Skip to Content

Notice

Self-Regulatory Organizations; Notice of Filing and Order Granting Accelerated Approval to a Proposed Rule Change and Amendment No. 1 Thereto by the American Stock Exchange LLC Relating to Broker Voting on Stock Option and Equity Compensation Plans

Document Details

Information about this document as published in the Federal Register.

Published Document

This document has been published in the Federal Register. Use the PDF linked in the document sidebar for the official electronic format.

Start Preamble December 3, 2003.

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 19, 2003, the American Stock Exchange LLC (“Amex” or “Exchange”) filed with the Securities and Exchange Commission (“SEC” or “Commission”) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. On November 21, 2003, the Amex filed Amendment No. 1 to the proposed rule change.[3] The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons and is approving the proposal and Amendment No. 1 on an accelerated basis.

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

The Exchange proposes to amend Amex Rule 577 and section 723 of the Amex Company Guide to provide that a member organization holding a customer's securities in “street” name will not be permitted to give a proxy to vote such shares without instructions from the customer when the matter to be voted upon authorizes the implementation of or material amendment to a stock option or equity compensation plan.

Below is the text of the proposed rule change. Proposed new language is italicized; proposed deleted language is [bracketed].

* * * * *

American Stock Exchange Constitution and Rules

* * * * *

Rule 577. Giving Proxies by Member Organization

* * * * *

* * * Commentary

* * * * *

.11 When member organization may not vote without customer instructions.—In the list of meetings of stockholders, after proxy material has been reviewed by the Exchange, each meeting will be designated by an appropriate symbol to indicate either (a) that members may vote a proxy without instructions of beneficial owners, (b) that members may not vote specific matters on the proxy, or (c) that members may not vote the entire proxy.

Generally speaking, a member organization may not give a proxy to vote without instructions from beneficial owners when the matter to be voted upon:

(1) through (8)—No change.

(9) involves waiver or modification of preemptive rights [(except when the company's proposal is to waive such rights with respect to shares being offered pursuant to stock option or purchase plans involving the additional issuance of not more than 5% of the company's outstanding common shares (see Item 12))];

(10) and (11)—No change.

(12) [authorizes issuance of stock, or options to purchase stock, to directors, officers, or employees in an amount which exceeds 5% of the total amount of the class outstanding] authorizes the implementation of any equity compensation plan, or any material revision to the terms of any existing equity compensation plan (whether or not stockholder approval of such plan is required by Section 711 of the Exchange's Company Guide);

(13) through (18)—No change.

* * * * *

American Stock Exchange Company Guide

* * * * *
Start Printed Page 69093

Section 723. Giving Proxies By Member Organization (See Exchange Rule 577)

* * * * *

.11 When member organization may not vote without customer instructions.—In the list of meetings of stockholders, after proxy material has been reviewed by the Exchange, each meeting will be designated by an appropriate symbol to indicate either (a) that members may vote a proxy without instructions of beneficial owners, (b) that members may not vote specific matters on the proxy, or (c) that members may not vote the entire proxy.

Generally speaking, a member organization may not give a proxy to vote without instructions from beneficial owners when the matter to be voted upon:

(1) through (8)—No change.

(9) involves waiver or modification of preemptive rights [(except when the company's proposal is to waive such rights with respect to shares being offered pursuant to stock option or purchase plans involving the additional issuance of not more than 5% of the company's outstanding common shares (see Item 12))];

(10) and (11)—No change.

(12) [authorizes issuance of stock, or options to purchase stock, to directors, officers, or employees in an amount which exceeds 5% of the total amount of the class outstanding] authorizes the implementation of any equity compensation plan, or any material revision to the terms of any existing equity compensation plan (whether or not stockholder approval of such plan is required by Section 711 of the Exchange's Company Guide);

(13) through (18)—No change.

* * * * *

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 Amex 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 Amex 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

According to the Amex, the Amex and the New York Stock Exchange, Inc. (“NYSE”) have historically had virtually identical rules with respect to the circumstances under which a broker holding a customer's securities in “street name” may give a proxy to vote such shares on a particular issuer proposal without the beneficial owner's instructions. Amex Rule 577 and section 723 of the Amex Company Guide provide that the Exchange will review issuer proxy materials and designate with respect to each proposal whether Amex member organizations holding customer shares may vote without instructions from the beneficial owner (i.e., the proposal is “routine”) or may only vote with instructions (i.e., the proposal is “non-routine”).

On June 30, 2003, the Commission jointly approved NYSE and National Association of Securities Dealers, Inc. (“NASD”)/The Nasdaq Stock Market, Inc. (“Nasdaq”) proposals that required companies to obtain shareholder approval of all equity compensation plans, subject to limited exceptions, and approved rules in the NYSE proposal that classified such plans as “non-routine” for broker voting purposes.[4] On October 9, 2003, the Commission approved a comparable Amex proposal with respect to shareholder approval of stock option and equity compensation plans.[5] That proposal, however, did not address the proxy voting issue being addressed in this instant filing.

The Amex represents that the prior NYSE rules had provided, and that the current Amex rules do provide, that stock option plans are “routine” if all proposals included in the proxy to be voted on do not authorize the issuance of in excess of 5% of the total amount of the shares outstanding to directors, officers or employees. In order to provide greater consistency between marketplaces, the Amex proposes to amend Amex Rule 577 and section 723 of the Amex Company Guide to classify stock option and equity compensation plans as “non-routine” for broker voting purposes, thereby requiring instructions from the beneficial owner before a broker can give a proxy on matters related to the implementation of or material amendment to an equity compensation plan. The Amex further proposes that this proposed change become effective as of January 31, 2004.[6]

2. Statutory Basis

The Exchange believes that the proposed rule change is consistent with section 6 of the Act [7] in general and furthers the objectives of section 6(b)(5) [8] in particular in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, to protect investors and the public interest and is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers.

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.Start Printed Page 69094

C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others

No written comments were solicited or received with respect to 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 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. Comments may also be submitted electronically at the following e-mail address: rule-comments@sec.gov. All comment letters should refer to File No. SR-Amex-2003-100. This file number should be included on the subject line if e-mail is used. To help us process and review comments more efficiently, comments should be sent in hard copy or by e-mail, but not by both methods. 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 at the Commission's Public Reference Room. Copies of such filing will also be available for inspection and copying at the principal office of the Exchange. All submissions should refer to File No. SR-Amex-2003-100 and should be submitted by January 2, 2004.

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

After careful review, the Commission finds that the Amex's proposal is consistent with the Act and the rules and regulations promulgated thereunder applicable to a national securities exchange and, in particular, with the requirements of section 6(b) of the Act.[9] Specifically, the Commission finds that approval of the Amex's proposal is consistent with section 6(b)(5) of the Act [10] in that it is designed to, among other things, facilitate transactions in securities; 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, and does not permit unfair discrimination among issuers.

When it approved Amex's proposal relating to shareholder approval of equity compensation plans,[11] the Commission had urged the Amex to adopt a rule similar to the NYSE's rules prohibiting members and member organizations from giving a proxy to vote without explicit instructions from beneficial owners when the matter to be voted on authorizes the implementation of any equity compensation plan, or any material revision to the terms of any existing equity compensation plan.[12]

The Commission believes that the Amex's amended provision precluding broker voting on equity compensation plans is consistent with the Act. The Commission notes that equity compensation plans have become an important issue for shareholders. Because of the potential for dilution from such issuances, shareholders should be making the determination rather than brokers on their behalf. The Commission further notes that, generally under Amex rules, only matters that are considered routine are allowed to be voted on by a broker on behalf of a beneficial owner. Because of the recent significance and concern about equity compensation plans, the Commission believes that it is appropriate for the Amex to decide that shareholder approval of equity compensation plans is not a routine matter and must be voted on by the beneficial owner. As noted above, NASD rules do not provide for broker voting on any matters, and NYSE rules prohibit broker voting on equity compensation plans.[13] Most recently, the Commission approved similar broker voting prohibitions for all of the regional exchanges.[14] Therefore, the Exchange's proposed provision would be consistent with NASD and NYSE rules regarding broker voting on equity compensation plans, as well as with the rules of the regional exchanges. In its approval of the NYSE and Nasdaq proposals, the Commission had considered the impact on smaller issuers, such as those listed on Nasdaq and the Amex, in response to the comments received on this issue.[15] The Commission believes that the benefit of ensuring that the votes reflect the views of beneficial shareholders on equity compensation plans outweighs the potential difficulties in obtaining the vote.

The Commission notes that the Amex has implemented a transition period that would make the proposed new preclusion on broker voting on equity compensation plans effective as of January 31, 2004. The Commission further notes that this transition period is consistent with the transition periods recently approved for the regional exchanges and should ensure that the Amex's broker voting prohibition is in place for the upcoming proxy season and will be implemented by the same time as the other marketplaces.

V. Accelerated Approval of the Amex's Proposal and Amendment No. 1

The Commission finds good cause for approving the Amex's proposal and Amendment No. 1 prior to the thirtieth day after the date of publication of notice thereof in the Federal Register. The Commission notes that the Amex's proposal is similar to rules that it has recently approved for the NYSE and the regional exchanges on this issue, and is consistent with current NASD rules.[16] The Commission believes that it has already considered and addressed issues that may be raised by the Amex's proposal when it approved the NYSE and Nasdaq proposals.[17] The Commission believes that accelerated approval of the Amex's proposal will allow for immediate harmonization of, and consistency in, the broker voting requirements on equity compensation plans among all of the exchanges and the NASD/Nasdaq. The Commission further believes that making the Amex's rule change effective as of January 31, 2004, is consistent with the transition periods that the Commission has recently approved for the regional exchanges, and will allow the Amex's new broker voting prohibition to be in place for this upcoming proxy season. Further, accelerated approval should allow sufficient time for Amex members to make any necessary adjustments to implement the change by the transition date. Finally, accelerated approval of the Amex proposal will immediately Start Printed Page 69095impose the same regulatory standards on Amex members as those imposed on members of other exchanges and the NASD/Nasdaq. Based on the above, the Commission finds good cause, consistent with sections 6(b)(5) and 19(b)(2) of the Act [18] to approve the Amex's proposal and Amendment No. 1 on an accelerated basis.

VI. Conclusion

It is therefore ordered, pursuant to section 19(b)(2) of the Act,[19] that the proposed rule change (SR-Amex-2003-100) and Amendment No. 1 are hereby approved on an accelerated basis.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[20]

Jill M. Peterson,

Assistant Secretary.

End Signature End Preamble

Footnotes

3.  See letter from Claudia Crowley, Vice President, Listing Qualifications, Amex, to Nancy Sanow, Assistant Director, Division of Market Regulation (“Division”), Commission, dated November 20, 2003 (“Amendment No. 1”). In Amendment No. 1, the Exchange made technical corrections to the proposed rule change to correct typographical errors in the proposed rule text and an incorrect footnote citation in the proposal.

Back to Citation

4.  The Commission notes that NASD rules do not allow broker voting on any matters. See Securities Exchange Act Release No. 48108 (June 30, 2003), 68 FR 39995 (July 3, 2003) (order approving File Nos. SR-NYSE-2002-46 and SR-NASD-2002-140) (“NYSE and Nasdaq proposals”). See also Securities Exchange Act Release No. 48627 (October 14, 2003), 68 FR 60426 (October 22, 2003) (notice of filing and order granting accelerated approval to File No. SR-NASD-2003-130, incorporating amendments to the NASD's recently approved shareholder approval rules for equity compensation plans applicable to Nasdaq quoted securities). The Commission also published a correction to the notice of File No. SR-NASD-2003-130. See Securities Exchange Act Release No. 48627A (October 22, 2003), 68 FR 61532 (October 28, 2003). The Federal Register subsequently published another correction. See Securities Exchange Act Release No. 48627A, 68 FR 62161 (October 31, 2003). Most recently, on October 31, 2003, the Commission simultaneously approved similar proposals regarding shareholder approval of equity compensation plans, including a preclusion on broker voting on such plans, for the Boston Stock Exchange, Inc., the Chicago Stock Exchange, Inc, the Pacific Exchange Inc., the Philadelphia Stock Exchange, Inc., the Chicago Board Options Exchange, Inc., and the Cincinnati Stock Exchange on an accelerated basis. See Securities Exchange Act Release Nos. 48733 (October 31, 2003), 68 FR 63143 (November 7, 2003); 48734 (October 31, 2003), 68 FR 63159 (November 7, 2003); 48735 (October 31, 2003), 68 FR 63173 (November 7, 2003); 48736 (October 31, 2003), 68 FR 63180 (November 7, 2003); 48737 (October 31, 2003), 68 FR 63150 (November 7, 2003); and 48738 (October 31, 2003), 68 FR 63166 (November 7, 2003) (collectively, “the Regional Exchange proposals”).

Back to Citation

5.  See Securities Exchange Act Release No. 48610 (October 9, 2003), 68 FR 59650 (October 16, 2003) (order approving File No. SR-Amex-2003-42).

Back to Citation

6.  The Amex has represented that it will notify its members of the effective date of the proposed rule change on the Amex's website. Telephone conversation between Claudia Crowley, Vice President, Listing Qualifications, Amex, and Sapna C. Patel, Special Counsel, Division of Market Regulation, Commission, on November 20, 2003.

Back to Citation

9.  15 U.S.C. 78f(b). In approving the Amex's proposal, the Commission has considered the proposed rule's impact on efficiency, competition and capital formation. 15 U.S.C. 78c(f).

Back to Citation

11.  See supra note 5.

Back to Citation

12.  See NYSE Rule 452 and section 402.08 of the NYSE's Listed Company Manual.

Back to Citation

13.  See NASD Rule 2260 and supra note 12.

Back to Citation

14.  See the Regional Exchange proposals, supra note 4.

Back to Citation

15.  See also supra notes 4, 12, and 13.

Back to Citation

16.  See supra note 4. See also section 303A(8) of the NYSE's Listed Company Manual; NASD Rule 4350(i) and IM-4350-5. See also supra notes 12 and 13.

Back to Citation

17.  See supra note 4.

Back to Citation

18.  15 U.S.C. 78f(b)(5) and 78s(b)(2).

Back to Citation

[FR Doc. 03-30663 Filed 12-10-03; 8:45 am]

BILLING CODE 8010-01-P