It’s hard to believe we are almost halfway through 2023 and we’ve received a variety of risk alerts, rule proposals, and remarks from the SEC throughout these five months. One still outstanding item for registered investment advisers (“RIAs”) and Registered Funds to remember is the upcoming effectiveness of the SEC’s Form N-PX amendments and new Rule 14Ad-1 requirements. These changes become effective July 1, 2024, with new processes beginning July 1, 2023. Here is a summary of the changes and what they mean to RIAs and Registered Funds.
Form N-PX Amendments - Registered Funds
For Registered Funds, the new amendments expand the proxy voting information that each fund is required to report on Form N-PX. The SEC’s intention of these enhancements and changes is to make these filings easier for shareholders and investors to comprehend, discern, and analyze. These changes should also allow for the transparent comparison of funds’ voting records.
The specific amendments to the rule include:
Disclosure on Form N-PX of the proxy vote to use the same language as the issuer’s proxy card when identifying matters on which a Registered Fund voted and identify on Form N-PX in the same order as the proxy card.
Registered Funds must categorize votes into 14 broad categories:
Investment Company Matters
Shareholder Rights and Defenses
Environment or Climate
Human Rights, Human Capital, or Workforce
Diversity, Equity, and Inclusion
Other Social Issues
Report Information using a structured data language.
Disclosure of the number of shares that were voted or instructed to be cast as well as the number of shares loaned but not recalled.
New Rule 14Ad-1: Say-on-Pay Disclosures for RIAs
Along with the amendments to Form N-PX, the SEC also passed a new rule, Rule 14Ad-1. This rule requires all Institutional Investment Managers, such as RIAs, who file a Form 13F to file a Form N-PX. The SEC’s purpose behind this rule is to report proxy voting results regarding executive compensation, commonly known as “say-on-pay” matters. RIAs are required to disclose “say-on-pay” votes that include:
Periodic votes on the approval of executive compensation;
Votes on the frequency of such say-on-pay votes; and
Votes to approve "golden parachute" compensation in connection with mergers and acquisitions.
RIAs must disclose this information for securities where the RIA has exercised voting power.
The rule provides a two-part test to determine whether an RIA has exercised voting power:
The RIA has the power to vote or direct the voting, of a security.
The RIA exercises this power to influence a voting decision for the security.
Form N-PX and Rule 14Ad-1 Effective Date and Filing Obligations
We previously mentioned that this amendment and rule’s effective date is not technically until July 1, 2024, but actions still must be taken before then. Though the effective date is July 1, 2024, and the first official filing date of the Form N-PX is August 31, 2024, these filings will cover the 12-month period of July 1, 2023, to June 30, 2024.
If these changes are applicable to your firm or fund, you’ll want to start tracking the new information beginning on July 1, 2023. You will also need to adopt written procedures for these new requirements.
Even if you don’t vote proxies, you are still required to file Form N-PX by August 31, and each year thereafter, that will confirm no proxies were voted.
If you are concerned with how these changes affect you or your firm, don’t hesitate to reach out to the FinTech Law team for additional guidance or assistance.
To review the SEC’s full rule release, click here.