Document ID: SEC-2010-0442-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2010-03-24T04:00Z

[Federal Register: March 24, 2010 (Volume 75, Number 56)]
[Notices]               
[Page 14231-14233]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24mr10-136]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61732; File No. SR-CBOE-2010-027]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend CBOE Rule 31.85 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 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on March 4, 2010, the Chicago Board Options Exchange, Incorporated 
(the ``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule change as described 
in Items I and II below, which Items have been prepared by the 
Exchange. 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

    CBOE proposes to amend CBOE Rule 31.85 to eliminate broker 
discretionary voting for all elections of directors at shareholder 
meetings, whether contested or not, except for companies registered 
under the Investment Company Act of 1940 (the ``1940 Act''), to amend 
CBOE Rule 31.85 to preclude broker discretionary voting on a matter 
that materially amends an investment advisory contract with an 
investment company, and to define 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 advisor The text of the proposed rule 
change is available on the Exchange's Web site (http://www.cboe.org/
legal), at the Exchange's Office of the Secretary, and at the 
Commission.

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 those 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    A shareholder of a public company may hold shares either directly, 
as the record holder, or indirectly, as the beneficial holder, with the 
shares held in the name of the beneficial shareholder's broker-dealer, 
bank nominee, or custodian (``securities intermediary''), which is the 
record holder.\5\ The latter generally is referred to as holding 
securities in ``street name.'' \6\ The number of beneficial owners 
holding securities in street name has increased significantly over the 
past thirty-three years.
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    \5\ See Commission Release No. 34-60215 (July 1, 2009).
    \6\ See supra note 2 [sic].
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    Currently, CBOE Rule 31.85 permits brokers to vote without voting 
instructions from the beneficial owner on uncontested elections of 
directors.\7\ Rule 31.85 also lays out a list of enumerated items for 
which a member may not give a proxy to vote without instructions from 
the beneficial owner.\8\ This list does not include the election of 
directors. Due to the increase in the holding of securities in street 
name, the impact of the broker vote on the election of directors has 
become increasingly significant. At the same time, the number of proxy 
campaigns, such as ``just vote no'' or ``withhold'' campaigns, that 
have targeted the election of directors without a formal contest has 
also increased. This has made the ``uncontested'' election of directors 
a more controversial, as opposed to routine, matter.\9\
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    \7\ See CBOE Rule 31.85(a), which explains the process and 
situations in which brokers may vote without voting instructions 
from the beneficial owner.
    \8\ See CBOE Rule 31.85(b).
    \9\ See supra note 2 [sic].
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    In light of this development, the New York Stock Exchange proposed 
a rule filing to declare the election of directors ineligible for 
broker discretionary voting.\10\ The Commission approved this filing, 
as amended, on July 1, 2009.\11\ Correspondingly, CBOE proposes to 
amend CBOE Rule 31.85 to add all elections of directors at shareholder 
meetings whether contested or not, except for companies registered 
under the 1940 Act, to the list of enumerated items for which a member 
may not give a proxy to vote without instructions from the beneficial 
owner.
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    \10\ See SR-NYSE-2006-92.
    \11\ See supra note 2 [sic].
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    CBOE also proposes to amend CBOE Rule 31.85 to preclude broker 
discretionary voting on a matter that materially amends an investment 
advisory contract with an investment company and to define 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 advisor for which 
shareholder approval is required by the 1940 Act and the rules 
thereunder. These proposed amendments will help ensure the full and 
effective voting rights of investment company shareholders on material 
matters.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the

[[Page 14232]]

Securities Exchange Act of 1934 (the ``Act'') \12\ and the rules and 
regulations thereunder and, in particular, the requirements of Section 
6(b) of the Act.\13\ The Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \14\ requirements that the rules of 
an exchange be designed to promote just and equitable principles of 
trade, to prevent fraudulent and manipulative acts, to remove 
impediments to and to perfect the mechanism for a free and open market 
and a national market system, and, in general, to protect investors and 
the public interest. Specifically, the Exchange believes that the 
proposed rule change will protect investors and the public interest by 
ensuring better corporate governance and transparency of the election 
process for directors and by promoting greater uniformity with the 
proxy rules of other exchanges.\15\ In particular, for Exchange member 
firms that are also members of other exchanges, confusion might arise 
as to which exchange's proxy voting rules are applicable to a company 
listed on the Exchange if there are disparities between proxy voting 
rules of different exchanges.\16\ The proposed rule change will better 
enfranchise shareholders and enhance corporate governance and 
accountability to shareholders.\17\
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    \12\ 15 U.S.C. 78s(b)(1).
    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
    \15\ See Securities Exchange Act Release No. 34-61292 (January 
5, 2010), 75 FR 1664 (January 12, 2010) (SR-NYSEAmex-2009-93).
    \16\ See supra note 12 [sic].
    \17\ See supra note 2 [sic].
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B. Self-Regulatory Organization's Statement on Burden on Competition

    CBOE 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

    No written comments were solicited or received with respect to the 
proposed rule change.

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 \18\ and Rule 19b-4(f)(6) thereunder.\19\ 
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 
\20\ and Rule 19b-4(f)(6)(iii) thereunder.\21\
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    \18\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \19\ 17 CFR 240.19b-4(f)(6).
    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 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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    A proposed rule change filed under Rule 19b-4(f)(6) \22\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b4(f)(6)(iii),\23\ 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 and NYSE Amex. The Exchange stated that waiver of the 30-
day operative delay will allow the change to become operative 
immediately and conform to the Commission's desire to eliminate any 
disparities involving voting.
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    \22\ 17 CFR 240.19b-4(f)(6).
    \23\ 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.\24\ 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 conform the Exchange's rule to the NYSE's rule with 
respect to voting on investment advisory contracts. Moreover, the 
Commission notes that the NYSE's adopted rule changes were subject to 
full notice and comment, and considered and approved by the 
Commission.\25\ 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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    \24\ 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).
    \25\ See supra note 5.
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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-CBOE-2010-027 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-CBOE-2010-027. 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

[[Page 14233]]

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-CBOE-2010-027 and should be 
submitted on or before April 14, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-6514 Filed 3-23-10; 8:45 am]
BILLING CODE 8011-01-P