Alert March 10, 2009

NYSE Proposes to Eliminate Broker Discretionary Voting for Director Elections Except as to Registered Investments Companies

The SEC published for public comment a New York Stock Exchange (“NYSE”) proposal to amend its rules to (a) eliminate broker discretionary voting for the election of directors for all issuers except registered investment companies and (b) codify two interpretations regarding broker discretionary voting on proxy proposals to approve investment company advisory contracts.  NYSE rules allow brokers to vote on a “routine” shareholder proposal if the beneficial owner of stock entitled to vote on the proposal has not provided specific voting instructions to the broker at least ten days before a scheduled meeting.  Current NYSE rules treat as routine an uncontested election for an issuer’s board of directors, which is generally any election in which there are no competing solicitations.  On “non‑routine” matters, generally those involving a contest or any matter which substantially effect the rights or privileges of stockholders, brokers may not vote without receiving instructions from beneficial owners.  NYSE rules currently list 18 examples of non-routine matters. 

Proposed Changes.  The NYSE proposal would amend NYSE Rule 452, and corresponding NYSE Listed Company Manual Section 402.08, to eliminate broker discretionary voting for the election of directors, except for companies registered under the Investment Company Act of 1940 (the “1940 Act”).  The NYSE proposal would also codify long standing interpretations of Rule 452 that prohibit a broker from voting without stockholder instructions on any material amendment to an investment advisory contract with an investment company and on any proposal to obtain shareholder approval required by the 1940 Act of an investment advisory contract between an investment company and a new investment adviser due to 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.

Effectiveness.  The SEC must act on the proposal by June 4, 2009, subject to certain conditions, either to approve it or institute proceedings to determine whether it should be disapproved.  The proposed amendment regarding broker discretionary voting for the election of directors would be applicable to proxy voting for shareholder meetings held on or after January 1, 2010.  However, if the SEC does not approve the proposed amendment until after August 31, 2009, the effective date would be delayed until at least four months after the approval date, provided that the effective date may not fall within the first six months of the calendar year.  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 a date on or after the effective date.

Public Comment.  Comments on the NYSE proposal must be received on or before March 27, 2009.