Document ID: SEC-2011-1835-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: National Stock Exchange, Inc.
Posted Date: 2011-11-29T05:00Z

[Federal Register Volume 76, Number 229 (Tuesday, November 29, 2011)]
[Notices]
[Pages 73756-73758]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-30633]

[[Page 73756]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65804; File No. SR-NSX-2011-012]

Self-Regulatory Organizations; National Stock Exchange, Inc.; 
Notice of Filing and Order Granting Accelerated Approval of Proposed 
Rule Change To Amend NSX Rules To Conform with Section 957 of the Dodd-
Frank Act Prohibiting Members Voting Uninstructed Shares on Certain 
Matters

November 22, 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 November 8, 2011, National Stock Exchange, Inc. (the ``Exchange'' or 
``NSX'') 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

    National Stock Exchange, Inc. (``NSX[supreg] '' or the 
``Exchange''), proposes to amend NSX Rule 13.3 to conform with the 
provisions of Section 957 of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (the ``Dodd-Frank Act'').

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 parts 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 amend NSX Rule 13.3 to prohibit ETP 
Holders from voting uninstructed shares 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.
2. Enactment of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act
    Generally, under the text of the current NSX Rule 13.3, an ETP 
Holder may not give a proxy to vote stock without instructions from the 
beneficial owner unless pursuant to the rules of another national 
securities exchange to which the ETP Holder is responsible. The Dodd-
Frank Act requires the elimination of broker discretionary voting on 
matters related to executive compensation, the election of a member of 
the board of directors of an issuer (other than 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 
(the ``Investment Company Act'')) or any other significant matter, as 
determined by the Commission, by rule. Accordingly, the instant rule 
change proposes to modify the text of Rule 13.3 to conform with the 
requirements of the Dodd-Frank Act.
    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), (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). Section 957 amends Section 6(b) of the Act 
by adding Section 6(b)(10).
    \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 amend NSX Rule 13.3 to 
prohibit member organizations (referred on the Exchange as ``ETP 
Holders'') from voting uninstructed shares if the matter voted on 
relates to the election of certain directors, executive compensation, 
or any other significant matter, as determined by the Commission, by 
rule. The Dodd-Frank provisions regarding the election of a member of 
the board of directors, executive compensation and any other 
significant matters determined by the Commission, by rule, are proposed 
to be codified in new paragraph (e) of Rule 13.3. This new paragraph 
(e) would make explicit that notwithstanding the rules of another 
exchange or association to which the ETP Holder is responsible or any 
other exception, an ETP Holder may not give a proxy to vote without 
instructions from the beneficial owners on a matter related to the 
election of directors, executive compensation, or other significant 
matter determined by the Commission, by rule. The Exchange believes 
that 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.
    The Exchange also proposes adding a clarifying sentence to existing 
paragraph (d) of Rule 13.3 to make explicit that, notwithstanding any 
other exception from the Rule, including changes to equity compensation 
plans, an ETP Holder may not give or authorize a proxy to vote without 
instructions from the beneficial owner on a matter relating to 
executive compensation.
    Additionally, the Exchange is proposing to add ``or association'' 
to the text of Rule 13.3(b)(2) to include the Financial Industry 
Regulatory Authority (``FINRA''). Thus, as proposed, Rule 13.3(b)(2) 
would therefore prohibit an ETP Holder from giving a proxy to vote, 
unless pursuant to the rules of any national securities exchange or 
association of which it is a member. Finally, as an administrative 
edit, the Exchange also proposes deleting the last sentence in Rule 
13.3(d) as it is now obsolete.

[[Page 73757]]

3. Statutory Basis
    The statutory basis for the proposed rule change is Section 6 of 
the Securities Exchange Act of 1934 \5\ in general, which requires the 
rules of an exchange 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 
a national market system and, in general, to protect investors and the 
public interest. More specifically, the proposed rule change is 
consistent with Section 6(b)(10) \6\ of the Act which 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 a board of directors of any investment company registered under the 
Investment Company of 1940), executive compensation, or any other 
significant matter, as determined by the Commission, by rule. The 
proposed rule change will adopt the prohibition required by Section 
6(b)(10).
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    \5\ 15 U.S.C. 78f(b)(5).
    \6\ 15 U.S.C. 78f(b)(10).
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    The proposed rule change is also consistent with Section 6(b)(5) 
\7\ requirements 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. The proposed rule change is 
designed to comply with the requirements of Section 957 of the Dodd-
Frank Act, and the Exchange therefore believes the proposed rule 
changes are consistent with the Act, particularly with respect to the 
protection of investors and the public interest.
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    \7\ 15 U.S.C. 78f.
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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 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 change.

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 email to rule-comments@sec.gov. Please include 
File Number SR-NSX-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-NSX-2011-012. This file 
number should be included on the subject line if email 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 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-NSX-2011-012 and should be 
submitted on or before December 20, 2011.

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

    In its filing, NSX 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 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 NSX compliant with 
the new requirements of Section 6(b)(10) by specifically prohibiting, 
in NSX's rule language, ETP Holders, who are not a

[[Page 73758]]

beneficial owner of a security, 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.\12\ 
The proposed rule language also specifically states that an ETP Holder 
vote on any executive compensation matter would not be permitted even 
if such matter would otherwise qualify for an exception from the 
requirements of the Rule. The Commission believes this provision will 
make clear that any past practice or interpretation that may have 
permitted an ETP Holder vote on an executive compensation matter, under 
NSX's existing rule, will no longer be applicable and is superseded by 
the newly adopted provisions.
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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 NSX 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 an ETP 
Holder 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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    Moreover, the Commission notes that the Exchange deleted obsolete 
language regarding the effectiveness of Rule 13.3(d), which should 
provide greater clarity in Exchange's rules. The Commission further 
notes that the Exchange added ``or association'' to Rule 13.3(b)(2) so 
that an ETP Holder would be prohibited from giving a proxy to vote, 
unless pursuant to the rules of any national securities exchange or 
association of which it is a member. The Commission believes that this 
is consistent with ISE Rule 421 and BATS-Y Exchange, Inc. Rule 13.3(b).
    Based on the above, the Commission finds that the NSX 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 NSX Rule 
13.3 to the requirements of Section 6(b)(10) of the Act. Moreover, the 
Commission notes that NSX's proposed change in 13.3(d) and proposed 
13.3(e) are identical to NYSE Supplementary Material .11(12) and Nasdaq 
Rule 2251(d), respectively, which were previously approved by the 
Commission.\15\ Finally, as noted above, NSX's proposed change to Rule 
13.3(b)(2) is consistent with ISE Rule 421 and BATS-Y Exchange, Inc. 
Rule 13.3(b), and the proposed change to Rule 13(d) to eliminate 
obsolete language provides clarity and helps avoid confusion. Based on 
the above, the Commission believes the Exchange's proposed rule change 
raises no new regulatory issues, and therefore finds good cause to 
accelerate approval.
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    \14\ 15 U.S.C. 78s(b)(2).
    \15\ See Securities Exchange Act Release Nos. 62874 (September 
9, 2010), 75 FR 56152 (September 15, 2010) (SR-NYSE-2010-59) and 
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-NSX-2011-012) be, and it 
hereby is, approved on an accelerated basis.

    \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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-30633 Filed 11-28-11; 8:45 am]
BILLING CODE 8011-01-P