Document ID: SEC-2011-0419-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Stock Exchange, Inc.
Posted Date: 2011-03-30T04:00Z

[Federal Register Volume 76, Number 61 (Wednesday, March 30, 2011)]
[Notices]
[Pages 17728-17730]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-7458]

[[Page 17728]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64121; File No. SR-CHX-2011-01]

Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Order Granting Accelerated Approval of a Proposed 
Change to Rules Regarding Proxy Voting by Participants

March 24, 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 March 15, 2011, the Chicago Stock Exchange, Inc. (``CHX'' or 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 CHX. 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.
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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

    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 that 
Participants are prohibited from voting uninstructed shares if the 
matter voted on relates to executive compensation, in accordance with 
provisions of Section 957 of the Dodd-Frank Act, which was signed by 
the President on July 21, 2010. 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 III 
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
    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 that 
Participants are prohibited from voting uninstructed shares if the 
matter voted on relates to executive compensation, in accordance with 
provisions of Section 957 of the Dodd-Frank Act, which was signed by 
the President on July 21, 2010. Because Section 957 of the Dodd-Frank 
Act does not provide for a transition phase, the Exchange is proposing 
to adopt the proposed rule changes pursuant to Section 19(b) of the Act 
to comply with Section 957 of the Dodd-Frank Act and is requesting that 
the Commission approve the proposal on an accelerated basis. We are 
also proposing to correct an incorrect cross reference in subsection 
(a) as well as adding the words ``or authorize'' in certain places 
throughout the rule to clarify that the rule includes not only the 
giving of a proxy but also the authorization of such proxy.
Current Requirements of CHX Article 8, Rule 14
    Under current CHX and Commission proxy rules, brokers 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 a broker may vote on 
certain matters when the broker 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. In 
addition, the Rule currently identifies 20 matters with respect to 
which brokers may not vote without instructions from beneficial owners.
Enactment of the Dodd-Frank Wall Street Reform and Consumer Protection 
Act
    Prior to the July 21, 2010 enactment of the Dodd-Frank Act, under 
Rule 14 and the Exchange's prior interpretations, Participants were 
permitted to cast votes on some matters, including some executive 
compensation proposals, without specific instructions from beneficial 
owners of the stock. However, the Dodd-Frank Act contains a provision 
explicitly requiring the elimination of broker discretionary voting on 
matters related to executive compensation.
    Section 957 of the Dodd-Frank Act amends Section 6(b) \3\ of 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 (i) with respect to 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 of 1940 (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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    The Exchange prohibits Participants from voting uninstructed shares 
if the matter voted on is the election of directors (other than in the 
case of an issuer registered under the Investment Company Act, provided 
the matter is not the subject of a counter-solicitation). In addition, 
the Commission has not at this time identified other significant 
matters with respect to which the Exchange must prohibit member 
organizations from voting uninstructed shares. Accordingly, in order to 
carry out the requirements of Section 957 of the Dodd-Frank Act, the 
Exchange proposes to amend CHX Article 8, Rule 14 to prohibit 
Participants from voting uninstructed shares if the matter voted on 
relates to executive compensation.
    Specifically, the Exchange is proposing to add a new Item (u) and 
accompanying commentary to CHX Article 8, Rule 14 (Proxies) to provide 
that a Participant may not give or authorize a proxy to vote without 
instructions from the beneficial owner when the matter to be voted upon 
relates to executive compensation.
    The proposed commentary to Item (u) would clarify that a matter 
relating to executive compensation would include, among other things, 
the items referred to in Section 14A of the Exchange Act (added by 
Section 951 of the Dodd-Frank Act), including (i) an advisory vote to 
approve the compensation of

[[Page 17729]]

executives, (ii) a vote on whether to hold such an advisory vote every 
one, two or three years, and (iii) an advisory vote to approve any type 
of compensation (whether present, deferred, or contingent) that is 
based on or otherwise relates to an acquisition, merger, consolidation, 
sale, or other disposition of all or substantially all of the assets of 
an issuer and the aggregate total of all such compensation that may 
(and the conditions upon which it may) be paid or become payable to or 
on behalf of an executive officer. In addition, a Participant may not 
give or authorize a proxy to vote without instructions on a matter 
relating to executive compensation, even if such matter would otherwise 
qualify for an exception from the requirements of Item (l), Item (m) or 
any other Item under CHX Article 8, Rule 14. The Exchange also proposes 
to add cross reference commentary to Items (l) and (m) to further 
clarify this point. Any vote on these or similar executive 
compensation-related matters would be subject to the requirements of 
CHX Article 8, Rule 14, as amended.
    The Exchange notes that the foregoing change is based upon the 
change that has been adopted by the New York Stock Exchange and that 
has been previously approved by the Commission.\5\
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    \5\ See Securities Act Release No. 62874 (September 9, 2010), 75 
FR 56152 (September 15, 2010) (SR-NYSE-2010-59).
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') \6\ and the rules and 
regulations thereunder and, in particular, the requirements of Section 
6(b) of the Act.\7\ Specifically, the Exchange believes the proposed 
rule change is consistent with the Section 6(b)(10) \8\ 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 the proposed rule change is consistent with 
the Section 6(b)(5) \9\ requirements that an exchange have rules that 
are designed 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 the proposed rule changes to comply with the 
requirements of Section 957 of the Dodd-Frank Act, and therefore 
believes the proposed rule changes to be consistent with Section 
6(b)(5) of the Act, particularly with respect to the protection of 
investors and the public interest.
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    \6\ 15 U.S.C. 78a et seq.
    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(10).
    \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. 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-2011-01 on the subject line.
Paper Comments
     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-CHX-2011-01. 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 CHX. 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 publicly available. All 
submissions should refer to File Number SR-CHX-2011-01 and should be 
submitted on or before April 20, 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. The Exchange stated that it 
believed good cause existed to grant accelerated approval because 
Section 957 of the Dodd-Frank Act does not provide for a transition 
period.
    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.\10\ The Commission believes that the proposal is consistent 
with Section 6(b)(10) \11\ 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. The Commission also believes that the proposal is consistent with 
Section 6(b)(5) \12\ of the Act, which provides, among other things, 
that the rules of the Exchange

[[Page 17730]]

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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    \10\ 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).
    \11\ 15 U.S.C. 78f(b)(10).
    \12\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the proposal 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 adopts 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.'' \13\ The proposed rule change will make CHX rules compliant 
with the new requirements of Section 6(b)(10) by prohibiting broker-
dealers, who are not beneficial owners of a security, from voting 
uninstructed shares with respect to any matter on executive 
compensation.\14\
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    \13\ See S. Rep. No. 111-176, at 136 (2010).
    \14\ As noted above, Section 6(b)(10) also prohibits broker 
voting for director elections, except for uncontested director 
elections of registered investment companies, and also ``any other 
significant matter, as determined by the Commission, by rule.'' CHX 
already prohibits broker voting in director elections except for 
uncontested director elections for registered investment companies. 
See CHX Article 8, Rule 14(c)(4)(s) and note 15, infra. As to other 
matters, 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 CHX to adopt 
coordinating rules promptly to comply with the statute.
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    The Commission believes that the proposal is consistent with 
Section 6(b)(5) of the Act because the proposal will further investor 
protection and the public interest by assuring that shareholder votes 
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.\15\
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    \15\ 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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    The Commission notes that the CHX's new rule prohibiting 
uninstructed broker votes on executive compensation covers the specific 
items identified in Section 951 of the Dodd-Frank Act, as well as any 
other matter concerning executive compensation, and has been drafted 
broadly to reflect the requirements of Section 6(b)(10) of the Act. The 
proposed rule language also specifically states that a broker vote on 
any executive compensation matter would not be permitted even it would 
otherwise qualify for an exception from any item under Article 8, Rule 
14. The Commission believes this provision will make clear that any 
past practice or interpretation that may have permitted a broker vote 
on an executive compensation matter, under existing rules, will no 
longer be applicable and is superseded by the newly adopted provisions.
    Finally, the Commission notes that the change to reflect that the 
CHX rules prohibit not only the giving of a proxy, but also the 
authorization of the proxy, should help to clarify the intent of the 
CHX proxy rules and is consistent with the requirements of Section 6 of 
the Act.
    Based on the above, the Commission believes that CHX's proposal 
will further the purposes of Sections 6(b)(5) and 6(b)(10) of the Act 
by ensuring that brokers, holding shares on behalf of beneficial 
owners, are not voting uninstructed shares on matters relating to 
executive compensation, which should enhance corporate accountability 
to shareholders. The rule filing should also serve 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,\16\ for approving the proposed rule change prior to the 
30th day after the date of publication of notice in the Federal 
Register. As noted above, 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, 
among other things, broker voting on executive compensation. The 
Commission believes that good cause exists to grant accelerated 
approval to the Exchange's proposal, because it will conform Article 8, 
Rule 14 to the requirements of Section 6(b)(10) of the Act. Moreover, 
the Commission notes that the proposed changes are based on NYSE Rule 
452.\17\
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    \16\ 15 U.S.C. 78s(b)(2).
    \17\ See supra note 5.
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\18\ that the proposed rule change (SR-CHX-2011-01) be, and it 
hereby is, approved on an accelerated basis.
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    \18\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-7458 Filed 3-29-11; 8:45 am]
BILLING CODE 8011-01-P