[Federal Register Volume 61, Number 249 (Thursday, December 26, 1996)]
[Notices]
[Pages 68082-68087]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-32717]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38058; File No. SR-NYSE-96-36]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the New York Stock Exchange, Inc. Relating to Transmission of
Proxy and Other Shareholder Communication Material.
December 18, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. Sec. 78s(b)(1), notice is hereby given that on
December 6, 1996, the New York Stock Exchange, Inc. (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items, I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is proposing changes to Rules 451 and 465 (the
``Rules'') on a three-year pilot basis. The Rules establish guidelines
for the reimbursement of expenses by issuers to NYSE member
organizations for the processing of proxy materials and other issuer
communications with respect to security holders whose securities are
held in street name. The text of the proposed rule change is available
at the Exchange or the Commission.
[[Page 68083]]
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 these statements may be examined at
the places specified in Items IV below. The self-regulatory
organization has prepared summaries, set forth in Sections A, B, and C
below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Background to the Proposed Rule Change
Exchange member organization holding securities in street name
solicit proxies and deliver communications to and from beneficial
owners of securities on behalf of issuers.\1\ For this service, issuers
reimburse the member organizations for all out-of-pocket expenses,
reasonable clerical expenses, postage and other expenses incurred in a
particular circulation. The Rules set guidelines for the amount of the
reimbursement.
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\1\ Street ownership encompasses shares purchased through a
broker or bank (referred to as a nominee). The shares are then
registered in the name of that nominee, or in the nominee name of a
depository such as The Depository Trust Company (``DTC''). Recent
analysis indicates that, on average, approximately 70 to 80 percent
of all outstanding shares are held in street name.
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While member organizations initially handled proxy processing
internally, beginning in the late 1960's and continuing to the present,
firms have increasingly used outside contractors for these types of
services. In particular, a firm will contract with a service bureau,
such as Automatic Data Processing (``ADP''), for the solicitation of
proxy voting instructions, and the distribution of reports to
shareholders.\2\ However, the identity of the soliciting broker remains
on all communications.
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\2\ The Commission notes that ADP is currently the only
intermediary offering these services to broker-dealers.
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Since the level of reimbursement was last reviewed in 1986, the
Exchange has found that proxy solicitation and report distribution
costs have increased, due in large part to general cost increases in
the economy. Postage itself has doubled since 1979. Brokers pass these
costs to the issuers. Aggregate costs also have increased due to a
substantial increase in the number of beneficial owners, which results
from increased participation of individual investors in the rising
securities market.
While the number of individual investors has increased, the
percentage of holdings of securities through institutional investors,
mutual funds, pension and savings plans also has increased. Such
institutions have an obligation, or, in some cases, a statutory duty,
to vote the shares being held. Institutions have developed a variety of
mechanisms to vote their shares in conformity with their own internal
policies and governing regulations. While these procedures require
time, many institutional investors have difficulty voting on a timely
basis during the spring proxy season. Over 40 percent of all annual
meetings occur within a few weeks. Some large institutions tend to vote
very close to the meeting date, particularly during the proxy season,
due to the immense increase in paperwork.
The Exchange has determined that, in addition to the changing stock
ownership patterns, stock holdings continue to migrate from registered
to street or nominee ownership. Street name holdings are concentrated
with approximately 1,000 nominees, and the Exchange believes that an
efficient infrastructure is necessary to coordinate these nominees and
their customers. Service bureaus, as contract agents of the nominees,
build and maintain such systems. Nominees and their agents also have
developed communications systems for obtaining shareholder votes
electronically rather than through a physical proxy. To accommodate
this, the Exchange recently amended its rules to permit telephone
voting. However, the Exchange has found that the current fee structure
does not recognize the value that these systems provide to issuers in
reducing the costs of coordination and solicitation.
Despite the progress that has been made in the distribution and
proxy solicitation process, issuers often express their belief that
mailing fees are unnecessarily high and that the procedures are not
responsive to the needs of the issuers. In this regard, unit fees for
large issuers are the same as those for small issuers, ignoring
economies of scale. Two matters are of particular concern to issuers:
whether they will have a quorum at their meeting and whether large
blocks of votes will be received relatively close to the meeting date.
In many cases, addressing these concerns has led to significantly
increased solicitation costs for issuers. At the same time, the
interests of institutions in having their voted counted in the
tabulation must also be recognized, and any changes must preserve the
rights of all shareholders in the corporate suffrage process.
Limitations of the Current Fee Structure
While there have been changes in the nature of securities holdings
and enhancements in technology, the proxy fee structure generally has
been unchanged since the Rules were first adopted in 1938. In the
Exchange's view, the current structure does not provide incentives for
nominees and other intermediaries to use the most current and efficient
technology. The Exchange believes that this structure needs to be
reconsidered and that there should be incentives for market-driven
innovations, such a electronic proxy services, touch-tone voting, and
electronic vote reporting.
Funding to operate these communication and voting systems presently
comes from the unit mailing fees that issuers pay under the NYSE
reimbursement guidelines. A decrease in fees could reduce the use of
these systems, which are increasingly being relied upon in the voting
process. Without financial incentives, it is unlikely that new cost-
reducing technology will be implemented. In addition, there is no
incentive for brokers and intermediaries to reduce the mailing of
printed material. Paper, printing and postage generally represent
between 80 and 90 percent of the cost of the average proxy mailing. By
the development and use of new technologies and electronic
distribution, these costs can be reduced.
Finally, the Rules also do not recognize the cost of coordinating
multiple nominees and the value that consolidating material
distribution and vote collection provides to issuers. These services,
which are not expressly required by any regulation, include: (i)
sending a single search card for multiple nominees; (ii) coordinating
multiple nominees to generate a single material request for each
issuer; (iii) delivering material to a single place for multiple
nominees; (iv) sorting bulk mail across multiple nominees for maximum
discounts; (v) daily reporting of votes for multiple broker and bank
nominees; and (vi) consolidating multiple nominees into a single
invoice.
The Exchange's Proposal
The proposed rule change would amend the Rules to reduce the
suggested rate of reimbursement from 60 cents or 70 cents to 55 cents
for each set of proxy material, i.e., proxy statement, form of proxy
and
[[Page 68084]]
annual report, when mailed as a unit. The present distinction between
proposals that require beneficial instructions and those that do not
would be eliminated. According to the Exchange, this will produce
substantial savings for all issuers. Further, the rate for mailing
other reports, primarily quarterly reports, would be reduced from
20 cents to 15 cents. The rate of reminder notices would remain at
40 cents unless a proxy fight is involved. The special fee of 60 cents
for mailing only to shareholders who have not voted would be
eliminated. These are the first reduction in the basic rates since the
Rules were adopted in 1938.
The proposal treats reimbursement for mailings during proxy fights
differently. These contests require significant efforts by all
participants in the proxy process and can occur under difficult
circumstances. The time for distribution is short and requires maximum
effort. Thus, the proposal includes a new fee of $1 for each set of
proxy materials mailed.
A significant aspect of the proposed rule change is a new $20 fee
per nominee. To earn this fee, the intermediary will need to provide
coordination for a series of functions across a multitude of nominees
(brokers, banks).\3\ In effect, this fee compensates an intermediary
for all the services it provides and upon which issuers and
institutions have come to rely, such as:\4\
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\3\ ``Nominees'' are those names that appear on either the list
of record shareholders or on an omnibus proxy sent to the issuer on
the record date by a depository, but who are, in fact, acting for
someone else. In practice, they are self-clearing brokers, banks, or
other financial institutions participating in DTC or some other
depository.
\4\ As noted above, ADP is the only intermediary that currently
offers these services to broker-dealers.
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Searches: Rule 14a-13 under the Act requires an issuer to
inquire of each record holder to determine the number of beneficial
owners holding shares through nominees. If an intermediary coordinates
multiple nominees, the issuer incurs only the expense of performing one
``search'' for all the nominees, saving the issuer significant
expenses.
Search responses: Nominees must respond to an issuer's
search request within seven business days of receipt. This process
often is complicated since there are multiple levels of entities. In
that case, an intermediary can consolidate responses (in some cases,
responses of over 1,000 entities), this saving administrative expenses
for issuers and increasing the accuracy of ordering material.
Delivering materials: Providing material to hundreds of
nominees requires an issuer to sort and ship a parcel to each nominee.
If this task is not done by the issuer, it must be done by a proxy
solicitor or some other vendor. Since an issuer pays a fee and a
freight bill for each of these shipments, and intermediary can save
issuers a significant expense if it can make one material delivery for
hundreds of nominees.
Use of bulk mail: For issuers who use bulk mail, a
significant amount of the savings realized today would not occur unless
intermediaries continue to combine nominees. Issuers reimburse nominees
for postage, and bulk postage rates are available only for large
shipments. Unless consolidated, the majority of nominees would not be
able to qualify individual small shipments for bulk discounts.
Preliminary voting information: To help issuers judge
whether they have a quorum, many brokers currently report a
discretionary vote ten or fifteen days before a meeting in accordance
with NYSE Rule 451(b)(1), and again at the time of the meeting. As the
proxy process has evolved, large intermediaries voluntarily have
provided daily voting updates for issuers. ADP now sends daily
consolidated vote reports 15 or 10 days before a meeting, and then
every business day until the night before the meeting. Without this
service, many issuers would need to hire a proxy solicitor to obtain
voting estimates. Obtaining the vote from a single source for hundreds
of nominees can save the issuer substantial expense, and daily voting
updates provide comfort to the issuer as the meeting date approaches.
The Exchange has determined that this coordination fee is
consistent with current Exchange rules that authorize the payment of a
coordination fee for agents that coordinate providing information
regarding non-objecting beneficial owners (``NOBOs''). \5\ The impact
of the nominee fee will vary with the issuer and the nature of its
shareholders. However, the Exchange has observed that smaller issuers
tend to have fewer nominee holders. The Exchange estimates that the
smallest 4,000 U.S. issuers would pay, on average, an intermediary
nominee coordination fee of only $800. This will be partially offset by
the lower basic rate and lower expense.
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\5\ See Exchange Rule 451.92
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To clarify the policy with respect to out-of-pocket expenses, the
proposed rule provides for reimbursement only of actual costs, such as:
outgoing postage (plus third class sorting fee); envelopes and business
reply envelopes; and custom printing of envelopes and ballots. The
business reply postage would be billed at the Business Reply Mailing
Accounting System (BRMAS) rate. Additional savings are possible by
sorting mail to obtain postal discounts, as well as through other
efforts undertaken by nominees or their agents to reduce issuers'
postage expenses. These savings could be shared between the issuer and
the processor.
The Exchange also is prosing a new incentive fee to compensate
member organizations for eliminating the need to send materials in
paper form. This will encourage member organizations to apply
technology to sort materials in a way that multiple proxy instruction
forms are included in a single envelope, with a single set of materials
to be mailed to the same household. The Rules address this area through
the concept of ``householding.'' A member firm or intermediary could
earn this paper elimination fee by distributing multiple proxy
instruction forms electronically or be distributing all material to a
household electronically. An additional fee of 50 cents (10 cents for a
quarter report) is proposed for each set of material that is not
mailed.
The Exchange provides the following examples of the cost savings
that are possible by eliminating mailings:
1. A person having three accounts--such as an individual account,
an ``IRA'' retirement account, and a trust account--could receive one
set of materials through ``householding.'' The cost comparison is:
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Without Householding
Unit cost householding (3 accounts)
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Proxy Fee........................ $.55 $1.65 $1.65
Householding Fee................. .50 0 1.00
Annual Report & Proxy Statement.. 2.00 6.00 2.00
(Estimated, cost will vary):
Bulk Rate........................ .65 1.95 .65
[[Page 68085]]
Outgoing Postage
Envelopes........................ .08 .24 .08
Return Postage................... .34 1.02 .34
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Total...................... ......... $10.86 $5.72
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As this example makes clear, the potential savings are greatest in
the areas of postage and printing, and these savings will occur even in
the first year. Also note that this example assumes the use of bulk
rate mailings. The savings would be greater for issuers using first
class postage.
2. Savings from elimination of mailings also are possible through
use of the Internet. Even for an individual with only one account, the
savings can be shown as follows:
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Mail Electronic
Unit cost return return
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Proxy Fee............................. $.55 $.55 $.55
Householding Fee...................... .50 0 .50
Annual Report & Proxy Statement....... 2.00 2.00 0
(Estimated, cost will vary):
Outgoing Postage...................... .65 .65 0
Envelopes............................. .08 .08 0
Return Postage........................ .34 .34 0
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Total........................... ......... $3.62 $1.05
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In this example, the Internet cost is paid by the user. Investors
who request to receive information electronically simply would receive
an ``e-mail'' message indicating that the annual report and proxy are
available. The Exchange believes that such use of the Internet would be
consistent with Commission policies in this area.\6\
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\6\ See Securities Act Release No. 7233 (Oct. 6, 1995).
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Finally, as to the manner in which the fees are collected, the
Exchange notes that ADP is the data processor for many of the brokerage
firms that are Exchange members. These firms subcontract the data
processing functions of the proxy solicitation process to ADP, but
retain all the obligations to comply with the relevant Exchange rules.
As a general matter, the firms subcontract for these services at less
than the full fee that the issuer pays. The firms also maintain some
staff in a proxy department to handle such tasks as balancing
depository positions on record date, changing investor records,
answering inquiries and performing other work not covered by the
subcontract.
The firm's systems department also needs to maintain proxy-related
programs--including programs for separating wrap accounts--and the
communications equipment to interface electronically with an
intermediary on both search date and record date. In addition, the
compliance department of the firm is required to ensure that the firm
fully complies with Exchange and Commission rules since subcontracting
does not relieve a firm of its legal responsibilities.
To simplify the administrative difficulties that would result if
each issuer had to pay many brokers, ADP has developed a ``single
invoice'' procedure for all of the brokers with whom they have
subcontracted. Under this procedure, ADP bills issuers on behalf of
literally hundreds of brokers and banks. ADP remits to their clients
the amounts specified in their contracts, which the firms will retain
to cover their own costs.
The Exchange believes that this billing procedure does not affect
issuer costs. In this regard, if the brokers billed issuers directly,
the issuers would pay the same amount, but to several brokers, rather
than to a central data processor. In the Exchange's view, there is no
economic difference in the brokerage firms retaining part of the costs
paid by the issuers or such firms receiving the same amount paid by ADP
through the single invoice system. This billing process also is
consistent with other types of outsourcing transactions. Indeed,
issuers benefit from this procedure since they are able to pay a single
processor, rather than multiple brokerage firms.
2. Statutory Basis
The basis under the Act for the proposed rule change is the
requirement under Section 6(b)(5) 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 foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, 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.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any inappropriate burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Summary of the Comment Letters
The Exchange solicited comments on the proposed rule change from
listed companies, member firms and other industry organizations
involved in the proxy solicitation process pursuant to a Request for
Comment dated September 18, 1996. The Exchange received 261 comments
letters.\7\ While it is difficult to categorize some of the letters,
the
[[Page 68086]]
Exchange has concluded that 181 letters generally supported the
proposal and 80 letters opposed the proposal. Of the 181 letters
supporting the proposal, 52 letters also expressed reservations about
certain aspects of the proposal.
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\7\ The Exchange informally circulated a draft of the Request
for Comment on July 19, 1996. That draft was substantially similar
to the final proposal, and a number of commentators responded only
to the July 19th request for comments. Thus, the 261 letters include
those letters received in response to the July draft.
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Those letters supporting the proposal believed that it would lead
to cost reductions, increased technological efficiencies and
consolidation of services. These commentators saw the savings from the
fee reductions more than compensating for the cost of the new nominee
fee. Even some companies facing increased fees in the short term
supported the proposal, believing that they would reap long-term gains
through decreases in internal printing costs and increased efficiencies
in the years ahead. Some commentators also thought that the proposal
could result in an increased voting response in the proxy process.
In addition, supporters believed that the new fee structure would
more equitably distribute the costs of the proxy process among market
participants. To the extent that these commentators had reservations
regarding the proposal, they noted that any difficulties could be
addressed following the end of the three-year pilot period.
Commentators objecting to the proposal focused primarily on the new
nominee fee. The main objection to that fee was that it would result in
increased costs, especially to smaller issuers. There are suggestions
that the Exchange (i) abandon the nominee fee, (i) adopt tiered nominee
fees, with small issuers not being subject to the full $20 fee, and
(iii) restructure the nominee fee so that it would be progressive,
based on how many shareholder accounts an issuer has.
Some commentators asked for a more precise definition of
``nominee.'' Others expressed the general view that brokers should be
responsible for the costs of communicating with street name holders
(and some recommended that the Exchange not establish guidelines at all
in this area). Some commentators also objected to the proposed
incentive fees. These commentators argued that the proposed fee was
unrelated to any additional service provided by an intermediary, and
that the intermediaries should be expected to provide for additional
efficiencies without the need for further reimbursement.
As to the letters with mixed opinions, some commentators said they
needed more time to review the proposal. Others found it difficult to
estimate the proposed savings or thought that any possible savings
would be minimal. A number of commentators supported the overall thrust
of the proposals, but questioned certain aspects of it, such as
suggesting that it was counterproductive to authorize the nominee fee
while lowering fees generally. Some commentators supported the
proposal, but urged that the Exchange lower fees even further. Finally,
a number of commentators made specific suggestions on how to structure
the review of the pilot program.
The Exchange's Response to the Comment Letters
Well over half the comment letters expressed support for the
proposals. The Exchange believes that this indicates that the proposal
accurately balances the interests of the issuers, broker-dealers,
intermediaries and investors. In particular, many commentors noted that
the proposal would provide a more rational fee structure and would
encourage the use of enhanced technology to facilitate the shareholder
communication and voting process. As discussed, even a number of
issuers whose proxy solicitation costs would increase supported the
proposal, noting that the new fee structure likely would yield long-
term savings.
Those commentators who voiced opposition to the proposed rule
change focused almost entirely on the possibility of increased costs,
especially through the nominee fee. Many of these commentators argued
that the fee was unfair and that it covered services that already were
being provided. Some of these commentators believed that the proposed
nominee fee would benefit large issuers at the expense of smaller
issuers.
In response, the Exchange first notes that this fee is cost-related
and is intended to compensate intermediaries for the services they
provide. As discussed above, intermediaries conduct searches for
determining how many sets of material to mail, coordinate mailings
(often through the use of bulk mail) and help provide preliminary
voting information. The proposed rule change attempts to establish a
more accurate fee schedule by isolating these services and establishing
a separate fee for recovering the costs of providing these services. By
charging separately for these discreet services, the Exchange is able
to lower the general fees for mailing materials.
The Exchange also believes that the commentators who objected to
the nominee fee do not fully recognize the cost savings that will
result under the new fee schedule. These commentators simply added the
total fees that they would have to reimburse intermediaries under the
fee schedule, but failed to consider the other cost savings,
particularly ``out of pocket savings,'' that the Exchange believes they
are likely to achieve. In addition, for example, the new incentive fees
are likely to result in fewer mailings, thus decreasing printing and
mailing costs. Similarly, the fee structure encourages the use of new
technology, especially with respect to voting, and thus should result
in a more efficient proxy system.
As to the other objections that commentators raised, the Exchange
notes:
Definition of nominee: The Exchange believes that the term
``nominee'' is well-known in the securities industry and will not give
rise to interpretive issues. The Exchange's request for comment made
clear that a ``nominee'' is a name appearing on a list of record
holders who, in fact, is acting for someone else. They are
``participants'' of the Depository Trust Company, such as self-clearing
banks, brokers and other financial institutions.
Need for reimbursement guidelines: The Exchange has
provided fee reimbursement guidelines since 1938 to provide a service
to its constituents and to help ensure that investors receive proxy and
other information from issuers on a timely basis. The system has worked
well over the years, and the current process of reviewing the fees
indicates that the Exchange continues to play a critical role in
facilitating (i) the flow of information from issuers to shareholders
and (ii) the flow of votes from shareholders to issuers.
Incentive fees: A number of commentators questioned the
adoption of incentive fees as a means to reduce mailings. These
commentators believed that intermediaries already should be taking
steps to reduce costs. However, the Exchange states that the current
fee structure provides little incentive for intermediaries to limit the
number of mailings to shareholders. This results in increases in both
mailing costs and, more significantly, printing costs, for issuers. The
incentive fee could have a dramatic effect in encouraging
intermediaries to eliminate multiple mailings.
Non-U.S. issuers: Non-U.S. issuers are exempt from most of
the Commission's proxy rules pursuant to Rule 3a12-3 under the Act.
Nevertheless, non-U.S. issuers generally do provide U.S. shareholders
with proxy and related information and seek the vote of their U.S.
holders. Thus, broker-dealers and other intermediaries face the same
reimbursement issues with non-U.S. companies as they do with U.S.
companies. The Exchange has not been presented with any compelling
[[Page 68087]]
reasons to treat these classes of issuers differently.
Finally, the Exchange recognizes that it is impossible to establish
a final fee structure without actual market experience. Thus, the
Exchange is proposing the new fee structure for a three-year pilot
term. An industry Committee consisting of representatives of the
Exchange and all the major constituency groups affected by the new fee
structure will monitor the effect of the new fees throughout the pilot.
The Committee will be able to propose changes as needed and will make
final recommendations to the Exchange at the conclusion of the pilot
period.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the 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 self-regulatory organization 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 as invited to submit written data, views, and
arguments concerning the foregoing. Commenters are invited specifically
to provide information that will assist the Commission in assessing
whether each of the various elements of the proposed fee structure--the
mailing reimbursement fees for non-contested and contested
solicitations, respectively, the nominee fee, and the ``householding''
incentive fee--considered separately and/or as a whole, are consistent
with: (1) issuers' obligation under Rule 14a-13(a)(5) of the Act to
reimburse broker-dealers, banks, and other nominees for the
``reasonable expenses'' they incur in mailing proxy soliciting
materials and annual reports to beneficial holders of such issuers'
voting securities and/or (2) broker-dealers' ability under Rule 14b-
1(c)(2) of the Act not to deliver proxy soliciting materials and annual
reports pursuant to Rule 14b-1(b)(2) of the Act, or provide NOBO
information under Rule 14b-1(b)(3) of the Act absent a particular
issuer's ``assurance of reimbursement of * * * reasonable expenses,
both direct and indirect.'' Should such ``reasonable expenses'' within
the meaning of any or all of these Commission rules be construed to
encompass an intermediary's costs of: (1) coordinating an issuer's
proxy mailings to multiple nominees and/or (2) operating an electronic
proxy voting system whereby street-name customers of broker-dealer
clients may instruct the intermediary on how to vote the securities in
which they hold a beneficial ownership interest? Should the
determination of ``reasonableness'' with respect to any of the
foregoing fees vary with the size of the issuer, whether measured in
terms of its total market capitalization or public float, or any other
criterion?
Should this reasonableness determination take into account any fee-
sharing arrangements between a intermediary and its broker dealer
clients? In this connection, to what extent should such arrangements
reflect actual allocation of costs between an intermediary and such
clients? In addressing this question, commenters should attempt to
quantify to the extent possible the costs that continue to be borne by
those broker-dealers that outsource proxy processing and/or voting
obligations to an intermediary, and the relationship of such costs to
fulfillment of obligations under Rule 14b-1 of the Act and/or Exchange
Rules.
Moreover, the Commission solicits comment on whether an independent
audit during the three-year pilot period would be helpful in assessing
the reasonableness of the costs passed through to issuers. Finally, the
Commission also solicits comment on whether the proposed NYSE nominee
fee and incentive fee should be deemed to apply to reimbursement by
non-NYSE issuers to NYSE member firms.
In view of the extensive comments requested, the Commission is
providing a 45-day comment period. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of the submission, all 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. Sec. 552, will be available for
inspection and copying at the Commission's Public Reference Section,
450 Fifth Street, N.W., Washington, D.C. 20549. 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-
NYSE-96-36 and should be submitted by [insert date 45 days from date of
publication].
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-32717 Filed 12-24-96; 8:45 am]
BILLING CODE 8010-01-M
