February 26, 2009
On February 26, 2009, the New York Stock Exchange LLC (the "NYSE") filed with the Securities and Exchange Commission (the "SEC") an amendment to NYSE Rule 452 that would affect the ability of brokers to cast discretionary votes in uncontested director elections. In addition, the NYSE filed a rule change that would temporarily suspend the application of the $1 stock price requirement of Section 802.01C of the NYSE Listed Company Manual and extend the time period for which its market capitalization continued listing standard is lowered.
A summary of these actions is set forth below.
Broker Discretionary Voting in Director Elections
The amendment to NYSE Rule 452 that was filed with the SEC today proposes to make the election of directors a "non-routine" matter, meaning that brokers could not vote on such matters absent specific instructions from their clients. Currently, NYSE Rule 452, Giving Proxies by Member Organizations, permits brokers to vote on "routine" proposals, including uncontested director elections, if the beneficial owner of the stock has not timely provided specific voting instructions to the broker. The NYSE originally filed this rule change in 2006. The amendment filed today updates the provision regarding the effective date of the rule change and reflects minor SEC staff comments on the second amendment filed in 2007.
Under current rules, brokers are required to deliver proxy materials to beneficial owners and request that the beneficial owners provide voting instructions. If brokers do not receive voting instructions by the tenth day preceding a company’s scheduled meeting, Rule 452 allows brokers to vote on certain matters the NYSE considers "routine." Uncontested director elections currently are considered to be "routine" matters on which brokers are permitted to cast discretionary votes. In contrast, brokers are not permitted to vote on "non-routine" matters without receiving instructions from the beneficial owners. Rule 452 currently lists 18 items that are considered "non-routine," including matters involving a contest or any matter that may affect substantially the rights or privileges of stockholders. If adopted, the amendment to Rule 452 would add director elections to the list of "non-routine" items, thereby eliminating broker discretionary voting for the election of directors.
If adopted by the SEC, the proposed amendment will be applicable to proxy voting for shareholder meetings held on or after January 1, 2010. However, if the proposed amendment is not approved by the SEC until after August 31, 2009, the effective date will be delayed until a date which is at least four months after the approval date and which does not fall within the first six months of the calendar year. In any case, 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.
The proposed amendment must be approved by the SEC before it takes effect and will be the subject of a public comment period following publication in the Federal Register. We expect to provide further details and guidance regarding the proposed amendment when the SEC publishes it for comment.
Share Price and Market Capitalization Requirements
Currently, Section 802.01C of the NYSE Listed Company Manual provides that a company will be considered to be below compliance standards if the average closing price of its stock has fallen below $1 over a consecutive 30 trading-day period. The recent volatility of the U.S. and global equities markets has resulted in a decline in the stock prices of many companies. As a result of these recent declines, an unusually high number of NYSE-listed companies have seen their stock prices fall to near or below the NYSE’s $1 price requirement. The NYSE’s proposed rule change would temporarily suspend the application of the stock price requirement of Section 802.01C until June 30, 2009 in order to provide temporary relief to companies during these unusual market conditions.
Section 802.01B of the NYSE Listed Company Manual provides that the NYSE will promptly delist any company—including limited partnerships and real estate investment trusts ("REITs")—that has an average global market capitalization over a consecutive 30 trading-day period of less than $25 million, regardless of the original listing standard under which it listed. On January 22, 2009, the NYSE filed a proposed rule change limiting the application of Section 802.01B through April 22, 2009 to companies—including limited partnerships and REITs—whose average global market capitalization over a consecutive 30 trading-day period falls below $15 million. The proposed rule change filed today would extend the period for which the NYSE’s market capitalization continued listing standard is lowered until June 30, 2009.
If, as expected, the SEC waives a 30-day operative delay under SEC rules, the temporary suspension of the price requirement and the extension of the temporary reduction will become effective immediately and will apply through June 30, 2009. All of the NYSE’s other continued listing criteria will continue to apply during this period.
The proposed rule change can be found on the NYSE website.
Gibson, Dunn & Crutcher’s Securities Regulation and Corporate Governance Practice Group is available to assist in addressing any questions you may have regarding these issues.
Please contact the Gibson Dunn attorney with whom you work, or any of the following:
John F. Olson (202-955-8522, [email protected])
Brian J. Lane (202-887-3646, [email protected])
Ronald O. Mueller (202-955-8671, [email protected])
Amy L. Goodman, (202-955-8653, [email protected])
Gillian McPhee (202-955-8230, [email protected])
Elizabeth A. Ising (202-955-8287, [email protected])
© 2009 Gibson, Dunn & Crutcher LLP
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