[Federal Register Volume 64, Number 125 (Wednesday, June 30, 1999)]
[Notices]
[Pages 35229-35231]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-16644]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-41549; File No. SR-NYSE-99-21]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment No. 1 Thereto by the New York Stock Exchange, Inc.
Relating to the Reimbursement of Member Organizations for Costs
Incurred in the Transmission of Proxy and Other Shareholder
Communication Material
June 23, 1999.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 under the Act,\2\ notice is hereby given
that on May 17, 1999, the New York Stock Exchange, Inc. (``Exchange''
or ``NYSE'') 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 Exchange. On June
23, 1999, the Exchange filed with the commission Amendment No. 1 to the
proposed rule change.\3\ The Commission is publishing this notice to
solicit comments on the proposed rule change, as amended, from
interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Amendment No. 1 removed from the proposed rule change the
provision that would have permitted the householding of proxy and
other materials through implied consent. At the request of the
Commission, the Exchange will include the householding through
implied consent proposal in a separate rule filing. Amendment No. 1
also clarified certain text discussing the proposed definition of
nominee. See Letter from James E. Buck, Senior Vice President and
Secretary, Exchange, to Sharon Lawson, Senior Special Counsel,
Division of Market Regulation, Commission, dated June 22, 1999
(``Amendment No. 1'').
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Exchange proposes to revise Exchange Rule 451, ``Transmission
of Proxy Material'' and Exchange Rule 465, ``Transmission of Interim
Reports and Other Material'' (collectively, the ``Rules''), and section
402.10 of the Exchange's Listed Company Manual. In particular, the
Exchange seeks to amend the guidelines in the Rules that govern the
reimbursement of NYSE member organizations for out-of-pocket expenses
incurred in processing and delivering proxy materials (Exchange Rule
451) and other issuer materials (Exchange Rule 465) to security holders
whose securities are held in street name.\4\ These reimbursement
guidelines, which are currently effective through August 31, 1999,
comprise the ``Pilot Fee Structure.'' \5\ The Exchange also proposes to
define the term ``nominee'' for purposes of determining the nominee
coordination fee.
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\4\ The ownership of shares in street name means that a
shareholder, or ``beneficial owner,'' has purchased shares through a
broker-dealer or bank, also known as a ``nominee.'' In contrast to
direct ownership, where the shares are directly registered in the
name of the shareholder, shares held in street name are registered
in the name of the nominee, or in the nominee name of a depository
such as The Depository Trust Company.
\5\ The Pilot Fee Structure originally was approved by the
Commission on March 14, 1997. See Securities Exchange Act Release
No. 38406 (Mar. 14, 1997), 62 FR 13922 (Mar. 24, 1997). The Exchange
has extended the effectiveness of the Pilot Fee Structure on several
occasions, most recently through August 31, 1999. See Securities
Exchange Act Release No. 41177 (Mar. 16, 1999), 64 FR 14294 (Mar.
24, 1999) (``Order Extending Pilot Fee Structure'').
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The text of the proposed rule change is available at the Office of
the Secretary, the Exchange, and at the Commission.
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 Exchange 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 Exchange 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
In its recent order extending the effectiveness of the Pilot Fee
Structure, the Commission requested that the Exchange ``carefully
review the Pilot Fee Structure and make changes where necessary to
develop an improved fee structure.'' \6\ Pursuant to the Commission's
request, the Exchange now proposes to revise the rates of reimbursement
in the Pilot Fee Structure. The Exchange also proposes to extend the
effectiveness of the Pilot Fee Structure from August 31, 1999, through
August 31, 2001.
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\6\ See Order Extending Pilot Fee Structure, supra note 5.
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Substantively, the proposed rule change would amend the Exchange's
Rules regarding reimbursement of NYSE member organizations for the
expenses incurred in connection with proxy solicitations and other
mailings by:
Reducing the suggested rate of reimbursement from $0.50 to
$0.45 for each set of proxy materials (i.e., proxy statement, form of
proxy, and annual report when mailed as a unit).
Reducing from $20 to $18 the suggested per-nominee
compensation of intermediaries that coordinate the proxy and mailing
activities of multiple nominees (``nominee coordination fee'').
Limiting the universe of ``nominees'' in respect of whom
the $18 nominee coordination fee is payable to ``any entity whose name
and participant account number both appear on a listing that
accompanies and is referred to in an omnibus proxy that a registered
clearing agency supplies to the issuer.'' This change would exclude
from reimbursement ``secondary'' nominees, that is, nominees in respect
of whom issuers have no direct interface.
Each of these proposals is designed to reduce the fees that NYSE
member organizations are permitted to recover in connection with the
transmission of proxy and other materials to security holders whose
securities are held in street name. The Exchange believes that the
proposed changes will create substantial savings for NYSE issuers.
The Exchange further believes that a reduction in the level of
reimbursed fees is appropriate given the findings of the Exchange-
sponsored audit that examined NYSE member firm reimbursements for the
1998 proxy season (1998 Audit''). The results of the 1998 Audit
convinced the Exchange that the level of reimbursement has been too
[[Page 35230]]
high in recent years. The Exchange shared the results of the 1998 Audit
with Commission staff, who expressed similar concerns. The Exchange has
represented that the proposed changes are intended to reduce NYSE
member firm reimbursements to a more appropriate level.
As for the proposed definition of ``nominee,'' the Exchange
believes that it is only nominees that are participants in The
Depository Trust Company (``DTC'') and that directly interface with
issuers that should be counted for purposes of calculating the nominee
coordination fee. The Exchange contends that coordination of
distributions to second-tier nominees is performed by those
participants, rather than by the coordinating intermediary that is
known to the issuer. The Exchange reports that issuers have been billed
$20 for activities relating to second-tier nominees, without knowing
their identity or having the ability to verify their performance of
``nominee'' functions.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the requirement under Section 6(b)(5) of the Act \7\ that an exchange
have rules that are designed to prevent fraudulent and manipulative
acts and practices; promote just and equitable principles of trade;
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities; remove impediments to and
perfect the mechanism of a free and open market and a national market
system; and, in general, protect investors and the public interest.
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\7\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes 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 proposed changes were developed by the Exchange's Proxy Fee
Working Committee, a group that the Exchange selected as representative
of the parties interested in the proxy process. The proposal represents
a consensus of a majority of that group. The Exchange has not otherwise
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 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 Exchange 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, including whether the proposed rule
change, as amended, is consistent with the Act. The Commission staff
solicits specific comment on whether the Exchange rules should define
the term ``nominee,'' and if so, whether the Exchange's proposed
definition is appropriate. In this regard, it should be noted that the
Commission's shareholder communications rules refer to banks,\8\
brokers,\9\ and dealers,\10\ but do not define the term ``nominee.''
Although the rates of reimbursement included in the Pilot Fee Structure
apply only to fees charged by NYSE member organizations, banks
customarily charge the same rates.\11\ The Exchange's proposed
definition of ``nominee'' likely would have a more significant impact
on bank nominees than broker-dealer nominees because it is common for
banks that are ``top-tier'' direct participants in a clearing agency to
hold and clear securities for multiple lower-tier ``respondent banks''
\12\ that are not direct participants in a clearing agency. Although
the Exchange has represented that it believes that most top-tier banks
(i.e., DTC participants) coordinates materials for lower-tier banks,
the Commission staff is concerned that some top-tier clearing banks may
not coordinate distributions of shareholder materials for lower-tier
respondent banks; rather, the respondent banks may communicate directly
with issuers about distribution of materials or hire an agent who
coordinates material distribution on behalf of many respondent banks.
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\8\ Rule 14b-2(a)(1) under the Act defines the term ``bank'' as
a bank, association, or other entity that exercises fiduciary
powers. See 17 CFR 240.14b-2(a)(1).
\9\ See 17 CFR 240.14b-1.
\10\ Id.
\11\ Rule 14b-2(c)(3) under the Act states that reimbursement
rates charged by banks that are no greater than those permitted to
be charged by brokers or dealers shall be deemed to be reasonable.
See 17 CFR 240.14b-2(c)(3).
\12\ Rule 14a-1(k) under the Act defines ``respondent bank'' for
purposes of the shareholder communications rules as any bank,
association or other entity that exercises fiduciary powers which
holds securities on behalf of beneficial owners and deposits such
securities for safekeeping with another bank, association or other
entity that exercises fiduciary powers. See 17 CFR 240.14a-1(k).
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The Commission's rules clearly state that companies must reimburse
not only the top-tier banks but the respondent banks as well for
reasonable expenses incurred in mailing materials to beneficial
owners.\13\ In view of this requirement, should companies be required
to pay the nominee coordination fee included in the Pilot Fee Structure
for coordination activities relating to lower-tier respondent banks?
Additional comment is solicited on whether the Exchange should define
the term ``coordinate'' in its rules providing for a nominee
coordination fee. If so, how should the term be defined? If the
coordinating activities to be performed by banks and brokers-dealers to
qualify for the nominee coordination fee were adequately defined by the
NYSE rules, could the terms ``bank,'' ``broker,'' and ``dealer,'' as
used in the Commission's rules, replace the term ``nominees'' in the
NYSE rules?
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\13\ 17 CFR 240.14a-13(a)(5).
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Persons making written submissions should file six copies thereof
with the Secretary, Securities and Exchange Commission, 450 Fifth
Street, NW, Washington, DC 20549-0609. Copies of the submissions, 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 persons, 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 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-99-21 and should be submitted by August 30, 1999.
[[Page 35231]]
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-16644 Filed 6-29-99; 8:45 am]
BILLING CODE 8010-01-M
