INvestor Democracy is EXpected Act or the INDEX Act
This bill establishes guidelines for passively managed funds (e.g., index funds) that vote shares on behalf of fund investors in proxy shareholder votes. Under the bill, these funds generally must vote shares on a proportional basis according to instructions from fund investors.
The bill establishes an exemption for routine matters and matters requiring approval of a majority of outstanding securities. Additionally, the bill establishes a safe harbor from these requirements for investment advisers.
[Congressional Bills 117th Congress]
[From the U.S. Government Publishing Office]
[S. 4241 Introduced in Senate (IS)]
<DOC>
117th CONGRESS
2d Session
S. 4241
To amend the Investment Advisers Act of 1940 to require investment
advisers for passively managed funds to arrange for pass-through voting
of proxies for certain securities, and for other purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
May 18 (legislative day, May 17), 2022
Mr. Sullivan (for himself, Mr. Toomey, Mr. Crapo, Mr. Grassley, Mr.
Cornyn, Mr. Tillis, Mr. Hagerty, Ms. Lummis, Mr. Daines, Mr. Cramer,
Mr. Rubio, Mr. Kennedy, and Mr. Scott of Florida) introduced the
following bill; which was read twice and referred to the Committee on
Banking, Housing, and Urban Affairs
_______________________________________________________________________
A BILL
To amend the Investment Advisers Act of 1940 to require investment
advisers for passively managed funds to arrange for pass-through voting
of proxies for certain securities, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``INvestor Democracy is EXpected Act''
or the ``INDEX Act''.
SEC. 2. PROXY VOTING OF PASSIVELY MANAGED FUNDS.
(a) In General.--The Investment Advisers Act of 1940 (15 U.S.C.
80b-1 et seq.) is amended by inserting after section 208 (15 U.S.C.
80b-8) the following:
``SEC. 208A. REQUIREMENT WITH RESPECT TO PROXY VOTING OF PASSIVELY
MANAGED FUNDS.
``(a) Definitions.--In this section--
``(1) the term `covered security'--
``(A) means a voting security, as that term is
defined in section 2(a) of the Investment Company Act
of 1940 (15 U.S.C. 80a-2(a)), in which a qualified fund
is invested; and
``(B) does not include any voting security (as
defined in subparagraph (A)) of an issuer registered
with the Commission as an investment company under
section 8 of the Investment Company Act of 1940 (15
U.S.C. 80a-8);
``(2) the term `passively managed fund' means a qualified
fund that--
``(A) is designed to track, or is derived from, an
index of securities or a portion of such an index;
``(B) discloses that the qualified fund is a
passive fund or an index fund;
``(C) allocates not less than 40 percent of the
total assets of the qualified fund to an investment
strategy that is designed to track, or is derived from,
an index of securities or a portion of such an index;
or
``(D) discloses that an allocation described in
subparagraph (C) follows an investment strategy that is
passive or based on an index of securities;
``(3) the term `qualified fund' means--
``(A) an investment company, as that term is
defined in section 3 of the Investment Company Act of
1940 (15 U.S.C. 80a-3);
``(B) a private fund;
``(C) an eligible deferred compensation plan, as
that term is defined in section 457(b) of the Internal
Revenue Code of 1986;
``(D) an entity described in section 3(c)(11) of
the Investment Company Act of 1940 (15 U.S.C. 80a-
3(c)(11));
``(E) a plan maintained by an employer described in
clause (i), (ii), or (iii) of section 403(b)(1)(A) of
the Internal Revenue Code of 1986 to provide annuity
contracts described in section 403(b) of such Code;
``(F) a common trust fund, or similar fund,
maintained by a bank;
``(G) any fund established under section 8438(b)(1)
of title 5, United States Code; or
``(H) any separate managed account of a client of
an investment adviser;
``(4) the term `registrant' means an issuer of covered
securities;
``(5) the term `routine matter' does not include--
``(A) a proposal that is not submitted to a holder
of covered securities by means of a proxy statement
comparable to that described in section 240.14a-101 of
title 17, Code of Federal Regulations, or any successor
regulation;
``(B) a proposal that is--
``(i) the subject of a counter-
solicitation; or
``(ii) part of a proposal made by a person
other than the applicable registrant;
``(C) a proposal that relates to a merger or
consolidation, except when, with respect to a
registrant--
``(i) the proposal is to merge with a
wholly owned subsidiary of the registrant; and
``(ii) holders of covered securities issued
by the registrant that dissent to the proposal
do not have rights of appraisal;
``(D) a proposal that relates to the sale, lease,
or exchange of all, or substantially all, of the
property and assets of a registrant;
``(E) an election for directors (or comparable
positions); or
``(F) any other matter determined by the Commission
or an exchange registered under section 6 of the
Securities Exchange Act of 1934 (15 U.S.C. 78f) to be
not routine; and
``(6) the term `voting person' means a person that provides
voting instructions under subsection (b) or (c).
``(b) Requirement.--
``(1) In general.--Subject to subsection (g), if an
investment adviser holds authority to vote a proxy solicited
pursuant to section 14 of the Securities Exchange Act of 1934
(15 U.S.C. 78n) in connection with any vote of covered
securities held by a passively managed fund, and the voting
authority held by that investment adviser with respect to those
covered securities (when combined with the voting authority of
other persons controlled by, or under common control with, that
investment adviser) is more than 1 percent of the voting
authority of the outstanding securities of the registrant
subject to the vote, the investment adviser shall vote
proportionate amounts of those covered securities in accordance
with the voting instructions of--
``(A) in the case of a passively managed fund that
issues securities, persons holding securities in the
passively managed fund, such that, solely for the
purposes of that vote, the percentage of securities
held by such a person shall be deemed to be the
percentage of the covered securities beneficially owned
by that person; and
``(B) in all cases other than a case described in
subparagraph (A), persons holding economic interests in
the passively managed fund, such that, solely for
purposes of that vote, the percentage of economic
interests held by such a person shall be deemed to be
the percentage of the covered securities beneficially
owned by that person.
``(2) Prohibition.--If paragraph (1) applies with respect
to any vote of covered securities and the investment adviser to
which that paragraph applies does not receiving voting
instructions from all persons described in subparagraphs (A)
and (B) of that paragraph, the investment adviser may not vote
the proportion of the shares of the covered securities for
which the investment adviser does not receive voting
instructions.
``(c) Passively Managed Fund as Security Holder of Another
Passively Managed Fund.--If a passively managed fund (referred to in
this subsection as the `holding fund') holds securities of another
passively managed fund (referred to in this subsection as the `held
fund'), and there is a vote with respect to covered securities held by
the held fund, the investment adviser of the holding fund shall obtain
voting instructions from persons holding securities in the holding
fund, or to persons holding economic interests in the holding fund, as
applicable, with respect to that vote in the manner described in
subsection (b).
``(d) Prohibitions.--
``(1) Reimbursement.--No person may seek reimbursement from
a registrant, or require any expenses incurred to be paid by a
registrant, with respect to the obligations imposed under this
section.
``(2) Partial compliance.--An investment adviser may not
solicit voting instructions from some, but not all, voting
persons under subsection (b)(1) or (c), as applicable.
``(e) Exceptions.--
``(1) Voting on routine matters.--Notwithstanding
subsections (b)(1), (b)(2), and (d)(2), if an investment
adviser chooses not to solicit voting instructions with respect
to a vote described in subsection (b)(1) or (c), or, as of the
date that is 10 days before such a vote, the investment adviser
has not received voting instructions from a person described in
subparagraph (A) or (B) of subsection (b)(1) or subsection (c),
as applicable, the investment adviser may vote the covered
securities for which the investment adviser has not received
voting instructions with respect to a routine matter.
``(2) Mirror voting exception for matters requiring
approval of a majority of outstanding securities.--
Notwithstanding subsections (b)(1), (b)(2), and (d)(2), if a
matter to be considered at a meeting of a registrant requires
the approval of a majority of the outstanding securities of the
registrant entitled to vote on the matter, an investment
adviser to which any such provision applies may, with respect
to any covered securities for which voting instructions have
not been received, as of the date that is 10 days before that
vote, vote the uninstructed covered securities in a manner that
is proportionate to the votes submitted on the matter by all
other security holders of the registrant.
``(f) Dissemination of Information.--
``(1) In general.--Any investment adviser subject to the
requirements of subsection (b) or (c) shall, with respect to
the dissemination of information and other materials to a
voting person, comply with the following requirements, unless
the voting person affirmatively declines to receive that
information and other materials:
``(A) Provide to the voting person--
``(i) a proxy statement, other proxy
soliciting material, or an information
statement;
``(ii) an annual report from the applicable
registrant;
``(iii) a form of voting instruction to
return to the investment adviser; and
``(iv) any control or identification number
that the voting person needs to return to the
investment adviser the voting instruction
provided under subparagraph (B).
``(B) Provide the voting person with not less than
5 business days after the date on which the voting
person receives the materials provided under paragraph
(1) to return those materials to the investment
adviser.
``(2) Electronic delivery.--All, or any portion, of the
materials that an investment adviser is required to provide
under paragraph (1)(A) may be provided electronically,
including an internet web site address provided by the
applicable registrant or a third party.
``(3) Option for investment advisers.--An investment
adviser may provide recommendations to voting persons with the
material provided under paragraph (1)(A), or after providing
the material under that paragraph, if the investment adviser
permits voting recommendations to be provided to voting persons
by third parties on a nondiscriminatory basis and on a wide
range of views.
``(4) Satisfaction of requirements by passively managed
fund.--With respect to any requirement applicable to an
investment adviser under this subsection, the requirement may
be satisfied by the applicable passively managed fund, which
may cover any expenses, direct or indirect, incurred in
carrying out that requirement.
``(g) Safe Harbor and Rule of Construction Regarding Duties.--An
investment adviser--
``(1) with respect to a matter that is not a routine
matter, may choose not to solicit voting instructions from any
person under subsection (b)(1) or (c), subject to subsections
(d)(2) and (e); and
``(2) if the investment adviser chooses not to solicit
voting instructions under subparagraph (A), shall not be
considered to be in violation of any duty under any Federal or
State law for failing to vote the applicable securities.''.
(b) Effective Date.--Section 208A of the Investment Advisers Act of
1940, as added by subsection (a), shall take effect on the first August
1 that occurs after the date that is 2 years after the date of
enactment of this Act.
SEC. 3. VOTING INSTRUCTIONS FROM CUSTOMERS.
Section 14(b)(1) of the Securities Exchange Act of 1934 (15 U.S.C.
78n(b)(1)) is amended by inserting ``voting instruction,'' after
``consent,''.
<all>
Introduced in Senate
Read twice and referred to the Committee on Banking, Housing, and Urban Affairs.
Committee on Banking, Housing, and Urban Affairs. Hearings held.
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