Document ID: SEC-2011-1522-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Exchange, Inc.
Posted Date: 2011-10-06T04:00Z

[Federal Register Volume 76, Number 194 (Thursday, October 6, 2011)]
[Notices]
[Pages 62107-62110]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-25790]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65449; File No. SR-BATS-2011-036]

Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing and Order Granting Accelerated Approval of Proposed Rule Change 
To Amend BATS Rule 13.3 To Prohibit Members From Voting Uninstructed 
Shares on Certain Matters and To Align BATS Rule 13.3, Concerning the 
Forwarding of Proxy and Other Material and Proxy Voting, With the Rules 
of Other Self-Regulatory Organizations

 September 30, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'' or the ``Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\ 
notice is hereby given that on September 16, 2011, BATS Exchange, Inc. 
(the ``Exchange'' or ``BATS'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the Exchange. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons, and is approving the 
proposed rule change on an accelerated basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    The Exchange is proposing to amend BATS Rule 13.3, entitled 
``Forwarding of Issuer Materials,'' in accordance with the provisions 
of Section 957 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (the ``Dodd-Frank Act''). The Exchange is also proposing 
changes to BATS Rule 13.3 in order to better align the Exchange's rule 
with the rules of other self-regulatory organizations (``SROs''). The 
text of the proposed rule addition is available at the Exchange's Web 
site at http://www.batstrading.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the Exchange 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 Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant parts of such 
statements.

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

1. Purpose
    Section 957 of the Dodd-Frank Act amends Section 6(b) of the Act 
\3\ 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 of the Act \4\ 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.
---------------------------------------------------------------------------

    \3\ 15 U.S.C. 78f(b).
    \4\ 15 U.S.C. 78l.
---------------------------------------------------------------------------

    Accordingly, in order to carry out the requirements of Section 957 
of the Dodd-Frank Act, the Exchange proposes to add new paragraph (b) 
to BATS Rule 13.3 to prohibit a Member from giving a proxy to vote 
stock that is registered in its name, unless: (i) Such Member is the 
beneficial owner of such stock; (ii) such proxy is given pursuant to 
the written instructions of the beneficial owner; or (iii) such proxy 
is given pursuant to the rules of any national securities exchange or 
association of which it is a member provided that the records of the 
Member clearly indicate the procedure it is following. The Exchange is 
proposing to adopt these rules because other national securities 
exchanges and associations do allow

[[Page 62108]]

proxy voting under certain limited circumstances while the current 
Exchange Rules are silent on such matters. Therefore, a Member 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 Member clearly indicate the procedure 
it is following.
    Notwithstanding the above, as proposed in new paragraph (c) to Rule 
13.3, a Member 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 on 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 of 1940), executive compensation, or any other 
significant matter, as determined by the Commission, by rule, unless 
the beneficial owner of the security has instructed the Member to vote 
the proxy in accordance with the voting instructions of the beneficial 
owner.
    In order to promote consistency with FINRA Rule 2251, the Exchange 
also proposes to add language to the existing text of Rule 13.3 to 
state that for beneficial owners, the proxy materials or other 
materials to be forwarded on behalf of an issuer can be sent to the 
beneficial owner's designated investment adviser, if applicable. In 
conjunction with this change, the Exchange proposes to adopt the 
definition of ``designated investment adviser'' set forth in FINRA Rule 
2251(f) as Interpretation and Policy .01 to Rule 13.3.
    Similarly, the Exchange proposes to add new paragraph (d) to Rule 
13.3, based entirely on FINRA Rule 2251(d), to explicitly state that a 
Member may give a proxy to vote any stock registered in its name if 
such Member holds such stock as executor, administrator, guardian, 
trustee, or in a similar representative or fiduciary capacity with 
authority to vote. Proposed paragraph (d) will also state that a Member 
that has in its possession or within its control stock registered in 
the name of another Member and that desires to transmit signed proxies 
pursuant to the provisions of paragraph (a) of Rule 13.3, shall obtain 
the requisite number of signed proxies from such holder of record. 
Lastly, proposed paragraph (d) also states that, notwithstanding the 
foregoing: (1) Any Member designated by a named Employee Retirement 
Income Security Act of 1974 (as amended) (``ERISA'') Plan fiduciary as 
the investment manager of stock held as assets of the ERISA Plan may 
vote the proxies in accordance with the ERISA Plan fiduciary 
responsibilities if the ERISA Plan expressly grants discretion to the 
investment manager to manage, acquire, or dispose of any plan asset and 
has not expressly reserved the proxy voting right for the named ERISA 
Plan fiduciary; and (2) any designated investment adviser may vote such 
proxies.
    The Exchange also proposes modifying the text of Rule 13.3, which 
currently would require forwarding of proxy material but which does not 
explicitly reference such material, to add such an explicit reference. 
The Exchange further proposes to modify the text of Rule 13.3 to 
reference ``security holders,'' rather than stockholders, in the 
initial sentence, to ensure that the coverage of the rule applies to 
all securities, including debt securities to the extent applicable, and 
not just equity securities. The Exchange also proposes to incorporate 
certain language from FINRA Rule 2251 that provides additional detail 
regarding the material that must be provided to beneficial owners in 
the event of a proxy solicitation. Specifically, Rule 13.3 as amended 
will state that in the event of a proxy solicitation, materials 
provided pursuant to the Rule shall include a signed proxy indicating 
the number of shares held for such beneficial owner and bearing a 
symbol identifying the proxy with proxy records maintained by the 
Member, and a letter informing the beneficial owner (or the beneficial 
owner's designated investment adviser) of the time limit and necessity 
for completing the proxy form and forwarding it to the person 
soliciting proxies prior to the expiration of the time limit in order 
for the shares to be represented at the meeting. The Rule will also 
require a Member to furnish a copy of the symbols to the person 
soliciting the proxies and shall also retain a copy thereof pursuant to 
the provisions of Exchange Act Rule 17a-4. Finally, the Exchange 
proposes to modify the title of Rule 13.3 to include reference to proxy 
voting.
    The Exchange believes that these additional changes to Rule 13.3 
will help to avoid confusion by Members of the Exchange that are also 
members of FINRA by further aligning the Exchange's rules with FINRA 
Rule 2251. In addition, the Exchange notes that it is party to an 
agreement with FINRA pursuant to which certain regulatory 
responsibility to examine and enforce common rules of the Exchange and 
FINRA is allocated to FINRA pursuant to Rule 17d-2 under the Act (the 
``17d-2 Agreement'').\5\ The proposed changes to Rule 13.3 may be 
sufficient to incorporate Rule 13.3 into the 17d-2 Agreement, further 
reducing duplicative regulation of Members that are also members of 
FINRA.
---------------------------------------------------------------------------

    \5\ 17 CFR 240.17d-2.
---------------------------------------------------------------------------

2. Statutory Basis
    Approval of the rule change proposed in this submission is 
consistent with the requirements of the Act and the rules and 
regulations thereunder that are applicable to a national securities 
exchange, and, in particular, with the requirements of Section 6(b) of 
the Act.\6\ The Exchange believes that proposed Rule 13.3(c) is 
consistent with Section 6(b)(10) \7\ requirements that all national 
securities exchanges adopt rules prohibiting members from voting, 
without receiving instructions from the beneficial owner of shares, on 
the election of a member of a board of directors of an issuer (except 
for a vote with respect to the uncontested election of a member of the 
board of directors of any investment company registered under the 
Investment Company Act of 1940), executive compensation, or any other 
significant matter, as determined by the Commission, by rule. The 
Exchange also believes that proposed Rule 13.3(c) is consistent with 
Section 6(b)(5) of the Act,\8\ because it would 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, protect investors and the public interest. The Exchange is 
adopting proposed Rule 13.3(c) 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 Act, particularly with respect to 
the protection of investors and the public interest.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(10).
    \8\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange also believes that proposed Rule 13.3(b) is consistent 
with Section 6(b)(5) of the Act,\9\ particularly with respect to 
removal of impediments to, and perfection the mechanism of, a free and 
open market and a national market system, because the proposed changes 
will provide for consistent regulation for Members of the Exchange that 
are members of other SROs with analogous rules.\10\ Moreover, the

[[Page 62109]]

proposed changes to Rule 13.3(a), proposed Rule 13.3(d), and proposed 
Interpretation and Policy .01 are consistent with FINRA Rule 2251. 
Accordingly, the Exchange believes that the proposal fosters 
cooperation amongst SROs because to the extent the Exchange is able to 
incorporate Rule 13.3 into the 17d-2 Agreement as a rule in common 
between the Exchange and FINRA (a ``Common Rule''), then FINRA will 
conduct a review for compliance with the Common Rule to the extent a 
Member of the Exchange is also a member of FINRA, and the Exchange will 
not conduct a duplicative review of the same activity by that Member. 
Finally, the Exchange believes that the proposal will contribute to 
investor protection by defining important requirements to which Members 
must abide with respect to proxy solicitation, proxy voting and 
delivery of proxy materials.
---------------------------------------------------------------------------

    \9\ Id.
    \10\ See, e.g., FINRA Rule 2251, ISE Rule 421, NYSE Arca Rule 
9.4, and Nasdaq Rule 2251.
---------------------------------------------------------------------------

(B) Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change imposes 
any burden on competition.

(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 written 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-BATS-2011-036 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-BATS-2011-036. 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-BATS-2011-036 and should be 
submitted on or before October 27, 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 comply 
with the requirements imposed by the Dodd-Frank Act, and because the 
proposed rule text is based upon FINRA Rule 2251, as well as ISE Rule 
421, Nasdaq Rule 2251, and NYSE Arca Rule 9.4.\11\ 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.\12\
---------------------------------------------------------------------------

    \11\ See Securities Exchange Act Release 63139 (October 20, 
2010), 75 FR 65680 (October 26, 2010) (SR-ISE-2010-99); 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.''); 62992 (September 24, 2010), 75 FR 60844 (October 1, 
2010) (SR-NASDAQ-2010-114); and 48735 (October 31, 2003), 68 FR 
63173 (November 7, 2003) (SR-PCX-2003-50).
    \12\ 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).
---------------------------------------------------------------------------

    The Commission believes that proposed Rule 13.3(b) is consistent 
with Section 6(b)(5) \13\ 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.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Under proposed Rule 13.3(b), a Member shall be prohibited from 
voting uninstructed shares unless (1) That Member 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 Member's records clearly indicate the procedure it is 
following. This provision is based on ISE Rule 421, FINRA Rule 2251 and 
NYSE Arca Rule 9.4, which were previously approved by the 
Commission.\14\ The Commission notes that the proposed change will 
provide clarity to Exchange Members going forward on whether broker 
discretionary voting is permitted by Exchange Members under limited 
circumstances when the Member is also a member of another national 
securities exchange or association that permits broker discretionary 
voting. In approving this portion of the proposal, the Commission notes 
that Rule 13.3(b) is consistent with the approach taken under the rules 
of other national securities exchanges or national securities 
association, and for Exchange Members who are not also members of 
another national securities exchange or association prohibits broker 
discretionary voting on any matter, consistent with investor protection 
and the public interest.
---------------------------------------------------------------------------

    \14\ See supra note 11.
---------------------------------------------------------------------------

    The Commission believes that proposed Rule 13.3(c) is consistent 
with Section 6(b)(10) \15\ of the Act, which requires that national 
securities exchanges adopt rules prohibiting members that are not 
beneficial holders of a security from voting uninstructed proxies with 
respect to the election of a member of the board of directors of an 
issuer (except for uncontested elections of directors for companies 
registered under the Investment Company Act), executive compensation, 
or any other significant matter, as determined by the Commission by 
rule.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78f(b)(10).
---------------------------------------------------------------------------

    The Commission believes that proposed Rule 13.3(c) is consistent 
with

[[Page 62110]]

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.'' \16\ The proposed rule change will make the Exchange 
compliant with the new requirements of Section 6(b)(10) by specifically 
prohibiting 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 member receives voting instructions from 
the beneficial owner of the shares.\17\
---------------------------------------------------------------------------

    \16\ See S. Rep. No. 111-176, at 136 (2010).
    \17\ 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.
---------------------------------------------------------------------------

    The Commission also believes that proposed Rule 13.3(c) is 
consistent with Section 6(b)(5) \18\ 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.
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    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.\19\ Based on 
the above, the Commission finds that the Exchange's proposal will 
further the purposes of Sections 6(b)(5) and 6(b)(10) of the Act 
because it should enhance corporate accountability to shareholders 
while also serving to fulfill the Congressional intent in adopting 
Section 6(b)(10) of the Act.
---------------------------------------------------------------------------

    \19\ As the Commission stated in approving NYSE rules 
prohibiting broker voting in the election of directors, having those 
with an economic interest in the company vote the shares, rather 
than the broker who has no such economic interest, furthers the goal 
of enfranchising shareholders. See Securities Exchange Act Release 
No. 60215 (July 1, 2009), 74 FR 33293 (July 10, 2009) (SR-NYSE-2006-
92).
---------------------------------------------------------------------------

    The Commission also believes that Proposed Rule 13.3(a), (d), and 
Interpretations and Policies .01 are consistent with Section 6(b)(5) of 
the Act \20\ in that they are designed to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, and to remove impediments to and perfect the mechanism 
of a free and open market and a national market system. The Commission 
notes that the proposed changes will further align Rule 13.3 with FINRA 
Rule 2251, which should reduce regulatory confusion amongst Members 
that are also members of FINRA, and as the Exchange notes, may also 
reduce regulatory duplication should the proposed rule become a Common 
Rule under the 17d-2 Agreement. Finally, we note that the changes to 
Proposed Rule 13(a), (d), and Interpretations and Policies .01 will 
also further investor protection and the public interest by setting 
forth proxy voting requirements as to beneficial owner accounts as well 
as the requirements that a Member must follow when forwarding proxy or 
other materials to the beneficial owners of the stock or their 
designated investment advisors.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission also finds good cause, pursuant to Section 19(b)(2) 
of the Act,\21\ 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 the proposed changes to Rule 13.3, because the 
proposal will conform the Exchange rule to FINRA Rule 2251, in 
particular, as well as ISE Rule 421, NYSE Arca Rule 9.4 and Nasdaq Rule 
2251, which were published for public comment in the Federal Register 
and approved by the Commission, and for which no comments were 
received.\22\ Further, because proposed Rule 13.3 is substantially 
similar to the FINRA, ISE, NYSE Arca and Nasdaq rules, we do not 
believe it raises any new regulatory issues that were not previously 
considered with adoption of the rules for those other self-regulatory 
organizations.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78s(b)(2).
    \22\ See supra notes 11.
---------------------------------------------------------------------------

    Moreover, proposed Rule 13.3(c) will conform the Exchange's rules 
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. Therefore, the 
Commission believes that good cause exists to grant accelerated 
approval to proposed Rule 13.3(c), because it will conform the Exchange 
rule to the requirements of Section 6(b)(10) of the Act. Moreover, 
proposed Rule 13.3(c) is substantially similar to ISE Rule 421 and 
Nasdaq Rule 2251.\23\
---------------------------------------------------------------------------

    \23\ Id.
---------------------------------------------------------------------------

V. Conclusion

    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\24\ that the proposed rule change (SR-BATS-2011-036) be, and it 
hereby is, approved on an accelerated basis.
---------------------------------------------------------------------------

    \24\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
---------------------------------------------------------------------------

    \25\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-25790 Filed 10-5-11; 8:45 am]
BILLING CODE 8011-01-P