Top Emerging Trends

The New Amendment to NYSE Rule 452

Rule 452 of the New York Stock Exchange has been amended to eliminate broker discretionary voting in uncontested elections of directors (the "Amendment"). The NYSE proposed the Amendment and the SEC approved it on July 1, 2009. The Amendment applies to the voting of shares held in street name by NYSE members in connection with elections at all public companies. Because NYSE members hold the vast majority of shares held in street name, the Amendment will affect almost all public companies, except investment companies, and not just NYSE-listed companies. The Amendment will be effective for proxy voting for shareholder meetings held on or after January 1, 2010.

The Amendment is likely to have its greatest impact on companies with a high percentage of shares held by retail investors (typically smaller companies), especially those companies that use a majority-vote-for-director standard for director elections. Generally speaking, the rate at which smaller companies have adopted a majority vote standard has been much lower than at larger companies. The Commission's release noted that nearly 70% of companies in the S&P 500 have adopted some form of majority voting and the release noted other information from which it could be inferred that only about 10% of the companies from 1001 to 3000 in the Russell 3000 have adopted some form of majority voting for director.

What is NYSE Rule 452?
Investors can hold shares of record (in their own name) or in street name, that is, in the name of a broker, bank or custodian (collectively for this memo, "broker"), in which case the investor is the beneficial, but not the record, owner. It is estimated that approximately 85% of exchange-listed shares are held in street name.
Proxy solicitations of beneficial owners are typically made through the broker, which transmits the proxy statement to the beneficial holders. Instead of sending a proxy card, the broker sends to the beneficial holder an instruction sheet which the beneficial holder can return to the broker with voting instructions.
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