"Proxy over-voting creates a serious risk that shareholders' votes will not be counted," said Susan L. Merrill, chief of enforcement, NYSE Regulation. "Shareholders are entitled to expect that even in routine matters, the proxy process has been properly supervised by their broker-dealer."

In this decision, "over-voting" by a broker-dealer means that the member firm's service provider submitted proxies for more shares than the firm was entitled to vote on a specific proxy matter and does not mean that the transfer agent tabulating the votes (the Tabulator) necessarily counted these 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).

This disciplinary action concerned violations of Rule 17a-4 under the Securities Exchange Act of 1934, and NYSE Rules 342, 401, 440, 451, 452.20 and 476(a)(6).

From March 1998 to November 2003, Deutsche Bank failed to timely reconcile stock records on beneficial ownership in connection with proxy voting, issued duplicate requests for proxy voting instructions for securities held in certain omnibus accounts, which resulted in duplicate votes in some instances, failed to transmit accurate information to its proxy service provider on numerous occasions, voted more shares than it was entitled to vote ("over-voting") in proxy matters in numerous instances and did not adequately retain proxy solicitation records.

The firm also failed to reasonably supervise and control its business activity, and failed to establish a separate system of follow-up and review, to comply with the federal securities laws and NYSE Rules: the firm failed to reasonably supervise its proxy operations to prevent over-voting, failed to provide for and implement written operations and supervisory procedures for its Proxy Department, and failed to provide for and implement written procedures for the oversight of its proxy service provider.

Operational and supervisory deficiencies of the proxy function were first detected by the Member Firm Regulation Division of NYSE Regulation, and then referred to the Division of Enforcement for further investigation.

When securities are held by a member firm in street name on behalf of itself or a customer (collectively referred to as "Shareholders"), the firm is required under NYSE Rule 451 to transmit proxy materials to Shareholders in a timely manner. A firm is also required to collect and properly transmit to the Tabulator any votes cast by Shareholders. This is normally done through a proxy service provider.

For each proxy solicitation, the Tabulator then compares the proxy votes submitted on behalf of the member firm and/or its customers 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 the firm submits to the Tabulator more shares than are shown on the records of DTCC.

Shareholders' voting rights may be jeopardized by over-voting. Tabulators have no uniform procedure for handling over-votes and may reduce, discard or reject excess votes submitted by broker-dealers in any number of ways. A Tabulator may disregard all votes by a broker-dealer if its submissions are viewed as so inaccurate they cannot be relied on.

Failure to Reconcile Records of Beneficial Ownership

During the relevant period, the firm generally failed to reconcile its records of beneficial ownership so that beneficial owners' votes would be accurately tallied by the Tabulator for proxy voting purposes. The firm lacked written procedures relating to proxy reconciliations and customarily voted shares as per its unadjusted DTCC level.

Between March 1998 and about December 2000, the firm subscribed to the proxy service provider’s over-vote service. Pursuant to that service, the provider notified the firm when a potential over-vote was pending. Nonetheless, even though this service was in effect, the firm generally failed to reconcile its records of beneficial ownership and did not use such notifications to support its reconciliation work.

In or about January 2001, when the firm transferred the proxy function from New York to Baltimore, its subscription to the proxy service provider's over-vote service lapsed through lack of due care. The firm failed to notice or correct this error until November 2003. From January 2001 through February 2003, when the over-vote service subscription was not in effect, the firm’s failure to reconcile records of beneficial ownership also related to prime brokerage and retail customer accounts.

From 1999 through the summer of 2004, the firm failed to net securities positions held in its proprietary accounts, institutional accounts, prime brokerage accounts, and proprietary accounts of its affiliates. At various times during this period, the firm did not net long and short positions within a single account, and did not net across all the accounts owned by a single legal entity to sum up that entity's position in a stock to a single net long (or short) position.

Over-Votes

For 2003, NYSE Member Firm Regulation identified 12 instances, out of 15 tested, in which the firm over-voted. The over-votes submitted by the firm ranged from 16,710 shares to 4,304,284 shares.

NYSE Enforcement's investigation also disclosed that, in 2002, the firm over-voted in 11 instances out of 12 tested. The over-votes submitted by the firm ranged from 31 shares to 4,488,662 shares.

Respondent's failure to reconcile the stock record in connection with proxy voting instructions was a central cause of the over-votes.

However, NYSE Enforcement's investigation has not disclosed any instance in which an over-vote improperly shifted the balance of a proxy matter or any instance in which a shareholder who attempted to vote his or her shares was disenfranchised and lost his or her vote.

Despite the fact that votes in question concerned routine matters, by submitting an over-vote, Deutsche Bank subjected its customers to the risk that their proxy votes would not be accepted.

In addition, certain records requested by the NYSE were not available and had to be reconstructed by the firm or its proxy service provider. The firm did not maintain proxy records in accordance with the federal securities laws and NYSE Rules.

The firm also did not provide for or implement adequate written operational or supervisory procedures relating to its Proxy Department, notwithstanding a May 2001 internal audit report that had identified this deficiency and the Proxy Department’s undertaking to develop and implement such procedures. Nor did the firm during the relevant period provide for and implement written procedures for the supervision of the proxy service provider.

NYSE Regulation did note subsequent improvements by the firm including the implementation of a process to appropriately net long and short positions within a single account; the preparation of written operational and supervisory procedures for its proxy area, which were put into effect; the reinstatement of its subscription to the proxy service provider’s over-voting reporting service; the re-setting of the provider’s systems platform to prevent further mailing of duplicate proxy material. A subsequent review by NYSE Member Firm Regulation confirmed these remedial procedures were in effect and functioning. The firm also developed a process to appropriately net across all the accounts owned by a single legal entity, and devoted additional staff to the proxy function.

In settling these charges brought by NYSE Regulation, Deutsche Bank Securities Inc. neither admitted nor denied the charges.