News Releases

“Inadequate processing and supervision of customer proxies undermine a fundamental principle of stock ownership,” said Susan L. Merrill, chief of enforcement, NYSE Regulation. “I remind member firms that they must ensure that shareholders’ votes are not threatened by inattention, careless systems, or insufficient reviews, and that outsourcing of the proxy function does not lessen a firm’s responsibilities.”
In all three actions, the violations were first detected by the Member Firm Regulation Division of NYSE Regulation (“MFR”) during special examinations, and then referred to the Division of Enforcement for further investigation.

NYSE Rules require that member firms transmit proxy materials to the beneficial owners of stocks held in street name and collect and transmit to the issuer any voting instructions given by the shareholders.  Member firms typically outsource the proxy function by contracting with a proxy-service provider (the “Agent”) to distribute the proxy materials and to collect and transmit the voting instructions to the transfer agent engaged by the issuer to tabulate the votes (the “Tabulator”).

The Tabulator then compares the proxy votes submitted with the number of shares reflected on the records of the Depository Trust and Clearing Corporation (“DTCC”) on the record date.  An “over-vote” results if a member firm submits to the Tabulator more shares than are shown on the records of DTCC and does not mean that the Tabulator necessarily counted the over-voted shares in determining the outcome of the proxy matter. See NYSE Information Memo 04-58, “Supervision of Proxy Activities and Over-voting” (Nov. 5, 2004). 

There are no standard industry procedures that govern a Tabulator’s approach to dealing with over-voting.  Depending upon the procedure implemented by the Tabulator, certain customers’ voting instructions may not be represented as originally given. Enforcement’s investigations have not uncovered any instance in which an over-vote improperly affected the outcome of a proxy vote or any instance in which a shareholder who attempted to vote was disenfranchised. 

However, by submitting an over-vote, a member firm subjects its customers to the risk that the Tabulator would not accept their votes. Through an under-vote, a member firm subjects its customers to disenfranchisement by the broker-dealer’s own actions.

Among the violations cited in NYSE Hearing Panel Decisions HPD No. 06-055 (UBS), 06-061 (GSEC) and 06-054  (CSSU) are the following:

UBS Securities LLC
From January 2000 to April 2004, UBS over-voted in numerous instances, failed to implement adequate polices and procedures to accurately adjust its records and failed to reconcile its stock ownership records to ensure that it would not over-vote.  The over-votes were caused by the firm’s failure to net long positions against short positions (for both proprietary and customer accounts) and by voting customer long shares when these securities, in fact, were out on loan.  The firm also failed to reasonably supervise proxy vote operations, as well as to provide for and implement adequate written procedures for proxy operations, the supervision of the proxy process and of its Agent.  Additionally, in December 2003, the firm provided inaccurate answers to a proxy vote survey conducted by MFR.

Goldman Sachs Execution & Clearing, L.P.
From January 2003 to November 2003, GSEC failed: to timely reconcile stock records of beneficial ownership in connection with proxy voting, to implement adequate policies and procedures to accurately adjust its record of stock ownership so that votes of its customers were accurately tallied for proxy voting purposes, to assure that its systems and procedures provided for accurate submission of proxy data to the Tabulator, and to retain all required proxy solicitation records.  In addition, on one or more occasions, the firm over-voted due to its failure to properly account for firm and customer short positions when calculating its long position.

Credit Suisse Securities (USA) LLC
From January 2003 to November 2003, and for an indeterminate time prior, CSSU failed to timely reconcile stock records of beneficial ownership in connection with proxy voting; to implement adequate policies and procedures to accurately adjust its record of stock ownership so that votes of its customers were accurately tallied for proxy voting purposes; and to assure that its systems and procedures provided for accurate submission of proxy data to the Tabulator.  In addition, on one or more occasions, the firm over-voted due to its failure to reconcile its stock record in connection with proxy voting instructions and its customary practice of voting shares as per its unadjusted DTCC level.