What You Need to Know
- The proposed rule would require mutual funds and ETFs to disclose fund votes on shareholder proxies.
- It would also require funds to disclose their votes on executive compensation.
- Four of the five commissioners, including Chairman Gary Gensler, voted in favor of the proposal.
The Securities and Exchange Commission is proposing changes to the way that asset managers disclose how they vote on shareholder proxies and on corporate executive compensation, known as “say on pay.”
The enhanced disclosure requirements involve changes to Form N-PX, which asset managers file annually with the commission to disclose proxy votes, but which “can be difficult for investors to use and can provide an incomplete picture of a fund’s voting practices,” according to the SEC proposal.
The proposed rulemaking would require fund companies to categorize each voting matter by type so investors could identify those votes that interest them and compare voting records of asset managers.
It would also prescribe how asset managers organize their voting reports and require them to use a structured data language to make filings easier to analyze and require funds to disclose how their securities lending activity affected their proxy votes since they would have to recall those loans, even temporarily, to vote on shares.
The requirement on funds’ “say-on-pay” matters, would fulfill one of the remaining rule-making mandates under the Dodd-Frank Wall Street Reform and Consumer Protection Act, which Congress passed in 2010.
“This proposal will make it easier and more efficient for investors to get crucial information about proxy votes from funds,” SEC Chairman Gary Gensler said in a statement. “I am pleased to support the staff’s recommendations and look forward to putting them out to public comment.”
The agency will be collect public comments on the proposal for 60 days after its publication in the Federal Register.
The new proposal would apply to over 7,550 asset management firms that have discretion of almost $40 trillion in assets. That’s almost twice the gross national product of the U.S. and nearly half the world’s GDP.
How the Commissioners Voted
Four of the five commissioners of the SEC, including Gensler, voted in support of the proposal. Commissioner Hester Peirce voted against it.
In her statement, Peirce said the proposed disclosure requirements would distract fund managers from “doing what was best for the fund,” including potentially recalling securities out on loan when the extra revenue might be worth more to the fund than exercising a proxy vote.