SIFMA to SEC: Don’t Change Proxy System
June 18, 2010
The Securities Industry and Financial Markets Association is urging the Securities and Exchange Commission to largely keep the status quo on how proxies are distributed to shareholders and how issuers pay for that distribution.
In a letter to the SEC dated June 11, SIFMA, the trade group representing broker-dealers, said that any changes in the proxy system should “ensure investor privacy concerns are not compromised, any changes do not create a fragmented process, allow the proxy system continues to be administered by neutral parties, and accelerate the development of electronic communications.”
The letter was written on behalf of the SIFMA proxy working group by Frank Zarb Jr., a partner in the law firm of Katten Muchin Rosenman.
SIFMA’s stance stands in sharp contrast to the Securities Transfer Association which has called for change.
In its June 2 letter to the SEC, the transfer agents' trade group, representing recordkeepers hired by issuers to administer the accounts of registered shareholders, asked the SEC to eliminate the suppression fees charged by broker-dealers and their proxy distribution agent Broadridge Financial for issuers of securities held in separately managed accounts.
The STA also wanted the SEC to investigate the proxy distribution fees charged by broker dealers to issuers are fair and whether the regulator should foster greater competition in the proxy industry.
While issuers have direct access to their registered shareholders and can mail them proxy materials through their transfer agents, they must rely on the financial intermediaries for beneficial shareholders who hold their accounts in the name of their bank or brokerage firm.
Broker dealers typically outsource their proxy mailing and electronic distribution work to Broadridge, which has established a virtual monopoly. Broadridge collects the fees issuers must pay broker-dealers for doing so and keeps an undisclosed percentage for its own work. The New York Stock Exchange sets the maximum proxy distribution fees which brokers, or their agent Broadridge, can charge issuers.
In its letter to the SEC, SIFMA said it wants the SEC to preserve the broker and Broadridge’s role in the proxy voting system . It also wants the SEC to continue to permit investors to designate themselves as either non-objecting beneficial shareholders (NOBOs) or objecting beneficial shareholders (OBOs). NOBOs allow themselves to be identified to an issuer while OBOS do not.
“We recommend that firms consider refreshing the status of its clients as NOBOs or OBOs in a neutral manner that does not encourage clients to select any particular status,” wrote the STA. “For street name holders who use a firm’s website to review their account information and indicate their preferences, this objective can be accomplished by a website page or feature, or via an email message, that indicates the client’s status as NOBO or OBO. It should be neutrally worded explanatory background about the distinction and provide easy means to change a client’s election electronically.” According to the trade group, issues and brokers should share in the cost of such an effort.
Last year, the Washington, D.C. based Shareholder Communications Coalition, a lobbying group representing some issuers and the STA, asked the SEC to allow issuers to have equal access to their registered and beneficial shareholders. Its proposal allows OBOs to hide behind a type of nominee name while other proposals – namely one from the New York proxy solicitation firm of Altman Group calls for issuers to have restricted access to the names of OBOs during certain times of the year.
