Document ID: SEC-2010-0066-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Amex LLC
Posted Date: 2010-01-12T05:00Z

[Federal Register: January 12, 2010 (Volume 75, Number 7)]
[Notices]               
[Page 1664-1667]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12ja10-91]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61292; File No. SR-NYSEAmex-2009-93]

 
Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending Rule 452--
NYSE Amex Equities and Section 723 of the NYSE Amex Company Guide 
Regarding Broker Discretionary Voting for Election of Directors and on 
Material Amendments to Investment Advisory Contracts

January 5, 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 December 23, 2009, NYSE Amex LLC (``Exchange'' or ``NYSE 
Amex'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the self-
regulatory organization. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 452--NYSE Amex Equities and 
Section 723 of the NYSE Amex Company Guide (the ``Company Guide''). The 
text of the proposed rule change is available at the Exchange, at the 
Commission's Public Reference Room, on the Commission's Web site at 
http://www.sec.gov, and on the Exchange's Web site at http://
www.nyse.com.

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,

[[Page 1665]]

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
    NYSE Amex is proposing to amend Rule 452--NYSE Amex Equities and 
corresponding Section 723 of the Company Guide,\3\ both entitled 
``Giving Proxies by Member Organization,'' to eliminate broker 
discretionary voting for the election of directors. Rule 452--NYSE Amex 
Equities (and Section 723 of the Company Guide) allows brokers to vote 
on ``routine'' proposals if the beneficial owner of the stock has not 
provided specific voting instructions to the broker at least 10 days 
before a scheduled meeting. However, Rule 452.11--NYSE Amex Equities 
(and Commentary .11 to Section 723 of the Company Guide) lists, by way 
of example, eighteen (18) specific non-routine matters as to which a 
member organization may not give a proxy to vote without instructions 
from beneficial owners. The proposed rule change would amend this list 
to include the election of directors, except in the case of a company 
registered under the Investment Company Act of 1940. The Exchange is 
also proposing to amend this list to include material amendments to 
investment advisory contracts with an investment company in order to 
codify previously existing interpretations of the Exchange with respect 
to investment advisory contracts.
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    \3\ Section 723 of the Company Guide is identical to Rule 452--
NYSE Amex Equities and the proposed rule change will apply to both.
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    The proposed rule change is identical to a rule change filed by the 
New York Stock Exchange (``NYSE'') (the ``NYSE Rule Filing'') that was 
recently approved by the Commission \4\ and will be applicable to proxy 
voting for shareholder meetings held on or after January 1, 2010. 
Notwithstanding the foregoing, the proposed amendment will not apply to 
a meeting that was originally scheduled to be held prior to January 1, 
2010 but was properly adjourned to a date on or after that date.\5\
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    \4\ See Securities Exchange Act Release No. 60215 (July 1, 
2009), 74 FR 33293 (July 10, 2009) (SR-NYSE-2006-92) (``NYSE 
Approval Order'').
    \5\ In the process of making its determination that the election 
of directors should no longer be deemed to be a ``routine matter'' 
and that broker discretionary voting for the election of directors 
should be eliminated, the NYSE in 2005 created a Proxy Working Group 
to review and make recommendations with respect to the NYSE rules 
regulating the proxy voting process. The Proxy Working Group 
contained representatives from a number of different constituencies, 
all of whom have significant experience with the proxy voting 
process. One of the recommendations that came from the Proxy Working 
Group was that the proposed changes to NYSE Rule 452 should not 
apply to any company registered under the Investment Company Act of 
1940, and this exception was adopted by the NYSE. For a full 
discussion of the role of the Proxy Working Group, see the NYSE Rule 
Filing.
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    The Exchange believes that the proposed rule change is in 
conformity with the view of the Commission stated in the NYSE Approval 
Order that ``while other self-regulatory organizations currently allow 
discretionary voting, we would expect these markets to make changes to 
conform to the NYSE's new rules to eliminate any disparities involving 
voting depending on where shares are held.'' \6\
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    \6\ NYSE Approval Order, 74 FR at 33298, n. 69.
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    Under the current NYSE Amex and SEC 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--NYSE Amex 
Equities provides that brokers may vote on certain matters deemed 
``routine'' by the Exchange. One of the most important results of 
broker votes of uninstructed shares is their use in establishing a 
quorum at shareholder meetings.
    Among the other matters which the current Rule 452--NYSE Amex 
Equities treats as routine is an ``uncontested'' election for a 
company's board of directors.\7\ Such elections remain the general 
practice in corporate America today, with contested elections occurring 
relatively infrequently.
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    \7\ Rule 452.11(2)--NYSE Amex Equities defines a ``contest'' as 
a matter that ``is the subject of a counter-solicitation, or is part 
of a proposal made by a stockholder which is being opposed by 
management.''
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    However, in recent years the definition of a ``contested election'' 
has been questioned by a number of parties and interest groups.\8\ This 
is because of the rise of a number of new types of proxy campaigns, 
including ``just vote no'' campaigns. Because these campaigns often do 
not result in competing solicitations, historically these efforts have 
not been considered ``contests'' for purposes of Rule 452--NYSE Amex 
Equities, and thus broker votes have been counted. This has drawn the 
ire of some investor groups since generally brokers vote uninstructed 
shares in accordance with the incumbent board's recommendations.
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    \8\ For example, in 2002, the Council of Institutional Investors 
publicly criticized in the media the NYSE's definition of 
``contests'' (which is exactly identical to NYSE Amex's definition 
of the term) as ``problematic'' because it fails to classify as 
contests ``just vote no'' campaigns, it fails to recognize the use 
of the Internet as a means of contesting management, it puts ADP in 
an inappropriate and conflicted role, and it is inconsistent with 
securities laws which recognize the validity of exempt 
solicitations. In a letter to the SEC dated June 13, 2003, 
Institutional Shareholders Services expressed concern that because 
``the NYSE classifies the election of directors as a routine voting 
item unless a full-blown proxy contest has erupted,'' the efforts of 
shareholders to express disapproval of board actions at companies 
like Sprint and Tyco in the 2003 proxy season were ``watered down by 
broker votes.'' Moreover, in their presentations to the Proxy 
Working Group, several groups recommended that the definition of a 
contest be expanded or changed, including the AFL-CIO and the 
American Business Conference.
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    On ``non-routine'' matters, which generally speaking are those 
involving a contest or any matter which may affect substantially the 
rights or privileges of stockholders, NYSE Amex rules prohibit brokers 
from voting without receiving instructions from the beneficial owners. 
At present, Rule 452.11--NYSE Amex Equities lists by way of example 
eighteen such ``non-routine'' matters, including items such as 
stockholder proposals opposed by management, and mergers or 
consolidations.
    The NYSE has amended NYSE Rule 452, and corresponding NYSE Listed 
Company Manual Section 402.08, to eliminate broker discretionary voting 
for the election of directors, but to except from that amendment 
companies registered under the Investment Company Act of 1940. The 
Commission has stated in the NYSE Approval Order that it expects other 
markets to make changes to their comparable rules to conform to the 
NYSE's new rules and eliminate any disparities involving voting. 
Consequently, NYSE Amex proposes herein to amend Rule 452--NYSE Amex 
Equities, and corresponding Section 723 of the Company Guide (which 
closely track NYSE Rule 452 and NYSE Listed Company Manual Section 
402.08, respectively, prior to their recent amendment), to eliminate 
broker discretionary voting for the election of directors, but to 
except from that amendment companies registered under the Investment 
Company Act of 1940.
Effective Date
    The proposed amendment will be applicable to proxy voting for

[[Page 1666]]

shareholder meetings held on or after January 1, 2010. Notwithstanding 
the foregoing, the proposed amendment will not apply to a meeting that 
was originally scheduled to be held prior to January 1, 2010 but was 
properly adjourned to a date on or after that date.
Material Amendments to Investment Contracts
    In addition to the current 18 specific actions set out in 
Supplementary Material .11 to NYSE Rule 452, the NYSE has long 
interpreted NYSE Rule 452 to preclude member organizations from voting 
without instructions in certain other situations, including on any 
material amendment to the investment advisory contract with an 
investment company.\9\
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    \9\ See Securities Exchange Act Release No. 30697 (May 13, 
1992), 57 FR 21434 (May 20, 1992) (SR-NYSE-1992-05).
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    In addition, in 2005, the NYSE published an interpretation,\10\ 
pursuant to a request from the SEC's Division of Investment Management, 
that provided that any proposal to obtain shareholder approval of an 
investment company's investment advisory contract with a new investment 
adviser, which approval is required by the Investment Company Act of 
1940, as amended (the ``1940 Act''), and the rules thereunder, will be 
deemed to be a ``matter which may affect substantially the rights or 
privileges of such stock'' for purposes of NYSE Rule 452 so that a 
member organization may not give a proxy to vote shares registered in 
its name absent instruction from the beneficial holder of the shares. 
As a result, for example, a member organization of the NYSE may not 
give a proxy to vote shares registered in its name, absent instruction 
from the beneficial holder of the shares, on any proposal to obtain 
shareholder approval required by the 1940 Act of an investment advisory 
contract between an investment company and a new investment adviser due 
to an assignment of the investment company's investment advisory 
contract, including an assignment caused by a change in control of the 
investment adviser that is party to the assigned contract.
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    \10\ See Securities Exchange Act Release No. 52569 (October 6, 
2005), 70 FR 60118 (October 14, 2005) (SR-NYSE-2005-61).
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    Also in 2005, immediately following publication of the NYSE's 
interpretation referenced in the preceding paragraph, the Exchange's 
predecessor, the American Stock Exchange LLC (``Amex''), also filed a 
rule change with the Commission establishing the exact same 
interpretation with respect to investment advisory contracts.\11\ 
Noting that ``[a] proposed rule change filed by the NYSE of its 
interpretation of its rule governing proxies by member organizations on 
votes relating to changes to investment advisory contracts recently 
became effective,'' the Amex Interpretation Release stated, ``Following 
discussions with the staff of the Commission's Division of Investment 
Management, the Amex has determined to adopt a comparable 
interpretation of [Amex] Rule 577 to conform to the NYSE 
interpretation.'' \12\
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    \11\ See Securities Exchange Act Release No. 52765 (November 10, 
2005), 70 FR 69999 (November 18, 2005) (SR-Amex-2005-102) (``Amex 
Interpretation Release'').
    \12\ Id.
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    The NYSE has amended NYSE Rule 452, and corresponding NYSE Listed 
Company Manual Section 402.08, to specifically codify these 
interpretations in its rules. Consistent with the previous adoption by 
Amex of these NYSE interpretations with respect to investment advisory 
contracts, the Exchange proposes herein to amend Rule 452--NYSE Amex 
Equities, and corresponding Section 723 of the Company Guide (which 
closely track NYSE Rule 452 and NYSE Listed Company Manual Section 
402.08, respectively, prior to their recent amendment), to specifically 
codify these interpretations in the Exchange's rules as well.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \13\ 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. 
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. In particular, for Exchange member firms that are also NYSE 
member firms, 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 the rules of the Exchange and the NYSE. 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 brokers without 
instructions from the beneficial owner, and thus should enhance 
corporate governance and accountability to shareholders.
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    \13\ 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 change will 
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

    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 \14\ and Rule 19b-4(f)(6) thereunder.\15\ 
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 
\16\ and Rule 19b-4(f)(6)(iii) thereunder.\17\
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    \14\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \15\ 17 CFR 240.19b-4(f)(6).
    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 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) \18\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b4(f)(6)(iii),\19\ 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, among

[[Page 1667]]

other things, that waiver of the 30-day operative delay will allow the 
change to become operative on the same date as NYSE's rule change and 
conform to the Commission's desire to eliminate any disparities 
involving voting.
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    \18\ 17 CFR 240.19b-4(f)(6).
    \19\ 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.\20\ The proposal would permit the Exchange to comply 
with the Commission's stated goal that other self-regulatory 
organizations, that currently allow member discretionary voting for 
director elections, conform their rules to the NYSE's new rules to 
eliminate any disparities involving voting depending on where the 
shares are held. Further, the proposal would codify previously 
published interpretations with respect to voting on investment advisory 
contracts. Finally, the Commission notes that the NYSE's recently 
adopted rule changes, which are identical to the Exchange's proposed 
changes, were subject to full notice and comment, and considered and 
approved by the Commission.\21\ 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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    \20\ 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).
    \21\ See supra note 4.
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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-NYSEAmex-2009-93 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-NYSEAmex-2009-93. 
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 inspection 
and copying 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-NYSEAmex-2009-93 and should 
be submitted on or before February 2, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-308 Filed 1-11-10; 8:45 am]
BILLING CODE 8011-01-P