Legal Updates

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Friday, May 27, 2016

The Canadian Securities Administrators (the “CSA”) have published a final report following their review of Canada’s proxy voting infrastructure. CSA Multilateral Staff Notice 54-304 Final Report on Review of the Proxy Voting Infrastructure and Request for Comments on Proposed Meeting Vote Reconciliation Protocols (the “Report”) contains the results of the CSA’s investigation begun in 2013 and proposes voluntary protocols (the “Protocols”) containing guidance for the key parties involved in tabulating proxy votes held through intermediaries. The Report also makes a request for comments from market participants on the Protocols and outlines the next steps the CSA will take in their efforts to make the Canadian proxy voting infrastructure more accurate, reliable and accountable.


The intermediated shareholding system in Canada results in a layered structure of ownership, whereby beneficial owners hold their shares through intermediaries (banks and brokerage firms) that in turn hold their shares through the central depository, the Canadian Depository for Securities Limited (“CDS”). The review of the proxy voting infrastructure was triggered by concerns that mismatches were occurring between voting instructions provided by the ultimate beneficial owners of shares and the proxies submitted on behalf of intermediaries, resulting in over-voting and missed votes. Beneficial owners generally have no way of knowing whether their votes have been counted by a tabulator or meeting chair.

The CSA’s study was conducted through a detailed review of six shareholder meetings with the assistance of a proxy solicitor. The primary issues the CSA identified fell into two categories: information gaps and communication gaps. Information gaps arise as meeting tabulators do not always receive accurate and complete vote entitlement information and therefore use various different methods to address over-vote situations, such as rejecting or pro-rating votes. Communication gaps arise due to there being no standard communication channels between intermediaries and tabulators to confirm that all necessary information has been sent and received, or to resolve problems that arise leading to proxy votes being rejected or pro-rated at a meeting.

The Proposed Protocols

The CSA issued a number of Protocols to address these gaps. The Protocols contain CSA staff expectations on the roles and responsibilities of the key entities involved (i.e. CDS, intermediaries, the primary intermediary voting agent, Broadridge Investor Communication Solutions Canada (“Broadridge”), and transfer agents that act as meeting tabulators) and guidance on the kinds of operational processes that they should implement to support accurate, reliable and accountable meeting vote reconciliation. The Protocols are grouped into four categories:

  1. Generating and sending accurate and complete vote entitlement information for each intermediary that will solicit voting instructions from beneficial owners and submit proxy votes.
  2. Setting up vote entitlement accounts (official vote entitlements) in a consistent manner.
  3. Sending accurate and complete proxy vote information and tabulating and recording proxy votes in a consistent manner.
  4. Informing beneficial owners of rejected/pro-rated votes.

Examples of the proposed Protocols include:

  • Guidance on how the parties can develop appropriate mechanisms to support confirmation that all votes submitted by Broadridge on behalf of intermediary clients have been received by the tabulator.
  • Guidance on how parties should communicate with each other when proxy votes from an intermediary are rejected, uncounted or pro-rated.
  • Guidance on how parties should work together to develop end-to-end vote confirmation capability to enable investors that wish to do so to confirm whether their proxy votes have been accepted, including in “real time” where appropriate.

The Report also emphasizes the CSA’s position that the key entities should work collectively to eliminate paper and move to electronic transmission of vote entitlement and proxy vote information, stating that, in their view, implementation of the Protocols should not require a major technological overhaul of existing systems. Finally, the Report requests comments on the Protocols, in contrast to the CSA’s regular practice, for their review prior to issuing the Protocols in their final form. Comments will be accepted until July 15, 2016.

Next Steps

The CSA’s next steps involve: establishing a technical committee to support the implementation of improvements to meeting vote reconciliation; holding roundtables in Fall 2016; publishing the final Protocols as a CSA staff notice at the end of 2016 in time for the 2017 proxy season; and monitoring the voluntary implementation of the Protocols for the 2017 proxy season.

The adoption of the improvements suggested by the Protocols remains voluntary, thus their success depends on the commitment of the key parties to cooperate to establish an efficient, accurate and reliable proxy voting system. If the key parties are incapable or unwilling to proceed down this cooperative path, we may see the CSA implementing mandatory protocols in the future. 

This update is intended as a summary only and should not be regarded or relied upon as advice to any specific client or regarding any specific situation.

If you would like further information regarding the issues discussed in this update or if you wish to discuss any aspect of this commentary, please feel free to contact us.