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Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto by the New York Stock Exchange, Inc. Removing Separate Exchange Requirements Regarding the Use of Consent Solicitations

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Start Preamble June 19, 2002.

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 January 3, 2002, the New York Stock Exchange, Inc. (“NYSE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission” or “SEC”) the proposed rule change as described in Items I, II, and III below, which Items have been substantially prepared by the NYSE. The NYSE submitted Start Printed Page 43200Amendment No. 1 to the proposed rule change on May 23, 2002.[3] The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons.

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

The NYSE proposes to amend Section 306 of the NYSE Listed Company Manual to remove separate NYSE requirements regarding the use of consent solicitations. The text of the proposed rule change is below. New language is italicized; deleted language is in brackets.

Listed Company Manual

306.00 Consents

[The use of consents in lieu of special meetings as proper authorization for shareholder approval of corporate action may be appropriate under certain circumstances. When it appears that a special meeting of shareholders is not necessary, requests from listed companies to use consents will be reviewed and approved by the Exchange on an individual basis if they conform with these guidelines:

A record date is used.

Consent material is sent to all shareholders.

Corporate action is not to be taken until the solicitation period has expired—even if the required vote is received earlier.

A 30-day solicitation period is recommended and a minimum of 20 days is required.

Consent material conforms to normal proxy statement disclosure standards.

If, in the opinion of the Exchange, there is an important reason why an actual meeting should be held, the use of consents will not be approved.]

Listed companies may use consents in lieu of special meetings of shareholders as permitted by applicable law. The Exchange has no separate requirements with respect to the solicitation of such consents, but listed companies must comply with applicable state and federal law and rules (including interpretations thereof), including, without limitation, SEC Regulations 14A and 14C.

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 NYSE 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 NYSE 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

The Exchange has long required that listed companies solicit proxies in connection with all shareholder meetings. Section 306 of the Listed Company Manual specifies that companies are permitted to use shareholder consents in lieu of special meetings, although it provides that the corporate action should not be taken until the consent solicitation period has expired.

In 1964, the Exchange Act was amended to expand federal proxy regulation to cover “information statements,” which are disclosure documents used to inform shareholders of corporate action that has been taken without the general solicitation of their proxy, consent, or authorization. This can arise when a corporation is permitted under state law to take action without a meeting upon the written consent of a specified percentage of shareholders, and the corporation has an individual or a small group that holds a sufficient percentage to effect the action involved.

Since the Exchange permitted the listing of dual class capitalization companies, from time to time some Exchange-listed companies have been in a position to, and desired to, take action by written consent of the holders of a majority of their voting stock in lieu of a special meeting of shareholders. Such a company would be required by Section 14(c) of the Exchange Act and Regulation 14C thereunder to furnish to all shareholders an information statement that contains the same disclosure as would have been provided to those shareholders had they been sent a proxy or consent solicitation. Regulation 14C also specifies that the information statement must be sent at least 20 days prior to the earliest date the corporate action can be taken. Nonetheless, given the requirements of Section 306 of the Manual, at least in those situations where the shareholder vote is one required by Exchange rules (e.g., by 312.03 of the Manual), the Exchange has required such companies to actually solicit consents from all shareholders, which involves the additional logistics of collecting and tabulating the shareholder votes. These companies typically find this requirement onerous and without substantive justification, given that the outcome of the vote is a foregone conclusion and the information furnished to shareholders would be the same in any event.

The Exchange is now of the opinion that those objections are credible and that it is appropriate to align the Exchange with what has become an accepted corporate practice that has long been sanctioned by state and federal regulation. The federal proxy rules insure that shareholders are provided all the information material to the corporate action being taken, regardless of whether the corporation must solicit shareholder approval generally, or is able to proceed based on the written consent of a smaller group. Accordingly, the Exchange proposes to modify Section 306 to eliminate the separate Exchange requirements with respect to use of consents in lieu of special meetings. As a result, listed companies will be permitted to either (1) hold a special meeting of shareholders, or (2) use consents in lieu of special meetings when and as permitted by applicable law.

The Exchange would, however, retain its traditional policy that listed companies may not use written consents in lieu of the annual meeting of shareholders at which directors are to be elected.

2. Statutory Basis

The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,[4] in general and furthers the objectives of Section 6(b)(5),[5] in particular, because it is 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.

B. Self-Regulatory Organization's Statement on Burden on Competition

The Exchange does not believe that the proposed rule change will impose Start Printed Page 43201any 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 neither solicited nor received written comments on the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action

Within 35 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the Exchange consents, the Commission will:

(A) by order approve the proposed rule change, or

(B) institute proceedings to determine whether the proposed rule change should be disapproved.

IV. 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. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street NW., Washington, DC 20549-0609. 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 inspection and copying in the Commission's Public Reference Room. Copies of such filing will also be available for inspection and copying at the principal office of the NYSE. All submissions should refer to File No. SR-NYSE-2002-01 and should be submitted by July 17, 2002.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[6]

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble


3.  In Amendment No. 1, the Exchange: (1) added the following language to the proposed rule text: “(including interpretations thereof), including, without limitation,” and (2) added language to the purpose section clarifying the two options available to listed companies for obtaining shareholder approval. See letter from Darla C. Stuckey, Corporate Secretary, NYSE, to Nancy J. Sanow, Assistant Director, Division of Market Regulation, Commission, dated May 22, 2002 (“Amendment No. 1”).

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[FR Doc. 02-16064 Filed 6-25-02; 8:45 am]