- Fund Regulation
- Retirement Security
- Trading & Markets
- Fund Governance
- ICI Comment Letters
NASD Proposes Rule Change Relating to Proxies
Washington, DC, December 29, 1999 - The Securities and Exchange Commission has published for comment a proposed rule change filed by the National Association of Securities Dealers, Inc. (NASD), through its wholly owned subsidiary, NASD Regulation (NASDR) to amend Rule 2260 of its Conduct Rules to permit NASD members to give proxies in the absence of written instructions from beneficial owners, provided that certain requirements are satisfied. Comments on the proposed rule change are due to the SEC no later than January 12, 2000.
NASD Rule 2260 specifies when members must furnish proxy and other materials to beneficial owners, and governs when NASD members may vote proxies on behalf of beneficial owners. Under the rule, NASD members must forward proxy and other materials to beneficial owners of stock held in "street name" by the members when certain conditions are met. Proxy materials must be accompanied by signed proxies and information regarding when proxies must be returned to the issuer. NASD Rule 2260 currently provides that NASD members may give proxies on beneficial owners when the member holds the stock in a fiduciary capacity. The Rule also provides that a NASD member may give proxies to vote pursuant to the rules of any exchange to which the member is also responsible, provided that the records of the member clearly indicate which procedure it is following.
The New York Stock Exchange (NYSE) and American Stock Exchange (Amex) proxy rules likewise require exchange members to forward proxy materials to beneficial owners. Unlike the NASD’s rules, the NYSE and Amex proxy rules state that an exchange member may accompany the materials with either signed proxies and information specifying when the proxies must be returned to the issuer or a request for voting instructions. The NYSE and Amex rules also allow exchange members to vote the proxies in certain circumstances if the beneficial owner fails to respond to the request for written instructions. Specifically, an exchange member may vote the shares without instruction if, to the knowledge of the member, the action in question is not contested and the action does not involve authorization for a merger, change of control, or any other matter that could substantially affect the rights and privileges of the stock.
The proposed rule change would conform Rule 2260 to the NYSE and Amex proxy rules. Under the proposal, Rule 2260(c)(2) would be amended to provide that, when an issuer satisfies the requirements in the rule that obligate NASD members to forward proxy material to the issuer’s beneficial owners, each NASD member will be required to transmit with the proxy material either a request for voting instructions and, where the rule would permit the member to give the proxy without written instructions, notice to that effect or a signed proxy. In addition, a new subparagraph (d)(4) would specify the criteria governing when NASD members could vote proxies without written instructions from beneficial owners. Finally, guidance regarding application of the proxy rules, including specific instances where members may not give proxies without instructions from the beneficial owner, would be incorporated into Rule 2260. This guidance is substantially identical to the language in the supplemental materials to the NYSE and Amex proxy rules.