The Securities and Exchange Commission voted 3-2 along party lines to approve the New York Stock Exchange rule amendment that effectively ends broker discretionary voting in director elections.

The rule change will be effective for shareholder meetings held on or after Jan. 1, 2010.

At today’s open meeting, Commissioners Elisse Walter and Luis Aguilar voted along with Chairman Mary Schapiro to approve the rule change, which amends NYSE Rule 452 and corresponding Section 402.08 of its Listed Company Manual to eliminate broker discretionary voting for the election of directors, except for companies registered under the Investment Company Act of 1940.

“The most fundamental way shareholders can ensure that directors remain accountable to them is through the director election process,” Schapiro said. “The NYSE rule proposal is designed to help assure that voting rights for matters as critical as the election of directors are exercised by those with economic interests in the company rather than by brokers, thereby improving corporate governance and enhancing accountability.”

Currently, under Rule 452, brokers are allowed to vote in uncontested director elections shares held in street name if they don’t receive instructions from share owners 10 days before the annual meeting. Proponents of the change say the votes distort election outcomes, since brokers tend to vote in line with management. Opponents of the change argue that it will make it harder for some companies to achieve quorum and could raise solicitation costs. The controversial NYSE rule proposal had been sitting in limbo at the SEC since October 2006.

Commissioners Kathleen Casey and Troy Paredes voted against the rule change, largely due to concerns that the change to Rule 452 should be made only as part of a broader reform of the proxy process, and not in isolation.

“Although I agree with the animating principle behind the amendment … that the election of directors is not merely a routine matter, I believe we are doing investors a tremendous disservice by approving this without closely analyzing the effects this action is likely to have in determining what other changes to the proxy voting process should be adopted concurrently with this rule change,” Casey said.

However, Schapiro, noting that the proposal “has essentially been awaiting approval for nearly three years, said, “Keeping our decisions on hold indefinitely doesn’t solve problems. So, I think it is time for us to move forward.”

Still, acknowledging “logistical concerns about the new rule’s implementation,” Schapiro said, “There are related areas of shareholder communication and voting and logistics that the Commission absolutely will be studying this year.”

Commissioners at the meeting also voted to approve publishing for comment proposals to amend its rules to enhance and expand the disclosures that registrants are required to make about the relationship between compensation and material risk, the qualification of director candidates, and why they chose their particular leadership structure, as well as additional information about the board’s use of compensation consultants. The SEC also voted to approve rules clarifying how companies that receive TARP money can comply with the requirement under the Emergency Economic Stabilization Act of 2008 to hold a shareholder advisory vote on executive pay.

Details of the proposals have not yet been posted to the SEC’s Website. Compliance Week will provide readers full coverage of the SEC’s actions at the July 1 meeting in an upcoming edition.