# Conformed to Federal Register Version > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/agency%3Asec%3Ab0a98cdacc2285dd ## Record - **Collection:** Agency decision - **Document type:** Agency decision ## Text Conformed to Federal Register Version 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. 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 240.14Ad1 (“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”). 2 TABLE OF CONTENTS I. Introduction and Background ....................................................................................... 5 II. Discussion ................................................................................................................... 10 A. Scope of Funds’ Form N-PX Reporting Obligations............................................ 10 B. Scope of Managers’ Form N-PX Reporting Obligations ...................................... 12 1. Managers Subject to Form N-PX and Categories of Votes They Must Report 12 2. Managers’ Exercise of Voting Power ............................................................. 14 3. Additional Scoping Matters for Manager Reporting of Say-on-Pay Votes .... 17 C. Proxy Voting Information Reported on Form N-PX ............................................ 23 1. Identification of Proxy Voting Matters ........................................................... 23 2. Identification of Proxy Voting Categories ...................................................... 28 3. Quantitative Disclosures ................................................................................. 33 4. Additional Amendments to Form N-PX ......................................................... 45 D. Joint Reporting Provisions .................................................................................... 49 E. The Cover Page ..................................................................................................... 53 F. The Summary Page ............................................................................................... 56 G. Form N-PX Reporting Data Language ................................................................. 59 H. Time of Reporting ................................................................................................. 64 I. Requests for Confidential Treatment .................................................................... 67 J. Website Availability of Fund Proxy Voting Records ........................................... 70 K. Effective Date ....................................................................................................... 72 L. Transition Rules for Managers.............................................................................. 73 M. Technical and Conforming Amendments ............................................................. 76 N. Delegation of Commission Authority ................................................................... 76 III. Other Matters .............................................................................................................. 77 IV. Economic Analysis ..................................................................................................... 77 A. Introduction ........................................................................................................... 77 B. Economic Baseline................................................................................................ 79 1. Funds’ Reporting of Proxy Voting Records ................................................... 79 2. Managers’ Reporting of Say-on-Pay Votes .................................................... 82 3. Other Affected Parties..................................................................................... 83 C. Benefits and Costs................................................................................................. 85 1. Amendments to Funds’ Reporting of Proxy Votes ......................................... 85 2. Amendments to Require Manager Reporting of Say-on-Pay Votes ............. 107 D. Effects on Efficiency, Competition, and Capital Formation............................... 116 1. Amendments to Funds’ Reporting of Proxy Votes ....................................... 116 2. Amendments to Require Manager Reporting of Say-on-Pay Votes ............. 117 E. Reasonable Alternatives...................................................................................... 118 1. Scope of Managers’ Say-on-Pay Reporting Obligations .............................. 118 3 2. Amendments to Proxy Voting Information Reported on Form N-PX .......... 120 3. Amendments to the Time of Reporting on Form N-PX or Placement of Funds’ Voting Records ............................................................................................. 121 V. Paperwork Reduction Act Analysis .......................................................................... 123 VI. Regulatory Flexibility Act Certification for Managers and Final Regulatory Flexibility Analysis for Funds ........................................................................................ 130 A. Regulatory Flexibility Act Certification for Managers ....................................... 130 B. Final Regulatory Flexibility Act Analysis for Funds .......................................... 131 1. Need for and Objectives of the Final Fund Rules ......................................... 132 2. Significant Issues Raised by Public Comment ............................................. 133 3. Small Entities Subject to the New Rule and Amendments ........................... 135 4. Projected Reporting, Recordkeeping, and Other Compliance Requirements 135 5. Agency Action to Minimize Effect on Small Entities .................................. 136 Statutory Authority ......................................................................................................... 137 4 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. 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. 5 In 2003, the Commission adopted Form N-PX, which requires funds to report publicly their proxy voting 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 Institutional investment managers7 subject to the reporting requirements of section 13(f) of the Exchange Act (each a “manager” and collectively with funds, “reporting persons”) also 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-resolution72513.pdf (recommending amendments to Form N-PX to provide for the tagging of data). 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, 6 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. 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 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. 10 See 15 U.S.C. 78n-1(d). 7 Act and the proposed amendments in 2021 took into account the comments received in response to that earlier proposal.11 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 11 See Exchange Act Release No. 63123 (Oct. 18, 2010) [75 FR 66622 (Oct. 28, 2010)] (“2010 Proposing Release”). 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”). 8 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 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 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 9 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 input); and Comment Letter of the Mutual Fund Directors Forum (Dec. 14, 2021) (“MFDF Comment Letter”). 22 See Item 1 of current Form N-PX. 10 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 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 23 See Proposing Release, supra footnote 5, at section II.A. See also infra section II.C.3.b. 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). 11 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 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 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. 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”); 12 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 One commenter suggested that managers and funds should have different reporting forms.34 Another commenter suggested that the Commission permit managers to file their sayon-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 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.”). 34 See Rhee Comment Letter. 35 See AIMA Commenter Letter. 13 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. 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 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. 14 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. 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 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. 40 See ICI Comment Letter I; Morningstar Comment Letter. 41 See Pickard Comment Letter; MFA Comment Letter. 15 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 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 42 See Pickard Comment Letter. 43 See MFA Comment Letter. 16 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 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. 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 44 See Pickard Comment Letter. 17 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. 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. 18 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 NPX 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 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-onpay 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. 51 See Pickard Comment Letter. 52 See MFA Comment Letter; AIMA Comment Letter. 53 See AIMA Comment Letter; MFA Comment Letter. 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). 19 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-onpay 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 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-onpay 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 adopting a 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.”) 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). 20 framework that would only require the reporting of securities held for at least a specified period of time for similar reasons. 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 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. 21 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 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 63 See MFA Comment Letter. 64 See Proposing Release, supra footnote 5, at n.63 and accompanying paragraph. 22 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 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 65 As discussed in more detail below, we have moved this language from the form to the cover page. 23 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 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 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 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. 24 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). 25 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 14a4, “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 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 26 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 consistent ordering requirement should nonetheless aid investors who choose to review the filings in plain text format. 79 See Item 1(e) of current Form N-PX. 27 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. 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 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 80 See Proposing Release, supra footnote 5, at text accompanying n.222. 81 See, e.g., Morningstar Comment Letter; CFA/CII Comment Letter. 28 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 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 82 Bloomberg Comment Letter. 83 LTSE Comment Letter. 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. 29 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 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. 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). 90 See, e.g., ICI Comment Letter I. 30 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 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)”). 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 91 See id. 92 See id.; see also PRI Comment Letter. 93 In addition, we added the example of “proxy access” in the corporate governance category to further clarify where those votes should be categorized. 31 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 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. Table 1: Changes to Categories from the Proposal Proposed Category Board of directors Adopted Category Director elections Section 14A Audit-related Section 14A Audit-related Change from Proposal Limited to elections; other board matters categorized as corporate governance None None 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. 32 Investment company matters Shareholder rights and defenses Extraordinary transactions Security Issuance Capital structure Compensation Corporate governance Investment company matters Shareholder rights and defenses Extraordinary transactions n/a Capital structure Compensation Corporate governance Meeting governance Environment or climate Human rights or human capital/workforce Diversity, equity, and inclusion Political activities Other social issues Other n/a Environment or climate Human rights or human capital/workforce Diversity, equity, and inclusion n/a Other social issues Other None None None Consolidated with capital structure Now includes security issuance None Includes board matters other than director elections and meeting governance Consolidated with corporate governance None None None Consolidated with other social issues Now includes political activities 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. 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 96 Special Instruction D.4 of amended Form N-PX. 33 (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 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 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 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. 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. 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). 34 subadvisers or other third parties such as an independent fiduciary retained to avoid conflicts of interest.100 In initially adopting Form 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. 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.103 100 See Morningstar Comment Letter; Bloomberg Comment Letter. 101 See 2003 Adopting Release, supra footnote 4, at section I. 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. 35 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. 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 NPX. 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, 104 See Morningstar Comment Letter. 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). 36 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). 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 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 107 See rule 206(4)-6(b). 108 Item 1(i) of amended Form N-PX; Special Instruction D.5 to amended Form N-PX. 37 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. 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 Commenters were mixed on this aspect of the proposal. A number of commenters supported this disclosure, suggesting it would provide helpful context to investors about how securities lending activities affect voting practices and help issuers better understand their 109 Special Instruction D.5 to amended Form N-PX. 110 Id. 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. 38 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 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. 39 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 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. 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 119 See, e.g., ISS Comment Letter; ICI Comment Letter I; IAA Comment Letter. 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. 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. 40 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. 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, 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. 124 See, e.g., RMA Comment Letter; Federated Hermes Comment Letter; TIAA Comment Letter. 41 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. 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 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 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)). 42 perceived negative implications of this reporting, the reporting person will have the option of providing additional information on Form N-PX as amended. 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. 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 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). 43 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. 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.133 130 See BlackRock Comment Letter; ISS Comment Letter. 131 See Glass Lewis Comment Letter; Broadridge Comment Letter. 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). 44 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. 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 134 See supra footnote 39 and accompanying text. 135 See Item 1(j) of amended Form N-PX. 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. 45 review and compare among reporting persons by allowing investors to focus on disclosure relevant to them, rather than to investors in other series. 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 easier to review and compare among reporting persons.138 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. 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 NPX 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. 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). 46 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. 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 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, 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. 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. 47 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 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). 48 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. 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 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 required to file a 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. 49 “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. 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 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. 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. 50 be required to report separately shares that are reported on behalf of different managers or groups of managers.151 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 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. 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.”). 51 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. 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 153 See Special Instruction D.6 to amended Form N-PX. 154 See, e.g., Pickard Comment Letter; ICI Comment Letter I; Bloomberg Comment Letter. 155 See Morningstar Comment Letter. 156 See MFA Comment Letter. 52 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. 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 persons will be required to check a box in order to identify the report as one of the following types: • “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.” 157 The proposal provided check boxes for “Registered Management Investment Company,” “Institutional Manager Voting,” “Institutional Manager Notice,” and “Institutional Manager Combination” reports. 53 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-onpay 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 54 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 • “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.159 158 See MFA Comment Letter. 159 Special Instruction B.2 to amended Form N-PX. 55 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 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 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, 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. 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. 164 See Morningstar Comment Letter; MFA Comment Letter. 56 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 [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Asec%3Ab0a98cdacc2285dd. Public record. Not legal advice.