[Federal Register Volume 64, Number 245 (Wednesday, December 22, 1999)]
[Notices]
[Pages 71836-71839]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-33175]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42238; File No. SR-NASD-99-63]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 Thereto by National Association of 
Securities Dealers, Inc. to Allow NASD Members to Give Proxies in the 
Absence of Written Instructions from Beneficial Owners

    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``the Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on October 22, 1999, the National Association of Securities 
Dealers, Inc. (``NASD'' or ``Association''), through its wholly owned 
subsidiary, NASD Regulation, Inc. (``NASDR'' or ``NASD Regulation''), 
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 NASD Regulation. On November 15, 1999, 
NASDR filed Amendment No. 1 to the proposal with the Commission.\3\ The

[[Page 71837]]

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).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, NASDR withdrew its request that the 
proposal be reviewed and approved under Section 19(b)(3)(A) of the 
Act. Instead, NASDR has requested that the Commission review the 
proposal under Section 19(b)(2) of the Act. See Letter from Alden S. 
Adkins, Senior Vice President and General Counsel, NASDR, to 
Katherine A. England, Assistant Director, Division of Market 
Regulation, Commission, dated November 10, 1999 (``Amendment No. 
1'').
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    NASDR seeks to amend Rule 2260 of the Conduct Rules of the 
Association to permit NASD members to give proxies in the absence of 
written instructions from beneficial owners, provided that certain 
requirements are satisfied.
    The text of NASD Rule 2260, as modified by the proposal, appears 
below. Proposed additions are italicized and proposed deletions are 
[bracketed].

Rule of the Association Conduct Rules

2260. Forwarding of Proxy and Other Materials

    (a)-(b) No change.
    (c)(1) Whenever an issuer or stockholder of such issuer 
soliciting proxies shall timely furnish to a member:
    (A) sufficient copies of all soliciting material which such 
person is sending to registered holders, and
    (B) 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, 
the material furnished.
    (2) Such member shall transmit with such material either:
    (A) a request for voting instructions and, as to matters which 
may be voted without instructions under paragraph(d)(4), a statement 
to the effect that, if such instructions are not received by the 
tenth day before the meeting, the proxy may be given at discretion 
by the owner of record of the stock; provided, however, that such 
statement may be made only when the proxy soliciting material is 
transmitted to the beneficial owner of the stock or to the 
beneficial owner's designated investment adviser, at least fifteen 
days before the meeting. When the proxy soliciting material is 
transmitted to the beneficial owner of the stock or to the 
beneficial owner's designated investment adviser twenty-five days or 
more before the meeting, the statement accompanying such material 
shall be to the effect that the proxy may be given fifteen days 
before the meeting at the discretion of the owner of record of the 
stock; or
    (B) a signed proxy indicating the number of shares held for such 
beneficial owner and bearing a symbol identifying the proxy with 
proxy records of such 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 of the person soliciting the proxies and shall also retain a 
copy thereof pursuant to the provisions of SEC Rule 17a-4 under the 
Act.
    ([2]3) Notwithstanding the provisions of subparagraph (1), 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.
    ([3]4) This paragraph shall not apply to beneficial owners 
residing outside of the United States of America, although members 
may voluntarily comply with the provisions hereof in respect to such 
persons if they so desire.
    (d)(1)-(3) No Change.
    (4) A member which has transmitted proxy soliciting material to 
the beneficial owner of stock or the beneficial owner's designated 
investment adviser and solicited voting instructions in accordance 
with subparagraph (c) of this Rule, and which has not received 
instructions from the beneficial owner or from the beneficial 
owner's designated investment adviser by the date specified in the 
statement accompanying such material, may give or authorize the 
giving of a proxy to vote such stock, provided that:
    (A) the person in the member firm giving or authorizing the 
giving of the proxy has no knowledge of any contest as to the action 
to be taken at the meeting; and
    (B) such action is adequately disclosed to stockholders and does 
not include authorization for a merger, consolidation or any other 
matter which may affect substantially the rights or privileges of 
such stock.
    (e)-(g) No Change.
* * * * *

IM-2260-2 Giving a Proxy To Vote Stock

    (a) A member may give a proxy to vote stock provided that:
    (1) It has transmitted proxy soliciting material to the 
beneficial owner of stock or from the beneficial owner's designated 
investment adviser, in accordance with Rule 2260(c), and
    (2) it has not received voting instructions from the beneficial 
owner or from the beneficial owner's designated investment adviser, 
by the date specified in the statement accompanying such material, 
and
    (3) the person in the member organization giving or authorizing 
the giving of the proxy has no knowledge of any contest as to the 
action to be taken at the meeting and provided such action is 
adequately disclosed to stockholders and does not include 
authorization for a merger, consolidation of any matter which may 
affect substantially the rights or privileges of such stock.
    (b) Generally speaking, a member may not give a proxy to vote 
without instructions from beneficial owners when the matter to be 
voted upon:
    (1) is not submitted to stockholders by means of a proxy 
statement comparable to that specified in Schedule 14-A of the 
Securities Exchange Act;
    (2) is the subject of a counter-solicitation, or is part of a 
proposal made by a stockholder which is being opposed by management 
(e.g., a contest);
    (3) relates to a merger or consolidation (except when the 
company's proposal is to merge with its wholly owned subsidiary, 
provided its shareholders dissenting thereto do not have rights of 
appraisal;
    (4) involves right of appraisal;
    (5) authorizes mortgaging of property;
    (6) authorizes or creates indebtedness or increases the 
authorized amount of indebtedness;
    (7) authorizes or creates a preferred stock or increases the 
authorized amount of an existing preferred stock;
    (8) alters the terms or conditions of existing stock or 
indebtedness;
    (9) involves waiver or modification of preemptive rights (except 
when the company's proposal is to waive such rights with respect to 
shares being offered pursuant to stock option or purchase plans 
involving the additional issuance of not more than 5% of the 
company's outstanding common shares (see Item 12));
    (10) changes existing quorum requirements with respect to 
stockholder meetings;
    (11) alters voting provisions or the proportionate voting power 
of a stock, or the number of its votes per share (except where 
cumulative voting provisions govern the number of votes per share 
for election of directors and the company's proposal involves a 
change in the number of its directors by not more than 10% or not 
more than one);
    (12) authorizes issuance of stock, or options to purchase stock, 
to directors, officers, or employees in an amount which exceeds 5% 
of the total amount of the class outstanding;
    (13) authorizes:
    (A) a new profit-sharing or special remuneration plan, or a new 
retirement plan, the annual cost of which will amount to more than 
10% of average annual income before taxes for the preceding five 
years, or
    (B) the amendment of an existing plan which would bring its cost 
above 10% of such average annual income before taxes.
    Exceptions may be made in cases of
    (A) retirement plans based on agreement or negotiations with 
labor unions (or which have been or are to be approved by such 
unions); and
    (B) any related retirement plan for benefit of non-union 
employees having terms substantially equivalent to the terms of such 
union-negotiated plan, which is submitted for action of stockholders 
concurrently with such union-negotiated plan;
    (14) changes the purposes or powers of a company to an extent 
which would permit it to change to a materially different line of 
business and it is the company's stated intention to make such a 
change;
    (15) authorizes the acquisition of property, assets, or a 
company, where the

[[Page 71838]]

consideration to be given has a fair value approximating 20% or more 
of the market value of the previously outstanding shares;
    (16) authorizes the sale or other disposition of assets or 
earning power approximating 20% or more of those existing prior to 
the transaction.
    (17) authorizes a transaction not in the ordinary course of 
business in which an officer, director or substantial security 
holder has a direct or indirect interest;
    (18) reduces earned surplus by 51% or more, or reduces earned 
surplus to an amount less than the aggregate of three years' common 
stock dividends computed at the current dividend rate.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, NASDR included statements 
concerning the purpose of, and statutory 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. NASDR 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
    NASD Rule 2260 specifies when NASD members must furnish proxy and 
other materials to beneficial owners, and governs when NASD members may 
vote proxies on behalf of beneficial owners. Rule 2260 differs in 
certain respects from the proxy rules of the New York Stock Exchange 
(``NYSE'') and the American Stock Exchange (``Amex''). Most notably, 
the NYSE and Amex proxy rules permit exchange members to give proxies 
on behalf of beneficial owners without written instructions from the 
beneficial owners, so long as certain requirements are satisfied.\4\ 
NASDR believes that the differences in the proxy rules maintained by 
the NASD, NYSE, and Amex may cause confusion for some members and 
issuers. The purpose of the proposed amendments is to conform the NASD 
rule to the NYSE and Amex rules.
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    \4\ See NYSE Rule 452, ``Giving Proxies by Member 
Organization,'' and Amex Rule 577, ``Giving Proxies by Member 
Organization.''
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a. Summary of Current NASD Rules
    NASD Rule 2260 requires NASD members to forward proxy and other 
materials to beneficial owners of stock held in ``street name'' by the 
member when certain conditions are met. Proxy materials must be 
accompanied by signed proxies and information regarding when the 
proxies must be returned to the issuer. NASD Rule 2260 currently 
provides that NASD members may give proxies on beneficial owners when 
the member holds the stock in a fiduciary capacity. Rule 2260 also 
provides that a NASD member may give proxies to vote pursuant to the 
rules of any exchange to which the member is also responsible, provided 
that the records of the member clearly indicate which procedure it is 
following.
    The NYSE and Amex proxy rules likewise require exchange members to 
forward proxy materials to beneficial owners. Unlike the NASD's rules, 
however, the NYSE and Amex proxy rules state that an exchange member 
may accompany the materials with either: (a) Signed proxies and 
information specifying when the proxies must be returned to the issuer, 
or (b) A request for voting instructions. The NYSE and Amex proxy rules 
also allow exchange members to vote the proxies in certain 
circumstances if the beneficial owner fails to respond to the request 
for written instructions. Specifically, an exchange member may vote the 
shares without instruction if, to the knowledge of the member, the 
action in question is not contested and the action does not involve 
authorization for a merger, change of control, or other that could 
substantially affect the rights and privileges of the stock. With 
respect to matters not satisfying those requirements, the member may 
not vote the proxies absent written instructions from the beneficial 
owner. Supplemental materials to the NYSE and Amex proxy rules list 
corporate matters that may not be voted on without written instruction 
(e.g., matters involving changes of control, mergers, voting rights, 
and mortgaging of property).
    Under the NYSE and Amex proxy rules, if an exchange member chooses 
to a send a request for written instructions with the proxies and the 
proxies involve matters that may be voted on without written 
instruction, the member must inform the beneficial owner that proxies 
may be given at the member's discretion unless written instructions are 
received within a specified time.
b. Summary of Proposed Rule Change
    NASDR believes that the current NASD proxy rule, in conjunction 
with the existing NYSE and Amex proxy rules, has caused confusion among 
some members and issuers regarding when proxies can be voted by members 
without instruction from beneficial owners, particularly by a broker 
who is only a member of the NASD. NASDR believes that this confusion 
would be eliminated if the NASD's rules were amended to conform to the 
NYSE and Amex proxy rules.
    Conforming NASD Rule 2260 to the NYSE and Amex proxy rules would 
require amending the NASD rule to: (a) give NASD members the option of 
requesting voting instructions instead of simply sending signed proxies 
to beneficial owners; and (b) in certain circumstances, permit NASD 
members to vote proxies if the beneficial owner fails to provide 
written instructions, as long as the member notifies the beneficial 
owner of that possibility.
    Under the proposal, NASD Rule 2260(c)(2) would be amended to 
provide that, when an issuer satisfies the requirements in the rule 
that obligate NASD members to forward proxy material to the issuer's 
beneficial owners, each NASD member shall transmit with the proxy 
material either: (a) a request for voting instructions and, where the 
rule would permit the member to give the proxy without written 
instructions, notice to that effect; or (b) a signed proxy. In 
addition, a new subparagraph (d)(4) would specify the criteria 
governing when NASD members could vote proxies without written 
instructions from beneficial owners. Specifically, the new language 
would state that NASD members may give proxies without written 
instructions, provided that the person in the member firm giving or 
authorizing the giving of the proxy has no knowledge of any contest as 
to the action to be taken at the meeting; and such action is adequately 
disclosed to stockholders and does not include authorization for a 
merger, consolidation, or any other matter which may affect 
substantially the rights or privileges of such stock.
    The proposed rule change would not alter the current obligations of 
NASD members to give and send proxies, because under the proposal, NASD 
members would have the option of continuing to treat proxy materials as 
currently required under rule 2260. NASDR believes that the proposal 
will eliminate confusion by clarifying that NASD members may give 
proxies without written instructions from beneficial owners in the same 
manner they are permitted to do so under NYSE and Amex proxy rules.
c. Adoption of IM-2260-2
    Supplemental materials to the NYSE and Amex proxy rules provide 
specific guidance to exchange members regarding application of the 
proxy rules.

[[Page 71839]]

The supplemental materials summarize the NYSE and Amex proxy rules, and 
enumerate specific instances where exchange members may not give 
proxies without instructions from the beneficial owner. Under the 
proposal, that same guidance would be incorporated into the rules of 
the NASD in the form of a new IM-2260-2. The text of proposed IM-2260-2 
is substantially identical to the language in the supplemental 
materials to the NYSE and Amex proxy rules.
2. Statutory Basis
    NASDR believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\5\ which require that the 
rules of a registered securities association must be designed to 
prevent fraudulent and manipulative acts and practices, promote just 
and equitable principles of trade, and, in general, protect investors 
and the public interest. NASDR also believes that the proposed change 
eliminates confusing and potentially conflicting requirements that 
affect investors, issuers, and the securities industry.
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    \5\ 15 U.S.C. 700-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    NASDR believes that the proposed rule change will not result in 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

    NASDR did not solicit or receive written comments with respect to 
the proposed rule change.

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 NASDR 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. 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 20549-0609. Copies of such filing will also 
be available for inspection and copying at the principal office of the 
NASD. All submissions should refer to File No. SR-NASD-99-63 and should 
be submitted by January 12, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-33175 Filed 12-21-99; 8:45 am]
BILLING CODE 8010-01-M