[Federal Register Volume 63, Number 58 (Thursday, March 26, 1998)]
[Notices]
[Pages 14745-14747]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-7918]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39774; File No. SR-NYSE-98-05]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change 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
March 19, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on February 6, 1998, 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. The Commission is publishing this notice
to solicit comments on the proposed rule change from interested
persons.
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\1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Exchange seeks to extend the pilot period during which recent
changes to Exchange Rule 451, ``Transmission of Proxy Material,'' and
Exchange Rule 465, ``Transmission of Interim Reports and Other
Material'' (collectively the ``Rules''), became operative. The Rules
establish guidelines for the reimbursement of expenses by issuers to
NYSE member
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organizations for the processing of proxy materials and other issuer
communications (``Materials'') with respect to security holders whose
securities are held in street name. The Rules also allow NYSE member
organizations to employ the practice of ``householding'' to eliminate
multiple mailings of Materials to beneficial security holders at the
same address.
On March 14, 1997, the Commission approved a NYSE proposal that
significantly amended the Rules and the reimbursement guidelines set
forth therein (the ``Previous Filing'').\2\ In a separate filing
related to this proposed rule change (the ``Companion Filing''), the
Commission approved the Exchange's proposal to reduce the rate of
reimbursement for mailing each set of Materials from $.55 to $.50, and
to extend the current pilot period through July 31, 1998.\3\ This
filing proposes one change to the Rules, regarding the use of
householding through implied consent, and also proposes to extend the
effectiveness of the Rules, as amended by this filing, the Previous
Filing and the Companion Filing, through June 30, 2001.
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\2\ Securities Exchange Act Release No. 38406 (Mar. 14, 1997),
62 FR 13922 (Mar. 24, 1997). The Previous Filing contains a detailed
description regarding the background and history of the Rules.
\3\ See Securities Exchange Act Release No. 39672 (Feb. 17,
1998), 63 FR 9034 (Feb. 23, 1998).
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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.
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
The Previous Filing and the Companion Filing lowered certain
reimbursement guidelines, created incentive fees to eliminate
duplicative mailings, established a supplemental fee for intermediaries
that coordinate multiple nominees, and established rules allowing
householding.
The Commission approved the Previous Filing on a pilot basis and
established an initial expiration date of May 13, 1998. The Companion
Filing extended the expiration date through July 31, 1998.\4\ In the
Previous Filing, the Exchange committed to undertake an independent
audit that would analyze the application of the modified Rules during
the 1997 proxy season (the ``Audit''). The Exchange stated that it
would submit the Audit to the Commission by October 31, 1997. Due to
delays in the audit procedure, the Exchange did not deliver the Audit
to the Commission until January, 1998.\5\
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\4\ In the Companion Filing, the Commission noted that the May
13, 1998, expiration date intersected the time period when proxy
materials traditionally are distributed to shareholders. As a
result, NYSE member organizations potentially would have been
reimbursed at two different rates--the rates established by the
Previous Filing, and the rates in effect prior to the implementation
of the Previous Filing (the default rates)--if the expiration date
were not extended.
\5\ A copy of the Audit is publicly available for review in File
No. SR-NYSE-98-05 at the Commission's Public Reference Section
located at the address specified in Item IV.
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In addition to its proposal to extend the pilot period through June
30, 2001, the Exchange seeks to amend the Rules regarding householding
to provide for the use of ``implied consent.'' This amendment would
allow a member organization to send only one set of Materials to a
household encompassing multiple beneficial holders if the member
organization provided at least 60 days' notice of the proposed
householding and the beneficial holders did not object to such
practice.\6\
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\6\ The Exchange represents that its proposal is substantively
identical to the implied consent provision set forth in the
Commission's recent proposed rulemaking release concerning
householding. See Securities Act Release No. 7475; Securities
Exchange Act Release No. 39321; and Investment Company Act Release
No. 22884 (Nov. 13, 1997), 62 FR 61933 (Nov. 20, 1997). The rules
currently permit NYSE members to household annual reports, interim
reports, proxy statements, and other materials where the beneficial
holders have provided actual consent. However, it should be noted
that the Commission's proposed rule only would allow the
householding of prospectuses, annual reports, and semiannual reports
if the consent (actual or implied) of beneficial holders was
obtained.
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As to the extension of the pilot period through June 30, 2001,\7\
the Exchange believes that the Audit indicates the reimbursement fees
implemented during the pilot period are reasonable. However, the
Exchange believes that additional experience with the pilot period fee
structure would be useful before determining whether to seek permanent
approval of such fee structure or to propose additional amendments. The
Exchange contends that a three-year extension would provide that
experience, while also providing the market with sufficient certainty
that the current rules will be available for a reasonable period of
time. The Exchange believes such certainty is necessary to allow market
participants to invest in the infrastructure necessary to support the
proxy communication process.
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\7\ In connection with the Exchange's request for a thirty-five
month extension of the pilot reimbursement guidelines, the
Commission notes that the Exchange has committed to undertake an
independent audit of the revised fee structure during the 1998 proxy
season. Conversation between James E. Buck, Senior Vice President
and Secretary, Exchange, and Sharon M. Lawson, Senior Special
Counsel, Division of Market Regulation, Commission, March 18, 1998.
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In its order approving the Previous Filing, the Commission stated
that it was then appropriate for the Exchange to propose specific rates
of reimbursement. However, the Commission went on to recommend that the
Exchange, issuers, and broker-dealers develop and approach that would
foster competition in this area. The Commission also suggested that the
Exchange and other self-regulatory organizations (``SOR's'') ``explore
whether reimbursement can be set by market forces, and whether this
would provide a more efficient, competitive, and fair process than SRO
standards.''
The Exchange appreciates the Commission's concerns. However, the
Exchange believes it is unlikely that competition will develop to the
extent necessary to relieve the Exchange of its role in establishing
reimbursement guidelines. for example, within the last year, three
large NYSE member organizations contracted with the industry leader,
ADP Financial Information Services, Inc. (``ADP''), to handle the
mailing of Materials, rather than continuing to process such mailings
through in-house operations.\8\ While the Exchange certainly would
encourage competition in this industry, the Exchange believes that
experience indicates that the proxy communication process benefits from
the economies of scales and uniform procedures that arise when most
mailings are coordinated through a single entity.
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\8\ The NYSE member organizations are: Merrill Lynch, Pierce,
Fenner & Smith, Inc.; Paine Webber Incorporated; and Prudential
Securities Incorporated. The Audit states that of the sixty-nine
NYSE member organizations that responded to the Audit-Related
survey, ninety-three percent indicated they subcontract their proxy
distribution responsibilities to ADP. It should be noted that this
rate of subcontracting does not include the three NYSE member
organizations named above.
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[[Page 14747]]
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the requirement under Section 6(b)(5) of the Act \9\ that an exchange
maintain 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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\9\ 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 Exchange has not solicited, and does not intend to solicit,
comments on the proposed rule change. Nor has the Exchange 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 approved 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 is consistent with the Act. The Commission generally solicits
comment on the questions set forth below to facilitate its independent
determination as to whether the new fee structure: (1) provides for the
equitable allocation of reasonable fees among NYSE-listed companies and
NYSE member firms, consistent with Section 6(b)(4) of the Act; (2)
conforms with Sections 6(b)(5) and 6(b)(8) of the Act by not unfairly
discriminating among issuers and imposing a burden on competition that
is not necessary under the Act; and (3) imposes fees that are
``reasonable'' within the meaning of Rules 14a-13, 14b-1, and 14b-2
under Sections 14(a) and 14(b) of the Act. The Commission notes that
Rules 14a-13, 14b-1, and 14b-2 require registered broker-dealers, banks
and other covered nominees to deliver proxy materials, annual reports
and other corporate communications to street-name security holders.
These rules are meant to ensure, among other things, that public
companies reimburse these nominees, upon request, for ``reasonable
expenses'' incurred in delivering such communications.
At stated in the Previous Filing, the Commission has reached no
final resolution of the issues noted by commenters. The Commission will
continue to closely examine the impact of the revised proxy fee
reimbursement guidelines on NYSE-listed companies and NYSE member
firms. Because the Audit did not analyze recent developments such as
the shifting of proxy distribution activities to ADP from three of four
self-distributing broker-dealers, and ADP's Internet proxy delivery and
voting mechanism, the Commission solicits specific comment on the
following questions: (1) ADP introduced its Internet delivery and
voting services after the fee structure was approved on a pilot basis
on March 14, 1997. Accordingly, the Commission solicits comment
regarding the itemized fees that ADP charges issuers for Internet proxy
delivery and voting services. In addition, should the processing fee
that relates to the mailing of materials in paper format (which the
Exchange recently reduced from $0.55 to $0.50 per basic proxy package)
be modified to reflect the actual costs of electronic delivery? (2) Is
the incentive fee ($0.50 per mailing eliminated) necessary or
appropriate, in whole or part, now that ADP is offering the Internet as
a vehicle for delivery of proxy materials and other corporate
communications to street-name holders? (3) Is the proposed thirty-five
month extension of the pilot more appropriate than a longer or shorter
period? (4) Are issuers with small but diffuse shareholder bases
realizing the same benefits from ADP's nominee coordination activities
as larger issuers whose securities are widely owned but more
concentrated in the accounts of nominees? (5) Does the $20 nominee
coordination fee have a disproportionate impact on smaller issuers?
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 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, 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-98-05 and should be submitted by April 16, 1998.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority. \10\
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\10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-7918 Filed 3-25-98; 8:45 am]
BILLING CODE 8010-10-M