• The Shareholder Democracy and Market Integrity Act

The purpose of this petition is to see if the public supports the following to then present it to a house of representative in Colorado to take to the floor of the Federal House of Representatives. This drafted law is to fix a structural break in how ownership works in the U.S. stock market.

Right now, most Americans own stocks indirectly through 401(k)s, pensions, mutual funds, and ETFs. Those shares are legally held by asset managers and fund companies, but the economic risk belongs to workers and retirees. In theory, the people whose money is invested are the owners. In practice, the voting rights attached to those shares are exercised by a small group of financial institutions.

That creates two systemic problems.

First, shareholder democracy no longer exists. Corporate boards, executive pay, mergers, and major business decisions are decided by a handful of firms that do not actually bear the financial risk of the shares they vote.

Second, competition is quietly undermined. When the same financial firms are major shareholders in multiple competing companies in the same industry, they have no incentive to push those companies to compete aggressively. That can lead to higher prices, lower wages, and less innovation, even if no one is breaking antitrust law in a traditional sense.

This law addresses those problems without breaking the stock market, banning index funds, or telling people how to invest.

The first major change is that voting power is returned to the real owners. If you own stock through a mutual fund, ETF, or retirement account, you get the right to vote those shares. Asset managers can no longer automatically cast those votes for you. They can only do so if you explicitly delegate that authority. Voting must be conducted through secure, trackable systems that let investors see that their votes were recorded and counted.

The second major change is a limit on concentrated control of competitors. In industries that are already highly concentrated — airlines, banking, energy, tech platforms — the law restricts how much voting power any single fund family can hold in more than one competitor at the same time. These limits scale with how concentrated the industry is. Firms can still own diversified portfolios, but if their holdings would give them excessive voting power across rivals, that excess voting power must be neutralized or the shares sold.

To avoid disrupting markets, the law allows asset managers to place excess holdings into special voting-neutral trusts. Investors keep the economic benefit of the shares, but the voting rights are removed and placed with independent fiduciaries who cannot coordinate with fund managers.

The third major change is transparency. Large asset managers must disclose how they vote, in standardized, public formats. The government can audit voting systems, track delegation, and enforce compliance through the SEC, Department of Labor, FTC, and DOJ.

What this law does not do is nationalize companies, ban index funds, or prevent people from investing globally. Asset managers can still run funds, track indexes, and earn fees. They just no longer get to quietly control corporate America through other people’s shares.

If enacted, this law would shift corporate governance away from a few financial institutions and back toward millions of real owners. Boards would answer to shareholders instead of fund families. Companies would compete more aggressively. And workers and retirees would have a real voice over the businesses they actually own.

The Full Bill

H.R. ____

IN THE HOUSE OF REPRESENTATIVES

Mr./Ms. ________ introduced the following bill; which was referred to the Committee on Financial Services, and in addition to the Committees on Ways and Means, the Judiciary, and Education and the Workforce, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.

A BILL

To restore shareholder voting rights to beneficial owners, limit anticompetitive common ownership in concentrated markets, improve transparency of proxy voting, and strengthen the integrity and resilience of United States capital markets.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the "Shareholder Democracy and Market Integrity Act".

SEC. 2. FINDINGS.

1. Equity ownership of issuers registered under section 12 of the Securities Exchange Act of 1934 is increasingly held through pooled investment vehicles, including mutual funds, exchange-traded funds, collective investment trusts, and retirement plans.

2. Proxy voting rights associated with such equity are often exercised by intermediaries rather than the individuals and entities that bear the economic risk and reward of ownership.

3. Concentration of proxy voting authority in a small number of intermediaries can materially influence corporate governance outcomes, including board composition, executive compensation, and major corporate transactions, across broad segments of the economy.

4. High levels of common ownership by the same intermediaries across competing firms can reduce incentives for competition and innovation, and may undermine market discipline.

5. Beneficial owners frequently lack practical ability to (A) direct the vote of shares attributable to their economic interest, and (B) observe how their economic interest is voted.

6. Restoring beneficial-owner control of voting, limiting anticompetitive common ownership in concentrated markets, and improving proxy transparency serve the public interest and the integrity of United States capital markets.

SEC. 3. PURPOSES.

1. to require pass-through voting such that beneficial owners may direct the voting of shares attributable to their economic interest;

2. to reduce anticompetitive effects of common ownership in concentrated markets by limiting the voting or ownership position a single fund family may maintain across competing issuers;

3. to require timely, standardized public disclosure of proxy votes and voting policies; and

4. to improve the stability and integrity of capital markets through clearer accountability for the exercise of shareholder power.

TITLE I — DEFINITIONS

SEC. 101. DEFINITIONS.

(1) ASSET MANAGER. The term “asset manager” means any investment adviser (as defined in section 202(a)(11) of the Investment Advisers Act of 1940 (15 U.S.C. 80b–2(a)(11))) that (A) manages assets of a pooled investment vehicle, retirement plan, or discretionary account, and (B) exercises, or has authority to exercise, proxy voting power with respect to equity securities.

(2) FUND FAMILY. The term “fund family” means an asset manager and any affiliated persons (as such term is used in the Investment Company Act of 1940) that sponsor, advise, sub-advise, or control one or more pooled investment vehicles.

(3)BENEFICIAL OWNER.The term ‘beneficial owner’ means any natural person or legal entity that has the right to receive the economic benefits of ownership of an equity security, including dividends, interest, or gains from appreciation, or that bears the risk of loss with respect to such security, through ownership of the voting security or through a custodial or fiduciary account holding such security.

The term does not include any intermediary, fiduciary, custodian, nominee, broker-dealer, investment adviser, registered investment company, exchange-traded fund, or other pooled investment vehicle that holds such security solely on behalf of another person or entity, except to the extent such intermediary or vehicle has invested its own proprietary capital in such security.

(4) PASS-THROUGH VOTING. The term “pass-through voting” means a system under which proxy voting power associated with an equity position held through an intermediary is (A) solicited from beneficial owners, (B) executed in accordance with beneficial-owner instructions, and (C) auditable through confirmations and records.

(5) COVERED ISSUER. The term “covered issuer” means an issuer with a security registered under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 78l), or required to file reports under section 15(d) of such Act (15 U.S.C. 78o(d)).

(6) COMPETING ISSUERS. The term ‘competing issuers’ means any two or more covered issuers that compete, or are reasonably likely to compete, in the same relevant product and geographic market, as determined under the antitrust laws of the United States, including the Sherman Act and the Clayton Act, and as interpreted by the Department of Justice and the Federal Trade Commission.

(7) VOTING POWER.

The term “voting power” means the power, directly or indirectly, to vote or direct the voting of any voting security of a covered issuer, whether through ownership, contractual right, proxy, fiduciary authority, custodial arrangement, or any other arrangement or understanding.

(8) LARGE COMPLEX. The term “large complex” means a fund family that, as of the end of the prior calendar year, had (A) $1,000,000,000,000 or more in aggregate assets under management attributable to U.S. clients or U.S.-domiciled pooled investment vehicles, or (B) such other threshold as the Securities and Exchange Commission may establish by rule to capture systemically significant voting concentration.

TITLE II — BENEFICIAL OWNER VOTING RIGHTS AND PROXY TRANSPARENCY

Subtitle A — Amendments to the Securities Exchange Act of 1934

SEC. 201. BENEFICIAL OWNER PROXY DIRECTION RIGHT.

Section 14 of the Securities Exchange Act of 1934 (15 U.S.C. 78n) is amended by adding at the end the following new subsection:

“(j) Beneficial Owner Voting Direction.—

(1) Right to Direct Vote. With respect to any proxy solicitation for a covered issuer, any person or entity that exercises voting power for shares held through an intermediary shall provide a means for each beneficial owner to direct the vote attributable to that beneficial owner’s economic interest, consistent with rules of the Commission.

(2) No Deemed Consent. Failure of a beneficial owner to respond shall not be treated as consent to vote in any particular manner, except as provided under a default framework approved by the Commission under paragraph (4), provided such default may not be established, selected, or influenced by any asset manager, fund family, or affiliate.

(3) Confirmation. The person exercising voting power shall provide to each beneficial owner, in a timely manner, confirmation that the beneficial owner’s instructions were received and executed.

(4) Commission Rules. Not later than 18 months after the date of enactment of the Shareholder Democracy and Market Integrity Act, the Commission shall promulgate rules establishing minimum standards for pass-through voting systems, including ballot delivery, authentication, tabulation, execution, record retention, and auditability.”

SEC. 202. TIMELY PUBLIC DISCLOSURE OF PROXY VOTES.

Section 14 of the Securities Exchange Act of 1934 (15 U.S.C. 78n) is further amended by adding at the end the following new subsection:

“(k) Proxy Vote Disclosure.—

(1) In General. Any asset manager or fund family that exercises voting power with respect to a covered issuer shall publicly disclose each proxy vote cast not later than 2 business days after such vote is submitted.

(2) Standardization. Disclosures shall be in machine-readable format, searchable, and linked to (A) the covered issuer, (B) the meeting date, (C) the ballot item, and (D) the voting instructions category.

(3) Beneficial Owner Attribution. The Commission shall by rule provide for disclosure of the extent to which votes reflect beneficial-owner instructions versus intermediary defaults, aggregated in a manner that protects individual privacy while preserving accountability.”

Subtitle B — Amendments to the Investment Company Act of 1940

SEC. 211. PASS-THROUGH VOTING REQUIREMENT FOR REGISTERED INVESTMENT COMPANIES.

The Investment Company Act of 1940 (15 U.S.C. 80a–1 et seq.) is amended by inserting after section 12 the following new section:

“SEC. 12A. PASS-THROUGH VOTING FOR PORTFOLIO SECURITIES.

(a) Requirement. Each registered investment company shall implement pass-through voting with respect to proxy voting of portfolio securities of covered issuers, such that fund shareholders may direct, in whole or in part, how the fund votes the shares attributable to the shareholders’ economic interest.

(b) Execution. A registered investment company shall vote portfolio securities—

(1) in accordance with instructions of fund shareholders; and

(2) only to the extent instructions are provided.

(c) Commission-Approved Defaults. The Commission may authorize a limited default mechanism, provided that—

(1) the default is neutral among competing issuers;

(2) the default is disclosed prominently;

(3) the default is revocable at any time; and

(4) fund shareholders are provided a simple means to override the default for any ballot item.

(d) Anti-Coercion. No registered investment company, adviser, principal underwriter, or affiliate may condition fees, access, or services on how a shareholder votes.

(e) Rules. Not later than 18 months after enactment, the Commission shall issue rules to implement this section, including standards for proportional tabulation, verification, and recordkeeping.”

SEC. 212. EXPANDED DISCLOSURE FOR FORM N–PX AND SUCCESSOR FORMS.

Section 30 of the Investment Company Act of 1940 (15 U.S.C. 80a–29) is amended by adding at the end:

“(h) The Commission shall require that proxy vote reporting under this title be made available in machine-readable format and updated not less frequently than every 2 business days during proxy season, and shall require disclosure of the extent to which votes reflect pass-through instructions versus defaults.”

Subtitle C — Amendments to the Investment Advisers Act of 1940

SEC. 221. CLIENT DIRECTION OF PROXY VOTING FOR ADVISED ACCOUNTS.

Section 206 of the Investment Advisers Act of 1940 (15 U.S.C. 80b–6) is amended by adding at the end:

“(6) It shall be unlawful for any investment adviser to exercise proxy voting authority for a client account holding voting securities of a covered issuer unless the adviser— (A) provides the client with a reasonable opportunity to direct such votes; (B) executes votes in accordance with client instructions; and (C) provides confirmations and records as the Commission shall require by rule.”

Subtitle D — Amendments to ERISA (Retirement Plans)

SEC. 231. PARTICIPANT VOTING RIGHTS FOR RETIREMENT PLAN EQUITY.

Section 404 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1104) is amended by adding at the end:

“(e) Participant Direction of Proxy Voting.—

(1) For any defined contribution plan holding equity securities of covered issuers, plan fiduciaries shall provide participants and beneficiaries with the opportunity to direct the exercise of voting power attributable to their accounts, in accordance with standards established jointly by the Secretary of Labor and the Securities and Exchange Commission.

(2) A fiduciary shall not be treated as failing to satisfy the prudence requirement solely because the fiduciary executed voting instructions of participants, provided such instructions are collected and executed under a system meeting minimum security and audit standards.

(3) The Secretary shall by regulation provide a phased implementation schedule, prioritizing large plans and plans using large complexes.”

TITLE III — COMPETITIVE COMMON OWNERSHIP LIMITS

SEC. 301. LIMITS ON FUND FAMILY HOLDINGS ACROSS COMPETING ISSUERS.

(a) IN GENERAL.— The Clayton Act (15 U.S.C. 12 et seq.) is amended by inserting after section 7 the following new section:

“SEC. 7A. COMMON OWNERSHIP LIMITS IN CONCENTRATED MARKETS.

(a) Covered Situation. It shall be unlawful for a fund family to hold, in the aggregate, voting power exceeding the applicable threshold in two or more competing issuers within a relevant market designated under subsection (e).

(b) Thresholds (Proportional and Functional). The applicable threshold shall be—

(1) 1 percent of outstanding voting securities of each of two or more competing issuers, in any relevant market in which the Herfindahl–Hirschman Index (HHI) is 2,500 or greater;

(2) 3 percent of outstanding voting securities of each of two or more competing issuers, in any relevant market in which the HHI is between 1,500 and 2,499; and

(3) 5 percent in any other designated relevant market, as determined by the Attorney General and the Commission under subsection (e), where evidence indicates material risk of anticompetitive effect.

(c) Compliance Options. A fund family in a covered situation shall, not later than the compliance date—

(1) divest holdings to below the applicable threshold; or

(2) place excess holdings into a voting-sterilized trust under subsection (d).

(d) Voting-Sterilized Trust. A voting-sterilized trust—

(1) shall retain economic exposure but shall not permit the fund family or any affiliate to exercise voting power;

(2) shall vote shares strictly in accordance with beneficial-owner pass-through instructions where feasible, and otherwise abstain; and

(3) shall be administered by an independent fiduciary selected by the Attorney General.

(e) Market Designation and Rules. The Attorney General, in consultation with the Federal Trade Commission, shall by rule—

(0) automatically designate any market meeting the HHI thresholds,

(1) establish procedures to define relevant markets for purposes of this section;

(2) designate markets subject to subsection (b); and

(3) provide safe harbors for de minimis, inadvertent, or transient breaches not exceeding 90 days.

(f) Enforcement. This section shall be enforced by the Attorney General and the Federal Trade Commission pursuant to existing authority under this Act.”

(b) RULE OF CONSTRUCTION.— Nothing in this title shall be construed to prohibit diversified investing as such; this title regulates only the extent of concentrated voting power held across direct competitors in concentrated markets.

TITLE IV — LARGE COMPLEX STEWARDSHIP LIMITS AND AUDITABILITY

SEC. 401. INDEPENDENT STEWARDSHIP AUDITS FOR LARGE COMPLEXES.

The Securities Exchange Act of 1934 is amended by adding after section 13 the following:

“SEC. 13A. STEWARDSHIP GOVERNANCE AUDIT.

(a) Each large complex shall obtain an annual independent audit of its proxy voting systems, including (1) ballot integrity, (2) instruction handling, (3) execution fidelity, (4) record retention, and (5) controls preventing coercion or bundling of voting instructions.

(b) Audit reports shall be filed with the Commission and made publicly available, except for information the Commission determines would create material cybersecurity risk.”

TITLE V — RULEMAKING, IMPLEMENTATION, AND EFFECTIVE DATES

SEC. 501. JOINT RULEMAKING.

(a) SEC.— Not later than 18 months after enactment, the Securities and Exchange Commission shall issue final rules to implement Titles II and IV.

(b) DOL.— Not later than 18 months after enactment, the Secretary of Labor shall issue final rules to implement section 231, including minimum standards for participant voting systems.

(c) DOJ/FTC.— Not later than 24 months after enactment, the Attorney General and Federal Trade Commission shall issue final rules to implement Title III, including market designation procedures.

SEC. 502. PHASED COMPLIANCE SCHEDULE.

(a) Large Complex Priority.— Requirements of Title II (pass-through voting and confirmations) shall apply to large complexes beginning 24 months after enactment.

(b) All Others.— Requirements of Title II shall apply to all covered asset managers and fund families beginning 36 months after enactment.

(c) Common Ownership Limits.— Title III compliance shall be required beginning 36 months after enactment, with authority for DOJ/FTC to grant one-time extensions up to 12 months upon a showing of operational necessity and a binding divestment or sterilization plan.

(d) Early Compliance Safe Harbor.— The SEC and DOL shall provide safe harbors for entities that implement compliant pass-through systems before the applicable compliance date.

TITLE VI — ENFORCEMENT AND PENALTIES

SEC. 601. ENFORCEMENT.

(a) SEC.— The SEC shall enforce Titles II and IV using all authorities available under the Securities Exchange Act of 1934, the Investment Company Act of 1940, and the Investment Advisers Act of 1940.

(b) DOL.— The Secretary of Labor shall enforce ERISA amendments under existing ERISA enforcement authority.

(c) DOJ/FTC.— The Attorney General and FTC shall enforce Title III under the Clayton Act and FTC Act.

SEC. 602. CIVIL PENALTIES AND REMEDIES.

(a) For willful or repeated violations of pass-through voting requirements or vote disclosure requirements, the SEC may impose civil penalties up to the greater of— (1) $1,000,000,000; or (2) 1 percent of U.S.-domiciled assets under management of the fund family.

(b) For violations of common ownership limits under Title III, remedies may include— (1) injunctive relief; (2) forced divestiture; (3) voting sterilization; and (4) civil penalties as provided under the Clayton Act.

(c) In addition to penalties, the SEC may suspend proxy voting authority for any fund family that fails to maintain compliant voting systems or auditability controls.

TITLE VII — SEVERABILITY

SEC. 701. SEVERABILITY.

If any provision of this Act, or the application of such provision to any person or circumstance, is held invalid, the remainder of this Act, and the application of the remaining provisions to any other person or circumstance, shall not be affected.

TITLE VIII — FOREIGN INTERMEDIARIES AND CROSS-BORDER OWNERSHIP

SEC. 801. DEFINITIONS.

For purposes of this title:

(1) FOREIGN INTERMEDIARY.

The term “foreign intermediary” means any bank, broker, custodian, nominee, clearing agency, depository, investment adviser, fund, trust, or other financial institution organized or domiciled outside the United States that holds, administers, transmits, or exercises voting power with respect to equity securities of a covered issuer on behalf of any person or entity.

(2) CROSS-BORDER CUSTODY CHAIN.

The term “cross-border custody chain” means any arrangement under which voting securities of a covered issuer are held through one or more foreign intermediaries before reaching the beneficial owner.

SEC. 802. APPLICATION OF THIS ACT TO FOREIGN INTERMEDIARIES.

(a) In General.

Any foreign intermediary that holds, transmits, administers, or exercises voting power with respect to any voting security of a covered issuer shall be subject to all applicable provisions of this Act to the same extent as a domestic intermediary, regardless of the domicile, place of incorporation, or principal place of business of such intermediary.

(b) Voting Power Through Foreign Chains.

Voting power exercised through a cross-border custody chain shall be deemed exercised within the United States for purposes of this Act if the underlying security is a voting security of a covered issuer.

(c) No Avoidance by Offshore Structuring.

No person or entity may evade the requirements of this Act through the use of foreign custodians, nominees, depositories, or other offshore arrangements.

SEC. 803. SAFE HARBOR FOR PURELY FOREIGN SECURITIES.

(a) Exclusion.

This Act shall not apply to voting securities issued by a foreign issuer that is not a covered issuer, provided that such securities are not listed on a United States exchange and are not registered under section 12 of the Securities Exchange Act of 1934.

(b) No Shielding of U.S. Issuers.

Nothing in this section shall be construed to permit the shielding of voting power of a covered issuer through foreign listing, foreign custodianship, or depositary receipt structures.

SEC. 804. REGULATORY COORDINATION.

The Securities and Exchange Commission, in consultation with the Department of the Treasury and the Department of Justice, shall issue rules to ensure the effective enforcement of this title, including information-sharing, compliance obligations for foreign intermediaries, and coordination with foreign regulators.