Document ID: SEC-2010-1501-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2010-10-01T04:00Z

[Federal Register: October 1, 2010 (Volume 75, Number 190)]
[Notices]               
[Page 60844-60846]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01oc10-114]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62992; File No. SR-NASDAQ-2010-114]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Order Granting Accelerated Approval of Proposed 
Rule Change To Prohibit Members From Voting Uninstructed Shares on 
Certain Matters

September 24, 2010.
    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 September 14, 2010, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``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 substantially prepared by Nasdaq. 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 the 
Substance of the Proposed Rule Change

    Nasdaq proposes to modify Rule 2251 to prohibit members from 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, unless 
instructed by the beneficial owner of the shares. The text of the 
proposed rule change is below. Proposed new language is in italics; 
proposed deletions are in brackets.\3\
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    \3\ Changes are marked to the rule text that appears in the 
electronic manual of Nasdaq found at http://
nasdaqomx.cchwallstreet.com.
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2251. Forwarding of Proxy and Other Issuer-Related Materials
    (a)-(c) No change.
    (d) Notwithstanding the foregoing, a Nasdaq Member that is not the 
beneficial owner of a security registered under Section 12 of the 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 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 beneficial owner of 
the security has instructed the member to vote the proxy in accordance 
with the voting instructions of the beneficial owner.
* * * * *

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

    In its filing with the Commission, Nasdaq 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 III below. Nasdaq 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
    Section 957 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (the ``Dodd-Frank Act'') adopted new Section 6(b)(10) of 
the Securities Exchange Act.\4\ This new provision requires all 
national securities exchanges to adopt rules that prohibit their 
members from 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, unless the member receives voting 
instructions from the beneficial owner of the shares.
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    \4\ 15 U.S.C. 78f(b)(10).
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    NASDAQ Rule 2251 governs when NASDAQ members may vote shares held 
for customers by adopting the FINRA rule on this point. The FINRA rule, 
in turn, prohibits members from voting any uninstructed shares, but 
also permits the member to follow the rules of another SRO instead.\5\ 
In order to

[[Page 60845]]

assure compliance, in all cases, with newly adopted Section 6(b)(10), 
NASDAQ proposes to modify Rule 2251 to provide that in no event could a 
member vote uninstructed shares 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, unless instructed by the beneficial owner 
of the shares.
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    \5\ The Commission notes that the FINRA rule, and by reference 
Nasdaq's rule, only allows a member to follow the rules of another 
SRO of which it is a member, provided that the records of the member 
clearly indicate the procedure it is following. See FINRA Rule 
2251(c)(2).
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2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\6\ in general and with Section 
6(b)(10) of the Act,\7\ in particular. Section 6(b)(10) requires that a 
national securities exchange's rules must prohibit any member that is 
not the beneficial owner of a security registered under Section 12 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 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. The proposed 
rule change will adopt the prohibition required by Section 6(b)(10).
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    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(10).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq does not believe that the proposed rule change will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.

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

    Written comments were neither solicited nor 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-NASDAQ-2010-114 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-NASDAQ-2010-114. 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 Nasdaq. 
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-NASDAQ-2010-
114 and should be submitted on or before October 22, 2010.

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

    In its filing, Nasdaq 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. 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.\8\
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    \8\ 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 the proposal 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. The Commission also believes that the proposal is consistent with 
Section 6(b)(5) \10\ 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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    \9\ 15 U.S.C. 78f(b)(10).
    \10\ 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.'' \11\ The proposed rule change will make Nasdaq compliant with 
the new requirements of Section 6(b)(10) by specifically prohibiting, 
in Nasdaq'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 member receives voting 
instructions

[[Page 60846]]

from the beneficial owner of the shares.\12\
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    \11\ See S. Rep. No. 111-176, at 136 (2010).
    \12\ 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 Nasdaq 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 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 Nasdaq 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. 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 the Exchange's proposal, because it will conform Nasdaq 
Rule 2251 to the requirements of Section 6(b)(10) of the Act.
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    \14\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\15\ that the proposed rule change (SR-Nasdaq-2010-114) be, and it 
hereby is, approved on an accelerated basis.
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    \15\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-24606 Filed 9-30-10; 8:45 am]
BILLING CODE 8010-01-P