[Federal Register Volume 61, Number 249 (Thursday, December 26, 1996)]
[Notices]
[Pages 68082-68087]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-32717]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38058; File No. SR-NYSE-96-36]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange, Inc. Relating to Transmission of 
Proxy and Other Shareholder Communication Material.

December 18, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. Sec. 78s(b)(1), notice is hereby given that on 
December 6, 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 Exchange is proposing changes to Rules 451 and 465 (the 
``Rules'') on a three-year pilot basis. The Rules establish guidelines 
for the reimbursement of expenses by issuers to NYSE member 
organizations for the processing of proxy materials and other issuer 
communications with respect to security holders whose securities are 
held in street name. The text of the proposed rule change is available 
at the Exchange or the Commission.

[[Page 68083]]

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 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 Items 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
Background to the Proposed Rule Change
    Exchange member organization holding securities in street name 
solicit proxies and deliver communications to and from beneficial 
owners of securities on behalf of issuers.\1\ For this service, issuers 
reimburse the member organizations for all out-of-pocket expenses, 
reasonable clerical expenses, postage and other expenses incurred in a 
particular circulation. The Rules set guidelines for the amount of the 
reimbursement.
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    \1\ Street ownership encompasses shares purchased through a 
broker or bank (referred to as a nominee). The shares are then 
registered in the name of that nominee, or in the nominee name of a 
depository such as The Depository Trust Company (``DTC''). Recent 
analysis indicates that, on average, approximately 70 to 80 percent 
of all outstanding shares are held in street name.
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    While member organizations initially handled proxy processing 
internally, beginning in the late 1960's and continuing to the present, 
firms have increasingly used outside contractors for these types of 
services. In particular, a firm will contract with a service bureau, 
such as Automatic Data Processing (``ADP''), for the solicitation of 
proxy voting instructions, and the distribution of reports to 
shareholders.\2\ However, the identity of the soliciting broker remains 
on all communications.
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    \2\ The Commission notes that ADP is currently the only 
intermediary offering these services to broker-dealers.
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    Since the level of reimbursement was last reviewed in 1986, the 
Exchange has found that proxy solicitation and report distribution 
costs have increased, due in large part to general cost increases in 
the economy. Postage itself has doubled since 1979. Brokers pass these 
costs to the issuers. Aggregate costs also have increased due to a 
substantial increase in the number of beneficial owners, which results 
from increased participation of individual investors in the rising 
securities market.
    While the number of individual investors has increased, the 
percentage of holdings of securities through institutional investors, 
mutual funds, pension and savings plans also has increased. Such 
institutions have an obligation, or, in some cases, a statutory duty, 
to vote the shares being held. Institutions have developed a variety of 
mechanisms to vote their shares in conformity with their own internal 
policies and governing regulations. While these procedures require 
time, many institutional investors have difficulty voting on a timely 
basis during the spring proxy season. Over 40 percent of all annual 
meetings occur within a few weeks. Some large institutions tend to vote 
very close to the meeting date, particularly during the proxy season, 
due to the immense increase in paperwork.
    The Exchange has determined that, in addition to the changing stock 
ownership patterns, stock holdings continue to migrate from registered 
to street or nominee ownership. Street name holdings are concentrated 
with approximately 1,000 nominees, and the Exchange believes that an 
efficient infrastructure is necessary to coordinate these nominees and 
their customers. Service bureaus, as contract agents of the nominees, 
build and maintain such systems. Nominees and their agents also have 
developed communications systems for obtaining shareholder votes 
electronically rather than through a physical proxy. To accommodate 
this, the Exchange recently amended its rules to permit telephone 
voting. However, the Exchange has found that the current fee structure 
does not recognize the value that these systems provide to issuers in 
reducing the costs of coordination and solicitation.
    Despite the progress that has been made in the distribution and 
proxy solicitation process, issuers often express their belief that 
mailing fees are unnecessarily high and that the procedures are not 
responsive to the needs of the issuers. In this regard, unit fees for 
large issuers are the same as those for small issuers, ignoring 
economies of scale. Two matters are of particular concern to issuers: 
whether they will have a quorum at their meeting and whether large 
blocks of votes will be received relatively close to the meeting date. 
In many cases, addressing these concerns has led to significantly 
increased solicitation costs for issuers. At the same time, the 
interests of institutions in having their voted counted in the 
tabulation must also be recognized, and any changes must preserve the 
rights of all shareholders in the corporate suffrage process.
Limitations of the Current Fee Structure
    While there have been changes in the nature of securities holdings 
and enhancements in technology, the proxy fee structure generally has 
been unchanged since the Rules were first adopted in 1938. In the 
Exchange's view, the current structure does not provide incentives for 
nominees and other intermediaries to use the most current and efficient 
technology. The Exchange believes that this structure needs to be 
reconsidered and that there should be incentives for market-driven 
innovations, such a electronic proxy services, touch-tone voting, and 
electronic vote reporting.
    Funding to operate these communication and voting systems presently 
comes from the unit mailing fees that issuers pay under the NYSE 
reimbursement guidelines. A decrease in fees could reduce the use of 
these systems, which are increasingly being relied upon in the voting 
process. Without financial incentives, it is unlikely that new cost-
reducing technology will be implemented. In addition, there is no 
incentive for brokers and intermediaries to reduce the mailing of 
printed material. Paper, printing and postage generally represent 
between 80 and 90 percent of the cost of the average proxy mailing. By 
the development and use of new technologies and electronic 
distribution, these costs can be reduced.
    Finally, the Rules also do not recognize the cost of coordinating 
multiple nominees and the value that consolidating material 
distribution and vote collection provides to issuers. These services, 
which are not expressly required by any regulation, include: (i) 
sending a single search card for multiple nominees; (ii) coordinating 
multiple nominees to generate a single material request for each 
issuer; (iii) delivering material to a single place for multiple 
nominees; (iv) sorting bulk mail across multiple nominees for maximum 
discounts; (v) daily reporting of votes for multiple broker and bank 
nominees; and (vi) consolidating multiple nominees into a single 
invoice.
The Exchange's Proposal
    The proposed rule change would amend the Rules to reduce the 
suggested rate of reimbursement from 60 cents or 70 cents to 55 cents 
for each set of proxy material, i.e., proxy statement, form of proxy 
and

[[Page 68084]]

annual report, when mailed as a unit. The present distinction between 
proposals that require beneficial instructions and those that do not 
would be eliminated. According to the Exchange, this will produce 
substantial savings for all issuers. Further, the rate for mailing 
other reports, primarily quarterly reports, would be reduced from 
20 cents to 15 cents. The rate of reminder notices would remain at 
40 cents unless a proxy fight is involved. The special fee of 60 cents 
for mailing only to shareholders who have not voted would be 
eliminated. These are the first reduction in the basic rates since the 
Rules were adopted in 1938.
    The proposal treats reimbursement for mailings during proxy fights 
differently. These contests require significant efforts by all 
participants in the proxy process and can occur under difficult 
circumstances. The time for distribution is short and requires maximum 
effort. Thus, the proposal includes a new fee of $1 for each set of 
proxy materials mailed.
    A significant aspect of the proposed rule change is a new $20 fee 
per nominee. To earn this fee, the intermediary will need to provide 
coordination for a series of functions across a multitude of nominees 
(brokers, banks).\3\ In effect, this fee compensates an intermediary 
for all the services it provides and upon which issuers and 
institutions have come to rely, such as:\4\
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    \3\ ``Nominees'' are those names that appear on either the list 
of record shareholders or on an omnibus proxy sent to the issuer on 
the record date by a depository, but who are, in fact, acting for 
someone else. In practice, they are self-clearing brokers, banks, or 
other financial institutions participating in DTC or some other 
depository.
    \4\ As noted above, ADP is the only intermediary that currently 
offers these services to broker-dealers.
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     Searches: Rule 14a-13 under the Act requires an issuer to 
inquire of each record holder to determine the number of beneficial 
owners holding shares through nominees. If an intermediary coordinates 
multiple nominees, the issuer incurs only the expense of performing one 
``search'' for all the nominees, saving the issuer significant 
expenses.
     Search responses: Nominees must respond to an issuer's 
search request within seven business days of receipt. This process 
often is complicated since there are multiple levels of entities. In 
that case, an intermediary can consolidate responses (in some cases, 
responses of over 1,000 entities), this saving administrative expenses 
for issuers and increasing the accuracy of ordering material.
     Delivering materials: Providing material to hundreds of 
nominees requires an issuer to sort and ship a parcel to each nominee. 
If this task is not done by the issuer, it must be done by a proxy 
solicitor or some other vendor. Since an issuer pays a fee and a 
freight bill for each of these shipments, and intermediary can save 
issuers a significant expense if it can make one material delivery for 
hundreds of nominees.
     Use of bulk mail: For issuers who use bulk mail, a 
significant amount of the savings realized today would not occur unless 
intermediaries continue to combine nominees. Issuers reimburse nominees 
for postage, and bulk postage rates are available only for large 
shipments. Unless consolidated, the majority of nominees would not be 
able to qualify individual small shipments for bulk discounts.
     Preliminary voting information: To help issuers judge 
whether they have a quorum, many brokers currently report a 
discretionary vote ten or fifteen days before a meeting in accordance 
with NYSE Rule 451(b)(1), and again at the time of the meeting. As the 
proxy process has evolved, large intermediaries voluntarily have 
provided daily voting updates for issuers. ADP now sends daily 
consolidated vote reports 15 or 10 days before a meeting, and then 
every business day until the night before the meeting. Without this 
service, many issuers would need to hire a proxy solicitor to obtain 
voting estimates. Obtaining the vote from a single source for hundreds 
of nominees can save the issuer substantial expense, and daily voting 
updates provide comfort to the issuer as the meeting date approaches.
    The Exchange has determined that this coordination fee is 
consistent with current Exchange rules that authorize the payment of a 
coordination fee for agents that coordinate providing information 
regarding non-objecting beneficial owners (``NOBOs''). \5\ The impact 
of the nominee fee will vary with the issuer and the nature of its 
shareholders. However, the Exchange has observed that smaller issuers 
tend to have fewer nominee holders. The Exchange estimates that the 
smallest 4,000 U.S. issuers would pay, on average, an intermediary 
nominee coordination fee of only $800. This will be partially offset by 
the lower basic rate and lower expense.
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    \5\ See Exchange Rule 451.92
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    To clarify the policy with respect to out-of-pocket expenses, the 
proposed rule provides for reimbursement only of actual costs, such as: 
outgoing postage (plus third class sorting fee); envelopes and business 
reply envelopes; and custom printing of envelopes and ballots. The 
business reply postage would be billed at the Business Reply Mailing 
Accounting System (BRMAS) rate. Additional savings are possible by 
sorting mail to obtain postal discounts, as well as through other 
efforts undertaken by nominees or their agents to reduce issuers' 
postage expenses. These savings could be shared between the issuer and 
the processor.
    The Exchange also is prosing a new incentive fee to compensate 
member organizations for eliminating the need to send materials in 
paper form. This will encourage member organizations to apply 
technology to sort materials in a way that multiple proxy instruction 
forms are included in a single envelope, with a single set of materials 
to be mailed to the same household. The Rules address this area through 
the concept of ``householding.'' A member firm or intermediary could 
earn this paper elimination fee by distributing multiple proxy 
instruction forms electronically or be distributing all material to a 
household electronically. An additional fee of 50 cents (10 cents for a 
quarter report) is proposed for each set of material that is not 
mailed.
    The Exchange provides the following examples of the cost savings 
that are possible by eliminating mailings:
    1. A person having three accounts--such as an individual account, 
an ``IRA'' retirement account, and a trust account--could receive one 
set of materials through ``householding.'' The cost comparison is:

------------------------------------------------------------------------
                                                 Without    Householding
                                   Unit cost  householding  (3 accounts)
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Proxy Fee........................       $.55        $1.65         $1.65 
Householding Fee.................        .50            0          1.00 
Annual Report & Proxy Statement..       2.00         6.00          2.00 
    (Estimated, cost will vary):                                        
Bulk Rate........................        .65         1.95           .65 

[[Page 68085]]

                                                                        
    Outgoing Postage                                                    
Envelopes........................        .08          .24           .08 
Return Postage...................        .34         1.02           .34 
                                             ---------------------------
      Total......................  .........       $10.86         $5.72 
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    As this example makes clear, the potential savings are greatest in 
the areas of postage and printing, and these savings will occur even in 
the first year. Also note that this example assumes the use of bulk 
rate mailings. The savings would be greater for issuers using first 
class postage.
    2. Savings from elimination of mailings also are possible through 
use of the Internet. Even for an individual with only one account, the 
savings can be shown as follows:

------------------------------------------------------------------------
                                                      Mail    Electronic
                                        Unit cost    return     return  
------------------------------------------------------------------------
Proxy Fee.............................       $.55       $.55        $.55
Householding Fee......................        .50          0         .50
Annual Report & Proxy Statement.......       2.00       2.00           0
    (Estimated, cost will vary):                                        
Outgoing Postage......................        .65        .65           0
Envelopes.............................        .08        .08           0
Return Postage........................        .34        .34           0
                                                  ----------------------
      Total...........................  .........      $3.62       $1.05
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    In this example, the Internet cost is paid by the user. Investors 
who request to receive information electronically simply would receive 
an ``e-mail'' message indicating that the annual report and proxy are 
available. The Exchange believes that such use of the Internet would be 
consistent with Commission policies in this area.\6\
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    \6\ See Securities Act Release No. 7233 (Oct. 6, 1995).
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    Finally, as to the manner in which the fees are collected, the 
Exchange notes that ADP is the data processor for many of the brokerage 
firms that are Exchange members. These firms subcontract the data 
processing functions of the proxy solicitation process to ADP, but 
retain all the obligations to comply with the relevant Exchange rules. 
As a general matter, the firms subcontract for these services at less 
than the full fee that the issuer pays. The firms also maintain some 
staff in a proxy department to handle such tasks as balancing 
depository positions on record date, changing investor records, 
answering inquiries and performing other work not covered by the 
subcontract.
    The firm's systems department also needs to maintain proxy-related 
programs--including programs for separating wrap accounts--and the 
communications equipment to interface electronically with an 
intermediary on both search date and record date. In addition, the 
compliance department of the firm is required to ensure that the firm 
fully complies with Exchange and Commission rules since subcontracting 
does not relieve a firm of its legal responsibilities.
    To simplify the administrative difficulties that would result if 
each issuer had to pay many brokers, ADP has developed a ``single 
invoice'' procedure for all of the brokers with whom they have 
subcontracted. Under this procedure, ADP bills issuers on behalf of 
literally hundreds of brokers and banks. ADP remits to their clients 
the amounts specified in their contracts, which the firms will retain 
to cover their own costs.
    The Exchange believes that this billing procedure does not affect 
issuer costs. In this regard, if the brokers billed issuers directly, 
the issuers would pay the same amount, but to several brokers, rather 
than to a central data processor. In the Exchange's view, there is no 
economic difference in the brokerage firms retaining part of the costs 
paid by the issuers or such firms receiving the same amount paid by ADP 
through the single invoice system. This billing process also is 
consistent with other types of outsourcing transactions. Indeed, 
issuers benefit from this procedure since they are able to pay a single 
processor, rather than multiple brokerage firms.
2. Statutory Basis
    The basis under the Act for the proposed rule change is the 
requirement under Section 6(b)(5) 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.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any inappropriate burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

Summary of the Comment Letters
    The Exchange solicited comments on the proposed rule change from 
listed companies, member firms and other industry organizations 
involved in the proxy solicitation process pursuant to a Request for 
Comment dated September 18, 1996. The Exchange received 261 comments 
letters.\7\ While it is difficult to categorize some of the letters, 
the

[[Page 68086]]

Exchange has concluded that 181 letters generally supported the 
proposal and 80 letters opposed the proposal. Of the 181 letters 
supporting the proposal, 52 letters also expressed reservations about 
certain aspects of the proposal.
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    \7\ The Exchange informally circulated a draft of the Request 
for Comment on July 19, 1996. That draft was substantially similar 
to the final proposal, and a number of commentators responded only 
to the July 19th request for comments. Thus, the 261 letters include 
those letters received in response to the July draft.
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    Those letters supporting the proposal believed that it would lead 
to cost reductions, increased technological efficiencies and 
consolidation of services. These commentators saw the savings from the 
fee reductions more than compensating for the cost of the new nominee 
fee. Even some companies facing increased fees in the short term 
supported the proposal, believing that they would reap long-term gains 
through decreases in internal printing costs and increased efficiencies 
in the years ahead. Some commentators also thought that the proposal 
could result in an increased voting response in the proxy process.
    In addition, supporters believed that the new fee structure would 
more equitably distribute the costs of the proxy process among market 
participants. To the extent that these commentators had reservations 
regarding the proposal, they noted that any difficulties could be 
addressed following the end of the three-year pilot period.
    Commentators objecting to the proposal focused primarily on the new 
nominee fee. The main objection to that fee was that it would result in 
increased costs, especially to smaller issuers. There are suggestions 
that the Exchange (i) abandon the nominee fee, (i) adopt tiered nominee 
fees, with small issuers not being subject to the full $20 fee, and 
(iii) restructure the nominee fee so that it would be progressive, 
based on how many shareholder accounts an issuer has.
    Some commentators asked for a more precise definition of 
``nominee.'' Others expressed the general view that brokers should be 
responsible for the costs of communicating with street name holders 
(and some recommended that the Exchange not establish guidelines at all 
in this area). Some commentators also objected to the proposed 
incentive fees. These commentators argued that the proposed fee was 
unrelated to any additional service provided by an intermediary, and 
that the intermediaries should be expected to provide for additional 
efficiencies without the need for further reimbursement.
    As to the letters with mixed opinions, some commentators said they 
needed more time to review the proposal. Others found it difficult to 
estimate the proposed savings or thought that any possible savings 
would be minimal. A number of commentators supported the overall thrust 
of the proposals, but questioned certain aspects of it, such as 
suggesting that it was counterproductive to authorize the nominee fee 
while lowering fees generally. Some commentators supported the 
proposal, but urged that the Exchange lower fees even further. Finally, 
a number of commentators made specific suggestions on how to structure 
the review of the pilot program.
The Exchange's Response to the Comment Letters
    Well over half the comment letters expressed support for the 
proposals. The Exchange believes that this indicates that the proposal 
accurately balances the interests of the issuers, broker-dealers, 
intermediaries and investors. In particular, many commentors noted that 
the proposal would provide a more rational fee structure and would 
encourage the use of enhanced technology to facilitate the shareholder 
communication and voting process. As discussed, even a number of 
issuers whose proxy solicitation costs would increase supported the 
proposal, noting that the new fee structure likely would yield long-
term savings.
    Those commentators who voiced opposition to the proposed rule 
change focused almost entirely on the possibility of increased costs, 
especially through the nominee fee. Many of these commentators argued 
that the fee was unfair and that it covered services that already were 
being provided. Some of these commentators believed that the proposed 
nominee fee would benefit large issuers at the expense of smaller 
issuers.
    In response, the Exchange first notes that this fee is cost-related 
and is intended to compensate intermediaries for the services they 
provide. As discussed above, intermediaries conduct searches for 
determining how many sets of material to mail, coordinate mailings 
(often through the use of bulk mail) and help provide preliminary 
voting information. The proposed rule change attempts to establish a 
more accurate fee schedule by isolating these services and establishing 
a separate fee for recovering the costs of providing these services. By 
charging separately for these discreet services, the Exchange is able 
to lower the general fees for mailing materials.
    The Exchange also believes that the commentators who objected to 
the nominee fee do not fully recognize the cost savings that will 
result under the new fee schedule. These commentators simply added the 
total fees that they would have to reimburse intermediaries under the 
fee schedule, but failed to consider the other cost savings, 
particularly ``out of pocket savings,'' that the Exchange believes they 
are likely to achieve. In addition, for example, the new incentive fees 
are likely to result in fewer mailings, thus decreasing printing and 
mailing costs. Similarly, the fee structure encourages the use of new 
technology, especially with respect to voting, and thus should result 
in a more efficient proxy system.
    As to the other objections that commentators raised, the Exchange 
notes:
     Definition of nominee: The Exchange believes that the term 
``nominee'' is well-known in the securities industry and will not give 
rise to interpretive issues. The Exchange's request for comment made 
clear that a ``nominee'' is a name appearing on a list of record 
holders who, in fact, is acting for someone else. They are 
``participants'' of the Depository Trust Company, such as self-clearing 
banks, brokers and other financial institutions.
     Need for reimbursement guidelines: The Exchange has 
provided fee reimbursement guidelines since 1938 to provide a service 
to its constituents and to help ensure that investors receive proxy and 
other information from issuers on a timely basis. The system has worked 
well over the years, and the current process of reviewing the fees 
indicates that the Exchange continues to play a critical role in 
facilitating (i) the flow of information from issuers to shareholders 
and (ii) the flow of votes from shareholders to issuers.
     Incentive fees: A number of commentators questioned the 
adoption of incentive fees as a means to reduce mailings. These 
commentators believed that intermediaries already should be taking 
steps to reduce costs. However, the Exchange states that the current 
fee structure provides little incentive for intermediaries to limit the 
number of mailings to shareholders. This results in increases in both 
mailing costs and, more significantly, printing costs, for issuers. The 
incentive fee could have a dramatic effect in encouraging 
intermediaries to eliminate multiple mailings.
     Non-U.S. issuers: Non-U.S. issuers are exempt from most of 
the Commission's proxy rules pursuant to Rule 3a12-3 under the Act. 
Nevertheless, non-U.S. issuers generally do provide U.S. shareholders 
with proxy and related information and seek the vote of their U.S. 
holders. Thus, broker-dealers and other intermediaries face the same 
reimbursement issues with non-U.S. companies as they do with U.S. 
companies. The Exchange has not been presented with any compelling

[[Page 68087]]

reasons to treat these classes of issuers differently.
    Finally, the Exchange recognizes that it is impossible to establish 
a final fee structure without actual market experience. Thus, the 
Exchange is proposing the new fee structure for a three-year pilot 
term. An industry Committee consisting of representatives of the 
Exchange and all the major constituency groups affected by the new fee 
structure will monitor the effect of the new fees throughout the pilot. 
The Committee will be able to propose changes as needed and will make 
final recommendations to the Exchange at the conclusion of the pilot 
period.

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 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 the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons as invited to submit written data, views, and 
arguments concerning the foregoing. Commenters are invited specifically 
to provide information that will assist the Commission in assessing 
whether each of the various elements of the proposed fee structure--the 
mailing reimbursement fees for non-contested and contested 
solicitations, respectively, the nominee fee, and the ``householding'' 
incentive fee--considered separately and/or as a whole, are consistent 
with: (1) issuers' obligation under Rule 14a-13(a)(5) of the Act to 
reimburse broker-dealers, banks, and other nominees for the 
``reasonable expenses'' they incur in mailing proxy soliciting 
materials and annual reports to beneficial holders of such issuers' 
voting securities and/or (2) broker-dealers' ability under Rule 14b-
1(c)(2) of the Act not to deliver proxy soliciting materials and annual 
reports pursuant to Rule 14b-1(b)(2) of the Act, or provide NOBO 
information under Rule 14b-1(b)(3) of the Act absent a particular 
issuer's ``assurance of reimbursement of * * * reasonable expenses, 
both direct and indirect.'' Should such ``reasonable expenses'' within 
the meaning of any or all of these Commission rules be construed to 
encompass an intermediary's costs of: (1) coordinating an issuer's 
proxy mailings to multiple nominees and/or (2) operating an electronic 
proxy voting system whereby street-name customers of broker-dealer 
clients may instruct the intermediary on how to vote the securities in 
which they hold a beneficial ownership interest? Should the 
determination of ``reasonableness'' with respect to any of the 
foregoing fees vary with the size of the issuer, whether measured in 
terms of its total market capitalization or public float, or any other 
criterion?
    Should this reasonableness determination take into account any fee-
sharing arrangements between a intermediary and its broker dealer 
clients? In this connection, to what extent should such arrangements 
reflect actual allocation of costs between an intermediary and such 
clients? In addressing this question, commenters should attempt to 
quantify to the extent possible the costs that continue to be borne by 
those broker-dealers that outsource proxy processing and/or voting 
obligations to an intermediary, and the relationship of such costs to 
fulfillment of obligations under Rule 14b-1 of the Act and/or Exchange 
Rules.
    Moreover, the Commission solicits comment on whether an independent 
audit during the three-year pilot period would be helpful in assessing 
the reasonableness of the costs passed through to issuers. Finally, the 
Commission also solicits comment on whether the proposed NYSE nominee 
fee and incentive fee should be deemed to apply to reimbursement by 
non-NYSE issuers to NYSE member firms.
    In view of the extensive comments requested, the Commission is 
providing a 45-day comment period. 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 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. Sec. 552, will be available for 
inspection and copying at the Commission's Public Reference Section, 
450 Fifth Street, N.W., Washington, D.C. 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-96-36 and should be submitted by [insert date 45 days from date of 
publication].

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-32717 Filed 12-24-96; 8:45 am]
BILLING CODE 8010-01-M