On October 18, 2010, the Securities and Exchange Commission issued proposed rules to implement Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act regarding the proxy voting reporting requirements for institutional investment managers[1] subject to Section 13(f) of the Securities Exchange Act of 1934. 

Reporting Requirements for Institutional Investment Managers

Proposed Rule 14Ad-1 would require institutional investment managers to file reports on Form N-PX under Section 13(f) of the Exchange Act to disclose annually how they voted on say-on-pay resolutions proposed by companies in which the institutional investment managers have voting authority. 

The votes to be reported on the Form N-PX are:

  • the advisory say-on-pay vote to approve the executive compensation paid to named executive officers of the company;

  • the advisory vote on the frequency of providing such say-on-pay executive compensation approval votes; and

  • in any proxy statement to approve a merger, acquisition, consolidation, or proposed sale or other disposition of all or substantially all assets, or a similar transaction, the advisory say-on-pay shareholder vote on any agreements or understandings that the soliciting person has with its named executive officers (or the named executive officers of the acquiring company) concerning compensation that is based on or otherwise relates to the subject transaction. 

Under the proposed rules, an institutional investment manager needs to report on these votes only if the institutional investment manger possesses, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise, sole or shared voting power with respect to these votes. If the institutional investment manager does not have such voting power, it, he, or she need not report such votes, even if the institutional investment manager has voting power over other matters. This is a facts and circumstances test. Before these proposed rules, institutional investment managers reporting on Form 13F was based on investment discretion rather than voting power; so discrepancies may arise between securities reported by an institutional investment manager on Form 13F and securities for which votes are reported on Form N-PX.

Time of Reporting

The institutional investment managers would need to report these say-on-pay votes annually on Form N-PX not later than August 31 of each year, for the most recent 12-month period ending on June 30. This is the same schedule on which funds are required to report their complete proxy voting records on Form N-PX under the Investment Company Act.

The SEC proposed rules provide for the following:

  • A transition period. An institutional investment manager would not be required to file a Form N-PX report for the 12-month period ending on June 30 of the calendar year in which the manager’s initial filing on Form 13F is due.

  • A defined date for termination of reporting obligations. The institutional investment manager would not be required to file a report on Form N-PX with respect to any applicable vote at a meeting that occurs after September 30 of the calendar year in which the manager’s final filing on Form 13F is due. Instead, the manager would be required only to file a report on Form N-PX for the period between July 1 through September 30 of that calendar year. Such final report would be due by February 28 of the next calendar year.

  • Joint reporting. A single institutional investment manager that shares voting power would be able to meet its reporting requirements by identifying and incorporating by reference to the Form N-PX filed by the institutional investment manager or fund that actually reports the voting results. 

Form N-PX Changes

Form N-PX would be amended under the proposed rule to contain three parts:  (1) Cover Page, (2) Summary Page, and (3) required proxy voting information. 

  • The new cover page would include a section to report any amendments to previous filings. It would also identify whether the reporting person was a fund or an institutional investment manager. The report would have to identify the type of report by checking one of four options listed on the Form. Depending on what type of report is indicated, additional information may be required.

  • The summary page would be required in any Form N-PX report filed by a fund or institutional investment manager, other than a “notice” report. It must state the total number of institutional investment managers, not including the reporting person, whose say-on-pay votes are not included in the report, and those institutional investment managers, other than the reporting person, whose say-on-pay votes are included in the Form.

  • For each proxy vote that must be included on a Form N-PX, the Form must provide specific information identifying the security voted, the matter with respect to which the vote occurred, and how the reporting person voted. This information would need to be included in a standardized order and would specifically include the number of shares the reporting person was entitled to vote, or had or shared voting power over, and the number of shares voted, the identity of the institutional investment managers whose votes were shared, and standardized descriptions of the votes. The manager would be required to report the number of shares over which the manager had sole voting power and the number shared. These new requirements will also apply to the proxy voting reporting by funds. 

Confidential Treatment

Information filed on Form N-PX would be publicly available, but an institutional investment manager could request confidential treatment of information reported on Form N-PX. However, confidential treatment protections are narrowly defined in this context. 

Compliance Dates

Institutional investment managers would be required to file their first reports covering these say-on-pay votes for a meeting that is held on or after January 21, 2011, and prior to June 30, 2011.  Such initial Form N-PX is due no later than August 31, 2011. Funds must also comply with these proposed rules for the period of July 1, 2010, through June 30, 2011, but do not have to report votes at meetings held prior to January 21, 2011.

If any individual or company wishes to submit comments on these proposed rules, such comments must be received by the SEC on or before November 18, 2010.

Ballard Spahr's Financial Institutions Reform Task Force continues to monitor the Dodd-Frank Act, and its members are available to assist clients as they prepare to address the new requirements. Please contact Mary J. Mullany, 215.864.8631 or mullany@ballardspahr.com; Justin P. Klein, 215.864.8606 or kleinj@ballardspahr.com; or any member of the Securities Group with any questions.

To help clients understand and comply with the Dodd-Frank Act, Ballard Spahr has formed the Financial Institutions Reform Task Force. The task force tracks developments under this historic legislation and provides clients with information, guidance, and other legal services relating to the Dodd-Frank Act.


[1]   An institutional investment manager is an investor who is not 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 if the investor is required to file reports under Section 13(f) of the Exchange Act because it, he or she exercises investment discretion with respect to accounts holding Section 13(f) securities with an aggregate fair market value of at least $100 million on the last trading day of any month. 


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