Document ID: SEC-2008-0217-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations: American Stock Exchange LLC
Posted Date: 2008-02-08T05:00Z

[Federal Register: February 8, 2008 (Volume 73, Number 27)]
[Notices]               
[Page 7614-7616]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08fe08-103]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57268; File No. SR-Amex-2006-31]

 
Self-Regulatory Organizations; American Stock Exchange LLC; Order 
Approving Proposed Rule Change, as Modified by Amendment Nos. 1, 2, and 
3 Thereto, Relating to Annual Shareholder Meeting Requirements

February 4, 2008.

I. Introduction

    On April 7, 2006, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') 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 Section 704 (Annual Meetings) of the Amex 
Company Guide.\3\ On December 13, 2007, the Exchange filed Amendment 
No. 1 to the proposed rule change. On December 20, 2007, the Exchange 
filed Amendment No. 2 to the proposed rule change. The proposed rule 
change, as amended by Amendment Nos. 1 and 2 thereto, was published for 
comment in the Federal Register on December 28, 2007.\4\ On January 4, 
2008, the Exchange filed Amendment No. 3 to the proposed rule 
change.\5\ The Commission received no comments regarding the proposal. 
This order approves the proposed rule change, as modified by Amendment 
Nos. 1, 2 and 3 thereto.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Section 704 of the Amex Company Guide.
    \4\ See Securities Exchange Act Release No. 57016 (December 20, 
2007), 72 FR 73911.
    \5\ In Amendment No. 3, Amex made several minor typographical 
corrections to the proposed rule text of Exhibit 5 to accurately 
reflect the names of certain securities. Because Amendment No. 3 is 
technical in nature, it is not subject to notice and comment.
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II. Description of the Proposal

    Amex seeks to amend its annual shareholder meeting requirement 
applicable to its listed issuers. Currently, Section 704 of the Amex 
Company Guide requires all listed companies to hold an annual meeting 
of their shareholders in accordance with such listed company's charter, 
by-laws, and applicable state or other laws. An annual meeting allows 
the equity owners of a company the opportunity to elect directors and 
meet with management to discuss company affairs. The Exchange believes, 
however, that this requirement is not necessary for certain issuers of 
specific types of securities because the holders of such securities do 
not directly participate as equity holders and vote in the election of 
directors. In addition, Amex seeks to clarify when an issuer should 
hold its annual meeting and remove the notice requirement for delayed 
annual meetings.
    First, Amex proposes to amend Section 704 of its Company Guide to 
explicitly state that an issuer generally must hold an annual meeting 
within one year of the end of its fiscal year if it is subject to the 
annual shareholder meeting requirement. In addition, a new listing that 
was not previously subject to the requirement to hold an annual meeting 
would be required to hold its first annual shareholder meeting within 
one year of its fiscal year end following the date of listing. Amex 
proposes two exceptions to these general requirements: (1) An issuer is 
not required to hold an annual meeting if its fiscal year is less than 
twelve months long as a result of a change in its fiscal year end; and 
(2) an issuer does not have to hold an annual meeting in the same year 
in which it completes its initial public offering.
    Amex also proposes to list a variety of securities, the issuers of 
which should not be subject to the foregoing general

[[Page 7615]]

annual shareholder meeting requirement. For example, Amex proposes to 
exempt from the requirement issuers of a number of securities listed 
pursuant to Section 107 (Other Securities) of the Company Guide and 
certain other securities issued by various passive business 
organizations.\6\ The Exchange states that these types of securities 
are typically not an issuer's primary equity security, and their 
holders have only limited economic interests or other rights, which do 
not include voting rights. Although many of these products are issued 
by operating companies with listed equity securities and are thus 
subject to an annual meeting requirement pursuant to the primary 
market's rules, the Exchange stated in its filing that the Company 
Guide should specifically exempt from such requirement those operating 
companies which do not issue common stock or voting preferred stock.\7\
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    \6\ The various types of securities which the Exchange believes 
should not be subject to the annual shareholder meeting requirement 
include: bonds and debentures; currency and index warrants; trust 
preferred securities; contingent value rights; equity-linked term 
notes; index-linked exchangeable notes; index-linked securities; 
commodity-linked securities; currency-linked securities; trust 
certificate securities; investment trusts based on securities of 
individual issuers, stock indexes, or debt instruments; equity 
derivatives; trust issued receipts; commodity-based trust shares; 
currency trust shares; certain partnership interests; and paired 
trust shares. Amex believes that the foregoing securities should be 
exempt because they do not entitle their respective holders to 
voting rights.
    \7\ The Commission notes that issuers of convertible bonds and/
or debentures listed pursuant to Section 104 of the Amex Company 
Guide are not exempt from the annual shareholder meeting requirement 
because such issuers must hold annual shareholder meetings with 
respect to the underlying common stock. See infra note 15 and 
accompanying text.
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    Similarly, Amex proposes to exempt from the general annual meeting 
requirement portfolio depository receipts and index fund shares, which 
are securities issued by unit investment trusts (``UITs'') and open-end 
management investment companies, respectively (collectively, ``ETFs''), 
and typically organized as business trusts. ETFs, which are generally 
passive investment vehicles that seek to match the performance of an 
index, must obtain an exemptive order from the Commission before they 
offer securities. As a result, their operations are circumscribed by 
numerous representations and conditions contained in the applicable 
orders, and they do not typically experience the need for operational 
or other changes requiring a shareholder vote, and, by extension, a 
shareholder meeting.\8\ In addition, UITs do not have boards of 
directors, which the UITs' unitholders would need to elect.\9\ 
Accordingly, the Exchange submits that Section 704 of the Amex Company 
Guide should specifically exclude ETFs from the annual shareholder 
meeting requirement.
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    \8\ The Exchange states that ETFs are registered under, and 
remain subject to, the Investment Company Act of 1940, which already 
imposes various shareholder-voting requirements that may be 
applicable to the ETFs.
    \9\ The Exchange states that UITs are typically operated or 
administered by a corporate trustee, and the portfolio of a UIT, 
which generally consists of a fixed pool of securities, is not 
actively managed.
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    Amex further proposes to exempt from the annual meeting requirement 
issuers of a variety of trust issued receipts (``TIRs'') \10\ based on 
securities, commodities, and currencies. Traditional TIRs (i.e., 
HOLDRs) are securities issued by a trust that holds, but does not 
manage, specific securities on behalf of investors in the trust. Other 
types of TIRs also include Commodity-Based Trust Shares \11\ and 
Currency Trust Shares.\12\ The Exchange states that these trusts 
typically do not hold shareholder (or unitholder) meetings because the 
trusts have no board of directors and essentially serve as conduits for 
the investors' indirect investments in the underlying securities, 
commodities, and/or currencies of the trusts. Similarly, the Exchange 
lists Partnership Units, which are securities issued by a partnership 
that invests in a combination of futures contracts, options on futures 
contracts, forward contracts, commodities, and/or securities.\13\ A 
holder of a Partnership Unit does not have the right of equity 
ownership of the partnership, but instead, obtains a beneficial 
interest in the partnership. Because the partnership is a conduit for 
the investment in the underlying assets, the operation and management 
of the partnership is performed by a general partner without holding 
annual meetings. Lastly, Paired Trust Shares (also known as MACROS) are 
securities designed to track either the positive or negative 
performance of a benchmark underlying asset.\14\ The shares are issued 
by a trust in pairs, with the trust not holding the underlying asset, 
but instead holding only short-term U.S. Treasuries and cash 
equivalents. As the market price of the underlying asset fluctuates, 
U.S. Treasuries and cash are moved between the trusts. As indicated 
above in connection with TIRs, issuers of Paired Trust Shares typically 
do not hold shareholder (or unitholder) meetings because the trusts 
have no board of directors and essentially serve as conduits for the 
investors' indirect investments in the performance of the underlying 
benchmark asset. As a result, Amex believes that Section 704 of the 
Amex Company Guide should specifically exempt the issuers of TIRs, 
Commodity-Based Trust Shares, Currency Trust Share Shares, Partnership 
Units, and Paired Trust Shares from the annual shareholder meeting 
requirement.
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    \10\ A trust issued receipt is defined in Amex Rule 1200(b) as a 
security: (1) That is issued by a trust which holds specified 
securities deposited with the trust; (2) that, when aggregated in 
some specified minimum number, may be surrendered to the trust by 
the beneficial owner to receive the securities; and (3) that pays 
beneficial owners dividends and other distributions on the deposited 
securities, if any are declared and paid to the trustee by an issuer 
of the deposited securities.
    \11\ See Amex Rule 1200A.
    \12\ See Amex Rule 1200B.
    \13\ See Amex Rule 1500.
    \14\ See Amex Rule 1400.
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    For these reasons, Amex states that it has not generally required 
issuers of these securities to hold annual shareholder meetings in the 
past, consistent with their respective governance and organizational 
documents. However, in order to provide greater certainty and 
transparency for listed issuers, Amex believes it is appropriate to 
revise Section 704 of the Company Guide to clarify that only issuers of 
voting and non-voting common stock and voting preferred stock, and 
their equivalents (e.g., callable common stock) are required to hold an 
annual shareholder meeting. With respect to the proposed list of 
securities, the issuers of which would be exempt from holding an annual 
meeting, if such issuers also list common stock or voting preferred 
stock, or their equivalent, such issuers must still hold an annual 
meeting for the holders of that common stock or voting preferred stock, 
or their equivalent.\15\ In addition, the Exchange notes that the 
proposed annual meeting requirement and the listed exemptions from such 
requirement do not supplant any applicable state or Federal securities 
laws concerning annual shareholder meetings.
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    \15\ See proposed Commentary .01 to Section 704 of the Amex 
Company Guide. See also supra note 7.
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    Finally, Amex proposes to remove the provision from Section 704 of 
the Company Guide that requires an issuer, who is unable to hold an 
annual shareholder meeting in a timely manner, to notify the Exchange 
and the stockholders of such issuer of the reasons for the delay, and 
then use good faith efforts to hold the meeting as soon as reasonably 
practicable in light of the

[[Page 7616]]

circumstances causing the delay. Amex believes it is more appropriate 
to address annual meeting delays through its ``Continued Listing and 
Evaluation and Follow-Up'' procedures which are part of the rules 
governing suspension and delisting under Section 1009(a)(i) of the 
Company Guide.\16\ Amex states that it currently does not rely on such 
notification required in Section 704 of the Company Guide to monitor 
compliance with the annual shareholder meeting requirement. Instead, 
the Exchange staff utilizes an electronic database supplemented by 
manual review of proxy statements and, in the case of issuers that do 
not file proxy statements, other Commission filings to determine 
compliance. The electronic database receives public filings on a real-
time basis (i.e., deemed to be within one business day) and generates 
alerts, which are investigated by analysts.
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    \16\ See Section 1009(a) of the Amex Company Guide.
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III. Discussion

    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.\17\ In particular, the Commission believes that the proposal 
is consistent with Section 6(b)(5) of the Act,\18\ which requires, 
among other things, that the rules of a national securities 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 
a national market system, and in general, to protect investors and the 
public interest.
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    \17\ In approving this proposed 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).
    \18\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the Exchange's proposal relating to 
the annual shareholder meeting requirement for listed issuers is 
consistent with the Act. Specifically, the Commission believes that 
clarifying that the issuers of voting and non-voting common stock and 
voting preferred stock, and their equivalents (e.g., callable common 
stock) are required to hold an annual shareholder meeting, the time 
frame within which such issuer is required to hold its annual 
shareholder meeting, and the general exceptions to this proposed rule 
will provide additional transparency and certainty to the annual 
shareholder meeting requirement.
    In addition, with respect to the proposed list of securities, the 
issuers of which would be exempt under the Exchange's rules to hold an 
annual shareholder meeting, the Commission believes that the proposal 
furthers the removal of impediments to a free and open market while 
continuing to ensure the protection of investors and the public 
interest, two principles set forth in Section 6(b)(5) of the Act. The 
Commission believes the right of shareholders to vote at an annual 
meeting is an essential and important one. The Commission, however, 
agrees with Amex that the requirement to hold an annual shareholder 
meeting may not be necessary for certain issuers of specific types of 
securities because the holders of such securities do not directly 
participate as equity holders and vote in the election of directors or 
on the affairs, operations, or policies of the company. The Commission 
notes that, although many of the securities proposed to be exempt from 
the general requirement are issued by operating companies that have 
also issued listed equity securities and would nevertheless be subject 
to the annual shareholder meeting requirement, only those issuers which 
do not issue common stock or voting preferred stock or their equivalent 
would be exempt from the annual shareholder meeting requirement. The 
Commission further notes that the proposed annual shareholder meeting 
requirement and the listed exemptions from such requirement do not 
supplant any applicable state or federal securities laws concerning 
annual shareholder meetings.\19\
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    \19\ The Commission submits that listed issuers that would be 
exempt under Section 704 of the Amex Company Guide, as proposed, 
would not be precluded from holding special meetings of holders of 
the relevant securities.
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    Finally, the Commission believes that Amex's proposal to remove the 
provisions relating to notification of a delayed annual shareholder 
meeting and the use of good faith efforts to hold such meeting as soon 
as reasonably practicable is consistent with the Act. The Exchange 
states that it does not rely on the notification requirement from 
issuers to monitor compliance of the annual shareholder meeting 
requirement, but, instead, actively utilizes a real-time electronic 
database and manual review of proxy statements or other Commission 
filings to determine compliance. It appears that Amex's notification 
procedures provide it with timely information to enforce compliance 
with the annual shareholder meeting requirement. Further, in the 
absence of a compelling regulatory concern, the Commission believes 
that it is a reasonable exercise of the Exchange's self-regulatory 
oversight to choose the means of best addressing compliance with its 
proposed annual shareholder meeting requirement. The Commission also 
notes that the proposal to remove the provision regarding the use of 
good faith efforts to hold the annual shareholder meeting as soon as 
reasonably practicable is similar to, and conforms with, the equivalent 
annual shareholder meeting rules of other national securities 
exchanges.\20\ The Commission further notes that under the proposed 
rule change, companies will be required to hold their annual 
shareholder meeting within the specific time periods set forth in 
Section 704 of the Amex Company Guide. Thus, the new rule will require 
stricter adherence to the annual shareholder meeting requirement, in 
furtherance of the public interest and investor protection. Companies 
that do not comply with the annual shareholder meeting time periods 
will be in violation of the Exchange's new rules.
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    \20\ See, e.g., Rule IM-4350-8 (Shareholder Meetings) of The 
NASDAQ Stock Market LLC; Sections 302 and 401 of the Listed Company 
Manual of the New York Stock Exchange LLC.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\21\ that the proposed rule change (SR-Amex-2006-31), as modified 
by Amendment Nos. 1, 2, and 3 thereto, be, and it hereby is, approved.
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    \21\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ See 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-2347 Filed 2-7-08; 8:45 am]

BILLING CODE 8011-01-P