[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 [www.gpo.gov]
[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 https://icifactbook.org/pdf/2022_factbook.pdf (``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
https://www.sec.gov/spotlight/investor-advisory-committee-2012/data-tagging-resolution-72513.pdf (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 https://www.sec.gov/comments/s7-11-21/s71121.htm.
\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.
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\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.
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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\
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\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\
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\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\
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\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\
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\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.
---------------------------------------------------------------------------
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 https://www.sec.gov/divisions/corpfin/guidance/exchange-act-rule-14a-4a3-301.htm.
\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\
---------------------------------------------------------------------------
\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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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 https://www.omg.org/figi/.
\146\ See About OpenFigi, available at https://www.openfigi.com/about (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 https://www.gleif.org/en/about-lei/introducing-the-legal-entity-identifier-lei (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.
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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.
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\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
``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;
``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;
``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;
``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\
---------------------------------------------------------------------------
\158\ See MFA Comment Letter.
---------------------------------------------------------------------------
``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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
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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\
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\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.
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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\
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\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 https://www.sec.gov/dera/data.
---------------------------------------------------------------------------
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\
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\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 https://www.sec.gov/edgar/filer-information.
---------------------------------------------------------------------------
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\
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\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 https://www.ftserussell.com/products/indices/russell-us. 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.
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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\
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\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.
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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\
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\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.
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\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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 https://ssrn.com/abstract=3614314 (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.
---------------------------------------------------------------------------
\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 https://www.osc.state.ny.us/files/common-retirement-fund/corporate-governance/pdf/proxy-voting-2021.pdf; CalPERS Global Proxy Voting
Decisions, available at https://viewpoint.glasslewis.com/WD/?siteId=CalPERS; CPP Investments, Proxy Voting, available at https://www.cppinvestments.com/the-fund/sustainable-investing/proxy-voting.
\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\
---------------------------------------------------------------------------
\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 another
commenter similarly stated that for funds and managers to collect
information on shares on loan, custodians and securities lending agents
would be expected to be involved in the process.\250\
---------------------------------------------------------------------------
\248\ Deloitte [Luxembourg], The evolution of core financial
service. Custodian & Depository Banks, (2019), at 10 (``Deloitte
White Paper''), available at https://www2.deloitte.com/content/dam/Deloitte/lu/Documents/financial-services/lu-the-evolution-of-a-core-financial-service.pdf.
\249\ See Deloitte White Paper, supra footnote 249, at 13.
\250\ See Blackrock Comment Letter; Glass Lewis Comment Letter.
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C. Benefits and Costs
1. Amendments to Funds' Reporting of Proxy Votes
(a) Benefits
The fund-related amendments to Form N-PX will benefit fund
investors, other market participants, and other proxy voting data
users,\251\ by enhancing the information funds currently report about
their proxy votes and making that information easier to collect and
analyze. The amendments include the following principal elements: (1)
requiring the disclosure of information about the number of shares that
were voted (or instructed to be voted) and the number of shares that a
fund loaned and did not recall before the record date for the vote;
\252\ (2) if a form of proxy in connection with a voting matter is
subject to rule 14a-4 under the Exchange Act, requiring that funds
describe the matter using the same language, and in the same order, as
found in the issuer's form of proxy; \253\ (3) requiring funds to
categorize voting matters by type; (4) requiring funds to provide
disclosure separately by series of shares; (5) requiring the reporting
of information on Form N-PX in a custom XML language; and (6) requiring
funds to disclose that their proxy voting records are publicly
available on (or through) their websites and available upon request,
free of charge in both cases.
---------------------------------------------------------------------------
\251\ See supra section IV.B.3.a.
\252\ Funds that did not hold any securities entitled to vote
during the reporting period can indicate this on the form without
providing additional information about each voting matter
individually.
\253\ In a change from the proposal, when reporting proxy votes
in all other cases, reporting persons will remain subject to the
current requirements regarding the language used for identifying
proxy matters, with the modification that these reports will be
required to limit the use of abbreviations.
---------------------------------------------------------------------------
The amendments are designed to broaden the scope of the benefits
that the Commission originally identified when adopting Form N-PX
namely: (1) to provide better information to investors who wish to
determine to which fund managers they should allocate their capital,
and whether their existing fund managers are adequately maximizing the
value of their shares; (2) to deter fund voting decisions that are
motivated by considerations of the interests of a fund's adviser rather
than the interests of the fund's investors; and (3) to provide stronger
incentives for fund managers to vote their proxies carefully.\254\
---------------------------------------------------------------------------
\254\ 2003 Adopting Release, supra footnote 4. The discussion of
the interests of funds' investors is not intended to describe the
interests of any particular investor or investors, but instead
refers to the funds' investors, considered as a whole.
---------------------------------------------------------------------------
We expect that the amendments to the Form N-PX format and content
will help investors and other data users more easily collect and
analyze proxy voting information, resulting in lower costs of gathering
and understanding this information.\255\ As a result, we expect these
amendments will facilitate comparisons of voting patterns across a wide
range of funds or within an individual fund over time. To the extent
that investors choose among funds based on their proxy voting policies
and records, in addition to other factors such as expenses,
performance, and investment policies, we expect that investors will be
able to select funds that suit their preferences more efficiently.\256\
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\255\ Many commenters agreed that the proposed amendments will
facilitate investors' acquisition and use of information about proxy
votes that funds disclose. See, e.g., CFA/CII Comment Letter;
Morningstar Comment Letter; LTSE Comment Letter.
\256\ For example many commenters agreed that the proposed
amendments can help increase transparency regarding proxy voting on
ESG matters. See, e.g., The Shareholder Commons Comment Letter; LTSE
Comment Letter; PRI Comment Letter.
---------------------------------------------------------------------------
Some commenters stated that the proposed amendments would
facilitate investors' acquisition and use of information about proxy
votes that funds disclose.\257\ Specifically, a number of commenters
supported the view that the structured data language requirement in the
proposed
[[Page 78793]]
amendments would make Form N-PX easier to use, would facilitate
investors' comparison of funds' voting information, and would make Form
N-PX more informative for investors and other users of proxy voting
information.\258\ Some commenters also stated that the website
disclosure requirement would make proxy voting information more
accessible, and the requirement would make it easier and less costly
for investors to compile information on funds' voting history.\259\
---------------------------------------------------------------------------
\257\ See, e.g., CFA/CII Comment Letter; Morningstar Comment
Letter; LTSE Comment Letter; ASBC Comment Letter; Ratcliff Comment
Letter. See also infra footnote 258 and footnote 259.
\258\ See, e.g., Morningstar Comment Letter; ICI Comment Letter
I; Vanguard Comment Letter; Blackrock Comment Letter; Bloomberg
Comment Letter; PRI Comment Letter; US Chamber of Commerce Comment
Letter.
\259\ See, e.g., Vanguard Comment Letter; CFA/CII Comment
Letter.
---------------------------------------------------------------------------
While some commenters agreed that the requirement for funds to
characterize voting matters by type would facilitate the comparison of
voting patterns across funds,\260\ other commenters stated that the
proposed requirement would not provide useful information to investors,
for example because of the potential for a lack of consistency of
classifications by funds or in light of the information that is already
disclosed on Form N-PX.\261\ In a change from the proposal, under the
amendments we are adopting reporting persons will select from a
streamlined and consolidated list of categories and will not be
required to select from a list of subcategories. As discussed above,
and in light of the comments we received, these changes should increase
the usefulness of the categories.\262\ As a result, we anticipate that
this change may enhance the benefits to investors and other data users
compared to the proposal and ultimately enable investors to have more
information about reporting persons' proxy voting records which may aid
them in their investment decisions. In a change from the proposal, the
amendments will permit reporting persons to include certain additional
identifiers, such as LEIs and FIGIs, when identifying themselves, other
reporting persons reporting on their behalf, which series are included
in a fund's reporting, or which portfolio security the reporting person
is reporting votes for.\263\ The inclusion of these additional
identifiers should benefit users of Form N-PX data by providing
additional identifying information methods to supplement the existing
identifying information provided on Form N-PX (for example, the CUSIP
number). Form N-PX data users could benefit from certain features from
this other identifying information, including the ability to use a
security identifier without fees or charges.
---------------------------------------------------------------------------
\260\ See, e.g., Morningstar Comment Letter; CFA/CII Comment
Letter.
\261\ See, e.g., ICI Comment Letter I.; Utah Comment Letter.
\262\ See supra section II.C.1 for a discussion of the comments
we received on this aspect of the proposal.
\263\ As proposed, we are also including ISINs as an additional
identifier for portfolio securities the reporting person is
reporting votes for.
---------------------------------------------------------------------------
Also, a commenter expressed the view that the proposed amendments
are not likely to change retail investors' tendency to not use Form N-
PX but instead rely on fund websites for information about proxy
voting.\264\ While many retail investors may not make direct use of
Form N-PX as noted by other commenters, retail investors that rely on
third parties such as research analysts to access and evaluate proxy
voting information will benefit indirectly because those third parties
will face lower costs in accessing information from Form N-PX as a
result of the structured data language component of the
amendments.\265\ As a result of making funds' proxy voting information
easier to collect and analyze, the amendments may lead some investors
to change how they allocate capital across funds to better match their
preferences. While some commenters questioned the importance of proxy
voting information for investors' decisions,\266\ we anticipate that
some investors will find this information valuable in making their
investment decisions.\267\ Another commenter expressed the view that
the ability to switch funds may be limited by potential taxes on gains
associated with changing funds and, in the case of participants in
employer-sponsored retirement plans, investors' inability to change
asset managers without changing their employer, which may hamper the
degree to which investors could realize this benefit.\268\ This
commenter also stated that the usefulness of past proxy voting
information for investors in selecting funds is limited to the extent
that funds deviate from their past voting behavior in the future.\269\
While we agree that for some investors there may be meaningful
impediments to switching funds, and that for certain participants in
employer-sponsored retirement plans those impediments may be
prohibitively large, for other investors it may still be worthwhile to
change funds if information on funds' past proxy voting practices
significantly conflicts with the preferences of these investors.
---------------------------------------------------------------------------
\264\ See Blackrock Comment Letter.
\265\ See supra footnote 258 and accompanying text.
\266\ See, e.g., Chamber of Commerce Comment Letter; MFDF
Comment Letter.
\267\ See supra footnote 257 and accompanying text.
\268\ See Mercatus Center Comment Letter.
\269\ To the extent that a fund follows its proxy voting
policies and procedures, however, reported votes may be more likely
to have predictive value. In addition, the amendments may lead funds
to vote more consistently on similar issues over time, including at
multiple portfolio companies, as a result of making funds' proxy
voting information easier to collect and analyze. Specifically, if
fund managers know that investors are able to track their voting
behavior at low cost, then this may increase funds' incentives to
vote consistently on similar issues in order to align with the
preferences of their investors.
---------------------------------------------------------------------------
We expect additional benefits to investors and other proxy voting
data users from the new quantitative disclosure on amended Form N-PX
regarding the number of shares voted and the number of shares loaned
but not recalled. This additional information will benefit investors
and other data users by providing more information about the scope of a
fund's participation in proxy voting activities, the fund's voting
preferences, the magnitude of the reporting fund's voting power, and
whether funds have recalled securities on loan to vote proxies.
A number of commenters agreed that the disclosure of the number of
shares voted and the number of shares lent but not recalled would
benefit investors and other proxy voting data users by providing useful
information on the fund's proxy voting record, the fund's decision not
to vote, and whether the fund has recalled shares lent to vote
proxies.\270\ For example, some commenters expressed the view that the
disclosure of shares lent but not recalled would enable investors to
better understand the scope of funds' proxy voting activities,
including (1) funds' voting preferences; (2) the extent of funds'
voting for or against a certain ballot measure; (3) the influence funds
have on the outcome of shareholder votes and their influence on issuer
firms' corporate governance; and (4) funds' decision not to vote their
shares.\271\ However, other commenters expressed the view that benefits
from this disclosure may be limited to the extent that other
quantitative or qualitative information such as financial benefits from
share lending, operational constraints to recalling shares, the size of
the fund's position, and the ability to influence voting outcome, would
not be
[[Page 78794]]
disclosed and would be needed to contextualize the information to be
disclosed.\272\
---------------------------------------------------------------------------
\270\ See, e.g., Bloomberg Comment Letter; LTSE Comment Letter;
Alliance Bernstein Comment Letter.
\271\ See, e.g., Better Markets Comment Letter; PRI Comment
Letter; LTSE Comment Letter. Also see supra footnotes 89-93 and
accompanying text for a discussion of comments we received on the
disclosure requirement of the number of shares voted.
\272\ See, e.g., Pickard Comment Letter; Federated Hermes
Comment Letter; RMA Comment Letter; MFDF Comment Letter; MFA Comment
Letter; Blackrock Comment Letter; Alliance Bernstein Comment Letter.
See also supra section II.C.3.(b) for a discussion of comments
received on this aspect of the proposal.
---------------------------------------------------------------------------
While we agree with commenters' view that disclosure of lent shares
alone may not provide comprehensive information on the funds' decision
to recall or not recall shares, we believe that disclosure of a fund's
shares that were lent but not recalled will still facilitate investors'
understanding on funds' securities lending activities, particularly as
funds may provide additional voluntary disclosures on their securities
lending activities if they believe such disclosures are helpful.
The amendments to Form N-1A, Form N-2, and Form N-3 may help some
investors and other users of the form access the information on Form N-
PX, which is also publicly available on EDGAR, more easily. Under the
baseline, most funds make information regarding how the fund voted
proxies relating to portfolio securities available upon request, while
other funds provide this information on (or through) their websites.
The amendments would allow investors to choose between accessing a
fund's proxy voting information via the fund's website and requesting
the information from the fund.\273\ Thus, the amendments would benefit
those investors that prefer a delivery method that their fund does not
offer currently. For example, some investors in the majority of funds
that currently make a fund's voting record available upon request only
may prefer to access this information on the fund's website directly
rather than place a request and wait for the fund to deliver the voting
record.
---------------------------------------------------------------------------
\273\ See supra section II.J for a complete description of the
requirements.
---------------------------------------------------------------------------
In light of the increased transparency the amendments will provide
on fund voting, the final rule may also provide an incentive for fund
managers to devote additional time and resources to their participation
in voting proxies, which can lead to an improvement in the performance
of corporate issuers and enhance shareholder wealth.\274\ Assets held
in funds account for approximately 32% of the market capitalization of
all publicly traded U.S. corporations as of year-end 2021,\275\ and
therefore funds have the ability to exercise a considerable amount of
influence in proxy votes which can affect the value of these
corporations.\276\ Academic research provides some evidence that
actively voting funds may help sway shareholder votes toward value-
maximizing outcomes when voting on matters such as CEO turnover,
executive compensation, anti-takeover provisions, and mergers.\277\
These potential corporate governance improvements resulting from more
active participation in proxy voting by funds can have a positive
externality effect, as the benefits will be accessible to all holders
of the fund's underlying equity securities, and not limited to fund
investors. A commenter provided the view that the increase in
transparency resulting from the proposed amendments will emphasize the
effort made by institutional investors in the proxy voting process,
which may incentivize reporting persons to put more effort into
participating in proxy voting.\278\ However, other commenters expressed
the view that increases in disclosure from the proposed amendments is
unlikely to change funds' proxy voting behavior.\279\ While there is
likely to be variability in how the amendments influence behavior at
different funds, to the extent that the proposed amendments increase
fund managers' efforts put into proxy voting, this will provide more
information about proxy voting to fund investors and other owners of
funds' underlying equity securities. These benefits may be reduced for
smaller funds who are less able to devote additional time and resources
to their participation in voting proxies, and may also be mitigated to
the extent that additional time and resources devoted to fund
participation in voting proxies raises costs to investors.\280\
---------------------------------------------------------------------------
\274\ See Peter Iliev & Michelle Lowry, Are Mutual Funds Active
Voters, 28 Rev. Fin. Studies 446 (2015), available at https://academic.oup.com/rfs/article/28/2/446/1599644; Vincente Cunat,
Mireia Gine, & Maria Guadalupe, The Vote is Cast: The Effect of
Corporate Governance On Shareholder Value, 67 J. Fin. 1943 (2012),
available at https://onlinelibrary.wiley.com/doi/full/10.1111/j.1540-6261.2012.01776.x (finding that passing a governance
provision is associated with an increase in shareholder value, and
more so when proposals are sponsored by institutional investors).
\275\ See supra footnote 2.
\276\ See supra section I.
\277\ See, e.g., Angela Morgan, Annette Poulsen, Jack Wolf, and
Tina Yang, Mutual Funds as Monitors: Evidence from Mutual Fund
Voting, 17 J. Corp. Fin. 914 (2011) (finding that, ``in general,
mutual funds vote more affirmatively for potentially wealth-
increasing proposals and funds' voting approval rates for these
beneficial resolutions are significantly higher than those of other
investors''). See also Jean Helwege, Vincent Intintoli, and Andrew
Zhang, Voting with Their Feet or Activism? Institutional Investors'
Impact on CEO Turnover, 18 J. Corp. Fin. 22 (2012), for a review of
the literature. But, see also infra footnotes 282-284 and
accompanying text. A number of commenters expressed the view that
the proposed amendments' enhanced proxy voting disclosure
requirement will be beneficial in light of funds' significant role
in proxy voting on corporate governance at issuer firms. See, e.g.,
The Shareholder Commons Comment Letter I; Ratcliff Comment Letter;
Friess Comment Letter.
\278\ See Glass Lewis Comment Letter.
\279\ See MFDF Comment Letter; Mercatus Center Comment Letter
\280\ See infra section IV.C.1.(b).
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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.\281\ For example, some academic research observes that mutual
funds' proxy voting may be affected by business ties such as those
where a fund's adviser also manages the firm's pension plan, as well as
through personal connections between fund managers and corporate
executives.\282\ More generally, although fund managers are fiduciaries
that owe duties of care and loyalty to each client, their proxy voting
decisions may be driven by their economic interest in attracting more
investments into the fund or more investment opportunities.\283\ A
fund's proxy voting
[[Page 78795]]
also may be affected by the fund manager's personal preferences that
may not align with the best interests of the fund's investors.\284\
---------------------------------------------------------------------------
\281\ See, e.g., Gerald Davis & Han Kim, Business Ties and Proxy
Voting by Mutual Funds, 85 J Fin. Econ. 552 (2007) (``To the extent
that good corporate governance leads to higher valuations, fund
managers have incentives to use their voting power to demand good
corporate governance and accept (reject) proposals that may benefit
(harm) investors. However, such fiduciary responsibilities may be
compromised if mutual funds' corporate parents manage employee
benefit plans (such as 401(k) plans) for their portfolio firms at
the behest of management.''). According to the article, on average,
earnings from 401(k)-related business equal 14% of the revenues that
mutual fund families earn from their equity funds, and such income
can represent as much as 25% of fund family revenues. A commenter
agreed with our view that there may be conflicts of interests
arising from proxy voting by funds and fund advisers. See Mercatus
Center Comment Letter.
\282\ See, e.g., Rasha Ashraf, Narayanan Jayaraman, and Harley
Ryan, Do Pension-Related Business Ties Influence Mutual Fund Proxy
Voting? Evidence from Shareholder Proposals on Executive
Compensation, 47 J. Fin. Quant. Anal. 567 (2012) (find that ``fund
families support management when they have pension ties to the
firm''); Dragana Cvijanovic, Amil Dasgupta, & Konstantinos
Zachariadis, Ties That Bind: How Business Connections Affect Mutual
Fund Activism, 71 J. Fin. 2933 (2016) (find that ``business ties
significantly influence pro-management voting at the level of
individual pairs of fund families and firms.''); Gerald Davis & Han
Kim, Business Ties and Proxy Voting by Mutual Funds, 85 J. Fin.
Econ. 552 (2007); and Alexander Butler & Umit Gurun, Educational
Networks, Mutual Fund Voting Patterns, and CEO Compensation, 25 Rev.
Fin. Studies 2533 (2012) (observe that ``mutual funds whose managers
are in the same educational network as the firm's CEO are more
likely to vote against shareholder-initiated proposals to limit
executive compensation than out-of-network funds are.'').
\283\ See, e.g., Lucian Bebchuk, Alma Cohen, and Scott Hirst,
The Agency Problems of Institutional Investors, 31 J. Econ.
Perspectives 89 (2017) (discussing that fund managers' proxy voting
decisions may be driven by their economic interest in attracting
more business for the fund rather than engaging in generating
governance gains at portfolio companies). The Commission has brought
at least one enforcement action against a registered investment
adviser for having proxy voting policies that did not address
material potential conflicts when the adviser selected voting
guidelines explicitly favored by certain clients to vote all its
clients' securities, in order to improve the adviser's ranking in a
third-party proxy voting survey. See In the Matter of INTECH
Investment Management LLC, Investment Advisers Act Release No. 2872
(May 7, 2009) (settled order).
\284\ See, e.g., Paul Mahoney & Julia Mahoney, The New
Separation of Ownership and Control: Institutional Investors and
ESG, 2 Colum. Bus. L. Rev. 840 (2021). See also infra footnote 332
and accompanying text.
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While advisers have a fiduciary duty to make voting determinations
in the best interests of their clients, and cannot place their own
interests ahead of the interests of clients, commenters offered
differing views as to the likely effectiveness of the proposed
amendments at deterring votes from being driven by a conflict of
interest. One commenter expressed the view that inconsistencies in
proxy votes by different fund advisers for large index funds and
socially responsible investing funds \285\ suggest that the best
interest of investors standard has not ensured that proxy voting
decisions are not motived by conflicts of interest and that, as a
result, a disclosure-based approach is not adequate to cause fund
advisers to vote in the best interest of investors.\286\ This commenter
also stated that disclosure of proxy votes will not capture the
influence of funds' engagement with corporate issuers outside of the
proxy voting process. Conversely, statements from a number of
commenters support the view that that the proposed amendments will help
deter fund votes motivated by conflicts of interest. Specifically,
these commenters expressed the view that the transparency provided by
the proposed amendments will provide investors with information to help
align funds' voting decisions with investors' expectations and improve
investors' oversight over funds' proxy voting.\287\ Aligning funds'
voting decisions with investors' expectations and improving investors'
oversight over voting by definition mitigates risks of conflicts of
interest, in which investors (the principals) and fund managers (the
agents) have different preferences and goals.
---------------------------------------------------------------------------
\285\ See Caleb N. Griffin, Environmental and Social Voting at
Index Funds, 44 Del. J. Corp. L. 167, 171 (2020) (comparing proxy
voting decisions in 2018-2019 of the largest funds and designated
socially responsible investing funds at the three largest fund
complexes with competitor index funds and concluding that data from
inconsistent voting decisions implies ``that index fund investors'
interests likely do not determine voting decisions for the [largest
index funds].'').
\286\ See, e.g., Mercatus Center Comment Letter (also stating
that a disclosure rule puts the burden on fund investors to evaluate
whether a fund and adviser vote proxies in the best interest of the
investors.)
\287\ See, e.g., PRI Comment Letter; SCERS Comment Letter.
---------------------------------------------------------------------------
Finally, we considered whether the additional transparency the
final amendments will provide regarding the number of shares on loan
but not recalled may also help assess concerns regarding the extent to
which borrowed shares could be used to affect a proxy vote towards an
outcome that enhances a borrower's benefits instead of an outcome
beneficial for a fund's shareholders.\288\ We believe that the final
amendments are unlikely to provide information that is meaningful in
assessing these concerns as the information required to be disclosed
would not allow an inference as to whether shares that were not
recalled were used for such a purpose.
---------------------------------------------------------------------------
\288\ See also Henry Hu & Bernard Black, Equity and Debt
Decoupling and Empty Voting: II Importance and Extensions, 156 U.
Penn. L. Rev. 625 (2008). The authors describe an empty voting
strategy that involves borrowing shares in the stock loan market
just before the record date and returning the shares immediately
afterwards, which under standard borrowing agreements leaves the
borrower holding votes without economic ownership. The authors
provide examples of situations when such decoupling of voting rights
from economic ownership can affect the control of corporations.
However, to date, we are not aware of evidence on whether such
voting with borrowed shares occurs on a regular basis or whether it
has a significant effect on proxy voting outcomes. Commenters also
did not provide such evidence.
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(b) Costs
The amendments to Form N-PX, Form N-1A, Form N-2, and Form N-3,
will lead to some additional costs for funds. Any portion of these
costs that is not borne by a fund's adviser or other sponsor will
ultimately be borne by the fund's shareholders. Direct costs for funds
will consist of both internal costs (for compliance attorneys and
other, non-legal staff of a fund, such as computer programmers, to
prepare and review the required disclosure and to update systems \289\)
and external costs (such as any costs associated with third-party
service providers to collect and report the information disclosed in
Form N-PX).\290\ The costs borne by funds will be borne equally by all
of their investors. But to the extent that the required additional
reporting is important to only certain fund investors or other
interested parties, the proposed requirements subsidize some fund
investors and other interested parties relative to other fund
investors.
---------------------------------------------------------------------------
\289\ Several commenters pointed out that reporting persons may
need to update existing systems. See, e.g., ICI Comment Letter I,
Ultimus Comment Letter.
\290\ Based on the results of the Paperwork Reduction Act
(``PRA'') analysis provided in Table 2, we estimate that the annual
direct costs attributable to information collection requirements in
the amendments for funds that hold equity securities will be
approximately $10,012 per fund, which consists of $8,512 in internal
costs and $1,500 in external costs. For funds not holding equity
securities, the direct costs are not expected to change. For funds
of funds, the annual direct costs attributable to information
collection requirements in the amendments will comprise internal and
external costs and are estimated at $436 per fund. Our annual direct
cost estimates include both initial and ongoing costs with the
former being amortized over three years.
---------------------------------------------------------------------------
A commenter expressed the view that our analysis assumes the
process of complying with the proposed amendments to Form N-PX will be
automated but that automation may be logistically challenging given
that the reporting process happens only annually.\291\ Another
commenter expressed the view that describing ballot items using the
issuer's language and presenting them in the same order as in the
issuer's form of proxy presents operational challenges and additional
costs for funds and their shareholders.\292\
---------------------------------------------------------------------------
\291\ See Bloomberg Comment Letter.
\292\ See ICI Comment Letter I.
---------------------------------------------------------------------------
In a change from the proposal, however, the voting matter
identification requirements will be limited to situations where a form
of proxy in connection with a voting matter is subject to rule 14a-4
under the Exchange Act. Because this requirement would have extended to
other situations under the proposal, this change will reduce the
compliance costs associated with the requirement.\293\ Similarly, the
use of a streamlined and consolidated list of categories, and the
omission of subcategories from which reporting persons would have been
required to select, will reduce costs compared to the proposal.\294\
---------------------------------------------------------------------------
\293\ Commenters stated that the reporting of proxy votes by
foreign issuers, which are not subject to rule 14a-4, would have
involved more operational challenges and higher costs relative to
the costs for proxy votes cast on domestic issuers. This is because,
according to these commenters, a foreign issuer's form of proxy may
not be in English and formatting of the issuer's proxy in foreign
markets may have more variation across vendors. See ICI Comment
Letter I; MFDF Comment Letter. Conversely, we anticipate that the
costs for reporting persons to limit the use of abbreviations when
reporting proxy votes in other circumstances will be minimal because
we anticipate that reporting persons will choose not to use
abbreviations (other than those used by the issuer on the card of
proxy) unless an abbreviation is clearly a commonly understood term.
\294\ See supra sections II.C.1 and 2 for or a discussion of the
comments we received on this aspect of the proposal.
---------------------------------------------------------------------------
[[Page 78796]]
Several commenters discussed the direct cost of disclosing the
number of shares the fund loaned and did not recall for voting and
stated that obtaining this information may be costly for funds.\295\
One commenter stated that it would be costly for funds to obtain
information from shareholder meetings while a share is on loan (because
in many cases the lending fund would not receive a ballot or meeting
information for the position on loan) and to combine this data with
securities lending information.\296\ Another commenter stated that
obtaining the required data would be costly for funds, particularly
smaller firms, absent the data being provided by the fund's custodian,
and stated that not all custodians currently provide this data.\297\ We
therefore anticipate that funds that currently do not have access to
this data will engage their custodians or securities lending agents to
obtain it. These service providers may then increase the fees they
charge to funds to compensate for any costs of providing this
information.
---------------------------------------------------------------------------
\295\ See, e.g., BlackRock Comment Letter. Commenters did not
provide estimates of the size of the associated costs.
\296\ See ISS Comment Letter.
\297\ See BlackRock Comment Letter.
---------------------------------------------------------------------------
By contrast, we anticipate that any additional direct costs
associated with certain other aspects of the amendments will be
relatively low. Specifically, we believe that the costs of the
amendments' requirements to use a custom XML language and to publish
proxy voting records on the fund's website will be relatively low given
that funds already accommodate similar requirements in their other
reporting, and can utilize their existing capabilities for preparing
and publishing an updated Form N-PX.\298\ Similarly, a commenter
expressed the view that the use of structured data language will
facilitate reporting persons' preparation and submission of the
information required by Form N-PX.\299\
---------------------------------------------------------------------------
\298\ In addition, the custom XML requirement will allow
reporting persons to forgo the step of stripping out incompatible
HTML metadata from their Form N-PX before filing it on EDGAR,
further mitigating compliance costs. See infra section II.G.
\299\ See Morningstar Comment Letter.
---------------------------------------------------------------------------
We do not expect the LEI disclosure requirements for reporting
persons and fund series under the amendments to result in significant
compliance costs. Both the reporting person LEI disclosure requirement
and the fund series LEI disclosure requirement will apply only to
entities that already have an LEI, so the costs associated with
obtaining and renewing an LEI will not be applicable. Furthermore,
funds are already subject to fund series LEI disclosure obligations in
Form N-PORT reports, so compliance costs associated with retrieving and
retaining LEIs for each fund series are already reflected in the
baseline.\300\ We also do not expect the new FIGI disclosure on Form N-
PX to result in additional compliance costs, because the disclosure of
FIGIs is optional rather than mandatory, nor do we expect the new
requirement to report ISINs rather than CUSIP numbers, where CUSIP
numbers are not available through reasonably practicable means, to
create significant compliance costs due to substantially similar
existing disclosure requirements.\301\
---------------------------------------------------------------------------
\300\ See supra footnote 166.
\301\ Funds that hold securities for which CUSIP numbers are not
available must report their ISINs on Form N-PORT. See Item C.1 of
Form N-PORT.
---------------------------------------------------------------------------
We expect that the costs of complying with the amendments to Form
N-1A, Form N-2, and N-3, will be small, as most funds already provide
their proxy voting information upon request and the requirement to add
this information to the fund's website that applies to funds with an
existing website can be satisfied cost-effectively by including a link
to the Form N-PX filing on EDGAR. In addition, funds that already
provide their proxy voting information on their website are unlikely to
incur significant cost as a result of also making this information
available upon request, as we understand that funds who provide the
option today rarely receive such requests from their investors.\302\
---------------------------------------------------------------------------
\302\ See supra section II.J for a discussion of comment letters
received on this aspect of the proposal. Commenters did not provide
estimates of costs for these requirements.
---------------------------------------------------------------------------
Some commenters expressed views about the costs borne by smaller
funds. A commenter expressed a concern about relatively greater costs
and burdens borne by smaller funds due to lack of economies of scale.
For example, according to this commenter, many smaller funds do not
currently use a vendor to prepare Form N-PX. To comply with the
proposed amendments, these smaller funds may hire a vendor and incur
the associated costs.\303\ One commenter stated that the minimum charge
for a proxy service provider is several thousand dollars, which would
not be insubstantial for a smaller fund.\304\ One commenters also
suggested that the proposed amendments would result in an increase in
their filling costs, and the cumulative regulatory burden on small
funds as a result of the proposed amendments would be larger in
relative terms because of the fixed nature of these costs and the
funds' inability to achieve economies of scale that larger funds can
realize.\305\ However, another commenter expressed that while smaller
funds may incur new costs, the fact that they are likely to already
have information that they need to report will likely mitigate these
costs. The commenter stated a view that, because the new costs are
likely to be mitigated, the benefit of increased transparency outweighs
any incremental cost incurred.\306\ To account for these costs, we have
increased our burden estimates to account for these costs.\307\
---------------------------------------------------------------------------
\303\ See ICI Comment Letter I. See generally MFDF Comment
Letter.
\304\ See Ultimus Comment Letter.
\305\ See ICI Comment Letter I.
\306\ See CFA/CII Comment Letter (``We wish to address the
concern that the proposed amendments to form N-PX will place a
burden in costs and resources on investors in tracking, gathering
and disclosing this information. We understand that this cost will
be borne most by smaller funds and managers who must meet any N-PX
related obligations. We sympathize with this view and acknowledge
that there will be some incremental costs with the proposed changes
to N-PX. However, many smaller funds and managers may already track
or report this information. Thus, we are of the view that the
benefit of increased transparency for investor clients outweighs any
incremental costs incurred.'').
\307\ See infra section V for the revised PRA analysis. See also
infra section VI.B.2 for a detailed discussion of the comments
received regarding the burden on small funds.
---------------------------------------------------------------------------
Indirect costs for funds will include the costs associated with
additional actions that funds may decide to undertake in light of the
increased transparency of their voting records and practices. To the
extent that the amendments provide an incentive for fund managers to
devote additional time and resources to voting proxies, this may result
in additional expenses for funds, some of which may be passed on to
funds' shareholders. Also, as a result of increased scrutiny by
investors, a fund manager may be incentivized to vote against an issuer
firm's management with whom the fund has business ties. This could
jeopardize the fund manager's relationship with the client firm and
result in lost revenue if, for example, a client firm were to decide to
relocate its employee benefit accounts elsewhere.\308\
---------------------------------------------------------------------------
\308\ A commenter agreed that disclosing proxy votes may result
in conflict with clients if clients disagree with how the vote was
cast by the manager. See, e.g., SCERS Comment Letter.
---------------------------------------------------------------------------
In addition, some fund advisers may decide to voluntarily incur the
cost of providing additional information on Form N-PX to provide
context for the disclosure of the number of shares the fund loaned and
did not recall for voting, some of which may be passed on to funds'
shareholders.\309\
---------------------------------------------------------------------------
\309\ See also supra footnote 123. We anticipate that this cost
is likely to be relatively small, as those funds would likely
provide the same or similar disclosure on subsequent filings of Form
N-PX. We estimate that a fund that chooses to provide this voluntary
disclosure may incur a cost of between $250 to $750 for the initial
disclosure but no material cost for each subsequent disclosure.
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[[Page 78797]]
The requirement for funds to disclose the number of shares a fund
voted and the number of shares the fund loaned and did not recall for
voting may reduce funds' securities lending activity and the associated
revenue for the fund and ultimately its shareholders.\310\
Specifically, in light of the increased transparency the amendments
will provide on funds' securities lending activities, some funds may
decide to recall their loaned securities to be able to vote the proxies
of these securities.\311\ A commenter expressed the view that the
proposed amendments' requirement to disclose loaned shares that are not
recalled may have negative effects on funds' ESG rankings, since
forgoing proxy voting may be perceived negatively by investors.\312\
One commenter also stated that an additional reason for funds to recall
loaned shares may be external pressures to support political or social
causes.\313\ Such incentive effects could be present for funds that
currently do not have a disclosed policy of recalling all shares ahead
of proxy voting.\314\ Any change in the fund's lending activity can
also affect the fund's adviser and its affiliates. For example, some
funds use securities lending agents that are affiliated with the fund's
adviser and that are compensated in their role as agent with a share of
the proceeds generated by the lending program.
---------------------------------------------------------------------------
\310\ Based on Form N-CEN filings received through May 2022,
63.9% of funds were authorized to engage and 38.8% participated in
lending their securities. Funds that lent their securities reported
aggregate net income from securities lending in the last year of
$1.9 billion, representing an average of 0.021% of average total net
assets in the last year. A number of commenters agreed that the
proposed amendments requiring disclosure of loaned shares may
incentivize funds to recall their loaned shares (or not to loan
shares in the first place), which could result in decrease in
revenues from securities lending for funds and their shareholders.
See, e.g., Pickard Comment Letter; Federated Hermes Comment Letter;
RMA Comment Letter; MFDF Comment Letter. A commenter agreed that
funds' changes in securities lending activity as a result of the
proposed amendments could impose other costs on funds. See IAA
Comment Letter.
\311\ See also Federated Hermes Comment Letter; RMA Comment
Letter; Utah Comment Letter.
\312\ See RMA Comment Letter.
\313\ See Utah Comment Letter.
\314\ See, e.g., Reena Aggarwal, Pedro A. C. Saffi, & Jason
Sturgess., The Role of Institutional Investors in Voting: Evidence
from the Securities Lending Market, 70 J. Fin. 2309, 2314 (2015)
(``Aggarwal, Saffi, & Sturges''), available at https://onlinelibrary.wiley.com/doi/10.1111/jofi.12284 (referencing a survey
of institutional investors in which 37.9% of the respondents stated
that a formal policy on securities lending is part of their proxy
voting policy, with some institutional investors requiring a total
recall of shares ahead of proxy voting, while others weigh the lost
income from securities lending against the benefits of voting on a
specific proposal).
---------------------------------------------------------------------------
Funds that decide to recall loaned securities ahead of proxy voting
would likely seek to lend their shares again immediately after the vote
record date in order to minimize lost revenues from security lending.
This is consistent with findings in academic research showing that the
supply of shares available to lend starts to decrease about 20 days
before the vote record date and reverts to its pre-event levels
immediately after the vote record date.\315\ However, as pointed out by
some commenters, funds that decide to recall shares to vote proxies may
not immediately be able to place the recalled shares back on loan after
the vote and their opportunities for participating in the securities
lending market may be diminished.\316\
---------------------------------------------------------------------------
\315\ See id., at 2316.
\316\ See, e.g., RMA Comment Letter; BlackRock Comment Letter.
---------------------------------------------------------------------------
We expect that funds will factor income from securities lending,
among other considerations, into their lending decision and recall
loaned securities when they expect the value of their voting rights
will exceed lost income from securities lending. This is consistent
with findings in academic research showing that the recall of shares
ahead of the voting record date is sensitive to the borrowing fee and
that recall is lower if the fee paid by borrowers is higher.\317\ Many
commenters agreed that the decision to recall loaned shares for proxy
voting is based on informed decisions by funds after factoring into
consideration costs and benefits of such decisions.\318\ While we
cannot predict the degree to which funds will recall loaned shares, and
the new amendments represent new potential costs and benefits for funds
to take into consideration (such as negative attention from activists),
one commenter stated that the proposed amendments would not likely
change funds' securities lending activities.\319\
---------------------------------------------------------------------------
\317\ See Aggarwal, Saffi, & Sturges, supra footnote 314, at
2328.
\318\ See, e.g., RMA Comment Letter; Federated Hermes Comment
Letter; Vanguard Comment Letter; Blackrock Comment Letter.
\319\ See Blackrock Comment Letter.
---------------------------------------------------------------------------
Since stock loans can be used for many different purposes,
including short selling, arbitrage, and hedge trading strategies,
changes in funds' securities lending practices can have an impact on
these activities, which may impose additional costs on market
participants. A number of commenters expressed the opinion that for
securities lending activity with high demand or low supply, recalls
from funds to cast proxy votes may decrease market liquidity, which
could increase trading costs in the given security, and may negatively
impact fund investors.\320\ For most securities, we expect that the
market for securities lending has sufficient depth to withstand these
short-term recalls by some funds ahead of the voting record date
without experiencing significant changes. One academic study estimated
that the equity lending market has a slack in supply with approximately
a quarter of a corporate issuer's market capitalization typically
available for lending and less than one-fifth of these shares being on
loan.\321\ Therefore, if some funds decided to recall their securities
to participate in proxy voting, other lenders may step in to supply
shares for loan on similar terms.\322\ This is consistent with findings
in some academic research noting that changes in borrowing fees during
the recall period tend to be economically small or insignificant.\323\
However, one commenter stated that funds will not be able to easily re-
lend their shares after voting, or may not be able to easily re-lend
them for the same rates as prior to voting, due to the readily
available supply of certain securities where lending supply is
significantly greater than borrower demand.\324\ While this could lead
to a loss of income for funds, because lending rates for readily
available securities are low (because the supply of such securities is
high, and the demand is low), this loss of income is likely to be
small.
---------------------------------------------------------------------------
\320\ See, e.g., RMA Comment Letter; Blackrock Comment Letter.
\321\ See Aggarwal, Saffi, & Sturges, supra footnote 314, at
2315.
\322\ A commenter agreed and stated that the vast majority of
lending activity (approximately 90% of outstanding loan balances)
will be a segment of the lending market with greater lending supply
compared to borrower demand. See RMA Comment Letter.
\323\ See Aggarwal, Saffi, & Sturges, supra footnote 314, at
2327. See also Susan Christoffersen, Christopher Geczy, David Musto,
& Adam Reed, Vote Trading and Information Aggregation, 62 J. Fin.
2897, 2912 (2007), available at https://www.jstor.org/stable/4622357.
\324\ See RMA Comment Letter.
---------------------------------------------------------------------------
Conversely, the impact on borrowing fees can be more pronounced for
hard-to-borrow stocks such as stocks with low lendable supply and/or
high borrowing demand, also known as ``special.'' \325\ If funds
recalled a significant number of shares of such stocks ahead of the
vote record date, this
[[Page 78798]]
would have the potential to impact the price \326\ or liquidity \327\
of stocks. In addition, a reduction in the ability to short shares may
negatively affect price discovery.\328\ However, ``special'' stocks are
typically associated with higher borrowing fees \329\ and, therefore,
as discussed above in this section, we would expect funds to be
reluctant to recall these shares from loan if the income from lending
them exceeds the benefits of participating in proxy voting. Consistent
with this, one academic study shows that the lendable supply of
``special'' stocks changes by less than that of the non-special stocks
prior to the vote record date.\330\ As a result, we expect the
amendments could have a more limited effect on securities lending
activities for special stocks relative to non-special stocks, which may
limit adverse effects on liquidity and price discovery.
---------------------------------------------------------------------------
\325\ The Aggarwal, Saffi, & Sturges study, supra footnote 314,
estimated that such special stocks represented about 9% of their
considered equity lending sample, which covers more than 85% of the
securities lending market. The study finds that ``special'' stocks
have a higher average annualized borrowing fee of 429 basis points,
compared with a fee of 9.3 basis points for the non-special stocks.
\326\ See, e.g. Jesse Blocher, Adam Reed, & Edward Van Wesep,
Connecting Two Markets: An Equilibrium Framework for Shorts, Longs,
and Stock Loans, 108 J. Fin. Econ. 302 (2013), available at https://doi.org/10.1016/j.jfineco.2012.12.006 (finding that when share loan
supply is ``reduced around dividend record dates, prices of hard-to-
borrow stocks increase 1.1% while prices of easy-to-borrow stocks
are unaffected''). While the study looked at the effect around the
dividend record date, it is possible that similar results could hold
around vote record dates.
\327\ See also supra footnote 320.
\328\ See, e.g., Ekkehart Boehmer & Juan Wu, Short Selling and
the Price Discovery Process, 26 Rev. Fin. Studies 2 (2013),
available at https://www.jstor.org/stable/23356856 (finding that
stock prices are more accurate when short sellers are more active).
\329\ See supra footnote 325.
\330\ See Aggarwal, Saffi, & Sturges, supra footnote 314, at
2323.
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One commenter stated that activists would seek to use the
proposal's required categorization of voting matters to sway funds
towards voting outcomes that are not for the benefit of fund
shareholders.\331\ To the extent that the concern is harm to fund
shareholders from a vote, we believe this is less likely if a fund's
adviser follows its fiduciary duty obligations. Specifically,
investment advisers are fiduciaries that owe duties of care and loyalty
to each client.\332\ To satisfy its fiduciary duty in making any voting
determination on behalf of a fund, an investment adviser must make
determinations in the best interest of its client. Further, an
investment adviser cannot place its own interests ahead of the
interests of its client.\333\
---------------------------------------------------------------------------
\331\ See Utah Comment Letter.
\332\ Commission Interpretation Regarding Standard of Conduct
for Investment Advisers, Investment Advisers Act Release No. 5248
(June 5, 2019) [84 FR 33669 (July 12, 2019)].
\333\ Proxy Voting Guidance, supra footnote 122.
---------------------------------------------------------------------------
Finally, the amendments could affect service providers used by
funds to report information on Form N-PX. Some commenters stated that
the proposed amendments could necessitate reconfiguration of their
processes.\334\ We agree that service providers that currently do not
provide the information with the same degree of uniformity that will be
required under the final rule will have to update their processes to
help funds meet the new requirements. These service providers may pass
on the costs of updating their processes to funds, and those costs may
therefore be borne in part by investors. Larger service providers may
be able to update or reform their operations with greater economies of
scale than smaller service providers. To the extent that this results
in consolidation of service providers, service provider prices may
increase more broadly, representing an additional potential cost to
funds and investors.
---------------------------------------------------------------------------
\334\ See ICI Comment Letter I; ISS Comment Letter.
---------------------------------------------------------------------------
Conversely, because the amendments require that funds identify a
voting matter using the exact same language and order found in a form
of proxy subject to rule 14a-4 under the Exchange Act, service
providers would save the cost currently associated with producing a
summary of the voting matter in these circumstances. Service providers
may pass some or all of the increased costs to fund advisers, who may
ultimately pass these costs on to fund investors.
2. Amendments To Require Manager Reporting of Say-on-Pay Votes
(a) Benefits
Under the amendments, managers will publicly disclose annually on
Form N-PX information about their proxy votes relating to say-on-pay
matters. The information will include: (1) if the form of proxy in
connection with a say-on-pay matter reported on the form is subject to
rule 14a-4 of the Exchange Act, a description and ordering of say-on-
pay matters using the same language that is on an issuer's form of
proxy, (2) a standardized classification, (3) the number of shares
voted and number of shares loaned and not recalled, and (4) how shares
were voted by the manager. Managers will be required to provide this
information in a custom XML language. However, managers are permitted
to file a notice report that omits voting information where either (1)
all proxy votes for which the manager exercised voting power are
reported by other reporting persons; (2) the manager did not exercise
voting power for any reportable voting matter and therefore does not
have any proxy votes to report; or (3) the manager has a clearly
disclosed policy of not voting, and did not vote, on any proxy voting
matter. Managers will be allowed to request confidential treatment of
proxy voting information electronically consistent with rule 24b-2.
The final rule may benefit the securities markets by providing
investors with access to information about how managers vote on
issuers' say-on-pay recommendations. As of March 31, 2022, managers
that file reports on Form 13F exercised investment discretion over
approximately $44.4 trillion in section 13(f) equity securities. In
many cases, managers also exercise voting power for proxies relating to
these equity securities. This voting power means that managers,
although making decisions only for the securities they manage, have the
ability to affect significantly the outcomes of shareholder votes and
influence the governance of corporations.
Recent academic literature shows that the requirement of holding
say-on-pay votes can have an impact on executive compensation and other
corporate governance practices for corporate issuers.\335\ The final
rule will enable investors to observe how managers exercised their
proxy votes regarding such matters.\336\ To the extent the information
contained in say-on-pay votes is understood and valued by
investors,\337\ investors can benefit from using this additional
information in selecting managers that vote say-on-pay matters
according to investor preferences.\338\
---------------------------------------------------------------------------
\335\ See Peter Iliev & Svetla Vitanova, The Effect of the Say-
on-Pay Vote in the United States, 65 Management Science 4451 (2019),
available at https://doi.org/10.1287/mnsc.2018.3062; James Cotter,
Alan Palmiter & Randall Thomas, The First Year of Say-on-Pay under
Dodd-Frank: An Empirical Analysis and Look Forward, 81 Geo. Wash. L.
Rev. 967 (2013), available at http://www.gwlr.org/wp-content/uploads/2013/04/Thomas.pdf.
\336\ A number of commenters agreed that the proposed amendments
will provide information about managers' proxy voting information in
an accessible form to the beneficiaries of managers. See, e.g.,
Morningstar Comment Letter. Some commenters also expressed the
opinion that the proposed amendments will help ensure that managers
follow stated policies on executive compensation. See, e.g., SCERS
Comment Letter.
\337\ See, e.g., David Larcker, Ronald Schneider, Brian Tayan,
and Aaron Boyd, 2015 Investor Survey Deconstructing Proxy
Statements--What Matters to Investors, Stanford University, RR
Donnelley, and Equilar Report (Feb. 2015), available at https://www.gsb.stanford.edu/faculty-research/publications/2015-investor-survey-deconstructing-proxy-statements-what-matters (finding that 58
percent of shareholders believe that say-on-pay is effective in
influencing or modifying pay practices).
\338\ Several commenters stated that the transparency provided
by the proposed amendments will help align managers' voting
decisions with clients' expectations and improve clients' oversight
over managers' proxy voting. See infra footnote 287. See, e.g.,
SCERS Comment Letter; The Shareholder Commons Comment Letter; PRI
Comment Letter.
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[[Page 78799]]
This information may also help deter votes motivated by conflicts
of interest and promote accountability of executives who often are in a
position to shape their own pay arrangements. To the extent that
executives are sensitive to approval from their institutional
shareholder base, the adoption of the final rule should help align the
incentives of executives and investors, which will result in better
corporate governance practices at corporate issuers.\339\
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\339\ A number of commenters expressed the view that the
proposed amendments will help investors and other users or proxy
voting information to evaluate managers and their influence over
corporate governance of issuer firms, See, e.g., Corporate
Governance Comment Letter; SCERS Comment Letter; Friess Comment
Letter.
---------------------------------------------------------------------------
Public companies currently subject to the Dodd-Frank Act's say-on-
pay vote requirements may also benefit from the transparency provided
by this rule. Knowing how managers have voted on executive compensation
matters in the past, and knowing how they voted on say-on-pay matters
at similar firms or other firms in the same industry, can be useful for
the companies as they consider their own executive compensation
practices and policies.
However, there may be cases where the information required to be
reported on Form N-PX may not provide the entire context of a manager's
proxy voting decision. For example, a commenter expressed the view that
disclosure of proxy voting may be difficult to interpret when managers
manage a range of different accounts with different policies and
guidelines for proxy voting.\340\ The commenter also stated that
ambiguity in the definition of when a manager exercised voting power
could lead to a situation where a manager may be required to report a
vote they did not agree with in cases where multiple managers provide
input on applying a client's voting policies but they ultimately
disagree on a voting decision.\341\
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\340\ See Pickard Comment Letter.
\341\ See, e.g., Pickard Comment Letter. See also supra section
II.B.2 for a detailed discussion of comments we received on this
aspect of the proposal.
---------------------------------------------------------------------------
Section IV.C.1.a discusses additional aspects of the proposal and
the associated comments we received in the context of funds. Our
analysis of the following aspects of the amendments in that context
also applies to these requirements in the context of reporting by
managers: i) the quantitative disclosures of the number of shares voted
and the number of shares loaned but not recalled, ii) the structured
disclosure requirement, and iii) the optional use of certain additional
identifiers such as LEIs and FIGIs. Our analysis of both aspects of the
amendments in the context of reporting by funds also applies to these
requirements in the context of reporting by managers.
(b) Costs
The final rule will lead to some additional direct and indirect
costs for managers associated with disclosing required information
about their say-on-pay votes annually on Form N-PX. A manager may incur
additional direct compliance costs associated with a filing if the
manager seeks confidential treatment for the filing by making, via
EDGAR, a confidential treatment request. Any portion of these costs
that is not borne by the manager will ultimately be borne by the
manager's clients. Some of these costs are a direct result of section
14A(d)'s statutory mandate for managers to report annually how they
have voted.
Direct costs to each manager will include both internal costs (for
compliance attorneys and other, non-legal staff, such as computer
programmers, to prepare and review the required disclosure and to
update systems) \342\ and external costs (such as any costs associated
with third-party service providers to collect and report the
information disclosed in Form N-PX).\343\ Direct costs also include the
cost associated with determining whether a manager has exercised voting
power and therefore must report a say-on-pay vote on Form N-PX. As
discussed above, this determination may require subjective
determinations by managers, and so there may be marginal cases where
managers must undertake additional costly internal assessments to
determine if they must report a say-on-pay vote.\344\ Managers may also
face additional costs to the extent they conservatively evaluate their
voting power, and ultimately conduct the required reporting in cases
where they may not have been required to report a say-on-pay voting of
a security. For example, as observed above, one commenter stated that
ambiguity in the definition of when a manager exercised voting power
could lead to a situation where a manager may be required to report a
vote in cases where multiple managers provide input on applying a
client's voting policies, even if they ultimately disagree on the
voting decision.\345\
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\342\ Several commenters pointed out that reporting persons may
need to update existing systems. See, e.g., ICI Comment Letter I,
Ultimus Comment Letter.
\343\ Based on the results of the PRA analysis provided in Table
2, the Commission estimates that the annual direct costs
attributable to information collection requirements in the
amendments for managers will be approximately $10,308 per manager,
consisting of $7,808 in internal costs and $2,500 in external costs.
These annual direct costs include initial as well as ongoing costs,
with the former amortized over three years. For purposes of this
estimate, we are assuming that every manager will file its full
record of say-on-pay votes on ``voting'' report, and not file a
``notice'' report.
\344\ See also supra footnote 41 and accompanying text,
discussing that the framework for determining voting power could
result in some subjectivity and the comments we received on this
aspect of the proposal.
\345\ See, e.g., Pickard Comment Letter. See also supra section
II.B.2 for a detailed discussion of comments we received on this
aspect of the proposal.
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We anticipate that costs for managers associated with obtaining the
information required to be reported by the final rule will be limited
to the extent that many managers may already track most of the
necessary data.\346\
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\346\ See, e.g., CFA/CII Comment Letter (stating that the cost
of complying with the proposed amendments ``will be borne most by
smaller funds and managers'' but that ``many smaller funds and
managers may already track or report this information.'').
---------------------------------------------------------------------------
As discussed in section IV.C.1.b in the context of funds,
commenters have observed that not all custodians currently provide
their customers with the information that managers will need to report
the number of shares the manager loaned but did not recall. We
therefore anticipate that managers that currently do not have access to
this data will engage their custodians or securities lending agents to
obtain it. These service providers may then increase the fees they
charge to compensate for any costs of providing this information, which
may be passed down to investors.
In a departure from the proposal, managers that have a disclosed
policy of not voting proxies and that did not vote during the reporting
period, will be permitted to indicate as such, and will therefore incur
lower costs compared to the proposal, which would have required them to
report information on a security-by-security basis.
Some commenters expressed concerns about the costs and burdens
borne by smaller managers. For example, according to these commenters,
to comply with the proposed amendments, these smaller managers may hire
a vendor which they currently do not use.\347\ However, other
commenters expressed a different view. According to these other
commenters, while smaller managers may incur new costs, they are likely
to have the information that they
[[Page 78800]]
need to report already. Therefore, these commenters anticipate that
incremental costs may not be unduly burdensome for most of the smaller
managers.\348\ Nevertheless, we have increased our burden estimates to
account for these costs.\349\
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\347\ See ICI Comment Letter I; Ultimus Comment Letter.
\348\ See, e.g., CFA Comment Letter.
\349\ See infra section V for the revised PRA analysis.
---------------------------------------------------------------------------
The costs arising from the final rule to use Form N-PX to implement
section 14A's say-on-pay vote reporting requirements will be mitigated
for managers that are advisers to funds and that therefore already have
experience with filing Form N-PX reports on behalf of funds. In
addition, the use of a custom XML data language for Form N-PX is not
expected to impose significant costs on managers subject to say-on-pay
voting requirements, as managers have experience filing other EDGAR
forms that use similar custom XML data languages, such as Form 13F. The
Commission believes that managers will incur an estimated cost of $540
per filing to file Form N-PX in a custom XML data language.\350\
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\350\ See Short Position and Short Activity Reporting by
Institutional Investment Managers, Exchange Act Release No. 94313
(Feb. 25, 2022) [87 FR 14950, 14973 (Mar. 16, 2022)].
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With respect to the LEI reporting requirement on Form N-PX, some
managers may be subject to LEI reporting requirements pursuant to
Commission rules. For example, managers that are registered investment
advisers provide their LEI on Form ADV if they have one.\351\ For these
managers, compliance costs associated with retrieving and retaining
LEIs are similarly reflected in the baseline.
---------------------------------------------------------------------------
\351\ See Item 1.P of Form ADV.
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We also do not expect the FIGI disclosure on Form N-PX to result in
significant additional compliance costs for managers, because the
disclosure of FIGIs is optional rather than mandatory. We likewise do
not expect the requirement to report ISINs rather than CUSIP numbers,
where CUSIP numbers are not available through reasonably practicable
means, to impose significant additional compliance costs on managers.
Managers that report securities other than 13(f) securities and that do
not already store ISINs for those securities would incur additional
costs as a result of this requirement, because they would need to pay
fees to license the storing of ISINs for those securities. By contrast,
the requirement to report ISINs would not affect managers that report
only 13(f) securities, because all 13(f) securities have CUSIP numbers
and do not have ISINs. We do not have data on which to estimate the
number of managers that could be affected or the extent to which such
managers hold non-section 13(f) securities.
The electronic submission of confidential treatment requests via
EDGAR obviates the need for filers to incur printing and mailing costs
associated with paper submissions. In addition, managers are
experienced in using the EDGAR system, which further mitigates the
costs of filing these requests electronically. The Commission believes
that managers will not incur an additional cost for submitting
confidential treatment requests via EDGAR as compared to filing these
requests in paper form.\352\
---------------------------------------------------------------------------
\352\ See E-Filings Release, supra footnote 204, at section V.D.
---------------------------------------------------------------------------
The costs associated with the final rule may vary depending on
existing levels of voluntary disclosure, organizational structure, and
investment objectives of each manager. For example, the cost of
compliance with the final rule is likely to be lower for managers that
exercise voting power on behalf of funds because such votes are already
reported on Form N-PX, and the amendments will not require managers to
separately report say-on-pay votes cast on behalf of funds in
compliance with the joint reporting provisions. Also, the costs are
likely to be lower for managers who already voluntarily track and
disclose some of the data the final rule would require.
Some of the indirect costs to managers associated with the
amendments will be the same as those discussed in the context of funds
in section IV.C.1.b. Specifically, to the extent that the amendments
may provide an incentive for managers to devote additional time and
resources to proxy voting, this may result in additional expenses for
managers, some of which may be passed on to their clients. Also, an
increase in scrutiny by investors as a result of increased transparency
under the amendments may incentivize managers to vote against the
management of an issuer with which the manager may have a business
relationship, which could weaken the manager's relationship with the
issuer firm and result in lost revenue.
Similarly, the disclosure requirements for managers can create
incentives for them to recall their loaned securities to cast proxy
votes on say-on-pay matters for these securities. This can reduce these
managers' and their clients' revenues and may have a short-term impact
on the securities lending and underlying stock markets.\353\ In
addition, some managers may decide to voluntarily incur the cost for
providing additional information on Form N-PX to provide context for
the disclosure of the number of shares the manager loaned and did not
recall for voting, some of which may be passed on to their
clients.\354\
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\353\ See supra footnotes 253--258 and accompanying text for the
discussion related to the effect on securities lending for funds and
the potential effects on underlying markets, which would also apply
to changes in managers' securities lending activities.
\354\ See also supra footnote 123. As discussed in the context
of funds, we anticipate that this cost is likely to be relatively
small, as those managers (like funds) would likely provide the same
or similar disclosure on subsequent filings of Form N-PX. We
estimate that a fund that chooses to provide this voluntary
disclosure may incur a cost of between $250 to $750 for the initial
disclosure but no material cost for each subsequent disclosure.
---------------------------------------------------------------------------
Finally, the amendments could affect service providers used by
managers to report information on Form N-PX. Specifically, service
providers that currently do not provide the information with the same
degree of uniformity that will be required under the final rule will
have to update their processes to help managers meet the new
requirements. Service providers may pass some or all of the changes in
costs they will incur to their manager customers, who may ultimately
pass these costs on to their clients.\355\
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\355\ See supra footnote 334 and accompanying text for a
discussion of the comments received on this aspect of the proposal.
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D. Effects on Efficiency, Competition, and Capital Formation
In this section we consider whether the final rule and form
amendments will promote efficiency, competition, and capital formation.
1. Amendments to Funds' Reporting of Proxy Votes
The amendments to Form N-PX will provide investors with greater
access to information regarding the proxy voting decisions of the funds
they invest in. This can help investors make better informed investment
decisions if they want to take into account funds' voting records, and
thus more efficiently express their voting preferences. To the degree
that some investors face meaningful impediments to switching funds, for
example as a result of possible tax implications or because of the
selection of asset managers by their current employer, this may in
those cases limit the improvement in allocative efficiency.\356\
Conversely, to the extent that the additional information disclosed on
Form N-PX leads some investors to accept lower returns (for a given
level of risk) in exchange for investing in funds that
[[Page 78801]]
better align with their political, social, or other preferences, this
could reduce the overall allocative efficiency of capital in the
economy.
---------------------------------------------------------------------------
\356\ Cf. supra footnote 268 and accompanying text.
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The amendments will also make it easier for investors and other
proxy voting data users to compare and evaluate proxy voting records
across a wide variety of funds. This may improve competition among
funds, to the extent that funds seek to differentiate themselves based
on their voting records.\357\ For example, a fund that follows a
strategy designed to provide good governance to its portfolio companies
may be able to show a track record of more effective proxy voting
patterns relative to their peers that follow similar strategies but
less effectively. This can further promote a more efficient allocation
of capital by investors among competing funds. Further, as proxy voting
information becomes easier to gather and analyze, data-collecting
service providers can face an increased competitive pressure to improve
and develop new tools and methodologies and/or reduce their service
fees.
---------------------------------------------------------------------------
\357\ Some commenters expressed the view that enhanced proxy
voting disclosure from the proposed amendments will help investors
and regulators become more informed, which can promote competition
among funds and protect investors and general public from the
concentration of power in the asset management industry. See, e.g.,
Friess Comment Letter; Corporate Governance Comment Letter.
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Finally, the increased transparency with regard to funds' proxy
voting may encourage more investors to invest in funds, which may
increase capital formation.\358\ In addition, to the extent that the
final rule leads funds to make voting decisions that positively affect
corporate issuers' productive use of capital, this could also enhance
capital formation.\359\
---------------------------------------------------------------------------
\358\ See, e.g., Flores Comment Letter.
\359\ Cf. supra footnote 274 and accompanying text.
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2. Amendments To Require Manager Reporting of Say-on-Pay Votes
The amendments to require manager reporting of say-on-pay votes can
promote more efficient allocation of capital to managers. The
amendments will enable investors, including investors who are not
currently advisory clients of any given manager, to obtain managers'
proxy voting information which, to the extent that investors review the
disclosures, can help investors allocate assets to managers who cast
proxy votes that are consistent with investors' preference for voting
on executive compensation matters.\360\
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\360\ Many commenters agreed that enhanced proxy voting
disclosure from the proposed amendments can help investors to align
their interests on important topics (e.g., ESG) with those of
managers. See, e.g., SCERS Comment Letter; LTSE Comment Letter; The
Shareholder Commons Comment Letter; Corporate Governance Comment
Letter.
---------------------------------------------------------------------------
Because the final rule applies equally to all managers that are
required to file reports under section 13(f) of the Exchange Act, we do
not anticipate that any competitive disadvantages will be created. To
the contrary, we anticipate that the final rule may encourage
competition by raising awareness about manager voting on say-on-pay
matters and may facilitate differentiation among managers.
Finally, we do not anticipate any significant effects of the
amendments on capital formation.
E. Reasonable Alternatives
1. Scope of Managers' Say-on-Pay Reporting Obligations
We considered several alternatives that would limit the scope of
managers' say-on-pay reporting obligations by more closely aligning
managers' reporting requirements on Form N-PX with their reporting
requirements on Form 13F.\361\
---------------------------------------------------------------------------
\361\ We also considered alternatives to the definition of the
exercise of voting power. See supra section II.B.2 for a discussion
of these alternatives and the comment letters we received on this
aspect of the proposal.
---------------------------------------------------------------------------
One alternative we considered was to add a de minimis exception.
Reporting persons on Form 13F are permitted to exclude positions when
the positions have a dollar value of less than $200,000 and consist of
fewer than 10,000 shares. Several commenters suggested that we include
such a de minimis exception.\362\ We also considered other alternatives
suggested by commenters. Specifically, we considered limiting the
reporting obligation to (i) votes on section 13(f) securities,\363\
(ii) votes on securities held at the end of a calendar quarter,\364\
and (iii) exclude short-term positions such as those held for fewer
than 30 days.\365\
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\362\ See Pickard Comment Letter; MFA Comment Letter; AIMA
Comment Letter.
\363\ See supra footnote 48 and accompanying text.
\364\ See supra footnote 52 and accompanying text.
\365\ See supra footnote 53 and accompanying text.
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The benefits of say-on-pay vote reporting to managers' clients and
to other investors, as discussed above, do not appear to be limited to
votes of a certain size, to section 13(f) securities, or securities
held at the end of a calendar quarter or those held for longer periods
of time. Investors should benefit from a manager's full voting record,
and a more limited reporting obligation would reduce the usefulness of
the say-on-pay disclosure. We also believe that the cost savings of
limiting the scope of the reporting requirement in any of these
alternative ways would be minimal, because many reporting entities may
already track or report this information.\366\ To the extent that a
filing could reveal information about a reporting person's trading
strategy that would permit it to be front-run, we believe that the
instructions for requesting confidential treatment will adequately
address this concern.
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\366\ See supra footnote 306.
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We also considered as an alternative allowing managers to not file
on Form N-PX when they did not exercise voting power over securities
that held say-on-pay votes during the reporting period. We do not
believe this alternative would substantially reduce costs for relevant
managers relative to the final rule because the final rule only
requires these managers to file a notice report indicating that they
have no votes to report. Moreover, we believe that requiring all
managers to make a filing will permit Commission staff to identify more
easily managers who may have missed a filing obligation. Not requiring
all managers to make a filing would reduce the usefulness of Form N-PX
filings because investors will not necessarily understand whether a
manager did not make a filing because it did not exercise voting power
or because it simply neglected to file the form. In addition, we
believe that other means for managers to disclose that they have no
votes to report, such as by publishing that information on a website,
would not be substantially less costly than filing a notice report as
required by the final rule and would be less useful for Commission
oversight.
2. Amendments to Proxy Voting Information Reported on Form N-PX
We are adopting changes to Form N-PX that will require disclosure
of information about the number of shares that were voted (or, if not
known, the number of shares that were instructed to be cast), as well
as disclosure of the number of shares the reporting person loaned and
did not recall.
We considered adopting a requirement to disclose the number of
shares voted (or instructed to be cast) while not requiring disclosure
of the number of shares the reporting person loaned but did not recall.
This approach would have provided information to understand split
votes, but would have limited utility otherwise. Specifically, this
approach would not provide information to help investors understand the
full extent to which a reporting person is voting shares. While the
alternative approach would reduce reporting burdens for some funds and
[[Page 78802]]
managers, it would also have fewer benefits for investors such as
transparency into how a reporting person's securities lending affects
its proxy voting.\367\
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\367\ See supra section II.C.3.b for detailed discussion.
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3. Amendments to the Time of Reporting on Form N-PX or Placement of
Funds' Voting Records
As an alternative to maintaining the current timeline for filing
reports on Form N-PX, we considered requiring funds or managers to
report relevant proxy votes more frequently, such as on a semiannual,
quarterly, or monthly basis, or shortly after a given vote is held. We
also considered maintaining the current annual reporting requirement
but requiring reporting persons to file their reports more quickly
(e.g., by the end of July, rather than by the end of August). In
general, these alternatives would provide investors and other data
users with more timely information about how a fund or manager votes.
A semiannual reporting requirement could have been incorporated
into funds' current reporting of annual and semiannual shareholder
reports on Form N-CSR. The Commission proposed a similar approach to
requiring disclosure of funds' proxy voting records in 2002.\368\ At
that time, some commenters raised concern about the burdens of such an
approach for fund complexes with staggered fiscal year ends, as these
fund complexes could be required to file reports on Form N-CSR with
complete proxy voting records as many as twelve times per year.\369\ An
approach to requiring more frequent reporting of proxy voting records
that is tied to funds' fiscal year ends would likely create
administrative complexity for many fund complexes and increase costs
associated with filing proxy voting information more frequently.
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\368\ See Disclosure of Proxy Voting Policies and Proxy Voting
Records by Registered Management Investment Companies, Investment
Company Act Release No. 25739 (Sept. 20, 2002) [67 FR 60828 (Sept.
26, 2002)].
\369\ See 2003 Adopting Release, supra footnote 4. We did not
receive comments on this alternative.
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As for a semiannual or quarterly reporting requirement on Form N-PX
that is based on the calendar year, either of these approaches may not
significantly enhance the timeliness of voting information in many
cases because most corporate issuers hold proxy votes within the few
months leading up to June 30, which is the end of the current Form N-PX
annual reporting period. As a result, if we required semiannual or
quarterly reporting of Form N-PX, most votes would likely be in the
reporting person's report for the first half of the year (for
semiannual reports) or for the second calendar quarter (for quarterly
reports). A semiannual or quarterly reporting requirement would also
increase reporting costs, as reporting persons would be required to
file either two or four Form N-PX reports per year rather than one
report per year.
A requirement to report monthly or shortly after each proxy vote is
held would have provided voting information much more quickly to
investors and this could have provided certain benefits. For example,
timelier public reporting of funds' proxy votes has the potential to
facilitate fund shareholders' ability to monitor their funds'
involvement in the governance activities of portfolio companies,
including within a single proxy season. Annual reporting will timely
capture a significant percentage of the votes cast by reporting persons
because most votes occur during Proxy Season. As discussed above in
section II.H, while some commenters supported more frequent reporting,
for example suggesting that reporting persons be required to provide
prompt or real-time disclosure of votes, this frequency of reporting
may make it difficult for investors reading a reporting person's Form
N-PX reports to evaluate overall patterns in the reporting person's
voting behavior.
Also, these alternative approaches would require reporting persons
to disclose a position in a security before disclosure of the position
is required on Form 13F or Form N-PORT, increasing the potential for
disclosure of sensitive information that competitors can use to front-
run or reverse engineer investing strategies. In addition, we expect
that both alternative approaches would increase costs associated with
reporting proxy voting information because reporting would take place
more frequently.
Shortening the timeline for filing annual Form N-PX reports, which
is currently approximately two months after the end of the reporting
period, would marginally improve the timeliness of the reported
information. However, shortening the filing timeline by more than a few
weeks would also increase the possibility of a reporting person being
required to disclose a vote on a security before otherwise being
required to disclose a position in that security on Form 13F or Form N-
PORT. As a result, this approach could to some extent increase the
potential for disclosure of sensitive information that competitors
could potentially use to front-run or reverse engineer investing
strategies.
V. Paperwork Reduction Act Analysis
Certain provisions of the final rules and form amendments contain
``collection of information'' requirements within the meaning of the
Paperwork Reduction Act of 1995 (``PRA'').\370\ The Commission
published a notice requesting comment on changes to these collection of
information requirements in the Proposing Release and submitted these
requirements to the Office of Management and Budget (``OMB'') for
review in accordance with the PRA.\371\ The title for the collection of
information is: ``Form N-PX--Annual Report of Proxy Voting Record''
(OMB Control No. 3235-0582).\372\ An agency may not conduct or sponsor,
and a person is not required to respond to, a collection of information
unless it displays a currently valid OMB control number.
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\370\ 44 U.S.C. 3501 et seq.
\371\ 44 U.S.C. 3507(d); 5 CFR 1320.11.
\372\ The title for the collection of information relating to
Form N-PX will be renamed from ``Form N-PX--Annual Report of Proxy
Voting Record of Registered Management Investment Companies.''
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Section 14A(d) of the Exchange Act requires that every manager
subject to section 13(f) of the Exchange Act report at least annually
how it voted on say-on-pay votes, unless such vote is otherwise
required to be reported publicly by rule or regulation of the
Commission. To implement section 14A(d), we are adopting new rule 14Ad-
1 under the Exchange Act, which will require managers to file their
record of say-on-pay votes with the Commission annually on Form N-
PX.\373\ We are also adopting amendments to Form N-PX, which was
adopted pursuant to section 30 of the Investment Company Act and is
currently used by funds to file their complete proxy voting records
with the Commission, to accommodate the new filings by managers and to
enhance the information funds provide on their proxy votes. In
addition, we are adopting amendments Forms N-1A, N-2, and N-3 to
require funds to disclose that their proxy voting records are available
on (or through) their websites. Although the website availability
requirement will be located in the relevant registration form, we are
reflecting the burden for these requirements in the burden estimate for
Form N-PX--Annual Report of Proxy
[[Page 78803]]
Voting Record, and not in the burden for Forms N-1A, N-2, or N-3.
---------------------------------------------------------------------------
\373\ For purposes of the PRA analysis, the burden associated
with the requirements of rule 14Ad-1 is included in the collection
of information requirements of Form N-PX.
---------------------------------------------------------------------------
Form N-PX, including the amendments, contains collection of
information requirements. Compliance with the disclosure requirements
of the form is mandatory. Responses to the disclosure requirements will
not be kept confidential unless granted confidential treatment as
discussed above.
Approximately 12,492 funds and series (each a ``portfolio'') file
on Form N-PX.\374\ We estimate that the 12,492 portfolios are composed
of approximately 5,496 portfolios that do or may hold equity
securities, 2,339 portfolios holding no equity securities, and 1,619
portfolios holding fund securities (i.e., funds of funds).\375\ In
addition, the Commission estimates that there are approximately 8,147
managers required to file Form 13F reports with the Commission, which
will be required to file Form N-PX reports under the amendments.\376\
---------------------------------------------------------------------------
\374\ See supra footnote 235 and accompanying text.
\375\ Based on Commission data as of December 31, 2021, of
these, approximately 1,619 are funds of funds. Of the remaining
10,873, we estimate that 49% (5,332) are funds or series that invest
primarily in equity securities, 6% (614) are ``hybrid'' funds or
series that may hold some equity securities (5,332 + 614 = 5,496),
22% (2,339) are bond funds or series that hold no equity securities
and 2% (250) are money market fund portfolios that hold no equity
securities (2,339 + 250 = 2,588). See ICI 2022 Fact Book, supra
footnote 2, at 170-214.
\376\ See supra footnote 241. We assume, for purposes of our PRA
analysis, that all of these filers are filing a complete Form N-PX.
Because some managers will not make a full report but instead will
file notice reports, for example those that have a clearly disclosed
policy of not voting, and did not vote, on any proxy matters during
the reporting period, the burden estimates may be overstated. We
lack the data, however, to estimate the number of managers who will
file notice reports. Form 13F-NT filers report their holdings on the
Form 13F-HR of a different filer; while certain of those filers may
be eligible to use the joint reporting provisions of Form N-PX, we
have assumed for the purpose of this analysis that they will file
their own reports on Form N-PX.
---------------------------------------------------------------------------
We also estimate that managers will file approximately 234
amendments to Form N-PX reports as a result of the final adverse
disposition of a request for confidential treatment or upon expiration
of confidential treatment.\377\ For purposes of this estimate, we are
assuming that every manager will file its full record of say-on-pay
votes on ``voting'' report, and not file a ``notice'' report. In
practice, because certain managers exercise voting power over the same
securities as other managers, or exercise voting power over say-on-pay
votes that funds already report, the number of parties who need to
separately maintain records and prepare filings may be lower.
---------------------------------------------------------------------------
\377\ This is based on the number of Form 13F filers as of the
first quarter of 2022. In addition to these 8,147 filers, we also
received 936 amendments to filings covering one of the four quarters
in 2021; consistent with the proposal, for purposes of this
analysis, we have included these amendment filings in our analysis
divided by four. Consistent with the proposal, for purposes of this
estimate, we are conservatively assuming that all amendments filed
are related to the adverse disposition of a request for confidential
treatment or the expiration of confidential treatment, and that this
results in the full burden of a new Form N-PX filing being borne by
the manager. We do so even though we recognize that Form 13F
amendments also are filed to correct errors or omissions in a filing
that does not relate to a request for confidential treatment.
Consistent with the proposal, our estimate does not allocate a
separate burden to amendments that merely correct errors or
omissions in a separate filing. For that reason, and because we
assume funds will not file confidential treatment-related
amendments, we are not including a burden estimate for amendments
filed by funds. See Proposing Release, supra footnote 5, at n.270
and accompanying text.
---------------------------------------------------------------------------
While several commenters provided comments on the potential costs
of the proposed amendments, no commenters specifically addressed our
PRA analysis.\378\ Two commenters stated that some reporting persons
use service providers in the reporting process and that the proposed
amendments could necessitate reconfiguration of the processes those
service providers use.\379\ One commenter suggested that proxy voting
advisory firms will undertake much of the work of vote categorization,
which will result in costs for funds for their services.\380\ The
commenter also stated that smaller funds that do not currently use an
outside vendor to file Form N-PX may engage one as a result of the
rule. On the other hand, a commenter stated that, while certain funds
may bear new costs, funds may already track much of the information
they will be required to report; the increased costs would thus only be
due to transferring existing data onto a new form, rather than
designing a new process to track the information in the first
place.\381\ In addition, several commenters stated that lent share
disclosure may be burdensome to implement.\382\
---------------------------------------------------------------------------
\378\ See supra section II.
\379\ See ICI Comment Letter I; ISS Comment Letter.
\380\ See ICI Comment Letter I.
\381\ See CFA Institute/CII Comment Letter.
\382\ See, e.g., Blackrock Comment Letter.
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Conversely, as discussed above, the amendments as adopted have been
modified in some respects from the proposal. While we recognize that
some of these changes may increase the burdens on respondents from what
was proposed, for example, by necessitating that reporting persons
ensure that LEI information is included on Form N-PX where applicable,
the balance of these changes should reduce burdens on respondents. For
example, the change that consolidates the proposed categories and
removes the proposed subcategories as part of the categorization
requirement should lower burdens on respondents by simplifying the
categorization process resulting in less time taken in completing the
form as compared to the proposal. As a result, while the amendments as
adopted address many of the cost concerns suggested by commenters we
are nonetheless increasing our burden estimates to account for the
costs of the amendments as suggested by commenters. Regarding service
providers, because not all filers use service providers, for PRA
purposes, we have assumed that all burdens associated with the
modifications will be incurred by filers, even if in certain cases it
would be incurred by the service provider and passed on to the filer in
the form of added costs.
The tables below summarize the proposed and final Form N-PX
estimates of the initial and ongoing annual burden associated with the
amendments.
Table 2--Form N-PX PRA Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
Internal Internal Annual
initial burden annual burden Wage rate \2\ Internal time external cost
hours hours \1\ costs burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
Proposed Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
Funds Holding Equity Securities
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated annual burden of current Form N-PX per .............. 7.2 x \3\ $373 $2,686 $1,000
response..............................................
Estimated initial burden to accommodate new reporting 24 8 x \4\ 325 2,600 ..............
requirements..........................................
Additional estimated annual burden associated with .............. 10 x \5\ 335 3,350 500
amendments to Form N-PX...............................
Proposed website availability requirement \6\.......... .............. 0.5 x \6\ 254 127 ..............
[[Page 78804]]
Estimated number of annual responses \8\............... .............. x 7,064 ............... .............. x 7,064 x 7,064
------------------------------------------------------------------------------------------------
Total annual burden................................ .............. 181,545 ............... .............. 61,901,832 10,596,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Funds Not Holding Equity Securities
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated annual burden of current Form N-PX per .............. 0.17 x \3\ 373 63 ..............
response..............................................
Additional estimated annual burden associated with .............. .............. ............... .............. .............. ..............
amendments to Form N-PX...............................
Estimated number of annual responses \8\............... .............. x 3,188 ............... .............. x 3,188
------------------------------------------------------------------------------------------------
Total annual burden................................ .............. 542 ............... .............. 200,844
--------------------------------------------------------------------------------------------------------------------------------------------------------
Funds of Funds
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated annual burden of current Form N-PX per .............. 1 x \3\ 373 373 100
response..............................................
Additional estimated annual burden associated with .............. 0.5 x \3\ 373 187 100
amendments to Form N-PX...............................
Proposed website availability requirement \6\.......... .............. 0.5 x \6\ 254 127 ..............
Estimated number of annual responses \8\............... .............. x 1,367 ............... .............. x 1,367 x 1,367
------------------------------------------------------------------------------------------------
Total annual burden................................ .............. 2,734 ............... .............. 939,129 273,400
--------------------------------------------------------------------------------------------------------------------------------------------------------
Institutional Investment Managers
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes to systems to accommodate new reporting 30 10 x \9\ 325 3,250 ..............
requirements..........................................
Estimated annual burden associated with Form N-PX .............. 5 x \10\ 335 1,675 1,000
filing requirement....................................
Estimated number of annual responses \11\.............. .............. x 7,744 ............... .............. x 7,744 x 7,744
------------------------------------------------------------------------------------------------
Total annual burden................................ .............. 116,160 ............... .............. 38,139,200 7,744,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Final Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
Funds Holding Equity Securities
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated annual burden of current Form N-PX per .............. 7.2 x \3\ 400 2,880 1,000
response..............................................
Estimated initial burden to accommodate new reporting 36 12 x \4\ 349 4,188 \13\ 500
requirements \12\.....................................
Additional estimated annual burden associated with .............. 12 x \5\ 349 4,188 \13\ 1,000
amendments to Form N-PX \12\..........................
Website availability requirement \6\................... .............. 0.5 x \6\ 272 136 ..............
Estimated number of annual responses \8\............... .............. x 5,496 ............... .............. x 5,496 ..............
------------------------------------------------------------------------------------------------
Total annual burden................................ .............. 188,490 ............... .............. 67,737,479 14,865,142
--------------------------------------------------------------------------------------------------------------------------------------------------------
Funds Not Holding Equity Securities
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated annual burden of current Form N-PX per .............. 0.17 x \3\ 400 68 ..............
response..............................................
Additional estimated annual burden associated with .............. .............. ............... .............. .............. ..............
amendments to Form N-PX...............................
Estimated number of annual responses \8\............... .............. x 2,588 ............... .............. x 2,588 ..............
------------------------------------------------------------------------------------------------
Total annual burden................................ .............. 440 ............... .............. 176,005 ..............
--------------------------------------------------------------------------------------------------------------------------------------------------------
Funds of Funds
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated annual burden of current Form N-PX per .............. 1 x \3\ 400 400 100
response..............................................
Additional estimated annual burden associated with .............. 0.5 x \3\ 400 200 100
amendments to Form N-PX...............................
Website availability requirement \6\................... .............. 0.5 x \6\ 272 $136 ..............
Estimated number of annual responses \8\............... .............. x 1,619 ............... .............. x 1,619 x 1,619
------------------------------------------------------------------------------------------------
Total annual burden................................ .............. 3,238 ............... .............. 1,191,584 323,800
--------------------------------------------------------------------------------------------------------------------------------------------------------
Institutional Investment Managers
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes to systems to accommodate new reporting 45 15 x \9\ 349 5,235 \13\ 500
requirements \12\.....................................
Estimated annual burden associated with Form N[dash]PX .............. 7.5 x \10\ 343 2,573 \13\ 2,000
filing requirement\12\................................
Estimated number of annual responses \11\.............. .............. x 8,381 ............... .............. x 8,381 x 8,381
------------------------------------------------------------------------------------------------
Total annual burden................................ .............. 188,572 ............... .............. 65,438,848 20,952,500
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
Currently Approved Burden.............................. .............. 47,984 ............... .............. .............. 17,657,958
Additional Burden Associated with Amendments........... .............. 332,757 ............... .............. .............. 18,483,484
------------------------------------------------------------------------------------------------
[[Page 78805]]
Total Burden....................................... .............. 380,741 ............... .............. .............. 36,141,445
--------------------------------------------------------------------------------------------------------------------------------------------------------
Certain products and sums do not tie due to rounding.
\1\ Includes initial burden estimates amortized over a three-year period.
\2\ The Commission's estimates of the relevant wage rates are based on salary information for the securities industry compiled by the Securities
Industry and Financial Markets Association's Office Salaries in the Securities Industry 2013. The estimated figures are modified by firm size,
employee benefits, overhead, and adjusted annually to account for the effects of inflation, with the last adjustment occurring in early 2022 (or 2021
in the case of estimates from the proposal). See Securities Industry and Financial Markets Association, Report on Management & Professional Earnings
in the Securities Industry 2013.
\3\ Represents the estimated hourly wage rate of a compliance attorney.
\4\ Represents the blended estimated hourly wage rates of a programmer and a compliance attorney and includes, inter alia, the costs of obtaining from
service providers data on the number of shares on loan but not recalled. In the case of the final estimates, the blended hourly rate is based on 18
hours for a programmer at $297 per hour and 18 hours for a compliance attorney at $400 per hour.
\5\ Represents the blended estimated hourly wage rates of a programmer and a compliance attorney. In the case of the final estimates, the blended hourly
rate is based on 6 hours for a programmer at $297 per hour and 6 hours for a compliance attorney at $400 per hour.
\6\ While the amendments will require funds to disclose that their proxy voting records both are available on fund websites and will be delivered to
investors upon request, the Form N-PX PRA estimates includes only the burdens associated with website posting. Funds' registration forms currently
require them to disclose that they either make their proxy voting records available on their websites or deliver them upon request. We understand most
funds deliver proxy voting records upon request and, therefore, the burdens of delivery upon request are already included in the information
collection burdens of each relevant registration form.
\7\ Represents the estimated hourly wage rate of a webmaster.
\8\ These estimates are conducted for each fund portfolio, not for each filing, and are an average estimate across all Form N-PX reporting persons. In
certain cases, a single Form N-PX filing will report the proxy voting records of multiple fund portfolios. In those circumstances, the reporting
person will bear the burden associated with each fund portfolio it reported. This average estimate takes into account higher costs for funds filing
reports for multiple portfolios without assuming any economies of scale that multiple-portfolio fund complexes may be able to achieve.
\9\ Represents the blended estimated hourly wage rates of a programmer and a compliance attorney. In the case of the final estimates, the blended hourly
rate is based on 22.5 hours for a programmer at $297 per hour and 22.5 hours for a compliance attorney at $400 per hour.
\10\ Represents the blended estimated hourly wage rates of a programmer and a compliance attorney. In the case of the final estimates, the blended
hourly rate is based on 3 hours for a programmer at $297 per hour and 4.5 hours for a compliance attorney at $400 per hour.
\11\ At proposal, included 7,550 initial filings and assumed an additional 194 filings as a result of the final adverse disposition of a request for
confidential treatment or upon expiration of confidential treatment. Now includes 8,147 initial filings and estimates an additional 234 filings.
\12\ The Commission's estimates of the internal initial and annual time burdens associated with the amendments have been increased by 50% compared to
the proposal.
\13\ In light of comments and modifications to the proposal, the Commission's estimates of the external ongoing costs associated with the amendments
have been doubled compared to the proposal, and the Commission has additionally included estimated initial costs of compliance. While the specific
external costs will vary depending on the reporting person, this could include the costs of external reporting vendors or external counsel or of
reporting in a custom XML data language. See footnote 343. Costs are estimated on a per-portfolio (not per-fund complex) basis, and as noted by a
commenter, larger fund complexes may be able to achieve greater economies of scale. The same may also be true of managers.
VI. Regulatory Flexibility Act Certification for Managers and Final
Regulatory Flexibility Analysis for Funds
A. Regulatory Flexibility Act Certification for Managers
Pursuant to section 605(b) of the Regulatory Flexibility Act
(``RFA''), the Commission certified that, if adopted, new rule 14Ad-1
and the amendments to Form N-PX relating to managers (``final manager
rules'') would not have a significant economic impact on a substantial
number of small entities.\383\ As discussed in more detail in the
Proposing Release, for purposes of this rulemaking and the RFA, a
manager is a small entity if it: (i) has assets under management having
a total value of less than $25 million; (ii) did not have total assets
of $5 million or more on the last day of its most recent fiscal year;
and (iii) does not control, is not controlled by, and is not under
common control with another investment adviser that has assets under
management of $25 million or more, or any person (other than a natural
person) that had total assets of $5 million or more on the last day of
its most recent fiscal year. The Commission therefore stated in the
Proposing Release that no small entities for purposes of 17 CFR 240.0-
10 (``rule 0-10 under the Exchange Act'') would be affected by proposed
rule 14Ad-1 and the amendments to Form N-PX relating to managers. This
is because a manager would only be required to comply with those
requirements if the manager exercises investment discretion with
respect to accounts holding section 13(f) securities having an
aggregate fair market value on the last trading day of any month of any
calendar year of at least $100 million. The Commission requested
comment on both the use of this small entity definition and the
Commission's certification in section VI of the Proposing Release. No
commenters responded to these requests request. For the same reasons as
stated in the proposing release, we again certify that the final
manager rules will not have a significant economic impact on a
substantial number of small entities.
---------------------------------------------------------------------------
\383\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------
B. Final Regulatory Flexibility Act Analysis for Funds
The Commission has prepared the following Final Regulatory
Flexibility Analysis (``FRFA'') in accordance with section 604 of the
RFA.\384\ It relates to amendments to Form N-PX relating to funds, as
well as amendments to Forms N-1A, N-2, and N-3 (``final fund rules'').
The Proposing Release included an Initial Regulatory Flexibility Act
Analysis (``IRFA'') with regard to funds that solicited comment and was
prepared in accordance with the RFA.\385\
---------------------------------------------------------------------------
\384\ 5 U.S.C. 604.
\385\ See Proposing Release, supra footnote 5, at section VI.
---------------------------------------------------------------------------
1. Need for and Objectives of the Final Fund Rules
The Commission is amending Form N-PX under Investment Company Act
to enhance the information mutual funds, ETFs, and certain other funds
currently report annually about their proxy votes and to make that
information easier to analyze. The amendments to Form N-PX will
standardize the order in which reporting persons disclose information,
categorize votes, structure and tag the data reported, and, 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 separate
directors for director election matters only if a form of proxy in
connection with a matter is subject to rule 14a-4 of the Exchange Act.
In all other cases, reporting persons will instead remain subject to
the current requirement to provide a brief identification of the
matters voted on. In a change from current practice, however reporting
persons will be required to limit use of abbreviations, which should
not be used other than for commonly
[[Page 78806]]
understood terms or for terms that the issuer abbreviated in its
description of the matters regarding the language used for identifying
proxy matters. The final fund rules will also provide additional
information about the extent to which a fund votes or loans its shares.
In addition, we are amending Forms N-1A, N-2, and N-3 to require these
funds to disclose that their proxy voting records are publicly
available on (or through) their websites and available upon request,
free of charge in both cases to make this information easier for
investors to access.
All of these requirements are discussed in detail in section II of
this release. The costs and burdens of these requirements on small
funds are discussed below as well as above in our Economic Analysis and
Paperwork Reduction Act Analysis, which discuss the applicable costs
and burdens on all funds.\386\
---------------------------------------------------------------------------
\386\ See supra sections IV and V. Section V also discusses the
professional skills that we believe compliance with the rules will
entail.
---------------------------------------------------------------------------
2. Significant Issues Raised by Public Comment
In the Proposing Release, we requested comment on the IRFA,
including a request for comment on the number of small entities that
may be affected by our proposed rules and guidelines and whether the
proposed rules and guidelines would have any effects not considered in
our analysis. We also requested that commenters describe the nature of
any effects on small entities subject to the rules and forms and
provide empirical data to support the nature and extent of such
effects. We also requested comment on the proposed compliance burdens
and the effect those burdens would have on smaller entities.
Some commenters highlighted some of the concerns specific to small
funds relative to the proposal, such as needing to hire a third party
vendor to prepare Form N-PX as a result of the amendments, resulting in
increased costs.\387\ One of these commenters also suggested that the
proposed amendments would result in an increase in their filing costs,
and the cumulative regulatory burden on small funds as a result of the
proposed amendments would be larger in relative terms because of the
fixed nature of these costs and the funds' inability to achieve
economies of scale that larger funds can realize.\388\ One commenter
stated that the proposed amendments may be less beneficial to investors
because of the lessened impact of their holdings on voting outcomes and
suggested that we exempt small funds from the categorization
requirements in particular.\389\ Another commenter made a similar
suggestion about the quantitative data disclosures.\390\ A different
commenter, however, suggested that the additional costs and resources
required for compliance with the Form N-PX amendments would impact
smaller funds, but that many small funds may already have in place
systems to track and report the information and that the benefits of
the increased transparency stemming from the amendments outweigh the
incremental costs that would be incurred.\391\ One other commenter
stated that, to ensure the availability of the full dataset, all
reporting persons, irrespective of size, should be required to file
Form N-PX reports in a structured data language.\392\
---------------------------------------------------------------------------
\387\ ICI Comment Letter I; Ultimus Comment Letter.
\388\ See ICI Comment Letter I.
\389\ See Ultimus Comment Letter.
\390\ See ICI Comment Letter I. This commenter also suggested
that smaller funds in particular would benefit from being permitted
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, but, as discussed above, all funds, including smaller
funds, will be permitted to do this. See supra footnote 218 and
accompanying text.
\391\ See CFA/CII Comment Letter.
\392\ See XBRL Comment Letter.
---------------------------------------------------------------------------
It is important to establish a consistent framework for proxy
information provided by funds to enhance the consistency and
availability of this information to investors, and investors in funds
of all sizes will benefit from the enhancements to Form N-PX we are
adopting in this release. Therefore, the final fund rules establish
requirements for reporting proxy information that are broadly
applicable to all funds, including small funds. We have, however, made
certain modifications to the proposed requirement regarding
categorization that may have the effect of easing unnecessary burdens
for all funds, including smaller funds. In particular, we have
streamlined the list of categories from which reporting persons will be
required to choose in order to reduce overlap between the categories
and eliminated the proposed requirement to select from a list of
subcategories in addition to the categories. Thus, while we acknowledge
that the final fund rules will impose costs on smaller funds, the final
fund rules are tailored to accomplish our goals while minimizing those
costs.
3. Small Entities Subject to the New Rule and Amendments
The amendments will affect funds that are small entities. For
purposes of Commission rulemaking in connection with the RFA, an
investment company is a small entity if, together with other investment
companies in the same group of related investment companies, it has net
assets of $50 million or less as of the end of its most recent fiscal
year.\393\ Commission staff estimates that, as of June 2022,
approximately 35 registered mutual funds, 11 registered open-end ETFs,
and 31 registered closed-end funds (collectively, 77 funds) are small
entities.
---------------------------------------------------------------------------
\393\ See 17 CFR 270.0-10(a).
---------------------------------------------------------------------------
4. Projected Reporting, Recordkeeping, and Other Compliance
Requirements
We are amending Form N-PX, which funds currently use to file their
complete proxy voting records with the Commission, to require reporting
in a custom XML language, to require other formatting and presentation
changes, and to add certain new or modified disclosure items.
The amendments to Form N-PX will affect funds that are currently
required to report on the form, including those that are small
entities. For instance, the amendments require funds to tie the
description of the voting matter to the issuer's form of proxy under
certain circumstances and to categorize voting matters by type. In
addition, the amendments require information about the number of shares
that were voted (or, if not known, the number of shares that were
instructed to be cast), as well as the number of shares the fund loaned
and did not recall. The amendments also require reporting of
information on Form N-PX in a structured data language.
We are adding a new section on the cover page of Form N-PX where
the reporting person would provide information in cases where the form
is filed as an amendment to a previously filed Form N-PX report. We are
also requiring that the cover page include information to help users
identify whether the reporting person is a fund or a manager. We are
also adding a new summary page to Form N-PX on which a fund is required
to provide information about series or managers whose votes are
included in the report, if applicable.
The amendments are discussed in detail in sections I and II above.
We discuss the specifics of these burdens in the Economic Analysis and
Paperwork Reduction Act sections above. For
[[Page 78807]]
purposes of the PRA analysis, we have estimated that the aggregate
annual reporting, administrative, and paperwork costs imposed by the
form amendments on funds will be approximately $56 million.\394\ We
also estimate aggregate one-time reporting, administrative, and
paperwork costs of approximately $26 million for funds that hold equity
securities.\395\
---------------------------------------------------------------------------
\394\ See supra section V, Table 2.
\395\ Id.
---------------------------------------------------------------------------
5. Agency Action To Minimize Effect on Small Entities
The RFA directs us to consider alternatives that would accomplish
our stated objectives, while minimizing any significant adverse effect
on small entities. Accordingly, we considered the following
alternatives: (i) the establishment of differing compliance or
reporting requirements or timetables that take into account the
resources available to small entities; (ii) the clarification,
consolidation, or simplification of compliance and reporting
requirements under the amendments for small entities; (iii) the use of
performance rather than design standards; and (iv) an exemption from
coverage of the amendments, or any part thereof, for small entities.
The Commission does not presently believe that the amendments would
require the establishment of special compliance requirements,
timetables, or exceptions for small entities. The amendments are
designed to increase transparency about how funds vote. As discussed
above in response to comments, different disclosure requirements for
small entities, such as reducing the level of proxy voting disclosure
for small entities, would prevent investors in small funds from
benefitting from the information provided by the amendments. Small
funds currently must follow the same proxy voting reporting
requirements as large funds in light of these concerns.
We have endeavored through the proposed amendments to Form N-PX to
minimize the regulatory burden, including on small entities, while
meeting our regulatory objectives. To this end, we made adjustments to
the proposed amendments in the final fund rules as discussed in more
detail above. Further, the proposed amendments took into account
comments on the 2010 proposal, which resulted in retention of key
disclosures to help investors understand how a fund votes, while
reducing the burdens on funds.
We have endeavored to clarify, consolidate, and simplify the
requirements applicable to funds, including those that are small
entities. Finally, we do not consider the use of performance rather
than design standards to be consistent with our statutory mandate of
investor protection with respect to reporting of proxy voting records.
Statutory Authority
The Commission is adopting new rule 14Ad-1 and amendments to the
rules and forms discussed above pursuant to the authority set forth in
sections 5, 6, 7, 10, 19(a), and 28 of the Securities Act [15 U.S.C.
77e, 77f, 77g, 77j, 77s(a), and 77z-3]; sections 4A, 4B, 10(b), 13,
14A, 15(d), 23, 24, 35A, and 36 of the Exchange Act [15 U.S.C. 78d-1,
78d-2, 78j(b), 78m, 78n-1, 78o(d), 78w, 78x, 78ll, and 78mm]; sections
6(c), 8, 24(a), 30, 31, 38, and 45 of the Investment Company Act [15
U.S.C. 80a-6(c), 80a-8, 80a-24(a), 80a-29, 80a-30, 80a-37, and 80a-44];
and section 204 of the Investment Advisers Act [15 U.S.C. 80b-4].
List of Subjects
17 CFR Part 200
Administrative practice and procedure, Authority delegations
(Government agencies).
17 CFR Part 232
Administrative practice and procedure, Reporting and recordkeeping
requirements, Securities.
17 CFR Parts 240 and 249
Reporting and recordkeeping requirements, Securities.
17 CFR Parts 270 and 274
Investment companies, Reporting and recordkeeping requirements,
Securities.
Text of Rule and Form Amendments
For the reasons set out in the preamble, the Commission is amending
title 17, chapter II, of the Code of Federal Regulations as follows:
PART 200--ORGANIZATION; CONDUCT AND ETHICS; AND INFORMATION AND
REQUESTS
0
1. The authority citation for part 200 continues to read as follows:
Authority: 5 U.S.C. 552, 552a, 552b, and 557; 11 U.S.C. 901 and
1109(a); 15 U.S.C. 77c, 77e, 77f, 77g, 77h, 77j, 77o, 77q, 77s, 77u,
77z-3, 77ggg(a), 77hhh, 77sss, 77uuu, 78b, 78c(b), 78d, 78d-1, 78d-
2, 78e, 78f, 78g, 78h, 78i, 78k, 78k-1, 78l, 78m, 78n, 78o, 78o-4,
78q, 78q-1, 78w, 78t-1, 78u, 78w, 78ll(d), 78mm, 78eee, 80a-8, 80a-
20, 80a-24, 80a-29, 80a-37, 80a-41, 80a-44(a), 80a-44(b), 80b-3,
80b-4, 80b-5, 80b-9, 80b-10(a), 80b-11, 7202, and 7211 et seq.; 29
U.S.C. 794; 44 U.S.C. 3506 and 3507; Reorganization Plan No. 10 of
1950 (15 U.S.C. 78d nt); sec. 8G, Pub. L. 95-452, 92 Stat. 1101 (5
U.S.C. App.); sec. 913, Pub. L. 111-203, 124 Stat. 1376, 1827; sec.
3(a), Pub. L. 114-185, 130 Stat. 538; E.O. 11222, 30 FR 6469, 3 CFR,
1964-1965 Comp., p. 36; E.O. 12356, 47 FR 14874, 3 CFR, 1982 Comp.,
p. 166; E.O. 12600, 52 FR 23781, 3 CFR, 1987 Comp., p. 235;
Information Security Oversight Office Directive No. 1, 47 FR 27836;
and 5 CFR 735.104 and 5 CFR parts 2634 and 2635, unless otherwise
noted.
Subpart A--Organization and Program Management
0
2. Section 200.30-5 is amended by revising paragraphs (c-1)
introductory text and (c-1)(1) to read as follows:
Sec. 200.30-5 Delegation of authority to Director of Division of
Investment Management.
* * * * *
(c-1) With respect to the Securities Exchange Act of 1934:
(1) To grant and deny applications filed pursuant to section 24(b)
of the Securities Exchange Act of 1934 (15 U.S.C. 78x(b)) and Sec.
240.24b-2 of this chapter (Rule 24b-2) for confidential treatment of
information filed pursuant to section 13(f) of that Act (15 U.S.C.
78m(f)) and Sec. 240.13f-1 of this chapter (Rule 13f-1) and the
instructions to Form N-PX (Sec. Sec. 249.326 and 274.129 of this
chapter).
* * * * *
PART 232--REGULATION S-T--GENERAL RULES AND REGULATIONS FOR
ELECTRONIC FILINGS
0
3. The general authority citation for part 232 is revised to read as
follows:
Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s(a), 77z-3,
77sss(a), 78c(b), 78l, 78m, 78n, 78n-1, 78o(d), 78w(a), 78ll, 80a-
6(c), 80a-8, 80a-29, 80a-30, 80a-37, 7201 et seq.; and 18 U.S.C.
1350, unless otherwise noted.
* * * * *
0
4. Section 232.101 is amended by revising paragraphs (a)(1)(iii) and
(xxii) and (d) to read as follows:
Sec. 232.101 Mandated electronic submissions and exceptions.
(a) * * *
(1) * * *
(iii) Statements, reports, and schedules filed with the Commission
pursuant to sections 13, 14, 14A(d), 15(d), or 16(a) of the Exchange
Act (15 U.S.C. 78m, 78n, 78n-1(d), 78o(d), and 78p(a)), and proxy
materials required to be furnished for the information of the
Commission pursuant to Sec. Sec. 240.14a-3 and 240.14c-3 of this
chapter (Rules 14a-3 and 14c-3) or in connection with annual reports on
Form 10-K (Sec. 249.310
[[Page 78808]]
of this chapter) filed pursuant to section 15(d) of the Exchange Act;
Note 1 to paragraph (a)(1)(iii). Electronic filers filing
Schedules 13D and 13G with respect to foreign private issuers should
include in the submission header all zeroes (i.e., 00-0000000) for
the Internal Revenue Service (IRS) tax identification number because
the EDGAR system requires an IRS number tag to be inserted for the
subject company as a prerequisite to acceptance of the filing.
Note 2 to paragraph (a)(1)(iii). Foreign private issuers must
file or submit their Form 6-K reports (Sec. 249.306 of this
chapter) in electronic format.
* * * * *
(xxii) Confidential treatment requests filed with the Commission
pursuant to section 13(f) of the Exchange Act (15 U.S.C. 78m(f)) and
the rules and regulations in this chapter, including Form 13F (Sec.
249.325 of this chapter), or pursuant to the instructions to Form N-PX
(Sec. Sec. 249.326 and 274.129 of this chapter). The filings must be
made on EDGAR in the format required by the EDGAR Filer Manual, as
defined in Sec. 232.11 (Rule 11 of Regulation S-T). Notwithstanding
Sec. 232.104 (Rule 104 of Regulation S-T), the documents filed or
furnished under this paragraph (a)(1)(xxii) will be considered as
officially filed with or furnished to, as applicable, the Commission;
and
* * * * *
(d) All documents, including any information with respect to which
confidential treatment is requested, filed pursuant to section 13(n)
(15 U.S.C. 78m(n)) and section 13(f) (15 U.S.C. 78m(f)) of the Exchange
Act and the rules and regulations in this chapter and the instructions
to Form N-PX (Sec. Sec. 249.326 and 274.129 of this chapter) shall be
filed in electronic format.
PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934
0
5. The general authority citation for part 240 continues to read as
follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3,
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f,
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4,
78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78dd, 78ll, 78mm,
80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, and 7201 et
seq., and 8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C.
1350; Pub. L. 111-203, 939A, 124 Stat. 1376 (2010); and Pub. L. 112-
106, sec. 503 and 602, 126 Stat. 326 (2012), unless otherwise noted.
* * * * *
0
6. Add Sec. 240.14Ad-1 to read as follows:
Sec. 240.14Ad-1 Report of proxy voting record.
(a) Subject to paragraphs (b) and (c) of this section, every
institutional investment manager (as that term is defined in section
13(f)(6)(A) of the Act (15 U.S.C. 78m(f)(6)(A))) that is required to
file reports under section 13(f) of the Act (15 U.S.C. 78m(f)) must
file an annual report on Form N-PX (Sec. Sec. 249.326 and 274.129 of
this chapter) not later than August 31 of each year, for the most
recent 12-month period ended June 30, containing the institutional
investment manager's proxy voting record for each shareholder vote
pursuant to sections 14A(a) and (b) of the Act (15 U.S.C. 78n-1(a) and
(b)) with respect to each security over which the manager exercised
voting power (as defined in paragraph (d) of this section).
(b) An institutional investment manager is not required to file a
report on Form N-PX (Sec. Sec. 249.326 and 274.129 of this chapter)
for the 12-month period ending June 30 of the calendar year in which
the manager's initial filing on Form 13F (Sec. 249.325 of this
chapter) is due pursuant to Sec. 240.13f-1. For purposes of this
paragraph (b), ``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.
(c) An institutional investment manager is not required to file a
report on Form N-PX (Sec. Sec. 249.326 and 274.129 of this chapter)
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 (Sec. 249.325 of this chapter) is due pursuant to Sec.
240.13f-1. An institutional investment manager is required to file a
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 pursuant to
Sec. 240.13f-1; this filing is required to be made not later than
March 1 of the immediately following calendar year. For purposes of
this paragraph (c), ``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.
(d) For purposes of this section:
(1) Voting power means the ability, through any contract,
arrangement, understanding, or relationship, to vote a security or
direct the voting of a security, including the ability to determine
whether to vote a security or to recall a loaned security.
(2) Exercise of voting power means using voting power to influence
a voting decision with respect to a security.
0
7. Amend Sec. 240.24b-2 by revising paragraph (i) to read as follows:
Sec. 240.24b-2 Nondisclosure of information filed with the Commission
and with any exchange.
* * * * *
(i) An institutional investment manager shall omit the confidential
portion from the material publicly filed in electronic format pursuant
to section 13(f) of the Act (15 U.S.C. 78m(f)) and the rules and
regulations in this part and the instructions to Form N-PX (Sec. Sec.
249.326 and 274.129 of this chapter). The institutional investment
manager shall indicate in the appropriate place in the material
publicly filed that the confidential portion has been so omitted and
filed separately with the Commission. In lieu of the procedures
described in paragraph (b) of this section, an institutional investment
manager shall request confidential treatment electronically pursuant to
section 13(f) (15 U.S.C. 78m(f)), the rules and regulations in this
part, and the instructions to Form N-PX (Sec. Sec. 249.326 and 274.129
of this chapter).
PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934
0
8. The general authority citation for part 249 continues to read as
follows:
Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; 12 U.S.C.
5461 et seq.; 18 U.S.C. 1350; Sec. 953(b) Pub. L. 111-203, 124 Stat.
1904; Sec. 102(a)(3) Pub. L. 112-106, 126 Stat. 309 (2012), Sec. 107
Pub. L. 112-106, 126 Stat. 313 (2012), Sec. 72001 Pub. L. 114-94,
129 Stat. 1312 (2015), and secs. 2 and 3 Pub. L. 116-222, 134 Stat.
1063 (2020), unless otherwise noted.
* * * * *
0
9. Revise the heading for subpart D to read as follows:
Subpart D--Forms for Annual and Other Reports of Issuers and Other
Persons Required Under Sections 13, 14A, and 15(d) of the
Securities Exchange Act of 1934
0
10. Add Sec. 249.326 to read as follows:
Sec. 249.326 Form N-PX, annual report of proxy voting record.
This form shall be used by institutional investment managers to
file an annual report pursuant to Sec. 240.14Ad-1 of this chapter
containing the manager's proxy voting record.
PART 270--RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940
0
11. The general authority citation for part 270 continues to read as
follows:
[[Page 78809]]
Authority: 15 U.S.C. 80a-1 et seq., 80a-34(d), 80a-37, 80a-39,
and Pub. L. 111-203, sec. 939A, 124 Stat. 1376 (2010), unless
otherwise noted.
* * * * *
Sec. 270.30b1-4 [Amended]
0
12. Amend Sec. 270.30b1-4 by removing the phrase ``Form N-PX (Sec.
274.129 of this chapter)'' and adding in its place ``Form N-PX
(Sec. Sec. 249.326 and 274.129 of this chapter)''.
PART 274--FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT OF 1940
0
13. The authority citation for part 274 is revised to read as follows:
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b), 78l, 78m,
78n, 78n-1, 78o(d), 80a-8, 80a-24, 80a-26, 80a-29, and sec. 939A,
Pub. L. 111-203, 124 Stat. 1376, unless otherwise noted.
0
14. Amend Form N-1A (referenced in Sec. Sec. 239.15A and 274.11A) by
revising Item 17(f) and Item 27(d)(5) to read as follows:
Note: The text of Form N-1A does not, and these amendments will
not, appear in the Code of Federal Regulations.
Form N-1A
* * * * *
Item 17. Management of the Fund
* * * * *
(f) Proxy Voting Policies. Unless the Fund invests exclusively in
non-voting securities, describe the policies and procedures that the
Fund uses to determine how to vote proxies relating to portfolio
securities, including the procedures that the Fund uses when a vote
presents a conflict between the interests of Fund shareholders, on the
one hand, and those of the Fund's investment adviser; principal
underwriter; or any affiliated person of the Fund, its investment
adviser, or its principal underwriter, on the other. 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.
Also, state that information regarding how the Fund voted proxies
relating to portfolio securities during the most recent 12-month period
ended June 30 is available (1) without charge, upon request, by calling
a specified toll-free telephone number and, if any, contacting a
specified email address; (2) on or through the Fund's website, if it
has one, at a specified internet address; and (3) on the Commission's
website at http://www.sec.gov.
Instructions
1. A Fund may satisfy the requirement to provide a description of
the policies and procedures that it uses to determine how to vote
proxies relating to portfolio securities by including a copy of the
policies and procedures themselves.
2. If a Fund (or financial intermediary through which shares of the
Fund may be purchased or sold) receives a request for the Fund's proxy
voting record by phone or email, the Fund (or financial intermediary)
must send the information disclosed in the Fund's most recently filed
report on Form N-PX in a human-readable format, within three business
days of receipt of the request, by first-class mail or other means
designed to ensure equally prompt delivery.
3. If a Fund has a website, it must make publicly available free of
charge the information disclosed in the Fund's most recently filed
report on Form N-PX on or through its website as soon as reasonably
practicable after filing the report with the Commission. The
information disclosed in the Fund's most recently filed report on Form
N-PX must be in a human-readable format and remain available on or
through the Fund's website for as long as the Fund remains subject to
the requirements of Rule 30b1-4 (17 CFR 270.30b1-4). A Fund may satisfy
the requirement to provide this information in a human-readable format
by providing a direct link to the relevant HTML-rendered Form N-PX
report on EDGAR.
* * * * *
Item 27. Financial Statements
* * * * *
(d) Annual and Semiannual Reports. Every annual and semiannual
report to shareholders required by rule 30e-1 must contain the
following:
* * * * *
(5) Statement Regarding Availability of Proxy Voting Record. A
statement that information regarding how the Fund voted proxies
relating to portfolio securities during the most recent 12-month period
ended June 30 is available (i) without charge, upon request, by calling
a specified toll-free telephone number and, if any, contacting a
specified email address; (ii) on or through the Fund's website, if it
has one, at a specified internet address; and (iii) on the Commission's
website at http://www.sec.gov.
Instructions
1. If a Fund (or financial intermediary through which shares of the
Fund may be purchased or sold) receives a request for the Fund's proxy
voting record by phone or email, the Fund (or financial intermediary)
must send the information disclosed in the Fund's most recently filed
report on Form N-PX in a human-readable format, within three business
days of receipt of the request, by first-class mail or other means
designed to ensure equally prompt delivery.
2. If a Fund has a website, it must make publicly available free of
charge the information disclosed in the Fund's most recently filed
report on Form N-PX on or through its website as soon as reasonably
practicable after filing the report with the Commission. The
information disclosed in the Fund's most recently filed report on Form
N-PX must be in a human-readable format and remain available on or
through the Fund's website for as long as the Fund remains subject to
the requirements of rule 30b1-4 (17 CFR 270.30b1-4). A Fund may satisfy
the requirement to provide this information in a human-readable format
by providing a direct link to the relevant HTML-rendered Form N-PX
report on EDGAR.
* * * * *
0
15. Amend Form N-2 (referenced in Sec. Sec. 239.14 and 274.11a-1) by
revising Item 18.16, Item 24.6.d, and Item 24.8 to read as follows:
Note: The text of Form N-2 does not, and these amendments will
not, appear in the Code of Federal Regulations.
Form N-2
* * * * *
Item 18. Management
* * * * *
16. Unless the Registrant invests exclusively in non-voting
securities, describe the policies and procedures that the Registrant
uses to determine how to vote proxies relating to portfolio securities,
including the procedures that the Registrant uses when a vote presents
a conflict between the interests of the Registrant's shareholders, on
the one hand, and those of the Registrant's investment adviser;
principal underwriter; or any affiliated person (as defined in Section
2(a)(3) of the Investment Company Act and the rules thereunder) of the
Registrant, its investment adviser, or its principal underwriter, on
the other. Include any policies and procedures of the Registrant's
investment adviser, or any other third party, that the Registrant uses,
or that are used on the Registrant's behalf, to determine how to vote
proxies relating to portfolio securities. Also, state that information
regarding how the Registrant voted proxies relating to portfolio
securities during the most
[[Page 78810]]
recent 12-month period ended June 30 is available (i) without charge,
upon request, by calling a specified toll-free telephone number and, if
any, contacting a specified email address; (ii) on or through the
Registrant's website, if it has one, at a specified internet address;
and (iii) on the Commission's website at http://www.sec.gov.
Instructions
1. A Registrant may satisfy the requirement to provide a
description of the policies and procedures that it uses to determine
how to vote proxies relating to portfolio securities by including a
copy of the policies and procedures themselves.
2. If a Registrant (or financial intermediary through which shares
of the Registrant may be purchased or sold) receives a request for the
Registrant's proxy voting record by phone or email, the Registrant (or
financial intermediary) must send the information disclosed in the
Registrant's most recently filed report on Form N-PX [17 CFR 274.129]
in a human-readable format, within 3 business days of receipt of the
request, by first-class mail or other means designed to ensure equally
prompt delivery.
3. If a Registrant has a website, it must make publicly available
free of charge the information disclosed in the Registrant's most
recently filed report on Form N-PX on or through its website as soon as
reasonably practicable after filing the report with the Commission. The
information disclosed in the Registrant's most recently filed report on
Form N-PX must be in a human-readable format and remain available on or
through the Registrant's website for as long as the Registrant remains
subject to the requirements of Rule 30b1-4 under the Investment Company
Act [17 CFR 270.30b1-4]. A Registrant may satisfy the requirement to
provide this information in a human-readable format by providing a
direct link to the relevant HTML-rendered Form N-PX report on EDGAR.
* * * * *
Item 24. Financial Statements
* * * * *
6. Every annual and semiannual report to shareholders required by
Section 30(e) of the Investment Company Act and Rule 30e-1 thereunder
shall contain the following information:
* * * * *
d. A statement that information regarding how the Registrant voted
proxies relating to portfolio securities during the most recent 12-
month period ended June 30 is available (1) without charge, upon
request, by calling a specified toll-free telephone number and, if any,
contacting a specified email address; (2) on or through the
Registrant's website, if it has one, at a specified internet address;
and (3) on the Commission's website at http://www.sec.gov.
* * * * *
8. a. When a Registrant (or financial intermediary through which
shares of the Registrant may be purchased or sold) receives a request
for a description of the policies and procedures that the Registrant
uses to determine how to vote proxies, the Registrant (or financial
intermediary) must send the information most recently disclosed in
response to Item 18.16 of this Form or Item 7 of Form N-CSR within 3
business days of receipt of the request, by first-class mail or other
means designed to ensure equally prompt delivery.
b. If a Registrant (or financial intermediary through which shares
of the Registrant may be purchased or sold) receives a request for the
Registrant's proxy voting record by phone or email, the Registrant (or
financial intermediary) must send the information disclosed in the
Registrant's most recently filed report on Form N-PX in a human-
readable format, within 3 business days of receipt of the request, by
first-class mail or other means designed to ensure equally prompt
delivery.
c. If a Registrant has a website, it must make publicly available
free of charge the information disclosed in the Registrant's most
recently filed report on Form N-PX on or through its website as soon as
reasonably practicable after filing the report with the Commission. The
information disclosed in the Registrant's most recently filed report on
Form N-PX must be in a human-readable format and remain available on or
through the Registrant's website for as long as the Registrant remains
subject to the requirements of Rule 30b1-4 under the Investment Company
Act. A Registrant may satisfy the requirement to provide this
information in a human-readable format by providing a direct link to
the relevant HTML-rendered Form N-PX report on EDGAR.
* * * * *
0
16. Amend Form N-3 (referenced in Sec. Sec. 239.17a and 274.11b) by
revising Item 23(f), Item 31.4(d), and Item 31.6 to read as follows:
Note: The text of Form N-3 does not, and these amendments will
not, appear in the Code of Federal Regulations.
Form N-3
* * * * *
Item 23. Management of the Registrant
* * * * *
(f) Proxy Voting Policies. Unless the Registrant invests
exclusively in non-voting securities, describe the policies and
procedures that the Registrant uses to determine how to vote proxies
relating to portfolio securities, including the procedures that the
Registrant uses when a vote presents a conflict between the interests
of investors, on the one hand, and those of the Registrant's investment
adviser; principal underwriter; or any affiliated person of the
Registrant, its investment adviser, or its principal underwriter, on
the other. Include any policies and procedures of the Registrant's
investment adviser, or any other third party, that the Registrant uses,
or that are used on the Registrant's behalf, to determine how to vote
proxies relating to portfolio securities. Also, state that information
regarding how the Registrant voted proxies relating to portfolio
securities during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling a specified
toll-free telephone number and, if any, contacting a specified email
address; (2) on or through the Registrant's website, if it has one, at
a specified internet address; and (3) on the Commission's website at
http://www.sec.gov.
Instructions
1. A Registrant may satisfy the requirement to provide a
description of the policies and procedures that it uses to determine
how to vote proxies relating to portfolio securities by including a
copy of the policies and procedures themselves.
2. If a Registrant (or financial intermediary through which shares
of the Registrant may be purchased or sold) receives a request for the
Registrant's proxy voting record by phone or email, the Registrant (or
financial intermediary) must send the information disclosed in the
Registrant's most recently filed report on Form N-PX [17 CFR 274.129]
in a human-readable format, within three business days of receipt of
the request, by first-class mail or other means designed to ensure
equally prompt delivery.
3. If a Registrant has a website, it must make publicly available
free of charge the information disclosed in the Registrant's most
recently filed report on Form N-PX on or through its website as soon as
reasonably practicable after filing the report with the Commission. The
information disclosed in the
[[Page 78811]]
Registrant's most recently filed report on Form N-PX must be in a
human-readable format and remain available on or through the
Registrant's website for as long as the Registrant remains subject to
the requirements of rule 30b1-4 [17 CFR 270.30b1-4]. A Registrant may
satisfy the requirement to provide this information in a human-readable
format by providing a direct link to the relevant HTML-rendered Form N-
PX report on EDGAR.
* * * * *
Item 31. Financial Statements
* * * * *
4. Every report required by section 30(e) of the 1940 Act and rule
30e-1 under it [17 CFR 270.30e-1] shall contain the following
information:
* * * * *
(d) a statement that information regarding how the Registrant voted
proxies relating to portfolio securities during the most recent 12-
month period ended June 30 is available (i) without charge, upon
request, by calling a specified toll-free telephone number and, if any,
contacting a specified email address; (ii) on or through the
Registrant's website at a specified internet address, if applicable;
and (iii) on the Commission's website at http://www.sec.gov;
* * * * *
6. (a) When a Registrant (or financial intermediary through which
units of the Registrant may be purchased or sold) receives a request
for a description of the policies and procedures that the Registrant
uses to determine how to vote proxies, the Registrant (or financial
intermediary) must send the information disclosed in response to Item
23(f) of this Form, within three business days of receipt of the
request, by first-class mail or other means designed to ensure equally
prompt delivery.
(b) If a Registrant (or financial intermediary through which units
of the Registrant may be purchased or sold) receives a request for the
Registrant's proxy voting record by phone or email, the Registrant (or
financial intermediary) must send the information disclosed in the
Registrant's most recently filed report on Form N-PX [17 CFR 274.129]
in a human readable format, within three business days of receipt of
the request, by first-class mail or other means designed to ensure
equally prompt delivery.
(c) If a Registrant has a website, it must make publicly available
free of charge the information disclosed in the Registrant's most
recently filed report on Form N-PX on or through its website as soon as
reasonably practicable after filing the report with the Commission. The
information disclosed in the Registrant's most recently filed report on
Form N-PX must be in a human-readable format and remain available on or
through the Registrant's website for as long as the Registrant remains
subject to the requirements of rule 30b1-4 under the Investment Company
Act [17 CFR 270.30b1-4]. A Registrant may satisfy the requirement to
provide this information in a human-readable format by providing a
direct link to the relevant HTML-rendered Form N-PX report on EDGAR.
* * * * *
0
17. Amend Sec. 274.129 by revising the heading to read as follows:
Sec. 274.129 Form N-PX, annual report of proxy voting record.
* * * * *
0
18. Form N-PX (referenced in Sec. Sec. 249.326 and 274.129) is
revised.
Note: Form N-PX is attached as appendix A to this document. Form
N-PX will not appear in the Code of Federal Regulations.
By the Commission.
Dated: November 2, 2022.
Vanessa A. Countryman,
Secretary.
Appendix A--Form N-PX
United States
Securities and Exchange Commission
Washington, DC 20549
Form N-PX
Annual Report of Proxy Voting Record
General Instructions
A. Rule as to Use of Form N-PX
Form N-PX is to be used by a registered management investment
company, other than a small business investment company registered
on Form N-5 (17 CFR 239.24 and 274.5), to file the registered
management investment company's complete proxy voting record
pursuant to Section 30 of the Investment Company Act of 1940
(``Investment Company Act'') and Rule 30b1-4 thereunder (17 CFR
270.30b1-4). Form N-PX also is to be used by a person that is
required to file reports under Rule 13f-1 (``Institutional
Manager''), to file the Institutional Manager's proxy voting record
regarding votes pursuant to Sections 14A(a) and (b) of the
Securities Exchange Act of 1934 (``Exchange Act'') on certain
executive compensation matters, pursuant to Section 14A(d) of the
Exchange Act and Rule 14Ad-1 thereunder (17 CFR 240.14Ad-1). Form N-
PX is to be filed not later than August 31 of each year for the most
recent 12-month period ended June 30, except in the case of
Institutional Managers that make initial or final filings on Form
13F during the relevant 12-month period as described in General
Instruction F.
B. Application of General Rules and Regulations
The General Rules and Regulations under the Investment Company
Act and the Exchange Act contain certain general requirements that
are applicable to reporting on any form under those Acts. These
general requirements should be read and observed carefully in the
preparation and filing of reports on this form, except that any
provision in the form or in these instructions is controlling.
C. Joint Reporting Rules
1. If two or more Institutional Managers, each of which is
required by Rule 14Ad-1 to file a report on Form N-PX for the
reporting period, exercised voting power over the same securities on
a vote pursuant to Section 14A(a) or (b) of the Exchange Act, only
one such Institutional Manager must include the information
regarding that vote in its report on Form N-PX.
2. Two or more Institutional Managers that are affiliated
persons, as defined in Section 2(a)(3) of the Investment Company
Act, may file a joint report on a single Form N-PX notwithstanding
that such Institutional Managers do not exercise voting power over
the same securities.
3. An Institutional Manager is not required to report proxy
votes that are reported on a Form N-PX report that is filed by a
Fund.
4. An Institutional Manager that exercised voting power over any
security with respect to proxy votes that are reported by another
Institutional Manager or Managers pursuant to General Instruction
C.1 or C.2, or are reported on a Form N-PX report filed by a Fund,
must identify each Institutional Manager and Fund reporting on its
behalf in the manner described in Special Instruction B.2.d. and
B.2.e.
5. An Institutional Manager reporting proxy votes on behalf of
another Institutional Manager pursuant to General Instruction C.1 or
C.2 must identify any other Institutional Managers on whose behalf
the filing is made in the manner described in Special Instruction
C.2.
6. A Fund reporting proxy votes that would otherwise be required
to be reported by an Institutional Manager must identify any
Institutional Managers on whose behalf the filing is made in the
manner described in Special Instruction C.2.
D. Signature and Filing of Report.
1. a. For reports filed by a Fund, the report must be signed on
behalf of the Fund by its principal executive officer or officers.
For reports filed by Institutional Managers, the report must be
signed on behalf of the Institutional Manager by an authorized
person. Attention is directed to Rule 12b-11 under the Exchange Act
and Rule 8b-11 under the Investment Company Act concerning
signatures.
b. The name and title of each person who signs the report shall
be typed or printed beneath his or her signature.
2. A reporting person must file reports on Form N-PX
electronically using the Commission's Electronic Data Gathering,
Analysis, and Retrieval (``EDGAR'') system in accordance with
Regulation S-T. Consult the
[[Page 78812]]
EDGAR Filer Manual and Appendices for EDGAR filing instructions.
E. Definitions.
As used in this Form N-PX, the terms set out below have the
following meanings:
``Fund'' means a registered management investment company (other
than a small business investment company registered on Form N-5 (17
CFR 239.24 and 274.5)) or a separate Series of the registered
management investment company.
``Institutional Manager'' means a person that is required to
file reports under Rule 13f-1 under the Exchange Act.
``LEI'' means, with respect to any company, the ``legal entity
identifier'' as assigned by a utility endorsed by the Global LEI
Regulatory Oversight Committee or accredited by the Global LEI
Foundation. ``Reporting Person'' means the Institutional Manager or
Fund filing this report or on whose behalf the report is filed.
``Series'' means shares issued by a registered management
investment company that represent undivided interests in a portfolio
of investments and that are preferred over all other series of
shares for assets specifically allocated to that series in
accordance with Rule 18f-2(a) under the Investment Company Act [17
CFR 270.18f-2(a)].
F. Transition Rules for Institutional Managers
1. An Institutional Manager is not required to file a report on
Form N-PX for the 12-month period ending June 30 of the calendar
year in which the manager's initial filing on Form 13F is due
pursuant to Rule 13f-1 under the Exchange Act. For purposes of this
paragraph, 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.
2. An Institutional Manager is not required 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 pursuant to Rule 13f-1
under the Exchange Act. An Institutional Manager is required to file
a 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
pursuant to Rule 13f-1 under the Exchange Act; this filing is
required to be made not later than March 1 of the immediately
following calendar year. For purposes of this paragraph, 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.
Special Instructions
A. Organization of Form N-PX
1. This form consists of three parts: the Form N-PX Cover Page
(``Cover Page''), the Form N-PX Summary Page (``Summary Page''), and
the proxy voting information required by the form (``Proxy Voting
Information'').
2. Present the Cover Page and the Summary Page information in
the format and order provided in the form. Do not include any
additional information on the Summary Page.
B. Cover Page
1. Amendments to a Form N-PX report must either restate the Form
N-PX report in its entirety or include only proxy voting information
that is being reported in addition to the information already
reported in a current public Form N-PX report for the same period.
If the Form N-PX report is filed as an amendment, then the reporting
person must check the amendment box on the Cover Page, enter the
amendment number, and check the appropriate box to indicate whether
the amendment (a) is a restatement or (b) adds new Proxy Voting
Information. Each amendment must include a complete Cover Page and,
if applicable, a Summary Page.
2. Designate the Report Type for the Form N-PX report by
checking the appropriate box in the Report Type section of the Cover
Page, and include, where applicable, the List of Other Persons
Reporting for this Manager (on the Cover Page), the Summary Page,
and the Proxy Voting Information, as follows:
a. For a report by a Fund, if the Fund held one or more
securities it was entitled to vote, check the box for Report Type
``Fund Voting Report,'' omit from the Cover Page the List of Other
Persons Reporting for this Manager, and include both the Summary
Page and the Proxy Voting Information.
b. For a report by a Fund, if the Fund did not hold any
securities it was entitled to vote and therefore does not have any
proxy votes to report, check the box for Report Type ``Fund Notice
Report'' and file the Cover Page, required signature, and, if
applicable, the Summary Page information about the series.
c. For a report by an Institutional Manager that includes all
proxy votes required to be reported by the Institutional Manager,
check the box for Report Type ``Institutional Manager Voting
Report,'' omit from the Cover Page the List of Other Persons
Reporting for this Manager, and include both the Summary Page and
the Proxy Voting Information.
d. For a report by an Institutional Manager, if no proxy votes
are reported by the Institutional Manager in the filing, check the
box for Report Type ``Institutional Manager Notice Report,'' on the
Cover Page and complete the notice report filing explanation
section. If all the votes required to be reported by the
Institutional Manager are reported by another Institutional Manager
or by one or more Funds, check the explanatory box indicating ``all
proxy votes are reported by other reporting persons,'' include the
List of Other Persons Reporting for this Manager, and file the Cover
Page and required signature only. All other reporting persons may
omit this section. If the reporting manager did not exercise voting
power over securities involving any reportable voting matter, check
the explanatory box indicating ``the reporting person did not
exercise voting power for any reportable voting matter and therefore
does not have any proxy votes to report for the reporting period''
and file the Cover Page and required signature only. If the
reporting manager has a policy not to vote on any proxy matters,
clearly disclosed the policy, and did not vote any proxy matters
during the reporting period, check the explanatory box indicating
``the reporting person has a clearly disclosed policy of not voting,
and did not vote, on any proxy voting matters'' and file the Cover
Page and required signature only.
e. For a report by an Institutional Manager, if only part of the
proxy votes required to be reported by the Institutional Manager are
reported by another Institutional Manager or Managers or one or more
Funds, check the box for Report Type ``Institutional Manager
Combination Report,'' include on the Cover Page the List of Other
Persons Reporting for this Manager, and include both the Summary
Page and the Proxy Voting Information.
3. If the Institutional Manager has a number assigned by the
Financial Industry Regulatory Authority's Central Registration
Depository system or by the Investment Adviser Registration
Depository system (``CRD number''), provide the Manager's CRD
number. If the Institutional Manager has a file number (e.g., 801-,
8-, 866-, 802-) assigned by the Commission (``SEC file number''),
provide the Manager's SEC file number. If the Reporting Person has a
Legal Entity Identifier (``LEI''), provide the Reporting Person's
LEI.
4. The Cover Page may include information in addition to the
required information, so long as the additional information does
not, either by its nature, quantity, or manner of presentation,
impede the understanding or presentation of the required
information. Place all additional information at the end of the
Cover Page, except as permitted by paragraph (o) of Item 1.
C. Summary Page
1. Include on the Summary Page the total number of included
Institutional Managers with votes reported in this Form N-PX report
pursuant to General Instruction C, not counting the reporting person
filing this report. See Special Instruction C.2. If none, enter the
number zero (``0'').
2. Include on the Summary Page the list of included
Institutional Managers with votes reported in this Form N-PX report
pursuant to General Instruction C. Use the title, column headings,
and format provided.
a. If this Form N-PX report does not report the proxy votes of
any Institutional Manager other than the reporting person, enter the
word ``NONE'' under the title and omit the column headings and list
entries.
b. If this Form N-PX report reports the proxy votes of one or
more Institutional Managers other than the reporting person, enter
in the list of included Institutional Managers all such
Institutional Managers together with their respective Form 13F file
numbers, if known, and, if they exist, any of the respective CRD
Numbers, LEIs, and SEC File Numbers assigned to each manager. (The
Form 13F file numbers are assigned to Institutional Managers when
they file their first Form 13F). Assign a number to each
Institutional Manager in the list of included Institutional
Managers, and present the list in sequential order. The numbers need
not be consecutive. Do not include the reporting person filing this
report.
3. For reports filed by a Fund, include on the Summary Page: the
total number of Series of the Fund reported in this Form N-PX, if
any; the name of each Series included; each
[[Page 78813]]
Series identification number; and the LEI for any Series of the
Fund. If this Form N-PX report does not report the proxy votes of
any Series, enter the word ``NONE'' under the title and omit the
column headings and list entries.
D. Proxy Voting Information
1. Disclose the information required or permitted by Item 1 in
the order presented in paragraphs (a) through (o) of Item 1.
2. A reporting person must provide the Council on Uniform
Securities Identification Procedures (``CUSIP'') number for the
security pursuant to Item 1(b), unless the CUSIP is not available
through reasonably practicable means, e.g., in the case of certain
securities of foreign issuers. If the CUSIP is not available through
reasonably practicable means, the reporting person must provide the
International Securities Identification Number (``ISIN'') pursuant
to Item 1(c), unless the ISIN is not available through reasonably
practicable means. A reporting person may choose to report the
global share class Financial Instrument Global Identifier (``FIGI'')
for the security pursuant to Item 1(d).
3. Item 1(f) requires an identification of the matter voted on
for all matters. If a form of proxy in connection with a matter is
subject to rule 14a-4 under the Exchange Act [17 CFR 240.14a-4], the
description in Item 1(f) must: (i) use the same language that is on
the form of proxy to identify the matter; (ii) identify all matters
in the same order as on the form of proxy; and (iii) for election of
directors, identify 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. In all other cases, provide a
brief identification of the matters voted on and limit use of
abbreviations, which should not be used other than for commonly
understood terms or for terms that the issuer abbreviated in its
description of the matter.
4. Item 1(g) requires the reporting person to categorize each
matter from a list of categories that may apply to such matter. In
responding to Item 1(g), a reporting person must choose all
categories applicable to such matter.
5. In responding to paragraph (i) of Item 1, a reporting person
may use the number of shares voted as reflected in its records at
the time of filing a report on Form N-PX. 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 numbers reported may
reflect the number of shares instructed to be cast. A reporting
person is not required to amend a previously filed Form N-PX report
if the reporting person subsequently receives confirmation of the
actual number of votes cast.
6. In responding to paragraphs (i) and (j) of Item 1:
a. An Institutional Manager must report the number of shares
that the Institutional Manager is reporting on behalf of another
Institutional Manager pursuant to General Instruction C.1 or C.2
separately from the number of shares that the Institutional Manager
is reporting only on its own behalf. An Institutional Manager also
must separately report shares when the groups of Institutional
Managers on whose behalf the shares are reported are different. For
example, if the reporting Institutional 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.
b. A Fund must separately report shares that are reported on
behalf of different Institutional Managers or groups of
Institutional Managers pursuant to General Instruction C.3.
7. For purposes of paragraph (j) of Item 1, a reporting person
is considered to have loaned securities if it loaned the securities
directly or loaned the securities indirectly through a lending
agent.
8. If management did not make a recommendation on how to vote on
a particular matter, a reporting person should respond ``none'' to
paragraph (l) of Item 1 for that matter.
9. In the case of a reporting person that is a Fund that offers
multiple Series, provide the information required by Item 1
separately by Series (for example, provide Series A's full proxy
voting record, followed by Series B's full proxy voting record).
10. In response to paragraph (o), a reporting person may provide
additional information about the matter or how it voted, provided
the information does not, either by its nature, quantity, or manner
of presentation, impede the understanding or presentation of the
required information. The disclosure permitted by paragraph (o) is
optional. A reporting person is not required to respond to paragraph
(o) for any vote, and if a reporting person does provide additional
information for one or more votes, it is not required to provide
this information for all votes.
Instructions for Confidential Treatment Requests
1. An Institutional Manager should make requests for
confidential treatment of information reported on this form in
accordance with rule 24b-2(i) under the Exchange Act [17 CFR
240.24b-2(i)].
2. Paragraph (i) of rule 24b-2 requires a person filing
confidential information with the Commission to indicate at the
appropriate place in the public filing that the confidential portion
has been so omitted and filed separately with the Commission. An
Institutional Manager must comply with this provision by including
on the Cover Page a statement that confidential information has been
omitted from the public Form N-PX report and filed separately with
the Commission.
3. An Institutional Manager must file electronically, in
accordance with rule 101(d) of Regulation S-T [17 CFR 232.101(d)],
all requests for and information subject to the request for
confidential treatment.
4. An Institutional Manager must file all requests for and
information subject to the request for confidential treatment in
accordance with the instructions for filing confidential treatment
requests for information filed on Form 13F. In making a
determination as to requests for confidential treatment of
information filed on Form N-PX, the Commission will apply the same
standards as set forth in Section 13(f)(4) and (5) of the Exchange
Act [15 U.S.C. 78m(f)(4) and (5)] and rule 24b-2. If a request for
confidential treatment of information filed on Form N-PX relates to
a request for confidential treatment of information included in an
Institutional Manager's filing on Form 13F, the Institutional
Manager should so state and identify the related request. In such
cases, the Institutional Manager need not repeat the analysis set
forth in the request for confidential treatment in connection with
the Form 13F filing. The Institutional Manager's request, however,
must explain whether and, if so, how the Form N-PX and Form 13F
confidential treatment requests are related and should identify if
any of the analysis in its request for confidential treatment on
Form 13F does not apply, or applies differently, to its report on
Form N-PX.
5. An Institutional Manager requesting confidential treatment
must provide enough factual support for its request to enable the
Commission to make an informed judgment as to the merits of the
request, including a demonstration that the information is
customarily and actually kept private by the Institutional Manager
and that failure to grant the request for confidential treatment
would be likely to cause harm to the Institutional Manager.
6. State, and provide justification for, the period of time for
which confidential treatment of the proxy voting information is
requested. The time period specified may not exceed one (1) year
from the date that the Form N-PX report is required to be filed with
the Commission.
7. At the expiration of the period for which confidential
treatment has been granted (the ``Expiration Date'') and unless a de
novo request for confidential treatment of the information that
meets the requirements of Rule 24b-2 and these Confidential
Treatment Instructions is filed with the Commission at least
fourteen (14) days in advance of the Expiration Date, the
Institutional Manager will make such proxy voting information public
as set forth in Confidential Treatment Instruction 8.
8. Unless a hardship exemption is available, the Institutional
Manager must submit electronically within six (6) business days of
the expiration of confidential treatment or notification of denial,
as applicable, a Form N-PX amendment to its previously filed public
Form N-PX report that includes the proxy voting information as to
which the Commission denied confidential treatment or for which
confidential treatment has expired. Such Form N-PX amendment must be
timely filed: (i) upon the denial by the Commission of a request for
confidential treatment; (ii) upon expiration of the time period for
which an Institutional Manager has requested confidential treatment;
or (iii) upon the expiration of the confidential treatment
previously granted for a filing. If an Institutional Manager files
an amendment, the amendment must not be a restatement; the
Institutional Manager must designate it as an amendment that adds
new proxy voting
[[Page 78814]]
information. The Institutional Manager must include at the top of
the Form N-PX Cover Page the following legend to correctly designate
the type of filing being made:
THIS FILING LISTS PROXY VOTE INFORMATION REPORTED ON THE FORM N-
PX FILED ON (DATE) PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
AND FOR WHICH (THAT REQUEST WAS DENIED/CONFIDENTIAL TREATMENT
EXPIRED) ON (DATE).
Paperwork Reduction Act Information
Form N-PX is to be used by a Fund to file reports with the
Commission pursuant to Section 30 of the Investment Company Act and
Rule 30b1-4 thereunder. Form N-PX also is to be used by an
Institutional Manager to file reports with the Commission as
required by Section 14A(d) of the Exchange Act and Rule 14Ad-1
thereunder. Form N-PX is to be filed not later than August 31 of
each year, containing the reporting person's proxy voting record for
the most recent 12-month period ended June 30. The Commission may
use the information provided on Form N-PX in its regulatory,
disclosure review, inspection, and policymaking roles.
Funds and Institutional Managers are required to disclose the
information specified by Form N-PX, and the Commission will make
this information public. Funds and Institutional Managers are not
required to respond to the collection of information contained in
Form N-PX unless the Form displays a currently valid Office of
Management and Budget (``OMB'') control number. Please direct
comments concerning the accuracy of the information collection
burden estimate and any suggestions for reducing the burden to the
Secretary, Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549-1090. The OMB has reviewed this collection of
information under the clearance requirements of 44 U.S.C. 3507.
[[Page 78815]]
[GRAPHIC] [TIFF OMITTED] TR22DE22.000
[[Page 78816]]
[GRAPHIC] [TIFF OMITTED] TR22DE22.001
[[Page 78817]]
[GRAPHIC] [TIFF OMITTED] TR22DE22.002
FORM N-PX
Item 1. Proxy Voting Record
If the reporting person is a Fund, disclose the following
information for each matter relating to a portfolio security
considered at any shareholder meeting held during the period covered
by the report and with respect to which the Fund was entitled to
vote, including securities on loan for purposes of this form. If the
reporting person is an Institutional Manager, disclose the following
information for each shareholder vote pursuant to Sections 14A(a)
and (b) of the Exchange Act over which the Institutional Manager
exercised voting power, as defined in Rule 14Ad-1(d) under the
Exchange Act [17 CFR 240.14Ad-1].
(a) The name of the issuer of the security;
(b) The Council on Uniform Securities Identification Procedures
(``CUSIP'') number for the security;
(c) The International Securities Identification Number
(``ISIN'') for the security;
(d) The global share class Financial Instrument Global
Identifier (``FIGI'') for the security (optional);
(e) The shareholder meeting date;
(f) An identification of the matter voted on;
(g) All categories applicable to the matter voted on from the
following list of categories:
(A) Director elections;
(B) Section 14A say-on-pay votes (examples: section 14A
executive compensation, section 14A executive compensation vote
frequency, section 14A extraordinary transaction executive
compensation);
(C) Audit-related (examples: auditor ratification, auditor
rotation);
[[Page 78818]]
(D) Investment company matters (examples: new or changed
investment management agreement, assignment of investment management
agreement, business development company approval of restricted
securities or asset coverage ratio change, closed-end investment
company issuance of shares below net asset value);
(E) Shareholder rights and defenses (examples: adoption or
modification of a shareholder rights plan, control share acquisition
provisions, fair price provisions, board classification, cumulative
voting);
(F) Extraordinary transactions (examples: merger, asset sale,
liquidation, buyout, joint venture, going private, spinoff,
delisting);
(G) Capital structure (examples: security issuance, stock split,
reverse stock split, dividend, buyback, tracking stock, adjustment
to par value, authorization of additional stock);
(H) Compensation (examples: board compensation, executive
compensation (other than Section 14A say-on-pay), board or executive
anti-hedging, board or executive anti-pledging, compensation
clawback, 10b5-1 plans);
(I) Corporate governance (examples: term limits, board committee
issues, size of board, articles of incorporation or bylaws, codes of
ethics, approval to adjourn, acceptance of minutes, proxy access);
(J) Environment or climate (examples: greenhouse gas (GHG)
emissions, transition planning or reporting, biodiversity or
ecosystem risk, chemical footprint, renewable energy or energy
efficiency, water issues, waste or pollution, deforestation or land
use, say-on-climate, environmental justice);
(K) Human rights or human capital/workforce (examples:
workforce-related mandatory arbitration, supply chain exposure to
human rights risks, outsourcing or offshoring, workplace sexual
harassment);
(L) Diversity, equity, and inclusion (examples: board diversity,
pay gap);
(M) Other social issues (examples: lobbying, political or
charitable activities, data privacy, responsible tax policies,
consumer protection); or
(N) Other (along with a brief description).
(h) For reports filed by Funds, disclose whether the matter was
proposed by the issuer or by a security holder;
(i) The number of shares that were voted, with the number zero
(``0'') entered if no shares were voted;
(j) The number of shares that the reporting person loaned and
did not recall;
(k) How the shares in paragraph (i) were voted (e.g., for or
against proposal, or abstain; for or withhold regarding election of
directors) and, if the votes were cast in multiple manners (e.g.,
for and against), the number of shares voted in each manner;
(l) Whether the votes disclosed in paragraph (k) represented
votes for or against management's recommendation;
(m) If applicable, identify each Institutional Manager on whose
behalf this Form N-PX report is being filed (other than the
reporting person filing the report) that exercised voting power over
the security by entering the number assigned to the Institutional
Manager on the Summary Page;
(n) If applicable, identify the Series that was eligible to vote
the security by providing the Series identification number listed on
the Summary Page; and
(o) Any other information the reporting person would like to
provide about the matter or how it voted.
Signatures
[See General Instruction D]
Pursuant to the requirements of the [Securities Exchange Act of
1934 (for Institutional Managers)] [Investment Company Act of 1940
(for Funds)], the reporting person has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Reporting Person)-----------------------------------------------------
By (Signature and Title)-----------------------------------------------
Date-------------------------------------------------------------------
Print the name and title of each signing officer under his or
her signature.
[FR Doc. 2022-24292 Filed 12-21-22; 8:45 am]