Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Amendments to NYSE Arca Rule 9.4 and NYSE Equities Inc. Rules 5.3(d) and 9.4 Relating to Discretionary Proxy Voting on Executive Compensation Matters and Election of Directors To Comply With the Dodd-Frank Act, 3829-3833 [2012-1444]

Download as PDF Federal Register / Vol. 77, No. 16 / Wednesday, January 25, 2012 / Notices underlying relative performance index could be an ETF share. The supplement also clarifies that the ETF share components must be non-leveraged. In addition, the supplement proposes to add an example of the calculation of a relative performance index. The proposed supplement is intended to be read in conjunction with the more general ODD, which discusses the characteristics and risks of options generally.6 Rule 9b–1(b)(2)(i) under the Act 7 provides that an options market must file five copies of an amendment or supplement to the ODD with the Commission at least 30 days prior to the date definitive copies are furnished to customers, unless the Commission determines otherwise, having due regard to the adequacy of the information disclosed and the public interest and protection of investors.8 In addition, five copies of the definitive ODD, as amended or supplemented, must be filed with the Commission not later than the date the amendment or supplement, or the amended ODD, is furnished to customers. The Commission has reviewed the proposed January 2012 Supplement, and the amendments to the ODD contained therein, and finds that, having due regard to the adequacy of the information disclosed and the public interest and protection of investors, the supplement may be furnished to customers as of the date of this order. It is therefore ordered, pursuant to Rule 9b–1 under the Act,9 that definitive copies of the January 2012 Supplement to the ODD (SR–ODD– 2012–01), reflecting changes to disclosure regarding relative performance options, may be furnished to customers as of the date of this order. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.10 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–1445 Filed 1–24–12; 8:45 am] srobinson on DSK4SPTVN1PROD with NOTICES BILLING CODE 8011–01–P 6 The Commission notes that the options markets must continue to ensure that the ODD is in compliance with the requirements of Rule 9b– 1(b)(2)(i) under the Act, 17 CFR 240.9b–1(b)(2)(i), including when changes regarding relative performance options are made in the future. Any future changes to the rules of the options markets concerning relative performance options would need to be submitted to the Commission under Section 19(b) of the Act. 15 U.S.C. 78s(b). 7 17 CFR 240.9b–1(b)(2)(i). 8 This provision permits the Commission to shorten or lengthen the period of time which must elapse before definitive copies may be furnished to customers. 9 17 CFR 240.9b–1. 10 17 CFR 200.30–3(a)(39). VerDate Mar<15>2010 18:09 Jan 24, 2012 Jkt 226001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–66192; File No. SR– NYSEArca–2012–02] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Amendments to NYSE Arca Rule 9.4 and NYSE Equities Inc. Rules 5.3(d) and 9.4 Relating to Discretionary Proxy Voting on Executive Compensation Matters and Election of Directors To Comply With the Dodd-Frank Act January 19, 2012. Pursuant to Section 19(b)(1)1 of the Securities Exchange Act of 1934 (‘‘Act’’)2 and Rule 19b–4 thereunder,3 notice is hereby given that, on January 5, 2012, NYSE Arca, Inc. (‘‘Exchange’’ or ‘‘NYSE Arca’’) 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. I. Self-Regulatory Organization’s Statement of the Terms of the Substance of the Proposed Rule Change The Exchange proposes to amend NYSE Arca Rule 9.4 and to adopt Commentary .01 to NYSE Arca Rule 9.4 and, through its wholly-owned corporation, NYSE Arca Equities, Inc. (‘‘NYSE Arca Equities’’), proposes to amend NYSE Arca Equities Rule 5.3(d) and NYSE Arca Equities Rule 9.4 and to adopt Commentary .01 to NYSE Arca Equities Rule 9.4. These amendments are being made to comply with the requirements of the Dodd-Frank Act with respect to the broker voting rules of national securities exchanges. The text of the proposed rule change is available at the Exchange, the Commission’s Public Reference Room, and www.nyse.com. 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 U.S.C. 78s(b)(1). U.S.C. 78a. 3 17 CFR 240.19b–4. 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 Statutory Basis for, the Proposed Rule Change 1. Purpose Section 957 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the ‘‘Dodd-Frank Act’’) adopted new Section 6(b)(10) 4 of the Securities Exchange Act (the ‘‘Exchange Act’’).5 This new provision requires all national securities exchanges to adopt rules that prohibit their members from 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, unless the member receives voting instructions from the beneficial owner of the shares. NYSE Arca Rule 9.4 governs when OTP Holders and OTP Firms may vote shares held for customers and NYSE Arca Equities Rule 9.4 governs when ETP Holders may votes[sic] shares held for customers. NYSE Arca Rule 9.4 prohibits OTP Holders and OTP Firms, and NYSE Arca Equities Rule 9.4 prohibits ETP Holders, from voting any uninstructed shares, but also permits the OTP Holder or OTP Firm (in the case of NYSE Arca Rule 9.4) or ETP Holder (in the case of NYSE Arca Equities Rule 9.4) to follow the rules of another national securities exchange instead. In addition to its general requirements with respect to voting of uninstructed shares by ETP Holders, NYSE Arca Equities Rule 9.4 specifically prohibits ETP Holders from voting uninstructed shares on any proposal with respect to 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 NYSE Arca Equities Rule 5.3(d)(1)–(7)), unless the beneficial owner of the shares has given voting instructions. In order to assure compliance, in all cases, with newly adopted Section 1 15 2 15 PO 00000 Frm 00101 Fmt 4703 4 15 5 15 Sfmt 4703 3829 E:\FR\FM\25JAN1.SGM U.S.C. 78f(b)(10). U.S.C. 78a. 25JAN1 srobinson on DSK4SPTVN1PROD with NOTICES 3830 Federal Register / Vol. 77, No. 16 / Wednesday, January 25, 2012 / Notices 6(b)(10), NYSE Arca proposes to add Commentaries (each titled ‘‘Proxies Voting’’) to each of NYSE Arca Rule 9.4 and NYSE Arca Equities Rule 9.4 to provide that in no event could an OTP Holder or OTP Firm (in the case of NYSE Arca Rule 9.4) or ETP Holder (in the case of NYSE Arca Equities Rule 9.4) vote uninstructed shares 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 instructed by the beneficial owner of the shares. NYSE Arca also proposes to amend NYSE Arca Rule 9.4 and NYSE Arca Equities Rule 9.4 to provide that an OTP Holder or OTP Firm (in the case of NYSE Arca Rule 9.4) or ETP Holder (in the case of NYSE Arca Equities Rule 9.4) may only follow the rules of another SRO in voting shares if, in doing so, its records clearly indicate the procedures it is following. NYSE Arca proposes to amend NYSE Arca Equities Rule 9.4 to delete the specific prohibition in that rule with respect to ETP Holders voting uninstructed shares on any proposal with respect to 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 NYSE Arca Equities Rule 5.3(d)(1)–(7)), unless the beneficial owner of the shares has given voting instructions. NYSE Arca is proposing to delete this text because the Exchange believes it is no longer necessary, as NYSE Arca Equities Rule 9.4 generally prohibits ETP Holders from voting shares held on behalf of a beneficial owner except pursuant to the instructions of such beneficial holder and proposed Commentary .01 to NYSE Arca Equities Rule 9.4 would specifically prohibit ETP Holders from voting without such instructions on any proposal relating to executive compensation, or any other significant matter, as determined by the SEC, by rule. Subparagraph (7) of NYSE Arca Equities Rule 5.3(d) is currently a crossreference to the prohibition of NYSE Arca Equities Rule 9.4 on voting uninstructed shares on equity compensation matters and it will be rendered moot by the elimination of that aspect of NYSE Arca Equities Rule 9.4. Consequently, NYSE Arca proposes to amend this provision so that it will be a cross-reference to the voting VerDate Mar<15>2010 18:09 Jan 24, 2012 Jkt 226001 restrictions of NYSE Arca Equities Rule 9.4 generally. NYSE Arca is also proposing to make several other minor changes to the applicable rules. First, NYSE Arca proposes to add the words ‘‘or authorize’’ or ‘‘or authorizing’’ in certain places in NYSE Arca Rule 9.4 and NYSE Arca Equities Rule 9.4 to clarify that the rules cover not only the giving of a proxy but also the authorization of such proxy. Second, NYSE Arca proposes to amend references to ‘‘actual’’ owners in certain places in NYSE Arca Rule 9.4 and NYSE Arca Equities Rule 9.4 so that they will now refer to ‘‘beneficial’’ owners, as this is the term used in the federal securities laws and Commission rules. Third, NYSE Arca proposes to amend NYSE Arca Rule 9.4 and NYSE Arca Equities Rule 9.4 to modify the language which currently states that an OTP Holder or OTP Firm or ETP holder, as applicable, may vote shares when permitted to do so pursuant to the rules of another national securities exchange to which he or his firm ‘‘is responsible’’ As a clarification, NYSE Arca proposes to amend this language so that it will state that an OTP Holder or OTP Firm or ETP holder, as applicable, may vote shares when permitted to do so pursuant to the rules of another national securities exchange of which he or his firm is a member. Finally, NYSE Arca proposes to amend this same sentence in both NYSE Arca Rule 9.4 and NYSE Arca Equities Rule 9.4 to add the words ‘‘or association’’ after the phrase ‘‘national securities exchange,’’ as an OTP Holder, OTP Member or ETP Holder may be a member of a national securities association (e.g., FINRA) whose rules contain appropriate restrictions on its members’ ability to vote uninstructed shares (as is the case with FINRA Rule 2251). 2. Statutory Basis NYSE Arca believes that the proposed rule change is consistent with the provisions of Section 6 of the Exchange Act,6 in general and with Section 6(b)(10) 7 of the Exchange Act, in particular. Specifically, NYSE Arca believes the proposed rule change is consistent with the requirements of Section 6(b)(10) 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 6 15 7 15 PO 00000 U.S.C. 78f. U.S.C. 78f(b)(10). Frm 00102 Fmt 4703 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 Exchange Act, particularly with respect to the protection of investors and the public interest. NYSE Arca believes that the proposed amendment to NYSE Arca Rule 9.4 and NYSE Arca Equities Rule 9.4 to provide that an OTP Holder or OTP Firm (in the case of NYSE Arca Rule 9.4) or ETP Holder (in the case of NYSE Arca Equities Rule 9.4) may only follow the rules of another SRO in voting shares if, in doing so, its records clearly indicate the procedures it is following, is consistent with the requirements under Section 6(b)(5) in that it will protect investors by requiring brokers to maintain adequate records when they vote uninstructed shares. NYSE Arca believes that the proposed amendment to NYSE Arca Equities Rule 9.4 to delete the specific prohibition in that rule with respect to ETP Holders voting uninstructed shares on any equity compensation proposal is consistent with the requirements under Section 6(b)(5) in that NYSE Arca Equities Rule 9.4 generally prohibits ETP Holders from voting shares held on behalf of a beneficial owner except pursuant to the instructions of such beneficial holder and proposed Commentary .01 to NYSE Arca Equities Rule 9.4 would specifically prohibit ETP Holders from voting without such instructions on any proposal relating to executive compensation, or any other significant matter, as determined by the Commission, NYSE Arca also believes that the proposed amendment is consistent with the requirements under Section 6(b)(10) in that the specific prohibitions required by Section 957 of the Dodd-Frank Act will be included in NYSE Arca Equities Rule 9.4 as amended. NYSE Arca believes that the following proposed minor amendments are 8 15 Sfmt 4703 E:\FR\FM\25JAN1.SGM U.S.C. 78f(b)(5). 25JAN1 Federal Register / Vol. 77, No. 16 / Wednesday, January 25, 2012 / Notices consistent with the requirements under Section 6(b)(5) in that they are simply clarifications of the rule text without any substantive effect: (i) The proposed amendment to subparagraph (7) of NYSE Arca Equities Rule 5.3(d), which simply corrects a cross-reference to reflect the proposed amendment to NYSE Arca Equities Rule 9.4; (ii) the addition of the words ‘‘or authorize’’ or ‘‘or authorizing’’ in certain places in NYSE Arca Rule 9.4 and NYSE Arca Equities Rule 9.4; (iii) the proposed replacement of references to ‘‘actual’’ owners in certain places in NYSE Arca Rule 9.4 and NYSE Arca Equities Rule 9.4 by references to ‘‘beneficial’’ owners; and (iv) the amendment to NYSE Arca Rule 9.4 and NYSE Arca Equities Rule 9.4 to state that an OTP Holder or OTP Firm or ETP holder, as applicable, may vote shares when permitted to do so pursuant to the rules of another national securities exchange of which he or his firm is ‘‘a member’’ rather than one to which he or his firm ‘‘is responsible.’’ NYSE Arca believes that the proposed addition of the words ‘‘or association’’ after the phrase ‘‘national securities exchange’’ in NYSE Arca Rule 9.4 and NYSE Arca Equities Rule 9.4 is consistent with the requirements under Section 6(b)(5) in that it simply recognizes that national securities associations may have rules governing the voting of shares by their brokerdealer members (such as FINRA Rule 2251) comparable to those of national securities exchanges. 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 that is not necessary or appropriate in furtherance of the purposes of the Act. srobinson on DSK4SPTVN1PROD with NOTICES 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, as amended, is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or VerDate Mar<15>2010 18:09 Jan 24, 2012 Jkt 226001 • Send an email to rulecomments@sec.gov. Please include File Number SR–NYSEArca–2012–02 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–NYSEArca–2012–02. This file number should be included on the subject line if email 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 (https://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 offices 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– NYSEArca–2012–02 and should be submitted on or before February 15, 2012. IV. Commission’s Findings and Order Granting Accelerated Approval of the Proposed Rule Change In its filing, NYSE Arca 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. After careful consideration, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations PO 00000 Frm 00103 Fmt 4703 Sfmt 4703 3831 thereunder applicable to a national securities exchange.9 The Commission believes that the proposal is consistent with Section 6(b)(10) 10 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 also believes that the proposal 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. The Commission believes that the proposal 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 adopts 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.’’ 12 The proposed rule change will make the Exchange compliant with the new requirements of Section 6(b)(10) by specifically prohibiting, in Commentary language to each NYSE Arca Rule 9.4 and NYSE Arca Equities Rule 9.4, OTP Holder or OTP Firm (in the case of NYSE Arca 9.4) or ETP Holder (in the case of NYSE Arca Equities Rule 9.4), who are not a beneficial owner of a security, 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 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 9 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). 10 15 U.S.C. 78f(b)(10). 11 15 U.S.C. 78f(b)(5). 12 See S. Rep. No. 111–176, at 136 (2010). E:\FR\FM\25JAN1.SGM 25JAN1 3832 Federal Register / Vol. 77, No. 16 / Wednesday, January 25, 2012 / Notices 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.13 The Commission believes that the proposal is consistent with Section 6(b)(5) of the Act because the proposal will further investor protection and the public interest by assuring 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 an OTP Holder, OTP Firm, or ETP holder that has no such economic interest, which should enhance corporate governance and accountability to shareholders.14 In addition to incorporating the provisions of Section 6(b)(10), the Exchange proposes deleting from NYSE Arca Equities Rule 9.4 the specific prohibition in that rule with respect to ETP Holders voting uninstructed shares on any equity compensation proposal. The Commission believes that this provision is no longer necessary because NYSE Arca Equities Rule 9.4 generally prohibits ETP Holders from voting any uninstructed shares, including on equity compensation matters. The Commission further notes that the new proposed Commentary to NYSE Arca’s Equities Rule 9.4 prohibiting uninstructed broker votes on executive compensation covers the specific items identified in Section 951 of the Dodd-Frank Act as well as any other matter concerning executive compensation, and has been drafted broadly to reflect the requirements of Section 6(b)(10) of the Act. The Commission also notes that to the extent NYSE Arca has any past practice or interpretation that may have permitted an ETP Holder to vote on certain equity compensation plans, under its existing rule, this will no longer be applicable and is superseded by the newly adopted provisions. srobinson on DSK4SPTVN1PROD with NOTICES 13 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 NYSE Arca to adopt coordinating rules promptly to comply with the statute. 14 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). VerDate Mar<15>2010 18:09 Jan 24, 2012 Jkt 226001 The Commission notes that NYSE Arca has proposed to amend NYSE Arca Rule 9.4 and NYSE Arca Equities Rule 9.4 to provide that OTP Holders, OTP Firms, or ETP Holders may only follow the rules of another self-regulatory organization in voting shares if its records clearly indicate the procedures it is following. The Commission believes that this will help to ensure that any broker voting that is permitted is pursuant to approved rules of another self-regulatory organization. The Commission notes that the Exchange has also proposed to make certain clarifications to its rules, which include: amending subparagraph (7) of NYSE Arca Equities Rule 5.3(d) to crossreference to NYSE Arca Equities Rule 9.4; replacing references to ‘‘actual’’ owners with ‘‘beneficial’’ owners in certain places in NYSE Arca Rule 9.4 and NYSE Arca Equities Rule 9.4; and amending NYSE Arca Rule 9.4 and NYSE Arca Equities Rule 9.4 to state that an OTP Holder or OTP Firm or ETP Holder, as applicable, may vote shares when permitted to do so pursuant to the rules of another national securities exchange of which he or his firm is ‘‘a member’’ rather than one to which he or his firm ‘‘is responsible.’’ The Commission believes that these clarifications are technical in nature and should provide greater transparency in Exchange’s rules and help avoid confusion. The Commission further notes that the Exchange added ‘‘or association’’ to NYSE Arca Rule 9.4 and NYSE Arca Equities Rule 9.4 so that an OTP Holder, OTP Firm, or ETP Holder, as applicable, would be prohibited from giving a proxy to vote, unless pursuant to the rules of any national securities exchange or association of which it is a member. The Commission believes that this is appropriate since OTP Holders, OTP Firms, or ETP Holders are members of FINRA, a national securities association that also has restrictions on broker voting.15 Finally, the Commission notes that the change to reflect that NYSE Arca rules prohibit not only the giving of a proxy, but also the authorization of the proxy, should help to clarify the intent of NYSE Arca proxy rules and is consistent with the requirements of Section 6 of the Act. 15 See FINRA Rule 2251. In addition, the Commission notes that the addition of ‘‘or association’’ to NYSE Arca Rule 9.4 and NYSE Arca Equities Rule 9.4 is consistent with ISE Rule 421 and BATS–Y Exchange, Inc. Rule 13.3(b). See Securities Exchange Act Releases Nos. 63139 (October 20, 2010), 75 FR 65680 (October 26, 2011) (SR–ISE–2010–99) and 65448 (September 30, 2011), 76 FR 62103 (October 6, 2011) (SR–BYX–2011– 024). PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 Based on the above, the Commission finds that the NYSE Arca 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,16 for approving the proposed rule change prior to the 30th day after the date of publication of notice in the Federal Register. 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 the Exchange’s proposal, because it will conform the Exchange’s rules to the requirements of Section 6(b)(10) of the Act. Moreover, the Commission notes that the Exchange’s proposed Commentaries to NYSE Arca Rule 9.4 and NYSE Arca Equities Rule 9.4 are identical to Nasdaq Rule 2251(d), which was previously approved by the Commission.17 Finally, as noted above, the Exchange’s proposed changes to NYSE Arca Rule 9.4 and NYSE Arca Equities Rule 9.4 are consistent with rules of other national securities exchanges, provide clarity and transparency in the Exchange’s rules, and raise no new regulatory issues. Based on the above, the Commission believes the Exchange’s proposed rule change raises no new regulatory issues, and therefore finds good cause to accelerate approval. V. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,18 that the proposed rule change (SR–NYSEArca– 2012–02) be, and it hereby is, approved on an accelerated basis. 16 15 U.S.C. 78s(b)(2). Securities Exchange Act Release No. 62992 (September 24, 2010), 75 FR 60844 (October 1, 2010) (SR–Nasdaq–2010–114). 18 15 U.S.C. 78s(b)(2). 19 17 CFR 200.30–3(a)(12). 17 See E:\FR\FM\25JAN1.SGM 25JAN1 Federal Register / Vol. 77, No. 16 / Wednesday, January 25, 2012 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.19 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–1444 Filed 1–24–12; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–66186; File No. SR–DTC– 2011–09] Self-Regulatory Organizations; The Depository Trust Company; Order Approving Proposed Rule Change To Modify a Practice in Order To Mitigate Systemic Risk, Specifically Liquidity Related, Associated With DTC End of Day Net Funds Settlement January 19, 2012. I. Introduction On November 21, 2011, The Depository Trust Company (‘‘DTC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change SR–DTC–2011–09 pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 2 thereunder. The proposed rule change was published for comment in the Federal Register on December 8, 2011.3 The Commission received no comment letters regarding the proposal. For the reasons discussed below, the Commission is granting approval of the proposed rule change. II. Description Pursuant to the rule change, DTC will temporarily reduce each Participant’s maximum net debit cap for night cycle processing of valued transactions over weekends and holidays and to restore such debit cap at the start of day cycle processing for the next settlement date (i.e., the first business day following the weekend or holiday). Under the proposed change, DTC would temporarily reduce each Participant’s maximum net debit cap for night cycle processing 4 of valued transactions over 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 Securities Exchange Act Release No. 34–65871 (December 2, 2011), 76 FR 76790 (December 8, 2011). In its filing with the Commission, DTC included statements concerning the purpose of and basis for the proposed rule change. The text of these statements is incorporated into the discussion of the proposed rule change in Section II below. 4 DTC processes settlement in two cycles each business day: (i) A night cycle that begins at approximately 9 p.m. and finishes at approximately 11:30 p.m. and (ii) a day cycle that begins at approximately 3 a.m. and completes at srobinson on DSK4SPTVN1PROD with NOTICES 2 17 VerDate Mar<15>2010 18:09 Jan 24, 2012 Jkt 226001 weekends and holidays and would restore such debit cap at the start of day cycle processing for the next settlement date (i.e., the first business day following the weekend or holiday). In doing so, DTC believes it would reduce the systemic risk associated with a liquidity shortfall and would enhance the safety and soundness of the U.S. settlement system. Background on DTC Settlement and the Net Debit Cap Control DTC’s Settlement System is structured so that Participants may make intraday book-entry deliveries versus payment of securities held in their DTC accounts. These transfers generate debits to the settlement account of each receiving Participant and credits to the settlement account of each delivering Participant. As debits and credits of multiple transactions net over the course of the business day, a Participant will have either a net debit balance or net credit balance from time to time and at settlement will be in either a net debit or net credit balance position. Participants having a net debit balance for settlement owe payments of the amount of the net debit to DTC. In order that DTC has the resources to achieve end-of-day settlement among nondefaulting Participants, DTC maintains liquidity resources sufficient to complete settlement, notwithstanding the failure of its largest Participant to pay, by covering the net debit balance of a defaulting Participant. One of the key risk management controls in this process is the net debit cap, which limits the net debit balance of a Participant, intraday and at settlement, to DTC’s available liquidity resources. (The net debit balance must also be fully collateralized by sufficient collateral measured by the collateral monitor risk control.) DTC assigns a net debit cap to each Participant based on the Participant’s activity and currently limits the maximum net debit cap for a Participant to $1.8 billion and for a family of related Participants to $3 billion aggregate.5 This settlement structure is designed to support the efficient recycling of intraday liquidity to facilitate the settlement of approximately 3:30 p.m. For Monday settlement, the night cycle begins on the preceding Friday evening at 9 p.m. and ends at 11:30 p.m. Friday night; the day cycle does not begin until 3 a.m. on Monday. 5 These net debit caps are supported by $3.2 billion of liquidity resources at DTC in the form of a $1.3 billion all-cash Participants Fund and a $1.9 billion committed line of credit available for settlement in the event that a Participant fails to pay its net debit balance at settlement. PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 3833 transactions while limiting systemic risk due to Participant failure. With Friday night cycle processing over weekends and holidays, however, Participants may accrue net debit balances for end-of-day settlement on the next business day, which is two to three calendar days away. DTC has recognized that during such extended processing, external credit events may occur, including, in particular, the possibility of a weekend insolvency. Change in Night Cycle Processing To address the liquidity risk 6 over the extended periods of weekends and holidays, DTC is proposing to reduce the maximum net debit cap temporarily over the extended period for any Participant or any family of related Participants to $1.5 billion at the opening of night cycle processing on any DTC business day for which the succeeding calendar day is not a business day. DTC would then restore the net debit cap for any affected Participant or family of related Participants to its full net debit cap at the open of day cycle processing for the next business day in the ordinary course of business.7 Risk Reduction and Anticipated Minimal Settlement System and Participant Impact The purpose of this proposed change in processing practice is to minimize systemic risk to U.S. markets and to DTC Participants as well as to minimize direct liquidity risk to DTC by the management of net debit balances over extended processing periods such as weekends and holidays. The highest net debit caps at DTC are established primarily to support the settlement of Money Market Instrument (‘‘MMI’’) transactions. MMI transactions are high value, same day settling transactions that are processed principally in the afternoon on any settlement day. Because these transactions are processed during the 6 ‘‘Liquidity risk’’ refers to the financial risk associated with access to liquidity to cover the failure of a Participant to fund its net settlement obligation to DTC. 7 Today, DTC may reduce a Participant’s net debit cap (see, e.g., DTC Rule 1, definition of Net Debit Cap which permits DTC to set the Net Debit Cap of a Participant at ‘‘any other amount determined by [DTC], in its sole discretion.’’). Accordingly, after a temporary weekend or holiday reduction as proposed herein, DTC may elect not to restore the net debit cap of any affected Participant. By way of example only, and in line with the purpose of this proposed change in practice, DTC would not expect to restore the net debit cap of a Participant that had become insolvent in the intervening non-business days or as to which DTC is concerned with its credit status. (DTC would take the same approach to holidays, that is, whenever two business days are not successive.) E:\FR\FM\25JAN1.SGM 25JAN1

Agencies

[Federal Register Volume 77, Number 16 (Wednesday, January 25, 2012)]
[Notices]
[Pages 3829-3833]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-1444]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66192; File No. SR-NYSEArca-2012-02]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Order Granting Accelerated Approval of a Proposed Rule Amendments 
to NYSE Arca Rule 9.4 and NYSE Equities Inc. Rules 5.3(d) and 9.4 
Relating to Discretionary Proxy Voting on Executive Compensation 
Matters and Election of Directors To Comply With the Dodd-Frank Act

January 19, 2012.
    Pursuant to Section 19(b)(1)\1\ of the Securities Exchange Act of 
1934 (``Act'')\2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on January 5, 2012, NYSE Arca, Inc. (``Exchange'' or ``NYSE 
Arca'') 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    The Exchange proposes to amend NYSE Arca Rule 9.4 and to adopt 
Commentary .01 to NYSE Arca Rule 9.4 and, through its wholly-owned 
corporation, NYSE Arca Equities, Inc. (``NYSE Arca Equities''), 
proposes to amend NYSE Arca Equities Rule 5.3(d) and NYSE Arca Equities 
Rule 9.4 and to adopt Commentary .01 to NYSE Arca Equities Rule 9.4. 
These amendments are being made to comply with the requirements of the 
Dodd-Frank Act with respect to the broker voting rules of national 
securities exchanges. The text of the proposed rule change is available 
at the Exchange, the Commission's Public Reference Room, and 
www.nyse.com.

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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Section 957 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (the ``Dodd-Frank Act'') adopted new Section 6(b)(10) 
\4\ of the Securities Exchange Act (the ``Exchange Act'').\5\ This new 
provision requires all national securities exchanges to adopt rules 
that prohibit their members from 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, unless the member receives 
voting instructions from the beneficial owner of the shares.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78f(b)(10).
    \5\ 15 U.S.C. 78a.
---------------------------------------------------------------------------

    NYSE Arca Rule 9.4 governs when OTP Holders and OTP Firms may vote 
shares held for customers and NYSE Arca Equities Rule 9.4 governs when 
ETP Holders may votes[sic] shares held for customers. NYSE Arca Rule 
9.4 prohibits OTP Holders and OTP Firms, and NYSE Arca Equities Rule 
9.4 prohibits ETP Holders, from voting any uninstructed shares, but 
also permits the OTP Holder or OTP Firm (in the case of NYSE Arca Rule 
9.4) or ETP Holder (in the case of NYSE Arca Equities Rule 9.4) to 
follow the rules of another national securities exchange instead. In 
addition to its general requirements with respect to voting of 
uninstructed shares by ETP Holders, NYSE Arca Equities Rule 9.4 
specifically prohibits ETP Holders from voting uninstructed shares on 
any proposal with respect to 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 NYSE Arca Equities Rule 5.3(d)(1)-(7)), 
unless the beneficial owner of the shares has given voting 
instructions.
    In order to assure compliance, in all cases, with newly adopted 
Section

[[Page 3830]]

6(b)(10), NYSE Arca proposes to add Commentaries (each titled ``Proxies 
Voting'') to each of NYSE Arca Rule 9.4 and NYSE Arca Equities Rule 9.4 
to provide that in no event could an OTP Holder or OTP Firm (in the 
case of NYSE Arca Rule 9.4) or ETP Holder (in the case of NYSE Arca 
Equities Rule 9.4) vote uninstructed shares 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 instructed by the 
beneficial owner of the shares.
    NYSE Arca also proposes to amend NYSE Arca Rule 9.4 and NYSE Arca 
Equities Rule 9.4 to provide that an OTP Holder or OTP Firm (in the 
case of NYSE Arca Rule 9.4) or ETP Holder (in the case of NYSE Arca 
Equities Rule 9.4) may only follow the rules of another SRO in voting 
shares if, in doing so, its records clearly indicate the procedures it 
is following.
    NYSE Arca proposes to amend NYSE Arca Equities Rule 9.4 to delete 
the specific prohibition in that rule with respect to ETP Holders 
voting uninstructed shares on any proposal with respect to 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 NYSE Arca 
Equities Rule 5.3(d)(1)-(7)), unless the beneficial owner of the shares 
has given voting instructions. NYSE Arca is proposing to delete this 
text because the Exchange believes it is no longer necessary, as NYSE 
Arca Equities Rule 9.4 generally prohibits ETP Holders from voting 
shares held on behalf of a beneficial owner except pursuant to the 
instructions of such beneficial holder and proposed Commentary .01 to 
NYSE Arca Equities Rule 9.4 would specifically prohibit ETP Holders 
from voting without such instructions on any proposal relating to 
executive compensation, or any other significant matter, as determined 
by the SEC, by rule. Subparagraph (7) of NYSE Arca Equities Rule 5.3(d) 
is currently a cross-reference to the prohibition of NYSE Arca Equities 
Rule 9.4 on voting uninstructed shares on equity compensation matters 
and it will be rendered moot by the elimination of that aspect of NYSE 
Arca Equities Rule 9.4. Consequently, NYSE Arca proposes to amend this 
provision so that it will be a cross-reference to the voting 
restrictions of NYSE Arca Equities Rule 9.4 generally.
    NYSE Arca is also proposing to make several other minor changes to 
the applicable rules. First, NYSE Arca proposes to add the words ``or 
authorize'' or ``or authorizing'' in certain places in NYSE Arca Rule 
9.4 and NYSE Arca Equities Rule 9.4 to clarify that the rules cover not 
only the giving of a proxy but also the authorization of such proxy. 
Second, NYSE Arca proposes to amend references to ``actual'' owners in 
certain places in NYSE Arca Rule 9.4 and NYSE Arca Equities Rule 9.4 so 
that they will now refer to ``beneficial'' owners, as this is the term 
used in the federal securities laws and Commission rules. Third, NYSE 
Arca proposes to amend NYSE Arca Rule 9.4 and NYSE Arca Equities Rule 
9.4 to modify the language which currently states that an OTP Holder or 
OTP Firm or ETP holder, as applicable, may vote shares when permitted 
to do so pursuant to the rules of another national securities exchange 
to which he or his firm ``is responsible'' As a clarification, NYSE 
Arca proposes to amend this language so that it will state that an OTP 
Holder or OTP Firm or ETP holder, as applicable, may vote shares when 
permitted to do so pursuant to the rules of another national securities 
exchange of which he or his firm is a member. Finally, NYSE Arca 
proposes to amend this same sentence in both NYSE Arca Rule 9.4 and 
NYSE Arca Equities Rule 9.4 to add the words ``or association'' after 
the phrase ``national securities exchange,'' as an OTP Holder, OTP 
Member or ETP Holder may be a member of a national securities 
association (e.g., FINRA) whose rules contain appropriate restrictions 
on its members' ability to vote uninstructed shares (as is the case 
with FINRA Rule 2251).
2. Statutory Basis
    NYSE Arca believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Exchange Act,\6\ in general and with 
Section 6(b)(10) \7\ of the Exchange Act, in particular. Specifically, 
NYSE Arca believes the proposed rule change is consistent with the 
requirements of Section 6(b)(10) 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 Exchange 
Act, particularly with respect to the protection of investors and the 
public interest. NYSE Arca believes that the proposed amendment to NYSE 
Arca Rule 9.4 and NYSE Arca Equities Rule 9.4 to provide that an OTP 
Holder or OTP Firm (in the case of NYSE Arca Rule 9.4) or ETP Holder 
(in the case of NYSE Arca Equities Rule 9.4) may only follow the rules 
of another SRO in voting shares if, in doing so, its records clearly 
indicate the procedures it is following, is consistent with the 
requirements under Section 6(b)(5) in that it will protect investors by 
requiring brokers to maintain adequate records when they vote 
uninstructed shares.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(10).
    \8\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    NYSE Arca believes that the proposed amendment to NYSE Arca 
Equities Rule 9.4 to delete the specific prohibition in that rule with 
respect to ETP Holders voting uninstructed shares on any equity 
compensation proposal is consistent with the requirements under Section 
6(b)(5) in that NYSE Arca Equities Rule 9.4 generally prohibits ETP 
Holders from voting shares held on behalf of a beneficial owner except 
pursuant to the instructions of such beneficial holder and proposed 
Commentary .01 to NYSE Arca Equities Rule 9.4 would specifically 
prohibit ETP Holders from voting without such instructions on any 
proposal relating to executive compensation, or any other significant 
matter, as determined by the Commission, NYSE Arca also believes that 
the proposed amendment is consistent with the requirements under 
Section 6(b)(10) in that the specific prohibitions required by Section 
957 of the Dodd-Frank Act will be included in NYSE Arca Equities Rule 
9.4 as amended.
    NYSE Arca believes that the following proposed minor amendments are

[[Page 3831]]

consistent with the requirements under Section 6(b)(5) in that they are 
simply clarifications of the rule text without any substantive effect: 
(i) The proposed amendment to subparagraph (7) of NYSE Arca Equities 
Rule 5.3(d), which simply corrects a cross-reference to reflect the 
proposed amendment to NYSE Arca Equities Rule 9.4; (ii) the addition of 
the words ``or authorize'' or ``or authorizing'' in certain places in 
NYSE Arca Rule 9.4 and NYSE Arca Equities Rule 9.4; (iii) the proposed 
replacement of references to ``actual'' owners in certain places in 
NYSE Arca Rule 9.4 and NYSE Arca Equities Rule 9.4 by references to 
``beneficial'' owners; and (iv) the amendment to NYSE Arca Rule 9.4 and 
NYSE Arca Equities Rule 9.4 to state that an OTP Holder or OTP Firm or 
ETP holder, as applicable, may vote shares when permitted to do so 
pursuant to the rules of another national securities exchange of which 
he or his firm is ``a member'' rather than one to which he or his firm 
``is responsible.''
    NYSE Arca believes that the proposed addition of the words ``or 
association'' after the phrase ``national securities exchange'' in NYSE 
Arca Rule 9.4 and NYSE Arca Equities Rule 9.4 is consistent with the 
requirements under Section 6(b)(5) in that it simply recognizes that 
national securities associations may have rules governing the voting of 
shares by their broker-dealer members (such as FINRA Rule 2251) 
comparable to those of national securities exchanges.

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 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

    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, as amended, is consistent with the Act. Comments may be 
submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2012-02 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-NYSEArca-2012-02. This 
file number should be included on the subject line if email 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 (https://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 offices 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-NYSEArca-2012-02 and should 
be submitted on or before February 15, 2012.

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

    In its filing, NYSE Arca 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. 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.\9\
---------------------------------------------------------------------------

    \9\ 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).
---------------------------------------------------------------------------

    The Commission believes that the proposal is consistent with 
Section 6(b)(10) \10\ 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 also believes that the proposal 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.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b)(10).
    \11\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission believes that the proposal 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 adopts 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.'' \12\ The proposed rule change will make the Exchange 
compliant with the new requirements of Section 6(b)(10) by specifically 
prohibiting, in Commentary language to each NYSE Arca Rule 9.4 and NYSE 
Arca Equities Rule 9.4, OTP Holder or OTP Firm (in the case of NYSE 
Arca 9.4) or ETP Holder (in the case of NYSE Arca Equities Rule 9.4), 
who are not a beneficial owner of a security, 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 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

[[Page 3832]]

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.\13\
---------------------------------------------------------------------------

    \12\ See S. Rep. No. 111-176, at 136 (2010).
    \13\ 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 NYSE Arca to adopt 
coordinating rules promptly to comply with the statute.
---------------------------------------------------------------------------

    The Commission believes that the proposal is consistent with 
Section 6(b)(5) of the Act because the proposal will further investor 
protection and the public interest by assuring 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 an OTP 
Holder, OTP Firm, or ETP holder that has no such economic interest, 
which should enhance corporate governance and accountability to 
shareholders.\14\
---------------------------------------------------------------------------

    \14\ 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).
---------------------------------------------------------------------------

    In addition to incorporating the provisions of Section 6(b)(10), 
the Exchange proposes deleting from NYSE Arca Equities Rule 9.4 the 
specific prohibition in that rule with respect to ETP Holders voting 
uninstructed shares on any equity compensation proposal. The Commission 
believes that this provision is no longer necessary because NYSE Arca 
Equities Rule 9.4 generally prohibits ETP Holders from voting any 
uninstructed shares, including on equity compensation matters. The 
Commission further notes that the new proposed Commentary to NYSE 
Arca's Equities Rule 9.4 prohibiting uninstructed broker votes on 
executive compensation covers the specific items identified in Section 
951 of the Dodd-Frank Act as well as any other matter concerning 
executive compensation, and has been drafted broadly to reflect the 
requirements of Section 6(b)(10) of the Act. The Commission also notes 
that to the extent NYSE Arca has any past practice or interpretation 
that may have permitted an ETP Holder to vote on certain equity 
compensation plans, under its existing rule, this will no longer be 
applicable and is superseded by the newly adopted provisions.
    The Commission notes that NYSE Arca has proposed to amend NYSE Arca 
Rule 9.4 and NYSE Arca Equities Rule 9.4 to provide that OTP Holders, 
OTP Firms, or ETP Holders may only follow the rules of another self-
regulatory organization in voting shares if its records clearly 
indicate the procedures it is following. The Commission believes that 
this will help to ensure that any broker voting that is permitted is 
pursuant to approved rules of another self-regulatory organization.
    The Commission notes that the Exchange has also proposed to make 
certain clarifications to its rules, which include: amending 
subparagraph (7) of NYSE Arca Equities Rule 5.3(d) to cross-reference 
to NYSE Arca Equities Rule 9.4; replacing references to ``actual'' 
owners with ``beneficial'' owners in certain places in NYSE Arca Rule 
9.4 and NYSE Arca Equities Rule 9.4; and amending NYSE Arca Rule 9.4 
and NYSE Arca Equities Rule 9.4 to state that an OTP Holder or OTP Firm 
or ETP Holder, as applicable, may vote shares when permitted to do so 
pursuant to the rules of another national securities exchange of which 
he or his firm is ``a member'' rather than one to which he or his firm 
``is responsible.'' The Commission believes that these clarifications 
are technical in nature and should provide greater transparency in 
Exchange's rules and help avoid confusion.
    The Commission further notes that the Exchange added ``or 
association'' to NYSE Arca Rule 9.4 and NYSE Arca Equities Rule 9.4 so 
that an OTP Holder, OTP Firm, or ETP Holder, as applicable, would be 
prohibited from giving a proxy to vote, unless pursuant to the rules of 
any national securities exchange or association of which it is a 
member. The Commission believes that this is appropriate since OTP 
Holders, OTP Firms, or ETP Holders are members of FINRA, a national 
securities association that also has restrictions on broker voting.\15\ 
Finally, the Commission notes that the change to reflect that NYSE Arca 
rules prohibit not only the giving of a proxy, but also the 
authorization of the proxy, should help to clarify the intent of NYSE 
Arca proxy rules and is consistent with the requirements of Section 6 
of the Act.
---------------------------------------------------------------------------

    \15\ See FINRA Rule 2251. In addition, the Commission notes that 
the addition of ``or association'' to NYSE Arca Rule 9.4 and NYSE 
Arca Equities Rule 9.4 is consistent with ISE Rule 421 and BATS-Y 
Exchange, Inc. Rule 13.3(b). See Securities Exchange Act Releases 
Nos. 63139 (October 20, 2010), 75 FR 65680 (October 26, 2011) (SR-
ISE-2010-99) and 65448 (September 30, 2011), 76 FR 62103 (October 6, 
2011) (SR-BYX-2011-024).
---------------------------------------------------------------------------

    Based on the above, the Commission finds that the NYSE Arca 
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,\16\ for approving the proposed rule change prior to the 
30th day after the date of publication of notice in the Federal 
Register. 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 the Exchange's proposal, because it will conform the 
Exchange's rules to the requirements of Section 6(b)(10) of the Act. 
Moreover, the Commission notes that the Exchange's proposed 
Commentaries to NYSE Arca Rule 9.4 and NYSE Arca Equities Rule 9.4 are 
identical to Nasdaq Rule 2251(d), which was previously approved by the 
Commission.\17\ Finally, as noted above, the Exchange's proposed 
changes to NYSE Arca Rule 9.4 and NYSE Arca Equities Rule 9.4 are 
consistent with rules of other national securities exchanges, provide 
clarity and transparency in the Exchange's rules, and raise no new 
regulatory issues. Based on the above, the Commission believes the 
Exchange's proposed rule change raises no new regulatory issues, and 
therefore finds good cause to accelerate approval.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78s(b)(2).
    \17\ See Securities Exchange Act Release No. 62992 (September 
24, 2010), 75 FR 60844 (October 1, 2010) (SR-Nasdaq-2010-114).
---------------------------------------------------------------------------

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\18\ that the proposed rule change (SR-NYSEArca-2012-02) be, and it 
hereby is, approved on an accelerated basis.
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    \18\ 15 U.S.C. 78s(b)(2).
    \19\ 17 CFR 200.30-3(a)(12).


[[Page 3833]]


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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-1444 Filed 1-24-12; 8:45 am]
BILLING CODE 8011-01-P
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