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Notice

Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change To Adopt Section 16 (Proxy Voting) to Chapter III of the BOX Trading Rules Concerning Broker Voting

 

Table of Contents Back to Top

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”) 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 self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule from interested persons, and is approving the proposed rule change on an accelerated basis.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change Back to Top

The Exchange proposes to add Section 16 (Proxy Voting) to Chapter III, of the Rules of the Boston Options Exchange Group, LLC (“BOX”) in accordance with the provision 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 available from the principal office of the Exchange, at the Commission's Public Reference Room and also on the Exchange's Internet Web site at http://nasdaqomxbx.cchwallstreet.com/NASDAQOMXBX/Filings/.

II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change Back to Top

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 these statements may be examined at the places specified in Item IV 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

1. Purpose

In accordance with Section 957 of the Dodd-Frank Act, the Exchange is proposing to adopt Section 16 (Proxy Voting) to Chapter III of the BOX Trading Rules. As proposed, this section will codify a provision to prohibit Participants 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 (“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 amended Section 6 (b) [3] of the Securities Exchange Act of 1934 (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 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.

Accordingly, in order to carry out the requirements of Section 957 of the Dodd-Frank Act, the Exchange proposes to adopt proposed Section 16 to Chapter III of the BOX Trading Rules to prohibit any Participant from giving a proxy to vote stock that is registered in its name, unless: (i) Such Participant 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 Participant 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 Participant 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 Participant clearly indicate the procedure it is following.

Notwithstanding the above, under the proposal, a Participant 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 Participant 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 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, the proposed adoption of Section 16 to Chapter III of the BOX Trading Rules is based upon International Securities Exchange, LLC (“ISE”) Rule 421.

2. Statutory Basis

The basis under the Exchange Act for these proposed rule changes is the requirement under Section 6(b)(5) [5] 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 Exchange Act, particularly with respect to the protection of investors and the public interest.

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 has neither solicited nor received comments on the proposed rule change.

III. Solicitation of Comments Back to Top

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

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-2011-011. 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-BX-2011-011 and should be submitted on or before March 30, 2011.

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

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. 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. [6]

The Commission believes that proposed Section 16(a) to Chapter III is consistent with Section 6(b)(5) [7] 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.

Under proposed Section 16(a) to Chapter III, a Participant shall be prohibited from voting uninstructed shares unless (1) that Participant 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 Participant's records clearly indicate the procedure it is following. This provision is based upon ISE Rule 421, which was previously approved by the Commission. [8] The Commission notes that the proposed change to Section 16(a) to Chapter III will provide clarity to Exchange Participants going forward on whether broker discretionary voting is permitted by Exchange Participants under limited circumstances when the Exchange Participant is also a member of another national securities exchange that permits broker discretionary voting. In approving this portion of the Exchange proposal, the Commission notes that proposed Section 16(a) to Chapter III is consistent with the approach taken under the rules of other national securities exchanges or national securities association, and for Exchange Participants 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.

The Commission believes that proposed Section 16(b) to Chapter III 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 believes that proposed Section 16(b) to Chapter III 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.” [10] The proposed rule change will make the Exchange compliant with the new requirements of Section 6(b)(10) by specifically prohibiting, in the Exchange'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 Participant receives voting instructions from the beneficial owner of the shares. [11]

The Commission also believes that proposed Section 16(b) to Chapter III is consistent with Section 6(b)(5) [12] 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.

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. [13]

Based on the above, the Commission finds that the Exchange 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. The Commission believes that good cause exists to grant accelerated approval to proposed Section 16(a) to Chapter III, because this proposed rule will conform the BOX 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. [15] Because proposed Section 16(a) is substantially similar to the ISE, NYSE Arca, and FINRA rules, it raises no new regulatory issues.

The Commission also believes that good cause exists to grant accelerated approval to proposed Section 16(b) to Chapter III, which conforms the Exchange rule 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 Section 16(b) to Chapter III, because it will conform the Box rules to the requirements of Section 6(b)(10) of the Act.

V. Conclusion Back to Top

It is therefore ordered, pursuant to Section 19(b)(2) of the Act, [16] that the proposed rule change (SR-BX-2011-011) be, and it hereby is, approved on an accelerated basis.

For the Commission, by the Division of Trading and Markets, pursuant to delegated authority. [17]

Cathy H. Ahn,

Deputy Secretary.

[FR Doc. 2011-5304 Filed 3-8-11; 8:45 am]

BILLING CODE 8011-01-P

Footnotes Back to Top

6. 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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8. See Securities Exchange Act Release No. 63139 (October 20, 2010), 75 FR 65680 (October 26, 2010) (SR-ISE-2010-99). 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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10. See S. Rep. No. 111-176, at 136 (2010).

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11. 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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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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15. See note 8 supra.

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