Proposed Amendments to Form N-PX and other Proxy Disclosures
The SEC is proposing to amend proxy voting disclosure rules. If passed, the amendment would impact how registered funds report their proxy votes on Form N-PX. The goal is to require categorizing each voting matter (and using structured data) so that investors can identify and compare voting records on issues that interest them. The proposal includes standardized descriptions of 17 voting categories to facilitate shareholders tracking specific voting categories such as votes related to the board of directors, extraordinary transactions, say-on-pay, shareholder rights and defenses, and environment or climate, among others. The rule also would require disclosure on how securities lending impacts voting, particularly if an investment adviser that has lent shares does not recall the shares to exercise voting rights. Under the proposal, institutional investment managers (i.e., those with discretion over $100mm in equities under section 13 of the Exchange Act) also will have to report on Form N-PX how they voted on proxies related to executive compensation (i.e., “say-on-pay” votes). This feature of the proposal would fulfill one of the remaining rulemaking mandates under the Dodd-Frank Wall Street Reform and Consumer Protection Act. The proposed rule also would require funds to post their proxy voting records on their websites.
This proposal is designed to enhance shareholder disclosure. Some argue, however, that the proposal prioritizes ESG (environmental, social, and governmental) disclosure and exposes advisers to political pressure in their voting rather than promoting the economic interests of shareholders. These arguments likely will feature in a fierce debate about a topic, proxy voting, that ordinarily would not garner much attention. And it likely will prove only one front in a larger regulatory war over ESG’s place in investment advice. (Indeed, the Department of Labor recently proposed a rule to remove barriers, imposed under the prior presidential administration, that restricted plan fiduciaries’ consideration of non-pecuniary ESG factors when considering investment options and proxy voting for retirement plans. The proposal also should be considered in the context of a flurry of Commissioner speeches and public statements, as well as last quarter’s Divisions of Examinations risk alert, concerning ESG investing.) Thus, we expect that an otherwise fairly mundane rule proposal will attract a great deal of interest in the comment process. Comments will be due 60 days from the time the proposal is published in the Federal Register.
For more information about the SEC’s proposal, please visit the SEC’s website at the link below; DOL’s proposal also can be found in the Federal Register:
Request for Comment Concerning Digital Engagement Practices and “Gamification” of Investing
The SEC is requesting information and public comment with respect to the use of “digital engagement practices” (DEPs) by broker-dealers and investment advisers. These tools include, among other things, behavioral prompts and game-like features (referred to as “gamification”), as well as other design elements or features designed to engage with retail investors on digital platforms such as websites and mobile applications. Essentially, the SEC is reacting to gamification in trading, such as the widely-publicized run-up of so-called meme stocks and other robo-adviser marketing practices. This release is a prelude to potential rulemaking in the area. Although it may not bear directly on investment companies, fund boards and advisers should be mindful of potential regulatory scrutiny as they look for innovative ways to drive distribution. Responsive comments were due by October 1, 2021, but there likely will be continued debate on this in the context of a new report from the SEC studying the frenzy surrounding the rise of Gamestop and other meme stocks.
For more information about this release, and to view the SEC’s recent report, please visit the SEC’s website: