[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