February 6, 2002
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20547
Re: Comments on Release No. 34-45263; File No. SR-NYSE-2001-53 -- The Proposed New York Stock Exchange Amendment to its Rules Regarding the Transmission of Proxy and Other Shareholder Communication Material and the Proxy Reimbursement Guidelines Set Forth in Those Rules
To your request for comments on the proposed rule change, I respond on behalf of the CTA - A National Shareholder Services Organization founded in 1946. The CTA has 300 members representing 125 corporate issuers, agents and industry service providers that reflect the diversity found in every facet of the securities industry. The issuers in our organization are responsible for shareholder services performed either through a commercial transfer agent, or in-house acting as their own record keeper and transfer agent.
CTA supports the Commission's initiatives aimed at reforming the rules and guidelines related to the reimbursement of fees paid for proxy and other shareholder mailings, and offers the following comments regarding the NYSE Rules 451 and 465.
Proposed Reduction in Fees for "Large Issuers"
- We support the proposed reduction of the mailing fee from 50¢ to 45¢ for "large issuers", and would expect that in a competitive market any provider would recognize unit cost efficiencies for any large-volume production process.
- We also support the reduction in the suppression fee from 50¢ to 25¢ for "large issuers". We would not expect the cost of this process to be volume sensitive like a paper-based mailing and question why this fee reduction is being implemented only for "large issuers". We strongly believe that the suppression fee should be reduced for all issuers.
- We are concerned however, that the fee reductions appear to be arbitrary rather than based on competitive market-based pricing. The designation of "large issuer" is also arbitrary since ADP noted to the committee that the "average" issuer has 7,000 beneficial accounts and the "large" designation in the proposed rule change is only for those with more than 200,000 accounts. The costs for processing beneficial shareholder mailings are still significantly (30-40%) higher than the price paid to ADP for similar service to process the record-holder proxy distribution. We would have expected broader savings over the 5-year pilot period based on rapid advancements in mail and computer processing technology.
- Beyond this initial reduction for large issuers - which does show some progress, we believe that further examination of competitive pricing should be done for issuers of all sizes. One possible view is multi-tiered pricing for various shareholder base sizes that fairly reflects the costs and efficiencies for distribution of shareholder materials in varying volume categories.
Proxy Voting Review Committee
- It is noted in the filing that the committee created to review the pilot program and recommend changes to the NYSE was a private initiative. While we did ultimately have an opportunity to voice our opinions and concerns to the committee - though late in the game - we did not have a "vote" and we believe that the representation of voting members was not equitably balanced across all stakeholders. It is the issuer, and ultimately their shareholders who bear the economic obligation and have no choice in this monopolistic environment.
- The following represent a summary of the full list of concerns that were presented to the committee by the CTA, all of which we believe need to be addressed from a market-based perspective by a new Proxy Voting Review Committee:
- $.50 tabulation/processing fee: we have examples showing that this fee is 30-50% higher than the cost an in-house agent incurs to do their own processing; and 30-40% higher than ADP charges when they process a record-holder file.
- $20 intermediary/nominee fee: for mid-size and small companies, this $20 fee represents 20-30% of the total ADP proxy invoice. ADP commented to the committee that the intermediary costs are directly correlated to the number of large institutional shareholders a company has in its base. It would seem that the fee should be structured on that basis.
- Bulk mail processing fee: issuers pay 3 cents for the service on the record-holder file and 5.5 cents on the beneficial side. In addition, ADP keeps 50% of the postal discounts.
- Postal Discounts Shared. We don't believe that ADP should charge presort fees and receive 50% of the postal discount. When companies agree to mail their record-holder file through ADP they receive the full postal discount. This adds up to a lot of money.
- $.50 Elimination Fee: We don't think the fee is reasonable. If an average investor has 10 securities in their brokerage account and they sign up for electronic delivery, each issuer is paying the 50-cent fee. Competing companies charge $0 - $.25 for similar service.
- $.50 Householding Fee: An initial analysis indicated that with the $.50 per account fee charged for householding, it may not be cost efficient to household in some instances.
- Cost Reimbursement Concept: Issuers are required to mail proxy and other materials to shareholders. Brokers are required to mail to their clients and issuers are responsible for reimbursing them for the costs of the distribution. We have no evidence that the current structure provides a cost-based expense structure for issuers. Further, we do not believe that the brokers should profit from the distribution of shareholder materials.
- We recommend that a formally sanctioned committee be formed of key stakeholders across the industry including equitable representation from issuers of varying size -- perhaps through industry organizations such as the CTA, STA, etc. The issuer and commercial agent communities should fully participate and be given timely notice in order to prepare a thorough analysis of alternatives for the future.
- The filing states under the Purpose section "the NYSE has established guidelines for the amounts that NYSE issuers should reimburse." We feel that based on the SEC mandate -- to promote just and equitable principles of trade -- any future committee structure and fee guidelines should explicitly apply to all issuers, regardless of the stock exchange or market on which they trade, not just NYSE issuers.
CTA recommends that the proposed rule change be approved immediately and be enacted for the 2002 proxy season. Secondly, the CTA strongly recommends that a formal "Proxy Voting Review Committee" be established (as noted above) to further examine the fee structure and competitive marketplace for these services. As an organization representing over 100 issuers - large and small - we strongly believe that a representative from the CTA board of directors be a member of any future review committee.
The CTA appreciates the opportunity to comment and supports the Commission's efforts to promote fair and equitable principles of trade in the securities industry. If you wish to discuss any of our comments, please let me know. I can be reached at 973-430-2915.
Keith G. Berkheimer