INDEX Act

New proxy rules for index funds

If enacted, this bill would add new proxy-vote rules for passively managed and other "qualified" funds. Advisers that control more than 1 percent of a company's voting power would have to cast votes proportional to instructions from fund holders or economic-interest holders. A "passively managed fund" is defined partly by holding at least 40 percent of assets in an index strategy. Advisers could not vote the share of holdings for which they did not get instructions, except limited routine or majority-approval exceptions tied to being 10 days before a vote. Advisers must give each voting person the proxy, the annual report, and a voting instruction form and allow at least 5 business days to return instructions. Advisers may provide third-party voting recommendations on a nondiscriminatory basis, but they cannot make issuers pay compliance costs or solicit only some holders. The rule would also require special handling when one passive fund holds another. The section would take effect on the first August 1 that occurs after two years from enactment.