[Federal Register Volume 59, Number 192 (Wednesday, October 5, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-24612]
[[Page Unknown]]
[Federal Register: October 5, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34744; File No. SR-Amex-94-3]
Self-Regulatory Organizations; American Stock Exchange, Inc.;
Order Approving a Proposed Rule Change Relating to Amendments to Rules
575 (``Giving of Proxies Restricted''), 576 (``Transmission of Proxy
Material to Customers''), 577 (``Giving Proxies by Member
Organization'') and 585 (``Transmission of Interim Reports and Other
Material'')
September 28, 1994.
I. Introduction
On February 22, 1994, the American Stock Exchange, Inc. (``Amex''
or ``Exchange'') submitted to the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend various Exchange rules
governing proxies. On May 26, 1994, the Amex submitted to the
Commission Amendment No. 1 to the proposed rule change.\3\
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\1\15 U.S.C. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1994).
\3\See letter from Linda Tarr, Senior Counsel, Amex, to Sandra
Sciole, Special Counsel, SEC, dated May 25, 1994. Amendment No. 1
made certain clarifying changes to the proposed rule change.
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Notice of the proposal appeared in the Federal Register on July 8,
1994.\4\ No comments were received on the proposal. This order approves
the proposed rule change as amended.\5\
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\4\Securities Exchange Act Release No. 34294 (July 1, 1994), 59
FR 35152 (July 8, 1994).
\5\On September 27, 1994, the Amex submitted a draft Amex
Information Circular to members which discusses the substance of the
amendments to Amex Rules 575, 576, 577 and 585. This draft circular
is being approved as part of the Amex's proposal herein. The Amex
Information Circular provides that the written designation of the
registered investment adviser: be signed by the beneficial owner of
securities; be addressed to the member organization; include the
name of the designated investment adviser, and specify that the
investment adviser is being designated to receive the proxy and
related materials and vote the proxy. It also requires Amex member
organizations to assure themselves that the designated investment
adviser is registered under the Investment Advisers Act of 1940, and
that such adviser exercises investment discretion pursuant to an
advisory contract, and maintains records substantiating this
information. The Amex Information Circular further specifies that
beneficial owners of securities have an unqualified right at any
time to rescind designation of the investment adviser to receive
materials to vote proxies. The rescission must be in writing and
submitted to the member organization. The draft Amex Information
Circular also added a statement that member organizations may wish
to provide consolidated proxies and related materials to investment
advisers designated by beneficial owners to exercise voting
discretion.
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II. Description of the Proposal
The Exchange is amending several Amex Rules related to the giving
of proxies and the transmission of proxy and other related materials.
Specifically, the Exchange is amending Amex Rules: 575 (``Giving of
Proxies Restricted''), 576 (``Transmission of Proxy Material to
Customers''), 577 (``Giving Proxies by Member Organization''), and 585
(``Transmission of Interim Reports and Other Material'').
The amendments to Amex Rules 575, 576, 577 and 585 will permit
registered investment advisers who exercise investment discretion
pursuant to an advisory contract, and who have been designated in
writing by the beneficial owner of the securities, to receive proxy
materials, annual reports and other related material, and to vote
proxies in lieu of the beneficial owners. The term investment adviser
is defined to include a registered broker-dealer (e.g., a member
organization).\6\
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\6\This portion of the Amex proposal is substantially similar to
a proposal recently approved for the NYSE. See Securities Exchange
Act Release No. 34596 (August 25, 1994), 59 FR 45050 (``NYSE
Approval Order''). Although no comments were received on the Amex
proposal, the Commission received five comment letters supporting
this change of the NYSE.
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Currently, Exchange rules prohibit a member organization from
voting proxies, on a discretionary basis, on securities held in its
custody, unless the securities are beneficially owned by a member
organization, or the beneficial owner has failed to provide the member
organization with voting instructions and the subject of the vote is
non-substantive. Currently, Exchange rules also require member
organizations to transmit proxy and related issuer materials, as well
as requests for voting instructions, to each beneficial owner of stock
held in the member organization's possession or control. Rule 576.60
explicitly requires that proxy material be sent to a beneficial owner
even though such owner has instructed the member organization not to do
so.\7\
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\7\See Amex Rule 576.60--Duty to transmit even when requested
not to.
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According to the Exchange, a number of member organizations along
with the Investment Adviser Committee of the Securities Industry
Association (``SIA'') informed the Exchange that many of their
customers do not want to receive proxy materials, or vote the proxy.
These member organizations have indicated that their customers would
rather have the professionals represent their interests in receiving
and voting proxies because they are better qualified.
In addition, the Exchange is amending Rule 575 to conform that Rule
to a comparable New York Stock Exchange (``NYSE'') Rule which allows a
member organization, that is designated by a named fiduciary as the
investment manager of stock held as assets of an ERISA Plan, to vote
the proxies on the stock in accordance with its ERISA Plan fiduciary
responsibilities.\8\
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\8\This NYSE Rule currently states that no member organization
shall give or authorize the giving of a proxy to vote stock
registered in its name, or in the name of its nominee, except as
required or permitted under the provisions of Rule 452, unless such
member organization is the beneficial owner of such stock.
Notwithstanding the foregoing, any member organization, designated
by a named fiduciary as the investment manager of stock held as
assets of an ERISA Plan that expressly grants discretion to the
investment manager to manage, acquire, or dispose of any plan asset
and which has not expressly reserved the proxy voting right for the
named fiduciary, may vote the proxies in accordance with its ERISA
Plan fiduciary responsibilities. See NYSE Rule 450, Restriction on
Giving of Proxies.
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The Amex believes that it is appropriate to modify these Amex rules
to conform to NYSE rules because most Amex member firms doing a public
business are dual members of both the NYSE and Amex, and the rules of
the two exchanges regarding proxies and voting have historically been
substantially the same.
Amex Rule 575 (``Giving of Proxies Restricted'') currently provides
that no member organization shall give or authorize the giving of a
proxy to vote stock registered in its name, or in the name of its
nominee, except as required or permitted under the provisions of Rule
577, unless the member organization is the beneficial owner of the
stock.
The Exchange proposes to add two exceptions (paragraphs (1) and
(2)) to Rule 575. Paragraph (1) would provide that any member
organization designated by a named fiduciary as the investment manager
of stock held as assets of an ERISA Plan that expressly grants
discretion to the investment manager to manage, acquire, or dispose of
any plan asset and which has not expressly reserved the proxy voting
right for the named fiduciary may vote the proxies in accordance with
its ERISA Plan fiduciary responsibilities. Paragraph (2) would provide
that 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 who has
been designated in writing by the beneficial owner (``designated
investment adviser'') to vote the proxies for stock which is in the
possession or control of the member organization, may vote such proxy.
Amex Rule 576 (``Transmission of Proxy Material to Customers'')
generally provides that, whenever a person soliciting proxies furnishes
a member organization copies of all soliciting material for registered
holders, and provides assurance that he will reimburse such member
organization for all out-of-pocket expenses incurred in connection with
such solicitation, such member shall transmit to each beneficial owner
of stock which is in its possession or control, the material furnished.
The Exchange is amending Rule 576, paragraph (a) to add the requirement
that the member organization may also transmit the soliciting material
to a designated investment adviser to receive soliciting material in
lieu of the beneficial owner.
The Exchange also is amending Rules 576(b) (1) and (2), which deal
with what soliciting material the member organization receiving proxy
information shall transmit and when such transmission shall occur. As
amended, Rule 576(b)(1) provides that the member organization shall
transmit, with soliciting material, a request for voting instruction
and a statement to the effect that, if such instructions are not
received by the tenth day before the meeting, the proxy may be given at
discretion by the owner of record of the stock, provided that such
statement may be made only when the proxy soliciting material is
transmitted to the beneficial owner of the stock or to the beneficial
owner's designated investment adviser at least fifteen days before the
meeting. As amended, Rule 576(b)(1) also provides that when the proxy
soliciting material is transmitted to the beneficial owner of the stock
or to the beneficial owner's designated investment adviser twenty-five
days or more before the meeting, the statement accompanying such
material shall be to the effect that the proxy may be given fifteen
days before the meeting at the discretion of the owner of record of the
stock.
Rule 576(b)(2), as amended, provides that, instead of the material
submitted under Rule 576(b)(1), the member organization may transmit
with the soliciting material a signed proxy indicating the number of
shares held for the beneficial owner and bearing a symbol identifying
the proxy records of such member organization, and a letter informing
the beneficial owner or the beneficial owner's designated investment
adviser of the necessity for completing the proxy form and forwarding
it to the person soliciting proxies in order that the shares may be
represented at the meeting.
The Exchange also is modifying Commentaries .10 and .60 to Rule
576. Commentary .10 (``Annual reports to be transmitted'') is being
amended to provide that annual reports shall be transmitted to
beneficial owners or to beneficial owners' designated investment
advisers under the same conditions as those applying to proxy
soliciting material under Rule 567 even through it is not proxy
soliciting material under the proxy rules of the Commission. Commentary
.60 (``Duty to transmit even when requested not to'') currently
provides that proxy material must be sent to a beneficial owner even
through such owner has instructed the member organization not to do so.
The Exchange is qualifying this provision to permit the beneficial
owner to instruct the member organization in writing to send such
material to the beneficial owner's designated investment adviser.
The Exchange also is adding provisions for a beneficial owner's
designated investment adviser to Rule 577 (``Giving of Proxies by
member Organization, Voting Procedure Without Instructions''). As
amended, the Rule provides that a member organization which has
transmitted proxy soliciting material to the beneficial owner of stock
or to the beneficial owner's designated investment adviser to receive
soliciting material in lieu of the beneficial owner and solicited
voting instructions in accordance with the provisions of Rule 576, and
who has not received instructions from the beneficial owner or from the
beneficial owner's designated investment adviser by the date specified
in the statement accompanying such material, may give or authorize the
giving of a proxy to vote such stock, provided certain enumerated
conditions are met.
The Exchange is making two changes to Rule 577, Commentary .10
(``Giving a Proxy to Vote Stock''). As amended, paragraphs (1) and (2)
state that a member organization may give a proxy to vote stock
provided that: (1) it has transmitted proxy soliciting material to the
beneficial owner of stock or to the beneficial owner's designated
investment adviser in accordance with Rule 576, and (2) it has not
received voting instructions from the beneficial owner or from the
beneficial owner's designated investment adviser by the date specified
in the statement accompanying such material. The remaining condition in
paragraph (3) is unchanged.
Rule 585--Transmission of Interim Reports and Other Material--
currently provides that a member organization, upon request by a
company, and when furnished with copies of interim reports of earnings
or other material sent to stockholders, and satisfactory assurance that
it will be reimbursed by such company for out-of-pocket expenses, shall
transmit such reports of material to each beneficial owner of stock of
such company held by the member organization and registered in a name
other than the name of the beneficial owner. The Exchange is qualifying
Rule 585 by adding the following to the end of the Rule: ``unless the
beneficial owner has instructed the member organization in writing to
transmit such reports or material to a designated investment adviser
registered under the Investment Advisers Act of 1940 who exercises
investment discretion pursuant to an advisory contract for such
beneficial owner.''
III. Discussion and Conclusion
The Commission finds the proposed rule change to be consistent with
the requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange, and, in particular, with
the requirements of Sections 6(b)(5) of the Act. Section 6(b)(5) of the
Act provides, inter alia, that the rules of an exchange be designed to
remove impediments to and perfect the mechanism of a free and open
market.
The Commission believes that permitting investors to designate an
investment adviser to receive proxy and related issuer materials and
vote their proxies removes impediments to a free and open market. As
noted by the Exchange, investors have been requesting that investment
advisers be authorized to receive issuer materials and vote proxies for
the investor. Investors choosing an investment adviser arrangement may
believe that they do not need to receive issuer information since the
investment adviser and not the investor is making investment decisions
on their behalf. The Commission acknowledges that investors might view
the receipt of issuers materials and the ability to vote proxies as
part of the investment adviser's obligations to manage customer
accounts. Furthermore, the Commission acknowledges that some investors,
in choosing to utilize the services of an investment adviser, are
implying that they do not have the knowledge or inclination to review
complicated issuer or proxy materials or to vote proxies. These
investors, in particular, may be frustrated by being inundated with
unwanted issuer materials.
The Commission also believes that the proposed rule change will
permit the investment adviser to make more expedient, informed
investment decisions, thereby facilitating securities transactions in
accordance with the Act. For these reasons, the Commission believes
that the proposed rule change appropriately gives investors the freedom
to choose whether to receive proxy and related issuer materials and
vote the proxies or to designate their investment adviser to perform
these functions on their behalf.
Section 6(b)(5) of the Act also provides that the rules of an
exchange should protect investors and the public interest. The
Commission believes that the proposed rule change is consistent with
the public interest and the protection of investors. The Commission
notes that the rule change continues to permit investors who wish to
receive and vote proxies and receive other issuer materials to do so.
The rule change affords beneficial owners the choice to delegate this
authority when the beneficial owner has already granted discretion in
his investment account to an investment adviser. Despite the
flexibility provided by the rule, investors will continue to have the
authority to rescind their designation of an investment adviser at any
time. We note that prior to the effective date of such designation,
member organizations must provide beneficial owners written notice of
their right to rescind the designation.
The Commission also believes that amending Rule 575 to allow a
member organization which is the investment manager for an ERISA Plan
is consistent with the policies embodied in Section 6(b)(5) of the Act
because the amendment would conform Amex Rule 575 to NYSE Rule 450
which permits a member organization, that is designated by a named
fiduciary as the investment manager of stock held as assets of an ERISA
Plan, to vote the proxies in accordance with the its ERISA Plan
fiduciary responsibilities. The amendment to Rule 575 should facilitate
transactions in securities between Amex member firms that are dual
members of the NYSE and Amex by adopting consistent proxy rules. The
Commission notes that in voting proxies as a plan fiduciary, an
investment manager must consider those factors which would affect the
value of the plan's investment and is prohibited from subordinating the
interests of participants and beneficiaries in their retirement income
to unrelated objectives. In addition, the Commission believes that the
Exchange's amendment should prevent potential conflicts between the
Exchange rules and ERISA guidelines.\9\
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\9\In an interpretive letter dated February 23, 1988, the
Pension and Welfare Benefits Administration (``PWBA'') of the United
States Department of Labor (``Department'') set forth its view
regarding proxy voting by fiduciaries of employee retirement plans
subject to ERISA. In the interpretive letter, the Department stated
that the fiduciary act of managing plan assets which are shares of
corporate stock would include the voting of proxies appurtenant to
those shares of stock. The Department stated its position that, with
respect to the special issues presented by the facts of the
particular inquiry set forth in the request for interpretation
(i.e., a proposal to change the state of incorporation of a
corporation in which a plan owned shares, and a proposal to rescind
``poison pill'' arrangements), the decision as to how proxies should
be voted are fiduciary acts of plan asset management. The Department
concluded that, to the extent that the plan permits a named
fiduciary to appoint an investment manager to manage, acquire and
dispose of plan assets, and the named fiduciary has not expressly
reserved the voting rights to itself, there would be an ERISA
violation if, during the duration of such delegation, any person
other than the investment manager were to make the decision how to
vote any proxy with respect to shares owned by the plan. See Labor
Department Letter on Proxy Voting By Plan Fiduciaries, dated
February 23, 1988, BNA Pension Reporter, February 29, 1988, Vol. 15,
p. 391.
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Finally, the Commission believes the proposed rule change is
consistent with Section 6(b)(8) of the Act, which requires that the
rules of an exchange not impose any burden on competition not necessary
or appropriate in furtherance of the purposes of the Act. The
Commission believes the proposed rule change should serve to eliminate
unnecessary burdens on competition in recognition that advisers not
subject to Amex rules already are able to vote proxies for their
clients.
It is therefore ordered, pursuant to Section 19(b)(2)\10\ of the
Act, that the proposed rule change (SR-Amex-94-3) be, and hereby is
approved.
\10\15 U.S.C. 78s(b)(2) (1988).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
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\11\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-24612 Filed 10-4-94; 8:45 a.m.]
BILLING CODE 8010-01-M