[Federal Register Volume 59, Number 235 (Thursday, December 8, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-30125]
[[Page Unknown]]
[Federal Register: December 8, 1994]
SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 200 and 240
[Release No. 34-35039; File No. S7-1-92]
RIN 3235-AE20
Notice of Assumption or Termination of Transfer Agent Services
AGENCY: Securities and Exchange Commission.
ACTION: Final rulemaking.
-----------------------------------------------------------------------
SUMMARY: Securities and Exchange Commission today is adopting new Rule
17Ad-16 under the Securities Exchange Act of 1934 which requires a
registered transfer agent to provide written notice to a registered
securities depository when terminating or assuming transfer agent
services on behalf of an issuer or when changing its name or address.
The rule will address a continuing problem of unannounced transfer
agent changes which affects the prompt transfer of securities
certificates.
EFFECTIVE DATES: Section 200.30-3(a)(56) is effective on December 8,
1994. Section 240.17Ad-16 is effective on February 6, 1995.
FOR FURTHER INFORMATION CONTACT:
Ester Saverson, Jr., Special Counsel, at 202/942-4187, Division of
Market Regulation, Securities and Exchange Commission, 450 Fifth
Street, NW., Washington, DC 20549.
SUPPLEMENTARY INFORMATION: The Securities and Exchange Commission
(``Commission'') is adopting new Rule 17Ad-16 (17 CFR 240.17Ad-16)
under the Securities Exchange Act of 1934 (``Act''). The rule requires
registered transfer agents to notify a registered securities depository
of changes in the transfer agent's name or address or in the securities
for which it performs transfer agent functions.
I. Introduction and Summary
On January 10, 1992, the Commission published for comment proposed
Rule 17Ad-16 pursuant to section 17A(d)(1) of the Act.\1\ Section
17A(d)(1) of the Act provides, among other things, that no registered
transfer agent shall engage in any activity in contravention of any
rules and regulations that the Commission may promulgate ``as necessary
or appropriate in the public interest, for the protection of investors,
or otherwise in furtherance of the purposes of (the Act).\2\ Pursuant
to that grant of authority, the Commission has adopted rules that
establish minimum performance standards for registered transfer agents
in connection with the timely cancellation and issuance of securities
certificates.\3\ Those standards are designed to assure, among other
things, that registered transfer agents expeditiously process items
presented for transfer. The standards presuppose that securityholders
will know, based on an examination of the certificate they intend to
present for cancellation, the name and address of the transfer agent
the issuer has assigned to perform transfer agent functions. As
discussed in greater detail below, that presumption may not be valid in
many case.
---------------------------------------------------------------------------
\1\ Securities Exchange Act Release No. 30148 (January 6, 1992),
57 FR 1128 (hereinafter cited as Proposing Release).
\2\ Section 17A(c)(1) of the Act requires transfer agents that
perform transfer agent functions with respect to any security
registered under section 12 of the Act or that would be required to
be registered except for the exemption from registration provided by
subsection (g)(2)(B) or (g)(2)(G) of that section to be registered
with the Commission. Section 3(a)(25) of the Act defines transfer
agent as any person who engages on behalf of an issuer of securities
or on behalf of itself as an issuer of securities in (A)
countersigning such securities upon issuance; (B) monitoring the
issuance of such securities with a view to preventing unauthorized
issuance (a function commonly performed by a person called a
registrar); (C) registering the transfer of such securities; (D)
exchanging or converting such securities; or (E) transferring record
ownership of securities by book-keeping entry without physical
issuance of securities certificates.
\3\See, e.g., 17 CFR 240.14Ad-7.
---------------------------------------------------------------------------
Rule 17Ad-16 is designed to address a current and continuing
problem of transfer delays due to unannounced transfer agent changes,
including the change of a transfer agent for a particular issue and the
change of the name or address of a transfer agent. The rule requires
transfer agents to send a notice to the appropriate qualified
registered securities depository\4\ when assuming or terminating
transfer agent services on behalf of an issuer or when changing its
name or address.
---------------------------------------------------------------------------
\4\The ``appropriate qualified registered securities
depository'' is defined as the largest holder of record of all
qualified registered securities depositories or such other qualified
registered securities depository designated by the Commission by
order. The Depository Trust Company, Philadelphia Depository Trust
Company, and the Midwest Securities Trust Company currently are
qualified registered securities depositories.
---------------------------------------------------------------------------
The Commission believes that the proposed rule will facilitate the
prompt and accurate clearance and settlement of securities transactions
in shorter time frames.\5\ With less time for transfer of securities
ownership, it is critical that securities certificates be sent to the
appropriate transfer agent in order to avoid unnecessary settlement and
transfer delays. In addition, sending stock certificates to the
appropriate transfer agent greatly reduces the expense of transfer of
ownership. Finally, the Commission today issued a release soliciting
comment on the implications of an automated environment for the direct
registration of investors with links to the secondary market clearance
and settlement system. In such an environment, it is important that
changes in transfer agent assignments be communicated on a timely
basis.
---------------------------------------------------------------------------
\5\On October 6, 1993, the Commission adopted Rule 15c6-1 which
establishes three business days after trade date, rather than five
business days, as the standard settlement cycle for most broker-
dealer transactions. Securities Exchange Act Release No. 33023
(October 6, 1994), 58 FR 52891. The rule becomes effective June 7,
1995. Securities Exchange Act Release No. 34952 (November 9, 1994),
59 FR 59137.
---------------------------------------------------------------------------
Five commenters addressed one or more aspects of the proposed
rule.\6\ Three commenters favored the proposed rule, all of whom
provided additional comments on specific sections of the proposed rule.
One commenter offered suggestions without explicitly supporting the
proposed rule. One commenter objected to the proposed rule. The views
of the commenters are discussed in detail below.
---------------------------------------------------------------------------
\6\See Letters from Richard B. Nesson, General Counsel and
Senior Vice President, The Depository Trust Company (``DTC''), to
Jonathan G. Katz, Secretary, Commission (February 12, 1992); Sarah
A. Miller, Senior Government Relations Counsel, Trust and
Securities, American Bankers Association (``ABA''), to Jonathan G.
Katz, Secretary, Commission (February 10, 1992); Cecelia M. Widup,
President, Corporate Transfer Agents Association, Inc. (``CTAA''),
to Jonathan G. Katz, Secretary, Commission (February 4, 1992); Fred
D. Ellis, Vice President, Mellon Financial Services (``Mellon''), to
Jonathan G. Katz, Secretary, Commission (June 2, 1992); and Donald
R. Hollis, Executive Vice President, First Chicago Corporation
(``First Chicago''), to Jonathan G. Katz, Secretary, Commission
(February 7, 1992). These comment letters are available for
inspection and copying in the Commission's Public Reference Room,
450 Fifth Street, NW., Washington, DC 20549. In addition, as
required by Section 17A(d)(3)(A)(i) of the Act, the Commission, at
least fifteen days prior to issuance of this release, consulted with
the requested the views of the Comptroller of the Currency, the
Board of Governors of the Federal Reserve System, and the Federal
Deposit Insurance Corporation.
---------------------------------------------------------------------------
The Commission has modified proposed Rule 17Ad-16 to address
certain commenter suggestions and concerns. The Commission has rejected
some suggestions offered by commenters, as discussed below. Finally,
for the reasons discussed in the Proposing Release and below, the
Commission is adopting Rule 17Ad-16 as revised.
II. Basis and Purpose
Transfer delays cause problems for registered securities
depositories, depository participants, and their customers in the form
of increased delays, costs, and risks. Timely securities transfer is
necessary for the efficiency of the national system for the clearance
and settlement of securities transactions.\7\ Transfer requests sent to
the wrong transfer agent or to the wrong address must be returned to
the party requesting the transfer, who then must ascertain the correct
transfer agent or address. Even worse, in some instances a transfer
request may not be returned to the requesting party, resulting in the
loss of securities certificates. The rule is designed to reduce the
number of misdirected transfer requests and the resulting delays,
costs, and risks by requiring a transfer agent to provide the
appropriate qualified registered securities depository advance notice
of certain status changes.
---------------------------------------------------------------------------
\7\Rule 17Ad-2 (17 CFR 240.17Ad-2) establishes mandatory
timeframes within which registered transfer agents must complete
most routine transfer requests. Transfer agents that receive more
than 500 items in a six month period must turnaround within three
business days 90% of the routine items received each month. Routine
items that are not turned around within three business days and non-
routine items must be turned around promptly. A registered transfer
agent for depository-eligible securities that during the previous
six consecutive months receives fewer than 500 items for transfer
and fewer than 500 items for processing must turnaround 90% of the
routine items within five business days.
---------------------------------------------------------------------------
Transfer delays cause acute problems for the three registered
securities depositories--The Depository Trust Company (``DTC''),
Philadelphia Depository Trust Company (``Philadep'') and the Midwest
Securities Trust Company (``MSTC'')--that hold a large number of
certificates for safekeeping and have a large daily volume of
certificate transfers.\8\ These delays also affect depository
participants (e.g., banks and broker-dealers) and their customers,
(i.e., shareholders) in the form of increased delays, costs, and risks.
---------------------------------------------------------------------------
\8\DTC, for example, presents an average of 100,000-120,000
certificates for transfer each business day. Supra note 1.
---------------------------------------------------------------------------
The depositories hold securities certificates in the nominee name
is safekeeping for the benefit of participants and their customers.
When a participant deposits securities into a depository, the
depository usually credits the participant's account for the deposit
and sends the certificates to the issuer's transfer agent with
instructions to transfer the certificate into the depository's nominee
name. Whenever transfer delays occur, the depository faces an increased
risk of lost certificates. The depository also has increased potential
liability because it credits participants' accounts on the day
certificates are presented for deposit. If deposited certificates
presented for transfer are counterfeit or reported as stolen, the
depository would be subject to credit and market risk because it could
not take corrective action until after the certificates have been
resubmitted to the new transfer agent or delivered to the transfer
agent's new address.
The costs of unannounced transfer agent changes can be significant
for depositories and broker-dealers. DTC estimates that it incurs costs
of at least $200,000 each year directly related to unannounced transfer
agent changes. Much of that cost is attributed to locating the correct
transfer agent for the issue or the transfer agent's correct address to
send the certificates for transfer. In addition, DTC surveyed thirteen
of its largest broker-dealer participants that account for 52% of all
DTC processed transfers. During 1990, those firms estimated cumulative
costs of $573,000 for processing transfers delayed because of
unannounced transfer agent changes. Many of the firms noted that other
costs, such as the increased possibility of certificate losses as well
as increased customer dissatisfaction, were not included in their
estimates because those costs were not easily quantifiable. As
indicated by the comments received, the proposed rule will ameliorate
these problems with minimal financial burden to the transfer agent
community.
A substantial majority of the commenters expressed support for the
proposed rule. For example, the ABA noted that the notification
requirement is a particularly good idea in light of mergers in the
banking industry and concluded that the proposed rule will assist in
keeping the capital markets informed of changes affecting securities
transfers. In addition, the CTAA commented that the notification
requirement would be beneficial to the transfer agent community as a
whole.
First Chicago, the sole objecting commenter, believed that adequate
information is available from a private vendor, Financial Information,
Inc., in monthly reports to subscribers that, in its opinion, are
``timely, accurate and adequate.'' First Chicago also believed that the
information available from this vendor is superior to that which would
be provided pursuant to Rule 17Ad-16 because under the rule information
in the notice must be handled manually by the transfer agents and
recipients whereas vendor-supplied information is already in machine
readable form. The Commission understands First Chicago to suggest that
the Commission should rely on the private sector to collect and
disseminate timely information regarding transfer agent assignments and
name changes. However, securities depositories need to receive notice
in advance of the change in assignment. Monthly reports from services
based on information collected voluntarily, in light of other commenter
views, do not appear to solve the need for timely prior notice from all
transfer agents.\9\
---------------------------------------------------------------------------
\9\Indeed, at least one commenter suggested that the mandatory
notice time frame be lengthened. See Mellon letter, supra note 5.
---------------------------------------------------------------------------
First Chicago also believe the data required by the rule will be
available from more than one securities depository and the proposed
process does not (1) assure the integrity of the source data and the
data exchanged between the depositories or (2) resolve data content
differences caused by manual errors or fraudulent entries. The
Commission does not believe that the proposed methodology embodied in
proposed Rule 17Ad-16 is inherently flawed because of its reliance on
written notice. The risk of manual error is roughly equivalent whether
the information is manually entered into an electronic system by the
transfer agent or manually written and delivered to the securities
depositories. By requiring notice from two transfer agents--the one
assuming the transfer functions for an issue and the one relinquishing
those functions--the proposed rule will minimize errors and fraudulent
information.
First Chicago also suggested that the Commission reconsider the
notification method set forth in the proposed Rule 17Ad-16 and examine
other alternatives such as an Electronic Data Interchange to permit
electronic exchange of information between all agents and depositories.
The Commission believes that the need for timely and accurate
information by securities depositories, depository participants, and
their customers in a sufficient incentive for securities depositories
to develop a secure and cost effective method to assure data integrity
and timely communication of transfer agent changes. Moreover, the
securities depositories already have held discussions about the
development of a centralized data base and have agreed that DTC should
be the central repository for transfer agent information.\10\
Nevertheless, if experience indicates a significant volume of notice is
received on a regular basis, the Commission would encourage the
depositories to consider establishing an electronic notification system
through existing depository communications systems.
---------------------------------------------------------------------------
\10\DTC letter, supra note 5.
---------------------------------------------------------------------------
III. Section by Section Analysis
A. Rule 17AD-16(a): Notice of Termination of Transfer Agent Services
Proposed Rule 17Ad-16(a) would have required a registered transfer
agent that ceases to perform services on behalf of an issuer to provide
written notification of such change to all qualified registered
securities depositories or to the appropriate qualified registered
securities depository. As proposed, the rule required that notice be
sent by ``secure communication'' no later than two business days after
the effective date of such termination. As discussed below, the
Commission is modifying the proposal to require more timely notice and
to require that the notice be sent to the appropriate qualified
registered securities depository.
A number of commenters addressed this requirement, urging various
changes or clarifications. The CTAA stated that notification by a
termination transfer agent is unnecessary because it is duplicative of
the notification provided by assuming transfer agents under proposed
Rule 17Ad-16(b). The CTAA favors placing the requirement solely on the
assuming transfer agent because it is the party with the greatest
interest in ensuring that the change in status is recognized by the
industry.
As discussed above, the Commission believes that requiring notice
from the terminating transfer agent is essential. This notice will
serve to validate the notice sent by the assuming transfer agent and
will serve as the only notice in those rare cases when a new transfer
agent has not yet been selected.
Mellon suggests, as an alternative to the proposed two business day
notification period, that a transfer agent be required to provide this
notification, and the notification required under proposed Rule 17Ad-
16(b), the later of (a) ten calendar days prior to the effective date
of the change or (b) as soon as the transfer agent is aware of the
change.''\11\ Mellon believes that the two business day notification
period is inadequate to permit the securities depositories to react to
the change so as to preclude the improper forwarding of transfer items
to a transfer agent.
---------------------------------------------------------------------------
\11\Mellon letter, supra note 5.
---------------------------------------------------------------------------
The Commission agrees with Mellon that the notice by a transfer
agent ceasing to perform transfer services for a particular issue
should be sent to depositories in sufficient time to preclude the
improper forwarding of transfer items to the transfer agent. Thus, the
Commission is modifying proposed Rule 17Ad-16(a) to require a transfer
agent to send the required notification on or before the later of ten
calendar days prior to the termination date or the day the transfer
agent is notified of the termination date. These modifications should
minimize the risk of improperly forwarded transfer items without
creating an undue burden on the transfer agent.
The Commission also is revising the proposed rule to require that a
transfer agent submitting the notice of termination include in such
notice its full name, address, telephone number, and Financial Industry
Number Standard (``FINS'') number.\12\ The rule as proposed did not
specifically require the transfer agent submitting a termination notice
to provide this identification. The reporting of a FINS number will
minimize possible confusion between transfer agents that have similar
names. This change should not result in any additional burden because
all transfer agents are required to obtain a FINS number in order to
participate in the Commission's Lost and Stolen Securities Program.\13\
---------------------------------------------------------------------------
\12\A FINS number is a unique five digit number used by the
securities industry as a means of identifying financial institutions
in automated data processing systems. Currently all registered
clearing agencies, including DTC, the National Securities Clearing
Corporation, and the Commission's Lost and Stolen Securities Program
use the FINS number.
\13\The Lost and Stolen Securities Program was established in
1977 to deter trafficking in lost, stolen, missing, and counterfeit
securities and to assist institutions and the public in tracking
missing securities. Reporting institutions, including transfer
agents, broker-dealers, and banks, are required to report lost,
stolen, missing, or counterfeit securities and to inquire whether
certain securities certificates in their possession have been
reported as lost, stolen, missing, or counterfeit.
---------------------------------------------------------------------------
The Commission also is revising the proposed rule to require the
transfer agent to send the notice to the appropriate qualified
registered securities depository rather than to all qualified
registered securities depositories. The Commission believes that it
will be simpler for transfer agents to send the notice to the
appropriate qualified registered securities depository because the
transfer agent generally will be aware of the identity of the
appropriate qualified registered securities depository. The Commission
expects that DTC will seek designation as the appropriate qualified
registered securities depository and that the Commission will act on
that request before the effective date of the rule.
One commenter sought clarification regarding whether the proposed
rule applies to a registered transfer agent with respect to services
provided for securities exempt from registration under section 12 of
the Act. Section 17A(d)(1) of the Act grants the Commission rulemaking
authority over all of the transfer activities of a transfer agent
registered under section 17A(c)(1) of the Act, including securities
exempt from section 12 of the Act. Accordingly, the Commission will
interpret Rule 17Ad-16 to require registered transfer agents to provide
notice of changes to securities depositories with regard to any
``security,'' as defined in section 3(a)(10) of the Act.\14\ Thus, for
example, a registered transfer agent assuming or ceasing responsibility
for municipal securities or government securities would be required to
comply with Rule 17Ad-16.\15\
---------------------------------------------------------------------------
\14\The Commission notes that the scope of Rule 17Ad-16 is not
limited to securities that are eligible for deposit at a registered
securities depository. This information will help assist the
securities industry as a whole (including broker-dealers and banks)
to locate the appropriate transfer agent. In addition, as a result
of the move to a three business day settlement time frame for most
securities transactions, the vast majority of securities will be
depository eligible.
\15\See Securities Exchange Act Release No. 17111 (September 2,
1980), 45 FR 59840.
---------------------------------------------------------------------------
B. Rule 17Ad-16(b): Notice of Assumption of Transfer Agent Services
Proposed Rule 17Ad-16(b) would have required a registered transfer
agent to provide written notification of any assumption of duties on
behalf of an issuer or any change of its name or address no later than
two business days after the effective date of the change. The
Commission is modifying proposed Rule 17Ad-16(b) to reflect commenter
suggestions that the two business day notification period under this
section and under proposed Rule 17Ad-16(a) is inadequate to permit the
securities depositories to react to the change. Thus, the Commission is
modifying proposed Rule 17Ad-16(b) to require a transfer agent to send
the required notification on or before the later of ten calendar days
prior to the effective date of the change in status or the day the
transfer agent is notified of the effective date. This modification,
along with the similar modification in paragraph (a) of this proposal,
should minimize the risk of improperly forwarded transfer items without
creating an undue burden on the transfer agent.
In the Proposing Release, the Commission invited comment as to
whether, in the case of notification of a name or address change, the
transfer agent should be required to include in the notice all issues
handled and their CUSIP numbers.\16\ Of the three commenters addressing
this issue, one did not object to the requirement,\17\ one suggested it
might not be necessary for its operations,\18\ and one commenter
specifically objected to the requirement.\19\ In response to these
comments, the Commission is deleting the requirement that a transfer
agent include in a notice of a name or an address change the issuer's
name, the issue or issues handled, and their CUSIP number(s). The
Commission agrees with the commenters that the reporting of each issue
and the corresponding CUSIP numbers handled by a transfer agent is not
necessary when the transfer agent is reporting a name or an address
change. The Commission, however, is concerned that one of the parties
to a merger or acquisition--the transfer agent terminating its services
or the one assuming services as a result of the merger or acquisition--
may view the event as a name or an address change and may not file the
appropriate information, including the CUSIP number for each issue.
Thus, the Commission is revising paragraphs (a) and (b) to clarify the
need for both transfer agents in the case of a merger or an acquisition
to include in the notice the issuer's name, issuers or issues handled,
and the CUSIP number for each issue.
---------------------------------------------------------------------------
\16\CUSIP is an acronym for the Committee on Uniform Securities
Identification Procedures.
\17\The ABA did not oppose the requirement, stating that
supplying CUSIP numbers would not add significantly to the transfer
agent's burden.
\18\DTC stated that the inclusion of CUSIP numbers was not
necessary because of the method DTC uses to maintain transfer agent
data.
\19\First Chicago opposed the requirement of supplying CUSIP
numbers because it would add to the data capture, communication, and
storage requirements. First Chicago also believed that the integrity
of the data would be suspect because of the extensive manual
handling involved. Finally, First Chicago stated that extensive
processes would be required to reconcile differences between
redundant data repositories.
---------------------------------------------------------------------------
The Commission is adding a requirement, corresponding to the
modification to proposed Rule 17Ad-16(a), that the FINS number of the
transfer agent be included in the notice. As discussed above, this
requirement will act as a confirmation of identity without adding
substantially to the burden of the transfer agent. The Commission also
is modifying proposed Rule 17Ad-16(b), corresponding to the
modification to proposed Rule 17Ad-16(a), to eliminate the option that
the notice be sent to all qualified registered securities depositories.
C. Rule 17Ad-16(c): Delivery of Notices
Proposed Rule 17Ad-16(c) would have provided that the notice
required by paragraph (a) or paragraph (b) of the proposal must be
delivered by means of a secure communication and state to which
registered securities depositories notice is sent. Proposed Rule 17Ad-
16(c) also defined ``secure communication.''\20\ No commenter
specifically addressed proposed Rule 17Ad-16(c). The Commission defined
the term ``secure communication'' broadly so as to allow the
Commission, by an interpretation or through the no-action process, to
determine whether a form of communication not specifically enumerated
in the rule is a form of ``secure communication.'' The Commission is
modifying Rule 17Ad-16(c) to delete the requirement that the notice
state to which registered securities depositories notice is sent. This
requirement is no longer necessary because the notice will be sent only
to the appropriate qualified registered securities depository.
---------------------------------------------------------------------------
\20\``Secure communication'' includes telegraph, overnight mail,
facsimile, or any other form of secure communication.
---------------------------------------------------------------------------
D. Rule 17Ad-16(d): Forwarding of Notices
Proposed Rule 17Ad-16(d) requires a qualified registered securities
depository that receives notices under paragraph (a) or paragraph (b)
to forward copies by means of a secure communication to each registered
securities depository and to its own participants. One commenter
addressed this provision seeking clarification of how it might comply
with the rule.\21\ The Commission is modifying proposed Rule 17Ad-16(d)
in several respects.
---------------------------------------------------------------------------
\21\See DTC letter, supra note 5.
---------------------------------------------------------------------------
DTC, the only commenter to address proposed Rule 17Ad-16(d),
requested that it be permitted to make the information contained in the
notice available to its participants upon inquiry over DTC's
Participant Terminal System rather than forwarding copies of the notice
by means of ``secure communication.'' The Commission in using the term
``secure communication'' did not intend to preclude the forwarding of
notices in an electronic format. Although the Proposing Release
suggested that all notices must be forwarded by the securities
depository within 24 hours, proposed Rule 17Ad-16(d) did not contain a
specific time period for forwarding notices. The Commission is revising
proposed Rule 17Ad-16(d)(2) to allow a registered securities depository
to make available the notice, or all material information from the
notice, within 24 hours in a manner set forth in a rule of the
depository.\22\ Because changes to depository rules must be filed with
the Commission and published for comment, the Commission believes it is
appropriate to determine in that context whether the method proposed to
forward such notices is consistent with the purposes of this rule and
the Act.
---------------------------------------------------------------------------
\22\Rules of a registered clearing agency are required to be
filed with the Commission under section 19(b) of the Act. See 15
U.S.C. 78s(b) (1988).
---------------------------------------------------------------------------
The reference to the recipients of notice in Rule 17Ad-16(d) has
been revised to read ``qualified registered securities depositories''
rather than ``registered securities depositories.'' This revision is to
clarify that Rule 17Ad-16 only requires notice to be sent to securities
depositories that meet the definition of ``qualified registered
securities depositories'' under Rule 17Ad-16(e). Finally, the
Commission is modifying proposed Rule 17Ad-16(d) to clarify that a
qualified registered securities depository must forward all notices
received to its participants, rather than just notices received under
paragraphs (a) and (b). This change is to ensure that a qualified
registered securities depository that is not the appropriate qualified
registered securities depository, which receives notices under
paragraph (d), will provide its participants with copies of the
notices. Those revisions have been incorporated in new subparagraph (1)
of Rule 17Ad-16(d).
Proposed Rule 17Ad-16(d) also would have imposed certain record
keeping requirements on the qualified registered securities depository
and on the notifying transfer agent. The substance of those
requirements, as adopted, has not changed but the requirements are
contained in two new subparagraphs of Rule 17Ad-16(d). The record
keeping requirement for a qualified registered securities depository is
contained in new subparagraph (3) of Rule 17Ad-16(d) and the record
keeping requirement for a transfer agent is contained in new
subparagraph (4) of Rule 17Ad-16(d).
E. Rule 17Ad-16(e): Qualified Securities Registered Depository
Proposed Rule 17Ad-16(e) defined the term ``qualified registered
securities depository'' as a clearing agency registered under Section
17A of the Act that performs clearing agency functions as described in
Section 3(a)(23)(A)(i) of the Act and that has rules and procedures
concerning its responsibility for maintaining, updating, and providing
appropriate access to the information it receives pursuant to
paragraphs (a) and (b) of the Rule 17Ad-16. No commenters addressed
proposed Rule 17 Ad-16(e). The Commission is modifying proposed Rule
17Ad-16(e) to clarify that a qualified registered securities depository
may receive information pursuant to paragraph (d) of Rule 17Ad-16.
F. Rule 17Ad-16(f): Appropriate Qualified Registered Securities
Depository
Proposed Rule 17Ad-16(f) defines the term ``appropriate qualified
registered securities depository'' as a qualified registered securities
depository that, as of the most recent record date, is the largest
holder of record of all qualified registered securities depositories or
such other qualified registered securities depository designated by the
Commission by order. The purpose of this section is to identify the
appropriate recipient of the transfer agent's notice under Rule 17Ad-
16(a) and Rule 17Ad-16(b). As proposed, Rule 17Ad-16(f) would not have
permitted the Commission to designate the ``appropriate qualified
registered securities depository.'' The Commission, in the Proposing
Release, invited comments regarding the designation by the Commission
of the appropriate qualified registered securities depository.
Three commenters addressed proposed Rule 17Ad-16(f). First Chicago
believed that the proposed rule presents no problem as drafted since
the proper depository is generally known and, when doubt exists, the
notice could be sent to all securities depositories. DTC and the CTAA
recommended that DTC be designated as the appropriate qualified
registered securities depository. DTC argued that its designation as
the appropriate qualified registered securities depository would
eliminate uncertainty about where notices must be sent and reduce
unnecessary costs and administrative burdens resulting from that
uncertainty. In addition, DTC noted that it has consulted with MSTC and
Philadep, and both organizations have authorized DTC to advise the
Commission of their support for this approach.
DTC is the largest holder of record among qualified registered
securities depositories for the vast majority of issues. At year-end
1993, DTC held securities on behalf of its participants that equaled
$7.5 trillion, more than 98.8% of the total market value of securities
held by the three registered securities depositories that handle
corporate securities.\23\
---------------------------------------------------------------------------
\23\DTC, Annual Report 1993 at 5.
---------------------------------------------------------------------------
The Commission is modifying proposed Rule 17Ad-16(f) to authorize
the Commission to designate by order the appropriate qualified
registered securities depository.\24\ In the absence of such
designation, the appropriate qualified registered securities depository
will be the qualified registered securities depository with the largest
position as of the last record date. In addition, Rule 17Ad-16(e)
requires a qualified registered securities depository to file a
proposed rule change under Section 19 of the Act detailing how it
intends to maintain, update, and provide appropriate access to the
information it receives. As part of the rule filing, the Commission
believes it is appropriate for a qualified registered securities
depository to seek Commission approval to designate another to carry
out its primary responsibilities provided that the other qualified
registered securities depository agrees.\25\
---------------------------------------------------------------------------
\24\Concurrent with the adoption of the Rule, the Commission is
delegating to the Director of the Division of Market Regulation
authority to designate by order the appropriate qualified registered
securities depository.
\25\DTC included in its comment letter the forms that DTC will
suggest transfer agents use to comply with the Rule. The Commission
believes mandating such a form is unnecessary at this time.
---------------------------------------------------------------------------
IV. Regulatory Flexibility Act Certification
In the Proposing Release, the Commission noted that former Chairman
Richard C. Breeden certified, pursuant to section 605(b) of the
Regulatory Flexibility Act, that proposed rules, if adopted, will not
have a significant economic impact on a substantial number of small
entities. No comments concerning regulatory flexibility matters were
received.
V. Burden on Competition
As required by section 23(a) of the Act, the Commission has
specifically considered the impact that these rules would have on
competition. The Commission believes that the rule will not have a
significant impact on transfer agent competition. Transfer agents only
have to send a notice when there is a change of transfer agent
providing services on behalf of an issuer or a name or address change.
Even when a transfer agent is required to send notice of a change, the
cost of compliance is insignificant. Moreover, the burden of sending
such notices should fall mainly on larger transfer agents that have
more issues because these agents are more likely to have changes that
would require them to send notices under the rule. Thus, the Commission
finds that the rules would not impose a burden on competition not
necessary or appropriate in furtherance of the purposes of the Act and,
in particular, section 17A of the Act.
VI. Paperwork Reduction Act Submission
An authorization request (SF 83) for the reporting requirement was
prepared and submitted to the Office of Management and Budget which
approved the request without comments.
VII. Effective Date
The Commission has determined that Sec. 200.30-3(a)(56) is a
procedural rule related solely to the agency's organization, procedure,
or practice. Therefore, the provisions of the Administrative Procedure
Act (``APA'') regarding notice of proposed rulemaking, opportunities
for public participation, and prior publication\26\ are not applicable.
---------------------------------------------------------------------------
\26\5 U.S.C. 553.
---------------------------------------------------------------------------
VIII. Statutory Basis
Pursuant to the Securities Exchange Act of 1934 and particularly
Sections 3, 17, 17A, and 23(a) thereof, 15 U.S.C. 78c, 78q, 78q-1, and
78w(a), the Commission amends Chapter II of Title 17 of the Code of
Federal Regulations in the manner set forth below.
List of Subjects
17 CFR Part 200
Administrative practice and procedure, Authority delegations
(Government agencies), Organizations and functions (Government
organizations).
17 CFR Part 240
Reporting and recordkeeping, Securities.
Text of the Amendments
PART 200--ORGANIZATION; CONDUCT AND ETHICS; AND INFORMATION AND
REQUESTS
1. The authority citation for part 200, subpart A continues to read
in part as follows:
Athority: 15 U.S.C. 77s, 78d-1, 78d-2, 78w, 78ll(d), 79t, 77sss,
80a-37, 80b-11, unless otherwise noted.
* * * * *
2. Section 200.30-3 is amended by adding paragraph (a)(56) to read
as follows:
Sec. 200.30-3 Delegation of authority to Director of Division of
Market Regulation.
* * * * *
(a) ***
(56) Pursuant to Sec. 270.17Ad-16 of this chapter, to designate by
order the appropriate qualified registered securities depository.
* * * * *
PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934
1. The authority citation for Part 240 continues to read in part as
follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77eee, 77ggg,
77nnn, 77sss, 77ttt, 78c, 78d, 78i, 78j, 78l, 78m, 78n, 78o, 78p,
78q, 78s, 78w, 78x, 78ll(d), 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-
37, 80b-3, 80b-4, and 80b-11, unless otherwise noted.
* * * * *
2. Section 240.17Ad-16 is added to read as follows:
Sec. 270.17Ad-16 Notice of Assumption or Termination of Transfer Agent
Services.
(a) A registered transfer agent that ceases to perform transfer
agent services on behalf of an issuer of securities, including a
registered transfer agent that ceases to perform transfer agent
services on behalf of an issuer of securities because of a merger or
acquisition by another transfer agent, shall send written notice of
such termination to the appropriate qualified registered securities
depository on or before the later of ten calendar days prior to the
effective date of such termination or the day the transfer agent is
notified of the effective date of such termination. Such notice shall
include the full name, address, telephone number, and Financial
Industry Number Standard (``FINS'') number of the transfer agent
ceasing to perform the transfer agent services for the issuer; the
issuer's name; the issue or issues handled and their CUSIP number(s);
and if known, the name, address, and telephone number of the transfer
agent that thereafter will provide transfer services for the issuer. If
no successor transfer agent is known, the notice shall include the name
and address of a contact person at the issuer.
(b) A registered transfer agent that changes its name or address or
that assumes transfer agent services on behalf of an issuer of
securities, including a transfer agent that assumes transfer agent
services on behalf of an issuer of securities because of a merger or
acquisition of another transfer agent, shall send written notice of
such to the appropriate qualified registered securities depository on
or before the later of ten calendar days prior to the effective date of
such change in status or the day the transfer agent is notified of the
effective date of such change in status. A notice regarding a change of
name or address shall include the full name, address, telephone number,
and FINS number of the transfer agent and the location where
certificates are received for transfer. A notice regarding the
assumption of transfer agent services on behalf of an issuer of
securities, including assumption of transfer agent services resulting
from the merger or acquisition of another transfer agent, shall include
the full name, address, telephone number, and FINS number of the
transfer agent assuming the transfer agent services for the issuer; the
issuer's name; and the issue or issues handled and their CUSIP
number(s).
(c) The notice described in paragraphs (a) and (b) of this section
shall be delivered by means of secure communication. For purposes of
this section, secure communication shall include telegraph, overnight
mail, facsimile, or any other form of secure communication.
(d)(1) The appropriate qualified registered securities depository
that receives notices pursuant to paragraphs (a) and (b) of this
section shall deliver within 24 hours a copy of such notices to each
qualified registered securities depository. A qualified registered
securities depository that receives notice pursuant to this section
shall deliver a copy of such notices to its own participants within 24
hours.
(2) A qualified registered securities depository may comply with
its notice requirements under paragraph (d)(1) of this section by
making available the notice of all material information from the notice
within 24 hours in a manner set forth in the rules of the qualified
registered securities depository.
(3) A qualified registered securities depository shall maintain
such notices for a period of not less than two years, the first six
months in an easily accessible place. Such notice shall be made
available to the Commission or other persons as the Commission may
designate by order.
(4) A registered transfer agent that provides notice pursuant to
paragraphs (a) and (b) of this section shall maintain such notice for a
period of not less than two years, the first six months in an easily
accessible place.
(e) For purposes of this section, a qualified registered securities
depository shall mean a clearing agency registered under Section 17A of
the Act (15 U.S.C. 78q-1) that performs clearing agency functions as
described in Section 3(a)(23)(A)(i) of the Act (15 U.S.C.
78c(a)(23)(A)(i)) and that has rules and procedures concerning its
responsibility for maintaining, updating, and providing appropriate
access to the information it receives pursuant to this section.
(f) For purposes of this section, an appropriate qualified
registered securities depository shall mean the qualified registered
securities depository that the Commission so designates by order or, in
the absence of such designation, the qualified registered securities
depository that is the largest holder of record of all qualified
registered securities depositories as of the most recent record date.
Dated: December 1, 1994.
By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-30125 Filed 12-7-94; 8:45 am]
BILLING CODE 8010-01-P-M