rule changes is 
the requirement under Section 6(b)(5) \5\ to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to remove impediments to, and perfect the 
mechanism of a free and open market and, in general, to protect 
investors and the public interest. The Exchange is adopting this 
proposed rule change to comply with the requirements of Section 957 of 
the Dodd-Frank Act, and therefore believes the proposed rule change to 
be consistent with the Exchange Act, particularly with respect to the 
protection of investors and the public interest.
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    \5\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

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

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

    The Exchange has neither solicited nor received comments on the 
proposed rule change.

III. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-BX-2011-011 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-BX-2011-011. 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

[[Page 13016]]

should refer to File Number SR-BX-2011-011 and should be submitted on 
or before March 30, 2011.

IV. Commission's Findings and Order Granting Accelerated Approval of 
the Proposed Rule Change

    In its filing, the Exchange requested that the Commission approve 
the proposal on an accelerated basis so that the Exchange could 
immediately comply with the requirements imposed by the Dodd-Frank Act, 
and because the proposed rule text is based upon ISE Rule 421. After 
careful consideration, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange.\6\
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    \6\ In approving this rule change, the Commission notes that it 
has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
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    The Commission believes that proposed Section 16(a) to Chapter III 
is consistent with Section 6(b)(5) \7\ of the Act, which provides, 
among other things, that the rules of the Exchange must be designed to 
promote just and equitable principles of trade, remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest, and are not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \7\ 15 U.S.C. 78f(b)(5).
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    Under proposed Section 16(a) to Chapter III, a Participant shall be 
prohibited from voting uninstructed shares unless (1) that Participant 
is the beneficial owner of the stock; (2) pursuant to the written 
instructions of the beneficial owner; or (3) pursuant to the rules of 
any national securities exchange or association of which it is also a 
member, provided that the Participant's records clearly indicate the 
procedure it is following. This provision is based upon ISE Rule 421, 
which was previously approved by the Commission.\8\ The Commission 
notes that the proposed change to Section 16(a) to Chapter III will 
provide clarity to Exchange Participants going forward on whether 
broker discretionary voting is permitted by Exchange Participants under 
limited circumstances when the Exchange Participant is also a member of 
another national securities exchange that permits broker discretionary 
voting. In approving this portion of the Exchange proposal, the 
Commission notes that proposed Section 16(a) to Chapter III is 
consistent with the approach taken under the rules of other national 
securities exchanges or national securities association, and for 
Exchange Participants who are not also members of another national 
securities exchange prohibits broker discretionary voting on any 
matter, consistent with investor protection and the public interest.
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    \8\ See Securities Exchange Act Release No. 63139 (October 20, 
2010), 75 FR 65680 (October 26, 2010) (SR-ISE-2010-99). See also 
NYSE Arca Rule 9.4 and FINRA Rule 2251, which are similar and 
previously approved by the Commission. See Securities Exchange Act 
Release No. 48735 (October 31, 2003), 68 FR 63173 (November 7, 2003) 
(SR-PCX-2003-50); 61052 (November 23, 2009), 74 FR 62857 (December 
1, 2009) (SR-FINRA-2009-066) (finding that the proposed rule change 
was consistent with the Act because the Rule ``will continue to 
provide FINRA members with guidance on the forwarding of proxy and 
other issuer-related materials.'').
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    The Commission believes that proposed Section 16(b) to Chapter III 
is consistent with Section 6(b)(10) \9\ of the Act, which requires that 
national securities exchanges adopt rules prohibiting members that are 
not beneficial holders of a security from voting uninstructed proxies 
with respect to the election of a member of the board of directors of 
an issuer (except for uncontested elections of directors for companies 
registered under the Investment Company Act), executive compensation, 
or any other significant matter, as determined by the Commission by 
rule.
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    \9\ 15 U.S.C. 78f(b)(10).
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    The Commission believes that proposed Section 16(b) to Chapter III 
is consistent with Section 6(b)(10) of the Act because it adopts 
revisions that comply with that section. As noted in the accompanying 
Senate Report, Section 957, which enacted Section 6(b)(10), reflects 
the principle that ``final vote tallies should reflect the wishes of 
the beneficial owners of the stock and not be affected by the wishes of 
the broker that holds the shares.'' \10\ The proposed rule change will 
make the Exchange compliant with the new requirements of Section 
6(b)(10) by specifically prohibiting, in the Exchange's rule language, 
broker-dealers, who are not beneficial owners of a security, from 
voting uninstructed shares in connection with a shareholder vote on the 
election of a member of the board of directors of an issuer (except for 
a vote with respect to the uncontested election of a member of the 
board of directors of any investment company registered under the 
Investment Company Act of 1940), executive compensation, or any other 
significant matter, as determined by the Commission by rule, unless the 
Participant receives voting instructions from the beneficial owner of 
the shares.\11\
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    \10\ See S. Rep. No. 111-176, at 136 (2010).
    \11\ The Commission has not, to date, adopted rules concerning 
other significant matters where uninstructed broker votes should be 
prohibited, although it may do so in the future. Should the 
Commission adopt such rules, we would expect the Exchange to adopt 
coordinating rules promptly to comply with the statute.
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    The Commission also believes that proposed Section 16(b) to Chapter 
III is consistent with Section 6(b)(5) \12\ of the Act, which provides, 
among other things, that the rules of the Exchange must be designed to 
promote just and equitable principles of trade, remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest, and are not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \12\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the rule assures that shareholder 
votes on the election of the board of directors of an issuer (except 
for a vote with respect to the uncontested election of a member of the 
board of directors of any investment company registered under the 
Investment Company Act of 1940) and on executive compensation matters 
are made by those with an economic interest in the company, rather than 
by a broker that has no such economic interest, which should enhance 
corporate governance and accountability to shareholders.\13\
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    \13\ As the Commission stated in approving NYSE rules 
prohibiting broker voting in the election of directors, having those 
with an economic interest in the company vote the shares, rather 
than the broker who has no such economic interest, furthers the goal 
of enfranchising shareholders. See Securities Exchange Act Release 
No. 60215 (July 1, 2009), 74 FR 33293 (July 10, 2009) (SR-NYSE-2006-
92).
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    Based on the above, the Commission finds that the Exchange proposal 
will further the purposes of Sections 6(b)(5) and 6(b)(10) of the Act 
because it should enhance corporate accountability to shareholders 
while also serving to fulfill the Congressional intent in adopting 
Section 6(b)(10) of the Act.
    The Commission also finds good cause, pursuant to Section 19(b)(2) 
of the Act,\14\ for approving the proposed rule change prior to the 
30th day after the date of publication of notice in the Federal 
Register. The Commission believes that good cause exists to grant 
accelerated approval to proposed Section 16(a) to Chapter III, because 
this proposed rule will conform the BOX rule to ISE Rule 421, NYSE Arca 
Rule 9.4, and FINRA Rule 2251, which were published for public comment 
in the Federal Register and approved by the Commission, and for which 
no

[[Page 13017]]

comments were received.\15\ Because proposed Section 16(a) is 
substantially similar to the ISE, NYSE Arca, and FINRA rules, it raises 
no new regulatory issues.
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    \14\ 15 U.S.C. 78s(b)(2).
    \15\ See note 8 supra.
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    The Commission also believes that good cause exists to grant 
accelerated approval to proposed Section 16(b) to Chapter III, which 
conforms the Exchange rule to the requirements of Section 6(b)(10) of 
the Act. Section 6(b)(10) of the Act, enacted under Section 957 of the 
Dodd-Frank Act, does not provide for a transition phase, and requires 
rules of national securities exchanges to prohibit broker voting on the 
election of a member of the board of directors of an issuer (except for 
a vote with respect to the uncontested election of a member of the 
board of directors of any investment company registered under the 
Investment Company Act of 1940), executive compensation, or any other 
significant matter, as determined by the Commission by rule. The 
Commission believes that good cause exists to grant accelerated 
approval to proposed Section 16(b) to Chapter III, because it will 
conform the Box rules to the requirements of Section 6(b)(10) of the 
Act.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\16\ that the proposed rule change (SR-BX-2011-011) be, and it 
hereby is, approved on an accelerated basis.
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    \16\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-5304 Filed 3-8-11; 8:45 am]
BILLING CODE 8011-01-P