Investors react against Snapchat’s share classes

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The following news was published in the GLOBAL PROXY WATCH, one of the most read and respected newsletters among global institutional investors, duly authorized to be republished herein. The newsletter reflects Amec’s concerns about the super preferred shares and, primarily, about the harmful effects that such exotic shares have on the indexes as they virtually make the purchase by institutional investors mandatory, regardless of their negative governance characteristics. It’s a notable example that shows that the argument that the market must be free to trade and price this type of shares has to be analyzed with strong reservation.
An important reflection for the Brazilian market.
SNAP OUT OF IT                     
A group of funds led by the US Council of Institutional Investors (CII) this week asked index providers to exclude Snap from passive indices because its common shares carry no voting rights (GPW XXI-05). They met Tuesday with MSCI, which already has asked for input, and with S&P yesterday, and are reaching out to FTSE Russell. The CII also is re-opening a broader campaign against dual-class shares with the New York Stock Exchange and Nasdaq. The effort raises the question of who decides what constitutes a market. Dual-class shares are not allowed under UK rules—although the Financial Conduct Authority is mulling a rollback to attract US tech firms that have them (GPW XXI-07). But for now, the FTSE 350 excludes dual-class shares while the S&P 500 includes them—even though both aim to capture entire markets. If US investors convince index providers to exclude Snap, it could open the door to barring all dual-class shares regardless of what regulators or stock exchange listing rules require. “Who Votes? is the issue right now,” said S&P indexes committee chief David Blitzer in a Monday interview. The committee, he said, needs to think through how much influence investors should have. One way for indexers to respond on Snap without opening Pandora’s Box would be to declare that non-voting shares do not qualify as common but instead are more like preferred, which are not included in passive indices. Investors’ potential clout was driven home at last week’s CII meeting in Washington, DC, where CalPERS board member JJ Jelincic said: “The funds in this room have the power to stop dual-class share listings like Snap. All we need to do is refuse to buy them.”