Document ID: SEC-2011-0240-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: C2 Options Exchange, Inc.
Posted Date: 2011-02-23T05:00Z

[Federal Register Volume 76, Number 36 (Wednesday, February 23, 2011)]
[Notices]
[Pages 10076-10078]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-3983]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63918; File No. SR-C2-2011-005]

Self-Regulatory Organizations; C2 Options Exchange, Incorporated; 
Notice of Filing and Order Granting Accelerated Approval of Proposed 
Rule Change to Adopt Supplemental Rule (a) to Chapter 4 Relating to 
Proxy Voting

February 16, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on February 10, 2011, the C2 Options Exchange, Incorporated 
(``Exchange'' or ``C2'') 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 Substance 
of the Proposed Rule Change

    The Exchange proposes to adopt Supplemental Rule (a), Proxy Voting, 
to C2 Chapter 4 in accordance with provisions of Section 957 of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act (the ``Dodd-
Frank Act''). The text of the rule proposal is available on the 
Exchange's Web site (http://www.cboe.org/legal), at the Exchange's 
Office of the Secretary and at 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 self-regulatory organization 
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 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
    Section 957 of the Dodd-Frank Act adopted new Section 6(b)(10) of 
the Act,\3\ which requires the rules of each national securities 
exchange to prohibit any member that is not the beneficial owner of a 
security registered under Section 12 of the Act \4\ from granting a 
proxy to vote the security in connection with certain shareholder 
votes, 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. The shareholder 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 (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 
(the ``Investment Company Act''), (ii) executive compensation, or (iii) 
any other significant matter, as determined by the Commission, by 
rule.\5\
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    \3\ 15 U.S.C. 78f(b)(10).
    \4\ 15 U.S.C. 78l.
    \5\ 15 U.S.C. 78f(b)(10)(B).
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    Accordingly, in order to carryout the requirements of Section 957 
of the Dodd-Frank Act, the Exchange is proposing to adopt Supplemental 
Rule (a) to C2 Chapter 4. Paragraph (1) of the proposed rule provides 
that a C2 Permit Holder is prohibited from giving a proxy to vote stock 
that is registered in its name, unless: (i) Such Permit Holder 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 Permit Holder clearly indicate the 
procedure it is following. The Exchange is proposing to adopt these 
provisions 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 C2 
Permit Holder that is also a member of another national securities 
exchange or association may vote shares held for a customer when 
allowed under its membership at another national securities exchange or 
association, provided that the records of the C2 Permit Holder clearly 
indicate the procedure it is following.
    Notwithstanding the above, paragraph (2) of the proposed rule 
provides that a C2 Permit Holder 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 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 Permit Holder 
to vote the proxy in accordance with the voting instructions of the 
beneficial owner.

[[Page 10077]]

2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act \6\ and the rules and regulations thereunder and, in 
particular, the requirements of Section 6(b) of the Act.\7\ 
Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(10) \8\ 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 changes is consistent 
with the Section 6(b)(5) 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 
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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    \6\ 15 U.S.C. 78a et seq.
    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(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 
impose any burden on competition 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 neither solicited nor received comments on the 
proposal.

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-C2-2011-005 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-C2-2011-005. 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 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-C2-2011-005 and should be 
submitted on or before March 16, 2011.

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

    In its filing, C2 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 International Securities Exchange 
(``ISE'') Rule 421.\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).
    \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 Supplemental Rule (a) to 
Chapter 4 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 Supplemental Rule (a)(1), a Permit Holder shall be 
prohibited from voting uninstructed shares unless (1) that Permit 
Holder 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 Permit Holder's records clearly 
indicate the procedure it is following. This provision is based upon 
ISE Rule 421, which was previously approved by the Commission.\12\ The 
Commission notes that the proposed change will provide clarity to C2 
Permit Holders going forward on whether broker discretionary voting is 
permitted by C2 Permit Holders under limited circumstances when the 
Permit Holder is also a member of another national securities exchange 
that permits broker discretionary voting. In approving this portion of 
the C2 proposal, the Commission notes that Supplemental Rule (a)(1) is 
consistent with the approach taken under the rules of other national 
securities exchanges or national securities association, and for C2 
Permit Holders who are not also members of another national securities 
exchange prohibits broker discretionary voting on any matter, 
consistent with

[[Page 10078]]

investor protection and the public interest.
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    \12\ See supra note 9. See also NYSE Arca Rule 9.4 and FINRA 
Rule 2251, which are similar and previously approved by the 
Commission. See Securities Exchange Act Release No. 48735 (October 
31, 2003), 68 FR 63173 (November 7, 2003) (SR-PCX-2003-50); 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.'').
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    The Commission believes that proposed Supplemental Rule (a)(2) 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 Supplemental Rule (a)(2) 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 
C2 compliant with the new requirements of Section 6(b)(10) by 
specifically prohibiting, in C2'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.\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 C2 to adopt 
coordinating rules promptly to comply with the statute.
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    The Commission also believes that proposed Supplemental Rule (a)(2) 
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 C2 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 Supplemental Rule (a)(1), because this 
proposed rule will conform the C2 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 Supplemental Rule (a)(1) 
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 notes 9 and 12.
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    The Commission also believes that good cause exists to grant 
accelerated approval to proposed Supplemental Rule (a)(2), which 
conforms the C2 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 Supplemental Rule (a)(2), because it will conform 
the C2 rule to the requirements of Section 6(b)(10) of the Act.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\20\ that the proposed rule change (SR-C2-2011-005) be, and it 
hereby is, approved on an accelerated basis.
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    \20\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-3983 Filed 2-22-11; 8:45 am]
BILLING CODE 8011-01-P