Draft ICI Comment Letter on NYSE Proposal Regarding Proxy Distribution Fees; Your Comments Requested by 3/13
[27095]
March 11, 2013
TO: CLOSED-END INVESTMENT COMPANY COMMITTEE No. 8-13SEC RULES COMMITTEE No. 13-13
SMALL FUNDS COMMITTEE No. 6-13 RE: DRAFT ICI COMMENT LETTER ON NYSE PROPOSAL REGARDING PROXY DISTRIBUTION FEES; YOUR COMMENTS REQUESTED BY 3/13
As previously indicated, the Securities and Exchange Commission (“SEC”) recently issued a release [1] seeking comments on a proposed rule change (“Proposal”) filed by New York Stock Exchange (“NYSE”) concerning the fees that issuers pay to banks and broker-dealers for the distribution of proxy materials to shareholders who invest in “street name.” [2] The Proposal would codify most of the recommendations made last year by an advisory committee formed by the NYSE (Proxy Fee Advisory Committee, or “PFAC”) and make other revisions. A copy of ICI’s draft comment letter on the Proposal is attached and briefly summarized below.
We plan to file our letter on March 14th. If you have any comments on the draft letter, please contact Frances Stadler at frances@ici.org by the close of business on March 13th.
Summary of Draft Comment Letter
The draft letter indicates that as issuers of voting securities, registered investment companies (“funds”) prepare proxy materials in connection with meetings of their shareholders. It explains that because funds have a disproportionately large retail shareholder base and a significant portion of fund shares is held in “street name,” funds have a strong interest in the structure and amount of fees charged for the distribution of proxy and related materials to beneficial shareholders. The draft letter notes that the costs involved are fund expenses that fund shareholders pay and states that on behalf of these shareholders, ICI and its members believe the SEC should do all it can to eliminate unreasonable costs from the system.
The draft letter refers to ICI’s October 2010 comment letter in response to the SEC’s concept release on the U.S. proxy system (“Proxy System Comment Letter”), in which we expressed strong concerns with the current proxy distribution fee system. It reiterates our main concerns and recommendations for addressing them, and states that the Proposal does not change the views we outlined in the Proxy System Comment Letter. It then provides several general comments followed by comments on certain aspects of the Proposal.
General Comments
The draft letter states that there are several indications of the continuing need for a rigorous, independent review of the current proxy distribution fee system that includes, among other things, a thorough analysis of actual costs involved. It indicates that at a minimum, there should be further analysis of the proxy distribution fees paid by funds and how the proposed changes would affect those fees.
Comments on the Proposal
“Cost Recovery Payments.” The draft letter indicates that notwithstanding the PFAC’s views on this topic, ICI and its members remain concerned about the practice of remittances to brokers in situations where the broker’s costs are less than the amount for which the proxy service provider bills the issuer. It states that we continue to believe this is one of several areas that should be the subject of further, independent review.
Notice and Access Fees. The Proposal generally would codify current notice and access fees. The draft letter comments that in so doing, the Proposal does nothing to change ICI’s view that it is not appropriate for such fees automatically to apply when issuers elect the notice-only delivery option, and that incremental fees only should be permitted if incremental costs associated with this delivery option are documented as necessary to allow for reasonable reimbursement. The letter states that there is still a need for an independent review of these fees with a view toward rationalizing them to reflect a rate that allows for no more than reasonable rates of reimbursement of expenses associated with the notice and access model.
“Preference Management” Fees. The draft letter notes ICI’s previous recommendation that the SEC limit “incentive fees,” i.e., fees assessed when the need to mail materials in paper format has been eliminated, to being charged only on a one-time basis rather than as ongoing fees. The letter acknowledges that there appears to be information supporting the notion that ongoing work is being done (hence, the PFAC’s recommendation to change the name of these fees to “preference management” fees). It indicates that ICI and its members nevertheless believe this is yet another area where independent review and verification are warranted.
NOBO Fees. The draft letter states that the fees charged for obtaining a list of non-objecting beneficial owners, or “NOBOs,” is another area in which ICI members believe that current fees far exceed what should be considered “reasonable” and are deserving of further scrutiny. It expresses strong support, however, for the part of the Proposal that would prohibit charges from applying to names eliminated from the list in permitted stratifications (i.e., record date requests to eliminate positions above or below a certain level, or those that have already voted).
Frances M. Stadler
Senior Counsel - Securities Regulation
endnotes
[1] Securities and Exchange Commission, Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change Amending NYSE Rules 451 and 465, and the Related Provisions of Section 402.10 of the NYSE Listed Company Manual, Which Provide a Schedule for the Reimbursement of Expenses by Issuers to NYSE Member Organizations for the Processing of Proxy Materials and Other Issuer Communications Provided to Investors Holding Securities in Street Name and to Establish a Five-Year Fee for the Development of an Enhanced Brokers Internet Platform, SEC Release No. 34-68936 (Feb. 15, 2013), 78 Fed. Reg. 12381 (Feb. 22, 2013) (“Release”), available at http://www.sec.gov/rules/sro/nyse/2013/34-68936.pdf.
[2] See ICI Memorandum No. 27049 (March 4, 2013) (summarizing the Release).