In Focus

CII and Eight Members File Amicus Asking Court to Throw Out Proxy Advisor Rules

The proxy advisor rules that that SEC approved July 22 put at serious and unwarranted risk the continued availability of timely, high-quality, and independent advice and analysis of issues subject to shareholder votes, argues an amicus brief filed October 12 in the D.C. District Court by CII and eight of its members. The amicus supports a lawsuit that Institutional Shareholder Services filed last October challenging the rules. CII and its members assert in the amicus that there is no legal or economic basis for the commission to classify proxy advisors as proxy solicitors, which makes them subject to onerous filing rules. Furthermore, the conditions that advisors have to meet to qualify for an exemption from those rules impair their independence and harm investors, it says. Among those conditions, is agreeing to disseminate and subsidize companies’ rebuttals of critical voting advice, which, the amicus argues, violates the First Amendment. The SEC also  failed to provide reliable evidence indicating that the existing proxy advisor communications with their institutional investor clients present a significant risk to investor protection that justifies regulatory action, the amicus says.. CII was joined by CalPERS, CalSTRS, the California State Controller, CFA Institute, Colorado Public Employees’ Retirement Association (PERA), the New York City Comptroller, the CtW Investment Group, and Los Angeles County Employees Retirement Association in filing the amicus.

CII Urges SEC to Scrap Nasdaq’s Direct Listing Proposal

CII sent a letter October 8 urging the SEC to reject Nasdaq’s proposal to allow companies to raise capital by conducting “primary direct floor listings.” Unlike previous direct listings, which allowed only existing investors to sell shares, these listings permit companies to issue new shares and sell them to public investors in a single, large transaction on the first day of trading. The letter says Nasdaq’s proposed rule change is not consistent with provisions in SEC regulations that require the exchanges to have rules preventing fraudulent and manipulative acts and to protecting investors and the public interest. The proposal falls short on these requirements because it would expand listings without first addressing proxy plumbing. As a result, share ownership would be difficult to trace and directly listed companies could use untraceable shares as a legal defense in certain securities fraud actions. CII also argues that direct listings may degrade corporate governance practices since they allow companies to sidestep governance checks that usually come during the IPO stage. On September 25, the SEC ruled that it would keep a stay in place on, and conduct a review of, a similar proposal by the New York Stock Exchange. The ruling came after CII sent a petition to the SEC September 8 requesting a review by all five commissioners and a brief opposing a lifting of the stay.

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