Will an interpretive letter from the Securities and Exchange Commission giving banks and brokers the okay to designate more than one agent to fulfill their proxy delivery obligations break ADP’s monopoly on the distribution of proxy material?
Swingvote certainly hopes so.
The Atlanta-based newcomer to the proxy voting service marketplace requested the Commission's advice on whether Exchange Act rules would prevent a broker-dealer or bank from designating more than one agent to act on its behalf in performing its proxy delivery obligations. Swingvote entered the market in January to take on $7.4 billion ADP based in Roseland, N.J., which holds a virtual monopoly in delivering proxy materials to institutional investors (see related coverage at right).
The SEC Division of Corporate Finance, in its July 15 no-action response, said there are no constraints under the rules that would prevent a broker-dealer or bank from doing so.
That means institutional investors can ask the banks and brokerage firms where they custody their securities to name Swingvote to be their proxy material provider in addition to ADP, Faulk explained. However, she noted that banks and brokerage firms aren’t required to designate Swingvote as the delivery agent for those investors.
Historically, most banks and brokerage firms have outsourced the task of delivering proxy materials to ADP.
Faulk
“It wasn’t prohibited before, but nobody ever said they could designate more than one agent—banks and brokers didn’t know they could designate both,” said Anne Faulk, Swingvote chairman and chief executive. “Now we’re on the same legal footing as ADP. This is huge for anybody who wants competition in the business.”
Currently, the New York Stock Exchange sets the fees companies pay for the delivery of proxy materials.
Faulk says Swingvote is less expensive, because—while ADP charges both companies and the institutional investors for its services—Swingvote charges companies, but it provides proxy distribution, communication and voting platform services to institutional investors for free.
“Companies have a choice. Ultimately, this puts us in a place where we can have competitive pricing,” said Faulk. “If there’s competition in the market, the Exchange can get out of rate setting business, and corporations can enjoy better service and cheaper service once the market sets the rates.”
Meanwhile, a New York Stock Exchange committee has begun looking at a number of issues, including the issue of the fees corporations must pay for the distribution of shareholder materials.
Details on that NYSE review, as well as related coverage and a version of the SEC response to Swingvote, are available from the box above, right.
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