N-PX Filings: Understanding Regulatory Changes and Implications

N-PX filings represent mandatory disclosure documents submitted to the U.S. Securities and Exchange Commission (”SEC”) by registered investment entities like mutual funds and exchange-traded funds (“ETFs”), which are currently obligated to file Form 13F (an asset manager with more than $100M in U.S. equity security assets under management are required to file form 13F regardless of their country of incorporation). These filings are a key component of the SEC's drive to enhance transparency, furnishing investors and issuers with insights into how these funds cast their votes on proxy matters concerning invested companies.

Recent regulatory adjustments concerning N-PX filings have focused on strengthening disclosure mandates, transparency, and responsibility within the mutual fund sector. This article examines the significant regulatory alterations surrounding N-PX filings and their ramifications for investors, asset managers, and issuers.

What are N-PX filings?

• Objective: N-PX filings serve to apprise shareholders of the voting activities of their investment funds regarding matters such as corporate governance, executive compensation, and other material issues presented to  company shareholders. 
• Content: N-PX filings furnish thorough information about every vote made by the fund during the specified reporting timeframe. The filing encompasses resolutions featured on an issuer's annual or special meeting agenda, notably including the election of directors, the appointment of auditors, and the fund's stance on each matter. Additionally, disclosures relating to any potential conflicts of interest concerning these votes may also be incorporated.
• Filing Timeline: Registered investment companies are mandated to submit N-PX reports on an annual basis. These reports encapsulate a 12-month timeframe concluding on June 30th and must be filed no later than August 31st of each calendar year.
• Accessibility: N-PX filings are accessible to the public via the SEC's EDGAR (Electronic Data Gathering, Analysis, and Retrieval) system. This enables investors, issuers and other concerned parties to scrutinize a fund's voting history effectively.

What Has Changed?

While the SEC has long mandated 13F filers to update N-PX filing forms revealing their proxy voting outcomes, they have not been obligated to disclose their Say-on-Pay votes. Consequently, institutional voting data regarding executive compensation decisions has been notably scarce. However, beginning November 2, 2022, the SEC implemented final rule and form amendments necessitating increased disclosure on Form N-PX concerning a fund’s proxy votes, whereby, previously exempt 13F filers must now report on N-PX filings concerning Say-on-Pay and related proposals.

Furthermore, among other amendments, the revisions mandate that funds must reveal the quantity of shares lent out and remain unrecalled during voting. These amendments stipulate that portfolio securities lent out by the record date for a shareholder meeting are considered securities eligible for voting at said meeting. This change aims to ensure transparency regarding how a fund's securities lending activities could influence its proxy voting processes. However, the SEC has underscored that this disclosure requirement does not intend to alter share lending practices. Additionally, filers of Form N-PX have the option to enhance this disclosure by providing a narrative explanation of their share lending practices and/or recall determinations.

These regulations and form amendments will come into effect for votes taking place July 1, 2024, meaning that managers and funds will file their first reports on amended Form N-PX on or before August 31, covering the period from July 1, 2023, to June 30, 2024.

Key Takeaways

In short: transparency.  As a result of the SEC-mandated amendments to institutional N-PX filings, the expectation is to have greater transparency on institutional proxy votes, especially as it relates to an issuer’s Say-on-Pay vote, which previously garnered nominal findings when scouring institutional proxy voting results via underlying fund N-PX filings.  The amended N-PX filing requirements will now more readily facilitate investors, issuers and other stakeholders in thoroughly examining a fund's voting record with efficiency.

The issuer community will now be armed with a stronger appreciation of the dissenting votes at their annual general meetings due to increased visibility. Companies will be better equipped to formulate a more informed off-season engagement plan based on the valuable information detailing how these funds exercise their voting rights on proxy issues related to invested companies.