Rule 17Ad-17; Transfer Agents', Brokers', and Dealers' Obligation To Search for Lost Securityholders; Paying Agents' Obligation To Search for Missing Securityholders, 16707-16712 [2011-6940]
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Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules
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is less than $25; and add to Rule 17Ad–
17 a provision clarifying that the written
notification requirements shall have no
effect on State escheatment laws. The
amendment also requires the
Commission to ‘‘adopt such rules,
regulations, and orders necessary to
implement this subsection no later than
1 year after the date of enactment of this
subsection.’’ The Commission is
publishing for comment proposed
amendments to Rule 17Ad–17 to
implement the statutory requirements.
DATES: Comments should be received on
or before May 9, 2011.
ADDRESSES: Comments may be
submitted by any of the following
methods:
Electronic Comments
Authority: Pub. L. 111–240.
[Release No. 34–64099; File No. S7–11–11]
• Use the Commission’s Internet
comment form (http://www.sec.gov/
rules/proposed.shtml);
• Send an e-mail to rulecomments@sec.gov and include File
Number S7–11–11 on the subject line;
or
• Use the Federal eRulemaking Portal
(http://www.regulations.gov) and follow
the instructions for submitting
comments.
RIN 3235–AL11
Paper Comments
Ana Ma,
Chief of Staff.
[FR Doc. 2011–7135 Filed 3–24–11; 8:45 am]
BILLING CODE 8025–01–P
SECURITIES AND EXCHANGE
COMMISSION
17 CFR Part 240
Rule 17Ad–17; Transfer Agents’,
Brokers’, and Dealers’ Obligation To
Search for Lost Securityholders;
Paying Agents’ Obligation To Search
for Missing Securityholders
Securities and Exchange
Commission.
ACTION: Proposed rule.
AGENCY:
The Dodd-Frank Wall Street
Reform and Consumer Protection Act
(‘‘Dodd-Frank Act’’) amended the
Securities Exchange Act of 1934
(‘‘Exchange Act’’) by adding a subsection
entitled, ‘‘Due Diligence for the Delivery
of Dividends, Interest, and Other
Valuable Property Rights.’’ The
amendment directs the Securities and
Exchange Commission (‘‘Commission’’)
to revise Exchange Act Rule 17Ad–17,
‘‘Transfer Agents’ Obligation to Search
for Lost Securityholders’’ to: extend to
brokers and dealers the requirement of
Rule 17Ad–17 to search for lost
securityholders; add to Rule 17Ad–17 a
requirement that ‘‘paying agents’’ notify
‘‘missing security holders’’ in writing
that the paying agent has sent the
missing security holder a check that has
not yet been negotiated; add to Rule
17Ad–17 an exclusion for paying agents
from the notification requirements when
the value of the not yet negotiated check
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SUMMARY:
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• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number S7–11–11. To help us process
and review your comments more
efficiently, please use only one method.
The Commission will post all comments
on the Commission’s Internet Web site
(http://www.sec.gov/rules/
proposed.shtml). Comments are also
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official
business days between the hours of
10 a.m. and 3 p.m. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
publicly available.
FOR FURTHER INFORMATION CONTACT: Jerry
W. Carpenter, Assistant Director, or
Thomas C. Etter, Jr., Special Counsel, at
(202) 551–5710, Division of Trading and
Markets, Securities and Exchange
Commission, 100 F Street, NE.,
Washington, DC 20549–7010.
SUPPLEMENTARY INFORMATION:
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I. Introduction
On July 21, 2010, the President signed
the Dodd-Frank Act into law.1 The
Dodd-Frank Act was enacted to, among
other things, promote the financial
stability of the United States by
improving accountability and
transparency in the financial system.2
Title IX of the Dodd-Frank Act provides
the Commission with new tools to
protect investors and improve the
regulation of securities.3
Section 929W of the Dodd-Frank Act
added subsection (g) to Section 17A of
the Exchange Act (‘‘Section 17A(g)’’),
which requires the Commission to
revise Rule 17Ad–17 under the
Exchange Act (‘‘Rule 17Ad–17’’) 4 to
extend the rule’s requirement that
transfer agents search for ‘‘lost
securityholders’’ to brokers and dealers.5
Section 17A(g) further directs the
Commission to revise Rule 17Ad–17 to
provide a requirement that the ‘‘paying
agent provide a single written
notification to each missing security
holder that the missing security holder
has been sent a check that has not yet
been negotiated.’’ 6 Under Section
17A(g), written notification must be sent
to a missing security holder no later
than seven months after the sending of
the not yet negotiated check.7
Section 17A(g)(1)(D)(ii) defines
‘‘paying agent’’ to include ‘‘any issuer,
1 Dodd-Frank Wall Street Reform and Consumer
Protection Act, Pub. L. 111–203, 124 Stat. 1376
(2010).
2 See id. at Preamble.
3 See id. § 901 (‘‘This section may be cited as the
‘Investor Protection and Securities Reform Act of
2010’.’’); Title IX (‘‘Investor Protections and
Improvements to the Regulation of Securities’’).
4 17 CFR 240.17Ad–17.
5 Rule 17Ad–17(b)(2) defines a ‘‘lost
securityholder’’ to mean ‘‘a securityholder: (i) To
whom an item of correspondence that was sent to
the securityholder at the address contained in the
transfer agent’s master securityholder file has been
returned as undeliverable; provided, however, that
if such item is re-sent within one month to the lost
securityholder, the transfer agent may deem the
securityholder to be a lost securityholder as of the
day the resent item is returned as undeliverable;
and (ii) for whom the transfer agent has not
received information regarding the securityholder’s
new address.’’
6 Section 17A(g)(1)(A), 15 U.S.C. 78q–1(g)(1)(A).
We note that Congress, in drafting Exchange Act
Section 17A(g), used a two-word formulation of the
term ‘‘security holder.’’ In Rule 17Ad–17, however,
there is a one-word formulation of the term
‘‘securityholder.’’ For the sake of consistency within
Rule 17Ad–17, we are proposing to use the term
‘‘missing securityholder’’ in Rule 17Ad–17.
Throughout this release, we have used the term
‘‘securityholder’’ when discussing Rule 17Ad–17,
and we have used the term ‘‘security holder’’ when
discussing Section 929W of the Dodd-Frank Act or
Section 17A(g) of the Exchange Act.
7 Id. Section 17A(g) provides that written
notification may be sent along with a check or other
mailing subsequently sent to the missing security
holder.
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transfer agent, broker, dealer,
investment adviser, indenture trustee,
custodian, or any other person that
accepts payments from the issuer of a
security and distributes the payments to
the holders of the security.’’ 8 In
addition, Section 17A(g)(1)(D)(i)
provides that ‘‘a security holder shall be
considered a ‘missing security holder’ if
a check is sent to the security holder
and the check is not negotiated before
the earlier of the paying agent sending
the next regularly scheduled check or
the elapsing of 6 months after the
sending of the not yet negotiated
check.’’ 9
Section 17A(g)(1)(B) and (C) also
require that the revisions to the rule: (i)
Provide an exclusion for paying agents
from the notification requirements when
the value of the not yet negotiated check
is less than $25 and (ii) add a provision
to make clear that the notification
requirements imposed on paying agents
shall have no effect on state
escheatment laws.10
Section 17A(g)(2) requires the
Commission to adopt rules, regulations,
or orders necessary to implement the
provisions of Section 17A(g)(1) no later
than one year after the date of
enactment of the Dodd-Frank Act.11
Section 17A(g)(2) further requires the
Commission, in proposing such rules, to
seek to minimize disruptions to the
current systems used by or on behalf of
paying agents to process payments to
account holders and avoid requiring
multiple paying agents to send written
notification to a missing security holder
regarding the same not yet negotiated
check.12
II. Rule 17Ad–17
A. Background
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The Commission adopted Rule 17Ad–
17 in 1997 to address situations where
recordkeeping transfer agents lose
contact with securityholders by
requiring transfer agents to conduct
database searches for lost
securityholders.13 As the Commission
noted at that time, such loss of contact
can be harmful to securityholders
because they no longer receive corporate
communications or the interest and
dividend payments to which they may
8 Section 17A(g)(1)(D)(ii), 15 U.S.C. 78q–
1(g)(1)(D)(ii).
9 Section 17A(g)(1)(D)(i), 15 U.S.C. 78q–
1(g)(1)(D)(i).
10 See Section 17A(g)(1)(B) and (C), 15 U.S.C.
78q–1(g)(1)(B) and (C).
11 Section 17A(g)(2), 15 U.S.C. 78q–1(g)(2).
12 Id.
13 See Exchange Act Release No. 39176 (Oct. 1,
1997), 62 FR 52229 (Oct. 7, 1997) (adopting Rule
17Ad–17).
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be entitled.14 Additionally, their
securities and any related interest and
dividend payments to which they may
be entitled are often placed at risk of
being deemed abandoned under
operation of state escheatment laws.15
This loss of contact has various causes,
but it most frequently results from: (1)
Failure of a securityholder to notify the
transfer agent of his/her correct address,
especially after relocating to a new
address or (2) failure of the estate of a
deceased securityholder to notify the
transfer agent of the death of the
securityholder and the name and
address of the trustee for the estate.16
B. Discussion
The proposed amendments would
implement the statutory directive to
extend the application of Rule 17Ad–17
to brokers and dealers. Specifically, the
Commission proposes to revise
paragraph (a) of Rule 17Ad–17 to add
the words ‘‘broker, or dealer’’ following
the rule’s existing references to transfer
agents.17
The Exchange Act generally defines a
‘‘broker’’ as ‘‘any person engaged in the
business of effecting transactions in
securities for the account of others,’’ 18
and a ‘‘dealer’’ as ‘‘any person engaged
in the business of buying and selling
securities for such person’s own account
though a broker or otherwise.’’ 19 The
14 See
id.
id. Generally, after expiration of a certain
period of time, which varies from state to state but
is usually three to seven years, an issuer or its
transfer agent must remit abandoned property (e.g.,
securities and funds of lost securityholders) to a
state’s unclaimed property administrator pursuant
to the state’s escheatment laws.
16 See Exchange Act Release No. 37595 (Aug. 22,
1996), 61 FR 44249 (Aug. 28, 1996) (proposing Rule
17Ad–17).
17 The proposal also would amend paragraph
(a)(1) of Rule 17Ad–17 by: (i) Inserting the words
‘‘and every broker or dealer that holds customer
security accounts’’ following the words ‘‘accounts of
lost securityholders;’’ (ii) inserting the words ‘‘and
each broker or dealer that holds customer security
accounts’’ following the words ‘‘recordkeeping
transfer agent;’’ and (iii) inserting the words ‘‘and
broker or dealer’’ following the words ‘‘The transfer
agent.’’ The proposal would amend paragraph (a)(2)
by inserting the words ‘‘, or broker or dealer’’
following the words ‘‘transfer agent’’ and paragraph
(a)(3) by inserting the words ‘‘, or broker or dealer’’
following the words ‘‘transfer agent’’ and the words
‘‘or customer security account records of the broker
or dealer’’ following the words ‘‘master
securityholder files.’’ In addition, the proposal
would amend paragraph (b)(2)(i) of Rule 17Ad–17
by inserting ‘‘or customer security account records
of a broker or a dealer’’ following the words ‘‘master
securityholder file’’ and by inserting the words ‘‘, or
broker or dealer’’ following the words
‘‘securityholder, the transfer agent.’’ The proposal
would amend paragraph (b)(2)(ii) by inserting the
words ‘‘or broker or dealer’’ following the words
‘‘transfer agent’’.
18 Exchange Act Section 3(a)(4)(A), 15 U.S.C.
78c(a)(4)(A).
19 Exchange Act Section 3(a)(5)(A), 15 U.S.C.
78c(a)(5)(A).
15 See
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proposed rule would apply to all
brokers and dealers. As a practical
matter, however, the Commission
preliminarily believes that the only
brokers and dealers that would have
obligations under the amended rule
would be those that carry securities for
the accounts of ‘‘customers’’ within the
meaning of Exchange Act Rule 15c3–
3.20 Such brokers and dealers generally
are referred to as ‘‘clearing firms’’ (as
opposed to ‘‘introducing firms’’) and
tend to be the larger brokerage firms.
The Commission proposes to
redesignate current paragraph (c) of
Rule 17Ad–17 as paragraph (d) of the
rule, as discussed below. Proposed new
paragraph (c) would include a
requirement that a ‘‘paying agent’’ must
provide written notification no later
than seven months after the sending of
any not yet negotiated check to each
‘‘missing securityholder’’ to inform the
missing securityholder that such
missing securityholder has been sent a
check that has not yet been negotiated.
Proposed paragraph (c)(2) of Rule
17Ad–17 would define ‘‘paying agent,’’
consistent with the definition in Section
17A(g),21 to include ‘‘any issuer, transfer
agent, broker, dealer, investment
adviser, indenture trustee, custodian, or
any other person’’ that accepts payments
from an issuer of securities and
distributes the payments to
securityholders. Proposed paragraph
(c)(3) of Rule 17Ad–17 would, again
consistent with Section 17A(g),22
provide that a person would be
considered a ‘‘missing securityholder’’ if
a check is sent to the securityholder and
the check is not negotiated before the
earlier of the paying agent’s sending the
next regularly scheduled check or the
elapsing of six months after the sending
of the not yet negotiated check.
Proposed paragraph (c)(4) of Rule
17Ad–17 would, as required by Section
17A(g),23 exclude a paying agent from
the notification requirements if the
value of the not yet negotiated check is
less than $25. Proposed paragraph (c)(5)
of Rule 17Ad–17 would, again as
required by Section 17A(g),24 provide
that the requirements of paragraph (c)(1)
of Rule 17Ad–17 would have no effect
on state escheatment laws.
Currently, Rule 17Ad–17(c) requires
that every recordkeeping transfer agent
shall maintain records to demonstrate
compliance with the requirements of the
20 17
CFR 240.15c3–3.
17A(g)(1)(D)(ii), 15 U.S.C. 78q–
1(g)(1)(D)(ii).
22 Section 17A(g)(1)(D)(i), 15 U.S.C. 78q–
1(g)(1)(D)(i).
23 Section 17A(g)(1)(B), 15 U.S.C. 78q–1(g)(1)(B).
24 Section 17A(g)(1)(C), 15 U.S.C. 78q–1(g)(1)(C).
21 Section
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rule.25 The Commission is proposing to
redesignate this provision as paragraph
(d) of the rule and to amend the
paragraph to also require recordkeeping
transfer agents, brokers, dealers, and
paying agents to maintain records to
demonstrate their compliance with the
rule. The rule would require that such
records be maintained for a period of
not less than three years with the first
year in an easily accessible place.26
Section 17A(g) further directs the
Commission to avoid requiring multiple
paying agents to send written
notification to a missing security holder
regarding the same not yet negotiated
check.27 We do not believe that multiple
notifications by different paying agents
for a given check is a likely scenario
under our proposed rule amendments
because we do not believe an issuer
would use two paying agents for the
same distribution. We request comment
on the likelihood of such an occurrence
and, if such an occurrence is probable
with any frequency, on ways to avoid it
from happening.
We are also proposing to amend the
title of Rule 17Ad–17 to clarify that it
would apply to entities other than
transfer agents. Specifically, we propose
to re-title the rule ‘‘Transfer agents’,
brokers’, and dealers’ obligation to
search for lost securityholders; paying
agents’ obligation to search for missing
securityholders’’.
Finally, to provide brokers, dealers,
and paying agents with sufficient time
to develop systems to comply with the
proposed amendments to Rule 17Ad–
17, we propose to establish a
compliance date for the amendments of
one year following the date on which
the Commission takes final action on
this proposal. We preliminarily believe
that one year would provide brokers,
dealers, and paying agents with ample
time to come into compliance without
unduly delaying the benefits to
securityholders that Congress intended
in enacting Section 17A(g).
III. Request for Public Comment
The Commission requests comment
on all aspects of the proposed
amendments to Rule 17Ad–17. We
25 17
CFR 240.17Ad–17(c).
pursuant to Rule 17Ad–7(i), 17 CFR
240.17Ad–7(i), transfer agents must maintain
records to show their compliance with Rule 17Ad–
17. This same requirement for transfer agents,
brokers, dealers, and paying agents would be stated
explicitly in proposed amended Rule 17Ad–17. In
order to maintain consistency with proposed
amended Rule 17Ad–17, we are also proposing a
technical change to Rule 17Ad–7(i) so that it would
cross-reference proposed amended Rule 17Ad–
17(d) rather than proposed amended Rule 17Ad–
17(c).
27 See Section 17A(g)(2), 15 U.S.C. 78q–1(g)(2).
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26 Currently,
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request comments on how brokers and
dealers anticipate complying with the
proposed rule’s requirement to search
for lost securityholders. We also request
comment on whether the new term
‘‘missing securityholder,’’ and its related
requirements and timeframes will be
confused with the rule’s existing term
‘‘lost securityholder’’ and its related
requirements and timeframes. We
particularly request comment regarding
whether brokers, dealers, and transfer
agents, which are also included in the
definition of ‘‘paying agent,’’ foresee
issues that may result from the use of
the two terms.28 With respect to Section
17A(g)(2)’s requirement that in
preparing these amendments to Rule
17Ad–17 the Commission shall seek to
‘‘minimize disruptions to current
systems,’’ we request comment on any
potential disruptions that may result
from the proposed revisions and how to
minimize any such potential
disruptions.29 We are also requesting
cost data for implementation of the
proposed revisions by industry
participants. We are soliciting
comments on any burdens to commerce
that might result from the proposed rule
amendments. Commentators should
provide empirical data to support their
views.
Finally, we request comments on our
proposal to establish a compliance date
for the amendments of one year
following final action by the
Commission.
IV. Paperwork Reduction Act
The proposed amendments to Rule
17Ad–17 would require a new and
mandatory ‘‘collection of information’’
within the meaning of the Paperwork
Reduction Act of 1995 (‘‘PRA’’),30
consisting of maintaining records in
order to comply with and to
demonstrate compliance with the rule
by brokers and dealers who would be
newly added to paragraph (a) of the
rule 31 and by paying agents who would
be newly added to paragraphs (c) and
(d) of the rule.32 Accordingly, the PRA
would be applicable to the proposed
rule and would require approval of the
Office of Management and Budget. The
relevant record collection requirements
would be covered by amendments to
28 We note that the term ‘‘lost securityholder’’ was
adopted as part of Rule 17Ad–17 in 1997, and
Congress used the term ‘‘missing security holder’’
when it added new subsection (g) to Exchange Act
Section 17A. For the sake of consistency within
Rule 17Ad–17, we are proposing to use the term
‘‘missing securityholder’’ in Rule 17Ad–17.
29 Section 17A(g)(2), 15 U.S.C. 78q–1(g)(2).
30 44 U.S.C. 3501 et seq.
31 17 CFR 240.17Ad–17(a).
32 17 CFR 240.17Ad–17(c) and (d).
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paragraph (a) to Rule 17Ad–17, new
paragraph (c) of Rule 17Ad–17, and
amended and renumbered paragraph (d)
of Rule 17Ad–17.33
The collection of information under
the proposed paragraph (b) of Rule
17Ad–17 is necessary to enable transfer
agents, brokers, and dealers and paying
agents, as custodians of records that
determine the ownership of securities
and the entitlement to corporate
distributions, to reduce the number of
lost and missing securityholders.
The term ‘‘paying agents’’ would
include the following approximate
numbers of entities: 10,379 issuers that
file reports with the Commission; 5,063
broker-dealers registered with the
Commission; 536 transfer agents
registered with the Commission and the
banking agencies; 11,797 registered
investment advisers registered with the
Commission; 264 indenture trustees;
and 896 custodians; for a total of
approximately 28,931 entities plus an
unknown number in the category of
‘‘any other person.’’
Based on discussions with
participants in the securities industry,
we are assuming for the purposes of
proposed Rule 17Ad–17, that on an
annual basis, there will be
approximately 250,000 searches by
brokers and dealers and 50,000
notifications by paying agents.
A. Paragraph (a)
Under paragraph (a) of the proposed
rule amendments, recordkeeping
transfer agents, brokers, and dealers
would collect the names and addresses
of their lost securityholders, and the
recordkeeping transfer agents, brokers,
and dealers would submit this
information to information data bases
pursuant to paragraph (b) of the rule.
Such data base searches must be
conducted without charge to the lost
securityholders. Much of the new
information required to be collected
(such as the taxpayer identification
numbers of lost securityholders)
generally is already maintained by
brokers and dealers and transfer agents
so there should not be an additional
cost. Therefore, the Commission
anticipates that the increased hourly
burden imposed by these aspects of the
rule revisions would be about two
minutes per account per search.34 Based
33 Id.
34 Based on information provided by the industry,
the Commission estimates that broker and dealers
will annually search for approximately 250,000 lost
securityholders. The Commission estimates that
approximately $3.00 will be spent per account in
order to conduct a search (comprised of
approximately $2.00 for two searches and
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upon discussions with market
participants, adding a corrected address
in the event one is found would require
approximately three minutes. The
burden per account would be no more
than five minutes. Assuming 250,000
annual searches by brokers and dealers
for lost security holders, the increased
hourly burden would be 1,250,000
minutes, or 20,833 hours (1,250,000
divided by 60).
B. Paragraph (c)
Under proposed paragraph (c)(1) of
the rule, a paying agent must provide
not less than one written notification to
each missing securityholder no later
than seven months after such
securityholder has been sent a check
that has not yet been negotiated. The
notification may be sent with a check or
other mailing subsequently sent to the
missing securityholder but must be
provided no later than seven months
after the sending of the not yet
negotiated check. The rule further
provides that a paying agent shall be
excluded from the notification
requirement where the value of the not
yet negotiated check is less than $25
and that the requirements of paragraph
(c)(1) shall have no effect on state
escheatment laws.
The paying agents could include
approximately 28,931 identifiable
entities as noted previously in this
section. However, despite the large
number of entities eligible to be paying
agents, that number would be limited to
those firms that would be able to
provide financial services relevant to
the rule. The Commission estimates that
there would likely be no more than
1,000 entities actually serving as paying
agents and that these entities would
consist primarily of broker-dealers and
transfer agents (including bank transfer
agents), the sort of financial institutions
that are accustomed to processing
checks and other commercial
documents, dealing with securityholder
issues, maintaining financial records,
and serving as intermediaries between
issuers and securityholders. We note
that, technically, the startup costs to
enter the paying agent business, for a
business entity already in the financial
industry, would appear to be
exceedingly modest in that the basic
elements of being a paying agent simply
involve mailing notification letters,
sometimes including checks, and
maintaining related financial records.
While the entry costs would appear
modest, to operate this sort of low
approximately $1.00 in administration costs).
Therefore, the total cost for all brokers and dealers
would be $750,000 (250,000 multiplied by $3.00).
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margin business profitably would
require economies of scale and existing
business relationships that presumably
would limit the likely number of active
paying agents.
If we assume 1,000 paying agents
notifying 50,000 missing
securityholders with each of the
notifications requiring three minutes of
labor, we estimate the burden imposed
by Rule 17Ad–17(c) on ‘‘paying agents’’
for providing written notification to all
‘‘missing securityholders’’ who have
been sent checks that after seven
months have not yet been negotiated to
be a total of 150,000 minutes or a
burden of 2,500 hours (150,000 divided
by 60).
C. Paragraph (d)
Proposed paragraph (d) of Rule 17Ad–
17 would require that transfer agents,
brokers, dealers, and paying agents that
are subject to the rule to maintain
records necessary to demonstrate their
compliance with the rule. The rule also
would require transfer agents, brokers,
dealers, and paying agents to maintain
written procedures that describe their
methodology for compliance. The
records required by the proposed rule
must be maintained for a period of not
less than three years, with the first year
in an easily accessible place, consistent
with Exchange Act Section 17A. Based
on discussions with participants in the
securities industry, we believe that the
annual recordkeeping function for
records, which would be processed
electronically, would require
approximately one hour for every 500
missing securityholder accounts and
every 500 lost securityholder accounts.
For 250,000 searches by brokers and
dealers, the recordkeeping time would
be approximately 500 hours. For
notification of 50,000 missing
securityholders, the recordkeeping time
for the paying agents (including any
issuer, transfer agent, broker, dealer,
investment advisor, indenture trustee,
custodian, and any other person) would
be approximately 100 hours.
In summary, assuming 250,000
searches by brokers and dealers (20,833
hours + 500 hours = 21,333 hours) and
50,000 notifications by paying agents
(2,500 hours + 100 hours = 2,600 hours),
the total estimated burden would be
23,933 hours (21,333 hours + 2,600
hours).
V. Costs and Benefits of Proposed
Amendments
The costs of this proposal are imposed
entirely by Section 929W of the DoddFrank Act and Section 17A(g). These
statutory costs include, among other
things, the application of the
PO 00000
Frm 00011
Fmt 4702
Sfmt 4702
requirements of Rule 17Ad–17(a) to
brokers and dealers, and the
requirements imposed on ‘‘paying
agents’’ by proposed Rule 17Ad–17(c)
and (d). The costs are not imposed on
brokers and dealers or paying agents by
the Commission. Accordingly, it is not
for the Commission to determine
whether these costs are justified by the
anticipated benefits of the revised rule.
Nevertheless, we request comment on
the potential costs for any necessary
modifications to information gathering,
management, and record-keeping
systems or procedures, as well as any
potential costs or benefits resulting from
the proposal for brokers, dealers,
issuers, transfer agents, investment
advisers, indenture trustees, custodians,
regulators, or others. Commenters
should provide analysis and data to
support their views on the costs and
benefits associated with the proposal.
The proposed rule changes should
provide specific benefits to issuers and
U.S. investors, benefits which are not
readily quantifiable in terms of dollar
value. Nevertheless, the proposal
would: (1) Invoke the services of
transfer agents and brokers and dealers
to reduce the number of lost
securityholders; (2) invoke the services
of all paying agents to reduce the
number of missing securityholders; and
(3) improve the accuracy of
securityholder records. We are seeking
comment on how we may better identify
and quantify the benefits that may result
from the adoption of the proposed
amendments.
VI. Initial Regulatory Flexibility Act
Analysis
A. Reasons for Proposed Action
This action was expressly directed by
legislation (i.e., Section 929W of the
Dodd-Frank Act, which added
paragraph (g) to Section 17A of the
Exchange Act).
B. Objectives and Legal Basis
The objectives of this proposal, as
discussed above in Sections I and II, are
to help reduce the number of lost and
missing securityholders and to further
the Commission’s mission of protecting
investors. The legal basis for the
proposal is set forth in Section 17A(g).
C. Small Entities Subject to the Rule
1. Brokers and Dealers
According to Exchange Act Rule
0–10(c),35 a broker or dealer is a small
entity if it: (1) Had total capital (net
worth plus subordinated liabilities) of
less than $500,000 on the date in the
35 17
E:\FR\FM\25MRP1.SGM
CFR 240.0–10(c).
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Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules
prior fiscal year as of which its audited
financial statements were prepared
pursuant to Section 240.17a–5(d) or, if
not required to file such statements, a
broker or dealer that had total capital
(net worth plus subordinated liabilities)
of less than $500,000 on the last
business day of the preceding fiscal year
(or in the time that it has been in
business, if shorter); and (2) is not
affiliated with any person (other than a
natural person) that is not a small
business or small organization as
defined in this section.36 Of the 5,063
brokers and dealers registered with the
Commission, approximately 879 are
small brokers or dealers. We note that
the proposed amendments to Rule
17Ad–17 would, as a practical matter,
apply only to brokers and dealers that
carry securities for customer accounts
(i.e., clearing firms), which tend to be
the larger broker and dealer firms. There
are 503 clearing firms registered with
the Commission, none of which
qualifies as a small business.
Accordingly, we do not expect small
brokers or dealers to be affected by the
amendments to Rule 17Ad–17.37
erowe on DSK5CLS3C1PROD with PROPOSALS
2. Paying Agents
Section 17A(g)(D)(ii) defines the term
‘‘paying agent’’ as including ‘‘any issuer,
transfer agent, broker, dealer,
investment adviser, indenture trustee,
custodian, or any other person that
accepts payment from the issuer of a
security and distributes the payments to
the holder of the security.’’ With respect
to data for these entities: (1) 10,379
issuers file reports with the Commission
of which 1,207 qualify as small
businesses; 38 (2) 536 transfer agents
registered with the Commission or with
the Federal banking agencies of which
135 qualify as small businesses; 39 (3)
5,063 brokers-dealers registered with the
Commission of which 879 qualify as
small businesses; 40 (4) 11,797
investment advisers registered with the
Commission of which 718 qualify as
small businesses; 41 (5) 264 indenture
trustees of which four qualify as small
businesses; 42 and (6) 896 custodians of
which 11 qualify as small businesses.43
36 Paragraph (i) of Rule 0–10, 17 CFR 240.0–10,
discusses the meaning of ‘‘affiliated person’’ as
referenced in Paragraph (c) of Rule 0–10.
37 17 CFR 240.17Ad–17.
38 See Exchange Act Rule 0–10(a). 17 CFR 240.0–
10(a).
39 See Exchange Act Rule 0–10(h). 17 CFR 240.0–
10(h).
40 See Exchange Act Rule 0–10(c). 17 CFR 240.0–
10(c).
41 See Investment Advisers Act Rule 0–7(a). 17
CFR 275.0–7(a).
42 See Trust Indenture Act Rule 0–7. 17 CFR
260.0–7.
43 See 13 CFR 121.201.
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14:52 Mar 24, 2011
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The Commission has no supportable
basis to estimate the number of small
entities with respect to the remaining
category (i.e., any other person). As
noted herein in Section IV, while
approximately 28,931 entities have been
identified as potential ‘‘paying agents,’’
the Commission preliminarily believes
that no more than 1,000 such entities
would actually serve as paying agents.
We preliminarily believe that the bulk
of paying agent services would be
provided by brokerage firms that handle
customer securities (which as discussed
above, as clearing firms, would not be
small entities) and transfer agents
(including bank transfer agents), both of
which are firms that typically serve as
intermediaries between issuers and
securityholders.
D. Reporting, Recordkeeping, and Other
Compliance Requirements
Proposed new paragraph (d) of Rule
17Ad–17 would require recordkeeping
transfer agents, or brokers, or dealers,
and paying agents to demonstrate
compliance with these provisions and to
maintain written procedures that
describe the methodology for complying
with the provisions. Such records
would be required to be maintained for
not less than three years, the first year
in an easily accessible place. Their
maintenance would be subject to
examination by the appropriate
regulatory agency as defined by Section
3(a)(34)(B) of the Exchange Act.44
E. Duplicative, Overlapping, or
Conflicting Federal Rules
The Commission preliminarily
believes there are no rules that
duplicate, overlap, or conflict with the
proposed rule.
F. Significant Alternatives
With respect to small entities, the
Commission considered whether viable
alternatives to the proposed rulemaking
exist that could accomplish the stated
objectives of Section 17A(g) of the
Exchange Act and whether they would
minimize any significant economic
impact of proposed rules on small
entities. Specifically, the Commission
considered the following alternatives:
(1) The establishment of different
procedures that take into account the
resources available to small entities;
(2) the clarification, consolidation, or
simplification of compliance and
reporting requirements under the
proposed rules insofar as they affect
small entities; (3) the use of
performance rather than design
standards; and (4) an exemption from
44 15
PO 00000
U.S.C. 78c(a)(34)(B).
Frm 00012
Fmt 4702
Sfmt 4702
16711
coverage of the rule, or any part thereof,
for small entities. However, inasmuch as
Section 929W of the Dodd-Frank Act,
which added Section 17A(g) to the
Exchange Act, expressly requires the
proposed revisions, no alternative to the
proposed rule amendment appears
available at this time.
The Commission encourages the
submission of written comments with
respect to any aspect of the Initial
Regulatory Flexibility Analysis
(‘‘IFRA’’).45 Those comments should
specify costs of compliance with the
proposed rule, and suggest alternatives
that would accomplish the objective of
the proposed amendments to Rule
17Ad–17. A copy of the IRFA may be
obtained by contacting Thomas C. Etter,
Jr., Division of Trading and Markets,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–7010, telephone no. (202) 551–
5713.
VII. Consideration of Burden on
Competition, and Promotion of
Efficiency, Competition, and Capital
Formation
The proposed amendments to the rule
should have a neutral effect on
efficiency and capital formation and
should have no material anticompetitive
effects. While we believe the proposed
amendments to the rule would apply to
all transfer agents, brokers, dealers, and
paying agents, they could in theory
create a barrier to entry for potential
new entrants if the compliance costs
associated with searching for and
contacting lost or missing
securityholders are high enough. The
Commission encourages the submission
of written comments on Section VII.
VIII. SBREFA Consideration of Impact
on the Economy
For purposes of the Small Business
Regulatory Enforcement Fairness Act of
1996,46 a rule is major if it has resulted
in or is likely to result in:
• An annual effect on the economy of
$100 million or more;
• A major increase in costs or prices
for consumers or individual industries;
or
• Significant adverse effects on
competition, investment, or innovation.
We request comment regarding the
potential impact of the proposed rule
amendments on the economy on an
annual basis. We also request that
commenters provide empirical data and
other factual support for their views.
45 5
U.S.C. 603.
U.S.C. 801, et seq. The Regulatory Flexibility
Act requires regulatory agencies to consider the
impact of their proposed and final regulations on
small entities.
46 5
E:\FR\FM\25MRP1.SGM
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Federal Register / Vol. 76, No. 58 / Friday, March 25, 2011 / Proposed Rules
IX. Statutory Basis and Text of
Proposed Amendments
Statutory Basis
Pursuant to Section 17A(g) of the
Exchange Act, 15 U.S.C. 78q–1(g), the
Commission proposes to amend
§ 240.17Ad–7 and § 240.17Ad–17 under
the Exchange Act in the manner set
forth below.
List of Subjects in 17 CFR Part 240
Reporting and recordkeeping
requirements, Securities.
Text of the Amendments
In accordance with the foregoing, the
Commission proposes to amend part
240 of Chapter II of Title 17 of the Code
of Federal Regulations as follows:
PART 240—GENERAL RULES AND
REGULATIONS, SECURITIES
EXCHANGE ACT OF 1934
1. The general authority citation for
part 240 is revised and the following
citation is added in numerical order to
read as follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j,
77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn,
77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 78j,
78j–1, 78k, 78k–1, 78l, 78m, 78mm, 78n,
78n–1, 78o, 78o–4, 78p, 78q, 78q–1, 78s,
78u–5, 78w, 78x, 78ll, 78mm, 80a–20, 80a–
23, 80a–29, 80a–37, 80b–3, 80b–4, 80b–11,
and 7201 et seq.; 18 U.S.C. 1350; and 12
U.S.C. 5221(e)(3) unless otherwise noted.
*
*
*
*
*
Section 240.17Ad–17 is also issued under
Pub. L. 111–203, § 929W, 124 Stat. 1869
(2010).
*
*
*
erowe on DSK5CLS3C1PROD with PROPOSALS
§ 240.17Ad–7
*
*
[Amended]
2. Section 240.17Ad–7(i) is amended
by removing ‘‘240.17Ad–17(c)’’ and
adding in its place ‘‘240.17Ad–17(d)’’.
3. Section 240.17Ad–17 is amended
by:
a. Revising the heading.
b. Revising paragraph (a)(1).
c. In paragraph (a)(2) adding the
phrase ‘‘, or broker or dealer’’ following
the word ‘‘agent’’.
d. In paragraph (a)(3) introductory
text adding the phrase ‘‘, or broker or
dealer’’ following the word ‘‘agent’’.
e. In paragraph (a)(3)(ii) adding the
phrase ‘‘or customer security account
records of the broker or dealer’’
following the word ‘‘files’’.
f. In paragraph (b)(2)(i) adding the
phrase ‘‘or customer security account
records of a broker or dealer’’ following
the word ‘‘file’’ and adding the phrase ‘‘,
or broker or dealer’’ following the phrase
‘‘securityholder, the transfer agent’’.
g. In paragraph (b)(2)(ii) adding the
phrase ‘‘or broker or dealer’’ following
the word ‘‘agent’’.
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14:52 Mar 24, 2011
Jkt 223001
h. Redesignating paragraph (c) as
paragraph (d), and adding new
paragraph (c).
i. Revising newly redesignated
paragraph (d).
The revisions and addition read as
follows:
§ 240.17Ad–17 Transfer agents’, brokers’,
and dealers’ obligation to search for lost
securityholders; paying agents’ obligation
to search for missing securityholders.
(a)(1) Every recordkeeping transfer
agent whose master securityholder file
includes accounts of lost
securityholders and each broker or
dealer that holds customer security
accounts shall exercise reasonable care
to ascertain the correct addresses of
such securityholders. In exercising
reasonable care to ascertain such lost
securityholders’ correct addresses, each
recordkeeping transfer agent and each
broker or dealer shall conduct two data
base searches using at least one
information data base service. The
transfer agent and broker or dealer shall
search by taxpayer identification
number or by name if a search based on
taxpayer identification number is not
reasonably likely to locate the
securityholder. Such data searches must
be conducted without charge to a lost
securityholder and with the following
frequency:
(i) Between three and twelve months
of such securityholder becoming a lost
securityholder and
(ii) Between six and twelve months
after the transfer agent’s or broker’s or
dealer’s first search for such lost
securityholder.
*
*
*
*
*
(c)(1) The paying agent, as defined in
paragraph (c)(2) of this section, shall
provide not less than one written
notification to each missing
securityholder stating that such
securityholder has been sent a check
that has not yet been negotiated. Such
notification may be sent with a check or
other mailing subsequently sent to the
missing securityholder, but must be
provided no later than seven (7) months
after the sending of the not yet
negotiated check.
(2) The term paying agent shall
include any issuer, transfer agent,
broker, dealer, investment adviser,
indenture trustee, custodian, or any
other person that accepts payments from
the issuer of a security and distributes
the payments to the holder of the
security.
(3) The securityholder shall be
considered a missing securityholder if a
check is sent to the securityholder and
the check is not negotiated before the
earlier of the paying agent’s sending the
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Fmt 4702
Sfmt 4702
next regularly scheduled check or the
elapsing of six (6) months after the
sending of the not yet negotiated check.
(4) A paying agent shall be excluded
from any notification requirement
where the value of the not yet
negotiated check is less than $25.
(5) The requirements of paragraph
(c)(1) of this section shall have no effect
on state escheatment laws.
(d) Every recordkeeping transfer
agent, broker, or dealer carrying
securities for the accounts of customers,
and every paying agent shall maintain
records to demonstrate compliance with
the requirements set forth in this section
which shall include written procedures
that describe the transfer agent’s, or
broker’s or dealer’s, or paying agent’s
methodology for complying with this
section. Such records shall be
maintained for a period of not less than
three (3) years with the first year in an
easily accessible place.
By the Commission.
Dated: March 18, 2011.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011–6940 Filed 3–24–11; 8:45 am]
BILLING CODE 8011–01–P
AGENCY FOR INTERNATIONAL
DEVELOPMENT
22 CFR Part 205
RIN 0412 AA–69
Participation by Religious
Organizations in USAID Programs
United States Agency for
International Development (USAID).
ACTION: Proposed rule.
AGENCY:
USAID is proposing to amend
part 205 to more accurately reflect
current Establishment Clause
jurisprudence with respect to the use of
Federal funds for inherently religious
activities.
SUMMARY:
Comments must be submitted by
May 9, 2011.
ADDRESSES: Interested persons are
invited to submit comments regarding
this proposed rule to: The Center for
Faith-Based and Community Initiatives,
U.S. Agency for International
Development, Room 6.07–023, 1300
Pennsylvania Avenue, NW.,
Washington, DC 20523.
Communications should refer to the
‘‘proposed rule.’’ You may submit your
comments by fax to 202–216–0077 or by
e-mail to fbci@usaid.gov. A copy of each
communication submitted will be
available for inspection and copying
DATES:
E:\FR\FM\25MRP1.SGM
25MRP1
]]>Agencies
[Federal Register Volume 76, Number 58 (Friday, March 25, 2011)]
[Proposed Rules]
[Pages 16707-16712]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-6940]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 240
[Release No. 34-64099; File No. S7-11-11]
RIN 3235-AL11
Rule 17Ad-17; Transfer Agents', Brokers', and Dealers' Obligation
To Search for Lost Securityholders; Paying Agents' Obligation To Search
for Missing Securityholders
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The Dodd-Frank Wall Street Reform and Consumer Protection Act
(``Dodd-Frank Act'') amended the Securities Exchange Act of 1934
(``Exchange Act'') by adding a subsection entitled, ``Due Diligence for
the Delivery of Dividends, Interest, and Other Valuable Property
Rights.'' The amendment directs the Securities and Exchange Commission
(``Commission'') to revise Exchange Act Rule 17Ad-17, ``Transfer
Agents' Obligation to Search for Lost Securityholders'' to: extend to
brokers and dealers the requirement of Rule 17Ad-17 to search for lost
securityholders; add to Rule 17Ad-17 a requirement that ``paying
agents'' notify ``missing security holders'' in writing that the paying
agent has sent the missing security holder a check that has not yet
been negotiated; add to Rule 17Ad-17 an exclusion for paying agents
from the notification requirements when the value of the not yet
negotiated check is less than $25; and add to Rule 17Ad-17 a provision
clarifying that the written notification requirements shall have no
effect on State escheatment laws. The amendment also requires the
Commission to ``adopt such rules, regulations, and orders necessary to
implement this subsection no later than 1 year after the date of
enactment of this subsection.'' The Commission is publishing for
comment proposed amendments to Rule 17Ad-17 to implement the statutory
requirements.
DATES: Comments should be received on or before May 9, 2011.
ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/proposed.shtml);
Send an e-mail to rule-comments@sec.gov and include File
Number S7-11-11 on the subject line; or
Use the Federal eRulemaking Portal (http://www.regulations.gov) and follow the instructions for submitting
comments.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number S7-11-11. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
Internet Web site (http://www.sec.gov/rules/proposed.shtml). Comments
are also available for Web site viewing and printing in the
Commission's Public Reference Room, 100 F Street, NE., Washington, DC
20549, on official business days between the hours of 10 a.m. and 3
p.m. All comments received will be posted without change; the
Commission does not edit personal identifying information from
submissions. You should submit only information that you wish to make
publicly available.
FOR FURTHER INFORMATION CONTACT: Jerry W. Carpenter, Assistant
Director, or Thomas C. Etter, Jr., Special Counsel, at (202) 551-5710,
Division of Trading and Markets, Securities and Exchange Commission,
100 F Street, NE., Washington, DC 20549-7010.
SUPPLEMENTARY INFORMATION:
I. Introduction
On July 21, 2010, the President signed the Dodd-Frank Act into
law.\1\ The Dodd-Frank Act was enacted to, among other things, promote
the financial stability of the United States by improving
accountability and transparency in the financial system.\2\ Title IX of
the Dodd-Frank Act provides the Commission with new tools to protect
investors and improve the regulation of securities.\3\
---------------------------------------------------------------------------
\1\ Dodd-Frank Wall Street Reform and Consumer Protection Act,
Pub. L. 111-203, 124 Stat. 1376 (2010).
\2\ See id. at Preamble.
\3\ See id. Sec. 901 (``This section may be cited as the
`Investor Protection and Securities Reform Act of 2010'.''); Title
IX (``Investor Protections and Improvements to the Regulation of
Securities'').
---------------------------------------------------------------------------
Section 929W of the Dodd-Frank Act added subsection (g) to Section
17A of the Exchange Act (``Section 17A(g)''), which requires the
Commission to revise Rule 17Ad-17 under the Exchange Act (``Rule 17Ad-
17'') \4\ to extend the rule's requirement that transfer agents search
for ``lost securityholders'' to brokers and dealers.\5\
---------------------------------------------------------------------------
\4\ 17 CFR 240.17Ad-17.
\5\ Rule 17Ad-17(b)(2) defines a ``lost securityholder'' to mean
``a securityholder: (i) To whom an item of correspondence that was
sent to the securityholder at the address contained in the transfer
agent's master securityholder file has been returned as
undeliverable; provided, however, that if such item is re-sent
within one month to the lost securityholder, the transfer agent may
deem the securityholder to be a lost securityholder as of the day
the resent item is returned as undeliverable; and (ii) for whom the
transfer agent has not received information regarding the
securityholder's new address.''
---------------------------------------------------------------------------
Section 17A(g) further directs the Commission to revise Rule 17Ad-
17 to provide a requirement that the ``paying agent provide a single
written notification to each missing security holder that the missing
security holder has been sent a check that has not yet been
negotiated.'' \6\ Under Section 17A(g), written notification must be
sent to a missing security holder no later than seven months after the
sending of the not yet negotiated check.\7\
---------------------------------------------------------------------------
\6\ Section 17A(g)(1)(A), 15 U.S.C. 78q-1(g)(1)(A). We note that
Congress, in drafting Exchange Act Section 17A(g), used a two-word
formulation of the term ``security holder.'' In Rule 17Ad-17,
however, there is a one-word formulation of the term
``securityholder.'' For the sake of consistency within Rule 17Ad-17,
we are proposing to use the term ``missing securityholder'' in Rule
17Ad-17. Throughout this release, we have used the term
``securityholder'' when discussing Rule 17Ad-17, and we have used
the term ``security holder'' when discussing Section 929W of the
Dodd-Frank Act or Section 17A(g) of the Exchange Act.
\7\ Id. Section 17A(g) provides that written notification may be
sent along with a check or other mailing subsequently sent to the
missing security holder.
---------------------------------------------------------------------------
Section 17A(g)(1)(D)(ii) defines ``paying agent'' to include ``any
issuer,
[[Page 16708]]
transfer agent, broker, dealer, investment adviser, indenture trustee,
custodian, or any other person that accepts payments from the issuer of
a security and distributes the payments to the holders of the
security.'' \8\ In addition, Section 17A(g)(1)(D)(i) provides that ``a
security holder shall be considered a `missing security holder' if a
check is sent to the security holder and the check is not negotiated
before the earlier of the paying agent sending the next regularly
scheduled check or the elapsing of 6 months after the sending of the
not yet negotiated check.'' \9\
---------------------------------------------------------------------------
\8\ Section 17A(g)(1)(D)(ii), 15 U.S.C. 78q-1(g)(1)(D)(ii).
\9\ Section 17A(g)(1)(D)(i), 15 U.S.C. 78q-1(g)(1)(D)(i).
---------------------------------------------------------------------------
Section 17A(g)(1)(B) and (C) also require that the revisions to the
rule: (i) Provide an exclusion for paying agents from the notification
requirements when the value of the not yet negotiated check is less
than $25 and (ii) add a provision to make clear that the notification
requirements imposed on paying agents shall have no effect on state
escheatment laws.\10\
---------------------------------------------------------------------------
\10\ See Section 17A(g)(1)(B) and (C), 15 U.S.C. 78q-1(g)(1)(B)
and (C).
---------------------------------------------------------------------------
Section 17A(g)(2) requires the Commission to adopt rules,
regulations, or orders necessary to implement the provisions of Section
17A(g)(1) no later than one year after the date of enactment of the
Dodd-Frank Act.\11\ Section 17A(g)(2) further requires the Commission,
in proposing such rules, to seek to minimize disruptions to the current
systems used by or on behalf of paying agents to process payments to
account holders and avoid requiring multiple paying agents to send
written notification to a missing security holder regarding the same
not yet negotiated check.\12\
---------------------------------------------------------------------------
\11\ Section 17A(g)(2), 15 U.S.C. 78q-1(g)(2).
\12\ Id.
---------------------------------------------------------------------------
II. Rule 17Ad-17
A. Background
The Commission adopted Rule 17Ad-17 in 1997 to address situations
where recordkeeping transfer agents lose contact with securityholders
by requiring transfer agents to conduct database searches for lost
securityholders.\13\ As the Commission noted at that time, such loss of
contact can be harmful to securityholders because they no longer
receive corporate communications or the interest and dividend payments
to which they may be entitled.\14\ Additionally, their securities and
any related interest and dividend payments to which they may be
entitled are often placed at risk of being deemed abandoned under
operation of state escheatment laws.\15\ This loss of contact has
various causes, but it most frequently results from: (1) Failure of a
securityholder to notify the transfer agent of his/her correct address,
especially after relocating to a new address or (2) failure of the
estate of a deceased securityholder to notify the transfer agent of the
death of the securityholder and the name and address of the trustee for
the estate.\16\
---------------------------------------------------------------------------
\13\ See Exchange Act Release No. 39176 (Oct. 1, 1997), 62 FR
52229 (Oct. 7, 1997) (adopting Rule 17Ad-17).
\14\ See id.
\15\ See id. Generally, after expiration of a certain period of
time, which varies from state to state but is usually three to seven
years, an issuer or its transfer agent must remit abandoned property
(e.g., securities and funds of lost securityholders) to a state's
unclaimed property administrator pursuant to the state's escheatment
laws.
\16\ See Exchange Act Release No. 37595 (Aug. 22, 1996), 61 FR
44249 (Aug. 28, 1996) (proposing Rule 17Ad-17).
---------------------------------------------------------------------------
B. Discussion
The proposed amendments would implement the statutory directive to
extend the application of Rule 17Ad-17 to brokers and dealers.
Specifically, the Commission proposes to revise paragraph (a) of Rule
17Ad-17 to add the words ``broker, or dealer'' following the rule's
existing references to transfer agents.\17\
---------------------------------------------------------------------------
\17\ The proposal also would amend paragraph (a)(1) of Rule
17Ad-17 by: (i) Inserting the words ``and every broker or dealer
that holds customer security accounts'' following the words
``accounts of lost securityholders;'' (ii) inserting the words ``and
each broker or dealer that holds customer security accounts''
following the words ``recordkeeping transfer agent;'' and (iii)
inserting the words ``and broker or dealer'' following the words
``The transfer agent.'' The proposal would amend paragraph (a)(2) by
inserting the words ``, or broker or dealer'' following the words
``transfer agent'' and paragraph (a)(3) by inserting the words ``,
or broker or dealer'' following the words ``transfer agent'' and the
words ``or customer security account records of the broker or
dealer'' following the words ``master securityholder files.'' In
addition, the proposal would amend paragraph (b)(2)(i) of Rule 17Ad-
17 by inserting ``or customer security account records of a broker
or a dealer'' following the words ``master securityholder file'' and
by inserting the words ``, or broker or dealer'' following the words
``securityholder, the transfer agent.'' The proposal would amend
paragraph (b)(2)(ii) by inserting the words ``or broker or dealer''
following the words ``transfer agent''.
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The Exchange Act generally defines a ``broker'' as ``any person
engaged in the business of effecting transactions in securities for the
account of others,'' \18\ and a ``dealer'' as ``any person engaged in
the business of buying and selling securities for such person's own
account though a broker or otherwise.'' \19\ The proposed rule would
apply to all brokers and dealers. As a practical matter, however, the
Commission preliminarily believes that the only brokers and dealers
that would have obligations under the amended rule would be those that
carry securities for the accounts of ``customers'' within the meaning
of Exchange Act Rule 15c3-3.\20\ Such brokers and dealers generally are
referred to as ``clearing firms'' (as opposed to ``introducing firms'')
and tend to be the larger brokerage firms.
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\18\ Exchange Act Section 3(a)(4)(A), 15 U.S.C. 78c(a)(4)(A).
\19\ Exchange Act Section 3(a)(5)(A), 15 U.S.C. 78c(a)(5)(A).
\20\ 17 CFR 240.15c3-3.
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The Commission proposes to redesignate current paragraph (c) of
Rule 17Ad-17 as paragraph (d) of the rule, as discussed below. Proposed
new paragraph (c) would include a requirement that a ``paying agent''
must provide written notification no later than seven months after the
sending of any not yet negotiated check to each ``missing
securityholder'' to inform the missing securityholder that such missing
securityholder has been sent a check that has not yet been negotiated.
Proposed paragraph (c)(2) of Rule 17Ad-17 would define ``paying
agent,'' consistent with the definition in Section 17A(g),\21\ to
include ``any issuer, transfer agent, broker, dealer, investment
adviser, indenture trustee, custodian, or any other person'' that
accepts payments from an issuer of securities and distributes the
payments to securityholders. Proposed paragraph (c)(3) of Rule 17Ad-17
would, again consistent with Section 17A(g),\22\ provide that a person
would be considered a ``missing securityholder'' if a check is sent to
the securityholder and the check is not negotiated before the earlier
of the paying agent's sending the next regularly scheduled check or the
elapsing of six months after the sending of the not yet negotiated
check. Proposed paragraph (c)(4) of Rule 17Ad-17 would, as required by
Section 17A(g),\23\ exclude a paying agent from the notification
requirements if the value of the not yet negotiated check is less than
$25. Proposed paragraph (c)(5) of Rule 17Ad-17 would, again as required
by Section 17A(g),\24\ provide that the requirements of paragraph
(c)(1) of Rule 17Ad-17 would have no effect on state escheatment laws.
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\21\ Section 17A(g)(1)(D)(ii), 15 U.S.C. 78q-1(g)(1)(D)(ii).
\22\ Section 17A(g)(1)(D)(i), 15 U.S.C. 78q-1(g)(1)(D)(i).
\23\ Section 17A(g)(1)(B), 15 U.S.C. 78q-1(g)(1)(B).
\24\ Section 17A(g)(1)(C), 15 U.S.C. 78q-1(g)(1)(C).
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Currently, Rule 17Ad-17(c) requires that every recordkeeping
transfer agent shall maintain records to demonstrate compliance with
the requirements of the
[[Page 16709]]
rule.\25\ The Commission is proposing to redesignate this provision as
paragraph (d) of the rule and to amend the paragraph to also require
recordkeeping transfer agents, brokers, dealers, and paying agents to
maintain records to demonstrate their compliance with the rule. The
rule would require that such records be maintained for a period of not
less than three years with the first year in an easily accessible
place.\26\
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\25\ 17 CFR 240.17Ad-17(c).
\26\ Currently, pursuant to Rule 17Ad-7(i), 17 CFR 240.17Ad-
7(i), transfer agents must maintain records to show their compliance
with Rule 17Ad-17. This same requirement for transfer agents,
brokers, dealers, and paying agents would be stated explicitly in
proposed amended Rule 17Ad-17. In order to maintain consistency with
proposed amended Rule 17Ad-17, we are also proposing a technical
change to Rule 17Ad-7(i) so that it would cross-reference proposed
amended Rule 17Ad-17(d) rather than proposed amended Rule 17Ad-
17(c).
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Section 17A(g) further directs the Commission to avoid requiring
multiple paying agents to send written notification to a missing
security holder regarding the same not yet negotiated check.\27\ We do
not believe that multiple notifications by different paying agents for
a given check is a likely scenario under our proposed rule amendments
because we do not believe an issuer would use two paying agents for the
same distribution. We request comment on the likelihood of such an
occurrence and, if such an occurrence is probable with any frequency,
on ways to avoid it from happening.
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\27\ See Section 17A(g)(2), 15 U.S.C. 78q-1(g)(2).
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We are also proposing to amend the title of Rule 17Ad-17 to clarify
that it would apply to entities other than transfer agents.
Specifically, we propose to re-title the rule ``Transfer agents',
brokers', and dealers' obligation to search for lost securityholders;
paying agents' obligation to search for missing securityholders''.
Finally, to provide brokers, dealers, and paying agents with
sufficient time to develop systems to comply with the proposed
amendments to Rule 17Ad-17, we propose to establish a compliance date
for the amendments of one year following the date on which the
Commission takes final action on this proposal. We preliminarily
believe that one year would provide brokers, dealers, and paying agents
with ample time to come into compliance without unduly delaying the
benefits to securityholders that Congress intended in enacting Section
17A(g).
III. Request for Public Comment
The Commission requests comment on all aspects of the proposed
amendments to Rule 17Ad-17. We request comments on how brokers and
dealers anticipate complying with the proposed rule's requirement to
search for lost securityholders. We also request comment on whether the
new term ``missing securityholder,'' and its related requirements and
timeframes will be confused with the rule's existing term ``lost
securityholder'' and its related requirements and timeframes. We
particularly request comment regarding whether brokers, dealers, and
transfer agents, which are also included in the definition of ``paying
agent,'' foresee issues that may result from the use of the two
terms.\28\ With respect to Section 17A(g)(2)'s requirement that in
preparing these amendments to Rule 17Ad-17 the Commission shall seek to
``minimize disruptions to current systems,'' we request comment on any
potential disruptions that may result from the proposed revisions and
how to minimize any such potential disruptions.\29\ We are also
requesting cost data for implementation of the proposed revisions by
industry participants. We are soliciting comments on any burdens to
commerce that might result from the proposed rule amendments.
Commentators should provide empirical data to support their views.
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\28\ We note that the term ``lost securityholder'' was adopted
as part of Rule 17Ad-17 in 1997, and Congress used the term
``missing security holder'' when it added new subsection (g) to
Exchange Act Section 17A. For the sake of consistency within Rule
17Ad-17, we are proposing to use the term ``missing securityholder''
in Rule 17Ad-17.
\29\ Section 17A(g)(2), 15 U.S.C. 78q-1(g)(2).
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Finally, we request comments on our proposal to establish a
compliance date for the amendments of one year following final action
by the Commission.
IV. Paperwork Reduction Act
The proposed amendments to Rule 17Ad-17 would require a new and
mandatory ``collection of information'' within the meaning of the
Paperwork Reduction Act of 1995 (``PRA''),\30\ consisting of
maintaining records in order to comply with and to demonstrate
compliance with the rule by brokers and dealers who would be newly
added to paragraph (a) of the rule \31\ and by paying agents who would
be newly added to paragraphs (c) and (d) of the rule.\32\ Accordingly,
the PRA would be applicable to the proposed rule and would require
approval of the Office of Management and Budget. The relevant record
collection requirements would be covered by amendments to paragraph (a)
to Rule 17Ad-17, new paragraph (c) of Rule 17Ad-17, and amended and
renumbered paragraph (d) of Rule 17Ad-17.\33\
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\30\ 44 U.S.C. 3501 et seq.
\31\ 17 CFR 240.17Ad-17(a).
\32\ 17 CFR 240.17Ad-17(c) and (d).
\33\ Id.
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The collection of information under the proposed paragraph (b) of
Rule 17Ad-17 is necessary to enable transfer agents, brokers, and
dealers and paying agents, as custodians of records that determine the
ownership of securities and the entitlement to corporate distributions,
to reduce the number of lost and missing securityholders.
The term ``paying agents'' would include the following approximate
numbers of entities: 10,379 issuers that file reports with the
Commission; 5,063 broker-dealers registered with the Commission; 536
transfer agents registered with the Commission and the banking
agencies; 11,797 registered investment advisers registered with the
Commission; 264 indenture trustees; and 896 custodians; for a total of
approximately 28,931 entities plus an unknown number in the category of
``any other person.''
Based on discussions with participants in the securities industry,
we are assuming for the purposes of proposed Rule 17Ad-17, that on an
annual basis, there will be approximately 250,000 searches by brokers
and dealers and 50,000 notifications by paying agents.
A. Paragraph (a)
Under paragraph (a) of the proposed rule amendments, recordkeeping
transfer agents, brokers, and dealers would collect the names and
addresses of their lost securityholders, and the recordkeeping transfer
agents, brokers, and dealers would submit this information to
information data bases pursuant to paragraph (b) of the rule. Such data
base searches must be conducted without charge to the lost
securityholders. Much of the new information required to be collected
(such as the taxpayer identification numbers of lost securityholders)
generally is already maintained by brokers and dealers and transfer
agents so there should not be an additional cost. Therefore, the
Commission anticipates that the increased hourly burden imposed by
these aspects of the rule revisions would be about two minutes per
account per search.\34\ Based
[[Page 16710]]
upon discussions with market participants, adding a corrected address
in the event one is found would require approximately three minutes.
The burden per account would be no more than five minutes. Assuming
250,000 annual searches by brokers and dealers for lost security
holders, the increased hourly burden would be 1,250,000 minutes, or
20,833 hours (1,250,000 divided by 60).
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\34\ Based on information provided by the industry, the
Commission estimates that broker and dealers will annually search
for approximately 250,000 lost securityholders. The Commission
estimates that approximately $3.00 will be spent per account in
order to conduct a search (comprised of approximately $2.00 for two
searches and approximately $1.00 in administration costs).
Therefore, the total cost for all brokers and dealers would be
$750,000 (250,000 multiplied by $3.00).
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B. Paragraph (c)
Under proposed paragraph (c)(1) of the rule, a paying agent must
provide not less than one written notification to each missing
securityholder no later than seven months after such securityholder has
been sent a check that has not yet been negotiated. The notification
may be sent with a check or other mailing subsequently sent to the
missing securityholder but must be provided no later than seven months
after the sending of the not yet negotiated check. The rule further
provides that a paying agent shall be excluded from the notification
requirement where the value of the not yet negotiated check is less
than $25 and that the requirements of paragraph (c)(1) shall have no
effect on state escheatment laws.
The paying agents could include approximately 28,931 identifiable
entities as noted previously in this section. However, despite the
large number of entities eligible to be paying agents, that number
would be limited to those firms that would be able to provide financial
services relevant to the rule. The Commission estimates that there
would likely be no more than 1,000 entities actually serving as paying
agents and that these entities would consist primarily of broker-
dealers and transfer agents (including bank transfer agents), the sort
of financial institutions that are accustomed to processing checks and
other commercial documents, dealing with securityholder issues,
maintaining financial records, and serving as intermediaries between
issuers and securityholders. We note that, technically, the startup
costs to enter the paying agent business, for a business entity already
in the financial industry, would appear to be exceedingly modest in
that the basic elements of being a paying agent simply involve mailing
notification letters, sometimes including checks, and maintaining
related financial records. While the entry costs would appear modest,
to operate this sort of low margin business profitably would require
economies of scale and existing business relationships that presumably
would limit the likely number of active paying agents.
If we assume 1,000 paying agents notifying 50,000 missing
securityholders with each of the notifications requiring three minutes
of labor, we estimate the burden imposed by Rule 17Ad-17(c) on ``paying
agents'' for providing written notification to all ``missing
securityholders'' who have been sent checks that after seven months
have not yet been negotiated to be a total of 150,000 minutes or a
burden of 2,500 hours (150,000 divided by 60).
C. Paragraph (d)
Proposed paragraph (d) of Rule 17Ad-17 would require that transfer
agents, brokers, dealers, and paying agents that are subject to the
rule to maintain records necessary to demonstrate their compliance with
the rule. The rule also would require transfer agents, brokers,
dealers, and paying agents to maintain written procedures that describe
their methodology for compliance. The records required by the proposed
rule must be maintained for a period of not less than three years, with
the first year in an easily accessible place, consistent with Exchange
Act Section 17A. Based on discussions with participants in the
securities industry, we believe that the annual recordkeeping function
for records, which would be processed electronically, would require
approximately one hour for every 500 missing securityholder accounts
and every 500 lost securityholder accounts. For 250,000 searches by
brokers and dealers, the recordkeeping time would be approximately 500
hours. For notification of 50,000 missing securityholders, the
recordkeeping time for the paying agents (including any issuer,
transfer agent, broker, dealer, investment advisor, indenture trustee,
custodian, and any other person) would be approximately 100 hours.
In summary, assuming 250,000 searches by brokers and dealers
(20,833 hours + 500 hours = 21,333 hours) and 50,000 notifications by
paying agents (2,500 hours + 100 hours = 2,600 hours), the total
estimated burden would be 23,933 hours (21,333 hours + 2,600 hours).
V. Costs and Benefits of Proposed Amendments
The costs of this proposal are imposed entirely by Section 929W of
the Dodd-Frank Act and Section 17A(g). These statutory costs include,
among other things, the application of the requirements of Rule 17Ad-
17(a) to brokers and dealers, and the requirements imposed on ``paying
agents'' by proposed Rule 17Ad-17(c) and (d). The costs are not imposed
on brokers and dealers or paying agents by the Commission. Accordingly,
it is not for the Commission to determine whether these costs are
justified by the anticipated benefits of the revised rule.
Nevertheless, we request comment on the potential costs for any
necessary modifications to information gathering, management, and
record-keeping systems or procedures, as well as any potential costs or
benefits resulting from the proposal for brokers, dealers, issuers,
transfer agents, investment advisers, indenture trustees, custodians,
regulators, or others. Commenters should provide analysis and data to
support their views on the costs and benefits associated with the
proposal.
The proposed rule changes should provide specific benefits to
issuers and U.S. investors, benefits which are not readily quantifiable
in terms of dollar value. Nevertheless, the proposal would: (1) Invoke
the services of transfer agents and brokers and dealers to reduce the
number of lost securityholders; (2) invoke the services of all paying
agents to reduce the number of missing securityholders; and (3) improve
the accuracy of securityholder records. We are seeking comment on how
we may better identify and quantify the benefits that may result from
the adoption of the proposed amendments.
VI. Initial Regulatory Flexibility Act Analysis
A. Reasons for Proposed Action
This action was expressly directed by legislation (i.e., Section
929W of the Dodd-Frank Act, which added paragraph (g) to Section 17A of
the Exchange Act).
B. Objectives and Legal Basis
The objectives of this proposal, as discussed above in Sections I
and II, are to help reduce the number of lost and missing
securityholders and to further the Commission's mission of protecting
investors. The legal basis for the proposal is set forth in Section
17A(g).
C. Small Entities Subject to the Rule
1. Brokers and Dealers
According to Exchange Act Rule 0-10(c),\35\ a broker or dealer is a
small entity if it: (1) Had total capital (net worth plus subordinated
liabilities) of less than $500,000 on the date in the
[[Page 16711]]
prior fiscal year as of which its audited financial statements were
prepared pursuant to Section 240.17a-5(d) or, if not required to file
such statements, a broker or dealer that had total capital (net worth
plus subordinated liabilities) of less than $500,000 on the last
business day of the preceding fiscal year (or in the time that it has
been in business, if shorter); and (2) is not affiliated with any
person (other than a natural person) that is not a small business or
small organization as defined in this section.\36\ Of the 5,063 brokers
and dealers registered with the Commission, approximately 879 are small
brokers or dealers. We note that the proposed amendments to Rule 17Ad-
17 would, as a practical matter, apply only to brokers and dealers that
carry securities for customer accounts (i.e., clearing firms), which
tend to be the larger broker and dealer firms. There are 503 clearing
firms registered with the Commission, none of which qualifies as a
small business. Accordingly, we do not expect small brokers or dealers
to be affected by the amendments to Rule 17Ad-17.\37\
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\35\ 17 CFR 240.0-10(c).
\36\ Paragraph (i) of Rule 0-10, 17 CFR 240.0-10, discusses the
meaning of ``affiliated person'' as referenced in Paragraph (c) of
Rule 0-10.
\37\ 17 CFR 240.17Ad-17.
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2. Paying Agents
Section 17A(g)(D)(ii) defines the term ``paying agent'' as
including ``any issuer, transfer agent, broker, dealer, investment
adviser, indenture trustee, custodian, or any other person that accepts
payment from the issuer of a security and distributes the payments to
the holder of the security.'' With respect to data for these entities:
(1) 10,379 issuers file reports with the Commission of which 1,207
qualify as small businesses; \38\ (2) 536 transfer agents registered
with the Commission or with the Federal banking agencies of which 135
qualify as small businesses; \39\ (3) 5,063 brokers-dealers registered
with the Commission of which 879 qualify as small businesses; \40\ (4)
11,797 investment advisers registered with the Commission of which 718
qualify as small businesses; \41\ (5) 264 indenture trustees of which
four qualify as small businesses; \42\ and (6) 896 custodians of which
11 qualify as small businesses.\43\ The Commission has no supportable
basis to estimate the number of small entities with respect to the
remaining category (i.e., any other person). As noted herein in Section
IV, while approximately 28,931 entities have been identified as
potential ``paying agents,'' the Commission preliminarily believes that
no more than 1,000 such entities would actually serve as paying agents.
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\38\ See Exchange Act Rule 0-10(a). 17 CFR 240.0-10(a).
\39\ See Exchange Act Rule 0-10(h). 17 CFR 240.0-10(h).
\40\ See Exchange Act Rule 0-10(c). 17 CFR 240.0-10(c).
\41\ See Investment Advisers Act Rule 0-7(a). 17 CFR 275.0-7(a).
\42\ See Trust Indenture Act Rule 0-7. 17 CFR 260.0-7.
\43\ See 13 CFR 121.201.
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We preliminarily believe that the bulk of paying agent services
would be provided by brokerage firms that handle customer securities
(which as discussed above, as clearing firms, would not be small
entities) and transfer agents (including bank transfer agents), both of
which are firms that typically serve as intermediaries between issuers
and securityholders.
D. Reporting, Recordkeeping, and Other Compliance Requirements
Proposed new paragraph (d) of Rule 17Ad-17 would require
recordkeeping transfer agents, or brokers, or dealers, and paying
agents to demonstrate compliance with these provisions and to maintain
written procedures that describe the methodology for complying with the
provisions. Such records would be required to be maintained for not
less than three years, the first year in an easily accessible place.
Their maintenance would be subject to examination by the appropriate
regulatory agency as defined by Section 3(a)(34)(B) of the Exchange
Act.\44\
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\44\ 15 U.S.C. 78c(a)(34)(B).
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E. Duplicative, Overlapping, or Conflicting Federal Rules
The Commission preliminarily believes there are no rules that
duplicate, overlap, or conflict with the proposed rule.
F. Significant Alternatives
With respect to small entities, the Commission considered whether
viable alternatives to the proposed rulemaking exist that could
accomplish the stated objectives of Section 17A(g) of the Exchange Act
and whether they would minimize any significant economic impact of
proposed rules on small entities. Specifically, the Commission
considered the following alternatives: (1) The establishment of
different procedures that take into account the resources available to
small entities; (2) the clarification, consolidation, or simplification
of compliance and reporting requirements under the proposed rules
insofar as they affect small entities; (3) the use of performance
rather than design standards; and (4) an exemption from coverage of the
rule, or any part thereof, for small entities. However, inasmuch as
Section 929W of the Dodd-Frank Act, which added Section 17A(g) to the
Exchange Act, expressly requires the proposed revisions, no alternative
to the proposed rule amendment appears available at this time.
The Commission encourages the submission of written comments with
respect to any aspect of the Initial Regulatory Flexibility Analysis
(``IFRA'').\45\ Those comments should specify costs of compliance with
the proposed rule, and suggest alternatives that would accomplish the
objective of the proposed amendments to Rule 17Ad-17. A copy of the
IRFA may be obtained by contacting Thomas C. Etter, Jr., Division of
Trading and Markets, Securities and Exchange Commission, 100 F Street,
NE., Washington, DC 20549-7010, telephone no. (202) 551-5713.
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\45\ 5 U.S.C. 603.
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VII. Consideration of Burden on Competition, and Promotion of
Efficiency, Competition, and Capital Formation
The proposed amendments to the rule should have a neutral effect on
efficiency and capital formation and should have no material
anticompetitive effects. While we believe the proposed amendments to
the rule would apply to all transfer agents, brokers, dealers, and
paying agents, they could in theory create a barrier to entry for
potential new entrants if the compliance costs associated with
searching for and contacting lost or missing securityholders are high
enough. The Commission encourages the submission of written comments on
Section VII.
VIII. SBREFA Consideration of Impact on the Economy
For purposes of the Small Business Regulatory Enforcement Fairness
Act of 1996,\46\ a rule is major if it has resulted in or is likely to
result in:
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\46\ 5 U.S.C. 801, et seq. The Regulatory Flexibility Act
requires regulatory agencies to consider the impact of their
proposed and final regulations on small entities.
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An annual effect on the economy of $100 million or more;
A major increase in costs or prices for consumers or
individual industries; or
Significant adverse effects on competition, investment, or
innovation.
We request comment regarding the potential impact of the proposed rule
amendments on the economy on an annual basis. We also request that
commenters provide empirical data and other factual support for their
views.
[[Page 16712]]
IX. Statutory Basis and Text of Proposed Amendments
Statutory Basis
Pursuant to Section 17A(g) of the Exchange Act, 15 U.S.C. 78q-1(g),
the Commission proposes to amend Sec. 240.17Ad-7 and Sec. 240.17Ad-17
under the Exchange Act in the manner set forth below.
List of Subjects in 17 CFR Part 240
Reporting and recordkeeping requirements, Securities.
Text of the Amendments
In accordance with the foregoing, the Commission proposes to amend
part 240 of Chapter II of Title 17 of the Code of Federal Regulations
as follows:
PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934
1. The general authority citation for part 240 is revised and the
following citation is added in numerical order to read as follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3,
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i,
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78mm, 78n, 78n-1, 78o, 78o-4, 78p,
78q, 78q-1, 78s, 78u-5, 78w, 78x, 78ll, 78mm, 80a-20, 80a-23, 80a-
29, 80a-37, 80b-3, 80b-4, 80b-11, and 7201 et seq.; 18 U.S.C. 1350;
and 12 U.S.C. 5221(e)(3) unless otherwise noted.
* * * * *
Section 240.17Ad-17 is also issued under Pub. L. 111-203, Sec.
929W, 124 Stat. 1869 (2010).
* * * * *
Sec. 240.17Ad-7 [Amended]
2. Section 240.17Ad-7(i) is amended by removing ``240.17Ad-17(c)''
and adding in its place ``240.17Ad-17(d)''.
3. Section 240.17Ad-17 is amended by:
a. Revising the heading.
b. Revising paragraph (a)(1).
c. In paragraph (a)(2) adding the phrase ``, or broker or dealer''
following the word ``agent''.
d. In paragraph (a)(3) introductory text adding the phrase ``, or
broker or dealer'' following the word ``agent''.
e. In paragraph (a)(3)(ii) adding the phrase ``or customer security
account records of the broker or dealer'' following the word ``files''.
f. In paragraph (b)(2)(i) adding the phrase ``or customer security
account records of a broker or dealer'' following the word ``file'' and
adding the phrase ``, or broker or dealer'' following the phrase
``securityholder, the transfer agent''.
g. In paragraph (b)(2)(ii) adding the phrase ``or broker or
dealer'' following the word ``agent''.
h. Redesignating paragraph (c) as paragraph (d), and adding new
paragraph (c).
i. Revising newly redesignated paragraph (d).
The revisions and addition read as follows:
Sec. 240.17Ad-17 Transfer agents', brokers', and dealers' obligation
to search for lost securityholders; paying agents' obligation to search
for missing securityholders.
(a)(1) Every recordkeeping transfer agent whose master
securityholder file includes accounts of lost securityholders and each
broker or dealer that holds customer security accounts shall exercise
reasonable care to ascertain the correct addresses of such
securityholders. In exercising reasonable care to ascertain such lost
securityholders' correct addresses, each recordkeeping transfer agent
and each broker or dealer shall conduct two data base searches using at
least one information data base service. The transfer agent and broker
or dealer shall search by taxpayer identification number or by name if
a search based on taxpayer identification number is not reasonably
likely to locate the securityholder. Such data searches must be
conducted without charge to a lost securityholder and with the
following frequency:
(i) Between three and twelve months of such securityholder becoming
a lost securityholder and
(ii) Between six and twelve months after the transfer agent's or
broker's or dealer's first search for such lost securityholder.
* * * * *
(c)(1) The paying agent, as defined in paragraph (c)(2) of this
section, shall provide not less than one written notification to each
missing securityholder stating that such securityholder has been sent a
check that has not yet been negotiated. Such notification may be sent
with a check or other mailing subsequently sent to the missing
securityholder, but must be provided no later than seven (7) months
after the sending of the not yet negotiated check.
(2) The term paying agent shall include any issuer, transfer agent,
broker, dealer, investment adviser, indenture trustee, custodian, or
any other person that accepts payments from the issuer of a security
and distributes the payments to the holder of the security.
(3) The securityholder shall be considered a missing securityholder
if a check is sent to the securityholder and the check is not
negotiated before the earlier of the paying agent's sending the next
regularly scheduled check or the elapsing of six (6) months after the
sending of the not yet negotiated check.
(4) A paying agent shall be excluded from any notification
requirement where the value of the not yet negotiated check is less
than $25.
(5) The requirements of paragraph (c)(1) of this section shall have
no effect on state escheatment laws.
(d) Every recordkeeping transfer agent, broker, or dealer carrying
securities for the accounts of customers, and every paying agent shall
maintain records to demonstrate compliance with the requirements set
forth in this section which shall include written procedures that
describe the transfer agent's, or broker's or dealer's, or paying
agent's methodology for complying with this section. Such records shall
be maintained for a period of not less than three (3) years with the
first year in an easily accessible place.
By the Commission.
Dated: March 18, 2011.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-6940 Filed 3-24-11; 8:45 am]
BILLING CODE 8011-01-P
