Standards for Securities Intermediaries to Document Clients’ Eligibility to File Rule 14a-8 Proposals


Submitting shareowner proposals is a primary means by which shareowners influence the corporations they own. The process is governed by SEC Rule 14a-8. One provision of that rule—Rule 14a-8(b)(2)—specifies how shareowners prove they own shares in a corporation for the purpose of submitting a proposal.

In recent years, executives at a number of corporations have attempted to exploit ambiguity in that provision to reject proponents’ documentation of eligibility. These efforts have included multiple no-action requests of the SEC and the frivolous Apache vs. Chevedden lawsuit. Both the SEC staff and the Federal District Court in Houston have mostly rejected these efforts.

The controversy has raised concerns at securities intermediaries, who have approached the United States Proxy Exchange (USPX) for guidance on what constitutes acceptable documentation of a client’s eligibility to file a proposal under Rule 14a-8. In the Summer of 2010, we started work preparing recommended standards to meet this need. We suspended that work when we learned the SEC planned to issue a staff legal bulletin on the same topic. Instead, we sent the Commission a detailed letter summarizing our conclusions.

With many demands on their staff, the SEC was unable to complete the staff legal bulletin by November 2010. That is when many corporations had a deadline for submitting proposals for 2011. Accordingly, the USPX is releasing these standards as an interim solution until the Commission is able to release a staff legal bulletin.

The centerpiece of the standards is a template letter for use by securities intermediaries to use for documenting their clients’ eligibility to file a proposal under Rule 14a-8. This was developed based on a careful review of relevant no-action decisions, staff legal bulletins, and the Apache vs. Chevedden lawsuit. It also reflects informal discussions with SEC staff as well as our members’ direct experience filing many shareowner proposals.