Enhanced proxy vote reporting changes for investment managers

The amendments adopted in November 2022 by the SEC to enhance the form used by mutual funds, exchange-traded funds, and other registered funds to report information about their proxy votes have brought with them several noteworthy changes to investor obligations.

These amendments to Form N-PX aim to make proxy voting records more usable and easier to analyse, thereby improving investors’ ability to monitor how their funds vote and compare different funds’ voting records. Additionally, the rulemaking will newly require institutional investment managers to report how they voted on executive compensation, or so-called “say-on-pay” matters.

Who is affected?

The amendments to Form N-PX affect registered management investment companies, excluding small business investment companies registered on Form N-5. Rule 14Ad-1 will require managers subject to the reporting requirements of section 13(f) of the Exchange Act to report annually on Form N-PX each say-on-pay vote over which they exercised voting power. Anyone who currently files form 13F will now also be required to fill out Form N-PX.

What are the key changes to form N-PX?

Identification of proxy voting matters

The amended form will require funds to use the same language as the issuer’s proxy card to identify the matters, presented in the same order as the matters appear in the proxy card. If the matter relates to an election of directors, each director must be identified separately in the same order as on the proxy card, even if the election of directors is presented as a single matter.

Categorization of voting matters

Funds will be required to categorize the votes reported on the form consistent with a list of categories outlined in the amended form. These categories include votes related to director elections, extraordinary transactions, Section 14A say-on-pay, shareholder rights and defences, and the environment or climate, among others.

Quantitative disclosures and securities lending

The amended form will require funds to disclose the number of shares voted or instructed to be cast and how those shares were voted. If the votes were cast in multiple manners, funds will be required to disclose the number of shares voted or instructed to be voted in each manner. The amended form will also require funds to disclose the number of shares not voted by the fund.

Joint reporting

Under the amended form, a fund is permitted to report on its Form N-PX on behalf of a series or a manager. If it does, the fund must present the complete voting record of each included series separately and provide quantitative information for each manager separately.

Standardized order

The amended form will also standardize the order of disclosure requirements on Form N-PX. For example, a fund’s voting information would first present the name of the issuer of the security then the CUSIP number of the security and so forth.

Fund notice reports

The amended form permits funds that did not hold any securities they were entitled to vote, and therefore do not have any proxy votes to report, to indicate this by checking a box on the cover page and filing the cover page, required signature, and information about the series on the summary page.

Website posting

If a fund has a website, it must make publicly available and free of charge the information disclosed in the fund’s most recently filed report on Form N-PX on or through its website as soon as reasonably practicable after filing the report.

Say-on-pay vote disclosure for institutional investment managers

New rule 14Ad-1 requires managers subject to the reporting requirements of section 13(f) of the Exchange Act to report annually on Form N-PX each say-on-pay vote over which they exercised voting power. The amendments permit joint reporting of say-on-pay votes by managers, or by managers and funds, under identified circumstances to avoid duplicative reporting, while also requiring additional disclosure to allow identification of a given manager’s full say-on-pay voting record. When reporting say-on-pay votes, managers are required to comply with the other requirements of Form N-PX for their say-on-pay votes, including the new disclosure requirements introduced by the amendments.

What do you need to do next?

Funds and managers will be required to file their first reports on amended Form N-PX by August 31, 2024, covering the period of July 1, 2023 to June 30, 2024.

If you’re an investment advisor or manager, we recommend reviewing these amendments carefully and considering their implications for your reporting practices.

How we can help

Our team of SEC regulatory experts can help you understand the implications of these changes and adapt your compliance systems accordingly.