B. The types of brokers and banks that constitute
“record” holders under Rule 14a-8(b)(2)(i) for purposes of verifying whether
a beneficial owner is eligible to submit a proposal under Rule 14a-8
1. Eligibility to submit a
proposal under Rule 14a-8
To be eligible to submit a shareholder proposal, a shareholder must have
continuously held at least $2,000 in market value, or 1%, of the company’s
securities entitled to be voted on the proposal at the shareholder meeting
for at least one year as of the date the shareholder submits the proposal.
The shareholder must also continue to hold the required amount of securities
through the date of the meeting and must provide the company with a written
statement of intent to do so.1
The steps that a shareholder must take to verify his or her eligibility
to submit a proposal depend on how the shareholder owns the securities.
There are two types of security holders in the U.S.: registered owners and
Registered owners have a direct relationship with the issuer because their
ownership of shares is listed on the records maintained by the issuer or its
transfer agent. If a shareholder is a registered owner, the company can
independently confirm that the shareholder’s holdings satisfy Rule
14a-8(b)’s eligibility requirement.
The vast majority of investors in shares issued by U.S. companies,
however, are beneficial owners, which means that they hold their securities
in book-entry form through a securities intermediary, such as a broker or a
bank. Beneficial owners are sometimes referred to as “street name” holders.
Rule 14a-8(b)(2)(i) provides that a beneficial owner can provide proof of
ownership to support his or her eligibility to submit a proposal by
submitting a written statement “from the ‘record’ holder of [the] securities
(usually a broker or bank),” verifying that, at the time the proposal was
submitted, the shareholder held the required amount of securities
continuously for at least one year.3
2. The role of the Depository
Most large U.S. brokers and banks deposit their customers’ securities
with, and hold those securities through, the Depository Trust Company (“DTC”),
a registered clearing agency acting as a securities depository. Such brokers
and banks are often referred to as “participants” in DTC.4
The names of these DTC participants, however, do not appear as the
registered owners of the securities deposited with DTC on the list of
shareholders maintained by the company or, more typically, by its transfer
agent. Rather, DTC’s nominee, Cede & Co., appears on the shareholder list as
the sole registered owner of securities deposited with DTC by the DTC
participants. A company can request from DTC a “securities position listing”
as of a specified date, which identifies the DTC participants having a
position in the company’s securities and the number of securities held by
each DTC participant on that date.5
3. Brokers and banks that
constitute “record” holders under Rule 14a-8(b)(2)(i) for purposes of
verifying whether a beneficial owner is eligible to submit a proposal under
In The Hain Celestial Group, Inc. (Oct. 1, 2008), we took the
position that an introducing broker could be considered a “record” holder
for purposes of Rule 14a-8(b)(2)(i). An introducing broker is a broker that
engages in sales and other activities involving customer contact, such as
opening customer accounts and accepting customer orders, but is not
permitted to maintain custody of customer funds and securities.6
Instead, an introducing broker engages another broker, known as a “clearing
broker,” to hold custody of client funds and securities, to clear and
execute customer trades, and to handle other functions such as issuing
confirmations of customer trades and customer account statements. Clearing
brokers generally are DTC participants; introducing brokers generally are
not. As introducing brokers generally are not DTC participants, and
therefore typically do not appear on DTC’s securities position listing,
Hain Celestial has required companies to accept proof of ownership
letters from brokers in cases where, unlike the positions of registered
owners and brokers and banks that are DTC participants, the company is
unable to verify the positions against its own or its transfer agent’s
records or against DTC’s securities position listing.
In light of questions we have received following two recent court cases
relating to proof of ownership under Rule 14a-87
and in light of the Commission’s discussion of registered and beneficial
owners in the Proxy Mechanics Concept Release, we have reconsidered our
views as to what types of brokers and banks should be considered “record”
holders under Rule 14a-8(b)(2)(i). Because of the transparency of DTC
participants’ positions in a company’s securities, we will take the view
going forward that, for Rule 14a-8(b)(2)(i) purposes, only DTC participants
should be viewed as “record” holders of securities that are deposited at DTC.
As a result, we will no longer follow Hain Celestial.
We believe that taking this approach as to who constitutes a “record”
holder for purposes of Rule 14a-8(b)(2)(i) will provide greater certainty to
beneficial owners and companies. We also note that this approach is
consistent with Exchange Act Rule 12g5-1 and a 1988 staff no-action letter
addressing that rule,8 under
which brokers and banks that are DTC participants are considered to be the
record holders of securities on deposit with DTC when calculating the number
of record holders for purposes of Sections 12(g) and 15(d) of the Exchange
Companies have occasionally expressed the view that, because DTC’s
nominee, Cede & Co., appears on the shareholder list as the sole registered
owner of securities deposited with DTC by the DTC participants, only DTC or
Cede & Co. should be viewed as the “record” holder of the securities held on
deposit at DTC for purposes of Rule 14a-8(b)(2)(i). We have never
interpreted the rule to require a shareholder to obtain a proof of ownership
letter from DTC or Cede & Co., and nothing in this guidance should be
construed as changing that view.
|How can a shareholder determine
whether his or her broker or bank is a DTC participant?
Shareholders and companies can confirm whether a
particular broker or bank is a DTC participant by checking DTC’s
participant list, which is currently available on the Internet at
What if a shareholder’s broker or bank is not on
DTC’s participant list?
The shareholder will need to obtain proof of ownership
from the DTC participant through which the securities are held. The
shareholder should be able to find out who this DTC participant is by
asking the shareholder’s broker or bank.9
If the DTC participant knows the shareholder’s broker
or bank’s holdings, but does not know the shareholder’s holdings, a
shareholder could satisfy Rule 14a-8(b)(2)(i) by obtaining and
submitting two proof of ownership statements verifying that, at the time
the proposal was submitted, the required amount of securities were
continuously held for at least one year – one from the shareholder’s
broker or bank confirming the shareholder’s ownership, and the other
from the DTC participant confirming the broker or bank’s ownership.
How will the staff process no-action requests that
argue for exclusion on the basis that the shareholder’s proof of
ownership is not from a DTC participant?
The staff will grant no-action relief to a company on
the basis that the shareholder’s proof of ownership is not from a DTC
participant only if the company’s notice of defect describes the
required proof of ownership in a manner that is consistent with the
guidance contained in this bulletin. Under Rule 14a-8(f)(1), the
shareholder will have an opportunity to obtain the requisite proof of
ownership after receiving the notice of defect.
C. Common errors shareholders can avoid when submitting
proof of ownership to companies
In this section, we describe two common errors shareholders make when
submitting proof of ownership for purposes of Rule 14a-8(b)(2), and we
provide guidance on how to avoid these errors.
First, Rule 14a-8(b) requires a shareholder to provide proof of ownership
that he or she has “continuously held at least $2,000 in market value, or
1%, of the company’s securities entitled to be voted on the proposal at the
meeting for at least one year by the date you submit the proposal”
(emphasis added).10 We
note that many proof of ownership letters do not satisfy this requirement
because they do not verify the shareholder’s beneficial ownership for the
entire one-year period preceding and including the date the proposal is
submitted. In some cases, the letter speaks as of a date before the
date the proposal is submitted, thereby leaving a gap between the date of
the verification and the date the proposal is submitted. In other cases, the
letter speaks as of a date after the date the proposal was
submitted but covers a period of only one year, thus failing to verify the
shareholder’s beneficial ownership over the required full one-year period
preceding the date of the proposal’s submission.
Second, many letters fail to confirm continuous ownership of the
securities. This can occur when a broker or bank submits a letter that
confirms the shareholder’s beneficial ownership only as of a specified date
but omits any reference to continuous ownership for a one-year period.
We recognize that the requirements of Rule 14a-8(b) are highly
prescriptive and can cause inconvenience for shareholders when submitting
proposals. Although our administration of Rule 14a-8(b) is constrained by
the terms of the rule, we believe that shareholders can avoid the two errors
highlighted above by arranging to have their broker or bank provide the
required verification of ownership as of the date they plan to submit the
proposal using the following format:
“As of [date the proposal is submitted], [name of shareholder] held,
and has held continuously for at least one year, [number of securities]
shares of [company name] [class of securities].”11
As discussed above, a shareholder may also need to provide a separate
written statement from the DTC participant through which the shareholder’s
securities are held if the shareholder’s broker or bank is not a DTC
D. The submission of revised proposals
On occasion, a shareholder will revise a proposal after submitting it to
a company. This section addresses questions we have received regarding
revisions to a proposal or supporting statement.
1. A shareholder submits a
timely proposal. The shareholder then submits a revised proposal before the
company’s deadline for receiving proposals. Must the company accept the
Yes. In this situation, we believe the revised proposal serves as a
replacement of the initial proposal. By submitting a revised proposal, the
shareholder has effectively withdrawn the initial proposal. Therefore, the
shareholder is not in violation of the one-proposal limitation in Rule
14a-8(c).12 If the company
intends to submit a no-action request, it must do so with respect to the
We recognize that in Question and Answer E.2 of SLB No. 14, we indicated
that if a shareholder makes revisions to a proposal before the company
submits its no-action request, the company can choose whether to accept the
revisions. However, this guidance has led some companies to believe that, in
cases where shareholders attempt to make changes to an initial proposal, the
company is free to ignore such revisions even if the revised proposal is
submitted before the company’s deadline for receiving shareholder proposals.
We are revising our guidance on this issue to make clear that a company may
not ignore a revised proposal in this situation.13
2. A shareholder submits a
timely proposal. After the deadline for receiving proposals, the shareholder
submits a revised proposal. Must the company accept the revisions?
No. If a shareholder submits revisions to a proposal after the deadline
for receiving proposals under Rule 14a-8(e), the company is not required to
accept the revisions. However, if the company does not accept the revisions,
it must treat the revised proposal as a second proposal and submit a notice
stating its intention to exclude the revised proposal, as required by Rule
14a-8(j). The company’s notice may cite Rule 14a-8(e) as the reason for
excluding the revised proposal. If the company does not accept the revisions
and intends to exclude the initial proposal, it would also need to submit
its reasons for excluding the initial proposal.
3. If a shareholder submits a
revised proposal, as of which date must the shareholder prove his or her
A shareholder must prove ownership as of the date the original proposal
is submitted. When the Commission has discussed revisions to proposals,14
it has not suggested that a revision triggers a requirement to provide proof
of ownership a second time. As outlined in Rule 14a-8(b), proving ownership
includes providing a written statement that the shareholder intends to
continue to hold the securities through the date of the shareholder meeting.
Rule 14a-8(f)(2) provides that if the shareholder “fails in [his or her]
promise to hold the required number of securities through the date of the
meeting of shareholders, then the company will be permitted to exclude all
of [the same shareholder’s] proposals from its proxy materials for any
meeting held in the following two calendar years.” With these provisions in
mind, we do not interpret Rule 14a-8 as requiring additional proof of
ownership when a shareholder submits a revised proposal.15
E. Procedures for withdrawing no-action requests for
proposals submitted by multiple proponents
We have previously addressed the requirements for withdrawing a Rule
14a-8 no-action request in SLB Nos. 14 and 14C. SLB No. 14 notes that a
company should include with a withdrawal letter documentation demonstrating
that a shareholder has withdrawn the proposal. In cases where a proposal
submitted by multiple shareholders is withdrawn, SLB No. 14C states that, if
each shareholder has designated a lead individual to act on its behalf and
the company is able to demonstrate that the individual is authorized to act
on behalf of all of the proponents, the company need only provide a letter
from that lead individual indicating that the lead individual is withdrawing
the proposal on behalf of all of the proponents.
Because there is no relief granted by the staff in cases where a
no-action request is withdrawn following the withdrawal of the related
proposal, we recognize that the threshold for withdrawing a no-action
request need not be overly burdensome. Going forward, we will process a
withdrawal request if the company provides a letter from the lead filer that
includes a representation that the lead filer is authorized to withdraw the
proposal on behalf of each proponent identified in the company’s no-action
F. Use of email to transmit our Rule 14a-8 no-action
responses to companies and proponents
To date, the Division has transmitted copies of our Rule 14a-8 no-action
responses, including copies of the correspondence we have received in
connection with such requests, by U.S. mail to companies and proponents. We
also post our response and the related correspondence to the Commission’s
website shortly after issuance of our response.
In order to accelerate delivery of staff responses to companies and
proponents, and to reduce our copying and postage costs, going forward, we
intend to transmit our Rule 14a-8 no-action responses by email to companies
and proponents. We therefore encourage both companies and proponents to
include email contact information in any correspondence to each other and to
us. We will use U.S. mail to transmit our no-action response to any company
or proponent for which we do not have email contact information.
Given the availability of our responses and the related correspondence on
the Commission’s website and the requirement under Rule 14a-8 for companies
and proponents to copy each other on correspondence submitted to the
Commission, we believe it is unnecessary to transmit copies of the related
correspondence along with our no-action response. Therefore, we intend to
transmit only our staff response and not the correspondence we receive from
the parties. We will continue to post to the Commission’s website copies of
this correspondence at the same time that we post our staff no-action
1 See Rule
2 For an explanation of
the types of share ownership in the U.S., see Concept Release on U.S. Proxy
System, Release No. 34-62495 (July 14, 2010) [75 FR 42982] (“Proxy Mechanics
Concept Release”), at Section II.A. The term “beneficial owner” does not
have a uniform meaning under the federal securities laws. It has a different
meaning in this bulletin as compared to “beneficial owner” and “beneficial
ownership” in Sections 13 and 16 of the Exchange Act. Our use of the term in
this bulletin is not intended to suggest that registered owners are not
beneficial owners for purposes of those Exchange Act provisions. See
Proposed Amendments to Rule 14a-8 under the Securities Exchange Act of 1934
Relating to Proposals by Security Holders, Release No. 34-12598 (July 7,
1976) [41 FR 29982], at n.2 (“The term ‘beneficial owner’ when used in the
context of the proxy rules, and in light of the purposes of those rules, may
be interpreted to have a broader meaning than it would for certain other
purpose[s] under the federal securities laws, such as reporting pursuant to
the Williams Act.”).
3 If a shareholder has
filed a Schedule 13D, Schedule 13G, Form 3, Form 4 or Form 5 reflecting
ownership of the required amount of shares, the shareholder may instead
prove ownership by submitting a copy of such filings and providing the
additional information that is described in Rule 14a-8(b)(2)(ii).
4 DTC holds the deposited
securities in “fungible bulk,” meaning that there are no specifically
identifiable shares directly owned by the DTC participants. Rather, each DTC
participant holds a pro rata interest or position in the aggregate number of
shares of a particular issuer held at DTC. Correspondingly, each customer of
a DTC participant – such as an individual investor – owns a pro rata
interest in the shares in which the DTC participant has a pro rata interest.
See Proxy Mechanics Concept Release, at Section II.B.2.a.
5 See Exchange
Act Rule 17Ad-8.
6 See Net
Capital Rule, Release No. 34-31511 (Nov. 24, 1992) [57 FR 56973] (“Net
Capital Rule Release”), at Section II.C.
7 See KBR Inc. v.
Chevedden, Civil Action No. H-11-0196, 2011 U.S. Dist. LEXIS 36431,
2011 WL 1463611 (S.D. Tex. Apr. 4, 2011); Apache Corp. v. Chevedden,
696 F. Supp. 2d 723 (S.D. Tex. 2010). In both cases, the court concluded
that a securities intermediary was not a record holder for purposes of Rule
14a-8(b) because it did not appear on a list of the company’s non-objecting
beneficial owners or on any DTC securities position listing, nor was the
intermediary a DTC participant.
8 Techne Corp.
(Sept. 20, 1988).
9 In addition, if the
shareholder’s broker is an introducing broker, the shareholder’s account
statements should include the clearing broker’s identity and telephone
number. See Net Capital Rule Release, at Section II.C.(iii). The
clearing broker will generally be a DTC participant.
10 For purposes of Rule
14a-8(b), the submission date of a proposal will generally precede the
company’s receipt date of the proposal, absent the use of electronic or
other means of same-day delivery.
11 This format is
acceptable for purposes of Rule 14a-8(b), but it is not mandatory or
12 As such, it is not
appropriate for a company to send a notice of defect for multiple proposals
under Rule 14a-8(c) upon receiving a revised proposal.
13 This position will
apply to all proposals submitted after an initial proposal but before the
company’s deadline for receiving proposals, regardless of whether they are
explicitly labeled as “revisions” to an initial proposal, unless the
shareholder affirmatively indicates an intent to submit a second,
additional proposal for inclusion in the company’s proxy materials. In
that case, the company must send the shareholder a notice of defect pursuant
to Rule 14a-8(f)(1) if it intends to exclude either proposal from its proxy
materials in reliance on Rule 14a-8(c). In light of this guidance, with
respect to proposals or revisions received before a company’s deadline for
submission, we will no longer follow Layne Christensen Co. (Mar.
21, 2011) and other prior staff no-action letters in which we took the view
that a proposal would violate the Rule 14a-8(c) one-proposal limitation if
such proposal is submitted to a company after the company has either
submitted a Rule 14a-8 no-action request to exclude an earlier proposal
submitted by the same proponent or notified the proponent that the earlier
proposal was excludable under the rule.
14 See, e.g.,
Adoption of Amendments Relating to Proposals by Security Holders, Release
No. 34-12999 (Nov. 22, 1976) [41 FR 52994].
15 Because the relevant
date for proving ownership under Rule 14a-8(b) is the date the proposal is
submitted, a proponent who does not adequately prove ownership in connection
with a proposal is not permitted to submit another proposal for the same
meeting on a later date.
16 Nothing in this
staff position has any effect on the status of any shareholder proposal that
is not withdrawn by the proponent or its authorized representative.