[Federal Register Volume 78, Number 206 (Thursday, October 24, 2013)]
[Notices]
[Pages 63530-63547]
[FR Doc No: 2013-24920]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70720; File No. SR-NYSE-2013-07]

Self-Regulatory Organizations; New York Stock Exchange LLC; Order
Granting Approval to Proposed Rule Change Amending NYSE Rules 451 and
465, and the Related Provisions of Section 402.10 of the NYSE Listed
Company Manual, Which Provide a Schedule for the Reimbursement of
Expenses by Issuers to NYSE Member Organizations for the Processing of
Proxy Materials and Other Issuer Communications Provided to Investors
Holding Securities in Street Name, and To Establish a Five-Year Fee for
the Development of an Enhanced Brokers Internet Platform

October 18, 2013.

I. Introduction

    On February 1, 2013, New York Stock Exchange LLC (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend the fees set forth in
NYSE Rules 451 and 465, and the related provisions of Section 402.10 of
the NYSE Listed Company Manual, for the reimbursement of expenses by
issuers to NYSE member organizations for the processing of proxy
materials and other issuer communications provided to investors holding
securities in street name, and to establish a five-year fee for the
development of an enhanced brokers internet platform. The proposed rule
change was published for comment in the Federal Register on February
22, 2013.\3\ The Commission initially received twenty-four comment
letters on the proposed rule change.\4\ On April 3, 2013, the
Commission extended the time period for Commission action to May 23,
2013.\5\ The Commission thereafter received four more comment
letters.\6\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 68936 (February 15,
2013), 78 FR 12381 (``Notice'').
    \4\ See letters to Elizabeth M. Murphy, Secretary, Commission
from: Charles V. Rossi, President, The Securities Transfer
Association, dated February 20, 2013 (``STA Letter'') and March 4,
2013 (``STA Letter II''); Karen V. Danielson, President, Shareholder
Services Association, dated March 4, 2013 (``SSA Letter''); Jeanne
M. Shafer, dated March 6, 2013 (``Schafer Letter''); David W.
Lovatt, dated March 6, 2013 (``Lovatt Letter''); Stephen Norman,
Chair, The Independent Steering Committee of Broadridge, dated March
7, 2013 (``Steering Committee Letter''); Jeffrey D. Morgan,
President & CEO, National Investor Relations Institute, dated March
7, 2013 (``NIRI Letter''); Kenneth Bertsch, President and CEO,
Society of Corporate Secretaries & Governance Professionals, dated
March 7, 2013 (``SCSGP Letter''); Niels Holch, Executive Director,
Shareholder Communications Coalition, dated March 12, 2013 (``SCC
Letter''); Geoffrey M. Dugan, General Counsel, iStar Financial Inc.,
dated March 13, 2013 (``iStar Letter''); Paul E. Martin, Chief
Financial Officer, Perficient, Inc., dated March 13, 2013
(``Perficient Letter''); John Harrington, President, Harrington
Investments, Inc., dated March 14, 2013 (``Harrington Letter'');
James McRitchie, Shareowner, Corporate Governance, dated March 14,
2013 (``CG Letter''); Clare A. Kretzman, General Counsel, Gartner,
Inc., dated March 15, 2013 (``Gartner Letter''); Tom Quaadman, Vice
President, Center for Capital Markets Competitiveness, dated March
15, 2013 (``CCMC Letter''); Dennis E. Nixon, President,
International Bancshares Corporation, dated March 15, 2013 (``IBC
Letter''); Argus I. Cunningham, Chief Executive Officer, Sharegate
Inc., dated March 15, 2013 (``Sharegate Letter''); Laura Berry,
Executive Director, Interfaith Center on Corporate Responsibility,
dated March 15, 2013 (``ICC Letter''); Dorothy M. Donohue, Deputy
General Counsel--Securities Regulation, Investment Company
Institute, dated March 15, 2013 (``ICI Letter''); Charles V. Callan,
Senior Vice President--Regulatory Affairs, Broadridge Financial
Solutions, Inc., dated March 15, 2013 (``Broadridge Letter''); Brad
Philips, Treasurer, Darling International Inc., dated March 15, 2013
(``Darling Letter''); John Endean, President, American Business
Conference, dated March 18, 2013 (``ABC Letter''); Tom Price,
Managing Director, The Securities Industry and Financial Markets
Association, dated March 18, 2013 (``SIFMA Letter''); and Michael S.
O'Brien, Vice President--Corporate Governance Officer, BNY Mellon,
dated March 28, 2013 (``BNY Letter'').
    \5\ See Securities Exchange Act Release No. 69286 (April 3,
2013), 78 FR 21481 (April 10, 2013).
    \6\ See letters to Elizabeth M. Murphy, Secretary, Commission
from: Jeff Mahoney, General Counsel, Council of Institutional
Investors, dated April 5, 2013 (``CII Letter''); Paul Torre,
Executive Vice President, AST Fund Solutions, LLC, dated May 16,
2013 (``AST Letter''); and John M. Payne, Chief Executive Officer,
Zumbox, Inc., dated May 20, 2013 (``Zumbox Letter''); see also
letter to the Honorable Mary Jo White, Chair, Commission from Dieter
Waizenegger, Executive Director, CtW Investment Group, dated May 17,
2013 (``CtW Letter'').
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    On May 17, 2013, NYSE submitted a response to the comment
letters.\7\
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    \7\ See letter to Elizabeth M. Murphy, Secretary, Commission
from Janet McGinnis, EVP & Corporate Secretary, NYSE Euronext, dated
May 17, 2013 (``NYSE Letter'').
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    On May 23, 2013, the Commission initiated proceedings to determine
whether to disapprove the proposed rule change.\8\ In response to the
Order

Instituting Proceedings, the Commission received fourteen additional
comment letters on the proposal.\9\ On July 9, 2013, NYSE responded to
the Order Instituting Proceedings.\10\ On August 15, 2013, the
Commission extended the time period for Commission action to October
20, 2013.\11\ On September 9, 2013, NYSE submitted an additional letter
in further support of its proposal.\12\ On October 1, 2013, NYSE
submitted an additional letter in response to FOLIOfn Letter and
FOLIOfn Letter II.\13\ This order approves the proposed rule change.
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    \8\ See Securities Exchange Act Release No. 69622 (May 23,
2013), 78 FR 32510 (May 30, 2013) (``Order Instituting
Proceedings''). In the Order Instituting Proceedings, the
Commission, among other things, expressed its belief that questions
remained as to whether the Exchange's proposal was consistent with
the requirements of: (1) Section 6(b)(4) of the Act, including
whether it provides for the equitable allocation of reasonable fees
among its members, issuers and other persons using its facilities;
(2) Section 6(b)(5) of the Act, including whether it is not designed
to permit unfair discrimination, or would promote just and equitable
principles of trade, or protect investors and the public interest;
and (3) Section 6(b)(8) of the Act, including whether it would not
impose any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act.
    \9\ See letters to Elizabeth M. Murphy, Secretary, Commission
from: Katie J. Sevcik, Legal and Regulatory Committee Chair,
Shareholder Services Association, dated June 12, 2013 (``SSA Letter
II''); Paul Torre, Executive Vice President, AST Fund Solutions,
LLC, dated June 18, 2013 (``AST Letter II''); Loren Hanson,
Assistant Secretary/Assistant Treasurer, Otter Tail Corporation,
dated June 17, 2013 (``OTC Letter''); Michael J. Hogan, Chief
Executive Officer, FOLIOfn Investments, Inc., dated June 18, 2013
(``FOLIOfn Letter''); Harold Westervelt, President, INVeSHARE, dated
June 18, 2013 (``INVeSHARE Letter''); Dieter Waizenegger, Executive
Director, Investment Group, dated June 20, 2013 (``CtW Letter II'');
Dorothy M. Donohue, Deputy General Counsel--Securities Regulation,
Investment Company Institute, dated June 20, 2013 (``ICI Letter
II''); Lisa Lindsley, Director, Capital Strategies Program, The
American Federation of State, County and Municipal Employees, dated
July 3, 2013 (``AFSCME Letter''); Brandon Rees, Acting Director,
American Federation of Labor and Congress of Industrial
Organizations Office of Investment, dated July 5, 2013 (``AFL-CIO
Letter''); Charles V. Rossi, President, The Securities Transfer
Association, Inc., dated July 5, 2013 (``STA Letter III''); James J.
Angel, dated July 5, 2013 (``Angel Letter''); and Michael J. Hogan,
Chief Executive Officer, FOLIOfn Investments, Inc., dated July 12,
2013 (``FOLIOfn Letter II''); see also letters to the Honorable Mary
Jo White, Chair, Commission from Ann Yerger, Executive Director,
Council of Institutional Investors, dated May 17, 2013 (``CII Letter
II''); and Charles E. Schumer, United States Senator, dated May 23,
2013 (``Schumer Letter'').
    \10\ See letter to Elizabeth M. Murphy, Secretary, Commission
from Janet McGinnis, EVP & Corporate Secretary, NYSE Euronext, dated
July 9, 2013 (``NYSE Letter II'').
    \11\ See Securities Exchange Act Release No. 70217 (August 15,
2013), 78 FR 51780 (August 21, 2013).
    \12\ See letter to Elizabeth M. Murphy, Secretary, Commission
from Janet McGinnis, EVP & Corporate Secretary, NYSE Euronext, dated
September 9, 2013 (``NYSE Letter III''). NYSE Letter III provided
additional information from Broadridge about the costs involved in
providing proxy and report distribution services (the ``Broadridge
Material'').
    \13\ See letter to Elizabeth M. Murphy, Secretary, Commission
from Janet McGinnis, EVP & Corporate Secretary, NYSE Euronext, dated
October 1, 2013 (``NYSE Letter IV''). In addition, on October 15,
2013, the Chairman of NYSE's Proxy Fee Advisory Committee submitted
a letter in support of NYSE's proposal. See letter to Elizabeth M.
Murphy, Secretary, Commission from Paul F. Washington, Chairman,
NYSE Proxy Fee Advisory Committee, dated October 15, 2013
(``Washington Letter''). Furthermore, on October 18, 2013, the
Society of Corporate Secretaries & Governance Professionals
submitted a letter in support of the statements made in NYSE Letter
IV regarding (i) the elimination of the preference management fee
for managed accounts with fewer than five shares and (ii) EBIPs. See
letter to Elizabeth M. Murphy, Secretary, Commission from Darla C.
Stuckey, Senior Vice President, Policy & Advocacy, Society of
Corporate Secretaries & Governance Professionals, dated October 18,
2013.
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II. Background

    NYSE member organizations that hold securities for beneficial
owners in street name solicit proxies from, and deliver proxy and
issuer communication materials to, beneficial owners on behalf of NYSE
issuers.\14\ For this service, issuers reimburse NYSE member
organizations for out-of-pocket, reasonable clerical, postage and other
expenses incurred for a particular distribution. This reimbursement
structure stems from SEC Rules 14b-1 and 14b-2 under the Act,\15\ which
impose obligations on companies and nominees to ensure that beneficial
owners receive proxy materials and are given the opportunity to vote.
These rules require companies to send their proxy materials to
nominees, i.e., broker-dealers or banks that hold securities in street
name, for forwarding to beneficial owners. Under these rules, companies
must pay nominees for reasonable expenses, both direct and indirect,
incurred in providing proxy information to beneficial owners. The
Commission's rules do not specify the fees that nominees can charge
issuers for proxy distribution; rather, they state that issuers must
reimburse the nominees for ``reasonable expenses'' incurred.\16\
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    \14\ The ownership of shares in street name means that a
shareholder, or ``beneficial owner,'' has purchased shares through a
broker-dealer or bank, also known as a ``nominee.'' In contrast to
direct ownership, where shares are directly registered in the name
of the shareholder, shares held in street name are registered in the
name of the nominee, or in the nominee name of a depository, such as
the Depository Trust Company. For more detail regarding share
ownership, see Securities Exchange Act Release No. 62495 (July 14,
2010), 75 FR 42982 (July 22, 2010) (Concept Release on the U.S.
Proxy System) (``Proxy Concept Release'').
    \15\ 17 CFR 240.14b-1; 17 CFR 240.14b-2.
    \16\ In adopting the direct shareholder communications rules in
the early 1980s, the Commission left the determination of reasonable
costs to the self-regulatory organizations (``SROs'') because they
were deemed to be in the best position to make fair evaluations and
allocations of costs associated with these rules. See Securities
Exchange Act Release No. 20021 (July 28, 1983), 48 FR 35082 (August
3, 1983); see also Securities Exchange Act Release No. 45644 (March
25, 2002), 67 FR 15440, 15440 n.8 (April 1, 2002) (order approving
NYSE program revising reimbursement rates) (``2002 Approval
Order'').
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    Currently, the Supplementary Material to NYSE Rules 451 and 465
establish the fee structure for which a NYSE member organization may be
reimbursed for expenses incurred in connection with distributing proxy
materials to beneficial shareholders.\17\ This fee structure is also
replicated in Section 402.10 of the NYSE Listed Company Manual.\18\ The
NYSE fee structure represents the maximum approved rates that an issuer
can be billed for proxy distribution services absent prior notification
to and consent of the issuer.\19\ NYSE member firms may seek
reimbursement for less than the approved rates; \20\ however, it is the
Commission's understanding that in practice most issuers are billed at
the maximum approved rates.
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    \17\ See Rules 451 and 465.
    \18\ See Section 402.10, NYSE Listed Company Manual.
    \19\ See Rules 451.93 and 465.23.
    \20\ Id.
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    The vast majority of nominees that distribute issuer proxy material
to beneficial owners are entitled to reimbursement at the NYSE fee
schedule rates because most of the brokerage firms are NYSE members or
members of other exchanges that have rules similar to the NYSE's
rules.\21\ Over time, however, NYSE member organizations increasingly
have outsourced their proxy delivery obligations to third-party proxy
service providers, which are generally called ``intermediaries,''
rather than handling proxy processing internally.\22\ At the present
time, a single intermediary, Broadridge Financial Solutions, Inc.
(``Broadridge''), handles almost all proxy processing and distribution
to beneficial owners holding shares in street name in the United
States.\23\ In general, Broadridge enters into a contract with the NYSE
member firm and acts as a billing and collection agent for that member
firm.\24\ As a result, it is Broadridge that, on behalf of its member
firm clients, most frequently bills and collects proxy distribution
fees from issuers based on the NYSE fee schedule.
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    \21\ See Proxy Concept Release, 75 FR 42995 n.110.
    \22\ See 2002 Approval Order, 67 FR 15540. According to the
NYSE, this shift was attributable to the fact that NYSE member firms
believed that proxy distribution was not a core broker-dealer
business and that capital could be better used elsewhere. Id.
    \23\ See Proxy Concept Release, 75 FR 42988, n. 57, and at
42996, n.129; see also Notice, 78 FR 12382.
    \24\ See Proxy Concept Release, 75 FR 42997.
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    The NYSE's current proxy fee structure is the product of a multi-
year, multi-task force effort that began in 1995 and culminated in 2002
with the Commission's approval of an NYSE program that significantly
revised the then-current NYSE reimbursement guidelines.\25\ In the 2002
Approval Order, the Commission stated that, as long as the NYSE's proxy
fee structure remains in place, the Commission expected the NYSE to
periodically

review the fees to ensure that they are related to the reasonable proxy
expenses of the NYSE member firms, and to propose changes as
appropriate.\26\ Similarly, in the Proxy Concept Release, the
Commission stated that ``it appears to be an appropriate time for SROs
to review their existing fee schedules to determine whether they
continue to be reasonably related to the actual costs of proxy
solicitation.'' \27\ As is also noted in the Proxy Concept Release, in
2006, a working group formed to review the NYSE proxy fee structure
(``Proxy Working Group'') recommended that the NYSE engage an
independent third party to analyze and make recommendations regarding
the fee structure and to study the performance of the largest proxy
service provider (i.e., Broadridge) and the business process by which
the distribution of proxies occurs.\28\ The Proxy Concept Release
further noted that, as of the date of the release, such review had not
been done.\29\
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    \25\ See 2002 Approval Order; see also Notice, 78 FR 12383.
    \26\ See 2002 Approval Order, 67 FR 15444.
    \27\ See Proxy Concept Release, 75 FR 42997; see also Notice, 78
FR 12382.
    \28\ See Proxy Concept Release, 75 FR 42996.
    \29\ Id.
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    The proposed rule change represents the most recent effort to
revise the NYSE proxy fee structure. In September 2010, the Exchange
formed a Proxy Fee Advisory Committee (``PFAC''), composed of
representatives of issuers, broker-dealers and investors, to review the
existing NYSE fee structure and make recommendations for change as the
PFAC deemed appropriate.\30\ The proposed rule change is an outgrowth
of the PFAC's recommendations.\31\
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    \30\ See Notice, 78 FR 12382.
    \31\ For a more detailed description of the background and
history of the proxy distribution industry, proxy fees, and events
leading to the instant proposal, see the 2002 Approval Order, Proxy
Concept Release, and Notice.
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III. Description of the Proposal

    In the proposal, the Exchange has proposed to amend its schedule
for the reimbursement of proxy fees by amending the Supplementary
Material to NYSE Rules 451 and 465, and Section 402.10 of the NYSE
Listed Company Manual.\32\ The Exchange represents that the proposed
changes reduce some fees and increase others.\33\ Broadridge has
estimated that, under the proposed changes, overall fees paid by
issuers would decrease by approximately 4%.\34\
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    \32\ The Exchange has proposed to amend Rule 451 and to delete
the text of Rule 465, which duplicates Rule 451, and replace it with
a general cross reference to proposed Rule 451. Proposed Section
402.10 of the NYSE Listed Company Manual would reproduce proposed
Rule 451 as amended. See notes 43 and 44 and accompanying text,
infra.
    \33\ See Notice, 78 FR 12384.
    \34\ Id.
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    Currently, the reimbursement rates set by the Exchange for the
distribution of an issuer's proxy materials include: \35\
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    \35\ See NYSE Rules 451.90-451.95, 465.20-465.25, and Section
402.10 of the NYSE Listed Company Manual; see also Proxy Concept
Release, 75 FR 42995-96. For an example of the application of the
current reimbursement rates, see Proxy Concept Release, 75 FR 42996
n.120.
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     A base mailing or basic processing fee of $0.40 for each
beneficial owner account of an issuer that is entitled to receive proxy
materials when there is not an opposing proxy. When there is an
opposing proxy, the base mailing or processing unit fee is $1.00 for
each beneficial owner account of the issuer. While NYSE Rule 451.90(1)
currently refers to this fee as being for each set of proxy material
when mailed as a unit, this fee, in practice, applies regardless of
whether the materials have been mailed or the mailing has been
suppressed or eliminated.\36\
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    \36\ See NYSE Rules 451.90, 465.20, and Section 402.10(A) of the
NYSE Listed Company Manual; see also Proxy Concept Release, 75 FR
42996.
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     As supplemental fees for intermediaries or proxy service
providers that coordinate proxy distributions for multiple nominees, a
fee of $20 per nominee plus an additional fee of $0.05 per beneficial
owner account for issuers whose securities are held in 200,000 or more
beneficial owner accounts and $0.10 per beneficial owner account for
issuers whose securities are held in fewer than 200,000 beneficial
owner accounts.\37\
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    \37\ Id.
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     An incentive fee of $0.25 per beneficial owner account for
issuers whose securities are held in 200,000 or more beneficial owner
accounts and $0.50 per beneficial owner account for issuers whose
securities are held in fewer than 200,000 beneficial owner accounts.
This fee, which is in addition to the basic processing fee and
supplemental intermediary fees, applies when the need to mail materials
in paper format has been eliminated, for instance, by eliminating
duplicative mailings to multiple accounts at the same address \38\ or
distributing some or all material electronically.\39\
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    \38\ Id. The elimination of duplicative mailings to multiple
accounts at the same address is referred to as ``householding.'' See
Proxy Concept Release, 75 FR 42983 n.5; see also NYSE Rule 451.95.
Specifically, the incentive fee may be collected for such
``householding'' when NYSE member firms ``eliminate multiple
transmissions of reports, statements or other materials to
beneficial owners having the same address, provided they comply with
applicable SEC rules with respect thereto. . . .'' NYSE Rule 451.95.
    \39\ Proxy materials can be provided electronically to
shareholders that have affirmatively consented to electronic
delivery. See Proxy Concept Release, 75 FR 42986 n.32. Such
affirmative consent also is required before the notice of internet
availability of proxy materials--a component of the notice and
access method of proxy distribution, which is an additional
alternative to paper mailing of proxy materials, as discussed
below--can be sent to shareholders electronically. Id. Without such
consent, the notice must be mailed to shareholders in paper format.
Id. If the notice is sent in paper format, the incentive fee would
not be applied.
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    NYSE's current fee schedule also sets forth fees that issuers must
pay to brokers and their intermediaries for obtaining a list of the
non-objecting beneficial owners holding the issuer's securities,
commonly referred to as a ``NOBO list.'' \40\ Currently, these fees are
$0.065 per name of non-objecting beneficial owner provided to a
requesting issuer and, where the non-objecting beneficial ownership
information is furnished to the issuer by an agent designated by the
member organization instead of directly by the member organization,
issuers are expected to pay the reasonable expenses of the agent in
providing such information.\41\
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    \40\ See, e.g., NYSE Rule 451.92.
    \41\ Id.
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    As an initial, technical matter, the Exchange has proposed to
eliminate some of the duplication and obsolete language in the NYSE
rules in which the fee schedule is set forth.\42\ The same proxy fees
are currently presented multiple times in Rule 451, Rule 465 and
Section 402.10 of the Listed Company Manual.\43\ To clarify matters,
proposed Rules 465.20-465.25 would cross-reference proposed Rules
451.90-451.95, and proposed Section 402.10 of the Listed Company Manual
would reproduce the text of proposed Rules 451.90-451.95.\44\
Additionally, the proposed rule change would eliminate obsolete
references to the effective dates of past changes to the fee structure
as well as to the amount of a surcharge, set forth in Rule 451.91, that
was temporarily applied in the mid-1980s.\45\ Further, the Exchange has
proposed to eliminate several references to ``mailings'' in the
proposed rules, given that the processing fees apply even where
physical mailings have been suppressed.\46\ Lastly, the Exchange has
proposed to eliminate several minor minimum fees of $5 or less as
irrelevant

to the overall fees imposed or collected.\47\
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    \42\ See Notice, 78 FR 12390.
    \43\ Id.
    \44\ Id. Where the proposed Rules are cited below, for the sake
of simplicity, such citations will include only Rules 451.90-451.95
and not the corresponding provisions of proposed Section 402.10 of
the NYSE Listed Company Manual.
    \45\ See Notice, 78 FR 12390.
    \46\ Id.
    \47\ Id. Proposed Rule 451.90(3), which would set forth the fee
for interim reports and other material, is an example of the
proposed technical amendments. As proposed, the pre-existing $0.15
fee in current Rule 451.90 would not change, but the $2.00 minimum
for all sets mailed would be eliminated, and the language of the
rule would be amended to eliminate the reference to the effective
date of the pre-existing rule and to replace the word ``mailed''
with ``processed.'' See proposed Rule 451.90(3).
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    Substantively, the Exchange has proposed to revise certain aspects
of the existing fee schedule and add new fees.\48\ These revisions,
described in turn below, include: (a) Amending the base mailing/basic
processing fees; (b) amending the supplemental fees for intermediaries
that coordinate proxy mailings for multiple nominees; (c) amending the
incentive/preference management fees, including the manner in which
such fees are applied to managed accounts; (d) adding fees for proxy
materials distributed by what is known as the notice and access method;
(e) adding fees for enhanced brokers' internet platforms; and (f)
amending the fees for providing beneficial ownership information.\49\
In addition, notwithstanding any other provision of proposed Rule
451.90, the Exchange has proposed that no fee be incurred by an issuer
for any nominee account that contains only a fractional share--i.e.
less than one share or unit--of the issuer's securities or for any
nominee account that is a managed account and contains five or fewer
shares or units of the issuer's securities.\50\
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    \48\ The Exchange has also proposed to codify definitions of the
terms ``nominee'' and ``intermediary.'' Under proposed Rule
451.90(1)(a), the term ``nominee'' would be defined to mean a broker
or bank subject to SEC Rule 14b-1 or 14b-2, respectively, and the
term ``intermediary'' would be defined to mean a proxy service
provider that coordinates the distribution of proxy or other
materials for multiple nominees.
    \49\ See proposed Rule 451.90.
    \50\ See proposed Rule 451.90(6).
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A. Base Mailing/Basic Processing Fees

    As set forth above, there is currently a fee of $0.40 for each
beneficial owner account of an issuer that is entitled to receive proxy
materials when there is not an opposing proxy.\51\ This fee is commonly
referred to as the base mailing or basic processing fee.\52\ The
Exchange has proposed to replace this flat $0.40 fee with a tiered fee
structure for each set of proxy material processed as a unit, which the
Exchange has proposed to call a ``Processing Unit Fee.'' \53\ The tiers
would be based on the number of nominee accounts through which an
issuer's securities are beneficially owned:
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    \51\ See Rule 451.90; see also Proxy Concept Release, 75 FR
42996.
    \52\ See Notice, 78 FR 12385; see also Proxy Concept Release, 75
FR 42996.
    \53\ See proposed Rule 451.90(1)(b)(i). The Exchange has not
proposed to replace the current $0.40 flat fee for proxy follow-up
materials with a tiered structure. The Exchange has proposed to keep
a flat Processing Unit Fee of $0.40 per account for each set of
follow-up material, but for those relating to an issuer's annual
meeting for the election of directors, the Exchange has proposed to
reduce the fee by half, to $0.20 per account. See proposed Rule
451.90(2). The Exchange notes that issuers have a choice whether or
not to use reminder mailings, and that the reduced fee may induce
more issuers to use reminder mailings, which could increase investor
participation, particularly among retail investors. See Notice, 78
FR 12390.
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     $0.50 for each account up to 10,000 accounts;
     $0.47 for each account above 10,000 accounts, up to
100,000 accounts;
     $0.39 for each account above 100,000 accounts, up to
300,000 accounts;
     $0.34 for each account above 300,000 accounts, up to
500,000 accounts;
     $0.32 for each account above 500,000 accounts.\54\
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    \54\ See proposed Rule 451.90(1)(b)(i).

Under this tiered schedule, every issuer would pay the first tier
rate--$0.50--for the first 10,000 accounts, or portion thereof, with
decreasing rates applicable only to the incremental additional accounts
in the additional tiers.\55\
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    \55\ Id.
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    In addition, the Exchange has proposed to clarify that references
in proposed Rule 451 to the ``number of accounts'' have a different
meaning for a nominee that distributes proxy materials without the
services of an intermediary as compared to a nominee that is served by
an intermediary. For a nominee that distributes proxy materials without
the services of an intermediary, references to number of accounts in
proposed Rule 451 mean the number of accounts holding securities of the
issuer at the nominee.\56\ For a nominee that is served by an
intermediary, such references mean the aggregate number of nominee
accounts with beneficial ownership in the issuer served by the
intermediary.\57\ As the Exchange has noted in the proposal, this means
that, for a particular issuer, the fee charged by an intermediary or a
nominee that self-distributes (and therefore does not use an
intermediary) within the different tiers will depend on the number of
accounts holding shares in that issuer that are served by the
intermediary or held by the particular nominee.\58\ Accordingly, for an
issuer with a large number of beneficial accounts, intermediaries or
self-distributing nominees serving a small portion of the issuer's
accounts would bill the issuer at the higher tier-one rates whereas an
intermediary serving a large number of the issuer's accounts would bill
the issuer at rates that reflect the progressive decrease in rates
across the tiers as the number of accounts served increases.\59\
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    \56\ Id.
    \57\ Id. While the definition of the term nominee in NYSE's
proposal includes both brokers and banks for purposes of determining
which tiers apply, the Commission notes that the scope of the rule
being approved here today applies to reasonable rates of
reimbursement of NYSE member firms. See also note 48, supra.
    \58\ See Notice, 78 FR 12385 n.20.
    \59\ Id.
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    The Exchange has also proposed to specify that, in the case of a
meeting for which an opposition proxy has been furnished to security
holders, the proposed Processing Unit Fee shall be $1.00 per account,
in lieu of the tiered fee schedule set forth above.\60\ This would,
therefore, be no departure from the current $1.00 fee that is assessed
when an opposition proxy has been furnished.
---------------------------------------------------------------------------

    \60\ See proposed Rule 451.90(1)(b)(ii).
---------------------------------------------------------------------------

B. Supplemental Intermediary Fees

    As stated above, the Exchange's fee schedule currently provides for
supplemental fees for intermediaries or proxy service providers that
coordinate proxy distributions for multiple nominees of $20 per
nominee, plus an additional fee of $0.05 per beneficial owner account
for issuers whose securities are held in 200,000 or more beneficial
owner accounts and $0.10 per beneficial owner account for issuers whose
securities are held in fewer than 200,000 beneficial owner
accounts.\61\ The Exchange has proposed to replace the $20 per-nominee
fee with a $22 fee for each nominee served by the intermediary that has
at least one account beneficially owning shares in the issuer.\62\ The
Exchange also has proposed to replace the $0.05 and $0.10 fees, which
are determined based on whether or not the issuer's securities are held
in at least 200,000 beneficial owner accounts, with a tiered fee
structure called the ``Intermediary Unit Fee,'' which would be based on
the number of nominee accounts through which the issuer's securities
are beneficially owned:
---------------------------------------------------------------------------

    \61\ See Rule 451.90; see also Proxy Concept Release, 75 FR
42996.
    \62\ See proposed Rule 451.90(1)(c)(i).
---------------------------------------------------------------------------

     $0.14 for each account up to 10,000 accounts;
     $0.13 for each account above 10,000 accounts, up to
100,000 accounts;

     $0.11 for each account above 100,000 accounts, up to
300,000 accounts;
     $0.09 for each account above 300,000 accounts, up to
500,000 accounts;
     $0.07 for each account above 500,000 accounts.\63\
---------------------------------------------------------------------------

    \63\ See proposed Rule 451.90(1)(c)(ii).

Under this tiered schedule, every issuer would pay the first tier
rate--$0.14--for the first 10,000 accounts, or portion thereof, with
decreasing rates applicable only to the incremental additional accounts
in the additional tiers.\64\
---------------------------------------------------------------------------

    \64\ Id.
---------------------------------------------------------------------------

    Additionally, the Exchange has proposed the following tiered fee
schedule for special meetings that would apply in lieu of the schedule
set forth immediately above:
     $0.19 for each account up to 10,000 accounts;
     $0.18 for each account above 10,000 accounts, up to
100,000 accounts;
     $0.16 for each account above 100,000 accounts, up to
300,000 accounts;
     $0.14 for each account above 300,000 accounts, up to
500,000 accounts;
     $0.12 for each account above 500,000 accounts.\65\
---------------------------------------------------------------------------

    \65\ See proposed Rule 451.90(1)(c)(iii).

    Under this tiered schedule, every issuer would pay the first tier
rate--$0.19--for the first 10,000 accounts, or portion thereof, with
decreasing rates applicable only to the incremental additional accounts
in the additional tiers.\66\ The Exchange has proposed that, for
purposes of proposed Rule 451.90(1)(c)(iii), a special meeting is a
meeting other than the issuer's meeting for the election of
directors.\67\
---------------------------------------------------------------------------

    \66\ Id.
    \67\ Id.
---------------------------------------------------------------------------

    The Exchange has also proposed that, in the case of a meeting for
which an opposition proxy has been furnished to security holders, the
proposed Intermediary Unit Fee shall be $0.25 per account, with a
minimum fee of $5,000.00 per soliciting entity, in lieu of the tiered
fee schedules set forth in proposed Rules 451.90(1)(c)(ii) and
(iii).\68\ Where there are separate solicitations by management and an
opponent, the Exchange has proposed that the opponent would be
separately billed for the costs of its solicitation.\69\
---------------------------------------------------------------------------

    \68\ See proposed Rule 451.90(1)(b)(iv).
    \69\ Id.
---------------------------------------------------------------------------

    The Exchange estimates that the proposed tiered fee structures
discussed above--for the Intermediary Unit Fee as well as the proposed
Processing Unit Fee--entail fee increases that are estimated to add
approximately $9-10 million to overall proxy distribution fees.\70\ The
Exchange states that the PFAC took note of the fact that since the fees
were last revised in 2002, there has been an effective decline in the
fees of approximately 20% due to the impact of inflation.\71\ The
Exchange also states that the PFAC believed that economies of scale
exist when handling distributions for more widely held issuers, which
is why the per-account fees decrease as the number of accounts
increases.\72\ Further, the Exchange believes that its proposed tiered
structures would approximate the sliding impact of such economies of
scale better than the current processing and intermediary fee
structures.\73\
---------------------------------------------------------------------------

    \70\ See Notice, 78 FR 12385.
    \71\ Id. at 12384.
    \72\ Id. at 12385.
    \73\ Id.
---------------------------------------------------------------------------

C. Incentive/Preference Management Fees

    As stated above, the Exchange's fee schedule currently provides for
an incentive fee of $0.25 per beneficial owner account for issuers
whose securities are held in 200,000 or more beneficial owner accounts
and $0.50 per beneficial owner account for issuers whose securities are
held in fewer than 200,000 beneficial owner accounts.\74\ The Exchange
has proposed to refer to this fee as the ``Preference Management Fee''
and to amend it to be: (a) $0.32 for each set of proxy material
described in proposed Rule 451.90(1)(b) (proxy statement, form of proxy
and annual report when processed as a unit), unless the account is a
Managed Account (as defined in proposed Rule 451.90(6), discussed
below), in which case the fee would be $0.16; \75\ and (b) $0.10 for
each set of material described in proposed Rule 451.90(2) (proxy
follow-up material) or proposed Rule 451.90(3) (interim reports and
other material).\76\ The Preference Management Fee would apply to each
beneficial owner account for which the nominee has eliminated the need
to send materials in paper format through the mails (or by courier
service), and would be in addition to, and not in lieu of, the other
proposed fees.\77\
---------------------------------------------------------------------------

    \74\ See Rule 451.90.
    \75\ See proposed Rule 451.90(4)(a). The $0.16 Preference
Management Fee for Managed Accounts would apply only to Managed
Accounts holding more than five shares or units of an issuer's
securities, as the Exchange has proposed that there be no proxy
processing fees charged to an issuer for Managed Accounts holding
five or fewer shares or units of the issuer's securities. See note
50 and accompanying text, supra, and discussion of Managed Accounts,
infra.
    \76\ See proposed Rule 451.90(4)(b); see also notes 47 and 53,
supra, which discuss proposed Rules 451.90(2) and 451.90(3).
    \77\ See proposed Rule 451.90(4). The need for paper mailings
can be eliminated through householding and affirmative consent to
electronic delivery. See notes 38 and 39, supra.
---------------------------------------------------------------------------

    The Preference Management Fee would apply not only in the year when
paper delivery is first eliminated, but also in each year
thereafter.\78\ The Exchange represents that the PFAC was persuaded
that there was significant processing work involved in keeping track of
the shareholders' election, especially given that the shareholder is
entitled to change that election from time to time.\79\ According to
the Exchange, although few shareholders do in fact change their
election, data processing has to look at each account position relative
to each shareholder meeting or proxy distribution event to determine
whether paper mailing has been eliminated.\80\
---------------------------------------------------------------------------

    \78\ See Notice, 78 FR 12386.
    \79\ Id.
    \80\ Id.
---------------------------------------------------------------------------

1. Managed Accounts
    For purposes of proposed Rule 451.90, the Exchange has proposed to
define the term ``Managed Account'' as:
    [A]n account at a nominee which is invested in a portfolio of
securities selected by a professional advisor, and for which the
account holder is charged a separate asset-based fee for a range of
services which may include ongoing advice, custody and execution
services. The advisor can be either employed by or affiliated with the
nominee, or a separate investment advisor contracted for the purpose of
selecting investment portfolios for the managed account. Requiring that
investments or changes to the account be approved by the client would
not preclude an account from being a ``managed account'' for this
purpose, nor would the fact that commissions or transaction-based
charges are imposed in addition to the asset-based fee.\81\
---------------------------------------------------------------------------

    \81\ See Proposed Rule 451.90(6); see also Notice, 78 FR 12388.
---------------------------------------------------------------------------

    As noted above, the Exchange has proposed that the Preference
Management Fee applied to Managed Accounts be half that applied to non-
managed accounts.\82\ In the proposal, the Exchange notes that, with
Managed Accounts, the investor has elected to delegate the voting of
its shares to a broker or investment manager who chooses to manage this
process

electronically rather than by receiving multiple paper copies of proxy
statements and voting instructions.\83\ According to the Exchange,
however, tracking the beneficial owner's voting and distribution
election is as necessary with Managed Accounts as it is with any other
proxy distribution election eliminating the need for paper mailing,
such as consent to e-delivery.\84\ But the Exchange states that the
PFAC concluded that making some distinctions between Managed Accounts
and non-managed accounts for fee purposes was appropriate.\85\ Among
other things, the Exchange states that the popularity of Managed
Accounts demonstrates that they offer advantages to investors and
brokerage firms.\86\ The Exchange states that issuers also reap
benefits from inclusion in Managed Account portfolios, including the
added investment in the company's stock and a higher rate of voting due
to the fact that almost all Managed Account investors delegate voting
to the investment manager.\87\ Since both issuers and brokers benefit
from Managed Accounts, the Exchange represents that the PFAC determined
that issuers and brokers should share the cost of tracking the voting
and distribution elections of beneficial owners of the stock positions
in Managed Accounts, and therefore recommended that the Exchange
propose a Preference Management Fee for Managed Accounts at a rate that
is half that for other accounts.\88\
---------------------------------------------------------------------------

    \82\ See Proposed Rule 451.90(4)(a). The Exchange represents
that its proposal that the Preference Management Fee applied to
Managed Accounts be half that applied to non-managed accounts would
result in an estimated $15 million reduction in fees. See Notice, 78
FR 12385.
    \83\ See Notice, 78 FR 12387.
    \84\ Id. In support of this the Exchange states that Commission
rules require each beneficial owner holding shares in a Managed
Account to be treated as the individual owner of those shares for
purposes of having the ability to elect to vote those shares and
receive proxy materials. Id.
    \85\ Id.
    \86\ Id.
    \87\ Id.
    \88\ Id.
---------------------------------------------------------------------------

    Additionally, in recognition of what the Exchange notes is a
proliferation of Managed Accounts containing a very small number of an
issuer's shares, the Exchange, as noted above, has proposed not to
impose any proxy processing fees, including the Preference Management
Fee, on an issuer for a Managed Account holding five or fewer shares or
units of the issuer's securities.\89\ The Exchange states that in
certain situations in which Managed Accounts hold very small numbers of
shares of an issuer, the benefits of increased stock ownership and
increased voting participation were practically nonexistent for the
issuer, while the added expense on a relative basis was
extraordinary.\90\ According to the Exchange, because one of the PFAC's
goals was to avoid severe impacts on proxy distribution in the United
States, the PFAC drew the line at five shares based on certain
information supplied by Broadridge, including information from the 2011
proxy season depicting what the financial impact on proxy revenue would
have been of setting the fee proscription for Managed Accounts at
different levels.\91\ According to the Exchange, setting the
proscription at five shares or less in the 2011 proxy season would have
created an overall decrease in proxy revenue of approximately $4.2
million.\92\ The Exchange states that the PFAC determined that five
shares or less was the appropriate level to draw the line and that the
PFAC ``was comfortable that, given the relative benefit/burden on
issuers and brokerage firms, it is not reasonable to make issuers
reimburse the cost of proxy distribution to managed accounts holding
five shares or less.'' \93\
---------------------------------------------------------------------------

    \89\ See proposed Rule 451.90(6); see also Notice, 78 FR 12388.
    \90\ See Notice, 78 FR 12388.
    \91\ Id. The Exchange represents that, based on the Broadridge-
supplied information, the overall impact varied from approximately
$2.6 million at the fractional (less than one) share level, up to
approximately $16 million if the proscription applied to accounts
holding 25 shares or less. Id.
    \92\ Id. The Commission understands that this figure does not
account for the inclusion of wrap accounts in the proposed fee
structure for Managed Accounts.
    \93\ Id.
---------------------------------------------------------------------------

    Lastly, the Exchange states that no fee distinction would be based
on whether or not a Managed Account is referred to as a ``wrap
account.'' \94\ As described by the Exchange, a wrap account is a
managed account product with a relatively low minimum investment that
tends to have many very small, even fractional, share positions, which
led Broadridge to process such wrap accounts without any charge--either
for basic processing or incentive fees.\95\ Broadridge relied on its
client firms to specify whether or not an account should be treated as
a wrap account for this purpose, and positions in small minimum
investment managed accounts which were not marketed with that
appellation were subjected to ordinary fees, including incentive
fees.\96\ Under the Exchange's proposal, accounts identified as wrap
accounts would no longer be treated as distinct from Managed Accounts
not identified as such, and would therefore be subject to the same
proxy fees as Managed Accounts.
---------------------------------------------------------------------------

    \94\ Id. The Commission understands a wrap account to be a
certain type of account that is managed by an outside investment
adviser. See Proxy Concept Release, 75 FR 42998 n.140.
    \95\ See Notice, 78 FR 12387.
    \96\ Id. at 12387-88.
---------------------------------------------------------------------------

D. Notice and Access Fees

    The Commission has adopted a notice and access model that permits
issuers to send shareholders what is called a ``Notice of Internet
Availability of Proxy Materials'' in lieu of the traditional paper
mailing of proxy materials.\97\ Currently, the NYSE proxy fee structure
does not include maximum fees that member firms--or, in practice,
third-party proxy service providers--can charge issuers for deliveries
of proxy materials using the notice and access method.\98\ Broadridge
currently imposes fees on issuers for use of the notice and access
method, in addition to the other fees permitted to be charged under
NYSE Rule 451.90.\99\ In the proposal, the Exchange has proposed to
codify the notice and access fees currently charged by Broadridge, with
one adjustment.\100\
---------------------------------------------------------------------------

    \97\ See Proxy Concept Release, 75 FR 42986 n.32. The notice and
access model works in tandem with electronic delivery--although an
issuer electing to send a notice in lieu of a full proxy package
would be required to send a paper copy of that notice, it may send
that notice electronically to a shareholder who has provided an
affirmative consent to electronic delivery. Id. These concepts are
distinct because the issuer elects whether to use the notice-only
option of the notice and access model on the one hand, while
affirmative consents to electronic delivery are a matter between a
broker and its customer.
    \98\ Id. at 42996.
    \99\ See Notice, 78 FR 12389. As of the date of the Proxy
Concept Release, Broadridge charged issuers that elected the notice
and access method of proxy delivery a fee ranging from $0.05 to
$0.25 per account for positions in excess of 6,000, in addition to
the other fees permitted to be charged under NYSE Rule 451. See
Proxy Concept Release, 75 FR 42996-97.
    \100\ See Notice, 78 FR 12389. The Exchange has proposed to
exclude from its proposed notice and access fee schedule the $1,500
minimum fee that Broadridge currently charges issuers that are held
by 10,000 accounts or less and elect notice and access. The Exchange
states that, in its view, such a minimal charge could be unfairly
high on a small issuer billed by several intermediaries. Id.
---------------------------------------------------------------------------

    Specifically, for issuers that elect to utilize the notice and
access method of proxy distribution, the Exchange has proposed an
incremental fee based on all nominee accounts through which the
issuer's securities are beneficially owned, as follows:
     $0.25 for each account up to 10,000 accounts;
     $0.20 for each account over 10,000 accounts, up to 100,000
accounts;
     $0.15 for each account over 100,000 accounts, up to
200,000 accounts;
     $0.10 for each account over 200,000 accounts, up to
500,000 accounts;
     $0.05 for each account over 500,000 accounts.\101\
---------------------------------------------------------------------------

    \101\ See proposed Rule 451.90(5).

The Exchange has also proposed to clarify that, under this schedule,
every

issuer would pay the tier one rate for the first 10,000 accounts, or
portion thereof, with decreasing rates applicable only to the
incremental additional accounts in the additional tiers.\102\ The
Exchange has further proposed that follow-up notices would not incur an
incremental fee for notice and access, and that no incremental fee
would be imposed for fulfillment transactions (i.e., a full pack of
proxy materials sent to a notice recipient at the recipient's request),
although out of pocket costs such as postage would be passed on as in
ordinary proxy distributions.\103\
---------------------------------------------------------------------------

    \102\ Id.
    \103\ Id.
---------------------------------------------------------------------------

E. Enhanced Brokers' Internet Platform Fee

    In the Proxy Concept Release, the Commission solicited views on
whether retail investors might be encouraged to vote if they received
notices of upcoming corporate votes, and had the ability to access
proxy materials and vote, through their own broker's Web site--a
service that the Commission referred to as enhanced brokers' internet
platforms (``EBIP'').\104\ According to the Exchange, Broadridge
discussed with the PFAC a similar service that it offers, and
maintained that while some brokerage firms have already implemented
services like the EBIP, it appeared likely that some financial
incentive would be necessary to achieve widespread adoption.\105\
---------------------------------------------------------------------------

    \104\ See Notice, 78 FR 12391; see also Proxy Concept Release,
75 FR 43003. This is in contrast to the current situation in which,
for most brokers, a beneficial owner must go to a separate Web site
in order to view proxy materials and vote.
    \105\ See Notice, 78 FR 12391.
---------------------------------------------------------------------------

    Accordingly, the Exchange has proposed, for a five-year test
period, a one-time, supplemental fee of $0.99 for each new account that
elects, and each full package recipient among a brokerage firm's
accounts that converts to, electronic delivery while having access to
an EBIP.\106\ According to the Exchange, this fee is intended to
persuade firms to develop and encourage the use of EBIPs by their
customers.\107\ To qualify for the fee, an EBIP would have to provide
notices of upcoming corporate votes, including record and meeting dates
for shareholder meetings, and the ability to access proxy materials and
a voting instruction form, and cast the vote, through the investor's
account page on the firm's Web site without an additional log-in.\108\
This fee would not apply to electronic delivery consents captured by
issuers, positions held in Managed Accounts, or accounts voted by
investment managers using electronic voting platforms.\109\ This fee
also would not be triggered by accounts that receive a notice pursuant
to notice and access or accounts to which mailing is suppressed by
householding.\110\
---------------------------------------------------------------------------

    \106\ See proposed Rule 451.90(7). As a one-time fee, NYSE
member organizations could bill an issuer only once for each account
covered by the rule. Id. Billing for the fee would be separately
indicated on the issuer's invoice and would await the next proxy or
consent solicitation by the issuer that follows the triggering of
the fee by an eligible account's electronic delivery election. Id.
    \107\ See Notice, 78 FR 12393.
    \108\ See proposed Rule 451.90(7).
    \109\ Id. In addition, the Commission notes that the EBIP fee
does not apply to accounts that converted to electronic delivery
prior to the approval of the EBIP fee in this order.
    \110\ Id.
---------------------------------------------------------------------------

    The Exchange has proposed to require NYSE member organizations with
a qualifying EBIP to provide notice thereof to the Exchange, including
the date such EBIP became operational, and any limitations on the
availability of the EBIP to its customers.\111\ The Exchange has also
noted in the proposed rule that records of conversions to electronic
delivery by accounts with access to an EBIP, marketing efforts to
encourage account holders to use the EBIP, and the proportion of non-
institutional accounts that vote proxies after being provided access to
an EBIP must be maintained for the purpose of reporting such records to
the NYSE when requested.\112\
---------------------------------------------------------------------------

    \111\ Id.
    \112\ Id.
---------------------------------------------------------------------------

    The Exchange states that the EBIP fee would be available to firms
that already have EBIP facilities, as even a firm that already has an
EBIP can be incented to engage in marketing efforts to persuade its
account holders to utilize the EBIP.\113\ Further, the Exchange states
that the fee would be triggered when a new account elects e-delivery
immediately (and has access to an EBIP), except for accounts subject to
notice and access or householding.\114\ However, the Exchange
represents that a firm making the EBIP available to only a limited
segment of its account holders could not earn the EBIP fee from an e-
delivery election by an account not within the segment having access to
the EBIP.\115\
---------------------------------------------------------------------------

    \113\ See Notice, 78 FR 12392.
    \114\ Id.
    \115\ Id.
---------------------------------------------------------------------------

    The Exchange represents that a study of the impact of the program
would be conducted after three years.\116\
---------------------------------------------------------------------------

    \116\ Id.
---------------------------------------------------------------------------

F. Fee for Providing Beneficial Ownership Information

    As noted by the Exchange, since 1986 NYSE rules have provided for
fees which issuers must pay to brokers and their intermediaries for
obtaining a list of the non-objecting beneficial owners holding the
issuer's stock.\117\ Such a list is commonly referred to as a NOBO
list, and the fees are charged per name in the NOBO list.\118\
Currently, Rule 451.92 sets forth a $0.065 fee per NOBO name provided
to the requesting issuer, but where the NOBO list is not furnished
directly to the issuer by the member organization, and is instead
furnished through an agent of the member organization, the current rule
does not specify a fee--rather, it says only that the issuer will be
expected to pay the reasonable expenses of the agent in providing such
information.\119\ The Exchange states that it understands that
Broadridge, acting as such an agent, charges a $100 minimum fee per
requested NOBO list, as well as a tiered per-name fee of: $0.10 per
name for the first 10,000 names; $0.05 per name from 10,001 to 100,000
names, and $0.04 per each name above 100,000.\120\ The Exchange has
proposed to adopt and codify Broadridge's minimum and tiered per-name
fees into its rules, and to delete its existing language that allows
payment of the ``reasonable expenses of the agent.'' \121\
---------------------------------------------------------------------------

    \117\ Id. at 12390; see also Rule 451.92.
    \118\ See Notice, 78 FR 12390.
    \119\ See Rule 451.92.
    \120\ See Notice, 78 FR 12390.
    \121\ See proposed Rule 451.92; see also Notice, 78 FR 12391.
---------------------------------------------------------------------------

    The Exchange also notes that it has been customary for brokers,
through their intermediary, to require that issuers desiring a NOBO
list take (and pay for) a list of all shareholders who are NOBOs, even
in circumstances where an issuer would consider it more cost-effective
to limit its communication to NOBOs having more than a certain number
of shares, or to those that have not yet voted on a solicitation.\122\
The Exchange has proposed to depart from this practice, so that when an
issuer requests beneficial ownership information as of a date which is
the record date for an annual or special meeting or a solicitation of
written shareholder consent, the issuer may ask to eliminate names
holding more or less than a specified number of shares, or names of
shareholders that have already voted, and the issuer may not be charged
a fee for the NOBO names so eliminated--a process commonly referred to
as ``stratification.'' \123\ For all other requested lists, however,
the issuer would be required to take and pay for complete lists.\124\
---------------------------------------------------------------------------

    \122\ See Notice, 78 FR 12390-91.
    \123\ See proposed Rule 451.92.
    \124\ Id.; see also Notice, 78 FR 12391.

---------------------------------------------------------------------------

IV. Summary of Comment Letters and the Exchange's Responses

    As noted above, the Commission received a total of 44 comment
letters concerning the Exchange's proposal,\125\ as well as four
supplemental submissions from the NYSE.\126\ Fourteen commenters
expressed general support for the proposed rule change,\127\ and other
commenters supported certain aspects of the proposed rule change.
Generally, six commenters believed that the proposal would improve
transparency of the proxy fee structure; \128\ five believed that the
proposal eliminates the ``cliff'' pricing schedule, in favor of a more
rational tiered system; \129\ two expressly supported the Exchange's
approach to charges for managed accounts; \130\ one stated that the
elimination of fees for fractional share positions would eliminate
exposure that issuers face from unanticipated increases in the number
of street name accounts on a yearly basis; \131\ twelve believed that
the proposed EBIP fees would reduce costs, enhance efficiency and/or
lead to more retail shareholder participation; \132\ one believed that
providing additional incentives for integration of a customer's
documents in EBIPs would provide a benefit to investors; \133\ and six
supported the stratification of NOBO lists.\134\ One commenter also
believed that failure to approve the proposal would keep in place a fee
structure that is less transparent and less connected to the current
work and costs associated with proxy processing.\135\
---------------------------------------------------------------------------

    \125\ See supra notes 4, 6, 9 and 13.
    \126\ See supra notes 7, 10, 12 and 13. As previously noted,
NYSE Letter responded to the comments submitted in response to the
Notice, NYSE Letter II responded to the Order Instituting
Proceedings, NYSE Letter III provided additional cost information
from Broadridge, and NYSE Letter IV responded to FOLIOfn Letter and
FOLIOfn Letter II.
    \127\ See Steering Committee Letter, SCSGP Letter, iStar Letter,
SCC Letter, Perficient Letter, Gartner Letter, CCMC Letter,
Broadridge Letter, Darling Letter, ABC Letter, SIFMA Letter, Zumbox
Letter, INVeSHARE Letter, Washington Letter; see also Schumer Letter
(strongly supporting success fee to ``encourage the use of enhanced
brokers' internet platforms'').
    \128\ See Steering Committee Letter, SCSGP Letter, SCC Letter,
Broadridge Letter, NIRI Letter, Washington Letter.
    \129\ See SCSGP Letter, ABC Letter, Broadridge Letter, BNY
Letter, SCC Letter.
    \130\ See SCSGP Letter, INVeSHARE Letter.
    \131\ See Broadridge Letter.
    \132\ See Steering Committee Letter, SCSGP Letter, iStar Letter,
SCC Letter, Perficient Letter, CCMC Letter, Broadridge Letter,
Darling Letter, ABC Letter, SIFMA Letter, NIRI Letter, Schumer
Letter.
    \133\ See Zumbox Letter.
    \134\ See ABC Letter, Broadridge Letter, NIRI Letter, SCC
Letter, ICI Letter, ICI Letter II, SCSGP Letter.
    \135\ See Washington Letter.
---------------------------------------------------------------------------

    Other commenters raised concerns regarding the proposal. Generally,
twelve commenters expressed concern about the lack of an independent
third-party review of actual costs in the proxy distribution process;
\136\ five expressed concern with the lack of a thorough cost/benefit
analysis of the proposed rule change; \137\ four believed that the
processing and intermediary unit fees do not allocate fees equitably
between large and small issuers; \138\ seven questioned the fairness of
the proposed fee schedule; \139\ four believed that the structure and
level of the proposed proxy fees place a burden on competition; \140\
nine expressed concern about the incentive structure for developing
EBIPs; \141\ four raised concerns regarding the five share limit for
fees for processing shares held through managed accounts; \142\ three
believed the stratified NOBO lists should be made available outside of
a record date; \143\ two expressed concern about the impact of the
proposal on mutual funds in particular; \144\ and one believed that the
rule proposal is inconsistent with and violates Regulation 14A of the
Act, including specifically Rules 14a-13, 14b-1 and 14b-2.\145\ These
issues, and the Exchange's response, are discussed below.\146\
---------------------------------------------------------------------------

    \136\ See STA Letter, STA Letter II, STA Letter III, SSA Letter,
Schafer Letter, Lovatt Letter, SCC Letter, IBC Letter, NIRI Letter,
ICI Letter, ICI Letter II, BNY Letter, OTC Letter, CtW Letter II,
AFL-CIO Letter; see also AST Letter. In addition, one commenter
questioned whether the fee structure used by Broadridge should be
subject to an independent audit. See CtW Letter.
    \137\ See STA Letter, STA Letter II, SSA Letter, Schafer Letter,
Lovatt Letter, IBC Letter.
    \138\ See STA Letter II, Schafer Letter, Lovatt Letter, IBC
Letter.
    \139\ See STA Letter II, Schafer Letter, Lovatt Letter, IBC
Letter, BNY Letter, ICI Letter, CtW Letter.
    \140\ See SSA Letter, IBC Letter, Schafer Letter, Lovatt Letter.
    \141\ See Harrington Letter, ICC Letter, Sharegate Letter, CG
Letter, CII Letter, Zumbox Letter, CtW Letter, CtW Letter II, AFSCME
Letter, AFL-CIO Letter.
    \142\ See Broadridge Letter, SIFMA Letter, FOLIOfn Letter,
FOLIOfn Letter II, Angel Letter.
    \143\ See SCSGP Letter, Broadridge Letter, BNY Letter.
    \144\ See ICI Letter, AST Letter.
    \145\ See FOLIOfn Letter.
    \146\ The Commission also received comments regarding
Broadridge's decision to end its practice of disclosing voting
tallies to shareholder proponents of shareholder proposals (see CII
Letter II, Schumer Letter, AFSCME Letter, AFL-CIO Letter),
establishing a performance based proxy fee structure (see Angel
Letter), and Voting Instruction Forms applied to EBIPs (see CII
Letter, Angel Letter; see also infra note 307 and accompanying text
for discussion of Voting Instruction Forms). The Commission notes
that these issues are beyond the subject of this proposed rule
change by the NYSE. In addition, the Commission received a comment
regarding the effective date for the proposed rules (see SIFMA
Letter) and comments regarding the propriety of assigning the task
of proxy regulation to the NYSE (see FOLIOfn Letter, Angel Letter).
In its initial response letter, the Exchange stated its belief that
a lengthy period before effectiveness of the proposed fee structure
would appear to be unnecessary given that invoicing of proxy fees is
typically handled by the intermediary rather than the broker-dealer
and given that Broadridge stated in its comment letter that it is
prepared to implement the new fee structure soon after approval. See
NYSE Letter; see also Broadridge Letter. Further, subsequent to the
Exchange's initial response letter, Broadridge stated that it ``is
committed to implementing the new [fee] structure within a short
time of its approval.'' See Broadridge Material. With regard to the
comment that the Commission has assigned the task of proxy
regulation to the NYSE, although the NYSE participates in some
aspects of regulating the proxy process, the Commission has engaged
in and overseen numerous rulemakings and overseen and reviewed SRO
proposed rules relating to the proxy process.
---------------------------------------------------------------------------

A. Independent Third-Party Review of Proxy Costs

    Four commenters that expressed general support for the proposal
commented on the issue of whether an independent third-party audit of
proxy costs should be conducted.\147\ One commenter noted that while
``an independent third party may be desirable, the PFAC made a
determination that `utility rate making' which could be independently
audited would not work for proxy fees.'' \148\ Another commenter
believed that determining the cost of proxy processing services based
on utility style ``cost-of-service'' calculations would be very
difficult as a practical matter.\149\ Yet another commenter stated that
while an independent review ``is often attractive in the abstract, the
regulatory landscape is laden with examples where the costs of such
reviews outweigh the benefits.'' \150\ Finally, one commenter stated
that an independent review is not necessary because the PFAC is an
independent committee with representatives from all parties.\151\
---------------------------------------------------------------------------

    \147\ See Broadridge Letter, ABC Letter, INVeSHARE Letter, Angel
Letter.
    \148\ See Broadridge Letter.
    \149\ See Angel Letter.
    \150\ See ABC Letter.
    \151\ See INVeSHARE Letter.
---------------------------------------------------------------------------

    However, several commenters stated that the NYSE should engage an
independent third party to evaluate the structure and level of fees
being paid for proxy distribution, as recommended by the NYSE Proxy
Working Group in 2006.\152\ Two commenters argued that an independent
third-party audit is the best way to evaluate whether the fees are
reimbursed fairly, equitably and

objectively, and would eliminate the vested interests of those involved
in the process.\153\ Three other commenters believed the Commission
should not approve the proposed rule change until the audit has been
commissioned and completed,\154\ while two others suggested that the
Commission approve the proposal, but require an independent third-party
review as part of an ongoing process.\155\ One commenter believed that,
without a third-party audit, many issuers would continue to question
the validity of proxy fees.\156\ Another commenter noted that there was
no independent verification of the data on the Securities Industry and
Financial Markets Association (``SIFMA'') study related to the costs of
proxy processing,\157\ and yet another believed that the PFAC did not
have access to the information necessary to determine whether
particular fees were reasonable.\158\ Finally, one commenter expressed
the view that a comprehensive assessment of the NYSE proposal's net
impact on proxy distribution costs for all issuers, including mutual
funds, would require further analysis.\159\
---------------------------------------------------------------------------

    \152\ See STA Letter, STA Letter II, SSA Letter, Schafer Letter,
Lovatt Letter, NIRI Letter, SCC Letter, IBC Letter, ICI Letter, ICI
Letter II, OTC Letter, CtW Letter II; see also AST Letter, FOLIOfn
Letter.
    \153\ See NIRI Letter, ICI Letter.
    \154\ See STA Letter, STA Letter II, IBC Letter, AFL-CIO Letter;
see also OTC Letter (stating the mere fact that much of the data
supplied to the PFAC for its analysis of the proposed rule change
came exclusively from Broadridge without an independent review and
without additional sources discredits the results of the PFAC's
research).
    \155\ See SCC Letter, SCSGP Letter.
    \156\ See NIRI Letter.
    \157\ See BNY Letter.
    \158\ See AFSCME Letter.
    \159\ See AST Letter, AST Letter II.
---------------------------------------------------------------------------

    In its initial response, the Exchange stated that the PFAC
determined that an independent review of proxy costs was
unnecessary.\160\ The Exchange noted that the PFAC itself was an
independent body and that it reviewed audited financial information on
Broadridge, segment information provided by Broadridge on its Web site,
and several independent analyst reports on Broadridge that gave the
PFAC comfort that the existing fees were not providing Broadridge with
excessive margin on its activities.\161\ Further, the Exchange stated
that the NYSE proxy fees have been revised a number of times over the
years without an independent review of proxy costs.\162\ The Exchange
stated that there is no requirement that an independent third-party
review be conducted, and that such a review was conducted only in the
context of significant rule changes developed in the late 1990s.\163\
The Exchange also stated that ``given the availability of audited
financials on Broadridge and the SIFMA survey of costs at
representative brokerage firms undertaken at the NYSE's request,
arguably the proposed fee changes have been based on information
comparable to that used in the independent studies conducted in the
late 1990s.'' \164\
---------------------------------------------------------------------------

    \160\ See NYSE Letter.
    \161\ Id. See also Washington Letter (stating that the PFAC
``conducted an independent evaluation of how the underlying work and
expenses have evolved (including a detailed analysis of the
categories of work currently performed by Broadridge, the costs
incurred by Broadridge and by bankers and brokers, and independent
investment analyst reports regarding Broadridge's margins).'').
    \162\ Id. The Exchange also recognized, as noted by several
commenters, that the Proxy Working Group formed in 2006 recommended
that the NYSE engage an independent third party to analyze the
reasonableness of the proxy fees and to commission an audit of
Broadridge's costs and revenues for proxy mailing, but the Exchange
pointed out that that Proxy Working Group did not renew its call for
such independent analysis at the time an addendum to the group's
report was published in 2007. See STA II Letter, NIRI Letter, SCC
Letter, IBC Letter, BNY Letter, NYSE Letter.
    \163\ Id.
    \164\ Id. The Exchange also asserted that ``throughout the
history of the NYSE proxy fees, negotiation among the members of a
committee of issuers and brokers, supplemented by the comment
process which accompanies a rule filing with the SEC, has been an
effective method for reaching a workable consensus on what
constitutes `reasonable reimbursement.' '' Id.
---------------------------------------------------------------------------

    In a supplemental response, the Exchange explained that the costs
of the proxy distribution process have not typically been segregated
from other costs incurred at firms and intermediaries.\165\ The
Exchange stated that the PFAC learned from conversations with various
brokerage firms and intermediaries, including Broadridge, that there is
no common methodology for tracking proxy distribution costs, ``nor do
these entities segregate these costs from the cost of other similar
processing activities that are not reimbursable by issuers.'' \166\ The
Exchange explained that this is why the ``PFAC and the Exchange `judged
that it would likely be impossible and certainly not cost effective, to
engage an auditing firm to review industry data for purposes of the
Committee's work.' '' \167\ The Exchange reiterated that the PFAC
requested that Broadridge provide it non-public financial data, but
Broadridge declined.\168\ However, the Exchange stressed that the
``PFAC did study available materials that allowed it to conclude that
the fees it proposed did constitute a reasonable reimbursement of the
industry's costs for proxy distribution to street name accounts.''
\169\
---------------------------------------------------------------------------

    \165\ See NYSE Letter II.
    \166\ Id.
    \167\ Id. (quoting Notice).
    \168\ Id.
    \169\ Id.
---------------------------------------------------------------------------

    The Exchange also stated that the PFAC accepted that it was
appropriate for Broadridge to make a reasonable profit.\170\ In this
context, the Exchange noted that, based on public information showing
Broadridge's pre-tax margin on its Investment Communication Solutions
Segment, Broadridge's margin was consistent with, and in most cases was
significantly lower than, ``other firms in comparable businesses, such
as transaction processing firms (e.g., Visa), financial processing
firms (e.g., Fiserv), other processing firms (e.g., MSCI) and
securities industry infrastructure firms (e.g., Computershare).'' \171\
The Exchange stated that the ``PFAC found this credible evidence that
the profit being earned by Broadridge on this business segment was
reasonable.'' \172\
---------------------------------------------------------------------------

    \170\ Id.
    \171\ Id.
    \172\ Id.
---------------------------------------------------------------------------

    In response to concerns that the PFAC relied substantially on the
limited information provided by Broadridge, the Exchange noted that the
PFAC requested that Broadridge provide it non-public financial data,
but Broadridge declined.\173\ However, the Exchange explained that
``Broadridge was otherwise forthcoming with the PFAC and described at
length their processes, and provided the PFAC with the detailed task
list that was included with the Exchange's rule filing as an appendix
to the SIFMA survey.'' \174\ In addition, the Exchange noted that the
PFAC met with a number of other industry participants to discuss the
proxy processing business.\175\
---------------------------------------------------------------------------

    \173\ Id., see also supra note 161.
    \174\ See NYSE Letter II. In particular, the Exchange stated
that the ``PFAC requested that Broadridge run tests of various
proposals, so that the PFAC could analyze and compare in some detail
how different fee structures would impact the issuer population,
assisting the PFAC in determining to its satisfaction that its
proposals fairly allocated the fees among different size issuers.''
Id.
    \175\ These market participants included Mediant Communications,
Bank of America Merrill Lynch, Citibank, Morgan Stanley Smith
Barney, Fidelity's National Financial and Curian Capital. Id.
---------------------------------------------------------------------------

    The Exchange also provided additional information from Broadridge
about the costs involved in providing proxy and report distribution
services.\176\ Among other things, Broadridge represented that the
``proposed fee structure results in a high degree of alignment between
the overall fees paid and the reasonable costs of the services
provided.'' \177\ Broadridge estimated that the work associated with
the basic processing fee, nominee coordination and intermediary unit
fee and preference management fee would

be 56.7%, 26% and 17.5% of total work effort, respectively, and that if
the proposed fees had been in place in fiscal year 2012, such fees
would have represented 55.4%, 27% and 18.9% of total fees paid,
respectively. Accordingly, in Broadridge's estimation, there is a high
degree of alignment between costs and services.\178\
---------------------------------------------------------------------------

    \176\ See supra note 12.
    \177\ See NYSE Letter III.
    \178\ See NYSE Letter III. See also further summary of
Broadridge Material in subpart D, Fairness of the Fee Proposals,
infra.
---------------------------------------------------------------------------

B. Cost/Benefit Analysis of the Proxy Fee Proposals

    Several commenters stated that the NYSE failed to undertake an
analysis of the costs and benefits of the fee proposal, using the same
degree of rigor applicable to SEC rule changes.\179\ Two commenters
stated that until an objective and comprehensive cost-benefit analysis
can be developed, the SEC should disapprove this rule filing.\180\
---------------------------------------------------------------------------

    \179\ See STA Letter, STA Letter II, Schafer Letter, Lovatt
Letter, IBC Letter.
    \180\ See STA Letter, STA Letter II, IBC Letter.
---------------------------------------------------------------------------

    The Exchange responded by noting that no such cost-benefit analysis
is required by the relevant statute or SEC rules.\181\ However, the
Exchange also noted that ``the essence of the PFAC process was a
negotiation among parties with often divergent interests seeking an
outcome which to each was a balance of the costs and benefits
involved.'' \182\
---------------------------------------------------------------------------

    \181\ See NYSE Letter. See infra Section V, Discussion and
Commission Findings, for a discussion of the likely economic impact
that the Commission considered in this context.
    \182\ Id. The Exchange also cited the PFAC's conclusions
regarding Managed Accounts as an example of the PFAC's cost-benefit
analysis. Id.
---------------------------------------------------------------------------

C. Equitable Allocation of Processing and Intermediary Unit Fees
Between Large and Small Issuers

    Several commenters stated that the proposed processing and
intermediary fees do not allocate fees equitably between large and
small issuers.\183\ Moreover, two commenters believed that these fees
should not be charged at the same level for beneficial owners who are
not receiving an actual proxy package.\184\ These commenters also
stated that such fees fall disproportionately on smaller issuers,
especially those with less than 300,000 beneficial owner
positions.\185\ They further stated that it was not fair for smaller
issuers to be subject to more than a 20% increase in their proxy fees,
while an issuer with 1,000,000 beneficial owners would have a decrease
in processing and intermediary unit fees.\186\
---------------------------------------------------------------------------

    \183\ See STA Letter II, IBC Letter, Schafer Letter, Lovatt
Letter.
    \184\ See STA Letter II, IBC Letter.
    \185\ See STA Letter II, IBC Letter; see also OTC Letter.
    \186\ See STA Letter II, IBC Letter. These commenters concluded
that even ``after accounting for economies of scale, the processing
and intermediary unit fees proposed by the NYSE are not equitably
allocated between large and small issuers, in light of the fact that
there is no substantive justification for why smaller issuers with
less than 300,000 beneficial owners should be bearing such a
significantly large burden under the proposed fee schedule.''
---------------------------------------------------------------------------

    The Commission also raised concerns in the Order Instituting
Proceedings regarding the proposed tiered fees, noting that while the
proposed tiered structures appeared to be an incremental improvement
over the status quo, the Exchange had not clearly explained why the
particular tiers or rates within each tier were chosen, nor had the
Exchange provided evidence that either the Exchange or PFAC had
``conducted a meaningful review of the economies of scale present in
the proxy processing business, or the overall costs associated
therewith.'' \187\ In response, the Exchange stated that the PFAC
requested and reviewed numerous pricing scenarios from Broadridge to
ensure that small issuers were not unduly impacted under the
proposal.\188\ The Exchange explained that ``the PFAC wished to develop
a more equitable tiering arrangement, in which fees would decline not
for all accounts with issuers of a certain size, but where the same
price would apply to the first tier in all companies, a reduced price
to the second tier in all companies, and so on.'' \189\ According to
the Exchange, the PFAC considered and analyzed a number of scenarios
and determined that the proposed tiered arrangement was the most
effective in removing the distortions of the current fee structure,
which has a pricing ``cliff'' in that it applies a lower fee to all
accounts with issuers of a certain size.\190\ The Exchange also noted
that ``[a]s a final check regarding the propriety of the proposed
tiers, the PFAC had secured from Broadridge the estimate that overall
under the current fees issuers with 100,000 or fewer accounts paid
approximately 38% of proxy processing fees, issuers owned by more than
100,000 up to 500,000 accounts paid approximately 30% of such fees, and
issuers owned by more than 500,000 accounts paid approximately 32% of
the fees.'' \191\ The Exchange stated that estimates of the impact of
the proposed fees were that ``such proportions would continue, which
the PFAC considered to be consistent with its goals and to represent a
fair allocation among the issuer population.'' \192\
---------------------------------------------------------------------------

    \187\ Order Instituting Proceedings, 78 FR 32522.
    \188\ See NYSE Letter II. See also Washington Letter (stating
that the PFAC `` `reality tested' the fee structure to assess
whether there would be unintended consequences of significantly
changing fees for categories of users.'').
    \189\ Id.
    \190\ Id.
    \191\ Id.
    \192\ Id.
---------------------------------------------------------------------------

D. Fairness of the Fee Proposals

    Six commenters believed that the proposal would improve
transparency of the proxy fee structure so that it is clearer to
issuers what services they are paying for and that the fees are
consistent with the type and amount of work involved.\193\ In addition,
six commenters believed that the proposal is an improvement that helps
eliminate the ``cliff'' pricing schedule.\194\
---------------------------------------------------------------------------

    \193\ See Steering Committee Letter, SCSGP Letter, SCC Letter,
Broadridge Letter, NIRI Letter, Washington Letter.
    \194\ See SCSGP Letter, ABC Letter, Broadridge Letter, BNY
Letter, SCC Letter, INVeSHARE Letter.
---------------------------------------------------------------------------

    However, several commenters raised concerns about the possibility
that issuers may be paying more than would constitute ``reasonable''
reimbursement for actual costs.\195\ As a result, several commenters
stated that the fee proposal favors the interests of broker-dealers and
discriminates against issuers.\196\ One commenter noted that a 2011
survey of transfer agent pricing compared to the NYSE proxy fee
schedule concluded that market-based proxy fees for registered
shareholders were more than 40% less than the proxy fees being charged
to provide the same services to beneficial owners.\197\ This commenter
also noted that the same study found that all transfer agents
participating in the survey charged processing and suppression fees
that were significantly less than the fees being charged by broker-
dealers under the current NYSE proxy fee schedule.\198\ This commenter
concluded that the NYSE proxy fee schedule, as proposed, does not
satisfy the requirements of Section 6(b)(5) of the Act because the
proposed fees are ``not based on actual costs incurred and exceed
similar charges under competitive pricing and through other broker-
dealer utilities operating on an at-cost basis.'' \199\ Another
commenter also disputed the NYSE's assertion that market forces
currently shape the fees issuers are required to pay for proxy
distribution, and believed a fuller explanation of how the proposed
fees represent reimbursement for actual costs

is necessary to ensure compliance with statutory requirements.\200\
---------------------------------------------------------------------------

    \195\ See STA Letter, STA Letter II, Schafer Letter, Lovatt
Letter, IBC Letter, BNY Letter, ICI Letter.
    \196\ See STA Letter II, IBC Letter, Schafer Letter, Lovatt
Letter, OTC Letter.
    \197\ See STA Letter II.
    \198\ Id.
    \199\ Id.
    \200\ See AFSCME Letter.
---------------------------------------------------------------------------

    In response to concerns regarding the fairness of the proposed rule
change, the Exchange, through the Broadridge Material, took the
position that the proposal improves the overall fairness and
reasonableness of the fee allocation by considering a number of
factors, such as an issuer's size and the characteristics of an
issuer's shareholder base.\201\ The Broadridge Material expressed the
view that, under the current fee structure, fees paid for processing
the largest issuers and jobs subsidize the fees paid for processing
smaller issuers and jobs, and that the ``subsidy of smaller firms by
larger firms is narrowed, but not eliminated, by the proposed fee
structure.'' \202\ Furthermore, according to the Broadridge Material,
``in comparison to the current, `one-size-fits-all' fee structure, the
proposed fee structure better recognizes economies of scale for issuers
of different sizes, as measured by their number of beneficial
shareholders.'' \203\
---------------------------------------------------------------------------

    \201\ See NYSE Letter III.
    \202\ Id.
    \203\ Id.
---------------------------------------------------------------------------

    The Exchange, through the Broadridge Material, also represented
that the ``proposed fees are lower than current fees, they provide
greater total savings, and they contain measures and incentives to
improve retail participation.'' \204\ In particular, the Broadridge
Material stated that issuers would have saved an estimated 4%-6% on
average if the proposal had been in effect for 2012,\205\ and expressed
the view that the incentive fee structure would help continue to drive
additional reductions in printing and postage costs.\206\
---------------------------------------------------------------------------

    \204\ Id. See also Washington Letter.
    \205\ Id. The Broadridge Material indicated that this figure is
based on an analysis of ``all of the invoices Broadridge processed
on behalf of its clients, using the proposed fees in place of the
current fees, as charged, for U.S. equity proxy meetings.''
    \206\ Id. The Broadridge Material also stated that the ``total
cost to issuers (fees, printing and postage) is lower by several
hundred million dollars each year than it was at the time of the
last fee review in 2002,'' and represented that in ``each of the
past six years, the estimated annual savings not only exceeded the
incentive fees paid out but all fees issuers paid.'' The Broadridge
Material further expressed the view that the preference management
fee and one-time EBIP incentive fee will ``drive investments in
technology, and systems development by Broadridge and its clients--
resulting in greater use of technology--with large and growing
savings to issuers, and greater conveniences to shareholders in
accessing proxy information and voting their shares.''
---------------------------------------------------------------------------

    In addition, the Broadridge Material cited a study indicating that
the regulated fees issuers pay for delivering a proxy to a beneficial
shareholder (e.g., through Broadridge) were lower on average than
unregulated fees issuers pay for delivering a proxy to a registered
shareholder, as well as a supplemental review performed by Broadridge
that confirmed that conclusion.\207\
---------------------------------------------------------------------------

    \207\ Id. In addition, Broadridge stated that it compared the
invoices for the registered shareholder processing services it
performed on behalf of issuers in fiscal year 2012 to NYSE's
proposed fees and the results showed that for ``over 80% of issuers
and meetings, the proposed regulated fee issuers pay for delivering
a proxy to a beneficial shareholder would be lower than the
unregulated fee issuers pay for delivering a proxy to a registered
shareholder.''
---------------------------------------------------------------------------

    Finally, the Broadridge Material highlighted its major systems
enhancements in recent years, and noted that its IT infrastructure,
development and labor costs have risen by 8.4%, 15.4% and 8.1%,
respectively, on a compound annual basis, over the past six years,
while NYSE's regulated fees have not changed.\208\
---------------------------------------------------------------------------

    \208\ Id. The Broadridge Material described how costs had been
impacted by ``inflation, processing volumes, market activity,
regulatory requirements and the evolution of technology, and
highlighted the significant growth (116%) in the lines of computer
code necessary to process communications from 2002 to 2011. In
addition, Broadridge stated that as a result of these costs, and
flat to declining volumes and fee revenues, profit margins at
Broadridge's Investor Communications Services business group are at
the low end of the processing services industry, on after-tax basis
ranging from 9% to 11%.
---------------------------------------------------------------------------

    Below is a more detailed summary of the comments regarding the
significant fees on the NYSE schedule, as proposed in the rule filing.
1. Preference Management Fee
    Several commenters raised concerns regarding the change of the
paper and postage elimination fee into a preference management fee,
which is assessed for all accounts for which a mailing is
suppressed.\209\ These commenters also highlighted the lack of any
detailed analysis about the cost of the work involved for the fee.\210\
In addition, these commenters questioned the appropriateness of the
``evergreen'' nature of the fees, which currently are charged not only
in the year in which the electronic delivery is elected but also in
each year thereafter.\211\ One commenter stated that if ``Broadridge is
paid to `keep track' of a shareholder preference regarding householding
or electronic delivery, it should not also be permitted to charge a
basic processing fee and an intermediary unit fee for accounts that are
suppressed.'' \212\ Another commenter stated that the preference
management fee has ``no apparent connection to the amount of effort
involved in recording the beneficial owner's preference on the broker's
system nor that involved in the suppression of mailing.'' \213\
Furthermore, one commenter questioned why the tiered system was
appropriate for the ``basic processing fee'' and ``supplemental fees,''
and not for the preference management fee.\214\
---------------------------------------------------------------------------

    \209\ See STA Letter II, BNY Letter, ICI Letter, AFSCME Letter.
    \210\ Id.
    \211\ See STA Letter II, BNY Letter, ICI Letter, AFSCME Letter.
    \212\ See STA Letter II.
    \213\ See BNY Letter.
    \214\ See OTC Letter.
---------------------------------------------------------------------------

    In its first response letter, the Exchange referred to its
discussion in its rule filing of the appropriateness of charging the
preference management fee every year, and noted that, following the
SEC's review of the proxy fees put in place in 1997, the every-year
approach was maintained by an independent proxy review committee.\215\
In its second letter, in response to concerns raised in the Order
Instituting Proceedings that the Exchange had not clearly explained why
a tiered approach would be inappropriate for the preference management
fee,\216\ the Exchange stated that a tiered approach was not
appropriate because preference management processing ``appeared to have
fewer economies of scale than the other processing activities.'' \217\
The Exchange also noted that the PFAC asked Broadridge ``to model a
tiered approach for preference management fees, but determined that it
was too complex, especially in light of the fact that the basic
processing fees were being tiered.'' \218\ The Exchange also
represented that the work effort associated with both the basic
processing fee and intermediary unit fee are separate and in addition
to the activities supporting the preference management fee.\219\
---------------------------------------------------------------------------

    \215\ See NYSE Letter.
    \216\ See Order Instituting Proceedings, 78 FR 32522.
    \217\ See NYSE Letter II. The NYSE stated that performance
management fees have low set-up costs, as opposed to the basic
processing fee, which has certain set-up costs irrespective of the
size of the job. In addition, the Exchange noted that the PFAC
determined to distinguish between managed accounts and other
accounts in terms of the amount of the preference management fee.
    \218\ Id.
    \219\ See NYSE Letter III.
---------------------------------------------------------------------------

2. Separately Managed and Wrap Accounts \220\
---------------------------------------------------------------------------

    \220\ See infra subpart E, Minimum Share Threshold for Managed
Accounts.
---------------------------------------------------------------------------

    One commenter fully supported the reduction of the separately
managed account fees \221\ and another believed that the Exchange has
taken a fair and

reasonable approach with respect to charges for managed accounts by
cutting the preference management fee in half for positions in managed
accounts and eliminating the fee altogether for any position under five
shares.\222\ Several other commenters, however, expressed concern
regarding the proxy fees for separately managed accounts, including
wrap accounts.\223\ One commenter highlighted the lack of detailed
analysis for why the managed account fees should remain an issuer
expense.\224\ Three commenters questioned the validity of the amount of
work involved in managing a separately managed account.\225\ One
commenter expressed uncertainty ``on the value or need to track
accounts where there is no need or expectation to deliver proxy
materials, since these accounts are voted by a single manager.'' \226\
Another commenter expressed concern that ``private, nonpublic
information is being sent to the broker-dealer's service provider when
the broker-dealer should be the entity eliminating the accounts for
proxy distribution. With today's technology, the broker-dealer would
easily be able to extract only the accounts which truly should receive
proxy materials.'' \227\ Yet another commenter concluded that a fee
prohibition should apply when a beneficial owner has instructed an
investment adviser to receive issuer proxy materials and vote his or
her proxies in lieu of the beneficial owner.\228\
---------------------------------------------------------------------------

    \221\ See INVeSHARE Letter.
    \222\ See SCSGP Letter.
    \223\ See STA Letter II, SSA Letter, BNY Letter.
    \224\ See STA Letter II. This commenter stated that the
``documentation and data processing for both wrap fee accounts and
separately managed accounts are standardized within a broker-
dealer's accounting platform.'' See also AFSCME Letter (noting that
the proposal ``does not explain why issuers should reimburse
indefinitely fees associated with not sending materials to a
beneficial owner . . . because those owners have delegated their
voting rights to an investment manager.'').
    \225\ See STA Letter II, BNY Letter, FOLIOfn Letter.
    \226\ See BNY Letter.
    \227\ See SSA Letter.
    \228\ See STA Letter II.
---------------------------------------------------------------------------

    In its first and fourth response letter, the Exchange referred to
the discussion in its rule filing of the issue of the appropriateness
of applying the preference management fee to managed accounts.\229\ In
its second letter, in response to concerns raised in the Order
Instituting Proceedings that the Exchange had not provided a rationale
for treating managed accounts differently only with respect to
preference management fees,\230\ the Exchange explained that the PFAC
discussion focused on the preference management fee because the
suppression of paper delivery for a managed account ``appeared to be
more a consequence of the nature of the account than an effort made to
suppress paper delivery.'' \231\
---------------------------------------------------------------------------

    \229\ See NYSE Letter, NYSE Letter IV. According to the
Exchange, there is ``processing work to track and maintain the
voting and distribution elections made by the beneficial owners of
the stock positions in the managed account.'' See Notice, 78 FR
12387.
    \230\ See Order Instituting Proceedings, 78 FR 32522-23.
    \231\ See NYSE Letter II.
---------------------------------------------------------------------------

3. Nominee and Coordination Fees
    One commenter stated that the proposed increase in the nominee
coordination fee would be 10%, from $20 to $22 for each nominee holding
at least one share of an issuer's stock.\232\ This commenter noted that
the fee appeared to be significantly higher than similar fees charged
by the Depository Trust Company (``DTC'') and the National Securities
Clearing Corporation (``NSCC''), two broker-dealer utilities that work
on an at-cost basis.\233\ This commenter stated that without
independent confirmation of the actual cost of sending electronic
search requests to nominees and processing the responses, ``it is hard
to justify a 10% increase in this fee, especially when the cost of
sending electronic requests, messages, and beneficial owner account
information is significantly less expensive when conducted through the
DTC and/or NSCC processing systems.'' \234\
---------------------------------------------------------------------------

    \232\ See STA Letter II.
    \233\ Id.
    \234\ Id. The Commission notes that the Exchange stated in the
Notice that the nominee coordination fee has declined by
approximately 29% on an inflation-adjusted basis since it was first
introduced in 1997. See Notice, 78 FR 12384.
---------------------------------------------------------------------------

4. Notice and Access Fees
    Two commenters stated that there needs to be an independent review
of the actual costs incurred for notice and access fees to reflect a
rate of reasonable reimbursement.\235\ Another commenter stated that
the proposal does not provide information sufficient to analyze in
detail the cost basis for notice and access fees.\236\ One commenter
noted that the proposal would generally codify Broadridge's current
notice and access fees.\237\ This commenter stated that ``even if the
Commission determines that it is appropriate for such a fee to be
charged, it is not reasonable for the fee to apply to all accounts,
even those which receive the full set of proxy materials.'' \238\ One
commenter reiterated that the ``lack of an independent audit hampers
the ability of issuers to know what costs are incurred, and why these
fees are needed to handle a much lower level of mail processing, i.e.,
the mailing of one piece instead of a four-piece proxy package.'' \239\
---------------------------------------------------------------------------

    \235\ See STA Letter II, ICI Letter.
    \236\ See AST Letter.
    \237\ See ICI Letter.
    \238\ Id.
    \239\ See STA Letter II.
---------------------------------------------------------------------------

    In its initial response letter, the Exchange referred to the
discussion in its rule filing of notice and access fees, but emphasized
that the PFAC members were satisfied with the overall level of notice
and access costs.\240\ The Exchange represented that the only question
was whether Broadridge's approach with respect to those costs made
sense and, after reviewing alternative approaches, the PFAC came to a
consensus that Broadridge's approach was best.\241\
---------------------------------------------------------------------------

    \240\ See NYSE Letter.
    \241\ Id.
---------------------------------------------------------------------------

    In addition, the NYSE explained, through the Broadridge Material,
that notice and access requires ``incremental software and maintenance,
additional processing of an issuer's shareholder position file,
printing of the Notice . . ., establishment of a new production line
for Notice processing, and management of inventory to timely fulfill
shareholder requests for hard copies of proxy materials.'' \242\ In
addition, the Broadridge Material stated that every notice and access
request ``makes different demands on three production streams, i.e.,
for processing mailed Notices, for processing full sets and for
processing electronic deliveries.'' \243\ Thus, according to the
Exchange, ``each and every issuer that chooses to use [notice and
access] places additional demands on proxy systems and servicing
costs.'' \244\
---------------------------------------------------------------------------

    \242\ See NYSE Letter III. In addition, the Exchange, through
the Broadridge Material, represented that every notice and access
request ``makes different demands on three production streams, i.e.,
for processing mailed Notices, for processing full sets and for
processing electronic deliveries.''
    \243\ Id.
    \244\ Id.
---------------------------------------------------------------------------

5. NOBO List Fees and Stratification
    One commenter stated that the current NOBO list fees far exceed
what should be considered reasonable and deserves further
scrutiny.\245\ This commenter noted that the proposed fee schedule
codifies the fee that Broadridge historically has charged for issuers
to obtain a list of NOBOs.\246\ This commenter also raised concerns
about the level of fees charged given the relatively uncomplicated
nature of the work involved and the possibility that

issuers may be paying twice for the same information.\247\
---------------------------------------------------------------------------

    \245\ See ICI Letter.
    \246\ Id.
    \247\ Id.
---------------------------------------------------------------------------

    Six commenters, however, supported the stratification of NOBO
lists.\248\ Three commenters believed that the proposal to provide
stratified NOBO lists would reduce issuers' costs in communicating with
shareholders.\249\ Another commenter believed that stratified NOBO
lists would enhance retail voter participation, as well as help issuers
communicate with their shareholders at proxy time.\250\
---------------------------------------------------------------------------

    \248\ See ABC Letter, Broadridge Letter, NIRI Letter, SCC
Letter, ICI Letter, ICI Letter II, SCSGP Letter.
    \249\ See ABC Letter, Broadridge Letter, NIRI Letter.
    \250\ See SCSGP Letter.
---------------------------------------------------------------------------

    Four commenters believed that the stratified NOBO lists should be
made available outside of a record date.\251\ One commenter noted its
disappointment that an issuer could not request a stratified NOBO list
outside of a record date, ``especially at a time when issuers have a
greater need to communicate more frequently with their shareholders,
and especially their street name holders.'' \252\ Another commenter
stated that the justification used by the NYSE for limiting
stratification ``is the impact such a change would have on the proxy
system, which appears to be the impact this would have on the vendor
(Broadridge) that provides this information,'' \253\ and took the
position that any potential negative impact on the vendor is not
sufficient justification to restrict potential benefits to
issuers.\254\ One commenter, however, believed that if the proposal
were expanded to include requests for stratified lists at any time of
the year, there would be an imbalance between fees and the work
involved.\255\ This commenter recommended that the Commission and the
NYSE monitor developments with respect to NOBO lists for the first year
of the new fees and, at the end of the first year, adjust the rule if
necessary.\256\
---------------------------------------------------------------------------

    \251\ See SCSGP Letter, STA Letter II, BNY Letter, NIRI Letter.
    \252\ See STA Letter II. This commenter also stated that
``issuers find it more cost-effective to order a subset of the NOBO
list, segmented by whether or not a beneficial owner already voted
on a solicitation, or stratified by a minimum threshold of shares
held.''
    \253\ See BNY Letter.
    \254\ Id.
    \255\ See Broadridge Letter.
    \256\ See Broadridge Letter.
---------------------------------------------------------------------------

    The Exchange stated in its first response letter that it believes
that there is a rational basis to distinguish between record date lists
and other lists, and that it is concerned about the potential impact of
the proposed NOBO list fee change on overall proxy fee revenues
available to reimburse brokers for their costs.\257\ The Exchange added
that issuer and broker experience with the new rule would inform
whether future changes are desirable.\258\
---------------------------------------------------------------------------

    \257\ See NYSE Letter.
    \258\ Id.
---------------------------------------------------------------------------

E. Minimum Share Threshold for Managed Accounts

    One commenter, who stated that it has been adversely affected by
fees attributable to managed accounts that hold fractional shares of
its own stock, expressed full support for the proposal.\259\ In
addition, one commenter stated that the removal of fees for fractional
share positions would help eliminate exposure some issuers have to
large, unanticipated increases in the number of street name accounts
from one year to the next.\260\ This commenter estimated that this
amendment would save issuers approximately $3.6 million over a period
of twelve months.\261\
---------------------------------------------------------------------------

    \259\ See Gartner Letter.
    \260\ See Broadridge Letter.
    \261\ Id.
---------------------------------------------------------------------------

    However, four commenters raised concerns regarding the five-share
limit for fees for processing shares held through managed
accounts.\262\ One commenter stated that the rules for reimbursement
should be based on actual (or a reasoned estimate of) proxy processing
costs rather than on arbitrarily fixed thresholds.\263\ Two commenters
stated that the proposal lacked a detailed analysis concerning the
basis for selecting any particular threshold.\264\ Two commenters
stated that the work required to process proxy distribution to managed
accounts is the same, regardless of the number of shares held,\265\ and
one commenter stated the proposed approach has the potential to create
an imbalance between the fees and the amount of work involved.\266\
Instead of drawing the line at five shares, one commenter believed that
issuers should not be required to reimburse brokers for processing
managed accounts that have less than one whole share.\267\ Another
commenter believed that the same fees should apply regardless of how
many shares--or fractions of shares--a shareholder owns if the account
holder retains voting rights and thus receives the voting materials,
rather than delegating voting rights to a manager.\268\ In addition,
one commenter suggested a per distribution fee that equals the average
cost for all distributions actually made regardless of the number of
shares held in a managed account.\269\
---------------------------------------------------------------------------

    \262\ See Broadridge Letter, SIFMA Letter, AST Letter, FOLIOfn
Letter, FOLIOfn Letter II.
    \263\ See SIFMA Letter.
    \264\ See AST Letter, FOLIOfn Letter.
    \265\ See Broadridge Letter, SIFMA Letter.
    \266\ See Broadridge Letter.
    \267\ Id.
    \268\ See Angel Letter; see also FOLIOfn Letter II (stating that
the costs for distribution to an account that holds three shares in
a security is identical to the costs for distribution to an account
that holds thirty or more shares).
    \269\ See FOLIOfn Letter II.
---------------------------------------------------------------------------

    Furthermore, this commenter took the position that the proposal
effectively disenfranchises shareholders who hold five or fewer shares
in a security in a managed account because it would provide no
reimbursement of costs for distribution of proxy materials to those
shareholders.\270\
---------------------------------------------------------------------------

    \270\ See FOLIOfn Letter. This commenter stated further that
``although the argument is that no disenfranchisement occurs because
firms would still be required to distribute materials to all
shareholders, even though distribution to some would not be
compensated, the result is that smaller investors are materially
disfavored.''
---------------------------------------------------------------------------

    In the Order Instituting Proceedings, the Commission expressed
concerns that the Exchange had not provided a clear explanation as to
why the five-share threshold for charging proxy fees for managed
accounts was chosen.\271\ In its second response letter, the Exchange
reiterated that ``the PFAC was concerned with the proliferation of
managed accounts containing a very small number of an issuer's shares''
and that ``[t]he basic question was at what point did the benefit to an
issuer in terms of shares voted become so minimal as to justify
charging the issuer nothing for processing the account.'' \272\
According to the Exchange, the PFAC considered setting the minimum
share threshold for managed accounts at various points from a
fractional share to 5, 10, 15, 20 and 25 shares, and obtained estimates
of the economic impact of each of those, but ultimately reached
consensus at the five share threshold.\273\ The Exchange stated that
``the estimated impact on aggregate proxy fees was considered
relatively modest (approximately $4.2 million), and it seemed clear
that the voting benefit of five shares or less was limited, [t]o say
the least.'' \274\
---------------------------------------------------------------------------

    \271\ See Order Instituting Proceedings, 78 FR 32522.
    \272\ See NYSE Letter II.
    \273\ Id.
    \274\ Id.
---------------------------------------------------------------------------

    In its fourth response letter, the Exchange emphasized that the
schedule of proxy fees is appropriately based on overall industry
costs, not the costs of any individual firm.\275\ The Exchange also
referred to its discussion in its rule filing of the reimbursement of
brokers

for their reasonable expenses, and stated that by providing
``reimbursement of the reasonable overall expenses of brokers/banks in
the aggregate, the fees as proposed are consistent with the Exchange
Act Rules 14b-1 and 14b-2, and are consistent in this respect with the
fees approved by the SEC in prior proxy fee rule filings over the
years.'' \276\ In addition, the Exchange asserted that the ``average''
reimbursement approach suggested by one commenter is outdated and might
benefit one particular firm, but it would not remedy the anomalous fee
impact experienced by issuers resulting from the growth of low minimum
investment managed accounts or encourage efforts to eliminate paper
distribution.\277\
---------------------------------------------------------------------------

    \275\ Id.
    \276\ Id.
    \277\ Id.
---------------------------------------------------------------------------

F. Burden on Competition

    Several commenters stated that the structure and level of the
proposed NYSE proxy fees place a burden on competition.\278\ Five
commenters stated that the NYSE rule filing does not adequately address
the contract arrangements between broker-dealers and Broadridge.\279\
In particular, two commenters expressed the view that the rule filing
does not adequately address the rebates being provided by Broadridge to
broker-dealers as a result of excess profits generated by the NYSE
proxy fee schedule, which they believe create a burden on competition
that is not necessary or appropriate,\280\ while another commenter
believed that the most significant burden to competition is the
business practice of the primary provider of services in the proxy fee
market and not the fee structure.\281\ Two commenters believed that the
SEC should ``disapprove the rule filing on the basis that the excess
profits being generated are creating a burden on competition, as the
dominant service provider in this area is able to use these excess
profits to subsidize its ability to successfully encroach on the proxy
servicing business of transfer agents.'' \282\ One commenter stated,
however, that although there is one dominant intermediary on the street
side, brokers remain free to contract with any entity that can fulfill
proxy process services to their clients or can provide those services
themselves.'' \283\
---------------------------------------------------------------------------

    \278\ See STA Letter II, IBC Letter, SSA Letter, Lovatt Letter,
Schafer Letter.
    \279\ See STA Letter II, IBC Letter, SSA Letter, BNY Letter, CtW
Letter II; see also AFSCME Letter (stating that the Commission
should fully explore the conflicts of interest involving Broadridge
and provide any guidance it deems appropriate before approving the
proxy fee proposal).
    \280\ See STA Letter II, STA Letter III, IBC Letter. One of
these commenters stated that there should be an examination of the
rebates being provided to ensure that they do not come at the
issuer's expense. See STA Letter II. This commenter also noted that
this issue was previously raised by the Proxy Working Group in 2006
and the Proxy Concept Release, and expressed the view that the PFAC
did not address this issue in any meaningful way. Id. See infra
Section V, Discussion and Commission Findings, for a discussion of
the likely economic impact that the Commission considered in this
context.
    \281\ See INVeSHARE Letter.
    \282\ See STA Letter II, IBC Letter.
    \283\ See ABC Letter.
---------------------------------------------------------------------------

    In its first response letter, the Exchange referred to the
discussion in its rule filing and the PFAC report of the payments made
by Broadridge to certain of its broker-dealer clients pursuant to their
contractual arrangements, but reiterated that ``the existence of these
cost recovery payments is a completely rational result of the fact that
the fees are `one size' but have to `fit all,' so that the firms with
large volumes can be served at a lower unit cost, while those with
smaller volumes have a higher unit cost to Broadridge.'' \284\ The
Exchange suggested that, contrary to one commenter's contention that
the rebates reflect excess profits,\285\ the rebates ``may also be
viewed as a demonstration that market forces are directing the `excess'
to firms that can be serviced by Broadridge for a lower unit price but
have themselves greater internal street name proxy administration
costs, given their larger number of accounts.'' \286\
---------------------------------------------------------------------------

    \284\ See NYSE Letter.
    \285\ See STA II Letter.
    \286\ See NYSE Letter.
---------------------------------------------------------------------------

    In its second letter, in response to concerns raised in the Order
Instituting Proceedings that Broadridge's rebate arrangements may
result in an unnecessary or inappropriate burden on competition,\287\
the Exchange noted that, according to Broadridge approximately 200 of
its 900 bank/broker clients receive ``cost recovery'' payments.\288\
The Exchange noted that ``all firms have to incur at least some costs
related to proxy distribution beyond the cost of retaining
Broadridge,'' and took the position that those larger clients who
receive cost recovery payments ``are most likely to have more
sophisticated operations and greater costs.'' \289\ In addition, the
Exchange referred to a survey conducted by SIFMA that, according to the
Exchange, ``demonstrated that on an industry basis, brokerage firms are
not receiving reimbursement in excess of the costs they expend.'' \290\
On this point, the Exchange referred to SIFMA's extended description of
the proxy distribution activities undertaken by broker-dealers, beyond
what is outsourced to third-party service providers like
Broadridge.\291\ In particular, the SIFMA description outlined major
categories of activities broker-dealers engage in to support proxy
services, including: (i) Preference management, (ii) data
infrastructure, (iii) oversight and supervision, (iv) client service,
and (v) record retention.\292\
---------------------------------------------------------------------------

    \287\ See Order Instituting Proceedings, 78 FR 32523-24.
    \288\ See NYSE Letter II.
    \289\ Id.
    \290\ Id.
    \291\ See NYSE Letter III.
    \292\ Id.
---------------------------------------------------------------------------

G. Enhanced Broker Internet Platforms

    Twelve commenters expressed general support for the proposed EBIP
incentive fee, noting that it would reduce costs, enhance efficiency
and/or lead to more retail shareholder participation.\293\ Two of these
commenters believed that the proposed success fee would increase the
availability of EBIPs and potentially spur innovation in such
platforms.\294\ Two additional commenters that supported the proposed
fee believed that it would result in higher retail shareholder
engagement.\295\
---------------------------------------------------------------------------

    \293\ See Perficient Letter, SIFMA Letter, ABC Letter, CCMC
Letter, Broadridge Letter, Darling Letter, SCSGP Letter, iStar
Letter, Steering Committee Letter, SCC Letter, INVeSHARE Letter,
Schumer Letter.
    \294\ See SIFMA Letter, ABC Letter.
    \295\ See NIRI Letter, Schumer Letter.
---------------------------------------------------------------------------

    Six commenters believed that the incentive structure for developing
EBIPs could be further improved.\296\ Three commenters expressed
concern that the incentives provided to brokers for developing EBIPs do
not extend to other more open platforms, such as ProxyDemocracy.org,
Sharegate.com or other Web sites.\297\ Two commenters stated that these
and other entities should be afforded at least the same incentives as
brokers.\298\ These commenters also argued that EBIPs offer no real
benefit to retail shareowners over e-delivery.\299\ Several commenters
expressed concern that brokers who set up EBIPs could be incentivized
to create default voting mechanisms that essentially replicate
uninformed ``broker voting,'' \300\ or that the design of EBIPs
otherwise could be unfair or biased.\301\ Two commenters were of the
view that the EBIP proposal addresses the needs

of issuers, brokers and Broadridge, rather than shareholders.\302\ One
commenter noted that the ``99 cent fee level was not based on any
survey of brokers, or on the anticipated impact of any particular level
of success fee on individual broker decisions to implement EBIPs.''
\303\ One commenter requested that the Commission include investment
advisors and beneficial owners in developing the incentive plan for
EBIPs.\304\ Two commenters recommended that the proposed rule change be
delayed and amended to encourage an open form of client directed
voting.\305\ Another commenter recommended an approach to EBIPs that
provides revenue streams to companies who prove they can provide a
superior service to the investor customer.\306\
---------------------------------------------------------------------------

    \296\ See Harrington Letter, ICC Letter, Sharegate Letter, CG
Letter, CII Letter, Zumbox Letter.
    \297\ See ICC Letter, Harrington Letter, CG Letter.
    \298\ See ICC Letter, CG Letter.
    \299\ Id.
    \300\ See ICC Letter, Harrington Letter, CG Letter; see also CtW
Letter II.
    \301\ See AFSCME Letter, CtW Letter II, AFL-CIO Letter.
    \302\ See ICC Letter, CG Letter.
    \303\ See SIFMA Letter. This commenter also suggested that the
rules for brokers' eligibility to receive a success fee be drafted
to provide bright lines so that brokers are not compelled to conduct
extensive analysis to determine how the fee might apply in their
individual circumstances.
    \304\ See Harrington Letter.
    \305\ See ICC Letter, CG Letter; see also Angel Letter (stating
that client directed voting will help increase shareholder
participation).
    \306\ See Sharegate Letter.
---------------------------------------------------------------------------

    One commenter requested that the Commission consider issues
regarding Voting Instruction Forms (``VIFs'') and EBIPs before
finalizing the proposed rule change.\307\ However, another commenter
believed it is premature to regulate these details of EBIPs, and that
experimentation with different types of platforms should be
permitted.\308\ Yet another commenter believed that providing
additional incentives for integration of a customer's documents within
one brokerage Web site would provide a stronger benefit to
investors.\309\ One commenter questioned whether the proposal
improperly encourages the adoption of Internet voting procedures such