RIA Compliance Blog
In November 2022, the U.S. Securities and Exchange Commission (“SEC”) adopted new rule 14Ad-1, which requires that institutional investment managers that are subject to the reporting requirements of section 13(f) of the Exchange Act annually report each say-on-pay vote over which the manager had voting power on the Form N-PX. Institutional investment managers include any person, other than a natural person, investing in or buying and selling securities for its own account, and any person exercising investment discretion with respect to the account of any other person (“Institutional Managers”). Any Institutional Managers that are required to file Form 13F must disclose any say-on-pay votes over which it exercised voting power on Form N-PX. The types of say-on-pay votes that must be reported include votes on approval of executive compensation, on the frequency of that compensation, and on approval of “golden parachute” compensation connected to a merger or acquisition.
The SEC adopted a two-part test to determine whether an Institutional Manager “exercised voting power” over a security and thus must report a say-on-pay vote on Form N-PX. Accordingly, an Institutional Manager must report a say-on-pay vote for a security if the manager: (1) has the power to vote, or direct the voting of, a security; and (2) exercises this power to influence a voting decision for the security. Even if an Institutional Manager did not exercise voting power over any say-on-pay votes, it must still file a notice on the Form N-PX indicating that it does not have any proxy votes to report.
The SEC also adopted amendments to Form N-PX, which is used by registered investment companies (other than small business investment companies) including mutual funds, exchange-traded funds and other funds (collectively, “Funds”) to report information about their proxy votes. The first reports on the amended Form N-PX by Funds and Institutional Managers must be filed by August 31, 2024 for the reporting period of July 1, 2023 to June 30, 2024. Institutional Managers with an initial Form 13F filing due in 2024 are not required file the Form N-PX until August of 2025
The following changes were made to the Form N-PX:
- If a proxy card must be filed with the SEC, the amended form requires that Funds and Institutional Managers use the same language and that the matters be in the same order as the issuer’s proxy card to identify the proxy voting matters and that each director be identified if the proxy voting matter relates to an election of directors. The proxy card requirements otherwise remain the same, requiring that a brief identification of the proxy voting matter voted on be provided.
- Funds and Institutional Managers will be required to categorize voting matters based on certain categories outlined in the amended form (e.g. audit-related, compensation, capital structure, environment, etc.).
- Funds and Institutional Managers must also report the number of shares voted or instructed to be cast and how the shares were voted. The number of shares loaned but not recalled to vote must also be reported.
- The amended form will have updated formatting requirements, requiring that Funds and Institutional Managers file reports using XML structured data language. The SEC is developing “style sheets” that will allow the data to be human-readable once applied.
- Joint reporting is permitted on the new form. A Fund may report its Form N-PX on behalf of a series or an Institutional Manager. An Institutional Manager may report its Form N-PX jointly with another Institutional Manager. Additional information is required if joint reporting.
- The amended form will standardize the order of disclosure requirements.
- If a Fund does not hold any securities it was entitled to vote, it may indicate so by checking a box on the cover page of the amended form. Similarly, the Form N-PX permits Institutional Managers to file a notice report by checking a box on the cover page if it did not exercise voting power over any say-on-pay votes.
Under the final rule, any Fund that has a website must make publicly available free of charge the information disclosed in the Fund’s most recent Form N-PX on its website. Once an updated Form N-PX is filed, it must be posted to the Fund’s website as soon as reasonably practicable.
When reporting say-on-pay votes if required, Institutional Managers must comply with all reporting requirements of Form N-PX, including those listed above.
Institutional Managers who are required to file a Form 13F should note these new requirements and ensure that the filing deadline for Form N-PX of August 31, 2024 is met.
Parker MacIntyre provides legal and compliance services to investment advisers, broker-dealers, registered representatives, hedge funds, and issuers of securities, among others. Our Investment Adviser Group assists financial service providers with complex issues that arise in the course of their business, including complying with federal and state laws and rules. Please visit our Investment Adviser Practice Group page for more information.