10.5 Proxy Distribution and Voting Instructions

Proxy Transmittal & Expense Reimbursement (FINRA Rule 2251)

Under FINRA Rule 2251 (Forwarding of Proxy and Other Materials), member broker-dealers maintain an affirmative duty to forward proxy materials, annual reports, and information statements to beneficial owners.

1. Mandatory Forwarding Duty

Upon receipt of proxy materials, annual reports, or other information statements from an issuer (along with satisfactory assurance that the issuer will reimburse expenses), the broker-dealer must promptly forward the materials to all beneficial owners holding the security in street name.

2. Notice and Access / Electronic Delivery

Under SEC Rule 14a-16 (Notice and Access Model), broker-dealers and issuers may satisfy distribution requirements electronically. Broker-dealers email a "Notice of Internet Availability of Proxy Materials" to beneficial owners who have consented to electronic delivery, providing a direct hyperlink to the proxy website and instructions on how to cast votes online or request paper copies.

3. Issuer Expense Reimbursement Schedule

Under the applicable FINRA Rule 2251 provisions and approved reimbursement schedules, issuing corporations are legally obligated to reimburse broker-dealers for all out-of-pocket expenses incurred in distributing proxy materials, including:

• Base processing fees per beneficial owner account;
• Intermediary coordination fees;
• Notice and access electronic delivery fees; and
• Actual postage, freight, and envelope costs.

Voting Customer Shares & The 10-Day Rule (NYSE Rule 452 & FINRA Rule 2251)

Corporate voting authority flows through a multi-step chain of delegation from record date to final tally:

The Problem of Unvoted Proxies

A substantial percentage of retail beneficial owners fail to execute and return their Voting Instruction Forms. Because corporations require a quorum of shares to conduct legal business at annual meetings, unvoted street-name shares present a governance hurdle. To balance corporate operational needs with shareholder protection, the SEC, NYSE, and FINRA established NYSE Rule 452 (enforced across all FINRA member firms under FINRA Rule 2251).

The 10-Day Rule Mechanics

A broker-dealer may vote uninstructed customer shares held in street name only if all three of the following conditions are met:

1. The 15-Day Delivery Requirement: The broker-dealer (or proxy intermediary) transmitted proxy materials to the beneficial owner at least 15 calendar days prior to the scheduled shareholder meeting date (or at least 25 calendar days if non-first-class mail was used).
2. The 10-Day Inaction Window: The broker-dealer has not received voting instructions from the beneficial owner by the 10th calendar day prior to the meeting.
3. Routine Matters Only: The matter being voted upon is strictly classified as a routine matter.

If voting instructions are received from the customer at any time prior to the shareholder meeting (even after the 10th day), the customer's instructions immediately supersede and invalidate any discretionary broker vote.

Routine vs. Non-Routine Matters

The regulatory boundary between routine and non-routine matters is absolute:

1. Routine Matters (Discretionary Broker Voting Permitted)

• Matters that do not involve major structural changes, corporate control contests, or conflicts of interest.
• The Classic Routine Matter: The uncontested ratification of the appointment of the company's independent certified public accountants (auditors). This is virtually the only standard routine proposal remaining on corporate proxy ballots.

2. Non-Routine Matters (Discretionary Broker Voting Strictly Prohibited)

If a proposal is non-routine and the beneficial owner fails to return voting instructions, the broker-dealer CANNOT vote the shares. The shares remain unvoted for that proposal, recorded on the official meeting tally as a "broker non-vote".

Under NYSE Rule 452 and FINRA Rule 2251, the following are strictly non-routine matters:

• Contested Director Elections: Any election of corporate directors involving a proxy fight, dissident shareholder slate, or active opposition.
• Uncontested Director Elections: Under modern amendments to NYSE Rule 452, director elections generally (whether contested or uncontested), subject to specific rule exceptions such as applicable investment-company treatment, are classified as non-routine. Broker-dealers cannot vote uninstructed shares for board candidates.
• Mergers, Consolidations & Acquisitions: Any transaction involving a corporate merger, consolidation, acquisition, dissolution, or sale of substantial corporate assets.
• Executive Compensation ("Say-on-Pay"): Advisory shareholder votes on executive compensation, golden parachute agreements, or equity-based compensation/stock option plans for management or directors (codified by Section 951 of the Dodd-Frank Act).
• Changes in Shareholder Rights: Alterations to shareholder voting rights, changes to supermajority voting thresholds, anti-takeover "poison pills," or staggered board classifications.
• Significant Stock Issuances: Authorizing new classes of stock or issuing common equity exceeding 20% of outstanding shares.

Sources checked 2026-10-20: SEC Regulation S-P, FINRA shareholder materials.