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Governance

CII asks SEC for formal discussion on applying blockchain tech to proxy voting

The Council of Institutional Investors is calling on the Securities and Exchange Commission to initiate a formal comment process on using blockchain technology in proxy voting.

In a letter to the SEC dated Jan. 31, Ken Bertsch, executive director of CII, and Jeffrey P. Mahoney, general counsel, said the SEC should focus its efforts specifically on proxy system mechanics, rather than on policy issues related to shareholder proposals and proxy advisers.

The SEC hosted a roundtable discussion in November seeking industry input on improving the proxy voting system. During the discussion, Mr. Bertsch endorsed looking into using blockchain technology in proxy voting as a way to streamline the process. The technology would ensure vote confirmation, enhance privacy and security, and reduce mailing costs, he said during the roundtable.

Since the roundtable in November, CII said it has met with firms developing blockchain-based solutions to share ownership and voting. "These innovators are waiting at the gates of the public capital markets, eager to enter but obstructed by outdated regulations," the letter said. "We believe the SEC should work directly with private sector innovators, alongside issuers willing to adopt these technologies, to develop case-by-case regulatory relief, which may include individual guidance, no-action letters, and/or exemptive orders."

Before a blockchain-based system of share ownership could be implemented, CII said issuers would first need clarity through regulatory relief. "New technologies offer multiple solutions to the SEC's concerns about moving beyond an intermediated system of share ownership, clearance, and settlement, but old rules prevent their deployment in the public capital markets," the letter said.

In a blockchain-based system of share ownership, "existing issuers could elect to recall their fungible bundle of securities from the (Depository Trust Co.) and instead record share ownership digitally on the blockchain, with each share uniquely identified cryptographically as belonging to a beneficial owner," the letter continued.

The CII also called on the SEC to adopt a final rule similar in scope to its 2016 proposed rule that would require the use of universal proxies in contested elections as something to consider. "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 letter said.