Monday, August 09, 2010

NYSE Will Seek to Amend Rule 452 in Light of Dodd-Frank Provision

The Dodd-Frank Wall Street Reform and Consumer Protection Act, in Section 957, requires each national securities exchange to amend its rules to prohibit member organizations from voting shares without specific client instructions on matters related to executive compensation. The Act also includes similar provisions that prohibit voting of uninstructed shares by member organizations in the election of directors, excluding companies registered under the Investment Company Act, and in other matters as determined by the SEC. In an August 4, 2010 letter to members, the NYSE said that it intends to file an amendment to NYSE Rule 452 to prohibit members from voting uninstructed shares if the matter to be voted on relates to executive compensation, including say-on-pay proposals, at meetings occurring after July 21, 2010.

An exception will be made for those meetings on which the NYSE has issued a ``may vote” ruling prior to July 21. For proposals that are included on proxy statements that involving executive compensation matters for which member organizations had previously been allowed to vote uninstructed shares, the NYSE will treat these matters as "may not vote" rulings going forward effective immediately. Since the Act also authorizers the SEC to require other changes to NYSE Rule 452, other amendments.

On July 1, 2009, the SEC approved an NYSE amendment to Rule 452 eliminating broker discretionary voting for all elections of directors, whether contested or not. Previously, Rule 452 permitted brokers to vote on behalf of their beneficial owner customers in uncontested elections of directors if the customers had not returned voting instructions. Release No. 34-60215.

According to the Commission, the NYSE’s change was designed to enhance corporate governance and accountability by helping assure that investors with an economic interest in the company vote on the election of directors. It also addresses concerns that broker discretionary voting for directors has impacted election results. Specifically, the NYSE change adds the election of directors to the list of enumerated items for which a member generally may not give a proxy to vote without instructions from the beneficial owner. The change contains a specific exception for companies registered under the Investment Company Act.

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