October 25, 2013

SEC Approves Proxy Distribution Fee Changes

After deliberation since the NYSE revised its proposed changes to the proxy distribution fee framework back in February, the SEC approved a new proxy distribution fee framework earlier this week. The result should be lower reimbursement costs for companies, depending on their circumstances (Broadridge estimates 4% savings on average – fees for smaller companies with fewer than 300k beneficial owners may see their fees actually increase). As you may recall, the NYSE’s revised proposal was based on recommendations by its Proxy Fee Advisory Committee, which spent three years contemplating changes. Going forward, the NYSE has to come up with an implementation plan – I’m not sure when that will happen.

Here’s an excerpt from the Society of Corporate Secretaries‘ weekly newsletter with more details:

The changes include for a five-year test period a one-time, supplemental fee of 99ยข for each new account that elects, and each full package recipient among a brokerage firm’s accounts that converts to, electronic delivery while having access to an enhanced brokers’ internet platform (EBIP). Proponents hope that retail investors may be encouraged to vote if they receive notices of corporate votes and can access proxy materials through their own broker’s web site, which the EBIP fee will support.

The new structure eliminates fees for managed accounts that hold five or fewer shares of an issuer’s securities, and reduces the incentive fee for suppression of print material in managed accounts (now to be called a “preference management fee”) to half the rate charged for other accounts. There will be no fee distinction based on whether or not a managed account is referred to as a “wrap account.”

The new structure takes more account of economies of scale, with tiered rates for basic mailing/processing fees, and more tiers for supplemental intermediary fees (for coordination of proxy distribution for multiple nominees), replacing a poorly structured cliff structure for that element of the fees at present. Broadridge estimates that fixed costs – not dependent on distribution volume – conservatively represent 25% of total costs. The NYSE says the proposed fee schedule still does not fully reflect the benefits of economies of scale to large issuers, as the exchange seeks to limit impact of fees on small issuers.

The fee structure codifies current notice and access fees based on a tiered structure, but with one clarification.

For the most part, the new structure follows the recommendations of the PFAC, chaired by Time Warner Corporate Secretary Paul Washington, a former chairman of the Society. The SEC acted after extended review under an Order Instituting Proceedings, and observers had some doubts on whether the SEC would move ahead. The SEC found that the proposed rule change is consistent with Section 6(b)(4) of the Securities Exchange Act of 1934, which requires that exchange rules “provide for the equitable allocation of reasonable dues, fees and other charges among its members, issuers and other persons using its facilities.”

Catch Up Now: “Latest Corp Fin Comment Letter Trends” Spreecast

On Tuesday, Keir Gumbs of Covington & Burling spent 15 minutes on this spreecast – “Latest Corp Fin Comment Letter Trends” – explaining the latest comment letter trends from the SEC’s Division of Corporation Finance. Here is Keir’s related deck. The archive is now available – with over 300 views already!

JOBS Act 2.0 Taking Shape?

Here’s news from Dave and Anna Pinedo in this MoFo blog:

On October 24th, the House Subcommittee on Capital Markets and GSEs will hold a hearing on “Legislative Proposals to Reduce Barriers to Capital Formation.” The hearing was originally scheduled for earlier in the month and was cancelled due to the government shutdown. As discussed in the Subcommittee memo, various bills will be considered that address somewhat disparate issues, from BDCs to M&A broker-dealers, to tick size, that affect capital formation. Perhaps the hearing will lead to a broader discussion of additional measures beyond those addressed by the proposed bills that would facilitate capital raising. SEC Chair White in a recent speech commented on the Commission’s intention to review disclosure requirements with a view to modernizing and streamlining these. If we had our own JOBS 2.0 “wish list,” in addition to modernizing disclosure requirements and modernizing the requirements applicable to offerings by BDCs, we might add the following (and then some):

– Reviewing the accommodations made available to smaller public companies;
– Adding knowledgeable employees to the definition of accredited investor;
– Acting on the JOBS Act mandate to implement rules under Title IV for “Reg A+”;
– Conducting a study of equity research;
– Eliminating the IPO quiet period;
– Reviewing existing communications safe harbors in order to modernize these and make available safe harbors for a broader array of companies;
– Address CFTC “general solicitation” issues;
– Revisit the WKSI standard in order to see if similar measures can be made available to a broader universe of companies;
– Work with the securities exchanges to review their “20% Rules” (requiring a shareholder vote for private placements completed at a discount that will result in an issuance or potential issuance of securities greater than 20% of the pre-transaction total shares outstanding); and
– Review the 1/3 limit applicable to primary issuances off of a shelf for companies under $75 million in public float.

– Broc Romanek