Non-Objecting Beneficial Owners & Objecting Beneficial Owners, Explained

SIFMA members have a strong interest in ensuring that the shareholder communications and the proxy voting system continue to operate in a reliable, efficient, and credible manner that serves the interest of investors.

Among the shareholder communication rules are the non-objecting beneficial owner (NOBO) and objecting beneficial owner (OBO) rules[1], which place limits on what information issuers can obtain about the beneficial holders of their shares. SIFMA believes that investors have the right to be informed of the implications of proxy voting and the NOBO-OBO designation.  Moreover, SIFMA believes that investors should understand it is their choice to share private personally identifiable and financial information with issuers.  It is also essential to ensure that the important interests of their clients receive adequate protection, including the privacy rights of shareholders regarding confidentiality of their private personal information and trading decisions.

Q: What is proxy voting?

 A:  Shareholders are partial owners of the company in which they invest.  The company management has a responsibility to be accountable to its shareholders.  The ownership of shares in a corporation includes rights to vote for the Board of Director members that represent all shareholders, as well as certain other corporate matters. Proxy voting is the process by which shareholders participate in a company’s annual meeting. Issuers of securities are required by law to report certain information to shareholders and provide them with the ability to ratify certain proposals, such as the election of Board Directors and the selection of the auditor, among others. Investors who own voting shares in the company as of the company’s record date may vote on these matters. Rather than physically attending the shareholder meeting, shareholders may elect a member of the company’s management team to vote on their behalf. This person is designated as a proxy and will cast a proxy vote based on the shareholder’s directions as written on their proxy card.

 Q: Why is proxy voting important?

 A: Proxy voting is important because under federal securities laws[2] all shareholders are entitled to vote on important issues that impact a company’s operations, corporate governance, financial position, and social responsibility. Proxy voting is the primary means of ensuring corporations are accountable to their shareholders. The Proxy voting process and other communications from issuers also facilitate shareholder knowledge of and participation in key governance issues facing the companies in which they are invested. Shareholders benefit either when issuers communicate with them directly on important matters or when their broker provides the information on behalf of the issuer.

Q: What is the NOBO-OBO designation?

A: As issuers look to communicate with their shareholders, they may provide the information directly or through a financial intermediary. A beneficial owner holds securities indirectly through a financial intermediary, such as a broker-dealer or bank. Pursuant to Securities and Exchange Commission (SEC) rules[3], the bank or broker will release the name and address of the beneficial owners to an issuer upon request, unless the beneficial owner directs for their information to remain private.

An OBO instructs the financial intermediary to not provide their personal information to the issuer. Conversely, a NOBO directs the intermediary to release their private personal information such as their name, address and number of shares owned to the issuer. With respect to NOBOs, issuers may send information such as financial reports directly to their beneficial owners. Proxy voting, however, must be solicited through the bank or broker. It is important to note that regardless of the designation, the shareholder will be provided with the important information from the issuer.

Q: What rules govern the NOBO-OBO designation?

A: The NOBO-OBO classification system originated as a part of the shareholder communications framework advocated for by the SEC Advisory Committee on Shareholder Communications in the 1980s.[4] On January 1, 1986, the SEC implemented the NOBO/OBO rules by establishing SEC Rule 14a-13 and amending SEC Rules 14b-1 and 14c-7.[5]

Q: Why is it important for shareholders to understand the  NOBO-OBO designation?

A: Investors have a strong interest in the protection of their non-public personal information. It is important for shareholders to understand their privacy rights under the NOBO/OBO designation because it balances the interests of shareholders and public issuers of securities. Each investor should make a careful decision about what personal information they choose to share with public company issuers.  Investors may elect the OBO status to keep their financial holdings private and avoid unwanted solicitations. To enhance communication around proxy voting, shareholders have a right to decide if they would like corporate solicitations to come directly from the issuer of securities or from their brokers.

Q: How does the NOBO-OBO designation impact shareholder’s data?

A:  Shareholders receive important corporate information regardless of their designation. The use of private personally identifiable information should continue to be based on an individual investor’s choice and certain regulations, such as Regulation S-P which requires broker-dealers to protect their clients’ confidential personal information.[6]   There currently exists a framework where issuers can communicate efficiently and reliably with all their shareholders, including beneficial shareholders, without violating shareholder privacy rights.

Q: How do shareholders receive information regarding their NOBO-OBO designation?

A: Preferences are captured today with broker account agreements, as well as by advisors and other representatives. Shareholders are given a choice as to whether they would like their information released to the issuers in which they own shares when they open an account with a broker and/or during various engagements with their brokerage firm.

Q: What is the default NOBO-OBO designation?

A: The default status is NOBO, meaning that shareholder information, such as name, address and share amount, will be released to issuers upon request.  Shareholders must affirmatively object to the disclosure of their personal information to issuers if they would like to classify as an OBO. Shareholders can change their designation at any time, but they must affirmatively ask their broker to change their status. Not all investors want to share their identity and contact information outside of their brokerage relationships. SIFMA believes that the disclosure and use of shareholder personally identifiable information should continue to be based on an individual investor’s choice.

Thomas F. Price is Managing Director, Technology, Operations, and Business Continuity at SIFMA.

[1] See 17 CFR § 240.14a-13; 17 CFR § 240.14b-1; and 17 CFR § 240.14c-7.

[2] Id.

[3] Id.

[4] See Facilitating Shareholder Communications Provisions, 48 Fed. Reg. 35,082 (Aug. 3, 1983).

[5] See Facilitating Shareholder Communications, Exchange Act Release No. 34-22533 (Oct. 15, 1985) (File No. S7-13-85),; see also 17 CFR § 240.14a-13; 17 CFR § 240.14b-1; and 17 CFR § 240.14c-7.

[6] See Regulation S-P, 17 C.F.R. Part 248.