| Release No. 34-23847 Release No. IC-15435 Nov. 25, 1986
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 Table of Contents
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I. Executive Summary
On May 29, 1986, the Commission proposed new Rule 14b-2 and certain related amendments to its shareholder communications rules. 1 These proposals were intended to implement provisions of the Shareholder Communications Act of 1985 ("the Act"), which grants the Commission authority to regulate the proxy processing activities of banks. 2 The Act is to become effective December 28, 1986, one year after the date of enactment.
The Commission is now adopting these proposals as modified to reflect commentators views. 3 New Rule 14b-2 sets forth the obligations of a bank in connection with forwarding proxy materials to beneficial owners and registrants communications with beneficial owners of securities registered in the banks name. Rule 14b-2 parallels, to the extent possible, Rule 14b-1, which governs similar obligations of brokers and dealers (hereinafter collectively referred to as "brokers"). Related amendments to existing Commission rules also are being adopted to reflect the role of banks in the system of shareholder communications. 4
Generally, the system for forwarding proxy materials to beneficial owners whose securities are held by banks will require registrants to ask each bank for the number of proxies and other proxy soliciting material or annual reports needed by the bank for forwarding to beneficial owners. After receiving such a request, a bank will be required to respond within seven business days, indicating the number of sets of proxy materials and/or annual reports needed.
Registrants will supply a bank with a sufficient number of sets of proxy materials and/or annual reports for forwarding to beneficial owners. The bank then will be required to forward those materials directly to beneficial owners on whose behalf it holds securities within five business days after the date the materials are received.
Under the direct communications system, a bank will be required to provide a registrant, on request, with the names, addresses and securities positions of certain beneficial owners of the registrants securities on whose behalf the bank holds securities. For accounts opened on or before December 28, 1986, the beneficial owner must affirmatively consent to disclosure of its identity; for accounts opened after December 28, 1986, the beneficial owner will be deemed to have consented to such disclosure if the beneficial owner has not affirmatively objected to disclosure. Accordingly, it will be necessary that a bank solicit the consent of beneficial owners on whose behalf it holds securities to determine whether disclosure is appropriate. A bank need not forward proxy soliciting material to beneficial owners nor provide registrants with beneficial owner information, unless it receives assurances that the registrant will reimburse its reasonable expenses.
Finally, the Commission is adopting certain other amendments to: (1) clarify when a registrant is no longer obligated to deliver an annual report or proxy statement to security holders; and (2) provide that a registrants obligation to deliver an annual report or proxy statement is reinstated once a security holder delivers or causes to be delivered to the registrant written notice setting forth his then current address. This amendment also will apply to registrants delivery obligations in connection with information statements.
II. Discussion
The shareholder communication rules, including those adopted today, are intended to ensure that the beneficial owners of securities held in street name are timely provided proxy material and other corporate communications. Rules 14b-1(a) and (b) 5 and 14b-2 (a)-(d) 6 govern the proxy processing by banks and brokers; Rules 14b-1(c) 7 and 14b-2(e) and (h) 8 govern the disclosure of beneficial ownership information to registrants by banks and brokers.
A. Proxy Processing System
The proxy processing rules are intended to ensure that proxy materials reach on a timely basis those persons entitled to determine how securities are voted-the beneficial owners. State law generally recognizes exercise of voting authority by record holders only. 9 Brokers, subject to self-regulatory organization rules governing the voting of nominee stock, generally transmit proxy material to their clients and solicit voting instructions, and, at the end of the solicitation period, execute a single or limited number of proxies covering all shares held of record by the broker. 10
The proxy processing activities of banks, on the other hand, were largely unregulated until passage of the Act. Unless they specifically contracted otherwise, banks generally did not seek voting instructions or transmit proxy material or other corporate communications to beneficial owners. In addition, unlike brokers, banks have a common practice of using other banks to "piggyback" bank accounts. Currently, banks which do forward proxy materials to beneficial owners usually send only one set of proxy materials with an executed proxy card to each bank on whose behalf the bank record holder holds securities ("respondent bank"), despite the fact that its respondent bank may hold securities on behalf of many beneficial owners or other respondent banks. Thus, devising proxy processing rules for banks has presented a need to anticipate new bank procedures that comply with state law requirements and permit voting or instruction by beneficial owners.
In the proposing release, the Commission, recognizing that a substantial change in bank practices would be required, solicited comment on what procedures record holder banks would have to institute to ensure that all ultimate beneficial owners receive proxy materials in a timely fashion. 11 Commentators overwhelmingly endorsed procedures that relied on an omnibus proxy approach. The Commission, therefore, has incorporated such a concept in the rules governing the forwarding of proxy materials to beneficial owners. 12 Based on public comment, particularly that of the banking community, the Commission believes that the omnibus proxy approach should provide a cost-effective and efficient system for ensuring that proxy materials are received by the beneficial owners and that proxies are executed by the appropriately authorized parties.
The Commission recognizes the need for banks to have sufficient time to establish workable procedures for the implementation of this system. Accordingly, the Commission is deferring effectiveness until July 1, 1987, of paragraphs (a) through (c) of Rule 14b-2, which set forth the obligations of a bank in connection with obtaining and forwarding proxy materials to beneficial owners (including the omnibus proxy approach). This additional six-month period should provide ample time for the banking community to adapt their in-house procedures to comply with these rules.
Given the July 1, 1987, effective date, the Commission invites persons that have concern with the specific language of these provisions to advise the Commission of such concern by comment letter no later than February 1, 1987. In the event that the Commission, after review of any such comments, believes the language of the rule should be revised it will do so. The Commission does not, however, anticipate a change in the rules reliance on the omnibus proxy approach. 13
1. Search Card
The first step in the proxy processing system is the issuance and response to the registrants search card. Registrants are currently required to ask record holders to provide the number of sets of proxy materials and/or annual reports needed for forwarding to beneficial owners whose securities are directly held by the record holder. 14 Effective July 1, 1987, registrants will be required to make this same inquiry to respondent banks, 15 and both record holder and respondent banks will be required to respond to that inquiry within seven business days after the date the inquiry is received. 16
A registrant will learn from the record holder the identity of its respondent banks. Within one business day after the date it receives a registrants Rule 14a-13(a) 17 inquiry, a record holder bank will be required to forward directly to the registrant, by first class mail or other equally prompt means, a list of the identities and addresses of its respondent banks. 18 Within one business day after the date it learns of a respondent banks identity, a registrant must forward a Rule 14a-13(a) inquiry directly to that respondent bank. 19 If the respondent bank holds securities on behalf of other banks, it also will be required to identify those respondent banks within one business day after the date it receives the registrants inquiry.
2. Proxy Soliciting Materials
Registrants will continue to be required to supply record holders with the requisite number of sets of proxy materials and/or annual reports needed to forward to beneficial owners whose securities are directly held by the record holder. 20 Effective July 1, 1987, registrants also will be required to supply proxy materials and/or annual reports to respondent banks for forwarding to those persons whose securities are held directly by respondent banks. 21
Effective July 1, 1987, both bank record holders and respondent banks will be required to forward proxy soliciting material and/or annual reports directly to beneficial owners within five business days after the date the material is received. 22 Banks also will be required to forward either an executed proxy or a request for voting instructions to those beneficial owners whose securities are directly held by the banks within five business days after the date the proxy cards are received. 23
If the bank chooses to forward executed proxies to beneficial owners, each such proxy must indicate the number of securities held for such beneficial owner and bear the beneficial owners account number or other form of account identification, but need not include the beneficial owners name. 24 The information regarding the number of securities held will permit the registrant or its tabulator to count and credit the number of securities voted to the total number of securities held of record by the record holder bank. The beneficial owners account number will avoid counting duplicate proxies and will assist in the determination of which beneficial owner has not yet voted. If the bank chooses this method, it also must instruct the beneficial owner regarding the procedures for voting the securities and provide the beneficial owner with an envelope addressed to the registrant or its agent for mailing the executed proxy, if one is not provided by the registrant.
Alternatively, a bank may request voting instructions directly from beneficial owners. 25 Once it receives such instructions, the bank must vote the securities in accordance with the instructions received from the beneficial owner and forward the voted proxy to the registrant or its tabulator.
The omnibus proxy system should facilitate transmission of the proxy or voting instructions by providing for the mailing of proxy cards directly from registrants to respondent banks, rather than requiring proxy cards to be forwarded through the various layers of banks to the ultimate respondent bank. Pursuant to this system, which will become effective July 1, 1987, each record holder and respondent bank will be required to execute an omnibus proxy in the name of its respondent banks, forward the proxy to the registrant, and notify its respondent banks that an omnibus proxy has been executed, within three business days after the record date. 26 The omnibus proxies will be required to include a power of substitution to permit other layers of respondent banks to execute the proxy cards. Respondent banks, which will receive the proxy cards directly from the registrant, will thus be authorized to execute the proxy card. This will relieve bank record holders of the need to process large numbers of proxy cards for their respondent banks.
Finally, for a year following effectiveness of the omnibus proxy procedures, the rule permits banks to fashion alternatives to either the omnibus proxy execution procedure and/or the procedures for obtaining beneficial owner votes. 27 Paragraph (d) of Rule 14b-2 provides that a bank may apply to the Commission for a waiver from compliance with paragraphs (b) and/or (c). Such application must set forth alternative procedures that will reasonably assure that beneficial owners will receive proxy cards, other proxy soliciting material and/or annual reports in a timely fashion. The Commission, in its discretion, may grant such waiver, subject to any suitable terms or conditions, if it finds the waiver to be necessary or appropriate in the public interest and consistent with the protection of beneficial owners and the purposes of the Act. 28
3. Time Periods
To alleviate the delays associated with the piggybacking of bank accounts, the Commission specifically inquired whether Rule 14a-13(a) should be revised to require registrants to initiate the proxy processing procedure 30 calendar days before the record date instead of the 20 calendar days currently provided. Commentators overwhelmingly endorsed advancing the timetable. The Commission agrees with these commentators that advancing the inquiry process, particularly as applied to banks, will promote efficiency of the system and will reduce the burdens associated with compliance.
Amended Rule 14a-13(a)(3), which will become effective July 1, 1987, thus will require the inquiry process to commence 20 business, rather than calendar, days prior to the record date. This revision is effectively equivalent to the 30 calendar day time period endorsed by commentators, and use of a business day standard will bring this paragraph into accord with other time periods throughout the shareholder communications rules. The Commission notes that this revision will advance the timetable for the inquiry process as a whole, including the process as applied to brokers.
The Commission also solicited specific comment on whether the proposed seven business day time period for a banks response to the registrants search card and the five business day requirement for forwarding proxy materials needed to be shortened to accommodate the piggybacking of bank accounts. Commentators were divided on the issue of shortening the seven business day response time period, and no commentators supported shortening the five business day forwarding requirement. Given the lack of a consensus in favor of shortening the time periods and the Commissions desire to structure the requirements of new Rule 14b-2 to parallel those of Rule 14b-1, which have worked well, the Commission has not changed the time periods from that currently applicable for brokers.
As amended, paragraph (a)(3) of Rule 14a-13 makes clear that if the record holder or respondent bank has informed the registrant that a particular office or department should receive Rule 14a-13(a) inquiries, the time period commences from receipt of the inquiry by that designated office or department. If such an office is not so designated, the time period runs from receipt by the broker or bank. This revision will reduce confusion in calculating the time periods, which may occur when a record holders mail room receives the Rule 14a-13(a) inquiry several days before the office previously designated as responsible for responding to the inquiry. Other similar revisions have been made to Rules 14b-1, 14b-2 and 14c-7, where clarification of the term "receipt" is helpful. These revisions are effective December 28, 1986.
B. Disclosure of Beneficial Owners-Direct Communications System
Paragraph (b) and (c) of Rule 14a-13 29 set forth a registrants obligations when it wishes to communicate directly with its security holders. Under this system as amended, registrants will request access to the names, addresses and securities positions of non-objecting and affirmatively consenting beneficial owners (hereinafter collectively referred to as "acquiescing" beneficial owners).
1. Search Card
Registrants may request beneficial owner lists at any time, and not solely in conjunction with an annual or special meeting. 30 Accordingly, it is necessary to provide a separate mechanism permitting registrants to ascertain the identity of respondent banks, in addition to that provided in the proxy processing system.
Effective December 28, 1986, a registrant making such an inquiry must, pursuant to Rule 14a-13(b)(1), 31 direct its inquiry to all record holder banks and respondent banks who hold the registrants securities on behalf of beneficial owners. A record holder bank is required to respond within one business day after the date it receives a request for the identities and addresses of its respondent banks. 32 The registrant then will make a Rule 14a-13(b)(1) request directly to any respondent banks identified by the record holders and each respondent bank would have one business day after the date it receives the inquiry to respond. If other layers of banks exist, the procedure will be repeated. A registrant wishing to obtain a beneficial owner list in connection with a proxy solicitation need not make a Rule 14a-13(b)(1) search, since the identity of the respondent banks will be supplied in connection with the Rule 14a-13(a) inquiry.
2. Obtaining Beneficial Owner Lists
While registrants may request the beneficial owner list whenever and as frequently as they wish, banks are not obligated to provide a list as of a date earlier than five business days following the banks receipt of the registrants request. 33 If a bank receives a request for a beneficial owner list less than five business days before the requested compilation date and the bank cannot reasonably comply with the request, the bank must provide the registrant with a list compiled as of a date that is no more than five business days following the receipt. 34 Banks are required to transmit the beneficial owner list within five business days of the compilation date. 35
Under the current rules, a registrant that requests beneficial owner lists of one broker must request the list of all brokers holding the registrants securities. This requirement was imposed to ensure that brokers were properly reimbursed for the expenses of complying with the beneficial ownership disclosure rules. The requirements prevented registrants from requesting the lists only from brokers holding substantial positions and thereby avoiding reimbursement of the other brokers costs.
The Commission believes it appropriate to extend this requirement to banks as well. However, to ensure that banks have sufficient opportunity both to solicit beneficial owners acquiescence in disclosure and to employ an intermediary to perform their obligations in connection with the direct communications system should they so desire, registrants will be permitted, until July 1, 1987, to request broker-only beneficial owner lists, as well as bank-only lists. 36 On or after July 1, 1987, however, registrants must request the information of all brokers and all banks.
The direct communications rules are not limited to beneficial owners of equity securities but may apply, in certain circumstances, to debt security holders. For example, a section 12(b) 37 registrant may be required to solicit consents of debt holders if the registrant wishes to amend the terms of the governing indenture in a manner affecting the debt holders right to receive payment of the principal and interest. 38 In such circumstances, the registrant may request a list of beneficial owners of its debt securities. 39
3. Affirmative/Non-Objection Acquiescence Standard
The standard for disclosure of beneficial owner identifying information under proposed Rule 14b-2 has been revised. As adopted, the rule provides that the name, address and securities position of a beneficial owner whose account was opened on or before December 28, 1986, must be disclosed to a requesting registrant only if the beneficial owner affirmatively consents to disclosure of the information. 40 For a beneficial owner whose account is opened after December 28, 1986, the information must be disclosed if the beneficial owner does not object to disclosure. 41
The Commission understands that many banks have incorporated into their customer account opening forms and procedures neutral language which explains the purposes of the direct shareholder communications system and is consistent with the non-objection standard for disclosure of beneficial owner information. However, some banks may choose not to incorporate such language into their customer account opening forms and instead may choose to poll beneficial owners separately at a subsequent time. Beneficial owner information will have to be disclosed prior to an objection being received, and the bank therefore should disclose this fact at the time the account is opened. This procedure is consistent with that currently in effect for brokers. In contrast, if the new account was opened under the affirmative consent standard, beneficial owner information should not be disclosed unless and until the beneficial owner actually gives consent to disclosure.
4. Good Faith Standard
For those accounts opened on or before December 28, 1986, Rule 14b-2(h) 42 provides that, if banks fail to make a good faith effort to obtain affirmative consent to disclosure of beneficial owner information, the disclosure must be made on a non-objection basis. This provision effects the directive of Congress that the affirmative consent standard adopted for existing bank accounts for privacy reasons 43 should not be used to frustrate the purposes of the direct communications system and hamper shareholder communications.
Rule 14b-2(h) also contains a safe-harbor delineation of specific steps that will be deemed to be a good faith effort to obtain affirmative consent. Banks shall be deemed to have made a good faith effort to obtain affirmative consent to disclosure of beneficial owner information if: (1) the inquiry is phrased in neutral language, explaining the purpose of the disclosure and the limitations on the registrants use thereof; (2) the inquiry is made either in at least one mailing separate from other account mailings or at least twice in repeated mailings; and (3) the mailing includes a return card, postage paid enclosure. Rule 14b-2(h) specifies that the safe harbor provision is non-exclusive.
The Commission is cognizant that some banks may have deferred soliciting beneficial owner consent until adoption of final rules. Given the short time period between adoption and effectiveness and the rules recognition of the use of mailings such as account statements for the solicitation of consent, the Commission recognizes that such solicitations may not in all cases be completed until March 1, 1987.
5. Direct Mailing of Annual Reports
Similar to the system currently applicable to brokers, the amendments provide that if the registrant chooses, it may mail annual reports directly to beneficial owners. 44 At the time it submits a search card requesting the number of proxy sets required for distribution to beneficial owners, the registrant will notify the bank that it intends to mail the annual report directly to its acquiescing beneficial owners. 45 If so notified, a bank will not be required to forward the annual report to acquiescing beneficial owners in connection with that mailing but must forward annual reports to those beneficial owners who have not acquiesced in disclosure of their identities. 46
6. Corporate Communications
Rule 14a-13(b)(4) 47 requires registrants requesting lists of beneficial owners to use the list exclusively for purposes of corporate communications. Thus, beneficial owner lists are to be used only for matters that are of concern to the beneficial owner as a security holder. Use of beneficial owner lists for product sales is not permitted.
7. Intermediary
Rule 14b-2(e) provides that, like brokers, banks may designate an agent or intermediary to act on their behalf in providing registrants with beneficial owner lists. In such cases, registrants would make the request for beneficial owner lists to the intermediary identified to the registrant during the Rule 14a-13(a) proxy processing inquiry. Should a bank later designate a new intermediary, it should so advise the registrant.
Experience under Rule 14b-1 has indicated that the most effective and efficient implementation of the shareholder communications system by brokers involves the use of an intermediary to compile and to supply beneficial owner lists. The intermediary acts as a central processing agent between brokers and registrants in the transmission of lists of beneficial owners. In addition, the intermediary performs the administrative functions required in providing beneficial owner information, including receiving requests for beneficial owner information from registrants; advising brokers of the record date for a registrants request; receiving beneficial owner lists from brokers; preparing, in a standardized format, lists of non-objecting beneficial owners; and billing registrants for fees associated with providing the beneficial owner information. The intermediary assures standardized delivery format and client confidentiality. Further, economies of scale have been realized, maximizing cost savings while minimizing burdens on brokers, through delegation of this function to an intermediary. Virtually all brokers have contracted with an intermediary to perform these functions. 48 The Commission anticipates use of an intermediary will likewise prove valuable to the banks.
Employing an intermediary, however, is not a condition to complying with the shareholder communications rules. Accordingly, new Rule 14b-2 and the revisions to Rule 14a-13 recognize that a bank may not wish to employ an intermediary to act on its behalf and that in such cases the registrant must make the request for a beneficial owner list directly to the bank.
C Costs
Rule 14b-2(f) 49 makes clear that, without assurance that the registrant will reimburse expenses (direct and indirect) incurred by a bank in connection with performing its obligations under the rule, the bank need not carry out its obligations under paragraphs (b), (c), (e) and (h). A bank is obligated, however, to supply the information regarding the number of sets of proxy materials required for forwarding to beneficial owners, as required by Rule 14b-2(a), without regard to reimbursement. Rule 14a-13(a)(4) 50 and (b)(5) 51 impose a corollary obligation on registrants to reimburse banks for the costs associated with performing their obligations under Rule 14b-2(b), (c), (e) and (h).
Paragraph (g) to Rule 14b-2 52 addresses the calculation of banks "reasonable expenses" for forwarding proxy soliciting material and annual reports and providing beneficial owner lists. In the rules applicable to brokers, the Commission left to the self-regulatory organizations the determination of what constitutes "reasonable expenses" and, therefore, what fees brokers appropriately may charge for forwarding proxy soliciting material. The Commission took the same approach as to the "reasonable expenses" of providing beneficial owner lists, because the self-regulatory organizations represent the interests of both registrants and brokers and thus were in the best position to make a fair allocation of the costs associated with the rules.
In this regard, the Commission has approved rule changes by the NYSE, Amex and NASD, based on recommendations of the Ad Hoc Committee. These rule changes permit the start-up costs associated with the implementation of the beneficial owner identification rule to be funded by a surcharge of $.20 and $.185 respectively, per proxy for a registrants first two annual meeting proxy solicitations subsequent to the approval of the surcharge. 53 In addition, the rule changes set a charge of $.065 per name for registrants requesting beneficial ownership lists. The $.065 rate of reimbursement to brokers does not include fees which may be charged by an intermediary used by the broker. The NYSE also noted that the Ad Hoc Committee had considered the fees IECA proposed to charge registrants for its services and determined the charges to be reasonable. With regard to forwarding proxy materials, the rules of the self-regulatory organizations permit brokers to charge $.60 per set of proxy material plus postage for forwarding proxy materials to beneficial owners.
Because comparable self-regulatory organizations do not exist for banks, the Commission has adopted a non-exclusive safe-harbor provision, which would allow banks to look to the fees charged by brokers for the same functions. If a bank charges no more than that which may be charged by a broker, its charge for reimbursement of expenses incurred in carrying out Rule 14b-2 functions shall be deemed reasonable. This safe harbor provision would cover fees charged for forwarding materials, the start-up surcharges, the per name fee for beneficial owner information and charges for intermediary services. For example, in order to fund the start-up costs associated with implementation of the direct communications system, banks can charge $.20 per proxy for the first year beginning in July, 1987, and $.185 per proxy for the second year beginning in July, 1988. Banks which incur greater expenses can seek additional reimbursement, subject to the "reasonable expenses" limitation in Rule 14b-2(f)(1). 54
D. Definition of Beneficial Owner
Rule 14b-2(i) 55 defines the term beneficial owner to include any person who has or shares the power to vote, or to direct the voting of, the security. If more than one person shares voting power, the provisions of the instrument governing voting on corporate issues will determine whether beneficial owner information will be disclosed. For example, if three people share voting authority, two consent to disclosure and one objects, and the instrument states or state law provides that majority vote governs regarding voting of corporate issues, all three names will be disclosed to the registrant.
The phrase "pursuant to an instrument, agreement or otherwise" has been added to make clear that beneficial ownership can be determined by looking to a contractual relationship or customary bank practice. For example, if a bank acting as trustee of a revocable trust votes the securities held in trust, pursuant to the trust agreement or its customary practice, the bank is the beneficial owner for purposes of the shareholder communications rules despite the fact that the principal may revoke the trust at any time. Similarly, in an irrevocable trust situation, the bank, acting as trustee, is the beneficial owner of the securities despite the fact that the principal has an unlimited right to withdraw the corpus of the trust.
Note 2 has been added to Rule 14b-2(i) to clarify that if voting power is shared or shifts depending on the nature of the corporate action involved, all persons entitled to exercise voting power are to be deemed beneficial owners. Only one such beneficial owner need be designated, however, to receive proxy material, if that designated person assumes the obligation to distribute the proxy materials to the other beneficial owners in a timely manner. The phrase "in a timely manner" is intended to ensure that the proxy voting materials are distributed to the other beneficial owners sufficiently in advance of the voting of the proxy to permit an informed voting decision.
E. Employee Benefit Plans
The Commission proposed to include an amendment to Rule 14a-13(b) to allow a registrant to exclude from its request for a beneficial owner list those owners who purchased securities through an employee benefit plan (such as an Employee Stock Ownership Plan, a Tax Reduction Act Stock Ownership Plan or a Payroll Stock Ownership Plan) if the registrant has access, by some other means, to the beneficial owners name and address. This proposed amendment would have applied only where the plan conferred voting authority on its participants. If voting authority rested with the plan trustee, the trustee would have been considered the beneficial owner for purposes of the shareholder communications rules.
This proposal was intended to reduce registrants costs in obtaining beneficial owner lists which are calculated on a per name basis. It did not, however, permit a registrant which requested a list of beneficial owners excluding those owners who purchased through an employee benefit plan to realize cost savings associated with direct mailing of annual reports to these beneficial owners. Instead, such a registrant would have been required to forward annual reports together with proxy cards and other proxy soliciting material to record holders and respondent banks for distribution to beneficial owners and to pay the costs of record holders and respondent banks associated with such a mailing.
Commentators generally favored the concept of excluding from requests for beneficial owner lists those beneficial owners who have purchased securities through an employee benefit plan. Some commentators stated that the employee benefit plan exclusion should be mandatory rather than optional. These commentators reasoned that the optional nature of the exclusion required record holders to maintain information concerning employee benefit plan participants despite the fact that it was unlikely that the information would ever be requested. Other commentators opposed the employee benefit plan exclusion for a variety of reasons.
The Commission agrees that the optional nature of the exclusion would impose significant recordkeeping burdens on record holders. For example, record holders would have been required to survey their entire beneficial owner data base to determine whether or not securities of the registrant were purchased through an employee benefit plan. In addition, because the exclusion was predicated on a registrant having access to the participants names and addresses by some other means, such as payroll deductions, record holders would have been obligated to monitor whether or not certain plan participants are still employees of the requesting registrant. Accordingly, the Commission has deleted the proposed provision from paragraph (b) of Rule 14a-13.
The Commission also has considered whether to make the exclusion mandatory, as some commentators suggested. Because some plan documents contain a procedure or mechanism for disseminating proxy information to voting plan participants, proxy materials could have been distributed to the plan participants by the plan sponsor, the plan administrator, or the trustee. Failure to comply with the terms of the plan document, if the plan is subject to the Employee Retirement Income Security Act, could lead to liability under that Acts general fiduciary responsibility rules. 56
All plans, however, do not provide such a mechanism for forwarding proxy materials to plan participants. Those plan participants who are not covered by a plan procedure for distributing proxy material might not be able to obtain proxy materials. Moreover, a mandatory exclusion would not assure that a registrant would have the obligation to make a sufficient quantity of proxy soliciting material available to the record holder or respondent bank for forwarding to plan participants.
The Commission has determined, at this time, not to exclude voting plan participants from the coverage of the shareholder communications rules. Instead, the Commission will further consider application of the shareholder communications rules to employee plans in a separate rulemaking proceeding. In the interim, both the proxy processing and direct communications rules will apply in their entirety to voting employee benefit plan participants.
F. Definitions
Provisions have been added to Rules 14a-1 and 14c-1 defining the term "entity that exercises fiduciary powers" to mean any entity that holds securities in nominee name or otherwise on behalf of a beneficial owner. 57 In response to commentators suggestions, the term "otherwise" has been added to make clear that the shareholder communications rules apply not only to banks that hold securities in nominee name but also to banks that hold securities on behalf of beneficial owners in their own name as fiduciary. Rules 14a-1(b) and 14c-1(b) clarify that the term does not include a clearing agency registered under Section 17A of the Exchange Act 58 or a broker.
Rules 14a-1 and 14c-1 also define the terms "record holder" and "respondent bank" for purposes of the shareholder communications rules. Paragraph (g) of Rules 14a-1 and 14c-1 59 provides that record holder means any broker, dealer, voting trustee, bank, association or other entity that exercises fiduciary powers, which holds securities of record in its own or nominee name or as a participant in a clearing agency registered pursuant to Section 17A of the Exchange Act. Rules 14a-1(i) and 14c-1(h) 60 provides that respondent bank means any bank, association or other entity that exercises fiduciary powers, which hold securities on behalf of beneficial owners and deposits such securities for safekeeping with another bank, association or other entity that exercises fiduciary powers.
G. Information to be furnished to security holders
Rule 14a-3(e)(2) 61 has been amended to excuse a registrant, unless state law requires otherwise, from delivering a proxy statement or annual report to any security holder of record if at least two "payments of," rather than "checks made in payment of," dividends or interest on securities sent to a security holders address of record have been returned undeliverable. The revised language makes clear that dividend or interest payments made other than by check, such as dividends payable in securities, also are to be considered in determining whether a registrant is excused from delivering a proxy statement or annual report to security holders.
Moreover, paragraph (e)(2) previously provided that a registrants obligation to deliver the proxy statement or annual report is reinstated once it has the security holders address. As amended, this provision now will provide that a registrants obligation will be reinstated once a security holder causes to be delivered to the registrant a written notice setting forth his then current address. 62 A registrant will not violate the rule if it has not resumed delivery of the annual report or proxy statement but has the security holders current address as a result of dealings with the security holder in another context (for example, as the holder of a credit card issued by the registrant). These amendments also apply to registrants obligations to deliver information statements to security holders. 63
III. Cost-Benefit Analysis
To evaluate fully the benefits and costs associated with new Rule 14b-2 and the amendments to Rules 14a-1, 14a-13, 14c-1 and 14c-7, the Commission requested commentators to provide views and data as to the costs and benefits associated with the rules incorporating banks into the shareholder communications system. No comments were received regarding the costs and benefits associated with these rules.
The Commission notes, however, that new Rule 14b-2 and related amendments will improve the proxy distribution process between registrants and beneficial owners, thus helping to ensure that security holders will be able to make informed voting decisions. Further, by bringing banks into the direct communications system, registrants will be able to forward certain corporate communications directly to all their beneficial owners, which also will facilitate informed voting decisions. Registrants that mail corporate communications directly to beneficial owners whose securities are held of record by banks may realize increased cost savings.
The costs associated with new Rule 14b-2 and the related amendments will result from banks being required to: (1) process proxy materials; (2) respond to requests for beneficial owner information; and (3) perform certain recordkeeping obligations. New Rule 14b-2 and the related amendments require, however, that registrants that choose to avail themselves of the benefits associated with the shareholder communications rules must reimburse banks for their reasonable costs incurred in performing their obligations.
IV. Regulatory Flexibility Act Inquiry
Rule 14b-2 and the corresponding revisions to Rules 14a-1, 14a-13, 14b-1, 14c-1 and 14c-7 and amendments to Rule 14a-3 previously have been certified, pursuant to 5 USC 605(b), that, if promulgated, they will not have a significant economic impact on a substantial number of small entities. Nonetheless, because the Commission had not adopted a definition of small business or organization that would encompass banks for purposes of these Rules, the certification stated that the Commission intended to use the definition of small bank as contained in 17 CFR 240.0-10(f)(1) and (3), regarding a municipal securities dealer that is a bank. The Commission requested specific comment as to whether this definition was appropriate for purposes of these Rules. No comments were received on this point.
V. Statutory Basis and Text of Amendments
These amendments are being adopted pursuant to sections 12, 14 and 23(a) of the Securities Exchange Act of 1934 64 and the Delegation of Functions Act, 15 U.S.C. 78d-1.
The Commission finds good cause under 5 U.S.C. 553(d), to make the amendments to Rules 14a-1, 14a-3, 14a-13, 14b-1, 14c-1 and 14c-7 and new Rule 14b-2(d)-(i) effective on December 28, 1986, less than thirty days after publication in the Federal Register. The Act provides an effective date of December 28, 1986, and the rules will permit its operation in accordance with Congress intent. Moreover, certain of these amendments are technical in nature and the remainder of the amendments to be made effective December 28, 1986 either ease a proposed restriction or recognize an exemption. List of Subjects in 17 CFR Parts 200 and 240
Reporting and recordkeeping requirements, Securities, Banks, Associations, Administrative Practice and Procedures, Freedom of Information, Privacy.
VI. Text of Amendments
In accordance with the foregoing Title 17, Chapter II of the Code of Federal Regulation is amended as follows:
PART 200--ORGANIZATION: CONDUCT AND ETHICS: INFORMATION AND REQUESTS
1. The authority cite for Part 200 continues to read in part:
Authority: Secs. 19, 23, 48 Stat. 85, 901, as amended, Sec. 20, 49 Stat. 833, sec. 319, 53 Stat. 1173, secs. 38, 211, 54 Stat. 841, 855; 15 U.S.C. 77s, 78w, 79t, 77sss, 80a-37, 80b-11* * *
2. By adding paragraph (f)(13) to Section 200.30-1 to read as follows:
§200.30-1 Delegation of authority to Director of Division of Corporation Finance.
(f)* * *
(13) To grant exemptions from Rule 14b-2(b) and/or (c) (Section 240.14b-2(b) and/or (c) of this Chapter) pursuant to Rule 14b-2(d) (Section 240.14b-2(d) of this Chapter).
PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 1934
3. The authority citation for Part 240 is amended by adding the following citations: (Citations before * * * indicate general rulemaking authority).
Authority: Sec. 23, 48 Stat. 901, as amended; 15 U.S.C. 78w. * * * §§240.14a-1, 240.14a-3, 240.14a-13, 240.14b-1, 240.14b-2, 240.14c-1 and 240.14c-7 also issued under Sections 12, 15 U.S.C. 781, and 14, Pub. L. 99-222, 99 Stat. 1737, 15 U.S.C. 78n.
4. By withdrawing amendments to §240.14a-1 specified in Release No. 33-6676 (November 10, 1986) 51 FR 42048 and revising §240.14a-1 to read as follows:
§240.14a-1 Definitions.
Unless the context otherwise requires, all terms used in this regulation have the same meanings as in the Act or elsewhere in the general rules and regulations thereunder. In addition, the following definitions apply unless the context otherwise requires:
(a) Associate. The term "associate," used to indicate a relationship with any person, means (1) any corporation or organization (other than the registrant or a majority owned subsidiary of the registrant) of which such person is an officer or partner or is, directly or indirectly, the beneficial owner of 10 percent or more of any class of equity securities; (2) any trust or other estate in which such person has a substantial beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity; and (3) any relative or spouse of such person, or any relative of such spouse, who has the same home as such person or who is a director or officer of the registrant or any of its parents or subsidiaries.
(b) Entity that exercises fiduciary powers. The term "entity that exercises fiduciary powers" means any entity that holds securities in nominee name or otherwise on behalf of a beneficial owner but does not include a clearing agency registered pursuant to Section 17A of the Act or a broker or a dealer.
(c) Last fiscal year. The term "last fiscal year" of the registrant means the last fiscal year of the registrant ending prior to the date of the meeting for which proxies are to be solicited or, if the solicitation involves written authorizations or consents in lieu of a meeting, the earliest date they may be used to effect corporate action.
(d) Proxy. The term "proxy" includes every proxy, consent or authorization within the meaning of section 14(e) of the Act. The consent or authorization may take the form of failure to object or to dissent.
(e) Proxy statement. The term "proxy statement" means the statement required by §240.14a-3(a) whether or not contained in a single document.
(f) Record date. The term "record date" means the date as of which the record holders of securities entitled to vote at a meeting or by written consent or authorization shall be determined.
(g) Record holder. For purposes of §§240.14a-13, 240.14b-1 and 240.14b-2, the term "record holder" means any broker, dealer, voting trustee, bank, association or other entity that exercises fiduciary powers which holds securities of record in nominee name or otherwise or as a participant in a clearing agency registered pursuant to Section 17A of the Act.
(h) Registrant. The term "registrant" means the issuer of the securities in respect of which proxies are to be solicited.
(i) Respondent bank. For purposes of §§240.14a-13, 240.14b-1 and 240.14b-2, the term "respondent bank" means any bank, association or other entity that exercises fiduciary powers which holds securities on behalf of beneficial owners and deposits such securities for safekeeping with another bank, association or other entity that exercises fiduciary powers.
(j) Solicitation. (1) The terms "solicit" and "solicitation" include:
(i) Any request for a proxy whether or not accompanied by or included in a form of proxy.
(ii) Any request to execute or not to execute, or to revoke, a proxy; or
(iii) The furnishing of a form of proxy or other communication to security holders under circumstances reasonably calculated to result in the procurement, withholding or revocation of a proxy.
(2) The terms do not apply, however to the furnishing of a form of proxy to a security holder upon the unsolicited request of such security holder, the performance by the registrant of acts required by §240.14a-7, or the performance by any person of ministerial acts on behalf of a person soliciting a proxy.
5. By withdrawing amendments to paragraph (e)(2) of §240.14a-3 specified in Release No. 33-6676 (November 10, 1986) 51 FR 42048 and revising paragraph (e)(2) of §240.14a-3 to read as follows:
§240.14a-3 Information to be furnished to security holders.
* * * * *
(e)* * *
(1)* * *
(2) Unless state law requires otherwise, a registrant is not required to send an annual report or proxy statement to a security holder if: (i) an annual report and a proxy statement for two consecutive annual meetings; or (ii) all, and at least two, payments (if sent by first class mail) of dividends or interest on securities during a twelve month period have been mailed to such security holders address and have been returned undeliverable, if any such security holder delivers or causes to be delivered to the registrant written notice setting forth his then current address for security holder communications purposes, the registrants obligation to deliver an annual report or a proxy statement under this section is reinstated.
6. By withdrawing amendments to paragraph (a)(1) and (2) of §240.14a-13 specified in Release No. 33-6676 (November 10, 1986) 51 FR 42048 and revising §240.14a-13 to read as follows:
§240.14a-13 Obligations of registrants in communicating with beneficial owners.
1. The following paragraphs (a) through (c) are effective December 28, 1986 through June 30, 1987:
(a) If the registrant knows that securities of any class entitled to vote at a meeting (or by written consents or authorizations if no meeting is held) with respect to which the registrant intends to solicit proxies, consents or authorizations are held of record by a broker, dealer, voting trustee, or bank, association, or other entity that exercises fiduciary powers in nominee name or otherwise, the registrant shall:
(1) By first class mail or other equally prompt means: (i) inquire of each such record holder: (A) whether other persons are the beneficial owners of such securities and, if so, the number of copies of the proxy and other soliciting material necessary to supply such materials to such beneficial owners; (B) In the case of an annual (or special meeting in lieu of the annual) meeting, or written consents in lieu of such meeting, at which directors are to be elected, the number of copies of the annual report to security holders necessary to supply such report to beneficial owners to whom such reports are to be distributed by such record holder or its nominee not by the registrant; and (C) if the record holder has an obligation under §240.14b-1(c) or §240.14b-2(e)(2) and (3), whether an agent has been designated to act on its behalf in fulfilling such obligation and, if so, the name and address of such agent; and (ii) indicate to each such record holder: (A) whether the registrant, pursuant to paragraph (c) of this section, intends to distribute the annual report to security holders to beneficial owners of its securities whose names, addresses and securities positions are disclosed pursuant to §240.14b-1(c) or §240.14b-2(e)(2) and (3); and (B) the record date;
(2) Make the inquiry required by paragraph (a)(1) of this section at least 20 calendar days prior to the record date of the meeting of security holders, or (i) if such inquiry is impracticable 20 calendar days prior to the record date of a special meeting, as many days before the record date of such meeting as is practicable or, (ii) if consents or authorizations are solicited and such inquiry is impracticable 20 calendar days before the earliest date on which they may be used to effect corporate action, as many days, before that date as is practicable, or (iii) at such later time as the rules of a national securities exchange on which the class of securities in question is listed may permit for good cause shown; Provided, however, that if a record holder has informed the registrant that a designated office(s) or department(s) is to receive such inquiries, the inquiry shall be made to such designated office(s) or department(s); and
(3) Supply, in a timely manner, each record holder of whom the inquiry required by paragraph (a)(1) of this section is made with copies of the proxy, other proxy soliciting material, and/or the annual report to security holders, in such quantities, assembled in such form and at such place(s), as the record holder may reasonably request in order to send such material to each beneficial owner of securities who is to be furnished with such material by the record holder; and
(4) Upon the request of any record holder that is supplied with proxy soliciting material and/or annual reports to security holders pursuant to paragraph (a)(3) of this section, pay its reasonable expenses for completing the mailing of such material to beneficial owners.
Note 1.--If the registrants list of security holders indicates that some of its securities are registered in the name of a clearing agency registered pursuant to section 17A of the Act (e.g., "Cede & Co.," nominee for the Depository Trust Company), the registrant shall make appropriate inquiry of the clearing agency and thereafter of the participants in such clearing agency who may hold on behalf of a beneficial owner, and shall comply with the above paragraph with respect to any such participant (see §240.14a-1(g)).
Note 2.--The attention of registrants is called to the fact that each broker and dealer has an obligation pursuant to §240.14b-1(b) and applicable self-regulatory organization requirements to obtain and forward, within the time periods prescribed therein, (a) proxies and proxy soliciting materials to all beneficial owners on whose behalf it holds securities, and (b) annual reports to security holders to all beneficial owners on whose behalf it holds securities, unless the registrant has notified the broker or dealer that it has assumed responsibility to mail such material to beneficial owners whose names, addresses and securities positions are disclosed pursuant to §240.14b-1(c).
(b) Any registrant requesting pursuant to §240.14b-1(c) or §240.14b-2(e)(2) and (3) a list of names, addresses and securities positions of beneficial owners of its securities who either have consented or have not objected to disclosure of such information shall:
(1) By first class mail or other equally prompt means, inquire of each record holder and each respondent bank identified to the registrant pursuant to §240.14b-2(e)(1) whether such record holder or respondent bank holds the registrants securities on behalf of any respondent banks and, if so, the name and address of each such respondent bank;
(2) Request such list to be compiled as of a date no earlier than five business days after the date the registrants request is received by the record holder or respondent bank; Provided, however, that if the record holder or respondent bank has informed the registrant that a designated office(s) or department(s) that is to receive such requests, the request shall be made to such designated office(s) or department(s);
(3) Make such request to all brokers and dealers and/or all banks, associations and other entities that exercise fiduciary powers;
(4) Use the information furnished in response to such request exclusively for purposes of corporate communications: and
(5) Upon the request of any record holder or respondent bank to whom such request is made, pay the reasonable expenses, both direct and indirect, of providing beneficial owner information.
Note:--A registrant will be deemed to have satisfied its obligations under paragraph (b) of this section by requesting consenting and non-objecting beneficial owner lists from a designated agent acting on behalf of the record holder or respondent bank and paying to that designated agent the reasonable expenses of providing the beneficial owner information.
(c) A registrant, at its option, may mail its annual report to security holders to the beneficial owners whose identifying information is provided by record holders and respondent banks, pursuant to §240.14b-1(c) or §240.14b-2(e)(2) and (3), provided that such registrant notifies the record holders and respondent banks, at the time it makes the inquiry required by paragraph (a) of this section, is sent that the registrant will mail the annual report to security holders to the beneficial owners so identified.
2. The following paragraphs (a) through (c) are effective July 1, 1987:
(a) If the registrant knows that securities of any class entitled to vote at a meeting (or by written consents or authorizations if no meeting is held) with respect to which the registrant intends to solicit proxies, consents or authorizations are held of record by a broker, dealer, voting trustee, bank, association, or other entity that exercises fiduciary powers in nominee name or otherwise, the registrant shall;
(1) By first class mail or other equally prompt means (i) inquire of each such record holder: (A) whether other persons are the beneficial owners of such securities and if so, the number of copies of the proxy and other soliciting material necessary to supply such material to such beneficial owners; (B) In the case of an annual (or special meeting in lieu of the annual) meeting or written consents in lieu of such meeting, at which directors are to be elected, the number of copies of the annual report to security holders necessary to supply such report to beneficial owners to whom such reports are to be distributed by such record holder or its nominee and not by the registrant and (C) if the record holder has an obligation under §240.14b-1(c) or §240.14b-2(e)(2) and (3), whether an agent has been designated to act on its behalf in fulfilling such obligation and, if so, the name and address of such agent and (ii) indicate to each such holder: (A) whether the registrant, pursuant to paragraph (c) of this section, intends to distribute the annual report to security holders to beneficial owners of its securities whose names, addresses and securities positions are disclosed pursuant to §240.14b-1(c) and §240.14b-2(e)(2) and (3); and (B) the record date;
(2) Upon receipt of a record holders or respondent banks response indicating, pursuant §240.14b-2(a)(1), the names and addresses of its respondent banks, within one business day after the date such response is received, make an inquiry of and give notification to each such respondent bank in the same manner required by paragraph (a)(1) of this section;
(3) Make the inquiry required by paragraph (a)(1) of this section at least 20 business days prior to the record date of the meeting of security holders, or (i) if such inquiry is impracticable 20 business days prior to the record date of a special meeting, as many days before the record date of such meeting as is practicable or, (ii) if consents or authorizations are solicited and such inquiry is impracticable 20 business days before the earliest date on which they may be used to effect corporate action, as many days before that date as is practicable, or (iii) at such later time as the rules of a national securities exchange on which the class of securities in question is listed may permit for good cause shown; Provided, however, that if a record holder or respondent bank has informed the registrant that a designated office(s) or department(s) is to receive such inquiries, the inquiry shall be made to such designated office(s) or department(s); and
(4) Supply in a timely manner, each record holder and respondent bank of whom the inquiries required by paragraphs (a)(1) and (a)(2) of this section are made with copies of the proxy, other proxy soliciting material, and/or the annual report to security holders, in such quantities, assembled in such form and at such place(s), as the record holder or respondent bank may reasonably request in order to send such material to each beneficial owner of securities who is to be furnished with such material by the record holder or respondent bank; and
(5) Upon the request of any record holder or respondent bank that is supplied with proxy soliciting material and/or annual reports to security holders pursuant to paragraph (a)(4) of this section, pay its reasonable expenses for completing the mailing of such material to beneficial owners.
Note 1--If the registrants list of security holders indicates that some of its securities are registered in the name of a clearing agency registered pursuant to section 17A of the Act (e.g., "Cede & Co.," nominee for the Depository Trust Company), the registrant shall make appropriate inquiry of the clearing agency and thereafter of the participants in such clearing agency who may hold on behalf of a beneficial owner or respondent bank, and shall comply with the above paragraph with respect to any such participant (see §240.14a-1(g)).
Note 2--The attention of registrants is called to the fact that each broker, dealer, bank, association and other entity that exercises fiduciary powers has an obligation pursuant to §240.14b-1(b), §240.14b-2(b) and, with respect to brokers and dealers, applicable self-regulatory organization requirements to obtain and forward, within the time periods prescribed therein, (a) proxies (or in lieu thereof requests for voting instructions) and proxy soliciting materials to all beneficial owners on whose behalf it holds securities, and (b) annual reports to security holders to all beneficial owners on whose behalf it holds securities, unless the registrant has notified the record holder or respondent bank that it has assumed responsibility to mail such material to beneficial owners whose names, addresses and securities positions are disclosed pursuant to §240.14b-1(c) and §240.14b-2(e)(2) and (3).
(b) Any registrant requesting pursuant to §240.14b-1(c) and §240.14b-2(e)(2) and (3) a list of names, addresses and securities positions of beneficial owners of its securities who either have consented or have not objected to disclosure of such information shall:
(1) By first class mail or other equally prompt means, inquire of each record holder and each respondent bank identified to the registrant pursuant to §240.14b-2(e)(1) whether such record holder or respondent bank holds the registrants securities on behalf of any respondent banks and, if so, the name and address of each such respondent bank;
(2) Request such list to be compiled as of a date no earlier than five business days after the date the registrants request is received by the record holder or respondent bank; Provided, however, that if the record holder or respondent bank has informed the registrant that a designated office(s) or department(s) is to receive such requests, the request shall be made to such designated office(s), or department(s);
(3) Make such request to all brokers, dealers, banks, associations and other entities that exercise fiduciary powers;
(4) Use the information furnished in response to such request exclusively for purposes of corporate communications; and
(5) Upon the request any record holder or respondent bank to whom such request is made, pay the reasonable expenses, both direct and indirect, of providing beneficial owner information.
Note.--A registrant will be deemed to have satisfied its obligations under paragraph (b) of this section by requesting consenting and non-objecting beneficial owner lists from a designated agent acting on behalf of the record holder or respondent bank and paying to that designated agent the reasonable expenses of providing the beneficial owner information.
(c) A registrant, at its option, may mail its annual report to security holders to the beneficial owners whose identifying information is provided by record holders and respondent banks, pursuant to §240.14b-1(c) and §240.14b-2(e)(2) and (3), provided that such registrant notifies the record holders and respondent banks, at the time it makes the inquiry required by paragraph (a) of this section, that the registrant will mail the annual report to security holders to the beneficial owners so identified.
7. By revising paragraphs (a), (c) and (d) and Note 1 to paragraph (c) to §240.14b-1 to read as follows:
§240.14b-1 Obligation of registered brokers and dealers in connection with the prompt forwarding of certain communications to beneficial owners.
A broker or dealer registered under Section 15 of the Act shall:
(a) Respond, by first class mail or other equally prompt means, directly to the registrant no later than seven business days after the date it receives an inquiry made in accordance with §240.14n-13(a) by indicating, by means of a search card or otherwise: (1) The approximate number of its customers who are beneficial owners of the registrants securities that are held of record by the broker, dealer or its nominees:
(2) The number of its customers who are beneficial owners of the registrants securities who have objected to disclosure of their names, addresses and securities positions if the registrant has indicated, pursuant to §240.14a-13(a)(1)(ii)(A), that it will distribute the annual report to security holders to beneficial owners of its securities whose names, addresses and securities positions are disclosed pursuant to paragraph (c) of this section; and (3) the identity of its designated agent, if any, acting on its behalf in fulfilling its obligations under paragraph (c) of this section:
Provided, however, that if the broker or dealer has informed the registrant that a designated office(s) or department(s) is to receive such inquiries, receipt for purposes of paragraph (a) of this section shall mean receipt by such designated office(s) or department(s);
* * * * *
(c) Through its agent or directly: (1) provide the registrant, upon the registrants request, with the names, addresses and securities positions, compiled as of a date specified in the registrants request which is no earlier than five business days after the date receipt of the registrants request is received, of its customers who are beneficial owners of the registrants securities and who have not objected to disclosure of such information; Provided, however, that if the broker or dealer has informed the registrant that a designated office(s) or department(s) is to receive such requests, receipt shall mean receipt by such designated office(s) or departments; and (2) transmit the data specified in paragraph (c)(1) of this section to the registrant no later than five business days after the record date or other date specified by the registrant.
Note 1.--Where a broker or dealer employs a designated agent to act on its behalf in performing the obligations imposed on the broker or dealer by paragraph (c) of this section, the five business day time period for determining the date as of which the beneficial owner information is to be compiled is calculated from the date the designated agent receives the registrants request, in complying with the registrants request for beneficial owner information under paragraph (c) of this section, a broker or dealer need only supply the registrant with the names, addresses and securities positions of non-objecting beneficial owners.
Note 2--If a broker or dealer receives a registrants request less than five business days before the requested compilation date, it must provide a list compiled as of a date that is no more than five business days after receipt and transmit the list within five business days after the compilation date.
(d) A broker or dealer need not satisfy (1) its obligations under paragraphs (b) and (c) of this section if a registrant does not provide assurance of reimbursement of the brokers or dealers reasonable expenses, both direct and indirect, incurred in connection with performing the obligations imposed by paragraphs (b) and (c) of this section; or (2) * * *.
8. By adding §240.14b-2, paragraphs (a) through (i) to read as follows:
§240.14b-2 Obligation of banks, associations and other entities that exercise fiduciary powers in connection with the prompt forwarding of certain communications to beneficial owners.
A bank, association or other entity that exercises fiduciary powers:
1. The following paragraphs (a) through (c) are effective July 1, 1987:
(a)(1) Shall respond, by first class mail or other equally prompt means, directly to the registrant no later than one business day after the date it receives an inquiry made in accordance with §240.14a-13(a) by indicating the name and address of each of its respondent banks, if any, and
(2) Shall respond, by first class mail or other equally prompt means, directly to the registrant no later than seven business days after the date it receives an inquiry made in accordance with §240.14a-13(a) by indicating the means of a search card or otherwise: (i) the approximate number of beneficial owners of the registrants securities;
(ii) if the registrant has indicated, pursuant to §240.14a-13(a)(1)(ii)(A), that it will distribute the annual report to security holders to beneficial owners of its securities whose names, addresses and securities positions are disclosed pursuant to §240.14b-2(e)(2) and (3): (A) with respect to customer accounts opened on or before December 28, 1986, the number of beneficial owners of the registrants securities who have affirmatively consented to disclosure of their names, addresses and securities positions; and (B) with respect to customer accounts opened after December 28, 1986, the number of beneficial owners of the registrants securities who have not objected to disclosure of their names, addresses and securities positions; and (iii) the identity of its designated agent, if any, acting on its behalf in fulfilling its obligations under paragraph (e)(2) and (3) of this section:
Provided, however, that if the record holder or respondent bank has informed the registrant that a designated office(s) or department(s) is to receive such inquiries, receipt for purposes of paragraph (a)(1) and (2) of this section shall mean receipt by such designated office(s) or department(s);
(b) Within three business days after the record date, shall: (1) execute an omnibus proxy, including a power of substitution, in favor of its respondent banks and forward such proxy to the registrant; and (2) furnish a notice to each respondent bank in whose favor an omnibus proxy has been executed that it has executed such a proxy, including a power of substitution, in its favor pursuant to paragraph (b)(1) of this section;
(c) Upon receipt of the proxy, other proxy soliciting material, and/or annual reports to security holders shall forward to each beneficial owner on whose behalf it holds securities, no later than five business days after the date it receives such material: (1) either: (i) a properly executed proxy: (A) indicating the number of securities held for such beneficial owner; (B) bearing the beneficial owners account number or other form of identification, together with instructions as to the procedures to vote the securities; (C) briefly stating which other proxies, if any, are required to permit securities to be voted under the terms of the instrument creating that voting power or applicable state law; and (D) being accompanied by an envelope addressed to the registrant or its agent, if not provided by the registrant; or (ii) a request for voting instructions (for which registrants form of proxy may be used and which shall be voted by the record holder or respondent bank in accordance with instructions received), together with an envelope addressed to the record holder or respondent bank; and (2) other proxy soliciting material and/or annual report to security holders;
2. The following paragraphs (d) through (i) to §240.14b-2 are effective December 28, 1986:
(d) Need not comply with the requirements of paragraphs (b) and/or (c) of this section if: (1) on or before July 1, 1988, it makes a written application to the Commission for a waiver from either or both paragraphs, which application sets forth alternative procedures that will reasonably assure that beneficial owners will receive proxies, other proxy soliciting material and/or annual reports to security holders in a timely fashion; (ii) the Commission finds such waiver, subject to any suitable terms or conditions, necessary or appropriate in the public interest and consistent with the protection of beneficial owners and the purposes of the Act and, in its discretion, approves such application; and (iii) the record holder or respondent bank, in satisfaction of its obligations under paragraphs (b) and/or (c) of this section, complies with any terms or conditions specified by the Commission in approving such application;
(e) Shall: (1) respond, by first class mail or other equally prompt means, directly to the registrant no later than one business day after the date it receives an inquiry made in accordance with §240.14a-13(b)(1) by indicating the name and address of each of its respondent banks, if any; (2) through its agent or directly, provide the registrant, upon the registrants request and within the time specified in paragraph (e)(3) of this section, with the names, addresses and securities positions, compiled as of a date specified in the registrants request which is no earlier than five business days after the date the registrants request is received, of: (i) with respect to customer accounts opened on or before December 28, 1986, beneficial owners of the registrants securities on whose behalf it holds securities who have affirmatively consented to disclosure of such information, subject to paragraph (h) of this section; and (ii) with respect to customer accounts opened after December 28, 1986, beneficial owners of the registrants securities on whose behalf it holds securities who have not objected to disclosure of such information; Provided, however, that if the record holder or respondent bank has informed the registrant that a designated office(s) or department(s) is to receive such requests, receipt for purposes of paragraphs (e)(1) and (2) of this section shall mean receipt by such designated office(s) or department(s); and (3) through its agent or directly, transmit the data specified in paragraph (e)(2) and (3) of this section to the registrant no later than five business days after the date specified by the registrant.
Note 1--Where a record holder bank or respondent bank employs a designated agent to act on its behalf in performing the obligations imposed on it by paragraph (e)(2) and (3) of this section, the five business day time period for determining the date as of which the beneficial owner information is to be compiled is calculated from the date the designated agent receives the registrants request. In complying with the registrants request for beneficial owner information under paragraph (e)(2) and (3) of this section, a record holder bank or respondent bank need only supply the registrant with the names, addresses and securities positions of affirmatively consenting and non-objecting beneficial owners.
Note 2--If a record holder bank or respondent bank receives a registrants request less than five business days before the requested compilation date, it must provide a list compiled as of a date that is no more than five business days after receipt and transmit the list within five business days after the compilation date.
(f) Need not satisfy: (1) its obligation under paragraphs (b), (c), (e) and (h) of this section if a registrant does not provide assurance of reimbursement of its reasonable expenses, both direct and indirect, incurred in connection with performing the obligations imposed by paragraphs (b), (c), (e) and (h) of this section; or (2) its obligation under paragraph (c) of this section to forward annual reports to consenting and non-objecting beneficial owners identified pursuant to paragraph (e)(2) of this section if the registrant notifies the record holder or respondent bank pursuant to §240.14a-13(c) that the registrant will mail the annual report to beneficial owners whose names, addresses and securities positions are disclosed pursuant to §240.14b-2(e)(2) and (3).
(g) For purposes of determining the fees which may be charged to registrants pursuant to §240.14a-13(b)(5) and paragraph (f)(1) of this section for performing obligations under paragraphs (b), (c), (e) and (h) of this section, an amount no greater than that permitted to be charged by brokers or dealers for reimbursement of their reasonable expenses, both direct and indirect, incurred in connection with performing the obligations imposed by paragraphs (b) and (c) of §240.14b-1 shall be deemed to be reasonable.
(h) For customer accounts opened on or before December 28, 1986, unless it has made a good faith effort to obtain affirmative consent to disclosure of beneficial owner information pursuant to paragraph (e)(2) of this section, such information shall provide such as to beneficial owners who do not object to disclosure of such information. A good faith effort to obtain affirmative consent to disclosure of beneficial owner information shall include, but shall not be limited to, making an inquiry: (1) phrased in neutral language, explaining the purpose of the disclosure and the limitations on the registrants use thereof; (2) either in at least one mailing separate from other account mailings or in repeated mailings; and (3) in a mailing that includes a return card, postage paid enclosure.
(i) For purposes of this section, the term "beneficial owner" includes any person who has or shares, pursuant to an instrument, agreement, or otherwise, the power to vote, or to direct the voting of a security.
Note 1.--If more than one person shares voting power, the provisions of the instrument creating that voting power shall govern with respect to whether consent to disclosure of beneficial information has been given.
Note 2.--If more than one person shares voting power or if the instrument creating that voting power provides that such power shall be exercised by different persons depending on the nature of the corporate action involved, all persons entitled to exercise such power shall be deemed beneficial owners; Provided, however, that only one such beneficial owner need be designated among the beneficial owners to receive proxies, other proxy soliciting material and/or annual reports to security holders, if the person so designated assumes the obligation to disseminate, in a timely manner, such materials to the other beneficial owners.
9. By withdrawing amendments to §240.14c-1 specified in Release No. 33-6676 (November 10, 1986) 51 FR 42048 and revising §240.14c-1 to read as follows:
§240.14c-1 Definitions.
Unless the context otherwise requires, all terms used in this regulation have the same meanings as in the Act or elsewhere in the general rules and regulations thereunder. In addition, the following definitions apply unless the context otherwise requires:
(a) Associate. The term "associate," used to indicate a relationship with any person, means (1) any corporation or organization (other than the registrant or a majority owned subsidiary of the registrant) of which such person is an officer or partner or is, directly or indirectly, the beneficial owner of 10 percent or more of any class of equity securities; (2) any trust or other estate in which such person has a substantial beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity; and (3) any relative or spouse of such person, or any relative of such spouse, who has the same home as such person or who is a director or officer of the registrant or any of its parents or subsidiaries.
(b) Entity that exercises fiduciary powers. The term "entity that exercises fiduciary powers" means any entity that holds securities in nominee name or otherwise on behalf of a beneficial owner but does not include a clearing agency registered pursuant to section 17A of the Act, or a broker or a dealer.
(c) Information statement. The term "information statement" means the statement required by §240.14c-2, whether or not contained in a single document.
(d) Last fiscal year. The term "last fiscal year" of the registrant means the last fiscal year of the registrant ending prior to the date of the meeting with respect to which an information statement is required to be distributed, or if the information statement involves consents or authorizations in lieu of a meeting, the earliest date on which they may be used to effect corporate action.
(e) Proxy. The term "proxy" includes every proxy, consent or authorization within the meaning of Section 14(a) of the Act. The consent or authorization may take the form of failure to object or to dissent.
(f) Record date. The term "record date" means the date as of which the record holders of securities entitled to vote at a meeting or by written consent or authorization shall be determined.
(g) Record holder. For purposes of §240.14c-7, the term "record holder" means any broker, dealer, voting trustee, bank, association or other entity that exercises fiduciary powers which holds securities of record in nominee name or otherwise or as a participant in a clearing agency registered pursuant to Section 17A of the Act.
(h) Registrant. The term "registrant" means the issuer of a class of securities registered pursuant to Section 12 of the Act.
(i) Respondent bank. For purposes of §240.14c-7, the term "respondent bank" means any bank, association or other entity that exercises fiduciary powers which holds securities on behalf of beneficial owners and deposits such securities for safekeeping with another bank, association or other entity that exercises fiduciary powers.
10. By withdrawing amendments to paragraph (a) of §240.14c-7 specified in Release No. 33-6676 (November 10, 1986) 51 FR 42098 and adding and revising §240.14c-7 to read as follows:
§240.14c-7 Providing copies of material for certain beneficial owners.
1. The following paragraphs (a) through (c) are effective December 28, 1986 through June 30, 1987:
(a) If the registrant knows that securities of any class entitled to vote at a meeting, or by written authorizations or consents if no meeting is held, are held of record by a broker, dealer, voting trustee, bank, association, or other entity that exercises fiduciary powers in nominee, name or otherwise, the registrant shall:
(1) By first class mail or other equally prompt means: (i) inquire of each such record holder: (A) whether other persons are the beneficial owners of such securities and, if so, the number of copies of the information statement necessary to supply such material to such beneficial owners; and (B) in the case of an annual (or special meeting in lieu of the annual) meeting, or written consents in lieu of such meeting, at which directors are to be elected, the number of copies of the annual report to security holders, necessary to supply such report to such beneficial owners for whom proxy material has not been and is not to be made available and to whom such reports are to be distributed by such record holder or its nominee and not by the registrant, and (ii) indicate to each such record holder: (A) whether the registrant pursuant to paragraph (c) of this section, intends to distribute the annual report to security holders to beneficial owners of its securities whose names, addresses and securities positions are disclosed pursuant to §240.14b-(c) or §240.14b-2(e)(2) and (3); and (B) the record date; and
(2) Supply, in a timely manner, each record holder of whom the inquiry required by paragraph (a)(1) of this section is made with copies of the information statement and/or the annual report to security holders, in such quantities, assembled in such form and at such place(s), as the record holder may reasonably request in order to send such material to each beneficial owner of securities who is to be furnished with such material by the record holder; and
(3) Upon the request of any record holder that is supplied with information statements and/or annual reports to security holders pursuant to paragraph (a)(2) of this section, pay its reasonable expenses for completing the mailing of such material to beneficial owners.
Note 1.--If the registrants list of security holders indicates that some of its securities are registered in the name of a clearing agency registered pursuant to section 17A of the Act (e.g., "Cede & Co.," nominee for the Depository Trust Company), the registrant shall make appropriate inquiry of the clearing agency and thereafter of the participants in such a clearing agency who may hold on behalf of a beneficial owner, and shall comply with the above paragraph with respect to any such participant (see §240.14c-1(g)).
Note 2.--The requirement for sending an annual report to security holders of record having the same address will be satisfied by sending at least one report to a holder of record at that address provided that those holders of record to whom a report is not sent agree thereto in writing. This procedure is not available to registrants, however, where banks, associations, other entities that exercise fiduciary powers, brokers, dealers and other persons hold securities in nominee accounts or "street names" on behalf of beneficial owners, and such persons are not relieved of any obligation to obtain or send such annual report to the beneficial owners.
Note 3.--The attention of registrants is called to the fact that each broker and dealer has an obligation pursuant to applicable self-regulatory organization requirements to obtain and forward, in a timely manner, (a) information statements to all beneficial owners on whose behalf it holds securities, and (b) annual reports to security holders to all beneficial owners on whose behalf it holds securities, unless the registrant has notified the broker or dealer that it has assumed responsibility to mail such material to beneficial owners whose names, addresses and securities positions are disclosed pursuant to §240.14b-1(c).
(b) Any registrant requesting pursuant to §240.14b-1(c) or §240.14b-2(e)(2) and (3) a list of names, addresses and securities positions of beneficial owners of its securities who either have consented or not objected to disclosure of such information shall:
(1) By first class mail or other equally prompt means, inquire of each record holder and each respondent bank identified to the registrant pursuant to §240.14b-2(e)(1) whether such record holder or respondent bank holds the registrants securities on behalf of any respondent banks and, if so, the name and address of each such respondent bank;
(2) Request such list to be compiled as of a date no earlier than five business days after the date the registrants request is received by the record holder or respondent bank; Provided, however, that if the record holder or respondent bank has informed the registrant that a designated office(s) or department(s) is to receive such requests, the request shall be made to such designated office(s) or department(s);
(3) Make such request to all brokers and dealers and/or all banks, associations and other entities that exercise fiduciary powers;
(4) Use the information furnished in response to such request exclusively for purposes of corporate communications; and
(5) Upon the request of any record holder or respondent bank to whom such request is made, pay the reasonable expenses, both direct and indirect, of providing beneficial owner information.
Note.--A registrant will be deemed to have satisfied its obligations under paragraph (b) of this section by requesting consenting and non-objecting beneficial owner lists from a designated agent acting on behalf of the record holder or respondent bank and paying to that designated agent the reasonable expenses of providing the beneficial owner information.
(c) A registrant, at its option, may mail its annual report to security holders to the beneficial owners whose identifying information is provided by record holders and respondent banks, pursuant to §240.14b-1(c) or §240.14b-2(e)(2) and (3), provided that such registrant notifies the record holders and respondent banks, at the time it makes the inquiry required by paragraph (a) of this section, that the registrant will mail the annual report to security holders to the beneficial owners so identified.
2. The following paragraphs (a) through (c) are effective July 1, 1987:
§240 14c-7 Providing copies of material for certain beneficial owners.
(a) If the registrant knows that securities of any class entitled to vote at a meeting, or by written authorizations or consents if no meeting is held, are held of record by a broker, dealer, voting trustee, bank, association, or other entity that exercises judiciary powers in nominee name or otherwise, the registrant shall:
(1) By first class mail or other usually prompt means: (i) inquire of each such record holder: (A) whether other persons are the beneficial owners of such securities and, if so, the number of copies of the information statement necessary to supply such material to such beneficial owners; and (B) in the case of an annual (or special meeting in lieu of the annual) meeting, or written consents in lieu of such meeting, at which directors are to be elected, the number of copies of the annual report to security holders, necessary to supply such report to such beneficial owners for whom proxy material has not been and is not to be made available and to whom such reports are to be distributed by such record holder or its nominee and not by the registrant; and (ii) indicate to each such record holder: (A) whether the registrant, pursuant to paragraph (c) of this section, intends to distribute the annual report to security holders to beneficial owners of its securities whose names, addresses and securities positions are disclosed pursuant to §240.14b-1(c) and §240.14b-2(e)(2) and (3); and (B) its record date;
(2) Upon receipt of a record holders or respondent banks response indicating, pursuant to §240.14b-2(a)(1), the names and addresses of its respondent banks, within one business day after the date such response is received, make an inquiry of and give notification to each such respondent bank in the same manner required by paragraph (a)(1) of this section;
(3) Supply, in a timely manner, each record holder and respondent bank of whom the inquiries required by paragraphs (a)(1) and (a)(2) of this section are made with additional copies of the information statement and/or the annual report to security holders, in such quantities, assembled in such form and at such place(s), as the record holder or respondent bank may reasonably request in order to send such material to each beneficial owner of securities who is to be furnished with such material by the record holder or respondent bank; and
(4) Upon the request of any record holder or respondent bank that is supplied with information statements and/or annual reports to security holders pursuant to paragraph (a)(3) of this section, pay its reasonable expenses for completing the mailing of such material to beneficial owners.
Note 1.--If the registrants list of security holders indicates that some of its securities are registered in the name of a clearing agency registered pursuant to section 17A of the Act (e.g., "Cede & Co.," nominee for the Depository Trust Company), the registrant shall make appropriate inquiry of the clearing agency and thereafter of the participants in such a clearing agency who may hold on behalf of a beneficial owner or respondent bank, and shall comply with the above paragraph with respect to any such participant (see §240.14c-1(g)).
Note 2.--The requirement for sending an annual report to security holders of record having the same address will be satisfied by sending at least one report to a holder of record at that address provided that those holders of record to whom a report is not sent agree thereto in writing. This procedure is not available to registrants, however, where banks, associations, other entities that exercise fiduciary powers, brokers, dealers and other persons hold securities in nominee accounts or "street names" on behalf of beneficial owners, and such persons are not relieved of any obligation to obtain or send such annual report to the beneficial owners.
Note 3.--The attention of registrants is called to the fact that each broker and dealer has an obligation pursuant to applicable self-regulatory organization requirements to obtain and forward, in a timely manner, (a) information statements to all beneficial owners on whose behalf it holds securities, and (b) annual reports to security holders to all beneficial owners on whose behalf it holds securities, unless the registrant has notified the broker or dealer that it has assumed responsibility to mail such material to beneficial owners whose names, addresses and securities positions are disclosed pursuant to §240.14b-1(c).
§240.14b-2(e)(2) and (3)
(b) Any registrant requesting pursuant to §240.14b-1(c) and §240.14b-2(c) a list of names, addresses and securities positions of beneficial owners of its securities who either have consented or have not objected to disclosure of such information shall:
(1) By first class mail or other equally prompt means, inquire of each record holder and each respondent bank identified to the registrant pursuant to §240.14b-2(e)(1) whether such record holder or respondent bank holds the registrants securities on behalf of any respondent banks and, if so, the name and address of each such respondent bank;
(2) Request such list to be compiled as of a date no earlier than five business days after the date the registrants request is received by the record holder or respondent bank; Provided, however, that if the record holder or respondent bank has informed the registrant that a designated office(s) or department(s) is to receive such requests, the request shall be made to such designated office(s) or department(s);
(3) Make such request to all brokers, dealers, banks, associations and other entities that exercise fiduciary powers;
(4) Use the information furnished in response to such request exclusively for purposes of corporate communications; and
(5) Upon the request of any record holder or respondent bank to whom such request is made, pay the reasonable expenses, both direct and indirect, of providing beneficial owner information.
Note.--A registrant will be deemed to have satisfied its obligations under paragraph (b) of this section by requesting consenting and non-objecting beneficial owner lists from a designated agent acting on behalf of the record holder or respondent bank and paying to that designated agent the reasonable expenses of providing the beneficial owner information.
(c) A registrant, at its option, may mail its annual report to security holders to the beneficial owners whose identifying information is provided by record holders and respondent banks, respondent banks, pursuant to §240.14b-1(c) and §240.14b-2(e)(2) and (3), provided that such registrant notifies the record holders and respondent banks at the time it makes the inquiry required by paragraph (a) of this section that the registrant will mail the annual report to security holders to the beneficial owners so identified.
By the Commission.
1Release No. 34-23276 (May 29, 1986) 51 FR 20504.
2Pub. L. 99-222, 99 Stat. 1737 (1985), amending 15 U.S.C. 78n(b) (1982).
3These proposals generated comment letters from 57 commentators. The letters of comment, as well as a copy of the summary of the comment letters prepared by the staff, are available for public inspection and copying at the Commissions Public Reference Room. (See File No. S7-12-86).
4As part of its comprehensive review of the proxy rules, the Commission recently adopted amendments to Rules 14a-1, 14a-3(e)(2), 14a-13, 14c-1 and 14c-7, effective January 19, 1987. Release No. 33-6676 (November 10, 1986) 51 FR 42048. The Commission is withdrawing the amendments to those provisions adopted in Release No. 33-6676 and is incorporating those changes, which are technical and clarifying in nature, in the shareholder communications amendments to the rules adopted herein. Those amendments will be effective December 28, 1986.
517 CFR 240.14b-1(a) and (b).
617 CFR 240.14b-2(a)-(d).
717 CFR 240.14b-1(c).
817 CFR 240.14b-2(e) and (h).
9See, e.g., 8 Del. Code Ann. §213 (1983).
10The rules of the self-regulatory organizations provide that a broker may either request voting instructions from beneficial owners or forward signed proxies to beneficial owners. See, e.g., Rule 451 of the New York Stock Exchange ("NYSE"), Rule 575 of the American Stock Exchange ("Amex") and Art. III, Sec. 1 of the Rules of Fair Practice of the National Association of Security Dealers ("NASD") (provides only for forwarding signed proxies to beneficial owners). Rules of the self-regulatory organizations also provide that should a broker request voting instructions it may, in certain uncontested matters, vote the proxy if instructions are not received from the beneficial owner by the tenth day before the meeting and the proxy material was transmitted to the beneficial owner at least 15 days before the meeting. If the proxy soliciting material was transmitted to the beneficial owner 25 days prior to the meeting, the broker may vote the proxy 15 days before the meeting if voting instructions are not received from the beneficial owner. See, e.g., NYSE Rules 451 and 452 and Amex Rules 575 and 577.
11The Commission solicited comment on four alternative proposals:
1. Bank record holders and respondent banks would receive proxy soliciting materials and annual reports directly from the registrant for forwarding to beneficial owners. Proxy cards, however, would be mailed to bank record holders for forwarding to respondent banks and, ultimately, to beneficial owners. To ensure that those beneficial owners whose securities are held through respondent banks would receive their proxy cards with the proxy soliciting materials, respondent banks would be required to wait until they receive the proxy cards before forwarding the complete sets to beneficial owners. To minimize delays in the forwarding of proxy cards, the proposal provided that record holder and respondent banks must forward the proxy cards to the next layer of respondent banks within one business day of receipt.
2. The registrant would send enough complete sets of the proxy material, including the proxy card, to each record holder bank to supply beneficial owners on whose behalf it holds securities as well as those of its respondent banks. The record holder bank, after executing the proxy, would then be required to forward the complete sets to the respondent bank.
3. The registrant would forward complete sets, including proxy cards, directly to respondent banks and have the beneficial owners provide voting instructions to the bank record holders, in a manner similar to the process currently used by brokers. Bank record holders would then execute the proxy cards and forward them to the registrant.
4. Bank record holders would execute, in favor of respondent banks, powers of attorney or omnibus proxies similar to those used by the Depository Trust Company. Under this system, registrants would send the annual report, the proxy soliciting material and the proxy card directly to the respondent banks for forwarding to beneficial owners. Pursuant to the omnibus proxy, the respondent bank would execute the proxy card and forward it to the beneficial owner.
12The omnibus proxy procedure incorporated in the rules reflects and is consistent with recommendations made by the American Bankers Association and the New York Stock Exchange Ad Hoc Committee on Identification of Beneficial Owners (the "Ad Hoc Committee"), which is composed of members of the securities and banking industries and the registrant community.
13Comments should be submitted by February 1, 1987 in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth St., N.W., Washington, D.C. 20549. Comment letters should refer to File No. S7-12-86. All comment letters received will be available for public inspection and copying in the Commissions Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549.
14Rule 14a-13(a)(1), 17 CFR 240.14a-13(a)(1), currently requires, among other things, that a registrant "inquire of each... record holder... the number of copies of the proxy and other soliciting material necessary to supply such material to beneficial owners; and... the number of copies of the annual report to security holders necessary to supply... to beneficial owners...."
15Rule 14a-13(a)(1) and (a)(2), 17 CFR 240.14a-13(a)(1) and (a)(2).
16Rule 14b-2(a)(2), 17 CFR 240.14b-2(a)(2).
1717 CFR 240.14a-13(a).
18Rule 14b-2(a)(1), 17 CFR 240.14b-2(a)(1).
19Rule 14a-13(a)(2), 17 CFR 250.14a-13(a)(2).
20Rule 14a-13(a)(3), 17 CFR 240.14a-13(a)(3), currently requires registrants to "supply,... each record holder of whom the inquiry... is made with copies of the proxy, other proxy soliciting material, and/or the annual report to security holders, in such quantities, assembled in such form and at such a place, as the record holder may reasonably request in order to address and send one copy of each to each beneficial owner of securities...."