[Federal Register Volume 65, Number 38 (Friday, February 25, 2000)]
[Notices]
[Pages 10137-10139]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-4381]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42433; File No. SR-NYSE-00-06]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the New York Stock Exchange, 
Inc., Extending the Pilot Fee Structure Governing the Reimbursement of 
Member Organizations for Costs Incurred in the Transmission of Proxy 
and Other Shareholder Communication Materials

February 16, 2000.
     
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and rule 19b-4 thereunder,\2\ notice is hereby given that 
on February 14, 2000, 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).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to extend the effectiveness of the pilot fees 
(``Pilot Fee Structure'') currently set forth in Exchange Rule 451, 
``Transmission of Proxy Material,'' and Exchange Rule 465, 
``Transmission of Interim Reports and Other Material,'' (collectively 
the ``Rules''). The Rules provide guidelines for the reimbursement of 
expenses by NYSE issuers to NYSE member organizations for the 
processing and delivery of proxy materials and other issuer 
communications to security holders whose securities are held in street 
name. The Pilot Fee Structure is presently scheduled to expire on 
February 15, 2000. The Exchange proposes to extend the Pilot Fee 
Structure through September 1, 2000.
    In addition, the Exchange proposes to define the term ``nominee'' 
as it relates to calculation of the nominee coordination fee. The 
proposed definition would limit the universe of nominees in respect of 
whom the nominee coordination fee is payable.
    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.
    As first adopted, the Pilot Fee Structure revised the Rules to 
lower certain reimbursement guidelines, create incentive fees to 
eliminate duplicative mailings, and establish a supplemental fee for 
intermediaries that coordinate multiple nominees.\3\ The Pilot Fee 
Structure has been modified and extended several times,\4\ most 
recently by Commission order dated December 30, 1999.\5\
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    \3\ See Securities Exchange Act Release No. 38406 (Mar. 14, 
1997), 62 FR 13922 (Mar. 24, 1997). The Commission initially 
approved the Pilot Fee Structure as a one-year pilot, and designated 
May 13, 1998, as the date of expiration.
    \4\ See Securities Exchange Act Release Nos. 39672 (Feb. 17, 
1998), 63 FR 9034 (Feb. 23, 1998) (order extending pilot Fee 
Structure through July 31, 1998, and lowering the rate of 
reimbursement for mailing each set of initial proxies and annual 
reports from $.55 to $.50); 40289 (July 31, 1998), 63 FR 42652 (Aug. 
10, 1998) (order extending Pilot Fee Structure through October 31, 
1998); 40621 (Oct. 30, 1998), 63 FR 60036 (Nov. 6, 1998) (order 
extending Pilot Fee Structure through February 12, 1999); 41044 
(Feb. 11, 1999), 64 FR 8422 (Feb. 19, 1999) (order extending Pilot 
Fee Structure through March 15, 1999); 41177 (Mar. 16, 1999), 64 FR 
14294 (Mar. 24, 1999) (order extending Pilot Fee Structure through 
August 31, 1999); 41669 (July 29, 1999), 64 FR 43007 (Aug. 6, 1999) 
(order extending Pilot Fee Structure through November 1, 1999); and 
42086 (Nov. 1, 1999), 64 FR 60870 (Nov. 8, 1999) (order extending 
Pilot Fee Structure through January 3, 2000).
    \5\ See Securities Exchange Act Release No. 42304 (Dec. 30, 
1999), 65 FR 1212 (Jan. 7, 2000) (order extending Pilot Fee 
Structure through February 15, 2000).
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    The Exchange believes that an extension of the Pilot Fee Structure 
through September 1, 2000, will give the

[[Page 10138]]

Commission additional time to consider the Pilot Fee Structure without 
a lapse in the current Rules. Absent an extension of the Pilot Fee 
Structure, the fees in effect prior to the Pilot Fee Structure (i.e. 
the fees in effect prior to March 14, 1997) would return to 
effectiveness after February 15, 2000. The Exchange believes that such 
a result could be counterproductive and cause confusion among NYSE 
member organizations and issuers.
    The Exchange also proposes to limit the universe of nominees in 
respect of whom the nominee coordination fee set forth in the Rules is 
payable. The proposed limitation would specify that, to receive the 
nominee coordination fee in respect of a nominee, a distribution 
intermediary such as Automatic Data Processing (``ADP'') must provide 
the nominee's name to the issuer and must transmit the proxy or other 
issuer communication material to the nominee's beneficial owners.
    Although the Exchange continues to believe that the nominee 
coordination fee should be charged only for coordinating mailings to 
nominees that are known to the issuer, the Exchange seeks to include 
certain ``secondary'' nominees in the proposed definition of nominee. 
Under the Exchange's proposal, a distribution intermediary could 
collect the nominee coordination fee for any nominee that: (1) has the 
right to vote the shares in respect of which it acts as nominee; and 
(2) is a record holder,\6\ respondent bank,\7\ or respondent broker or 
dealer.\8\
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    \6\ The Exchange proposes to use the definition in Rule 14a-1(i) 
under the Act to define the term ``record holder.''
    \7\ The Exchange proposes to use the definition in Rule 14a-1(k) 
under the Act to define the term ``respondent bank.''
    \8\ The Exchange proposes to define the term ``respondent broker 
or dealer'' as ``a broker or dealer that holds securities on behalf 
of beneficial owners and that deposits such securities for 
safekeeping with another broker or dealer.''
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    The proposed nominee provisions recognize that, as a practical 
matter, distribution intermediaries in the past have coordinated 
mailings and assessed nominee coordination fees for secondary nominees, 
which fact NYSE issuers have sometimes misunderstood. To date, NYSE 
issuers have paid $20 for each secondary nominee, without knowing the 
identity of the secondary nominee or having the ability to verify the 
distribution intermediary's performance of nominee coordination 
functions. The Exchange believes that its proposal addresses this lack-
of-knowledge issue by requiring notice of the identity of secondary 
nominees.
    The Exchange also believes that the proposed definition of nominee 
establishes an equitable balance that provides motivation for 
distribution intermediaries to continue providing coordination services 
to secondary nominees, yet establishes a reasonable fee for those 
services. The Exchange believes the proposal serves the purposes of 
issuers as well as distribution intermediaries because it will make the 
important services that intermediaries provide to issuers more 
transparent and readily available.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b)(4) of the Act \9\ in that it provides for the equitable 
allocation of reasonable dues, fees, and other charges among its 
members and other persons using its facilities. The Exchange further 
believes that the proposed rule change satisfies the requirement under 
Section 6(b)(5) \10\ 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.\11\
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    \9\ 15 U.S.C. 78f(b)(4).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ In reviewing this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that 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 engaged in ongoing dialogue regarding various 
aspects of the Pilot Fee Structure, including this proposed rule 
change, with representatives of the Securities Industry Association (on 
behalf of NYSE member firms) and the American Society of Corporate 
Secretaries (on behalf of NYSE issuers). The Exchange believes that 
these industry representatives support the proposed rule change. The 
Exchange has not otherwise solicited, and does not intend to solicit, 
comments on the proposed rule change. Nor has the Exchange received any 
unsolicited comments from members or other interested parties.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

A. Commission Findings

    Because the foregoing proposed rule change: (1) does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) the Exchange provided the Commission with written notice of its 
intent to file the proposed rule change at least five business days 
prior to the filing date; the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Exchange Act \12\ and Rule 19b-
4(f)(6) \13\ thereunder.
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) permits the Commission to designate such 
shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange has requested that the 
Commission designate such shorter time period so that the proposed rule 
change may become operative no later than February 15, 2000. The 
Exchange believes that immediate effectiveness would allow the current 
Pilot Fee Structure to continue uninterrupted and would provide the 
Commission with additional time to consider the Pilot Fee Structure.
    The Commission, consistent with the protection of investors and the 
public interest, has determined to make the proposed rule change 
operative immediately upon filing for the following reasons. The 
proposed rule change extends the expiration date of the Pilot Fee 
Structure from February 15, 2000, to September 1, 2000. The extension 
of the Pilot Fee Structure will provide the Commission with additional 
time to review and evaluate the Pilot Fee Structure.
    The Commission notes that unless the current expiration date of the 
Pilot Fee Structure is extended, the reimbursement rates for proxy 
materials distributed after February 15, 2000, will revert to those in 
effect prior to March 14, 1997. The Commission believes that such a 
result could be confusing and counterproductive.
    Based on these reasons, the Commission believes it is consistent

[[Page 10139]]

with the protection of investors and the public interest that the 
proposed rule change become operative immediately upon the date of 
filing, February 14, 2000. At any time within 60 days of the filing of 
the proposed rule change, the Commission may summarily abrogate such 
rule change if it appears to the Commission that such action is 
necessary or appropriate in the public interest, for the protection of 
investors, or otherwise in furtherance of the purposes of the Act.

B. Commission Request for Additional Information

    As part of the extension of the Pilot Fee Structure through 
September 1, 2000, the Commission will continue to examine the 
permissible fees. To perform an effective review, and assess on an 
ongoing basis the reasonableness of the Pilot Fee Structure, the 
Commission requires current information on the costs associated with 
the proxy distribution process. Because ADP controls nearly 100% of the 
market for delivery of proxy materials to security holders whose 
securities are held in street name, the Commission believes that ADP is 
the most appropriate source of comprehensive and timely information. 
Therefore, as a condition to the extension of the Pilot Fee Structure 
through September 1, 2000, ADP shall be required to provide to the 
Commission, as soon as practicable, copies of ADP's audited financial 
statements for the fiscal years ended June 30, 1999, and June 30, 2000. 
The Commission notes that ADP most recently provided such information 
for its fiscal year ended June 30, 1998.
    The Commission also seeks to clarify the scope of each fee that is 
permissible under the Pilot Fee Structure. For example, it appears that 
some uncertainty currently exists in identifying the specific 
coordination services that are encompassed within the nominee 
coordination fee. Because the Exchange administers the Pilot Fee 
Structure as part of its rules, the Commission requests that the 
Exchange provide within 45 calendar days a thorough description of each 
fee that is permissible under the Pilot Fee Structure. The description 
should clearly identify the circumstances in which a distribution 
intermediary may assess a particular fee. Specifically, what conditions 
must be satisfied and what services must be performed before a fee may 
be assessed? The Commission also requests that ADP provide within 45 
calendar days the same type of description and analysis of each fee 
permissible under the Pilot Fee Structure.

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. 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-00-06 and should be 
submitted by March 17, 2000.

    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. 00-4381 Filed 2-24-00; 8:45 am]
BILLING CODE 8010-01-M