Rule2022-24292
Enhanced Reporting of Proxy Votes by Registered Management Investment Companies; Reporting of Executive Compensation Votes by Institutional Investment Managers
Primary source
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Published
December 22, 2022
Effective
July 1, 2024
Issuing agencies
Securities and Exchange Commission
Abstract
The Securities and Exchange Commission ("Commission") is adopting amendments to Form N-PX under the Investment Company Act of 1940 ("Investment Company Act") to enhance the information mutual funds, exchange-traded funds ("ETFs"), and certain other funds currently report about their proxy votes and to make that information easier to analyze. The Commission also is adopting rule and form amendments under the Securities Exchange Act of 1934 ("Exchange Act") that would require an institutional investment manager subject to the Exchange Act to report on Form N-PX how it voted proxies relating to executive compensation matters, as required by the Exchange Act. The reporting requirements for institutional investment managers complete implementation of those requirements added by the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act").
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[Federal Register Volume 87, Number 245 (Thursday, December 22, 2022)]
[Rules and Regulations]
[Pages 78770-78818]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-24292]
[[Page 78769]]
Vol. 87
Thursday,
No. 245
December 22, 2022
Part II
Securities and Exchange Commission
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17 CFR Parts 200, 232, 240, et al.
Enhanced Reporting of Proxy Votes by Registered Management Investment
Companies; Reporting of Executive Compensation Votes by Institutional
Investment Managers; Final Rule
Federal Register / Vol. 87, No. 245 / Thursday, December 22, 2022 /
Rules and Regulations
[[Page 78770]]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 200, 232, 240, 249, 270, and 274
[Release Nos. 33-11131; 34-96206; IC-34745; File No. S7-11-21]
RIN 3235-AK67
Enhanced Reporting of Proxy Votes by Registered Management
Investment Companies; Reporting of Executive Compensation Votes by
Institutional Investment Managers
AGENCY: Securities and Exchange Commission.
ACTION: Final rule.
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SUMMARY: The Securities and Exchange Commission (``Commission'') is
adopting amendments to Form N-PX under the Investment Company Act of
1940 (``Investment Company Act'') to enhance the information mutual
funds, exchange-traded funds (``ETFs''), and certain other funds
currently report about their proxy votes and to make that information
easier to analyze. The Commission also is adopting rule and form
amendments under the Securities Exchange Act of 1934 (``Exchange Act'')
that would require an institutional investment manager subject to the
Exchange Act to report on Form N-PX how it voted proxies relating to
executive compensation matters, as required by the Exchange Act. The
reporting requirements for institutional investment managers complete
implementation of those requirements added by the Dodd-Frank Wall
Street Reform and Consumer Protection Act (``Dodd-Frank Act'').
DATES: Effective date: This rule is effective July 1, 2024.
FOR FURTHER INFORMATION CONTACT: Christian Corkery, David Driscoll, or
Nathan R. Schuur, Senior Counsels; Bradley Gude and Angela Mokodean,
Branch Chiefs; or Brian M. Johnson, Assistant Director at (202) 551-
6792, Investment Company Regulation Office, Division of Investment
Management, Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549-8549.
SUPPLEMENTARY INFORMATION: The Commission is adopting new 17 CFR
240.14Ad-1 (``rule 14Ad-1'') under the Exchange Act and amendments to
17 CFR 200.30-5 (``rule 30-5''); 17 CFR 240.24b-2 (``rule 24b-2'')
under the Exchange Act; 17 CFR 270.30b1-4 (``rule 30b1-4'') under the
Investment Company Act; Form N-1A [referenced in 17 CFR 239.15A and 17
CFR 274.11A], Form N-2 [referenced in 17 CFR 239.14 and 17 CFR 274.11a-
1], and Form N-3 [referenced in 17 CFR 239.17a and 17 CFR 274.11b]
under the Securities Act of 1933 (``Securities Act'') and Investment
Company Act; Form N-PX [referenced in 17 CFR 249.326 and 17 CFR
274.129] under the Exchange Act and Investment Company Act; and 17 CFR
232.101 of Regulation S-T (``rule 101 of Regulation S-T'').
Table of Contents
I. Introduction and Background
II. Discussion
A. Scope of Funds' Form N-PX Reporting Obligations
B. Scope of Managers' Form N-PX Reporting Obligations
1. Managers Subject to Form N-PX and Categories of Votes They
Must Report
2. Managers' Exercise of Voting Power
3. Additional Scoping Matters for Manager Reporting of Say-on-
Pay Votes
C. Proxy Voting Information Reported on Form N-PX
1. Identification of Proxy Voting Matters
2. Identification of Proxy Voting Categories
3. Quantitative Disclosures
4. Additional Amendments to Form N-PX
D. Joint Reporting Provisions
E. The Cover Page
F. The Summary Page
G. Form N-PX Reporting Data Language
H. Time of Reporting
I. Requests for Confidential Treatment
J. Website Availability of Fund Proxy Voting Records
K. Effective Date
L. Transition Rules for Managers
M. Technical and Conforming Amendments
N. Delegation of Commission Authority
III. Other Matters
IV. Economic Analysis
A. Introduction
B. Economic Baseline
1. Funds' Reporting of Proxy Voting Records
2. Managers' Reporting of Say-on-Pay Votes
3. Other Affected Parties
C. Benefits and Costs
1. Amendments to Funds' Reporting of Proxy Votes
2. Amendments To Require Manager Reporting of Say-on-Pay Votes
D. Effects on Efficiency, Competition, and Capital Formation
1. Amendments to Funds' Reporting of Proxy Votes
2. Amendments To Require Manager Reporting of Say-on-Pay Votes
E. Reasonable Alternatives
1. Scope of Managers' Say-on-Pay Reporting Obligations
2. Amendments to Proxy Voting Information Reported on Form N-PX
3. Amendments to the Time of Reporting on Form N-PX or Placement
of Funds' Voting Records
V. Paperwork Reduction Act Analysis
VI. Regulatory Flexibility Act Certification for Managers and Final
Regulatory Flexibility Analysis for Funds
A. Regulatory Flexibility Act Certification for Managers
B. Final Regulatory Flexibility Act Analysis for Funds
1. Need for and Objectives of the Final Fund Rules
2. Significant Issues Raised by Public Comment
3. Small Entities Subject to the New Rule and Amendments
4. Projected Reporting, Recordkeeping, and Other Compliance
Requirements
5. Agency Action To Minimize Effect on Small Entities Statutory
Authority
I. Introduction and Background
Mutual funds, ETFs, and other registered management investment
companies (collectively, ``funds'') in the aggregate hold substantial
institutional voting power that they exercise on behalf of millions of
fund investors.\1\ Funds own around 32% of the market capitalization of
all U.S.-issued equities outstanding and in some cases funds hold a
larger percent of a single company's stock.\2\ As a result, funds can
influence the outcome of a wide variety of matters that companies
submit to a shareholder vote, including matters related to governance,
corporate actions, and shareholder proposals. Funds' proxy voting
decisions also can play an important role in maximizing the value of
their investments, affecting the more than 45% of U.S. households that
own funds, as well as other investors in U.S. equity markets.\3\ Due to
funds' significant voting power and the effects of funds' proxy voting
practices on the actions of corporate issuers and the value of these
issuers' securities, investors have an interest in how funds vote.
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\1\ Mutual funds and most ETFs are open-end management
investment companies registered on Form N-1A. An open-end management
investment company is an investment company, other than a unit
investment trust or face-amount certificate company, that offers for
sale or has outstanding any redeemable security of which it is the
issuer. See sections 4 and 5(a)(1) of the Investment Company Act [15
U.S.C. 80a-4 and 80a-5(a)(1)]. The amendments also will apply to
registered closed-end management investment companies (which
register on Form N-2) and insurance company separate accounts
organized as management investment companies that offer variable
annuity contracts (which register on Form N-3). Small business
investment companies (which register on Form N-5) are not required
to file Form N-PX and are not subject to these amendments or
included in the defined term ``fund'' used throughout this release.
\2\ Investment Company Institute (``ICI''), 2022 Investment
Company Fact Book (2022), at Figure 2.7, available at <a href="https://icifactbook.org/pdf/2022_factbook.pdf">https://icifactbook.org/pdf/2022_factbook.pdf</a> (``ICI 2022 Fact Book'')
(stating that mutual funds and other registered investment companies
held 32 percent of U.S. corporate equities as of year-end 2021).
\3\ See ICI 2022 Fact Book, supra footnote 2, at Figure 7.1.
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In 2003, the Commission adopted Form N-PX, which requires funds to
report publicly their proxy voting
[[Page 78771]]
records on an annual basis.\4\ To improve the utility of Form N-PX
information for investors, in September 2021 the Commission proposed
amendments to enhance the information funds currently report about
their proxy votes on Form N-PX and to make that information easier to
analyze (``proposed amendments'').\5\ Specifically, the Commission
proposed to require funds to tie the description of the voting matter
on Form N-PX to the issuer's form of proxy and categorize voting
matters by type. In addition, the proposed amendments would have
required disclosure of the number of shares that were voted (or, if not
known, the number of shares that were instructed to be cast) and the
number of shares that were loaned and not recalled. To enhance
investors' access to funds' proxy voting records, the proposed
amendments would have required funds to report information on Form N-PX
in a structured data language and to provide their voting record on (or
through) their websites.\6\
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\4\ See Disclosure of Proxy Voting Policies and Proxy Voting
Records by Registered Management Investment Companies, Investment
Company Act Release No. 25922 (Jan. 31, 2003) [68 FR 6563 (Feb. 7,
2003)] (``2003 Adopting Release'').
\5\ See Enhanced Reporting of Proxy Votes by Registered
Management Investment Companies; Reporting of Executive Compensation
Votes by Investment Managers; Investment Company Act Release No.
34389 (Sept. 29, 2021) [86 FR 57478 (Oct. 15, 2021)] (``Proposing
Release''). For a discussion of difficulties investors may face
using Form N-PX reports today, see id. at paragraphs accompanying
nn.16 and 20.
\6\ Cf. Recommendations of the Investor Advisory Committee
Regarding the SEC and the Need for the Cost Effective Retrieval of
Information by Investors (adopted July 25, 2013), at 5, available at
<a href="https://www.sec.gov/spotlight/investor-advisory-committee-2012/data-tagging-resolution-72513.pdf">https://www.sec.gov/spotlight/investor-advisory-committee-2012/data-tagging-resolution-72513.pdf</a> (recommending amendments to Form N-PX
to provide for the tagging of data).
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Institutional investment managers \7\ subject to the reporting
requirements of section 13(f) of the Exchange Act (each a ``manager''
and collectively with funds, ``reporting persons'') also have
substantial voting power.\8\ In addition to proposing to amend Form N-
PX to enhance disclosure of funds' proxy voting records, the Commission
also proposed to require a manager to report annually on Form N-PX how
it voted proxies relating to shareholder advisory votes on executive
compensation (or ``say-on-pay'') matters.\9\ Specifically, the proposed
amendments would have required a manager to report say-on-pay votes
when it exercised voting power over the securities--meaning the manager
both has the ability to vote, or direct the voting of, a security and
influences the voting decision. To reduce the potential for duplicative
reporting when more than one manager exercises voting power or when a
manager exercises voting power on behalf of a fund, the Commission
proposed to allow managers to rely on joint reporting provisions. The
proposed amendments also addressed confidential treatment requests and
provided transition rules based upon when managers begin or cease to be
obligated to file Form 13F reports.
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\7\ The term ``institutional investment manager'' includes any
person, other than a natural person, investing in or buying and
selling securities for its own account, and any person exercising
investment discretion with respect to the account of any other
person. See section 13(f)(6)(A) of the Exchange Act [15 U.S.C.
78m(f)(6)]. The term ``person'' includes any natural person,
company, government, or political subdivision, agency, or
instrumentality of a government. See section 3(a)(9) of the Exchange
Act [15 U.S.C. 78c(a)(9)]. Entities serving as managers could
include, for example: banks, insurance companies, and broker-dealers
that invest in, or buy and sell, securities for their own accounts;
corporations and pension funds that manage their own investment
portfolios; or investment advisers that manage private accounts,
mutual fund assets, or pension plan assets.
\8\ See Proposing Release, supra footnote 5, at n.24 and
accompanying text (stating that institutional investment managers
subject to section 13(f) reporting requirements exercised investment
discretion over approximately $39.79 trillion in section 13(f)
securities as of March 31, 2021).
\9\ In addition to amendments to Form N-PX, the Commission
proposed new rule 14Ad-1 under the Exchange Act to require managers
to annually report their say-on-pay votes on Form N-PX.
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The proposed amendments to require manager reporting of say-on-pay
votes were aimed at completing implementation of section 951 of the
Dodd-Frank Act.\10\ The Commission first proposed rule and form changes
in October 2010 to implement this provision of the Dodd-Frank Act and
the proposed amendments in 2021 took into account the comments received
in response to that earlier proposal.\11\
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\10\ See 15 U.S.C. 78n-1(d).
\11\ See Exchange Act Release No. 63123 (Oct. 18, 2010) [75 FR
66622 (Oct. 28, 2010)] (``2010 Proposing Release'').
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The Commission received a number of comment letters on the 2021
proposal.\12\ Many commenters believed the proposed amendments would
improve the proxy information available to investors, such as by making
it easier and more efficient for investors to get this information or
by addressing information asymmetries that exist between investors and
fund managers.\13\ Some of these commenters highlighted the
difficulties in using current fund proxy information.\14\ Many other
commenters supported enhancing the proxy voting record disclosure on
Form N-PX, but raised concerns about some of the specific elements of
the proposal.\15\ For example, some of these commenters suggested
changes to the proposed requirements to categorize voting matters and
use the language from the issuer's form of proxy due, in part, to
concerns about the scope of the proposed requirements.\16\ Some
commenters also expressed concern about the operational costs and
effects of the requirement to provide information about the number of
securities a fund or manager did not vote because the securities were
out on loan.\17\ To reduce burdens of the manager reporting
requirements, some commenters supported using a different standard to
determine when a manager should report a say-on-pay vote on Form N-PX
and suggested that managers have certain exceptions from Form N-PX
reporting requirements, including exceptions for managers with a
disclosed policy of not voting.\18\ Some commenters suggested that
funds and managers should be required to report their votes more
frequently than annually to provide investors with more current
information.\19\ Some commenters generally were supportive of the other
specific elements of the proposed amendments, such as the requirement
to report in structured data
[[Page 78772]]
language.\20\ Other commenters, however, had general concerns about the
proposed amendments, questioning the Form N-PX approach to fund proxy
vote reporting or suggesting that the costs of the proposed amendments
would be high relative to the expected benefits.\21\
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\12\ The comment letters on the Proposing Release (File No. S7-
11-21) are available at <a href="https://www.sec.gov/comments/s7-11-21/s71121.htm">https://www.sec.gov/comments/s7-11-21/s71121.htm</a>.
\13\ See, e.g., Comment Letter of the American Sustainable
Business Council (Oct. 12, 2021) (``ASBC Comment Letter''); Comment
Letter of the Long-Term Stock Exchange, Inc. (Dec. 13, 2021) (``LTSE
Comment Letter''); Comment Letter of the Consumer Federation of
America (Dec. 14 2021) (``CFA Comment Letter''); Comment Letter of
Better Markets (Dec. 14, 2021) (``Better Markets Comment Letter'');
and Comment Letter of the Vanguard Group, Inc. (Dec. 14, 2021)
(``Vanguard Comment Letter'').
\14\ See Comment Letter of As You Sow (Dec. 14, 2021) (``As You
Sow Comment Letter''); and Comment Letter of Ceres Accelerator for
Sustainable Capital Markets (Dec. 14, 2021) (``Ceres Comment
Letter'').
\15\ See, e.g., Comment Letter of the Investment Company
Institute (Dec. 14, 2021) (``ICI Comment Letter I''); Comment Letter
of Federated Hermes, Inc. (Dec. 14, 2021) (``Federated Hermes
Comment Letter''); Comment Letter of BlackRock, Inc. (Dec. 14, 2021)
(``BlackRock Comment Letter''); Comment Letter of the Managed Funds
Association (Dec. 14, 2021) (``MFA Comment Letter''); and Comment
Letter of Glass Lewis (Dec. 14, 2021) (``Glass Lewis Comment
Letter'').
\16\ See, e.g., ICI Comment Letter I; Comment Letter of the
State of Utah (Dec. 14, 2021) (``Utah Comment Letter''); and Comment
Letter of Institutional Shareholder Services, Inc. (Dec. 14, 2021)
(``ISS Comment Letter'').
\17\ See, e.g., Comment Letter of Teachers Insurance and
Annuities Association of America (Dec. 14, 2021) (``TIAA Comment
Letter''); and Comment Letter of Pickard Djinis and Pisarri LLP
(Nov. 23, 2021) (``Pickard Comment Letter'').
\18\ See, e.g., Comment Letter of the Alternative Investment
Management Association (Dec. 14, 2021) (``AIMA Comment Letter'');
and MFA Comment Letter.
\19\ See, e.g., Comment Letter of Betterment LLC (Dec. 14, 2021)
(``Betterment Comment Letter''); Comment Letter of Morningstar, Inc.
(Dec. 13, 2021) (``Morningstar Comment Letter'').
\20\ See, e.g., Morningstar Comment Letter; Comment Letter of
the CFA Institute and the Council of Institutional Investors (Dec.
14, 2021) (``CFA/CII Comment Letter'').
\21\ See Comment Letter of Caleb N. Griffin, Brian R. Knight,
and Andrew N. Vollmer (Nov. 11, 2021) (``Mercatus Center Comment
Letter'') (suggesting an alternative proxy voting approach where
funds seek investor input prior to voting proxies and vote in
reasonable accord with such input); and Comment Letter of the Mutual
Fund Directors Forum (Dec. 14, 2021) (``MFDF Comment Letter'').
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We are adopting the amendments largely as proposed, but with
certain modifications in response to the comments we received. First,
while we will require reporting persons to categorize the voting
matters reported on Form N-PX as proposed, the categories we are
adopting are consolidated from those in the proposal, and we are not
adopting the proposed requirement for reporting persons to use
subcategories. Second, Form N-PX as amended will require reporting
persons to identify proxy voting matters using the same language as
disclosed in the issuer's form of proxy, presented in the same order as
the matters appear in the form of proxy, and identify directors
separately for director election matters only if a form of proxy in
connection with a matter is subject to 17 CFR 240.14a-4 (``rule 14a-
4''). Third, Form N-PX as amended will allow managers that have a
disclosed policy of not voting proxies and that did not vote during the
reporting period to indicate this on the form without providing
additional information about each voting matter individually. We
discuss these changes, among others, in more detail below.
II. Discussion
A. Scope of Funds' Form N-PX Reporting Obligations
Every fund is required to file its proxy voting record annually on
Form N-PX. We did not propose to modify the scope of investment
companies subject to Form N-PX reporting requirements, but we did
propose to amend the scope of voting decisions these funds must report.
Currently, funds are required to report information for each matter
relating to a portfolio security considered at any shareholder meeting
held during the reporting period and with respect to which the fund was
entitled to vote.\22\ We are amending this standard, as proposed, to
provide that, for purposes of Form N-PX, a fund would be entitled to
vote on a matter if its portfolio securities are on loan as of the
record date for the meeting. Because the reporting fund could recall
and vote these loaned securities, this amendment is designed to ensure
that a fund's filings on Form N-PX reflect the effect of its securities
lending activities on its proxy voting, providing context to the
information funds already provide about revenue from securities
lending.\23\
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\22\ See Item 1 of current Form N-PX.
\23\ See Proposing Release, supra footnote 5, at section II.A.
See also infra section II.C.3.b.
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A number of commenters offered their views on the effect of
including lent share disclosure in the form, which is discussed in more
detail below in section II.C.3. On the overall scope of the form as it
relates to funds, one commenter recommended requiring equity unit
investment trusts (``UITs'') to file reports on Form N-PX.\24\ Due to
the unmanaged nature of UITs and the fixed nature of their portfolios,
we do not think it is appropriate to require periodic reporting from
UITs regarding proxy voting at this time. We understand that UITs
largely vote their securities in the same proportion as the vote of all
other holders of those securities (``mirror vote''), which limits the
ability of such funds to influence the outcome of shareholder votes and
therefore reduces the benefit that is provided by periodic reporting on
Form N-PX.\25\
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\24\ See Morningstar Comment Letter. This commenter also
recommended that both the lender and borrower be required to report
what was lent or borrowed, respectively, and voted. A fund or
manager typically will not know how a borrower has voted borrowed
shares. If a borrower is itself a reporting person, however, the
borrower will report its own voting record on Form N-PX, including
votes cast with respect to borrowed shares. See infra section
II.C.3.
\25\ See Fund of Funds Arrangements, Investment Company Act
Release No. 33329 (Dec. 19, 2018) [84 FR 1286 (Feb. 1, 2019)]
(suggesting that mirror voting ``effectively nullifies'' the voting
power of a fund that utilizes it).
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B. Scope of Managers' Form N-PX Reporting Obligations
1. Managers Subject to Form N-PX and Categories of Votes They Must
Report
We are adopting amendments, as proposed, that require each person
that (1) is an ``institutional investment manager'' as defined in the
Exchange Act; and (2) is required to file reports under section 13(f)
of the Exchange Act, to report its say-on-pay votes on Form N-PX.\26\
This reporting obligation is consistent with the reporting obligation
in section 14A(d) of the Exchange Act and provides that a manager
otherwise required to report on Form 13F is required to disclose its
say-on-pay votes on Form N-PX.\27\ The types of say-on-pay votes that
managers must report are the same as the types of shareholder advisory
votes section 14A of the Exchange Act requires. This includes votes on
the approval of executive compensation and on the frequency of such
executive compensation approval votes, as well as votes to approve
``golden parachute'' compensation in connection with a merger or
acquisition.\28\
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\26\ See rule 14Ad-1(a); 15 U.S.C. 78m(f). See also Proposing
Release, supra footnote 5, at section II.B.1.
\27\ Rule 14Ad-1(a); Item 1 of amended Form N-PX.
\28\ See section 14A(a) and (b) of the Exchange Act; 17 CFR
240.14a-21. Shareholder votes on executive compensation that are not
required by sections 14A(a) and (b), such as in the case of foreign
private issuers (as defined in 17 CFR 240.3b-4(c) (``rule 3b-4(c)
under the Exchange Act'')) that are exempt from the proxy
solicitation rules, will not be required to be reported on Form N-
PX.
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Commenters generally supported the requirement for managers to
report say-on-pay votes.\29\ Some commenters agreed that the reporting
requirement was appropriately tailored to managers who file Form
13F.\30\ Certain commenters also agreed that the proxy vote reporting
requirements for managers should be focused only on say-on-pay votes,
as proposed.\31\ Other commenters, however, suggested that managers
should be required to report other proxy votes in addition to say-on-
pay votes.\32\ We continue to believe that it is appropriate at this
time to limit managers' reporting obligations to say-on-pay votes,
consistent with the statutory mandate in section 14A.\33\
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\29\ See e.g., AIMA Comment Letter; ASBC Comment Letter; Better
Markets Comment Letter; Comment Letter of Kyle Ratcliff (Oct. 15,
2021) (``Ratcliff Comment Letter''); Pickard Comment Letter; Comment
Letter of Seattle City Employees' Retirement System (Dec. 7, 2021)
(``SCERS Comment Letter''); Comment Letter of Shareholder Commons
and B Lab US/CAN (Dec. 13, 2021) (``Shareholder Commons Comment
Letter I''); CFA/CII Comment Letter; ASBC Comment Letter; Comment
Letter of Christopher Pearce (Oct. 8, 2021) (``Pearce Comment
Letter''); Comment Letter of John C. Friess (Nov. 22, 2021)
(``Friess Comment Letter''); ICI Comment Letter I.
\30\ See AIMA Comment Letter; Better Markets Comment Letter; MFA
Comment Letter.
\31\ See Pickard Comment Letter; MFA Comment Letter; AIMA
Comment Letter.
\32\ See Comment Letter of Alan Reid (Oct. 18, 2021) (``Reid
Comment Letter''); Comment Letter of Heather Rhee (Nov. 18, 2021)
(``Rhee Comment Letter''); Shareholder Commons Comment Letter I;
SCERS Comment Letter (recommending the reporting of votes related to
climate change metrics and qualitative reporting, net zero
commitments, and board member elections).
\33\ See Proposing Release, supra footnote 5, at the paragraph
containing nn.35-36; see also 2010 Proposing Release, supra footnote
11, at section II.B.1 (``The scope of votes that would be required
to be reported under the proposal is the same as the scope provided
by new Section 14A(d) of the Exchange Act.'').
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[[Page 78773]]
One commenter suggested that managers and funds should have
different reporting forms.\34\ Another commenter suggested that the
Commission permit managers to file their say-on-pay votes through a
revised Form 13F to relieve the additional regulatory burden that would
result from a new, separate filing requirement.\35\ We believe that
both managers and funds should report proxy voting matters on the same
form to reduce the potential for investor confusion and to enhance
investors' ability to compare voting records from various reporting
persons both over a uniform reporting period and through the use of a
single form. In addition, the use of a revised Form 13F for managers
would necessitate the creation and use of an expanded custom XML schema
for Form 13F that would mirror the new custom XML schema for Form N-PX,
leading to technical redundancies and inefficiencies compared to using
a single new custom XML schema for Form N-PX that covers both funds and
managers. It also would be confusing for both reporting persons and
investors if managers included say-on-pay votes on Form 13F because, as
the final rule provides, reports on Form N-PX cover different periods
and different securities than those covered by reports on Form 13F.
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\34\ See Rhee Comment Letter.
\35\ See AIMA Commenter Letter.
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2. Managers' Exercise of Voting Power
We are adopting, as proposed, a two-part test for determining
whether a manager ``exercised voting power'' over a security and must
report a say-on-pay vote on Form N-PX.\36\ As proposed, a manager is
required to report a say-on-pay vote for a security only if the
manager: (1) has the power to vote, or direct the voting of, a
security; and (2) ``exercises'' this power to influence a voting
decision for the security.\37\ In the first part of the test, the
ability to vote the security or direct the voting of the security
includes the ability to determine whether to vote the security at all,
or to recall a loaned security before a vote. Under the rule, voting
power could exist or be exercised either directly or indirectly by way
of a contract, arrangement, understanding, or relationship. Per this
analysis, multiple parties could both have and exercise voting power
over the same securities and, in the proposal, we provided the example
of a party exercising voting power when it influences the way a third
party votes the security, even where the manager is not the sole
decision-maker.\38\
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\36\ See Proposing Release, supra footnote 5, at section II.B.2.
\37\ See rule 14Ad-1(d)(1) (defining voting power) and rule
14Ad-1(d)(2) (defining exercise of voting power). This approach is
tailored to considerations associated with section 14A of the
Exchange Act and the scope of say-on-pay reporting obligations. As a
result, the definitions of ``voting power'' and the ``exercise'' of
voting power do not affect the meaning of these or similar terms
used in other Commission rules.
\38\ Proposing Release, supra footnote 5, at section II.B.2.
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As proposed, we are defining the exercise of voting power to mean
the actual use of voting power to influence a voting decision. The
framework focuses on the exercise, rather than mere possession, of
voting power. Thus, managers will exercise voting power when they vote
or influence a vote using their own independent judgment. As an
example, a manager exercises voting power when it votes (or directs
another party to vote) in accordance with the manager's own guidelines
or based on the manager's own judgment, including exercising
independent judgment or expertise to determine how a client's voting
policies should apply to a say-on-pay vote. A manager also exercises
voting power when it influences the decision of whether to vote a
security, such as by determining not to vote on a say-on-pay matter or
whether to recall loaned securities in advance of a vote in order to
vote the shares. Given this focus on a manager influencing the voting
decision, a manager will have no reporting obligation with respect to a
voting decision that is entirely determined by its client or another
party.\39\ We are adopting the amendments as proposed because we
believe the two-part test balances investor informational needs,
reporting burdens, and the statutory obligations.
---------------------------------------------------------------------------
\39\ For a discussion of examples where a manager does or does
not exercise voting power, see Proposing Release, supra footnote 5,
at section II.B.2.
---------------------------------------------------------------------------
Some commenters generally supported our proposed definition of the
exercise of voting power.\40\ Other commenters preferred what they
viewed as a more objective approach, suggesting that the ``exercise of
voting power'' standard could be subjective, burdensome, and cause
confusion in situations in which multiple managers exercise voting
power over the same security.\41\ One commenter recommended either
basing the reporting obligation on who actually marks the proxy card
or, in the alternative, limiting the reporting obligation to the party
who ``primarily'' influences a voting decision.\42\ Another commenter
suggested that only the managers who actually voted or instructed an
intermediary to vote securities should be required to report.\43\
---------------------------------------------------------------------------
\40\ See ICI Comment Letter I; Morningstar Comment Letter.
\41\ See Pickard Comment Letter; MFA Comment Letter.
\42\ See Pickard Comment Letter.
\43\ See MFA Comment Letter.
---------------------------------------------------------------------------
We recognize that the framework we are adopting could result in
some subjectivity in some cases. Nonetheless, this approach addresses
the section 14A requirement for managers to report how they voted. We
believe the appropriate focus is on when a manager exercises discretion
in determining how to vote on a say on pay matter, as implemented in
the final rule's definition of the exercise of voting power. This
provides more comprehensive information for investors by requiring each
manager who uses its voting power to influence a say-on-pay vote to
report how the manager voted (or determined not to vote), even though
there may be some degree of subjectivity in particular cases in
determining whether a given manager is required to report a vote.
Conversely, the tests suggested by commenters would limit the
utility of Form N-PX for investors. For example, while it may lessen
the reporting obligations for some managers, a test based on who
physically marks the proxy card (or its electronic equivalent), who
primarily influenced a voting decision, or who actually voted or
instructed a vote would exclude managers' votes that would be covered
under the final rules, depriving investors of useful information
regarding say-on-pay voting decisions. For example, if both managers A
and B influenced a voting decision and manager B marked the proxy card,
a test that only requires the manager marking the proxy card to report
the vote would not provide investors any information about manager A's
participation in the voting decision. As another example, a test that
focuses exclusively on situations in which a manager actually votes or
instructs a vote would not capture instances in which a manager
determines not to cast a vote. Determining when a manager ``primarily''
influences a voting decision would create its own subjective analysis
and thus does not appear to address commenter concerns about
subjectivity. As for situations in which multiple managers exercise
voting power over the same security, those managers will be able to
rely on the joint reporting provisions to reduce the associated
reporting burdens.
One commenter questioned whether a manager would ``influence'' a
voting
[[Page 78774]]
decision if the advice given to a client or co-manager was not taken
and the vote was cast differently than the manager suggested.\44\ Under
the approach we are adopting, and in keeping with exercise of voting
power analysis, a manager would not be viewed as influencing a vote if
the vote is cast differently than the manager's recommendation or
suggestion.
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\44\ See Pickard Comment Letter.
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3. Additional Scoping Matters for Manager Reporting of Say-on-Pay Votes
We are adopting, as proposed, amendments that require a manager to
report say-on-pay votes under section 14A with respect to any security
over which it exercised voting power. Like both the 2010 Proposing
Release and the Proposing Release, we are not modifying the scope of
securities to align with those reported on Form 13F or to provide an
exception from reporting where the manager does not vote. We are,
however, amending Form N-PX to limit the reporting obligation for
managers who have a disclosed policy of not voting proxies and who, in
line with those policies, have in fact not voted proxies during the
reporting period.
Some commenters supported the Commission's proposal to require
managers to report all say-on-pay votes, suggesting that such a
requirement provides investors with a manager's full voting record.\45\
Other commenters recommended that we align the scope of securities
reported on Form N-PX with those reported on Form 13F and proposed
various ways to do so.\46\ Some commenters suggested that the
Commission provide a de minimis exemption that would, consistent with
Form 13F, exclude from the Form N-PX reporting obligation securities
holdings of fewer than 10,000 shares and less than $200,000 aggregate
fair market value.\47\ Some commenters suggested that the Form N-PX
reporting requirements should be limited to the kinds of securities
managers are required to report on Form 13F (i.e., section 13(f)
securities) on the basis that such an approach would be clearer to
investors and would limit regulatory costs.\48\ One of these commenters
suggested this would be consistent with the Exchange Act, which imposes
the say-on-pay vote reporting requirement on managers subject to
section 13(f) of that Act.\49\ Another one of these commenters urged
the Commission to exclude from the reporting obligation securities that
are exempt from registration under section 12 of the Exchange Act.\50\
This commenter asserted that managers would have difficulty obtaining
the information needed to complete Form N-PX for these securities
because of a lack of adequate and reliable data. Another commenter
suggested that managers who do not report a security on Form 13F
because they lack investment discretion over such security should not
be required to disclose on Form N-PX votes related to that
security.\51\ Other commenters suggested that only securities held at
the end of a calendar quarter be reported because these securities
would also be reported on Form 13F.\52\ Some commenters urged that, in
the alternative, short-term positions, such as those held for fewer
than 30 days, should be excluded from the reporting obligation.\53\
---------------------------------------------------------------------------
\45\ See, e.g., Better Markets Comment Letter; CFA/CII Comment
Letter; Comment Letter of Principles for Responsible Investment
(Dec. 14, 2021) (``PRI Comment Letter'').
\46\ See, e.g., AIMA Comment Letter; MFA Comment Letter; Pickard
Comment letter.
\47\ See Pickard Comment Letter; AIMA Comment Letter; MFA
Comment Letter; see also Special Instruction 10 of Form 13F. But see
Better Markets Comment Letter; Morningstar Comment Letter
(suggesting that we not provide a de minimis exemption because it
would reduce the value of votes by omitting a manager's full voting
record and would create the wrong incentives by encouraging managers
to leave shares out on loan to stay below the reporting threshold).
\48\ See AIMA Comment Letter; MFA Comment Letter. Section 13(f)
securities are equity securities of a class described in section
13(d)(1) of the Exchange Act that are admitted to trading on a
national securities exchange or quoted on the automated quotation
system of a registered securities association. The Commission
publishes a list of these securities pursuant to section 13(f)(4) of
the Exchange Act. See 17 CFR 240.13f-1(c).
\49\ See MFA Comment Letter.
\50\ See AIMA Comment Letter.
\51\ See Pickard Comment Letter.
\52\ See MFA Comment Letter; AIMA Comment Letter.
\53\ See AIMA Comment Letter; MFA Comment Letter.
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We are not limiting the scope of securities subject to the Form N-
PX reporting requirement as these commenters suggested because doing so
would exclude say-on-pay voting information that would be beneficial to
investors. A more limited reporting obligation would reduce the utility
of the say-on-pay reporting disclosure by depriving investors of a
manager's full voting record.\54\ We do not believe that section 14A
suggests or requires that the Commission align the scope of securities
required to be reported on Form N-PX with those required for Form 13F
or apply Form 13F's de minimis exemption to Form N-PX. Section 14A
requires every institutional investment manager subject to section
13(f) to report how it voted on any say-on-pay shareholder vote, which
would include say-on-pay votes held by issuers of securities that are
not reported on Form 13F. If Form N-PX reporting contained a de minimis
exemption or were limited only to those securities reported on Form 13F
or only those securities over which managers have investment
discretion, then investors would not be able to identify on Form N-PX
all say-on-pay votes required under the statute.
---------------------------------------------------------------------------
\54\ Proposing Release, supra footnote 5, at section II.B.3; see
also Better Markets Comment Letter (suggesting that a de minimis
exception or otherwise limiting say-on-pay votes to securities that
managers report on Form 13F would exclude votes that section 14A(d)
is meant to capture).
---------------------------------------------------------------------------
In addition, a commenter urged the Commission to limit the
reporting requirement to section 13(f) securities because managers may
not have sufficient information to report say-on-pay votes conducted by
issuers whose securities are exempt from registration under section 12
of the Exchange Act. There are, however, securities other than section
13(f) securities that are subject to section 12 registration, including
certain non-exchange-traded securities.\55\ Moreover, issuers of
securities that are exempt from section 12 are not required to conduct
say-on-pay votes in the first instance, and if such an issuer were to
conduct a say-on-pay vote voluntarily, managers would not be required
to report that vote because section 14A(d) only requires managers to
report votes pursuant to subsections 14A(a) and 14A(b).\56\
---------------------------------------------------------------------------
\55\ See section 12(g) of the Exchange Act [15 U.S.C. 78l(g)].
\56\ See Shareholder Approval of Executive Compensation and
Golden Parachute Compensation, Exchange Act Release No. 63768 (Jan.
25, 2011) [76 FR 6010 (Feb. 2, 2011)], at n.38 (``[The say-on-pay
rules for issuers] as adopted apply to issuers who have a class of
equity securities registered under section 12 [15 U.S.C. 78l] of the
Exchange Act and are subject to our proxy rules.'')
---------------------------------------------------------------------------
We also are not adopting commenters' suggestions to align Form N-PX
reporting requirements with Form 13F such that a manager would only
report votes for securities reported at quarter end on Form 13F. Doing
so would potentially exclude a significant number of say-on-pay votes,
thus limiting the usefulness of the information for investors as well
as potentially omitting the reporting of how a manager voted on a say-
on-pay vote as required pursuant to section 14A. For example, Form 13F
reports are not required to include securities held during the quarter
but subsequently disposed of prior to the end of the quarter.\57\ We
are also not
[[Page 78775]]
adopting a framework that would only require the reporting of
securities held for at least a specified period of time for similar
reasons.
---------------------------------------------------------------------------
\57\ See Proposing Release, supra footnote 5, at section II.B.3.
See also Better Markets Comment Letter (suggesting that say-on-pay
vote reporting should not be limited to positions reported on Form
13F because securities disposed of before quarter end would not be
reported).
---------------------------------------------------------------------------
Some commenters responded to our request for comment as to whether
we should modify our proposed approach for managers who do not vote
their shares. For example, the Commission requested comment on whether
to exempt a manager who does not vote its shares from certain
disclosure requirements and whether any modified approach should be
subject to conditions, such as the manager having disclosed to its
clients that it does not vote.\58\ Commenters addressing these points
suggested that the Commission limit the reporting obligation for
managers who have a disclosed policy of not voting proxies.\59\ These
commenters stated that some registered investment advisers do not vote
proxies and disclose their general policy of not voting proxies in
other materials, including Part 2A of their Form ADV. One of these
commenters suggested that, under the proposed rule, these advisers
would only be disclosing their security holdings, not the quantitative
voting data contemplated by the proposed amendments.\60\ Other
commenters articulated their view that disclosure of a no-vote policy
sufficiently addresses any transparency concerns by providing investors
with an understanding of a manager's votes.\61\ Relatedly, one of these
commenters suggested that imposing the full reporting obligation on
managers who have a disclosed policy of not voting creates a burden on
managers, is of limited value to investors, and thus these managers
should be exempted.\62\ Other commenters suggested a more streamlined
reporting process for managers with no or limited say-on-pay votes,
with one such commenter suggesting that Form N-PX include a checkbox
for managers that have a general policy of not participating in one or
more categories of say-on-pay votes to alleviate such managers of
reporting non-votes in those categories.\63\
---------------------------------------------------------------------------
\58\ See Proposing Release, supra footnote 5, at section II.B.3.
\59\ See Pickard Comment Letter; AIMA Comment Letter; MFA
Comment Letter.
\60\ See AIMA Comment Letter.
\61\ See Pickard Comment Letter; AIMA Comment Letter (suggesting
that many registered investment advisers disclose in Form ADV that
they do not vote proxies).
\62\ See Pickard Comment Letter.
\63\ See MFA Comment Letter.
---------------------------------------------------------------------------
As a result, we are adopting a streamlined reporting option for
managers who have a disclosed policy of not voting proxies and in fact
have not voted proxies during the reporting period. After considering
those comments, we believe there is limited value for investors in
requiring the full scope of Form N-PX reporting by managers, such as
information about individual voting matters, under these circumstances.
Accordingly, we are adding a designation to Form N-PX that would permit
managers who have a disclosed policy of not voting proxies, and who did
not in fact vote during the reporting period, to indicate such in a
notice report. The manager would not have to report any information on
a security-by-security basis and instead would be required only to file
N-PX's cover page and required signature. This approach balances
appropriate transparency with the reporting burden. However, we do not
believe it is appropriate to exempt these managers fully from reporting
on Form N-PX as this may limit the ability of investors to understand
fully how a manager exercises its voting power.\64\ Further, these
notice reports will aid in the effectiveness of the Commission's
oversight of managers in complying with the requirements of section
14A. Information filed on Form N-PX in a structured data language is
easier to analyze systematically than a narrative disclosure and has
the benefit of differentiating cases where a manager has no votes to
report from cases where a manager simply fails to report. For similar
reasons, as proposed, we are requiring managers that do not have any
proxy votes to report for the reporting period to file a notice report
to this effect.\65\
---------------------------------------------------------------------------
\64\ See Proposing Release, supra footnote 5, at n.63 and
accompanying paragraph.
\65\ As discussed in more detail below, we have moved this
language from the form to the cover page.
---------------------------------------------------------------------------
C. Proxy Voting Information Reported on Form N-PX
We are adopting the proposed amendments to the proxy voting
information reported on Form N-PX largely as proposed, but have made
certain revisions as laid out below . We believe the amendments we are
adopting will make the information more useful to investors as compared
to both the current form and the proposal. For example, the amendments
facilitate investors' ability to locate the same proxy voting matter on
different reports on Form N-PX, aiding investor identification of proxy
voting matters that are of interest to them. The amendments also
provide additional quantitative information to help investors
understand how reporting persons balance voting decisions against other
priorities, and, in general, make the information reported more useful
to investors.
1. Identification of Proxy Voting Matters
We proposed to require reporting persons to use the same language
that is on the form of proxy to identify the matter on Form N-PX, and
to report proxy voting matters in the same order in which they are
presented on the issuer's form of proxy, including identifying each
director separately in the same order as on the form of proxy, even if
the election of directors is presented as a single matter on the form
of proxy (``voting matter identification requirements''). We are
adopting these amendments as proposed, but with two modifications.
First, under the amendments, these requirements will only apply to
proxy votes if a form of proxy in connection with a matter is subject
to rule 14a-4 under the Exchange Act. That rule requires the form of
proxy, or ``proxy card,'' included in the proxy materials to clearly
and impartially identify each voting matter (an ``SEC proxy card'').
SEC proxy cards contain the information reporting persons need to
comply with the new voting matter identification requirements. Second,
in all other cases, reporting persons will be subject to the current
requirement to provide a ``brief identification of the matter voted
on,'' except that we are adopting one modification limiting
abbreviations used in the descriptions of these voting matters as
described in more detail below. The amendments, with these
modifications to the proposal, are designed to address challenges
identified by commenters with respect to certain voting matters, while
making it easier for investors to locate identical voting matters on
different Form N-PX reports by different reporting persons.
Commenters supporting the proposed voting matter identification
requirements asserted that they would assist investors in understanding
how reporting persons vote shares and make the form more useful.\66\
For instance, one commenter stated that non-standard descriptions made
it difficult to
[[Page 78776]]
compare votes across different reports on Form N-PX.\67\ A different
commenter stated that the current lack of standardization imposes a
cost on investors, who need to expend time and resources to compare
different reporting persons.\68\
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\66\ See, e.g., CFA/CII Comment Letter; Morningstar Comment
Letter; Comment Letter of James McRitchie (Dec. 13, 2021)
(``McRitchie Comment Letter II''). James McRitchie also wrote a
separate comment letter dated Dec. 13, 2021 (``McRitchie Comment
Letter I'') and a comment letter dated Dec. 14, 2021 (``McRitchie
Comment Letter III''). The letters are referred to collectively as
if they were a single letter (``McRitchie Comment Letter'').
\67\ See Ceres Comment Letter.
\68\ See CFA/CII Comment Letter.
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Conversely, many commenters suggested that the proposed voting
matter identification requirements could raise challenges, especially
in the case of foreign issuers. For example, one commenter stated that
``the descriptions of proxy voting matters by [companies not subject to
the Commission's proxy rules] vary widely between markets and, at least
in some cases, are neither concise nor particularly descriptive, and in
many cases are not in English.'' \69\ Several other commenters also
noted that non-English filings could create special challenges.\70\
Commenters also stated that, in certain cases, voting matters may not
be clearly described, and that descriptions of proxy voting matters can
be quite extensive and can surpass standard character count limits,
either of which could result in N-PX filings being longer than they are
currently.\71\ With regard to the ordering requirement, two commenters
stated that the items presented in proxy materials issuers provide are
not in a standardized order, with one stating that issuers may present
a particular matter in multiple orders in different parts of the
filing.\72\ Another commenter suggested that, while a consistent
ordering of content would be helpful for reading the data without using
a program to analyze it, ordering is not needed when data is reported
in structured format.\73\ However, several commenters that raised
concerns with the proxy voting matter identification requirements
suggested their concerns would not extend to issuers whose form of
proxy meets the proxy requirements of the Exchange Act.\74\
---------------------------------------------------------------------------
\69\ Glass Lewis Comment Letter.
\70\ See ISS Comment Letter; ICI Comment Letter (stating that it
was not clear whether or not reporting persons would be permitted to
file N-PX in a language other than English); Federated Hermes
Comment Letter.
\71\ See Bloomberg Comment Letter (not clearly described); ISS
Comment Letter (descriptions can be extensive).
\72\ Federated Hermes Comment Letter (with regards to foreign
issuers); Bloomberg Comment Letter.
\73\ XBRL Comment Letter.
\74\ See, e.g., Glass Lewis Comment Letter (stating that the
justification for requiring standardization only applies to issuers
subject to the Commission's proxy rules); Federated Hermes Comment
Letter (``[W]e believe this aspect of the Proposal to be workable
where it concerns domestic issuers''). The proxy requirements of the
Exchange Act are largely limited to securities registered pursuant
to section 12 of the Exchange Act. See, e.g., 15 U.S.C. 78n(a)(1).
Foreign private issuers are exempted from these requirements. See 17
CFR 240.3a12-3(b).
---------------------------------------------------------------------------
After considering the comments, we are adopting the voting matter
identification requirements as proposed, except that they will only
apply if a form of proxy in connection with a matter is subject to the
requirements of rule 14a-4 under the Exchange Act, i.e., an SEC proxy
card is available for the matter.\75\ As noted in the Proposing Release
and as required by rule 14a-4, ``the descriptions and ordering used on
an issuer's form of proxy, which is publicly available and must
identify clearly and impartially each separate matter intended to be
acted upon, would address the previously identified practical issues
associated with standardized descriptions.'' \76\ Forms of proxy
subject to rule 14a-4 therefore will identify the matter in a clear
manner, listed in order where the form of proxy covers multiple
matters, and be in the English language. Reporting persons would not
need to review other documents or filings of the issuer, such as a
proxy statement, beyond the form of proxy to determine the description
or order of presentation. We recognize that the voting matter
identification requirements will involve changes to reporting persons'
processes, or those of their service providers,\77\ in order to comply
with the voting matter identification requirements. These costs are
justified by the benefits of the disclosure and may be reduced by
applying the voting matter identification requirements only where a
form of proxy is available to supply the information.\78\
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\75\ Special Instruction D.3 of amended Form N-PX.
\76\ See Proposing Release, supra footnote 5, at n.76 and
accompanying text (citing rule 14a-4(a)(3), which requires that the
form of proxy identify clearly and impartially each separate matter
intended to be acted upon, and associated guidance on descriptions
of matters in forms of proxy). See also 17 CFR 240.14a-4(a)(3); see
17 CFR 232.306 (requiring the use of the English language in all
electronic filings); Division of Corporation Finance, Compliance and
Disclosure Interpretations, Section 301 (Mar. 22, 2016), available
at <a href="https://www.sec.gov/divisions/corpfin/guidance/exchange-act-rule-14a-4a3-301.htm">https://www.sec.gov/divisions/corpfin/guidance/exchange-act-rule-14a-4a3-301.htm</a>.
\77\ See ICI Comment Letter I; ISS Comment Letter.
\78\ In addition, recognizing that the structured data
requirements may reduce the need for a consistent ordering when the
filings are analyzed with the assistance of a computer program, the
consistent ordering requirement should nonetheless aid investors who
choose to review the filings in plain text format.
---------------------------------------------------------------------------
Reporting persons, however, may hold securities for which voting
matters are not subject to our proxy rules and for which an SEC proxy
card is not available. In this case the associated proxy materials may
not clearly provide the information required to satisfy the voting
matter identification requirements, or may not provide that information
in English. We recognize the practical challenges raised by commenters
in complying with the proposed proxy voting matter identification
requirements in these circumstances. Requiring reporting persons to use
the same language that is on the form of proxy to identify the matter
will be less useful to investors if the language on the form of proxy
is not in English, or is not clearly presented. Reporting persons also
would face challenges in reporting proxy voting matters in the same
order in which they are presented on the issuer's form of proxy if, as
some commenters asserted, items presented in proxy materials provided
by some issuers are not in a standardized order.
The modifications to the voting matter identification requirements
are intended to address these concerns because, under the amendments,
these requirements will only apply when the reporting person will have
the information necessary to satisfy them from an SEC proxy card. Where
an SEC proxy card is not available for a matter, reports regarding the
matter will instead be required to provide ``a brief identification of
the matter voted on,'' consistent with the current requirement.\79\ In
an effort to improve the usefulness of this information to investors,
and in a change from the proposal, descriptions of these matters will
be required to limit the use of abbreviations to commonly understood
terms or terms that the issuer abbreviated in its description of the
matter. As we discussed in the Proposing Release, abbreviations and
other shorthand were one of the fund practices that can make it
difficult for investors to identify and compare voting matters.\80\ The
requirement to limit abbreviations should help ensure that, to the
extent that a reporting person is abbreviating terminology on the form,
the reporting person is doing so consistently, either because the
abbreviation is commonly understood or was part of the issuer's
description of the matter.
---------------------------------------------------------------------------
\79\ See Item 1(e) of current Form N-PX.
\80\ See Proposing Release, supra footnote 5, at text
accompanying n.222.
---------------------------------------------------------------------------
2. Identification of Proxy Voting Categories
As proposed, we are adopting a requirement for reporting persons to
select from specified, standardized categories to identify the subject
matter of each reported proxy voting item. The
[[Page 78777]]
categories are designed to cover matters on which funds frequently
vote. In a change from the proposal, we have streamlined and
consolidated the proposed list of categories, based on suggestions from
commenters, to reduce overlap and make the categories easier to use. We
also have eliminated the proposed requirement to select from a list of
subcategories and have included in Form N-PX examples of matters that
would fall into each category that generally track subjects that were
previously proposed as subcategories. Collectively, we believe these
changes from the proposal will increase the usefulness of the
categories while reducing potential difficulties identified by
commenters.
In general, commenters who supported the proposed categorization
requirement believed the requirement would provide benefits to users of
the form. For example, commenters stated that categorizing proxy votes
makes a fund's disclosed proxy voting record more useful because it is
more searchable, which makes it easier for investors to focus on topics
they find important.\81\ As one commenter stated, this ``significantly
lowers the costs of consumption'' of the data.\82\ Another commenter
stated that categorizing proxy votes provides a signal to investors of
the fund's investment criteria and overarching goals.\83\
---------------------------------------------------------------------------
\81\ See, e.g., Morningstar Comment Letter; CFA/CII Comment
Letter.
\82\ Bloomberg Comment Letter.
\83\ LTSE Comment Letter.
---------------------------------------------------------------------------
Most commenters who addressed the categorization requirement stated
that the proposed version would be burdensome for reporting persons and
would not provide useful information for investors. For example, many
commenters asserted that the proposed 17 categories and approximately
90 subcategories would not be helpful to investors, with some
suggesting that the granularity could complicate investors' ability to
compare different filings to locate matters relating to particular
categories.\84\ Some stated the proposed approach would result in
numerous judgments as to the category or subcategory in which a matter
belonged.\85\ Commenters also suggested that a categorization
requirement with fewer, broader categories would accomplish what they
viewed as the main policy objective of the proposal while also reducing
the likelihood of potential differences among reporting persons.\86\ A
number of commenters suggested that we remove the proposed
subcategories but retain them as examples of matters to be included in
the categories.\87\ Certain commenters objected to particular
categories or subcategories, asserting that they might not be
representative of voting matters in future years.\88\ Others suggested
the burden of categorization would be better assigned to issuers, to
reduce burdens on funds and provide consistency in funds'
categorizations, or that we exempt small funds because they do not
typically have enough voting power to change the outcome of most proxy
votes.\89\
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\84\ See, e.g., ICI Comment Letter I.
\85\ See, e.g., Blackrock Comment Letter.
\86\ See, e.g., Federated Hermes Comment Letter.
\87\ See, e.g., ICI Comment Letter I; CFA/CII Comment Letter;
Federated Hermes Comment Letter. Some commenters also suggested that
we change one or more subcategories. See, e.g., PRI Comment Letter;
CFA/CII Comment Letter. However, we are not adopting the
subcategorization requirement.
\88\ See Comment Letter of the National Center for Public Policy
Research (Dec. 9, 2021) (``NCPPR Comment Letter''); US Chamber of
Commerce Comment Letter; Utah Comment Letter; McRitchie Comment
Letter.
\89\ See, e.g., AIMA Comment Letter (issuers should categorize),
but see Blackrock Comment Letter (funds, not issuers, should
categorize); Ultimus Comment Letter (issuers should categorize and
exempt small funds).
---------------------------------------------------------------------------
After considering these comments, we are modifying the proposed
categorization requirement to reduce the burden and the level of
uncertainty among potentially overlapping categories for reporting
persons while enhancing the usefulness of categorization to investors.
Specifically, based in part on suggestions from commenters, we have
streamlined the list of categories, including combining certain
categories that were particularly likely to overlap and thus could
cause confusion on how to categorize. For example, one commenter
recommended that we change the board of directors category to only
address director elections and add the remaining elements of the board
of directors category to the corporate governance category, combine
meeting governance with the corporate governance category, combine
securities issuance with capital structure, and combine political
activities with other social issues.\90\ As detailed in the chart
below, we have made changes to the categories that are generally
consistent with these recommendations. These changes should reduce
questions about how to categorize voting matters on these topics and
reduce overlap between categories.
---------------------------------------------------------------------------
\90\ See, e.g., ICI Comment Letter I.
---------------------------------------------------------------------------
We are not, however, combining section 14A reporting with other
compensation matters, as one commenter suggested, in order to aid
managers in complying with this categorization requirement given that
they are only reporting say-on-pay votes, and to aid investors in
finding say-on-pay votes efficiently.\91\ We are also not combining or
otherwise changing the categories relating to environmental or climate,
human rights or human capital/workforce, or diversity, equity, and
inclusion as we believe that these are sufficiently distinct topics
that they should be separately identified.\92\
---------------------------------------------------------------------------
\91\ See id.
\92\ See id.; see also PRI Comment Letter.
---------------------------------------------------------------------------
We also are removing entirely the proposed requirement to assign
matters to subcategories. Instead, the amendments include examples of
matters that would be included within each category. The examples we
are adopting are largely the same as the proposed subcategories, but,
when combining categories, we added the subcategories from the
eliminated category as examples in the combined category.\93\ In
addition because these examples are now illustrative rather than
comprehensive, we eliminated proposed subcategories that simply
clarified that any other matter within a category needed to be included
(e.g., ``other audit-related matters (along with a brief
description)'').
---------------------------------------------------------------------------
\93\ In addition, we added the example of ``proxy access'' in
the corporate governance category to further clarify where those
votes should be categorized.
---------------------------------------------------------------------------
Accordingly, relative to the proposal we are adopting a
categorization requirement with fewer, but broader, categories.
Adopting broader categories and eliminating subcategories seeks to
reduce potential overlap among categories and also reduce the
likelihood that the categories are not representative since they are
broader and less likely to change.\94\ As a result, the changes should
reduce the need for subjective judgments on the part of reporting
persons in determining the applicable categories. In particular, the
differences between categories should be clearer and reporting persons
need not determine which of several subcategories may apply to a
matter. This, in turn, will increase comparability, and therefore the
utility, of the information for investors.\95\ We
[[Page 78778]]
therefore believe the modifications to the proposal balance the
concerns raised by commenters on the proposed categorization
requirement with the benefits provided by voting matter
classifications. We also believe that the reduced burden further
reinforces our decision not to require issuers to categorize voting
matters. In the context of this rulemaking, which is focused on the
requirement for funds to report their proxy voting records and
implementing section 14A for managers, we believe the categorization
requirement should apply to those reporting persons. The reduced burden
of the categorization requirement relative to the proposal also
supports not exempting small funds, therefore allowing investors in
those funds to benefit from the categorization requirement. The table
below outlines the changes to the categories in the proposal.
---------------------------------------------------------------------------
\94\ While any chosen list of categories may not perfectly
capture unanticipated trends that arise in the future, the use of
broader categories that are less likely to change helps to address
concerns that the chosen categories are based on a proxy season that
some commenters asserted was not representative. See, e.g., NCPPR
Comment Letter; US Chamber of Commerce Comment Letter.
\95\ Although one commenter suggested that activists, rather
than fund investors, would use this information to try to influence
how funds vote, fund advisers are subject to fiduciary duties and
thus must make voting determinations in the best interest of the
fund and its shareholders. See Utah Comment Letter; see also infra
footnotes 331-333 and accompanying text. In addition, the amendments
to the format and content of Form N-PX may also help deter fund
voting decisions motivated by conflicts of interest. See infra
footnotes 281-284 and accompanying text.
Table 1--Changes to Categories From the Proposal
------------------------------------------------------------------------
Change from
Proposed category Adopted category proposal
------------------------------------------------------------------------
Board of directors.............. Director elections Limited to
elections; other
board matters
categorized as
corporate
governance.
Section 14A..................... Section 14A....... None.
Audit-related................... Audit-related..... None.
Investment company matters...... Investment company None.
matters.
Shareholder rights and defenses. Shareholder rights None.
and defenses.
Extraordinary transactions...... Extraordinary None.
transactions.
Security Issuance............... n/a............... Consolidated with
capital
structure.
Capital structure............... Capital structure. Now includes
security
issuance.
Compensation.................... Compensation...... None.
Corporate governance............ Corporate Includes board
governance. matters other
than director
elections and
meeting
governance.
Meeting governance.............. n/a............... Consolidated with
corporate
governance.
Environment or climate.......... Environment or None.
climate.
Human rights or human capital/ Human rights or None.
workforce. human capital/
workforce.
Diversity, equity, and inclusion Diversity, equity, None.
and inclusion.
Political activities............ n/a............... Consolidated with
other social
issues.
Other social issues............. Other social Now includes
issues. political
activities.
Other........................... Other............. None.
------------------------------------------------------------------------
As proposed, the list of categories will be non-exclusive and
reporting persons are instructed to select all categories applicable to
the matter.\96\ This approach will further aid investors in locating
useful information by allowing them to identify multiple topics that
may be of interest. For example, a fund that casts a vote on a proxy
proposal tying executive compensation to the completion of a merger
(other than a section 14A proposal) would categorize the vote in both
the compensation and extraordinary transactions categories, enabling
investors who are interested in either the fund's votes on compensation
issues or its votes on the merger to locate the vote.
---------------------------------------------------------------------------
\96\ Special Instruction D.4 of amended Form N-PX.
---------------------------------------------------------------------------
3. Quantitative Disclosures
We are adopting as proposed changes to Form N-PX that will require
reporting persons to disclose quantitative information about the shares
that were voted or instructed to be voted, as well as shares the
reporting person loaned and did not recall.
(a) Disclosure of Number of Shares Voted or Instructed To Be Voted
Consistent with the proposal, amended Form N-PX will require
reporting persons to disclose the number of shares voted (or instructed
to be voted) and how those shares were voted (e.g., for or against
proposal, or abstain), as reflected in their records at the time of
filing a report on Form N-PX. If a reporting person has not received
confirmation of the actual number of votes cast, the Form N-PX report
instead may reflect the number of shares instructed to be cast on the
date of the vote. If the votes were cast in multiple manners (e.g.,
both for and against), reporting persons will be required to disclose
the number of shares voted (or instructed to be voted) in each
manner.\97\
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\97\ Item 1(k) of amended Form N-PX. As proposed, in the case of
a shareholder vote on the frequency of executive compensation votes,
a reporting person will be required to disclose the number of
shares, if any, voted in favor of each of one-year frequency, two-
year frequency, or three-year frequency, and the number of shares,
if any, that abstained. The number zero (``0'') would be entered if
no shares were voted, so that responses to this item would be
uniformly numeric in nature. Item 1(i) of amended Form N-PX.
---------------------------------------------------------------------------
We are requiring this disclosure because providing the number of
votes cast improves the transparency of fund and manager voting records
and more effectively enables investors to monitor their funds' and
managers' involvement in the governance activities of their
investments. It also provides information about the magnitude of a
reporting person's voting power. This disclosure also provides
important context for the disclosure of the number of shares the
reporting person loaned and did not recall and disclosures where a
manager votes in multiple ways on the same matter.\98\
---------------------------------------------------------------------------
\98\ See Proposing Release, supra footnote 5, at section
II.C.3.a. While we understand that funds do not split votes
regularly, investors should benefit from parity in disclosure
between funds and managers in cases where funds do split votes.
---------------------------------------------------------------------------
Many commenters supported the proposed approach, although some of
these commenters suggested that we require additional information.\99\
Specifically, some of these commenters suggested that reporting persons
should be required to identify the number of shares voted by
subadvisers or other third parties such as an independent fiduciary
retained to avoid conflicts of interest.\100\ In initially adopting
Form
[[Page 78779]]
N-PX, the Commission stated that investors in mutual funds have a
fundamental right to know how a fund casts proxy votes on its
shareholders' behalf.\101\ Consistent with this view, how a fund casts
its proxy votes is the more salient information for investors than
whether, for example, a particular subadviser cast the vote.
---------------------------------------------------------------------------
\99\ See, e.g., Better Markets Comment Letter; Morningstar
Comment Letter; see also ICI Comment Letter I (not objecting to
providing quantitative data generally, but objecting to the lent
share quantitative data requirement).
\100\ See Morningstar Comment Letter; Bloomberg Comment Letter.
\101\ See 2003 Adopting Release, supra footnote 4, at section I.
---------------------------------------------------------------------------
In addition, the form will provide investors with some indication
of how subadvisers may have influenced the fund's votes. For example, a
fund may have multiple subadvisers exercising the power to vote over a
portion of securities held by the fund. To the extent one of these
subadvisers voted a reporting fund's shares differently than the other
subadvisers to the fund, the fund's quantitative disclosures will
reflect this split vote by showing the fund had a number of shares
voted both for and against. Further, investors will continue to have
access to descriptions of funds' proxy voting policies and procedures
through required disclosures, which would include applicable
descriptions of the policies and procedures of investment advisers or
other third parties that are used to determine how to vote fund
proxies.\102\ In addition, some subadvisers or third parties will
likely be managers subject to say-on-pay reporting and so investors
will also have access to how those parties voted on say on pay
matters.\103\
---------------------------------------------------------------------------
\102\ See, e.g., Item 17(f) of Form N-1A (``[D]escribe the
policies and procedures that the Fund uses to determine how to vote
proxies relating to portfolio securities . . . Include any policies
and procedures of the Fund's investment adviser, or any other third
party, that the Fund uses, or that are used on the Fund's behalf, to
determine how to vote proxies relating to portfolio securities.'');
Item 18.16 of Form N-2. A fund may satisfy the requirement to
provide a description of the policies and procedures that it uses to
determine how to vote proxies by including a copy of the policies
and procedures themselves.
\103\ See Special Instruction D.6.b to amended Form N-PX.
---------------------------------------------------------------------------
One commenter also suggested that we require funds to indicate, per
ballot, how many shares were voted, along with associated share class
voted, noting that in some cases companies offer multiple share classes
with different voting rights.\104\ In this circumstance, reporting
persons should report different share classes separately as different
portfolio securities for purposes of Form N-PX because of this
difference in relative voting power and rights.
---------------------------------------------------------------------------
\104\ See Morningstar Comment Letter.
---------------------------------------------------------------------------
Another commenter objected to disclosure of the number of shares
voted, particularly its application to manager say-on-pay votes.\105\
This commenter argued that quantitative information about the number of
shares voted went beyond the statutory mandate regarding say-on-pay and
did not provide any useful information that was not already available
to investors under 17 CFR 275.206(4)-6 (``rule 206(4)-6''), the
investment adviser proxy voting rule. This commenter suggested instead
that we only require disclosure of the number of shares voted in split
vote situations. We are not adopting this change because requiring
quantitative disclosure only for split votes could result in
potentially confusing inconsistencies within each report on Form N-PX.
Moreover, this disclosure provides a number of benefits beyond
illustrating how reporting persons split votes. It improves the
transparency of fund and manager involvement in corporate governance,
including providing relevant information about the magnitude of the
reporting person's voting power.\106\ To enable investors to understand
how a fund or manager has exercised its voting power, investors need to
have access to quantitative information about the number of shares
voted, in addition to shares on loan and not recalled. For these
reasons, requiring quantitative information about the number of shares
voted is consistent with the statutory mandate for a manager to report
``how it voted'' pursuant to section 14A(d).
---------------------------------------------------------------------------
\105\ See Pickard Comment Letter.
\106\ See, e.g., Proposing Release, supra footnote 5, at section
I (discussing the substantial institutional voting power that funds
exercise on behalf investors).
---------------------------------------------------------------------------
We also disagree that the Form N-PX disclosure does not provide
useful information beyond that already required to be disclosed under
rule 206(4)-6. That rule requires a registered investment adviser to
disclose to clients how they may obtain information from the adviser
about how it voted with respect to their securities. Thus, it does not
apply to all managers because not all managers are registered
investment advisers. Further, it does not provide the same level of
transparency as the amendments we are adopting, because voting
information under rule 206(4)-6 is only required to be made available
to a single client, related solely to that client's securities, and
only upon the client's request. Voting records on Form N-PX are
available to the public. Even if a client were to request information
from its adviser about how it voted with respect to the client's
securities, that client could not use it to compare their manager's
voting activities to other managers' voting activities unless that
client had an existing advisory relationship with those other
managers.\107\
---------------------------------------------------------------------------
\107\ See rule 206(4)-6(b).
---------------------------------------------------------------------------
The amendments permit a reporting person to report the number of
shares voted as reflected in its records at the time of filing a report
on Form N-PX.\108\ If the reporting person has not received
confirmation of the actual number of votes cast prior to filing a
report on Form N-PX, the reporting person may report the number of
shares instructed to be cast. If the reporting person learns prior to
filing its Form N-PX that a different number of shares were voted than
were instructed to be cast, the reporting person will be required to
report the actual number of votes cast.\109\ However, if confirmation
of the actual number of votes cast occurs after the reporting person
files the Form N-PX report, a reporting person will not be required to
amend a previously filed Form N-PX report.\110\ This approach will
limit the compliance burden of providing information regarding the
number of shares voted and, in situations where the actual number of
votes cast may differ from the number of shares instructed to be cast,
the information provided will reflect how a reporting person intended
to vote such shares.
---------------------------------------------------------------------------
\108\ Item 1(i) of amended Form N-PX; Special Instruction D.5 to
amended Form N-PX.
\109\ Special Instruction D.5 to amended Form N-PX.
\110\ Id.
---------------------------------------------------------------------------
(b) Disclosure of Number of Shares the Reporting Person Loaned and Did
Not Recall
As proposed, we are requiring disclosure of the number of shares
the reporting person loaned and did not recall in addition to the
number of shares a reporting person voted.\111\ This requirement is
designed to provide transparency into how a reporting person's
securities lending activities affects its proxy voting, which had been
raised by commenters in the context of the 2010 Proposing Release and
Proxy Mechanics Concept Release.\112\ It also would help address
commenter concerns with a requirement in the 2010 proposal to disclose
the total number of shares a fund was entitled to vote or over which a
manager had or shared voting power.\113\
---------------------------------------------------------------------------
\111\ Item 1(i) of amended Form N-PX.
\112\ See Proposing Release, supra footnote 5, at n.99 and
accompanying text.
\113\ See Proposing Release, supra footnote 5, at nn.100-103 and
accompanying text.
---------------------------------------------------------------------------
Commenters were mixed on this aspect of the proposal. A number of
commenters supported this disclosure,
[[Page 78780]]
suggesting it would provide helpful context to investors about how
securities lending activities affect voting practices and help issuers
better understand their shareholder base.\114\ Commenters opposing this
aspect of the proposal argued that the disclosures would not provide
meaningful information to investors, particularly in light of expected
costs.\115\ Some were also concerned that these disclosures did not
reflect the complete context of the analysis reporting persons perform
when determining whether to engage in securities lending and did not
show the benefits of keeping shares on loan during a vote.\116\ Many of
these commenters suggested that these disclosures, or fund securities
lending practices in general, would provide an incomplete picture of
the securities lending activities and could be viewed in a negative
light, for example by market data firms that provide environmental,
social, and governance (``ESG'') rankings, which may consider these
disclosures in forming their ESG rankings.\117\ Some commenters
asserted that reporting persons may programmatically recall lent shares
to avoid a negative implication, resulting in negative impacts both to
the reporting person and the securities lending market in general.\118\
A number of commenters recommended that, instead of the proposed
quantitative disclosure, we require a narrative discussion to provide
investors additional context, such as disclosure of the reporting
person's policies and procedures for determining whether to recall lent
shares ahead of a proxy vote.\119\
---------------------------------------------------------------------------
\114\ See, e.g., Better Markets Comment Letter (``Form N-PX does
not currently account for loaned securities that are not recalled, a
major loophole that the SEC should close as proposed. This will
ensure that investors and the public have a more complete picture of
how funds' and managers' securities lending activities, in search of
revenue, impact their ability to vote shares in their investors'
interests.''); Public Citizen Comment Letter; LTSE Comment Letter
(``Having actual knowledge of the extent to which an investor
retained its voting rights--or relinquished them by having loaned
the shares--can help a company better understand its shareholder
base.'') (footnote omitted); Morningstar Comment Letter; Bloomberg
Comment Letter.
\115\ See, e.g., ISS Comment Letter; BlackRock Comment Letter;
ICI Comment Letter I; MFDF Comment Letter; Utah Comment Letter.
\116\ See, e.g., TIAA Comment Letter; BlackRock Comment Letter;
Comment Letter of the Securities Lending Council of the Risk
Management Ascociation (Dec. 14, 2021) (``RMA Comment Letter'');
Federated Hermes Comment Letter.
\117\ See, e.g., RMA Comment Letter; TIAA Comment Letter;
Pickard Comment Letter; AIMA Comment Letter.
\118\ See, e.g., RMA Comment Letter; Federated Hermes Comment
Letter; TIAA Comment Letter.
\119\ See, e.g., ISS Comment Letter; ICI Comment Letter I; IAA
Comment Letter.
---------------------------------------------------------------------------
The disclosure of the number of shares the reporting person loaned
and did not recall will provide transparency on a specific, security-
by-security basis. Absent this disclosure, investors would not have
quantified information showing how securities lending may have impacted
the degree of proxy voting by the reporting person.\120\ As a result,
we believe that the quantitative disclosure in the final amendments
will provide important information to investors and that it is
consistent with other information provided on Form N-PX in enabling
shareholders to monitor how the reporting person voted on a particular
voting matter.\121\ For these reasons, we believe that the costs to
respondents in providing the quantitative disclosures are justified in
light of the increased level of information and transparency provided
to investors.
---------------------------------------------------------------------------
\120\ See Proposing Release, supra footnote 5, at n.106 and
accompanying text.
\121\ See Proposing Release, supra footnote 5, at n.15 and
accompanying text.
---------------------------------------------------------------------------
We appreciate that the quantitative disclosures, alone, will not
provide the full context of a decision of whether to recall a security
on loan. An adviser must make a determination regarding whether to
retain a security and vote the accompanying proxy or lend out the
security that is in the client's best interest.\122\ The considerations
underlying this analysis will not be reflected in the disclosed number
of shares on loan and not recalled. Reporting persons will, however,
have the option to provide this or other information on Form N-PX. The
form as amended permits a reporting person to provide additional
information on the cover page and/or on a vote-by-vote basis.\123\ This
flexibility will facilitate a reporting person's ability to provide
additional information about a particular vote, such as with respect to
portfolio securities on loan, or about the reporting person's voting
practices in general, if the reporting person so chooses. For example,
in a given case where a fund did not recall loaned securities, the fund
could disclose that not recalling the shares provided the fund with
additional revenue in order to show the benefits fund shareholders
received by leaving the securities out on loan. Therefore, although
some commenters were concerned that the quantitative disclosure alone
would not provide full context, a reporting person with this concern
will have the option to provide additional information about its
process for determining whether to recall lent shares ahead of a proxy
vote in order to provide investors with additional context in cases
where the reporting person believes the information is helpful.
---------------------------------------------------------------------------
\122\ See Proposing Release, supra footnote 5, at nn.104-105 and
accompanying text; Commission Guidance Regarding Proxy Voting
Responsibilities of Investment Advisers, Investment Company Release
No. 33605 (Aug. 21, 2019) [84 FR 47420 (Sept. 10, 2019)], at n.34
(``Proxy Voting Guidance''); see also BlackRock Comment Letter; TIAA
Comment Letter.
\123\ See Special Instruction B.4 to amended Form N-PX; Item
1(o) to amended Form N-PX. The disclosures permitted by these items
are optional. A reporting person is not required to respond to Item
1(o) for any vote. If a reporting person does provide additional
information for one or more votes, it is not required to provide
this information for all votes.
---------------------------------------------------------------------------
We do not believe that the narrative discussion or disclosure of
the reporting person's policies and procedures for determining whether
to recall lent shares ahead of a proxy vote that some commenters
suggested would be an adequate substitute for the quantitative
disclosure we are adopting.\124\ The commenters' alternative would not
provide investors with an understanding of the specific number of
shares a reporting person has or has not recalled to vote a proxy,
which is important to understand the relationship between securities
lending and proxy voting. While a narrative discussion or disclosure of
the reporting person's policies and procedures may provide some overall
context, it may be difficult for investors to understand how the
narrative disclosures suggested by commenters relate to the reporting
person's voting record disclosed on the form, particularly if that
disclosure applies to a number of funds covered in the report, or is
otherwise not specific to any vote. Under the final amendments to Form
N-PX, in contrast, reporting persons will be permitted to provide
optional narrative disclosure in their reports alongside the required
quantitative disclosure, which can be provided on a vote-by-vote basis
or on their voting record as a whole.
---------------------------------------------------------------------------
\124\ See, e.g., RMA Comment Letter; Federated Hermes Comment
Letter; TIAA Comment Letter.
---------------------------------------------------------------------------
Finally, we recognize that an adviser and its client may agree that
the adviser would not vote due to the opportunity costs of recalling
the loaned securities in order to vote and that it can be in the
client's best interest not to recall the loaned securities.\125\ There
are legitimate reasons why an adviser or other reporting person may
decide not to recall any loaned securities. The quantitative disclosure
we are adopting is designed to provide investors with additional
information about a reporting person's proxy voting activities. The
[[Page 78781]]
disclosure requirement is not intended to change the analysis reporting
persons may undertake currently as to whether to recall a loaned
security, such as by creating pressure for reporting persons to
programmatically recall lent shares, or to create a negative
implication when a reporting person does not recall a loaned security
in any given case. Such determinations are subject to an adviser's
fiduciary duties owed to its clients.\126\ If a reporting person
believes that leaving securities on loan is in the client's best
interest, the reporting person should leave those securities on loan.
Further, as discussed above, to the extent a reporting person believes
additional narrative information may be helpful for investors to
understand fully a determination whether to recall a loaned security
and mitigate any perceived negative implications of this reporting, the
reporting person will have the option of providing additional
information on Form N-PX as amended.
---------------------------------------------------------------------------
\125\ Proxy Voting Guidance, supra footnote 122, at n.34.
\126\ See Proxy Voting by Investment Advisers, Investment
Advisers Act Release No. 2106 (Jan. 31, 2003), at 15 (stating that
under the Advisers Act, ``an adviser is a fiduciary that owes each
of its clients duties of care and loyalty with respect to all
services undertaken on the client's behalf, including proxy
voting,'' citing SEC v. Capital Gains Research Bureau, Inc., 375
U.S. 180 (1963)).
---------------------------------------------------------------------------
Some commenters raised the concern that reporting persons are often
not aware of the issues that will be voted on at a particular
shareholder meeting at the record date because proxy materials often
are not distributed until after that date, leaving reporting persons
with limited information to make a determination as to whether to
recall shares to vote proxies.\127\ We understand that industry
practices have developed that allow reporting persons to make informed
decisions about voting matters and whether to recall loaned securities
in these circumstances. For example, one commenter has previously told
the Commission that, even though proxy statements often are sent after
the record date, funds ``have long been in the business of loaning
securities and have been able to develop methods to monitor corporate
developments and make arrangements to recall shares in the event of a
vote on a material matter'' and that it, at the time, did ``not believe
it is essential for the Commission to adopt additional regulations to
facilitate the recall of securities for voting purposes.'' \128\
Reporting persons today already are analyzing whether to recall loaned
securities, even though proxy materials may be distributed after the
record date for a vote.\129\ This disclosure is not intended to change
that analysis.
---------------------------------------------------------------------------
\127\ See, e.g., BlackRock Comment Letter; ICI Comment Letter I;
AIMA Comment Letter.
\128\ Comment Letter of the Investment Company Institute (Oct.
20, 2010) (regarding the concept release on the U.S. proxy system
(File No. S7-14-10)).
\129\ See, e.g., AIMA Comment Letter; BlackRock Comment Letter
(stating that in the United States, the record date of a shareholder
meeting typically falls before the proxy mateirals are released).
---------------------------------------------------------------------------
Commenters also raised concerns that information about the number
of shares on loan and not recalled may not be readily available in all
cases. Specifically, some commenters stated that custodians do not
always provide full information on the number of shares on loan with
the proxy ballot, which reporting persons could use to provide the
disclosure.\130\ We recognize that practices may vary and that in some
cases providing the disclosure may require coordination among reporting
persons, custodians, proxy voting services providers, and others, as
some commenters observed.\131\ Disclosure requirements for reporting
persons under the Federal securities laws often can require some degree
of coordination amongst parties to produce required information, and we
believe the costs associated with this quantitative disclosure are
justified in light of the increased level of information and
transparency provided to investors.
---------------------------------------------------------------------------
\130\ See BlackRock Comment Letter; ISS Comment Letter.
\131\ See Glass Lewis Comment Letter; Broadridge Comment Letter.
---------------------------------------------------------------------------
As proposed, the disclosure we are adopting will be required only
where the reporting person has loaned the securities. The reporting
person may have loaned such securities directly or indirectly through a
lending agent.\132\ However, the disclosures would not be required in
scenarios where the manager is not involved in lending shares in a
client's account, either directly or indirectly. For example, if a
manager is not a party to the client's securities lending agreement and
has not itself (rather than the client) loaned the securities, such as
when a manager's prime broker has rehypothecated securities in a
manager's margin account, then the manager would not be involved in
decisions to lend securities or recall loaned securities for that
account.\133\
---------------------------------------------------------------------------
\132\ See Special Instruction D.7 to amended Form N-PX. To the
extent a reporting person allocates a number of securities to the
lending agent for lending purposes and treats that number of
securities as being on loan when determining how many shares it can
vote in a matter, the reporting person should report all of the
allocated shares as being on loan and not recalled (excluding any
shares the reporting person recalled for the vote).
\133\ Cf. MFA Comment Letter (raising concerns about obtaining
the required information in this scenario).
---------------------------------------------------------------------------
Similarly, a manager will not exercise voting power over loaned
securities when its client hires a securities lending agent to lend
securities in the client's account and the manager has no involvement
in the securities lending arrangement or in decisions to recall loaned
securities.\134\ In these cases, as when a client entirely directs a
given vote, the manager would not report because the manager did not
make a determination to lend a security in the first instance or to
leave it on loan. Thus, the manager would not have any say-on-pay
reporting obligations with respect to those loaned securities because
it did not exercise voting power. Alternatively, if a reporting person
has loaned securities and instructs its lending agent, custodian, or
other service provider to recall lent shares but for various reasons
those shares are not returned on time for a proxy vote, the reporting
person would report these shares as being on loan but not recalled
because they were not in fact recalled in time for the vote.\135\ The
reporting person may, however, choose to explain that it attempted to
recall the securities in Item 1(o) of the amended form.
---------------------------------------------------------------------------
\134\ See supra footnote 39 and accompanying text.
\135\ See Item 1(j) of amended Form N-PX.
---------------------------------------------------------------------------
4. Additional Amendments to Form N-PX
We are adopting as proposed all but two of the proposed additional
amendments designed to enhance the usability of Form N-PX reports and
to modernize or clarify existing form requirements.
First, we are adopting as proposed the requirement for funds that
have multiple series of shares to provide each series' Form N-PX
disclosure separately by series.\136\ We received no comments on this
aspect of the proposal. This change will make Form N-PX disclosure
easier to review and compare among reporting persons by allowing
investors to focus on disclosure relevant to them, rather than to
investors in other series.
---------------------------------------------------------------------------
\136\ Special Instruction D.9 to amended Form N-PX. For example,
a fund that has multiple series of shares would provide Series A's
full proxy voting record, followed by Series B's full proxy voting
record.
---------------------------------------------------------------------------
We also are adopting as proposed the instruction requiring the
information otherwise required or permitted to be reported on Form N-PX
to be reported in the order presented on the form.\137\ No commenters
discussed this aspect of the proposal and we continue to believe it
will make Form N-PX disclosure
[[Page 78782]]
easier to review and compare among reporting persons.\138\
---------------------------------------------------------------------------
\137\ Special Instruction D.1 to amended Form N-PX.
\138\ One commenter did express that it generally supported the
goal of formatting reports on Form N-PX consistently. See Vanguard
Comment Letter. The requirement to report the required information
in the order presented on Form N-PX is distinct from the requirement
to report the votes themselves in the same order as they are
displayed on the issuer's form of proxy, which we are also adopting.
Compare Proposing Release, supra footnote 5, at n.112 and
accompanying text and Special Instruction D.1 to amended Form N-PX
with Proposing Release, supra footnote 5, at n.74 and accompanying
text and Special Instruction D.3 to amended Form N-PX.
---------------------------------------------------------------------------
We are not, however, adopting the proposed requirement to identify
whether a voting matter is a proposal or a counterproposal. Some
commenters who discussed this aspect of the proposal opposed it,
stating that, in practice, the difference between a proposal or
counterproposal would not always be clear.\139\ After considering these
comments, we agree that it may be challenging to distinguish between
proposals and counterproposals, which could make this requirement
challenging for reporting persons to implement and the information less
useful for investors. In addition and discussed above, we are adopting
requirements that will standardize the ways in which proxy voting
matters are identified and require reporting persons to identify the
category of each voting matter, both of which could assist investors in
identifying the information they seek.
---------------------------------------------------------------------------
\139\ See Blackrock Comment Letter; ISS Comment Letter. But see
Bloomberg Comment Letter (suggesting that this is an important data
point that should be given an XML or JSON tag as it may not be
sufficiently clear to investors).
---------------------------------------------------------------------------
As proposed, the revised form will require that a reporting person
disclose whether a vote was for or against management's
recommendation.\140\ Two commenters recommended that we remove this
item, arguing that investors can determine this themselves if
management's recommendation was disclosed as well.\141\ It will be
easier for investors to understand whether a reporting person voted for
or against management's recommendation with this information, rather
than trying to discern it from the other information reported on the
form.
---------------------------------------------------------------------------
\140\ This is conceptually similar to the current form's
requirement, which requires that reporting persons identify whether
the votes being disclosed represent votes for or against management.
The changed wording is intended to more clearly describe what is
being reported, that is, whether the reporting voted for or against
management's recommendation.
\141\ See Bloomberg Comment Letter; ISS Comment Letter.
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As proposed, we are amending Form N-PX to require a reporting
person to report only one security identifier, the security's Committee
on Uniform Securities Identification Procedures (``CUSIP'') number or
International Securities Identification Number (``ISIN''), as opposed
to the form's current requirement to report both a security's CUSIP and
ticker symbol. Under the amendments, a reporting person will be
required to report the security's CUSIP unless it is not available
through reasonably practicable means. If the CUSIP number is not
reported, then Form N-PX will require the security's ISIN, unless it
also is not available through reasonably practicable means. We also are
removing the current requirement to report the ticker symbol of a
security, as proposed.\142\
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\142\ We proposed this change in response to a comment to the
2010 Proposing Release that recommended that a ticker symbol be
required only if a CUSIP number was unavailable since certain
securities listed on more than one exchange have multiple ticker
symbols. See Proposing Release, supra footnote 5, at section II.C.4.
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In addition to proposing these changes related to security
identifiers, the Commission also sought comment on whether to require
an alternative identifier instead of, or in addition to, CUSIP, and we
received several comments suggesting alternative identifiers.\143\ In
particular, some commenters requested that we use an open-source
securities identifier, such as the security's Financial Instrument
Global Identifier (``FIGI''), and one suggested concerns with CUSIP
identifiers in particular due to concerns relating to CUSIP licensing
fees.\144\ Although we appreciate that CUSIPs have licensing fees,
reporting persons are already subject to CUSIP reporting requirements,
such as on Form 13F and Form N-PORT, and would therefore incur
licensing costs associated with storing CUSIPs for their holdings even
if CUSIPs were not required to be reported on Form N-PX. While the
final rules will maintain the requirement to disclose CUSIP, we believe
that providing the flexibility of reporting an additional security
identifier, along with CUSIP, would be appropriate. CUSIP numbers and
FIGIs are both able to provide the unique identification of a reported
security in a manner that is standard across datasets.\145\ Reporting
persons choosing to report using FIGI would provide the share class
level FIGI which, like CUSIP, is standard across exchanges.\146\
Providing reporting persons with the option of reporting a FIGI, in
addition to the mandatory CUSIP number, for some or all of the
reporting person's securities will enhance the utility of holdings data
reported on Form N-PX and the usefulness of such information to the
Commission, other regulators, or members of the public and other market
participants by allowing analysis based on FIGI where managers choose
to report that identifier. For example, investors who analyze data
reported on Form N-PX and that use FIGIs in their internal analyses
could use the reported FIGIs without having to first convert a
security's CUSIP number to a FIGI.
---------------------------------------------------------------------------
\143\ See, e.g., GLEIF Comment Letter (suggesting use of LEI).
\144\ See XBRL Comment Letter (support for FIGI); Morningstar
Comment Letter (same); Bloomberg Comment Letter (same); McRitchie
Comment Letter (same); IAA Comment Letter (specific concerns with
CUSIP).
\145\ FIGI is an open-sourced, non-proprietary, data standard
for the identification of financial instruments across asset
classes. FIGI allows users to link various identifiers for the same
security to each other, which includes mapping the CUSIP number of a
security to its corresponding FIGIs. See Object Management Group
Standards Development Organization, Financial Instrument Global
Identifier, available at <a href="https://www.omg.org/figi/">https://www.omg.org/figi/</a>.
\146\ See About OpenFigi, available at <a href="https://www.openfigi.com/about">https://www.openfigi.com/about</a> (stating that the Share Class level FIGI is assigned to
equities and enables users to link multiple FIGIs for the same
instrument in order to obtain an aggregated view for that instrument
across all countries globally).
---------------------------------------------------------------------------
By contrast we are not amending the form to allow a reporting
person to report the corresponding legal entity identifier (``LEI'') of
the issuer of such security as one commenter suggested.\147\ Because an
LEI is an identifier of legal entities (such as issuers of securities
reported on Form N-PX), rather than an identifier of securities, it
would not provide comparable information to a CUSIP number or a
FIGI.\148\
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\147\ See GLEIF Comment Letter.
\148\ See Introducing the Legal Entity Identifier (LEI),
available at <a href="https://www.gleif.org/en/about-lei/introducing-the-legal-entity-identifier-lei">https://www.gleif.org/en/about-lei/introducing-the-legal-entity-identifier-lei</a> (stating that the LEI ``connects to key
reference information that enables clear and unique identification
of legal entities participating in financial transactions''). Cf.
supra section II.E.
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D. Joint Reporting Provisions
We are adopting, as proposed, amendments that permit reporting
persons to report jointly their say-on-pay votes in three scenarios.
Specifically, we will permit a single manager to report say-on-pay
votes in cases where multiple managers exercise voting power. We are
also permitting a fund to report a manager's say-on-pay votes on behalf
of a manager exercising voting power over some or all of the fund's
securities. Lastly, we are allowing two or more managers who are
affiliated persons to file a single report on Form N-PX for all
affiliated person managers within the group, notwithstanding that they
do not exercise voting power over the same securities. In any of these
instances, the non-reporting manager would be
[[Page 78783]]
required to file a ``notice'' or ``combination'' Form N-PX report that
identifies each manager or fund reporting on its behalf.\149\ We also
are making certain technical amendments to Form N-PX to specify on
whose behalf reporting is being made and to permit the reporting of
votes by parties other than the reporting person.
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\149\ If the manager is relying upon another manager or a fund
to report all of its say-on-pay votes, it would file an
``Institutional Manager Notice Report,'' whereas if the manager is
reporting some votes but is relying on another manager or a fund to
report others, it would file an ``Institutional Manager Combination
Report.'' See Special Instructions B.2.d and B.2.e to amended Form
N-PX.
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We are adopting, as proposed, a number of technical changes to
facilitate joint reporting. Specifically, in all three cases, the non-
reporting manager's notice or combination report on Form N-PX will have
to identify the other managers or funds reporting on its behalf.\150\
In addition, where another reporting person reports say-on-pay votes on
a manager's behalf, the report on Form N-PX that includes the non-
reporting manager's votes would be required to identify that manager
(and any other managers) on whose behalf the filing is being made on
the Summary Page. Further, we will require a manager to report the
number of shares the manager is reporting on behalf of another manager
pursuant to the joint reporting provisions separately from the number
of shares the manager is reporting only on its own behalf. A manager
will also be required to separately report shares when the groups of
managers on whose behalf the shares are reported are different. For
example, if the reporting manager is reporting on behalf of Manager A
with respect to 10,000 shares and on behalf of Managers A and B with
respect to 50,000 shares, then the groups of 10,000 and 50,000 shares
must be separately reported. Similarly, a fund will be required to
report separately shares that are reported on behalf of different
managers or groups of managers.\151\
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\150\ General Instructions C.5 and C.6 to amended Form N-PX;
Special Instructions C.2 and D.6 to amended Form N-PX.
\151\ Special Instruction D.6 to amended Form N-PX. Reporting
persons will not be required to report shares separately when they
are not relying on the joint reporting provisions, even if another
manager exercised voting power over some of the shares reported.
---------------------------------------------------------------------------
This approach is designed to allow managers' clients and investors
to easily search for all votes where the manager exercised voting
power, whether or not those votes are reported on the manager's own
Form N-PX. Use of the joint reporting provisions is optional, however,
and reporting persons can elect to report the relevant say-on-pay votes
individually instead of relying on the joint reporting provisions. If a
manager does not rely on the joint reporting provisions, it would not
be subject to the disclosure requirements tied to joint reporting that
facilitate identification of all of a manager's say-on-pay votes. In
such case, the manager's report on Form N-PX would provide its complete
proxy voting record for say-on-pay votes during the reporting period,
without reference to any other reports on Form N-PX, and would not
include any votes where the manager did not exercise voting power. This
requirement is designed to further our goal of providing meaningful
information to investors by allowing investors to clearly see how a
particular manager exercised voting power.
As discussed in the Proposing Release, we believe that joint
reporting will implement the statutory mandate to require say-on-pay
vote reporting and mitigate potentially confusing duplicative
reporting.\152\ It should also reduce the reporting burden for
reporting persons by permitting them to either divide reporting
responsibility among themselves or to report individually, creating
operational efficiencies for reporting persons without negatively
impacting the quality or accessibility of the information they report
on Form N-PX. The votes of each relevant manager will be identifiable
under the joint reporting framework since the amendments require
reporting persons that are reporting say-on-pay votes on behalf of
other managers (including a fund on behalf of their sub-advisers) to
separately report the number of shares being reported for those other
managers.\153\ The requirement to submit Form N-PX reports in a
structured data format also will allow for the joint reporting data to
be sorted and filtered in a manner that gives investors the ability to
view votes by each relevant manager.
---------------------------------------------------------------------------
\152\ See Proposing Release, supra footnote section 5, at
section II.D.1 (noting that section 14A(d) generally requires
managers to report say-on-pay votes and stating that ``we believe
that allowing consolidated reporting in this manner would yield
reported data that would be at least as useful as separately
reported data while reducing burden for reporting persons who may
prefer to report jointly.'').
\153\ See Special Instruction D.6 to amended Form N-PX.
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Commenters who addressed these amendments generally supported
them.\154\ One commenter, however, stated that each reporting person
should be required to make its own report, though that commenter did
not object to joint filing if voting information was transparent and
provided for each voting entity.\155\ As discussed, reporting persons
that rely on the joint reporting provisions must identify all managers
included in the report and separate reporting of the shares reported on
behalf of the non-reporting managers. One commenter suggested that a
manager completing Form N-PX should not be required to separately
identify the relevant managers for each vote and, instead, should be
allowed to jointly report say-on-pay votes without separate attribution
to each specific manager.\156\ This commenter suggested that allowing
large groups of affiliated managers to aggregate votes would be less
complex and burdensome and would avoid providing unnecessary detail
regarding the underlying portfolio to persons who are neither clients
nor investors associated with the managers. We are not making this
change because we do not believe that aggregated data is consistent
with section 14A, as investors would be unable to determine in such
circumstances how each manager voted.
---------------------------------------------------------------------------
\154\ See, e.g., Pickard Comment Letter; ICI Comment Letter I;
Bloomberg Comment Letter.
\155\ See Morningstar Comment Letter.
\156\ See MFA Comment Letter.
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E. The Cover Page
We are adopting the amendments to the cover page of Form N-PX
largely as proposed, but with some changes intended to increase the
efficiency of filing for reporting persons. The amendments are designed
to address the addition of managers as a class of reporting persons and
to facilitate the joint reporting provisions we are adopting. As
proposed, we are adopting amendments to require reporting persons to
identify more clearly whether the reporting person is a fund or a
manager and the type of report being filed. Also, as proposed, managers
will be required to disclose on the cover page the name of the
reporting person, the address of its principal executive offices, the
name and address of the agent for service, the telephone number of the
reporting person, identification of the reporting period, and the
reporting person's file number. In addition, managers will be required
to provide their Central Registration Depository (``CRD'') number and
other SEC file number, if any. In a change from the proposal, and as
detailed below, we have expanded the types of ``notice'' reports
relative to those in the proposal.\157\ Specifically, reporting
[[Page 78784]]
persons will be required to check a box in order to identify the report
as one of the following types:
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\157\ The proposal provided check boxes for ``Registered
Management Investment Company,'' ``Institutional Manager Voting,''
``Institutional Manager Notice,'' and ``Institutional Manager
Combination'' reports.
---------------------------------------------------------------------------
<bullet> ``Fund Voting Report:'' to be used when the fund holds one
or more securities it is entitled to vote. As proposed, this reporting
type is for registered investment companies with votes to report. In a
change from the proposal, we changed the title of the report type from
``Registered Management Investment Company Report'' to ``Fund Voting
Report.'' We are adopting a clearer name that reflects that this fund
report, in contrast to the newly added Fund Notice Report type,
contains a report of the fund's votes;
<bullet> ``Fund Notice Report:'' to be used when the fund does not
hold any securities it is entitled to vote. Under the proposal, if a
reporting person did not have any proxy votes to report for the
reporting period, the reporting person would have been required to file
a report with the Commission stating that fact. In a change from the
proposal, rather than requiring a fund to file with the Commission a
report stating the fact that it had no proxy votes to report, under the
amendments the fund would instead indicate: (i) that the fund has no
votes to report by ticking this box on the cover page; and (ii) file
only the cover page, required signature, and information about the
series on the summary page. This change only relates to the manner in
which the information is provided and does not change the scope of what
is to be reported. Ticking a box on the cover page will be more
efficient for funds than affirmatively stating they have no votes to
report. This approach will be more efficient for investors because they
can identify a fund that does not vote via a check box on the cover
page, as opposed to having to review the report and find the manager's
affirmative assertion that it has no votes to report;
<bullet> ``Institutional Manager Voting Report:'' to be used when a
manager is reporting all of its proxy votes that are required to be
reported in a single report. As proposed, this reporting type is for
managers when the report contains all say-on-pay votes of the manager;
<bullet> ``Institutional Manager Notice Report:'' to be used when
the report contains no say-on-pay votes of the manager. As proposed, a
manager would use the notice report option when all of its say-on-pay
votes are reported by other managers or funds under the joint reporting
provisions. In a change from the proposal, a manager also will be
permitted to file a notice report in two additional circumstances.
First, consistent with the addition of a fund notice report, a manager
that does not exercise voting power for any reportable voting matter
during the reporting period and therefore does not have any proxy votes
to report would file a notice report and indicate this fact on the
cover page. This should be more efficient for managers and investors
than requiring managers to affirmatively state they have no votes to
report. Second, as discussed above, Form N-PX as amended will allow
managers that have a disclosed policy of not voting proxies and that
did not vote during the reporting period to indicate this on the form
without providing additional information about each voting matter
individually. We are making a conforming change, based in part on a
suggestion from a commenter, on the cover page to allow a manager to
indicate that it is filing a notice report, and therefore not providing
additional information about each voting matter individually, because
it is relying on this reporting option; \158\
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\158\ See MFA Comment Letter.
---------------------------------------------------------------------------
<bullet> ``Institutional Manager Combination Report:'' to be used
when the report contains some say-on-pay votes of the manager but
additional votes are reported by other managers or funds under the
joint reporting provisions. As proposed, this reporting type addresses
situations in which the manager is reporting some say-on-pay votes and
other votes are reported by other managers or by funds.
Any ``notice'' or ``combination'' report will include on the cover
page a list of the file numbers and names, as well as CRD numbers (if
any), of any other managers and funds whose Form N-PX reports include
say-on-pay votes of the reporting manager.\159\
---------------------------------------------------------------------------
\159\ Special Instruction B.2 to amended Form N-PX.
---------------------------------------------------------------------------
Commenters generally supported the proposed changes to the Form N-
PX cover page.\160\ However, in response to a request for comment
regarding the inclusion of additional information on the cover page
such as an LEI, some commenters suggested that we require certain
reporting persons to list additional identifiers, including LEIs, on
the Form N-PX cover page.\161\ This additional information will be
helpful in identifying the reporting person, whether a fund or a
manager. Therefore, in a change from the proposal, we will require that
all reporting persons that have an LEI report that information on the
Cover Page.\162\
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\160\ See Morningstar Comment Letter; MFA Comment Letter.
\161\ See Morningstar Comment Letter; Bloomberg Comment Letter.
\162\ While the request for comment, and commenters, only
identified managers for this item, we do not see a reason to
distinguish between funds and managers on this point. See infra
footnotes 165-166 and accompanying paragraph.
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F. The Summary Page
We are adopting, largely as proposed, amendments to add a new
summary page to Form N-PX to facilitate the joint reporting framework
we are adopting and to enable investors to readily identify which fund
series are intended to be covered by the report as well as any managers
(besides the reporting person) (``included managers'') with say-on-pay
votes included on the Form N-PX report. The summary page will be
required on all Form N-PX reports by funds as well as manager
``voting'' and ``combination'' filings.\163\
---------------------------------------------------------------------------
\163\ See Special Instructions B.2.a-d to amended Form N-PX. The
summary page would not be required in a ``notice'' report by
managers because, since the notice report would not contain any say-
on-pay votes at all, it would not report any say-on-pay votes of
other managers.
---------------------------------------------------------------------------
Commenters who addressed this aspect of the proposal generally
supported the new Form N-PX summary page as proposed.\164\ In addition,
one commenter responded to a request for comment in the proposing
release asking if the Commission should require other information, such
as a series' LEI, that would enable investors to identify which funds a
report covers more easily. The commenter suggested that we require that
funds disclose the LEI for each series of the fund on the basis that it
would assist investors in identifying and analyzing parent-subsidiary
relationships.\165\ After considering this comment, we are amending the
Form N-PX summary page to include a section that requires funds to
identify the LEI for the fund series. The LEI would be in addition to
the other information about the fund series in the proposal, including
the series identification number and series name. We agree that the LEI
would help investors identity the funds covered in the report, and
funds already have LEIs because we currently require each series to
report its LEI in other reports to the Commission.\166\ In light of
this change with respect to funds, we are also
[[Page 78785]]
amending the Form N-PX summary page to require that included managers
identify their LEI, if any. Although no commenter specifically
suggested that LEIs of other managers whose information is included in
the report under the joint reporting provisions be reported on the
summary page, we solicited comment in the proposal as to whether there
was any other information that additional managers should provide. In
light of the comments related to the addition of LEI for fund series,
we believe investors could similarly benefit if included managers
provided their LEI, if any, as well.\167\
---------------------------------------------------------------------------
\164\ See Morningstar Comment Letter; MFA Comment Letter.
\165\ See Morningstar Comment Letter (suggesting the inclusion
of a fund series' LEI on the summary page). Although another
commenter advocated against including LEIs for funds' series because
series LEIs do not exist, funds currently report series LEI in other
Commission reports, including Form N-PORT. See Bloomberg Comment
Letter.
\166\ See Item A.2 of Form N-PORT.
\167\ See Proposing Release, supra footnote 5, at section
II.D.3.
---------------------------------------------------------------------------
The required summary page information will assist investors in
identifying on a Form N-PX report the relevant managers or series
associated with the reported votes by providing a standardized approach
to the reported data, making it easier to access and review, while at
the same time permitting reporting persons to reduce their reporting
burden and avail themselves of the joint-report framework. The summary
page will require reporting persons to identify the names and total
number of included managers with say-on-pay votes included in the
report in list format. The instructions to Form N-PX specify the
contents of this information, including the title, column headings, and
format.
If a Form N-PX report includes the say-on-pay votes of included
managers, the summary page list would be required to include all such
managers together with their respective Form 13F file numbers and, if
they exist, any CRD numbers, LEI, and other SEC file numbers.\168\ In
addition, and similar to Form 13F, reporting persons must assign a
number (which need not be consecutive) for each such manager, and
present the list in sequential order.\169\ These numbers will help
identify the particular managers who exercised the power to vote the
securities. While we anticipate that the sequential numbering
requirement will make the list easier to use, the amendments permit
non-consecutive numbering to allow managers to retain the same number
across filings of different reporting persons and different time
periods. If a Form N-PX filing does not disclose the proxy votes of an
included manager, the reporting person would enter the word ``NONE''
under the title and would not include the column headings and list
entries. To the extent a fund's report on Form N-PX includes the votes
of multiple series, the summary page would require the name, the series
identifier, and LEI of each series.
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\168\ The SEC file number would be any file number (e.g., 801-,
8-, 866-, 802-) assigned by the Commission to the manager other than
the manager's 13F file number. See Special Instruction B.3 to
amended Form N-PX.
\169\ See Special Instruction 8.b to Form 13F.
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G. Form N-PX Reporting Data Language
We are adopting, as proposed, amendments to require reporting
persons to file reports on Form N-PX in a structured data
language.\170\ The amendments require that Form N-PX reports be filed
in a custom eXtensible Markup Language (``XML'') -based structured data
language created specifically for reports on Form N-PX (``custom
XML'').\171\ Reports on Form N-PX are currently required to be filed in
HTML or ASCII.\172\ As stated in the proposal, use of a custom XML
language will make it easier for reporting persons to prepare and
submit the information required by Form N-PX accurately and,
additionally, increase the utility of the information submitted. To
further increase the accessibility of Form N-PX data, we are developing
electronic ``style sheets'' that, when applied to the reported XML
data, will present Form N-PX data in human-readable form.
---------------------------------------------------------------------------
\170\ See General Instruction D.2. to amended Form N-PX
(specifying that reporting persons must file reports on Form N-PX
electronically on the Electronic Data Gathering, Analysis, and
Retrieval system (``EDGAR''), except as provided by the form's
confidential treatment instructions, and consult the EDGAR Filer
Manual for EDGAR filing instructions). See also 17 CFR 232.301
(requiring filers to prepare electronic filings in the manner
prescribed by the EDGAR Filer Manual). We are also amending rule
101(a)(1)(iii) of Regulation S-T to provide that reports filed
pursuant to section 14A(d) of the Exchange Act must be submitted in
electronic format. Reports filed pursuant to section 30 of the
Investment Company Act are already subject to electronic filing. See
rule 101(a)(1)(iv) of Regulation S-T.
\171\ This would be consistent with the approach used for other
XML-based structured data languages created by the Commission for
certain EDGAR Forms, including the data languages used for reports
on each of Form N-CEN, Form N-PORT, and Form 13F.
\172\ See Regulation S-T, 17 CFR 232.101(a)(1)(iv); 17 CFR
232.301; EDGAR Filer Manual (Volume II) version 62 (June 2022), at
5-1 (requiring EDGAR filers generally to use ASCII or HTML for their
document submissions, subject to certain exceptions).
---------------------------------------------------------------------------
Many commenters supported the use of structured data for Form N-PX
filings.\173\ Many commenters suggested that the unstructured data
format of current Form N-PX disclosure is difficult to interpret and
analyze.\174\ Some commenters suggested that structured data language
would allow investors to search, aggregate, and analyze the reported
data more easily.\175\ One commenter, however, generally opposed the
proposal on the basis that the existing disclosure regime and the
current ability of data aggregators to assess proxy voting information
were sufficient.\176\
---------------------------------------------------------------------------
\173\ See, e.g., Morningstar Comment Letter (``As demonstrated
by other examples, such as Forms NFP, N-CEN, and N-Port, there is
significant value in using a structured data language.''); ICI
Comment Letter I; Blackrock Comment Letter; Bloomberg Comment
Letter.
\174\ See, e.g., Ceres Comment Letter; SCERS Comment Letter;
Blackrock Comment Letter; Bloomberg Comment Letter; LTSE Comment
Letter; CFA/CII Comment Letter; McRitchie Comment Letter III.
\175\ See Morningstar Comment Letter; XBRL Comment Letter;
Blackrock Comment Letter (``[U]se of an XML-based format would make
the N-PX data more consistent, usable, and accessible.''); Bloomberg
Comment Letter; CFA/CII Comment Letter.
\176\ See MFDF Comment Letter.
---------------------------------------------------------------------------
As stated in the Proposing Release, the use of structured data on
Form N-PX should make it easier for reporting persons to prepare and
submit information on the form accurately and increase the utility of
the information submitted.\177\ Currently, reporting persons generally
need to reformat required information prior to submission of Form N-PX,
including stripping out incompatible metadata related to normal
business uses. However, this process is not necessary when using an
XML-based reporting data language. Further, using an XML-based
reporting language permits the Commission to provide a web-based
reporting application for Form N-PX, which would not be possible
currently. The use of structured data should also result in reported
data that is sufficiently standardized to make structured data useful
for interested parties.\178\
---------------------------------------------------------------------------
\177\ See Proposing Release, supra footnote 5, at the text
following n.169.
\178\ See Proposing Release, supra footnote 5, at the text
accompanying n.175.
---------------------------------------------------------------------------
In addition, the current requirement to file Form N-PX in HTML or
ASCII is not suitable for automated validation or aggregation. In
contrast, the custom XML data language will allow investors to
aggregate and analyze reported data in a much less labor-intensive
manner.\179\ Also, while certain Form N-PX data may be available
commercially by third-parties, users of third-party data may also
benefit if the costs associated with third-party data analysis--and the
costs to users to access that data--fall as a result of the structured
data requirement, or if this
[[Page 78786]]
requirement facilitates additional third-party data analyses for the
benefit of investors. The structured data requirement would likely
improve any third-party analyses of voting information and, in doing
so, potentially benefit investors through reduced costs for accessing
those third-party analyses.
---------------------------------------------------------------------------
\179\ See id. at the text following n.177. Some investors review
funds' voting practices by accessing Form N-PX reports directly on
EDGAR, while others may obtain information about funds' voting
practices through analysis or synthesis of Form N-PX reports by data
aggregators or others. A variety of market participants and other
stakeholders also use data reported on Form N-PX. See id. at n.10.
---------------------------------------------------------------------------
Several commenters specifically supported requiring the use of
custom XML language to file Form N-PX reports.\180\ These commenters
generally agreed that use of an XML-based structured data language
would make the Form N-PX information more accessible and useful to
interested parties.\181\ Some other commenters suggested the use of
other structured data languages besides XML. Two of these commenters
suggested the use of JavaScript Object Notation (``JSON'') as the
structured data language on the basis that XML is not frequently used
and that JSON involves smaller file sizes, does not require specialized
tools, and is more user-friendly.\182\ Other commenters suggested use
of eXtensible Business Reporting Language (``XBRL'') language on the
basis that XBRL could utilize various built-in taxonomies that include
certain identifying information, would have smaller file sizes, and
would be easier for other analytical applications and data collection
systems to read.\183\ One commenter suggested use of XBRL-CSV on the
basis that issuers could use the same applications they use today to
prepare their financials and that end users of the data could leverage
the same tools they currently use to extract financial statement data
from SEC reporting entities.\184\ Some commenters also offered
suggestions about ways to address the size of Form N-PX files, such as
establishing a file size limit so that computer and software memory
constraints do not impede data processing or accessibility, or that
each series be required to file separately.\185\
---------------------------------------------------------------------------
\180\ See, e.g., Morningstar Comment Letter; Federated Hermes
Comment Letter; AIMA Comment Letter; Vanguard Comment Letter;
Blackrock Comment Letter.
\181\ See id.
\182\ See Bloomberg Comment Letter; see also Morningstar Comment
Letter.
\183\ XBRL Comment Letter; GLEIF Comment Letter.
\184\ See XBRL Comment Letter.
\185\ See Morningstar Comment Letter; Bloomberg Comment Letter;
Rhee Comment Letter.
---------------------------------------------------------------------------
The use of a custom XML language for Form N-PX will minimize
reporting costs while yielding reported data that would be more useful
to investors.\186\ In our experience, we have found that XML-based
structured data languages for EDGAR filings allow investors to
aggregate and analyze reported data in a streamlined manner. Concerns
related to file size issues and the related suggestion by some
commenters to require each series to file separately will be addressed
by our adoption of the custom XML language for Form N-PX because the
XML-based structured data language substantially reduces the size of
both the submitted forms and the human-readable information available
to investors to review. In addition, the use of custom XML is
consistent with other Commission forms, particularly Form 13F, Form N-
CEN, and Form N-PORT, such that it should be familiar both to reporting
persons and investors. The Commission has also developed web-based
reporting applications that allow persons without structured data
expertise to file custom XML documents on EDGAR, while still permitting
reporting persons with structured data expertise to submit filings
directly to EDGAR in the applicable custom XML data language. By
contrast, no EDGAR filings are currently filed using JSON or comma-
separated values format (``CSV''), and the EDGAR system currently does
not accept these formats.\187\ Furthermore, with respect to XBRL-CSV,
the Commission believes using the XBRL data model to define the
elements and relationships featured in Form N-PX would add unnecessary
complexity because Form N-PX consists of a relatively simple two-
dimensional set of rows and columns, and does not feature any complex
interlinking relationship among different rows. In addition, XBRL-CSV
is not likely to create significant efficiencies in preparing and using
managers' Form N-PX data because only a small number of managers are
subject to a reporting requirement to file XBRL disclosures with the
Commission.\188\
---------------------------------------------------------------------------
\186\ See Proposing Release, supra footnote 5, at section II.E.
\187\ See supra footnote 172.
\188\ See 17 CFR 232.405(b) (not applying the requirement to
file an Interactive Data File consisting of financial statements to
registered management investment companies). Based on structured
data from EDGAR filings, less than 5% of Form 13F filers in the
second quarter of 2022 also filed XBRL financial statements over the
same period. See DERA Data Library, available at <a href="https://www.sec.gov/dera/data">https://www.sec.gov/dera/data</a>.
---------------------------------------------------------------------------
Custom XML will not significantly impact either the filing process
or the accessibility of the data. In addition to using structured data
to allow investors to aggregate and analyze the reported data
efficiently, the electronic ``style sheets'' we are developing will
present Form N-PX data in a human-readable form for the benefit of
investors who review Form N-PX reports on the Commission's EDGAR
system. Commenters who discussed the proposed use of Commission-
developed style sheets supported them on the basis that style sheets
would reduce the costs of filing reports on Form N-PX and make them
more accessible and user-friendly.\189\
---------------------------------------------------------------------------
\189\ See ICI Comment Letter I; Federated Hermes Comment Letter.
---------------------------------------------------------------------------
Some commenters raised issues related to the timing for the
implementation of the custom XML language. Some commenters suggested
that the Commission provide the custom XML taxonomy in advance of the
compliance date to provide reporting persons with time to implement the
structured data language and that we offer a beta period so that
reporting persons can test filings in advance of the compliance
date.\190\ We agree that reporting persons could benefit from a testing
period that allows advance access to the various technical
specifications for the custom XML reporting language and permits test
filings using the EDGAR system. Therefore, there will be an EDGAR pilot
that will provide reporting persons the opportunity to test the custom
XML filing process in advance of the effective date of the
amendments.\191\
---------------------------------------------------------------------------
\190\ See ICI Comment Letter I (stating that reporting persons
need sufficient time to incorporate the custom XML taxonomy into
their systems and perform test filings); XBRL Comment Letter.
\191\ For additional information regarding the EDGAR filing
process and the current technical specifications, see <a href="https://www.sec.gov/edgar/filer-information">https://www.sec.gov/edgar/filer-information</a>.
---------------------------------------------------------------------------
H. Time of Reporting
As proposed, funds will continue to be required to report their
proxy voting records, and managers will be required to report say-on-
pay votes, annually on Form N-PX no later than August 31 of each year
for the most recent 12-month period ended June 30. This reporting
timeframe for managers--and retaining the current reporting timeframe
for funds--seeks to appropriately balance the benefits of prompt
reporting and the burdens associated with that reporting.\192\
---------------------------------------------------------------------------
\192\ See also Proposing Release, supra footnote 5, at section
II.F.
---------------------------------------------------------------------------
Comments were mixed as to whether we should retain the current
reporting frequency for funds and apply it to managers. A number of
commenters supported these time frames and opposed more frequent
reporting.\193\ These commenters stated that more frequent reporting
was unnecessary and would not provide meaningful information to
investors because most
[[Page 78787]]
proxy votes occur during the second quarter of the calendar year
(``Proxy Season'').\194\ One also stated that the information produced
on Form N-PX can take a significant amount of time to process in
highlighting the need for the 60-day period between the end of the
reporting period and the deadline for filing the form.\195\
---------------------------------------------------------------------------
\193\ See, e.g., ICI Comment Letter I, Federated Hermes Comment
Letter, MFA Comment Letter.
\194\ See Federated Hermes Comment Letter (``[m]ore frequent
submissions of vote reporting would result in periods of relatively
fewer votes reported followed by a surge in vote data relating to
the peak voting period which for most markets occurs during the
spring''); ICI Comment Letter I.
\195\ See ICI Comment Letter I.
---------------------------------------------------------------------------
Other commenters, however, urged that we require prompt or real-
time disclosure of votes.\196\ One commenter stated that accountability
requires full and timely transparency of votes.\197\ Several suggested
technological solutions that would automate the process of providing
this information to avoid additional costs of this more frequent
reporting.\198\
---------------------------------------------------------------------------
\196\ See, e.g., Betterment Comment Letter; Comment Letter of
the Board Director Training Institute of Japan (Dec. 14, 2021);
Bloomberg Comment Letter; see also Morningstar Comment Letter
(suggesting quarterly reporting).
\197\ Shareholder Commons Letter; see also McRitchie Comment
Letter (suggesting that current Form N-PX reporting frequency can
produce data that is seen as out of date when filed).
\198\ See Bloomberg Comment Letter; McRitchie Comment Letter.
---------------------------------------------------------------------------
According to our analysis, over 60% of proxy votes conducted by
Russell 3000 components in 2020 and 2021 happened during Proxy Season,
whereas only 9% to 16% of votes occur in any other given calendar
quarter.\199\ Proxy Season ends on the same day as the end of the
reporting period covered by the form, June 30, and reporting persons
will continue to have 60 days to compile and file the form from that
date. As a result, annual reporting will timely capture a significant
percentage of the votes cast by reporting persons.\200\ In addition,
although not required, funds can choose to disclose their proxy votes
more frequently than annually, for example on their websites, to
provide enhanced transparency and facilitate greater insight into the
fund's proxy voting activities. We also believe that the 60-day delay
between the end of the reporting period and the deadline for filing the
form continues to be appropriate and we are not adopting a shorter
period to require more prompt reporting, particularly in light of the
additional items that we are requiring on the amended form and for
smaller funds or managers.
---------------------------------------------------------------------------
\199\ Our analysis is based on shareholder meeting dates in
calendar year 2020 and 2021 for the Russell 3000 Index. This index
measures the performance of the largest 3,000 U.S. companies
representing approximately 96% of the investable U.S. equity market,
as of the most recent reconstitution. See The Russell 3000 Index
Fact Sheet, available at <a href="https://www.ftserussell.com/products/indices/russell-us">https://www.ftserussell.com/products/indices/russell-us</a>. This information is provided to the Commission
staff by a third party that provides proxy voting services.
\200\ Alignment with Proxy Season is also why we decline, as
suggested by one commenter, to align the annual deadline for
managers reporting say-on-pay votes with that for Form 13F (December
31). See AIMA Comment Letter.
---------------------------------------------------------------------------
Some commenters suggested that funds or managers also should be
required to provide some pre-vote transparency to investors, or that
funds be required to seek the views of their investors before voting
proxies.\201\ These commenters suggested that this is necessary to
provide accountability to these entities. We are not mandating that
funds and managers disclose their intended votes on a prospective
basis, nor are we requiring funds to seek the views of their investors
before voting proxies, as both of these approaches raise questions that
are distinct from those associated with reporting a fund or manager's
voting record and that would benefit from further consideration.
Moreover, reporting persons that are funds and registered investment
advisers are currently required to describe their proxy voting policies
and procedures.\202\ Investors also can use the other reforms that we
are adopting to help provide accountability, for example, by using the
structured data in Form N-PX to monitor voting trends over time.\203\
However, the adopted amendments will not restrict a manager's or fund's
ability to voluntarily provide pre-vote transparency or survey
investors.
---------------------------------------------------------------------------
\201\ See, e.g., Reid Comment Letter; Mercatus Comment Letter;
McRitchie Comment Letter.
\202\ See, e.g., rule 206(4)-6(c); Item 17(f) of Form N-1A; Item
18.16 of Form N-2.
\203\ See, e.g., rule 206(4)-6(c); Item 17(f) of Form N-1A; Item
18.16 of Form N-2.
---------------------------------------------------------------------------
I. Requests for Confidential Treatment
We are adopting, substantially as proposed,\204\ instructions in
Form N-PX that allow managers to request confidential treatment of
proxy voting information consistent with rule 24b-2. The required
content, procedures for filing both the request itself and information
that is no longer entitled to confidential treatment, and the standard
for approving such requests will be the same as for confidential
treatment requests under section 13(f) of the Exchange Act.\205\
---------------------------------------------------------------------------
\204\ We are making corresponding changes to paragraphs (a)(1)
and (d) of Rule 101 of Regulation S-T and rule 24b-2 to effectuate
the electronic submission of these requests as discussed below. See
infra footnote 206 and accompanying text. We have also revised the
final Form N-PX confidential treatment instructions in order to make
them consistent with amendments to Form 13F that we have adopted
since the proposal. See Electronic Submission of Applications for
Orders Under the Advisers Act and the Investment Company Act,
Confidential Treatment Requests for Filings on Form 13F, and Form
ADV-NR; Amendments to Form 13F, Release No. 34-95148 (June 23, 2022)
[87 FR 38943 (June 30, 2022)] (``E-Filings Release''). Also,
consistent with Form 13F, we added a check-box to indicate when
information has been omitted due to a request for confidential
treatment. These changes are consistent with the Confidential
Treatment Instructions to proposed Form N-PX that would have
required a reporting person to file all requests for and information
subject to the request in accordance with the instructions for
information filed on Form 13F and are intended to provide an
opportunity for managers to protect confidential information from
being disclosed on Form N-PX in the same circumstances managers can
make a confidential treatment request for information reported on
Form 13F. See Confidential Treatment Instruction 3 of proposed Form
N-PX; see also Proposing Release, supra footnote 5.
\205\ Section 13(f)(4) of the Exchange Act provides that the
Commission, as it determines to be necessary or appropriate in the
public interest or for the protection of investors, may delay or
prevent public disclosure of information filed on Form 13F in
accordance with the Freedom of Information Act. Section 13(f)(4)
also provides that any information filed on Form 13F that identifies
the securities held by the account of a natural person or an estate
or trust (other than a business trust or investment company) shall
not be disclosed to the public. Section 13(f)(5) of the Exchange Act
additionally provides that, in order to grant confidential treatment
under section 13(f), the Commission must determine that such action
is necessary or appropriate in the public interest and for the
protection of investors or to maintain fair and orderly markets.
---------------------------------------------------------------------------
In addition, and consistent with recent amendments to Form 13F,
confidential treatment requests regarding Form N-PX will be required to
be filed electronically via EDGAR.\206\ This is consistent with the
Commission's statement in the proposing release that the instructions
on Form N-PX provide that a reporting person requesting confidential
treatment of information filed on Form N-PX should follow the same
procedures set forth in Form 13F for filing confidential treatment
requests.\207\ Managers seeking
[[Page 78788]]
confidential treatment with respect to information on Form N-PX already
will be required to file any confidential treatment requests related to
Form 13F on EDGAR. Also, any confidential treatment requests a manager
files with respect to Form N-PX will be subject to the same standards
in determining whether to approve the request, as discussed below in
this section of the release. Requiring managers to file Form N-PX
confidential treatment requests on EDGAR therefore provides a
consistent process for a manager seeking confidential treatment,
whether the information is reported on either or both of Form 13F and
Form N-PX. As adopted, the confidential treatment instructions to Form
N-PX only refer to managers.\208\ While the instructions in the
Proposing Release referred to ``reporting persons,'' the Proposing
Release also stated that the Commission was not aware of any situation
in which confidential treatment would be justified under rule 24b-2 for
information filed by funds on Form N-PX, as the form did not include
any confidential treatment instructions prior to these amendments and,
apart from Form N-PX, funds already disclose their portfolio
holdings.\209\ We requested comment in the Proposing Release on whether
we should allow funds to request confidential treatment under some
circumstances and we received no comments on this subject.
---------------------------------------------------------------------------
\206\ The Commission recently adopted amendments to require
electronic filing of, among others, the confidential treatment
requests made in conjunction with Form 13F. See E-Filings Release,
supra footnote 204.
\207\ The Commission stated in the Proposing Release that the
Form N-PX confidential treatment instructions were ``designed to
provide a similar opportunity to prevent confidential information
that is protected from disclosure on Form 13F from being disclosed
on Form N-PX'' and that [Form N-PX's] ``instructions provide that a
person requesting confidential treatment of information filed on
Form N-PX should follow the same procedures set forth in Form 13F
for filing confidential treatment requests.'' See Proposing Release,
supra footnote 5. The Commission also requested comment in the
Proposing Release as to whether the Commission should ``require
reporting persons to file confidential treatment requests for Form
N-PX in the same manner as Form 13F requires.'' Id. While the
Commission did not receive any comments relevant to this specific
point, a commenter on the E-Filings Release urged ``the SEC to
replace other outdated paper filing requirements with electronic
filing,'' stating that doing so ``will reduce costs and burdens on
filers and facilitate Commission staff review and processing.''
Comment Letter of the Investment Company Institute (Dec. 17, 2021)
(regarding File Nos. S7-15-21 and S7-16-21).
\208\ See Request for Confidential Treatment Instruction 1 to
amended Form N-PX.
\209\ See Proposing Release, supra footnote 5, at n.202 and
accompanying text.
---------------------------------------------------------------------------
One commenter suggested we automatically extend confidential
treatment for a vote on Form N-PX if we have granted it for a position
on Form 13F or, alternatively, develop a streamlined process that would
allow for a combined confidential treatment request for both Forms 13F
and N-PX.\210\ We do not believe this would be a practical approach
because reports on Form 13F are filed quarterly while reports on Form
N-PX are filed annually. For example, a manager may receive
confidential treatment for a position in the first quarter of the year,
but by the time filings are due for Form N-PX, the position may no
longer meet the criteria for granting confidential treatment. In
addition, the positions that managers are required to report on Form
13F may not always be the same as the positions for which the manager
is reporting proxy votes on Form N-PX.
---------------------------------------------------------------------------
\210\ See MFA Comment Letter.
---------------------------------------------------------------------------
We will apply the same standards in determining whether to approve
a confidential treatment request in relation to Form N-PX as we do for
requests for confidential treatment regarding Form 13F.\211\ For
example, confidential treatment may be justified when a manager has
filed a confidential treatment request for information reported on Form
13F that is pending or has been granted and where confidential
treatment of information filed on Form N-PX would be necessary in order
to protect information that is the subject of such Form 13F
confidential treatment request.\212\ As the Commission stated in the
Proposing Release, confidential treatment would not be merited solely
in order to prevent proxy voting information from being made public
given the public disclosure intent of section 14A(d) and the
confidential treatment requirements of rule 24b-2 under the Exchange
Act.\213\ As a result, we are not expanding the standards for
requesting and obtaining confidential treatment to cover situations in
which a manager has a confidentiality agreement with a client regarding
disclosure of portfolio information because it would not meet the
standards for confidential treatment in connection with Form 13F.
---------------------------------------------------------------------------
\211\ See 15 U.S.C. 78m(f)(4) and (5) and rule 24b-2; see also
Request for Confidential Treatment Instruction 4 to amended Form N-
PX.
\212\ A manager also may seek confidential treatment for
information that is not reported on Form 13F but would have been the
subject of a Form 13F confidential treatment request if it were
required to be reported (for example, a de minimis position that is
not required to be reported on Form 13F but would have been eligible
for confidential treatment if it were required to be reported on the
form).
\213\ See Proposing Release, supra footnote 5, at nn. 200-201
and accompanying text.
---------------------------------------------------------------------------
J. Website Availability of Fund Proxy Voting Records
The Commission is adopting amendments to Forms N-1A, N-2, and N-3
to require a fund to disclose that its proxy voting record is publicly
available on (or through) its website and available upon request, free
of charge in both cases. We are adopting these amendments as proposed,
except that, in response to a comment, we are clarifying on the
affected forms that a fund must make its proxy voting record available
on its website only if it has a website.\214\ Accordingly, under the
amendments a fund must file Form N-PX reports in a custom XML language,
post the fund's proxy voting record on the fund's website if it has
one, and provide the voting record upon request. We also are amending
Form N-1A and Form N-3 to require that a fund provide the email
address, if any, that an investor may use to request the proxy voting
record. These amendments will make a fund's proxy voting record more
accessible to investors.\215\
---------------------------------------------------------------------------
\214\ See ICI Comment Letter I.
\215\ See Proposing Release, supra footnote 5, at section II.H.
---------------------------------------------------------------------------
Most commenters generally supported this aspect of the
proposal.\216\ One commenter suggested that we should clarify in the
forms that funds are, consistent with statements made in the Proposing
Release, able to comply with the website disclosure requirement by
providing a direct link on their website to the HTML-rendered Form N-PX
report on EDGAR.\217\ We agree and we have amended Forms N-1A, N-2, and
N-3 accordingly.\218\ One commenter suggested that funds should not be
required to mail proxy voting records upon request.\219\ We understand,
however, that most funds currently make their proxy voting records
available to shareholders upon request and believe this practice should
continue so that investors without website access are not
disadvantaged.
---------------------------------------------------------------------------
\216\ See, e.g., PRI Comment Letter; Public Citizen Comment
Letter; McRitchie Comment Letter I; ICI Comment Letter I (noting
their suggestions with respect to funds without websites and
compliance with the amendments by linking to EDGAR); CFA/CII Comment
Letter; Vanguard Comment Letter.
\217\ See ICI Comment Letter I.
\218\ See also Proposing Release, supra footnote 5, at section
II.H (stating that a fund could comply with the requirement to
disclose the proxy voting record in a human-readable format by, for
example, ``providing a direct link on its website to the HTML-
rendered Form N-PX report on EDGAR'').
\219\ See McRitchie Comment Letter I.
---------------------------------------------------------------------------
K. Effective Date
As described above, funds will continue to be required to report
their proxy votes, and managers will be required to report their say-
on-pay votes, annually on Form N-PX not later than August 31 of each
year, for the most recent twelve-month period ended June 30. In order
to provide time for reporting persons to prepare to comply with the
amendments, we are delaying the effectiveness of the amendments until
July 1, 2024. Managers and funds will therefore be required to file
their first reports on amended Form N-PX by August 31, 2024, with these
reports covering the period of July 1, 2023, to June 30, 2024. The
period provided by the extended effective date is generally consistent
with the length of the compliance period described in the Proposing
Release, under which reporting persons would have likely been required
to file their first reports on amended Form N-PX by August 31,
[[Page 78789]]
2024, and with the views of commenters that addressed this issue, who
urged that the Commission provide at least a year or one full reporting
period to allow reporting persons time to implement necessary
changes.\220\ Thus, under the extended effective date, reporting
persons and their third-party service providers will have at a minimum
one full reporting period to prepare for the amended reporting
requirements before any reporting person will file on amended Form N-
PX. Further, setting an effective date on July 1, 2024, will provide a
uniform transition to the amended form beginning with the reporting
period ended June 30, 2024. In addition, although the compliance period
in the proposal would have required reporting persons to report votes
in conformity with amended Form N-PX for votes occurring six months
after the effective date, this could have created additional
operational complexity to have different Form N-PX requirements that
apply in the same reporting period, and we believe that providing
reporting persons until July 1, 2024 to begin reporting under the
amendments provides sufficient time for reporting persons to prepare to
include all applicable votes on amended Form N-PX at that time. We also
will provide an EDGAR pilot program before July 1, 2024, to allow
reporting persons to test file the amended form.\221\
---------------------------------------------------------------------------
\220\ See ICI Comment Letter I (suggesting that the first
reports on amended Form N-PX be filed by the August 31st that is a
minimum of 14 months from the effective date); IAA Comment Letter
(suggesting the Commission extend the compliance date to allow for
at least one full reporting period for reporting persons to file).
\221\ See also supra section II.E discussing timing of technical
specification releases and beta testing of Form N-PX's structured
data format.
---------------------------------------------------------------------------
L. Transition Rules for Managers
We are adopting as proposed transition rules that govern the timing
of a manager's Form N-PX filing obligations for say-on-pay vote
reporting whenever the manager enters and exits from the obligation to
file Form 13F reports. We received no comments on this aspect of the
proposal.
In particular, rule 14Ad-1 will not require managers to file a Form
N-PX report for the 12-month period ending June 30 of the calendar year
in which the manager's initial filing on Form 13F is due.\222\ Instead,
managers will be required to file a report on Form N-PX for the period
ending June 30 for the calendar year following the manager's initial
filing on Form 13F. For example, assume that a manager does not meet
the $100 million threshold test on the last trading day of any month in
2023 but does meet the $100 million threshold test on the last trading
day of at least one month in 2024. As a result, under the rules that
currently apply to Form 13F, the manager would be required to file a
Form 13F report no later than February 15, 2025, for the period ending
December 31, 2024.\223\ Additionally, under rule 14Ad-1(b) as adopted,
the manager will be required to file a Form N-PX report no later than
August 31, 2026, for the 12-month period from July 1, 2025, through
June 30, 2026.\224\ The following chart illustrates the timing of the
entrance of a manager to its obligation under the rule to file reports
on Form N-PX.
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\222\ Rule 14Ad-1(b); General Instruction F to amended Form N-
PX. For this purpose, an ``initial filing'' on Form 13F means any
quarterly filing on Form 13F if no filing on Form 13F was required
for the immediately preceding calendar quarter. Id.
\223\ Currently, under 17 CFR 240.13f-1 (``rule 13f-1''), the
obligation to file Form 13F arises when a manager exercises
investment discretion over accounts holding at least $100 million in
section 13(f) securities as of the ``last trading day of any month
of any calendar year.'' However, the manager's obligation to file
Form 13F commences with the report for December 31 of that year,
which is required to be filed within 45 days after December 31. Rule
13f-1(a)(1); General Instruction 1 to Form 13F. See 17 CFR 240.0-3.
\224\ Rule 14Ad-1(b); General Instruction F to amended Form N-
PX.
Initial Form N-PX Filing
----------------------------------------------------------------------------------------------------------------
Date manager exceeds reporting First Form 13F filing First proxy reporting
threshold due period First Form N-PX due
----------------------------------------------------------------------------------------------------------------
Mar. 31, 2023........................ Feb. 15, 2024.......... July 1, 2024-June 30, Aug. 31, 2025
2025.
Dec. 31, 2023........................ Feb. 15, 2024.......... July 1, 2024-June 30, Aug. 31, 2025
2025.
Jan. 31, 2024........................ Feb. 15, 2025.......... July 1, 2025-June 30, Aug. 31, 2026
2026.
----------------------------------------------------------------------------------------------------------------
In addition, as proposed, we will not require a manager to file a
report on Form N-PX with respect to any shareholder vote at a meeting
that occurs after September 30 of the calendar year in which the
manager's final filing on Form 13F is due.\225\ Instead, the manager
will be required to file a report on Form N-PX for the period July 1
through September 30 of the calendar year in which the manager's final
filing on Form 13F is due. This short-period Form N-PX filing will be
due no later than March 1 of the immediately following calendar
year.\226\ A manager's obligation to file Form 13F reports always
terminates with the September 30 report, and the transition rule we are
adopting conforms the ending date for reporting say-on-pay votes with
the ending date for Form 13F reporting.\227\ The March 1 due date would
provide a two-month period for filing after December 31, when the
manager's Form 13F filing status will be conclusively determined for
the coming year.\228\
---------------------------------------------------------------------------
\225\ Rule 14Ad-1(c); General Instruction F to amended Form N-
PX. For this purpose, a ``final filing'' on Form 13F means any
quarterly filing on Form 13F if no filing on Form 13F is required
for the immediately subsequent calendar quarter. Id.
\226\ Rule 14Ad-1(c); General Instruction F to amended Form N-
PX.
\227\ See rule 13f-1(a) (manager that meets $100 million
threshold on last trading day of any month of any calendar year is
required to file Form 13F for December 31 of that year and the first
three calendar quarters of the subsequent calendar year).
\228\ A manager is required to file a report on Form 13F in the
coming year if it meets the $100 million threshold on the last
trading day of any month of the current calendar year. As a result,
in cases where the manager does not meet the threshold in January
through November, its status will not be determined until December
31.
---------------------------------------------------------------------------
For example, assume that a manager ceases to meet the $100 million
threshold in 2023. In other words, the manager meets the threshold on
at least one of the last trading days of the months in 2022, but does
not meet the threshold on any of the last trading days of the months in
2023. The manager's final report on Form 13F would be filed for the
quarter ended September 30, 2023. The manager's final report on Form N-
PX would include all say-on-pay votes cast during the period from July
1, 2023, through September 30, 2023, and will be required to be filed
no later than March 1, 2024. The following chart illustrates the timing
of the exit of a manager from its obligation to file Form N-PX.
[[Page 78790]]
Final Form N-PX Filing
----------------------------------------------------------------------------------------------------------------
Final form 13f filing Final proxy reporting
Date manager ceases to meet threshold due period Final form N-PX due
----------------------------------------------------------------------------------------------------------------
Mar. 30, 2023........................ Nov. 14, 2024.......... July 1, 2024-Sept. 30, Mar. 1, 2025
2024.
Dec. 30, 2023........................ Nov. 14, 2024.......... July 1, 2024-Sept. 30, Mar. 1, 2025
2024.
Feb. 1, 2024......................... Nov. 14, 2025.......... July 1, 2025-Sept. 30, Mar. 1, 2026
2025.
----------------------------------------------------------------------------------------------------------------
M. Technical and Conforming Amendments
We are adopting as proposed two technical and conforming
amendments. First, we are amending the heading of subpart D of part 249
of the Code of Federal Regulations to include new section 14A of the
Exchange Act and to indicate that Exchange Act reports are filed by
both issuers and other persons (e.g., managers). We are also adopting
amendments to reflect the fact that Form N-PX will be an Exchange Act
form, as well as an Investment Company Act form.\229\ We received no
comments on this aspect of the proposal.
---------------------------------------------------------------------------
\229\ Rule 30b1-4; 17 CFR 249.326 and 274.129.
---------------------------------------------------------------------------
N. Delegation of Commission Authority
In order to facilitate the efficient consideration of requests for
confidential treatment of information required pursuant to amended Form
N-PX, the Commission is amending 17 CFR 200.30-5(c-1) to provide
delegated authority to the Director of the Division of Investment
Management (``Director'') to grant and deny these requests. Section 4A
of the Exchange Act provides the Commission the authority to delegate,
by published order or rule, any of its functions to a division of the
Commission, subject to certain limitations.\230\ The authority to grant
and deny applications for confidential treatment and revoke a grant of
confidential treatment is delegated to several members of our staff. We
believe that it is appropriate for the Director to exercise such
functions and that delegating this authority will conserve our
resources and improve efficiency. Specifically, we are amending rule
30-5(c-1)(1) to authorize the Director to grant and deny applications
filed pursuant to section 24(b) of the Exchange Act and rule 24b-2
thereunder for confidential treatment of information filed pursuant to
section 14A(d) of the Exchange Act and rule 14Ad-1 thereunder. The
Commission finds, in accordance with section 553(b)(3)(A) of the
Administrative Procedure Act (``APA''), that the amendment to rule 30-
5(c-1)(1) relates solely to agency organization, procedures, or
practices.\231\ Accordingly, the APA's provisions regarding notice of
rulemaking and opportunity for public comment are not applicable.\232\
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\230\ 15 U.S.C. 78d-1.
\231\ 5 U.S.C. 553(b)(3)(A).
\232\ For the same reason, and because the amendment to rule 30-
5(c-1)(1) does not substantively affect the rights or obligations of
non-agency parties, the provisions of the Small Business Regulatory
Enforcement Fairness Act are not applicable to this amendment.
Additionally, the provisions of the Regulatory Flexibility Act,
which apply only when notice and comment are required by the APA or
other law, are not applicable to this amendment. Section 23(a)(2) of
the Exchange Act requires the Commission, in adopting rules under
that Act, to consider the anticompetitive effects of any rules it
adopts. The Commission does not believe that this amendment will
have any impact on competition. Finally, this amendment does not
contain any collection of information requirements as defined by the
Paperwork Reduction Act of 1995. See 5 U.S.C. 804(3)(C); 5 U.S.C.
603; 15 U.S.C. 78w(a)(2).
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III. Other Matters
Pursuant to the Congressional Review Act, the Office of Information
and Regulatory Affairs has designated these rules as a ``major rule''
as defined by 5 U.S.C. 804(2). If any of the provisions of these rules,
or the application thereof to any person or circumstance, is held to be
invalid, such invalidity shall not affect other provisions or
application of such provisions to other persons or circumstances that
can be given effect without the invalid provision or application.
IV. Economic Analysis
A. Introduction
The Commission is adopting amendments to Form N-PX to enhance the
information funds currently report annually about their proxy votes on
both executive compensation and other matters to make these reports
more informative and easier to analyze. The amendments to Form N-PX
will require the categorization of votes, structuring and tagging the
data reported, and, if the form of proxy in connection with a matter
reported on the form is subject to rule 14a-4 of the Exchange Act,
require that the reporting person use the same language used on the
form of proxy to identify the matter, identify all matters in the same
order as on the form of proxy, and, for election of directors, identify
each director separately in the same order as on the form of proxy. The
amendments will also provide investors with additional information
about the extent to which a reporting person votes or loans its shares.
The Commission is also adopting rule and form amendments that will
complete the implementation of section 951 of the Dodd-Frank Act by
requiring a manager to report how it voted proxies relating to
executive compensation matters. Specifically, the rule and form
amendments will require managers to report their say-on-pay votes
annually on Form N-PX. For managers that have a disclosed policy of not
voting proxies and that did not vote during the reporting period, the
rule and form amendments will allow them to indicate this on Form N-PX
without providing additional information about each voting matter
individually. Funds that did not hold any securities entitled to vote
during the reporting period would also be permitted to make a similar
short-form filing.
The Commission is sensitive to the economic effects, including the
costs and benefits, imposed by the final rule and form amendments.\233\
Where practicable, we have attempted to quantify the costs, benefits,
and effects on efficiency, competition, and capital formation expected
to result from the final rule and form amendments. In some cases,
however, data needed to quantify these economic effects are not
currently available to the Commission or otherwise publicly available.
For example, we are unable to quantify the degree to which funds and
managers may choose to forego income from securities lending as a
result of any
[[Page 78791]]
incentive effects associated with the disclosure of the number of
shares loaned but not recalled. While we provide a qualitative
discussion of the potential effect, we are unable to estimate its
magnitude because we do not have data to predict how funds and managers
would trade off any perceived benefits from recalling shares on loan
with the anticipated loss in securities lending income.\234\
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\233\ Section 3(f) of the Exchange Act, section 2(b) of the
Securities Act, and section 2(c) of the Investment Company Act
require the Commission, whenever it engages in rulemaking and is
required to consider or determine whether an action is necessary or
appropriate in (or, with respect to the Investment Company Act,
consistent with the public interest), to consider, in addition to
the protection of investors, whether the action would promote
efficiency, competition, and capital formation. Additionally,
Section 23(a)(2) of the Exchange Act requires the Commission, when
making rules under the Exchange Act, to consider the impact such
rules would have on competition. Exchange Act Section 23(a)(2)
prohibits the Commission from adopting any rule that would impose a
burden on competition not necessary or appropriate in furtherance of
the purposes of the Exchange Act.
\234\ We do not anticipate any significant economic effects
associated with the technical and conforming amendments discussed in
supra section II.M.
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B. Economic Baseline
The economic baseline against which we measure the economic effects
of this final rule, including its potential effects on efficiency,
competition, and capital formation, is the state of the world as it
currently exists.
1. Funds' Reporting of Proxy Voting Records
Since 2003, funds have been required to file Form N-PX to report
their proxy voting records annually for each matter relating to a
portfolio security considered at any shareholder meeting held during
the reporting period and with respect to which the fund was entitled to
vote. In May 2022, we estimate that there were approximately 12,492
funds and series of management investment companies with average total
net assets of $35.1 trillion that were required to file reports on Form
N-PX.\235\ As of year-end 2021, assets held in mutual funds and other
registered investment companies account for approximately 32% of the
market capitalization of all U.S.-issued equities outstanding.\236\
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\235\ These estimates are based on Form N-CEN filings of
management investment companies registered with the Commission as of
May 2022.
\236\ This figure has ranged between 30 and 34 percent over the
past four years. ICI 2022 Fact Book, supra footnote 2, at Figure
2.7. See also supra section I.
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On the current Form N-PX, among other things, a fund discloses
whether it cast its votes on each proposal, how it voted (e.g., for or
against the proposal, or abstained), and whether any votes cast were
for or against management. Although the form specifies the information
that each fund must provide, it does not specify the format of the
disclosure or how funds present or organize the information. Reports on
Form N-PX also are not currently filed in a machine-readable, or
``structured,'' data language. Investors can access a fund's Form N-PX
filings online through the EDGAR website. Funds also must disclose that
their proxy voting records are available to investors either upon
request or on (or through) their websites, with most funds disclosing
that this information is available upon request.
We understand that many funds currently use vendors to prepare
their Form N-PX filings.\237\ These vendors typically provide a summary
of the ballot description and may also provide a link to the issuer's
proxy statement. Vendors may also list ballot items in an order that
deviates from that on the proxy statement. According to some
commenters, larger funds are more likely to use a vendor to prepare
their Form N-PX than smaller funds.\238\
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\237\ See, e.g., ICI Comment Letter I.
\238\ See ICI Comment Letter I, Ultimus Comment Letter.
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Current Form N-PX reports have improved transparency into fund
voting. However, these reports can be difficult for investors to read
and analyze. For example, under the current rules, Form N-PX is
routinely filed as a large HTML or plain[hyphen]text (ASCII) file. Many
funds use automated systems to produce their Form N-PX records, which
is often a simple output from a database maintained by the reporting
person that covers meetings, proposals, and votes over a given
period.\239\ A fund may own hundreds of different securities each of
which may have ten or more proposals each year. As a result, Form N-PX
reports disclosing proxy voting records for all securities and
proposals can be overwhelmingly long.\240\ Investors also may have
difficulty finding a particular fund's voting history within a single
Form N-PX filing because many fund complexes include information about
several different funds in a single Form N-PX report, given the
structure of many funds as series of a trust.
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\239\ See Chong Shu, The Proxy Advisory Industry: Influencing
and Being Influenced, U.S.C. Marshall School of Business Research
Paper (May 23, 2022), at 28), available at <a href="https://ssrn.com/abstract=3614314">https://ssrn.com/abstract=3614314</a> (retrieved from SSRN Elsevier database) (observing
widespread use of voting platforms to report votes on Form N-PX,
including the use of three voting platforms by approximately 90% of
mutual funds from 2007 to 2017).
\240\ Based on reports on Form N-PX, larger funds can have
filings in excess of 1,000 pages. See also supra footnote 14.
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Funds also often use their own descriptions and abbreviations when
describing a particular voting matter, which can differ from the
descriptions on an issuer's form of proxy. This can make it difficult
for investors to identify a particular voting matter or category of
similar voting matters, and to compare funds' voting records.
In addition to difficulties collecting and analyzing data provided
on current Form N-PX, certain gaps in the current required disclosures
may provide an incomplete picture of a fund's proxy voting practices.
For example, current Form N-PX does not require funds to provide
information about the potential effects of a fund's securities lending
activities on its proxy voting. A fund's securities lending activities
can generate additional income for the fund and its shareholders.
However, when a fund lends its portfolio securities, it transfers
incidents of ownership, including proxy voting rights, for the duration
of the loan. As a result, the fund loses its ability to vote the
proxies of such securities, unless the securities are recalled, the
loan is terminated, and the securities are returned to the fund before
the record date for the vote.
2. Managers' Reporting of Say-on-Pay Votes
Section 951 of the Dodd-Frank Act added new section 14A to the
Exchange Act requiring issuers to provide shareholders with a vote on
say-on-pay matters, and requires managers to report how they voted on
those matters. Section 14A generally requires public companies to hold
non-binding say-on-pay shareholder advisory votes to: (1) approve the
compensation of its named executive officers; (2) determine the
frequency of such votes; and (3) approve ``golden parachute''
compensation in connection with a merger or acquisition. Section 14A(d)
requires that every manager report at least annually how it voted on
say-on-pay votes,\241\ unless such vote is otherwise required to be
reported publicly. However, until these amendments, there have been no
rules or forms governing how managers comply with their reporting
obligation under section 14A(d).\242\ Some managers, such as public
pension funds, disclose their proxy voting records on their websites,
although we understand that their disclosures generally do not contain
quantitative information and presentation practices of website
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\241\ Based on Form 13F filings covering the first quarter of
2022, as of March 31, 2022, there were 8,147 managers with
investment discretion over approximately $44.4 trillion in section
13(f) securities.
\242\ Although managers as a whole have not been required to
file reports on Form N-PX, a subset of managers advise funds and
each of these funds has been and is required to report its own proxy
voting record, including say-on-pay votes, annually on Form N-PX.
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[[Page 78792]]
reporting vary across managers.\243\ Registered investment advisers
also are required to disclose to clients, upon the client's request,
how the adviser voted the client's securities.\244\ Unlike publicly
available reports on Form N-PX, however, this information is only
required to be made available to a single client, related solely to
that client's securities, and only upon the client's request. The
adoption of say-on-pay vote reporting requirements for managers
completes the implementation of section 951.
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\243\ Some pension funds publish some or all of their proxy
votes. See, e.g., Office of N.Y. State Comptroller, N.Y. State
Common Retirement Fund Proxy Voting (2021), available at <a href="https://www.osc.state.ny.us/files/common-retirement-fund/corporate-governance/pdf/proxy-voting-2021.pdf">https://www.osc.state.ny.us/files/common-retirement-fund/corporate-governance/pdf/proxy-voting-2021.pdf</a>; CalPERS Global Proxy Voting
Decisions, available at <a href="https://viewpoint.glasslewis.com/WD/?siteId=CalPERS">https://viewpoint.glasslewis.com/WD/?siteId=CalPERS</a>; CPP Investments, Proxy Voting, available at <a href="https://www.cppinvestments.com/the-fund/sustainable-investing/proxy-voting">https://www.cppinvestments.com/the-fund/sustainable-investing/proxy-voting</a>.
\244\ Rule 206(4)-6(b).
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3. Other Affected Parties
(a) Users of Proxy Voting Data
Form N-PX information is used by fund investors, other market
participants, corporate issuers, and regulators such as the Commission.
In addition, there are service providers that help collect and analyze
proxy voting information or that provide advice based on information
contained in Form N-PX disclosures. Such service providers include
proxy voting advisers, proxy data providers and analysts, and equity
analysts.
According to an association representing regulated funds, as of
December 2021, 62.2 million (47.9%) U.S. households and 108.1 million
individuals owned U.S. registered investment companies.\245\ Median
mutual fund assets of mutual fund-owning households were $200,000 with
the median number of mutual funds held being four.\246\ Moreover,
registered funds play an important role in individuals' retirement
savings. 63% of households had tax-advantaged retirement savings with
$12.6 trillion invested in mutual funds either through defined
contribution plans or IRAs.\247\
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\245\ See ICI 2022 FactBook, supra footnote 2, at ``2021 Facts
at a Glance'' Table.
\246\ Id.
\247\ Id.
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(b) Custodians and Securities Lending Agents
Funds and managers typically hold client securities with a
custodian, who safeguards these assets. The custody service industry
has been characterized as dominated by a small number of large market
share participants; as of 2018, ``[n]early half of the total assets
[were] under the custody of the four largest [firms], which are all
from the US.'' \248\ The vast majority of custodians also provide a
range of related services, which may include acting as a securities
lending agent to administer a fund's or manager's securities lending
program.\249\ A commenter stated that custodians are a primary source
of data on which fund shares are on loan over a record date and ano
[…truncated; see source link]Indexed from Federal Register on December 22, 2022.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.