Document ID: SEC-2010-1327-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX, Inc.
Posted Date: 2010-09-01T04:00Z

[Federal Register: September 1, 2010 (Volume 75, Number 169)]
[Notices]               
[Page 53725-53727]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01se10-110]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62775; File No. SR-PHLX-2010-115]

 
Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Amendment to Rule 
862 Relating to, Among Other Things, Eliminate Broker Discretionary 
Voting for All Elections of Directors, Except for Companies Registered 
Under the Investment Company Act of 1940

August 26, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on August 18, 2010, NASDAQ OMX PHLX, Inc. (``PHLX'' 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 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

    The Exchange, pursuant to Section 19(b)(1) of the Act \5\ and Rule 
19b-4 thereunder,\6\ proposes to amend PHLX Rule 862 (Proxies at 
Direction of Owner) to comport with the Chicago Board Options Exchange 
(``CBOE'') Rule 31.85(b) and the New York Stock Exchange (``NYSE'') 
Rule 452 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''),\7\ to amend PHLX Rule 862 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. In 
addition, including the changes noted above, this proposal reorganizes 
the broker voting rules to specifically include 20 instances where 
member organizations may not vote without customer instructions, while 
retaining the prohibition that the member organization may not vote 
without instructions from the customer on matters that may 
substantially affect the rights and privileges of the stockholders. 
This proposal also clarifies proxy procedures and proxy record 
retention.
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    \5\ 15 U.S.C. 78s(b)(1).
    \6\ 17 CFR 240.19b-4.
    \7\ The Commission notes that the exception for companies 
registered under the 1940 Act only apply to uncontested director 
elections, i.e., when there is no counter solicitation. See proposed 
Phlx Rule 862(b)(2).
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.nasdaqtrader.com/micro.aspx?id=PHLXRulefilings, 
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 aspects of such 
statements.

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

1. Purpose
    PHLX Rule 862 provides instructions on how the proxies are voted. 
The purpose of the proposed rule change is to amend PHLX Rule 862(2) to 
comport with CBOE Rule 31.85(b) and NYSE Rule 452 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 
PHLX Rule 862 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. In addition, including the changes noted above, 
this proposal reorganizes the broker voting rules to specifically 
include 20 instances where member organizations may not vote without 
customer instructions, while retaining the prohibition that the member 
organization may not vote without instructions from the customer on 
matters that may substantially affect the rights and privileges of the 
stockholders. This proposal also clarifies proxy procedures and proxy 
record retention.
    The proposed amendment does not materially change the proxy rules 
with the exception of the changes made in this filing. Amending PHLX 
Rule 862 to comport with CBOE Rule 31.85 (b) and NYSE Rule 452 provides 
consistency among the exchanges to eliminate disparities regarding 
proxy voting. The Exchange proposes this amendment in response to a 
request by the Securities and Exchange Commission (the ``Commission'') 
that self-regulatory organizations have uniform proxy rules regarding 
broker discretionary voting.\8\ As a result, PHLX believes the broker 
discretionary voting amendments will have little impact on the market 
participants since the changes are in line with the rules of the other 
self-regulatory organizations as defined within the meaning of Section 
3(a)(26)

[[Page 53726]]

of the Act \9\ (otherwise known as ``SROs''). PHLX members with 
customers are also members of one of the other SROs.
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    \8\ See NYSE Approval Order, 74 FR at 33298, Commission Release 
No. 34-60215 (July 1, 2009), note 69.
    \9\ 15 U.S.C. 78c(a)(26).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \10\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \11\ in particular, in that it is 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. 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 SROs. In particular, for Exchange member organizations that 
are also member firms of other SROs, confusion might arise as to which 
SROs' proxy voting rules are applicable to a company listed on the 
Exchange if there are disparities between the rules of the Exchange and 
the other SROs.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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    The proposal should further the protection of investors and the 
public interest by assuring that voting on matters as critical as the 
election of directors can no longer be determined by member 
organizations without specific instructions from the beneficial owner, 
and thus should enhance corporate governance and accountability to 
shareholders. Additionally, other changes enhance the proxy rules by 
providing clarity to proxy handling and record retention matters which 
also improves the protection to the investors.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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 either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \12\ and Rule 19b-4(f)(6) \13\ thereunder 
because the proposal 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 for 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, provided that the Exchange has given the 
Commission notice of its 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.\14\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6).
    \14\ The Exchange has satisfied the five business day pre-filing 
requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally may 
not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) \15\ permits the Commission to designate 
a shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange has requested that the 
Commission waive the 30-day operative delay period. In making this 
request, the Exchange noted that waiver of the 30-day operative delay 
will conform to the Commission's desire to eliminate any disparities 
with proxy voting.
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    \15\ 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.\16\ 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.\17\ In this 
regard, Phlx's proposed changes to Rule 862 are substantively similar 
to NYSE Rule 452 and CBOE Rule 31.85. 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.\18\ Finally, 
the Commission notes that the clarification of proxy procedures, record 
retention, and other changes to Phlx Rule 862 are based substantially 
on CBOE's rules. 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 
operative upon filing.
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    \16\ 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).
    \17\ See supra note 8.
    \18\ See id.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend 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.\19\
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    \19\ 15 U.S.C. 78s(b)(3)(C).
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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-PHLX-2010-115 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-PHLX-2010-115. 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

[[Page 53727]]

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-PHLX-2010-115 and should be submitted on or before 
September 22, 2010.
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    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-21849 Filed 8-31-10; 8:45 am]
BILLING CODE 8010-01-P