Document ID: SEC-2010-1630-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2010-10-26T04:00Z

[Federal Register: October 26, 2010 (Volume 75, Number 206)]
[Notices]               
[Page 65680-65683]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26oc10-130]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63139; File No. SR-ISE-2010-99]

 
Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Order Granting Accelerated Approval of 
Proposed Rule Change To Adopt ISE Rule 421 Relating to Proxy Voting

October 20, 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 October 6, 2010, the International Securities Exchange, LLC (``ISE'' 
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 the Exchange. 
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

    The Exchange proposes to adopt Rule 421 (Proxy Voting), in 
accordance with the provisions of Section 957 of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act (the ``Dodd-Frank Act'').
    The text of the proposed rule change is available on the Exchange's 
Internet Web site at http://www.ise.com, 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 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 these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
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
    The Exchange is proposing to adopt ISE Rule 421 (Proxy Voting), in 
accordance with the provisions of Section 957 of the Dodd-Frank Act, to 
prohibit Members from voting uninstructed shares if the matter voted on 
relates to (i) 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.
    Section 957 of the Dodd-Frank Act amends Section 6(b) \3\ of the 
Act to

[[Page 65681]]

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 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 with respect to (i) 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), (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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    Accordingly, in order to carry out the requirements of Section 957 
of the Dodd-Frank Act, the Exchange proposes to adopt proposed ISE Rule 
421 to prohibit any Member from giving a proxy to vote stock that is 
registered in its name, unless: (i) Such Member is the beneficial owner 
of such stock; (ii) pursuant to the written instructions of the 
beneficial owner; or (iii) pursuant to the rules of any national 
securities exchange or association of which it is a member provided 
that the records of the Member clearly indicate the procedure it is 
following. The Exchange is proposing to adopt these rules because other 
national securities exchanges and associations do allow proxy voting 
under certain limited circumstances while the current Exchange Rules 
are silent on such matters. Therefore, a Member that is also a member 
of another national securities exchange or association may vote the 
shares held for a customer when allowed under its membership at another 
national securities exchange or association, provided that the records 
of the Member clearly indicate the procedure it is following.
    More specifically, a 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 with respect to the election of a member of the board of directors 
of an issuer (except for a vote with respect to uncontested election of 
a member of the board of directors of any investment company registered 
under the Investment Company Act), 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.
    Because Section 957 of the Dodd-Frank Act does not provide for a 
transition phase, the Exchange is proposing to adopt the proposed rule 
change 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. Additionally, proposed ISE Rule 
421(a) is based on NYSE Arca, Inc. (``NYSE Arca'') rule 9.4 and 
Financial Industry Regulatory Authority (``FINRA'') rule 2251 and 
proposed ISE Rule 421(b) is based on Nasdaq rule 2251(d).
2. Statutory Basis
    The basis under the Act for these proposed rule changes is the 
requirement under Section 6(b)(5) \5\ 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 this 
proposed rule change to comply with the requirements of Section 957 of 
the Dodd-Frank Act, and therefore believes the proposed rule change to 
be consistent with the Act, particularly with respect to the protection 
of investors and the public interest.
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    \5\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change does not 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 on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any unsolicited written comments from members or other interested 
parties.

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-ISE-2010-99 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-ISE-2010-99. 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 ISE. 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-ISE-2010-99 and should be 
submitted on or before November 16, 2010.

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

    In its filing, ISE 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, and because 
the proposed rule text is based upon NYSE Arca Rule 9.4, FINRA Rule 
2251, and Nasdaq Rule 2251(d). After careful consideration, the 
Commission finds that the proposed

[[Page 65682]]

rule change is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
exchange.\6\
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    \6\ 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 proposed Rule 421(a) is consistent 
with Section 6(b)(5) \7\ 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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    \7\ 15 U.S.C. 78f(b)(5).
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    Under proposed Rule 421(a), a Member shall be prohibited from 
voting uninstructed shares unless: (1) That member is the beneficial 
owner of the stock; (2) pursuant to the written instructions of the 
beneficial owner; or (3) pursuant to the rules of any national 
securities exchange or association of which it is also a member, 
provided that the member's records clearly indicate the procedure it is 
following. This provision is based upon NYSE Arca Rule 9.4 and FINRA 
Rule 2251, which were previously approved by the Commission.\8\ The 
Commission notes that the proposed change to Rule 421(a) will provide 
clarity to ISE members going forward on whether broker discretionary 
voting is permitted by ISE members under limited circumstances when the 
ISE member is also a member of another national securities exchange 
that permits broker discretionary voting. In approving this portion of 
the ISE proposal, the Commission notes that it does not go outside the 
scope of the rules of other national securities exchanges or national 
securities association, and for ISE members who are not also members of 
another national securities exchange prohibits broker discretionary 
voting on any matter, consistent with investor protection and the 
public interest.
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    \8\ See Securities Exchange Act Release No. 48735 (October 31, 
2003), 68 FR 63173 (November 7, 2003) (SR-PCX-2003-50); 61052 
(November 23, 2009), 74 FR 62857 (December 1, 2009) (SR-FINRA-2009-
066) (finding that the proposed rule change was consistent with the 
Act because the Rule ``will continue to provide FINRA members with 
guidance on the forwarding of proxy and other issuer-related 
materials.'').
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    The Commission believes that proposed Rule 421(b) 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.
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    \9\ 15 U.S.C. 78f(b)(10).
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    The Commission believes that proposed Rule 421(b) 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 enacted 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.'' \10\ The proposed rule change will make ISE 
compliant with the new requirements of Section 6(b)(10) by specifically 
prohibiting, in ISE'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 from the beneficial owner of the shares.\11\
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    \10\ See S. Rep. No. 111-176, at 136 (2010).
    \11\ 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 ISE to adopt 
coordinating rules promptly to comply with the statute.
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    The Commission also believes that proposed Rule 421(b) is 
consistent with Section 6(b)(5) \12\ 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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    \12\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the rule assures 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 ISE 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. The Commission believes that good cause exists to grant 
accelerated approval to proposed Rule 421(a), because this proposed 
rule will conform the ISE rule to NYSE Arca Rule 9.4 and FINRA Rule 
2251, which were published for public comment in the Federal Register 
and approved by the Commission, and for which no comments were 
received.\15\ Because proposed Rule 421(a) is substantially similar to 
the NYSE Arca and FINRA rules, it raises no new regulatory issues.
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    \14\ 15 U.S.C. 78s(b)(2).
    \15\ See note 8 supra.
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    The Commission also believes that good cause exists to grant 
accelerated approval to proposed Rule 421(b), which conforms the ISE 
rules to the requirements of Section 6(b)(10) of the Act. 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

[[Page 65683]]

accelerated approval to proposed Rule 421(b), because it will conform 
the ISE rules to the requirements of Section 6(b)(10) of the Act.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\16\ that the proposed rule change (SR-ISE-2010-99) be, and it 
hereby is, approved on an accelerated basis.
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    \16\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-26993 Filed 10-25-10; 8:45 am]
BILLING CODE 8011-01-P