November 1, 2021

Proxy Distribution Costs: NYSE’s “Promo” Shares Rule May Not Help Much

Liz has blogged several times about the problem of exploding proxy distribution costs. In her most recent blog, she noted that the NYSE has adopted a new rule under which companies won’t have to reimburse brokers for costs associated with shares acquired through broker promos. That’s intended to address the practice among some retail-focused brokerages of giving away free shares of stock to new customers. Unfortunately, this excerpt from the most recent issue of Carl & Peder Hagberg’s “Shareholder Service Optimizer” (pg. 11) says that new rule may provide a lot less help than companies think:

The SEC has approved a NYSE rule change to provide that no proxy distribution reimbursements should be paid where “free” or “promotional” stock positions are involved. But unless brokerage systems are upgraded to label such positions (fat chance we say) AND to track them if clients move their positions, as many Gen-Zers have been reportedly doing – how can anyone possibly tell which accounts are eligible and which are not? And even we would have to say that if the holder of a freebie increases their position, the promo prohibition likely becomes null and void.

The article notes that Robinhood has apparently taken the position that it is not bound by the NYSE’s rule, and that FINRA hasn’t acted on requests to pass a similar one.

John Jenkins