No-Action Letter for TD Ameritrade Holding Corporation Allowed Exclusion of Proposal to Create A Shareholder Right to be Clients of the Company.
Thursday, February 22, 2018 at 01:48PM
Donovan Gibbons

In TD Ameritrade Holding Corp., 2017 BL 422375 (Nov. 20, 2017), TD Ameritrade Holding Corporation (“Ameritrade”) asked the staff of the Securities and Exchange Commission (“SEC”) to permit omission of a proposal submitted by a group of shareholders (collectively, the “Shareholders”) requesting the board of directors to include a proposal in the proxy statement allowing shareholders of Ameritrade to be clients of the company or to have their business relationship with the company reinstated if it had been terminated. The SEC issued the requested no-action letter and concluded it would not recommend enforcement actions if Ameritrade excluded the proposal under Rule 14a-8(i)(7).

The Joint Shareholders submitted a proposal that stated:

We are proposing the following shareholder rights(s):

(1) Shareholder(s) of Ameritrade shall have the right to be client(s) of Ameritrade and/or any subdivisions thereof; and

(2) Any shareholder(s) of Ameritrade whom had their business relationship(s) terminated, shall have the right to have their business relationship(s) restored under this right.

Ameritrade sought to exclude the proposal from its proxy materials under subsections (i)(7), (i)(4), (i)(2), and (i)(3) of Rule 14a-8.

Rule 14a-8 provides shareholders with the right to insert a proposal in the company’s proxy statement. 17 CFR 240.14a-8. The shareholders, however, must meet certain procedural and ownership requirements. In addition, the Rule provides thirteen substantive grounds for exclusion. For a more detailed discussion of the requirements of the Rule, see The Shareholder Proposal Rule and the SEC and The Shareholder Proposal Rule and the SEC (Part II).

Rule 14a-8(i)(7) permits a company to exclude any shareholder proposal from its proxy materials that “deals with a matter relating to the company’s ordinary business operations.” In applying this standard, the SEC considers whether the proposal implicates “ordinary business” matters, as the management requires “flexibility in directing certain core matters involving the company’s business and operations” to run the company. For additional discussion of the exclusion, see Adrien Anderson, The Policy of Determining Significant Policy under Rule 14a-8(i)(7), 93 DU Online L. Rev. 183 (2016), and Megan Livingston, The “Unordinary Business” Exclusion and Changes to Board Structure, 93 DU Online L. Rev. 263 (2016)."

Rule 14a-8(i)(4) permits a company to exclude any shareholder proposal that “relates to the redress of a personal claim or grievance against the company” or is “designed to further a personal interest…not shared by the other shareholders at large.” This allows the omission of proposals seeking to “air or remedy” a personal grievance or advance a personal interest of the submitting party.

Rule 14a-8(i)(2) permits a company to exclude any shareholder proposal that “would cause the company to violate any state, federal, or foreign law” if implemented.

Lastly, Rule 14a-8(i)(3) permits a company to exclude a shareholder proposal when “the proposal or supporting statement is contrary to any of the Commission’s proxy rules, including [Rule 14a-9], which prohibits materially false or misleading statements in  proxy soliciting materials.”

Ameritrade argued the proposal should be excluded under subsection (i)(7) because company policies and procedures for handling customer accounts are “ordinary” business. Specifically, Ameritrade argued company policies contain numerous restrictions on the types of accounts the company may open and maintain, including a policy to not conduct business with incarcerated persons. Ameritrade asserted the proposal interfered with the company’s policies and procedures related to handling customer accounts.

Ameritrade also argued the proposal should be excluded under subsection (i)(4) because the proposal related to the redress of a personal grievance against the company, specifically the closure of the Shareholders’ account because one of the shareholders was incarcerated.

Additionally, Ameritrade argued the proposal should be excluded under subsection (i)(2) because the proposal would require the company to maintain an account for any person, so long as they are a shareholder. This would require the company to violate federal laws prohibiting companies from conducting business with sanctioned countries and parties, as well as federal laws limiting who can be customers of a SEC registered broker-dealer or a state-regulated trust company.

Further, Ameritrade argued the proposal should be excluded under subsection (i)(3) because the proposal was inherently vague and indefinite and neither the shareholders voting on the matter, nor the company implementing the matter, would be able to determine exactly what actions the proposal would require.  Namely, Ameritrade argued it was impermissibly vague whether the proposal created a new “right” and, if so, how that right related to non-shareholders clients.

The SEC agreed with Ameritrade and concluded it would not recommend enforcement action if Ameritrade omitted the proposal from its proxy materials in reliance on Rule 14a-8(i)(7) as the proposal related to Ameritrade’s policies and procedures. The SEC did not comment on Ameritrade’s arguments to omit the proposal pursuant to subsections (i)(4), (i)(2), or (i)(3).

The primary materials for this post can be found on the SEC website.

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