Draft Additional ICI Letter on NYSE Proposal Regarding Proxy Distribution Fees; Your Comments Requested by 6/18
[27298]
June 12, 2013
TO: CLOSED-END INVESTMENT COMPANY COMMITTEE No. 15-13SEC RULES COMMITTEE No. 26-13
SMALL FUNDS COMMITTEE No. 13-13 RE: DRAFT ADDITIONAL ICI LETTER ON NYSE PROPOSAL REGARDING PROXY DISTRIBUTION FEES; YOUR COMMENTS REQUESTED BY 6/18
As we previously informed you, in March, ICI filed a comment letter [1] on a New York Stock Exchange (“NYSE”) proposed rule change (“Proposal”) [2] concerning “proxy distribution fees,” i.e., the fees that issuers pay to banks and broker-dealers for the distribution of proxy materials to shareholders who invest in “street name.” After the comment period closed, the SEC designated a longer period for Commission action on the Proposal, until May 23, 2013. On May 23rd, the SEC issued an order (“Order”) to determine whether to disapprove the Proposal. [3] The Order expresses serious concerns with various aspects of the Proposal and solicits additional comments. ICI has prepared a draft comment letter in response to the Order. The draft letter is attached and summarized below.
Comments are due by June 20th. Please provide any comments on the draft comment letter to Frances Stadler (frances@ici.org) by Tuesday, June 18th.
The draft letter notes that ICI submitted a comment letter when the SEC published the Proposal for comment because registered investment companies (“funds”) have a strong interest in the structure and amount of fees charged for the distribution of proxy and related materials to beneficial shareholders. It states that we still hold the views expressed in our earlier comment letter, i.e., that there is a continuing need for a rigorous, independent review of the current proxy distribution fee system and 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. The draft letter indicates that we were pleased that the SEC decided to institute proceedings to determine whether to disapprove the Proposal. It notes that as the Order indicates, the Proposal’s analysis leaves open important questions about whether the Proposal meets the statutory standards that apply to self-regulatory organization (“SRO”) rulemaking.
The draft letter strongly commends the SEC for its careful study of the Proposal and serious consideration of the concerns raised by many commenters, including ICI. It highlights the SEC’s recent increased emphasis on rigorous economic analysis in its own work and suggests that it is only fitting that the SEC likewise demand greater attention to economic analysis in the context of SRO rulemaking.
The draft letter states that ICI does not question the NYSE’s good faith efforts in developing the Proposal and that Broadridge deserves credit for providing information and analysis to assist the PFAC. Nevertheless, it indicates that additional cost and other information—provided or reviewed by an objective third party—is needed to evaluate the appropriateness of proxy distribution fees. The draft letter thus expresses agreement that the Proposal in its current form does not provide the SEC with a sufficient basis to conclude that the bulk of the changes the Proposal recommends are consistent with applicable statutory standards. Instead, the draft letter states, the SEC’s comments on the shortcomings of the Proposal underscore the continuing need for an independent review of the proxy distribution system that includes, among other things, a thorough analysis of actual costs involved.
The draft letter therefore recommends that the SEC disapprove most of the Proposal [4] and that an appropriate third party be engaged to review not only the changes the NYSE has proposed but also the existing proxy distribution fee system. It specifies that any such review should include specific analysis of the proxy distribution fees paid by funds and how the proposed changes would affect those fees.
Frances M. Stadler
Senior Counsel - Securities Regulation
endnotes
[1] See ICI Memorandum No. 27124 (March 22, 2013).
[2] 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), available at http://www.sec.gov/rules/sro/nyse/2013/34-68936.pdf. The Proposal is based, in large part, on recommendations issued last year by an industry working group, the Proxy Fee Advisory Committee (“PFAC”).
[3] Securities and Exchange Commission, Self-Regulatory Organizations; New York Stock Exchange LLC; Order Instituting Proceedings to Determine Whether to Disapprove 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. 34-69622 (May 23, 2013), available at http://www.sec.gov/rules/sro/nyse/2013/34-69622.pdf.
[4] The draft letter states that the Commission should approve the proposal to prohibit the imposition of per-name charges for names eliminated in permitted stratifications when an issuer requests a list of non-objecting beneficial owners, or “NOBOs.” It also indicates that, consistent with the recommendation made by several other commenters, ICI supports allowing issuers to request stratification of NOBO lists outside of a record date.