[Federal Register Volume 61, Number 30 (Tuesday, February 13, 1996)]
[Notices]
[Pages 5592-5593]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-3133]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36813; File No. SR-NYSE-96-02]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the New York Stock Exchange, Inc. Relating to Voting of
Proxies by Its Member Firms for Holders of Auction Rate Preferred
Securities
February 6, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on February
1, 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 New York Stock Exchange, Inc. (``NYSE'' or ``Exchange'') is
proposing amendments to its rules governing the voting by its member
firms for holders of auction rate preferred securities.\1\ These
requirements are contained in Exchange Rule 452 and Section 402.08 of
its Listed Company Manual. The amendments would allow the Exchange's
member firms to vote the shares of auction rate preferred securities in
the absence of instructions provided by beneficial holders as long as
certain conditions are met.
\1\ The proposed change defines an auction rate preferred
security as a preferred security pursuant to which the dividend rate
is established periodically by auction or remarketing at specified
``reset periods.''
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II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed 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 Item IV below. The self-regulatory organization
has prepared summaries, set forth in Sections A, B, and C below, of the
most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange's proxy rules prohibit member firms from voting,
without customer instructions, on non-routine items submitted to a vote
of shareholders. Auction rate preferred securities are substantially
short term instruments sold primarily to institutional investors. At
the auction date, which typically runs every seven days but in some
instances can be one to five years, the investor receives their entire
investment along with accrued dividends, and may, if they so chose,
participate in the repurchase of shares at the new dividend rate for
the ensuing rate period. Because of the turnover and the little
interest that auction rate preferred shareholders have in the
performance of the issuer and its governance structure, corporate
issuers find it extraordinarily difficult to obtain requisite approval.
In addition, some state laws require the approval of at least a
majority of preferred holders in any matter taken to a vote of
preferred holders. The failure to obtain a quorum in such cases
effectively blocks the approval of the matters which are overwhelmingly
voted in favor of by common shareholders, when a vote of all classes is
required, and those preferred voters who do vote.
The proposed rule change will allow member firms to vote the shares
of auction rate preferred securities with auction reset periods of less
than one year, on non-routine items, in proportion to those votes cast
by beneficial holders, as long as: (i) The issuer has transmitted proxy
soliciting material to the beneficial owner or its designee; (ii) it
has not received voting instructions from the beneficial owner or its
designee within the time period specified in the proxy material; (iii)
at least 30% of the issue has been voted by beneficial holders or their
designee; (iv) less than 10% of the issue has voted against the
proposal; (v) for any proposal taken to preferred and common
shareholders, proportional voting would not be allowed unless
[[Page 5593]]
common shareholders have also approved the item: (vi) a majority of the
independent directors of the issuer's board of directors have approved
the item; and (vii) adequate disclosure of proportional voting has been
provided.
The proposed rule change will insert a new Rule 452.12 into the
Exchange's Rules of Board of Governors as well as an identical
Paragraph 402.08(C) into the Exchange's Listed Company Manual.\2\ These
provisions will allow member firms to vote on non-routine items for
auction rate preferred securities only, enabling corporate issuers, as
well as shareholders, to obtain approval of matters overwhelmingly
supported by those investors who do vote.
\2\ The proposed rule change also renumbers existing Exchange
Rules 452.12 through 452.16 without change to Rules 452.13 through
452.17 and Listed Company Manual Paragraphs 402.08(C) through (G)
without change to 402.08(D) through (H).
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2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) of the Act \3\ 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.
\3\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change does not 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
The Exchange has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any unsolicited written comments from members or other interested
parties.
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 other 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 are invited to submit written data, views, and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549.
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for inspection and copying at the
Commission's Public Reference Section, 450 Fifth Street, NW.,
Washington, DC 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-96-02 and should be
submitted by March 5, 1996.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-3133 Filed 2-12-96; 8:45 am]
BILLING CODE 8010-01-M
