NYSE Proposes to Amend Its Listed Company Manual to Clarify Requirements for Soliciting Proxy Material

Practical Law Legal Update 0-600-1705 (Approx. 4 pages)

NYSE Proposes to Amend Its Listed Company Manual to Clarify Requirements for Soliciting Proxy Material

by Practical Law Corporate & Securities

Rule 14a-13 and Current Section 402.05

Rule 14a-13 sets out procedures for listed companies that intend to solicit proxies from holders of shares entitled to vote at a meeting, where the shares are held of record by a broker or other entity. It requires, among other things, that listed companies ask the record holder whether other persons are beneficial owners of the subject shares and, if so, how many copies of the relevant proxy or other soliciting materials must be provided for the beneficial owners. Rule 14a-13 requires listed companies to make this inquiry at least 20 business days prior to the record date for the relevant shareholder meeting, with the following exceptions:

If the inquiry is impracticable 20 business days prior to the record date of a special meeting, as many days before the record date of the meeting as is practicable.
If consents or authorizations are solicited, and an inquiry is impracticable 20 business days before the earliest date on which they may be used to effect corporate action, as many days before that date as is practicable.
At a later time as the rules of a national securities exchange on which the class of securities is listed may permit for good cause shown.

In its current form, Section 402.05 makes reference to the requirement in Rule 14a-13 that issuers make their inquiry 20 business days in advance of a record date. However, Section 402.05 also separately states that a listed company's inquiry of brokers must be made at least ten days in advance of a record date.

Proposed Amendments to Section 402.05

The proposal states that the NYSE originally imposed a ten day advance inquiry period in Section 402.05 because Rule 14a-13 allows, in limited circumstances, for a listed company to inquire of brokers less than 20 days in advance of a record date for a special meeting. However, the NYSE acknowledged in the proposal that its ten day period is in conflict with Rule 14a-13 because:

Section 402.05 could be read as requiring only a ten day advance inquiry.
A company seeking to rely on the exceptions to Rule 14a-13's advance inquiry requirement is not prohibited from conducting its inquiry less than ten days in advance of the record date.
The NYSE has not adopted a rule, as contemplated by Rule 14a-13, that permits issuers to show good cause for why they cannot comply with Rule 14a-13's advance inquiry requirement.

Therefore, the proposal would:

Clarify that listed companies soliciting proxy material through brokers or other entities must comply with the provisions of Rule 14a-13.
Clarify that the NYSE does not have a process by which issuers can seek an exemption to the requirements of Rule 14a-13 for good cause shown.
Delete the requirement in Section 402.05 that listed companies immediately advise the NYSE if it becomes impossible for them to make an inquiry of brokers at least ten days before a record date.

The proposal takes effect on filing with the SEC.

Update: On February 18, 2015, the SEC published the amendments on its website.

To learn more about the requirements for proxy statements, see Practice Note, Proxy Statements.

NYSE Proposes to Amend Its Listed Company Manual to Clarify Requirements for Soliciting Proxy Material | Practical Law