What happens when many investors think they own the same share of stock? Fines.
New York Stock Exchange
said Tuesday that it fined three brokers for record-keeping violations that led to so-called over-voting in corporate elections.
were fined a total of $1.35 million for "operational deficiencies and supervisory violations concerning the submission of proxy votes," according to the NYSE.
"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."
Over-voting, in which more shares than exist are voted in a corporate ballot, has been linked to certain excesses of short-selling. Although this case doesn't specifically state that the fines were related to shares lent for short sales, the two issues often coincide.
Here's how the situation can arise. A broker lends a client's shares to another buyer, usually a short-seller. That person then sells the shares to a third person, whose broker lends the shares out anew. And so on. In theory, the dividend and voting privileges associated with the stock devolve to only one person -- its physical owner, or the last person on the daisy chain. In practice, however, the situation can be cause problems in proxy votes.
In particular, brokers run into problems when they don't tell the original owner he doesn't have his voting rights anymore. That person then casts votes in a proxy vote, as does the end owner. If more votes than shares are submitted, the NYSE knows something is amiss.
In this case, UBS Securities, Goldman Sachs Execution and Clearing and Credit Suisse Securities were fined for improper book keeping with regard to the share ownership. UBS will pay $600,000, Goldman will pay $500,000, and Credit Suisse owes $250,000.