On Wednesday, the SEC voted to adopt amendments to its shareholder proposal rule, modernizing the process through which shareholders can submit a proposal to be included in a company’s proxy statement for consideration by all of its shareholders.
The amendments recalibrate the current ownership threshold of holding $2,000 voting shares, or 1% of a company’s securities, for one year, to require a shareholder to continuously hold the following amounts of a company’s voting securities before submitting a proposal: (i) $2,000 for at least three years; (ii) $15,000 for at least two years; or (iii) $25,000 for at least one year.
The amendments also raise the current resubmission thresholds of 3, 6, and 10 percent to 5, 15, and 25 percent. In addition, proposals submitted two and three times in the prior five years would need to achieve 15% and 25% support, respectively, in order to be eligible for resubmission in the following three years.
The new rules will be effective 60 days after publication in the Federal Register and will be applicable for an annual or special meeting to be held on or after January 1, 2022. A transition period will allow certain shareholders to rely on the current $2,000/one-year ownership threshold for meetings held prior to January 1, 2023.
The SEC said the amendments will “facilitate engagement among shareholder-proponents, companies and other shareholders, including preserving the ability of smaller shareholders to access the proxy statements of the companies in which they have demonstrated a continuing interest.”
Nasdaq has long advocated for changes to the proxy process as part of its blueprint to revitalize the U.S. capital markets, and is pleased to see our collective efforts lead to the SEC’s overhaul of proxy-voting rules in July and modernization of the shareholder proposal process this week.
The move to modernize the shareholder proposal rule comes as the SEC seeks feedback on its proposal to raise the Form 13F disclosure threshold from $100 million to $3.5 billion. Earlier this week, Nasdaq submitted a comment letter to the SEC, which was signed by 322 companies from over 50 industries representing $3.3 trillion in market cap. While we appreciate the SEC’s efforts to mitigate administrative costs for institutional investment managers, we believe that increasing the disclosure threshold puts transparency at risk for both issuers and investors and undermines a disclosure system that already works well.
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