The Securities and Exchange Commission voted on July 1, 2009, to approve a proposed rule change by the New York Stock Exchange that may make it more difficult for companies to satisfy quorum requirements at annual meetings.

The revised NYSE Rule 452 will reclassify uncontested director elections as a "non-routine" matter on which brokers and banks may not give a proxy to vote without instructions from the beneficial owner. NYSE Rule 452, titled "Giving Proxies by Member Organizations," has historically permitted brokers to vote on "routine" proposals, which prior to the rule change included uncontested director elections, if the beneficial owner of the stock had not provided specific voting instructions to the broker before a scheduled meeting.

The rule change will apply to shareholder meetings held after January 1, 2010. The rule change proposal contains a specific exception for companies registered under the Investment Company Act of 1940.

For companies with a large retail shareholder base, this change may make satisfying quorum requirements difficult without paying for proxy solicitors. One solution would be to include shareholder approval of the company's auditor as a proxy item. Because auditor approval would continue to be a routine matter, broker discretionary votes would continue to be counted toward quorum requirements at annual meetings.

The rule change also has the potential to alter the results of director elections, as broker discretionary votes tended to be in favor of current management. Companies with a large retail base may find that fewer shares are voted in favor of the management slate of directors as a result of this rule change.

This rule change proposal had first been introduced in October 2006 and has been amended three times: in May 2007 to provide that the proposed amendment is not applicable to registered investment companies under the Investment Company Act of 1940, and in June 2007 to add another item to the list of non-routine items listed in NYSE Rule 452.11, relating to amendments to investment contracts. Most recently, the rule change proposal was amended to update the effective date and reflect minor SEC staff comments.