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SEC letters on proxy advisers rescinded, to be discussed at roundtable

The Securities and Exchange Commission said Thursday that it is rescinding two staff letters on proxy advisers issued in 2004. The letters were issued to Egan-Jones Proxy Services and Institutional Shareholder Services, and were aimed at assuring mutual fund managers that they could rely on their recommendations.

"Taking into account developments since 2004, the staff has determined to withdraw these letters, effective today," the SEC investment management division said in a release. The division added that proxy adviser service issues would be discussed at an upcoming roundtable on the proxy process, and staff "looks forward to receiving information and feedback from stakeholders with multiple perspectives." The roundtable date and details are being finalized.

In a separate statement Thursday, SEC Chairman Jay Clayton emphasized staff letters are non-binding and unenforceable.

House Financial Services Committee Chairman Jeb Hensarling, R-Texas, welcomed Mr. Clayton's clarification. "The committee routinely hears that regulation through enforcement and staff guidance hinders innovation and confidence in accessing our capital markets," he said. "The proxy advisory firm duopoly is in serious need of reform and SEC attention. The market power of proxy advisory firms demands greater accountability for these firms' actions and the information that they provide institutional investors," Mr. Hensarling said.

Commissioner Robert Jackson Jr. questioned the timing of the letters' withdrawal, saying in an emailed statement that shareholder voting is a long-resolved issue. "The law governing investor use of proxy advisers is no different today than it was yesterday" and the commission "has long recognized that proxy advisers serve an important role." Mr. Jackson said that while regulating proxy advisers is a top priority for corporate interests concerned that the firms have too much power, "the empirical work that's been done in the area for decades makes clear that that claim is vastly overstated."