Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by the New York Stock Exchange, Inc., Extending the Pilot Fee Structure Governing the Reimbursement of Member Organizations for Costs Incurred in the Transmission of Proxy and Other Shareholder Communication Materials

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42086; File No. SR-NYSE-99-43]

Self-Regulatory Organizations; Notice of Filing and Immediate

Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by

the New York Stock Exchange, Inc., Extending the Pilot Fee Structure

Governing the Reimbursement of Member Organizations for Costs Incurred

in the Transmission of Proxy and Other Shareholder Communication

Materials

November 1, 1999.

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 28, 1999, 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. On November 1, 1999, the Exchange filed with the Commission

Amendment No. 1 to the proposed rule change.\3\ The

[[Page 60871]]

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.

\3\ Amendment No. 1 to the proposed rule change requests that

the Commission exercise its discretionary authority under rule 19b-

4(f)(6)(iii) of the Act by designating such shorter time period,

which waives the requirement that written notice of a ``non-

controversial'' proposed rule change be provided to the Commission

at least five business days before filing. See Letter from James E.

Buck, Senior Vice President and Secretary, Exchange, to Sharon

Lawson, Senior Special Counsel, Division of Market Regulations,

Commission, dated November 1, 1999 (``Amendment No. 1'').

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

Substance of the Proposed Rule Change

The Exchange proposes to extend the effectiveness of the pilot fees

(``Pilot Fee Structure'') currently set forth in Exchange Rule 451.

``Transmission of Proxy Material,'' and Exchange Rule 465,

``Transmission of Interim Reports and Other Material.'' (collectively

the ``Rules''). The Rules provide 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 Pilot Fee Structure is presently scheduled to expire on

November 1, 1999. The Exchange proposes to extend the Pilot Fee

Structure through January 3, 2000.

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 statement 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

As first adopted, the Pilot Fee Structure revised the Rules to

lower certain reimbursement guidelines, incentive fees to eliminate

duplicative mailings, and establish a supplemental fee for

intermediaries that coordinate multiple nominees.\4\ The Pilot Fee

Structure has been modified and extended several times,\5\ most

recently by Commission order dated July 29, 1999.\6\

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\4\ See Securities Exchange Act Release No. 38406 (Mar. 14,

1997), 62 FR 13922 (Mar. 24, 1970. The Commission initially approved

the Pilot Fee Structure as a one-year pilot, and designated May 13,

1998, as the date of expiration.

\5\ See Securities Exchange Act Release Nos. 39672 (Feb. 17,

1998), 63 FR 9034 (Feb. 23, 1998) (order extending Pilot Fee

Structure through July 31, 1998, and lowering the rate of

reimbursement for mailing each set of initial proxies and annual

reports from $.55 to $.50); 40289 (July 31, 1998), 63 FR 42652 (Aug.

10, 1998) (order extending Pilot Fee Structure through October 31,

1998); 40621 (Oct. 30, 1998), 63 FR 60036 (Nov. 6, 1998) (order

extending Pilot Fee Structure through February 12, 1999); 41044

(Feb. 11, 1999), 64 FR 8422 (Feb. 19, 1999) (order extending Pilot

Fee Structure through March 15, 1999); and 41177 (Mar. 16, 1999), 64

FR 14294 (Mar. 24, 1999) (order extending Pilot Fee Structure

through August 31, 1999).

\6\ See Securities Exchange Act Release No. 41669 (July 29,

1999), 64 FR 43007 (Aug. 6, 1999) (order extending Pilot Fee

Structure through November 1, 1999).

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In June of this year, the Exchange submitted a proposed rule change

to the Commission (``June Filing'') to further revise the Pilot Fee

Structure and extend its effectiveness through August 31, 2001.\7\ The

June Filing proposes to reduce the basic processing fee and nominee

coordination fee that NYSE member organizations and proxy distribution

intermediaries may recover in connection with the distribution of proxy

and shareholder communication materials to shareholders. The June

Pilots also proposes to define the term ``nominee'' as it relates to

the calculation of the nominee coordination fee.

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\7\ See Securities Exchange Act Release No. 41549 (June 23,

1999), 64 FR 35229 (June 30, 1999).

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The Exchange believes that an extension of the Pilot Fee Structure

through January 3, 2000, will give the Commission additional time to

fully consider the June Filing and the public comment letters regarding

the June Filing,\8\ without a lapse in the current Rules. Absent an

extension of the Pilot Fee Structure, the fees in effect prior to the

Pilot Fee Structure (i.e., the fees in effect prior to March 14, 1997)

would return to effectiveness after November 1, 1999. The Exchange

believes that such a result could be counterproductive and cause

confusion among NYSE member organizations and issuers, especially given

that the June Filing, proposing to extend the revised Pilot Fee

Structure through August 31, 2001, is still pending with the

Commission.

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\8\ The Commission received comment letters from the Council of

Institutional Investors, Association of Publicly Traded Companies,

and Automatic Data Processing (``ADP''). The ADP comment letter

included an economic analysis of the June Filing, which analysis was

prepared by a consulting firm retained and paid by ADP. See Public

File SR-NYSE-99-21.

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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.\11\

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

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

\11\ In reviewing this proposal, the Commission has considered

its impact on efficiency, competition, and capital formation. 15

U.S.C. 78c(f).

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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 (or such shorter time period as designated by the Commission); the

proposed rule change has become effective pursuant to Section

19(b)(3)(A)

[[Page 60872]]

of the Exchange Act \12\ and Rule 19b-4(f)(6) \13\ thereunder.

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\12\ 15 U.S.C. 78s(b)(3)(A).

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

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Under Rule 19b-4(f)(6)(iii),\14\ an exchange is ordinarily required

to provide the Commission with written notice of its intent to file a

``non-controversial'' proposed rule change at least five business days

prior to the filing date. In Amendment No. 1, however, the Exchange

requested that the Commission exercise its discretionary authority

under Rule 19b-4(f)(6)(iii) by designating such shorter time period so

that the five day pre-filing requirement would be waived. Given the

nature of the filing and absence of material issues, the Commission

believes that it is appropriate to waive the five day pre-filing

requirement for the proposed rule change.

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\14\ 17 CFR 240.19b-4(f)(6)(iii).

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In addition, a proposed rule change filed under Rule 19b-4(f)(6)

normally does not become operative prior to 30 days after the date of

filing. However, Rule 19b-4(f)(6)(iii) 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 no later than November 1,

1999. The immediate effectiveness would allow the current Pilot Fee

Structure to continue uninterrupted, and would provide the Commission

with additional time to complete its review of the June Filing and

related comment letters.

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 extends the expiration date of the Pilot Fee

Structure from November 1, 1999, through January 3, 2000. The extension

of the Pilot Fee Structure will provide the Commission with further

time to complete its review and evaluation of the June Filing. In

particular, the Commission is still reviewing the economic analysis of

the June Filing that was submitted by ADP. Thus, the extension will

afford the Commission the additional time necessary to thoroughly

consider the substance of ADP's economic analysis and the issues raised

in the comment letters.

The Commission notes that unless the current expiration date of the

Pilot Fee Structure is extended, the reimbursement rates for proxy

materials distributed after November 1, 1999, will revert to those in

effect prior to March 14, 1997. The Commission believes such a result

could be confusing and counterproductive, especially given that the

June Filing proposing to extend the Pilot Fee Structure through August

31, 2001, is still pending with the Commission.

Based on the above reasons, the Commission believes it is

consistent with the protection of investors and the public interest

that the proposed rule change, and Amendment No. 1, become immediately

effective upon the date of filing, October 28, 1999. 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, as amended, is consistent with the Act. Persons making written

submissions should file six copies thereof with the Secretary,

Securities and Exchange Commission, 450 Fifth Street, N.W., Washington,

D.C. 20549-0609. Copies of the submissions, 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 the Commission and any persons,

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, N.W., Washington, D.C. 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-9943 and

should be submitted by November 29, 1999.

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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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 99-29159 Filed 11-5-99; 8:45 am]

BILLING CODE 8010-01-M