Council of Institutional Investors Urges SEC To Initiate Formal Discussion On Blockchain Proxy Voting

News | February 6, 2019 By:

The Council of Institutional Investors (CII) is urging the the US Securities and Exchange Commission (SEC) to initiate a formal comment process on using blockchain technology in proxy voting.

CII is a nonprofit, nonpartisan association of public, corporate, and union employee benefit funds, other employee benefit plans, state and local entities charged with investing public assets, and foundations and endowments with combined assets under management exceeding $4 trillion. Its member funds include major long-term shareowners with a duty to protect the retirement savings of millions of workers and their families.

In response to the SEC’s solicitation of comments on the proxy process and related SEC rules in connection to the
roundtable held on November 15, 2018, the CII sent a letter to the SEC, providing concrete steps the agency can take to improve the proxy system infrastructure on a fundamental level. The letter also provides brief comments on critical, immediate steps the SEC should take to improve proxy voting in the near-term with regard to vote confirmation and universal proxy.

According to the letter, the SEC should take the lead on meaningfully modernizing the proxy voting infrastructure, which the CII believes will likely require changes at a more fundamental level with respect to share ownership and clearance. They proposed private, permissioned blockchains as one technology the agency should consider.

“We suggest specific regulatory relief the SEC could provide to foster the use of innovative technology by permitting issuers to elect to place their equity securities on a private, permissioned blockchain,” the CII said. “Such a system would differ from the current system of share immobilization and fungible bundles.”

The CII believes a blockchain-based system of share provenance better fulfills the principle that the rights of share ownership, including economic entitlements and voting decisions, belong to beneficial owners, not intermediaries.

“We believe the SEC should work directly with private sector innovators, alongside issuers willing to adopt these technologies, to develop case-bycase regulatory relief, which may include individual guidance, no-action letters, and/or exemptive orders,” the CII said. “Accordingly, we recommend that the SEC initiate a formal comment process with respect to potential blockchain-related rulemaking.”

The CII also called on the SEC to promptly adopt a final rule largely consistent with its 2016 proposal on universal proxy.

“A universal proxy will help fix enduring issues affecting the most contested and consequential votes, and allowing investors to split their tickets in proxy contests serves the principle that shareholders voting by proxy should have the same voting privileges as those voting in person,” the CII said.