# Enhanced Reporting of Proxy Votes by Registered Management Investment Companies; Reporting of Executive Compensation Votes by Institutional Investment Managers > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2021-21549 ## Record - **Collection:** Federal Register - **Document type:** Proposed Rule - **Published:** October 15, 2021 - **Citation:** 86 FR 57478 ## Text SECURITIES AND EXCHANGE COMMISSION 17 CFR Parts 232, 240, 249, 270, and 274 [Release Nos. 34-93169; IC-34389; 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: Proposed rule. SUMMARY: The Securities and Exchange Commission (“Commission”) is proposing to amend 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 annually about their proxy votes and to make that information easier to analyze. The Commission also is proposing 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 annually on Form N-PX how it voted proxies relating to executive compensation matters, as required by the Exchange Act. The proposed reporting requirements for institutional investment managers, if adopted, would complete implementation of those requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). DATES: Comments should be received on or before December 14, 2021. ADDRESSES: Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's internet comment form ( http://www.sec.gov/rules/submitcomments.htm ); or • Send an email to rule-comments@sec.gov. Please include File Number S7-11-21 on the subject line; or Paper Comments • Send paper comments to, Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090. All submissions should refer to File Number S7-11-21. This file number should be included on the subject line if email is used. To help us process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's website ( http://www.sec.gov/rules/proposed.shtml ). Comments are also available for website viewing and printing in the Commission's Public Reference Room, 100 F Street NE, Room 1580, Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Operating conditions may limit access to the Commission's public reference room. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. Studies, memoranda, or other substantive items may be added by the Commission or staff to the comment file during this rulemaking. A notification of the inclusion in the comment file of any such materials will be made available on the Commission's website. To ensure direct electronic receipt of such notifications, sign up through the “Stay Connected” option at www.sec.gov to receive notifications by email. FOR FURTHER INFORMATION CONTACT: Nathan R. Schuur, Senior Counsel; Angela Mokodean, Branch Chief; or Brian M. Johnson, Assistant Director, at (202) 551-6792, Investment Company Regulation Office; Terri G. Jordan, Branch Chief, at (202) 551-6825 or IMOCC@sec.gov, Chief Counsel's Office, Division of Investment Management, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549. SUPPLEMENTARY INFORMATION: The Commission is proposing new 17 CFR 240.14Ad-1 [new rule 14Ad-1] under the Exchange Act. 1 We are also proposing amendments to the following rules and forms: 1 15 U.S.C. 78a et seq. 2 Form N-PX was adopted under the Investment Company Act only. In this release, we are proposing to amend Form N-PX under both the Exchange Act and the Investment Company Act. 15 U.S.C. 80a-1 et seq. 3 15 U.S.C. 77a et seq. Commission reference CFR citation [17 CFR] Investment Company Act: Rule 30b1-4 § 270.30b1-4. Exchange Act and Investment Company Act: Form N-PX 2 §§ 274.129 and 249.326. Securities Act of 1933 (“Securities Act”) 3 and Investment Company Act: Form N-1A §§ 239.15A and 274.11A. Form N-2 §§ 239.14 and 274.11a-1. Form N-3 §§ 239.17a and 274.11b. Securities Act: Rule 101 of Regulation S-T § 232.101. Table of Contents I. Introduction and Background II. Discussion A. Scope of Funds' Form N-PX Reporting Obligations B. Scope of Managers' Form N-PX Reporting Obligations 1. Managers Subject to Form N-PX and Categories of Votes They Must Report 2. Managers' Exercise of Voting Power 3. Additional Scoping Matters for Manager Reporting of Say-on-Pay Votes C. Proxy Voting Information Reported on Form N-PX 1. Identification of Proxy Voting Matters 2. Identification of Proxy Voting Categories 3. Quantitative Disclosures 4. Additional Proposed Amendments to Form N-PX D. Joint Reporting and Related Form N-PX Amendments To Accommodate Manager Reporting 1. Joint Reporting Provisions 2. The Cover Page 3. The Summary Page 4. Other Proposed Amendments to Form N-PX To Accommodate Manager Reporting E. Form N-PX Reporting Data Language F. Time of Reporting G. Requests for Confidential Treatment H. Proposed Website Availability of Fund Proxy Voting Records I. Compliance Dates J. Transition Rules for Managers K. Technical and Conforming Amendments III. General Request for Comments IV. Economic Analysis A. Introduction B. Economic Baseline and Affected Parties 1. Funds' Reporting of Proxy Voting Records 2. Managers' Reporting of Say-on-Pay Votes C. Costs and Benefits 1. Amendments to Funds' Reporting of Proxy Votes 2. Amendments To Require Manager Reporting of Say-on-Pay Votes D. Effects on Efficiency, Competition, and Capital Formation 1. Amendments to Funds' Reporting of Proxy Votes 2. Amendments To Require Manager Reporting of Say-on-Pay Votes E. Reasonable Alternatives 1. Scope of Managers' Say-on-Pay Reporting Obligations 2. Amendments to Proxy Voting Information Reported on Form N-PX 3. Amendments to the Time of Reporting on Form N-PX or Placement of Funds' Voting Records F. Request for Comment V. Paperwork Reduction Act VI. Regulatory Flexibility Act Certification for Managers and Initial Regulatory Flexibility Analysis for Funds A. Regulatory Flexibility Act Certification for Managers B. Initial Regulatory Flexibility Act Analysis for Funds 1. Reasons for and Objectives of the Proposed Actions 2. Legal Basis 3. Small Entities Subject to the Rule 4. Projected Reporting, Recordkeeping, and Other Compliance Requirements 5. Duplicative, Overlapping, or Conflicting Federal Rules 6. Significant Alternatives 7. General Request for Comment VII. Consideration of Impact on the Economy VIII. Statutory Authority I. Introduction and Background Mutual funds, ETFs, and other registered management investment companies (collectively, “funds”) hold substantial institutional voting power that they exercise on behalf of millions of fund investors. 4 Funds own around 30 percent of U.S. corporate equities and in some cases funds hold a larger percent of a single company's stock. 5 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 can play an important role in maximizing the value of their investments, affecting the more than 45 percent of U.S. households that own funds, as well as other investors in U.S. equity markets. 6 4 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 proposed in this release would also 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). 5 ICI 2021 Fact Book, available at https://www.ici.org/system/files/2021-05/2021_factbook.pdf, at figure 2.7 (stating that mutual funds and other registered investment companies held 30 percent of U.S. corporate equities as of year-end 2020). 6 Id., at figure 7.1 (stating that 45.7 percent of U.S. households owned funds in 2020). For certain types of funds and their investors, proxy voting can have particularly heightened importance. For example, because index funds' investment policies typically do not permit them to sell investments in the relevant index, these funds cannot sell a stock if they are dissatisfied with management. Instead, index funds may use their voting power to become active in corporate governance in order to increase the value of their investments. 7 Index funds have grown significantly in recent years. Index funds make up nearly half of the assets in equity funds. 8 More generally, the net assets of index funds as a share of mutual funds and ETFs have more than doubled since 2010. 9 7 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)] (“Form N-PX Adopting Release”) at nn.17-18 and accompanying text (noting that, because passive funds have investment policies that do not permit them to sell their shares, they may become more active in corporate governance as a way to maximize value for their shareholders). 8 See Kenechukwu Anadu, Mathias Kruttli, Patrick McCabe, and Emilio Osambela, “The Shift from Active to Passive Investing: Potential Risks to Financial Stability?”, Finance and Economics Discussion Series 2018-060r1, Washington: Board of Governors of the Federal Reserve System (2020), available at https://doi.org/10.17016/FEDS.2018.060r1 (citing statistics as of March 2020); see also ICI 2021 Fact Book, supra footnote 6, at figure 2.8 (stating that index funds represented 40% of the mutual fund and ETF market, excluding money market funds, in 2020). 9 See ICI 2021 Fact Book, supra footnote 5, at figure 2.8 (noting index fund growth as a share of the mutual fund and ETF market between 2010 and 2020, excluding money market funds). 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. 10 In addition, in recent years, investors have increased their focus on how funds vote on environmental, social, and governance-oriented matters ( i.e., ESG matters). Many funds now incorporate sustainability or other ESG factors or put these factors at the center of their investment approach. 10 Some investors review funds' voting practices by accessing Form N-PX reports directly on EDGAR, while others may obtain information about funds' voting practices through analysis or synthesis of Form N-PX reports by data aggregators or others. A variety of market participants and other stakeholders also use data reported on Form N-PX. See infra Section IV.C.1.a. In most cases, a fund's adviser votes proxies relating to the fund's portfolio securities on the fund's behalf. 11 Investment advisers are fiduciaries that owe duties of care and loyalty to each client. 12 To satisfy its fiduciary duty in making any voting determination on behalf of a fund, an investment adviser must make determinations in the best interest of its client. Further, an investment adviser cannot place its own interests ahead of the interests of its client. 13 An investment adviser that assumes proxy voting authority must adopt and implement policies and procedures reasonably designed to ensure it votes client securities in the best interest of clients. 14 11 See Form N-PX Adopting Release, supra footnote 7, at nn.11-13 and accompanying text (recognizing that while the fund's board of directors, acting on the fund's behalf, has the right and the obligation to vote proxies relating to the fund's portfolio securities, this function is typically delegated to the fund's investment adviser). 12 Commission Interpretation Regarding Standard of Conduct for Investment Advisers, Investment Advisers Act Release No. 5248 (June 5, 2019) [84 FR 33669 (July 12, 2019)] (“2019 Fiduciary Interpretation”). 13 Commission Guidance Regarding Proxy Voting Responsibilities of Investment Advisers, Investment Advisers Act Release No. 5325 (Aug. 21, 2019) [85 FR 55155 (Sept. 3, 2019)] (“Proxy Voting Interpretation”). 14 See 17 CFR 275.206(4)-6. In 2003, the Commission adopted Form N-PX, which requires funds to report publicly their proxy voting records annually. Form N-PX is designed to improve transparency and enable fund shareholders to monitor their funds' involvement in the governance activities of portfolio companies. 15 Since its adoption, Form N-PX has advanced transparency into fund voting. However, these reports can be difficult for investors to use and can provide an incomplete picture of a fund's voting practices. 15 See Form N-PX Adopting Release, supra footnote 7, at paragraph accompanying n.34. Although the Commission proposed to require funds to disclose their proxy voting records in their annual and semiannual shareholders reports, after considering comments, the Commission adopted a separate form—Form N-PX—for funds to use in filing this information with the Commission. See id. at Section II.B. In the same release, the Commission also adopted amendments to require funds to disclose the policies and procedures they use to determine how to vote proxies. In that release, the Commission discussed several benefits of providing transparency on how funds vote, including illuminating potential conflicts of interest, discouraging voting that is inconsistent with fund shareholders' best interests, and encouraging funds to become more engaged in corporate governance of issuers held in their portfolios. Id. at Section I. Investors may face difficulties using Form N-PX reports to find a particular fund's voting record, find a specific vote or type of vote that is of interest, or compare funds' voting records for several reasons. First, the organization and presentation of funds' proxy voting records in Form N-PX reports can vary significantly. For example, funds may provide unclear and inconsistent descriptions of voting matters ( e.g., by using abbreviations or other shorthand). As another example, although the instructions to the form require separate presentations for each fund, some funds interpret this requirement as providing flexibility to organize voting information first by security, with each fund holding that security listed separately. 16 As a result, a given fund's voting record can be spread throughout the report instead of presented together in one place. Second, Form N-PX reports can be overwhelmingly long due to the number of voting matters and funds the reports often cover. 17 A single fund may own hundreds of securities, each of which may have ten or more proposals each year, and a single Form N-PX report often includes information about several different funds' voting records. 18 Third, reports on Form N-PX are not currently filed in a machine readable, or “structured,” data language. This can make it more difficult for investors to analyze efficiently the reported data, particularly in light of the inconsistencies and length of Form N-PX reports. 19 16 Many fund complexes include information about several different funds in a single Form N-PX report, given the structure of many funds as series of a trust. See Instruction 1 to current Form N-PX (“In the case of a registrant that offers multiple series of shares, provide the information required by this Item separately for each series. The term `series' means shares offered by a registrant that represent undivided interests in a portfolio of investments and that are preferred over all other series of shares for assets specifically allocated to that series in accordance with Rule 18f-2(a) under the Act (17 CFR 270.18f-2(a)).”). 17 Based on staff analysis of reports on Form N-PX, larger funds can have filings in excess of 1,000 pages. 18 For example, during the 2017 proxy season, funds cast more than 7.6 million votes for proxy proposals, and the average fund voted on 1,504 separate proxy proposals for U.S. listed portfolio companies . Letter dated Mar. 15, 2019, from Paul Schott Stevens, President and CEO, Investment Company Institute, submitted in response to the Statement Announcing SEC Staff Roundtable on the Proxy Process, available at https://www.sec.gov/comments/4-725/4-725.htm. 19 While some structured data is available commercially, investors seeking to use this information may incur costs, as well as potential limits on the comprehensiveness and timeliness of available information. In addition to difficulties in accessing and analyzing the data provided on Form N-PX, certain gaps in the required disclosure may result in an incomplete picture of a fund's proxy voting practices. Funds commonly engage in securities lending activities to generate additional revenue for the fund. 20 When a fund lends its portfolio securities, it transfers incidents of ownership relating to the loaned securities, including proxy voting rights, for the duration of the loan. As a result, while the securities are on loan, the fund is not able to vote the proxies of such securities. If a fund determines that it wants to vote loaned securities, it must recall the securities and receive them prior to the record date for the vote. Recalling loaned securities may decrease the revenue a fund generates from securities lending activity. The decision of whether to recall a security on loan to vote it is not currently disclosed on Form N-PX, although some investors have expressed interest in information about the relationship between a fund's securities lending and proxy voting. 21 20 According to Form N-CEN filings, 67.2% of funds were authorized to engage in securities lending in their most recent fiscal year, and 40.2% of funds reported lending securities over that same period. These funds reported, in the aggregate, net income from securities lending of $2.663 billion. See also Reena Aggarwal et al., The Role of Institutional Investors in Voting, J. of Finance, at 2310 (2015) (noting that “[m]ost large pension funds, mutual funds, and other institutional investors have a lending program and consider it an important source of revenue, with estimates of $800 million in annual revenue for pension funds.”). 21 See, e.g., Letter of the Shareowner Education Network (Oct. 20, 2010) (File No. S7-14-10) (“Shareowner Education Letter on Concept Release”) (“Funds should disclose all aspects of securities lending that affect their investors, such as the number of shares on loan over the record date and lending fees, as well as the number of shares from any other missed voting opportunities and the actual number of shares that were voted for each meeting. This information is important to investors who are monitoring the stewardship responsibilities of funds.”). See also infra footnote 99. To improve the utility of Form N-PX information for investors, we are proposing amendments to enhance the information funds currently report about their proxy votes on Form N-PX and to make that information easier to analyze. For example, we are proposing to require funds to tie the description of the voting matter to the issuer's form of proxy and to categorize voting matters by type. We are also proposing to require reporting of information on Form N-PX in a structured data language either via a Commission-supplied web-based form or as an Extensible Markup Language (“XML”) file. 22 In addition, we are proposing to require 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, we also are proposing to require a fund to provide its voting record on (or through) its website. 22 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), available at https://www.sec.gov/spotlight/investor-advisory-committee-2012/data-tagging-resolution-72513.pdf, at 5 (recommending amendments to Form N-PX to provide for the tagging of data). In addition to proposing to amend Form N-PX to enhance disclosure of funds' proxy voting records, we are proposing rule and form changes to require an institutional investment manager subject to section 13(f) reporting requirements (“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. 23 Similar to funds, managers have substantial voting power. As of March 31, 2021, managers exercised investment discretion over approximately $39.79 trillion in section 13(f) securities. 24 This aspect of the proposal is aimed at completing implementation of section 951 of the Dodd-Frank Act. The Commission first proposed rule and form changes in October 2010 to implement the Dodd-Frank Act's manager reporting requirements. 25 This proposal takes into account the comments we received in response to that proposal. 23 The term “institutional investment manager” includes any person, other than a natural person, investing in or buying and selling securities for its own account, and any person exercising investment discretion with respect to the account of any other person. See section 13(f)(6)(A) of the Exchange Act [15 U.S.C. 78m(f)(6)]. The term “person” includes any natural person, company, government, or political subdivision, agency, or instrumentality of a government. See section 3(a)(9) of the Exchange Act [15 U.S.C. 78c(a)(9)]. Entities serving as managers could include, for example: Banks, insurance companies, and broker-dealers that invest in, or buy and sell, securities for their own accounts; corporations and pension funds that manage their own investment portfolios; or investment advisers that manage private accounts, mutual fund assets, or pension plan assets. In addition to amendments to Form N-PX, we are proposing new rule 14Ad-1 under the Exchange Act to require managers to annually report their say-on-pay votes on Form N-PX. 24 This number does not include put or call options and is based on staff review of managers' reports on Form 13F covering the first quarter of 2021. Section 13(f) of the Exchange Act requires a manager to file a report with the Commission if it exercises investment discretion with respect to accounts holding certain equity securities (“section 13(f) securities”) having an aggregate fair market value on the last trading day of any month of any calendar year of at least $100 million. Rule 13f-1 requires that managers file quarterly reports on Form 13F if the accounts over which they exercise investment discretion hold an aggregate of more than $100 million in section 13(f) securities. See 17 CFR 240.13f-1. Section 14A(d) of the Exchange Act requires that “every institutional investment manager subject to section 13(f)” of the Exchange Act report its say-on-pay votes. 25 See Exchange Act Release No. 63123 (Oct. 18, 2010) [75 FR 66622 (Oct. 28, 2010)] (“2010 Proposing Release”). Section 951 of the Dodd-Frank Act added new section 14A to the Exchange Act. This section generally requires public companies to hold non-binding shareholder advisory votes to: (1) Approve the compensation of its named executive officers; (2) determine the frequency of such votes, with the option of every 1, 2, or 3 years; and (3) approve “golden parachute” compensation in connection with a merger or acquisition (collectively, “say-on-pay votes”). 26 Section 14A(d) of the Exchange Act requires that every manager report at least annually how it voted on say-on-pay votes, unless such vote is otherwise required to be reported publicly. The Commission's 2010 proposal to implement this provision would have required managers to file their record of say-on-pay votes with the Commission annually on Form N-PX, and would have amended Form N-PX to accommodate the new manager filings. 27 26 See section 14A(a) and (b) of the Exchange Act; 17 CFR 240.14a-21; see also Item 402(a)(3) of Regulation S-K (defining the term “named executive officers”). 27 See 2010 Proposing Release, supra footnote 25. Unless otherwise indicated, comments cited in this release are the public comments the Commission received in response to the 2010 Proposing Release, which are available at http://www.sec.gov/comments/s7-30-10/s73010.shtml. In addition, to facilitate public input on the Dodd-Frank Act, the Commission provided a series of email links, organized by topic, on its website. The public comments received on section 951 of the Dodd-Frank Act are available at http://www.sec.gov/comments/df-title-ix/executive-compensation/executive-compensation.shtml. Most commenters on the 2010 proposal expressed overall support for the Commission's proposal to implement this requirement through reporting on modified Form N-PX. 28 As discussed further below, some commenters expressed concerns with particular aspects of the proposal. The rule and form amendments we are proposing include certain modifications from the 2010 proposal, including modifications that take into consideration commenters' suggestions. In response to comments, we propose to require managers to report say-on-pay votes for securities over which the manager exercised voting power. The proposed definition of exercise of voting power focuses on instances when the manager uses voting power to influence a 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, we propose to allow managers to rely on joint reporting provisions under these circumstances. We also propose that the amendments to Form N-PX for funds would apply to managers reporting say-on-pay votes on Form N-PX. 28 See, e.g., Letter of California Public Employees' Retirement System (Nov. 18, 2010) (“CalPERS Letter”); Letter of Council of Institutional Investors (Nov. 12, 2010) (“CII Letter”); Letter of Glass Lewis & Co. (Nov. 18, 2010) (“Glass Lewis Letter I”); Letter of Investment Company Institute (Nov. 18, 2010) (“ICI Letter”); Letter of Senator Carl Levin (Nov. 18, 2010) (“Levin Letter”); Letter of Heidi Preston (Oct. 26, 2010). Two commenters acknowledged that the Commission's proposal was required under the Dodd-Frank Act. Letter of Investment Adviser Association (Nov. 16, 2010) (“IAA Letter”); Letter of Oli Stone (Nov. 17, 2010) (“Stone Letter”). One commenter generally opposed the proposal. Letter of Dennis Reiland (Nov. 8, 2010) (“Reiland Letter”). II. Discussion A. Scope of Funds' Form N-PX Reporting Obligations Currently, every registered management investment company, other than a small business investment company registered on Form N-5, must file its proxy voting record annually on Form N-PX. 29 We are not proposing to modify the scope of registered investment companies subject to Form N-PX reporting requirements. 29 See rule 30b1-4 under the Investment Company Act [17 CFR 270.30b1-4]. We are, however, proposing 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. 30 We are proposing to amend this standard to provide that, for purposes of Form N-PX, a fund would be entitled to vote on a matter if its portfolio securities are on loan as of the record date for the meeting because the fund could recall them and vote them. 31 This proposed 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. 30 See Item 1 of current Form N-PX. 31 See Item 1 of proposed Form N-PX. We request comment on the proposed amendments to the scope of funds' reporting obligations on Form N-PX, including the following: 1. Should we continue to require all registered management investment companies, other than small business investment companies registered on Form N-5, to report on Form N-PX? Are there other types of registered investment companies, such as unit investment trusts, that we should require to report their proxy votes on Form N-PX? If we do so, would these other types of investment companies face unique challenges in reporting their proxy votes? If we extended Form N-PX reporting requirements to unit investment trusts, should we exclude unit investment trusts that invest exclusively in mutual funds, such as those that offer variable annuities and variable life insurance, since the underlying mutual funds would be covered? 2. As proposed, should we amend Form N-PX to provide that a fund will be entitled to vote on a matter if its portfolio securities are on loan as of the record date? If not, why should the form not consider a fund to be entitled to vote loaned securities where the fund could recall the securities in order to vote them? 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 proposing that Form N-PX reporting obligations for say-on-pay votes would extend to each person that (i) is an “institutional investment manager” as defined in the Exchange Act; and (ii) is required to file reports under section 13(f) of the Exchange Act. 32 This is consistent with the scope of the reporting obligation in section 14A(d) of the Exchange Act. Thus, a manager that is otherwise required to report on Form 13F would be required to disclose its say-on-pay votes on Form N-PX. 33 32 See proposed rule 14Ad-1(a); 15 U.S.C. 78m(f). 33 Proposed rule 14Ad-1(a). We are proposing, consistent with the 2010 proposal, to require a manager's report on Form N-PX to include the manager's voting record for say-on-pay votes. 34 The types of votes that the proposal would require managers to report are the same as the types provided by section 14A(d) of the Exchange Act. The manager, therefore, would be required to report votes required by section 14A(a) on the approval of executive compensation and on the frequency of such executive compensation approval votes, as well as votes required by section 14A(b) on the approval of executive compensation that relates to an acquisition, merger, consolidation, or proposed sale or other disposition of all or substantially all the issuer's assets. 34 Proposed rule 14Ad-1(a); Item 1 of proposed Form N-PX. 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 rule 3b-4(c) under the Exchange Act [17 CFR 240.3b-4(c)]) that are exempt from the proxy solicitation rules, would not be required to be reported on proposed Form N-PX. A few commenters expressed support for broader disclosure of managers' proxy votes, beyond say-on-pay votes. 35 In the 2010 proposal, the Commission did not propose to require reporting of votes other than say-on-pay votes by managers because the purpose of that rulemaking was primarily to implement a statutory mandate. 36 We continue to believe that it is appropriate to focus on managers' say-on-pay votes, consistent with the statutory mandate. 35 See ICI Letter (expressing the belief that all institutional investors should be required to disclose every proxy vote they cast, as funds currently do); Stone Letter (suggesting that manager reporting requirements should cover all proxy items over which the manager has voting authority, rather than just say-on-pay votes). 36 See, e.g., 2010 Proposing Release, supra footnote 25, 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.”). We request comment on the class of managers who would be required to file reports on Form N-PX and the types of votes they would be required to report under the proposal: 3. Is the proposed scope of managers that would be required to report say-on-pay votes on Form N-PX appropriate? Does it sufficiently capture all managers? Does it capture managers that should not be covered? Why or why not? 4. Is there a more appropriate standard for proposed rule 14Ad-1's manager reporting requirements? If so, please explain. 5. Should we, as we are proposing, require managers to report all of their say-on-pay votes? Are any exclusions warranted? If so, please explain. 6. Should we require managers to report say-on-pay votes on Form N-PX, as proposed? Should managers use a different form for reporting these votes? For example, would there be advantages to requiring managers to report say-on-pay votes on Form 13F instead? 7. In addition to requiring managers to report their say-on-pay votes, should we require managers to report any votes other than say-on-pay votes? If so, please identify any other votes that managers should be required to report and the basis for the Commission to introduce such a reporting requirement. 8. Are there circumstances in which managers may want to voluntarily disclose other types of votes, beyond say-on-pay votes, on Form N-PX? If so, are there any impediments in the proposal that would prevent or discourage managers from voluntarily disclosing information about other types of votes? 2. Managers' Exercise of Voting Power We are proposing to require that a manager report a say-on-pay vote for a security only if the manager “exercised voting power” over the security—that is, if the manager both has voting power and exercises that power. 37 Under the proposal, voting power would exist when a manager has the ability to vote the security or direct the voting of the security, including the ability to determine whether to vote the security at all, or to recall a loaned security before a vote. 38 The proposal would define exercise of voting power to mean the actual use of voting power to influence a voting decision. 39 Voting power could exist or be exercised directly or through a contract, arrangement, understanding, or relationship, and multiple parties could have voting power over the same securities. For example, a party could exercise voting power if it influences the way a third party votes the security, even where the manager is not the sole decision-maker. 40 The proposed rule thus adopts a two-part test for determining whether a vote must be reported, requiring both power to vote a security (or to cause another party to vote such security) and the actual use of such power to influence the voting decision in the case of the specific vote. 41 37 See proposed rule 14Ad-1(a). 38 See proposed rule 14Ad-1(d)(1) (defining voting power). 39 See proposed rule 14Ad-1(d)(2) (defining exercise of voting power). 40 If two managers exercise voting power over the same security, they could rely on the joint reporting provisions in the proposal to reduce reporting burdens and address duplicative reporting. See infra Section II.D.1. 41 Proposed rule 14Ad-1(a); Item 1 of proposed Form N-PX. The proposed voting power standard differs from the approach the Commission proposed in 2010 and from how the Commission has identified voting power in certain other contexts. In 2010, the Commission proposed to require that a manager report a say-on-pay vote for a security only if the manager “had or shared the power to vote, or to direct the voting of” the security, using language similar to 17 CFR 240.13d-3(a) (rule 13d-3(a)) under the Exchange Act. 42 Some commenters on the 2010 Proposing Release supported the proposed focus on voting power as the standard for determining whether a manager must report say-on-pay votes, with one noting that in practice, shared voting arrangements are rare. 43 Other commenters suggested that it would be more appropriate to focus on who actually voted the security, rather than who had the power to vote the security. 44 Another commenter noted that in certain cases, managers cast votes based on client instructions, and that in such cases the manager's voting power is ministerial in nature. 45 42 See 2010 Proposing Release, supra footnote 25, at n.18 and accompanying text. 43 See, e.g., Letter of Chris Barnard (Nov. 13, 2010) (“Barnard Letter”); CalPERS Letter; CII Letter. 44 See, e.g., Stone Letter; Letter of Managed Funds Association (Dec. 22, 2010) (“MFA Letter”); ABA Letter; Glass Lewis Letter I. 45 See, e.g., Mayer Brown Letter. The revised standard we are proposing is intended to clarify the scope of the say-on-pay vote reporting obligation by focusing more specifically on the exercise, rather than mere possession, of voting power. Our proposed standard is intended to align responsibility for deciding how to vote securities with responsibility for reporting such votes. 46 The proposed approach is tailored to considerations associated with section 14A(d) of the Exchange Act and the scope of say-on-pay vote reporting obligations. As a result, our proposed definition of “voting power” and the “exercise” of voting power do not affect the meaning of these or similar terms used in other Commission rules. 46 Glass Lewis Letter I (supporting this approach). The proposed test focuses on exercise, rather than mere possession, of voting power to address shared voting power situations and to make managers' reports of say-on-pay votes more useful for clients and other investors. As an example of the proposed approach, if a manager votes a client's separate account's shares based on its own judgment or in accordance with its own guidelines, the manager exercised voting power over the security and would be required to report those votes. Conversely, if the manager's voting decision on a say-on-pay vote is entirely determined by its client, either because the client communicates its wishes directly to the manager or because the client has a written policy regarding the voting decision that does not call for any independent judgment by the manager, the manager is not exercising voting power over the security because the manager is not influencing the voting decision. The proposal would not require a manager to report these votes. This is the case even if the manager is the party that carries out the actual vote in accordance with its client's wishes. However, if the manager influences the voting decision in this context by, for example, exercising its own judgment in determining how the client's policies should apply to the say-on-pay vote, then the manager would exercise voting power when it carries out the policy and report the vote accordingly. This may be the case, for instance, if a client has a policy of opposing pay packages that are unreasonable but determining if a package is “unreasonable” involves exercise of the manager's judgment. When determining whether the manager exercised voting power, the manager should assess whether it was using its voting power to influence the voting decision—such as by exercising independent judgment or expertise in a way that affects how the security was voted—or whether it was instead simply applying a policy on a formulaic or mechanical basis. As another example, a manager would exercise voting power where the manager casts a vote in accordance with voting policies developed by the manager and adopted by the client. A manager with voting power may also exercise that voting power through other influence over the voting decision, separate from any discretion the manager may have in determining or applying a client's voting policies. The fact patterns in this discussion are meant to be illustrative examples and are not meant to cover all scenarios in which a manager would be required to report say-on-pay votes because it has voting power and uses that power to influence a voting decision. The proposed test also provides that a manager exercises voting power when it influences the decision of whether to vote a security. For example, a manager that determines not to vote on a say-on-pay matter would exercise voting power under the proposal. A manager also would exercise voting power when it decides whether to recall loaned securities in advance of a vote in order to vote the shares. 47 47 See also infra Section C.3.b (discussing proposed disclosure about the number of shares a reporting person has loaned and not recalled, and the benefits of that disclosure). A manager would not exercise voting power if a third party makes all decisions of whether to vote the security. For example, certain clients may have relationships with securities lending agents, and the client or the securities lending agent would determine whether to recall loaned securities, without any involvement by the manager. 48 In this case, the manager would not exercise voting power with respect to the loaned securities because it would not influence the decision of whether to recall the loaned shares. 48 See ABA Letter. The framework we are proposing is intended to provide additional insight into how managers are exercising the voting discretion they have been granted by their clients without attributing to managers votes that are dictated fully by their clients or by other managers. The framework is intended to avoid potential confusion that could result from a manager reporting votes where the manager did not influence the voting decision. We believe requiring a manager who does not exercise voting power, for instance because its votes are entirely dictated by a client's policy, to report those votes on Form N-PX would be of limited benefit to the manager's clients and potential clients, as well as other investors. It would not provide insight into—and in fact may obscure—how a manager exercises its discretion. 49 49 See, e.g., ISS Letter; Mayer Brown Letter (commenting that managers sometimes effectuate client voting decisions by completing the proxy card, but do not have control over or decide how shares will be voted). In certain cases, we expect our proposed framework will result in multiple parties determining they exercise voting power ( e.g., because more than one manager provides input on applying a client's voting policies). In these circumstances, all such managers would come within the scope of the reporting requirements under the proposal, although they could rely on the joint reporting provisions discussed below to reduce reporting burdens. The focus on a manager's exercise of voting power could result in the manager's reports on Form N-PX differing from its reports on Form 13F. For example, if a manager exercises investment discretion over a particular section 13(f) security held in a client's account, but the client retains all rights to vote proxies for that security, the manager generally would report that security on its holdings report on Form 13F. However, it would not be required to report any say-on-pay votes with respect to that security. Conversely, a manager that exercises voting power over a security, but is not required to report the security on Form 13F because it does not have investment discretion over the security or because it did not hold the security at the end of a calendar quarter, would nonetheless be required to report say-on-pay votes on Form N-PX for that security. 50 50 See also discussion infra Section II.B.3 (discussing differences in reporting between Form 13F and Form N-PX). The 2010 proposal asked whether it would be appropriate to use a different standard, such as investment discretion, as the test for reporting say-on-pay votes. 51 We believe that using investment discretion as the test would result in managers having to report votes cast by clients in cases where the manager retains investment discretion but not voting power. We believe this would be confusing to investors and could inaccurately imply that the manager filing the report actually made or influenced the decision it was reporting. 52 We also are not proposing to base the reporting requirement upon whether a manager, in fact, votes rather than on whether the manager exercises voting power. 53 A test based on who physically marks the proxy card (or its electronic equivalent) would omit from its scope managers that participated in determining how to cast the vote, but would simplify the reporting obligation. 54 51 See 2010 Proposing Release, supra footnote 25, at Section II.B.2. 52 CII Letter. 53 Glass Lewis Letter I (only the “voting entity” should report); MFA Letter (require reporting only when the manager has instructed an intermediary to vote its shares); Letter of Seward & Kissel LLP (Nov. 18, 2010) (“Seward Letter”) (require reporting by manager that “actually voted” the proxy); Stone Letter (party who votes should bear the burden of disclosure and the Commission should not require reporting on the basis of shared voting authority). 54 ISS Letter (suggesting that the manager who receives the ballot should be the primary filer with respect to the votes covered by that ballot). We request comment on the proposed approach of requiring managers to report say-on-pay votes when they exercise voting power over the security, and in particular, on the following issues: 9. Should the reporting requirement be based on exercising the power to vote with respect to say-on-pay votes as proposed, or should we use some other basis? For example, should we base the reporting requirement on the possession of investment discretion, the identity of who in fact votes, or the identity of who receives the ballot? As another example, should a vote that was dictated entirely by a client's mandate be treated as an exercise of voting power by the manager, even if the manager did not influence the vote? What are the advantages and disadvantages of the different potential approaches? 10. Should we modify the proposed definitions of voting power or exercise of voting power? For example, instead of considering a manager to exercise voting power when it uses voting power to influence a voting decision, should we use a different standard, such as using voting power to “significantly” influence a voting decision or to “primarily” make a voting decision? If so, what factors would be relevant for determining if a manager's role in a voting decision meets the revised standard? 11. Should we, as proposed, consider a manager to exercise voting power when it has the ability to determine not to vote or to recall loaned securities? Would this provision present challenges to managers? If so, what are those challenges, and are there changes to the reporting requirement that would address such challenges? 12. Should we provide additional guidance concerning the circumstances under which a manager exercises voting power? If so, please specify the type of guidance that managers would find helpful. 13. Does our proposed exercise of voting power standard cover circumstances that should be covered or should not be covered? If so, what are the circumstances that should or should not be covered? 3. Additional Scoping Matters for Manager Reporting of Say-on-Pay Votes We are proposing to require that a manager report say-on-pay votes with respect to any security over which it meets the voting power test described above. 55 As was the case in the 2010 Proposing Release, we are not proposing to modify the scope of securities to align with those reported on Form 13F or to provide exceptions where the manager does not vote. 55 Proposed rule 14Ad-1(a). Some commenters supported the requirement that managers report any security. 56 Other commenters requested that the Commission limit the reporting obligation to securities that had previously been reported publicly on Form 13F or adopt a de minimis threshold below which reporting of say-on-pay votes would not be required. 57 A commenter requesting a de minimis threshold argued that not providing an equivalent exemption from Form N-PX reporting as is available from Form 13F reporting would reduce the value of the 13F exemption and raise costs for managers. 58 56 CII Letter; Levin Letter. 57 See, e.g., ABA Letter (recommending non-disclosure of say-on-pay votes for securities not previously reported because they were below the de minimis threshold for Form 13F); Seward Letter (suggesting limiting the securities to which the reporting requirements apply to those securities previously reported publicly, or, in the alternative, adopting a threshold position size below which a reporting person need not report proxy votes); Barnard Letter (excluding securities where the manager holds less than 10,000 shares); Reiland Letter (suggesting to limit to holdings on which persons are required to file statements on Schedule 13D or Schedule 13G under the Exchange Act). 58 See Letter of Intel Corporation (Nov. 19, 2010) (“Intel Letter”). On Form 13F, a manager is permitted to omit holdings of fewer than 10,000 shares (or less than $200,000 principal amount in case of convertible debt securities) and less than $200,000 aggregate fair market value. See Special Instruction 10 to Form 13F. While we acknowledge commenters' suggestion that a de minimis threshold could reduce record keeping and reporting burdens on managers for smaller position sizes that currently do not require reporting on Form 13F, a de minimis threshold could reduce the value of the say-on-pay disclosure because a fund or manager's full voting record would not be available when the threshold applied. We therefore are not proposing to provide a de minimis threshold for institutional managers reporting their say-on-pay votes on Form N-PX. Because Form 13F reports only disclose holdings as of the close of a calendar quarter, these reports are not required to include securities held during the quarter but subsequently disposed of prior to the end of the quarter. Form 13F reports also do not reflect when a manager increased or decreased its position during a quarter but returned to the “baseline” level reported on its previous Form 13F report by the end of the quarter. As a result, although some commenters requested that the Commission limit say-on-pay reporting to securities that had previously been reported publicly on Form 13F, this approach could exclude a significant number of say-on-pay votes, which we believe would be inconsistent with the purpose of section 14A. The proposed rule therefore would require a manager to report say-on-pay votes without regard to whether the manager had previously reported or been required to report the security as a holding on Form 13F. In addition to comments suggesting that Form N-PX reporting obligations should more closely align with Form 13F, some commenters suggested other exceptions from Form N-PX reporting for managers who do not vote. For example, two commenters recommended that we not require a manager to report on Form N-PX if, under certain or all circumstances, the manager does not vote. 59 These commenters stated that some investment strategies (such as algorithmic strategies with short holding periods) are unrelated to the economic interests served by voting proxies. One of these commenters stated that, with respect to certain strategies, voting proxies could be characterized as “empty voting.” 60 One of these commenters suggested that, in some cases, securities are held for insufficient periods (such as less than one day) to perform the requisite analysis for proxy voting, and where the manager disclosed a policy not to vote proxies to its clients, the manager's Form N-PX report would contain little information and would not further the policy objectives of the proposed rule. 61 The other commenter expressed concern about the burdens of developing and implementing technology to track record date holdings in cases where the manager does not vote. 62 59 See Seward Letter (requesting an exception from the reporting requirement where the manager maintains a policy not to vote proxies and discloses that policy to clients); ABA Letter (requesting a blanket exception for holdings that were not voted). 60 See ABA Letter; see also Exchange Act Release No. 62495 (July 14, 2010) [75 FR 42982, 43017-20 (July 22, 2010)] (“Proxy Mechanics Concept Release”) (discussing the concept of “empty voting”). This release cites some comment letters on the Proxy Mechanics Concept Release. These comment letters are available at https://www.sec.gov/comments/s7-14-10/s71410.shtml. 61 Seward Letter. 62 ABA Letter. We believe that an exception from Form N-PX reporting requirements when a manager does not cast a vote on say-on-pay matters may limit the ability of investors to understand fully how a manager votes its shares. In addition, we believe the burden of reporting when the manager does not vote its shares would be lower under our current proposal, as compared to the burden of the equivalent aspect in the 2010 proposal, because the current proposal would not require the manager to track record date holdings to disclose the number of shares the manager was authorized to vote. 63 63 See supra Section II.C.3 (discussing how the quantitative information contained in this proposal differs from the 2010 proposal, including no longer proposing to require the number of shares the manager was authorized to vote). A few commenters requested exceptions from Form N-PX reporting requirements in situations where a manager discloses certain information about how it votes to its clients, such as formulaic voting criteria developed by the manager which have been disclosed to clients or where the manager distributes its voting record to a client who had provided the manager its own proxy policies or guidelines to follow. 64 We do not believe that an exception would be warranted in these circumstances because, in addition to benefiting the direct clients of managers, public disclosure of say-on-pay votes could benefit other investors, such as plan participants of employee benefit plans that hire managers. 64 ABA Letter (formulaic voting criteria); Mayer Brown Letter (distribution to clients). Finally, to the extent a manager did not exercise voting power over any securities that held say-on-pay votes during a given reporting period, we are proposing to require the manager to file a Form N-PX report affirmatively stating this fact. The Commission also proposed this requirement in 2010. 65 One commenter opposed this requirement, stating that it would not contribute to the objective of increased transparency regarding any possible influence over shareholder votes and corporate governance. 66 However, we believe this disclosure would help investors and the Commission differentiate managers with no reportable say-on-pay votes from those that failed to file a Form N-PX report to disclose say-on-pay votes. 65 Item 1 of proposed Form N-PX. 66 Seward Letter. We request comment on the circumstances in which the proposal would require a manager to file a Form N-PX report, and, in particular, on the following issues: 14. Should we permit managers to omit votes otherwise reportable where the manager's ownership is below a specific threshold? What are the potential advantages or disadvantages if we permit a manager that holds, on the record date, fewer than 10,000 shares and less than $200,000 aggregate fair market value to omit say-on-pay votes on such securities? Would such an exception impede investors from understanding how shares were voted? Why or why not? 15. Should we permit managers to omit votes on a particular type of security? Do managers have substantial holdings of securities that are not “section 13(f) securities” as defined by 17 CFR 240.13f-1(c), but are registered pursuant to section 12 of the Exchange Act and thus would have say-on-pay votes? Would there be potential advantages or disadvantages if we required managers to report only their say-on-pay votes on section 13(f) securities? Would such an approach be consistent with the public interest, and how would it impact investor protection? 16. Should we permit managers to omit votes on securities that were not held as of the end of a calendar quarter (and thus would not be reported on Form 13F)? Should we permit or require any disclosure on Form N-PX or elsewhere to explain differences between information reported on Form N-PX and information reported on Form 13F or related circumstances ( e.g., where a manager has significantly more or less voting power on the record date of a say-on-pay vote than its Form 13F report would otherwise suggest)? If so, under what circumstances would this disclosure be helpful? What would the disclosure entail, and should it be permissive or required? 67 67 Under the proposal, a manager would be permitted to disclose additional information on the cover page of its Form N-PX report, so long as it does not, either by its nature, quantity, or manner of presentation, impede the understanding or presentation of the required information. See General Instruction C.3 of proposed Form N-PX. 17. Should we expand or limit in any other way the securities with respect to which managers would be required to report say-on-pay votes? 18. Should we modify the proposed approach for managers that do not vote their shares? For example, should we permit these managers to not file Form N-PX reports? Should we exempt non-voting managers from certain disclosure requirements on Form N-PX concerning the various securities they did not vote on say-on-pay matters during the reporting period? What conditions or limitations, if any, should apply? For instance, to rely on a modified approach, should a manager be required to disclose to its clients that it does not vote? Would a modified approach be particularly applicable to certain categories of managers, such as those whose trading strategies involve relatively short-term ownership? 19. As proposed, should we require a manager without any say-on-pay votes to disclose to file a report on Form N-PX stating that fact? Would such filings effectively distinguish managers that missed a required filing from managers without say-on-pay votes to report? C. Proxy Voting Information Reported on Form N-PX We are proposing to enhance funds' current Form N-PX disclosures so investors can more easily understand and analyze proxy voting information. These proposed changes include, for example, more clearly tying the description of the voting matter to the issuer's form of proxy and categorizing voting matters by type. In addition, we are proposing to extend many of these proposed enhancements to the Form N-PX reports that managers would file under this proposal. 1. Identification of Proxy Voting Matters We are proposing to require reports on Form N-PX to identify proxy voting matters using the same language as disclosed in the issuer's form of proxy. In 2010, the Commission proposed to require standardized descriptions for say-on-pay votes and brief identifications of other votes. 68 At that time, the Commission requested comment on alternative methods of standardizing descriptions of these voting matters. As part of the Proxy Mechanics Concept Release, the Commission also solicited comment regarding methods for uniform identification of proxy voting matters in Form N-PX reports. 69 In particular, the Commission asked about ways to standardize identifications if issuers do not themselves create and assign unique interactive data “tags” for each matter on their proxy statements. 70 Several commenters on the Commission's 2010 proposal supported requiring standardized descriptions for say-on-pay votes, and one commenter on the Proxy Mechanics Concept Release expressed support for standardizing descriptions more broadly. 71 Two commenters expressed concern with standardized descriptions for matters other than say-on-pay votes. These commenters cited the practical challenges posed in uniformly identifying different matters, given both the variety of voting matters before shareholders and the absence of standardized data tags in issuer proxy materials. 72 68 See 2010 Proposing Release, supra footnote 25, at paragraph accompanying n.89. 69 Proxy Mechanics Concept Release, supra footnote 60, at Section III.C.3. 70 Id., at requests for comment subsequent to n.237 (“Whether or not we permit or require interactive data tagging, should Form N-PX require standardized reporting formats so that comparisons between funds are easier?”). 71 See CalPERS Letter; Fidelity Letter; Letter of Michael Ostrovsky (Sept. 5, 2013) (File No. S7-14-10) (“Ostrovsky Letter on Concept Release”) (supporting a standardized classification system for voting matters). 72 See Fidelity Letter (citing difficulty “given the wide variety of votes placed before shareholders” and stating that “as a general matter, the variable nature of proxy-related disclosures do not lend themselves to uniform standardization”); Letter of Fidelity Investments (Oct. 20, 2010) (File No. S7-14-10) (“Fidelity Letter on Concept Release”) (questioning feasibility of providing for a uniform identification of each matter voted in reports on Form N-PX); Letter of Investment Company Institute (Oct. 20, 2010) (File No. S7-14-10) (“ICI Letter on Concept Release”) (citing a “significant practical issue” of “how to provide for uniform identification of each matter voted across different funds”). We are proposing to require reporting persons to use the same language from the issuer's form of proxy to identify proxy voting matters on Form N-PX. 73 In addition, each voting matter (including say-on-pay votes and other voting matters) would be required to be reported in the same order as presented on the issuer's form of proxy. 74 We believe these proposed requirements would facilitate identification of identical matters included on different Form N-PX filings by different reporting persons even though there is no interactive data tagging in issuer proxy materials. 75 We are proposing to apply the identification requirement to all voting matters in order to facilitate the ability of investors to better understand fund and manager proxy disclosure and compare voting records. We believe that reflecting 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 73 Special Instruction D.3 to proposed Form N-PX. 74 Id. For matters involving the election of more than one director, reporting persons would be required to identify each director separately in the same order as on the form of proxy, even if the election of directors is presented as a single matter on the form of proxy. Id. 75 See 2010 Proposing Release, supra footnote 25, at requests for comment subsequent to n.90 (requesting comment on alternatives that could result in uniform tags being assigned by all reporting persons). 76 See Securities Exchange Act rule 14a-4(a)(3) (requiring that the form of proxy identify clearly and impartially each separate matter intended to be acted upon). See also 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. We request comment on the proposed requirement to identify proxy voting matters, including the following: 20. Should we require, as we are proposing, that Form N-PX use the descriptions and ordering used on an issuer's form of proxy? Are there practical considerations we should consider with respect to tying Form N-PX disclosure to forms of proxies? 21. Does using the descriptions and ordering used on an issuer's form of proxy, which is publicly available, overcome the previously identified practical issues associated with standardized descriptions? Why or why not? Should we revert to the standardized language approach for say-on-pay votes, as was proposed in the 2010 proposal? If so, why? 22. Would the proposed requirement to use the description and ordering from an issuer's form of proxy facilitate the comparison of Form N-PX data, or otherwise enhance the usefulness of information reported on Form N-PX for users? What obstacles, if any, might prevent reporting persons from being able to comply with the proposed requirement? 2. Identification of Proxy Voting Categories We are proposing that Form N-PX reporting persons select from standardized categories to identify the subject matter of each of the reported proxy voting items. This requirement would apply to managers and funds. The proposal would require a reporting person to categorize each proxy voting matter from a specified list of categories and subcategories. The proposed categories and subcategories are designed to cover matters on which funds frequently vote, based on our staff's experience and review of the matters on which funds voted in 2020, including say-on-pay votes: • Board of directors (subcategories: Director election, term limits, committees, size of board, or other board of directors matters (along with a brief description)); • Section 14A say-on-pay votes (subcategories: 14A executive compensation, 14A executive compensation vote frequency, or 14A extraordinary transaction executive compensation); 77 77 The proposed Form N-PX categorizations include a separate category for say-on-pay votes to make it easier for investors to identify these votes, which require special disclosure under the Dodd-Frank Act. The Commission similarly proposed to require managers to use standardized descriptions to identify these votes in the 2010 proposal. • Audit-related (subcategories: Auditor ratification, auditor rotation, or other audit-related matters (along with a brief description)); • Investment company matters (subcategories: Change to investment management agreement, new investment management agreement, assignment of investment management agreement, business development company approval of restricted securities, closed-end investment company issuance of shares below net asset value, business development company asset coverage ratio change, or other investment company matters (along with a brief description)); • Shareholder rights and defenses (subcategories: Adoption or modification of a shareholder rights plan, control share acquisition provisions, fair price provisions, board classification, cumulative voting, or other shareholder rights and defenses matters (along with a brief description)); • Extraordinary transactions (subcategories: Merger, asset sale, liquidation, buyout, joint venture, going private, spinoff, delisting, or other extraordinary transaction matters (along with a brief description)); • Security issuance (subcategories: Equity, debt, convertible, warrants, units, rights, or other security issuance matters (along with a brief description)); • Capital structure (subcategories: Stock split, reverse stock split, dividend, buyback, tracking stock, adjustment to par value, authorization of additional stock, or other capital structure matters (along with a brief description)); • Compensation (subcategories: Board compensation, executive compensation (other than Section 14A say-on-pay), board or executive anti-hedging, board or executive anti-pledging, compensation clawback, 10b5-1 plans, or other compensation matters (along with a brief description)); • Corporate governance (subcategories: Articles of incorporation or bylaws, board committees, codes of ethics, or other corporate governance matters (along with a brief description)); • Meeting governance (subcategories: Approval to adjourn, acceptance of minutes, or other meeting governance matters (along with a brief description)); • Environment or climate (subcategories: Greenhouse gas (GHG) emissions, transition planning or reporting, biodiversity or ecosystem risk, chemical footprint, renewable energy or energy efficiency, water issues, waste or pollution, deforestation or land use, say-on-climate, environmental justice, or other environment or climate matters (along with a brief description)); • Human rights or human capital/workforce (subcategories: Workforce-related mandatory arbitration, supply chain exposure to human rights risks, outsourcing or offshoring, workplace sexual harassment, or other human rights or human capital/workforce matters (along with a brief description)); • Diversity, equity, and inclusion (subcategories: Board diversity, pay gap, or other diversity, equity, and inclusion matters (along with a brief description)); • Political activities (subcategories: Lobbying, political contributions, or other political activity matters (along with a brief description)); • Other social (subcategories: Data privacy, responsible tax policies, charitable contributions, consumer protection, or other social matters (along with a brief description)); or • Other (along with a brief description). Some categories would contain specific subcategories which a reporting person must select when filing a report on Form N-PX. For example, a reporting person would need to distinguish section 14A executive compensation votes from section 14A executive compensation frequency votes. When categorizing a particular voting matter, a reporting person would be required to select multiple categories or subcategories for the matter if applicable. If a vote did not fall within a specified subcategory, the reporting person would select the “other” subcategory and provide a brief description. The brief description need only identify the subject matter of the vote, consistent with the level of detail in the specified subcategories. We believe that requiring reporting persons to categorize their proxy votes would help investors understand how funds and managers are voting by helping them readily identify votes on matters that are important to them. It also would allow investors to compare how different managers or funds voted on specific types of matters. We request comment on the proposed requirement to categorize proxy votes reported on Form N-PX, and, in particular, on the following issues: 23. Should we require reporting persons to categorize their votes, as proposed? What are the advantages and disadvantages of this approach? 24. Do the proposed categories or subcategories adequately capture the range of proxy voting matters? Are there other categories or subcategories of votes that we should require reporting persons to identify? Will these categorizations enhance the usefulness of the information reported on Form N-PX for investors and facilitate the comparison of reporting persons' proxy voting records? Are there categories or subcategories we should eliminate? 25. Should we require reporting persons to use high-level categories to identify different types of votes, or should we require reporting persons to use subcategories, as proposed? Are there particular areas where subcategories are more or less difficult for reporting persons to use for purposes of identifying different types of votes? Are there particular areas where subcategories are more or less useful for investors? 26. Are there particular types of votes where the categorization would be unclear or where reporting persons may reasonably categorize the same vote differently? To what extent would the ability to select more than one category for a given vote address these types of issues? Would the use of subcategories help address or contribute to potentially differing approaches to categorizing a particular vote among reporting persons? 27. Are the proposed categories and subcategories sufficiently clear? Are there any categories or subcategories where additional guidance or definition would be helpful for understanding the parameters of a category or subcategory? 3. Quantitative Disclosures We are proposing changes to Form N-PX that would require disclosure of information about the number of shares that were voted (or, if not known, the number of shares that were instructed to be cast). We are also proposing a requirement to disclose the number of shares the reporting person loaned and did not recall. These quantitative disclosure requirements would apply to a manager's say-on-pay votes and to all of a fund's votes. In 2010, the Commission proposed to require that both funds and managers report: (1) The number of shares that the reporting person was entitled to vote (for funds) or had or shared voting power over (for managers); (2) the number of shares voted; and (3) how the reporting person voted the shares and, if the votes were cast in multiple manners ( e.g., for and against), the number of shares voted in each manner. 78 78 See 2010 Proposing Release, supra footnote 25, at Section II.E.3. Comments regarding these quantitative disclosure requirements were mixed. Some commenters supported the proposed quantitative disclosures or stated that they were acceptable. 79 Some commenters stated that providing quantitative disclosures would be burdensome. 80 One commenter opposed requiring funds to quantify votes in particular and stated that quantitative disclosures might cause confusion for investors or result in competitors gaining insight into fund strategies. 81 79 See Levin Letter (stating that quantitative disclosure will allow investors to monitor, understand, and hold their proxies accountable for their votes); CalPERS Letter (finding disclosure of the number of shares voted acceptable). 80 See ICI Letter; Fidelity Letter; Mayer Brown Letter. One commenter, however, while opposing quantitative disclosures for other reasons, noted that from a purely technological perspective, disclosing share positions voted would be straightforward. See ISS Letter. 81 See ICI Letter (noting that complying with the quantitative disclosure requirements as proposed would be burdensome and difficult, and questioning the value to shareholders). Some commenters, while opposing any requirement that reporting persons report quantitative information, agreed that the use of the existing Form N-PX disclosure ( e.g., for, against, or abstain) without quantification is not meaningful for “split votes,” i.e., if different votes are cast on the same matter by a reporting person. 82 These commenters suggested, should the Commission determine to adopt quantitative reporting requirements, that it limit such reporting to instances of actual split votes, and allow reporting persons to report the number of shares instructed to be cast. 83 Another commenter suggested that the Commission consider alternative indications of “magnitude” in lieu of requiring disclosure of the number of votes cast. 84 82 See Fidelity Letter (stating that “a mere notation of `split' may not be rich disclosure”); ICI Letter (stating that “simply reporting `split' does not provide much meaningful information about the way the reporting entity voted, and additional information may be useful to put the split vote in context”). 83 See ICI Letter; Fidelity Letter; MFA Letter. 84 See Mayer Brown Letter. As discussed in greater detail below, as compared to the 2010 proposal, there are three primary differences in the proposed quantitative disclosures requirements: (1) Clarifying that the reporting person's records could be used to determine the number of shares voted, even where those records do not reflect a confirmed number of actual votes cast and received by the issuer; (2) requiring disclosure of the number of shares the reporting person has loaned and not recalled; and (3) not proposing the previously proposed provisions requiring disclosure of the number of shares the reporting person was entitled to vote (for funds) or had or shared voting power over (for managers). a. Disclosure of Number of Shares Voted We are proposing, substantially as proposed in the 2010 proposal, a requirement that both funds and managers disclose: (1) The number of shares voted (or instructed to be voted); and (2) how those shares were voted ( e.g., for or against proposal, or abstain). 85 If the votes were cast in multiple manners ( e.g., both for and against), we propose requiring disclosure of the number of shares voted (or instructed to be voted) in each manner. 86 We are proposing to require disclosure of the number of shares voted or instructed to be voted because, where a manager votes in multiple ways on the same matter, disclosure of that fact alone is largely meaningless without providing a measure of the magnitude of the different votes. 87 In addition, and in contrast to the 2010 proposal, we are also proposing to require disclosure of the number of shares the reporting person loaned and did not recall. 88 We believe that the context given by disclosing the number of shares voted would allow investors to better understand how securities lending activities affect the voting practices of the reporting person. Without disclosing the amount voted, the amount of shares on loan for a given vote would not provide meaningful insight into how a fund or manager voted. 85 Items 1(h) and 1(j) of proposed Form N-PX. 86 Item 1(j) of proposed Form N-PX. As proposed in the 2010 release, in the case of a shareholder vote on the frequency of executive compensation votes, a reporting person would be required to disclose the number of shares, if any, voted in favor of each of 1-year frequency, 2-year frequency, or 3-year frequency, and the number of shares, if any, that abstained. We are clarifying that 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(h) of proposed Form N-PX. 87 While we understand that funds do not split votes regularly, we believe investors would benefit from parity in disclosure between funds and managers in cases where funds do split votes. 88 Item 1(i) of proposed Form N-PX. See also infra Section II.C.3.b for more information with respect to this proposed requirement. As suggested by some commenters, we are proposing to modify the 2010 proposal with respect to the disclosure of the number of shares voted because reporting persons may not be able to determine with certainty how many of the votes they instructed to be cast were actually voted in a particular matter. 89 This change would permit a reporting person to use the number of shares voted as reflected in its 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, we are proposing that Form N-PX instead may reflect the number of shares instructed to be cast on the date of the vote. 90 The proposal would not require a reporting person to seek confirmation of the actual number of votes cast if this information is not otherwise readily available. 91 However, should the reporting person learn prior to filing its Form N-PX that a different number of shares were voted, the reporting person would be required to report the actual number of votes cast. 92 If confirmation of the actual number of votes cast occurs after the reporting person files the Form N-PX report, we are not proposing to require an amendment to the filing. We believe that this approach would reduce the compliance burden of providing information regarding the number of shares voted. At the same time, this disclosure would still achieve the goal of providing meaningful information to investors about how a reporting person voted its shares. 89 See ICI Letter; Fidelity Letter; MFA Letter. See also Memorandum from the Division of Investment Management regarding November 29, 2010 telephone call with BlackRock, Inc., representatives (November 30, 2010), available at http://www.sec.gov/comments/s7-30-10/s73010-33.pdf (in which BlackRock representatives indicated that the burden associated with providing quantitative disclosures may be significantly reduced to the extent that the proposed quantitative disclosure requirement was modified to only require disclosure of the number of votes instructed to be cast). In addition, we recognize that this may be an issue when a manager's client enters an arrangement with a securities lending agent to loan the client's securities without any involvement by the manager. 90 Special Instruction D.5 to proposed Form N-PX. See Fidelity Letter (suggesting quantitative disclosure be limited to votes instructed to be cast); ICI Letter (same); MFA Letter (same); Stone Letter (same). See also Proxy Mechanics Concept Release, supra footnote 60, at Section II.B.1 (discussion of issues surrounding confirmation of proxy votes). 91 Special Instruction D.5 to proposed Form N-PX. 92 Id. Although suggested by a commenter, we are not proposing disclosure of the number of shares voted only in split voting situations. 93 We believe that requiring different disclosures for votes, depending on whether a reporting person split its vote on a particular matter, could result in potentially confusing inconsistencies within each report on Form N-PX. Providing information about the number of shares voted, in addition to shares on loan and not recalled, also would present a more complete picture of a reporting person's voting, including by allowing an investor to understand the extent to which a reporting person determines not to vote. 93 See ICI Letter. We also disagree with commenters that disclosure of the number of votes cast could result in competitors gaining insight into reporting persons' holdings. 94 Given the alignment of filing deadlines among forms, this disclosure likely will be publicly available via Form 13F (for managers) and Form N-PORT (for funds) before the reporting person is required to file on Form N-PX. 95 Even for securities reported on Form N-PX that are not reported on Form 13F or Form N-PORT, proxy votes reported on Form N-PX generally occur up to several months (including as many as 14 months) before the August 31 Form N-PX reporting date. As a result, we do not believe the disclosure would materially affect competition. 96 Reporting persons would also be permitted to request confidential treatment of filed information, as discussed further below. 94 See ISS Letter; ICI Letter (noting that quantitative disclosure information might be useful to competitors looking for information about fund holdings). 95 To the extent securities reported on Form N-PX are included on Form 13F, reports from managers on Form 13F for the quarter ending June 30 would be required to be filed no later than August 14. This means that public disclosure of such holdings on Form 13F generally would pre-date the August 31 deadline for filing Form N-PX. Similarly, funds must publicly disclose their holdings on a quarterly basis on Form N-PORT. See 17 CFR 270.30b1-9 (requiring filing no later than 60 days after the end of the relevant fiscal quarter). 96 See also infra Section IV. We are also not proposing the approach advocated by one commenter who suggested that the Commission consider alternative indications of “magnitude” in lieu of requiring disclosure of the number of votes cast. This commenter suggested, for example, that a manager could report how a majority (or plurality) of the shares the manager was entitled to vote was actually voted or managers could report the percentage of total votes cast for each position. 97 We are not proposing these approaches because we believe they do not sufficiently demonstrate how a manager exercised its voting power (including any shares on loan and not recalled). We believe this context is important to present a more complete picture of how the manager votes, and these alternatives do not provide additional information relative to our proposal. Further, these methods would not alleviate any burden in retaining and reporting quantitative data regarding the number of votes cast. 97 Mayer Brown Letter. We request comment on the proposed disclosure of the number of shares voted, and, in particular, on the following issues: 28. Should we, as proposed, require funds and managers to report the number of shares voted (or instructed to be cast)? Does disclosing the number of shares voted allow investors to understand better how securities lending activities impact the voting practices of the reporting person? Why or why not? 29. As proposed, should we require a reporting person to report the actual number of votes cast if it learns prior to filing its Form N-PX that a different number of shares were voted than the reporting person instructed to be cast? Should we require this reporting only if the reporting person receives information about the actual number of shares voted within a specified period before its Form N-PX filing is due? If so, what should the specified period be ( e.g., at least 5, 10, or 30 days before the Form N-PX filing is due)? 30. Are there other ways to promote investor understanding of reporting persons' voting practices ( e.g., the occurrence of split voting) that we should require instead of, or in addition to, disclosure of the number of shares voted (or instructed to be cast)? For example, would investor understanding be promoted if we required reporting of another metric, such as the percentage of total shares held that were voted (or instructed to be cast), to be disclosed? Why or why not? 31. We are proposing that, if a reporting person has not received confirmation of the actual number of votes cast, the reporting person instead may reflect the number of shares instructed to be cast on the date of the vote. Does this alleviate concerns about the burden on reporting persons with respect to quantitative disclosures? Is the information disclosed still of utility to data users? Why or why not? 32. Should the requirement to disclose the number of shares voted only apply to certain types of votes or to a subset of reporting persons? For example, should this disclosure be required only in the case of say-on-pay votes or split votes? 33. Does the proposed requirement to disclose the number of shares voted complement the proposed requirement to disclose the number of shares the reporting person loaned and did not recall? Would investors need both figures to understand how securities lending activities affect a reporting person's proxy voting? Are there other figures or types of information one would need to understand the interaction between these two activities? 34. Are there additional quantitative disclosures we should consider that would provide utility to investors? b. Disclosure of Number of Shares the Reporting Person Loaned and Did Not Recall In addition to the number of shares a reporting person voted, we are proposing to require disclosure of the number of shares the reporting person loaned and did not recall. 98 We understand from commenters that this information about securities lending is important to understand a reporting person's voting record because the reporting person cannot affirmatively cast a vote for or against a matter if the security is on loan over the record date. Several commenters on the 2010 Proposing Release and Proxy Mechanics Concept Release stated that it was important to know how many shares were not voted because they were on loan. 99 The proposed requirement is designed to provide transparency into how a reporting person's securities lending affects its proxy voting. 98 Item 1(i) of proposed Form N-PX. 99 Levin Letter; Letter of InterOrganization Network (Oct. 13, 2010) (File No. S7-14-10); Shareowner Education Letter on Concept Release; Letter of Society of Corporate Secretaries & Governance Professionals (Nov. 22, 2010) (File No. S7-14-10) (“SCSGP Letter on Concept Release”). We also believe the proposed requirement to disclose the number of shares the reporting person loaned and did not recall would help address commenters' concerns with a requirement in the 2010 proposal to disclose the total number of shares a fund was entitled to vote or a manager had or shared voting power over. Some commenters opposed the requirement in the 2010 proposal because of the cost and effort that would be required to aggregate and reconcile the total number of shares a fund is entitled to vote or a manager has or shared voting power over. 100 These commenters noted complexities in the current proxy system, including the intermediation between issuers and shareholders, and the multitude of entities involved (such as transfer agents, proxy vendors, and tabulators). 101 Some commenters also raised concern that there could be potentially confusing or misleading discrepancies between the reported number of shares voted and the reported number of shares which the reporting person was entitled to vote or over which it had or shared voting power. 102 For example, commenters discussed scenarios in which discrepancies between these figures could arise despite the reporting person's intent to vote all available shares ( e.g., discrepancies resulting from differing proxy frameworks in certain jurisdictions or limitations on a manager's ability to vote shares that its client has loaned as part of an agreement solely between the client and its custodian). 103 100 See, e.g., ABA Letter; ICI Letter; Fidelity Letter; Stone Letter. See also Letter of Institutional Shareholder Services, Inc. (Oct. 20, 2010) (File No. S7-14-10) (“ISS Letter on Concept Release”); Letter of Sullivan & Cromwell LLP (Oct. 20, 2010) (File No. S7-14-10) (“Sullivan & Cromwell Letter on Concept Release”); Fidelity Letter on Concept Release; Letter of BlackRock (Oct. 29, 2010) (File No. S7-14-10) (“BlackRock Letter on Concept Release”); Letter of CFA Institute (Nov. 22, 2010) (File No. S7-14-10); ICI Letter on Concept Release. 101 See ICI Letter; Sullivan & Cromwell Letter on Concept Release. 102 See Fidelity Letter; ICI Letter; Mayer Brown Letter. 103 See Fidelity Letter; Mayer Brown Letter. We are proposing a requirement that focuses solely on shares a reporting person loaned and did not recall. Under federal law, an investment adviser is a fiduciary. 104 With respect to securities lending, advisers have a fiduciary duty to consider the tradeoffs between continuing to keep securities on loan, or recalling loaned securities in order to vote. 105 The disclosure we are proposing to add to Form N-PX would provide transparency regarding whether a reporting person has opted to recall a security and vote the accompanying proxy or to keep the security out on loan. Absent this disclosure, investors would not have information about a manager's decision not to recall a loaned security, which is similar to the decision not to vote on a matter, which currently is reported on Form N-PX. 106 Our proposal also takes into account commenters' concerns on the prior proposal, and we believe the quantitative information we are proposing to require is easier for reporting persons to obtain than the information the 2010 proposal would have required. For instance, the proposal does not implicate the complexities in the current proxy system with determining the number of shares the reporting person was entitled to vote or over which it had or shared voting power that commenters described. 104 2019 Fiduciary Interpretation, supra footnote 12, at text accompanying n.2. See also SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 194 (1963); Investment Adviser Codes of Ethics, Investment Advisers Act Release No. 2256 (July 2, 2004); Compliance Programs of Investment Companies and Investment Advisers, Investment Advisers Act Release No. 2204 (Dec. 17, 2003); Electronic Filing by Investment Advisers; Proposed Amendments to Form ADV, Investment Advisers Act Release No. 1862 (Apr. 5, 2000). 105 See Proxy Voting Interpretation, supra footnote 13, at response to question 1 and at n.34 (indicating that while the application of the investment adviser's fiduciary duty in the context of proxy voting will vary with the scope of the voting authority assumed by the investment adviser, the relationship in all cases remains that of a fiduciary to the client, and an investment adviser must make any determination regarding whether to retain a security and vote the accompanying proxy or lend out the security in the client's best interest). 106 See Item 1(g) of current Form N-PX. The disclosure we are proposing would be required only where the reporting person has loaned the securities. This would include scenarios where the reporting person loans the securities directly or indirectly through a lending agent. 107 However, it would not include scenarios where the manager is not involved in lending shares in a client's account because, for example, the manager is not a party to the client's securities lending agreement and has not itself (rather than the client) loaned the securities. As recognized above, a manager would not exercise voting power over loaned securities when its client hires a securities lending agent to loan securities in the client's account and the manager has no involvement in the securities lending arrangement or in decisions to recall loaned securities. 108 Thus, the manager would not have any say-on-pay reporting obligations with respect to those loaned securities. 107 See Special Instruction D.7 of proposed Form N-PX. To the extent a reporting person allocates an amount of securities to the lending agent for lending purposes and treats that amount 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). 108 See supra paragraph accompanying footnote 48. We request comment on the proposed requirement to disclose the number of shares loaned and not recalled, and, in particular, on the following issues: 35. Should we require disclosure of the number of shares a reporting person loaned and did not recall, as proposed? Is this information valuable to investors? Does the value of the information differ between institutional and retail investors? Are there any changes we could make to enhance the utility of the information for investors? 36. Are there limitations we should be aware of regarding the ability of reporting persons to disclose the number of shares loaned and not recalled? If so, are there ways would could address those limitations? 37. We understand that proxy statements typically are not delivered until after the record date. 109 Does this create challenges for reporting persons to determine whether they want to recall loaned securities before the record date? 110 If so, how might these challenges affect disclosure of the number of shares loaned and not recalled, or other aspects of this proposal? Are there any changes we should make to the proposed rule to recognize these challenges? 109 See Proxy Mechanics Concept Release, supra footnote 60, at Section III.C.2. 110 Some commenters on the Proxy Mechanics Concept Release suggested that the lack of a meeting agenda prior to a record date generally does not affect their ability to anticipate many kinds of voting matters and to make arrangements to recall loaned securities in advance of a record date, if they determine to do so. See, e.g., ICI Letter on Concept Release; Letter of American Bar Association (Dec. 17, 2010) (File No. S7-14-10). 38. Would the proposed requirement to disclose the number of shares a reporting person loaned and did not recall affect decisions a fund or manager currently makes on when to recall a loaned security for purposes of voting and when to keep a security on loan? If so, how might the proposal affect the revenues funds or managers (and, by extension, their investors or clients) receive from securities lending? Would disclosure of this effect be helpful to a fund's investors or a manager's clients? If so, what form should this disclosure take? 39. Beyond information about how securities lending activities affect proxy voting, are there other types of information that would help investors understand a reporting person's approach to voting? If so, are there ways we could capture that information in Form N-PX reports or elsewhere? Similar to the 2010 proposal, should we require that the reporting person disclose the total number of shares a fund was entitled to vote or a manager exercised voting power over? 40. Commenters raised concerns that the quantitative disclosure requirements in the 2010 proposal may lead to investor confusion. 111 Does our proposed approach limit the potential for confusing discrepancies by focusing more directly on the number of shares voted and the number of shares on loan? If not, what areas of potential confusion remain under our current proposal, and are there changes we could make to reduce the potential for confusion? 111 See supra footnote 103 and accompanying text. 4. Additional Proposed Amendments to Form N-PX In addition to proposing new categories of disclosure on Form N-PX, we are proposing certain other amendments to enhance the usability of Form N-PX reports and to modernize or clarify existing form requirements. For instance, we are proposing to require a standardized order to the Form N-PX disclosure requirements. 112 We are also proposing an amendment to require a fund that offers multiple series of shares to provide Form N-PX disclosure separately by series (for example, provide Series A's full proxy voting record, followed by Series B's full proxy voting record). 113 We believe these proposed changes will make Form N-PX disclosure easier to review and compare among reporting persons. Several commenters supported standardized order requirements, stating the importance of displaying data in a consistent manner to assist in analyzing multiple votes. 114 One commenter, in contrast, stated that we should not adopt a standardized order requirement and that it was not aware of shareholders having any difficulty in deciphering or locating Form N-PX information. 115 However, we are re-proposing the requirement because we continue to believe it would make the disclosure easier to review and compare among reporting persons, and believe it will aid our overall objective to increase transparency. 112 See Special Instruction D.1 to proposed Form N-PX. 113 See Special Instruction D.9 to proposed Form N-PX. 114 See Levin Letter (supporting standardized order and stating that “[r]equiring the data to be displayed in a consistent manner will assist analysis of multiple votes”); CalPERS Letter (finding standardized order to be acceptable); Letter of the State Board of Administration of Florida (Oct. 20, 2010) (File No. S7-14-10) (“Florida Board Letter on Concept Release”) (supporting standardization of reporting for Form N-PX); Shareowner Education Letter on Concept Release (same); Letter of the United States Proxy Exchange (Oct. 20, 2010) (File No. S7-14-10) (“Proxy Exchange Letter on Concept Release”) (same). 115 See Fidelity Letter. In the 2010 Proposing Release, the Commission proposed to retain the current form's requirement to report both the relevant security's CUSIP number and its ticker symbol. One commenter 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. 116 In response to this comment, we are proposing to require reporting of only one security identifier. Reporting persons would be required to report the security's CUSIP number unless it is not available through reasonably practicable means ( e.g., in the case of certain foreign issuers). 117 If the CUSIP number is not reported, then Form N-PX would require the security's ISIN, unless it also is not available through reasonably practicable means. 118 Consistent with current Form N-PX, a filer may omit disclosure of both the CUSIP and ISIN identifier if neither is reasonably available through practicable means. 119 116 ABA Letter (noting the difficulties in determining which exchange is the principal exchange for the securities for purposes of the disclosure). 117 See Item 1(b) of proposed Form N-PX; Special Instruction D.2 to proposed Form N-PX. 118 See Item 1(c) of proposed Form N-PX; Special Instruction D.2 of proposed Form N-PX. If the security's CUSIP number is reported, then the ISIN would not be required to be reported. 119 See Instruction 2 to Item 1 of current Form N-PX; Special Instruction D.2 of proposed Form N-PX. In addition, we are proposing two general amendments related to the cover page of Form N-PX. 120 Consistent with the 2010 proposal, amended Form N-PX would contain a new section on the cover page to be used where the filing is an amendment to a previously filed Form N-PX report ( e.g., to correct errors in a previous filing or as part of the confidential treatment process). 121 Amendments to a Form N-PX report would be required to either restate the original Form N-PX report in its entirety or include only the additional information that supplements the information already reported in a Form N-PX report for the same period. 122 We also propose to amend the form to allow for additional information so long as it does not, either by its nature, quantity, or manner of presentation, impede the understanding or presentation of the required information. 123 This optional disclosure would be placed at the end of the cover page or, if it relates to a particular vote, a reporting person could provide additional information about the matter or how it voted after disclosing the required information about that vote. 124 Form 13F provides similar flexibility, where filers use it, among other things, to explain the reasons for an amendment to an earlier filing. 125 We believe this flexibility would also be useful in Form N-PX and would facilitate a reporting person's ability to provide additional information about a particular vote, or about its voting practices in general. 126 120 We are also proposing a few other amendments to the cover page of Form N-PX to accommodate manager reporting on Form N-PX. See infra Section II.D.2 (discussing these proposed cover page amendments). 121 See, e.g., Confidential Treatment Instruction 7 to proposed Form N-PX (regarding the filing of amendments upon the final adverse disposition of a confidential treatment request or the expiration of confidential treatment); see also Section II.G infra. 122 See Special Instruction B.1 to proposed Form N-PX. 123 Special Instruction B.4 to proposed Form N-PX. 124 See Special Instructions B.4 and D.10 and Item 1(m) of proposed Form N-PX. 125 See Special Instruction 5 to Form 13F. 126 Cf. ABA Letter (observing that Form N-PX does not readily permit explanatory disclosure). Further, we propose to amend the current disclosure in Form N-PX requiring a fund to identify whether a matter was proposed by the issuer or by a security holder. 127 To provide additional information about matters proposed by security holders, we propose to require funds to identify whether such matters are proposals or counterproposals. In addition, we propose to clarify that the disclosure requirement would apply to funds only, and not to managers. We are not proposing that managers make this disclosure because say-on-pay votes relate exclusively to matters proposed by issuers and not by security holders. 128 127 See Item 1(f) of current Form N-PX; Item 1(g) of proposed Form N-PX. 128 See 2010 Proposing Release, supra footnote 25, at text accompanying n.77. We are also proposing a technical amendment to Form N-PX that would require reporting persons to disclose whether each reported vote was “for or against management's recommendation.” Current Form N-PX requires funds to disclose whether a vote was “for or against management.” 129 The proposed amendment is intended to clarify that Form N-PX should disclose how the vote was cast in relation to management's recommendation on a particular proxy voting matter, as opposed to how the vote may have affected management. In recognition that there are some circumstances in which management may not provide a voting recommendation on a given matter, we are also proposing an instruction that would direct reporting persons to disclose “none” for the applicable matter in response to this disclosure requirement. 130 129 See Item 1(i) of Form N-PX. 130 See Special Instruction D.8 of proposed Form N-PX. The Commission similarly proposed to amend the current Form N-PX item to refer to whether a vote was “for or against management's recommendation” in the 2010 proposal. 131 Commenters generally supported the proposed change. 132 One commenter stated that we should replace this item instead with a narrative description of what management recommended for the vote, and allow readers to determine on their own if the reporting person voted with or against management. 133 However, our intent in this proposal is to provide useful and easily comparable information to shareholders. As a result, we are proposing to update the required disclosure to clarify that the report is required to disclose how the vote was cast in relation to management's recommendation. 134 131 See 2010 Proposing Release, supra footnote 25, at text accompanying n.90. 132 See CalPERS Letter; Levin Letter. 133 See Stone Letter. 134 Item 1(k) of proposed Form N-PX. Unlike the 2010 proposal, which would have removed the definitions section in the instructions to Form N-PX, we are proposing to amend Form N-PX to include a section containing definitions for purposes of identifying terms used in Form N-PX. 135 The terms for which definitions are included are “fund,” “institutional manager,” “reporting person,” and “series.” The current version of Form N-PX also has a definitions section, but it refers filers to the definitions in the Investment Company Act and the rules and regulations thereunder. 136 The terms used in the definitions section are the same as those used in this release. We believe the proposed definitions would clarify the terms used on Form N-PX and, in doing so, make the application of the form's requirements to different categories of reporting persons clear. The proposed definitions are also intended to make the proposed form more concise and readable ( e.g., by referring to funds, rather than registered management investment companies, throughout the form). 135 See General Instruction E to proposed Form N-PX. 136 General Instruction E to current Form N-PX. We request comment on the additional proposed amendments to Form N-PX, and, in particular, on the following issues: 41. Should we, as proposed, require the information in Form N-PX reports to be disclosed in a standardized order? Would this facilitate comparisons or be otherwise useful to users of this information? What costs, if any, would be associated with standardization? Should the requirement to standardize apply to managers, funds, or both? If we standardize the order of the information in Form N-PX reports, should we use the order set forth in our proposal, or would some other order of information be more appropriate? 42. In proposing to require a standardized order to the information in Form N-PX, we are also proposing clarifying language with respect to the placement in a report for a fund containing multiple series. Would this requirement make it easier for investors to review reports more efficiently? Is there a different method of disclosing the votes of multiple series that would assist our goal of providing useful and comparative information? 43. Are there other ways we could make the disclosure in Form N-PX easier to review and compare among reporting persons? If so, what are they? 44. We are proposing to require reporting of only one security identifier (either the CUSIP or the ISIN) on Form N-PX. Should we require reporting persons to disclose both identifiers? If so, why? Should we also require the ticker symbol in order to identify a security? Why or why not? Is there a more appropriate identifier of securities? 45. Should the cover page permit, as proposed, the inclusion of optional information in addition to the information required by Form N-PX? Are the conditions proposed with respect to the optional information sufficient? Why or why not? In what instances might the inclusion of additional information on the cover page impede the comprehension of the required disclosure? For example, should we limit this additional information by length? Or by presentation? Are there other limits we should consider? 46. Should we allow reporting persons to provide additional information relating to a particular vote after disclosing the required information about that vote, as proposed? What types of information might reporting persons wish to provide about particular votes? Does the proposal provide sufficient flexibility for reporting persons to provide such information, while also limiting the potential for optional disclosure that would impede the understanding or presentation of the required information? 47. To what extent do filers amend Form N-PX filings? What are the typical reasons for an amendment? Should all amended Form N-PX filings be required to restate all information in the prior filing? Should we require any additional clarifying language on amendment filings? 48. As proposed, should we require funds to distinguish between proposals and counterproposals when identifying matters proposed by security holders? Is it sufficiently clear to a fund when a matter proposed by a security holder should be classified as a proposal or counterproposal? 49. Should we, as proposed, clarify that managers are not required to disclose whether a matter was proposed by the issuer or by a security holder? Are there other requirements in Form N-PX that should only apply to funds? Are there requirements that should only apply to managers? 50. Does the change of required disclosure on Form N-PX to “for or against management's recommendation” clarify the intended purpose of the disclosure? Why or why not? Is additional clarification necessary? Should we instead require a narrative disclosure, as suggested by a commenter? 51. We are proposing to amend Form N-PX to add specific definitions to the instructions. Are the proposed definitions effective? Should we modify or remove any of the proposed definitions? Are there other definitions we should add to Form N-PX? Should we instead retain the current definitions section or remove this section, as proposed in the 2010 proposal? 52. Should we modify the proposed content requirements in any way for either managers or funds? Is there any information that we are proposing to require that should not be required? Is there additional information that should be required? 53. Should we provide any additional guidance on the contents of the proposed Form N-PX requirements? D. Joint Reporting and Related Form N-PX Amendments To Accommodate Manager Reporting 1. Joint Reporting Provisions Section 14A(d) of the Exchange Act requires a manager to report any say-on-pay vote unless such vote is otherwise required to be reported publicly by rule or regulation of the Commission. In order to implement this provision and prevent duplicative reporting, we are proposing three sets of amendments to Form N-PX to permit joint reporting, as well as associated disclosure requirements to identify all of a given manager's votes. The Commission proposed similar joint-reporting provisions in the 2010 proposal, and commenters supported this reporting framework. 137 Based on our experience with Form 13F reports, 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. Furthermore, we expect that the instructions we are proposing that require reports on Form N-PX to be structured and machine-readable would allow tools to be developed so that investors can sort and filter the data to view votes by the relevant manager. 137 See, e.g., ABA Letter; Letter of The Colorado Public Employees' Retirement Association (Nov. 18, 2010) (“COPERA Letter”); CII Letter; IAA Letter. The first amendment would permit a single manager to report say-on-pay votes in cases where multiple managers exercise voting power. 138 This method for preventing duplicative reporting is similar to that employed by Form 13F, which permits a single manager to include information regarding securities with respect to which multiple managers exercise investment discretion. 139 138 General Instruction C.1 to proposed Form N-PX. 139 See 15 U.S.C. 78m(f)(6)(B) (directing the Commission to adopt such rules as it deems necessary or appropriate to prevent duplicative reporting by two or more managers exercising investment discretion with respect to the same amount); General Instruction 2 to Form 13F. In response to a similar provision in the 2010 proposal, one commenter suggested that we require a manager who receives a ballot be the primary filer that all other managers may reference in their filings. 140 We are not proposing this approach because we believe that the joint-reporting provisions should provide flexibility to address different types of voting arrangements. Moreover, under our current proposal, the manager who receives the ballot would not be required to report a say-on-pay vote on Form N-PX under all circumstances ( e.g., if it does not exercise voting power). Another commenter requested guidance on whether an adviser or a sub-adviser should be the primary filer when both exercise voting power. We do not believe it is necessary to specify who should report under these circumstances, because the joint reporting provisions are designed to provide flexibility to reporting persons to divide that responsibility among themselves or to each report independently. 141 This may in certain circumstances result in two managers reporting the same vote, for instance if two managers provide voting advice regarding the same securities and have not coordinated with each other regarding who will make a report on Form N-PX. Because both managers would exercise voting power ( i.e., would influence the voting decision) under these circumstances, we do not believe it would be inappropriate or confusing for those managers to report the same vote separately. Like reports on Form N-PX that rely on the joint reporting provisions, reports that separately disclose the same votes would provide insight to clients and other investors into how a manager voted. 140 See ISS Letter. 141 See Brown Letter. The second proposed amendment would permit a fund to report its say-on-pay votes on behalf of a manager exercising voting power over some or all of the fund's securities. 142 This provision avoids a fund and its adviser each having to file duplicative reports regarding the same votes. Under our proposed approach, if a manager's say-on-pay votes are reported by one or more funds over whose securities the manager exercises voting power or by one or more other managers, the non-reporting manager would be required to file a Form N-PX report that identifies each manager and fund reporting on its behalf. 143 142 General Instruction C.3 to proposed Form N-PX. 143 General Instruction C.4 to proposed Form N-PX. See infra Section II.D.2 (discussing this proposed requirement). The third proposed amendment would permit affiliates to file joint reports on Form N-PX notwithstanding that they do not exercise voting power over the same securities. The Commission did not propose a similar provision in 2010, but a few commenters suggested that we broaden the circumstances where affiliates may file joint reports. 144 These commenters suggested that, to further promote operational efficiencies and ease potential administrative burdens, the Commission should permit affiliated managers to file jointly even where they do not jointly exercise voting power, and allow managers to report at the holding company level if they so choose. 145 After considering these comments, we are proposing to permit two or more persons who are affiliated persons to file a single report on Form N-PX for all affiliated persons in the group. 146 This joint reporting provision is designed to provide operational efficiencies without negatively affecting the quality or accessibility of the information reported on Form N-PX. 144 See Letter of Fidelity Investments (Nov. 18, 2010) (“Fidelity Letter”) (suggesting flexibility for affiliated managers to jointly file Form N-PX even where they do not share voting power); IAA Letter (suggesting flexibility for corporate groups to report at the holding company or subsidiary level regardless of whether they share voting authority). 145 Id. 146 See General Instruction C.2 to proposed Form N-PX; section 2(a)(3) of the Investment Company Act (defining “affiliated person”). In all three cases, where another reporting person reports say-on-pay votes on a manager's behalf, the report on Form N-PX that includes the manager's votes would be required to identify the manager (and any other managers) on whose behalf the filing is made and separately identify the securities over which the non-reporting manager exercised voting power. 147 The manager's report on Form N-PX also would have to identify the other managers or funds reporting on its behalf. 148 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. 147 For example, in the case of a Form N-PX report that includes votes of multiple affiliated managers, the filing must identify each affiliate the report covers and separately identify the securities for which each affiliate exercised voting power. 148 General Instructions C.5 and C.6 to proposed Form N-PX; Special Instructions C.2 and D.6 to proposed Form N-PX. See infra Sections II.D.3 and II.D.4 (discussing these proposed requirements in more detail). Use of the proposed joint reporting provisions would be optional. For example, where multiple managers exercise voting power over the same securities, the managers could choose 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. 149 In this case, the manager's report on Form N-P [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/fr%3A2021-21549. Public record. Not legal advice.