Document ID: SEC-2010-1407-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2010-09-15T04:00Z

[Federal Register: September 15, 2010 (Volume 75, Number 178)]
[Notices]               
[Page 56152-56154]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15se10-124]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62874; File No. SR-NYSE-2010-59]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Order Granting Accelerated Approval of a Proposed 
Rule Change To Amend NYSE Rule 452 and Listed Company Manual Section 
402.08 To Eliminate Broker Discretionary Voting on Executive 
Compensation Matters

September 9, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'' or ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on August 26, 2010, New York Stock Exchange LLC 
(``NYSE'' or the ``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 NYSE. 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 Substance 
of the Proposed Rule Change

    The Exchange is proposing to amend NYSE Rule 452, and corresponding 
NYSE Listed Company Manual Section 402.08, to prohibit member 
organizations from voting uninstructed shares if the matter voted on 
relates to executive compensation, in accordance with the provisions of 
Section 957 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (the ``Dodd-Frank Act''), which was signed by the 
President on July 21, 2010.
    The text of the proposed rule change is available at http://
www.nyse.com, at the Exchange's principal office, at the Commission's 
Public Reference Room, and on the Commission's Web site at http://
www.sec.gov.

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 changes. The text of these statements may be examined at 
the places specified in Item III below and is set forth in Sections A, 
B and C below.

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 amend NYSE Rule 452, titled Giving 
Proxies by Member Organizations, and corresponding NYSE Listed Company 
Manual Section 402.08, to prohibit member organizations from voting 
uninstructed shares if the matter voted on relates to executive 
compensation, in accordance with the provisions of Section 957 of the 
Dodd-Frank Act, which was signed by the President on July 21, 2010. 
Because Section 957 of the Dodd-Frank Act does not provide for a 
transition phase, the Exchange is proposing to adopt the proposed rule 
changes 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. We are also proposing to add the 
words ``or authorize'' in certain places throughout the rule to clarify 
that the rule includes not only the giving of a proxy but also the 
authorization of such proxy.
Current Requirements of NYSE Rule 452
    Under current NYSE and Commission proxy rules, brokers must deliver 
proxy materials to beneficial owners and request voting instructions in 
return. If voting instructions have not been received by the tenth day 
preceding the meeting date, Rule 452 provides that a broker may vote on 
certain matters when the broker has no knowledge of any contest as to 
the action to be taken at the meeting and provided such action is 
adequately disclosed to stockholders, and does not include 
authorization for a merger, consolidation or any matter which may 
affect substantially the rights or privileges of such stock. In 
addition, the Rule currently identifies 20 matters with respect to 
which brokers may not vote without instructions from beneficial owners.
Enactment of the Dodd-Frank Wall Street Reform and Consumer Protection 
Act
    Prior to the July 21, 2010 enactment of the Dodd-Frank Act, under 
Rule 452 and the Exchange's prior interpretations, member organizations 
were permitted to cast votes on some matters, including some executive 
compensation proposals, without specific instructions from beneficial 
owners of the stock. However, the Dodd-

[[Page 56153]]

Frank Act contains a provision explicitly requiring the elimination of 
broker discretionary voting on matters related to executive 
compensation.
    Section 957 of the Dodd-Frank Act amends Section 6(b) \3\ of the 
Exchange Act to 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 Exchange 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 (i) with respect to 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.
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    \3\ 15 U.S.C. 78f(b). The Commission notes that Section 957 
amends Section 6(b) of the Act by adding Section 6(b)(10).
    \4\ 15 U.S.C. 78l.
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    The Exchange prohibits member organizations from voting 
uninstructed shares if the matter voted on is the election of directors 
(other than in the case of an issuer registered under the Investment 
Company Act, provided the matter is not the subject of a counter-
solicitation). In addition, the Commission has not at this time 
identified other significant matters with respect to which the Exchange 
must prohibit member organizations from voting uninstructed shares. 
Accordingly, in order to carry out the requirements of Section 957 of 
the Dodd-Frank Act, the Exchange proposes to amend NYSE Rule 452, and 
corresponding NYSE Listed Company Manual Section 402.08, to prohibit 
member organizations from voting uninstructed shares if the matter 
voted on relates to executive compensation.
    Specifically, the Exchange is proposing to add a new Item 21 and 
accompanying commentary to NYSE Rule 452.11 (When member organization 
may not vote without customer instructions), and corresponding NYSE 
Listed Company Manual Section 402.08(B) (When Member Organization May 
Not Vote Without Customer Instructions), to provide that a member 
organization may not give or authorize a proxy to vote without 
instructions from the beneficial owner when the matter to be voted upon 
relates to executive compensation.
    The proposed commentary to Item 21 would clarify that a matter 
relating to executive compensation would include, among other things, 
the items referred to in Section 14A of the Exchange Act (added by 
Section 951 of the Dodd-Frank Act), including (i) an advisory vote to 
approve the compensation of executives, (ii) a vote on whether to hold 
such an advisory vote every one, two or three years, and (iii) an 
advisory vote to approve any type of compensation (whether present, 
deferred, or contingent) that is based on or otherwise relates to an 
acquisition, merger, consolidation, sale, or other disposition of all 
or substantially all of the assets of an issuer and the aggregate total 
of all such compensation that may (and the conditions upon which it 
may) be paid or become payable to or on behalf of an executive officer. 
In addition, a member organization may not give or authorize a proxy to 
vote without instructions on a matter relating to executive 
compensation, even if such matter would otherwise qualify for an 
exception from the requirements of Item 12, Item 13 or any other Item 
under NYSE Rule 452.11 and corresponding Listed Company Manual Section 
402.08. Any vote on these or similar executive compensation-related 
matters would be subject to the requirements of NYSE Rule 452, as 
amended, and corresponding NYSE Listed Company Manual Section 402.08, 
as amended.
Effective Date
    Because Section 957 of the Dodd-Frank Act does not provide for a 
transition phase, the Exchange is proposing to adopt the proposed rule 
changes 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.
2. Statutory Basis
    The basis under the Exchange Act for these proposed rule changes is 
the requirement under Section 6(b)(5) \5\ that an exchange have rules 
that are designed 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. We are 
adopting these proposed rule changes to comply with the requirements of 
Section 957 of the Dodd-Frank Act, and therefore believe the proposed 
rule changes 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 Exchange does not believe that the proposed rule changes will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Exchange Act, as amended by the 
Dodd-Frank Act.

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

    The Exchange has neither solicited nor received written comments on 
the proposed rule changes.

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-NYSE-2010-59 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSE-2010-59. 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

[[Page 56154]]

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 NYSE. 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 publicly available. All submissions should refer to File Number 
SR-NYSE-2010-59 and should be submitted on or before October 6, 2010.

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

    In its filing, the Exchange requested that the Commission approve 
the proposal on an accelerated basis. The Exchange stated that it 
believed good cause existed to grant accelerated approval because 
Section 957 of the Dodd-Frank Act does not provide for a transition 
period.
    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.\6\ The Commission believes that the proposal is consistent 
with Section 6(b)(10) \7\ 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) \8\ 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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    \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).
    \7\ 15 U.S.C. 78f(b)(10).
    \8\ 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.'' \9\ The proposed rule change will make NYSE rules compliant 
with the new requirements of Section 6(b)(10) by prohibiting broker-
dealers, who are not beneficial owners of a security, from voting 
uninstructed shares with respect to any matter on executive 
compensation.\10\
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    \9\ See S. Rep. No. 111-176, at 136 (2010).
    \10\ As noted above, Section 6(b)(10) also prohibits broker 
voting for director elections, except for uncontested director 
elections of registered investment companies, and also ``any other 
significant matter, as determined by the Commission, by rule.'' NYSE 
already prohibits broker voting in director elections except for 
uncontested director elections for registered investment companies. 
See NYSE Rule 452.11(19) and Listed Company Manual Section 
402.08(B)(19) and note 11, infra. As to other matters, 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 the NYSE 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 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.\11\
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    \11\ 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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    The Commission notes that the NYSE's new rule prohibiting 
uninstructed broker votes on executive compensation covers the specific 
items identified in Section 951 of the Dodd-Frank Act, as well as any 
other matter concerning executive compensation, and has been drafted 
broadly to reflect the requirements of Section 6(b)(10) of the Act. The 
proposed rule language also specifically states that a broker vote on 
any executive compensation matter would not be permitted even if it 
would otherwise qualify for an exception from any item under Rule 
452.11 or corresponding Listed Company Manual Section 402.08. The 
Commission believes this provision will make clear that any past 
practice or interpretation that may have permitted a broker vote on an 
executive compensation matter, under existing rules, will no longer be 
applicable and is superseded by the newly adopted provisions.
    Finally, the Commission notes that the change to reflect that the 
NYSE rules prohibit not only the giving of a proxy, but also the 
authorization of the proxy, should help to clarify the intent of the 
NYSE proxy rules and is consistent with the requirements of Section 6 
of the Act.
    Based on the above, the Commission believes that the NYSE's 
proposal will further the purposes of Sections 6(b)(5) and 6(b)(10) of 
the Act by ensuring that brokers, holding shares on behalf of 
beneficial owners, are not voting uninstructed shares on matters 
relating to executive compensation, which should enhance corporate 
accountability to shareholders. The rule filing should also serve 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,\12\ for approving the proposed rule change prior to the 
30th day after the date of publication of notice in the Federal 
Register. As noted above, 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, 
among other things, broker voting on executive compensation. The 
Commission believes that good cause exists to grant accelerated 
approval to the Exchange's proposal, because it will conform NYSE Rule 
452 and Section 402.08 of the Listed Company Manual to the requirements 
of Section 6(b)(10) of the Act.
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    \12\ 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,\13\ that the proposed rule change (SR-NYSE-2010-59) be, and it 
hereby is, approved on an accelerated basis.
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    \13\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-22934 Filed 9-14-10; 8:45 am]
BILLING CODE 8010-01-P