Paul G. Cellupica is a General Counsel and Kevin Ercoline is an Assistant General Counsel at the Investment Company Institute. This post is supplemental to the Investment Company Institute’s comment letter.
The New York Stock Exchange’s (NYSE) 1920s-era annual shareholder meeting requirement for listed closed-end funds (CEFs) has left open an end-run around the governance protections of the Investment Company Act of 1940 (1940 Act), the landmark law governing mutual funds and other registered investment companies. Recently, the NYSE proposed a rule amendment that would realign its listing standards for CEFs with the governance protections that Congress specifically thought appropriate for investment companies. As it considers whether to permit the NYSE to change its listing rule, the SEC ought to recognize that Congress chose consciously not to mandate annual meetings for CEFs and other investment companies registered under the 1940 Act (either at its inception in 1940 or any time after 1940), which is why no other type of registered fund is subject to such a requirement.
ICI has written a detailed analysis of the issue here, explaining why the NYSE’s rule, which predates the 1940 Act, is unnecessary and in fact facilitates abusive practices. However, we have noted that some well-known academic commentators, in at least one case commissioned by an activist hedge fund that relies on the annual shareholder meeting requirement to take over CEFs, have sought to portray the NYSE rule change as anti-shareholder and poor corporate governance.[1] We respectfully think this academic critique is misinformed and actually encourages hostile practices harmful to retail shareholders and other investors.
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