NYSE responds to corporate voting violations

NEW YORK – NYSE Regulation, the regulatory arm of the New York Stock Exchange Group (NYSE), has fined three top Wall Street investment banks for violating proxy-handling rules in corporate elections.

NYSE Regulation announced in mid-June that UBS Securities, Goldman Sachs Execution & Clearing and Credit Suisse Securities, all NYSE member firms, had been charged for operational deficiencies and supervisory violations concerning the submission of proxy votes. The firms will pay a total of $1.4 million. Goldman Sachs Execution & Clearing will pay $500,000; UBS $600,000 and $250,000 for Credit Suisse Securities.

NYSE rules require that member firms transmit proxy materials to the beneficial owners of stocks held in street name [neither the investor nor the broker holds an actual share, as shares and the right owners are kept at the central repository] and collect and transmit to the issuer any voting instructions given by the shareholders. The member firms typically outsource the proxy function by contracting with a proxy-service provider 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 charged firms failed to implement adequate polices and procedures to accurately adjust their records and reconcile their stock ownership records to avoid over-voting. The result was the firms submitted more proxy votes than they were entitled to cast. Frank Partnoy, a law professor at the University of San Diego in California, says: "Problems in corporate voting stem from the borrowing and lending of shares. When an investor buys a share from a broker, he or she does not receive an actual share. Instead, each share remains in a centralised depository, which keeps tabs on how many shares are allotted to each broker.

"The investor's brokerage account includes an entry showing ownership of a share, but neither the investor nor the broker holds an actual share. But parties deal in a kind of virtual security, a share that is said to be held in 'street name'," according to .

Announcing the enforcements, Susan Merrill, the enforcement chief at NYSE Regulation, warned member firms to ensure that shareholders' votes are not threatened by inattention, careless systems, or insufficient reviews, and that outsourcing of the proxy function does absolve the firm of its responsibilities.