(a) Securities Act of 1933

Section 2(b) of the Securities Act of 1933 (15 U.S.C. 77b(b)) is amended—

(b) Securities Exchange Act of 1934

Section 3(f) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(f)) is amended—

(a) Study

The Securities and Exchange Commission shall conduct a study to examine and evaluate—

(b) Report

Not later than 1 year after the date of the enactment of this Act, the Securities and Exchange Commission shall submit to the Committee on Banking, Housing, and Urban Affairs of the Senate, the Committee on Financial Services of the House of Representatives, the Secretary of State, the Secretary of Commerce, and the United States Trade Representative a report that includes—

(c) Access to information

The Securities and Exchange Commission may request from private entities such relevant data and information as the Securities and Exchange Commission determines necessary to carry out the study required under this section and such private entities shall provide such requested data and information to the Securities and Exchange Commission.

(d) Directives defined

In this section, the term Directives means—

(a) Amendment

The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended by inserting after section 15G the following new section:

15H. Registration of proxy advisory firms

(a) Conduct prohibited

It shall be unlawful for a proxy advisory firm to make use of the mails or any means or instrumentality of interstate commerce to provide proxy voting advice, research, analysis, ratings or recommendations to any client, unless such proxy advisory firm is registered under this section.

(b) Registration procedures

(1) Application for registration

(A) In general

A proxy advisory firm shall file with the Commission an application for registration, in such form as the Commission shall require, by rule, and containing the information described in subparagraph (B).

(B) Required information

An application for registration under this section shall contain—

(i)

a certification that the applicant is able to consistently provide proxy advice based on accurate information;

(ii)

with respect to clients of the applicant that vote shares held on behalf of shareholders, a certification that the applicant—

(I)

will provide proxy voting advice only in the best economic interest of those shareholders;

(II)

has the requisite expertise to ensure that voting recommendations are in the best economic interest of those shareholders unless otherwise specified; and

(III)

does not violate State or Federal law;

(iii)

information on the procedures and methodologies that the applicant uses to ensure that proxy voting recommendations are in the best economic interest of the ultimate shareholders;

(iv)

information on the organizational structure of the applicant;

(v)

an explanation of whether or not the applicant has in effect a code of ethics, and if not, the reasons therefor;

(vi)

a description of any potential or actual conflict of interest relating to the provision of proxy advisory services, including those arising out of or resulting from the ownership structure of the applicant or the provision of other services by the applicant or any person associated with the applicant;

(vii)

the policies and procedures in place to publicly disclose and manage conflicts of interest under subsection (f);

(viii)

information related to the professional and academic qualifications of staff tasked with providing proxy advisory services; and

(ix)

any other information and documents concerning the applicant and any person associated with such applicant as the Commission, by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors.

(2) Review of application

(A) Initial determination

Not later than 90 days after the date on which the application for registration is filed with the Commission under paragraph (1) (or within such longer period as to which the applicant consents) the Commission shall—

(i)

by order, grant registration; or

(ii)

institute proceedings to determine whether registration should be denied.

(B) Conduct of proceedings

(i) Content

Proceedings referred to in subparagraph (A)(ii) shall—

(I)

include notice of the grounds for denial under consideration and an opportunity for hearing; and

(II)

be concluded not later than 120 days after the date on which the application for registration is filed with the Commission under paragraph (1).

(ii) Determination

At the conclusion of such proceedings, the Commission, by order, shall grant or deny such application for registration.

(iii) Extension authorized

The Commission may extend the time for conclusion of such proceedings for not longer than 90 days, if the Commission finds good cause for such extension and publishes its reasons for so finding, or for such longer period as to which the applicant consents.

(C) Grounds for decision

The Commission shall grant registration under this subsection—

(i)

if the Commission finds that the requirements of this section are satisfied; and

(ii)

unless the Commission finds (in which case the Commission shall deny such registration) that—

(I)

the applicant has failed to certify to the Commission’s satisfaction that it is able to consistently provide proxy advice based on accurate information and to materially comply with the procedures and methodologies disclosed under paragraph (1)(B) and with subsections (f) and (g); or

(II)

if the applicant were so registered, its registration would be subject to suspension or revocation under subsection (d).

(3) Public availability of information

Subject to section 24, the Commission shall make the information and documents submitted to the Commission by a proxy advisory firm in its completed application for registration, or in any amendment submitted under paragraph (1) or (2) of subsection (c), publicly available on the Commission’s website, or through another comparable, readily accessible means.

(c) Update of registration

(1) Update

Each registered proxy advisory firm shall promptly amend and update its application for registration under this section if any information or document provided therein becomes materially inaccurate, except that a registered proxy advisory firm is not required to amend the information required to be filed under subsection (b)(1)(B)(i) by filing information under this paragraph, but shall amend such information in the annual submission of the organization under paragraph (2) of this subsection.

(2) Certification

Not later than 90 calendar days after the end of each calendar year, each registered proxy advisory firm shall file with the Commission an amendment to its registration, in such form as the Commission, by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors—

(A)

certifying that the information and documents in the application for registration of such registered proxy advisory firm continue to be accurate in all material respects; and

(B)

listing any material change that occurred to such information or documents during the previous calendar year.

(d) Censure, denial, or suspension of registration; notice and hearing

The Commission, by order, shall censure, place limitations on the activities, functions, or operations of, suspend for a period not exceeding 12 months, or revoke the registration of any registered proxy advisory firm if the Commission finds, on the record after notice and opportunity for hearing, that such censure, placing of limitations, suspension, or revocation is necessary for the protection of investors and in the public interest and that such registered proxy advisory firm, or any person associated with such firm, whether prior to or subsequent to becoming so associated—

(1)

has committed or omitted any act, or is subject to an order or finding, enumerated in subparagraph (A), (D), (E), (H), or (G) of section 15(b)(4), has been convicted of any offense specified in section 15(b)(4)(B), or is enjoined from any action, conduct, or practice specified in subparagraph (C) of section 15(b)(4), during the 10-year period preceding the date of commencement of the proceedings under this subsection, or at any time thereafter;

(2)

has been convicted during the 10-year period preceding the date on which an application for registration is filed with the Commission under this section, or at any time thereafter, of—

(A)

any crime that is punishable by imprisonment for 1 or more years, and that is not described in section 15(b)(4)(B); or

(B)

a substantially equivalent crime by a foreign court of competent jurisdiction;

(3)

is subject to any order of the Commission barring or suspending the right of the person to be associated with a registered proxy advisory firm;

(4)

fails to furnish the certifications required under subsections (b)(2)(C)(ii)(I) and (c)(2);

(5)

has engaged in one or more prohibited acts enumerated in paragraph (1);

(6)

fails to maintain adequate financial and managerial resources to consistently offer advisory services to clients that vote shares held on behalf of shareholders consistent with the best economic interest of those shareholders, including by failing to comply with subsections (f) or (g);

(7)

fails to maintain adequate expertise to ensure that proxy advisory services for clients that vote shares held on behalf of shareholders are tied to the best economic interest of those shareholders; or

(8)

engages in a prohibited act enumerated in subsection (j).

(e) Termination of registration

(1) Voluntary withdrawal

A registered proxy advisory firm may, upon such terms and conditions as the Commission may establish as necessary in the public interest or for the protection of investors, which terms and conditions shall include at a minimum that the registered proxy advisory firm will no longer conduct such activities as to bring it within the definition of proxy advisory firm in section 3(a)(82), withdraw from registration by filing a written notice of withdrawal to the Commission.

(2) Commission authority

In addition to any other authority of the Commission under this title, if the Commission finds that a registered proxy advisory firm is no longer in existence or has ceased to do business as a proxy advisory firm, the Commission, by order, shall cancel the registration under this section of such registered proxy advisory firm.

(f) Management of conflicts of interest

(1) Organization policies and procedures

Each registered proxy advisory firm shall establish, maintain, and enforce written policies and procedures reasonably designed, taking into consideration the nature of the business of such registered proxy advisory firm and associated persons, to publicly disclose and manage any conflicts of interest that arise or would reasonably be expected to arise from such business.

(2) Commission authority

The Commission shall, within one year of the date of enactment of this section, issue final rules to prohibit, or require the management and public disclosure of, any conflicts of interest relating to the offering of proxy advisory services by a registered proxy advisory firm, including, without limitation, conflicts of interest relating to—

(A)

the manner in which a registered proxy advisory firm is compensated by the client, any affiliate of the client, or any other person for providing proxy advisory services;

(B)

business relationships, ownership interests, or any other financial or personal interests between a registered proxy advisory firm, or any person associated with such registered proxy advisory firm, and any client, or any affiliate of such client;

(C)

the formulation of proxy voting policies;

(D)

the execution, or assistance with the execution, of proxy votes if such votes are based upon recommendations made by the proxy advisory firm in which a person other than the issuer is a proponent; and

(E)

any other potential conflict of interest, as the Commission deems necessary or appropriate in the public interest or for the protection of investors.

(3) Disclosure on factors influencing recommendations

Each registered proxy advisory firm shall annually disclose to the Commission and make publicly available the economic and other factors that a reasonable investor would expect to influence the recommendations of such proxy advisory firm, including the ownership composition of such proxy advisory firm and any meetings with, or feedback received from, outside entities.

(g) Reliability of proxy advisory firm services

(1) In general

Each registered proxy advisory firm shall—

(A)

have staff and other resources sufficient to produce proxy voting recommendations that are based on accurate and current information and designed for clients that vote shares held on behalf of shareholders to advance the best economic interest of those shareholders unless otherwise specified;

(B)

implement procedures that permit issuers that are the subject of proxy voting recommendations—

(i)

access in a reasonable time to data and information used to make recommendations; and

(ii)

a reasonable opportunity to provide meaningful comment and corrections to such data and information, including the opportunity to present (in person or telephonically) details to the person responsible for developing such data and information prior to the publication of proxy voting recommendations to clients;

(C)

employ an ombudsman to receive complaints about the accuracy of information used in making recommendations from the companies that are the subject of the proxy advisory firm’s voting recommendations and seek to resolve those complaints in a timely fashion and prior to the publication of proxy voting recommendations to clients; and

(D)

if the ombudsman is unable to resolve a complaint to a company’s satisfaction prior to the publication of proxy voting recommendations to clients, include in the final report of the firm to clients—

(i)

a statement detailing the company’s complaints, if requested in writing by the company; and

(ii)

a statement explaining why the proxy voting recommendation is in the best economic interest of shareholders.

(2) Definitions

In this subsection:

(A) Data and information used to make recommendations

The term data and information used to make voting recommendations—

(i)

means the financial, operational, or descriptive data and information on an issuer used by proxy advisory firms and any contextual or substantive analysis impacting the recommendation; and

(ii)

does not include the entirety of the proxy advisory firm’s final report to its clients.

(B) Reasonable time

The term reasonable time—

(i)

means not less than 1 week before the publication of proxy voting recommendations for clients; and

(ii)

shall not otherwise interfere with a proxy advisory firm’s ability to provide its clients with timely access to accurate proxy voting research, analysis, or recommendations.

(h) Private right of action with respect to illegal recommendations

Any proxy advisory firm that endorses a proposal that is not supported by the issuer but is approved and subsequently found by a court of competent jurisdiction to violate State or Federal law shall be liable to the applicable issuer for the costs associated with the approval of such proposal, including implementation costs and any penalties incurred by the issuer, and any issuer seeking to enforce such liability may sue at law or in equity in any court of competent jurisdiction.

(i) Designation of compliance officer

Each registered proxy advisory firm shall designate an individual who reports directly to senior management as responsible for administering the policies and procedures that are required to be established pursuant to subsections (f) and (g), and for ensuring compliance with the securities laws and the rules and regulations thereunder, including those promulgated by the Commission pursuant to this section.

(j) Prohibited conduct

(1) Prohibited acts and practices

Not later than one year after the date of enactment of this section, the Commission shall issue final rules to prohibit any act or practice relating to the offering of proxy advisory services by a registered proxy advisory firm that the Commission determines to be unfair, coercive, or abusive, including any act or practice relating to—

(A)

advisory or consulting services (offered directly or indirectly, including through an affiliate) related to corporate governance issues; or

(B)

modifying a voting recommendation or otherwise departing from its adopted systematic procedures and methodologies in the provision of proxy advisory services, based on whether an issuer, or affiliate thereof, subscribes or will subscribe to other services or product of the registered proxy advisory firm or any person associated with such organization.

(2) Rule of construction

Nothing in paragraph (1), or in any rules or regulations adopted thereunder, may be construed to modify, impair, or supersede the operation of any of the antitrust laws (as defined in the first section of the Clayton Act, except that such term includes section 5 of the Federal Trade Commission Act, to the extent that such section 5 applies to unfair methods of competition).

(k) Annual report

(1) In general

Each registered proxy advisory firm shall, not later than 90 calendar days after the end of each fiscal year, file with the Commission and make publicly available an annual report in such form as the Commission, by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors.

(2) Contents

Each annual report required under paragraph (1) shall include, at a minimum, disclosure by the registered proxy advisory firm of the following:

(A)

A list of shareholder proposals the staff of the registered proxy advisory firm reviewed in the prior fiscal year.

(B)

A list of the recommendations made in the prior fiscal year.

(C)

The economic analysis conducted to determine that final recommendations provided in the prior fiscal year (other than recommendations relating to an issuer-sponsored proposal or recommendations consistent with that of a board of directors composed of a majority of independent directors) delivered to clients that vote shares held on behalf of shareholders were in the best economic interest of those shareholders.

(D)

The staff who reviewed and made recommendations on such proposals in the prior fiscal year.

(E)

The qualifications of such staff to ensure that each of the recommendations for clients that vote shares held on behalf of shareholders were tied to the best economic interest of those shareholders.

(F)

The recommendations made in the prior fiscal year where the proponent of such recommendation was a client of or received services from the proxy advisory firm.

(G)

A certification by the chief executive officer, chief financial officer, and the primary executive responsible for overseeing the compilation and dissemination of proxy voting advice that the final recommendations (other than recommendations relating to an issuer-sponsored proposal or recommendations consistent with that of a board of directors composed of a majority of independent directors) delivered to clients that vote shares held on behalf of shareholders in the last fiscal year—

(i)

were based on internal controls and procedures that are designed to ensure accurate information and that such internal controls and procedures are effective; and

(ii)

were based on the best economic interest of those shareholders unless otherwise specified.

(H)

The economic and other factors that a reasonable investor would expect to influence the recommendations of such proxy advisory firm, including the ownership composition of such proxy advisory firm.

(3) Report format

Each annual report required under paragraph (1) shall be made available in a structured, machine-readable format, consistent with existing electronic reporting standards.

(l) Transparent policies

Each registered proxy advisory firm shall file with the Commission and make publicly available its methodology for the formulation of proxy voting policies and voting recommendations to clients that vote shares held on behalf of shareholders and how that methodology ensures that the firm’s voting recommendations are in the best economic interest of those shareholders unless otherwise specified.

(m) Rules of construction

Registration under and compliance with this section does not constitute a waiver of, or otherwise diminish, any right, privilege, or defense that a registered proxy advisory firm may otherwise have under any provision of State or Federal law, including any rule, regulation, or order thereunder.

(n) Regulations

(1) New provisions

Such rules and regulations as are required by this section or are otherwise necessary to carry out this section, including the application form required under subsection (a)—

(A)

shall be issued by the Commission, not later than 180 days after the date of enactment of this section; and

(B)

shall become effective not later than 1 year after the date of enactment of this section.

(2) Review of existing regulations

Not later than 270 days after the date of enactment of this section, the Commission shall—

(A)

review its existing rules and regulations which affect the operations of proxy advisory firms; and

(B)

amend or revise such rules and regulations in accordance with the purposes of this section, and issue such guidance as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.

(o) Applicability

This section, other than subsection (m), which shall apply on the date of enactment of this section, shall apply on the earlier of—

(1)

the date on which regulations are issued in final form under subsection (n)(1); or

(2)

270 days after the date of enactment of this section.

(p) Best economic interest defined

In this section, the term best economic interest means decisions that seek to maximize investment returns over a time horizon consistent with the investment objectives and risk management profile of the fund in which the shareholders are invested.

(b) Conforming amendment

Section 17(a)(1) of the Securities Exchange Act of 1934 (15 U.S.C. 78q(a)(1)) is amended by inserting proxy advisory firm, after nationally recognized statistical rating organization,.

(c) Proxy advisory firm definitions

Section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)) is amended—

(a) In general

The Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.) is amended by inserting after section 208 (15 U.S.C. 80b-8) the following:

208A. Proxy voting of passively managed funds

(a) Investment adviser proxy voting

(1) In general

An investment adviser that holds authority to vote a proxy solicited by an issuer pursuant to section 14 of the Securities Exchange Act of 1934 (15 U.S.C. 78n) in connection with any vote of covered securities held by a passively managed fund shall—

(A)

vote in accordance with the instructions (which may include the selection or default choice of a published voting policy) of the beneficial owner (or fiduciary or other designee with investment and proxy voting authority on their behalf) of a voting security of the passively managed fund;

(B)

vote in accordance with the voting recommendations of the board of directors (or similar governing body) of such issuer;

(C)

abstain from voting such securities but make reasonable efforts to be considered present for purposes of establishing a quorum; or

(D)

pursuant to rules issued by the Commission, instruct vote tabulators to make a reasonable effort to mirror vote shares to reflect the elections of the other shareholders in the covered security.

(2) Exception

Paragraph (1) shall not apply with respect to a vote on a routine matter.

(b) Safe harbor

With respect to a routine or non-routine vote, voted in the manner required by subsection (a)(1), an investment adviser shall not be liable to any person under any law or regulation of the United States, any constitution, law, or regulation of any State or political subdivision thereof, or under any contract or other legally enforceable agreement (including any arbitration agreement), for any of the following:

(1)

Voting in accordance with the instructions of the beneficial owner (or that beneficial owner’s designee with investment and proxy voting authority) of a voting security of the passively managed fund.

(2)

Not soliciting voting instructions from any person.

(3)

Voting in accordance with the voting recommendations of an issuer under subsection (a)(1)(B) with respect to such vote.

(4)

Abstaining from voting in accordance with subsection (a)(1)(C) with respect to such vote.

(5)

Instructing vote tabulators to make a reasonable effort to mirror vote shares to reflect the elections of the other shareholders in a covered security, pursuant to rules issued by the Commission described in subsection (a)(1)(D).

(c) Foreign private issuers exemption

Subsection (a) shall not apply with respect to a foreign private issuer if the published voting policy of the investment advisor with respect to such foreign private issuer is fully and fairly disclosed to beneficial owners, including the extent to which such policy differs from the published voting policy for non-exempt issuers.

(d) Dissemination of information

(1) In general

Any investment adviser subject to the requirements of subsection (a)(1) shall, with respect to the dissemination of information and other material to a voting person, comply with the following requirements, unless the voting person affirmatively declines to receive that information and other material:

(A)

Provide the voting person (or the relevant intermediary with whom the investment adviser has access) with a form to select a published voting policy.

(B)

Provide the voting person with not less than 5 business days after the date on which the voting person receives the form described under subparagraph (A) to return that form to the investment adviser.

(2) Electronic delivery

All, or any portion, of the materials that an investment adviser is required to provide under paragraph (1)(A) may be provided electronically, including through—

(A)

an internet website;

(B)

another digital, internet, or electronic-based information repository; or

(C)

a mobile application.

(e) Definitions

In this section:

(1) Covered security

The term covered security—

(A)

means a voting security, as that term is defined in section 2(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)), in which a qualified fund is invested; and

(B)

does not include any voting security (as defined in subparagraph (A)) of an issuer registered with the Commission as an investment company under section 8 of the Investment Company Act of 1940 (15 U.S.C. 80a-8).

(2) Passively managed fund

The term passively managed fund means a qualified fund—

(A)

that—

(i)

is designed to track, or is derived from, an index of securities or a portion of such an index;

(ii)

discloses that the qualified fund is a passive index fund; or

(iii)

allocates not less than 60 percent of the total assets of the qualified fund to an investment strategy that is designed to track, or is derived from, an index of securities or a portion of such an index fund; and

(B)

that commits to refrain from exercising control over an issuer through voting or investment authority.

(3) Published voting policy

The term published voting policy means—

(A)

a policy that—

(i)

articulates how proportionate shares would be expected to be voted in anticipated proxy voting matters; and

(ii)

is made available to investors, including via website or other electronic means; and

(B)

in the case of a policy of a passively managed fund or an investment adviser, a policy that does not—

(i)

seek to set the strategy or day-to-day management decisions of the issuer;

(ii)

involve submitting shareholder proposals;

(iii)

seek to nominate directors; and

(iv)

coordinate votes with other index managers.

(4) Qualified fund

The term qualified fund means—

(A)

an investment company;

(B)

a private fund;

(C)

an eligible deferred compensation plan, as that term is defined in section 457(b) of the Internal Revenue Code of 1986;

(D)

a trust, plan, account, or other entity described in section 3(c)(11) of the Investment Company Act of 1940 (15 U.S.C. 80a-3(c)(11));

(E)

a plan maintained by an employer described in clause (i), (ii), or (iii) of section 403(b)(1)(A) of the Internal Revenue Code of 1986 to provide annuity contracts described in section 403(b) of such Code;

(F)

a common trust fund, or similar fund, maintained by a bank;

(G)

any fund established under section 8438(b)(1) of title 5, United States Code; or

(H)

any separate managed account of a client of an investment adviser.

(5) Routine matter

The term routine matter—

(A)

includes a proposal that relates to—

(i)

an election with respect to the board of directors of a registrant;

(ii)

the compensation of management or the board of directors of a registrant;

(iii)

the selection of auditors; or

(iv)

declassification; and

(B)

does not include—

(i)

a proposal that is not submitted to a holder of covered securities by means of a proxy statement comparable to that described in section 240.14a-101 of title 17, Code of Federal Regulations, or any successor regulation; or

(ii)

a proposal that is—

(I)

the subject of a counter-solicitation; or

(II)

part of a proposal made by a person other than the applicable registrant.

(b) Effective date

The amendment made by this section shall take effect 1 year after the date of enactment of this Act.

(a) Best interest based on pecuniary factors

Section 211(g) of the Investment Advisers Act of 1940 (15 U.S.C. 80b–11(g)) is amended by adding at the end the following:

(3) Best interest based on pecuniary factors

(A) In general

For purposes of paragraph (1), when providing personalized investment advice, the best interest of a customer shall be determined using pecuniary factors, which, subject to applicable law, may not be subordinated to or limited by non-pecuniary factors, unless—

(i)

the customer provides informed consent, whether by e-delivery or e-sign, that such non-pecuniary factors be considered; or

(ii)

the personalized investment advice is consistent with the customer’s written investment profile information.

(B) Disclosure of pecuniary effects

If a customer provides a broker, dealer, or investment adviser with the informed consent to consider non-pecuniary factors described under subparagraph (A), the broker, dealer, or investment adviser shall provide qualitative disclosure of the potential pecuniary effects to the customer of prioritizing non-pecuniary factors over pecuniary factors in making investment decisions.

(C) Pecuniary factor defined

In this paragraph, the term pecuniary factor means a factor that a fiduciary prudently determines is expected to have a material effect on the risk or return of an investment based on investment objectives, risk tolerance, and time horizon.

(b) Rulemaking

Not later than the end of the 12-month period beginning on the date of enactment of this Act, the Securities and Exchange Commission shall revise or issue such rules as may be necessary to implement the amendment made by paragraph (1).

(c) Applicability

The amendment made by paragraph (1) shall apply to a recommendation made by a broker or dealer and investment advice provided by an investment adviser beginning on the date that is 12 months after the date of enactment of this Act.