When companies send out proxy materials, such as the agenda for an annual shareholder meeting, the information has to pass through a complicated web of intermediaries before reaching the end-investor.
The route typically includes issuing agent, sub-custodian, global custodian, ballot provider and voting advisory agent – although it can be a lot more complicated.
A start-up aiming to simplify the process is Proxymity. Launched two years ago, the London-based firm was founded by Dean Little and Jonathan Smalley, who both worked in asset servicing at Citi.
In that role, Little says he felt frustrated by the slow and potentially error-prone way information was passed between intermediaries. ‘Really, you just want to send information from issuer to investor,’ he says.
After coming up with the idea for Proxymity, Little and Smalley pitched it to Citi Ventures, a subsidiary of the bank that invests in start-ups. The idea needed to pass through various review stages, reminiscent of UK TV’s Dragons’ Den, before being approved.
First trialed in 2017, the platform was made available to the whole UK market during this year’s AGM season. There has also been a successful pilot in Spain.
In addition, Proxymity senses opportunity from the Shareholder Rights Directive II (SRD II), which places new transparency requirements on intermediaries in the investment chain.
‘As a result of SRD II, we are looking to launch the platform for all of Citi’s business across the impacted markets, and work is underway to roll it out in all of those markets by the implementation deadline of September 2020,’ says Little.
Proxymity works by connecting the two ends of the proxy process on one platform. When companies enter proxy materials, they appear instantly in front of the investor. The investor can then input its vote on the platform, sending it back to the company.
‘We found a solution to two key challenges,’ says Little. ‘One, getting issuers and investors directly and digitally connected. And two, having real-time ownership reconciliation. We believe what we’ve built is scalable and supported by well-established, enterprise-proven technologies. We deliberated, but decided against newer technologies like blockchain, to focus on quick, stable, replicable and scalable delivery.’
The idea is to speed up the proxy process, giving investors more time to consider their responses and companies more notice of voting decisions. Proxymity also aims to cut out the errors that appear as a result of the manual transfer of information along the chain of intermediaries.
For example, some meeting notices will have non-votable items. Some custodians will drop them off, as they don’t need an instruction from their client, but others will leave them on. ‘Straight away you’ve got interpretation creeping into the process, with some custodians announcing 10 agenda items and some only nine,’ says Little.
One of the current constraints of the platform is that it is only running within Citi’s custodian business. To really catch on, it will need to bring in other members of the investment chain. ‘We’re exploring options at the moment to move it outside of Citi so other custodians can use it,’ says Little.