Document ID: SEC-2011-0471-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: EDGX Exchange, Inc.
Posted Date: 2011-04-11T04:00Z

[Federal Register Volume 76, Number 69 (Monday, April 11, 2011)]
[Notices]
[Pages 20058-20060]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-8476]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64186; File No. SR-EDGX-2011-07]

Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of 
Filing and Order Granting Accelerated Approval of Proposed Rule Change 
To Adopt Rule 3.22 (Proxy Voting), in Accordance With the Provisions of 
Section 957 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act

April 5, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Exchange Act'' or ``Act''),\1\ and Rule 19b-4 thereunder,\2\ 
notice is hereby given that on March 24, 2011, EDGX Exchange, Inc. (the 
``Exchange'' or ``EDGX'') filed with the Securities and Exchange 
Commission (the ``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 Substance 
of the Proposed Rule Change

    The Exchange proposes to adopt Rule 3.22 (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 attached as Exhibit 5 and is 
available on the Exchange's Web site at http://www.directedge.com, at 
the Exchange's principal office, and at the Public Reference Room of 
the Commission.

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 III 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

Purpose
    The Exchange is proposing to adopt EDGX Rule 3.22 (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 Securities and 
Exchange Commission (the ``Commission''), by rule.
    Section 957 of the Dodd-Frank Act amends Section 6(b) \3\ of the 
Securities Exchange Act of 1934 (the ``Exchange Act'') [sic] 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 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 EDGX 
Rule 3.22 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.
    Notwithstanding the foregoing, a Member that is not the beneficial 
owner of a security registered under Section 12 of the Exchange 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

[[Page 20059]]

proposing to adopt the proposed rule change pursuant to Section 19(b) 
of the Exchange 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 EDGX Rule 3.22(a) is based on 
NYSE Arca, Inc. (``NYSE Arca'') rule 9.4 and Financial Industry 
Regulatory Authority (``FINRA'') rule 2251, International Securities 
Exchange, LLC (``ISE'') rule 421(a) and proposed EDGX Rule 3.22(b) is 
based on Nasdaq rule 2251(d) and ISE rule 421(b).
Basis
    The Exchange believes the proposed rule change is consistent with 
the Act \5\ and the rules and regulations thereunder and, in 
particular, the requirements of Section 6(b) of the Act.\6\ 
Specifically, the Exchange believes the proposed rule change is 
consistent with Section 6(b)(10) \7\ requirements that all national 
securities exchanges adopt rules prohibiting members from voting, 
without receiving instructions from the beneficial owner of shares, on 
the election of a member of a 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 
Exchange also believes that the proposed rule change is consistent with 
the requirements under Section 6(b)(5) \8\ 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 
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. 78a et seq.
    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(10).
    \8\ 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-EDGX-2011-07 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-EDGX-2011-07. 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 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-EDGX-2011-07 and should be 
submitted on or before May 2, 2011.

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 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 ISE Rule 421, FINRA 
Rule 2251, Nasdaq Rule 2251(d), and NYSE Arca Rule 9.4.\9\ 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.\10\
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    \9\ See Securities Exchange Act Release 63139 (October 20, 
2010), 75 FR 65680 (October 26, 2010) (SR-ISE-2010-99); 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.''); 62992 (September 24, 2010), 75 FR 60844 (October 1, 
2010) (SR-NASDAQ-2010-114); and 48735 (October 31, 2003), 68 FR 
63173 (November 7, 2003) (SR-PCX-2003-50).
    \10\ 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 3.22(a) is consistent 
with Section 6(b)(5) \11\ 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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    \11\ 15 U.S.C. 78f(b)(5).
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    Under proposed Rule 3.22(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 on ISE Rule 421, FINRA Rule 2251 and 
NYSE Arca Rule 9.4, which were previously approved by

[[Page 20060]]

the Commission.\12\ The Commission notes that the proposed change will 
provide clarity to Exchange Members going forward on whether broker 
discretionary voting is permitted by Exchange Members under limited 
circumstances when the Member is also a member of another national 
securities exchange that permits broker discretionary voting. In 
approving this portion of the proposal, the Commission notes that Rule 
3.22(a) is consistent with the approach taken under the rules of other 
national securities exchanges or national securities association, and 
for Exchange 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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    \12\ See supra note 9.
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    The Commission believes that proposed Rule 3.22(b) is consistent 
with Section 6(b)(10) \13\ 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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    \13\ 15 U.S.C. 78f(b)(10).
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    The Commission believes that proposed Rule 3.22(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.'' \14\ The proposed rule change will make the 
Exchange compliant with the new requirements of Section 6(b)(10) by 
specifically prohibiting 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.\15\
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    \14\ See S. Rep. No. 111-176, at 136 (2010).
    \15\ 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 Exchange to adopt 
coordinating rules promptly to comply with the statute.
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    The Commission also believes that proposed Rule 3.22(b) is 
consistent with Section 6(b)(5) \16\ 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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    \16\ 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.\17\
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    \17\ 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 Exchange's 
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,\18\ 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 3.22(a), because this proposed 
rule will conform the Exchange rule to ISE Rule 421, 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.\19\ Because proposed Rule 3.22(a) is 
substantially similar to the ISE, NYSE Arca and FINRA rules, it raises 
no new regulatory issues.
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    \18\ 15 U.S.C. 78s(b)(2).
    \19\ See supra note 9.
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    The Commission also believes that good cause exists to grant 
accelerated approval to proposed Rule 3.22(b), which conforms the 
Exchange's 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 accelerated 
approval to proposed Rule 3.22(b), because it will conform the Exchange 
rule to the requirements of Section 6(b)(10) of the Act. Moreover, 
proposed Rule 3.22(b) is substantially similar to ISE Rule 421 and 
Nasdaq Rule 2251.\20\
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    \20\ See supra note 9.
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\21\ that the proposed rule change (SR-EDGX-2011-07) be, and it 
hereby is, approved on an accelerated basis.
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    \21\ 15 U.S.C. 78s(b)(2).

    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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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-8476 Filed 4-8-11; 8:45 am]
BILLING CODE 8011-01-P