[Federal Register Volume 86, Number 197 (Friday, October 15, 2021)]
[Proposed Rules]
[Pages 57478-57524]
[FR Doc No: 2021-21549]

Vol. 86

Friday,

No. 197

October 15, 2021

Part II

 Securities and Exchange Commission

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17 CFR Parts 232, 240, 249, et al.

Enhanced Reporting of Proxy Votes by Registered Management Investment
Companies; Reporting of Executive Compensation Votes by Institutional
Investment Managers; Proposed Rule

Federal Register / Vol. 86 , No. 197 / Friday, October 15, 2021 /
Proposed Rules

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 232, 240, 249, 270, and 274

[Release Nos. 34-93169; IC-34389; File No. S7-11-21]
RIN 3235-AK67

Enhanced Reporting of Proxy Votes by Registered Management
Investment Companies; Reporting of Executive Compensation Votes by
Institutional Investment Managers

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: The Securities and Exchange Commission (``Commission'') is
proposing to amend Form N-PX under the Investment Company Act of 1940
(``Investment Company Act'') to enhance the information mutual funds,
exchange-traded funds (``ETFs''), and certain other funds currently
report annually about their proxy votes and to make that information
easier to analyze. The Commission also is proposing rule and form
amendments under the Securities Exchange Act of 1934 (``Exchange Act'')
that would require an institutional investment manager subject to the
Exchange Act to report annually on Form N-PX how it voted proxies
relating to executive compensation matters, as required by the Exchange
Act. The proposed reporting requirements for institutional investment
managers, if adopted, would complete implementation of those
requirements under the Dodd-Frank Wall Street Reform and Consumer
Protection Act (``Dodd-Frank Act'').

DATES: Comments should be received on or before December 14, 2021.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/submitcomments.htm); or
     Send an email to [email protected]. Please include
File Number S7-11-21 on the subject line; or

Paper Comments

     Send paper comments to, Secretary, Securities and Exchange
Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number S7-11-21. This file number
should be included on the subject line if email is used. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
website (http://www.sec.gov/rules/proposed.shtml). Comments are also
available for website viewing and printing in the Commission's Public
Reference Room, 100 F Street NE, Room 1580, Washington, DC 20549, on
official business days between the hours of 10 a.m. and 3 p.m.
Operating conditions may limit access to the Commission's public
reference room. All comments received will be posted without change.
Persons submitting comments are cautioned that we do not redact or edit
personal identifying information from comment submissions. You should
submit only information that you wish to make available publicly.
    Studies, memoranda, or other substantive items may be added by the
Commission or staff to the comment file during this rulemaking. A
notification of the inclusion in the comment file of any such materials
will be made available on the Commission's website. To ensure direct
electronic receipt of such notifications, sign up through the ``Stay
Connected'' option at www.sec.gov to receive notifications by email.

FOR FURTHER INFORMATION CONTACT: Nathan R. Schuur, Senior Counsel;
Angela Mokodean, Branch Chief; or Brian M. Johnson, Assistant Director,
at<PHONE_NUMBER>, Investment Company Regulation Office; Terri G.
Jordan, Branch Chief, at<PHONE_NUMBER> or [email protected], Chief
Counsel's Office, Division of Investment Management, Securities and
Exchange Commission, 100 F Street NE, Washington, DC 20549.

SUPPLEMENTARY INFORMATION: The Commission is proposing new 17 CFR
240.14Ad-1 [new rule 14Ad-1] under the Exchange Act.\1\ We are also
proposing amendments to the following rules and forms:
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    \1\ 15 U.S.C. 78a et seq.
    \2\ Form N-PX was adopted under the Investment Company Act only.
In this release, we are proposing to amend Form N-PX under both the
Exchange Act and the Investment Company Act. 15 U.S.C. 80a-1 et seq.
    \3\ 15 U.S.C. 77a et seq.

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                   Commission reference                                     CFR citation [17 CFR]
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Investment Company Act:
    Rule 30b1-4...........................................  Sec.   270.30b1-4.
Exchange Act and Investment Company Act:
    Form N-PX \2\.........................................  Sec.  Sec.   274.129 and 249.326.
Securities Act of 1933 (``Securities Act'') \3\ and
 Investment Company Act:
    Form N-1A.............................................  Sec.  Sec.   239.15A and 274.11A.
    Form N-2..............................................  Sec.  Sec.   239.14 and 274.11a-1.
    Form N-3..............................................  Sec.  Sec.   239.17a and 274.11b.
Securities Act:
    Rule 101 of Regulation S-T............................  Sec.   232.101.
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Table of Contents

I. Introduction and Background
II. Discussion
    A. Scope of Funds' Form N-PX Reporting Obligations
    B. Scope of Managers' Form N-PX Reporting Obligations
     1. Managers Subject to Form N-PX and Categories of Votes They
Must Report
     2. Managers' Exercise of Voting Power
     3. Additional Scoping Matters for Manager Reporting of Say-on-
Pay Votes
    C. Proxy Voting Information Reported on Form N-PX
     1. Identification of Proxy Voting Matters
     2. Identification of Proxy Voting Categories
     3. Quantitative Disclosures
     4. Additional Proposed Amendments to Form N-PX
    D. Joint Reporting and Related Form N-PX Amendments To
Accommodate Manager Reporting
     1. Joint Reporting Provisions
     2. The Cover Page
     3. The Summary Page
     4. Other Proposed Amendments to Form N-PX To Accommodate
Manager Reporting
    E. Form N-PX Reporting Data Language
    F. Time of Reporting

    G. Requests for Confidential Treatment
    H. Proposed Website Availability of Fund Proxy Voting Records
    I. Compliance Dates
    J. Transition Rules for Managers
    K. Technical and Conforming Amendments
III. General Request for Comments
IV. Economic Analysis
    A. Introduction
    B. Economic Baseline and Affected Parties
     1. Funds' Reporting of Proxy Voting Records
     2. Managers' Reporting of Say-on-Pay Votes
    C. Costs and Benefits
     1. Amendments to Funds' Reporting of Proxy Votes
     2. Amendments To Require Manager Reporting of Say-on-Pay Votes
    D. Effects on Efficiency, Competition, and Capital Formation
     1. Amendments to Funds' Reporting of Proxy Votes
     2. Amendments To Require Manager Reporting of Say-on-Pay Votes
    E. Reasonable Alternatives
     1. Scope of Managers' Say-on-Pay Reporting Obligations
     2. Amendments to Proxy Voting Information Reported on Form N-PX
     3. Amendments to the Time of Reporting on Form N-PX or
Placement of Funds' Voting Records
    F. Request for Comment
V. Paperwork Reduction Act
VI. Regulatory Flexibility Act Certification for Managers and
Initial Regulatory Flexibility Analysis for Funds
    A. Regulatory Flexibility Act Certification for Managers
    B. Initial Regulatory Flexibility Act Analysis for Funds
     1. Reasons for and Objectives of the Proposed Actions
     2. Legal Basis
     3. Small Entities Subject to the Rule
     4. Projected Reporting, Recordkeeping, and Other Compliance
Requirements
     5. Duplicative, Overlapping, or Conflicting Federal Rules
     6. Significant Alternatives
     7. General Request for Comment
VII. Consideration of Impact on the Economy
VIII. Statutory Authority

I. Introduction and Background

    Mutual funds, ETFs, and other registered management investment
companies (collectively, ``funds'') hold substantial institutional
voting power that they exercise on behalf of millions of fund
investors.\4\ Funds own around 30 percent of U.S. corporate equities
and in some cases funds hold a larger percent of a single company's
stock.\5\ As a result, funds can influence the outcome of a wide
variety of matters that companies submit to a shareholder vote,
including matters related to governance, corporate actions, and
shareholder proposals. Funds' proxy voting decisions can play an
important role in maximizing the value of their investments, affecting
the more than 45 percent of U.S. households that own funds, as well as
other investors in U.S. equity markets.\6\
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    \4\ Mutual funds and most ETFs are open-end management
investment companies registered on Form N-1A. An open-end management
investment company is an investment company, other than a unit
investment trust or face-amount certificate company, that offers for
sale or has outstanding any redeemable security of which it is the
issuer. See sections 4 and 5(a)(1) of the Investment Company Act [15
U.S.C. 80a-4 and 80a-5(a)(1)]. The amendments proposed in this
release would also apply to registered closed-end management
investment companies (which register on Form N-2) and insurance
company separate accounts organized as management investment
companies that offer variable annuity contracts (which register on
Form N-3).
    \5\ ICI 2021 Fact Book, available at https://www.ici.org/system/files/2021-05/2021_factbook.pdf, at figure 2.7 (stating that mutual
funds and other registered investment companies held 30 percent of
U.S. corporate equities as of year-end 2020).
    \6\ Id., at figure 7.1 (stating that 45.7 percent of U.S.
households owned funds in 2020).
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    For certain types of funds and their investors, proxy voting can
have particularly heightened importance. For example, because index
funds' investment policies typically do not permit them to sell
investments in the relevant index, these funds cannot sell a stock if
they are dissatisfied with management. Instead, index funds may use
their voting power to become active in corporate governance in order to
increase the value of their investments.\7\ Index funds have grown
significantly in recent years. Index funds make up nearly half of the
assets in equity funds.\8\ More generally, the net assets of index
funds as a share of mutual funds and ETFs have more than doubled since
2010.\9\
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    \7\ See Disclosure of Proxy Voting Policies and Proxy Voting
Records by Registered Management Investment Companies, Investment
Company Act Release No. 25922 (Jan. 31, 2003) [68 FR 6563 (Feb. 7,
2003)] (``Form N-PX Adopting Release'') at nn.17-18 and accompanying
text (noting that, because passive funds have investment policies
that do not permit them to sell their shares, they may become more
active in corporate governance as a way to maximize value for their
shareholders).
    \8\ See Kenechukwu Anadu, Mathias Kruttli, Patrick McCabe, and
Emilio Osambela, ``The Shift from Active to Passive Investing:
Potential Risks to Financial Stability?'', Finance and Economics
Discussion Series 2018-060r1, Washington: Board of Governors of the
Federal Reserve System (2020), available at https://doi.org/10.17016/FEDS.2018.060r1 (citing statistics as of March 2020); see
also ICI 2021 Fact Book, supra footnote 6, at figure 2.8 (stating
that index funds represented 40% of the mutual fund and ETF market,
excluding money market funds, in 2020).
    \9\ See ICI 2021 Fact Book, supra footnote 5, at figure 2.8
(noting index fund growth as a share of the mutual fund and ETF
market between 2010 and 2020, excluding money market funds).
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    Due to funds' significant voting power and the effects of funds'
proxy voting practices on the actions of corporate issuers and the
value of these issuers' securities, investors have an interest in how
funds vote.\10\ In addition, in recent years, investors have increased
their focus on how funds vote on environmental, social, and governance-
oriented matters (i.e., ESG matters). Many funds now incorporate
sustainability or other ESG factors or put these factors at the center
of their investment approach.
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    \10\ Some investors review funds' voting practices by accessing
Form N-PX reports directly on EDGAR, while others may obtain
information about funds' voting practices through analysis or
synthesis of Form N-PX reports by data aggregators or others. A
variety of market participants and other stakeholders also use data
reported on Form N-PX. See infra Section IV.C.1.a.
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    In most cases, a fund's adviser votes proxies relating to the
fund's portfolio securities on the fund's behalf.\11\ Investment
advisers are fiduciaries that owe duties of care and loyalty to each
client.\12\ To satisfy its fiduciary duty in making any voting
determination on behalf of a fund, an investment adviser must make
determinations in the best interest of its client. Further, an
investment adviser cannot place its own interests ahead of the
interests of its client.\13\ An investment adviser that assumes proxy
voting authority must adopt and implement policies and procedures
reasonably designed to ensure it votes client securities in the best
interest of clients.\14\
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    \11\ See Form N-PX Adopting Release, supra footnote 7, at nn.11-
13 and accompanying text (recognizing that while the fund's board of
directors, acting on the fund's behalf, has the right and the
obligation to vote proxies relating to the fund's portfolio
securities, this function is typically delegated to the fund's
investment adviser).
    \12\ Commission Interpretation Regarding Standard of Conduct for
Investment Advisers, Investment Advisers Act Release No. 5248 (June
5, 2019) [84 FR 33669 (July 12, 2019)] (``2019 Fiduciary
Interpretation'').
    \13\ Commission Guidance Regarding Proxy Voting Responsibilities
of Investment Advisers, Investment Advisers Act Release No. 5325
(Aug. 21, 2019) [85 FR 55155 (Sept. 3, 2019)] (``Proxy Voting
Interpretation'').
    \14\ See 17 CFR 275.206(4)-6.
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    In 2003, the Commission adopted Form N-PX, which requires funds to
report publicly their proxy voting records annually. Form N-PX is
designed to improve transparency and enable fund shareholders to
monitor their funds' involvement in the governance activities of
portfolio companies.\15\ Since its adoption, Form

N-PX has advanced transparency into fund voting. However, these reports
can be difficult for investors to use and can provide an incomplete
picture of a fund's voting practices.
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    \15\ See Form N-PX Adopting Release, supra footnote 7, at
paragraph accompanying n.34. Although the Commission proposed to
require funds to disclose their proxy voting records in their annual
and semiannual shareholders reports, after considering comments, the
Commission adopted a separate form--Form N-PX--for funds to use in
filing this information with the Commission. See id. at Section
II.B. In the same release, the Commission also adopted amendments to
require funds to disclose the policies and procedures they use to
determine how to vote proxies. In that release, the Commission
discussed several benefits of providing transparency on how funds
vote, including illuminating potential conflicts of interest,
discouraging voting that is inconsistent with fund shareholders'
best interests, and encouraging funds to become more engaged in
corporate governance of issuers held in their portfolios. Id. at
Section I.
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    Investors may face difficulties using Form N-PX reports to find a
particular fund's voting record, find a specific vote or type of vote
that is of interest, or compare funds' voting records for several
reasons. First, the organization and presentation of funds' proxy
voting records in Form N-PX reports can vary significantly. For
example, funds may provide unclear and inconsistent descriptions of
voting matters (e.g., by using abbreviations or other shorthand). As
another example, although the instructions to the form require separate
presentations for each fund, some funds interpret this requirement as
providing flexibility to organize voting information first by security,
with each fund holding that security listed separately.\16\ As a
result, a given fund's voting record can be spread throughout the
report instead of presented together in one place. Second, Form N-PX
reports can be overwhelmingly long due to the number of voting matters
and funds the reports often cover.\17\ A single fund may own hundreds
of securities, each of which may have ten or more proposals each year,
and a single Form N-PX report often includes information about several
different funds' voting records.\18\ Third, reports on Form N-PX are
not currently filed in a machine readable, or ``structured,'' data
language. This can make it more difficult for investors to analyze
efficiently the reported data, particularly in light of the
inconsistencies and length of Form N-PX reports.\19\
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    \16\ Many fund complexes include information about several
different funds in a single Form N-PX report, given the structure of
many funds as series of a trust. See Instruction 1 to current Form
N-PX (``In the case of a registrant that offers multiple series of
shares, provide the information required by this Item separately for
each series. The term `series' means shares offered by a registrant
that represent undivided interests in a portfolio of investments and
that are preferred over all other series of shares for assets
specifically allocated to that series in accordance with Rule 18f-
2(a) under the Act (17 CFR 270.18f-2(a)).'').
    \17\ Based on staff analysis of reports on Form N-PX, larger
funds can have filings in excess of 1,000 pages.
    \18\ For example, during the 2017 proxy season, funds cast more
than 7.6 million votes for proxy proposals, and the average fund
voted on 1,504 separate proxy proposals for U.S. listed portfolio
companies. Letter dated Mar. 15, 2019, from Paul Schott Stevens,
President and CEO, Investment Company Institute, submitted in
response to the Statement Announcing SEC Staff Roundtable on the
Proxy Process, available at https://www.sec.gov/comments/4-725/4-725.htm.
    \19\ While some structured data is available commercially,
investors seeking to use this information may incur costs, as well
as potential limits on the comprehensiveness and timeliness of
available information.
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    In addition to difficulties in accessing and analyzing the data
provided on Form N-PX, certain gaps in the required disclosure may
result in an incomplete picture of a fund's proxy voting practices.
Funds commonly engage in securities lending activities to generate
additional revenue for the fund.\20\ When a fund lends its portfolio
securities, it transfers incidents of ownership relating to the loaned
securities, including proxy voting rights, for the duration of the
loan. As a result, while the securities are on loan, the fund is not
able to vote the proxies of such securities. If a fund determines that
it wants to vote loaned securities, it must recall the securities and
receive them prior to the record date for the vote. Recalling loaned
securities may decrease the revenue a fund generates from securities
lending activity. The decision of whether to recall a security on loan
to vote it is not currently disclosed on Form N-PX, although some
investors have expressed interest in information about the relationship
between a fund's securities lending and proxy voting.\21\
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    \20\ According to Form N-CEN filings, 67.2% of funds were
authorized to engage in securities lending in their most recent
fiscal year, and 40.2% of funds reported lending securities over
that same period. These funds reported, in the aggregate, net income
from securities lending of $2.663 billion. See also Reena Aggarwal
et al., The Role of Institutional Investors in Voting, J. of
Finance, at 2310 (2015) (noting that ``[m]ost large pension funds,
mutual funds, and other institutional investors have a lending
program and consider it an important source of revenue, with
estimates of $800 million in annual revenue for pension funds.'').
    \21\ See, e.g., Letter of the Shareowner Education Network (Oct.
20, 2010) (File No. S7-14-10) (``Shareowner Education Letter on
Concept Release'') (``Funds should disclose all aspects of
securities lending that affect their investors, such as the number
of shares on loan over the record date and lending fees, as well as
the number of shares from any other missed voting opportunities and
the actual number of shares that were voted for each meeting. This
information is important to investors who are monitoring the
stewardship responsibilities of funds.''). See also infra footnote
99.
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    To improve the utility of Form N-PX information for investors, we
are proposing amendments to enhance the information funds currently
report about their proxy votes on Form N-PX and to make that
information easier to analyze. For example, we are proposing to require
funds to tie the description of the voting matter to the issuer's form
of proxy and to categorize voting matters by type. We are also
proposing to require reporting of information on Form N-PX in a
structured data language either via a Commission-supplied web-based
form or as an Extensible Markup Language (``XML'') file.\22\ In
addition, we are proposing to require disclosure of the number of
shares that were voted (or, if not known, the number of shares that
were instructed to be cast) and the number of shares that were loaned
and not recalled. To enhance investors' access to funds' proxy voting
records, we also are proposing to require a fund to provide its voting
record on (or through) its website.
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    \22\ Cf. Recommendations of the Investor Advisory Committee
Regarding the SEC and the Need for the Cost Effective Retrieval of
Information by Investors (adopted July 25, 2013), available at
https://www.sec.gov/spotlight/investor-advisory-committee-2012/data-tagging-resolution-72513.pdf, at 5 (recommending amendments to Form
N-PX to provide for the tagging of data).
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    In addition to proposing to amend Form N-PX to enhance disclosure
of funds' proxy voting records, we are proposing rule and form changes
to require an institutional investment manager subject to section 13(f)
reporting requirements (``manager'') to report annually on Form N-PX
how it voted proxies relating to shareholder advisory votes on
executive compensation (or ``say-on-pay'') matters.\23\ Similar to
funds, managers have substantial voting power. As of March 31, 2021,
managers exercised investment discretion over approximately $39.79
trillion in section 13(f) securities.\24\ This aspect of the

proposal is aimed at completing implementation of section 951 of the
Dodd-Frank Act. The Commission first proposed rule and form changes in
October 2010 to implement the Dodd-Frank Act's manager reporting
requirements.\25\ This proposal takes into account the comments we
received in response to that proposal.
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    \23\ The term ``institutional investment manager'' includes 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. See section 13(f)(6)(A) of the Exchange Act [15 U.S.C.
78m(f)(6)]. The term ``person'' includes any natural person,
company, government, or political subdivision, agency, or
instrumentality of a government. See section 3(a)(9) of the Exchange
Act [15 U.S.C. 78c(a)(9)]. Entities serving as managers could
include, for example: Banks, insurance companies, and broker-dealers
that invest in, or buy and sell, securities for their own accounts;
corporations and pension funds that manage their own investment
portfolios; or investment advisers that manage private accounts,
mutual fund assets, or pension plan assets. In addition to
amendments to Form N-PX, we are proposing new rule 14Ad-1 under the
Exchange Act to require managers to annually report their say-on-pay
votes on Form N-PX.
    \24\ This number does not include put or call options and is
based on staff review of managers' reports on Form 13F covering the
first quarter of 2021. Section 13(f) of the Exchange Act requires a
manager to file a report with the Commission if it exercises
investment discretion with respect to accounts holding certain
equity securities (``section 13(f) securities'') having an aggregate
fair market value on the last trading day of any month of any
calendar year of at least $100 million. Rule 13f-1 requires that
managers file quarterly reports on Form 13F if the accounts over
which they exercise investment discretion hold an aggregate of more
than $100 million in section 13(f) securities. See 17 CFR 240.13f-1.
Section 14A(d) of the Exchange Act requires that ``every
institutional investment manager subject to section 13(f)'' of the
Exchange Act report its say-on-pay votes.
    \25\ See Exchange Act Release No. 63123 (Oct. 18, 2010) [75 FR
66622 (Oct. 28, 2010)] (``2010 Proposing Release'').
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    Section 951 of the Dodd-Frank Act added new section 14A to the
Exchange Act. This section generally requires public companies to hold
non-binding shareholder advisory votes to: (1) Approve the compensation
of its named executive officers; (2) determine the frequency of such
votes, with the option of every 1, 2, or 3 years; and (3) approve
``golden parachute'' compensation in connection with a merger or
acquisition (collectively, ``say-on-pay votes'').\26\ Section 14A(d) of
the Exchange Act requires that every manager report at least annually
how it voted on say-on-pay votes, unless such vote is otherwise
required to be reported publicly. The Commission's 2010 proposal to
implement this provision would have required managers to file their
record of say-on-pay votes with the Commission annually on Form N-PX,
and would have amended Form N-PX to accommodate the new manager
filings.\27\
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    \26\ See section 14A(a) and (b) of the Exchange Act; 17 CFR
240.14a-21; see also Item 402(a)(3) of Regulation S-K (defining the
term ``named executive officers'').
    \27\ See 2010 Proposing Release, supra footnote 25. Unless
otherwise indicated, comments cited in this release are the public
comments the Commission received in response to the 2010 Proposing
Release, which are available at http://www.sec.gov/comments/s7-30-10/s73010.shtml. In addition, to facilitate public input on the
Dodd-Frank Act, the Commission provided a series of email links,
organized by topic, on its website. The public comments received on
section 951 of the Dodd-Frank Act are available at http://www.sec.gov/comments/df-title-ix/executive-compensation/executive-compensation.shtml.
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    Most commenters on the 2010 proposal expressed overall support for
the Commission's proposal to implement this requirement through
reporting on modified Form N-PX.\28\ As discussed further below, some
commenters expressed concerns with particular aspects of the proposal.
The rule and form amendments we are proposing include certain
modifications from the 2010 proposal, including modifications that take
into consideration commenters' suggestions. In response to comments, we
propose to require managers to report say-on-pay votes for securities
over which the manager exercised voting power. The proposed definition
of exercise of voting power focuses on instances when the manager uses
voting power to influence a voting decision. To reduce the potential
for duplicative reporting when more than one manager exercises voting
power or when a manager exercises voting power on behalf of a fund, we
propose to allow managers to rely on joint reporting provisions under
these circumstances. We also propose that the amendments to Form N-PX
for funds would apply to managers reporting say-on-pay votes on Form N-
PX.
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    \28\ See, e.g., Letter of California Public Employees'
Retirement System (Nov. 18, 2010) (``CalPERS Letter''); Letter of
Council of Institutional Investors (Nov. 12, 2010) (``CII Letter'');
Letter of Glass Lewis & Co. (Nov. 18, 2010) (``Glass Lewis Letter
I''); Letter of Investment Company Institute (Nov. 18, 2010) (``ICI
Letter''); Letter of Senator Carl Levin (Nov. 18, 2010) (``Levin
Letter''); Letter of Heidi Preston (Oct. 26, 2010). Two commenters
acknowledged that the Commission's proposal was required under the
Dodd-Frank Act. Letter of Investment Adviser Association (Nov. 16,
2010) (``IAA Letter''); Letter of Oli Stone (Nov. 17, 2010) (``Stone
Letter''). One commenter generally opposed the proposal. Letter of
Dennis Reiland (Nov. 8, 2010) (``Reiland Letter'').
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II. Discussion

A. Scope of Funds' Form N-PX Reporting Obligations

    Currently, every registered management investment company, other
than a small business investment company registered on Form N-5, must
file its proxy voting record annually on Form N-PX.\29\ We are not
proposing to modify the scope of registered investment companies
subject to Form N-PX reporting requirements.
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    \29\ See rule 30b1-4 under the Investment Company Act [17 CFR
270.30b1-4].
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    We are, however, proposing to amend the scope of voting decisions
these funds must report. Currently, funds are required to report
information for each matter relating to a portfolio security considered
at any shareholder meeting held during the reporting period and with
respect to which the fund was entitled to vote.\30\ We are proposing to
amend this standard to provide that, for purposes of Form N-PX, a fund
would be entitled to vote on a matter if its portfolio securities are
on loan as of the record date for the meeting because the fund could
recall them and vote them.\31\ This proposed amendment is designed to
ensure that a fund's filings on Form N-PX reflect the effect of its
securities lending activities on its proxy voting, providing context to
the information funds already provide about revenue from securities
lending.
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    \30\ See Item 1 of current Form N-PX.
    \31\ See Item 1 of proposed Form N-PX.
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    We request comment on the proposed amendments to the scope of
funds' reporting obligations on Form N-PX, including the following:
    1. Should we continue to require all registered management
investment companies, other than small business investment companies
registered on Form N-5, to report on Form N-PX? Are there other types
of registered investment companies, such as unit investment trusts,
that we should require to report their proxy votes on Form N-PX? If we
do so, would these other types of investment companies face unique
challenges in reporting their proxy votes? If we extended Form N-PX
reporting requirements to unit investment trusts, should we exclude
unit investment trusts that invest exclusively in mutual funds, such as
those that offer variable annuities and variable life insurance, since
the underlying mutual funds would be covered?
    2. As proposed, should we amend Form N-PX to provide that a fund
will be entitled to vote on a matter if its portfolio securities are on
loan as of the record date? If not, why should the form not consider a
fund to be entitled to vote loaned securities where the fund could
recall the securities in order to vote them?

B. Scope of Managers' Form N-PX Reporting Obligations

1. Managers Subject to Form N-PX and Categories of Votes They Must
Report
    We are proposing that Form N-PX reporting obligations for say-on-
pay votes would extend to each person that (i) is an ``institutional
investment manager'' as defined in the Exchange Act; and (ii) is
required to file reports under section 13(f) of the Exchange Act.\32\
This is consistent with the scope of the reporting obligation in
section 14A(d) of the Exchange Act. Thus, a manager that is otherwise
required to report on Form 13F would be required to disclose its say-
on-pay votes on Form N-PX.\33\
---------------------------------------------------------------------------

    \32\ See proposed rule 14Ad-1(a); 15 U.S.C. 78m(f).
    \33\ Proposed rule 14Ad-1(a).
---------------------------------------------------------------------------

    We are proposing, consistent with the 2010 proposal, to require a
manager's report on Form N-PX to include the manager's voting record
for say-on-pay votes.\34\ The types of votes that the

proposal would require managers to report are the same as the types
provided by section 14A(d) of the Exchange Act. The manager, therefore,
would be required to report votes required by section 14A(a) on the
approval of executive compensation and on the frequency of such
executive compensation approval votes, as well as votes required by
section 14A(b) on the approval of executive compensation that relates
to an acquisition, merger, consolidation, or proposed sale or other
disposition of all or substantially all the issuer's assets.
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    \34\ Proposed rule 14Ad-1(a); Item 1 of proposed Form N-PX.
Shareholder votes on executive compensation that are not required by
sections 14A(a) and (b), such as in the case of foreign private
issuers (as defined in rule 3b-4(c) under the Exchange Act [17 CFR
240.3b-4(c)]) that are exempt from the proxy solicitation rules,
would not be required to be reported on proposed Form N-PX.
---------------------------------------------------------------------------

    A few commenters expressed support for broader disclosure of
managers' proxy votes, beyond say-on-pay votes.\35\ In the 2010
proposal, the Commission did not propose to require reporting of votes
other than say-on-pay votes by managers because the purpose of that
rulemaking was primarily to implement a statutory mandate.\36\ We
continue to believe that it is appropriate to focus on managers' say-
on-pay votes, consistent with the statutory mandate.
---------------------------------------------------------------------------

    \35\ See ICI Letter (expressing the belief that all
institutional investors should be required to disclose every proxy
vote they cast, as funds currently do); Stone Letter (suggesting
that manager reporting requirements should cover all proxy items
over which the manager has voting authority, rather than just say-
on-pay votes).
    \36\ See, e.g., 2010 Proposing Release, supra footnote 25, at
Section II.B.1 (``The scope of votes that would be required to be
reported under the proposal is the same as the scope provided by new
Section 14A(d) of the Exchange Act.'').
---------------------------------------------------------------------------

    We request comment on the class of managers who would be required
to file reports on Form N-PX and the types of votes they would be
required to report under the proposal:
    3. Is the proposed scope of managers that would be required to
report say-on-pay votes on Form N-PX appropriate? Does it sufficiently
capture all managers? Does it capture managers that should not be
covered? Why or why not?
    4. Is there a more appropriate standard for proposed rule 14Ad-1's
manager reporting requirements? If so, please explain.
    5. Should we, as we are proposing, require managers to report all
of their say-on-pay votes? Are any exclusions warranted? If so, please
explain.
    6. Should we require managers to report say-on-pay votes on Form N-
PX, as proposed? Should managers use a different form for reporting
these votes? For example, would there be advantages to requiring
managers to report say-on-pay votes on Form 13F instead?
    7. In addition to requiring managers to report their say-on-pay
votes, should we require managers to report any votes other than say-
on-pay votes? If so, please identify any other votes that managers
should be required to report and the basis for the Commission to
introduce such a reporting requirement.
    8. Are there circumstances in which managers may want to
voluntarily disclose other types of votes, beyond say-on-pay votes, on
Form N-PX? If so, are there any impediments in the proposal that would
prevent or discourage managers from voluntarily disclosing information
about other types of votes?
2. Managers' Exercise of Voting Power
    We are proposing to require that a manager report a say-on-pay vote
for a security only if the manager ``exercised voting power'' over the
security--that is, if the manager both has voting power and exercises
that power.\37\ Under the proposal, voting power would exist when a
manager has the ability to vote the security or direct the voting of
the security, including the ability to determine whether to vote the
security at all, or to recall a loaned security before a vote.\38\ The
proposal would define exercise of voting power to mean the actual use
of voting power to influence a voting decision.\39\ Voting power could
exist or be exercised directly or through a contract, arrangement,
understanding, or relationship, and multiple parties could have voting
power over the same securities. For example, a party could exercise
voting power if it influences the way a third party votes the security,
even where the manager is not the sole decision-maker.\40\ The proposed
rule thus adopts a two-part test for determining whether a vote must be
reported, requiring both power to vote a security (or to cause another
party to vote such security) and the actual use of such power to
influence the voting decision in the case of the specific vote.\41\
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    \37\ See proposed rule 14Ad-1(a).
    \38\ See proposed rule 14Ad-1(d)(1) (defining voting power).
    \39\ See proposed rule 14Ad-1(d)(2) (defining exercise of voting
power).
    \40\ If two managers exercise voting power over the same
security, they could rely on the joint reporting provisions in the
proposal to reduce reporting burdens and address duplicative
reporting. See infra Section II.D.1.
    \41\ Proposed rule 14Ad-1(a); Item 1 of proposed Form N-PX.
---------------------------------------------------------------------------

    The proposed voting power standard differs from the approach the
Commission proposed in 2010 and from how the Commission has identified
voting power in certain other contexts. In 2010, the Commission
proposed to require that a manager report a say-on-pay vote for a
security only if the manager ``had or shared the power to vote, or to
direct the voting of'' the security, using language similar to 17 CFR
240.13d-3(a) (rule 13d-3(a)) under the Exchange Act.\42\ Some
commenters on the 2010 Proposing Release supported the proposed focus
on voting power as the standard for determining whether a manager must
report say-on-pay votes, with one noting that in practice, shared
voting arrangements are rare.\43\ Other commenters suggested that it
would be more appropriate to focus on who actually voted the security,
rather than who had the power to vote the security.\44\ Another
commenter noted that in certain cases, managers cast votes based on
client instructions, and that in such cases the manager's voting power
is ministerial in nature.\45\
---------------------------------------------------------------------------

    \42\ See 2010 Proposing Release, supra footnote 25, at n.18 and
accompanying text.
    \43\ See, e.g., Letter of Chris Barnard (Nov. 13, 2010)
(``Barnard Letter''); CalPERS Letter; CII Letter.
    \44\ See, e.g., Stone Letter; Letter of Managed Funds
Association (Dec. 22, 2010) (``MFA Letter''); ABA Letter; Glass
Lewis Letter I.
    \45\ See, e.g., Mayer Brown Letter.
---------------------------------------------------------------------------

    The revised standard we are proposing is intended to clarify the
scope of the say-on-pay vote reporting obligation by focusing more
specifically on the exercise, rather than mere possession, of voting
power. Our proposed standard is intended to align responsibility for
deciding how to vote securities with responsibility for reporting such
votes.\46\ The proposed approach is tailored to considerations
associated with section 14A(d) of the Exchange Act and the scope of
say-on-pay vote reporting obligations. As a result, our proposed
definition of ``voting power'' and the ``exercise'' of voting power do
not affect the meaning of these or similar terms used in other
Commission rules.
---------------------------------------------------------------------------

    \46\ Glass Lewis Letter I (supporting this approach).
---------------------------------------------------------------------------

    The proposed test focuses on exercise, rather than mere possession,
of voting power to address shared voting power situations and to make
managers' reports of say-on-pay votes more useful for clients and other
investors. As an example of the proposed approach, if a manager votes a
client's separate account's shares based on its own judgment or in
accordance with its own guidelines, the manager exercised voting power
over the security and would be required to report those votes.
Conversely, if the manager's voting decision on a say-on-pay vote is
entirely determined by its client, either because the client
communicates its wishes directly to the manager or because the client
has a written policy regarding the voting decision that does not call
for

any independent judgment by the manager, the manager is not exercising
voting power over the security because the manager is not influencing
the voting decision. The proposal would not require a manager to report
these votes. This is the case even if the manager is the party that
carries out the actual vote in accordance with its client's wishes.
However, if the manager influences the voting decision in this context
by, for example, exercising its own judgment in determining how the
client's policies should apply to the say-on-pay vote, then the manager
would exercise voting power when it carries out the policy and report
the vote accordingly. This may be the case, for instance, if a client
has a policy of opposing pay packages that are unreasonable but
determining if a package is ``unreasonable'' involves exercise of the
manager's judgment. When determining whether the manager exercised
voting power, the manager should assess whether it was using its voting
power to influence the voting decision--such as by exercising
independent judgment or expertise in a way that affects how the
security was voted--or whether it was instead simply applying a policy
on a formulaic or mechanical basis. As another example, a manager would
exercise voting power where the manager casts a vote in accordance with
voting policies developed by the manager and adopted by the client. A
manager with voting power may also exercise that voting power through
other influence over the voting decision, separate from any discretion
the manager may have in determining or applying a client's voting
policies. The fact patterns in this discussion are meant to be
illustrative examples and are not meant to cover all scenarios in which
a manager would be required to report say-on-pay votes because it has
voting power and uses that power to influence a voting decision.
    The proposed test also provides that a manager exercises voting
power when it influences the decision of whether to vote a security.
For example, a manager that determines not to vote on a say-on-pay
matter would exercise voting power under the proposal. A manager also
would exercise voting power when it decides whether to recall loaned
securities in advance of a vote in order to vote the shares.\47\
---------------------------------------------------------------------------

    \47\ See also infra Section C.3.b (discussing proposed
disclosure about the number of shares a reporting person has loaned
and not recalled, and the benefits of that disclosure).
---------------------------------------------------------------------------

    A manager would not exercise voting power if a third party makes
all decisions of whether to vote the security. For example, certain
clients may have relationships with securities lending agents, and the
client or the securities lending agent would determine whether to
recall loaned securities, without any involvement by the manager.\48\
In this case, the manager would not exercise voting power with respect
to the loaned securities because it would not influence the decision of
whether to recall the loaned shares.
---------------------------------------------------------------------------

    \48\ See ABA Letter.
---------------------------------------------------------------------------

    The framework we are proposing is intended to provide additional
insight into how managers are exercising the voting discretion they
have been granted by their clients without attributing to managers
votes that are dictated fully by their clients or by other managers.
The framework is intended to avoid potential confusion that could
result from a manager reporting votes where the manager did not
influence the voting decision. We believe requiring a manager who does
not exercise voting power, for instance because its votes are entirely
dictated by a client's policy, to report those votes on Form N-PX would
be of limited benefit to the manager's clients and potential clients,
as well as other investors. It would not provide insight into--and in
fact may obscure--how a manager exercises its discretion.\49\
---------------------------------------------------------------------------

    \49\ See, e.g., ISS Letter; Mayer Brown Letter (commenting that
managers sometimes effectuate client voting decisions by completing
the proxy card, but do not have control over or decide how shares
will be voted).
---------------------------------------------------------------------------

    In certain cases, we expect our proposed framework will result in
multiple parties determining they exercise voting power (e.g., because
more than one manager provides input on applying a client's voting
policies). In these circumstances, all such managers would come within
the scope of the reporting requirements under the proposal, although
they could rely on the joint reporting provisions discussed below to
reduce reporting burdens.
    The focus on a manager's exercise of voting power could result in
the manager's reports on Form N-PX differing from its reports on Form
13F. For example, if a manager exercises investment discretion over a
particular section 13(f) security held in a client's account, but the
client retains all rights to vote proxies for that security, the
manager generally would report that security on its holdings report on
Form 13F. However, it would not be required to report any say-on-pay
votes with respect to that security. Conversely, a manager that
exercises voting power over a security, but is not required to report
the security on Form 13F because it does not have investment discretion
over the security or because it did not hold the security at the end of
a calendar quarter, would nonetheless be required to report say-on-pay
votes on Form N-PX for that security.\50\
---------------------------------------------------------------------------

    \50\ See also discussion infra Section II.B.3 (discussing
differences in reporting between Form 13F and Form N-PX).
---------------------------------------------------------------------------

    The 2010 proposal asked whether it would be appropriate to use a
different standard, such as investment discretion, as the test for
reporting say-on-pay votes.\51\ We believe that using investment
discretion as the test would result in managers having to report votes
cast by clients in cases where the manager retains investment
discretion but not voting power. We believe this would be confusing to
investors and could inaccurately imply that the manager filing the
report actually made or influenced the decision it was reporting.\52\
We also are not proposing to base the reporting requirement upon
whether a manager, in fact, votes rather than on whether the manager
exercises voting power.\53\ A test based on who physically marks the
proxy card (or its electronic equivalent) would omit from its scope
managers that participated in determining how to cast the vote, but
would simplify the reporting obligation.\54\
---------------------------------------------------------------------------

    \51\ See 2010 Proposing Release, supra footnote 25, at Section
II.B.2.
    \52\ CII Letter.
    \53\ Glass Lewis Letter I (only the ``voting entity'' should
report); MFA Letter (require reporting only when the manager has
instructed an intermediary to vote its shares); Letter of Seward &
Kissel LLP (Nov. 18, 2010) (``Seward Letter'') (require reporting by
manager that ``actually voted'' the proxy); Stone Letter (party who
votes should bear the burden of disclosure and the Commission should
not require reporting on the basis of shared voting authority).
    \54\ ISS Letter (suggesting that the manager who receives the
ballot should be the primary filer with respect to the votes covered
by that ballot).
---------------------------------------------------------------------------

    We request comment on the proposed approach of requiring managers
to report say-on-pay votes when they exercise voting power over the
security, and in particular, on the following issues:
    9. Should the reporting requirement be based on exercising the
power to vote with respect to say-on-pay votes as proposed, or should
we use some other basis? For example, should we base the reporting
requirement on the possession of investment discretion, the identity of
who in fact votes, or the identity of who receives the ballot? As
another example, should a vote that was dictated entirely by a client's
mandate be treated as an exercise of voting power by the manager, even
if the manager did not influence the vote? What are the advantages and
disadvantages of the different potential approaches?

    10. Should we modify the proposed definitions of voting power or
exercise of voting power? For example, instead of considering a manager
to exercise voting power when it uses voting power to influence a
voting decision, should we use a different standard, such as using
voting power to ``significantly'' influence a voting decision or to
``primarily'' make a voting decision? If so, what factors would be
relevant for determining if a manager's role in a voting decision meets
the revised standard?
    11. Should we, as proposed, consider a manager to exercise voting
power when it has the ability to determine not to vote or to recall
loaned securities? Would this provision present challenges to managers?
If so, what are those challenges, and are there changes to the
reporting requirement that would address such challenges?
    12. Should we provide additional guidance concerning the
circumstances under which a manager exercises voting power? If so,
please specify the type of guidance that managers would find helpful.
    13. Does our proposed exercise of voting power standard cover
circumstances that should be covered or should not be covered? If so,
what are the circumstances that should or should not be covered?
3. Additional Scoping Matters for Manager Reporting of Say-on-Pay Votes
    We are proposing to require that a manager report say-on-pay votes
with respect to any security over which it meets the voting power test
described above.\55\ As was the case in the 2010 Proposing Release, we
are not proposing to modify the scope of securities to align with those
reported on Form 13F or to provide exceptions where the manager does
not vote.
---------------------------------------------------------------------------

    \55\ Proposed rule 14Ad-1(a).
---------------------------------------------------------------------------

    Some commenters supported the requirement that managers report any
security.\56\ Other commenters requested that the Commission limit the
reporting obligation to securities that had previously been reported
publicly on Form 13F or adopt a de minimis threshold below which
reporting of say-on-pay votes would not be required.\57\ A commenter
requesting a de minimis threshold argued that not providing an
equivalent exemption from Form N-PX reporting as is available from Form
13F reporting would reduce the value of the 13F exemption and raise
costs for managers.\58\
---------------------------------------------------------------------------

    \56\ CII Letter; Levin Letter.
    \57\ See, e.g., ABA Letter (recommending non-disclosure of say-
on-pay votes for securities not previously reported because they
were below the de minimis threshold for Form 13F); Seward Letter
(suggesting limiting the securities to which the reporting
requirements apply to those securities previously reported publicly,
or, in the alternative, adopting a threshold position size below
which a reporting person need not report proxy votes); Barnard
Letter (excluding securities where the manager holds less than
10,000 shares); Reiland Letter (suggesting to limit to holdings on
which persons are required to file statements on Schedule 13D or
Schedule 13G under the Exchange Act).
    \58\ See Letter of Intel Corporation (Nov. 19, 2010) (``Intel
Letter''). On Form 13F, a manager is permitted to omit holdings of
fewer than 10,000 shares (or less than $200,000 principal amount in
case of convertible debt securities) and less than $200,000
aggregate fair market value. See Special Instruction 10 to Form 13F.
---------------------------------------------------------------------------

    While we acknowledge commenters' suggestion that a de minimis
threshold could reduce record keeping and reporting burdens on managers
for smaller position sizes that currently do not require reporting on
Form 13F, a de minimis threshold could reduce the value of the say-on-
pay disclosure because a fund or manager's full voting record would not
be available when the threshold applied. We therefore are not proposing
to provide a de minimis threshold for institutional managers reporting
their say-on-pay votes on Form N-PX.
    Because Form 13F reports only disclose holdings as of the close of
a calendar quarter, these reports are not required to include
securities held during the quarter but subsequently disposed of prior
to the end of the quarter. Form 13F reports also do not reflect when a
manager increased or decreased its position during a quarter but
returned to the ``baseline'' level reported on its previous Form 13F
report by the end of the quarter. As a result, although some commenters
requested that the Commission limit say-on-pay reporting to securities
that had previously been reported publicly on Form 13F, this approach
could exclude a significant number of say-on-pay votes, which we
believe would be inconsistent with the purpose of section 14A. The
proposed rule therefore would require a manager to report say-on-pay
votes without regard to whether the manager had previously reported or
been required to report the security as a holding on Form 13F.
    In addition to comments suggesting that Form N-PX reporting
obligations should more closely align with Form 13F, some commenters
suggested other exceptions from Form N-PX reporting for managers who do
not vote. For example, two commenters recommended that we not require a
manager to report on Form N-PX if, under certain or all circumstances,
the manager does not vote.\59\ These commenters stated that some
investment strategies (such as algorithmic strategies with short
holding periods) are unrelated to the economic interests served by
voting proxies. One of these commenters stated that, with respect to
certain strategies, voting proxies could be characterized as ``empty
voting.'' \60\ One of these commenters suggested that, in some cases,
securities are held for insufficient periods (such as less than one
day) to perform the requisite analysis for proxy voting, and where the
manager disclosed a policy not to vote proxies to its clients, the
manager's Form N-PX report would contain little information and would
not further the policy objectives of the proposed rule.\61\ The other
commenter expressed concern about the burdens of developing and
implementing technology to track record date holdings in cases where
the manager does not vote.\62\
---------------------------------------------------------------------------

    \59\ See Seward Letter (requesting an exception from the
reporting requirement where the manager maintains a policy not to
vote proxies and discloses that policy to clients); ABA Letter
(requesting a blanket exception for holdings that were not voted).
    \60\ See ABA Letter; see also Exchange Act Release No. 62495
(July 14, 2010) [75 FR 42982, 43017-20 (July 22, 2010)] (``Proxy
Mechanics Concept Release'') (discussing the concept of ``empty
voting''). This release cites some comment letters on the Proxy
Mechanics Concept Release. These comment letters are available at
https://www.sec.gov/comments/s7-14-10/s71410.shtml.
    \61\ Seward Letter.
    \62\ ABA Letter.
---------------------------------------------------------------------------

    We believe that an exception from Form N-PX reporting requirements
when a manager does not cast a vote on say-on-pay matters may limit the
ability of investors to understand fully how a manager votes its
shares. In addition, we believe the burden of reporting when the
manager does not vote its shares would be lower under our current
proposal, as compared to the burden of the equivalent aspect in the
2010 proposal, because the current proposal would not require the
manager to track record date holdings to disclose the number of shares
the manager was authorized to vote.\63\
---------------------------------------------------------------------------

    \63\ See supra Section II.C.3 (discussing how the quantitative
information contained in this proposal differs from the 2010
proposal, including no longer proposing to require the number of
shares the manager was authorized to vote).
---------------------------------------------------------------------------

    A few commenters requested exceptions from Form N-PX reporting
requirements in situations where a manager discloses certain
information about how it votes to its clients, such as formulaic voting
criteria developed by the manager which have been disclosed to clients
or where the manager distributes its voting record to a client who had
provided the manager its own

proxy policies or guidelines to follow.\64\ We do not believe that an
exception would be warranted in these circumstances because, in
addition to benefiting the direct clients of managers, public
disclosure of say-on-pay votes could benefit other investors, such as
plan participants of employee benefit plans that hire managers.
---------------------------------------------------------------------------

    \64\ ABA Letter (formulaic voting criteria); Mayer Brown Letter
(distribution to clients).
---------------------------------------------------------------------------

    Finally, to the extent a manager did not exercise voting power over
any securities that held say-on-pay votes during a given reporting
period, we are proposing to require the manager to file a Form N-PX
report affirmatively stating this fact. The Commission also proposed
this requirement in 2010.\65\ One commenter opposed this requirement,
stating that it would not contribute to the objective of increased
transparency regarding any possible influence over shareholder votes
and corporate governance.\66\ However, we believe this disclosure would
help investors and the Commission differentiate managers with no
reportable say-on-pay votes from those that failed to file a Form N-PX
report to disclose say-on-pay votes.
---------------------------------------------------------------------------

    \65\ Item 1 of proposed Form N-PX.
    \66\ Seward Letter.
---------------------------------------------------------------------------

    We request comment on the circumstances in which the proposal would
require a manager to file a Form N-PX report, and, in particular, on
the following issues:
    14. Should we permit managers to omit votes otherwise reportable
where the manager's ownership is below a specific threshold? What are
the potential advantages or disadvantages if we permit a manager that
holds, on the record date, fewer than 10,000 shares and less than
$200,000 aggregate fair market value to omit say-on-pay votes on such
securities? Would such an exception impede investors from understanding
how shares were voted? Why or why not?
    15. Should we permit managers to omit votes on a particular type of
security? Do managers have substantial holdings of securities that are
not ``section 13(f) securities'' as defined by 17 CFR 240.13f-1(c), but
are registered pursuant to section 12 of the Exchange Act and thus
would have say-on-pay votes? Would there be potential advantages or
disadvantages if we required managers to report only their say-on-pay
votes on section 13(f) securities? Would such an approach be consistent
with the public interest, and how would it impact investor protection?
    16. Should we permit managers to omit votes on securities that were
not held as of the end of a calendar quarter (and thus would not be
reported on Form 13F)? Should we permit or require any disclosure on
Form N-PX or elsewhere to explain differences between information
reported on Form N-PX and information reported on Form 13F or related
circumstances (e.g., where a manager has significantly more or less
voting power on the record date of a say-on-pay vote than its Form 13F
report would otherwise suggest)? If so, under what circumstances would
this disclosure be helpful? What would the disclosure entail, and
should it be permissive or required? \67\
---------------------------------------------------------------------------

    \67\ Under the proposal, a manager would be permitted to
disclose additional information on the cover page of its Form N-PX
report, so long as it does not, either by its nature, quantity, or
manner of presentation, impede the understanding or presentation of
the required information. See General Instruction C.3 of proposed
Form N-PX.
---------------------------------------------------------------------------

    17. Should we expand or limit in any other way the securities with
respect to which managers would be required to report say-on-pay votes?
    18. Should we modify the proposed approach for managers that do not
vote their shares? For example, should we permit these managers to not
file Form N-PX reports? Should we exempt non-voting managers from
certain disclosure requirements on Form N-PX concerning the various
securities they did not vote on say-on-pay matters during the reporting
period? What conditions or limitations, if any, should apply? For
instance, to rely on a modified approach, should a manager be required
to disclose to its clients that it does not vote? Would a modified
approach be particularly applicable to certain categories of managers,
such as those whose trading strategies involve relatively short-term
ownership?
    19. As proposed, should we require a manager without any say-on-pay
votes to disclose to file a report on Form N-PX stating that fact?
Would such filings effectively distinguish managers that missed a
required filing from managers without say-on-pay votes to report?

C. Proxy Voting Information Reported on Form N-PX

    We are proposing to enhance funds' current Form N-PX disclosures so
investors can more easily understand and analyze proxy voting
information. These proposed changes include, for example, more clearly
tying the description of the voting matter to the issuer's form of
proxy and categorizing voting matters by type. In addition, we are
proposing to extend many of these proposed enhancements to the Form N-
PX reports that managers would file under this proposal.
1. Identification of Proxy Voting Matters
    We are proposing to require reports on Form N-PX to identify proxy
voting matters using the same language as disclosed in the issuer's
form of proxy. In 2010, the Commission proposed to require standardized
descriptions for say-on-pay votes and brief identifications of other
votes.\68\ At that time, the Commission requested comment on
alternative methods of standardizing descriptions of these voting
matters. As part of the Proxy Mechanics Concept Release, the Commission
also solicited comment regarding methods for uniform identification of
proxy voting matters in Form N-PX reports.\69\ In particular, the
Commission asked about ways to standardize identifications if issuers
do not themselves create and assign unique interactive data ``tags''
for each matter on their proxy statements.\70\ Several commenters on
the Commission's 2010 proposal supported requiring standardized
descriptions for say-on-pay votes, and one commenter on the Proxy
Mechanics Concept Release expressed support for standardizing
descriptions more broadly.\71\ Two commenters expressed concern with
standardized descriptions for matters other than say-on-pay votes.
These commenters cited the practical challenges posed in uniformly
identifying different matters, given both the variety of voting matters
before shareholders and the absence of standardized data tags in issuer
proxy materials.\72\
---------------------------------------------------------------------------

    \68\ See 2010 Proposing Release, supra footnote 25, at paragraph
accompanying n.89.
    \69\ Proxy Mechanics Concept Release, supra footnote 60, at
Section III.C.3.
    \70\ Id., at requests for comment subsequent to n.237 (``Whether
or not we permit or require interactive data tagging, should Form N-
PX require standardized reporting formats so that comparisons
between funds are easier?'').
    \71\ See CalPERS Letter; Fidelity Letter; Letter of Michael
Ostrovsky (Sept. 5, 2013) (File No. S7-14-10) (``Ostrovsky Letter on
Concept Release'') (supporting a standardized classification system
for voting matters).
    \72\ See Fidelity Letter (citing difficulty ``given the wide
variety of votes placed before shareholders'' and stating that ``as
a general matter, the variable nature of proxy-related disclosures
do not lend themselves to uniform standardization''); Letter of
Fidelity Investments (Oct. 20, 2010) (File No. S7-14-10) (``Fidelity
Letter on Concept Release'') (questioning feasibility of providing
for a uniform identification of each matter voted in reports on Form
N-PX); Letter of Investment Company Institute (Oct. 20, 2010) (File
No. S7-14-10) (``ICI Letter on Concept Release'') (citing a
``significant practical issue'' of ``how to provide for uniform
identification of each matter voted across different funds'').

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    We are proposing to require reporting persons to use the same
language from the issuer's form of proxy to identify proxy voting
matters on Form N-PX.\73\ In addition, each voting matter (including
say-on-pay votes and other voting matters) would be required to be
reported in the same order as presented on the issuer's form of
proxy.\74\ We believe these proposed requirements would facilitate
identification of identical matters included on different Form N-PX
filings by different reporting persons even though there is no
interactive data tagging in issuer proxy materials.\75\ We are
proposing to apply the identification requirement to all voting matters
in order to facilitate the ability of investors to better understand
fund and manager proxy disclosure and compare voting records. We
believe that reflecting the descriptions and ordering used on an
issuer's form of proxy, which is publicly available and must identify
clearly and impartially each separate matter intended to be acted upon,
would address the previously identified practical issues associated
with standardized descriptions.\76\
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    \73\ Special Instruction D.3 to proposed Form N-PX.
    \74\ Id. For matters involving the election of more than one
director, reporting persons would be required to identify each
director separately in the same order as on the form of proxy, even
if the election of directors is presented as a single matter on the
form of proxy. Id.
    \75\ See 2010 Proposing Release, supra footnote 25, at requests
for comment subsequent to n.90 (requesting comment on alternatives
that could result in uniform tags being assigned by all reporting
persons).
    \76\ See Securities Exchange Act rule 14a-4(a)(3) (requiring
that the form of proxy identify clearly and impartially each
separate matter intended to be acted upon). See also Division of
Corporation Finance, Compliance and Disclosure Interpretations,
Section 301 (Mar. 22, 2016), available at https://www.sec.gov/divisions/corpfin/guidance/exchange-act-rule-14a-4a3-301.htm.
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    We request comment on the proposed requirement to identify proxy
voting matters, including the following:
    20. Should we require, as we are proposing, that Form N-PX use the
descriptions and ordering used on an issuer's form of proxy? Are there
practical considerations we should consider with respect to tying Form
N-PX disclosure to forms of proxies?
    21. Does using the descriptions and ordering used on an issuer's
form of proxy, which is publicly available, overcome the previously
identified practical issues associated with standardized descriptions?
Why or why not? Should we revert to the standardized language approach
for say-on-pay votes, as was proposed in the 2010 proposal? If so, why?
    22. Would the proposed requirement to use the description and
ordering from an issuer's form of proxy facilitate the comparison of
Form N-PX data, or otherwise enhance the usefulness of information
reported on Form N-PX for users? What obstacles, if any, might prevent
reporting persons from being able to comply with the proposed
requirement?
2. Identification of Proxy Voting Categories
    We are proposing that Form N-PX reporting persons select from
standardized categories to identify the subject matter of each of the
reported proxy voting items. This requirement would apply to managers
and funds. The proposal would require a reporting person to categorize
each proxy voting matter from a specified list of categories and
subcategories. The proposed categories and subcategories are designed
to cover matters on which funds frequently vote, based on our staff's
experience and review of the matters on which funds voted in 2020,
including say-on-pay votes:
     Board of directors (subcategories: Director election, term
limits, committees, size of board, or other board of directors matters
(along with a brief description));
     Section 14A say-on-pay votes (subcategories: 14A executive
compensation, 14A executive compensation vote frequency, or 14A
extraordinary transaction executive compensation); \77\
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    \77\ The proposed Form N-PX categorizations include a separate
category for say-on-pay votes to make it easier for investors to
identify these votes, which require special disclosure under the
Dodd-Frank Act. The Commission similarly proposed to require
managers to use standardized descriptions to identify these votes in
the 2010 proposal.
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     Audit-related (subcategories: Auditor ratification,
auditor rotation, or other audit-related matters (along with a brief
description));
     Investment company matters (subcategories: Change to
investment management agreement, new investment management agreement,
assignment of investment management agreement, business development
company approval of restricted securities, closed-end investment
company issuance of shares below net asset value, business development
company asset coverage ratio change, or other investment company
matters (along with a brief description));
     Shareholder rights and defenses (subcategories: Adoption
or modification of a shareholder rights plan, control share acquisition
provisions, fair price provisions, board classification, cumulative
voting, or other shareholder rights and defenses matters (along with a
brief description));
     Extraordinary transactions (subcategories: Merger, asset
sale, liquidation, buyout, joint venture, going private, spinoff,
delisting, or other extraordinary transaction matters (along with a
brief description));
     Security issuance (subcategories: Equity, debt,
convertible, warrants, units, rights, or other security issuance
matters (along with a brief description));
     Capital structure (subcategories: Stock split, reverse
stock split, dividend, buyback, tracking stock, adjustment to par
value, authorization of additional stock, or other capital structure
matters (along with a brief description));
     Compensation (subcategories: Board compensation, executive
compensation (other than Section 14A say-on-pay), board or executive
anti-hedging, board or executive anti-pledging, compensation clawback,
10b5-1 plans, or other compensation matters (along with a brief
description));
     Corporate governance (subcategories: Articles of
incorporation or bylaws, board committees, codes of ethics, or other
corporate governance matters (along with a brief description));
     Meeting governance (subcategories: Approval to adjourn,
acceptance of minutes, or other meeting governance matters (along with
a brief description));
     Environment or climate (subcategories: Greenhouse gas
(GHG) emissions, transition planning or reporting, biodiversity or
ecosystem risk, chemical footprint, renewable energy or energy
efficiency, water issues, waste or pollution, deforestation or land
use, say-on-climate, environmental justice, or other environment or
climate matters (along with a brief description));
     Human rights or human capital/workforce (subcategories:
Workforce-related mandatory arbitration, supply chain exposure to human
rights risks, outsourcing or offshoring, workplace sexual harassment,
or other human rights or human capital/workforce matters (along with a
brief description));
     Diversity, equity, and inclusion (subcategories: Board
diversity, pay gap, or other diversity, equity, and inclusion matters
(along with a brief description));
     Political activities (subcategories: Lobbying, political
contributions, or other political activity matters (along with a brief
description));
     Other social (subcategories: Data privacy, responsible tax
policies, charitable contributions, consumer protection, or other
social matters (along with a brief description)); or

     Other (along with a brief description).
    Some categories would contain specific subcategories which a
reporting person must select when filing a report on Form N-PX. For
example, a reporting person would need to distinguish section 14A
executive compensation votes from section 14A executive compensation
frequency votes. When categorizing a particular voting matter, a
reporting person would be required to select multiple categories or
subcategories for the matter if applicable. If a vote did not fall
within a specified subcategory, the reporting person would select the
``other'' subcategory and provide a brief description. The brief
description need only identify the subject matter of the vote,
consistent with the level of detail in the specified subcategories.
    We believe that requiring reporting persons to categorize their
proxy votes would help investors understand how funds and managers are
voting by helping them readily identify votes on matters that are
important to them. It also would allow investors to compare how
different managers or funds voted on specific types of matters.
    We request comment on the proposed requirement to categorize proxy
votes reported on Form N-PX, and, in particular, on the following
issues:
    23. Should we require reporting persons to categorize their votes,
as proposed? What are the advantages and disadvantages of this
approach?
    24. Do the proposed categories or subcategories adequately capture
the range of proxy voting matters? Are there other categories or
subcategories of votes that we should require reporting persons to
identify? Will these categorizations enhance the usefulness of the
information reported on Form N-PX for investors and facilitate the
comparison of reporting persons' proxy voting records? Are there
categories or subcategories we should eliminate?
    25. Should we require reporting persons to use high-level
categories to identify different types of votes, or should we require
reporting persons to use subcategories, as proposed? Are there
particular areas where subcategories are more or less difficult for
reporting persons to use for purposes of identifying different types of
votes? Are there particular areas where subcategories are more or less
useful for investors?
    26. Are there particular types of votes where the categorization
would be unclear or where reporting persons may reasonably categorize
the same vote differently? To what extent would the ability to select
more than one category for a given vote address these types of issues?
Would the use of subcategories help address or contribute to
potentially differing approaches to categorizing a particular vote
among reporting persons?
    27. Are the proposed categories and subcategories sufficiently
clear? Are there any categories or subcategories where additional
guidance or definition would be helpful for understanding the
parameters of a category or subcategory?
3. Quantitative Disclosures
    We are proposing changes to Form N-PX that would require disclosure
of information about the number of shares that were voted (or, if not
known, the number of shares that were instructed to be cast). We are
also proposing a requirement to disclose the number of shares the
reporting person loaned and did not recall. These quantitative
disclosure requirements would apply to a manager's say-on-pay votes and
to all of a fund's votes.
    In 2010, the Commission proposed to require that both funds and
managers report: (1) The number of shares that the reporting person was
entitled to vote (for funds) or had or shared voting power over (for
managers); (2) the number of shares voted; and (3) how the reporting
person voted the shares and, if the votes were cast in multiple manners
(e.g., for and against), the number of shares voted in each manner.\78\
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    \78\ See 2010 Proposing Release, supra footnote 25, at Section
II.E.3.
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    Comments regarding these quantitative disclosure requirements were
mixed. Some commenters supported the proposed quantitative disclosures
or stated that they were acceptable.\79\ Some commenters stated that
providing quantitative disclosures would be burdensome.\80\ One
commenter opposed requiring funds to quantify votes in particular and
stated that quantitative disclosures might cause confusion for
investors or result in competitors gaining insight into fund
strategies.\81\
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    \79\ See Levin Letter (stating that quantitative disclosure will
allow investors to monitor, understand, and hold their proxies
accountable for their votes); CalPERS Letter (finding disclosure of
the number of shares voted acceptable).
    \80\ See ICI Letter; Fidelity Letter; Mayer Brown Letter. One
commenter, however, while opposing quantitative disclosures for
other reasons, noted that from a purely technological perspective,
disclosing share positions voted would be straightforward. See ISS
Letter.
    \81\ See ICI Letter (noting that complying with the quantitative
disclosure requirements as proposed would be burdensome and
difficult, and questioning the value to shareholders).
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    Some commenters, while opposing any requirement that reporting
persons report quantitative information, agreed that the use of the
existing Form N-PX disclosure (e.g., for, against, or abstain) without
quantification is not meaningful for ``split votes,'' i.e., if
different votes are cast on the same matter by a reporting person.\82\
These commenters suggested, should the Commission determine to adopt
quantitative reporting requirements, that it limit such reporting to
instances of actual split votes, and allow reporting persons to report
the number of shares instructed to be cast.\83\ Another commenter
suggested that the Commission consider alternative indications of
``magnitude'' in lieu of requiring disclosure of the number of votes
cast.\84\
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    \82\ See Fidelity Letter (stating that ``a mere notation of
`split' may not be rich disclosure''); ICI Letter (stating that
``simply reporting `split' does not provide much meaningful
information about the way the reporting entity voted, and additional
information may be useful to put the split vote in context'').
    \83\ See ICI Letter; Fidelity Letter; MFA Letter.
    \84\ See Mayer Brown Letter.
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    As discussed in greater detail below, as compared to the 2010
proposal, there are three primary differences in the proposed
quantitative disclosures requirements: (1) Clarifying that the
reporting person's records could be used to determine the number of
shares voted, even where those records do not reflect a confirmed
number of actual votes cast and received by the issuer; (2) requiring
disclosure of the number of shares the reporting person has loaned and
not recalled; and (3) not proposing the previously proposed provisions
requiring disclosure of the number of shares the reporting person was
entitled to vote (for funds) or had or shared voting power over (for
managers).
a. Disclosure of Number of Shares Voted
    We are proposing, substantially as proposed in the 2010 proposal, a
requirement that both funds and managers disclose: (1) The number of
shares voted (or instructed to be voted); and (2) how those shares were
voted (e.g., for or against proposal, or abstain).\85\ If the votes
were cast in multiple manners (e.g., both for and against), we propose
requiring disclosure of the number of shares voted (or instructed to be
voted) in each manner.\86\ We are proposing to require

disclosure of the number of shares voted or instructed to be voted
because, where a manager votes in multiple ways on the same matter,
disclosure of that fact alone is largely meaningless without providing
a measure of the magnitude of the different votes.\87\ In addition, and
in contrast to the 2010 proposal, we are also proposing to require
disclosure of the number of shares the reporting person loaned and did
not recall.\88\ We believe that the context given by disclosing the
number of shares voted would allow investors to better understand how
securities lending activities affect the voting practices of the
reporting person. Without disclosing the amount voted, the amount of
shares on loan for a given vote would not provide meaningful insight
into how a fund or manager voted.
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    \85\ Items 1(h) and 1(j) of proposed Form N-PX.
    \86\ Item 1(j) of proposed Form N-PX. As proposed in the 2010
release, in the case of a shareholder vote on the frequency of
executive compensation votes, a reporting person would be required
to disclose the number of shares, if any, voted in favor of each of
1-year frequency, 2-year frequency, or 3-year frequency, and the
number of shares, if any, that abstained. We are clarifying that the
number zero (``0'') would be entered if no shares were voted, so
that responses to this item would be uniformly numeric in nature.
Item 1(h) of proposed Form N-PX.
    \87\ While we understand that funds do not split votes
regularly, we believe investors would benefit from parity in
disclosure between funds and managers in cases where funds do split
votes.
    \88\ Item 1(i) of proposed Form N-PX. See also infra Section
II.C.3.b for more information with respect to this proposed
requirement.
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    As suggested by some commenters, we are proposing to modify the
2010 proposal with respect to the disclosure of the number of shares
voted because reporting persons may not be able to determine with
certainty how many of the votes they instructed to be cast were
actually voted in a particular matter.\89\ This change would permit a
reporting person to use the number of shares voted as reflected in its
records at the time of filing a report on Form N-PX. If a reporting
person has not received confirmation of the actual number of votes
cast, we are proposing that Form N-PX instead may reflect the number of
shares instructed to be cast on the date of the vote.\90\ The proposal
would not require a reporting person to seek confirmation of the actual
number of votes cast if this information is not otherwise readily
available.\91\ However, should the reporting person learn prior to
filing its Form N-PX that a different number of shares were voted, the
reporting person would be required to report the actual number of votes
cast.\92\ If confirmation of the actual number of votes cast occurs
after the reporting person files the Form N-PX report, we are not
proposing to require an amendment to the filing. We believe that this
approach would reduce the compliance burden of providing information
regarding the number of shares voted. At the same time, this disclosure
would still achieve the goal of providing meaningful information to
investors about how a reporting person voted its shares.
---------------------------------------------------------------------------

    \89\ See ICI Letter; Fidelity Letter; MFA Letter. See also
Memorandum from the Division of Investment Management regarding
November 29, 2010 telephone call with BlackRock, Inc.,
representatives (November 30, 2010), available at http://www.sec.gov/comments/s7-30-10/s73010-33.pdf (in which BlackRock
representatives indicated that the burden associated with providing
quantitative disclosures may be significantly reduced to the extent
that the proposed quantitative disclosure requirement was modified
to only require disclosure of the number of votes instructed to be
cast). In addition, we recognize that this may be an issue when a
manager's client enters an arrangement with a securities lending
agent to loan the client's securities without any involvement by the
manager.
    \90\ Special Instruction D.5 to proposed Form N-PX. See Fidelity
Letter (suggesting quantitative disclosure be limited to votes
instructed to be cast); ICI Letter (same); MFA Letter (same); Stone
Letter (same). See also Proxy Mechanics Concept Release, supra
footnote 60, at Section II.B.1 (discussion of issues surrounding
confirmation of proxy votes).
    \91\ Special Instruction D.5 to proposed Form N-PX.
    \92\ Id.
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    Although suggested by a commenter, we are not proposing disclosure
of the number of shares voted only in split voting situations.\93\ We
believe that requiring different disclosures for votes, depending on
whether a reporting person split its vote on a particular matter, could
result in potentially confusing inconsistencies within each report on
Form N-PX. Providing information about the number of shares voted, in
addition to shares on loan and not recalled, also would present a more
complete picture of a reporting person's voting, including by allowing
an investor to understand the extent to which a reporting person
determines not to vote.
---------------------------------------------------------------------------

    \93\ See ICI Letter.
---------------------------------------------------------------------------

    We also disagree with commenters that disclosure of the number of
votes cast could result in competitors gaining insight into reporting
persons' holdings.\94\ Given the alignment of filing deadlines among
forms, this disclosure likely will be publicly available via Form 13F
(for managers) and Form N-PORT (for funds) before the reporting person
is required to file on Form N-PX.\95\ Even for securities reported on
Form N-PX that are not reported on Form 13F or Form N-PORT, proxy votes
reported on Form N-PX generally occur up to several months (including
as many as 14 months) before the August 31 Form N-PX reporting date. As
a result, we do not believe the disclosure would materially affect
competition.\96\ Reporting persons would also be permitted to request
confidential treatment of filed information, as discussed further
below.
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    \94\ See ISS Letter; ICI Letter (noting that quantitative
disclosure information might be useful to competitors looking for
information about fund holdings).
    \95\ To the extent securities reported on Form N-PX are included
on Form 13F, reports from managers on Form 13F for the quarter
ending June 30 would be required to be filed no later than August
14. This means that public disclosure of such holdings on Form 13F
generally would pre-date the August 31 deadline for filing Form N-
PX. Similarly, funds must publicly disclose their holdings on a
quarterly basis on Form N-PORT. See 17 CFR 270.30b1-9 (requiring
filing no later than 60 days after the end of the relevant fiscal
quarter).
    \96\ See also infra Section IV.
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    We are also not proposing the approach advocated by one commenter
who suggested that the Commission consider alternative indications of
``magnitude'' in lieu of requiring disclosure of the number of votes
cast. This commenter suggested, for example, that a manager could
report how a majority (or plurality) of the shares the manager was
entitled to vote was actually voted or managers could report the
percentage of total votes cast for each position.\97\ We are not
proposing these approaches because we believe they do not sufficiently
demonstrate how a manager exercised its voting power (including any
shares on loan and not recalled). We believe this context is important
to present a more complete picture of how the manager votes, and these
alternatives do not provide additional information relative to our
proposal. Further, these methods would not alleviate any burden in
retaining and reporting quantitative data regarding the number of votes
cast.
---------------------------------------------------------------------------

    \97\ Mayer Brown Letter.
---------------------------------------------------------------------------

    We request comment on the proposed disclosure of the number of
shares voted, and, in particular, on the following issues:
    28. Should we, as proposed, require funds and managers to report
the number of shares voted (or instructed to be cast)? Does disclosing
the number of shares voted allow investors to understand better how
securities lending activities impact the voting practices of the
reporting person? Why or why not?
    29. As proposed, should we require a reporting person to report the
actual number of votes cast if it learns prior to filing its Form N-PX
that a different number of shares were voted than the reporting person
instructed to be cast? Should we require this reporting only if the
reporting person receives information about the actual number of shares
voted within a specified period before its Form N-PX filing is due? If
so, what should the specified period be (e.g., at least 5, 10, or 30
days before the Form N-PX filing is due)?
    30. Are there other ways to promote investor understanding of
reporting

persons' voting practices (e.g., the occurrence of split voting) that
we should require instead of, or in addition to, disclosure of the
number of shares voted (or instructed to be cast)? For example, would
investor understanding be promoted if we required reporting of another
metric, such as the percentage of total shares held that were voted (or
instructed to be cast), to be disclosed? Why or why not?
    31. We are proposing that, if a reporting person has not received
confirmation of the actual number of votes cast, the reporting person
instead may reflect the number of shares instructed to be cast on the
date of the vote. Does this alleviate concerns about the burden on
reporting persons with respect to quantitative disclosures? Is the
information disclosed still of utility to data users? Why or why not?
    32. Should the requirement to disclose the number of shares voted
only apply to certain types of votes or to a subset of reporting
persons? For example, should this disclosure be required only in the
case of say-on-pay votes or split votes?
    33. Does the proposed requirement to disclose the number of shares
voted complement the proposed requirement to disclose the number of
shares the reporting person loaned and did not recall? Would investors
need both figures to understand how securities lending activities
affect a reporting person's proxy voting? Are there other figures or
types of information one would need to understand the interaction
between these two activities?
    34. Are there additional quantitative disclosures we should
consider that would provide utility to investors?
b. Disclosure of Number of Shares the Reporting Person Loaned and Did
Not Recall
    In addition to the number of shares a reporting person voted, we
are proposing to require disclosure of the number of shares the
reporting person loaned and did not recall.\98\ We understand from
commenters that this information about securities lending is important
to understand a reporting person's voting record because the reporting
person cannot affirmatively cast a vote for or against a matter if the
security is on loan over the record date. Several commenters on the
2010 Proposing Release and Proxy Mechanics Concept Release stated that
it was important to know how many shares were not voted because they
were on loan.\99\ The proposed requirement is designed to provide
transparency into how a reporting person's securities lending affects
its proxy voting.
---------------------------------------------------------------------------

    \98\ Item 1(i) of proposed Form N-PX.
    \99\ Levin Letter; Letter of InterOrganization Network (Oct. 13,
2010) (File No. S7-14-10); Shareowner Education Letter on Concept
Release; Letter of Society of Corporate Secretaries & Governance
Professionals (Nov. 22, 2010) (File No. S7-14-10) (``SCSGP Letter on
Concept Release'').
---------------------------------------------------------------------------

    We also believe the proposed requirement to disclose the number of
shares the reporting person loaned and did not recall would help
address commenters' concerns with a requirement in the 2010 proposal to
disclose the total number of shares a fund was entitled to vote or a
manager had or shared voting power over. Some commenters opposed the
requirement in the 2010 proposal because of the cost and effort that
would be required to aggregate and reconcile the total number of shares
a fund is entitled to vote or a manager has or shared voting power
over.\100\ These commenters noted complexities in the current proxy
system, including the intermediation between issuers and shareholders,
and the multitude of entities involved (such as transfer agents, proxy
vendors, and tabulators).\101\ Some commenters also raised concern that
there could be potentially confusing or misleading discrepancies
between the reported number of shares voted and the reported number of
shares which the reporting person was entitled to vote or over which it
had or shared voting power.\102\ For example, commenters discussed
scenarios in which discrepancies between these figures could arise
despite the reporting person's intent to vote all available shares
(e.g., discrepancies resulting from differing proxy frameworks in
certain jurisdictions or limitations on a manager's ability to vote
shares that its client has loaned as part of an agreement solely
between the client and its custodian).\103\
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    \100\ See, e.g., ABA Letter; ICI Letter; Fidelity Letter; Stone
Letter. See also Letter of Institutional Shareholder Services, Inc.
(Oct. 20, 2010) (File No. S7-14-10) (``ISS Letter on Concept
Release''); Letter of Sullivan & Cromwell LLP (Oct. 20, 2010) (File
No. S7-14-10) (``Sullivan & Cromwell Letter on Concept Release'');
Fidelity Letter on Concept Release; Letter of BlackRock (Oct. 29,
2010) (File No. S7-14-10) (``BlackRock Letter on Concept Release'');
Letter of CFA Institute (Nov. 22, 2010) (File No. S7-14-10); ICI
Letter on Concept Release.
    \101\ See ICI Letter; Sullivan & Cromwell Letter on Concept
Release.
    \102\ See Fidelity Letter; ICI Letter; Mayer Brown Letter.
    \103\ See Fidelity Letter; Mayer Brown Letter.
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    We are proposing a requirement that focuses solely on shares a
reporting person loaned and did not recall. Under federal law, an
investment adviser is a fiduciary.\104\ With respect to securities
lending, advisers have a fiduciary duty to consider the tradeoffs
between continuing to keep securities on loan, or recalling loaned
securities in order to vote.\105\ The disclosure we are proposing to
add to Form N-PX would provide transparency regarding whether a
reporting person has opted to recall a security and vote the
accompanying proxy or to keep the security out on loan. Absent this
disclosure, investors would not have information about a manager's
decision not to recall a loaned security, which is similar to the
decision not to vote on a matter, which currently is reported on Form
N-PX.\106\ Our proposal also takes into account commenters' concerns on
the prior proposal, and we believe the quantitative information we are
proposing to require is easier for reporting persons to obtain than the
information the 2010 proposal would have required. For instance, the
proposal does not implicate the complexities in the current proxy
system with determining the number of shares the reporting person was
entitled to vote or over which it had or shared voting power that
commenters described.
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    \104\ 2019 Fiduciary Interpretation, supra footnote 12, at text
accompanying n.2. See also SEC v. Capital Gains Research Bureau,
Inc., 375 U.S. 180, 194 (1963); Investment Adviser Codes of Ethics,
Investment Advisers Act Release No. 2256 (July 2, 2004); Compliance
Programs of Investment Companies and Investment Advisers, Investment
Advisers Act Release No. 2204 (Dec. 17, 2003); Electronic Filing by
Investment Advisers; Proposed Amendments to Form ADV, Investment
Advisers Act Release No. 1862 (Apr. 5, 2000).
    \105\ See Proxy Voting Interpretation, supra footnote 13, at
response to question 1 and at n.34 (indicating that while the
application of the investment adviser's fiduciary duty in the
context of proxy voting will vary with the scope of the voting
authority assumed by the investment adviser, the relationship in all
cases remains that of a fiduciary to the client, and an investment
adviser must make any determination regarding whether to retain a
security and vote the accompanying proxy or lend out the security in
the client's best interest).
    \106\ See Item 1(g) of current Form N-PX.
---------------------------------------------------------------------------

    The disclosure we are proposing would be required only where the
reporting person has loaned the securities. This would include
scenarios where the reporting person loans the securities directly or
indirectly through a lending agent.\107\ However, it would not include
scenarios where the manager is not involved in lending shares in a
client's account because, for

example, the manager is not a party to the client's securities lending
agreement and has not itself (rather than the client) loaned the
securities. As recognized above, a manager would not exercise voting
power over loaned securities when its client hires a securities lending
agent to loan securities in the client's account and the manager has no
involvement in the securities lending arrangement or in decisions to
recall loaned securities.\108\ Thus, the manager would not have any
say-on-pay reporting obligations with respect to those loaned
securities.
---------------------------------------------------------------------------

    \107\ See Special Instruction D.7 of proposed Form N-PX. To the
extent a reporting person allocates an amount of securities to the
lending agent for lending purposes and treats that amount of
securities as being on loan when determining how many shares it can
vote in a matter, the reporting person should report all of the
allocated shares as being on loan and not recalled (excluding any
shares the reporting person recalled for the vote).
    \108\ See supra paragraph accompanying footnote 48.
---------------------------------------------------------------------------

    We request comment on the proposed requirement to disclose the
number of shares loaned and not recalled, and, in particular, on the
following issues:
    35. Should we require disclosure of the number of shares a
reporting person loaned and did not recall, as proposed? Is this
information valuable to investors? Does the value of the information
differ between institutional and retail investors? Are there any
changes we could make to enhance the utility of the information for
investors?
    36. Are there limitations we should be aware of regarding the
ability of reporting persons to disclose the number of shares loaned
and not recalled? If so, are there ways would could address those
limitations?
    37. We understand that proxy statements typically are not delivered
until after the record date.\109\ Does this create challenges for
reporting persons to determine whether they want to recall loaned
securities before the record date? \110\ If so, how might these
challenges affect disclosure of the number of shares loaned and not
recalled, or other aspects of this proposal? Are there any changes we
should make to the proposed rule to recognize these challenges?
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    \109\ See Proxy Mechanics Concept Release, supra footnote 60, at
Section III.C.2.
    \110\ Some commenters on the Proxy Mechanics Concept Release
suggested that the lack of a meeting agenda prior to a record date
generally does not affect their ability to anticipate many kinds of
voting matters and to make arrangements to recall loaned securities
in advance of a record date, if they determine to do so. See, e.g.,
ICI Letter on Concept Release; Letter of American Bar Association
(Dec. 17, 2010) (File No. S7-14-10).
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    38. Would the proposed requirement to disclose the number of shares
a reporting person loaned and did not recall affect decisions a fund or
manager currently makes on when to recall a loaned security for
purposes of voting and when to keep a security on loan? If so, how
might the proposal affect the revenues funds or managers (and, by
extension, their investors or clients) receive from securities lending?
Would disclosure of this effect be helpful to a fund's investors or a
manager's clients? If so, what form should this disclosure take?
    39. Beyond information about how securities lending activities
affect proxy voting, are there other types of information that would
help investors understand a reporting person's approach to voting? If
so, are there ways we could capture that information in Form N-PX
reports or elsewhere? Similar to the 2010 proposal, should we require
that the reporting person disclose the total number of shares a fund
was entitled to vote or a manager exercised voting power over?
    40. Commenters raised concerns that the quantitative disclosure
requirements in the 2010 proposal may lead to investor confusion.\111\
Does our proposed approach limit the potential for confusing
discrepancies by focusing more directly on the number of shares voted
and the number of shares on loan? If not, what areas of potential
confusion remain under our current proposal, and are there changes we
could make to reduce the potential for confusion?
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    \111\ See supra footnote 103 and accompanying text.
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4. Additional Proposed Amendments to Form N-PX
    In addition to proposing new categories of disclosure on Form N-PX,
we are proposing certain other amendments to enhance the usability of
Form N-PX reports and to modernize or clarify existing form
requirements. For instance, we are proposing to require a standardized
order to the Form N-PX disclosure requirements.\112\ We are also
proposing an amendment to require a fund that offers multiple series of
shares to provide Form N-PX disclosure separately by series (for
example, provide Series A's full proxy voting record, followed by
Series B's full proxy voting record).\113\ We believe these proposed
changes will make Form N-PX disclosure easier to review and compare
among reporting persons. Several commenters supported standardized
order requirements, stating the importance of displaying data in a
consistent manner to assist in analyzing multiple votes.\114\ One
commenter, in contrast, stated that we should not adopt a standardized
order requirement and that it was not aware of shareholders having any
difficulty in deciphering or locating Form N-PX information.\115\
However, we are re-proposing the requirement because we continue to
believe it would make the disclosure easier to review and compare among
reporting persons, and believe it will aid our overall objective to
increase transparency.
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    \112\ See Special Instruction D.1 to proposed Form N-PX.
    \113\ See Special Instruction D.9 to proposed Form N-PX.
    \114\ See Levin Letter (supporting standardized order and
stating that ``[r]equiring the data to be displayed in a consistent
manner will assist analysis of multiple votes''); CalPERS Letter
(finding standardized order to be acceptable); Letter of the State
Board of Administration of Florida (Oct. 20, 2010) (File No. S7-14-
10) (``Florida Board Letter on Concept Release'') (supporting
standardization of reporting for Form N-PX); Shareowner Education
Letter on Concept Release (same); Letter of the United States Proxy
Exchange (Oct. 20, 2010) (File No. S7-14-10) (``Proxy Exchange
Letter on Concept Release'') (same).
    \115\ See Fidelity Letter.
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    In the 2010 Proposing Release, the Commission proposed to retain
the current form's requirement to report both the relevant security's
CUSIP number and its ticker symbol. One commenter recommended that a
ticker symbol be required only if a CUSIP number was unavailable since
certain securities listed on more than one exchange have multiple
ticker symbols.\116\ In response to this comment, we are proposing to
require reporting of only one security identifier. Reporting persons
would be required to report the security's CUSIP number unless it is
not available through reasonably practicable means (e.g., in the case
of certain foreign issuers).\117\ If the CUSIP number is not reported,
then Form N-PX would require the security's ISIN, unless it also is not
available through reasonably practicable means.\118\ Consistent with
current Form N-PX, a filer may omit disclosure of both the CUSIP and
ISIN identifier if neither is reasonably available through practicable
means.\119\
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    \116\ ABA Letter (noting the difficulties in determining which
exchange is the principal exchange for the securities for purposes
of the disclosure).
    \117\ See Item 1(b) of proposed Form N-PX; Special Instruction
D.2 to proposed Form N-PX.
    \118\ See Item 1(c) of proposed Form N-PX; Special Instruction
D.2 of proposed Form N-PX. If the security's CUSIP number is
reported, then the ISIN would not be required to be reported.
    \119\ See Instruction 2 to Item 1 of current Form N-PX; Special
Instruction D.2 of proposed Form N-PX.
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    In addition, we are proposing two general amendments related to the
cover page of Form N-PX.\120\ Consistent with the 2010 proposal,
amended Form N-PX would contain a new section on the cover page to be
used where the filing is an amendment to a previously filed Form N-PX
report (e.g., to correct errors

in a previous filing or as part of the confidential treatment
process).\121\ Amendments to a Form N-PX report would be required to
either restate the original Form N-PX report in its entirety or include
only the additional information that supplements the information
already reported in a Form N-PX report for the same period.\122\ We
also propose to amend the form to allow for additional information so
long as it does not, either by its nature, quantity, or manner of
presentation, impede the understanding or presentation of the required
information.\123\ This optional disclosure would be placed at the end
of the cover page or, if it relates to a particular vote, a reporting
person could provide additional information about the matter or how it
voted after disclosing the required information about that vote.\124\
Form 13F provides similar flexibility, where filers use it, among other
things, to explain the reasons for an amendment to an earlier
filing.\125\ We believe this flexibility would also be useful in Form
N-PX and would facilitate a reporting person's ability to provide
additional information about a particular vote, or about its voting
practices in general.\126\
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    \120\ We are also proposing a few other amendments to the cover
page of Form N-PX to accommodate manager reporting on Form N-PX. See
infra Section II.D.2 (discussing these proposed cover page
amendments).
    \121\ See, e.g., Confidential Treatment Instruction 7 to
proposed Form N-PX (regarding the filing of amendments upon the
final adverse disposition of a confidential treatment request or the
expiration of confidential treatment); see also Section II.G infra.
    \122\ See Special Instruction B.1 to proposed Form N-PX.
    \123\ Special Instruction B.4 to proposed Form N-PX.
    \124\ See Special Instructions B.4 and D.10 and Item 1(m) of
proposed Form N-PX.
    \125\ See Special Instruction 5 to Form 13F.
    \126\ Cf. ABA Letter (observing that Form N-PX does not readily
permit explanatory disclosure).
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    Further, we propose to amend the current disclosure in Form N-PX
requiring a fund to identify whether a matter was proposed by the
issuer or by a security holder.\127\ To provide additional information
about matters proposed by security holders, we propose to require funds
to identify whether such matters are proposals or counterproposals. In
addition, we propose to clarify that the disclosure requirement would
apply to funds only, and not to managers. We are not proposing that
managers make this disclosure because say-on-pay votes relate
exclusively to matters proposed by issuers and not by security
holders.\128\
---------------------------------------------------------------------------

    \127\ See Item 1(f) of current Form N-PX; Item 1(g) of proposed
Form N-PX.
    \128\ See 2010 Proposing Release, supra footnote 25, at text
accompanying n.77.
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    We are also proposing a technical amendment to Form N-PX that would
require reporting persons to disclose whether each reported vote was
``for or against management's recommendation.'' Current Form N-PX
requires funds to disclose whether a vote was ``for or against
management.'' \129\ The proposed amendment is intended to clarify that
Form N-PX should disclose how the vote was cast in relation to
management's recommendation on a particular proxy voting matter, as
opposed to how the vote may have affected management. In recognition
that there are some circumstances in which management may not provide a
voting recommendation on a given matter, we are also proposing an
instruction that would direct reporting persons to disclose ``none''
for the applicable matter in response to this disclosure
requirement.\130\
---------------------------------------------------------------------------

    \129\ See Item 1(i) of Form N-PX.
    \130\ See Special Instruction D.8 of proposed Form N-PX.
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    The Commission similarly proposed to amend the current Form N-PX
item to refer to whether a vote was ``for or against management's
recommendation'' in the 2010 proposal.\131\ Commenters generally
supported the proposed change.\132\ One commenter stated that we should
replace this item instead with a narrative description of what
management recommended for the vote, and allow readers to determine on
their own if the reporting person voted with or against
management.\133\ However, our intent in this proposal is to provide
useful and easily comparable information to shareholders. As a result,
we are proposing to update the required disclosure to clarify that the
report is required to disclose how the vote was cast in relation to
management's recommendation.\134\
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    \131\ See 2010 Proposing Release, supra footnote 25, at text
accompanying n.90.
    \132\ See CalPERS Letter; Levin Letter.
    \133\ See Stone Letter.
    \134\ Item 1(k) of proposed Form N-PX.
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    Unlike the 2010 proposal, which would have removed the definitions
section in the instructions to Form N-PX, we are proposing to amend
Form N-PX to include a section containing definitions for purposes of
identifying terms used in Form N-PX.\135\ The terms for which
definitions are included are ``fund,'' ``institutional manager,''
``reporting person,'' and ``series.'' The current version of Form N-PX
also has a definitions section, but it refers filers to the definitions
in the Investment Company Act and the rules and regulations
thereunder.\136\ The terms used in the definitions section are the same
as those used in this release. We believe the proposed definitions
would clarify the terms used on Form N-PX and, in doing so, make the
application of the form's requirements to different categories of
reporting persons clear. The proposed definitions are also intended to
make the proposed form more concise and readable (e.g., by referring to
funds, rather than registered management investment companies,
throughout the form).
---------------------------------------------------------------------------

    \135\ See General Instruction E to proposed Form N-PX.
    \136\ General Instruction E to current Form N-PX.
---------------------------------------------------------------------------

    We request comment on the additional proposed amendments to Form N-
PX, and, in particular, on the following issues:
    41. Should we, as proposed, require the information in Form N-PX
reports to be disclosed in a standardized order? Would this facilitate
comparisons or be otherwise useful to users of this information? What
costs, if any, would be associated with standardization? Should the
requirement to standardize apply to managers, funds, or both? If we
standardize the order of the information in Form N-PX reports, should
we use the order set forth in our proposal, or would some other order
of information be more appropriate?
    42. In proposing to require a standardized order to the information
in Form N-PX, we are also proposing clarifying language with respect to
the placement in a report for a fund containing multiple series. Would
this requirement make it easier for investors to review reports more
efficiently? Is there a different method of disclosing the votes of
multiple series that would assist our goal of providing useful and
comparative information?
    43. Are there other ways we could make the disclosure in Form N-PX
easier to review and compare among reporting persons? If so, what are
they?
    44. We are proposing to require reporting of only one security
identifier (either the CUSIP or the ISIN) on Form N-PX. Should we
require reporting persons to disclose both identifiers? If so, why?
Should we also require the ticker symbol in order to identify a
security? Why or why not? Is there a more appropriate identifier of
securities?
    45. Should the cover page permit, as proposed, the inclusion of
optional information in addition to the information required by Form N-
PX? Are the conditions proposed with respect to the optional
information sufficient? Why or why not? In what instances might the
inclusion of additional information on the cover page impede the
comprehension of the required disclosure? For example, should we limit
this additional information by length? Or by

presentation? Are there other limits we should consider?
    46. Should we allow reporting persons to provide additional
information relating to a particular vote after disclosing the required
information about that vote, as proposed? What types of information
might reporting persons wish to provide about particular votes? Does
the proposal provide sufficient flexibility for reporting persons to
provide such information, while also limiting the potential for
optional disclosure that would impede the understanding or presentation
of the required information?
    47. To what extent do filers amend Form N-PX filings? What are the
typical reasons for an amendment? Should all amended Form N-PX filings
be required to restate all information in the prior filing? Should we
require any additional clarifying language on amendment filings?
    48. As proposed, should we require funds to distinguish between
proposals and counterproposals when identifying matters proposed by
security holders? Is it sufficiently clear to a fund when a matter
proposed by a security holder should be classified as a proposal or
counterproposal?
    49. Should we, as proposed, clarify that managers are not required
to disclose whether a matter was proposed by the issuer or by a
security holder? Are there other requirements in Form N-PX that should
only apply to funds? Are there requirements that should only apply to
managers?
    50. Does the change of required disclosure on Form N-PX to ``for or
against management's recommendation'' clarify the intended purpose of
the disclosure? Why or why not? Is additional clarification necessary?
Should we instead require a narrative disclosure, as suggested by a
commenter?
    51. We are proposing to amend Form N-PX to add specific definitions
to the instructions. Are the proposed definitions effective? Should we
modify or remove any of the proposed definitions? Are there other
definitions we should add to Form N-PX? Should we instead retain the
current definitions section or remove this section, as proposed in the
2010 proposal?
    52. Should we modify the proposed content requirements in any way
for either managers or funds? Is there any information that we are
proposing to require that should not be required? Is there additional
information that should be required?
    53. Should we provide any additional guidance on the contents of
the proposed Form N-PX requirements?

D. Joint Reporting and Related Form N-PX Amendments To Accommodate
Manager Reporting

1. Joint Reporting Provisions
    Section 14A(d) of the Exchange Act requires a manager to report any
say-on-pay vote unless such vote is otherwise required to be reported
publicly by rule or regulation of the Commission. In order to implement
this provision and prevent duplicative reporting, we are proposing
three sets of amendments to Form N-PX to permit joint reporting, as
well as associated disclosure requirements to identify all of a given
manager's votes. The Commission proposed similar joint-reporting
provisions in the 2010 proposal, and commenters supported this
reporting framework.\137\ Based on our experience with Form 13F
reports, we believe that allowing consolidated reporting in this manner
would yield reported data that would be at least as useful as
separately reported data while reducing burden for reporting persons
who may prefer to report jointly. Furthermore, we expect that the
instructions we are proposing that require reports on Form N-PX to be
structured and machine-readable would allow tools to be developed so
that investors can sort and filter the data to view votes by the
relevant manager.
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    \137\ See, e.g., ABA Letter; Letter of The Colorado Public
Employees' Retirement Association (Nov. 18, 2010) (``COPERA
Letter''); CII Letter; IAA Letter.
---------------------------------------------------------------------------

    The first amendment would permit a single manager to report say-on-
pay votes in cases where multiple managers exercise voting power.\138\
This method for preventing duplicative reporting is similar to that
employed by Form 13F, which permits a single manager to include
information regarding securities with respect to which multiple
managers exercise investment discretion.\139\
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    \138\ General Instruction C.1 to proposed Form N-PX.
    \139\ See 15 U.S.C. 78m(f)(6)(B) (directing the Commission to
adopt such rules as it deems necessary or appropriate to prevent
duplicative reporting by two or more managers exercising investment
discretion with respect to the same amount); General Instruction 2
to Form 13F.
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    In response to a similar provision in the 2010 proposal, one
commenter suggested that we require a manager who receives a ballot be
the primary filer that all other managers may reference in their
filings.\140\ We are not proposing this approach because we believe
that the joint-reporting provisions should provide flexibility to
address different types of voting arrangements. Moreover, under our
current proposal, the manager who receives the ballot would not be
required to report a say-on-pay vote on Form N-PX under all