August 26, 2013

SEC Delays NYSE Proxy Fee Changes

As Ning Chiu notes in the Davis Polk blog, the SEC has again decided to delay a decision on the NYSE’s proposal to change the fees paid for proxy distribution, now until October 20, 2013. Ning notes:

In April, the SEC extended its decision and received 4 additional letters. On May 23, the SEC initiated proceedings to decide whether to disapprove the rule change and solicited additional comments, after which it received 14 letters. A final decision was to be made on August 21, but according to the latest notice, the Commission is waiting until October because it needs a longer period to consider the “significant question” as to whether the NYSE has sufficiently justified its proposal.

Companies are required to pay broker-dealers or banks that hold securities in street name reasonable expenses incurred in forwarding proxy materials to beneficial owners. The current reimbursement scheme was adopted in 2002, and the proposed rule change represents recommendations made by the Proxy Fee Advisory Committee as established by the NYSE. Companies represented most of the members on the Committee, and estimated that they pay $200 million annually. The Committee believes that the proposed changes would decrease the overall fees by approximately 4%. As almost all of the brokers use Broadridge for proxy distribution, the Committee based its analysis largely on data provided by Broadridge.

The 60-page SEC order in May presents a detailed explanation of each aspect of the fee breakdown and specific questions raised by the SEC as to the rationale for each change, but ultimately the issue is centered on whether an independent third-party audit is necessary. The NYSE has responded to the points raised by the SEC and noted that the information available is limited since there is no common methodology for tracking these costs and much of it is aggregated with other costs rather than separated, therefore having a third-party review does not make sense. But some of the commenters, including those that would like to better compete with Broadridge, dispute the conclusion that the proposed changes would result in lowering the costs for companies, and claim instead that its own analysis shows an overall increase. Given the SEC’s own controversies regarding cost-benefit analysis, it would likely need to consider those criticisms carefully before ruling on the NYSE proposal.

Canadians Weigh in on the Proxy System

The Canadian Securities Administrators are now seeking feedback about the integrity of the proxy voting infrastructure in Canada, focusing specifically on vote reconciliation and vote confirmation. While the CSA consultation paper requests comments on these specific issues, it also seeks broader comments on the proxy voting system. Comments on the CSA consultation paper are due November 13, 2013.

We are posting memos on the CSA Consultation paper in our “Canadian Law” Practice Area.

More on “The Mentor Blog”

We continue to post new items daily on our blog – “The Mentor Blog” – for members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

– Is a CEO’s Divorce the Board’s Business?
– SEC Makes Second Whistleblower Order, Indicating More to Come
– Second Circuit Reaffirms SEC’s Standard for D&O Bar
– Significant Changes Proposed in Lease Accounting
– G4: The Future of Sustainability Reporting

– Dave Lynn