Voting Overseas: Making the Process a Lot Easier
Just as U.S. and overseas fund managers are relying on newfangled technology to figure out how and when to invest, they are doing so to cast their votes in shareholder meetings abroad.
No longer do they have to worry about a process mired entirely in fax, emails or even worse the old-fashioned post.
Why? Proxy distribution giant Broadridge and Euroclear, parent to several European securities depositories, are introducing a voting service in countries where Euroclear acts as the local settlement house.
First up: the Netherlands followed by Sweden, Finland, Belgium and France. The U.K. and Ireland will likely not be included as Euroclear UK & Ireland, the London-based national securities depository in both markets, already offers an electronic proxy voting service.
The goal of the new alliance: to reduce the operational risk a fund manager faces by either receiving wrong information on a corporate agenda, voting too late or not at all. Global fund managers could easily track down the information and vote in several hundred overseas meetings each year, using an automated system. The approach also can confirm that their votes in fact were received by the corporations.
Broadridge already operates a proxy distribution and voting platform for global custodians to communicate with their institutional clients. The Lake Success, N.Y., firm has contracts with nine of the 10 largest global custodians. It would not name them but Bank of New York Mellon, Citigroup, J.P. Morgan, State Street and Northern Trust often cite themselves in that list.
Euroclear, in turn, has relationships with corporations or their agents in seven European markets. Transactions in the shares and bonds of those companies are settled in one of seven depositories operated by Euroclear.
"The new service with Broadridge is already live in the Netherlands and we are having regular meetings with Dutch issuers to offer them the potential to join the alliance platform for the next general meeting season in 2012," explained Mohamed M'Rabti, director in product management at Euroclear in Brussels.
Euroclear Nederlands, the central securities depository in the Netherlands, would forward meeting agendas to its bank and brokerage participants and Broadridge, in turn, would distribute the same information to fund managers that hold positions in those Dutch firms through global custodian clients. Fund managers would receive the information through Broadridge's ProxyEdge system and vote through that system. Euroclear would then pass along the votes to issuers.
Fund managers who wish to vote through the network operated by the Society of Worldwide Interbank Financial Telecommunications can do so using either legacy formats known as International Organization for Standardization-compliant 15022 messages or newer ISO-compliant 20022 messages. Fund managers already using ProxyEdge can continue to do so, on overseas votes. Broadridge will send fund managers corporate agendas directly.
The alliance between Broadridge and Euroclear capitalizes on the growing interest of fund managers in corporate governance, particularly in overseas companies which have historically been neglected. The reason: it was too cumbersome and expensive to keep track of the agendas and vote. And regulations in some markets requiring either attendance at an annual meeting, a signed proxy ballot or even worse permitting custodian banks to "block" shares so trading could not take place for a designated period made voting pretty difficult for institutional and retail investors.
Fund managers naturally want to see the value of their investments in a corporation increase. So they in turn want to have a say in how the foreign firm is operated. Corporations, in turn, realize that a good percentage of their market capital could come from investors domiciled in other countries.
Fund managers, for one, need to know which corporations are holding their annual meetings and when, what is on the agenda, and the deadline for casting their vote. That's if they are legally allowed to vote. Then they have to cast their vote and hope it reaches the company through either a local bank located in the same country or a registrar hired by the company.
Global custodians hire local banks, often called subcustodians, to safekeep the assets of their fund manager clients in overseas markets. Often, they rely heavily on those subcustodians to keep track of the agendas of corporate meetings and voting deadlines. Those local banks, in turn, rely on a combination of information from corporations, exchanges and local newspapers.
Broadridge and Euroclear officials would not disclose the financial details of their agreement or the fees charged to issuers, global custodians or fund managers. But they insist that their service will be cost effective.
Two operations executives at New York investment fund managers contacted by Money Management Executive estimate the pricetag for voting manually could easily come to more than $100 per meeting if one were to include the work keeping track of corporate agendas. Many fund managers also pay separate fees to research firms to recommend just how to vote.
New regulations are making the process ripe for automation - and reduced costs. Four years ago, the European Commission adopted a Shareholder Rights Directive which requires corporations headquartered in the European Union to ensure that shareholders have timely access to the complete information relevant to general meetings and corporations facilitate the exercise of voting rights by proxy. This includes allowing investors to vote electronically and corporations to disclose the voting results on their websites.
The U.K.'s Financial Services Authority is also requiring that by December 2012 banks and broker-dealers pass through all the information they receive on mutual funds including voting agendas to retain investors.
Just who will benefit from the new affiliation between Broadridge and Euroclear?
Corporations, global custodians and fund managers, say Broadridge officials. "We are able to help corporations ensure that their agendas are distributed timely and electronically to all interested parties and fund managers can access the information in a single location," said James O'Regan, general manager of Broadridge's international investor communications service.
Global custodians also benefit by knowing they have the correct information distributed to all of their customers in a timely fashion.
Euroclear will receive corporate agendas directly from issuer who has contracted with Euroclear as the local securities depository. Global custodians and fund managers no longer have to worry about whether they are getting the right information from local custodian banks or other sources; they also don't have reconcile disparate.
The best intentions aside, the success of Broadridge and Euroclear's efforts to automate cross-border voting still depends not only on whether corporations sign up to use their service but regulatory constraints. Each European market is free to interpret the European Shareholder Rights Directive as it wishes. Case in point: Currently, France still requires physical or "wet" signatures on proxy ballots which make fully electronic voting impossible. In other markets-Sweden, Finland and Belgium, corporations must change their bylaws to enable electronic voting.
"It's an evolutionary process," said an optimistic M'Rabti.
Just as U.S. and overseas fund managers are relying on newfangled technology to figure out how and when to invest, they are doing so to cast their votes in shareholder meetings abroad.
No longer do they have to worry about a process mired entirely in fax, emails or even worse the old-fashioned post.
Why? Proxy distribution giant Broadridge and Euroclear, parent to several European securities depositories, are introducing a voting service in countries where Euroclear acts as the local settlement house.
First up: the Netherlands followed by Sweden, Finland, Belgium and France. The U.K. and Ireland will likely not be included as Euroclear UK & Ireland, the London-based national securities depository in both markets, already offers an electronic proxy voting service.
The goal of the new alliance: to reduce the operational risk a fund manager faces by either receiving wrong information on a corporate agenda, voting too late or not at all. Global fund managers could easily track down the information and vote in several hundred overseas meetings each year, using an automated system. The approach also can confirm that their votes in fact were received by the corporations.
Broadridge already operates a proxy distribution and voting platform for global custodians to communicate with their institutional clients. The Lake Success, N.Y., firm has contracts with nine of the 10 largest global custodians. It would not name them but Bank of New York Mellon, Citigroup, J.P. Morgan, State Street and Northern Trust often cite themselves in that list.
Euroclear, in turn, has relationships with corporations or their agents in seven European markets. Transactions in the shares and bonds of those companies are settled in one of seven depositories operated by Euroclear.
"The new service with Broadridge is already live in the Netherlands and we are having regular meetings with Dutch issuers to offer them the potential to join the alliance platform for the next general meeting season in 2012," explained Mohamed M'Rabti, director in product management at Euroclear in Brussels.
Euroclear Nederlands, the central securities depository in the Netherlands, would forward meeting agendas to its bank and brokerage participants and Broadridge, in turn, would distribute the same information to fund managers that hold positions in those Dutch firms through global custodian clients. Fund managers would receive the information through Broadridge's ProxyEdge system and vote through that system. Euroclear would then pass along the votes to issuers.
Fund managers who wish to vote through the network operated by the Society of Worldwide Interbank Financial Telecommunications can do so using either legacy formats known as International Organization for Standardization-compliant 15022 messages or newer ISO-compliant 20022 messages. Fund managers already using ProxyEdge can continue to do so, on overseas votes. Broadridge will send fund managers corporate agendas directly.
The alliance between Broadridge and Euroclear capitalizes on the growing interest of fund managers in corporate governance, particularly in overseas companies which has historically been neglected. The reason: it was too cumbersome and expensive. Regulations in some markets requiring either attendance at an annual meeting, a signed proxy ballot or even worse permitting custodian banks to "block" shares so trading could not take place for a designated period made voting pretty difficult for institutional and retail investors.
Fund managers naturally want to see the value of their investments in a corporation increase. So they in turn want to have a say in how the foreign firm is operated. Corporations, in turn, realize that a good percentage of their market capital could come from investors domiciled in other countries.
Fund managers, for one, need to know which corporations are holding their annual meetings and when, what is on the agenda, and the deadline for casting their vote. That's if they are legally allowed to vote. Then they have to cast their vote and hope it reaches the company through either a local bank located in the same country or a registrar hired by the company.
Global custodians hire local banks, often called subcustodians, to safekeep the assets of their fund manager clients in overseas markets. Often, they rely heavily on those subcustodians to keep track of the agendas of corporate meetings and voting deadlines. Those local banks, in turn, rely on a combination of information from corporations, exchanges and local newspapers.
Broadridge and Euroclear officials would not disclose the financial details of their agreement or the fees charged to issuers, global custodians or fund managers. But they insist that their service will be cost effective.
New regulations are making the process ripe for automation - and reduced costs. Four years ago, the European Commission adopted a Shareholder Rights Directive which requires corporations headquartered in the European Union to ensure that shareholders have timely access to the complete information relevant to general meetings and corporations facilitate the exercise of voting rights by proxy. This includes allowing investors to vote electronically and corporations to disclose the voting results on their websites.
The U.K.'s Financial Services Authority is also requiring that by December 2012 banks and broker-dealers pass through all the information they receive on mutual funds, including voting agendas, to retail investors.
Just who will profit from the new affiliation between Broadridge and Euroclear?
Corporations, global custodians and fund managers, say Broadridge officials. "We are able to help corporations ensure that their agendas are distributed timely and electronically to all interested parties and fund managers can access the information in a single location," said James O'Regan, general manager of Broadridge's international investor communications service.
Global custodians also benefit by knowing they have the correct information distributed to all of their customers in a timely fashion.
The best intentions aside, the success of Broadridge and Euroclear's efforts to automate cross-border voting still depends not only on whether corporations sign up to use their service but regulatory constraints. Each European market is free to interpret the European Shareholder Rights Directive as it wishes. Case in point: Currently, France still requires physical or "wet" signatures on proxy ballots which make fully electronic voting impossible. MME
