SEC proposes changes to the Proxy Voting Rule disclosures

The SEC has proposed new amendments to the Proxy Voting Rules seeking to bring more transparency to the information reported by investment funds regarding their proxy votes, requiring institutional investment managers to disclose the execution compensation votes (“say-on-pay”). The proposed amendments to the Proxy Voting Rule were published on 29th September and, pending comments, are likely to come into force in January.

The Proxy Voting Rule has been a topic commonly revisited by the SEC since the requirement to file a Form N-PX under the Investment Company Act in 2003. The regulator issued an interpretation and guidance of the rule in September 2019, and in July 2020 a new amendment to the rule was adopted covering proxy advisory firms, providing more clarity on SEC’s interpretation of proxy solicitation rules.

According to the new proposed rule, mutual funds, exchange-traded funds (ETFs), and certain other funds that currently annually report proxy votes, will be required to tie the description of each voting matter to the issuer’s form of proxy and to categorize each matter by type. In addition, funds will be required to use structured data language for the file and inform how their landing activity impacted their voting decision.

The new proposed rule will also require institutional investment managers to report how they voted on executive compensation matters on an annual basis.

Investors may face difficulties comparing forms across the investment advisers, and the new rule is intended to facilitate those comparisons, to assist on how investors can monitor the way their funds are voting, and to make the forms machine readable.

The rule proposal is open for public comment until the end of November with the changes likely to come in to effect not long after.

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