(The news featured below is a selection from the news covered in the Federal Securities Report Letter, which is distributed to subscribers of the Federal Securities Law Reports.)

SROs Require Shareholder Vote on Stock Plans

The SEC approved new rules proposed and adopted by the New York Stock Exchange and the Nasdaq Stock Market requiring shareholder approval of equity compensation plans, including stock option plans. The new rules will also require approval for repricings and material plan changes. According to the SEC, the new rules will provide for the first time comprehensive shareholder approval requirements for these plans for companies subject to the listing standards of the NYSE and Nasdaq.

The SEC approved the rules on an accelerated basis. However, interested persons may comment on the rules as approved until July 24, 2003.

The NYSE's new rules will replace its current pilot program, which exempted " broad-based" equity compensation plans from a shareholder approval requirement. The Commission also approved a change in the NYSE rules for voting shares held in "street name " on equity compensation plans. The change will permit a broker that is a member of the NYSE to vote for or against those plans only when the broker receives instructions from the beneficial owner of the voting securities.

Nasdaq proposed to amend NASD Rule 4350(i) to require shareholder approval for stock option plans or other equity compensation arrangements. Specifically, Nasdaq proposed to eliminate the exception for "broadly-based " plans. The exchange will also eliminate the de minimis exception to NASD Rule 4350(i)(1)(A), which allows for the grant of the lesser of one percent of the number of shares of common stock or 25,000 shares, without shareholder approval. According to Nasdaq, this exception is not in accord with the concept of restricting the use of unapproved options.

SEC Chairman William H. Donaldson said, "these rule changes are an important step by our nation's principal markets." He added that "the exchanges have responded to the Commission's call for an increased shareholder voice in the equity compensation practices of listed companies," and described the changes as "part of a broad movement by our markets and the Commission to enhance the corporate governance practices of the companies traded on them."

¨ Release No. 34-48108 is reported at ¶86,933 .