On Feb. 26, 2009, the SEC issued for comment proposals by the New York Stock Exchange LLC to amend NYSE rules to (1) eliminate broker discretionary voting for the election of directors, but to except from that amendment companies registered under the Investment Company Act (ICA); and (2) codify previous NYSE interpretations that do not permit broker discretionary voting for material amendments to investment advisory contracts with investment companies. Release No. 34-59464; File No. SR-NYSE-2006-92; available here. Note that the SEC Release does not contain the revised text of the relevant NYSE rules; that information is included in the NYSE's filing with the SEC.


Comments on the proposals should be submitted on or before 21 days after the proposals are published in the Federal Register (publication expected in the very near future).

The proposals must be approved by the SEC. If the proposal relating to election of directors is approved, the Release states that it will be applicable to proxy voting for shareholder meetings held on or after Jan. 1, 2010. However, in the event the proposal is not approved by the SEC until after Aug. 31, 2009, the effective date shall be delayed to a date that is at least four months after the approval date, and that does not fall within the first six months of the calendar year. In addition, in any case, the proposed amendment will not apply to a meeting that was originally scheduled to be held prior to the effective date, but was properly adjourned to date on or after the effective date.


NYSE rule 452, Giving Proxies by Member Organizations, generally provides that an NYSE member organization shall give or authorize the giving of a proxy for stock registered in its name, or in the name of its nominee, at the direction of the beneficial owner. However, the rule also provides that brokers can vote without having obtained direction from beneficial owners if, among other things, the beneficial owner of the stock has not provided specific voting instructions at least 10 days before a scheduled meeting, and provided that the proxy "does not include authorization for a merger, consolidation or any other matter which may affect substantially the rights or privileges of such stock." (Matters on which brokers can vote are often referred to as proposals that the NYSE has deemed to be "routine.") One of the important results of broker votes of uninstructed shares is their use in establishing a quorum at shareholder meetings. The rule currently includes, by way of example, 18 "non-routine" Items – matters on which brokers are prohibited from voting without receiving instructions from the beneficial owners (e.g., stockholder proposals opposed by management, and mergers or consolidations).

The Proposals

NYSE is proposing to revise rule 452, and the corresponding provisions of the NYSE Listed Company Manual, to add two Items to the list of non-routine matters:

Proposed Item 19 would require receipt of beneficial owner instructions for the election of directors; provided, however, that this prohibition shall not apply in the case of a company registered under the ICA. This would be a change from current practice, as rule 452 currently treats as routine an "uncontested" election for a company's board of directors. The Release reviews at length NYSE's decision to change its policy on election of directors, focusing on the efforts of its Proxy Working Group.

Proposed Item 20 would require receipt of beneficial owner instructions for voting on a matter that "materially amends an investment advisory contract with an investment company." The Release notes that this change would merely codify the NYSE's longstanding position on this subject.

NYSE commentary to this proposed Item states that a material amendment to an investment advisory contract would include any proposal to obtain shareholder approval of an investment company's investment advisory contract with a new investment adviser, which approval is required by the ICA and the rules thereunder. Such approval will be deemed to be a "matter which may affect substantially the rights or privileges of such stock" for purposes of the rule, so that a member organization may not give a proxy to vote shares registered in its name absent instruction from the beneficial holder of the shares. As a result, for example, an NYSE member may not give a proxy to vote shares, absent instruction from the beneficial holder of the shares, on any proposal to obtain shareholder approval required by the ICA of an investment advisory contract between an investment company and a new investment adviser because of an assignment of the investment company's investment advisory contract, including an assignment caused by a change in control of the investment adviser that is party to the assigned contract.