[Federal Register Volume 64, Number 105 (Wednesday, June 2, 1999)]
[Proposed Rules]
[Pages 29608-29614]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-13865]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 240
[Release No. 34-41442; File No. S7-17-99]
RIN 3235-AH74
Recordkeeping Requirements for Transfer Agents
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule.
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SUMMARY: The Securities and Exchange Commission (Commission) is
publishing for comment a proposal to allow registered transfer agents
to use electronic storage media to produce and preserve the records
that they are required to retain. In addition, the Commission is
proposing to expressly allow registered transfer agents to use
microfiche in addition to microfilm for record retention purposes. The
proposed amendments are designed to increase the flexibility and
efficiency of transfer agent recordkeeping.
DATES: Comments should be received on or before July 2, 1999.
ADDRESSES: Interested persons should submit three copies of their
written data, views, and opinions to Jonathan G. Katz, Secretary, Mail
Stop 0609, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. Comments also may be submitted
electronically at the following E-mail address: [email protected].
All comment letters should refer to File No. S7-17-99; this file number
should be used on the subject line if E-mail is used. Comment letters
will be available for public inspection and copying at the Commission's
Public Reference Room, 450 Fifth Street, NW, Washington, DC 20549.
Electronically submitted comment letters will be posted on the
Commission's Internet site (http://www.sec.gov).
FOR FURTHER INFORMATION CONTACT: Jerry W. Carpenter, Assistant
Director, or Theodore R. Lazo, Attorney, at 202/942-4187, Office of
Risk Management and
[[Page 29609]]
Control, Division of Market Regulation, Securities and Exchange
Commission, 450 Fifth Street, NW, Mail Stop 1001, Washington, DC 20549-
1001.
SUPPLEMENTARY INFORMATION:
I. Introduction
A. Background
Section 17(a)(1) of the Securities Exchange Act of 1934 (Exchange
Act) requires registered transfer agents to make, keep, and disseminate
reports prescribed by the Commission as necessary or appropriate in the
public interest, for the protection of investors, or otherwise in
furtherance of the purposes of the Exchange Act.\1\ Rules 17Ad-6 and
17Ad-7 under the Exchange Act specify the records that registered
transfer agents must make and keep and the amount of time that the
records must be preserved.\2\ Depending on the type of record, the
records covered by these rules generally must be maintained for two
years,\3\ six years,\4\ or until one year after the termination of a
transfer agency relationship.\5\
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\1\ 15 U.S.C. 78q(a)(1).
\2\ 17 CFR 240.17Ad-6 and 240.17Ad-7.
\3\ 17 CFR 240.17Ad-7 (a) and (b).
\4\ 17 CFR 240.17Ad-7(d).
\5\ 17 CFR 240.17Ad-7(c).
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Rule 17Ad-7(f) permits registered transfer agents to preserve the
records listed in Rule 17Ad-6 on microfilm, subject to certain
conditions.\6\ However, Rule 17Ad-7 provides no other alternative to
maintaining records in hard copy. In light of advances in electronic
recordkeeping technology, we believe that Rule 17Ad-7 should be amended
to accommodate a wider range of storage media.
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\6\ 17 CFR 240.17Ad-7(f).
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The Securities Transfer Association has requested the Commission to
allow transfer agents to use optical disk storage systems to fulfill
their recordkeeping requirements under Rule 17Ad-7.\7\ We believe that
this request has merit, and so we are proposing to amend Rule 17Ad-7
under the Exchange Act to permit registered transfer agents to preserve
records using electronic storage media. We also are proposing to amend
Rule 17Ad-7 to permit the preservation of records on micrographic
media.\8\ These proposals incorporate the essential provisions of our
rule that permits broker-dealers to use alternative recordkeeping
methods.\9\
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\7\ Letter from Charles Rossi, President, Securities Transfer
Association, to Arthur Levitt, Chairman, Commission (July 2, 1996).
The letter is available for inspection and copying in the
Commission's Public Reference Room in File No. S7-17-99.
\8\ Under the proposed amendments, the term ``micrographic
media'' would be defined to mean microfilm or microfiche, or any
similar medium.
\9\ See Securities Exchange Act Release No. 38245 (February 5,
1997), 62 FR 6469 (Broker-Dealer Release) (adopting amendments to
Rule 17a-4(f) to allow broker-dealers to use electronic storage
media and micrographic media).
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B. Alternative Recordkeeping Methods
1. Electronic Storage Media
There are different types of electronic storage media available for
recordkeeping purposes. The principal focus of the proposed amendments
is on optical storage technology, which allows for digital data
recording in a non-rewriteable, non-erasable format that provides a
permanent and unalterable record.\10\ Optical storage systems record
digital information by using a laser to burn a pattern on a metallic
film on a disk surface (known as an optical disk) that can hold
billions of bytes of data. Optical disks are removable from the
hardware that records the information onto the disk. Using optical disk
storage, any record, whether it is computer generated (such as a
computer report) or electronically digitized from another medium (such
as paper or micrographics), can be recorded and then accessed and
managed using computers.
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\10\ This format is sometimes referred to as ``write once, read
many'' or ``WORM.''
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2. Micrographic Media
Microfilm and microfiche are types of micrographic media that
photographically reduce the size of document images. However,
microfiche images are stored on a sheet of film while microfilm images
are stored on spooled film.
II. Proposed Amendments and Discussion
The Commission believes that the use of optical disks and other
electronic storage media for the preservation of records must be
conditioned with safeguards against erasability, provisions for the
immediate verification of the stored information, and mandatory backup
facilities. The proposed amendments to Rule 17Ad-7 would contain
additional conditions to ensure that the documents stored on the disk
are indexed and may be accessed by Commission examiners or by examiners
from another appropriate regulatory agency.\11\
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\11\ The term ``appropriate regulatory agency'' is defined in
section 3(a)(34) of the Exchange Act, 15 U.S.C. 78c(a)(34), and
includes the Commission, the Board of Governors of the Federal
Reserve System, the Federal Deposit Insurance Corporation, and the
Office of the Comptroller of the Currency.
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Exchange Act Rule 17a-4 contains conditions on broker-dealers' use
of electronic storage media that are similar to the ones we are
proposing for transfer agents. However, we anticipate that transfer
agents (unlike broker-dealers) would use electronic storage media to
store canceled securities certificates. The storage and destruction of
canceled securities certificates present issues unique to transfer
agents' use of electronic storage media. As a result, we believe that
these conditions are particularly necessary for transfer agents. In
addition, we believe that these conditions are necessary because
optical disk storage technology is relatively new and there does not
appear to be an industry standard for its development and for
compatibility among different optical disk storage systems.
The proposed amendments to Rule 17Ad-7 would contain additional
conditions to ensure that the documents stored on the disk are indexed
and may be downloaded by Commission examiners or by examiners from
another appropriate regulatory agency.\12\
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\12\ The term ``appropriate regulatory agency'' is defined in
section 3(a)(34) of the Exchange Act, 15 U.S.C. 78c(a)(34), and
includes the Commission, the Board of Governors of the Federal
Reserve System, the Federal Deposit Insurance Corporation, and the
Office of the Comptroller of the Currency.
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The proposed amendments would require transfer agents that use
electronic storage media to store the records in a non-rewriteable,
non-erasable format. This requirement should ensure that the
information stored on electronic storage media cannot be modified or
removed without detection. As an additional protection, the proposed
amendments would require that electronic storage media label the
storage units used (e.g., the optical disks) in sequential order and
record the date and time that information is electronically stored. In
addition, transfer agents would be required to keep a duplicate of any
records that are stored using electronic storage media. The duplicates
may be kept on any type of medium that is acceptable under Rule 17Ad-
7.\13\
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\13\ The Commission does not intend that the proposed amendments
to Rule 17Ad-7 would override any state laws or regulations
regarding destruction of canceled securities certificates.
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In order to ensure efficient and complete access to records during
examinations, transfer agents using electronic storage media would be
required to create an index of the records that are electronically
stored and store the index with those records. In addition, the
proposed amendments would require transfer agents to maintain a
duplicate index along with the duplicates of the indexed records
separately from the originals. Transfer
[[Page 29610]]
agents would also be required to have the capacity to download records
stored on electronic storage media so that the records could be
promptly transferred to an alternate medium such as paper, microfilm or
microfiche.
In addition, the proposed amendments contain conditions on the use
of electronic storage media that are designed to provide access to
information stored on electronic storage media if a transfer agent is
no longer operating, refuses to cooperate with the Commission or
another appropriate regulatory agency, or has not properly or fully
indexed electronically stored records. Accordingly, the proposed
amendments to Rule 17Ad-7 would require transfer agents to preserve,
keep current, and surrender upon request the information necessary to
download records stored on electronic storage media. As an alternative,
transfer agents that use another party to maintain their records (such
as an outside service bureau) would be permitted to place in escrow and
keep current a copy of the information necessary to access the format
of the electronic storage media and to download records that are
electronically stored. Moreover, before a transfer agent uses
electronic storage media, the proposed amendments would require that at
least one party other than the transfer agent (e.g., the transfer
agent's electronic storage media vendor) file representations with the
Commission that it has the ability to download information from the
transfer agent's electronic storage system and that it would do so at
the request of either the Commission or its appropriate regulatory
authority.
We understand that some broker-dealers now use electronic storage
media and micrographic media to fulfill their recordkeeping
requirements. We believe that the proposed amendments to Rule 17Ad-7
will similarly increase the flexibility and efficiency of transfer
agent recordkeeping.
III. General Request for Comments
Any interested person wishing to submit comments on the proposed
amendments to Rule 17Ad-7, as well as on other matters that might have
an impact on the proposal, is requested to do so. We seek comment on
whether the proposed requirements regarding the use of electronic
storage media will create an undue burden on transfer agents or others.
We seek comment on whether additional or fewer safeguards may be
required in the context of transfer agents' use of electronic storage
media. We also request comments on whether other new technologies are
available for use in retaining records, and whether the rule should
allow use of these technologies. If so, under what conditions?
We specifically solicit comments as to whether the proposed
amendments to Rule 17Ad-7 present any issues that are unique to
transfer agents that did not arise with respect to the amendments to
Rule 17a-4. In particular, we request commenters to address any issues
that may arise from the use of electronic storage media to store
canceled securities certificates. Are there legal issues associated
with transfer agents destroying canceled securities certificates that
have been electronically stored? For example, could the inability to
produce an original certificate during a legal proceeding create
evidentiary problems even if a facsimile of the certificate could be
downloaded from the electronic storage media? Should transfer agents
that use electronic storage media to store canceled securities
certificates be permitted to destroy canceled securities certificates
as soon as they are electronically stored, or should transfer agents be
required to maintain the original certificates for some period of time
after storing them electronically?
Should Rule 17Ad-7 contain specific standards regarding image
quality for electronic storage media used by transfer agents? Should
Rule 17Ad-7 require that any electronic storage media used by transfer
agents automatically verify the resolution quality of the
electronically stored records? Should transfer agents using electronic
storage media be required to periodically audit the resolution quality?
IV. Cost and Benefits of the Proposed Amendments
The Commission is considering the costs and the benefits of the
proposed amendments to Rule 17Ad-7. The Commission has identified
certain costs and benefits relating to the proposed amendments, which
are discussed below, and encourages commenters to discuss any
additional costs or benefits. In particular, the Commission requests
comment on the potential costs for any necessary modifications to
information gathering, management, and recordkeeping systems or
procedures as well as any potential benefits resulting from the
proposals for issuers, transfer agents, regulators, or others.
Commenters should provide analysis and empirical data to support their
views on the costs and benefits associated with the proposed
amendments.
A. Benefits
The proposed amendments to Rule 17Ad-7 should provide specific
benefits to U.S. investors, issuers, transfer agents, and other
financial intermediaries. These benefits are not readily quantifiable
in terms of dollar value. Allowing registered transfer agents to
maintain their records using micrographic media and electronic storage
media should increase the efficiency of their recordkeeping operations
by reducing the need to maintain records in hard copy format. In
addition, the use of micrographic media and electronic storage media
should reduce storage burdens (e.g., the need for storage space) that
transfer agents currently face in keeping paper records.
B. Costs
The proposed amendments to Rule 17Ad-7 should not result in
significant costs to any particular person or entity. We have
identified costs associated with the proposed amendments. Transfer
agents that use micrographic media or electronic storage media may
incur some costs in transferring hard copy records to micrographic or
electronic storage media. In addition, there could be some cost to
registered transfer agents to fulfill the conditions that would be
imposed on the use of electronic storage media. Specifically, the
requirements that transfer agents using electronic storage media create
a duplicate of the records electronically stored, that they create an
index of the electronically stored records, and that they establish an
audit system to account for inputting of and changes to electronically
stored records all could result in costs to those transfer agents.
However, any costs related to the use of micrographic media or
electronic storage media should be at least partly offset by the
resulting elimination of the need to maintain and store records in hard
copy format. In addition, we note that transfer agents' use of
micrographic media or electronic storage media would be voluntary.
We request comment on these costs and invite commenters to submit
their own estimates of the costs and benefits that would result from
the proposed amendments to Rule 17Ad-7. In order to fully evaluate the
costs and benefits associated with the proposed amendments, we request
that commenters' estimates of the costs and benefits of the proposed
amendments be accompanied by specific empirical data supporting the
estimates.
[[Page 29611]]
V. Effect of the Proposed Amendments on Competition, Efficiency,
and Capital Formation
Section 23(a)(2) of the Exchange Act \14\ 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 any rule that
would impose a burden on competition not necessary or appropriate in
furtherance of the purposes of the Exchange Act. In addition, section 3
of the Exchange Act \15\ as amended by the National Securities Markets
Improvement Act of 1996 \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, the
Commission shall consider, in addition to the protection of investors,
whether the action will promote efficiency, competition, and capital
formation.
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\14\ 15 U.S.C. 78w(a)(2).
\15\ 15 U.S.C. 78c.
\16\ Pub. L. 104-290, 110 Stat. 3416 (1996).
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We are considering the proposed amendments to Rule 17Ad-7 in light
of the standards cited in sections 3 and 23(a)(2) of the Exchange Act.
For the reasons stated herein, the proposed amendments (i) should
promote efficiency by allowing registered transfer agents to benefit
from advances in recordkeeping technology, (ii) should not adversely
affect capital formation because they relate solely to post-issuance
activity, and (iii) should not impose any burden on competition because
they will apply equally to all registered transfer agents.
We do not anticipate that the proposed amendments would have a
significant effect on competition or impose any burden on competition
that is not necessary or appropriate in furtherance of the Exchange
Act. Under the proposed amendments, all registered transfer agents
would be permitted to use micrographic media and electronic storage
media to fulfill their recordkeeping obligations. In addition, the
proposed conditions with respect to using electronic storage media
would apply equally to all registered transfer agents. However, in
order to fully evaluate fully the effects on competition of the
proposed amendments, the Commission requests commenters to provide
their views and specific empirical data as to any effects on
competition that might result from the Commission's proposed amendments
to Rule 17Ad-7.
VI. Summary of Regulatory Flexibility Analysis
The Commission has prepared an initial regulatory flexibility
analysis (``IRFA'') in accordance with 5 U.S.C. 603(a) regarding the
proposed amendments to Rule 17Ad-7. The IRFA states that the proposed
amendments are intended to allow registered transfer agents to take
advantage of advances in electronic recordkeeping technology. The IRFA
sets forth the statutory basis for the proposed amendments.
The IRFA states that, for purposes of Commission rulemaking,
paragraph (h) of Rule 0-10 under the Exchange Act defines the term
``small business'' or ``small organization'' to include any transfer
agent that: (1) 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); (2) transferred items
only of issuers that would be deemed ``small businesses'' or ``small
organizations'' as defined in Rule 0-10 under the Exchange Act; (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); and (4) is not affiliated with any person (other than a
natural person) that is not a small business or small organization
under Rule 0-10.\17\ The IRFA states that we estimates that 180
registered transfer agents qualify as small entities and would be
subject to the proposed amendments to Rule 17Ad-7.
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\17\ 17 CFR 240.0-10(h).
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The IRFA states that the proposed amendments would impose certain
reporting, recordkeeping, and compliance requirements. The proposed
amendments also would require each registered transfer agent that uses
electronic storage media to set up a system to record the inputting of
records to electronic storage media and the inputting of any changes to
that are electronically stored.
The proposed amendments would require transfer agents that use
electronic storage media to store the records in a non-rewriteable,
non-erasable format. In addition, the proposed amendments would require
that electronic storage media label the storage units used in
sequential order and record the date and time that the information is
electronically stored. Transfer agents would be required to keep a
duplicate of any records that are stored using electronic storage media
which could be kept on any type of medium that is acceptable under Rule
17Ad-7.
Transfer agents using electronic storage media would be required to
create an index of the records that are electronically stored and store
the index with those records. In addition, transfer agents would be
required to maintain a duplicate index along with the duplicate records
separately from the originals. Transfer agents would also be required
to have the capacity to download records stored on electronic storage
media so that the records could be promptly transferred to an alternate
medium such as paper, microfilm or microfiche.
The proposed amendments would require transfer agents to preserve,
keep current, and surrender upon request the information necessary to
download records stored on electronic storage media. Moreover, before a
transfer agent uses electronic storage media, the proposed amendments
would require that at least one party other than the transfer agent
(e.g., the transfer agent's electronic storage media vendor) file
representations with the Commission that the third party has the
ability to download information from the transfer agent's electronic
storage system and that it would do so at the Commission's request.
The IRFA notes that the reporting, recordkeeping, and compliance
requirements contained in the proposed amendments to Rule 17Ad-7 would
apply only to registered transfer agents that specifically choose to
use electronic storage media. The IRFA notes further that some small
transfer agents will not be able to afford the costs involved with
storing records electronically and therefore will not choose to use
electronic storage media. The IRFA states that the proposed amendments
to Rule 17Ad-7 should not have a significant economic impact on a
substantial number of small entities.
The IRFA states that as an alternative to the proposed amendments
we considered proposing different compliance and reporting requirements
and timetables with respect to transfer agents' use of electronic
storage media. However, the IRFA states that the Commission believes
that the compliance and reporting requirements and timetables as
proposed are necessary to ensure the accuracy and integrity of transfer
agent records that are electronically stored and to ensure the access
to such records by the Commission or another appropriate regulatory
agency. The IRFA also states that the timetables contained in the
proposed amendments are consistent
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with the timetables that are already contained in Rule 17Ad-7.
The IRFA states that we believe that it is not feasible to further
clarify, consolidate, or simplify the proposed amendments for small
entities. The IRFA also states that the Commission believes that the
use of performance standards rather than design standards is not
applicable to the proposed amendments.
The IRFA states that we believe that creating an exemption from the
requirements of the proposed amendments would not reduce the impact of
the proposed amendments on small entities. The IRFA notes that Rule
17Ad-4(b) under the Exchange Act \18\ already exempts small transfer
agents from many of the recordkeeping requirements of Rules 17Ad-6 and
17Ad-7. In addition, the IRFA notes that any burden imposed by the
proposed amendments would apply only to those transfer agents that
choose to use electronic storage media. The IRFA states that we believe
that there are no rules that duplicate, overlap, or conflict with the
proposed alternative versions of the rule.
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\18\ 17 CFR 240.17Ad-4(b).
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The IRFA contains information concerning the solicitation of
comments with respect to the IRFA. In particular, the IRFA requests
comment on whether the proposed amendments to Rule 17Ad-7 would have a
significant economic impact on a substantial number of small entities
and requests that any such comments be accompanied by specific
empirical data. Cost-benefit information reflected in the ``Cost/
Benefit Analysis'' section of this Release also is reflected in the
IRFA. A copy of the IRFA may be obtained by contacting Theodore R.
Lazo, Securities and Exchange Commission, 450 Fifth Street, NW, Mail
Stop 1001, Washington, DC 20549-1001.
For purposes of the Small Business Regulatory Enforcement Fairness
Act of 1996, the Commission is also requesting information regarding
the potential impact of the proposed amendments on the economy on an
annual basis. Commenters should provide empirical data to support their
views.
VII. Paperwork Reduction Act
Certain provisions of the proposed amendments to Rule 17Ad-7
contain ``collection of information'' requirements within the meaning
of the Paperwork Reduction Act of 1995,\19\ and the Commission has
submitted them to the Office of Management and Budget for review in
accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. The title for the
collection of information is: ``Record Retention Requirements for
Registered Transfer Agents.'' The OMB control number for the collection
of information is 3235-0136. The collection of information requirements
are necessary both to ensure the integrity of transfer agents' records
that are maintained on electronic storage media and to ensure the
Commission's ability to access such records.
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\19\ 44 U.S.C. 3501 et seq.
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Proposed Rules 17Ad-7(f)(1)(iii) and 17Ad-7(f)(1)(iv) contain a
collection of information requirements that are intended to ensure that
the Commission would have full and complete access to transfer agents'
records during examinations. Proposed Rule 17Ad-7(f)(1)(iii) and 17Ad-
7(f)(1)(iv) would require transfer agents that use electronic storage
media to create an index of all electronically stored records and to
maintain a duplicate of each index. We do not propose to specify the
format of the index that would be required to be maintained. However,
the original and duplicate indexes would be required to be kept in
separate locations in order to protect against loss or damage. The
indexes would be required to be maintained for as long as the transfer
agent was using electronic storage media.
Proposed Rule 17Ad-7(f)(3) contains a collection of information
requirement that is intended to ensure the integrity of transfer
agents' records that are stored on electronic storage media. Proposed
Rule 17Ad-7(f)(3) would require each registered transfer agent that
uses electronic storage media to set up a system to record the
inputting of records to electronic storage media and to record the
inputting of any changes to records that are electronically stored. We
do not propose to specify the contents of each audit system, but any
data stored regarding inputting of records and changes to existing
records would be part of that system. We anticipate that the names of
the individuals that input and make changes to records and the
identities of documents inputted and changed are the kinds of
information that automatically should be collected pursuant to the
audit system requirement. The results of the audit system would be
required to be preserved for the time required for the audited records.
Proposed Rules 17Ad-7(f)(4) and 17Ad-7(f)(5) contain collection of
information requirements that would ensure the Commission's access to
records of a transfer agent that was no longer operating, refused to
cooperate with the investigative efforts of the Commission or another
appropriate regulatory agency, or had not properly or fully indexed
electronically stored records. Proposed Rule 17Ad-7(f)(4) would require
each transfer agent that uses electronic storage media to maintain and
provide upon request or to keep in escrow all information necessary to
access records and indexes that are electronically stored. We do not
propose to specify the types of information that the transfer agent
would be required to maintain if such information is maintained on the
transfer agent's premises. However, if the transfer agent chose to
place such information in escrow, it would have to keep in escrow a
copy of the physical and logical format of the electronic storage
media, the field format of all different information types written on
the electronic storage media and the source code, together with
appropriate documentation and information necessary to access records
and indexes. The information required by Proposed Rule 17Ad-7(f)(4)
would be required to be maintained for as long as the transfer agent
was using electronic storage media.
Proposed Rule 17Ad-7(f)(5) would require that for each transfer
agent using electronic storage media at least one party other than the
transfer agent would have to file with the Commission written
undertakings that it has the ability to download the transfer agent's
electronically stored records and that it would do so at the request of
either the Commission or its appropriate regulatory authority. This
requirement is intended to assure that examining authorities would be
able to access a transfer agent's electronically stored records if the
transfer agent could not or would not download the records. We
anticipate that this requirement could be fulfilled in the form of a
letter to the Commission staff. This collection of information
requirement does not contain any new recordkeeping requirements.
The collection of information required by the proposed amendments
to Rule 17Ad-7 should not result in any new significant burden to
transfer agents. All information required as a condition of transfer
agents' use of electronic storage media is specifically tied to a
transfer agent's decision to use electronic storage media to satisfy
its already existing recordkeeping obligations.
The likely respondents to the collection of information are large
registered transfer agents. At this time, we estimate that there are 40
likely respondents to the collection of information requirements
contained in the proposed amendments to Rule
[[Page 29613]]
17Ad-7. The proposed frequency of response to the collection of
information requirements varies depending on the specific requirement.
The collection of information requirements contained in Proposed Rules
17Ad-7(f)(3)(vi) and 17Ad-7(f)(3)(vii) would require a one time
response. The collection of information requirements contained in
Proposed Rules 17Ad-7(f)(3)(iv) and 17Ad-7(f)(3)(v) would require
continuing responses.
The Commission estimates that the average amount of time needed to
comply with the collection of information requirements of the proposed
amendments to Rule 17Ad-7 would be 125 hours per year. However, this
time burden would apply only to registered transfer agents that choose
to use electronic storage media. Based on the Commission's estimate of
40 likely respondents, we estimate that the proposed collection of
information requirements would result in 5000 additional burden hours
(40 x 125) and would increase the total number of burden hours for Rule
17Ad-17 from 142,272 to 147,272.\20\
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\20\ Based on an estimated average administrative labor cost of
$50.00 per hour, the Commission's staff estimates that the total
labor cost to the transfer agent industry for complying with the
collection of information requirements contained in the proposed
amendments would be $250,000 annually ($50.00 x 5000). The
Commission's staff developed these estimates in consultation with
representatives of the transfer agent industry.
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If a transfer agent chooses to use electronic storage media, then
providing the information will be mandatory. Responses to the
collection of information requirements will not be kept confidential.
An agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information unless it displays a currently
valid Office of Management and Budget control number.
Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits
comments to:
(i) Evaluate whether the proposed collection of information is
necessary for the proper performance of the functions of the agency,
including whether the information shall have practical utility;
(ii) Evaluate the accuracy of the Commission's estimate of the
burden of the proposed collection of information;
(iii) Enhance the quality, utility, and clarity of the information
to be collected; and
(iv) Minimize the burden of collection of information on those who
are to respond, including through the use of automated collection
techniques or other forms for information technology.
Persons desiring to submit comments on the collection of
information requirements should direct them to the following persons:
Desk Officer for the Securities and Exchange Commission, Office of
Information and Regulatory Affairs, Office of Management and Budget,
Room 3208, New Executive Office Building, Washington, DC 20503; and
Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450
Fifth Street, NW, Mail Stop 0609, Washington, DC 20549-0609, and refer
to File No. S7-17-99. The Office of Management and Budget (OMB) is
required to make a decision concerning the collection of information
between 30 and 60 days after publication of this release in the Federal
Register, so a comment to OMB is best assured of having its full effect
if OMB receives it within 30 days of this publication.
VIII. Statutory Bases
The amendments to Rule 17Ad-7 are being proposed pursuant to
sections 17A(a)(2) and 17A(d) of the Exchange Act (15 U.S.C. 78q-
1(a)(2) and 78q-1(d)).
Text of the Amendments
List of Subjects in 17 CFR part 240
Reports and recordkeeping requirements, Securities, Transfer
agents.
In accordance with the foregoing, the Commission proposes to amend
part 240 of Chapter II of Title 17 of the Code of Federal Regulation 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, 80-23, 80a-29, 80a-37, 80b-3, 80b-4, and
80b-11, unless otherwise noted.
* * * * *
2. Section 240.17Ad-7 is amended by revising paragraph (f) to read
as follows:
Sec. 240.17Ad-7 Record retention.
* * * * *
(f) Record retention using micrographic media or electronic storage
media. Registered transfer agents may use micrographic media or
electronic storage media that complies with the conditions in this
paragraph to store the records that they are required to keep under
Secs. 240.17Ad-6 and 240.17Ad-7.
(1) If you as a registered transfer agent use either micrographic
media or electronic storage media to store your records you must:
(i) Have available at all times for examination by the staffs of
the Commission and of your appropriate regulatory agency (if the
Commission is not your appropriate regulatory agency) facilities for
immediate projection or production of easily readable images of the
records that you store on electronic storage media;
(ii) Be ready at all times to immediately provide any facsimile
enlargement of the records that you store on electronic storage media
that the staffs of the Commission and of your appropriate regulatory
agency (if the Commission is not your appropriate regulatory agency) or
their representatives may request;
(iii) Create an accurate index of the records that you store on
electronic storage media, store the index with those records, and have
the index available at all times for examination by the staffs of the
Commission and of your appropriate regulatory agency (if the Commission
is not your appropriate regulatory agency); and
(iv) Maintain a duplicate of the index of the records that you
store on electronic storage along with duplicates of the indexed
records separately from the originals. You may store the duplicates of
the indexed records on any medium permitted by this section. You must
preserve the duplicate index and the duplicates of the indexed records
for the same time that is required by this section for the indexed
records, and you must have them available at all times for examination
by the staffs of the Commission and of your appropriate regulatory
agency (if the Commission is not your appropriate regulatory agency).
(2) Any electronic storage media that you use to store your records
must:
(i) Preserve the records in a format that is not rewriteable and
not erasable;
(ii) Automatically verify the quality and accuracy of its recording
process;
(iii) Label all units of storage media used in sequential order and
record the date and time that information is stored on the electronic
storage media; and
(iv) Have the capacity to readily download indexes and records
preserved on the electronic storage media to any medium acceptable
under this paragraph as required by the staffs of the Commission and of
your appropriate regulatory agency (if the Commission is not your
appropriate regulatory agency).
(3) If you use electronic storage media to store your records, you
must set up an audit system that accounts for the inputting of and any
changes to every record that is stored on electronic storage media:
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(i) You must be able to have the results of the audit system
available at all times for examination by the staffs of the Commission
and of your appropriate regulatory agency (if the Commission is not
your appropriate regulatory agency); and
(ii) The audit results must be preserved for the time required for
the audited records.
(4) If you use electronic storage media to store your records you
must either:
(i) Maintain, keep current, and provide promptly upon request by
the staffs of the Commission and of your appropriate regulatory agency
(if the Commission is not your appropriate regulatory agency) all
information necessary to access records and indexes stored on
electronic storage media; or
(ii) If you use another party to maintain your records, place in
escrow and keep current a copy of the physical and logical format of
the electronic storage media, the field format of all different
information types written on the electronic storage media and source
code, and the appropriate documentation and information necessary to
access records and indexes.
(5) Before you begin to use electronic storage media to preserve
some or all of your records under this section, there must be at least
one party other than you who has access to your electronic storage
media system and has the ability to download information from your
system and that party must file with the Commission and with your
appropriate regulatory agency (if the Commission is not your
appropriate regulatory agency) the following undertakings with respect
to such records:
The undersigned hereby undertakes to furnish promptly to the
U.S. Securities and Exchange Commission (``Commission''), the
transfer agent's appropriate regulatory agency (``ARA'') (if its ARA
is not the Commission), and their designees or representatives, upon
reasonable request, such information as is deemed necessary by the
Commission's, ARA's, or designee's staff to download information
kept on the registered transfer agent's electronic storage media to
any medium acceptable pursuant to Rule 17Ad-7 under the Securities
Exchange Act of 1934.
Furthermore, the undersigned hereby undertakes to take
reasonable steps to provide access to information contained on the
registered transfer agent's electronic storage media, including, as
appropriate, arrangements for the downloading of any record required
to be maintained and preserved by the registered transfer agent
pursuant to Rules 17Ad-6 and 17Ad-7 under the Securities Exchange
Act of 1934 in a format acceptable to the Commission's staff and the
ARA's staff or their designees. Such arrangements will provide
specifically that in the event of the registered transfer agent's
failure to download the record into a readable format and, after
reasonable notice to the registered transfer agent, upon being
provided with the appropriate electronic storage medium, the
undersigned will undertake to download the record into a readable
format as the Commission's staff and the ARA's staff or their
designees may request.
(6) For purposes of this section, the following definitions apply:
(i) The term micrographic media means microfilm or microfiche or
any similar medium; and
(ii) The term electronic storage media means any digital storage
medium or system that meets the conditions in this paragraph.
* * * * *
By the Commission.
Dated: May 25, 1999.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-13865 Filed 6-1-99; 8:45 am]
BILLING CODE 8010-01-P