SEC Adopts Amendments on Proxy Voting Advice and Solicitation to Investors

On July 22, 2020, the SEC adopted amendments to its rules that exempt solicitors from furnishing proxy voting advice from the information and filing requirements of the federal proxy rules and issued supplemental guidance on Proxy Voting responsibilities of investment advisers.

The adopted amendments aim at providing investors transparent, accurate, and complete information without imposing unnecessary costs or delays:

Rule 14a-1(l):

  • Amendments made include the definition of “solicit” and “solicitation” in Exchange Act Rule 14a-1(l) to specify that it includes proxy voting advice, with the requirement to disclose material information. This amendment reinforces the SEC’s view that proxy voting advice constitutes a solicitation.
  • New paragraph (A) to Rule 14a-1(l)(1)(iii) specifies the circumstances in which a person providing proxy voting advice will be deemed to be engaged in a solicitation.
  • A new paragraph (v) in Rule 14a-1(l)(2) states that proxy voting advice provided by a person only in response to an unprompted request will not be a solicitation.

Rules 14a-2(b)(1) and 14a-2(b)(3):

Until now, Rules 14a-2(b)(1) and (b)(3) of the proxy rules exempted proxy voting advice businesses from the information and filing requirements of the proxy rules. Exemptions are now available on compliance with new conditions mentioned in Rule 14a-2(b)(9). These amendments will ensure that investors have access to more transparent, accurate, and complete information. The conditions are:

  • Rule 14a-2(b)(9)(i) states that the proxy voting advice or an electronic medium used to deliver the proxy voting advice must disclose conflicts of interest
  • The Proxy Voting business must adopt and publicly disclose written policies and procedures to comply with the following rules:
    • [Rule 14a-2(b)(9)(ii)(A)]: Provide Proxy Voting advice to the registrants of the proxy voting advice:
      • Without any charge
      • at the same time or before providing to its clients

    Safe harbor for proxy voting advice business points out that the rules mentioned above may include conditions requiring registrants to

    • File their definitive proxy statement at least 40 calendar days before the security holder meeting and
    • Use the proxy voting advice only for their internal purposes in connection with the solicitation. The registrants must not publish or share the proxy voting advice except with the registrant’s employees or advisers.
      • [Rule 14a-2(b)(9)(ii)(B)]: Provide a mechanism by which the clients of proxy voting advice businesses become aware of the Written responses by the registrants of proxy voting advice on time before the security holder meeting
        • The proxy voting advice business can publish the information on its electronic client platform or
        • Send it through email or other electronic means that the registrant has filed or intends to file.

      There must be an active hyperlink to those materials on EDGAR when available.

      Rule 14a-9:
      Anti-fraud provision in proxy rules under the Exchange Act includes additional illustrative examples on the proxy voting advice business’s methodology, sources of information, or conflicts of interest.

      Supplemental Guidance:
      The SEC has included additional guidance regarding the proxy voting responsibilities of investment advisers. The supplement will facilitate investment advisors in two ways:

      • Help assess additional information from issuers that will be readily available due to amendments in proxy solicitation rule.
      • Address circumstances where the investment adviser can utilize a proxy advisory firm’s electronic vote management system, disclosure, and client consent obligations.

      The supplemental guidance follows a question and answer format, similar to the prior guidance, and provides examples to help facilitate compliance.
      The SEC’s prior guidance defines the fiduciary duty and rule 206(4)-6 under the Investment Advisers Act of 1940. Click here to read.
      The SEC’s supplemental guidance sets amendments to the solicitation rules under the Exchange Act. Click here to read.
      The modifications will be effective 60 days after publication in the Federal Register, but affected proxy voting advice businesses subject to the final rules are not required to comply with the Rule 14a-2(b)(9) amendments until December 1, 2021. The supplemental guidance will be effective upon publication in the Federal Register.

      Colonial Stock Transfer provides shareholder meeting administration and proxy voting services.  Our experts can assist you with planning and setting up your meeting in compliance with SEC rules and regulations.  To learn more about our services or obtain a proposal, please contact us.

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