Texas Stock Exchange Proxy Rule: The SEC Just Shifted the Burden of Proof
The SEC Put TXSE's Proportional Proxy Voting Rule Into Formal Proceedings
On September 8, 2026, the Securities and Exchange Commission instituted proceedings to determine whether to approve or disapprove Texas Stock Exchange LLC's proposed amendment to Exchange Rule 13.003 on proxy voting. The order, Release No. 34-106292, was published in the Federal Register on September 11, 2026 under File No. SR-TXSE-2026-008.
The headline reading is that the SEC is skeptical. That is not what an Order Instituting Proceedings means, and treating it that way will cause companies and asset managers to sit out the only window that matters.
Here is the part most coverage is missing. Institution of proceedings under Section 19(b)(2)(B) flips the posture of the filing. TXSE now carries the burden of demonstrating that its proposed rule is consistent with the Exchange Act — specifically Sections 6(b)(5) and 6(b)(10), which the Commission expressly asked commenters to address. Comments are due October 2, 2026. Rebuttals are due October 16, 2026. After that, the evidentiary record is closed and the outcome turns on what is already in it.
What Rule 13.003(c) Actually Does to Uninstructed Shares
Most shares in the United States are held in street name. When a beneficial owner does not return voting instructions, the broker holding those shares has historically had discretion to vote them on routine matters. That discretionary block is large, predictable, and has traditionally favored management.
TXSE proposes to replace it with arithmetic. Under proposed Rule 13.003(c), a "Covered Member" holding uninstructed shares of a TXSE-primarily-listed equity security would vote those shares on each shareholder proposal in the same proportion as the aggregate voting instructions actually received from beneficial owners who did submit them.
The distinction that matters
Proportional voting sounds neutral. It is not neutral in effect.
- Silence stops being a separate constituency. Uninstructed shares no longer express a distinct outcome; they mirror the instructed shares.
- The instructed minority gets multiplied. If a modest share of retail beneficial owners returns instructions, that group's split determines the disposition of a much larger block.
- Institutional and proxy-adviser-aligned voting gains leverage. Holders with systematic voting processes return instructions at far higher rates than retail holders, so their split sets the ratio.
That is the counter-intuitive result. A mechanism marketed as a cleaner reflection of shareholder will can amplify the influence of whoever already votes — which is precisely the kind of question Sections 6(b)(5) and 6(b)(10) exist to test.
An Order Instituting Proceedings Is a Clock, Not a Verdict
The procedural chain is worth understanding, because the timing drives every decision a listed company or fund complex needs to make this quarter.
- May 28, 2026 — TXSE filed SR-TXSE-2026-008 under Section 19(b)(1) of the Exchange Act and Rule 19b-4.
- June 11, 2026 — The Notice of Filing was published in the Federal Register, opening an initial comment period that closed July 2, 2026.
- July 21, 2026 — The Commission designated a longer period for action.
- September 8, 2026 — The Commission instituted proceedings under Section 19(b)(2)(B), with comments due October 2 and rebuttals due October 16, 2026.
Section 19(b)(2) requires the Commission to conclude proceedings within 180 days of publication of the notice, with a further 60-day extension available. Measured from June 11, 2026, the statutory clock runs into early December 2026, and into early 2027 if extended.
No outcome has been decided. The Commission has not proposed a finding, and institution of proceedings is not a signal of disapproval. It is the mechanism that preserves the SEC's time while building a record.
The Commission has already received comment letters in this file from Hennessy Advisors, the Investment Company Institute, and SIFMA, among others. The composition of that list tells you who considers this consequential: fund sponsors, the broker-dealers who would operate the mechanic, and the trade groups that speak for both.
Who Bears the Cost: Listed Issuers, Brokers, and Fund Boards
TXSE became the 29th registered national securities exchange when the SEC approved its Form 1 application on September 30, 2025 under Release No. 34-104146. A venue-specific proxy rule creates a venue-specific operating burden. That burden does not fall evenly.
If you are an issuer considering a TXSE primary listing. Rule 13.003(c) would apply to your shareholder proposals, not your competitor's on another venue. Model at least two contested scenarios — a director election and a compensation-related proposal — under both discretionary and proportional voting before your listing decision reaches the board. The delta is a governance fact, not a legal footnote.
If you run or operate a broker-dealer holding street-name positions. A Covered Member designation means building and testing a per-proposal allocation calculation, reconciling it to instruction-tabulation data, and documenting supervision over it. Ask your operations and compliance leads how the formula would be computed, who signs off, and what the error-correction process looks like if instructed totals are restated after a cutoff.
If you manage registered funds or advisory accounts that vote portfolio shares. Your voting policies were written against a discretionary-voting baseline. Under proportional voting, your instructions may carry mathematically greater weight on TXSE-listed names. That is a proxy-voting-policy question and a disclosure question for fund boards.
If any of the above applies, the decision point is the record, not the ruling. October 2 and October 16 are the last dates on which a company can put its own facts in front of the Commission. Firms that want that record shaped generally work with SEC exam counsel on comment submissions well before the deadline, because a comment letter filed on the last afternoon rarely carries data.
FinTech Law's private fund counsel team advises on the requirements described above.
Contact FinTech Law to review how this applies to your business.