TheCorporateCounsel.net

October 23, 2009

More on Broker Nonvote Math

Last week, Tom Ball gave us the basics in broker nonvote math. In this podcast, David Drake and Rhonda Brauer dig further into the math of revised NYSE Rule 452 – here’s the worksheet you should print out to follow along – and help you explore some possible ways to get out those otherwise lost retail votes.

In our “Proxy Season Blog” yesterday, I blogged about the confusion of the intersection of revised Rule 452 and Delaware law. Note how there has been a bit of back and forth in Topic #5216 of our “Q&A Forum” about this topic too.

And remember that a number of critical proxy season areas are covered in our “Special” November-December issue of the Deal Lawyers print newsletter. Finally, note that the upcoming issue of The Corporate Counsel will be providing practical guidance in the broker nonvote area.

Federal Reserve Proposes Guidance on Sound Incentive Compensation Policies

From Cleary Gottlieb: Yesterday, the Federal Reserve released for comment proposed guidance on incentive compensation applicable to all banking organizations under its supervision. The proposal includes two supervisory initiatives. The first, applicable to 28 “large, complex banking organizations,” will involve a review each organization’s policies and practices to determine their consistency with the guidance described below. The organization-specific policies will be assessed by supervisors in a special coordinated “horizontal review.”

The press release issued with the proposed guidance states that “[t]he policies and implementing practices adopted by these firms in response to the final supervisory principles will become a part of the supervisory expectations for each firm and will be monitored for compliance.” The second initiative will involve a review of compensation practices at regional, community, and other banking organizations not classified as large and complex, as part of the regular, risk-focused examination process. These reviews will be tailored to take account of the size, complexity, and other characteristics of the banking organization.

The guidance is designed to apply to the compensation of: (1) senior executives and others responsible for oversight of an organization’s firm-wide activities or material business lines; (2) individual employees, including non-executive employees, whose activities may expose the organization to material amounts of risk; and (3) groups of employees who are subject to the same or similar incentive compensation arrangements and who, in the aggregate, may expose the organization to material amounts of risk.

Alongside the proposed guidance, the Fed released six Q&As. The Q&As state that the Fed has issued the proposed guidance under its authority to monitor the “safety and soundness” of institutions subject to its oversight. The Q&As also note that the proposed guidance is “consistent with” the Financial Stability Board’s Implementation Standards for its Principles for Sound Compensation Practices, which were released last month in conjunction with the G-20 Summit in Pittsburgh.

The FSB was organized at the direction of the G-20 in order to address vulnerabilities and develop and implement strong regulatory policies in the interest of financial stability. The United States is the first G-20 nation to issue detailed guidance on compensation practices since the FSB’s Implementation Standards were released. The Q&As provide that comments on the proposed guidance will be accepted for 30 days.

In his “Proxy Disclosure Blog last night,” Mark Borges blogged his analysis of the plan from Special Master Feinberg that was posted late yesterday. He also analyzes the separate “determination” letter sent to Banc of America.

SEC Proposes Rules for Dark Pools

On Wednesday, the SEC proposed a set of rules related to dark pools (here is Chair Schapiro’s statement), meant to address three areas of concern by:

- Requiring actionable Indications of Interest (IOIs) — which are similar to a typical buy or sell quote — to be treated like other quotes and subject to the same disclosure rules.

- Lowering the trading volume threshold applicable to alternative trading systems (ATS) for displaying best-priced orders. Currently, if an ATS displays orders to more than one person, it must display its best-priced orders to the public when its trading volume for a stock is 5% or more; the SEC’s proposal would lower that percentage to 0.25% for ATSs, including dark pools that use actionable IOIs.

- Creating the same level of post-trade transparency for dark pools – and other ATSs – as for registered exchanges. Specifically, the SEC’s proposal would amend existing rules to require real-time disclosure of the identity of the dark pool that executed the trade.

- Broc Romanek