[Federal Register Volume 64, Number 125 (Wednesday, June 30, 1999)]
[Notices]
[Pages 35229-35231]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-16644]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41549; File No. SR-NYSE-99-21]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 Thereto 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

June 23, 1999.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 under the Act,\2\ notice is hereby given 
that on May 17, 1999, 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. On June 
23, 1999, the Exchange filed with the commission Amendment No. 1 to the 
proposed rule change.\3\ The Commission is publishing this notice to 
solicit comments on the proposed rule change, as amended, from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 removed from the proposed rule change the 
provision that would have permitted the householding of proxy and 
other materials through implied consent. At the request of the 
Commission, the Exchange will include the householding through 
implied consent proposal in a separate rule filing. Amendment No. 1 
also clarified certain text discussing the proposed definition of 
nominee. See Letter from James E. Buck, Senior Vice President and 
Secretary, Exchange, to Sharon Lawson, Senior Special Counsel, 
Division of Market Regulation, Commission, dated June 22, 1999 
(``Amendment No. 1'').
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to revise Exchange Rule 451, ``Transmission 
of Proxy Material'' and Exchange Rule 465, ``Transmission of Interim 
Reports and Other Material'' (collectively, the ``Rules''), and section 
402.10 of the Exchange's Listed Company Manual. In particular, the 
Exchange seeks to amend the guidelines in the Rules that govern the 
reimbursement of NYSE member organizations for out-of-pocket expenses 
incurred in processing and delivering proxy materials (Exchange Rule 
451) and other issuer materials (Exchange Rule 465) to security holders 
whose securities are held in street name.\4\ These reimbursement 
guidelines, which are currently effective through August 31, 1999, 
comprise the ``Pilot Fee Structure.'' \5\ The Exchange also proposes to 
define the term ``nominee'' for purposes of determining the nominee 
coordination fee.
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    \4\ The ownership of shares in street name means that a 
shareholder, or ``beneficial owner,'' has purchased shares through a 
broker-dealer or bank, also known as a ``nominee.'' In contrast to 
direct ownership, where the shares are directly registered in the 
name of the shareholder, shares held in street name are registered 
in the name of the nominee, or in the nominee name of a depository 
such as The Depository Trust Company.
    \5\ The Pilot Fee Structure originally was approved by the 
Commission on March 14, 1997. See Securities Exchange Act Release 
No. 38406 (Mar. 14, 1997), 62 FR 13922 (Mar. 24, 1997). The Exchange 
has extended the effectiveness of the Pilot Fee Structure on several 
occasions, most recently through August 31, 1999. See Securities 
Exchange Act Release No. 41177 (Mar. 16, 1999), 64 FR 14294 (Mar. 
24, 1999) (``Order Extending Pilot Fee Structure'').
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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.

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 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
    In its recent order extending the effectiveness of the Pilot Fee 
Structure, the Commission requested that the Exchange ``carefully 
review the Pilot Fee Structure and make changes where necessary to 
develop an improved fee structure.'' \6\ Pursuant to the Commission's 
request, the Exchange now proposes to revise the rates of reimbursement 
in the Pilot Fee Structure. The Exchange also proposes to extend the 
effectiveness of the Pilot Fee Structure from August 31, 1999, through 
August 31, 2001.
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    \6\ See Order Extending Pilot Fee Structure, supra note 5.
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    Substantively, the proposed rule change would amend the Exchange's 
Rules regarding reimbursement of NYSE member organizations for the 
expenses incurred in connection with proxy solicitations and other 
mailings by:
     Reducing the suggested rate of reimbursement from $0.50 to 
$0.45 for each set of proxy materials (i.e., proxy statement, form of 
proxy, and annual report when mailed as a unit).
     Reducing from $20 to $18 the suggested per-nominee 
compensation of intermediaries that coordinate the proxy and mailing 
activities of multiple nominees (``nominee coordination fee'').
     Limiting the universe of ``nominees'' in respect of whom 
the $18 nominee coordination fee is payable to ``any entity whose name 
and participant account number both appear on a listing that 
accompanies and is referred to in an omnibus proxy that a registered 
clearing agency supplies to the issuer.'' This change would exclude 
from reimbursement ``secondary'' nominees, that is, nominees in respect 
of whom issuers have no direct interface.
    Each of these proposals is designed to reduce the fees that NYSE 
member organizations are permitted to recover in connection with the 
transmission of proxy and other materials to security holders whose 
securities are held in street name. The Exchange believes that the 
proposed changes will create substantial savings for NYSE issuers.
    The Exchange further believes that a reduction in the level of 
reimbursed fees is appropriate given the findings of the Exchange-
sponsored audit that examined NYSE member firm reimbursements for the 
1998 proxy season (1998 Audit''). The results of the 1998 Audit 
convinced the Exchange that the level of reimbursement has been too

[[Page 35230]]

high in recent years. The Exchange shared the results of the 1998 Audit 
with Commission staff, who expressed similar concerns. The Exchange has 
represented that the proposed changes are intended to reduce NYSE 
member firm reimbursements to a more appropriate level.
    As for the proposed definition of ``nominee,'' the Exchange 
believes that it is only nominees that are participants in The 
Depository Trust Company (``DTC'') and that directly interface with 
issuers that should be counted for purposes of calculating the nominee 
coordination fee. The Exchange contends that coordination of 
distributions to second-tier nominees is performed by those 
participants, rather than by the coordinating intermediary that is 
known to the issuer. The Exchange reports that issuers have been billed 
$20 for activities relating to second-tier nominees, without knowing 
their identity or having the ability to verify their performance of 
``nominee'' functions.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the requirement under Section 6(b)(5) of the Act \7\ that an exchange 
have 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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    \7\ 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 proposed changes were developed by the Exchange's Proxy Fee 
Working Committee, a group that the Exchange selected as representative 
of the parties interested in the proxy process. The proposal represents 
a consensus of a majority of that group. The Exchange has not otherwise 
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 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 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, including whether the proposed rule 
change, as amended, is consistent with the Act. The Commission staff 
solicits specific comment on whether the Exchange rules should define 
the term ``nominee,'' and if so, whether the Exchange's proposed 
definition is appropriate. In this regard, it should be noted that the 
Commission's shareholder communications rules refer to banks,\8\ 
brokers,\9\ and dealers,\10\ but do not define the term ``nominee.'' 
Although the rates of reimbursement included in the Pilot Fee Structure 
apply only to fees charged by NYSE member organizations, banks 
customarily charge the same rates.\11\ The Exchange's proposed 
definition of ``nominee'' likely would have a more significant impact 
on bank nominees than broker-dealer nominees because it is common for 
banks that are ``top-tier'' direct participants in a clearing agency to 
hold and clear securities for multiple lower-tier ``respondent banks'' 
\12\ that are not direct participants in a clearing agency. Although 
the Exchange has represented that it believes that most top-tier banks 
(i.e., DTC participants) coordinates materials for lower-tier banks, 
the Commission staff is concerned that some top-tier clearing banks may 
not coordinate distributions of shareholder materials for lower-tier 
respondent banks; rather, the respondent banks may communicate directly 
with issuers about distribution of materials or hire an agent who 
coordinates material distribution on behalf of many respondent banks.
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    \8\ Rule 14b-2(a)(1) under the Act defines the term ``bank'' as 
a bank, association, or other entity that exercises fiduciary 
powers. See 17 CFR 240.14b-2(a)(1).
    \9\ See 17 CFR 240.14b-1.
    \10\ Id.
    \11\ Rule 14b-2(c)(3) under the Act states that reimbursement 
rates charged by banks that are no greater than those permitted to 
be charged by brokers or dealers shall be deemed to be reasonable. 
See 17 CFR 240.14b-2(c)(3).
    \12\ Rule 14a-1(k) under the Act defines ``respondent bank'' for 
purposes of the shareholder communications rules as any bank, 
association or other entity that exercises fiduciary powers which 
holds securities on behalf of beneficial owners and deposits such 
securities for safekeeping with another bank, association or other 
entity that exercises fiduciary powers. See 17 CFR 240.14a-1(k).
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    The Commission's rules clearly state that companies must reimburse 
not only the top-tier banks but the respondent banks as well for 
reasonable expenses incurred in mailing materials to beneficial 
owners.\13\ In view of this requirement, should companies be required 
to pay the nominee coordination fee included in the Pilot Fee Structure 
for coordination activities relating to lower-tier respondent banks? 
Additional comment is solicited on whether the Exchange should define 
the term ``coordinate'' in its rules providing for a nominee 
coordination fee. If so, how should the term be defined? If the 
coordinating activities to be performed by banks and brokers-dealers to 
qualify for the nominee coordination fee were adequately defined by the 
NYSE rules, could the terms ``bank,'' ``broker,'' and ``dealer,'' as 
used in the Commission's rules, replace the term ``nominees'' in the 
NYSE rules?
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    \13\ 17 CFR 240.14a-13(a)(5).
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    Persons making written submissions should file six copies thereof 
with the Secretary, Securities and Exchange Commission, 450 Fifth 
Street, NW, Washington, DC 20549-0609. 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, 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-99-21 and should be submitted by August 30, 1999.


[[Page 35231]]


    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-16644 Filed 6-29-99; 8:45 am]
BILLING CODE 8010-01-M