[Federal Register Volume 60, Number 61 (Thursday, March 30, 1995)]
[Notices]
[Pages 16521-16523]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-7837]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35533; File No. SR-NASD-95-06]
Self-Regulatory Organizations; Notice of Filing of Proposed rule
Change by National Association of Securities Dealers, Inc. Relating to
Interpretation of the Board of Governors--Forwarding of Proxy and Other
Material Under Article III, Section 1 of the NASD Rules of Fair
Practice
March 24, 1995.
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 March
22, 1995,\1\ the National Association of Securities Dealers, Inc.
(``NASD'' or ``Association'') filed with the Securities and Exchange
Commission (``SEC'' or ``Commission'') the proposed rule change as
described in Items I, II, and III below, which Items have been prepared
by the NASD.
\1\The NASD initially submitted the proposed rule change on
February 5, 1995. Amendment No. 1, submitted on March 22, 1995,
replaces the proposed rule change in its entirety.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The NASD is proposing to amend its Interpretation of the board of
Governors--Forwarding of Proxy and Other Material under Article III,
Section 1 to the NASD Rules of Fair Practice.\2\ Below is the text of
the proposed rule change. Proposed new language is in italics; proposed
deletions are in brackets.
\2\NASD Manual, Rules of Fair Practice, Art. III, Sec. 1 (CCH)
2151.05.
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NASD Rules of Fair Practice
Business Conduct of Members
* * * * *
Article III, Section 1
Interpretation of the Board of Governors
Forwarding of Proxy and Other Materials
Introduction
A member has an inherent duty in carrying out high standards of
commercial honor and just and equitable principles of trade to
forward (i) all proxy material which is properly furnished to it by
the issuer of the securities or a stockholder of such issuer, to
each beneficial owner of shares of that issue (or the beneficial
owner's designated investment adviser) which are held by the member
for the beneficial owner thereof and (ii) all annual reports,
information statements and other material sent to stockholders,
which are properly furnished to it by the issuer of the securities
to each beneficial owner of shares of that issue (or the beneficial
owner's designated investment adviser) which are held by the member
for the beneficial owner thereof. For the assistance and guidance of
members in meeting their responsibilities, the Board of Governors
has promulgated this interpretation. The provisions hereof shall be
followed by all members and failure to do so shall constitute
conduct inconsistent with high standards of commercial honor and
just and equitable principles of trade in violation of Article III,
Section 1 of the Rules of Fair Practice of the Association.
Interpretation
Section 1. No member shall give a proxy to vote stock which is
registered in its name, except as required or permitted under the
provisions of Section 2 or 3 hereof, unless such member is the
beneficial owner of such stock.
Section 2. Whenever an issuer or stockholder of such issuer
soliciting proxies shall timely furnish to a member:
(a)[1] sufficient copies of all soliciting material which such
person is sending to registered holders, and
(b)[2] satisfactory assurance that he will reimburse such member
for all out-of-pocket expenses, including reasonable clerical
expenses incurred by such member in connection with such
solicitation, such member shall transmit promptly to each beneficial
owner of stock of such issuer (or the beneficial owner's designated
investment adviser) which is in its possession or control and
registered in a name other than the name of the beneficial owner all
such material furnished. Such material shall include a signed proxy
indicating the number of shares held for such beneficial owner and
bearing a symbol identifying the proxy with proxy
[[Page 16522]] records maintained by the member, and a letter
informing the beneficial owner (or the beneficial owner's designated
investment adviser) of the time limit and necessity for completing
the proxy form and forwarding it to the person soliciting proxies
prior to the expiration of the time limit in order for the shares to
be represented at the meeting. A member shall furnish a copy of the
symbols to the person soliciting the proxies and shall also retain a
copy thereof pursuant to the provisions of rule 17a-4 of the General
Rules and Regulations under the Securities Exchange Act of 1934, 17
C.F.R. 240.17a-4. Notwithstanding the provisions of this section, a
member may give a proxy to vote any stock pursuant to the rules of
any national securities exchange to which the member is also
responsible provided that the records of the member clearly indicate
which procedure it is following.
This section shall not apply to beneficial owners residing
outside of the United States of America though members may
voluntarily comply with the provisions hereof in respect to such
persons if they do desire.
Section 3. A member may give a proxy to vote any stock
registered in its name if such member holds such stock as executor,
administrator, guardian, trustee, or in a similar representative or
fiduciary capacity with authority to vote.
A member which has in its possession or within its control stock
registered in the name of another member and which desires to
transmit signed proxies pursuant to the provisions of Section 2,
shall obtain the requisite number of signed proxies from such holder
of record.
Notwithstanding the foregoing,
(a) any member designated by a named ERISA Plan fiduciary as the
investment manager of stock held as assets of the ERISA Plan may
vote the proxies in accordance with the ERISA Plan fiduciary
responsibilities if the ERISA Plan expressly grants discretion to
the investment manager to manage, acquire, or dispose of any plan
asset and has not expressly reserved the proxy voting right for the
named ERISA Plan fiduciary;\3\ and
\3\For purposes of this interpretation, the term ``ERISA'' is an
acronym for the Employee Retirement Income Security Act of 1974.
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(b) any person registered as an investment adviser under the
Investment Advisers Act of 1940 who exercises investment discretion
pursuant to an advisory contract for the beneficial owner and has
been designated in writing by the beneficial owner to vote the
proxies for stock which is in the possession or control of the
member, may vote such proxies.
Section 4. A member when so requested by an issuer and upon
being furnished with:
(a)[1] sufficient copies of annual reports, information
statements or other material sent to stockholders, and
(b)[2] satisfactory assurance that it will be reimbursed by such
issuer for all out-of-pocket expenses, including reasonable clerical
expenses, shall transmit promptly to each beneficial owner (or the
beneficial owner's designated investment adviser) of stock of such
issuer which is in its possession and control and registered in a
name other than the name of the beneficial owner all such material
furnished.
This section shall not apply to beneficial owners residing
outside of the United States of America though members may
voluntarily comply with the provisions hereof in respect to such
persons if they so desire.
Section 5. For purposes of this Interpretation, the term
``designated investment adviser'' is a person registered under the
Investment Advisers Act of 1940 who exercises investment discretion
pursuant to an advisory contract for the beneficial owner and is
designated in writing by the beneficial owner to receive proxy and
related materials and vote the proxy, and to receive annual reports
and other material sent to stock holders. The written designation
must be signed by the beneficial owner; be addressed to the member;
and include the name of the designated investment adviser. Members
who receive such a written designation from a beneficial owner must
ensure that the designated investment adviser is registered with the
SEC pursuant to the Investment Advisers Act of 1940 and that the
investment adviser is exercising investment discretion over the
customer's account pursuant to an advisory contract to vote proxies
and/or to receive proxy soliciting material, annual reports and
other material. Members must keep records substantiating this
information. Beneficial owners have an unqualified right at any time
to rescind designation of the investment adviser to receive
materials and to vote proxies. The rescission must be in writing and
submitted to the member.
* * * * *
2. Procedures of the Self-Regulatory Organization
(a) The proposed rule change was approved by the NASD Board of
Governors at its meeting on January 16, 1995, which authorized the
filing of the rule change with the SEC. No other action by the NASD is
necessary for the filing of the rule change. Article VII, Section
1(a)(4) of the By-Laws permits the Board of Governors to make
interpretations of the Rules of Fair Practice without recourse to the
membership for approval.
(b) Questions regarding this rule filing may be directed to John H.
Pilcher, General Counsel's Office, at (202) 728-8287.
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 NASD 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 NASD 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
The NASD reviewed recent amendments to New York Stock Exchange
(``NYSE'') rules,\4\ to allow a beneficial owner of stock to designate
a registered investment adviser to vote proxies and receive proxy and
related issuer material in lieu of the beneficial owner. Upon review,
the NASD believes that providing beneficial owners with the right to
make this type of designation benefits investors, and that uniformity
between NASD rules and NYSE rules on this subject is appropriate. The
NASD also believes that certain investment managers of ERISA Plans in
the over-the-counter market shold be allowed to vote proxies.\5\ The
NASD, therefore, proposes to amend the Board of Governors
Interpretation--Forwarding of Proxy and Other Materials under Article
III, Section 1 of the NASD Rules of Fair Practice (``Interpretation'')
to make the NASD rules on these subjects substantially similar to NYSE
rules.
\4\Securities Exchange Act Release No. 34596 (Aug. 25, 1994), 59
FR 45050 (Aug. 31, 1994) (``Release 34-34596'').
\5\NYSE Rule 450(1) is comparable to the proposed rule change.
See 2 NYSE Guide, Rules of Board, Rule 450 (CCH) 2450.
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Designated Registered Investment Advisers
The rule change would allow a benefical owner of any issuer's stock
to inform an NASD member that is the record holder of that stock that
the beneficial owner has authorized a designated registered investment
adviser to receive and vote proxies and to receive related issuer
material in lieu of the beneficial owner.
The rule change would provide that, for purposes of the
Interpretation, a ``designated investment adviser'' is a person
registered under the Investment Advisers Act of 1940 who exercises
investment discretion pursuant to an advisory contract for the
beneficial owner and has been designated in writing by the beneficial
owner to receive and vote the proxy, and to receive annual reports and
other material sent to stock holders. The beneficial owner would be
required to sign a written designattion to the member; such designation
must be addressed to the member; and such designation must include the
name of the designated investment adviser. The beneficial owner would
have an [[Page 16523]] unqualified right at any time to rescind
designation of the investment adviser to receive materials and to vote
proxies. The rescission would have to be in writing and submitted to
the member.
The rule change would require that a member who receives a written
designation from a beneficial owner ensure that the beneficial owner's
designated investment adviser is registered under the Investment
Advisers Act of 1940; is exercising investment discretion pursuant to
an advisory contract for the beneficial owner; and is designated in
writing by the beneficial owner to receive and vote proxies for stock
which is in the possession of the member. Members would be required to
keep records substantiating this information.\6\
\6\Release 34-34596, supra n. 4, clarified that the NYSE would
provide certain additional guidance regarding the NYSE rule changes
under an NYSE Information Memo. The NASD's rule change would contain
substantially similar requirements as described under Release 34-
34596 and contained in the NYSE Information Memo (See NYSE
Information Memo No. 94-41 (Sept. 7, 1994).
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ERISA Investment Managers
The rule change would provide that any member designated by a named
ERISA Plan fiduciary as the investment manager\7\ of stock held as
assets of the ERISA Plan may vote the proxies in accordance with the
ERISA Plan fiduciary responsibilities of the ERISA Plan expressly
grants discretion to the investment manager to manage, acquire, or
dispose of any plan asset, and has not expressly reserved the proxy
voting right for the named ERISA Plan fiduciary.
\7\ERISA defines the term ``investment manager'' to mean any
fiduciary (other than a trustee or named fiduciary, as defined in
Section 1102(a)(2) of Title 29): (A) Who has the power to manage,
acquire, or dispose of any asset of a plan; (B) who is: (i)
registered as an investment adviser under the Investment Advisers
Act of 1940; (ii) a bank, as defined in that Act; or (iii) an
insurance company qualified to perform services described in
subparagraph (A) under the laws of more than one State; and (C) has
acknowledged in writing that he is a fiduciary with respect to that
plan. See 29 U.S.C. 1002 (38).
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The NASD believes that the proposed rule change is consistent with
the provisions of Section 15A(b)(6) of the Act\8\ in that the rule
change will benefit investors by: (i) Providing investor with the
ability to designate their registered investment advisers to receive
and vote their proxies and to receive other material; (ii) providing
authority to certain investment managers of ERISA Plans to receive and
vote proxies and (iii) providing desired uniformity between NASDA rules
and NYSE rules on such proxy procedures.
\8\15 U.S.C. 78o-3.
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(B) Self-Regulatory Organization's Statement on Burden on Competition
The NASD does not believe that the proposed rule change will result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received from Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
A. By order approve such 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, N.W., Washington, D.C. 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 in the
Commission's Public Reference Room. Copies of such filing will also be
available for inspection and copying at the principal office of the
NASD. All submissions should refer to SR-NASD-95-06 and should be
submitted by April 20, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority, 17 CFR 200.30-3(a)(12).
[FR Doc. 95-7837 Filed 3-29-95; 8:45 am]
BILLING CODE 8010-01-M
