Document ID: SEC-2011-0322-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX BX, Inc.
Posted Date: 2011-03-09T05:00Z

[Federal Register Volume 76, Number 46 (Wednesday, March 9, 2011)]
[Notices]
[Pages 13012-13014]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-5303]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64023; File No. SR-BX-2011-012]

Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Order Granting Accelerated Approval of Proposed Rule Change 
To Prohibit Members From Voting Uninstructed Shares on Certain Matters

March 3, 2011.
    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 February 18, 2011, NASDAQ OMX BX, Inc. (the ``Exchange'' or ``BX'') 
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 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 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 [sic] found at http://nasdaqomxbx.cchwallstreet.com.
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2251. Forwarding of Proxy and Other Issuer-Related Materials

    (a)-(c) No change.
    (d) Notwithstanding the foregoing, an Exchange 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, 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
    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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[[Page 13013]]

    BX Rule 2251 governs when BX 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 assure compliance, in all cases, with newly adopted Section 
6(b)(10), the Exchange 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 
BX'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
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\6\ in general and with 
Sections 6(b)(5) and 6(b)(10) of the Act,\7\ in particular. Section 
6(b)(5) requires that the rules of a national securities exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in facilitating transactions in 
securities, and to remove impediments to and perfect the mechanism of a 
free and open market and a national market system. The proposed rule 
change is consistent with this requirement in that it will protect 
investors and the public interest by adopting the requirements of 
Section 957 of the Dodd-Frank Act. 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) and 
is therefore consistent with that provision.
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    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(5) and (10).
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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 
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, as amended, 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-BX-2011-012 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-BX-2011-012. 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 website 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 offices 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-BX-2011-012 and should be 
submitted on or before March 30, 2011.

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

    In its filing, BX 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

[[Page 13014]]

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 BX compliant with the new 
requirements of Section 6(b)(10) by specifically prohibiting, in BX'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.\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 BX 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 BX 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 BX Rule 
2251 to the requirements of Section 6(b)(10) of the Act. Moreover, the 
Commission notes that BX's proposed rule change is identical to Nasdaq 
Rule 2251(d), which was previously approved by the Commission and for 
which no comments were received.\15\ Therefore, the Exchange's proposed 
rule change raises no new regulatory issues.
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    \14\ 15 U.S.C. 78s(b)(2).
    \15\ See Securities Exchange Act Release No. 62992 (September 
24, 2010), 75 FR 60844 (October 1, 2010) (SR-Nasdaq-2010-114).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\16\ that the proposed rule change (SR-BX-2011-012) be, and it 
hereby is, approved on an accelerated basis.
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    \16\ 15 U.S.C. 78s(b)(2).
    \17\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-5303 Filed 3-8-11; 8:45 am]
BILLING CODE 8011-01-P