Financial Reform and Preempting the Rules of the NYSE: Transferring the Regulation of Discretionary Voting by Brokers to the Commission

by J Robert Brown Jr., for the Race to the Bottom.org,  June 4, 2010

The legislation just adopted by the Senate (Restoring American Financial Stability Act) contain a number of provisions that, if they survive, can only be seen a preempting some of the authority of the stock exchanges in the area of corporate governance.  Congress is doing so by transferring the authority for listing standards and other governance provisions to the Commission.

One example concerns discretionary voting by broker-dealers.  Voting restrictions on street name shares had historically been left to the NYSE under Rule 452.  This will change, however, if the Senate Bill becomes law.

Specifically, Section 957 prohibits the voting of uninstructed shares for the “election of a member of the board of directors of an issuer” and “executive compensation”.  More importantly, it allows the Commission to prohibit voting on “any other significant matter”.  The legislative history indicates that the authority is to be construed broadly.  As theSenate Report notes:…(continue reading)

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