The Securities and Exchange Commission (SEC) has adopted amendments to Form N-PX to enhance the information mutual funds, exchange-traded funds, and certain other registered funds report about their proxy votes.
The amendments will make these funds’ proxy voting records more usable and easier to analyze, improving investors’ ability to monitor how their funds vote and compare different funds’ voting records.
The rulemaking will also newly require institutional investment managers to disclose how they voted on executive compensation, or so-called “say-on-pay” matters, which fulfills one of the remaining rulemaking mandates under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
“I am pleased to support these amendments because they will allow investors to better understand and analyze how their funds and managers are voting on shares held on their behalf,” said SEC Chair Gary Gensler.
“The amendments will provide investors with more detailed information about proxy votes, create more consistency around how funds describe their proxy votes, and structure Form N-PX in a machine-readable format. This rulemaking also will require institutional investment managers to disclose how they voted on ‘say-on-pay’ matters, which fulfills the mandate under Section 951 of the Dodd-Frank Act of 2010. Together, these enhancements to Form N-PX would make it more useful, and more usable, to investors.”
Form N-PX was first adopted in 2003 with a basic principle: that investors be informed of how funds voted shares held on their behalf. These proxy votes include voting on boards of directors, merger proposals, or other matters.
Before adopting Form N-PX in 2003, funds didn’t have to disclose their proxy votes.
To enhance proxy vote reporting, the amendments will require funds and managers to categorize each matter by type and, where a form of proxy or “proxy card” subject to the Commission’s proxy rules is available, tie the description and order of voting matters to the issuer’s form of proxy to help investors identify votes of interest and compare voting records.
The changes also prescribe how funds and managers must organize their reports and require them to use a structured data language to make the filings easier to analyze. Funds and managers will also be required to disclose the number of shares that were voted or instructed to be voted, as well as the number of shares loaned and not recalled and thus not voted. This latter requirement is designed to provide shareholders with context to understand how securities lending activities could affect a fund’s or manager’s proxy voting practices.
Funds are major shareholders in public companies that list on U.S. stock exchanges, according to the SEC Commissioner Jaime Lizárraga.
The Commission estimates that, as of May of this year, over 12,000 funds with average total net assets of approximately $35 trillion were required by law to report their proxy voting.
Commissioner Lizárraga said funds “play an important role in our capital markets, particularly for retail investors”.
In 2021, approximately 102 million individuals owned mutual funds. Millions of working families rely on these funds to meet their financial goals, fund their retirements, save for their children’s education, and to build wealth.
“A fund exercises its voting power on behalf of its fund investors, and those voting decisions can have a significant impact on maximizing the value of a fund’s investments,” he said in a statement.
He added that investors can use Form N-PX to monitor their fund’s involvement in the governance activities of its portfolio companies.
As the Commission stated in 2003 when it first adopted fund proxy reporting rules: “Investors in mutual funds have a fundamental right to know how the fund casts proxy votes on shareholders’ behalf.”
Commissioner Lizárraga stated that the current form is “outdated, overly lengthy, difficult to navigate, and of very limited use for comparisons across funds”.
He said he was pleased to support the adoption of the rule: “The Commission’s actions today will make the information provided on Form N-PX easier to understand, and will also facilitate comparisons across funds. Improved and meaningful transparency of a fund’s voting record will better enable investors to monitor their fund to ensure that it’s meeting their financial needs.”
The new rules and form amendments will be effective for votes occurring on or after July 1, 2023, with the first filings subject to the amendments due in 2024.
