[Federal Register Volume 67, Number 11 (Wednesday, January 16, 2002)]
[Notices]
[Pages 2264-2266]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-1104]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45263; File No. SR-NYSE-2001-53]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 Thereto by the New Stock Exchange, Inc. 
Amending Its Rules Regarding the Transmission of Proxy and Other 
Shareholder Communication Material and the Proxy Reimbursement 
Guidelines Set Forth In Those Rules, and Requesting Permanent Approval 
of the Amended Proxy Reimbursement Guidelines

January 9, 2002.
    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 December 21, 2001, 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 Exchange. On 
January 9, 2002, the NYSE filed 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\ See letter from Darla C. Stuckey, Corporate, NYSE, to Sharon 
Lawson, Senior Special Counsel, Division of Market Regulation, 
Commission, dated January 7, 2002 (``Amendment No. 1''). In 
Amendment No. 1, the Exchange made some technical and clarifying 
corrections to the proposed rule change.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    Subject to the guideline amendments noted below, the Exchange seeks 
permanent approval of the pilot program setting forth guidelines for 
the amounts that NYSE issuers should reimburse member organizations for 
the distribution of proxy materials and other issuer communications to 
security holders whose securities are held in street name. In addition, 
the Exchange proposes to amend the guidelines under the current pilot 
program by decreasing the basic mailing fee paid by ``Large Issuers'' 
(as defined below) by 5 cents (from 50 cents to 45 cents) and by 
cutting in half the incentive fee payable by Large Issuers (from 
50 cents to 25 cents).
    The text of the proposed rule change, as amended, is available upon 
request from the Office of the Secretary, the NYSE or 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
    Exchange Rule 451 (``Transmission of Proxy Material'') and Exchange 
Rule 465 (``Transmission of Interim Reports and Other Material'') 
(collectively, the ``Rules'') currently provide for a pilot program 
pursuant to which the NYSE has established fee reimbursement guidelines 
(the ``Pilot Program''). Under the Pilot Program, the NYSE has 
established guidelines for the amounts that NYSE issuers should 
reimburse member organizations for the distribution of proxy materials 
and other issuer communications to security holders whose securities 
are held in street name (the ``Guidelines''). In this proposed rule 
change, as amended, the Exchange seeks permanent approval of the Pilot 
Program Guidelines. In addition, the Exchange proposes to amend certain 
reimbursement fees that the Guidelines establish. Those amendments seek 
to decrease the basic mailing fees paid by large issuers by 5 cents 
(from 50 cents to 45 cents) and to cut in half (from 50 cents to 
25 cents) the incentive ``suppression'' fee that large issuers pay to 
member organizations that succeed in reducing the number of sets of 
materials that need to be distributed (such as by sending one set of 
materials to a household holding multiple positions in the issuer's 
securities).

A. Permanent Approval

    Supplementary Material .90 (``Schedule of approved charges by 
member organizations in connection with proxy solicitations'') to 
Exchange Rule 451 applies the Guidelines to the transmission of proxy 
materials to shareholders. Supplementary material .20 (``Mailing 
charges by member organizations'') to Exchange Rule 465 applies them to 
the transmission of other materials to shareholders. In addition, 
Paragraph 402.10(A) of the NYSE's Listed Company Manual (``Charges for 
Initial Proxy and/or Annual Report Mailings'') includes the text of 
Supplementary Material .90 to Exchange Rule 451 and the Exchange 
proposes to conform Paragraph 402.10(A) to conform to the changes 
described below to Exchange Rule 451. The Commission initially approved 
the Pilot Program on March 14, 1997.\4\ Pursuant to Commission 
extensions of its initial approval, the Pilot Program has remained in 
effect since then. Pursuant to the Commission's most recent extension, 
the Pilot Program is currently scheduled to expire on April 1, 2002.\5\
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    \4\ See Securities Exchange Act Release No. 38406 (March 14, 
1997), 62 FR 13922 (March 24, 1997) (File No. SR-NYSE-96-36).
    \5\ See Securities Exchange Act Release No. 44750 (August 29, 
2001), 66 FR 46488 (September 5, 2001) (File No. SR-NYSE-2001-22).
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    During this period, the NYSE has participated on the Proxy Voting 
Review Committee (the ``Committee''). The Committee is a private 
initiative that is designed to review the proxy process. It includes 
self-regulatory organizations and representatives of the securities 
industry, corporate issuers and institutional investors, as well as the 
largest provider of proxy intermediary services. The Committee has 
monitored the effects of the Guidelines on the market and has 
maintained an on-going dialogue among Committee representatives. In 
addition, the Exchange has had an independent accounting firm audit the 
Pilot Program.\6\
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    \6\ See Amendment No. 1, supra note 3.
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    The Committee's experience with the Pilot Program has convinced it 
that the Guidelines have been instrumental in setting at fair and 
reasonable levels the costs that issuers incur in having member 
organizations and

[[Page 2265]]

intermediaries transmit proxy and other materials to security holders. 
For that reason, the Committee unanimously voted (with one abstention) 
to recommend that the NYSE seek permanent approval of the Guidelines, 
as modified by this proposed rule change, as amended, and the Exchange 
has determined that it is appropriate to do so.

B. Guideline Changes

    In addition to seeking permanent approval of the Guidelines, the 
Committee has recommended certain amendments to the Guidelines. The 
Exchange supports those amendments, proposes to adopt them into its 
Rules and supports the Committee's rationale for the amendments, as set 
forth below. The proposed amendments are as follows:
    (i) Reduce the suggested rate of reimbursement for initial mailings 
of each set of material (i.e., proxy statement, form of proxy and 
annual report when mailed as a unit) from 50 cents to 40 cents.
    (ii) Increase the suggested per-nominee fee for intermediaries that 
coordinate the proxy and mailing activities of multiple nominees. That 
suggested fee is currently $20 per nominee. The increase would raise it 
(A) 10 cents per set of material required for ``Small Issuers'' 
(defined as issuers whose shares are held in fewer than 200,000 nominee 
accounts), or (B) 5 cents per set of material required for ``Large 
Issuers'' (defined as issuers whose shares are held in at least 200,000 
nominee accounts).
    (iii) Reduce from 50 cents to 25 cents the incentive fee for 
initial mailings of the materials of Large Issuers (again, issuers 
whose shares are held in at least 200,000 nominee accounts). As a 
result, the incentive fee for Large Issuers will decrease by 25 cents 
and the incentive fee for Small Issuers will remain at 50 cents.
    The Committee and the Exchange represent that the net effect of 
clauses (i) and (ii) is to decrease the effective mailing fee by 
5 cents for Large Issuers, but not for Small Issuers. One intermediary 
projects that the combination of that decrease and the decrease in the 
incentive fee for Large Issuers will decrease the total fees that 
issuers pay to have materials distributed to shareholders by almost $11 
million.\7\
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    \7\ See letter to Richard A. Grasso, Chairman and Chief 
Executive Officer, NYSE, from Stephen P. Norman, Chairman, 
Committee, dated November 28, 2001 (the ``Committee Letter''). A 
copy of the Committee Letter is attached as Exhibit C to the 
Exchange's proposed rule change.
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    The Guidelines currently subject Small Issuers and Large Issuers to 
the same rates. The Committee has designed the proposed revamped fee 
schedule to allocate more fairly the costs of distributing proxy and 
other material between Large Issuers and Small Issuers. The Committee 
recognizes that economies of scale create overall per-account cost 
savings for Large Issuers and that those savings justify lower fees for 
Large Issuers. The Committee determined that reducing the rates 
applicable to Large Issuers relative to the rates applicable to Small 
Issuers is fair, reasonable and appropriate.\8\
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    \8\ The Committee voiced its support for the proposed fee 
changes in the Committee Letter. See Exhibit C to the Exchange's 
proposed rule change.
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    The Committee recognizes that a member organization typically 
spends less in transmitting material to the nominee account of a Large 
Issuer than in transmitting material to the nominee account of a Small 
Issuer. That is because economies of scale apply to many of the tasks 
of processing material for distribution and of collecting voting 
instructions. For instance, processing search dates and record dates, 
logging receipt of materials, coding proxies, reporting voting results 
and invoicing fees payable involve costs that are essentially fixed. As 
a result, the per-account cost for these tasks decreases in relation to 
the number of accounts in which the issuer's shares are held. That per-
account cost is therefore lower with respect to a Large Issuer than 
with respect to a Small Issuer.
    In addition, modern data processing and mailing techniques reduce 
the amount of human intervention involved in the process, driving down 
the actual per-account cost of handling mailings in large volume. The 
Committee believes that the actual cost incurred with respect to Large 
Issuers in handling mailings is lower than the reimbursable amount that 
results from adherence to the current Guidelines. On the other hand, 
the actual cost of handling mailings for Small Issuers far exceeds the 
fees set forth in the current guidelines.\9\ The Committee believes 
that these factors justify reducing the incentive fee from 50 cents to 
25 cents for Large Issuers, but not reducing the 50 cents fee for Small 
Issuers. They also justify the 5 cents difference in the per-set-of-
material per-nominee fee for Large Issuers and Small Issuers.
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    \9\ Even taking into consideration increased costs associated 
with institutional shareholder requirements and peak season 
processing, both of which are associated more with Large Issuers 
than Small Issuers, the Committee nonetheless found that handling 
costs for Large Issuers are lower than for Small Issuers, due 
primarily to economies of scale.
    The largest provider of proxy intermediary services presented 
information to the Committee that detailed the costs that issuers 
pay for registered proxy processing. That information indicated that 
the per-unit costs that Small Issuers pay are, on average, more than 
10 times greater than the per-unit costs that Large Issuers pay.
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    In applying the proposed revamped fee schedules to the Guidelines, 
the Committee has had to establish a line of demarcation that separates 
Large Issuers from Small Issuers. It settled on requiring an issuer to 
have 200,000 nominee accounts in order to qualify as a Large Issuer. As 
a result, only the largest issuers, fewer than 200 overall, fall within 
that definition. However, beneficial owners' positions in shares of 
those Large Issuers account for approximately 50 percent of the number 
of positions that all beneficial owners maintain in the shares of all 
issuers. The Exchange has adopted the Committee's recommendations 
discussed above, including the recommendation that the 50 percent mark 
is an appropriate place at which to draw the line. The Exchange, in 
this proposed rule change, as amended, proposes to incorporate the 
Committee's recommendations into its Guidelines and Rules.
2. Statutory Basis
    The Exchange believes the proposed rule change, as amended, is 
consistent with section 6(b) of the Act,\10\ in general, and furthers 
the objectives of sections 6(b)(4) \11\ and 6(b)(5) \12\ of the Act, in 
particular. Section 6(b)(4) of the Act \13\ provides that an exchange 
have rules that provide for the equitable allocation of reasonable 
dues, fees and other charges among its members and other persons using 
its facilities. Section 6(b)(5) of the Act \14\ provides that an 
exchange have rules 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.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4).
    \12\ 15 U.S.C. 78f(b)(5).
    \13\ 15 U.S.C. 78f(b)(4).
    \14\ 15 U.S.C. 78f(b)(5).
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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 the 
furtherance of the purposes of the Act.

[[Page 2266]]

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

    The NYSE has engaged in on-going dialogue regarding the proposed 
rule change and other aspects of the Pilot Program with Commission 
staff, as well as with the Committee. The proposed fee changes were 
developed and approved by the Committee. In the Committee Letter, the 
Committee asserts that the proposed fees appear reasonable in light of 
the service levels required and the overall costs associated with the 
elimination of duplicate mailings, that the proposed fees reflect the 
economies of scale of the Large Issuers and that the Guidelines should 
be made permanent.
    In addition, the NYSE has received other comment letters on the 
proposed fee changes from the Securities Industry Association 
(``SIA''), the American Society of Corporate Secretaries (``ASCS'') and 
the Association of Publicly Traded Companies (``APTC'').\15\ SIA, ASCS 
and APTC all endorse the proposed fee changes. APTC notes in its letter 
that the Pilot Program provided a $235 million reduction in costs in 
2001 from mail suppressions and is projected to provide savings of more 
than twice that amount by 2005. APTC also posits that the large volumes 
and low incremental cost of transmitting proxy materials for Large 
Issuers justify their payment of lower rates than Small Issuers.
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    \15\ See letter to Richard A. Grasso, Chairman and Chief 
Executive Officer, NYSE, from Donald D. Kittell, Executive Vice 
President, SIA, dated November 29, 2001 (the ``SIA Letter''); letter 
to James E. Buck, Senior Vice President and Secretary, NYSE, from 
Brian T. Borders, President, APTC, dated November 29, 2001 (the 
``APTC Letter''). Those letters are included in Exhibit D to the 
Exchange's proposed rule change.
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    Several of the Commission releases approving changes to the Pilot 
Program included language encouraging interested parties to consider 
approaches that would foster competition in the proxy distribution 
service industry. The releases also suggested that market forces, 
rather than regulators, should determine reasonable rates for proxy 
distribution services.
    The Exchange views the Guideline-setting process as an on-going 
matter. Even if the Commission grants permanent status to the 
Guidelines, the Exchange intends to continue to meet with the Committee 
to evaluate and tune the Guidelines and to consider possible approaches 
to broader reform of the proxy distribution system.

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 such 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 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. 552, will be available for inspection and 
copying in the Commission's Public Reference Room. Copies of such 
filing will also be available for inspection and copying at the 
principal office of the NYSE. All submissions should refer to File No. 
SR-NYSE-2001-53 and should be submitted by February 6, 2002.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\16\
Margaret H. McFarland,
Deputy Secretary.
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    \16\ 17 CFR 200.30-2(a)(12).
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[FR Doc. 02-1104 Filed 1-15-02; 8:45 am]
BILLING CODE 8010-01-M