Securities and Exchange Commission Investor Advisory Committee Meeting

Securities and Exchange Commission

Investor Advisory Committee Telephonic Meeting

Friday, January 24, 2020

Welcome Remarks

Anne Sheehan, Chair of the Securities and Exchange Commission (SEC) Investor Advisory Committee, read a statement from SEC Chairman Jay Clayton welcoming the committee’s engagement on these issues and encouraging further discussion between the committee and his office on their recommendations.

Discussion of the SEC’s Proxy Voting Advice and Rule 14a-8 Proposed Rulemakings

John Coates, Chair of the Investor as Owner Subcommittee, gave an overview of the subcommittee’s recommendation related to the SEC’s proposal to amend proxy advisor rules, the proposal to amend rules governing shareholder proposals, and the two guidance documents regarding these proposed amendments. He said the “bottom line” of the recommendation is that the subcommittee believes the proposals as currently framed are not going to achieve their stated goals and need to be revisited, partly because the proxy system first needs more basic reforms. He continued that the SEC’s proposals and underlying analysis do not clearly identify the particular problems that the proposals are intended to remedy, saying there is not enough specificity. Coates said the SEC should direct staff to more explicitly explain and justify the proposal.

Coates noted that the current rule proposals do not comply with some elements of the SEC’s own self-imposed guidance regarding cost-benefit analysis, saying they lack “basic components” including a statement of the market failure and inadequacy of the current system that necessitates regulation. He continued that the proposals do not address the content of the recent proxy roundtable, which concluded that no addition regulation is currently necessary in this space. Coates also highlighted that there is a range of reasonable alternatives that the cost-benefit analysis did not consider.

On shareholder proposals, Coates said the SEC proposal does not discuss trends in votes, and though there was extensive analytical work on some aspects of the issue, there was limited discussion of the types of proposals that would be affected. He added that there was not much emphasis on the impact the proposal would have on main street investors. He concluded that although the subcommittee is open to the idea that shareholder requirements be revisited, it should be done carefully, slowly and incrementally.

A number of committee members expressed disagreement with the proposal, including Heidi Stam, Mina Nguyen, Paul Mahoney, and Jennifer Marietta-Westberg. Marietta-Westberg noted she disagreed with the recommendation that the SEC revise and republish their rule proposals, saying the SEC is in the best position to determine if a re-proposal is necessary after reviewing the public comments.

The recommendation was approved by the committee.

Discussion of Exchange Rebate Tier Disclosure

J.W. Verret, Market Structure Subcommittee, explained that the recommendation suggests the SEC’s Division of Trading and Markets should receive regular disclosures regarding rebate tiers utilizing relevant market identifiers that can permit the SEC to review the volume of trades that receive a rebate and a disclosure of rebate amounts broken down by volume ranges. He continued that the SEC should also be able to readily see the volume of trading that gets charged a fee and the average fee for that volume of trading. He noted that the subcommittee received no negative feedback on the recommendation from SEC staff. Barbara Roper expressed her support for the proposal and offered suggested changes to language regarding the anonymization of information.

The recommendation was approved by the committee.

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