[Federal Register Volume 68, Number 40 (Friday, February 28, 2003)]
[Notices]
[Pages 9730-9732]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-4696]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47392; File No. SR-NASD-2003-19]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. Relating to an Amendment to NASD Interpretive 
Material 2260 (``IM-2260'')

February 21, 2003.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and rule 19b-4 \2\ thereunder, notice is hereby given 
that on February 13, 2003, the National Association of Securities 
Dealers, Inc. (``NASD'') 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. 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

    NASD proposes to amend NASD Interpretive Material 2260 (``IM-
2260'') relating to their approved rates of reimbursement for expenses 
incurred in forwarding proxy material, annual reports, information 
statements, and other material.
    Below is the text of the proposed rule change. Proposed new 
language is italicized; proposed deleted language is [bracketed].
* * * * *
IM-2260. [Suggested] Approved Rates of Reimbursement
    (a) The [Board of Governors has determined that the] following 
[suggested] approved rates of reimbursement for expenses incurred in 
forwarding proxy material, annual reports, information statements and 
other material [are to be used as a guide by members:] shall be 
considered reasonable rates of reimbursement. In addition to the 
charges specified in this schedule, members also are entitled to 
receive reimbursement for: (1) actual postage costs (including return 
postage at the lowest available rate); (2) the actual cost of envelopes 
(provided they are not furnished by the issuer, the trustee, or a 
person soliciting proxies); and (3) any actual communication expenses 
(excluding overhead) incurred in receiving voting returns either 
telephonically or electronically.
(1) Charges for Initial Proxy and/or Annual Report Mailings
    (A) [60] 40 cents for each set of proxy material, i.e., proxy 
statement, form of proxy and annual report when mailed as a unit, 
unless an opposition proxy statement has been furnished to securities 
holders,\3\ [plus postage,] with a minimum of $5.00 for all sets 
mailed;
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    \3\ NASD represents that there was an error in the proposed rule 
language in its original 19b-4 filing. The phrase ``unless an 
opposition proxy statement is furnished to security holders,'' 
should have been underlined to indicate proposed new rule language. 
Telephone conversation between Shirley H. Weiss, Associate General 
Counsel, NASD, and Sapna C. Patel, Attorney, Division of Market 
Regulation, Commission, on February 21, 2003.
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    (B) [20] 15 cents for each copy, plus postage, for annual reports, 
which are mailed separately from the proxy material pursuant to the 
instruction of the person soliciting proxies with a minimum of $3.00 
for all sets mailed;[.]
    (C) $1.00 for each set of proxy material, i.e., proxy statement, 
form of proxy and annual report when mailed as a unit, for a meeting 
for which an opposition proxy statement has been furnished to security 
holders, with a minimum of $5.00 for all sets mailed;
    (D) NASD has approved, as fair and reasonable, the following 
supplemental proxy fees for intermediaries that coordinate multiple 
nominees: $20.00 per nominee plus (i) 10 cents for each set of proxy 
material, with respect to issuers whose shares are held in fewer than 
200,000 nominee accounts, or (ii) 5 cents for each set of proxy 
material, with respect to issuers whose shares are held in at least 
200,000 nominee accounts.
(2) Charges for Proxy Follow-Up Mailings
    [(A)] 40 cents for each set of follow-up material, plus postage[, 
when the follow-up material is mailed to all beneficial owners;].
    [(B) 60 cents for each set of follow-up material, plus postage, 
when the follow-up material is mailed only to beneficial owners who 
have not responded to the initial mailing.]
[(3) Surcharge for Proxy Solicitation
    Eighteen and one-half cents for each set of proxy material, i.e., 
proxy statement, form of proxy and annual report when mailed as a unit, 
for the period from April 1, 1986 to March 31, 1987 as a surcharge in 
addition to the appropriate charges specified herein.]

[[Page 9731]]

[(4)] (3) [Additional Fee for Proxy Solicitation] Charge for Providing 
Beneficial Ownership Information
    Six and one-half cents per [shareholder] name of non-objecting 
beneficial owner provided to the issuer pursuant to the issuer's 
request. Where the non-objecting beneficial ownership information is 
not furnished directly to the issuer by the member, but is furnished 
through an agent designated by the member, the issuer will be expected 
to pay the reasonable expenses of the agent in providing such 
information, in addition to the rate described above. (See SEC rules 
14a-13(b) and 14c-7(b) under the Securities Exchange Act of 1934 and 
notes thereto.)
    Any member that designates an agent for the purpose of furnishing 
requesting issuers with beneficial ownership information pursuant to 
SEC rule 14b-1(c) and thereafter cancels that designation or appoints a 
new agent for such purpose should promptly inform interested issuers.
    [(5)] (4) Charges for Interim Report, Post Meeting Report and Other 
Material Mailings
    [30] 15 cents for each copy, plus postage, for interim reports, 
post meeting reports, or other material with a minimum of $2.00 for all 
sets mailed.
    [(6)] (5) Incentive Fees
    An ``incentive fee'' (as defined below) for proxy material 
mailings, including the annual report, and 10 cents for interim report 
mailings, with respect to each account where the member has eliminated 
the need to send materials in paper format through the mails (such as 
by including multiple proxy ballots or forms in one envelope with one 
set of material mailed to the same household, by distributing multiple 
proxy ballots or forms electronically thereby reducing the sets of 
material mailed, or by distributing some or all material 
electronically) shall be: (i) 25 cents with respect to issuers whose 
shares are held in at least 200,000 nominee accounts; and (ii) 50 cents 
with respect to issuers whose shares are held in fewer than 200,000 
nominee accounts.
    [(b) Members may charge for envelopes, provided that they are not 
furnished by the issuer, the trustee, or a person soliciting proxies.]
    [(c)] (b) Members are reminded that rule 2430 requires that any 
such charges must be reasonable. Members may request reimbursement of 
expenses at less than the approved rates; however, no member may seek 
reimbursement at rates higher than the approved rates or for items or 
services not specifically listed above without the prior notification 
to and consent of the person soliciting proxies or the company. 
[Accordingly, this is a guide and a member may request reimbursement of 
expenses at other rates after taking into consideration all relevant 
factors.]
    (c) Rule 2260 requires members to forward promptly issuer-supplied 
annual reports, interim reports, proxy statements and other material to 
beneficial owners. Members are not required to transmit more than one 
annual report, interim report, proxy statement or other material to 
beneficial owners with more than one account (including trust 
accounts). In addition, member organizations may eliminate multiple 
transmissions of reports, statements or other materials to beneficial 
owners having the same address, provided they comply with applicable 
SEC rules with respect thereto (see SEC rule 14b-1 under the Act).
* * * * *

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

    In its filing with the Commission, NASD 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. NASD 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 proposes to amend IM-2260 to adopt the same fee structure 
recently adopted by the New York Stock Exchange, Inc. (``NYSE'') and 
the American Stock Exchange LLC (``Amex'') governing the reimbursement 
of members for costs incurred in forwarding proxy material, annual 
reports, information statements and other materials. The proposed 
amendments to IM-2260 would also advise members that they may request 
reimbursement of expenses at less than the approved rates, but that no 
member may seek reimbursement at rates higher than the approved rates 
or for items or services not specifically listed without the prior 
notification to and consent of the person soliciting proxies or the 
company.
    The SEC's proxy rules, rules 14a-13, 14b-1, and 14b-2 under the 
Act, do not specify the fees that nominees can charge issuers for 
distributing proxy materials; rather, they state that issuers must 
reimburse nominees for ``reasonable expenses'' incurred. The Commission 
approved the NYSE's current fee structure on March 25, 2002,\4\ 
following numerous meetings of the Proxy Voting Review Committee (the 
``Committee''), a private initiative that was established to review the 
NYSE's pilot fee program and the proxy process in general.\5\ The 
Commission found that ``the Committee's recommended fee reductions [for 
`large issuers'] were reasonable and should help to alleviate the 
burden and cost that large issuers currently bear in the proxy 
distribution process and more fairly allocate the cost among large 
issuers and small issuers.'' \6\ The Commission concluded that the 
NYSE's proposed fee changes were reasonable and fairly allocated, did 
not discriminate among issuers, and did not impose any unnecessary 
burdens on competition. On June 3, 2002, the Amex amended its proxy 
reimbursement fees to conform to those of the NYSE.\7\
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    \4\ Securities Exchange Act Release No. 45644 (March 25, 2002), 
67 FR 15440 (April 1, 2002) (``NYSE Proposal''). The Commission 
emphasized that permanent approval of the NYSE's pilot program did 
not end the discussion of proxy fee reform. The Commission urged the 
NYSE and the Committee to continue discussing proxy fee reform with 
the eventual goal that the marketplace, rather than self-regulatory 
organizations, will establish reasonable and competitive proxy 
reimbursement fees. The Commission also stated that it expected the 
NYSE to continue to monitor its fees ``to ensure they are related to 
`reasonable expenses' of the NYSE's member brokers in accordance 
with the Act, and propose changes where appropriate.''
    \5\ The Committee concluded that the NYSE's Proxy Reimbursement 
Guidelines, which had been established in a pilot program and 
approved by the Commission on March 14, 1997, had been instrumental 
in setting the costs that issuers incurred in having broker-dealers 
and intermediaries transmit proxy and other materials to security 
holders at fair and reasonable levels. On that basis, the Committee 
voted, with NASD abstaining, to seek permanent approval of the pilot 
program guidelines, with some modifications to reflect the economies 
of scale of large issuers, defined by the Committee as companies 
that have in excess of 200,000 street name shareholders 
(approximately 200 companies). The Committee voted to reduce the 
basic mailing fee from 50 cents to 40 cents; increase the suggested 
per-nominee fee for intermediaries that coordinate the proxy and 
mailing activities of multiple nominees to $20.10 per set of 
material required for ``small issuers'' and $20.05 per set of 
material required for ``large issuers''; and reduce from 50 cents to 
25 cents the incentive fee for initial mailings of the materials of 
large issuers.
    \6\ Id.
    \7\ Securities Exchange Act Release No. 46146 (June 28, 2002), 
67 FR 44902 (July 5, 2002) (``Amex Proposal'').
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    The proposed amendments to IM-2260 will provide members with the

[[Page 9732]]

same schedule of fees that have been adopted by the NYSE and Amex. The 
proposed amendments to IM-2260 will also permit members to request 
reimbursement of expenses at less than the rates set forth in IM-2260, 
but it will require members to notify and obtain consent from the 
person soliciting proxies or the company for reimbursement at rates 
higher than the approved rates or for items or services not 
specifically referenced in IM-2260. The proposed rule change also 
advises members that they are not required to transmit more than one 
annual report, interim report, proxy statement or other material to 
beneficial owners with more than one account (including trust 
accounts), and that they may eliminate multiple transmissions of 
reports, statements or other materials to beneficial owners having the 
same address, provided they comply with applicable SEC rules. The 
proposed rule change will continue to provide that a member providing 
materials under NASD rule 2260 may not charge for envelopes that are 
furnished by the issuer, the trustee, or a person soliciting proxies. 
By conforming its proxy reimbursement guidelines to those adopted by 
the NYSE and Amex, NASD proposes to adopt reimbursement rates that it 
believes the Commission has already determined are reasonable and 
fairly allocated, do not discriminate among issuers, and do not impose 
any unnecessary burdens on competition.
2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of section 15A of the Act,\8\ in general and with section 
15A(b)(6) of the Act,\9\ in particular, in that it is designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, and, in general, to protect 
investors and the public interest. NASD believes that the proposed rule 
change to IM-2260 is designed to accomplish these ends by providing 
NASD members with rates of reimbursement for expenses incurred in 
forwarding proxy and other materials that are fair and reasonable and 
consistent with fees charged by the NYSE and Amex.
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    \8\ 15 U.S.C. 78o-3.
    \9\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    NASD does not believe that the proposed rule change will result in 
any burden on competition that is not necessary and 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

    Written comments were neither solicited nor received with respect 
to the proposed rule change.

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

    The foregoing proposed rule change has become effective pursuant to 
section 19(b)(3)(A)\10\ of the Act and rule 19b-4(f)(6)\11\ thereunder 
because the proposal: (1) Does not significantly affect the protection 
of investors or the public interest; (2) does not impose any 
significant burden on competition; and (3) does not become operative 
for 30 days from the date of filing, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest; provided that the self-regulatory organization 
has given the Commission written notice of its intent to file the 
proposed rule change at least five business days prior to the filing 
date of the proposed rule change.\12\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ As required under rule 19b-4(f)(6)(iii), NASD 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.
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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, pursuant to rule 19b-4(f)(6)(iii),\13\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and public interest. NASD has requested that 
the Commission waive the 30-day pre-operative waiting period because it 
believes that doing so will be consistent with the protection of 
investors and public interest.
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    \13\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission, consistent with the protection of investors and the 
public interest, has waived the 30-day operative date requirement for 
this proposed rule change, and has determined to designate the proposed 
rule change as operative as of the date of filing to allow NASD to 
implement its revised proxy fee schedule immediately.\14\ The 
Commission notes that it has already considered and addressed issues 
that may be raised by this proposal when it approved a similar proposal 
by the NYSE, and designated a similar proposal by the Amex as 
immediately effective upon filing.\15\ The Commission further notes 
that this proposal will allow for consistency in proxy fees between 
NASD, the NYSE, and, Amex. 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.
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    \14\ For the purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rules 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f)
    \15\ See NYSE Proposal, supra note 4 and Amex Proposal, supra 
note 7. The Commission notes that the NYSE Proposal was published 
for the full comment period and that the comments received were 
considered by the Commission and the NYSE.
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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 Amex. All submissions should refer to File No. 
SR-NASD-2003-19 and should be submitted by March 21, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-4696 Filed 2-27-03; 8:45 am]
BILLING CODE 8010-01-P