[Federal Register Volume 78, Number 104 (Thursday, May 30, 2013)]
[Notices]
[Pages 32510-32524]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-12725]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69622; File No. SR-NYSE-2013-07]
Self-Regulatory Organizations; New York Stock Exchange LLC; Order
Instituting Proceedings To Determine Whether To Disapprove Proposed
Rule Change Amending NYSE Rules 451 and 465, and the Related Provisions
of Section 402.10 of the NYSE Listed Company Manual, Which Provide a
Schedule for the Reimbursement of Expenses by Issuers to NYSE Member
Organizations for the Processing of Proxy Materials and Other Issuer
Communications Provided to Investors Holding Securities in Street Name,
and To Establish a Five-Year Fee for the Development of an Enhanced
Brokers Internet Platform
May 23, 2013.
I. Introduction
On February 1, 2013, New York Stock Exchange LLC (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend the fees set forth in
NYSE Rules 451 and 465, and the related provisions of Section 402.10 of
the NYSE Listed Company Manual, for the reimbursement of expenses by
issuers to NYSE member organizations for the processing of proxy
materials and other issuer communications provided to investors holding
securities in street name, and to establish a five-year fee for the
development of an enhanced brokers internet platform. The proposed rule
change was published for comment in the Federal Register on February
22, 2013.\3\ The Commission received 28 comments on the proposal.\4\ On
April 3, 2013, the Commission designated a longer period for Commission
action on the proposed rule change, until May 23, 2013.\5\ The Exchange
submitted a response to the comments on May 17, 2013.\6\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 68936 (February 15,
2013), 78 FR 12381 (``Notice'').
\4\ See letters to Elizabeth M. Murphy, Secretary, Commission
from: Charles V. Rossi, President, The Securities Transfer
Association, dated February 20, 2013 (``STA Letter'') and March 4,
2013 (``STA Letter II''); Karen V. Danielson, President, Shareholder
Services Association, dated March 4, 2013 (``SSA Letter''); Jeanne
M. Shafer, dated March 6, 2013 (``Schafer Letter''); David W.
Lovatt, dated March 6, 2013 (``Lovatt Letter''); Stephen Norman,
Chair, The Independent Steering Committee of Broadridge, dated March
7, 2013 (``Steering Committee Letter''); Jeffrey D. Morgan,
President & CEO, National Investor Relations Institute, dated March
7, 2013 (``NIRI Letter''); Kenneth Bertsch, President and CEO,
Society of Corporate Secretaries & Governance Professionals, dated
March 7, 2013 (``SCSGP Letter''); Niels Holch, Executive Director,
Shareholder Communications Coalition, dated March 12, 2013 (``SCC
Letter''); Geoffrey M. Dugan, General Counsel, iStar Financial Inc.,
dated March 13, 2013 (``iStar Letter''); Paul E. Martin, Chief
Financial Officer, Perficient, Inc., dated March 13, 2013
(``Perficient Letter''); John Harrington, President, Harrington
Investments, Inc., dated March 14, 2013 (``Harrington Letter'');
James McRitchie, Shareowner, Corporate Governance, dated March 14,
2013 (``CG Letter''); Clare A. Kretzman, General Counsel, Gartner,
Inc., dated March 15, 2013 (``Gartner Letter''); Tom Quaadman, Vice
President, Center for Capital Markets Competitiveness, dated March
15, 2013 (``CCMC Letter''); Dennis E. Nixon, President,
International Bancshares Corporation, dated March 15, 2013 (``IBC
Letter''); Argus I. Cunningham, Chief Executive Officer, Sharegate
Inc., dated March 15, 2013 (``Sharegate Letter''); Laura Berry,
Executive Director, Interfaith Center on Corporate Responsibility,
dated March 15, 2013 (``ICC Letter''); Dorothy M. Donohue, Deputy
General Counsel--Securities Regulation, Investment Company
Institute, dated March 15, 2013 (``ICI Letter''); Charles V. Callan,
Senior Vice President--Regulatory Affairs, Broadridge Financial
Solutions, Inc., dated March 15, 2013 (``Broadridge Letter''); Brad
Philips, Treasurer, Darling International Inc., dated March 15, 2013
(``Darling Letter''); John Endean, President, American Business
Conference, dated March 18, 2013 (``ABC Letter'); Tom Price,
Managing Director, The Securities Industry and Financial Markets
Association, dated March 18, 2013 (``SIFMA Letter''); Michael S.
O'Brien, Vice President--Corporate Governance Officer, BNY Mellon,
dated March 28, 2013 (``BNY Letter''); Jeff Mahoney, General
Counsel, Council of Institutional Investors, dated April 5, 2013
(``CII Letter''); Paul Torre, Executive Vice President, AST Fund
Solutions, LLC, dated May 16, 2013 (``AST Letter''); and John M.
Payne, Chief Executive Officer, Zumbox, Inc., dated May 20, 2013
(``Zumbox Letter''); see also letter to the Honorable Mary Jo White,
Chair, Commission from Dieter Waizenegger, Executive Director, CtW
Investment Goup, dated May 17, 2013 (``CtW Letter'').
\5\ See Securities Exchange Act Release No. 69286 (April 3,
2013), 78 FR 21481 (April 10, 2013).
\6\ See Letter to Elizabeth M. Murphy, Secretary, Commission
from Janet McGinnis, EVP & Corporate Secretary, NYSE Euronext, dated
May 17, 2013 (``NYSE Letter'').
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This order institutes proceedings under Section 19(b)(2)(B) of the
Act to determine whether to disapprove the proposed rule change.
II. Background
NYSE member organizations that hold securities for beneficial
owners in street
[[Page 32511]]
name solicit proxies from, and deliver proxy and issuer communication
materials to, beneficial owners on behalf of NYSE issuers.\7\ For this
service, issuers reimburse NYSE member organizations for out-of-pocket,
reasonable clerical, postage and other expenses incurred for a
particular distribution. This reimbursement structure stems from SEC
Rules 14b-1 and 14b-2 under the Act,\8\ which impose obligations on
companies and nominees to ensure that beneficial owners receive proxy
materials and are given the opportunity to vote. These rules require
companies to send their proxy materials to nominees, i.e., broker-
dealers or banks that hold securities in street name, for forwarding to
beneficial owners. Under these rules, companies must pay nominees for
reasonable expenses, both direct and indirect, incurred in providing
proxy information to beneficial owners. The Commission's rules do not
specify the fees that nominees can charge issuers for proxy
distribution; rather, they state that issuers must reimburse the
nominees for ``reasonable expenses'' incurred.\9\
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\7\ The ownership of shares in street name means that a
shareholder, or ``beneficial owner,'' has purchased shares through a
broker-dealer or bank, also known as a ``nominee.'' In contrast to
direct ownership, where shares are directly registered in the name
of the shareholder, shares held in street name are registered in the
name of the nominee, or in the nominee name of a depository, such as
the Depository Trust Company. For more detail regarding share
ownership, see Securities Exchange Act Release No. 62495 (July 14,
2010), 75 FR 42982 (July 22, 2010) (Concept Release on the U.S.
Proxy System) (``Proxy Concept Release'').
\8\ 17 CFR 240.14b-1; 17 CFR 240.14b-2.
\9\ In adopting the direct shareholder communications rules in
the early 1980s, the Commission left the determination of reasonable
costs to the self-regulatory organizations (``SROs'') because they
were deemed to be in the best position to make fair evaluations and
allocations of costs associated with these rules. See Securities
Exchange Act Release No. 20021 (July 28, 1983), 48 FR 35082 (August
3, 1983); see also Securities Exchange Act Release No. 45644 (March
25, 2002), 67 FR 15440, 15440 n.8 (April 1, 2002) (order approving
NYSE program revising reimbursement rates) (``2002 Approval
Order'').
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Currently, the Supplementary Material to NYSE Rules 451 and 465
establish the fee structure for which a NYSE member organization may be
reimbursed for expenses incurred in connection with distributing proxy
materials to beneficial owners.\10\ This fee structure is also
replicated in Section 402.10 of the NYSE Listed Company Manual.\11\ The
NYSE fee structure represents the maximum approved rates that an issuer
can be billed for proxy distribution services absent prior notification
to and consent of the issuer.\12\ NYSE member firms may seek
reimbursement for less than the approved rates; \13\ however, it is the
Commission's understanding that in practice most issuers are billed at
the maximum approved rates.
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\10\ See Rules 451 and 465; see also Proxy Concept Release, 75
FR at 42995. The current NYSE fee schedule under the Supplementary
Material to Rule 451 for expenses incurred in connection with proxy
solicitations is the same as the current fee schedule for expenses
incurred in mailing interim reports or other material pursuant to
the Supplementary Material to Rule 465. See also Proxy Concept
Release, 75 FR at 42995 n.109.
\11\ See Section 402.10, NYSE Listed Company Manual.
\12\ See Rules 451.93 and 465.23.
\13\ Id.
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The vast majority of nominees that distribute issuer proxy material
to beneficial owners are entitled to reimbursement at the NYSE fee
schedule rates because most of the brokerage firms are NYSE members or
members of other exchanges that have rules similar to the NYSE's
rules.\14\ Over time, however, NYSE member organizations increasingly
have outsourced their proxy delivery obligations to third-party proxy
service providers, which are generally called ``intermediaries,''
rather than handling proxy processing internally.\15\ At the present
time, a single intermediary, Broadridge Financial Solutions, Inc.
(``Broadridge''), handles almost all proxy processing and distribution
to beneficial owners holding shares in street name in the United
States.\16\ In general, Broadridge enters into a contract with the NYSE
member firm and acts as a billing and collection agent for that member
firm.\17\ As a result, it is Broadridge that, on behalf of its member
firm clients, most frequently bills and collects proxy distribution
fees from issuers based on the NYSE fee schedule.\18\
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\14\ See Proxy Concept Release, 75 FR at 42995 n.110.
\15\ See 2002 Approval Order, 67 FR at 15540. According to the
NYSE, this shift was attributable to the fact that NYSE member firms
believed that proxy distribution was not a core broker-dealer
business and that capital could be better used elsewhere. Id.
\16\ See Proxy Concept Release, 75 FR at 42996 and n.129; see
also Notice, 78 FR at 12382.
\17\ See Proxy Concept Release, 75 FR at 42997.
\18\ Id. The Commission understands that Broadridge currently
bills issuers, on behalf of its broker-dealer clients, the maximum
fees allowed by NYSE Rules 451 and 465. Id.
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The NYSE's current proxy fee structure is the product of a multi-
year, multi-task force effort that began in 1995 and culminated in 2002
with the Commission's approval of an NYSE program that significantly
revised the then-current NYSE reimbursement guidelines.\19\ In the 2002
Approval Order, the Commission stated that, as long as the NYSE's proxy
fee structure remains in place, the Commission expected the NYSE to
periodically review the fees to ensure that they are related to the
reasonable proxy expenses of the NYSE member firms, and to propose
changes as appropriate.\20\ Similarly, in the Proxy Concept Release,
the Commission stated that ``it appears to be an appropriate time for
SROs to review their existing fee schedules to determine whether they
continue to be reasonably related to the actual costs of proxy
solicitation.'' \21\ As is also noted in the Proxy Concept Release, in
2006, a working group formed to review the NYSE proxy fee structure
(``Proxy Working Group'') recommended that the NYSE engage an
independent third party to analyze and make recommendations regarding
the fee structure and to study the performance of the largest proxy
service provider (i.e., Broadridge) and the business process by which
the distribution of proxies occurs.\22\ The Proxy Concept Release
further noted that, as of the date of the release, such review had not
been done.\23\
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\19\ See 2002 Approval Order; see also Notice, 78 FR at 12383.
\20\ See 2002 Approval Order, 67 FR at 15444.
\21\ See Proxy Concept Release, 75 FR at 42997; see also Notice,
78 FR at 12382.
\22\ See Proxy Concept Release, 75 FR at 42996.
\23\ Id.
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The proposed rule change represents the most recent effort to
revise the NYSE proxy fee structure. In September 2010, the Exchange
formed a Proxy Fee Advisory Committee (``PFAC'') to review the existing
NYSE fee structure and make recommendations for change as the PFAC
deemed appropriate.\24\ The proposed rule change is an outgrowth of the
PFAC's recommendations.\25\
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\24\ See Notice, 78 FR at 12382.
\25\ For a more detailed description of the background and
history of the proxy distribution industry, proxy fees, and events
leading to the instant proposal, see the 2002 Approval Order, Proxy
Concept Release, and Notice.
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III. Description of the Proposal
In the proposal, the Exchange has proposed to amend the
Supplementary Material to NYSE Rules 451 and 465, and Section 402.10 of
the NYSE Listed Company Manual.\26\ The Exchange represents that the
proposed changes reduce some fees and increase others.\27\ Broadridge
has estimated that, under the proposed changes, overall fees paid by
[[Page 32512]]
issuers would decrease by approximately 4%.\28\
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\26\ The Exchange has proposed to amend Rule 451 and to delete
the text of Rule 465, which duplicates Rule 451, and replace it with
a general cross reference to proposed Rule 451. Proposed Section
402.10 of the NYSE Listed Company Manual would reproduce proposed
Rule 451 as amended. See notes 35 and 36 and accompanying text,
infra.
\27\ See Notice, 78 FR at 12384.
\28\ Id.
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Currently, the reimbursement rates set by the Exchange for the
distribution of an issuer's proxy materials include: \29\
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\29\ See NYSE Rules 451.90-451.95, 465.20-465.25, and Section
402.10 of the NYSE Listed Company Manual; see also Proxy Concept
Release, 75 FR at 42995-96. For an example of the application of the
current reimbursement rates, see Proxy Concept Release, 75 FR at
42996 n.120.
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A base mailing or basic processing fee of $0.40 for each
beneficial owner account of an issuer that is entitled to receive proxy
materials when there is not an opposing proxy. When there is an
opposing proxy, the base mailing or processing unit fee is $1.00 for
each beneficial owner account of the issuer. While NYSE Rule 451.90(1)
currently refers to this fee as being for each set of proxy material
when mailed as a unit, this fee, in practice, applies regardless of
whether the materials have been mailed or the mailing has been
suppressed or eliminated.\30\
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\30\ See NYSE Rules 451.90, 465.20, and Section 402.10(A) of the
NYSE Listed Company Manual; see also Proxy Concept Release, 75 FR at
42996.
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As supplemental fees for intermediaries or proxy service
providers that coordinate proxy distributions for multiple nominees, a
fee of $20 per nominee plus an additional fee of $0.05 per beneficial
owner account for issuers whose securities are held in 200,000 or more
beneficial owner accounts and $0.10 per beneficial owner account for
issuers whose securities are held in fewer than 200,000 beneficial
owner accounts.\31\
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\31\ Id.
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An incentive fee of $0.25 per beneficial owner account for
issuers whose securities are held in 200,000 or more beneficial owner
accounts and $0.50 per beneficial owner account for issuers whose
securities are held in fewer than 200,000 beneficial owner accounts.
This fee, which is in addition to the basic processing fee and
supplemental intermediary fees, applies when the need to mail materials
in paper format has been eliminated, for instance, by eliminating
duplicative mailings to multiple accounts at the same address \32\ or
distributing some or all material electronically.\33\
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\32\ Id. The elimination of duplicative mailings to multiple
accounts at the same address is referred to as ``householding.'' See
Proxy Concept Release, 75 FR at 42983 n.5; see also NYSE Rule
451.95. Specifically, the incentive fee may be collected for such
``householding'' when NYSE member firms ``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. . . .'' NYSE Rule 451.95.
\33\ Proxy materials can be provided electronically to
shareholders that have affirmatively consented to electronic
delivery. See Proxy Concept Release, 75 FR at 42986 n.32. Such
affirmative consent also is required before the notice of internet
availability of proxy materials--a component of the notice and
access method of proxy distribution, which is an additional
alternative to paper mailing of proxy materials, as discussed
below--can be sent to shareholders electronically. Id. Without such
consent, the notice must be mailed to shareholders in paper format.
Id.
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As an initial, technical matter, the Exchange has proposed to
eliminate some of the duplication and obsolete language in the NYSE
rules in which the fee schedule is set forth.\34\ The same proxy fees
are currently presented multiple times in Rule 451, Rule 465 and
Section 402.10 of the Listed Company Manual.\35\ To clarify matters,
proposed Rules 465.20-465.25 would cross-reference proposed Rules
451.90-451.95, and proposed Section 402.10 of the Listed Company Manual
would reproduce the text of proposed Rules 451.90-451.95.\36\
Additionally, the proposed rule change would eliminate obsolete
references to the effective dates of past changes to the fee structure
as well as to the amount of a surcharge, set forth in Rule 451.91, that
was temporarily applied in the mid-1980s.\37\ Further, the Exchange has
proposed to eliminate several references to ``mailings'' in the
proposed rules, given that the processing fees apply even where
physical mailings have been suppressed.\38\ Lastly, the Exchange has
proposed to eliminate several minor minimum fees of $5 or less as
irrelevant to the overall fees imposed or collected.\39\
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\34\ See Notice, 78 FR at 12390.
\35\ Id.
\36\ Id. Where the proposed Rules are cited below, for the sake
of simplicity, such citations will include only Rules 451.90-451.95
and not the corresponding provisions of proposed Section 402.10 of
the NYSE Listed Company Manual.
\37\ See Notice, 78 FR at 12390.
\38\ Id.
\39\ Id. Proposed Rule 451.90(3), which would set forth the fee
for interim reports and other material, is an example of the
proposed technical amendments. As proposed, the pre-existing $0.15
fee in current Rule 451.90 would not change, but the $2.00 minimum
for all sets mailed would be eliminated, and the language of the
rule would be amended to eliminate the reference to the effective
date of the pre-existing rule and to replace the word ``mailed''
with ``processed.'' See proposed Rule 451.90(3).
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Substantively, the Exchange has proposed to revise certain aspects
of the existing fee schedule and add new fees.\40\ These revisions,
described in turn below, include: (a) Amending the base mailing/basic
processing fees; (b) amending the supplemental fees for intermediaries
that coordinate proxy mailings for multiple nominees; (c) amending the
incentive/preference management fees, including the manner in which
such fees are applied to managed accounts; (d) adding fees for proxy
materials distributed by what is known as the notice and access method;
(e) adding fees for enhanced brokers' internet platforms; and (f)
amending the fees for providing beneficial ownership information.\41\
In addition, notwithstanding any other provision of proposed Rule
451.90, the Exchange has proposed that no fee be incurred by an issuer
for any nominee account that contains only a fractional share--i.e.,
less than one share or unit--of the issuer's securities or for any
nominee account that is a managed account and contains five or fewer
shares or units of the issuer's securities.\42\
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\40\ The Exchange has also proposed to codify definitions of the
terms ``nominee'' and ``intermediary.'' Under proposed Rule
451.90(1)(a), the term ``nominee'' would be defined to mean a broker
or bank subject to SEC Rule 14b-1 or 14b-2, respectively, and the
term ``intermediary'' would be defined to mean a proxy service
provider that coordinates the distribution of proxy or other
materials for multiple nominees.
\41\ See proposed Rule 451.90.
\42\ See proposed Rule 451.90(6).
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A. Base Mailing/Basic Processing Fees
As set forth above, there is currently a fee of $0.40 for each
beneficial owner account of an issuer that is entitled to receive proxy
materials when there is not an opposing proxy.\43\ This fee is commonly
referred to as the base mailing or basic processing fee.\44\ The
Exchange has proposed to replace this flat $0.40 fee with a tiered fee
structure for each set of proxy material processed as a unit, which the
Exchange has proposed to call a ``Processing Unit Fee.'' \45\ The tiers
would be based on the number of nominee accounts through which an
issuer's securities are beneficially owned:
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\43\ See Rule 451.90; see also Proxy Concept Release, 75 FR at
42996.
\44\ See Notice, 78 FR at 12385; see also Proxy Concept Release,
75 FR at 42996.
\45\ See proposed Rule 451.90(1)(b)(i). The Exchange has not
proposed to replace the current $0.40 flat fee for proxy follow-up
materials with a tiered structure. The Exchange has proposed to keep
a flat Processing Unit Fee of $0.40 per account for each set of
follow-up material, but for those relating to an issuer's annual
meeting for the election of directors, the Exchange has proposed to
reduce the fee by half, to $0.20 per account. See proposed Rule
451.90(2). The Exchange notes that issuers have a choice whether or
not to use reminder mailings, and that the reduced fee may induce
more issuers to use reminder mailings, which could increase investor
participation, particularly among retail investors. See Notice, 78
FR at 12390.
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$0.50 for each account up to 10,000 accounts;
$0.47 for each account above 10,000 accounts, up to
100,000 accounts;
$0.39 for each account above 100,000 accounts, up to
300,000 accounts;
[[Page 32513]]
$0.34 for each account above 300,000 accounts, up to
500,000 accounts;
$0.32 for each account above 500,000 accounts.\46\
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\46\ See proposed Rule 451.90(1)(b)(i).
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Under this tiered schedule, every issuer would pay the first tier
rate--$0.50--for the first 10,000 accounts, or portion thereof, with
decreasing rates applicable only to the incremental additional accounts
in the additional tiers.\47\
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\47\ Id.
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In addition, the Exchange has proposed to clarify that references
in proposed Rule 451 to the ``number of accounts'' have a different
meaning for a nominee that distributes proxy materials without the
services of an intermediary as compared to a nominee that is served by
an intermediary. For a nominee that distributes proxy materials without
the services of an intermediary, references to number of accounts in
proposed Rule 451 mean the number of accounts holding securities of the
issuer at the nominee.\48\ For a nominee that is served by an
intermediary, such references mean the aggregate number of nominee
accounts with beneficial ownership in the issuer served by the
intermediary.\49\ As the Exchange has noted in the proposal, this means
that, for a particular issuer, the fee charged by an intermediary or a
nominee that self-distributes (and therefore does not use an
intermediary) within the different tiers will depend on the number of
accounts holding shares in that issuer that are served by the
intermediary or held by the particular nominee.\50\ Accordingly, for an
issuer with a large number of beneficial accounts, intermediaries or
self-distributing nominees serving a small portion of the issuer's
accounts would bill the issuer at the higher tier-one rates whereas an
intermediary serving a large number of the issuer's accounts would bill
the issuer at rates that reflect the progressive decrease in rates
across the tiers as the number of accounts served increases.\51\
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\48\ Id.
\49\ Id.
\50\ See Notice, 78 FR at 12385 n.20.
\51\ Id.
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The Exchange has also proposed to specify that, in the case of a
meeting for which an opposition proxy has been furnished to security
holders, the proposed Processing Unit Fee shall be $1.00 per account,
in lieu of the tiered fee schedule set forth above.\52\ This would,
therefore, be no departure from the current $1.00 fee that is assessed
when an opposition proxy has been furnished.
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\52\ See proposed Rule 451.90(1)(b)(ii).
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B. Supplemental Intermediary Fees
As stated above, the Exchange's fee schedule currently provides for
supplemental fees for intermediaries or proxy service providers that
coordinate proxy distributions for multiple nominees of $20 per
nominee, plus an additional fee of $0.05 per beneficial owner account
for issuers whose securities are held in 200,000 or more beneficial
owner accounts and $0.10 per beneficial owner account for issuers whose
securities are held in fewer than 200,000 beneficial owner
accounts.\53\ The Exchange has proposed to replace the $20 per-nominee
fee with a $22 fee for each nominee served by the intermediary that has
at least one account beneficially owning shares in the issuer.\54\ The
Exchange has also proposed to replace the $0.05 and $0.10 fees, which
are determined based on whether or not the issuer's securities are held
in at least 200,000 beneficial owner accounts, with a tiered fee
structure called the ``Intermediary Unit Fee,'' which would be based on
the number of nominee accounts through which the issuer's securities
are beneficially owned:
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\53\ See Rule 451.90; see also Proxy Concept Release, 75 FR at
42996.
\54\ See proposed Rule 451.90(1)(c)(i).
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$0.14 for each account up to 10,000 accounts;
$0.13 for each account above 10,000 accounts, up to
100,000 accounts;
$0.11 for each account above 100,000 accounts, up to
300,000 accounts;
$0.09 for each account above 300,000 accounts, up to
500,000 accounts;
$0.07 for each account above 500,000 accounts.\55\
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\55\ See proposed Rule 451.90(1)(c)(ii).
Under this tiered schedule, every issuer would pay the first tier
rate--$0.14--for the first 10,000 accounts, or portion thereof, with
decreasing rates applicable only to the incremental additional accounts
in the additional tiers.\56\
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\56\ Id.
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Additionally, the Exchange has proposed the following tiered fee
schedule for special meetings that would apply in lieu of the schedule
set forth immediately above:
$0.19 for each account up to 10,000 accounts;
$0.18 for each account above 10,000 accounts, up to
100,000 accounts;
$0.16 for each account above 100,000 accounts, up to
300,000 accounts;
$0.14 for each account above 300,000 accounts, up to
500,000 accounts;
$0.12 for each account above 500,000 accounts.\57\
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\57\ See proposed Rule 451.90(1)(c)(iii).
Under this tiered schedule, every issuer would pay the first tier
rate--$0.19--for the first 10,000 accounts, or portion thereof, with
decreasing rates applicable only to the incremental additional accounts
in the additional tiers.\58\ The Exchange has proposed that, for
purposes of proposed Rule 451.90(1)(c)(iii), a special meeting is a
meeting other than the issuer's meeting for the election of
directors.\59\
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\58\ Id.
\59\ Id.
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The Exchange has also proposed that, in the case of a meeting for
which an opposition proxy has been furnished to security holders, the
proposed Intermediary Unit Fee shall be $0.25 per account, with a
minimum fee of $5,000.00 per soliciting entity, in lieu of the tiered
fee schedules set forth in proposed Rules 451.90(1)(c)(ii) and
(iii).\60\ Where there are separate solicitations by management and an
opponent, the Exchange has proposed that the opponent would be
separately billed for the costs of its solicitation.\61\
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\60\ See proposed Rule 451.90(1)(b)(iv).
\61\ Id.
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The Exchange estimates that the proposed tiered fee structures
discussed above--for the Intermediary Unit Fee as well as the proposed
Processing Unit Fee--entail fee increases that are estimated to add
approximately $9-10 million to overall proxy distribution fees.\62\ The
Exchange states that the PFAC took note of the fact that since the fees
were last revised in 2002, there has been an effective decline in the
fees of approximately 20% due to the impact of inflation.\63\ The
Exchange also states that the PFAC believed that economies of scale
exist when handling distributions for more widely held issuers, which
is why the per-account fees decrease as the number of accounts
increases.\64\ Further, the Exchange believes that its proposed tiered
structures would approximate the sliding impact of such economies of
scale better than the current processing and intermediary fee
structures.\65\
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\62\ See Notice, 78 FR at 12385.
\63\ Id. at 12384.
\64\ Id. at 12385.
\65\ Id.
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C. Incentive/Preference Management Fees
As stated above, the Exchange's fee schedule currently provides for
an
[[Page 32514]]
incentive or preference management fee of $0.25 per beneficial owner
account for issuers whose securities are held in 200,000 or more
beneficial owner accounts and $0.50 per beneficial owner account for
issuers whose securities are held in fewer than 200,000 beneficial
owner accounts.\66\ The Exchange has proposed to refer to this fee as
the ``Preference Management Fee'' and to amend it to be: (a) $0.32 for
each set of proxy material described in proposed Rule 451.90(1)(b)
(proxy statement, form of proxy and annual report when processed as a
unit), unless the account is a Managed Account (as defined in proposed
Rule 451.90(6), discussed below), in which case the fee would be $0.16;
\67\ and (b) $0.10 for each set of material described in proposed Rule
451.90(2) (proxy follow-up material) or proposed Rule 451.90(3)
(interim reports and other material).\68\ The Preference Management Fee
would apply to each beneficial owner account for which the nominee has
eliminated the need to send materials in paper format through the mails
(or by courier service), and would be in addition to, and not in lieu
of, the other proposed fees.\69\
---------------------------------------------------------------------------
\66\ See Rule 451.90.
\67\ See proposed Rule 451.90(4)(a). The $0.16 Preference
Management Fee for Managed Accounts would apply only to Managed
Accounts holding more than five shares or units of an issuer's
securities, as the Exchange has proposed that there be no proxy
processing fees charged to an issuer for Managed Accounts holding
five or fewer shares or units of the issuer's securities. See note
42 and accompanying text, supra, and discussion of Managed Accounts,
infra.
\68\ See proposed Rule 451.90(4)(b); see also notes 39 and 45,
supra, which discuss proposed Rules 451.90(2) and 451.90(3).
\69\ See proposed Rule 451.90(4). The need for paper mailings
can be eliminated through several alternative methods of
distribution, such as householding, electronic delivery, and notice
and access. See notes 32 and 33, supra, and discussion of notice and
access, infra.
---------------------------------------------------------------------------
The Preference Management Fee would apply not only in the year when
paper delivery is first eliminated, but also in each year
thereafter.\70\ The Exchange represents that the PFAC was persuaded
that there was significant processing work involved in keeping track of
the shareholders' election, especially given that the shareholder is
entitled to change that election from time to time.\71\ According to
the Exchange, although few shareholders do in fact change their
election, data processing has to look at each account position relative
to each shareholder meeting or proxy distribution event to determine
whether paper mailing has been eliminated.\72\
---------------------------------------------------------------------------
\70\ See Notice, 78 FR at 12386.
\71\ Id.
\72\ Id.
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1. Managed Accounts
For purposes of proposed Rule 451.90, the Exchange has proposed to
define the term ``Managed Account'' as:
[A]n account at a nominee which is invested in a portfolio of
securities selected by a professional advisor, and for which the
account holder is charged a separate asset-based fee for a range of
services which may include ongoing advice, custody and execution
services. The advisor can be either employed by or affiliated with
the nominee, or a separate investment advisor contracted for the
purpose of selecting investment portfolios for the managed account.
Requiring that investments or changes to the account be approved by
the client would not preclude an account from being a ``managed
account'' for this purpose, nor would the fact that commissions or
transaction-based charges are imposed in addition to the asset-based
fee.\73\
---------------------------------------------------------------------------
\73\ See Proposed Rule 451.90(6); see also Notice, 78 FR at
12388.
As noted above, the Exchange has proposed that the Preference
Management Fee applied to Managed Accounts be half that applied to non-
managed accounts.\74\ In the proposal, the Exchange notes that, with
Managed Accounts, the investor has elected to delegate the voting of
its shares to a broker or investment manager who chooses to manage this
process electronically rather than by receiving multiple paper copies
of proxy statements and voting instructions.\75\ According to the
Exchange, however, tracking the beneficial owner's voting and
distribution election is as necessary with Managed Accounts as it is
with any other proxy distribution election eliminating the need for
paper mailing, such as consent to e-delivery.\76\ But the Exchange
states that the PFAC concluded that making some distinctions between
Managed Accounts and non-managed accounts for fee purposes was
appropriate.\77\ Among other things, the Exchange states that the
popularity of Managed Accounts demonstrates that they offer advantages
to investors and brokerage firms.\78\ The Exchange states that issuers
also reap benefits from inclusion in Managed Account portfolios,
including the added investment in the company's stock and a higher rate
of voting due to the fact that almost all Managed Account investors
delegate voting to the investment manager.\79\ Since both issuers and
brokers benefit from Managed Accounts, the Exchange represents that the
PFAC determined that issuers and brokers should share the cost of
tracking the voting and distribution elections of beneficial owners of
the stock positions in Managed Accounts, and therefore recommended that
the Exchange propose a Preference Management Fee for Managed Accounts
at a rate that is half that for other accounts.\80\
---------------------------------------------------------------------------
\74\ See Proposed Rule 451.90(4)(a). The Exchange represents
that its proposal that the Preference Management Fee applied to
Managed Accounts be half that applied to non-managed accounts would
result in an estimated $15 million reduction in fees. See Notice, 78
FR at 12385.
\75\ See Notice, 78 FR at 12387.
\76\ Id. In support of this the Exchange states that Commission
rules require each beneficial owner holding shares in a Managed
Account to be treated as the individual owner of those shares for
purposes of having the ability to elect to vote those shares and
receive proxy materials. Id.
\77\ Id.
\78\ Id.
\79\ Id.
\80\ Id.
---------------------------------------------------------------------------
Additionally, in recognition of what the Exchange notes is a
proliferation of Managed Accounts containing a very small number of an
issuer's shares, the Exchange, as noted above, has proposed not to
impose any proxy processing fees, including the Preference Management
Fee, on an issuer for a Managed Account holding five or fewer shares or
units of the issuer's securities.\81\ The Exchange states that in
certain situations in which Managed Accounts hold very small numbers of
shares of an issuer, the benefits of increased stock ownership and
increased voting participation were practically nonexistent for the
issuer, while the added expense on a relative basis was
extraordinary.\82\ According to the Exchange, because one of the PFAC's
goals was to avoid severe impacts on proxy distribution in the United
States, the PFAC drew the line at five shares based on certain
information supplied by Broadridge, including information from the 2011
proxy season depicting what the financial impact on proxy revenue would
have been of setting the fee proscription for Managed Accounts at
different levels.\83\ According to the Exchange, setting the
proscription at five shares or less in the 2011 proxy season would have
created an overall decrease in proxy revenue of approximately $4.2
million.\84\ The Exchange states that the PFAC determined that five
shares or less was the appropriate level to draw the line
[[Page 32515]]
and that the PFAC ``was comfortable that, given the relative benefit/
burden on issuers and brokerage firms, it is not reasonable to make
issuers reimburse the cost of proxy distribution to managed accounts
holding five shares or less.'' \85\
---------------------------------------------------------------------------
\81\ See proposed Rule 451.90(6); see also Notice, 78 FR at
12388.
\82\ See Notice, 78 FR at 12388.
\83\ Id. The Exchange represents that, based on the Broadridge-
supplied information, the overall impact varied from approximately
$2.6 million at the fractional (less than one) share level, up to
approximately $16 million if the proscription applied to accounts
holding 25 shares or less. Id.
\84\ Id. The Commission understands that this figure does not
account for the inclusion of wrap accounts in the proposed fee
structure for Managed Accounts.
\85\ Id.
---------------------------------------------------------------------------
Lastly, the Exchange states that no fee distinction would be based
on whether or not a Managed Account is referred to as a ``wrap
account.'' \86\ As described by the Exchange, a wrap account is a
managed account product with a relatively low minimum investment that
tends to have many very small, even fractional, share positions, which
led Broadridge to process such wrap accounts without any charge--either
for basic processing or incentive fees.\87\ Broadridge relied on its
client firms to specify whether or not an account should be treated as
a wrap account for this purpose, and positions in small minimum
investment managed accounts which were not marketed with that
appellation were subjected to ordinary fees, including incentive
fees.\88\ Under the Exchange's proposal, accounts identified as wrap
accounts would no longer be treated as distinct from Managed Accounts
not identified as such, and would therefore be subject to the same
proxy fees as Managed Accounts.
---------------------------------------------------------------------------
\86\ Id. The Commission understands a wrap account to be a
certain type of account that is managed by an outside investment
adviser. See Proxy Concept Release, 75 FR at 42998 n.140.
\87\ See Notice, 78 FR at 12387.
\88\ Id. at 12387-88.
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D. Notice and Access Fees
The Commission has adopted a notice and access model that permits
issuers to send shareholders what is called a ``Notice of Internet
Availability of Proxy Materials'' in lieu of the traditional paper
mailing of proxy materials.\89\ Currently, the NYSE proxy fee structure
does not include maximum fees that member firms--or, in practice,
third-party proxy service providers--can charge issuers for deliveries
of proxy materials using the notice and access method.\90\ Broadridge
currently imposes fees on issuers for use of the notice and access
method, in addition to the other fees permitted to be charged under
NYSE Rule 451.90.\91\ In the proposal, the Exchange has proposed to
codify the notice and access fees currently charged by Broadridge, with
one adjustment.\92\
---------------------------------------------------------------------------
\89\ See Proxy Concept Release, 75 FR at 42986 n.32. The notice
and access model works in tandem with electronic delivery--although
an issuer electing to send a notice in lieu of a full proxy package
would be required to send a paper copy of that notice, it may send
that notice electronically to a shareholder who has provided an
affirmative consent to electronic delivery. Id.
\90\ Id. at 42996.
\91\ See Notice, 78 FR at 12389. As of the date of the Proxy
Concept Release, Broadridge charged issuers that elected the notice
and access method of proxy delivery a fee ranging from $0.05 to
$0.25 per account for positions in excess of 6,000, in addition to
the other fees permitted to be charged under NYSE Rule 451. See
Proxy Concept Release, 75 FR at 42996-97.
\92\ See Notice, 78 FR at 12389. The Exchange has proposed to
exclude from its proposed notice and access fee schedule the $1,500
minimum fee that Broadridge currently charges issuers that are held
by 10,000 accounts or less and elect notice and access. The Exchange
states that, in its view, such a minimal charge could be unfairly
high on a small issuer billed by several intermediaries. Id.
---------------------------------------------------------------------------
Specifically, for issuers that elect to utilize the notice and
access method of proxy distribution, the Exchange has proposed an
incremental fee based on all nominee accounts through which the
issuer's securities are beneficially owned, as follows:
$0.25 for each account up to 10,000 accounts;
$0.20 for each account over 10,000 accounts, up to 100,000
accounts;
$0.15 for each account over 100,000 accounts, up to
200,000 accounts;
$0.10 for each account over 200,000 accounts, up to
500,000 accounts;
$0.05 for each account over 500,000 accounts.\93\
---------------------------------------------------------------------------
\93\ See proposed Rule 451.90(5).
The Exchange has also proposed to clarify that, under this schedule,
every issuer would pay the tier one rate for the first 10,000 accounts,
or portion thereof, with decreasing rates applicable only to the
incremental additional accounts in the additional tiers.\94\ The
Exchange has further proposed that follow-up notices would not incur an
incremental fee for notice and access, and that no incremental fee
would be imposed for fulfillment transactions (i.e., a full pack of
proxy materials sent to a notice recipient at the recipient's request),
although out of pocket costs such as postage would be passed on as in
ordinary proxy distributions.\95\
---------------------------------------------------------------------------
\94\ Id.
\95\ Id.
---------------------------------------------------------------------------
E. Enhanced Brokers' Internet Platform Fee
In the Proxy Concept Release, the Commission solicited views on
whether retail investors might be encouraged to vote if they received
notices of upcoming corporate votes, and had the ability to access
proxy materials and vote, through their own broker's Web site--a
service that the Commission referred to as enhanced brokers' internet
platforms (``EBIP'').\96\ According to the Exchange, Broadridge
discussed with the PFAC a similar service that it offers, and
maintained that while some brokerage firms have already implemented
services like the EBIP, it appeared likely that some financial
incentive would be necessary to achieve widespread adoption.\97\
---------------------------------------------------------------------------
\96\ See Notice, 78 FR at 12391; see also Proxy Concept Release,
75 FR at 43003.
\97\ See Notice, 78 FR at 12391.
---------------------------------------------------------------------------
Accordingly, the Exchange has proposed, for a five-year test
period, a one-time, supplemental fee of $0.99 for each new account that
elects, and each full package recipient among a brokerage firm's
accounts that converts to, electronic delivery while having access to
an EBIP.\98\ According to the Exchange, this fee is intended to
persuade firms to develop and encourage the use of EBIPs by their
customers.\99\ To qualify for the fee, an EBIP would have to provide
notices of upcoming corporate votes, including record and meeting dates
for shareholder meetings, and the ability to access proxy materials and
a voting instruction form, and cast the vote, through the investor's
account page on the firm's Web site without an additional log-in.\100\
This fee would not apply to electronic delivery consents captured by
issuers, positions held in Managed Accounts, or accounts voted by
investment managers using electronic voting platforms.\101\ This fee
also would not be triggered by accounts that receive a notice pursuant
to notice and access or accounts to which mailing is suppressed by
householding.\102\
---------------------------------------------------------------------------
\98\ See proposed Rule 451.90(7). As a one-time fee, NYSE member
organizations could bill an issuer only once for each account
covered by the rule. Id. Billing for the fee would be separately
indicated on the issuer's invoice and would await the next proxy or
consent solicitation by the issuer that follows the triggering of
the fee by an eligible account's electronic delivery election. Id.
\99\ See Notice, 78 FR at 12393.
\100\ See proposed Rule 451.90(7).
\101\ Id.
\102\ Id.
---------------------------------------------------------------------------
The Exchange has proposed to require NYSE member organizations with
a qualifying EBIP to provide notice thereof to the Exchange, including
the date such EBIP became operational, and any limitations on the
availability of the EBIP to its customers.\103\ The Exchange has also
noted in the proposed rule that records of conversions to electronic
delivery by accounts with access to an EBIP, marketing efforts to
encourage account holders to use the EBIP, and the proportion of non-
institutional accounts that vote proxies after being provided access to
an EBIP must be maintained for the purpose of reporting such records to
the NYSE when requested.\104\
---------------------------------------------------------------------------
\103\ Id.
\104\ Id.
---------------------------------------------------------------------------
The Exchange states that the EBIP fee would be available to firms
that already
[[Page 32516]]
have EBIP facilities, as even a firm that already has an EBIP can be
incented to engage in marketing efforts to persuade its account holders
to utilize the EBIP.\105\ Further, the Exchange states that the fee
would be triggered when a new account elects e-delivery immediately
(and has access to an EBIP), except for accounts subject to notice and
access or householding.\106\ However, the Exchange represents that a
firm making the EBIP available to only a limited segment of its account
holders could not earn the EBIP fee from an e-delivery election by an
account not within the segment having access to the EBIP.\107\
---------------------------------------------------------------------------
\105\ See Notice, 78 FR at 12392.
\106\ Id.
\107\ Id.
---------------------------------------------------------------------------
The Exchange represents that a study of the impact of the program
would be conducted after three years.\108\
---------------------------------------------------------------------------
\108\ Id.
---------------------------------------------------------------------------
F. Fee for Providing Beneficial Ownership Information
As noted by the Exchange, since 1986 NYSE rules have provided for
fees which issuers must pay to brokers and their intermediaries for
obtaining a list of the non-objecting beneficial owners holding the
issuer's stock.\109\ Such a list is commonly referred to as a NOBO
list, and the fees are charged per name in the NOBO list.\110\
Currently, Rule 451.92 sets forth a $0.065 fee per NOBO name provided
to the requesting issuer, but where the NOBO list is not furnished
directly to the issuer by the member organization, and is instead
furnished through an agent of the member organization, the current rule
does not specify a fee--rather, it says only that the issuer will be
expected to pay the reasonable expenses of the agent in providing such
information.\111\ The Exchange states that it understands that
Broadridge, acting as such an agent, charges a $100 minimum fee per
requested NOBO list, as well as a tiered per-name fee of: $0.10 per
name for the first 10,000 names; $0.05 per name from 10,001 to 100,000
names, and $0.04 per each name above 100,000.\112\ The Exchange has
proposed to adopt and codify Broadridge's minimum and tiered per-name
fees into its rules, and to delete its existing language that allows
payment of the ``reasonable expenses of the agent.'' \113\
---------------------------------------------------------------------------
\109\ Id. at 12390; see also Rule 451.92.
\110\ See Notice, 78 FR at 12390.
\111\ See Rule 451.92.
\112\ See Notice, 78 FR at 12390.
\113\ See proposed Rule 451.92; see also Notice, 78 FR at 12391.
---------------------------------------------------------------------------
The Exchange also notes that it has been customary for brokers,
through their intermediary, to require that issuers desiring a NOBO
list take (and pay for) a list of all shareholders who are NOBOs, even
in circumstances where an issuer would consider it more cost-effective
to limit its communication to NOBOs having more than a certain number
of shares, or to those that have not yet voted on a solicitation.\114\
The Exchange has proposed to depart from this practice, so that when an
issuer requests beneficial ownership information as of a date which is
the record date for an annual or special meeting or a solicitation of
written shareholder consent, the issuer may ask to eliminate names
holding more or less than a specified number of shares, or names of
shareholders that have already voted, and the issuer may not be charged
a fee for the NOBO names so eliminated.\115\ For all other requested
lists, however, the issuer would be required to take and pay for
complete lists.\116\
---------------------------------------------------------------------------
\114\ See Notice, 78 FR at 12390-91.
\115\ See proposed Rule 451.92.
\116\ Id.; see also Notice, 78 FR at 12391.
---------------------------------------------------------------------------
IV. Comment Letters and the Exchange's Response
As noted above, the Commission received 28 comment letters
concerning the Exchange's proposal.\117\ Twelve commenters expressed
general support for the proposed rule change,\118\ and other commenters
supported certain aspects of the proposed rule change. Generally, five
commenters believed that the proposal would improve transparency of the
proxy fee structure; \119\ five believed that the proposal eliminates
the ``cliff'' pricing schedule, in favor of a more rational tiered
system; \120\ one believed that the Exchange has taken a fair and
reasonable approach to charges for managed accounts; \121\ one stated
that the elimination of fees for fractional share positions would
eliminate exposure that issuers face from unanticipated increases in
the number of street name accounts on a yearly basis; \122\ eleven
believed that the proposed success fee for enhancements to EBIPs would
reduce costs and/or lead to higher retail voting rates; \123\ one
believed that providing additional incentives for integration of a
customer's documents in EBIPs would provide a benefit to investors;
\124\ and six supported the stratification of NOBO lists.\125\
---------------------------------------------------------------------------
\117\ See note 4, supra.
\118\ See Steering Committee Letter, SCSGP Letter, iStar Letter,
SCC Letter, Perficient Letter, Gartner Letter, CCMC Letter,
Broadridge Letter, Darling Letter, ABC Letter, SIFMA Letter, Zumbox
Letter.
\119\ See Steering Committee Letter, SCSGP Letter, SCC Letter,
Broadridge Letter, NIRI Letter.
\120\ See SCSGP Letter, ABC Letter, Broadridge Letter, BNY
Mellon, SCC Letter.
\121\ See SCSGP Letter.
\122\ See Broadridge Letter.
\123\ See Steering Committee Letter, SCSGP Letter, iStar Letter,
SCC Letter, Perficient Letter, CCMC Letter, Broadridge Letter,
Darling Letter, ABC Letter, SIFMA Letter, NIRI Letter.
\124\ See Zumbox Letter.
\125\ See ABC Letter, Broadridge Letter, NIRI Letter, SCC
Letter; ICI Letter; SCSGP Letter.
---------------------------------------------------------------------------
Other commenters raised concerns regarding the proposal. Generally,
ten commenters expressed concern about the lack of an independent
third-party review of actual costs in the proxy distribution process;
\126\ five expressed concern with the lack of a thorough cost/benefit
analysis of the proposed rule change; \127\ four believed that the
processing and intermediary unit fees do not allocate fees equitably
between large and small issuers; \128\ seven questioned the fairness of
the proposed fee schedule; \129\ four believed that the structure and
level of the proposed proxy fees place a burden on competition; \130\
seven expressed concern about the incentive structure for developing
EBIPs; \131\ two raised concerns regarding the five share limit for
fees for processing shares held through managed accounts; \132\ three
believed the stratified NOBO lists should be made available outside of
a record date; \133\ and two expressed concern about the impact of the
proposal on mutual funds in particular.\134\ Finally, one commenter
recommended an effective date for the proposed rules.\135\ These
issues, and the Exchange's response, are discussed below.
---------------------------------------------------------------------------
\126\ See STA Letter, STA Letter II, SSA Letter, Schafer Letter,
Lovatt Letter, SCC Letter, IBC Letter, NIRI Letter, ICI Letter, BNY
Letter; see also AST Letter. In addition, one commenter questioned
whether the fee structure used by Broadridge should be subject to an
independent audit. See CtW Letter.
\127\ See STA Letter, STA Letter II, SSA Letter, Schafer Letter,
Lovatt Letter, IBC Letter.
\128\ See STA Letter II, Schafer Letter, Lovatt Letter, IBC
Letter.
\129\ See STA Letter II, Schafer Letter, Lovatt Letter, IBC
Letter, BNY Letter, ICI Letter, CtW Letter.
\130\ See SSA Letter, IBC Letter, Schafer Letter, Lovatt Letter.
\131\ See Harrington Letter, ICC Letter, Sharegate Letter, CG
Letter, CII Letter, Zumbox Letter, CtW Letter.
\132\ See Broadridge Letter, SIFMA Letter.
\133\ See SCSGP Letter, Broadridge Letter, BNY Letter.
\134\ See ICI Letter, AST Letter.
\135\ See SIFMA Letter.
---------------------------------------------------------------------------
A. Independent Third-Party Review of Proxy Costs
Two commenters that expressed general support for the proposal
commented on the issue of whether an
[[Page 32517]]
independent third-party audit of proxy costs should be conducted.\136\
One of them noted that while ``an independent third party may be
desirable, the PFAC made a determination that `utility rate making'
which could be independently audited would not work for proxy fees.''
\137\ The other stated that while an independent review ``is often
attractive in the abstract, the regulatory landscape is laden with
examples where the costs of such reviews outweigh the benefits.'' \138\
---------------------------------------------------------------------------
\136\ See Broadridge Letter, ABC Letter.
\137\ See Broadridge Letter.
\138\ See ABC Letter.
---------------------------------------------------------------------------
However, several commenters stated that the NYSE should engage an
independent third party to evaluate the structure and level of fees
being paid for proxy distribution, as recommended by the NYSE Proxy
Working Group in 2006.\139\ Two commenters argued that an independent
third-party audit is the best way to evaluate whether the fees are
reimbursed fairly, equitably and objectively, thereby eliminating the
vested interests of those involved directly and indirectly in the
process.\140\ Two other commenters stated that the Commission should
disapprove the proposed rule change until the audit has been
commissioned and completed,\141\ while two other commenters suggested
that the Commission approve the proposal, but require an independent
third-party review as part of an ongoing process.\142\ One commenter
believed that without a third-party audit, any proposal to adjust fees
is akin to ``putting the cart before the horse,'' and it is highly
likely that many issuers would continue to question the accuracy of
proxy fees.\143\ Another commenter highlighted that there was no
independent verification of the data on the Securities Industry and
Financial Markets Association (``SIFMA'') study related to the costs of
proxy processing.\144\ One commenter stated that a comprehensive
assessment of the fee proposal's net impact on proxy distribution costs
for all issuers, including mutual funds, would require additional
analysis from the Exchange and Broadridge (or an independent
source).\145\
---------------------------------------------------------------------------
\139\ See STA Letter, STA Letter II, SSA Letter, Schafer Letter,
Lovatt Letter, NIRI Letter, SCC Letter, IBC Letter, ICI Letter; see
also AST Letter.
\140\ See NIRI Letter, ICI Letter.
\141\ See STA Letter, STA Letter II, IBC Letter.
\142\ See SCC Letter, SCSGP Letter.
\143\ See NIRI Letter.
\144\ See BNY Letter.
\145\ See AST Letter.
---------------------------------------------------------------------------
In response, the Exchange stated that the PFAC determined that an
independent review of proxy costs was unnecessary.\146\ The Exchange
noted that the PFAC itself was an independent body and that it reviewed
audited financial information on Broadridge, segment information
provided by Broadridge on its Web site, and several independent analyst
reports on Broadridge that gave the PFAC comfort that the existing fees
were not providing Broadridge with excessive margin on its
activities.\147\ The Exchange also noted that ``the PFAC made
significant efforts to `drill down' on the work performed by Broadridge
and by the firms, and to satisfy itself that the fees were
appropriately correlated with the work done.'' \148\ Further, the
Exchange stated that the NYSE proxy fees have been revised a number of
times over the years without an independent review of proxy costs.\149\
The Exchange recognized, as noted by several commenters,\150\ that the
Proxy Working Group formed in 2006 recommended that the NYSE engage an
independent third party to analyze the reasonableness of the proxy fees
and to commission an audit of Broadridge's costs and revenues for proxy
mailing, but the Exchange pointed out that that Proxy Working Group did
not renew its call for such independent analysis at the time an
addendum to the group's report was published in 2007.\151\ The Exchange
stated that there is no requirement that an independent third-party
review be conducted, and that such a review was conducted only in the
context of significant rule changes developed in the late 1990s.\152\
The Exchange also stated that ``given the availability of audited
financials on Broadridge and the SIFMA survey of costs at
representative brokerage firms undertaken at the NYSE's request,
arguably the proposed fee changes have been based on information
comparable to that used in the independent studies conducted in the
late 1990s.'' \153\ The Exchange asserted that ``throughout the history
of the NYSE proxy fees, negotiation among the members of a committee of
issuers and brokers, supplemented by the comment process which
accompanies a rule filing with the SEC, has been an effective method
for reaching a workable consensus on what constitutes `reasonable
reimbursement.' '' \154\
---------------------------------------------------------------------------
\146\ See NYSE Letter.
\147\ Id.
\148\ Id.
\149\ Id.
\150\ See STA II Letter, NIRI Letter, SCC Letter, IBC Letter,
BNY Letter.
\151\ See NYSE Letter.
\152\ Id.
\153\ Id.
\154\ Id.
---------------------------------------------------------------------------
B. Cost/Benefit Analysis of the Proxy Fee Proposals
Several commenters stated that the NYSE failed to undertake an
analysis of the costs and benefits of the fee proposal, using the same
degree of rigor applicable to SEC rule changes.\155\ Two commenters
stated that until an objective and comprehensive cost-benefit analysis
can be developed, the SEC should disapprove this rule filing.\156\
---------------------------------------------------------------------------
\155\ See STA Letter, STA Letter II, Schafer Letter, Lovatt
Letter, IBC Letter.
\156\ See STA Letter, STA Letter II, IBC Letter.
---------------------------------------------------------------------------
The Exchange responded by noting that no such cost-benefit analysis
is required by the relevant statute or SEC rules.\157\ However, the
Exchange contended that ``a cost-benefit analysis is exactly what took
place, since the essence of the PFAC process was a negotiation among
parties with often divergent interests seeking an outcome which to each
was a balance of the costs and benefits involved.'' \158\ The Exchange
cited the PFAC's conclusions regarding Managed Accounts as an example
of the PFAC's cost-benefit analysis.\159\
---------------------------------------------------------------------------
\157\ See NYSE Letter.
\158\ Id.
\159\ Id.
---------------------------------------------------------------------------
C. Equitable Allocation of Processing and Intermediary Unit Fees
Between Large and Small Issuers
Several commenters stated that the proposed processing and
intermediary fees do not allocate fees equitably between large and
small issuers.\160\ Moreover, two commenters believe that these fees
should not be charged at the same level for beneficial owners who are
not receiving an actual proxy package.\161\ These commenters also
stated that such fees fall disproportionately on smaller issuers,
especially those with less than 300,000 beneficial owner
positions.\162\ They further stated that it was not fair for smaller
issuers to be subject to more than a 20% increase in their proxy fees,
while an issuer with 1,000,000 beneficial owners would have a decrease
in processing and intermediary unit fees.\163\ These commenters
concluded that even ``after accounting for economies of scale, the
processing and intermediary unit fees proposed by the NYSE are not
equitably allocated between large and small issuers, in light of the
fact that there is no substantive justification for why smaller issuers
[[Page 32518]]
with less than 300,000 beneficial owners should be bearing such a
significantly large burden under the proposed fee schedule.'' \164\
---------------------------------------------------------------------------
\160\ See STA Letter II, IBC Letter, Schafer Letter, Lovatt
Letter.
\161\ See STA Letter II, IBC Letter.
\162\ Id.
\163\ Id.
\164\ Id.
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D. Fairness of the Fee Proposals
Five commenters believed that the proposal would improve
transparency of the proxy fee structure so that it is clearer to
issuers what services they are paying for and that the fees are
consistent with the type and amount of work involved.\165\ In addition,
five commenters believed that the proposal is an improvement that helps
eliminate the ``cliff'' pricing schedule that distinguishes between
large and small issuers, in favor of a more rational tiered system that
is fairer to issuers.\166\
---------------------------------------------------------------------------
\165\ See Steering Committee Letter, SCSGP Letter, SCC Letter,
Broadridge Letter, NIRI Letter.
\166\ See SCSGP Letter, ABC Letter, Broadridge Letter, BNY
Mellon, SCC Letter.
---------------------------------------------------------------------------
However, several commenters raised concerns about the possibility
that issuers may be paying more than would constitute ``reasonable''
reimbursement for actual costs.\167\ As a result, several commenters
stated that the fee proposal favors the interests of broker-dealers and
discriminates against issuers.\168\ One commenter noted that a 2011
survey of transfer agent pricing compared to the NYSE proxy fee
schedule concluded that market-based proxy fees for registered
shareholders were more than 40% less than the proxy fees being charged
to provide the same services to beneficial owners.\169\ This commenter
also noted that the same study found that all transfer agents
participating in the survey charged processing and suppression fees
that were significantly less than the fees being charged by broker-
dealers under the current NYSE proxy fee schedule.\170\ This commenter
concluded that the NYSE proxy fee schedule, as proposed, does not
satisfy the requirements of Section 6(b)(5) of the Act because the
proposed fees are ``not based on actual costs incurred and exceed
similar charges under competitive pricing and through other broker-
dealer utilities operating on an at-cost basis.'' \171\
---------------------------------------------------------------------------
\167\ See STA Letter, STA Letter II, Schafer Letter, Lovatt
Letter, IBC Letter, BNY Letter, ICI Letter.
\168\ See STA Letter II, IBC Letter, Schafer Letter, Lovatt
Letter.
\169\ See STA Letter II.
\170\ Id.
\171\ Id.
---------------------------------------------------------------------------
Below is a more detailed summary of the comments regarding the
significant fees on the NYSE schedule, as proposed in the rule filing.
1. Preference Management Fee
Several commenters raised concerns regarding the change of the
paper and postage elimination fee into a preference management fee,
which is assessed for all accounts for which a mailing is
suppressed.\172\ These commenters also highlighted the lack of any
detailed analysis about the cost of the work involved for the fee.\173\
In addition, these commenters questioned the appropriateness of the
``evergreen'' nature of the fees, which currently are charged not only
in the year in which the electronic delivery is elected but also in
each year thereafter.\174\ One commenter stated that if ``Broadridge is
paid to `keep track' of a shareholder preference regarding householding
or electronic delivery, it should not also be permitted to charge a
basic processing fee and an intermediary unit fee for accounts that are
suppressed.'' \175\ Another commenter stated that the preference
management fee has ``no apparent connection to the amount of effort
involved in recording the beneficial owner's preference on the broker's
system nor that involved in the suppression of mailing.'' \176\
---------------------------------------------------------------------------
\172\ See STA Letter II, BNY Letter, ICI Letter.
\173\ Id.
\174\ Id.
\175\ See STA Letter II.
\176\ See BNY Letter.
---------------------------------------------------------------------------
In its response letter, the Exchange referred to its discussion in
its rule filing of the appropriateness of charging the preference
management fee every year, and noted that, following the SEC's review
of the proxy fees put in place in 1997, the every-year approach was
maintained by an independent proxy review committee.\177\
---------------------------------------------------------------------------
\177\ See NYSE Letter.
---------------------------------------------------------------------------
2. Separately Managed and Wrap Accounts
One commenter believed that the Exchange has taken a fair and
reasonable approach with respect to charges for managed accounts by
cutting the preference management fee in half for positions in managed
accounts and eliminating the fee altogether for any position under five
shares.\178\ Several other commenters, however, expressed concern
regarding the proxy fees for separately managed accounts, including
wrap accounts.\179\ One commenter highlighted the lack of detailed
analysis for why the managed account fees should remain an issuer
expense.\180\ This commenter stated that the ``documentation and data
processing for both wrap fee accounts and separately managed accounts
are standardized within a broker-dealer's accounting platform.'' \181\
Two commenters questioned the validity of the amount of work involved
in managing a separately managed account.\182\ One commenter expressed
uncertainty ``on the value or need to track accounts where there is no
need or expectation to deliver proxy materials, since these accounts
are voted by a single manager.'' \183\ Another commenter expressed
concern that ``private, nonpublic information is being sent to the
broker-dealer's service provider when the broker-dealer should be the
entity eliminating the accounts for proxy distribution. With today's
technology, the broker-dealer would easily be able to extract only the
accounts which truly should receive proxy materials.'' \184\ Yet
another commenter concluded that a fee prohibition should apply when a
beneficial owner has instructed an investment adviser to receive issuer
proxy materials and vote his or her proxies in lieu of the beneficial
owner.\185\
---------------------------------------------------------------------------
\178\ See SCSGP Letter.
\179\ See STA Letter II, SSA Letter, BNY Letter.
\180\ See STA Letter II.
\181\ See STA Letter II.
\182\ See STA Letter II, BNY Letter.
\183\ See BNY Letter.
\184\ See SSA Letter.
\185\ See STA Letter II.
---------------------------------------------------------------------------
In its response letter, the Exchange referred to the discussion in
its rule filing of the issue of the appropriateness of applying the
preference management fee to managed accounts.\186\
---------------------------------------------------------------------------
\186\ See NYSE Letter.
---------------------------------------------------------------------------
3. Nominee and Coordination Fees
One commenter stated that the proposed increase in the nominee
coordination fee would be 10%, from $20 to $22 for each nominee holding
at least one share of an issuer's stock.\187\ This commenter noted that
the fee appeared to be significantly higher than similar fees charged
by the Depository Trust Company (``DTC'') and the National Securities
Clearing Corporation (``NSCC''), two broker-dealer utilities that work
on an at-cost basis.\188\ This commenter stated that without
independent confirmation of the actual cost of sending electronic
search requests to nominees and processing the responses, ``it is hard
to justify a 10% increase in this fee, especially when the cost of
sending electronic requests, messages, and beneficial owner account
information is significantly less expensive when conducted through the
DTC and/or NSCC processing systems.'' \189\
---------------------------------------------------------------------------
\187\ See STA Letter II.
\188\ Id.
\189\ Id.
---------------------------------------------------------------------------
[[Page 32519]]
4. Notice and Access Fees
Two commenters stated that there needs to be an independent review
of the actual costs incurred for notice and access fees to reflect a
rate of reasonable reimbursement.\190\ Another commenter stated that
the proposal does not provide information sufficient to analyze in
detail the cost basis for notice and access fees.\191\ One commenter
noted that the proposal would generally codify Broadridge's current
notice and access fees.\192\ This commenter stated that ``even if the
Commission determines that it is appropriate for such a fee to be
charged, it is not reasonable for the fee to apply to all accounts,
even those which receive the full set of proxy materials.'' \193\ One
commenter reiterated that the ``lack of an independent audit hampers
the ability of issuers to know what costs are incurred, and why these
fees are needed to handle a much lower level of mail processing, i.e.,
the mailing of one piece instead of a four-piece proxy package.'' \194\
---------------------------------------------------------------------------
\190\ See STA Letter II, ICI Letter.
\191\ See AST Letter.
\192\ See ICI Letter.
\193\ Id.
\194\ See STA Letter II.
---------------------------------------------------------------------------
In its response letter, the Exchange referred to the discussion in
its rule filing of notice and access fees, but emphasized that the PFAC
members were satisfied with the overall level of notice and access
costs.\195\ The Exchange represented that the only question was whether
Broadridge's approach with respect to those costs made sense and, after
reviewing alternative approaches, the PFAC came to a consensus that
Broadridge's approach was best.\196\
---------------------------------------------------------------------------
\195\ See NYSE Letter.
\196\ Id.
---------------------------------------------------------------------------
5. NOBO List Fees
One commenter stated that the current NOBO list fees far exceed
what should be considered reasonable and deserves further
scrutiny.\197\ This commenter noted that the proposed fee schedule
codifies the fee that Broadridge historically has charged for issuers
to obtain a list of NOBOs.\198\ This commenter also raised concerns
about (1) The level of fees charged given the relatively uncomplicated
nature of the work involved and (2) the possibility that issuers may be
paying twice for the same information.\199\
---------------------------------------------------------------------------
\197\ See ICI Letter.
\198\ Id.
\199\ Id.
---------------------------------------------------------------------------
E. Burden on Competition
Several commenters stated that the structure and level of the
proposed NYSE proxy fees place a burden on competition.\200\ Four
commenters stated that the NYSE rule filing does not adequately address
the contract arrangements between broker-dealers and Broadridge.\201\
In particular, two commenters expressed the view that the rule filing
does not adequately address the rebates being provided by Broadridge to
broker-dealers as a result of excess profits generated by the NYSE
proxy fee schedule, which they believe create a burden on competition
that is not necessary or appropriate.\202\ One commenter stated,
however, that although there is one dominant intermediary on the street
side, brokers remain free to contract with any entity that can fulfill
proxy process services to their clients or can provide those services
themselves.'' \203\ One commenter stated that there should be an
examination of the rebates being provided to ensure that they do not
come at the issuer's expense.\204\ This commenter also noted that this
issue was previously raised by the NYSE Proxy Working Group in 2006 and
the Proxy Concept Release, and expressed the view that the PFAC did not
address this issue in any meaningful way.\205\ Two commenters believed
that the SEC should ``disapprove the rule filing on the basis that the
excess profits being generated are creating a burden on competition, as
the dominant service provider in this area is able to use these excess
profits to subsidize its ability to successfully encroach on the proxy
servicing business of transfer agents.'' \206\
---------------------------------------------------------------------------
\200\ See STA Letter II, IBC Letter, SSA Letter, Lovatt Letter,
Schafer Letter.
\201\ See STA Letter II, IBC Letter, SSA Letter, BNY Letter.
\202\ See STA Letter II, IBC Letter.
\203\ See ABC Letter.
\204\ See STA Letter II.
\205\ Id.
\206\ See STA Letter II, IBC Letter.
---------------------------------------------------------------------------
In its response letter, the Exchange referred to the discussion in
its rule filing and the PFAC report of the payments made by Broadridge
to certain of its broker-dealer clients pursuant to their contractual
arrangements, but reiterated that ``the existence of these cost
recovery payments is a completely rational result of the fact that the
fees are `one size' but have to `fit all', so that the firms with large
volumes can be served at a lower unit cost, while those with smaller
volumes have a higher unit cost to Broadridge.'' \207\ The Exchange
suggested that, contrary to one commenter's contention that the rebates
reflect excess profits,\208\ the rebates ``may also be viewed as a
demonstration that market forces are directing the `excess' to firms
that can be serviced by Broadridge for a lower unit price but have
themselves greater internal street name proxy administration costs,
given their larger number of accounts.'' \209\
---------------------------------------------------------------------------
\207\ See NYSE Letter.
\208\ See STA II Letter.
\209\ See NYSE Letter.
---------------------------------------------------------------------------
F. Enhanced Broker Internet Platforms
Ten commenters expressed general support for the proposed EBIP
incentive fee, stating that issuers should expect new cost savings from
the success fee for enhancements to EBIPs.\210\ Two of these commenters
believed that the proposed success fee would increase the availability
of EBIPs and potentially spur innovation in such platforms.\211\ An
additional commenter that supported the proposed fee believed that it
would result in higher retail voting rates.\212\
---------------------------------------------------------------------------
\210\ See Perficient Letter, SIFMA Letter, ABC Letter, CCMC
Letter, Broadridge Letter, Darling Letter, SCSGP Letter, iStar
Letter, Steering Committee Letter, SCC Letter.
\211\ See SIFMA Letter, ABC Letter.
\212\ See NIRI Letter.
---------------------------------------------------------------------------
Six commenters believed that the incentive structure for developing
EBIPs could be further improved.\213\ Three commenters expressed
concern that the incentives provided to brokers for developing EBIPs do
not extend to other more open platforms, such as ProxyDemocracy.org,
Sharegate.com or other Web sites.\214\ Two commenters stated that these
and other entities should be afforded at least the same incentives as
brokers.\215\ These commenters also argued that EBIPs offer no real
benefit to retail shareowners over e-delivery.\216\ Several commenters
expressed concern that brokers who set up EBIPs could be incentivized
to create default voting mechanisms that essentially replicate
uninformed ``broker voting.'' \217\ Two commenters stated that the fee
proposal only addresses the needs of issuers, brokers and Broadridge,
without considering the needs of shareowners.\218\ One commenter noted
that the ``99 cent fee level was not based on any survey of brokers, or
on the anticipated impact of any particular level of success fee on
individual broker decisions to
[[Page 32520]]
implement EBIPs.'' \219\ This commenter also suggested that the rules
for brokers' eligibility to receive a success fee be drafted to provide
bright lines so that brokers are not compelled to conduct extensive
analysis to determine how the fee might apply in their individual
circumstances.\220\ One commenter requested that the Commission include
investment advisors and beneficial owners in developing the incentive
plan for EBIPs.\221\ Two commenters recommended that the proposed rule
change be delayed and amended to encourage an open form of client
directed voting. \222\ One commenter recommended an approach to EBIPs
that provides revenue streams to companies who prove they can provide a
superior service in demand by the investor customer.\223\ One commenter
requested that the Commission consider the following four issues
associated with EBIPs prior to finalizing the proposed rule change: (1)
whether Voting Information Forms (``VIFs''), including those
distributed to beneficial shareowners by EBIPs, should be subject to
the same degree of Commission oversight as proxy ballots; (2) whether
EBIPs that distribute VIFs to beneficial shareowners should be
prohibited from presenting voting options in a manner that unfairly
tilts votes in favor of management recommendations; (3) whether VIFs,
including those distributed to beneficial shareowners by EBIPs, should
be prohibited from describing proxy ballot items using wording,
headings, or fonts that differ from those used on the related proxy
card; and (4) whether VIFs, including those distributed to beneficial
shareowners by EBIPs, should not be permitted to tally unmarked
shareowner votes in favor of management's recommendations when the
underlying voting items are otherwise ineligible for discretionary
voting by brokers.\224\ Another commenter believed that providing
additional incentives for integration of a customer's documents within
one investor mailbox would provide a stronger benefit to
investors.\225\ One commenter questioned whether the proposal
improperly encourages the adoption of internet voting procedures such
as EBIP that, according to the commenter, shift control of the voting
process to brokers and corporate managers.\226\ This commenter also
questioned whether the proposal would ensure proper Commission
oversight of the preparation of clear, informative and balanced VIFs,
and whether it would enable the creation of open rather than
proprietary client directed voting systems.\227\
---------------------------------------------------------------------------
\213\ See Harrington Letter, ICC Letter, Sharegate Letter, CG
Letter, CII Letter, Zumbox Letter.
\214\ See ICC Letter, Harrington Letter, CG Letter.
\215\ See ICC Letter, CG Letter.
\216\ Id.
\217\ See ICC Letter, Harrington Letter, CG Letter.
\218\ See ICC Letter, CG Letter.
\219\ See SIFMA Letter.
\220\ Id.
\221\ See Harrington Letter.
\222\ See ICC Letter, CG Letter.
\223\ See Sharegate Letter.
\224\ See CII Letter.
\225\ See Zumbox Letter.
\226\ See CtW Letter.
\227\ Id.
---------------------------------------------------------------------------
With respect to EBIPs, the Exchange stated in its response letter
that it proposed the EBIP incentive fee because the PFAC and issuer
representatives supported the fee.\228\ The Exchange expressed that it
has no opinion on whether EBIPs can or would be used to facilitate
client directed voting, as this was not an issue discussed with the
PFAC or with the Exchange in its follow up discussion regarding the
EBIP fee proposal.\229\ The Exchange noted one commenter's concerns
regarding the voting instruction form used to obtain voting
instructions from street name shareholders,\230\ but stated that these
concerns similarly were not discussed with the PFAC or in follow up
EBIP discussions.\231\
---------------------------------------------------------------------------
\228\ See NYSE Letter.
\229\ Id.
\230\ See CII Letter.
\231\ See NYSE Letter.
---------------------------------------------------------------------------
G. Stratification of NOBO Lists Outside of a Record Date
Six commenters supported the stratification of NOBO lists.\232\
Three commenters believed that the proposal to provide stratified NOBO
lists would reduce issuers' costs in communicating with
shareholders.\233\ Another commenter believed that stratified NOBO
lists would enhance retail voter participation, as well as help issuers
communicate with their shareholders at proxy time.\234\
---------------------------------------------------------------------------
\232\ See ABC Letter, Broadridge Letter, NIRI Letter, SCC
Letter, ICI Letter, SCSGP Letter.
\233\ See ABC Letter, Broadridge Letter, NIRI Letter.
\234\ See SCSGP Letter.
---------------------------------------------------------------------------
However, four commenters believed that the stratified NOBO lists
should be made available outside of a record date.\235\ One commenter
noted its disappointment that an issuer could not request a stratified
NOBO list outside of a record date, ``especially at a time when issuers
have a greater need to communicate more frequently with their
shareholders, and especially their street name holders.'' \236\ This
commenter also stated that ``issuers find it more cost-effective to
order a subset of the NOBO list, segmented by whether or not a
beneficial owner already voted on a solicitation, or stratified by a
minimum threshold of shares held.'' \237\ Another commenter stated that
the justification used by the NYSE for limiting stratification ``is the
impact such a change would have on the proxy system, which appears to
be the impact this would have on the vendor (Broadridge) that provides
this information.'' \238\ This commenter highlighted that any potential
negative impact on the vendor is not sufficient justification to
restrict potential benefits to issuers.\239\ One commenter believed
that if the proposal were expanded to include requests for stratified
lists at any time of the year, there would be an imbalance between fees
and the work involved.\240\ This commenter recommended that the
Commission and the NYSE monitor developments with respect to NOBO lists
for the first year of the new fees and, at the end of the first year,
the proposed rule should be adjusted, if necessary, in light of the
actual use of the new stratified NOBO list option.\241\
---------------------------------------------------------------------------
\235\ See SCSGP Letter, STA Letter II, BNY Letter, NIRI Letter.
\236\ See STA Letter II.
\237\ Id.
\238\ See BNY Letter.
\239\ Id.
\240\ See Broadridge Letter.
\241\ Id.
---------------------------------------------------------------------------
The Exchange stated in its response letter that it believes that
there is a rational basis to distinguish between record date lists and
other lists, and that the Exchange is concerned about the unknown
impact of the proposed NOBO list fee change on overall proxy fee
revenues available to reimburse brokers for their costs.\242\ The
Exchange stated that issuer and broker experience with this change
would inform whether future changes are desirable.\243\
---------------------------------------------------------------------------
\242\ See NYSE Letter.
\243\ Id.
---------------------------------------------------------------------------
H. Minimum Share Threshold for Managed Accounts
One commenter, who stated that it has been adversely affected by
fees attributable to managed accounts that hold fractional shares of
its own stock, expressed full support for the proposal.\244\ In
addition, one commenter stated that the removal of fees for fractional
share positions would help eliminate exposure some issuers have to
large, unanticipated increases in the number of street name accounts
from one year to the next.\245\ This commenter estimated that this
amendment would save issuers approximately $3.6 million over a period
of twelve months.\246\
---------------------------------------------------------------------------
\244\ See Gartner Letter.
\245\ See Broadridge Letter.
\246\ Id.
---------------------------------------------------------------------------
[[Page 32521]]
However, three commenters raised concerns regarding the five-share
limit for fees for processing shares held through managed
accounts.\247\ One commenter stated that the rules for reimbursement
should be based on actual (or a reasoned estimate of) proxy processing
costs rather than on arbitrarily fixed thresholds.\248\ Another
commenter stated that the proposal lacked a detailed analysis
concerning the basis for selecting any particular threshold.\249\ Two
commenters stated that the work required to process proxy distribution
to Managed Accounts is the same, regardless of the number of shares
held,\250\ and one commenter stated the proposed approach has the
potential to create an imbalance between the fees and the amount of
work involved.\251\ Instead of drawing the line at five shares, one
commenter believed that issuers should not be required to reimburse
brokers for processing managed accounts that have less than one whole
share.\252\
---------------------------------------------------------------------------
\247\ See Broadridge Letter, SIFMA Letter, AST Letter.
\248\ See SIFMA Letter.
\249\ See AST Letter.
\250\ See Broadridge Letter, SIFMA Letter.
\251\ See Broadridge Letter.
\252\ Id.
---------------------------------------------------------------------------
I. Impact on Mutual Funds
Two commenters stated that there should be further analysis of the
impact the proposed rule change would have on proxy distribution fees
paid by mutual funds and, in particular, the open-end funds that hold
special meetings each year.\253\ One of these commenters stated that
the proposal could result in a significant fee increase in combined
processing and intermediary unit fees for many mutual funds.\254\ This
commenter also stated that the ``net impact of the proposed changes
will vary widely due to the complexity of a proposed fee structure that
raises combined processing and intermediary costs for many funds (and
especially funds conducting special meetings without the election of
directors/trustees), while also reducing certain costs associated with
`managed accounts.' '' \255\ This commenter noted that there was
insufficient information to determine the cost basis and impact of the
fee changes, including the extent to which related costs reductions
could mitigate the impact of higher combined processing and
intermediary unit fees.\256\
---------------------------------------------------------------------------
\253\ See ICI Letter, AST Letter.
\254\ See AST Letter.
\255\ Id.
\256\ Id.
---------------------------------------------------------------------------
In its response letter, the Exchange criticized these two
commenters as premising their comments on a misunderstanding of what
constitutes a ``special meeting.'' \257\ According to the Exchange,
contrary to the suggestion in one commenter's letter,\258\ a meeting
that involves the election of directors, even if other non-routine
items are included on the ballet, would not be a special meeting.\259\
The Exchange believes that this misunderstanding may have impacted the
proxy fee analysis performed by the other commenter.\260\
---------------------------------------------------------------------------
\257\ See NYSE Letter.
\258\ See ICI Letter.
\259\ See NYSE Letter.
\260\ Id., see also AST Letter. With respect to that analysis,
the Exchange asserts that it is not clear how many issuers were
included, and that the experiences of particular issuers will
differ. See NYSE Letter.
---------------------------------------------------------------------------
J. Effective Date of the Proposed Rules
One commenter recommended that the new rules become effective on
January 1, 2014.\261\ This commenter also urged the Commission to set
an effective date for the commencement of the five-year EBIP program
that is at least six to nine months following the date of adoption of
the final rules implementing the EBIP program.\262\ In its response
letter, the Exchange stated its belief that a lengthy period before
effectiveness of the proposed fee structure would be unnecessary.\263\
---------------------------------------------------------------------------
\261\ See SIFMA Letter.
\262\ See SIFMA Letter.
\263\ See NYSE Letter.
---------------------------------------------------------------------------
V. Proceedings to Determine Whether To Disapprove SR-NYSE-2013-07 and
Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \264\ to determine whether the proposed rule
change should be disapproved. Institution of such proceedings is
appropriate at this time in view of the legal and policy issues raised
by the proposal, as discussed below. Institution of disapproval
proceedings does not indicate that the Commission has reached any
conclusions with respect to any of the issues involved. Rather, as
described in greater detail below, the Commission seeks and encourages
interested persons to provide additional comment on the proposed rule
change.
---------------------------------------------------------------------------
\264\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
Pursuant to Section 19(b)(2)(B),\265\ the Commission is providing
notice of the grounds for disapproval under consideration. In
particular, Section 6(b)(4) of the Act \266\ requires that an exchange
have rules that provide for the equitable allocation of reasonable
dues, fees and other charges among its members, issuers and other
persons using its facilities.\267\ In addition, Section 6(b)(5) of the
Act \268\ requires that the rules of an exchange be designed, among
other things, to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, 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. Section 6(b)(5) also prohibits the rules of an
exchange from being designed to permit unfair discrimination between
customers, issuers, brokers, or dealers. Further, Section 6(b)(8) of
the Act \269\ prohibits any exchange rule from imposing any burden on
competition that is not necessary or appropriate in furtherance of the
Act.
---------------------------------------------------------------------------
\265\ Id.
\266\ 15 U.S.C. 78f(b)(4).
\267\ Relatedly, SEC Rules 14b-1 and 14b-2 condition broker-
dealer's and bank's obligation to forward issuer proxy materials to
beneficial owners on the issuer's assurance that it will reimburse
the broker-dealer's or bank's reasonable expenses, both direct and
indirect, incurred in connection with performing that obligation.
See 17 CFR 240.14b-1 and 17 CFR 240.14b-2.
\268\ 15 U.S.C. 78f(b)(5).
\269\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------
As discussed above, the Exchange has proposed to amend its rules
that provide a schedule of ``fair and reasonable'' rates of
reimbursement by issuers to NYSE member organizations for expenses in
connection with the processing of proxy materials and other issuer
communications provided to investors holding securities in street name.
According to the Exchange, over 80% of publicly held securities are in
street name today, and NYSE member organizations have contracted with
Broadridge, a third-party service provider, to handle almost all proxy
processing in the U.S. The Exchange's proposal relies substantially on
the recommendations of the PFAC, an advisory committee composed of
representatives of issuers, broker-dealers and investors, which in turn
relied substantially on information provided by Broadridge.
The PFAC's recommendations, according to the Exchange, were
intended to serve several goals, including supporting the current proxy
distribution system; encouraging and facilitating retail investor
voting; improving the transparency of the fee structure; and ensuring
that the fees are as fair as possible.\270\ The Commission notes that
aspects of the Exchange's
[[Page 32522]]
proposal appear designed to make incremental improvements to the
existing fee structure, including for example, creating more finely-
tuned, tiered fee structures for certain fees in an attempt to take
into account economies of scale; eliminating proxy distribution fees
for fractional shares; providing stratified NOBO lists; rationalizing
the treatment of wrap accounts as compared to managed accounts; and
encouraging EBIP use. Nevertheless, as is further discussed below, the
Commission believes that significant questions exist as to whether the
Exchange has provided adequate justification for material aspects of
its proposal such that the Commission can make a determination that the
proposal is consistent with the Act.
---------------------------------------------------------------------------
\270\ See Notice, 78 FR at 12384.
---------------------------------------------------------------------------
The Exchange estimates that issuers spend approximately $200
million in aggregate on fees for proxy distribution to street name
shareholders each year. While the PFAC, according to the Exchange,
``did what it could'' to review the costs associated with proxy
processing, such as reviewing publicly available financial information
on Broadridge, which does not separately report information about its
proxy distribution business as a standalone segment, as well as
reviewing analyst reports that discuss Broadridge's business segments,
it does not appear that the PFAC looked beyond this general information
to obtain a clearer understanding of the costs of proxy processing or
of how they may have changed in recent years, for example, in light of
notice and access.\271\
---------------------------------------------------------------------------
\271\ Id.
---------------------------------------------------------------------------
The Exchange's rules currently set forth rates of reimbursement for
processing and distribution expenses that are broken down into several
specific categories. As discussed above, these include a ``basic
processing fee'' of $0.40 for each account through which the issuer's
securities are beneficially owned, as well as a ``supplemental fee'' of
either $0.05 or $0.10 per beneficial owner account for issuers with
securities held in 200,000 or more accounts, or less than 200,000
accounts, respectively. In addition, for accounts where paper mailings
have been eliminated (e.g., where there has been consent to electronic
delivery or the suppression of duplicative mailings to the same
address), there is an ongoing ``incentive fee'' of either $0.25 or
$0.50 per beneficial owner account for issuers with securities held in
200,000 or more accounts, or less than 200,000 accounts, respectively.
Although Broadridge currently charges issuers that elect to use the
``notice and access'' method for distributing proxy materials a
separate per account fee, ``notice and access'' fees are not presently
addressed by the Exchange's rules.
With respect to the basic processing fee, the PFAC recommended and
the Exchange proposed a rate structure consisting of five tiers,
ranging from $0.32 to $0.50 per beneficial owner account depending on
the number of issuer accounts. Similarly, with respect to the
supplemental fee, the PFAC recommended and the Exchange proposed a rate
structure consisting of five tiers, ranging from $0.07 to $0.14 per
beneficial owner account depending on the number of issuer accounts.
The net effect of these changes is estimated to increase overall proxy
distribution fees by approximately $9-10 million. According to the
Exchange, the PFAC recommended these changes, among other things, to
better reflect the economies of scale in processing issuers with a
larger number of accounts, and to reflect the impact of inflation since
the fees were last adjusted. The Exchange, however, has not clearly
explained why the particular five tiers were chosen, or provided the
rationale for the specific differential charges for those tiers. It
also offers no evidence that either the Exchange or the PFAC conducted
a meaningful review of the economies of scale present in the proxy
processing business, or the overall costs associated therewith.
With respect to the incentive fee, the PFAC recommended and the
Exchange proposed to change its name to the ``preference management''
fee, and set the rate at $0.32 per beneficial owner account, without
regard to the number of issuer accounts. For managed accounts, however,
the preference management fee would be $0.16 per account, except that
no fee would be charged for accounts with five or fewer shares. The net
effect of these changes is estimated to decrease overall proxy
distribution fees by approximately $15 million.
In contrast to the approach taken with the basic processing and
supplemental fees, the Exchange explains that, for the preference
management fee, the PFAC recommended eliminating a rate structure
tiered by the number of issuer accounts in order to avoid ``unnecessary
complexity,'' and because it believed the processing involved in
managing preferences was less susceptible to economies of scale by
issuer size ``because it is, of necessity, an account by account
task.'' \272\ The Exchange does not clearly explain, however, why the
tiered approach--which in fact is based on the number of accounts--is
inappropriate for the preference management fee but appropriate for the
basic processing and supplemental fees.
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\272\ Id. at 12388.
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The Exchange acknowledges the concerns raised in the Commission's
Proxy Concept Release about the continuing nature of the incentive fees
after the election to discontinue paper mailings is made. According to
the Exchange, however, the PFAC was persuaded, following discussions
with broker-dealers and Broadridge, that there was significant
processing work involved in keeping track of a shareholder's election,
even though few shareholders actually change their elections. The
Exchange explains that ``data processing has to look at each position
relative to each meeting or distribution event to determine how the
`switch' should be set,'' and that ``[d]ata management requires ongoing
technology support, services and maintenance, and is a significant part
of the total cost of eliminating paper proxy materials.'' \273\
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\273\ Id. at 12386.
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With respect to managed accounts, where voting typically is
delegated to a broker or investment manager, the Exchange takes the
position that the maintenance of the beneficial owner's preference is
as necessary as it is with non-managed accounts. In the Exchange's
view, however, managed accounts are different because, unlike non-
managed accounts, the elimination of paper mailings benefits the broker
as well as the issuer. Although the Exchange does not clearly explain
how the broker benefits with managed accounts in this context, it
represents that ``[i]t is this unique attribute of the managed account
that suggested to the Committee that it would be most fair, and most
reasonable, for issuers and brokers to share the cost of the admittedly
real processing work that is done to track and maintain the voting and
distribution elections made by the beneficial owners of the stock
positions in the managed account.'' \274\ No preference management fee
would be charged for managed accounts with five or fewer shares,
though, because ``the benefit to issuers of holdings of five or fewer
shares in a managed account is limited.'' \275\ The Exchange, however,
does not provide a clear explanation as to why the five share threshold
was chosen. Further, the Exchange offers no rationale for treating
managed accounts differently only with respect to preference management
fees, and not
[[Page 32523]]
the basic processing, supplemental, and other fees.
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\274\ Id. at 12387.
\275\ Id. at 12388.
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For notice and access fees, which for the first time would be
addressed in the Exchange's rules, the Exchange essentially has
proposed to codify Broadridge's existing fee schedule.\276\ Although
Broadridge occupies a dominant position as a proxy processor for
broker-dealers, the Exchange expresses the view that Broadridge's
notice and access fees are the ``product of market forces.'' \277\ The
Exchange acknowledges that some issuers represented on the PFAC
expressed concern that notice and access fees were charged for all
issuer accounts, even in cases where an issuer uses notice and access
only for a subset of its accounts (e.g., smaller accounts), or where
mailings already have been suppressed (e.g., by consent to electronic
delivery). Because, in the Exchange's view, there was ``general
satisfaction with the overall level of notice and access fees,
Broadridge was asked to suggest an alternative approach that would net
Broadridge a similar amount of fee revenue from notice and access but
avoid the application of a fee to all accounts.'' \278\ In response,
Broadridge suggested applying its higher preference management fee to
accounts that are actually subject to notice and access. According to
the Exchange, however, an impact analysis showed that this alternative
would disproportionately impact certain issuers, so a majority of the
PFAC recommended that Broadridge's current rate schedule for notice and
access fees largely be incorporated into the Exchange's proposal.
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\276\ The Commission notes that the Exchange has taken the same
approach with respect to NOBO list fees, essentially proposing to
codify Broadridge's existing NOBO list fee schedule.
\277\ See Notice, 78 FR at 12389.
\278\ Id.
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The Exchange also addressed the concern, reflected in the Proxy
Concept Release, that Broadridge rebates a portion of the fees paid by
issuers for proxy processing to its larger broker-dealer clients.
According to the Exchange, the PFAC ``was persuaded that the existence
of these payments is not any indicator of unfairness or impropriety.''
\279\ The Exchange recognizes that broker-dealers and Broadridge engage
in individual arm's length negotiations over the price to be paid to
Broadridge for proxy processing services, and that the largest firms
may negotiate a better rate. The Exchange does not clearly explain,
however, why these savings are not passed on to issuers (i.e., why the
maximum rates permitted under the Exchange's rules continue to be
charged to issuers in these cases, despite the lower costs incurred).
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\279\ Id. at 12393.
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The Commission also notes that commenters expressed varying views
on the Exchange's proposed EBIP fee, including suggestions about the
type of EBIP service that should qualify for the fee.\280\ Generally,
many commenters expressed support for the proposed EBIP fee,\281\ while
several others believed that the incentive structure for developing
EBIPs could be further improved.\282\
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\280\ See Section IV.F., supra.
\281\ See Perficient Letter, SIFMA Letter, ABC Letter, CCMC
Letter, Broadridge Letter, Darling Letter, SCSGP Letter, iStar
Letter, Steering Committee Letter, SCC Letter.
\282\ See Harrington Letter, ICC Letter, Sharegate Letter, CG
Letter, CII Letter.
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As discussed above, while a number of commenters expressed general
support for the proposed rule change, others expressed a variety of
concerns with the proposed fees.\283\ Several commenters fundamentally
questioned the basis for the proposed fee schedule, and suggested that
the Exchange should first engage an independent third-party to audit
the actual costs incurred in proxy distribution activities. In their
view, only then could the Exchange meaningfully develop fees that are
fair and reasonable, equitably allocated, and otherwise consistent with
statutory standards.\284\ A number of commenters believed that the
proposed fees were too high, and thus favored the interests of broker-
dealers over issuers.\285\ Particular concerns were expressed with
respect to the rationale for and fairness of the proposed preference
management fees, treatment of managed accounts, and notice and access
fees. Commenters also questioned whether the proposed proxy fee
structure placed a burden on competition, particularly in light of the
contractual arrangements between broker-dealers and Broadridge and the
related rebate payments to certain broker-dealers.\286\
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\283\ See, e.g., STA Letter II, Shafer Letter, Lovatt Letter,
IBC Letter, BNY Letter, ICI Letter.
\284\ See SSA Letter, STA Letter, STA Letter II, Shafer Letter,
Lovatt Letter, NIRI Letter, SCC Letter, IBC Letter, ICI Letter.
\285\ See STA Letter II, IBC Letter, Shafer Letter, Lovatt
Letter.
\286\ See STA Letter II, IBC Letter, SSA Letter, BNY Letter.
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In articulating the statutory basis for its proposal, the Exchange
expresses the belief that its proposed fee schedule is consistent with
Section 6(b)(4) of the Act, which among other things requires the
``equitable'' allocation of ``reasonable'' fees, because the PFAC--
which included representatives of broker-dealers and issuers--``agreed
unanimously that the proposed fees were reasonable in light of the
information the Committee had gathered about the costs incurred by
brokers.'' \287\ Noting that broker-dealers have processes and costs
beyond those covered by their agreements with Broadridge, the Exchange
represents that the PFAC ``became comfortable with the reasonableness
of the overall fees when considered in light of the overall costs
involved.'' \288\ As discussed above, however, neither the Exchange nor
the PFAC have articulated a sufficient analysis of Broadridge's costs
of providing proxy processing services, including with respect to
issuers of various sizes, or of the costs incurred by broker-dealers
that may go beyond the services provided by Broadridge. Accordingly,
the Commission lacks a sufficient basis upon which to assess whether
the incremental changes proposed to the existing fee structure (e.g.,
the addition of tiered fee structures to address economies of scale,
the elimination of tiered fee structures to promote simplification, the
reduction of charges for managed accounts in some contexts but not
others, the incorporation of the Broadridge rate schedule for notice
and access fees into the Exchange's rulebook) are consistent with the
statutory standard, including whether the overall level and structure
of the fees reflected in the Exchange's rule are ``reasonable'' or an
``equitable'' allocation of fees. Further, the payment of rebates by
Broadridge to certain larger broker-dealers of a portion of the fees
paid by issuers--which the Exchange simply characterizes as the product
of negotiation--raises further questions about whether the proposal
meets the statutory standard.
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\287\ See Notice, 78 FR at 12394.
\288\ Id.
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With respect to Section 6(b)(5) of the Act, which among other
things prohibits rules designed to permit unfair discrimination, the
Exchange takes the position that the statutory standard is met because
``all issuers are subject to the same fee schedule'' and the PFAC
``thoroughly examined the impact of the current fee structure on
different categories of issuers.'' \289\ In this regard, the Exchange
notes the efforts made in the proposal to mitigate the impact of fees
for managed accounts, and to implement a tiered pricing structure for
certain fees to better reflect economies of scale. As a preliminary
matter, the Commission notes that the fact that all issuers would be
subject to the same fee schedule does not address concerns of
[[Page 32524]]
unfair discrimination where, as here, issuers would be treated
differently within that schedule. Although the Commission acknowledges
the efforts by the Exchange to incrementally improve the fairness of
its fee schedule, as discussed above, significant questions remain as
to the rigor of the Exchange's analysis absent more meaningful cost
data and a detailed explanation for the specific levels and structure
of the fees proposed, and in light of the extensive reliance by the
PFAC and the Exchange on information and recommendations provided by
the dominant proxy processor. Finally, the Exchange states that its
proposal would not impose any unnecessary burden on competition within
the meaning of Section 6(b)(8) of the Act, because care was taken ``not
to create either any barriers to brokers being able to make their own
distributions without an intermediary or any impediments to other
intermediaries being able to enter the market.'' \290\ However, as
discussed above, and as noted by commenters, there are concerns that
the proposed fee structure, which would appear to continue to
facilitate the payment of rebates by the dominant proxy processor to
larger broker-dealers pursuant to long-term contracts, may result in an
unnecessary or inappropriate burden on competition.
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\289\ Id. at 12395.
\290\ Id.
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The Commission therefore believes that questions remain as to
whether the Exchange's proposal is consistent with the requirements of:
(1) Section 6(b)(4) of the Act, including whether it provides for the
equitable allocation of reasonable fees among its members, issuers and
other persons using its facilities; (2) Section 6(b)(5) of the Act,
including whether it is not designed to permit unfair discrimination,
or would promote just and equitable principles of trade, or protect
investors and the public interest; and (3) Section 6(b)(8) of the Act,
including whether it would not impose any burden on competition that is
not necessary or appropriate in furtherance of the purposes of the Act.
VI. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
concerns identified above, as well as any others they may have with the
proposal. In particular, the Commission invites the written views of
interested persons concerning whether the proposed rule change is
inconsistent with Sections 6(b)(4), 6(b)(5), 6(b)(8) or any other
provision of the Act, or the rules and regulation thereunder. The
Commission also invites comment on the views expressed by the Exchange
in its letter responding to the comments on its proposal. Although
there do not appear to be any issues relevant to approval or
disapproval which would be facilitated by an oral presentation of
views, data, and arguments, the Commission will consider, pursuant to
Rule 19b-4, any request for an opportunity to make an oral
presentation.\291\
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\291\ Section 19(b)(2) of the Act, as amended by the Securities
Act Amendments of 1975, Pub. L. 94-29 (June 4, 1975), grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by a self-regulatory
organization. See Securities Act Amendments of 1975, Senate Comm. on
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change should be
disapproved by June 20, 2013. Any person who wishes to file a rebuttal
to any other person's submission must file that rebuttal by July 5,
2013.
Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSE-2013-07 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSE-2013-07. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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 Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. All comments received will be posted without
change; the Commission does not edit personal identifying information
from submissions. You should submit only information that you wish to
make publicly available. All submissions should refer to File Number
SR- NYSE-2013-07 and should be submitted on or before June 20, 2013.
Rebuttal comments should be submitted by July 5, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\292\
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\292\ 17 CFR 200.30-3(a)(57).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-12725 Filed 5-29-13; 8:45 am]
BILLING CODE 8011-01-P