Nov. 2, 2022
Thank you, Chair Gensler, and thanks to the staff for the presentation.
Today, we consider sweeping changes to fund proxy vote reporting. Since 2003, registered funds have been required to report their proxy votes annually on Form N-PX by briefly identifying the proxy voting matter, and disclosing whether 1) the fund voted for, against or abstained, and 2) it voted for or against management, among other information.
In September 2021, the Commission proposed so-called “enhanced reporting” for proxy votes by requiring funds to present voting matters in a particular order and categorize them into 17 different categories. Funds also would have been required to disclose the number of votes cast, including whether these were split. More significantly, funds would have been required to disclose the number of shares on loan and not recalled, in addition to the number of shares voted.
The proposal further sought to implement the Dodd-Frank Act’s mandate for firms meeting the definition of “institutional investment manager” under section 13(f) of the Securities Exchange Act of 1934 (“1934 Act”) to report at least annually how they voted on any “say-on-pay” vote. 
Before discussing the merits of the final rule, I am disappointed by the lack of a detailed comment summary. I have been involved in rulemaking at the Commission for over 16 years. A basic fundamental of good rulemaking is the preparation of a detailed comment summary. We categorize all relevant comments by specific subject matter to ensure that we have not overlooked any comments in the public file. The staff takes great care to prepare that document for its own use and for use by the Commission.
In this case, in an apparent rush to approve this rulemaking, I have received the most bare-bones summary – all of two pages long. This also happened with the broker-dealer recordkeeping rule amendments a couple of weeks ago. It provided minimal detail on the comments received and did not even identify commenters by name. It did not respect the important contributions of the 58 commenters, who have taken time and resources to contribute their perspectives. It is not helpful to the Commissioners, who have our own duties of care and diligence in voting on these proposals. If we are not willing to prepare a detailed comment summary for this rulemaking, then what does it mean for other rulemakings, such as climate disclosure and fund names that have far larger numbers of public comments? The decision not to prepare a detailed comment summary is simply unacceptable.
Let’s turn to the substance of the final amendments. Many of the provisions are not “enhancements” but substantial changes that appear to affect the behavior of funds and their investment advisers. For example, the final amendments require disclosure of the number of shares loaned and not recalled prior to the meeting’s record date, presumably to demonstrate how many proxy votes were given up because the shares were on loan. Will funds recall their securities, despite the additive returns that securities lending programs can bring, to look “more responsible” on their Form N-PX disclosures? Or will the lack of showing any shares on loan give rise to private litigation against the fund for forgoing the extra returns? In this regard, I share the significant concerns of commenters that such disclosure would not provide appropriate context. Moreover, will this impact price discovery by creating seasonal shortages in the markets for borrowed securities?
The adopting release brushes aside these concerns, claiming that the disclosure is not meant to change behavior and that filers can add a narrative response on the cover page and/or on a vote-by-vote basis. I am skeptical that this approach actually solves the issues. Instead, it complicates the decisions that funds and managers must make in considering whether to recall securities on loan. Every disclosure has a cost, and it may be more efficient for firms to curtail their securities lending programs as a result.
In another example, the adopted requirements will eliminate the proposal’s staggering number of subcategories and will reduce the number of primary categories from 17 to 14. However, four of these categories relate to environmental, social, and/or governance issues, which suggests that the “enhancements” are motivated not by investor protection, but by special interests. Moreover, to underscore that these enhancements are intended to benefit special interests and not retail investors, the final amendments remove stock ticker symbols and replace them with International Securities Identification Numbers (“ISINs”) and Financial Instrument Global Identifiers (“FIGIs”). I believe that retail investors follow companies by stock tickers, not ISINs or FIGIs.
With respect to the Dodd-Frank Act implementation, the rules being adopted today go far beyond that simple mandate. Institutional investment managers will be generally required to complete Form N-PX for all of their say-on-pay votes as if they were funds, including the onerous disclosure about securities lending.
The term “institutional investment manager” may create a misimpression that these firms are large organizations that are equipped to handle these compliance costs. However, many 13F institutional investment managers are small entities. For example, as of December 31, 2021, the staff estimates that over half of the 13F filers exercise investment discretion over accounts with $300 million or less in 13F securities, representing only 1% of the overall value of 13F positions reported.
Number of Filers Above Threshold
Number of Filers Below Threshold
Percent of Filers Below Threshold
Aggregate Value of Filers at or above Threshold ($ billions)
Percent of Aggregate Value of Filers at or above Threshold
In my view, the persons interested in Form N-PX data are largely interested in the voting records of the largest asset managers, whose accumulated proxy votes can have an impact at shareholder meetings, and not interested in these very small investment managers. The Commission could have used its exemptive authority to spare these entities, but chose not to. Congress was very specific in the Dodd-Frank Act when it sought to limit the Commission’s use of exemptive authority. The provision in the Dodd-Frank Act in section 951, which enacted section 14A of the 1934 Act, was not one in which Congress chose to limit the Commission’s ability to use our exemptive authority.
Thus, small entities will have to endure compliance costs that are not insignificant, as will smaller funds. These costs will be in addition all of the costs piling up with respect to the other rulemakings that have been adopted or proposed. The Commission did not even bother to provide a staggered compliance date for smaller entities.
For the reasons set forth above, I cannot support today’s adoption. Finally, I deeply respect the expertise and dedication of the hardworking Commission line staff on this and other rulemakings, including those from the Divisions of Investment Management and Economic and Risk Analysis, as well as the Office of the General Counsel. I also thank the many other offices that have contributed to this rulemaking. I thank them for their hard work and dedication, given the heavy load of rulemaking.
 Enhanced Reporting of Proxy Votes by Registered Management Investment Companies; Reporting of Executive Compensation Votes by Institutional Investment Managers, Release No. 33-11131 (Nov. 2, 2022), available at https://www.sec.gov/rules/final/2022/33-11131.pdf.
 See, e.g., Comment Letter of Teachers Insurance and Annuities Association of America (Dec. 14, 2021), available at https://www.sec.gov/comments/s7-11-21/s71121-20109520-263899.pdf; Comment Letter of BlackRock, Inc. (Dec. 14, 2021), available at https://www.sec.gov/comments/s7-11-21/s71121-20109576-263949.pdf; Comment Letter of the Securities Lending Council of the Risk Management Association (Dec. 14, 2021), https://www.sec.gov/comments/s7-11-21/s71121-20109561-263922.pdf; and Comment Letter of Federated Hermes, Inc. (Dec. 14, 2021), available at https://www.sec.gov/comments/s7-11-21/s71121-20109570-263927.pdf.
 The categories are: environment or climate; human rights or human capital/workforce; diversity, equity, and inclusion; and other social issues.
 Staff estimates. For a detailed discussion of the legislative history of section 13(f) and its intended purpose to limit the reporting burdens on smaller managers, see Reporting Threshold for Institutional Investment Managers, Release No. 34-89290 (July 10, 2020) [85 FR 46016 (July 31, 2020)], available at https://www.sec.gov/rules/proposed/2020/34-89290.pdf.