The SEC’s New Proxy Rule: What You Need to Know

November 10, 2022

The SEC’s New Proxy Rule: What You Need to Know

What happened?

On November 2, 2022, the Securities and Exchange Commission (SEC) adopted rule and form amendments that will (1) require registered investment companies to disclose more detail on their proxy votes and (2) require institutional investment managers will have to disclose their votes on executive pay, referred to as “say-on-pay” votes under the mandate from Section 951 of the Dodd-Frank Act of 2010. The goal of these changes is to make Form N-PX voting disclosures more useful and informative for investors.

These changes will be effective for votes occurring on or after July 1, 2023, with the first Form N-PX filings subject to the amendments due in 2024. The changes include the identification of proxy voting matters and categories, quantitative disclosure and securities lending, standard reporting language and format, and say-on-pay vote disclosures for institutional investment managers. Specifically, Form N-PX amendments will require the following:

• Use of the same language as the issuer’s proxy card to identify matters.
• Categorizing votes in 14 sub-categories, including elections, say-on-pay, shareholder rights, etc.
• Disclosure of the number of shares voted or instructed to be cast.
• Reporting the number of shares loaned but not recalled to allow for transparency of securities lending’s effect on voting practices.
• Filing using XML structured data language.
• Formatting the order of disclosure requirements with each fund’s voting record presented separately.

Additionally, the new rule 14Ad-1 requires say-on-pay vote disclosures for institutional investment managers. The rule requires a manager to report say-on-pay votes to allow for identification of a manager’s full voting record on executive pay and general compensation matters.
What does this mean for me?
There is plenty of time to prepare for these rule changes. If you engage a third-party provider to assist with your proxy voting, be sure to work with them between now and July 1, 2023, to make sure the necessary detail of your votes will be available for disclosure.

It is critical for firms to have a solid compliance program to ensure that policies and procedures are followed consistently. Fairview® provides full-service compliance support for registered investment advisers by creating and implementing comprehensive, sustainable compliance programs, including ongoing testing and evaluations to ensure firms are remaining compliant with SEC regulations. If your firm requires assistance with understanding and implementing SEC regulations, we can help. Contact us today for more information about our services.