[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