Report by the SIFMA Proxy Working Group On The Shareholder Communications Process With Street Name Holders, And NOBO-OBO Mechanism
SIFMA issued a report on the shareholder communications process supporting prudent and balanced enhancements to the current system for shareholder communications and proxy voting. The white paper stressed the importance of maintaining efficiency, reliability and credibility, along with important investor interests, such as the right to protect the privacy of personal information entrusted to a broker or bank.
The white paper came ahead of a re-examination of the shareholder communications and proxy system by the Securities and Exchange Commission, and was designed to provide context and other factual information to help inform that discussion.
Excerpt
Introduction and Executive Summary
The U.S. Securities and Exchange Commission (SEC) has announced that it intends to reexamine the system through which shareholders communicate with issuers and vote their shares. An important part of the shareholder voting and communications system services millions of street name shareholders each year, who hold their shares indirectly through brokers and bank custodians.
The members of the Securities Industry and Financial Markets Association (SIFMA) have a strong interest in ensuring that the shareholder communications and voting system continues to operate in a reliable, efficient and credible manner that serves the interest of their clients. Members also have an interest to ensure that important interests of their clients receive adequate protection, including the privacy rights of shareholders regarding the confidentiality of their personal information and trading decisions.
Clients benefit equally when issuers communicate with them on important matters. Members generally support enhancements to the shareholder communications system that promote such communications, so long as such enhancements do not diminish efficiency, reliability and credibility of the existing system, or impair other important interests of participants. It is accordingly the purpose of this paper to provide background and other factual information that may be helpful as members and other interested parties consider the current shareholder communications process, including commentary on the SEC’s anticipated concept release.
Although the street name form of ownership has existed for nearly as long as the equity markets themselves, Congress and the SEC fostered its growth beginning in the 1970s. “Street name” holders are those shareholders who hold their shares through a broker or bank custodian. Under this form of ownership, shares are technically “owned” (through the Depository Trust and Clearing Corporation) by the broker, bank or other intermediary, so that only the broker or bank knows the identity of its client, the true beneficial holder. The other type of shareholder is a “registered” shareholder, who holds shares directly on the books of the issuer or its transfer agent.
Following the “paper crisis” of the 1960s, Congress concluded that street name ownership was a necessary foundation to the efficient functioning of the securities markets. To facilitate centralized processing, shares are “immobilized” at depositories so that transfers can be made through book entry on the records of those who deal directly with the true beneficial owners—the brokers and banks. This approach allows for the clearance and settlement of large volumes of trades without the inefficient and costly need to track and process individual paper stock certificates.