FINRA edges closer to taking on proxy fee oversight

April 23 2021

The move to shift the setting of proxy fees by the New York Stock Exchange (NYSE) to broker-dealer regulatory body Financial Industry Authority (FINRA) is continuing to develop as an SEC consultation period ended last week (14 April). 

It’s the latest development in deciding which self-regulatory body will take over the setting of maximum fees that issuers must pay to broker-dealers and banks to mail proxy materials to shareholders, as first reported by Chris Kentouris at FinOps. 

In December NYSE asked the SEC to allow it to pass the responsibility to FINRA despite the fact NYSE has been setting proxy distribution fees since 1937 and FINRA typically only oversee broker-dealers. 

The exchange told the SEC that FINRA was better-placed to take the lead in setting maximum reimbursement rates for the distribution of proxy and other issuer materials to beneficial owners because all broker-dealers are FINRA members, while only a few are also NYSE members. NYSE argued that a large number of issuers affected are not NYSE members. 

The SEC opened up a consultation after noting that NYSE had not explained why FINRA was better to take over the role despite its lack of issuer relationships. The SEC also noted that NYSE had processes in place and longstanding relationships to consider all stakeholders' views because it had set fees for so long.

The consultation found that FINRA opposed the proposal because it “is premature and incorrectly predicated on FINRA assuming primary responsibility for a regulatory regime that it has never led, and which FINRA is not best equipped to lead”. 

Nevertheless, the move has registered some support from the industry, with several commenters noting NYSE’s “lack of interest in reforming or even examining the current fee system”. 

However, others have called on the SEC to seize the opportunity to reform the current system relating to processing fees for shareholder materials, “including by facilitating competition in the distribution of shareholder materials through greater issuer participation in the selection process or, barring that, by reforming the processing fee schedule”.