U.S. SEC Adopts Enhanced Proxy Voting Reports for Funds and Managers

I. Amendments to Form N-PX

1. Say-on-Pay Disclosures — Applies to Registered Funds and 13F Filers Generally

The amendments will require any institutional investment manager required to file Form 13F also to report annually its say-on-pay votes on Form N-PX.² The types of say-on-pay votes that managers must report include (1) votes on the approval of executive compensation, (2) votes on the frequency of such executive compensation approval votes, and (3) votes to approve “golden parachute” compensation in connection with a merger or acquisition.³

An institutional investment manager will be required to report the say-on-pay votes only for a security over which the manager exercised its voting power to influence a voting decision for the security, either directly or indirectly by way of a contract, arrangement, understanding, or relationship.⁴ Voting power includes the ability to determine whether to vote the security or to recall a loaned security before a vote.

The amendments focus on whether a manager influences a vote using its own independent judgment. Thus, the manager will have no reporting obligation when the client or another party determines how to vote a proxy. Additionally, multiple parties could both have and exercise voting power over the same securities. The SEC believes the new requirements will balance investor informational needs, reporting burdens, and statutory obligations.

Importantly, in contrast to the proposed amendments, the final rule limits the reporting obligations for managers who have a disclosed policy of not voting proxies and in fact have not voted proxies during the reporting period. They will be required only to disclose that policy in a notice report on Form N-PX without providing additional information about each security individually.

Although the new reporting obligations apply only to institutional investment managers that are also reporting persons for purposes of Form 13F, the scope of securities reported on Form 13F deviates significantly from the scope of securities with respect to which a manager is required to report under the new Form N-PX reporting obligations. For example:

• Form 13F’s de minimis exemption for small holdings does not apply to Form N-PX.⁵
• Form N-PX will require every institutional investment manager that files Form 13F to report how it voted on any say-on-pay shareholder vote, which may include say-on-pay votes held by issuers of securities that are not reported on Form 13F.
• Form N-PX reporting obligations are not limited to the requirements of Form 13F when a manager only reports votes for securities held at quarter-end, and there is no specific holding period requirement for Form N-PX reporting obligations to apply.

The amendments allow optional joint reporting regarding say-on-pay votes in three scenarios:

• A single manager can report say-on-pay votes in cases where multiple managers exercise voting power.
• A fund can report a manager’s say-on-pay votes on behalf of a manager exercising voting power over some or all of the fund’s securities.
• Two or more managers who are affiliated persons can file a single report on Form N-PX for all affiliated person managers within the group, notwithstanding that they do not exercise voting power over the same securities.

In these scenarios, the nonreporting manager will be required to file a notice or combination Form N-PX report to identify each manager or fund reporting on its behalf.⁶ Additionally, when another reporting person reports say-on-pay votes on a manager’s behalf, the report on Form N-PX that includes the manager’s votes will be required to identify the manager (and any other managers) on whose behalf the filing is made and separately identify the number of shares the manager is reporting on behalf of the nonreporting manager. A reporting person (whether a manager or a fund) will also be required to report separately shares that are reported on behalf of different managers or groups of managers. 7

2. Voted and Loaned Shares — Applies to Registered Funds and 13F Filers Generally

Under the current framework, funds are required to report only on matters on which the fund was entitled to vote.8 The amendments expand the reporting obligations to securities on loan as of the record date for the shareholder meeting. This is intended to ensure that a Form N-PX filing reflects the effect of the reporting person’s securities lending activities on its proxy voting, since the reporting person is able to recall and vote these loaned securities.

Additionally, the amendments will require reporting persons of Form N-PX also to disclose the number of shares that were voted and how they were voted as reflected in their records at the time of filing Form N-PX, as well as the number of shares loaned and not recalled.9 With respect to shares loaned and not recalled, the reporting obligations will apply only when the reporting person has loaned the securities directly or indirectly through a lending agent.10 The obligations will not apply when the reporting person is not involved in lending shares in a client’s account. To provide full context, reporting persons are also permitted to provide optional additional information about a particular vote.11

3. Identification of Proxy Voting Matters — Applies Only to Registered Funds

The final rule adopts the proposed voting matter identification requirements but, in a departure from the proposal, applies them only when an SEC proxy card is available for that matter. That is, if a proxy is subject to Rule 14a-4 under the Exchange Act so that the proxy clearly identifies each voting matter, reporting persons are required to (1) identify proxy voting matters using the same language as disclosed in the issuer’s form of proxy card, (2) report matters in the same order in which they are presented on the issuer’s form of proxy card, and (3) identify directors separately for director election matters.¹² In all other cases, reports regarding proxy voting matters instead will be required to provide “a brief identification of the matter voted on,” which is consistent with the current requirement.¹³ The usage of abbreviations will be limited in such “brief identification” in order to help investors identify and compare voting matters.

4. Categorization Framework

Form N-PX reporting persons will be required to identify the subject matter of each reported proxy voting item under a standardized categorization framework. Compared to the proposed framework, the final framework has a more streamlined and consolidated list of categories, which is intended to respond to commentator concerns about complexity and uncertainty among potentially overlapping categories. The appendix to this note reflects the changes to categories from the proposed framework. The final framework also eliminated the requirement to assign matters to subcategories, as had been proposed. The list of categories in the framework will be nonexclusive, and reporting persons will be required to select all applicable categories.¹⁴

5. Other Aspects of Amended Form N-PX

Registrants that offer multiple series (sometimes known as “series trusts” in which each series is its own fund having its own investment program and shareholders) will continue to be required to provide Form N-PX disclosure separately by series.¹⁵ The SEC observes that this is a current requirement, but some registrants simply have noted which series voted on which matters rather than organizing the entire report on a series-by-series basis. Additionally, the information otherwise reported on Form N-PX will be required to be reported in the order presented on the issuer’s form of proxy.¹⁶

The amended Form N-PX will require reporting persons to disclose whether a vote was for or against management’s recommendation. In contrast to the proposed amendments, however, the final amendments will not require reporting persons to identify whether a voting matter is a proposal or a counterproposal (as it may be challenging to distinguish between the two).

To improve access to the information, reporting will be subject to structured data (electronic “tagging”) requirements. Fund reporting also will be required to be available on a firm’s website instead of filed solely with the SEC as today.

Finally, the amendments adopt some changes to the cover page and add a new summary page to Form N-PX. Among other changes, the reporting persons will be required to check a box on the cover page to identify the report as one of the following types: “Fund Voting Report,” “Fund Notice Report,” “Institutional Manager Voting Report,” “Institutional Manager Notice Report,” or “Institutional Manager Combination Report.” Among other things, the new summary page will require reporting persons to identify the names and total number of included managers with say-on-pay votes included in the report in list format.

II. Confidentiality

Form N-PX (like Form 13F) is publicly filed via the EDGAR database on the SEC website. The SEC is providing an opportunity to prevent confidential information protected from disclosure on Form 13F from being disclosed on Form N-PX. These instructions to Form N-PX will provide that a person requesting confidential treatment of information filed on Form N-PX should follow the same procedures set forth in Form 13F for filing confidential treatment requests. The SEC is also prescribing the required content of a confidential treatment request and the required filing of information that is no longer entitled to confidential treatment. The SEC explicitly states that a confidential treatment will not be justified solely in order to prevent proxy voting information from being made public.

III. Effective Date

Reporting persons will continue to be required to report annually on Form N-PX no later than August 31 for the 12-month period of July 1 to June 30. The SEC delayed the effective date of the amendments until July 1, 2024, to allow time to prepare. Therefore, funds and managers will be required to file their first amended Form N-PX by August 31, 2024, covering the period of July 1, 2023, to June 30, 2024.

Additionally, as a transition measure, managers that are new filers of Form 13F will be required to file Form N-PX for the 12-month period ending June 30 only for the calendar year following the manager’s initial filing on Form 13F.¹⁷ Managers also will not be required to file Form N-PX regarding any shareholder vote that occurs after September 30 of the calendar year in which the manager’s final filing on Form 13F is due. Instead, managers will file a short-period Form N-PX for the period of July 1 to September 30, which will be due no later than March 1 of the immediately following calendar year.¹⁸

IV. Our Take

These revisions may seem technical, but they present fundamental questions around the value of this kind of reporting (clearly decided by the SEC in favor of more detailed and structured reports) and may have “knock-on” effects. For example, will the new securities-on-loan reports affect securities lending markets, or will operational burdens associated with proxy voting (again, just tracking say-on-pay votes will be a challenge for some managers) affect the relationship between investment managers and clients? The (modest) reduction in categories and elimination of subcategories relative to the original proposal should be welcome, but there still may be confusion and differences in approach. There also may be questions and confusion on the interplay between Form 13F rules and practices and those under Form N-PX. In this regard, the extension of scope to include Form 13F filers certainly will capture persons unfamiliar with Form N-PX, including certain hedge fund managers, family offices, and companies that manage their own pension funds.

Appendix — Changes to Categories From the Proposal

¹ Enhanced Reporting of Proxy Votes by Registered Management Investment Companies; Reporting of Executive Compensation Votes by Institutional Investment Managers, Securities Act Release No. 11,131, Exchange Act Release No. 96,206, Investment Company Act Release No. 34,745, (Nov. 2, 2022).

² See Item 1 of amended Form N-PX. An “institutional investment manager” is defined for this purpose as any person, other than a natural person, investing for its own account or having investment discretion over $100 million or more in Section 13(f) securities. It is important to recognize that the definition of an institutional investment manager is broader than some assume, as it does not require management of a securities portfolio on behalf of clients or customers. For example, corporations managing their own pension plans can be institutional investment managers. Say-on-pay votes are nonbinding shareholder advisory votes on executive compensation matters for public companies pursuant to Section 14A of the Securities Exchange Act of 1934 (Exchange Act). The reporting obligations here are consistent with the reporting obligations under Section 14A(d) of the Exchange Act.

³ See Sections 14A(a) and (b) of the Exchange Act; note that shareholder votes on executive compensation that are not required by Sections 14(A)(a) and (b) will not be required to be reported.

⁴ See Rules 14Ad-1(d)(1) and (2).

⁵ Filers on Form 13F are permitted to exclude holdings with a fair market value below $200,000 and consisting of fewer than 10,000 shares.

⁶ See General Instructions C.5 and C.6 to amended Form N-PX; Special Instructions C.2 and D.6 to amended Form N-PX.

⁷ See Special Instruction D.6 to amended Form N-PX.

⁸ See Item 1 of current Form N-PX.

⁸ See Item 1(i) of amended Form N-PX; Special Instruction D.5 to amended Form N-PX.

¹⁰ See Special Instruction D.7 to amended Form N-PX.

¹¹ See Special Instruction B.4 to amended Form N-PX; Item 1(o) to amended Form N-PX.

¹² See Special Instruction D.3 of amended Form N-PX.

¹³ See Item 1(e) of current Form N-PX.

¹⁴ See Special Instruction D.4 of amended Form N-PX.

¹⁵ See Special Instruction D.9 to amended Form N-PX.

¹⁶ See Special Instruction D.1 to amended Form N-PX.

¹⁷ See Rule 14Ad-1(b) under the Exchange Act; General Instruction F to amended Form N-PX.

¹⁸ See Rule 14Ad-1(c) under the Exchange Act; General Instruction F to amended Form N-PX.