[Federal Register Volume 63, Number 211 (Monday, November 2, 1998)]
[Rules and Regulations]
[Pages 58630-58635]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-29116]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release No. 34-40587; FR-52; File No. S7-8-98]
RIN 3235-AH42


Year 2000 Readiness Reports To Be Made by Certain Non-Bank 
Transfer Agents

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Securities and Exchange Commission (``Commission'') is 
amending Rule 17Ad-18 under the Securities Exchange Act of 1934 
(``Exchange Act'') to require certain non-bank transfer agents to file 
with the Commission a report prepared by an independent public 
accountant regarding the non-bank transfer agent's process for 
preparing for the Year 2000. The report will provide valuable 
information on the existence and sufficiency of a non-bank transfer 
agent's process for addressing Year 2000 Problems, will provide an 
independent verification of the accuracy of the information contained 
in the non-bank transfer agent's second Form TA-Y2K, will aid the 
Commission in obtaining a more complete understanding of the industry's 
overall Year 2000 preparations, and will identify institution-specific 
and industry wide problems. The independent public accountant's report 
will be available to the public.

EFFECTIVE DATE: December 2, 1998.

FOR FURTHER INFORMATION CONTACT: Jerry W. Carpenter, Assistant 
Director, 202/942-4187; Thomas C. Etter, Jr., Special Counsel, 202/942-
4187; Jeffrey Mooney, Special Counsel, 202/942-4187; or Gregory J. 
Dumark, Attorney, 202/942-4187, Division of Market Regulation, 
Securities and Exchange Commission, 450 Fifth Street, N.W., Mail Stop 
10-1, Washington, D.C. 20549.

SUPPLEMENTARY INFORMATION:

I. Introduction

    The Commission views the Year 2000 Problem \1\ as a serious issue 
that if not addressed could disrupt the proper functioning of many of 
the world's

[[Page 58631]]

computer systems. At midnight on December 31, 1999, unless the proper 
modifications have been made, computer systems may start to produce 
erroneous results because, among other things, the systems may 
incorrectly read the date ``01/01/00'' as being the year 1900 or 
another incorrect date. In addition, systems may fail to detect that 
the Year 2000 is a leap year. Problems can also arise earlier than 
January 1, 2000, as dates in the next millennium are entered into non-
Year 2000 compliant programs. Due to the serious nature of this issue, 
both non-bank transfer agents and the Commission are working hard to 
address the industry's Year 2000 problems.
---------------------------------------------------------------------------

    \1\ The Commission has defined the term ``Year 2000 Problem'' to 
include any erroneous result caused by any computer software: (i) 
Incorrectly reading the date ``01/01/00'' or any year thereafter; 
(ii) incorrectly identifying a date in the year 1999 or any year 
thereafter; (iii) failing to detect that the Year 2000 is a leap 
year, and (iv) any other computer error that is directly or 
indirectly related to (i), (ii), or (iii) above.
---------------------------------------------------------------------------

    As part of the Commission's ongoing efforts relating to the Year 
2000, on July 2, 1998, we adopted Rule 17Ad-18 \2\ to require non-bank 
transfer agents \3\ to file reports with us describing their efforts to 
address Year 2000 problems on new Form TA-Y2K.\4\ Part I of Form TA-Y2K 
is a check-the-box Year 2000 questionnaire. Each non-bank transfer 
agent that is not eligible for an exemption under existing Rule 17Ad-
13(d) \5\ is also required to file Part II of Form TA-Y2K, which 
requires a narrative discussion of its efforts to address Year 2000 
Problems.\6\ Form TA-Y2K is required to be filed no later than August 
31, 1998, reflecting the non-bank transfer agent's Year 2000 efforts as 
of July 15, 1998, and no later than April 30, 1999, reflecting the non-
bank transfer agent's Year 2000 efforts as of March 15, 1999.
---------------------------------------------------------------------------

    \2\ 17 CFR 240.17Ad-18.
    \3\ Non-bank transfer agents are those transfer agents whose 
appropriate regulatory agency is the Commission. For purposes of 
this release and Rule 17Ad-18, transfer agents that are saving 
associations regulated by the Office of Thrift Supervision are 
considered bank transfer agents.
    \4\ Release No. 34-40163 (July 2, 1998), 63 FR 37688 (July 13, 
1998) (``Adopting Release''). See also Release No. 34-39726 (March 
5, 1998), 63 FR 12062 (March 12, 1998) (``Proposing Release'') and 
Release No. 34-39859 (extending the comment period from April 13, 
1998 to April 27, 1998).
    \5\ 17 CFR 240.17 Ad-13(d).
    \6\ Rule 17Ad-13(d) contains an exemption from the requirement 
to file an annual study and evaluation of internal accounting 
control for transfer agents that: (1) Perform transfer agent 
functions solely for their own securities, securities issued by a 
subsidiary in which they own 51% or more of the subsidiary's capital 
stock and securities issued by another corporation that owns 51% or 
more of the capital stock of the registered transfer agent; (2) 
received less than 500 items for transfer and less than 500 items 
for processing during the preceding six months (or in the time that 
it has been in business, if shorter); and (3) maintained master 
shareholder files that in the aggregate contained less than 1,000 
shareholder accounts or was the named transfer agent for less than 
1,000 shareholder accounts at all times during the preceding fiscal 
year (or in the time that it has been in business, if shorter).
---------------------------------------------------------------------------

    In the Adopting Release, we deferred consideration of our original 
proposal to require certain assertions by a non-bank transfer agent 
regarding its process for addressing Year 2000 Problems be attested to 
or verified in some manner by an independent public accountant. In a 
Companion Release, also issued on July 2, 1998, we solicited additional 
comments on the appropriate independent public accountant review, 
including comments on the feasibility and desirability of an agreed-
upon procedures engagement in which an independent public accountant 
would follow certain established procedures as an independent check on 
a non-bank transfer-agent's assertions on the Form TA-Y2K.\7\
---------------------------------------------------------------------------

    \7\ Release No. 34-40165 (July 2, 1998), 63 FR 37710 (July 13, 
1998) (``Companion Release'') (reopening the comment period on the 
appropriate scope of independent public accountant review until 
August 12, 1998).
---------------------------------------------------------------------------

    The Commission received 18 comment letters regarding either the 
appropriate independent public accountant review or the feasibility and 
desirability of an agreed-upon procedures engagement.\8\ Fifteen of the 
letters responded to the proposed attestation requirement with the 
majority of the commenters expressing concern about the scope and 
workability of an attestation review. Three letters were received in 
response to our second solicitation of comments on the appropriate 
scope of the independent public accountant's review, and they were 
generally opposed to any additional reporting or regulatory 
requirements. However, three commenters indicated that an agreed-upon 
procedures approach mitigated some of their concerns regarding the 
proposed attestation review requirement. After considering the comments 
received, we are adopting the proposed amendments with the changes 
discussed below.
---------------------------------------------------------------------------

    \8\ All comment letters are available in File No. S7-8-98 at the 
our Public Reference Room, 450 Fifth Street, N.W., Washington, DC 
20549.
---------------------------------------------------------------------------

II. Description of the Proposed Rule Amendments

    Under the original proposal, a non-bank transfer agent that did not 
qualify for an exemption under existing Rule 17Ad-13(d) would have been 
required to make certain specific assertions as part of its second Year 
2000 report regarding its efforts to address Year 2000 Problems.\9\ In 
addition to making the assertions, the non-bank transfer agent would 
have been required to engage an independent public accountant to attest 
to whether there was a reasonable basis for these assertions.
---------------------------------------------------------------------------

    \9\ Each non-bank transfer agent would have been required to 
assert: (1) Whether it has developed written plans for preparing and 
testing its computer systems for potential Year 2000 Problems; (2) 
whether the board of directors, or similar body, has approved these 
plans, and whether a member of the non-bank transfer agent's board 
of directors, or similar body, is responsible for executing the 
plans; (3) whether its Year 2000 remediation plans address all 
domestic and international operations, including the activities of 
its subsidiaries, affiliates, and divisions; (4) whether it has 
assigned existing employees, hired new employees, or engaged third 
parties to execute its Year 2000 remediation plans; and (5) whether 
it has conducted internal and external testing of its Year 2000 
solutions and whether the results of those tests indicate that the 
non-bank transfer agent has modified its software to correct Year 
2000 problems. Many of the issues covered by the assertions were 
adopted as questions in Part II of Form TA-Y2K.
---------------------------------------------------------------------------

III. Discussion of Final Rule Amendments

A. Independent Public Accountant Review

    The American Institute of Certified Public Accountants (``AICPA''), 
among other commenters, stated that the proposed attestation report 
would be difficult for independent public accountants to provide. The 
AICPA said that some of the required non-bank transfer agent assertions 
are not appropriate for accountant attestation because the assertions 
are not capable of reasonably consistent measurement against reasonable 
criteria. Currently, there are no uniform, well established criteria 
related to Year 2000 remediation efforts. The lack of established 
criteria would likely result in significant variation in the 
examination procedures performed by independent public accountants and 
thus would reduce the usefulness of the attestation reports. In 
addition, the AICPA expressed concern that the purpose and conclusions 
of the attestation report could be misunderstood. The AICPA was 
primarily concerned that uninformed users of the attestation reports 
would place undue reliance on them. Several other commenters also 
expressed concern that independent public accountants probably do not 
have the expertise required to properly evaluate the non-bank transfer 
agent's Year 2000 efforts and that requiring an attestation engagement 
would be burdensome.
    We believe that requiring a non-bank transfer agent to file a 
report prepared by an independent public accountant will benefit the 
securities industry's and our efforts to prepare for the Year 2000 by 
improving the accuracy of the non-bank transfer agent's second Year 
2000 report and by encouraging the non-bank transfer agent to proceed 
expeditiously with its efforts to address Year 2000

[[Page 58632]]

Problems. We will use the reported information to obtain a more 
complete understanding of the industry's overall Year 2000 preparations 
and to identify institution-specific and industry-wide problems. 
Information in the reports will also help us focus Year 2000-related 
efforts for 1999 on particular industry segments or non-bank transfer 
agents that appear to pose the greatest risk of not being ready for 
Year 2000. In sum, the rule amendments will enable the Commission to 
take a more active role in reducing the Year 2000 risk to the 
securities industry.
    However, we have modified the scope of the independent public 
accountant review. The rule adopted today requires each non-bank 
transfer agent that is required to file Part II of Form TA-Y2K, by 
April 30, 1999, to include with that filing a report prepared by an 
independent public accountant regarding the non-bank transfer agent's 
process for addressing Year 2000 Problems. The independent public 
accountant's report must be prepared in accordance with standards that 
have been reviewed by the Commission and that have been issued by a 
national organization that is responsible for promulgating 
authoritative accounting and auditing standards. In conjunction with 
adopting this reporting requirement, we have reviewed the procedures 
included in the Statement of Position 98-8, issued by the Auditing 
Standards Board.\10\ An independent public accountant's report prepared 
in accordance with SOP 98-8 would satisfy the independent public 
accountant reporting requirements adopted by the Commission today.\11\ 
Statement of Position 98-8 is discussed in more detail below.
---------------------------------------------------------------------------

    \10\ The AICPA's Auditing Standards Board is responsible for the 
promulgation of auditing and attestation standards and procedures to 
be observed by members of the AICPA in accordance with the 
Institute's Bylaws and Code of Professional Conduct.
    \11\ In reviewing SOP 98-8, the Commission considered whether it 
required the independent public accountant to perform procedures 
regarding the non-bank transfer agent's plan for addressing Year 
2000 problems, efforts to repair affected computer systems, tests of 
completed repairs, and efforts to monitor the progress of the non-
bank transfer agent's Year 2000 project.
---------------------------------------------------------------------------

B. Statement of Position 98-8

    The AICPA, along with other commenters, suggested that an ``agreed-
upon procedures'' engagement, instead of an attestation engagement, 
would more effectively meet our objectives. Pursuant to such an 
engagement, a non-bank transfer agent would engage an independent 
public accountant to perform and report on specific procedures designed 
to meet the review objectives. This would eliminate the variability of 
examination procedures performed by independent public accountants and 
increase the consistency of the reports. In addition, other commenters 
indicated that an agreed-upon procedures engagement would be less time-
consuming, less costly, and less disruptive operationally than the 
attestation approach.
    SOP 98-8 addresses commenters' concerns regarding an attestation 
engagement by providing independent public accountants a list of 
procedures to follow when preparing its report on the non-bank transfer 
agent's process for addressing Year 2000 Problems. More specifically, 
these procedures require an independent public accountant to consider 
the non-bank transfer agent's plan for addressing Year 2000 problems, 
its efforts to repair its affected computer systems, its tests of 
completed repairs, and its efforts to monitor the progress of the Year 
2000 project. In addition, through SOP 98-8 the independent public 
accountant is provided a reporting format to use when reporting the 
results of executing the specified procedures. Finally, SOP 98-8 
provides the independent public accountant with guidance on how to 
execute the procedures and how to report any exceptions identified.
    We believe that the procedures and reporting format contained in 
SOP 98-8 meet our regulatory objectives. The execution of the 
procedures by an independent public accountant (i) will provide 
valuable information on the existence and sufficiency of a non-bank 
transfer agent's process for addressing Year 2000 Problems; (ii) will 
provide an independent verification of the accuracy of the information 
contained in the non-bank transfer agent's second Form TA-Y2K; (iii) 
will aid us in obtaining a more complete understanding of the 
industry's overall Year 2000 preparations; and (iv) will identify 
institution-specific and industry-wide problems.

C. Public Availability

    The proposed rules would have made the independent public 
accountant's attestation report available to the public. The AICPA, in 
addition to other commenters, expressed concerns that some users of 
these reports could place undue reliance on the reports and that the 
technical nature of the reports could confuse investors. However, we 
believe that the public's interest is best served by requiring full and 
open disclosure. Allowing the public to have access to the independent 
public accountant's report will assist interested persons in 
determining whether a non-bank transfer agent has a process for 
addressing Year 2000 Problems. For example, after reviewing a non-bank 
transfer agent's accountant's report, an issuer using the non-bank 
transfer agent might request additional information or assurances if 
the non-bank transfer agent does not appear to be taking the steps 
necessary to be Year 2000 compliant. In the absence of such assurances, 
an issuer could determine whether it wishes to continue its dealings 
with that non-bank transfer agent.
    The rule amendments adopted by the Commission today provide that 
the public will have access to the independent public account's 
report.\12\ In addition, the Commission or its staff, after reviewing 
Forms TA-Y2K, accompanying accountant's reports, and other pertinent 
information, may make findings or conclusions or compile information 
from filings by individual non-bank transfer agents and make non-bank 
transfer agent specific, aggregate, or derivative information available 
to the public, Congress, or other members of the securities industry.
---------------------------------------------------------------------------

    \12\ An agreed-upon procedures engagement conducted in 
accordance with SOP 98-8 must also comply with SSAE No. 4, Agreed-
Upon Procedures Engagements. See AICPA, Professional Standards, Vol. 
1, AT Sec. 600. SSAE No. 4 states, among other things, that a report 
on the performance of agreed-upon procedures should restrict the use 
of the report to parties specifically identified as users within the 
report. However, SSAE No. 4 does not limit who may have access to 
the report. While the intended users of an independent public 
accountant's report prepared in accordance with SOP 98-8 are limited 
to those parties specifically identified in the report, SSAE No. 4 
does not limit who may have access to the report.
---------------------------------------------------------------------------

    We note, however, that the accountant's report has a specific 
regulatory purpose and is not intended to express an opinion or finding 
regarding whether a non-bank transfer agent is Y2K compliant. The 
following excerpts from the sample ``Independent Accountant's Report on 
Agreed-Upon Procedures'' attached to the AICPA's SOP makes clear the 
limitations of the accountant's role and report:

    We have performed the procedures enumerated below as specified 
in the American Institute of Certified Public Accountant's (AICPA's) 
Statement of Position 98-8 which were agreed to by ABC Transfer 
Agent (hereinafter referred to as the ``entity'') to assist the 
users in evaluating the entity's assertions in Parts I and II of 
Form TA-Y2K (``Form TA-Y2K'') as of March 15, 1999, prepared and 
filed pursuant to requirements of SEC rule 17Ad-18. Pursuant to 
Securities and Exchange Commission (SEC) Release No. 40587, these 
agreed-upon procedures will satisfy the SEC's regulatory 
requirements. This report is issued solely for these regulatory 
purposes.

[[Page 58633]]

    This agreed-upon procedures engagement was performed in 
accordance with standards established by the AICPA. The sufficiency 
of these procedures is solely the responsibility of the specified 
users of the report. Consequently, we make no representation 
regarding the sufficiency of the procedures described below either 
for the purpose for which this report has been requested or for any 
other purpose.
    We were not engaged to, and did not, perform an examination, the 
objective of which would be the expression of an opinion on the 
entity's assertions included in Form TA-Y2K referred to in the 
introductory paragraph of this report. Accordingly, we do not 
express such an opinion. Had we performed additional procedures, 
other matters might have come to our attention that would have been 
reported to you. Our procedures also do not provide assurances that 
the entity is or will be year 2000 ready, that its year 2000 project 
plans will be successful in whole or in part, or that parties with 
which the entity does business will be year 2000 ready.
    This report is intended solely for the information and use of 
the Board of Directors and Management of ABC Transfer Agent, and the 
Securities and Exchange Commission, and is not intended to be and 
should not be used by anyone other than these specified parties.

D. Timing

    Rule 17Ad-18 adopted by the Commission in July requires all non-
bank transfer agents to file at least Part I of Form TA-Y2K on August 
31, 1998 and April 30, 1999. Those non-bank transfer agents that do not 
qualify for an exemption under Rule 17Ad-13(d) also must complete Part 
II of Form TA-Y2K. The rule adopted today also requires non-bank 
transfer agents that do not qualify for an exemption under Rule 17Ad-
13(d) to file the report prepared by the independent public accountant 
by April 30, 1999 reflecting the non-bank transfer agent's Year 2000 
efforts as of March 15, 1999.

IV. Costs and Benefits

    In the Proposing Release, we requested that commenters provide 
analysis and data supporting the costs and benefits of the proposed 
rule. In a second release soliciting additional comments on the 
appropriate scope of the independent public accountant's review, we 
solicited comments on the desirability and feasibility of an agreed-
upon procedures approach. Several commenters indicated that our cost 
estimates with regard to the attestation report were too low. However, 
no commenters provided detailed information or data as to the costs of 
the proposed amendment.
    As discussed more fully in part III. A. above, the Commission is 
adopting a requirement that certain non-bank transfer agents file with 
their second Form TA-Y2K a report prepared by an independent public 
accountant regarding the non-bank transfer agent's process for 
addressing Year 2000 Problems. In addition, we have determined that an 
independent public accountant's report prepared in accordance with SOP 
98-8 will meet our regulatory objectives. It is important to note that 
the independent public accountant review adopted by us today is 
significantly less in scope than the proposed attestation review. As a 
result, the aggregate cost of complying with the rule should be less.
    In the Proposing Release, the Commission estimated that on average 
a non-bank transfer agent would spend 30 hours working with its 
independent public accountant and that the cost of the attestation 
report could range from $5,000 to $200,000 with the average cost likely 
to be $25,000.\13\ Without providing cost figures or analysis, 
commenters indicated that these estimated costs were too low. 
Consequently, Commission staff contacted a number of accounting firms 
and the AICPA to obtain detailed data on the costs to non-bank transfer 
agents of the independent public accountant's report. However, the 
parties contacted would not formally submit cost data.
---------------------------------------------------------------------------

    \13\ This estimate has been revised to 20 hours. The Commission 
believes that 20 hours more accurately reflects the amount of time a 
non-bank transfer agent must work with its independent public 
accountant to prepare a report regarding the non-bank transfer 
agent's process for preparing for the Year 2000.
---------------------------------------------------------------------------

    Therefore, despite the reduced scope of the independent public 
accountant review adopted by us today and based on the comments 
received and the efforts of its staff, we are retaining our original 
cost estimates. We estimate that the total cost to the industry of non-
bank transfer agents obtaining and filing the independent public 
accountant's reports is $5,400,000. This is based on the approximately 
200 non-bank transfer agents who did not qualify for any exemption 
spending on average 20 hours at $100 per hour working with their 
accountants and spending on average $25,000 in additional accounting 
fees. It is important to note that this is a total cost estimate and 
not an annual cost. Non-exempt non-bank transfer agents will only be 
required to file one independent public accountant's report. We further 
note that by limiting the requirement to those non-bank transfer agents 
who pose the greatest risk to customers and the market if they are not 
Year 2000 compliant, we have not imposed this burden on small non-bank 
transfer agents. For more information on the amendments effect on small 
non-bank transfer agents see part VI below.
    No commenters specifically addressed the potential benefits of the 
amendments, and the Commission has not been able to quantify those 
benefits. \14\ We are aware of the significant effort the securities 
industry has put forth and the progress its has made but believe that 
significant progress still needs to be made by the securities industry 
to be ready for the Year 2000.
---------------------------------------------------------------------------

    \14\ One commenter expressed concern that the cost of obtaining 
the independent public accountant's report would outweigh its 
benefits. However, the commenter did not provide any specific 
information or analysis.
---------------------------------------------------------------------------

    As previously discussed in paragraph III. A. above, we believe that 
a regulatory requirement to file an independent public accountant's 
report will improve the accuracy of the non-bank transfer agent's 
second Year 2000 report and should encourage the non-bank transfer 
agent to proceed expeditiously with its efforts to prepare for the Year 
2000. We will use the reported information to obtain a more complete 
understanding of the industry's overall Year 2000 preparations and to 
identify institution-specific and industry-wide problems. Information 
in the reports will help us focus our Year 2000-related efforts for 
1999 on particular industry segments or firms that appear to pose the 
greatest risk of non-compliance and will enable us to take a more 
active role in reducing the Year 2000 risk to the securities industry. 
In light of the seriousness and pervasiveness of the Y2K problem and in 
light of the systematic risk it presents to the securities industry and 
investors, we believe the significant benefits that will result from 
the independent public accountant's report justify the cost.

V. Efficiency, Competition, and Capital Formation

    Section 23(a) of the Exchange Act\15\ requires the Commission, in 
adopting rules under the Exchange Act, to consider the impact any such 
rule would have on competition and to not adopt a rule that would 
impose a burden on competition not necessary or appropriate in 
furthering the purposes of the Exchange Act. Furthermore, Section 3(f) 
of the Exchange Act\16\ provides that whenever the Commission is 
engaged in rulemaking and is required to consider or determine whether 
an action is necessary or appropriate in the public interest, we also 
shall consider in addition to the

[[Page 58634]]

protection of investors whether the action will promote efficiency, 
competition, and capital formation.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78w (a)(2).
    \16\ 15 U.S.C. 78c.
---------------------------------------------------------------------------

    We have considered the amendments to Rule 17Ad-18 in light of the 
standards cited in Section 3 and 23 (a)(2) of the Exchange Act. In 
addition, we sought comments on the proposed amendments' effect on 
competition, efficiency, and capital formation. No commenters 
specifically addressed the issue of whether the proposed accountant's 
review would affect competition, and no comments were received 
regarding the proposed amendment's effect on efficiency and capital 
formation.
    In the Proposing Release, we stated that the proposed amendments 
should not unduly burden competition. We have drafted the rule 
amendments so as to minimize their impact on competition. We have, in 
adopting the independent public accountant's reporting requirement, 
differentiated between non-bank transfer agents based upon their size, 
type of business, and relative risk they pose to customers and the 
market if they are not Year 2000 compliant. Non-bank transfer agents 
that qualify for an exemption under existing Rule 17Ad-13(d) are not 
required to file the accountant's report.\17\ We believe that the 
proposed rule does not impose any burden on competition not necessary 
or appropriate in furtherance of the Exchange Act.
---------------------------------------------------------------------------

    \17\ Generally, the type of business conducted by a non-bank 
transfer agent that does not qualify for an exemption poses a 
greater risk to customers and the markets if the non-bank transfer 
agent is not Year 2000 compliant.
---------------------------------------------------------------------------

    We believe that the rule should increase the efficiency and 
effectiveness of the our efforts to prepare for the Year 2000 by 
enabling the us to obtain a more complete understanding of the 
industry's overall Year 2000 preparations and to identify institution-
specific and industry-wide problems. Information in the reports will 
also help us focus our Year 2000-related efforts for 1999 on particular 
industry segments or firms that appear to pose the greatest risk of 
non-compliance. In addition, we believe that the rule does not 
adversely affect capital formation. However, failure on the part of the 
Commission and the securities industry to adequately prepare for the 
Year 2000 could adversely affect capital formation at the beginning of 
the next millennium.

VI. Summary of Final Regulatory Flexibility Analysis

    Pursuant to Section 605(b) of the Regulatory Flexibility Act, 5 
U.S.C. 605(b), the Chairman of the Commission has certified that the 
amendment to Rule 17Ad-18 would not, if adopted, have an economic 
impact on small entities. The amendment requires certain non-bank 
transfer agents not eligible for an exemption under existing Rule 17Ad-
13(d) to file with the Commission a report prepared by an independent 
public accountant regarding the non-bank transfer agent's process for 
preparing for the Year 2000. All small non-bank transfer agents qualify 
for an exemption pursuant to Rule 17Ad-13(d). Accordingly, the 
amendment would have no economic impact on small entities.

VII. Paperwork Reduction Act

    The amendments to Rule 17Ad-18 adopted by the Commission today also 
amend the following collection of information within the meaning of the 
Paperwork Reduction Act of 1995 (``PRA''): \18\ Reports to be Made by 
Certain Transfer Agents; Rule 17Ad-18--Year 2000 Problem.\19\ 
Accordingly, the collection of information requirements regarding the 
accountant's report was submitted to OMB for review [and was approved].
---------------------------------------------------------------------------

    \18\ 44 U.S.C. 3501 et seq.
    \19\ Office of Management and Budget (``OMB'') control number 
3235-0512.
---------------------------------------------------------------------------

    The Proposing Release solicited comments on the proposed 
collections of information. No comments were received that specifically 
addressed the PRA submission. However, as discussed in sections III. 
and IV. above, we received suggestions that would improve the 
accountant's report requirement. Based upon these suggestions, the 
collection of information has been adjusted as described in section 
III. above and is in accordance with Section 3507 of the PRA.\20\ These 
adjustments include reducing the scope of accountant's review to 
increase the consistency, accuracy and comparability of the information 
collected. In addition, the adjustments will reduce the time required 
to summarize, track, analyze, and report the information received.
---------------------------------------------------------------------------

    \20\ 44 U.S.C. 3507.
---------------------------------------------------------------------------

    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless the agency displays a 
valid OMB control number. Non-bank transfer agents are required to 
comply with the collection of information pursuant to Rule 17Ad-18, and 
the information is necessary to provide us with a better understanding 
of the security industry's readiness for the Year 2000. The information 
collected pursuant to Rule 17Ad-18 will be public.
    As previously discussed, we have reduced the scope of the 
independent public accountant's review. However, after carefully 
considering the comments received, we are retaining its original 
estimate of the burden hours associated with obtaining the independent 
public accountant's report. Thus, we estimate that under the final 
rule, a non-bank transfer agent will on average spend 20 hours 
obtaining the independent public accountant's report. This is in 
addition to the two hours a non-bank transfer agent will spend 
preparing Part I of Form TA-Y2K and 35 hours they will spend preparing 
Part II of Form TA-Y2K.
    The total annualized burden to the securities industry is estimated 
to be 12,480 hours. This is based on approximately 740 respondents 
spending on average two hours completing Part I of Form TA-Y2K; 
approximately 200 respondents spending on average 35 hours preparing 
Part II of Form TA-Y2K and an additional 20 hours working with their 
independent public accountant on the independent public accountant's 
report.

VI. Statutory Basis

    Pursuant to the Securities Exchange Act of 1934 and particularly 
Sections 17(a) and 23(a) thereof, 15 U.S.C. 78o(c)(3) and 78w, the 
Commission is adopting Sec. 240.17Ad-18 of Title 17 of the Code of 
Federal Regulations in the manner set forth below.

List of Subjects in 17 CFR Part 240 and 249

    Reporting and recordkeeping requirements, Securities.

Text of Final Rule

    In accordance with the foregoing, Title 17, chapter II, part 240 of 
the Code of Federal Regulations is amended as follows:

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, 77z-2, 77eee, 
77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78f, 78i, 78j, 78j-1, 78k, 
78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 78w, 78x, 78ll(d), 
78mm, 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4 and 
80b-11, unless otherwise noted.
* * * * *
    2. Amending Sec. 240.17Ad--18 by adding paragraph (f) to read as 
follows:


Sec. 240.17Ad-18  Reports to be made by certain non-bank transfer 
agents.

* * * * *

[[Page 58635]]

    (f) Nature and form of reports. No later than April 30, 1999, every 
non-bank transfer agent required to file Part II of Form TA-Y2K 
(Sec. 249.619 of this chapter) pursuant to paragraph (b)(8) of this 
section shall file with its Form TA-Y2K an original and two copies of a 
report prepared by an independent public accountant regarding the non-
bank transfer agent's process, as of March 15, 1999, for addressing 
Year 2000 Problems with the Commission's principal office in 
Washington, D.C. The independent public accountant's report shall be 
prepared in accordance with standards that have been reviewed by the 
Commission and that have been issued by a national organization that is 
responsible for promulgating authoritative accounting and auditing 
standards.
* * * * *
    Dated: October 22, 1998.

    By the Commission.
Margaret H. McFarland,
Deputy Secretary.

[Note: This Certification to the preamble will not appear in the 
Code of Federal Regulations]

Regulatory Flexibility Act Certification

    I, Arthur Levitt, Jr., Chairman of the U.S. Securities and 
Exchange Commission (``Commission''), hereby certify, pursuant to 5 
U.S.C. Sec. 605(b), that the amendment to Rule 17Ad-18 (``Rule'') 
under the Securities Exchange Act of 1934, (``Exchange Act'') \21\ 
set forth in Securities Exchange Act Release No. 34-40587, will not, 
if promulgated, have a significant economic impact on a substantial 
number of small entities. The amendment requires certain non-bank 
transfer agents not eligible for an exemption under existing Rule 
17Ad-13(d) \22\ to file with the Commission a report prepared by an 
independent public accountant regarding the non-bank transfer 
agent's process for preparing for the Year 2000. All small entities 
qualify for an exemption pursuant to Rule 17Ad-13(d). Accordingly, 
the amendment will not, if promulgated, have a significant economic 
impact on a substantial number of small entities.

    \21\ 15 U.S.C. 78a et seq.
    \22\ 17 CFR 240.17Ad-13(d).
---------------------------------------------------------------------------

    Dated: October 22, 1998.
Arthur Levitt, Jr.,
Chairman.
[FR Doc. 98-29116 Filed 10-30-98; 8:45 am]
BILLING CODE 8010-01-U