Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the New York Stock Exchange, Inc., Extending the Pilot Governing the Reimbursement of Member Organizations for Costs Incurred in the Transmission of Proxy and Other Shareholder Communication Material

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40621; File No. SR-NYSE-98-38]

Self-Regulatory Organizations; Notice of Filing and Immediate

Effectiveness of Proposed Rule Change by the New York Stock Exchange,

Inc., Extending the Pilot Governing the Reimbursement of Member

Organizations for Costs Incurred in the Transmission of Proxy and Other

Shareholder Communication Material

October 30, 1998.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that

on October 29, 1998, the New York Stock Exchange, Inc. (the

``Exchange'' or ``NYSE'') filed with the Securities and Exchange

Commission (``Commission'') the proposed rule change as described in

Items I, II, and III below, which Items have been prepared by the

Exchange. The Commission is publishing this notice to solicit comments

on the proposed rule change from interested persons.

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\1\ 15 U.S.C. 78s(b)(1).

\2\ 17 CFR 240.19b-4.

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I. Self-Regulatory Organization's Statement of the Terms of

Substance of the Proposed Rule Change

The Exchange seeks to extend the current pilot period regarding

Exchange Rule 451, ``Transmission of Proxy Material,'' and Exchange

Rule 465, ``Transmission of Interim Reports and Other Material''

(collectively the ``Rules''). The Rules establish guidelines for the

reimbursement of expenses by NYSE issuers to NYSE member organizations

for the processing and delivery of proxy materials and other issuer

communications to security holders whose securities are held in street

name. The present pilot period regarding the Rules is scheduled to

expire on October 31, 1998. The Exchange proposes to extend the pilot

period through February 12, 1999.

The text of the proposed rule change is available at the Office of

the Secretary, the Exchange, and at the Commission.

II. Self-Regulatory Organization's Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, the Exchange included statements

concerning the purpose of and basis for the proposed rule change and

discussed any comments it received on the proposed rule change. The

text of these statements may be examined at the places specified in

Item IV below. The Exchange has prepared summaries, set forth in

sections A, B, and C below, of the most significant aspects of such

statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule Change

1. Purpose

The ``Initial Filing'' \3\ revised the rules to lower certain

reimbursement guidelines, create incentive fees to eliminate

duplicative mailings, and establish a supplemental fee for

intermediaries that coordinate multiple nominees. The Commission

approved the Initial Filing as a one-year pilot, and designated May 13,

1998, as the date of expiration. In the ``February Filing,'' \4\ the

Exchange extended the pilot period through July 31, 1998, and lowered

the rate of reimbursement for mailing each set of initial proxies and

annual reports from $.55 to $.50. In the ``July Filing,'' \5\ the

Exchange extended the pilot period through October 31, 1998, and kept

intact the five cent fee reduction implemented by the February Filing.

This proposed rule change would extend the pilot through February 12,

1999, and likewise keep intact the five cent fee reduction.

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\3\ See Securities Exchange Act Release No. 38406 (Mar. 14,

1997), 62 FR 13922 (Mar. 24, 1997). The Initial Filing contains a

detailed description regarding the background and history of the

Rules.

\4\ See Securities Exchange Act Release No. 39672 (Feb. 17,

1998), 63 FR 9034 (Feb. 23, 1998).

\5\ See Securities Exchange Act Release No. 40289 (July 31,

1998), 63 FR 42652 (Aug. 10, 1998).

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The extension of the pilot period would give the Commission

additional time to consider the ``March Filing,'' \6\ without a lapse

in the current rules. In the March Filing, the Exchange proposed a

change to the Rules regarding ``householding'' and proposed extending

the pilot period through June 30, 2001. Thus, absent an extension of

the pilot period, the fees in effect prior to the Initial Filing \7\

would return to effectiveness, creating confusion among NYSE member

organizations and issuers. Furthermore, the extension will provide the

Exchange's independent auditor with additional time to finish its

review of the impact of the pilot fee structure and will provide the

Commission with an opportunity to review the auditor's Audit Report.\8\

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\6\ See Securities Exchange Act Release No. 39774 (Mar. 19,

1998), 63 FR 14745 (Mar. 26, 1998).

\7\ The Exchange's filing mistakenly references the February

Filing rather than the Initial Filing. The Exchange confirmed that

its reference to the February Filing was an oversight and that it

intended to refer to the Initial Filing. Telephone conversation

between Michael J. Simon, Attorney, Milbank Tweed Hadley & McCloy,

and Michael Loftus, Attorney, Division of Market Regulation,

Commission (October 29, 1998).

\8\ As noted in the March Filing, the Exchange committed to

undertake an independent audit of the pilot fee structure during the

1998 proxy season.

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2. Statutory Basis

The Exchange believes the proposed rule change is consistent with

Section 6(b)(4) of the Act \9\ in that it provides for the equitable

allocation of reasonable dues, fees, and other charges among its

members and other persons using its facilities. The Exchange further

believes that the proposed rule change satisfies the requirement under

Section 6(b)(5) \10\ that an exchange have rules that are designed to

prevent fraudulent and manipulative acts and practices; promote just

and equitable principles of trade; foster cooperation and coordination

with persons engaged in regulating, clearing, settling, processing

information with respect to, and facilitating transactions in

securities; remove impediments to and perfect the mechanism of a free

and open market and a national market system; and, in general, protect

investors and the public interest.

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\9\ 15 U.S.C. 78f(b)(4).

\10\ 15 U.S.C. 78f(b)(5).

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B. Self-Regulatory Organization's Statement on Burden on Competition

The Exchange believes the proposed rule change does not impose any

burden on competition that is not necessary or appropriate in

furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed

Rule Change Received from Members, Participants or Others

The Exchange has not solicited, and does not intend to solicit,

comments on the proposed rule change. The Exchange has not received any

unsolicited written comments from members or other interested parties.

III. Date of Effectiveness of the Proposed Rule Change and Timing

for Commission Action

Because the foregoing rule change: (1) does not significantly

affect the protection of investors or the public interest; (2) does not

impose any significant burden on competition; and (3) the Exchange

provided the Commission with written notice of its intent to file the

proposed rule change at least five business days prior to the filing

date; the proposed rule change has become effective pursuant to Section

[[Page 60037]]

19(b)(3)(A) of the Exchange Act \11\ and Rule 19b-4(e)(6) \12\

thereunder.

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\11\ 15 U.S.C. 78s(b)(3)(A).

\12\ 17 CFR 240.19b-4(e)(6).

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A proposed rule change filed under Rule 19b-4(e)(6) normally does

not become operative prior to 30 days after the date of filing.

However, Rule 19b-4(e)(6)(iii) \13\ permits the Commission to designate

such shorter time if such action is consistent with the protection of

investors and the public interest. The Exchange has requested that the

Commission designate such shorter time period so that the proposed rule

change may take effect immediately upon its filing. The immediate

effectiveness would: (i) continue to make available the five cent fee

reduction regarding the distribution of each set of initial proxies and

annual reports; (ii) provide the Commission with sufficient time to

complete its review of the March Filing and analyze the Audit Report

concerning the pilot fee structure that will be prepared by the

Exchange's independent auditor; and (iii) allow the current pilot fee

structure to continue uninterrupted.

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\13\ 17 CFR 240.19b-4(e)(6)(iii).

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The Commission, consistent with the protection of investors and the

public interest, has determined to make the proposed rule change

effective immediately upon filing for the following reasons. The

proposed rule change would continue to make available the five cent fee

reduction regarding the distribution of each set of initial proxies and

annual reports. This fee reduction should continue to benefit NYSE

issuers and public investors in the form of lower costs and expenses.

As the Commission noted in the March Filing, the fee reduction is based

upon the Exchange's experience with the reimbursement guidelines and

better reflects the actual costs incurred by NYSE member organizations.

The proposed rule change also extends the expiration date of the

pilot period from October 31, 1998, through February 12, 1999. The

extension of the pilot period will provide the Commission with

additional time to complete its review of the March Filing \14\ and the

opportunity to further evaluate the proposal. Furthermore, the current

pilot period is due to expire about the same time as the estimated date

on which the Exchange hopes to deliver to the Commission the Audit

Report examining the proxy distribution process with respect to

securities held in street name. The extension will therefore provide

the Commission with the necessary time to review the Audit Report in

connection with its review of the pending March Filing.

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\14\ The Commission received approximately 46 comment letters on

the March Filing. As part of its review of the March Filing, the

Commission will consider the substance of those comment letters.

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The Commission notes that unless the current pilot period's

expiration date is extended, the reimbursement rates for proxy

materials distributed after October 31, 1998, will revert to those in

effect prior to the pilot period. The Commission believes such a result

would be confusing and counterproductive, especially given that the

March Filing proposing to extend the pilot period through June 30,

2001, is still pending with the Commission.

For all of the reasons set forth above, the Commission believes it

is reasonable that the proposed rule change become immediately

effective upon the date of filing, October 29, 1998. At any time within

60 days of the filing of the proposed rule change, the Commission may

summarily abrogate such rule change if it appears to the Commission

that such action is necessary or appropriate in the public interest,

for the protection of investors, or otherwise in furtherance of the

purposes of the Act.

IV. Solicitation of Comments

Interested persons are invited to submit written data, views and

arguments concerning the foregoing, including whether the proposed rule

change is consistent with the Act. Persons making written submissions

should file six copies thereof with the Secretary, Securities and

Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549. Copies

of the submission, all subsequent amendments, all written statements

with respect to the proposed rule change that are filed with the

Commission, and all written communications relating to the proposed

rule change between Commission and any person, other than those that

may be withheld from the public in accordance with the provisions of 5

U.S.C. 552, will be available for inspection and copying in the

Commission's Public Reference Section, 450 Fifth Street, NW,

Washington, DC 20549. Copies of such filing will also be available for

inspection and copying at the principal office of the Exchange. All

submissions should refer to File No. SR-NYSE-98-38 and should be

submitted by November 27, 1998.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\15\

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\15\ 17 CFR 200.30-3(a)(12).

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Jonathan G. Katz,

Secretary.

[FR Doc. 98-29718 Filed 11-5-98; 8:45 am]

BILLING CODE 8010-01-M