[Federal Register Volume 91, Number 171 (Friday, September 4, 2026)]
[Proposed Rules]
[Pages 56946-57061]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2026-18190]
[[Page 56945]]
Vol. 91
Friday,
No. 171
September 4, 2026
Part II
Securities and Exchange Commission
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17 CFR Parts 240 and 249b
Transfer Agent Rules; Proposed Rule
Federal Register / Vol. 91 , No. 171 / Friday, September 4, 2026 /
Proposed Rules
[[Page 56946]]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 240 and 249b
[Release No. 34-106246; File No. S7-2026-30]
RIN 3235-AL55
Transfer Agent Rules
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule.
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SUMMARY: The U.S. Securities and Exchange Commission (``SEC'' or
``Commission'') is proposing to adopt new rules, amend existing rules,
amend the existing form for registration with the Commission as a
transfer agent (Form TA-1) and the existing form for reporting
activities of transfer agents (Form TA-2), and rescind an existing rule
governing registered transfer agents. The proposals are designed to
modernize the rules governing registered transfer agents.
DATES: This release was published in the Federal Register on September
4, 2026. Comments should be received on or before November 3, 2026.
ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/comments/s7-2026-30/transfer-agent-rules); or
Send an email to [email protected]. Please include
File Number S7-2026-30 on the subject line.
Paper Comments
Send paper comments to Vanessa A. Countryman, Secretary,
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-1090.
All submissions should refer to File Number S7-2026-30. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method of submission. The Commission will post all
comments on the Commission's website (https://www.sec.gov/rules-regulations/public-comments/s7-2026-30). Do not include personally
identifiable information in submissions; you should submit only
information that you wish to make available publicly. The Commission
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection.
Studies, memoranda, or other substantive items may be added by the
Commission or staff to the comment file during this rulemaking. A
notification of the inclusion in the comment file of any such materials
will be made available on the Commission's website. To ensure direct
electronic receipt of such notifications, sign up through the ``Stay
Connected'' option at www.sec.gov to receive notifications by email.
A summary of the proposal of not more than 100 words is posted on
the Commission's website (https://www.sec.gov/rules-regulations/2026/09/s7-2026-30).
FOR FURTHER INFORMATION CONTACT: Elizabeth Fitzgerald, Assistant
Director, Tina Barry and Kevin Schopp, Senior Special Counsels, Bryant
Eng, Ron Carny, or Scott Farnin, Special Counsels, Office of Clearance
and Settlement at (202) 551-6706, Division of Trading and Markets, U.S.
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-7010.
SUPPLEMENTARY INFORMATION: The Commission is proposing to amend,
rescind, or add the following rules and forms.\1\
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\1\ We are also proposing to modify the CFR designations for
each of the rules in this release (other than the CFR designation
for Rule 17ad-7 which has already been amended) to ensure the
regulatory text conforms with section 2.13 of the Document Drafting
Handbook. See 1 CFR 21.11; Office of the Federal Register, Document
Drafting Handbook (Aug. 2018 Edition, Revision 2.1, dated Oct.
2023), https://www.archives.gov/files/federal-register/write/handbook/ddh.pdf. Because each of these rules contain an uppercase
letter in their CFR citations, if adopted, the proposed rules would
modify the CFR section designations at adoption to replace each such
uppercase letter with the corresponding lowercase letter. The new
rules being proposed in this release are being proposed with the
appropriate lowercase letter, for example, Rule 17ad-30 is being
proposed as 17 CFR 240.17ad-30 rather than 17 CFR 240.17Ad-30.
\2\ 15 U.S.C. 78a et seq.
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CFR citation (17
Commission reference CFR) Proposal
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Securities Exchange Act of 1934
(``Exchange Act'' or ``Act'')
\2\:
Form TA-1.................. Referenced in 17 Amend.
CFR 249b.100.
Form TA-2.................. Referenced in 17 Amend.
CFR 249b.102.
Rule 17ac2-1............... 17 CFR 240.17Ac2-1 Amend.
Rule 17ac2-2............... 17 CFR 240.17Ac2-2 Amend.
Rule 17ad-1................ 17 CFR 240.17Ad-1. Amend.
Rule 17ad-2................ 17 CFR 240.17Ad-2. Amend.
Rule 17ad-3................ 17 CFR 240.17Ad-3. Amend.
Rule 17ad-4................ 17 CFR 240.17Ad-4. Rescind.
Rule 17ad-6................ 17 CFR 240.17Ad-6. Amend.
Rule 17ad-7................ 17 CFR 240.17ad-7. Amend.
Rule 17ad-9................ 17 CFR 240.17Ad-9. Amend.
Rule 17ad-10............... 17 CFR 240.17Ad-10 Amend.
Rule 17ad-11............... 17 CFR 240.17Ad-11 Amend.
Rule 17ad-12............... 17 CFR 240.17Ad-12 Amend.
Rule 17ad-13............... 17 CFR 240.17Ad-13 Amend.
Rule 17ad-17............... 17 CFR 240.17Ad-17 Amend.
Rule 17ad-30............... 17 CFR 240.17ad-30 Add.
Rule 17ad-31............... 17 CFR 240.17ad-31 Add.
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Table of Contents
I. Introduction
A. Background Regarding Securities Ownership
B. Transfer Agent Regulation
C. Evolution of Transfer Agent Activities
D. Overview of the Proposal
II. Proposed Amendments to Registration and Annual Reporting
Requirements
A. Proposed Amendments to Rule 17ac2-1
B. Proposed Amendments to Rule 17ac2-2
C. Proposed Amendments to Form TA-1
D. Proposed Amendments to Form TA-2
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III. Proposed Amendments to Definitions, Processing, Recordkeeping,
and Safeguarding Rules
A. Amendments to Rule 17ad-1
B. Amendments to Rule 17ad-9
C. New Definitions To Be Added to Rule 17ad-9
D. Amendments to Rule 17ad-2
E. Amendments to Rule 17ad-3
F. Rescission of Rule 17ad-4
G. Amendments to Rule 17ad-6
H. Amendments to Rule 17ad-7
I. Amendments to Rule 17ad-10
J. Amendments to Rule 17ad-12
K. Amendments to Rule 17ad-17
IV. Proposed New Rules
A. Proposed Rule 17ad-30: Compliance
B. Proposed Rule 17ad-31: Restrictive Legends
V. Economic Analysis
A. Introduction
B. Economic Baseline
C. Benefits and Costs
D. Efficiency, Competition, and Capital Formation
E. Reasonable Alternatives
F. Request for Comment
VI. Paperwork Reduction Act
A. Summary of the Collection of Information
B. Amendments to Forms TA-1, TA-2 and Rules 17ac2-1, 17ac2-2,
17ad-2, 17ad-3, 17ad-6, 17ad-7, 17ad-12, 17ad-17, 17ad-30, and 17ad-
31.
C. Summary of the Estimated Burden of the Proposed Amendments on
the Collections of Information
D. Initial and Ongoing Burden Estimates
E. Incremental and Aggregate Burden and Cost Estimate
F. Request for Comment
VII. Initial Regulatory Flexibility Act Analysis
VIII. Congressional Review Act
IX. Other Matters
Statutory Authority
I. Introduction
Transfer agents are a key component of the national clearance and
settlement system, performing critical functions related to the
securities lifecycle that help protect investors and support the prompt
and accurate processing of securities transactions. Their statutory
functions as defined under Section 3(a)(25) of the Securities Exchange
Act of 1934 (``Exchange Act'' or ``Act'') include countersigning
securities upon issuance, monitoring for overissuance, registering the
transfer of securities, exchanging or converting securities, and
transferring record ownership of securities by bookkeeping entry.\3\
Collectively, these functions help ensure that securities ownership
records remain accurate and that investors and other securities markets
participants can rely on the accuracy, integrity, and safety of the
clearance and settlement process throughout the securities lifecycle.
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\3\ Exchange Act Section 3(a)(25)(A)-(E), 15 U.S.C.
78c(a)(25)(A) through (E).
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The Commission first adopted the majority of the federal transfer
agent rules in the late 1970s and early 1980s.\4\ At that time, the
majority of investors held their securities in certificated (i.e.,
paper) form. The transfer agent industry was characterized by a mix of
small firms and public company issuers acting as their own transfer
agent, and transfer agents primarily provided manual processing of
certificates and related recordkeeping functions that some industry
observers viewed as purely ministerial.
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\4\ The Commission provided a detailed history of those rules,
and the market developments that led to those rules, in a 2015
concept release. See Transfer Agent Regulations, Exchange Act
Release No. 76743 (Dec. 22, 2015), 80 FR 81948 (Dec. 31, 2015)
(``2015 Concept Release'') for an overview of the history of the
Commission's transfer agent rules.
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Transfer agents have adapted to the complex, interconnected
electronic securities markets of today in numerous ways, including by
providing a broad suite of services.\5\ For example, in addition to
facilitating the issuance, cancellation, and transfer of both paper and
electronic securities and maintaining the official record of ownership
of an issuer's securities, most transfer agents also place, track, and
remove restrictive legends \6\ and at least one-third of them are
engaged by issuers to provide administrative, recordkeeping, and
processing services related to the distribution of cash and stock
dividends, bond principal and interest, mutual fund redemptions, and
corporate action and other payments to securityholders, what is
commonly referred to as paying agent activity. Transfer agents' paying
agent activity in particular has grown significantly in the last few
decades and continues to grow.\7\
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\5\ See Exchange Act Section 17A(a)(1)(A), 15 U.S.C. 78q-
1(a)(1)(A).
\6\ For additional discussion of transfer agents' role with
respect to restrictive legends, see 2015 Concept Release, supra note
4, Section VI.D.
\7\ See infra Section III.J.
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Many transfer agents function as administrators and third-party
information or technology service providers for mutual funds or direct
purchase, dividend reinvestment, employee stock purchase, retirement,
and other issuer-sponsored investment plans.\8\ In these roles,
transfer agents fulfill such tasks as calculating purchase or sale
prices for investors in mutual funds, aggregating and providing order
routing services to handle all aspects of enrollment and ongoing
account servicing, enhancing securityholder communications, and
performing paying agent services specific to funds and plans.
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\8\ See, e.g., 2015 Concept Release, supra note 4, Section
VII.E.1, discussing the practice of voluntary registration as
transfer agents by certain third-party administrators (``TPA'').
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Modern transfer agents may offer other ancillary services as well,
including annual meeting and proxy services such as electronic proxy
delivery, notice and access consulting, internet and phone voting, and
proxy tabulation; strategic shareholder consulting services to
corporations and shareholder groups working to influence corporate
strategy; communication services such as promotion campaigns, loyalty
programs, and communication services with brokers and fund managers;
global capital markets services such as access to international markets
and cross border transactions; corporate trust services; corporate
restructuring and class action administration services; and corporate
action consulting. A transfer agent's failure to perform its statutory
functions and related services promptly, accurately, and safely can
compromise the accuracy of an issuer's securityholder records, disrupt
the channels of communication between issuers and securityholders,
disenfranchise investors, and expose issuers, investors, securities
intermediaries, and the securities markets as a whole to significant
financial loss.\9\
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\9\ See Maintenance of Accurate Securityholder Files and
Safeguarding of Funds and Securities by Registered Transfer Agents,
Exchange Act Release No. 19142 (Oct. 15, 1982), 47 FR 47269 (Oct.
25, 1982) (``17ad-9 through 13 Proposing Release'') (noting examples
of substandard transfer agent performance presenting significant
potential adverse consequences); see also Processing Requirements
for Cancelled Security Certificates, Exchange Act Release No. 48931
(Dec. 16, 2003), 68 FR 74390, 74391 (Dec. 23, 2003) (noting examples
of substandard transfer agent performance and significant adverse
consequences).
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As technology and the securities markets continue to evolve,
transfer agents are increasingly operating at the frontier of rapidly
developing technologies, including tokenized securities, artificial
intelligence (``AI''), and other forms of digital infrastructure. For
example, market participants are actively seeking to bring blockchain-
native, or ``onchain'' transfer agents into the U.S. market, with some
firms developing models for blockchain-based recordkeeping, tokenized
fund administration, and cross-chain interoperability that would
require transfer agents to maintain issuer and securityholder records
on distributed ledgers and deploy and administer smart-contract-driven
processes. At the same time, rapid technological change--ranging from
tokenization initiatives, to
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cloud-based systems, to AI-enabled operational tools--has the potential
to reshape core clearance, settlement, and transfer functions across
the market ecosystem. Transfer agents interacting with tokenized
securities, distributed ledger technologies, and smart contracts must
increasingly manage risks relating to blockchain data integrity,
security of tokenized securities, and distributed ledger operational
models, while those adopting AI or automated technologies must ensure
proper controls, accurate representations of system capabilities, and
effective oversight of automated processes. These developments place
transfer agents in an increasingly central role in safeguarding
investor records, issuing and supporting tokenized securities, and
ensuring resiliency against operational and cybersecurity risks within
the rapidly evolving technological landscape comprising the U.S.
securities markets.
Despite these developments, the Commission's transfer agent rules
have not been substantively updated since the first rules were adopted
in the late 1970s and early 1980s. As a result, these rules do not
sufficiently address the risks presented by the wide range of
processing, recordkeeping, safeguarding, paying agent, and other
services that characterize modern transfer agents' businesses, much
less the risks posed by transfer agents' central role in the evolving
blockchain-based, AI-driven landscape. For example, despite the highly
sophisticated electronic and automated systems utilized by modern
transfer agents, including transfer agents that are essentially
enterprise software providers, the current transfer agent rules are
silent with respect to information security, cybersecurity, disaster
recovery, operational risk, or other requirements related to their use
of connected and automated electronic systems. And although transfer
agents play a critical role in placing, tracking, and removing
restrictive legends to facilitate distributions, there are no
Commission rules specifying transfer agents' obligations in connection
with removing restrictive legends on securities.
Collectively, based on these changes the Commission concludes that
there is a disconnect between the transfer agent rules that have been
in place for decades and both the manner in which transfer agents
perform their critical functions and the technology they use to do so.
At the same time, transfer agents now perform a more diverse array of
functions and services, many of which may not be adequately addressed
by the transfer agent rules. As the pace of technological innovation
and advancement within the securities markets continues to accelerate,
the gap between the Commission's transfer agent rules and the risks
posed by transfer agents' activities and role within the national
clearance and settlement system continues to widen.
In this release, the Commission is proposing a targeted set of
amended and new rules to ensure that the Commission's transfer agent
rules continue to protect investors, support the public interest, and
facilitate the safe and efficient functioning of the national clearance
and settlement system. The Commission is soliciting public comment on
each of the proposals in this release. Public feedback and data would
help the Commission ensure that any regulatory action will be in the
public interest and will help protect investors, the markets, and the
national clearance and settlement system.
A. Background Regarding Securities Ownership
Investment securities confer certain intangible rights and benefits
upon the holder.\10\ In the past, the most common way to transfer
investment securities, such as shares of stock, was to transfer a paper
certificate that represents the benefits of ownership (``certificated
security'').\11\ Certificated securities are evidence that the owner is
registered on the books of the issuer (or its transfer agent) as a
securityholder.\12\ Although the shares themselves represent an
intangible right,\13\ the certificate is a negotiable instrument under
state law, which allows the registered owner of the certificated
security to transfer the bundle of intangible rights to a third
party.\14\
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\10\ Egon Guttman, Modern Securities Transfers Sec. 1:5 (4th
ed. 2010).
\11\ The Uniform Commercial Code (``UCC'') defines a
``certificated security'' as ``a security that is represented by a
certificate.'' U.C.C. 8-102(a)(4). The UCC, which was first
published in 1952, is a uniform act designed to standardize the law
of sales and other commercial transactions in all 50 states. The UCC
has the effect of law only when adopted by a state, and while it has
been adopted by all 50 states, there are numerous state-by-state
variations in the adopted texts.
\12\ Guttman Sec. 1:5.
\13\ Id.
\14\ Guttman Sec. 1:12.
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The transfer of certificated securities held by registered owners
was a time-consuming manual process for transfer agents. In 1977 the
concept of the ``uncertificated security'' was introduced in Article 8
of the Uniform Commercial Code (``UCC'').\15\ This innovation allowed
issuers to issue uncertificated (i.e., certificateless) book-entry
securities, the transfer of which is greatly simplified compared to the
transfer of certificated securities because transfer can be effected by
simply registering the transferee's name on the books of the
issuer.\16\
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\15\ See U.C.C. 8-102(a)(18) (defining new term uncertificated
security as ``a security that is not represented by a
certificate''); see also Egon Guttman, Toward the Uncertificated
Security: A Congressional Leap for States to Follow, 37 Wash. & Lee
L. Rev. 717, 729-32 (1980).
\16\ Guttman Sec. 6:4.
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Under the current centralized depository model in the United
States, there are two types of securities owners: (a) registered
securityholders and (b) beneficial owners. Registered securityholders
(who may also be referred to as ``holders of record'') \17\ own and
hold securities in ``registered form.'' \18\ The UCC provides that an
``issuer . . . may treat the registered owner as the person exclusively
entitled to vote, receive notifications, and otherwise exercise all the
rights and powers of an owner.'' \19\ Registered securityholders are
listed directly on the records of the issuer or the issuer's transfer
agent under their own names, and can hold their securities either in
certificated form or in uncertificated (i.e., book-entry) form.\20\
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\17\ See Exchange Act Rule 17ad-9(a)(3), 17 CFR 240.17Ad-9(a)(3)
(referring to ``securityholder's registration''); Exchange Act
Rule17ad-9(a)(4), 17 CFR 240.17Ad-9(a)(4) (referring to ``registered
securityholder''); Exchange Act Rule 12g5-1, 17 CFR 240.12g5-1
(``securities shall be deemed to be `held of record' by each person
who is identified as the owner of such securities on records of
security holders maintained by or on behalf of the issuer'').
\18\ See U.C.C. 8-102(a)(13). (`` `Registered form,' as applied
to a certificated security, means a form in which: (i) the security
certificate specifies a person entitled to the security; and (ii) a
transfer of the security may be registered upon books maintained for
that purpose by or on behalf of the issuer, or the security
certificate so states.'').
\19\ U.C.C. 8-207.
\20\ Historically, the Direct Registration System (``DRS'')
operated by the Depository Trust Company (``DTC'') has been the
predominant form of holding uncertificated securities in registered
form, however, in recent years, other forms of registered ownership
such as tokenization have become available. Regardless of the
specific format that a registered securityholder's securities take,
a registered securityholder's options for holding uncertificated
securities, through DRS, tokenization, or otherwise, will be subject
to the issuer's governing documents and the law of its jurisdiction
of organization, as well as to other legal requirements that may
apply to the issuer, such as rules of self-regulatory organizations
(``SROs'') such as DTC and national securities exchanges.
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The vast majority of securityholders in the U.S. are beneficial
owners rather than registered owners.\21\ Beneficial owners do not own
the securities
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directly but generally have purchased them through an intermediary,
such as a broker or a bank, and determined to hold them in street name
through a book-entry account with that intermediary. Securities held in
street name are legally owned by and registered in the name of the
depository's nominee (most often DTC's nominee, Cede & Co.). The
individual investor's broker (or other intermediary) who is a member or
participant of the depository will be identified on the books of the
depository as having a ``security entitlement'' \22\ to, or an interest
in, a pro rata share of the fungible bulk of that security held by the
depository.\23\ Correspondingly, the individual investor will be
identified on the books of the depository participant (i.e., the
investor's broker or other intermediary) as having a security
entitlement to a pro rata share of the securities in which the
participant has an interest. At each level, the intermediary will be
obligated to provide the entitlement holder with payments and
distributions with respect to the financial asset and to exercise
rights as directed by the entitlement holder.\24\ A securities
intermediary satisfies such duties where the intermediary acts as
required by any agreement between the intermediary and entitlement
holder.\25\ The entitlement holder will be permitted to look only to
the intermediary for performance of the obligations.\26\
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\21\ For more information regarding beneficial ownership, see,
e.g., Concept Release On The U.S. Proxy System, Exchange Act Release
No. 62495 (July 14, 2010), 75 FR 42982 (July 22, 2010) (``Proxy
Concept Release''); Investor Bulletin: Holding Your Securities, SEC,
available at http://www.sec.gov/investor/pubs/holdsec.htm (last
visited May 22, 2026).
\22\ See U.C.C. 8-102(a)(7) (defining ``entitlement holder'' as
a person identified in the records of a securities intermediary as
the person having a security entitlement against the securities
intermediary); U.C.C 8-102(a)(17) (defining ``security
entitlement''); U.C.C. 8-102(a)(14) (defining ``securities
intermediary'' as (i) a clearing corporation or (ii) a person,
including a bank or broker, that in the ordinary course of its
business maintains securities accounts for others and is acting in
that capacity); U.C.C. 8-503(b) (providing that an entitlement
holder's property interest with respect to a particular financial
asset under [U.C.C. 8-503(a)] is a pro rata property interest in all
interests in that financial asset held by the securities
intermediary).
\23\ For securities held in ``fungible bulk,'' there are no
specifically identifiable shares directly owned by DTC participants.
Rather, each participant owns a pro rata interest in the aggregate
number of shares of a particular issuer held at DTC. In turn, each
customer, such as an individual investor of a DTC participant, owns
a pro rata interest in the shares in which the DTC participant has
an interest. See Processing of Tender Offers Within the National
Clearance and Settlement System, Exchange Act Release No. 19678, n.5
(Apr. 15, 1983), 48 FR 17603, 17605, n.5 (Apr. 25, 1983) (describing
fungible bulk); Office of Investor Education and Advocacy, Investor
Bulletin: DTC Chills and Freezes, SEC (May 2012), available at
https://www.sec.gov/investor/alerts/dtcfreezes.pdf (discussing
fungible bulk).
\24\ U.C.C. 8-505, 506.
\25\ U.C.C. 8-505(a)(1), 506(1). In the absence of an agreement
covering payments and distributions, the securities intermediary
must exercise due care in accordance with reasonable commercial
standards. In the absence of an agreement with respect to the
exercise of rights as directed by the entitlement holder, the
securities intermediary either must place the entitlement holder in
a position to exercise the rights directly or exercise due care in
accordance with reasonable commercial standards to follow the
direction of the entitlement holder. U.C.C. 8-505(a)(2), 506(2).
\26\ U.C.C. 8-503(c) (referring only to ``securities
intermediar[ies]'' with respect to enforcement rights that may be
exercised by an entitlement holder).
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B. Transfer Agent Regulation
Prior to 1975, most transfer agents were banks or trusts.\27\ There
was no federal regulation of transfer agents and transfer agents were
subject to state law, generally pursuant to UCC provisions. Transfer
agents were also subject to stock exchange requirements regarding
securities processing.
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\27\ SEC, Study of Unsafe and Unsound Practices of Brokers and
Dealers, H.R. Doc. No. 92-231, at 38. Transfer agents that are not
banks may be referred to as non-bank transfer agents.
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Following the Paperwork Crisis, as discussed in more detail in the
2015 Concept Release, in 1975, Congress enacted the Securities Acts
Amendments (the ``1975 Amendments''),\28\ which made sweeping changes
to the federal securities laws, implemented many of the principal
recommendations from the Securities Industry Study,\29\ and established
both the national market system \30\ and the national clearance and
settlement system as they exist today.\31\ Specifically, Congress
directed the Commission to, among other things: (i) ``facilitate the
establishment of a national system for the prompt and accurate
clearance and settlement of transactions in securities;'' \32\ (ii)
``end the physical movement of securities certificates in connection
with the settlement among brokers and dealers of transactions in
securities;'' \33\ and (iii) establish a system for reporting missing,
lost, counterfeit, and stolen securities.\34\
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\28\ Securities Acts Amendments of 1975, Public Law 94-29, 89
Stat. 97 (1975); see also S. Rep. No. 75, at 7 (1975).
\29\ Securities Industry Study, H.R. Rep. No. 92-1519, 64
(1972). The Senate Subcommittee on Securities conducted the
Securities Industry Study to determine the causes of the Paperwork
Crisis and recommend solutions. The Securities Industry Study
ultimately led to Congress enacting the 1975 Amendments. See 2015
Concept Release, supra note 4, at 81954.
\30\ Section 11A of the Exchange Act directed the Commission to
facilitate the establishment of a national market system to link
together the multiple individual markets that trade securities and
achieve the objectives of efficient, competitive, fair, and orderly
markets, that are in the public interest and protect investors. See
Exchange Act Section 11A(a)(2), 15 U.S.C. 78k-1(a)(2).
\31\ See Exchange Act Section 17A(a)(2), 15 U.S.C. 78q-1(a)(2).
\32\ Exchange Act Section 17A(a)(2)(A)(i), 15 U.S.C. 78q-
1(a)(2)(A)(i).
\33\ Exchange Act Section 17A(e), 15 U.S.C. 78q-1(e).
\34\ Exchange Act Section 17(f)(1), 15 U.S.C. 78q(f)(1).
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The 1975 Amendments gave the Commission regulatory authority for
the first time over transfer agents. Section 3(a)(25) of the Exchange
Act defines a ``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 (i.e., a registrar);
(C) registering the transfer of such securities;
(D) exchanging or converting such securities; or
(E) transferring record ownership of securities by bookkeeping
entry without the physical issuance of securities certificates.\35\
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\35\ Exchange Act Section 3(a)(25), 15 U.S.C. 78c(a)(25). Note
that any insurance company or separate account which performs such
functions solely with respect to variable annuity contracts or
variable life policies which it issues or any registered clearing
agency which performs such functions solely with respect to options
contracts which it issues is excluded from the definition of
``transfer agent'' under the Exchange Act. Id.
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Section 17A(c)(1) of the Exchange Act requires any person
performing any of these functions with respect to any security
registered pursuant to Section 12 of the Exchange Act or with respect
to any security which would be required to be registered except for the
exemption contained in subsection (g)(2)(B) or (g)(2)(G) of Section 12
(``Qualifying Security'') to register with the Commission or other
Appropriate Regulatory Agency (``ARA'').\36\ With respect to any
transfer agent so registered, Section 17A(d)(1) of the Exchange Act
authorizes the Commission to prescribe such rules and regulations as
may be necessary or appropriate in the public interest, for the
protection of investors, or otherwise in furtherance of the purposes of
the Exchange Act.\37\
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\36\ Exchange Act Section 17A(c)(1), 15 U.S.C. 78q-1(c)(1).
\37\ Exchange Act Section 17A(d)(1), 15 U.S.C. 78q-1(d)(1).
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Beginning in the late 1970s and early 1980s, the Commission adopted
a series of transfer agent rules designed to regulate the basic
recordkeeping and processing functions performed by transfer agents.
The rules primarily related to routine transfers of certificated equity
and debt securities and generally covered three areas: (i) registration
and annual reporting requirements; (ii) timing and certain
[[Page 56950]]
notice and reporting requirements related to securities transaction
processing (referred to as ``turnaround rules''); and (iii)
recordkeeping and record retention rules and safeguarding requirements
for securities and funds.
Although the Commission has made modest revisions to the initial
transfer agent rules and has added several new rules since the adoption
of those earlier rules, the core registration, processing,
recordkeeping, and safeguarding rules remain substantially unchanged,
and the exemptions for mutual funds, dividend reinvestment plans
(``DRIPs''), and limited partnerships have not been revisited.
1. Registration and Annual Reporting Requirements (Rules 17ac2-1 and
Form TA-1, Rule 17ac2-2 and Form TA-2)
Before a transfer agent may perform any of the statutory transfer
agent functions defined in Section 3(a)(25) of the Exchange Act for a
Qualifying Security, it must apply for registration by submitting Form
TA-1 (Uniform Form for Registration as a Transfer Agent and for
Amendment to Registration) to its ARA, and its registration as a
transfer agent with its ARA must have become effective.\38\ Form TA-1
requires a transfer agent seeking to register to disclose certain
information, including the following: basic information about the
registrant, transfer agent service company arrangements, control
persons and owners, and any investment-related criminal prosecutions,
regulatory actions, or civil actions to which its control persons or
affiliates have been subject.\39\ The registration automatically
becomes effective 30 days after the Form TA-1 is filed, unless the ARA
takes affirmative action to accelerate, deny, or postpone registration
in accordance with the provisions of Section 17A(c) of the Exchange
Act.\40\ A registrant must amend its Form TA-1 within 60 days following
the date on which information reported therein becomes inaccurate,
incomplete, or misleading.\41\
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\38\ Exchange Act Section 17A(c)(1), 15 U.S.C. 78q-1(c)(1);
Exchange Act Rule 17ac2-1, 17 CFR 240.17Ac2-1; SEC Form TA-1, 17 CFR
249b.100. Once registration has become effective, a transfer agent
may be subject to censure, suspension, limitation, or revocation of
its registration if the transfer agent or any person associated with
the transfer agent fails to obey Commission rules or violates
certain of the securities laws. Exchange Act Section 17A(c)(3), 15
U.S.C. 78q-1(c)(3); Exchange Act Section 17A(c)(4)(C), 15 U.S.C.
78q-1(c)(4)(C).
\39\ Basic identification information about the registrant
includes information such as name, contact person, phone number,
address, email address, identification numbers including the
transfer agent's file number and Financial Industry Number Standard
(``FINS'') number, and whether the transfer agent solely provides
services to its own securities or those of an affiliate. See Form
TA-1, 17 CFR 249b.100.
\40\ Exchange Act Rule 17ac2-1(a), 17 CFR 240.17Ac2-1(a); SEC
Form TA-1, General Instruction G, 17 CFR 249b.100. Note that the 30-
day time period in Exchange Act Rule 17ac2-1(a), 17 CFR 240.17Ac2-
1(a), is shorter than the Exchange Act's 45-day time period for
applications to be effective. Exchange Act Section 17A(c)(2), 15
U.S.C. 78q-1(c)(2).
\41\ Exchange Act Rule 17ac2-1(c), 17 CFR 240.17Ac2-1(c); SEC
Form TA-1, General Instruction H, 17 CFR 249b.100. For transfer
agents for whom the Commission is their ARA, they must file Form TA-
1 and amendments thereto electronically on the Commission's EDGAR
system and each answer provided by the transfer agent is required to
be formatted in an eXtensible Markup Language (``XML'') data
language. Exchange Act Rule 17ac2-1(d), 17 CFR 240.17Ac2-1(d);
Electronic Filing of Transfer Agent Forms, Exchange Act Release No.
54864, 5 (Dec. 4, 2006), 71 FR 74698 (Dec. 12, 2006) (``Electronic
Filing of Transfer Agent Forms Release'').
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All registered transfer agents, regardless of their ARA, must file
an annual report with the Commission using Form TA-2 (Form for
Reporting Activities of Transfer Agents Registered Pursuant to Section
17A of the Securities Exchange Act of 1934).\42\ Form TA-2 covers a
calendar year reporting period that ends on December 31 \43\ and must
be filed by March 31 of the year following the end of the reporting
period.\44\
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\42\ Exchange Act Rule 17ac2-2(a), 17 CFR 240.17Ac2-2(a); SEC
Form TA-2, 17 CFR 249b.102 (Form for Reporting Activities of
Transfer Agents Registered Pursuant to Section 17A of the Securities
Exchange Act of 1934).
\43\ Exchange Act Rule 17ac-2-2(b), 17 CFR 240.17Ac2-2(b).
\44\ Form TA-2 must be filed electronically on the Commission's
EDGAR system, and each answer provided by the transfer agent is
required to be formatted in an XML data language. Exchange Act Rule
17ac2-2(c), 17 CFR 240.17Ac2-2(c); Electronic Filing of Transfer
Agent Forms Release, supra note 41, at 5.
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Form TA-2 requires transfer agents to identify and report on the
use of service companies, or other transfer agents, in connection with
their transfer agent activities. It also requires transfer agents to
provide annual data regarding the transfer agent's compliance with the
turnaround rules. Additionally, the form requires transfer agents to
provide the Commission with updated information about their business
activities, including accounts administered, items received,\45\
turnaround performance, total amounts of funds distributed, and lost
securityholder accounts.\46\ Rule 17ac2-2 provides exemptions from
completing certain sections of Form TA-2 for small transfer agents and
for transfer agents that outsource their work completely to service
companies.\47\
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\45\ See generally, Section III.A.1 for discussion of ``item.''
\46\ See generally, SEC Form TA-2, 17 CFR 249b.102.
\47\ Specifically, if a registered transfer agent received fewer
than 1,000 items for transfer in the reporting period and did not
maintain master securityholder files for more than 1,000 individual
securityholder accounts as of December 31 of the reporting period,
it is only required to complete Questions 1 through 5, 11, and the
signature section of Form TA-2. Exchange Act Rule 17ac2-2(a)(1), 17
CFR 240.17Ac2-2(a)(1). A named transfer agent that engaged a service
company to perform all of its transfer agent functions during the
reporting period is only required to complete Questions 1 through 3
and the signature section of Form TA-2. Exchange Act Rule 17ac2-
2(a)(2), 17 CFR 240.17Ac2-2(a)(2).
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The Commission, other ARAs, their respective staff, and members of
the public (including issuers and investors) use information on Forms
TA-1 and TA-2. The Commission's Electronic Data Gathering, Analysis,
and Retrieval (``EDGAR'') database provides a means through which
information on these forms can be searched and retrieved. The
Commission uses the information on Form TA-1 to review an entity's
application for registration as a transfer agent and to maintain
current information about transfer agents. The Commission uses
information on Form TA-2, as well as information on Form TA-1 and
amendments thereto, for several purposes, including: (i) to determine
the nature of the business conducted by a transfer agent, (ii) to
review transfer agent activities and to evaluate compliance with
Commission rules, and (iii) to inform Commission transfer agent
policymaking.\48\ The Commission's Division of Examinations may use the
information on Forms TA-1 and TA-2 to help identify risks and better
understand a transfer agent's business during an examination.
Commission staff may also use the information on Forms TA-1 and TA-2 to
analyze industry trends and to provide basic census information
concerning registered transfer agents. In addition, Form TA-1 and TA-2
data provide the Commission with information about securities
processing issues that may need to be addressed by Commission
rulemaking. Form TA-1 and TA-2 data is also used by the Commission to
assist it in evaluating the costs and benefits of potential rulemaking.
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\48\ See Adoption of Revised Transfer Agent Forms and Related
Rules, Exchange Act Release No. 23084 (Mar. 27, 1986), 51 FR 12124
(Apr. 9, 1986) (``Revised Transfer Agent Forms and Related Rules'');
Electronic Filing of Transfer Agent Forms Release, supra note 41, at
5.
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2. Processing, Reporting, Recordkeeping, and Exemptions: Rules 17ad-1
Through 17ad-7
On June 16, 1977, the Commission adopted Rules 17ad-1 through 17ad-
7 as a set of performance standards for transfer agents.\49\ These
turnaround and processing rules were ``designed to
[[Page 56951]]
protect investors . . . and to contribute to the establishment of the
national system for the prompt and accurate clearance and settlement of
transactions in securities by,'' among other things, ``assuring that
the transfer agent community performs its functions in a prompt,
accurate and more predictable manner.'' The rules primarily focused on
establishing minimum performance and recordkeeping standards for
routine transfers of certificated equity and debt securities and the
prompt and accurate cancellation and issuance of certificated
securities.\50\ The rules were also designed to provide an early
warning system to alert issuers and regulatory agencies when the
performance standards are not being met, prohibit under-performing
transfer agents from expanding their operations, require transfer
agents to respond promptly to certain written inquiries regarding items
presented for transfer, and require the maintenance and preservation of
certain records necessary for regulatory authorities to examine and
enforce transfer agent compliance with the turnaround rules.\51\ The
specific processing, reporting, and retention requirements were
metrics-based and, at the time, considered to be those necessary to
ensure that transfer agents adequately performed their functions and
that the Commission and other ARAs would be able to examine transfer
agents' compliance with the turnaround rules.\52\ Further, the new
transfer agent rules established by the Commission were designed not
only to ensure that transfer agents meet prescribed performance
standards for their core recordkeeping and transfer activities, but to
ensure they would be regulated appropriately in the context of the
national clearance and settlement system and that any problems meeting
these performance standards would not negatively impact individual
investors or the clearance and settlement system as a whole.\53\
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\49\ Exchange Act Rules 17ad-1 through 17ad-7, 17 CFR 240.17Ad-1
through 17 CFR 240.17Ad-7.
\50\ See Regulation of Transfer Agents, Exchange Act Release No.
13636 (June 16, 1977), 42 FR 32404, 32404 (June 24, 1977) (``Rule
17ad-1 through 17ad-7 Adopting Release'').
\51\ Id. See also Exchange Act Rules 17ad-1 through 17ad-7, 17
CFR 240.17Ad-1 through 17 CFR 240.17Ad-7.
\52\ Rule 17ad-1 through 17ad-7 Adopting Release, supra note 50,
at 32410.
\53\ Rule 17ad-1 through 17ad-7 Adopting Release, supra note 50,
at 32407 (noting the importance of avoiding impediments to ``the
Commission's efforts to provide necessary or appropriate regulations
for transfer agents in the broader context of the establishment of a
national system for the prompt and accurate clearance and settlement
of securities transactions.'').
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3. Recordkeeping and Safeguarding Rules: Rules 17Ad-8 Through 17ad-13
and 17ad-17
On June 10, 1983, the Commission adopted Rules 17ad-9 through 17ad-
13 to supplement the turnaround rules, based on its experience.\54\
These new rules established various requirements and exemptions
designed to ensure that transfer agents maintain appropriate internal
controls, meet adequate levels of service and performance, and avoid
adverse operational and financial problems that could harm investors,
issuers, or other securities industry participants. Most notably, the
new rules established additional minimum standards for recordkeeping
and codified minimum requirements for the safeguarding of funds and
securities.\55\ The Commission believed that these additional minimum
standards were critical to addressing seriously deficient transfer
agent performance.\56\
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\54\ Exchange Act Rules 17ad-9 through 17ad-13, 17 CFR 240.17Ad-
9 through 17 CFR 240.17Ad-13.
\55\ See 17ad-9 through 13 Proposing Release, supra note 9.
\56\ Id. The Commission was particularly concerned with reducing
the potential for transfer agent failure, which inevitably imposes
substantial potential liabilities and costs on issuers, securities
firms, and securityholders, as well as improving generally transfer
agent performance, thereby reducing the broker-dealers' costs
associated with fails to settle and extended transfer delays.
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Rule 17ad-17 was first adopted in 1997 \57\ and later amended at
the beginning of 2013 \58\ and was designed to ensure that the transfer
agents, brokers, dealers, and other financial intermediaries make
adequate efforts to find lost securityholders.\59\ The rule defines
``lost securityholder'' as a securityholder for whom an item of
correspondence sent to his or her last known address was ``returned as
undeliverable'' and requires transfer agents, brokers, and dealers to
conduct two database searches in their efforts to locate a lost
securityholder.
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\57\ Lost Securityholders, Exchange Act Release No. 39176 (Oct.
1, 1997), 62 FR 52229 (Oct. 7, 1997) (``Rule 17ad-17 Adopting
Release'').
\58\ Lost Securityholders and Unresponsive Payees, Exchange Act
Release No. 68668 (Jan. 16, 2013), 78 FR 4768 (Jan. 23, 2013).
\59\ Exchange Act Rule 17ad-17, 17 CFR 204.17Ad-17.
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C. Evolution of Transfer Agent Activities
This section discusses some of the core recordkeeping, transfer,
and other activities that transfer agents engage in, the manner in
which the existing transfer agent rules apply to those activities, and
how those activities have evolved since the first transfer agent rules
were adopted. Since then, the increased use and decreased cost of
technology, the expansion of corporate actions to bring securities into
the public market, the continued dematerialization of securities, and
other changes have resulted in significant evolution and changes to the
types of services transfer agents provide and the manner in which they
provide them.
1. Recordkeeping
Transfer agents have direct responsibility for maintaining on
behalf of the issuer the currency and integrity of the official list of
the registered owners of an issuer's stocks and bonds, how those stocks
and bonds are held, and how many shares or bonds each investor owns.
This list is defined by Rule 17ad-9(b) as the master securityholder
file.\60\ Without the master securityholder file, registered owners of
an issuer's securities cannot be assured that they are recognized as
such by the issuer and that they will receive corporate distributions,
communications, and the other rights of security ownership to which
they are entitled.\61\
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\60\ See Exchange Act Rule 17ad-9(b), 17 CFR 240.17Ad-9(b).
\61\ See generally, e.g., Del. Code Ann. tit. 8 Sec. Sec. 170,
173 (authorizing a corporation to pay cash and stock dividends under
certain circumstances); Exchange Act Rule 14c-3, 17 CFR 240.14c-3
(requirement to furnish an annual report to securityholders); Del.
Code Ann. tit. 8 Sec. 212 (providing for voting rights of
stockholders and permitting them to vote by proxy); Del. Code Ann.
tit. 8 Sec. 222 (requirement to send stockholder notice in advance
of stockholder meeting).
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Transfer agents also maintain and keep current the control book
which is defined by Rule 17ad-9(d) as the record of the total number of
shares of equity securities or the principal dollar amount of debt
securities authorized and issued by the issuer for each issue the
transfer agent services.\62\ One of the main purposes of the control
book is to allow the transfer agent to monitor the number of securities
outstanding to prevent overissuance because the total number of shares
reflected in the aggregate on the master securityholder file should
match the number of shares authorized in the control book.\63\
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\62\ Exchange Act Rule 17ad-9(d), 17 CFR 240.17Ad-9(d).
\63\ When monitoring for overissuance, a transfer agent may be
referred to as a ``registrar.'' See Exchange Act Section 3(a)(25),
15 U.S.C. 78c(a)(25).
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Finally, pursuant to Rule 17ad-6, transfer agents maintain the
transfer journal.\64\ The transfer journal can be a useful tool for
transfer agents and issuers. For example, when reviewed in conjunction
with the master securityholder file, the transfer journal may provide
historical information
[[Page 56952]]
regarding the issuance and transfer of a specific security or the
holdings of a specific securityholder. The transfer agent rules do not
define transfer journal nor codify requirements with respect to the
transfer journal.
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\64\ Exchange Act Rule 17ad-6, 17 CFR 240.17Ad-6.
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2. Securities Transfers, Exchanges, and Conversions
Transfer agents are integrally involved in effecting transfers of
ownership of securities, as well as exchanging and converting
securities.\65\ For uncertificated securities, transfer agents effect
book-entry transfers by registering the change in ownership on the
master securityholder file, which does not involve the physical
issuance and cancelling of securities certificates. The term
``registering'' means an official form of recording by a person charged
with that function, which is accomplished under Exchange Act Rules
17ad-9(h) and 17ad-10(a) by updating the master securityholder file, as
discussed above.\66\ For the transfer of certificated securities,
several rules apply, including Rule 17ad-19 regarding certificate
cancellation and Rule 17ad-12 regarding the safeguarding of cancelled
certificates.\67\
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\65\ The terms ``exchange'' and ``conversion'' are used in
Exchange Act Section 3(a)(25) and in the Commission's transfer agent
rules but are not defined in the Commission's transfer agent rules.
The term ``exchange'' is commonly used to refer to the trading of
specific securities for another asset, usually without an
accompanying change in ownership. The term ``conversion'' is
commonly used to refer to the changing into or substitution of one
security for another security or asset under specific conditions,
also without an accompanying change in ownership.
\66\ Book-entry transfer may be accomplished through DTC's DRS
using DTC's Profile Modification System. Once the transfer has been
effected, the investor receives from the transfer agent a statement
of ownership that acknowledges his or her new DRS position. See
supra note 20.
\67\ See 2015 Concept Release, supra note 4, at 81972-73 for a
more fulsome description of the transfers of certificated
securities.
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3. Securities Issuance
Transfer agents are also involved in the issuance of securities,
which may be one of the final stages before completing a certificate
transfer or could involve a primary offering of securities such as an
initial public offering. Upon issuing a new security to a transferee,
the transfer agent must credit the securities account of the transferee
receiving the new security. Under Rule 17ad-1(d), posting the new
ownership information to the master securityholder file changes the
ownership information of the securities account and ``completes
registration of change in ownership of all or a portion of those
securities.''
4. Corporate Actions and Related Services
A corporate action is an event in the life of a security, typically
instigated by the issuer, which affects a position in that
security.\68\ Examples of common corporate actions include changes that
affect capital structure, such as a merger or acquisition, and
distributions to securityholders, such as a dividend distribution or
principal or interest payment on a debt security. Corporate actions may
also include bankruptcy or liquidation proceedings, conversions,
warrants, exchange offers, subscription rights, tender offers, and
other events.\69\ Generally, corporate actions can be divided into two
broad categories: mandatory and voluntary (sometimes referred to as
``elective''). Mandatory corporate actions usually affect all
securityholders equally and the securityholder does not have different
options from which to choose; voluntary corporate actions usually allow
securityholders to choose among one or more different elections they
can make.
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\68\ Simmons and Dalgleish, Corporate Actions: A Guide to
Securities Event Management 3-5 (2006).
\69\ See id. (categorizing major types of corporate actions).
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Transfer agents may perform a variety of roles and provide a
variety of services, depending on the type and nature of the corporate
action. For example, a transfer agent may take on the role of exchange
agent in a mandatory corporate action, such as a stock-for-stock merger
or a cash-for-stock merger. In such circumstances, under Rule 17ad-10,
the transfer agent performing exchange agent services generally must
update the master securityholder file with certificate details within
five business days. But because the transfer associated with some of
the most common corporate actions qualify as non-routine items under
Rule 17ad-1, including transfers ``in connection with a reorganization,
tender offer, exchange, redemption, or liquidation,'' \70\ the general
three business day deadline for turnaround of routine items under Rule
17ad-2 may not apply. However, if a transfer agent makes a
determination that a transfer does fall within Rule 17ad-1(i)(5) and
therefore is non-routine, Rule 17ad-6(a)(11) requires the transfer
agent to maintain records documenting the basis for this
determination.\71\ Other aspects of the processing of the corporate
action may cause the corporate action to be classified as non-routine
as well.\72\
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\70\ Exchange Act Rule 17ad-1(i)(5), 17 CFR 240.17Ad-1(i)(5).
\71\ A large portion of specific records that transfer agents
are required to maintain under Rule 17ad-6 and to retain for
different periods of time under Rule 17ad-7 relate to: (i) the
classification of an item as routine or non-routine; (ii) tracking
the compliance of the transfer agent with the performance standards
for turnaround of routine items under Rule 17ad-2(a); and (iii) the
performance standards for processing of all items pursuant to Rule
17ad-2(b).
\72\ Exchange Act Rule 17ad-1(i), 17 CFR 240.17Ad-1(i).
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Voluntary corporate actions, which permit securityholders to choose
among different options, may result in the need for additional tasks
and systems for transfer agents to process them. For example, in
addition to the ordinary recordkeeping tasks, the transfer agent may be
responsible for monitoring whether elections have been made by
deadlines and for tracking such elections.
In addition to the examples discussed above, transfer agent roles
in connection with corporate actions may also include serving as: (i)
tender agent, when the transfer agent collects shares surrendered from
securityholders and makes payments for the shares at a predetermined
price; (ii) exchange agent, when the transfer agent collects shares
surrendered from securityholders and issues, registers, and/or
distributes shares of the bidding company's securities as compensation
for tendered securities of the subject company; (iii) subscription
agent, when the transfer agent invites existing equity securityholders
of an issuer to subscribe to a new issuance of additional debt or
equity of the issuer; (iv) conversion agent, for example when the
transfer agent converts debt securities into equity securities; and (v)
escrow agent, when the transfer agent holds an asset on behalf of one
party for delivery to another party upon specified conditions or
events. Finally, transfer agents providing corporate action services
may be subject to Rules 17ad-12 and 17ad-13, regarding safeguarding
requirements for funds and securities and an annual audit of internal
control of safeguarding procedures.
5. Annual Meeting, Proxy-Related Services, and Securityholder Services
and Communications
One of the key rights of securityholders is the right to vote their
shares on important matters that affect the companies they own.
Pursuant to state corporate law, registered securityholders may either
attend a meeting to vote shares in person or authorize an agent to act
as their ``proxy'' at the meeting to vote their shares pursuant to
their voting instructions.\73\ Because most
[[Page 56953]]
securityholders do not physically attend public company securityholder
meetings, the corporate proxy is the principal means by which they
exercise their voting rights.
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\73\ See Del. Code Ann. tit. 8, Sec. 212 (b), (c). A full
discussion of the proxy system is beyond the scope of this release.
For more information on the proxy system, see Proxy Concept Release,
supra note 21.
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The process in the United States for distributing proxy materials
and soliciting, tabulating, and verifying votes by securityholders is
complex, especially with respect to beneficial securityholders.\74\
Most corporate issuers and securities intermediaries such as banks and
brokers rely on a proxy service firm to perform these functions, which
may include distributing and forwarding the proxy materials and
collecting and tabulating voting instructions. Alternatively, some
issuers choose to engage their transfer agents for certain parts of the
proxy distribution process, such as printing and distributing proxy
materials either directly to registered securityholders or to
intermediaries, which will then distribute them to beneficial owners
either through the mail or electronically. Providing these services may
be a natural extension of a transfer agent's core functions because
most transfer agents will already possess and maintain the master
securityholder file listing the issuer's registered securityholders,
will have the infrastructure in place to communicate with registered
securityholders, and will be in a position to reconcile the identity of
registered voters and the number of votes against the official records
of the issuer.\75\ Typical transfer agent proxy services might include
mailing or electronically transmitting notices of meetings,\76\ proxy
statements, and proxy cards \77\ to securityholders.
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\74\ Beneficial owners holding securities in street name are not
technically entitled to vote shares or grant proxy authority.
Rather, the voting rights reside with Cede & Co. as the record owner
of all street name shares. However, because Cede & Co.'s role is
only that of nominee for DTC as custodian and it has no beneficial
interest in the shares, mechanisms have been developed in order to
pass the legal rights it holds as the record owner to the beneficial
owners, enabling them to vote. For a more comprehensive discussion
of these and other issues relating to the U.S. proxy and indirect
holding systems, see Proxy Concept Release, supra note 21.
\75\ See Proxy Concept Release, supra note 21.
\76\ See, e.g., Del. Code Ann. tit. 8, Sec. 222 (2001). See
also Del. Code Ann. tit. 8, Sec. 232 (2001).
\77\ In cases where the issuer is relying upon the notice and
access model of proxy statement distribution, the proxy card must be
mailed even if the proxy statement is not mailed by the issuer. See
Final Rule: internet Availability of Proxy Materials, Exchange Act
Release No. 55146, 10 (Jan. 22, 2007), 72 FR 4148 (Jan. 29, 2007).
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All transfer agents also provide some level of securityholder
communications services. The level of services may depend on the type
or size of the issuer, but at a minimum, most transfer agents
facilitate the mailing of quarterly and annual statements with details
of holdings, transaction confirmations, and letters or communications
confirming other transactions, such as address-change confirmations.
Many transfer agents also provide tax reporting services, including
sending tax forms such as W-9, W-8BEN, 1099-DIV, and 1099-B.
Most transfer agents also receive and respond to inquiries and
requests by securityholders and non-securityholders.\78\ Requests may
involve a transfer (for example, a gift of fund shares from one family
member to another) or a change in the securityholder's account, such as
an address change or different election regarding dividend
reinvestment. For transfer agents to open-end mutual funds, transfers
may involve a purchase (i.e., a ``subscription'') or sale (i.e., a
``redemption'') of the fund's shares. Transfer agents may receive
inquiries as well, which may not require processing a transaction or
account change, but may involve merely answering questions about the
securityholder's account or regarding the issuer generally.\79\
Requests and inquiries are transmitted to transfer agents through
various methods, including by telephone, mail, facsimile, email,
internet, mobile communication device, and in-person. The predominance
of telephone and other forms of electronic communication as favored
methods for securityholders to communicate with issuers and their
transfer agents, including the use of standardized protocols over the
internet, means that managing sizable call centers and other customer
service departments, with many representatives fielding calls and other
message-traffic, has become a critical aspect of the transfer agent-
issuer relationship.
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\78\ Several Commission rules address securityholder inquiries.
See Exchange Act Rule 17ad-5, 17 CFR 240.17Ad-5 (written inquiries
and requests); Exchange Act Rules 17ad-6, 7, 17 CFR 240.17Ad-6, 7
(recordkeeping and retention requirements regarding inquiries and
requests).
\79\ Inquiries about the securityholder's account may relate,
for example, to matters such as dividend reinvestment or other
account options.
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One aspect of these securityholder services is lost certificate
replacement. If a securityholder loses a certificate, the old
certificate must be cancelled and new shares issued, either in
certificated or book-entry form. Transfer agents facilitate this
process by processing the request and replacing the lost or missing
certificate. Generally, the securityholder will be required to fill out
a declaration, affidavit, or other form with identifying information
and a description of the circumstances giving rise to the loss and pay
a fee to the transfer agent for processing the request. Most transfer
agents will also require a surety bond to indemnify the issuer and
transfer agent against any potential losses in connection with the
missing or replacement certificate in the event it is later presented
for transfer or conversion. The transfer agent will then report the
lost or missing certificate to the Lost and Stolen Securities Program
operator pursuant to Rule 17f-1.
D. Overview of the Proposal
Based on the Commission's experience regulating and supervising
registered transfer agents, the Commission is proposing to update the
transfer agent rules to address the way in which modern transfer agents
carry out their transfer agent activities and the risks posed by those
activities to investors, the national clearance and settlement system,
and the U.S. securities markets as a whole. Accordingly, as summarized
below in Table 1, the Commission is proposing to update Forms TA-1 and
TA-2, amend several existing rules, rescind one rule, and add two new
rules.
Table 1--Overview of Proposed Changes
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------------------------------------------------------------------------
Overview of Proposed Changes
------------------------------------------------------------------------
Amendments to Forms.................... Form TA-1.
Form TA-2.
Amendments to Existing Rules........... 17ac2-1--Registration.
17ac2-2--Annual Reporting.
17ad-1 and 17ad-9--Definitions.
17ad-2--Turnaround.
17ad-3--Limitations on
Expansion.
[[Page 56954]]
17ad-6--Recordkeeping
17ad-7--Record Retention.
17ad-10--Prompt Posting.
17ad-11--Reports (title only).
17ad-12--Safeguarding.
17ad-17--Lost Securityholders.
Rescission of Existing Rule............ 17ad-4--Applicability of Rules
17ad-2, 17ad-3, and 17ad-
6(a)(1) through (7) and (11).
New Rules.............................. Rule 17ad-30--Compliance
Program.
Rule 17ad-31--Restrictive
Legends.
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II. Proposed Amendments to Registration and Annual Reporting
Requirements
Exchange Act Section 17A(c)(2) provides that a transfer agent may
be registered by filing an application in such form and containing such
information and documents concerning the transfer agent and any persons
associated with the transfer agent as the ARA may prescribe as
necessary or appropriate in furtherance of the purposes of the Exchange
Act.\80\ As explained above, those purposes include, among other
things, protecting investors, facilitating the prompt and accurate
clearance and settlement of securities transactions, and the
safeguarding of funds and securities.\81\ Exchange Act Section
17A(d)(1) empowers the Commission with authority to prescribe for
registered transfer agents engaging in any activity as transfer agents
such rules and regulations as necessary or appropriate in the public
interest, for the protection of investors, or otherwise in furtherance
of the purposes of the Exchange Act.\82\ As discussed above, pursuant
to that authority, transfer agents are required to file a Form TA-1 to
register as a transfer agent, a Form TA-2 each year to provide annual
disclosures, and a Form TA-W when they withdraw from registration.\83\
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\80\ Exchange Act Section 17A(c)(2), 15 U.S.C. 78q-1(c)(2).
\81\ See Exchange Act Section 17A(a)(1)(A), 15 U.S.C. 78q-
1(a)(1)(A).
\82\ Exchange Act Section 17A(d)(1), 15 U.S.C. 78q-1(d)(1).
\83\ For a detailed and comprehensive overview of the existing
registration, reporting, and disclosure requirements applicable to
registered transfer agents, see 2015 Concept Release, supra note 4.
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The Commission uses the information on Forms TA-1 and TA-2 to
fulfill its statutory duties, including its duty to protect investors,
facilitate the establishment of the national market system and the
national clearance and settlement system, and advance the public
interest. For example, Form TA-1 and Form TA-2 are necessary for the
Commission to gather sufficient information to understand the nature
and scope of the business conducted by the transfer agent, the specific
activities engaged in by the transfer agent, and identify and collect
the disciplinary history of the persons who may exercise direct or
indirect control over the transfer agent. This information is necessary
for the Commission to identify transfer agents, review and assess an
entity's registration application, determine whether there are
statutory grounds to deny, suspend, or revoke the entity's
registration, and identify and assess the risks the transfer agent and
its activities may pose to the securities markets, the national
clearance and settlement system, investors, and the public interest.
Once a transfer agent is registered, Commission staff use the
information on Form TA-2 to maintain current information about
individual registered transfer agents, review and identify trends in
transfer agent activities both with respect to individual transfer
agents and across the industry as a whole, evaluate individual transfer
agents' compliance with Commission rules, identify compliance issues
and trends that may require policy interventions, compliance
examinations, or enforcement actions, and develop and evaluate
appropriate regulatory standards for transfer agents, including
evaluating the costs and benefits of potential rulemaking. As noted
above, the Commission's Division of Examinations may use the
information on Forms TA-1 and TA-2 to help identify risks and better
understand a transfer agent's business during an examination.
Similarly, the Commission's Division of Economic and Risk Analysis
(``DERA'') uses the information on Forms TA-1 and TA-2 to analyze the
potential economic effects of Commission rulemaking and other
Commission actions, and to develop reports, analytics, and other
information to support the Commission's policy initiatives, examination
function, and enforcement actions.\84\
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\84\ See Transfer Agent Data Sets, https://www.sec.gov/data-research/sec-markets-data/transfer-agent-data-sets.
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The Commission has observed over time that, as the nature and scope
of transfer agents' activities within the securities markets and the
national clearance and settlement system have changed and expanded, the
limited information disclosed on Forms TA-1 and TA-2 is no longer
sufficient in supporting the Commission to meet its statutory duties
under the Exchange Act. For example, the risk profile of a transfer
agent that is part of a multi-national conglomerate and provides dozens
of loosely-related services across multiple markets all under a single
registered transfer agent will differ from a small corporation or
limited liability company that primarily provides transfer and
recordkeeping services for small- and mid-cap equity issuers. Yet
because Forms TA-1 and TA-2 were created at a time when nearly all non-
bank transfer agents had a straightforward corporate organization and
primarily engaged in traditional transfer and related activities, the
limited information on the forms does not permit the Commission to
distinguish between them without issuing a regulatory document request,
conducting a formal examination, or otherwise seeking additional
information not already disclosed on the forms. Similarly, the risks to
investors, the markets, and the national clearance and settlement
system posed by the specific activities engaged in by a person or
entity that registers as a transfer agent because, for example, it
engages in wallet whitelisting (i.e., determining whether a wallet
address meets the credentialing requirements required for certain
activities, such as holding tokenized securities or other crypto
assets) and incorporates distributed ledger technology as a component
of its master securityholder file will differ from the risks posed by
the activities engaged in by a mutual fund transfer agent that
processes purchases and redemptions, calculates net asset value, and
whose transaction processing in general may be more complex or involve
additional responsibilities as compared to a
[[Page 56955]]
transfer agent for an operating company.\85\ Yet, again, the
information on the forms does not permit the Commission to identify and
understand the full scope of those activities, much less the risks they
pose because the forms were developed and adopted at a time when
certain technologies did not exist and transfer agent activities were
carried out in a significantly more limited way than they are today.
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\85\ See 2015 Concept Release, supra note 4, at Section VII.C.2.
For a detailed discussion of transfer agents to mutual funds, see
2015 Concept Release, supra note 4, at Section VII.C.
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To ensure that Forms TA-1 and TA-2 continue to support the
Commission's ability to fulfill its statutory duties, especially in
consideration of the expanded scope of transfer agents' activities as
discussed throughout this release, the Commission is proposing
amendments to Forms TA-1 and TA-2. We discuss the specific proposed
amendments to each form and related Commission rule in turn below.
A. Proposed Amendments to Rule 17ac2-1
As noted above, under existing Rule 17ac2-1, a transfer agent's
registration automatically becomes effective 30 days after the Form TA-
1 is filed, unless the ARA takes affirmative action to accelerate,
deny, or postpone registration in accordance with the provisions of
Section 17A(c) of the Exchange Act.\86\ However, Section 17A(c)(2) of
the Exchange Act specifies that a transfer agent's registration shall
become effective 45 days after receipt of the Form TA-1 application, or
within such shorter period of time as the ARA may determine.\87\
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\86\ Exchange Act Rule 17ac2-1(a), 17 CFR 240.17Ac2-1(a); SEC
Form TA-1, General Instruction G, 17 CFR 249b.100.
\87\ Exchange Act Section 17A(c)(2), 15 U.S.C. 78q-1(c)(2).
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The Commission has observed over time that 30 days is often
insufficient to determine whether to accelerate, deny, or postpone a
registration application, which often requires additional research into
the entity and its control persons, outreach to the applicant for
additional information or clarification of the application, and
consultation and coordination among Commission staff in multiple
divisions and offices related to legal, regulatory, and other issues.
Accordingly, the Commission is proposing to amend paragraphs (a) and
(b) of Rule 17ac2-1 to specify that an application for registration
would become effective 45 days after filing of the application for
registration, or any amendment to a pending application for
registration, rather than 30 days which the existing rule specifies.
This would provide the Commission with additional time to determine
whether to act on a registration application, as required by the
Exchange Act, and would enhance consistency between the rule and
statutory provision.\88\
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\88\ Exchange Act Section 17A(c)(3), 15 U.S.C. 78q-1(c)(3).
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B. Proposed Amendments to Rule 17ac2-2
The Commission is proposing to amend Rule 17ac2-2 to require that,
if a transfer agent discovers that any of the information reported on
Form TA-2 was materially inaccurate, misleading, or incomplete at the
time of filing, the transfer agent shall correct the information by
filing an amendment to Form TA-2 pursuant to the instructions on the
form to correct such information within 60 days following the date on
which the transfer agent discovered that such information was
materially inaccurate, misleading, or incomplete. The existing rule
provides that a transfer agent may file an amendment to Form TA-2 to
correct information that has become inaccurate, incomplete or
misleading; it does not require filing of the amendment, nor does it
specify a time period in which such corrections should be made.\89\ The
proposed amendment differs from the existing requirement to amend Form
TA-1 if information becomes materially inaccurate, misleading, or
incomplete. Unlike Form TA-1, Form TA-2 is used to report transfer
agent activities from the prior year reporting period and is required
to be filed annually and therefore the information disclosed on Form
TA-2 would not become inaccurate, incomplete, or misleading before the
next year's Form TA-2 is required to be filed. Instead, a transfer
agent may discover that the information on its Form TA-2 was
inaccurate, incomplete, or misleading at the time of filing and
therefore the transfer agent may need or want to amend its filing with
corrected information. Commission staff have received questions from
transfer agents regarding whether they should file a Form TA-2
amendment after discovering that certain information on their form was
inaccurate at the time of filing. This proposed amendment would address
these issues by specifying that, if the information on its Form TA-2
was materially inaccurate, incomplete, or misleading at the time of
filing, under the proposed rule, the transfer agent would be required
to amend its Form TA-2 to correct such information, within 60 days of
discovering such deficiency. The amendment would align the time frame
of 60 days for filing required amendments in Rule 17ac2-2 with Rule
17ac2-1, which requires transfer agents to file required amendments to
Form TA-1 within 60 days.\90\
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\89\ See Exchange Act Rule 17ac2-2(a), 17 CFR 240.17Ac2-2(a).
\90\ Exchange Act Rule 17ac2-1(c), 17 CFR 240.17Ac2-1(c).
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C. Proposed Amendments to Form TA-1
The Commission is proposing to amend the instructions for Form TA-1
to improve the quality of information provided in connection with
several existing questions, add new questions that would provide
additional information that ensures the form continues to support its
intended purpose, and remove two questions that are duplicative of
information required to be reported and updated annually on Form TA-2.
Table 2 below provides an overview of the proposed amendments to Form
TA-1.
Table 2--Comparison of Existing Form TA-1 Requirements With the Proposed
Amendments
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Existing Form TA-1 requirement Proposed TA-1 requirement
------------------------------------------------------------------------
1(a). Filer CIK................... Form Instructions would be updated
1(b). CCC......................... to provide full terms for
abbreviations CIK and CCC.
1(f)(i-iii). Contact Name, Phone Form and Form Instructions would be
Number, Email Address. updated to require that the
individual listed as the contact be
authorized to receive all
compliance communications for the
registrant and have responsibility
for disseminating them as
appropriate within the registrant's
organization.
3(a). Full Name of Registrant..... Form Instructions would be updated
to state that complete and accurate
legal name is required.
6. Service companies (transfer Existing Question 6 would be
agents) engaged by Registrant. removed; similar information
disclosed on Form TA-2.
[[Page 56956]]
7. Registrant engagements to act Existing Question 7 would be
as a service company. removed; similar information
disclosed on Form TA-2.
8. Form of business organization.. Checkboxes would be added for
``Limited Liability Company'' and
``Trust.''
8(a). Section for Reporting Form and Form Instructions would be
Additional Persons (Disclosure of updated to specify the individuals
owners, control persons). that must be disclosed in response
to Question 8.
11(a-d). Signature Block.......... Form would be updated to include
language regarding the Commission's
authority to examine all records of
registered transfer agents.
12. Attachments................... Attachment would be required of
organizational diagram depicting
relationship between the transfer
agent and its control affiliates.
None.............................. New Question 3(f) would require
disclosure of registrant's website
address.
None.............................. New Question 6(a) would require
disclosure of registrant's other
SEC registrations, if any.
New Question 6(b) would require
disclosure of registrant's other
federal, state, or foreign
registrations, if any.
None.............................. New Question 7 would require
disclosure of any control affiliate
of the registrant, and any federal,
state or foreign registration of
such affiliate and the registration
number.
Technical Amendments:
In Question 2, the checkbox for
Office of Thrift Supervision would
be removed.
In Question 10, references to 8(b)
and 8(c) in definition of control
affiliate would be removed.
In Signature Block, references to
SEC supplement and Schedules B-D
would be removed.
In Instructions ``Who Must File,''
threshold for Section 12(g)(1)
would be removed.
------------------------------------------------------------------------
The proposed changes to Form TA-1 are discussed more fully below.
1. Proposed Changes to Form TA-1 Instructions
The Commission is proposing to amend the instructions for use of
Form TA-1 for the questions discussed below to promote clarity
regarding the required information and to improve the quality,
consistency, and comparability of the information provided in response.
Form TA-1 Questions 1(a) and 1(b) (filer CIK and CCC, respectively)
would not change, but the form instructions would be updated to state
that ``CIK'' is an abbreviation for ``Central Index Key,'' which is the
unique number the Commission assigns to each filer to distinguish it
from other filers, including those with similar names. Similarly, the
form instructions would be updated to note that ``CCC'' is an
abbreviation for ``CIK Confirmation Code,'' which is a unique code that
each filer needs to make filings, and to retrieve and edit the filer's
data on EDGAR. Commission staff routinely receive questions from
prospective registrants regarding the meaning and importance of these
terms. Providing these clarifications would provide that information
uniformly to all potential registrants and help improve the clarity and
transparency of the form.
Form TA-1 Question 1(f) (contact name, phone number, and email
address) would not change, but the form instructions would be updated
to require that the contact listed in response to Question 1(f) must be
an individual authorized to receive all compliance communications for
the registrant with responsibility to disseminate them as appropriate
within the registrant's organization. In Commission staff's experience,
the contact information provided in response to Question 1(f) is not
always an individual with knowledge of the registration application or
the authority to speak to Commission staff regarding the application.
This can hinder the Commission staff reviewing the application from
conveying important information to the potential registrant and
obtaining information or responses necessary to continue processing the
application, and otherwise frustrate, delay, or prevent the application
review process. This proposed change is in the public interest and
would help ensure that transfer agents complete the form consistently
and accurately, and that Commission staff are able to follow up
effectively with the registrant regarding any questions on the content
of the filing or other supervisory matters, both while the registration
application is pending and on a going forward basis for as long as the
transfer agent remains registered. However, because this information
contains personally identifiable information, it is not made publicly
available on EDGAR and is only available to the Commission and its
staff.
Form TA-1 Question 3 (full name of registrant) would not change,
but the form instructions would be updated to specify that registrants
must provide the complete and accurate legal name of the entity that is
registering as a transfer agent. Because the field for Question 3 is
auto-populated based on the applicant's Form ID, applicants should
ensure that they use the complete and accurate legal name of the entity
that is registering when completing the Form ID.\91\ This information
is necessary for the Commission's review of the application to ensure
that, if the application is approved, the correct legal entity is
registered, and to ensure that investors and other members of the
public are able to identify the correct legal entity acting as a
transfer agent. In Commission staff's experience, however, prospective
registrants do not always provide this information consistently or
completely, so updating the instructions would help remind filers of
this responsibility.
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\91\ For more information on Form ID, see Rule 10 of Regulation
S-T, 17 CFR 232.10; Edgar Filer Manual Vol. I Section 3.
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Form TA-1 Questions 8-10 require disclosure of background
information for the owners and other control persons of independent,
non-issuer transfer agents, ``with a particular emphasis on whether
offenses have been committed by these persons, and therefore, whether
the transfer agent's association with a particular individual would
have an impact on the transfer agent's ability to perform its functions
properly.'' \92\ When the proposed changes were adopted in 1986, the
final amended Form TA-1 included a ``Supplement to Form TA-1'' that
required disclosure of
[[Page 56957]]
owner and control person information for different entity types on
difference schedules (i.e., corporations, partnerships, etc.), and the
form instructions provided a definition of ``control'' (e.g., C-suite
executives, general partners, etc.) for each entity type and specified
that a 25 percent or higher ownership stake qualified as control.\93\
When electronic filing was mandated in 2006, the schedules were
replaced by drop down menu items and the detailed instructions defining
control persons and level of ownership were truncated and moved to the
EDGAR Filer Manual.\94\
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\92\ Revised Transfer Agent Forms and Related Rules, Exchange
Act Release No. 21950 (Apr. 17, 1985), 50 FR 15912 (Apr. 23, 1985),
15913. When this information was first proposed to be added to Form
TA-1 in 1985, it paralleled similar questions then being added to a
revised version of Form BD and the Uniform Application for Broker-
Dealer Registration and related Form U-4 utilized by what was then
known as the National Association of Securities Dealers (now FINRA).
Id.
\93\ See Revised Transfer Agent Forms and Related Rules, supra
note 48.
\94\ See Electronic Filing of Transfer Agent Forms Release,
supra note 41, at 5; EDGAR Filer Manual, Volume II (June 2025) at 8-
185.
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In the Commission's experience since 2006, however, without
detailed instructions specifying who must be disclosed in response to
Question 8, filers do not apply a consistent definition or approach to
responding to the question, which hinders the Commission in obtaining
and evaluating this important information. Accordingly, while Form TA-1
Question 8(a) (section for reporting additional persons) would not
change, the form instructions would be updated to reintroduce the
instructions from prior iterations of the form that define control
persons for corporations and partnerships and add comparable
instructions for trusts and limited liability companies to account for
other common types of business entities that modern transfer agents
choose to take. Specifically, the instructions would specify that
registrants must provide the full names of the following owners,
executive officers, or other control persons in response to Question
8(a):
Each Chief Executive Officer, Chief Financial Officer,
Chief Operations Officer, Chief Legal Officer, Chief Compliance
Officer, director, and any other persons with similar status or
functions.
If the registrant is organized as a corporation, each
person that is a direct or indirect beneficial owner of 5% or more of
any class of the registrant's equity securities.
If the registrant is organized as a partnership, all
general partners and each limited and special partner that have
contributed 5% or more of the registrant's capital.
In the case of a trust, (i) a person that directly owns 5%
or more of a class of the registrant's voting securities, or that has
the right to receive upon dissolution, or has contributed, 5% or more
of the registrant's capital, (ii) the trust, and (iii) each trustee.
If the transfer agent is organized as a limited liability
company (``LLC''), (i) each member that has the right to receive upon
dissolution, or has contributed, 5% or more of the registrant's
capital, and (ii) if managed by elected managers, all elected managers.
In addition, the form instructions would be updated to provide
definitions for ``person'' and ``control'' to assist registrants in
responding to Question 8(a). For purposes of Form TA-1, the term
``person'' would be defined as an individual, partnership, corporation,
trust, or other organization, consistent with the definition of person
used in other Commission registration forms.\95\ The term ``control''
would be defined as the power to direct, or cause the direction of, the
management or policies of a person, whether through ownership, by
contract, or otherwise, consistent with the definition of control in
the prior iteration of Form TA-1.\96\ In addition, any person that is a
director, partner, or officer exercising executive responsibility (or
having similar status or functions) or that directly or indirectly has
the right to vote 25% or more of the voting securities or is entitled
to 25% or more of the profits would be presumed to be a control person,
as indicated in the prior iteration of Form TA-1.\97\ This information
would help to inform the Commission's understanding of the ownership
structure of the transfer agent and in identifying who ultimately
controls the transfer agent and its policies and procedures. The
information requested would also inform the Commission about any future
changes in control of the transfer agent, given the requirement to
amend Form TA-1 whenever any reported information becomes inaccurate,
misleading, or incomplete. This information is critical, both to the
Commission's assessment of the registration application, and to its
ongoing supervision of the registered transfer agent for the duration
of the transfer agent's registration, because it will allow the
Commission to better understand, for example, potential conflicts,
concentration in the industry, and the potential disciplinary history
of control persons.
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\95\ The proposed definition of ``person'' is consistent with
the definition of ``person'' used for broker-dealers required to
register on Form BD, investment advisers required to register on
Form ADV, municipal advisors required to register on Form MA, and
funding portals required to register on Form Funding Portal. See 17
CFR 249.501, 17 CFR 279.1, 17 CFR 249.1300, and 17 CFR 249.2000.
\96\ See Revised Transfer Agent Forms and Related Rules, supra
note 48.
\97\ See id.
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Form TA-1 Question 11 (signature block) would not change, but the
form would be updated with a statement regarding the Commission's
authority to examine all records of registered transfer agents pursuant
to Section 17(b) of the Exchange Act.\98\ In the Commission's
experience, certain transfer agents are unaware of their obligation to
permit examination of the transfer agent's records pursuant to Section
17(b) of the Exchange Act, and therefore refuse to produce records
requested in connection with an examination or attempt to limit the
records they produce in response to records requests from Commission
staff. A transfer agent's refusal to permit examination of records
clearly within the scope of Section 17(b) of the Exchange Act
frustrates and delays examinations and hinders the Commission's ability
to carry out its regulatory and oversight responsibilities. Including
language on the Form TA-1 reminding transfer agents of their statutory
obligation to permit examination of their records should help ensure
that transfer agents are aware of their statutory obligations and could
help reduce instances of non-compliance. Accordingly, the proposed
statement preceding a registrant's signature would be as follows:
``Pursuant to Section 17(b) of the Securities Exchange Act of 1934, all
records of registered transfer agents are subject to examination by SEC
staff. If a registered transfer agent does not comply with Section
17(b), the Commission may seek all available relief against that
transfer agent in district court and/or an administrative proceeding.
Such relief includes, but is not limited to, an injunction, denial,
suspension, and/or revocation of registration, and civil penalties. The
registrant submitting this Form, and the person signing the Form,
acknowledge that they understand and will comply with the requirement
to make records available for examination. If, at any point, the firm
believes it is unable to comply with its obligations to provide its
records to SEC staff for examination, the firm should consider whether
it needs to withdraw from registration.''
[[Page 56958]]
With this language on the form, each time an officer of the transfer
agent signs Form TA-1 (either the initial filing or an amendment), they
would be acknowledging that they understand, and will comply with, the
obligation of the registered transfer agent to provide records to the
Commission upon request.
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\98\ Section 17(b) of the Exchange Act provides that ``All
records of persons described in subsection (a) of this section
[i.e., transfer agents] are subject at any time, or from time to
time, to such reasonable, periodic, special, or other examinations
by representatives of the Commission and the [appropriate ARA] as
the Commission [or the appropriate ARA] deems necessary or
appropriate in the public interest, for the protection of investors,
or otherwise in furtherance of the purposes of this chapter.''
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2. Proposed Changes to Form TA-1 Reporting Requirements
The Commission is proposing to amend Form TA-1 to remove two
existing questions regarding service company arrangements and to add
questions requiring registrants to report additional information, as
described more fully below.
Form TA-1 would be amended to remove existing Questions 6 and 7
regarding registrant service company arrangements as this information
is duplicative of information that is required to be disclosed and
updated annually in response to Question 2 on Form TA-2. The
corresponding instructions related to existing Questions 6 and 7 would
also be removed. As a result, a transfer agent's service company
arrangements would not be disclosed on Form TA-1 (but would be
disclosed and updated annually on Form TA-2). Given the requirement in
Rule 17ac2-1(c) for transfer agents to file an amendment within 60 days
if any information on Form TA-1 becomes inaccurate, misleading, or
incomplete,\99\ the Commission also would no longer be informed within
60 days of each change in a transfer agent's service company
arrangements. However, because Form TA-2 requires registered transfer
agents to report all service company arrangements from each prior
calendar year reporting period,\100\ the Commission will receive an
annual summary of these arrangements on Form TA-2 by the filing
deadline each year. Therefore, this proposed change would not
materially impact the Commission's oversight of transfer agent
operations with respect to service company arrangements.
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\99\ Exchange Act Rule 17ac2-1(c), 17 CFR 240.17Ac2-1(c).
\100\ See Question 2 on Form TA-2 (Form for Reporting Activities
of Transfer Agents Registered Pursuant to Section 17A of the
Securities Exchange Act of 1934), 17 CFR 249b.102.
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Form TA-1 would be amended to add new Question 3(f), which would
require disclosure of the registrant's website address. A website
address would assist the Commission in evaluating applications for
registration and in overseeing registered transfer agents.
Form TA-1 would also be amended to add new Question 6(a) regarding
the applicant's other registrations with the Commission, new Question
6(b) regarding the applicant's other federal, state, or foreign
registrations, and new Question 7 regarding the applicant's control
affiliates. Existing Questions 8 and 9 require disclosure of the
applicant's control persons, and Question 10 requires the applicant to
disclose whether it or any of its control persons or control affiliates
has been subject to investment-related criminal prosecutions,
regulatory actions, or civil actions. The definition of control
affiliate is broad and includes, among other things, an individual or
firm that is under common control with the applicant.\101\ As a result,
the disciplinary history for transfer agents that are part of a larger
corporate family of registered entities can include information related
to multiple entities that are registered with the Commission or other
regulators in different capacities. For example, if a transfer agent's
parent company also controls a bank, a broker-dealer, and an investment
adviser, the transfer agent's Form TA-1 needs to include the
disciplinary history for the affiliated bank, broker-dealer, and
investment adviser in response to Question 10. However, in the
Commission's experience, transfer agent applicants do not always
provide full and complete information regarding control person and
control affiliate disciplinary history when completing the Form TA-1.
This then requires the Commission staff reviewing the application to
either manually search for other registrations--a laborious undertaking
\102\--or risk processing the application with incomplete or inaccurate
information. This could be addressed by including information on the
Form TA-1 regarding the registrant's additional registrations and
registration numbers, which would allow the Commission staff reviewing
an application to cross-reference the applicant's other registrations
without either relying on the registrant to accurately and timely
update or complete its other registrations, or conduct a laborious and
time-consuming manual search. This in turn would facilitate the
Commission's ability to evaluate and act on transfer agent registration
applications within the limited time permitted under the Exchange
Act.\103\
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\101\ SEC Form TA-1, Question 10, 17 CFR 249b.100.
\102\ For example, there could be a slight variation in the
entity's or an individual's name across different registration
applications that could hinder a manual search or call the results
into question.
\103\ A Form TA-1 registration automatically becomes effective
30 days after filing unless the Commission takes affirmative action
to accelerate, deny, or postpone the registration in accordance with
the provisions of Section 17A(c) of the Act. Exchange Act Rule
17Ac2-1(a), 17 CFR 240.17Ac2-1(a). As noted, we are proposing to
amend Rule 17Ac2-1(a) to specify that registration would become
effective 45 days after filing. See supra Section II.A.
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Accordingly, the Commission is proposing to amend Form TA-1 to add
new Question 6(a), which would require applicants to disclose any other
SEC registrations they hold, along with the corresponding SEC
registration number. Similarly, new Question 6(b) would require
registrants to disclose any other federal, state, or foreign
registrations of the registrant, along with the associated registration
number, if any. This information is similar to registration information
requested of other Commission registrants,\104\ should be readily
available to the registrant and easily listed on the Form TA-1 and
would allow the Commission to cross-reference those entities applying
for registration as transfer agents with those that are already
registered in another capacity with the Commission or another regulator
without conducting a laborious and potentially inaccurate manual search
for such registrations. This, in turn, would help ensure that the
Commission has accurate and complete information to develop a
comprehensive assessment of the applicant's control person and control
affiliate disciplinary history across the full range of its regulated
activities, which is necessary for the Commission to understand and
assess the risks to investors, the securities markets, and the national
clearance and settlement system posed by those persons, affiliates, and
activities, which is consistent with promoting investor protection. It
also would facilitate more efficient and effective examinations of
transfer agents that are also registered in other capacities and
develop a more comprehensive understanding of both individual transfer
agents and the transfer agent industry as a whole.
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\104\ See, e.g., Form MA and Form Funding Portal, 17 CFR
249.1300 and 17 CFR 249.2000.
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Likewise, requiring the applicant to affirmatively identify its
control affiliates in new Question 7 (as opposed to simply asking for
the disciplinary history of its control affiliates) would allow the
Commission to cross-check and validate applicant's disciplinary
disclosures provided in response to Question 10 without relying
exclusively on the applicant to provide a complete and accurate list of
its control affiliates'
[[Page 56959]]
disciplinary history, which would have the same benefits as new
Questions 6(a) and 6(b) discussed above, including facilitating the
Commission's ability to evaluate and act on transfer agent registration
applications within the limited time permitted under the Exchange Act.
Accordingly, the Commission is proposing to add new Question 7 to Form
TA-1, which would supplement the existing requirement to disclose the
disciplinary history for the applicant's control affiliates by
requiring applicants to disclose in new Schedule A the name of any
control affiliate, and any federal, state, or foreign registration of
such control affiliate and the associated registration number.
In addition, Form TA-1 Question 12 would be amended to require a
registrant to file an attachment to Form TA-1 containing a diagram
depicting the relationship between the transfer agent and the control
affiliates in its organizational structure. Transfer agents should be
able to prepare an organizational chart suited to their operational
structure, and limiting the chart to control affiliates would ensure
the chart includes only the most relevant individuals or firms that
would aid the Commission in understanding the nature of a transfer
agent's regulated business operations and overall organizational
control structure. This would enhance the Commission's ability to
evaluate applications for registration as transfer agents, facilitate
more efficient and effective examinations of transfer agents, and
develop a more comprehensive understanding of both individual transfer
agents and the transfer agent industry as a whole. In the Commission's
experience, an accurate organization chart is often necessary to
understand the structure of an organization and its affiliates,
especially large organizations with many affiliates. This information
will help to ensure that the Commission has accurate and complete
information regarding a transfer agent's control structure, which would
help the Commission understand and assess the risks to investors, the
securities markets, and the national clearance and settlement system
posed by the transfer agent and its control persons and affiliates,
consistent with investor protection.
Form TA-1 Question 8 (form of organization) would be amended to
provide checkboxes for two additional organization types: trusts and
limited liability companies. Currently Question 8 provides the
following checkboxes: Corporation, Partnership, Sole Proprietorship,
Other, and Not Applicable. The Commission has observed that many
transfer agents are organized as trusts or limited liability companies
and adding these additional checkboxes to Form TA-1 would aid
registrants in responding to Question 8.
3. Technical Amendments to Form TA-1
The Commission is also proposing to make several technical
amendments to Form TA-1 to remove information that is no longer
necessary or accurate. Specifically, the option to select the Office of
Thrift Supervision in Question 2 as an appropriate regulatory agency
would be removed, as this agency has been abolished.\105\ The
definition of control affiliate in Question 10 would be amended to
remove references to Questions 8(b) and 8(c), as those questions do not
exist on Form TA-1. Similarly, the reference to the SEC supplement and
Schedules B-D preceding the Form TA-1's signature block would be
removed, as those items are no longer part of Form TA-1. Finally, the
Form TA-1 instructions would be amended to remove outdated asset and
holder thresholds under Section 12(g)(1) of the Exchange Act for exempt
equity securities.
---------------------------------------------------------------------------
\105\ Dodd-Frank Wall Street Reform and Consumer Protection
Act., Public Law 111-203, 313, 124 Stat. 1376, 1523 (2010).
---------------------------------------------------------------------------
4. Request for Comment
The Commission requests comments on all aspects of the proposed
amendments to Form TA-1. In particular, the Commission requests
comments on the following:
1. Should the proposed 45 day effectiveness period apply uniformly
to all transfer agent applications for registration regardless of size,
complexity, or type of activities engaged in?
2. Should the Commission require less information to be disclosed
on Form TA-1? Are there any specific questions or categories of
information on the existing form that registrants believe are no longer
necessary or useful to the Commission?
3. Should the Commission require transfer agents to designate more
than one contact person on Form TA-1 to ensure continuity of compliance
communications in the event the primary contact is unavailable?
4. Should the Commission require transfer agents to update their
contact information more frequently than currently required, given the
importance of maintaining current and accurate contact information for
compliance communications? If so, what update frequency should be
appropriate?
5. Does the service company information required to be disclosed on
Form TA-2 provide the Commission with sufficient information regarding
service company arrangements? Is there any additional information the
Commission should require transfer agents to disclose on Form TA-1 or
Form TA-2 regarding service company arrangements?
6. While registrants must disclose on Form TA-1 whether they or any
of their control affiliates have been subject to criminal prosecution
for investment related crimes, should this requirement be expanded to
cover other types of criminal activity, such as theft or fraud outside
of an investment context?
7. Should the Commission require all registrants to provide an
attachment to their Form TA-1 with a diagram depicting the control
affiliates in their organizational structure, or should the Commission
provide an exemption from this requirement for small or less
organizationally complex transfer agents? If so, what types of transfer
agents should be exempt from the requirement to provide an
organizational diagram?
8. More generally, does the proposed requirement to provide an
attachment to the Form TA-1 with a diagram depicting their
organizational structure impose a burden on any particular types of
transfer agents?
9. Are the proposed checkboxes for ``Limited Liability Company''
and ``Trust'' as additional organization types in Question 8 sufficient
to capture the full range of organizational structures used by transfer
agents? Are there other organizational structures that should be added
to the list of checkboxes?
10. Do the proposed definitions for ``control'' and ``person''
adequately cover the appropriate individuals and entities that should
be disclosed on Form TA-1, or are the proposed definitions either too
expansive or, conversely, too limited? Should the Commission consider
alternative definitions or thresholds for determining who qualifies as
a control person for purposes of Form TA-1?
11. Is any information that would be required by the proposed
changes to Form TA-1 difficult for a transfer agent to provide? If so,
why? Are there alternative approaches to collecting the same
information that would be less burdensome for transfer agents, such as
providing this information upon request, while still providing the
Commission with the information it needs?
12. Should any information that would be required by the proposed
changes to Form TA-1 (other than the
[[Page 56960]]
personal name and contact information in Question 1(f)) not be publicly
disclosed?
D. Proposed Amendments to Form TA-2
The Commission is proposing to update the form instructions for
several questions on Form TA-2 to further explain the required
information. Additionally, the Commission is proposing to introduce new
requirements to provide additional information that the Commission
considers important for determining the nature of the business
conducted by transfer agents, monitoring their activities, evaluating
compliance with Commission rules, informing Commission transfer agent
policymaking, and supporting the Commission's statutory duty to
facilitate the establishment of a national clearance and settlement
system for the prompt and accurate clearance and settlement of
transactions in securities.\106\ The Commission is also proposing to
eliminate questions that would no longer be necessary if the proposed
changes to Form TA-2 are adopted. Table 3 provides an overview of the
proposed amendments to Form TA-2.
---------------------------------------------------------------------------
\106\ See 15 U.S.C. 78q-1(a)(2).
Table 3--Comparison of Existing Form TA-2 Requirements With the Proposed
Amendments
------------------------------------------------------------------------
Existing Form TA-2 requirements Proposed Form TA-2 requirements
------------------------------------------------------------------------
1(a). Filer CIK...................... Form Instructions would be
1(b). Filer CCC...................... updated to provide full terms
for abbreviations CIK and CCC.
1(f)(i-iii). Contact Name, Contact Form and Form Instructions would
Phone Number, Contact Email Address. be updated to require that the
individual listed as the contact
employee be authorized to
receive all compliance
communications for the
registrant and have
responsibility for disseminating
them as appropriate within the
registrant's organization.
4(b). Number of individual Form Instructions would be
securityholder accounts for which updated with information
the TA maintained master regarding how to count the
securityholder files. number of individual
securityholder accounts.
5(a). Total number of individual Existing Question 5 would be
securityholder accounts, including removed.
accounts in the DRS, dividend New Question 4(c) would require
reinvestment plans, and/or direct registrant to provide the total
purchase plans as of December 31. number of individual
securityholder accounts by
security type in a new table.
5(b). Number of individual
securityholder dividend reinvestment
plan, and/or direct purchase plan
accounts as of December 31.
5(c). Number of individual .................................
securityholder DRS accounts as of
December 31.
5(d). Approximate percentage of .................................
individual securityholder accounts
from subsection (a) in the following
categories as of December 31: 5(d)(i-
vi).
6. Number of securities issues for Existing Question 6 would be
which Registrant acted in the removed.
following capacities, as of December New Question 6(a) would require
31:. registrant to provide similar
data in a new table.
6(a). Receives items for transfer and
maintains master securityholder
files.
6(b). Receives items for transfer but .................................
does not maintain the master
securityholder files.
6(c). Does not receive items for .................................
transfer but maintains master
securityholder files.
7(a). Number of issues for which Existing Question 7(a) and 7(b)
dividend reinvestment plan, and/or would be incorporated into new
direct purchase plan services were Question 6(a).
provided, as of December 31.
7(b). Number of issues for which DRS .................................
services were provided, as of
December 31.
7(c). Dividend disbursement and Registrant would be required to
interest paying agent activities report the number of issues for
conducted during the reporting which paying agent services were
period:. provided as of December 31 in
Number of issues (Question new Question 6(a).
7(c)(i)).. New Question 7 would require
Amount (in dollars) registrant to report all fund
(Question 7(c)(ii)).. movements to/from
securityholders as well as in-
kind distributions to
securityholders (not just
dividend and interest
disbursements).
9(a)(i-ii). Turnaround Compliance.... Question 9 would be revised to
Number of months during the conform to Proposed Rule 17ad-2.
reporting period Registrant was not Registrant would be required to
in compliance with the turnaround report the total number of
time for routine items (Question routine items it received during
9(a)(i)). the reporting period and the
Number of written notices number of routine items it
Registrant filed during the failed to turn around or process
reporting period to report its within the shorter of one
noncompliance with the turnaround business day or the time period
time for routine items (Question specified by Rule 15c6-1(a) of
9(a)(ii)). the Exchange Act for each month
of the reporting period.
13(a-e). Related Documents/ Attachment would be required for
Attachments. a list of all issues serviced by
registrant.
None................................. New Questions 4(d) and (e) would
require registrant to report on
usage of physical certificates
and distributed ledger
technology during the reporting
period.
None................................. New Question 5(a) would require
registrant to report the number
of employees engaged in transfer
agent functions or activities
incidental thereto during the
reporting period.
None................................. New Question 5(b) would require
registrant to report certain
service providers used during
the reporting period.
None................................. New Question 6(b) would require
registrant to report the number
of issues, by tokenization
model, serviced by the
registrant as of December 31.
------------------------------------------------------------------------
The proposed changes to Form TA-2 are discussed more fully below.
1. Proposed Changes to Form TA-2 Instructions
The Commission is proposing to amend the instructions for use of
Form TA-2 for the questions discussed below to provide specificity
regarding the required information and to improve the quality,
consistency, and comparability of the information provided in response.
Form TA-2 Questions 1(a) and 1(b) (filer CIK and CCC, respectively)
would not change, but the form instructions would be updated to state
that ``CIK'' is an abbreviation for ``Central Index Key.'' Similarly,
the form instructions would be updated to note that ``CCC'' is an
abbreviation for ``CIK Confirmation Code.'' As with Form TA-1 described
above, Commission staff routinely receive questions from registrants
regarding the meaning and importance
[[Page 56961]]
of these terms. Providing these clarifications would provide that
information uniformly to all registrants. It would also help improve
the clarity and transparency of the form, thereby decreasing the amount
of time it takes for registrants to complete the form.
Form TA-2 Question 1(f) (contact name, phone number, and email
address) would not change, but the form instructions would be updated
to require that the contact listed in response to Question 1(f) must be
an individual authorized to receive all compliance communications for
the registrant with responsibility to disseminate them as appropriate
within the registrant's organization. As with Form TA-1, in Commission
staff's experience, the contact information provided in response to
Question 1(f) is not always an individual with knowledge of the annual
report or the authority to speak to Commission staff regarding the
annual report. This can hinder the Commission staff reviewing the
annual report from conveying important information to the registrant or
obtaining information in response to questions regarding the annual
report. This proposed change would help ensure that transfer agents
complete the form consistently and accurately, and that Commission
staff are able to follow up effectively with the registrant regarding
any questions on the content of the annual report or other supervisory
matters that arise while the transfer agent remains registered.
Moreover, not having up-to-date contact information for an
appropriately authorized individual could impede the Commission in
carrying out its regulatory and oversight responsibilities with respect
to transfer agents. However, because this information contains
personally identifiable information, it is not made publicly available
on EDGAR and is only available to the Commission and its staff.
Form TA-2 Question 4(b) (number of individual securityholder
accounts for which the transfer agent maintained master securityholder
files) would not change, but the form instructions would be updated to
provide instructions regarding how to calculate the number of
individual securityholder accounts. Based on the Commission's
supervisory experience, the Commission understands that there is
variability in the way registered transfer agents calculate the number
of individual securityholder accounts reported in response to Question
4(b), which hinders the Commission's ability to gather and analyze
accurate and comparable information. This proposed change to the form
instructions would help ensure consistently accurate reporting of the
number of individual securityholder accounts, based upon the same
calculation methodology, which should, in turn, support investor
protection and market integrity by ensuring that the Commission has an
accurate understanding of the market. Therefore, the Commission
proposes to provide instructions for transfer agents regarding the
calculation methodology that considers both the number of securities
issues as well as the number of securityholders for the issue. For
purposes of Question 4(b), the number of individual securityholder
accounts for each securities issue should be determined separately and
then added together to arrive at the number reported in response to
Question 4(b). For example, if the transfer agent maintains the master
securityholder file for two securities, one with five individual
securityholders and the other with the same five securityholders, the
transfer agent should report 10 in response to Question 4(b). Any
identical securityholders for the two securities should be counted
separately for each issue for purposes of responding to Question 4(b).
2. Proposed Changes to Form TA-2 Reporting Requirements
The Commission is proposing to amend Form TA-2 in several ways that
would provide the Commission with information regarding a transfer
agent's staffing, securityholders, service providers, recordkeeping,
and handling of funds. These proposed changes, as described below,
would further support the Commission's statutory mandate to protect
investors, promote the prompt and accurate clearance and settlement of
securities transactions, and promote the safeguarding of funds and
securities by enhancing oversight of a transfer agent's operational
capacity, operational risks, recordkeeping practices, and outsourcing
risks.\107\
---------------------------------------------------------------------------
\107\ Exchange Act Section 17A(a)(2)(A), 15 U.S.C. 78q-
1(a)(2)(A).
---------------------------------------------------------------------------
a. Number of Individual Securityholder Accounts
Accurate and relevant data regarding the specific types and volume
of securities accounts serviced by a transfer agent is critical to the
Commission's assessment and oversight of a transfer agent's operational
capacity, recordkeeping practices, operational risks, and safeguarding
practices. Existing Form TA-2 Questions 5(a)--(d) require disclosure of
the total number of individual securityholder accounts, individual
securityholder DRS accounts, individual securityholder dividend
reinvestment plan and/or direct purchase plan accounts, and approximate
percentages of individual securityholder accounts in various security
type categories, as of December 31. To ensure that the data provided on
Form TA-2 is relevant to the types and volume of securities accounts
serviced by modern transfer agents and therefore continues to support
the Commission's statutory duties related to the oversight of
registered transfer agents, Questions 5(a)-(d) would be removed along
with the corresponding form instructions and replaced with proposed new
Question 4(c). As depicted in Figure 1 below, proposed new Question
4(c) would require registrants to report the total number of individual
securityholder accounts, by security type, as of December 31. Proposed
Question 4(c) is similar to existing Question 5(d), but proposed
Question 4(c) would require the total number of individual
securityholder accounts by security type, as opposed to the approximate
percentage of individual securityholder accounts by security type,
which should be more readily available and would avoid the need for
registrants to perform a percentage calculation. In addition, proposed
Question 4(c) would provide more granular security types than existing
Question 5(d) by including categories for corporate equity securities
at two different market capitalization levels, exchange traded funds,
and closed end investment company securities, as transfer agent
activities, operational risks, recordkeeping practices, and
safeguarding activities may vary depending on the type of security
being serviced.
The security types provided in the table would include corporate
equity securities with market capitalization less than or equal to $300
million, corporate equity securities with market capitalization greater
than $300 million, corporate debt securities, non-exchange traded open-
end investment company securities, exchange-traded funds, closed end
investment company securities, limited partnership securities,
municipal debt securities, and other securities. The number of
individual securityholder accounts in DRS, dividend reinvestment plans,
or direct purchase plans required by Questions 5(b) and (c) are
proposed to be deleted and would no longer be required. As subsets of
the total number of individual securityholder accounts, those
subcategories are not necessary given the requirement in Form TA-2 to
[[Page 56962]]
report the number of issues for which DRS, dividend reinvestment plan,
or direct purchase plan services were provided in existing Question 7.
Figure 1: Proposed Question 4(c) Regarding Individual Securityholder
Accounts
4(c). Provide the total number of individual securityholder
accounts, by security type, as of December 31:
------------------------------------------------------------------------
Total number of individual
Security type securityholder accounts (as
of December 31)
------------------------------------------------------------------------
Corporate Equity Securities (market cap
<=$300 million)..........................
Corporate Equity Securities (market cap
>$300 million)...........................
Corporate Debt Securities.................
Non-Exchange Traded Open End Investment
Company Securities.......................
Exchange-Traded Funds.....................
Closed End Investment Company Securities..
Limited Partnership Securities............
Municipal Debt Securities.................
Other Securities..........................
-----------------------------
Total.................................
------------------------------------------------------------------------
b. Number of Issues by Activity Type
Existing Form TA-2 Question 6 (number of securities issues for
which Registrant received items and/or maintained the master
securityholder files, broken down by various security types) would be
removed and replaced with proposed new Question 6(a) which would
request similar information but would also incorporate the transfer
agent activity types from Question 7 and include more granular security
types than existing Question 6. Proposed Question 6(a) would add
security type categories for corporate equity securities at two
different market capitalization levels, exchange-traded funds, and
closed end investment company securities, as transfer agent activities,
operational risks, recordkeeping practices, and safeguarding activities
may vary depending on the type of security being serviced.
Specifically, as depicted in Figure 2 below, registrants would be
required to report the following data as of December 31 in a new table
categorized by security type: the number of securities issues for which
the transfer agent (i) received items for transfer, (ii) maintained the
master securityholder file(s), (iii) provided DRS services, (iv)
provided direct purchase plan services, (v) provided dividend
reinvestment plan services, and (vi) provided paying agent services.
The security types provided in the table include corporate equity
securities with market capitalization less than or equal to $300
million, corporate equity securities with market capitalization greater
than $300 million, corporate debt securities, non-exchange traded open-
end investment company securities, exchange-traded funds, closed end
investment company securities, limited partnership securities,
municipal debt securities, and other securities. These proposed
revisions to Question 6 would incorporate the content of Question 7(a)
regarding the number of issues for which dividend reinvestment plan
and/or direct purchase plan services were provided as of December 31,
Question 7(b) regarding the number of issues for which DRS services
were provided as of December 31, and Question 7(c)(i) regarding the
number of issues for which dividend disbursement and interest paying
agent activities were conducted during the reporting period and thus,
those questions would be removed. Dividend disbursement and interest
paying agent activities would be included with other paying agent
services in a single column in proposed Question 6(a).
Figure 2: Table for Proposed Question 6(a)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of issues for which registrant provided the following services (as of December
31)
----------------------------------------------------------------------------------------
Provided Provided
Security type Received Maintained Direct Direct Provided Provided
items for master Registration Purchase dividend paying agent
transfer securityholder System (DRS) Plan (DPP) reinvestment services
file(s) services services services
--------------------------------------------------------------------------------------------------------------------------------------------------------
Corporate Equity Securities (market cap <=$300 million)........
Corporate Equity Securities (market cap >$300 million).........
Corporate Debt Securities......................................
Non-Exchange Traded Open End Investment Company Securities.....
Exchange-Traded Funds..........................................
Closed End Investment Company Securities.......................
Limited Partnership Securities.................................
Municipal Debt Securities......................................
Other Securities...............................................
----------------------------------------------------------------------------------------
Total......................................................
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 56963]]
c. Handling of Securityholder Funds and Securities
Form TA-2 Question 7(c)(ii) (amount in dollars of dividend
disbursement and interest paying agent activities conducted during the
reporting period) would be replaced by proposed new Question 7 which is
designed to capture all money movement through a transfer agent to or
from securityholders, not just dividend disbursements and interest
payments as required by existing Question 7(c)(ii), as well as any in-
kind distribution activity. Specifically, registrants would be required
to report the amount (in dollars) of dividend disbursements, interest
or coupon payments, principal payments, disbursements in connection
with corporate actions, open-end investment company purchases and
redemptions, stock purchases, and any other monetary inflows or
disbursements, as well as the amount (in units) of any in-kind
distributions to securityholders during the reporting period. These
proposed changes would contradict the form's existing instructions for
answering Question 7(c),\108\ so those instructions would be removed.
Requiring transfer agents to report more detailed information regarding
the nature and extent of their handling of securityholder funds would
provide the Commission with data relevant to assess safeguarding risks
across the transfer agent population as a whole and at individual
transfer agents. This information would further support the
Commission's statutory mandate to protect investors, promote the prompt
and accurate clearance and settlement of securities transactions, and
promote the safeguarding of funds and securities.
---------------------------------------------------------------------------
\108\ The existing instructions for Form TA-2 Question 7.c.
direct registrants to exclude coupon payments and transfers of
record ownership as a result of corporate actions.
---------------------------------------------------------------------------
d. Turnaround Performance
Form TA-2 Question 9 (turnaround compliance) would be removed in
its entirety due to the proposed changes to Rule 17ad-2 discussed in
Section III.D. Existing Form TA-2 Question 9(a)(i) requires a
registrant to report the number of months during the reporting period
it was not in compliance with the turnaround time for routine items
according to Rule 17ad-2, while existing Question 9(a)(ii) requires a
registrant to report the number of written notices filed during the
reporting period with the SEC and with its ARA regarding noncompliance
with the turnaround time for routine items according to Rule 17ad-
2.\109\ Instead, proposed new Question 9(a) would require registrants
to report the total number of routine items received during the
reporting period, and proposed new Question 9(b) would require
registrants to report the number of routine items that were not turned
around or processed within the shorter of one business day or the time
period specified by Rule 15c6-1(a) of the Exchange Act for each month
of the reporting period. These proposed new questions would align the
reporting requirements on Form TA-2 with the proposed changes to Rule
17ad-2 regarding turnaround and processing performance.
---------------------------------------------------------------------------
\109\ 17 CFR 249b.102.
---------------------------------------------------------------------------
3. Proposed Additions to Form TA-2 Reporting Requirements
New Questions would be added to Form TA-2 to require registrants to
report the following information, as accurate data in these areas is
important for the Commission's assessment and oversight of a transfer
agent's operational capacity, recordkeeping practices, operational
risks, and safeguarding practices:
The number of issues serviced by the registrant for which
physical certificates were in use during the reporting period in new
Question 4(d);
The number of issues for which the registrant maintained
the master securityholder file using distributed ledger technology
during the reporting period in new Question 4(e);
The number of employees engaged in transfer agent
functions or activities incidental thereto during the reporting period
in new Question 5(a);
The types of service providers used by the registrant
during the reporting period using a check-the-box format along with the
name of the service provider(s) that directly supports the performance
of transfer agent functions using a fill-in-the-blank format in new
Question 5(b);
The number of issues, by tokenization model, serviced by
the registrant as of December 31 in new Question 6(b); and
A list of issues serviced by the registrant as of December
31 of the reporting period.
a. Certificates and Distributed Ledger Technology
The Commission is proposing to add new Question 4(d) to the Form
TA-2 to require registered transfer agents to report the number of
issues for which physical certificates were in use during the reporting
period and new Question 4(e) to require registered transfer agents to
report the number of issues for which distributed ledger technology was
used to maintain the master securityholder file during the reporting
period. The risks associated with safeguarding physical securities
certificates are vastly different than the risks associated with
safeguarding book-entry securities or tokenized securities, and
accurate data in this area is important for the Commission's assessment
and oversight of a transfer agent's recordkeeping practices,
operational risks, and safeguarding practices.
b. Staffing Information
The Commission is proposing to add a new question to the Form TA-2
to require registered transfer agents to report the number of employees
engaged in transfer agent functions (as defined in section 3(a)(25) of
the Exchange Act) or activities incidental thereto during the reporting
period. The individuals engaging in transfer agent functions or
activities incidental thereto are subject to Exchange Act Rule 17f-2
regarding fingerprinting of securities industry personnel, cannot claim
the exemption to the fingerprinting requirement in Rule 17f-
2(a)(1)(ii), and are often responsible for interfacing with
securityholders, handling sensitive securityholder information,
completing transfers of securities, and processing various types of
payments from issuers to securityholders. Accurate transfer agent
staffing data will help to ensure that the information provided on Form
TA-2 is relevant to the operational capacity and operational risks of
modern transfer agents, would be comparable across the transfer agent
population and therefore would continue to support the Commission's
statutory duties related to the oversight of transfer agents. This
information would further support the Commission's statutory mandate to
protect investors, promote the prompt and accurate clearance and
settlement of securities transactions, and promote the safeguarding of
funds and securities.
c. Service Providers
Based upon its supervisory experience, the Commission has observed
that transfer agents have used service providers to help ensure the
prompt and accurate clearance and settlement of securities
transactions. The range of corporate structures and functions performed
by a registered transfer agent means that service providers can perform
a wide variety of functions. Requiring a transfer agent to provide
information about certain service providers on Form TA-2, as described
further below, would allow the Commission to better understand the
potential operational risks faced by
[[Page 56964]]
transfer agents in performing their transfer agent functions. For
example, based upon its supervisory experience, the Commission
understands that transfer agents may use third parties to provide
recordkeeping functions. In such cases, failure of the service provider
to perform its obligations due to, for example, an outage or a systems
error, would pose significant operational risks and have critical
effects on the transfer agent's ability to perform its transfer agent
functions and as such could hinder the prompt and accurate clearance
and settlement of securities transactions which the Commission is
authorized to facilitate.
Therefore, the Commission is proposing to require registered
transfer agents to identify, by name and type, on Form TA-2 certain
service providers that directly support the performance of transfer
agent functions, however this information would not be made publicly
available on EDGAR. Identification by name would allow the Commission
to assess potential operational risk across the national system of
clearance and settlement; for example, if a particular recordkeeping
service provider suffers an outage or is otherwise unable to provide
services, knowing how many transfer agents rely on that provider would
help the Commission assess the impact on the national system for the
settlement of securities transactions, and the market generally.
Identification by type would provide the Commission with better
comparability across the transfer agents that help make up the national
system of clearance and settlement, which should help inform its
oversight and responsibility for the prompt and accurate clearance and
settlement of securities transactions.
As depicted in Figure 3 below, proposed Question 5(b) would include
checkboxes for the following types of service providers that directly
support the registrant in carrying out transfer agent activities: (1)
banks, (2) escrow agents, (3) recordkeeping system providers, (4) lost
securityholder search providers, (5) printing and mailing services, (6)
call center providers, (7) tokenization agents, and (8) distributed
ledger technology platforms. Following each entry is a space for
registrants to fill-in-the-blank with the name of the service
provider(s).
Figure 3: Proposed Question 5(b) Regarding Service Providers
------------------------------------------------------------------------
-------------------------------------------------------------------------
Registrant used the following Service Providers during the Reporting
Period.
Check all that apply and provide name of service provider(s) that
directly supports the performance of transfer agent functions:
[ballot] Bank(s): ____________________________________
[ballot] Escrow Agent(s): ________________________________
[ballot] Recordkeeping System Provider(s):
_________________________________________
[ballot] Lost Securityholder Search Provider(s):
________________________________________
[ballot] Printing and Mailing Service Provider(s):
______________________________________
[ballot] Call Center Provider(s):
________________________________________
[ballot] Tokenization Agent(s):
_____________________________________________
[ballot] Distributed Ledger Technology Platform(s):
__________________________________________
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d. Tokenized Securities
As discussed above, some transfer agents play a role in developing,
issuing, and administering tokenized securities, which may present
different operational requirements and risks, recordkeeping systems,
and safeguarding controls than traditional certificated and
uncertificated securities. To ensure that the data provided on Form TA-
2 is relevant to the types and volume of securities serviced by modern
transfer agents, and therefore continues to support the Commission's
statutory duties related to oversight of transfer agents to protect
investors, promote the prompt and accurate clearance and settlement of
securities transactions, and promote the safeguarding of funds and
securities, as depicted in Figure 4 below, proposed new question 6(b)
would require registrants to report the number of issues, by
tokenization model and security type, serviced by the registrant as of
December 31. The tokenization models provided in the table would
include issuer-sponsored and third-party sponsored, as the risks to
investors differ depending on the tokenization model.\110\ The security
types provided in the table would include corporate equity securities
with market capitalization less than or equal to $300 million,
corporate equity securities with market capitalization greater than
$300 million, corporate debt securities, non-exchange traded open-end
investment company securities, exchange-traded funds, closed end
investment company securities, limited partnership securities,
municipal debt securities, and other securities.
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\110\ See Statement on Tokenized Securities, Division of
Corporation Finance, Division of Investment Management, Division of
Trading and Markets (Jan. 28, 2026), available at https://www.sec.gov/newsroom/speeches-statements/corp-fin-statement-tokenized-securities-012826-statement-tokenized-securities (stating
that, with respect to third-party sponsored tokenized securities,
the models that third parties are using to tokenize securities vary,
and the rights, obligations, and benefits associated with the crypto
asset may or may not be materially different from those of the
underlying security, the crypto asset may or may not represent an
ownership interest in or contractual obligation of the issuer of the
underlying security, and holders of the crypto asset may be exposed
to risks with respect to the third party, such as bankruptcy, to
which a holder of the underlying security would not necessarily be
exposed). That statement and any other staff statement referenced in
this release is not a rule, regulation, guidance, or statement of
the Commission, and the Commission has neither approved nor
disapproved its content. Staff statements have no legal force or
effect: they do not alter or amend applicable law, and they create
no new or additional obligations for any person.
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Figure 4: Proposed Question 6(b) Regarding Tokenized Securities
----------------------------------------------------------------------------------------------------------------
Number of issues serviced by the registrant by
tokenized security model (as of December 31)
Security type -----------------------------------------------------
Issuer-sponsored Third-party-sponsored
tokenized securities tokenized securities
----------------------------------------------------------------------------------------------------------------
Corporate Equity Securities (market cap <=$300 million)...
[[Page 56965]]
Corporate Equity Securities (market cap >$300 million)....
Corporate Debt Securities.................................
Non-Exchange Traded Open End Investment Company Securities
Exchange-Traded Funds.....................................
Closed End Investment Company Securities..................
Limited Partnership Securities............................
Municipal Debt Securities.................................
Other Securities..........................................
-----------------------------------------------------
Total.................................................
----------------------------------------------------------------------------------------------------------------
e. List of Issues Serviced
To ensure that the data provided on Form TA-2 is relevant to the
types and volume of securities serviced by modern transfer agents, and
therefore continues to support the Commission's statutory duties
related to the oversight of transfer agents, Form TA-2 Question 13
(related documents/attachments) would be amended to require registrants
to provide an attachment to their Form TA-2 with a list of issues
serviced as of December 31 of the reporting period. The list should
include, for each issue serviced, both the name of the issue and its
identification number from the master securityholder file. Under the
existing rules, the Commission does not know which transfer agent
services a particular security. Having this information on the Form TA-
2 would address this gap and enable the Commission to more efficiently
address investor questions or concerns related to their interactions
with transfer agents to further support the Commission's statutory
mandate to protect investors, promote the prompt and accurate clearance
and settlement of securities transactions, and promote the safeguarding
of funds and securities.
4. Request for Comment
The Commission requests comments on all aspects of the proposed
amendments to Form TA-2. In particular, the Commission requests
comments on the following:
13. Should the Commission amend Rule 17ac2-2 to require registered
transfer agents to file an amendment to Form TA-2 if they discover that
any of the information reported on Form TA-2 was materially inaccurate,
misleading, or incomplete at the time of filing? Should the Commission
provide a definition or examples of what would be ``materially
inaccurate, misleading, or incomplete'' in this context? How soon after
a transfer agent discovers that information reported on Form TA-2 was
materially inaccurate, misleading, or incomplete at the time of filing
should a transfer agent be required to file an amendment? Is within 60
days a sufficient amount of time, or should the Commission consider a
shorter or longer period of time?
14. Should the Commission require registered transfer agents to
report all fund movements to or from securityholders on Form TA-2 in
proposed new Question 7, rather than just dividend disbursements and
interest payments as required by the existing form? Would this broader
reporting requirement provide more useful information to the Commission
in understanding a transfer agent's operational risks related to the
safeguarding of securityholder funds?
15. Should the Commission require registered transfer agents to
report staffing information on Form TA-2, including the number of
employees engaged in transfer agent functions or activities incidental
thereto during the reporting period in new Question 5(a)? Would this
requirement fit the purpose of the Form? Or, would other data be more
appropriate to require on the Form such as volume of transactions
processed and error rates during the reporting period?
16. What additional information should the Commission require to be
reported on Form TA-2 regarding a transfer agent's recordkeeping
practices?
17. Are the specific security types and categories in proposed
Questions 4(c), 6(a), and 6(b) appropriate and sufficient to capture
the full range of securities for which transfer agents maintain
securityholder accounts? Should any security types or categories be
added, removed, or modified?
18. Is the proposed methodology for calculating the number of
individual securityholder accounts in response to Question 4(b) clear
and operationally feasible for transfer agents? Are there alternative
methodologies that would be more accurate or easier for transfer agents
to implement?
19. Are there additional types of service providers routinely used
by transfer agents that should be included in the list of service
providers in Question 5(b)? Alternatively, should any service providers
included in the proposed list in Question 5(b) not be included? To what
extent is the information that would be reported in response to
Question 5(b) duplicative of information that would be provided in
response to other questions, such as Question 4(e)?
20. Should the Commission require transfer agents to provide more
detailed information about their service provider arrangements, such as
the specific services provided or the oversight and monitoring
procedures used to manage associated risks? Alternatively, should the
Commission require disclosure of service provider arrangement
information at all, or less detailed information about their service
provider arrangements?
21. Should the Commission require transfer agents to report on the
number of issues, by tokenization model and security type, serviced by
the registrant as of December 31 in new Question 6(b)? Are the specific
tokenization models proposed appropriate, clear, operationally
feasible, and sufficient to capture the full range of tokenization
models used in connection with transfer agent activities? Should any
tokenization models be added, removed, or modified? Should the Form TA-
2 instead seek identification only of tokenized securities more
generally, as opposed to breaking the information out by tokenization
model? Would tokenized equity-linked notes be difficult for transfer
agents to categorize as issuer-sponsored or third-party sponsored in
the proposed table? If so, should the requirements of Question 6(b) be
modified or clarified? Should the Commission provide a sunset date for
[[Page 56966]]
proposed Question 6(b) and if so, what should be the trigger for such
sunset date?
22. Is any information that would be required by the proposed
changes to Form TA-2 difficult for a transfer agent to provide? If so,
why? Are there alternative approaches to collecting the same
information, such as providing this information upon request, that
would be less burdensome for transfer agents while still providing the
Commission with the information it needs to fulfill its regulatory and
oversight responsibilities?
23. Should any information not be publicly disclosed that would be
required by the proposed changes to Form TA-2?
24. Is there any additional information that the Commission should
require to be disclosed on Form TA-2, or conversely, should the
Commission require less information to be disclosed?
III. Proposed Amendments to Definitions, Processing, Recordkeeping, and
Safeguarding Rules
The Commission is proposing amendments to the definitions in Rules
17Ad-1 and 17Ad-9 to modernize the foundational terminology that
governs the processing, turnaround, recordkeeping, safeguarding, and
compliance obligations of registered transfer agents.
When the Commission originally adopted these definitions, the
securities markets operated chiefly through the transfer of securities
represented by physical certificates, and the transfer of certificated
securities was a complicated, time-intensive, manual process completed
over the course of multiple days and involving numerous in-person
deliveries to and from multiple parties. Definitions such as item,
receipt, certificate detail, deposit shipment control list, and control
book were grounded in this physical environment and designed to reflect
and address the technological and operational needs and limitations of
manual processing, paper certificates, in-person deliveries, and mail-
based communication.\111\ Today, however, the technological and
operational environment in which transfer agents operate has changed.
The Commission understands that nearly all transactions are electronic;
most securities are held in immobilized or uncertificated form; and
transfer agents receive, validate, and process instructions through
automated systems, electronic platforms, and digital communication
channels. In addition, new and rapidly developing technologies, such as
tokenized securities and distributed ledger technology, continue to
modify the environment in which transfer agents operate, even as they
present both new benefits and challenges.
---------------------------------------------------------------------------
\111\ See, e.g., Depository Shipment Control List Transfer
Instructions; Definition of Item, Exchange Act Release No. 23677
(Oct. 2, 1986), 51 FR 36547 (Oct. 14, 1986); see also Maintenance of
Accurate Securityholder Files and Safeguarding of Funds and
Securities by Registered Transfer Agents, Exchange Act Release No.
19860 (June 10, 1983), 48 FR 28231 (June 21, 1983) (``17ad-9 through
13 Adopting Release''); Prompt Transfer of Securities; Transfer
Agent Turnaround Performance Time Frame, Exchange Act Release No.
21375 (Oct. 5 1984), 49 FR 40573 (Oct. 17, 1984).
---------------------------------------------------------------------------
The prompt and accurate clearance and settlement of securities
transactions is a matter of public interest, and clearly defined terms
that accurately reflect the current operational and technological
environment in which registered transfer agents operate are necessary
to give practical effect to the Commission's oversight of registered
transfer agents and the national clearance and settlement system.\112\
As the securities markets and transfer agent operations continue to
evolve, definitions that are both grounded in statutory authority and
responsive to technological and operational change would help the
Commission to carry out its statutory responsibilities under Section
17A of the Act, including its responsibility to protect investors, to
safeguard securities and funds, and to facilitate the prompt and
accurate clearance and settlement of securities transactions in a
manner that keeps pace with the markets the Commission is charged with
overseeing.\113\ As discussed below, each of the proposed changes
discussed in this section seeks to ensure that the defined terms used
in the Commission's transfer agent rules accurately reflect the current
operational and technical environment in which transfer agents operate,
including the transition from a manual, paper-based environment to an
automated, electronic environment and beyond.
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\112\ See Exchange Act Section 3(a)(25), 15 U.S.C. 78(c)(a)(25).
\113\ See Section 17A(a)(2)(A) of the Exchange Act, 15 U.S.C.
78q-1(a)(2)(A).
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A. Amendments to Rule 17ad-1
Rule 17ad-1 defines relevant terms used throughout the rules. A
fundamental term used in the rules is ``item,'' which is the basic unit
for which the turnaround and other processing requirements apply.\114\
Other key definitions in Rule 17ad-1 are ``transfer'' and
``turnaround.'' \115\ The Commission is proposing amendments to the
definitions of the terms ``item,'' ``receipt,'' and ``routine.''
---------------------------------------------------------------------------
\114\ See Rule 17Ad-1 through 17Ad-7 Adopting Release, supra
note 50.
\115\ ``Transfer'' of a certificated security (where an outside
registrar is not involved) is the completion of all acts necessary
to cancel the certificate, issue a new one, and make it available to
the presentor, and ``turnaround'' for an item (where an outside
registrar is not involved) is completed when transfer is
accomplished. Exchange Act Rule 17ad-1(d), (e), 17 CFR 240.17Ad-
1(d), (e). The term ``outside registrar'' with respect to a transfer
item means a transfer agent which performs only the registrar
function for the certificate or certificates presented for transfer
and includes the persons performing similar functions with respect
to debt issues. Exchange Act Rule 17ad-1(b), 17 CFR 240.17Ad-1(b).
---------------------------------------------------------------------------
1. Item
Existing Rule 17ad-1(a)(1) defines the term item as: (i) A
certificate or certificates of the same issue of securities covered by
one ticket (or, if there is no ticket, presented by one presentor)
presented for transfer, or an instruction to a transfer agent which
holds securities registered in the name of the presentor to transfer or
to make available all or a portion of those securities; (ii) Each line
on a ``deposit shipment control list'' or a ``withdrawal shipment
control list'' submitted by a registered clearing agency; or (iii) In
the case of an outside registrar, each certificate to be
countersigned.\116\ The Commission proposes to amend the definition of
``item'' to include two additional subsections within the definition:
``(iv) A transfer instruction submitted to the transfer agent through a
deposit or withdrawal at custodian or functionally similar service
operated by a central securities depository; and (v) Any other transfer
instruction submitted to the transfer agent, or to an electronic system
controlled, operated, or enabled by the transfer agent, to be
accomplished without the physical issuance of certificates.'' \117\
---------------------------------------------------------------------------
\116\ Exchange Act Rule 17ad-1(a)(1), 17 CFR 240.17Ad-1(a)(1).
\117\ See proposed Rule 17ad-1(a)(1).
---------------------------------------------------------------------------
As noted, item is the basic unit for which the turnaround and other
processing requirements apply,\118\ and is an essential term used
throughout the transfer agent rules, including in other definitions
discussed in this release. The Commission is proposing to amend the
definition of item to clearly and unambiguously include instructions
relating to uncertificated securities and capture new technologies and
means of transmitting information to ensure that the technology,
platforms, and communication channels utilized by modern transfer
agents are both contemplated and permitted under the rules.
---------------------------------------------------------------------------
\118\ See Rule 17ad-1 through 17ad-7 Adopting Release, supra
note 50.
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[[Page 56967]]
These amendments would include transfer instructions submitted
through DTC's Deposit/Withdrawal at Custodian (``DWAC'') service and
other electronic systems, which the Commission understands are now the
predominant means by which securities are transferred. The proposed
amendments are also designed to capture new and novel methods by which
transfer agents may receive instructions from presentors pursuant to
the UCC.\119\ Finally, the phrase ``an electronic system controlled,
operated, or enabled by the transfer agent'' will ensure that
instructions transmitted by or through both existing technologies, such
as blockchains and other distributed ledger-based platforms and new, as
yet unforeseen technologies, are captured by the definition as proposed
to be amended. These amendments would help ensure that Rule 17ad-2's
turnaround and processing requirements apply uniformly to certificated
and uncertificated securities, regardless of the specific technology
used to issue, transfer, or custody the securities, and that new and
potential future communication channels through which transfer
instructions are or could be initiated, are contemplated under the
rule.
---------------------------------------------------------------------------
\119\ See UCC Sec. Sec. 8-107 and 8-401.
---------------------------------------------------------------------------
2. Receipt
Existing Rule 17ad-1(g) provides that ``[t]he receipt of an item or
a written inquiry or request occurs when the item or written inquiry or
request arrives at the premises at which the transfer agent performs
transfer agent functions, as defined in Section 3(a)(25) of the Act.''
\120\ While the term ``arrive'' applies to both physical and electronic
items, it reflects a focus on physical items received by transfer
agents--the transfer bundles from a bygone era discussed above--and is
out of step with the electronic instructions that constitute most items
received by modern transfer agents. Similarly, existing Rule 17ad-2(a)
specifies that ``items received at or before noon on a business day
shall be deemed to have been received at noon on that day, and items
received after noon on a business day or received on a day not a
business day shall be deemed to have been received at noon on the next
business day.'' \121\ Thus, for many years transfer agents have set up
their processing and recordkeeping systems to bifurcate each business
day for purposes of determining when items have been received and
starting the clock for turnaround. While this provision also applies
with equal force to physical and electronic items, it too reflects a
focus on physical items received by transfer agents--the transfer
bundles that, once received at a mailbox or window, needed to be picked
up, processed, and physically delivered to an appropriate workspace on
the transfer agent's premises where the various confirmations,
examinations, and checks could be conducted. Accordingly, this
provision is out of step with the electronic instructions that
constitute most items received by modern transfer agents, which are
transmitted at the speed of light and can be accessed from virtually
any computer or workstation authorized by the transfer agent.
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\120\ 17 CFR 240.17ad-1(g).
\121\ Exchange Act Rule 17ad-2(a), 17 CFR 240.17ad-2(a). Rule
17ad-2(b) includes an identical provision for items received by
transfer agents acting as an outside registrar.
---------------------------------------------------------------------------
The Commission proposes to amend the definition of ``receipt'' to
provide that receipt occurs on the business day when the item or
written inquiry or request arrives at any premises at which the
transfer agent performs transfer agent functions or, in the case of an
item or written inquiry or request submitted in electronic form, the
business day when the item or written inquiry or request is received by
the transfer agent.\122\ The proposed amendment would also provide that
if an item or written inquiry or request arrives or is received on a
non-business day, receipt is deemed to occur on the next business
day.\123\ The existing definition does not explicitly address
electronic transmissions or electronic deliveries, which are now a
common means by which transfer agents receive items and other
communications. The proposed amendment would specify that receipt of
electronic transmissions occurs when the item or communication is
received by the transfer agent, as evidenced by, for example, a time
stamp or other electronic record. The proposed amendment would also
acknowledge that arrival or receipt can occur at any premises at which
the transfer agent performs transfer agent functions, not just the
principal location, thereby reflecting the reality that many modern
transfer agents operate from multiple locations. These changes would
help ensure that the definition of receipt is clear and applicable to
the full range of methods by which transfer agents receive items and
communications in today's electronic environment.
---------------------------------------------------------------------------
\122\ See proposed Rule 17ad-1(g).
\123\ Id.
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3. Routine
Existing Rule 17ad-1(i) defines a ``routine'' item by listing eight
categories of items that are not routine, including paragraph 17ad-
1(i)(2), which specifies that ``a certificate as to which the transfer
agent has received notice of a stop order, adverse claim, or any other
restriction on transfer'' would be considered a non-routine item.\124\
The Commission is proposing to replace the reference to ``certificate''
in paragraph (i)(2) with ``security'' to ensure that the definition
applies equally to both certificated and uncertificated
securities.\125\
---------------------------------------------------------------------------
\124\ 17 CFR 240.17ad-1(i).
\125\ See proposed Rule 17ad-1(i).
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B. Amendments to Rule 17ad-9
Rule 17ad-9 \126\ defines 12 principal terms with respect to
transfer agents as used especially in Rules 17ad-10 through 17ad-13:
``certificate detail,'' ``master securityholder file,'' ``subsidiary
file,'' ``control book,'' ``credit,'' ``debit,'' ``record difference,''
``record keeping transfer agent,'' ``co-transfer agent,'' ``named
transfer agent,'' ``service company,'' and ``file.'' \127\ The
Commission is proposing amendments to all of the definitions in Rule
17ad-9 other than ``subsidiary file,'' ``co-transfer agent,'' ``named
transfer agent,'' ``service company,'' and ``file.'' The Commission is
also proposing to add three new defined terms: ``authorized
securities,'' ``transfer journal,'' and ``presentor.''
---------------------------------------------------------------------------
\126\ 17 CFR 240.17Ad-9.
\127\ See 17ad-9 through 13 Proposing Release, supra note 9.
---------------------------------------------------------------------------
1. Certificate Detail
Existing Rule 17ad-10 requires recordkeeping transfer agents to
promptly and accurately post credits and debits containing minimum and
appropriate certificate detail to the master securityholder file
whenever a security is transferred, purchased, redeemed, or
issued.\128\ The certificate detail that must be posted to the master
securityholder file is defined in existing Rule 17ad-9(a) and consists
of eight specific ``items'' of information: (1) The certificate number;
(2) The number of shares for equity securities or the principal dollar
amount for debt securities; (3) The securityholder's registration; (4)
The address of the registered securityholder; (5) The issue date of the
security; (6) The cancellation date of the security; (7) In the case of
redeemable securities of investment companies, an appropriate
description of each debit and credit (i.e., designation indicating
purchase, redemption, or
[[Page 56968]]
transfer); and (8) Any other identifying information about securities
and securityholders the transfer agent reasonably deems essential to
its recordkeeping system for the efficient and effective research of
record differences.\129\ The Commission is proposing to replace the
term ``certificate detail'' with a neutral term that can apply to any
form of security, whether certificated or uncertificated, and to amend
items one, three, four, and eight, in the definition of certificate
detail, as described more fully below.
---------------------------------------------------------------------------
\128\ 17 CFR 240.17Ad-10(a)(1).
\129\ 17 CFR 240.17Ad-9(a).
---------------------------------------------------------------------------
The Commission proposes to amend the definition of ``certificate
detail'' to reflect the securities industry's transition from a manual,
paper-based environment to an automated, electronic environment and to
ensure that the Commission's transfer agent rules appropriately reflect
and facilitate transfer agents' use of new and emerging technologies in
their recordkeeping and operations. First, given that most securities
today are uncertificated, the Commission proposes to replace the term
``certificate detail,'' which signifies the use of a paper certificate,
with the term ``position detail,'' which is a neutral term that can
apply to any form of security, whether certificated or
uncertificated.\130\ To ensure consistency throughout the rules, the
Commission proposes to make conforming changes in other rules that use
the term certificate detail as well, specifically throughout Rule 17ad-
10,\131\ as discussed in more detail below, and by amending the title
of Rule 17ad-11.\132\
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\130\ See proposed Rule 17ad-9(a).
\131\ See proposed Rule 17ad-10.
\132\ See proposed Rule 17ad-11 (amending the term ``certificate
detail'' in the title to instead refer to ``position detail'').
---------------------------------------------------------------------------
Second, the Commission is proposing to expand item one beyond
solely a certificate number for certificated securities. A certificate
number is a unique numerical identifier pre-printed on physical stock
or bond certificates used to identify the security and track ownership.
However, the Commission understands that both certificated and
uncertificated securities may also have unique alpha-numeric
identifiers, while only certificated securities specifically have
``certificate numbers.'' Under the existing definition of certificate
detail, transfer agents are not required to maintain in the master
securityholder file a unique identifier for securities. Given the
importance of being able to uniquely identify and track securities, it
is necessary and appropriate for the protection of investors to require
transfer agents to maintain a unique identifier for securities when
such a unique identifier is available. Accordingly, under the proposed
changes, item one would consist of the certificate number for
certificated securities, and for all securities, including certificated
securities, the applicable unique identifier for the security, which
could be a Committee on Uniform Securities Identification Procedures
number (CUSIP) or Financial Instrument Global Identifier number (FIGI).
With respect to the applicable unique identifier, the Commission
understands that both the CUSIP and the FIGI are standardized
identification numbers widely used for both certificated and
uncertificated securities across different asset classes, that CUSIP is
widely used with respect to U.S. exchange-traded securities, including
some tokenized securities, and FIGI can be and is used with respect to
both traditional and tokenized securities. However, the amended rule
would not mandate the use of these specific identifiers. The Commission
is aware that other unique identifiers are used, often in connection
with a specific jurisdiction or specific system,\133\ and others may be
developed in the future. The Commission is also aware that it is
possible that in some instances an uncertificated security may not have
a unique identifier. Accordingly, through this change, the position
detail maintained by transfer agents would include unique identifiers
for both certificated and, if applicable, uncertificated securities,
including tokenized securities.
---------------------------------------------------------------------------
\133\ For example, the Stock Exchange Daily Official List
(SEDOL) is used primarily in the United Kingdom and Ireland, while
the Reuters Instrument Code (RIC) is used specifically within London
Stock Exchange Group (LSEG) systems.
---------------------------------------------------------------------------
Third, the Commission is proposing to amend item three,
``registration.'' A securityholder's registration, historically
referred to the registered owner's name, as well as any relevant
formatting or titling information, such as whether the security is held
individually, jointly, in trust, by a corporate entity, etc.\134\ To
ensure that transfer agents understand the term and apply it
consistently, the Commission is proposing to replace the term
``registration'' with a description of the specific information that
constitutes ``registration,'' as noted above. Specifically, item three
would include the securityholder's full name and any other relevant
identifying, titling, or formatting information (e.g., a digital wallet
address in the case of any tokenized security; whether the security is
held individually, jointly, or in trust; whether it is held by a
natural person, a corporation, etc.) necessary to accurately identify
the specific securityholder to the exclusion of other securityholders.
Ensuring that transfer agents maintain accurate and up-to-date
registration information for registered securityholders is vital to
determine who is legally recognized as the securityholder, who is
entitled to receive distributions, proxies, issuer communications, and
corporate rights provided to the legal owner of the securities, who has
legal authority to authorize transfers, and how ownership is recorded
and validated. All recordkeeping transfer agents are also required to
comply with the lost securityholder notice and search requirements set
forth in Rule 17ad-17,\135\ which requires transfer agents to identify
and maintain certain contact information for individual
securityholders. Ensuring that transfer agents' position detail
information includes sufficient information to identify individual
securityholders to the exclusion of other securityholders would also
help recordkeeping transfer agents meet their lost securityholder
search obligations under Rule 17ad-17.
---------------------------------------------------------------------------
\134\ See 17ad-9 through 13 Proposing Release, supra note 9, at
47270.
\135\ See 17 CFR 240.17Ad-17.
---------------------------------------------------------------------------
For these same reasons, the Commission is proposing to expand item
four to include additional contact information beyond the
securityholder's physical mailing address. Specifically, under the
proposal, item four would include contact information for the
registered securityholder sufficient to enable the transfer agent to
effectively deliver securityholder communications, dividends and other
payments, legal notices, and other communications, including at a
minimum a physical mailing address. In addition to a mailing address,
such contact information could include, for example, a home phone
number, a mobile phone number, an email address, a blockchain wallet
address, or another form of communication, although the Commission
recognizes that the specific contact information for a given
securityholder could vary depending on the securityholder. For example,
a buy-and-hold investor who prefers written communications or phone
calls might only have a mailing address and home phone number, while an
investor that prefers online access and communication methods might
prefer to receive email communications or be contacted through such
investor's mobile phone number. Comprehensive and current
securityholder contact information is essential to ensure prompt and
accurate clearance and
[[Page 56969]]
settlement. Limiting the securityholder contact information maintained
by transfer agents to a physical mailing address is no longer adequate
to support the efficient functioning of a modern clearance and
settlement system that relies on electronic communications to process
securities transactions. The ability to rapidly and reliably
communicate with registered securityholders through multiple channels
enables transfer agents to fulfill their critical role within the
national clearance and settlement system, reduce settlement failures,
resolve processing discrepancies in real time, and comply with the full
range of applicable laws and regulations governing their participation
in that system, all of which directly serve protecting investors and
the broader public interest. At the same time, it is still important
for transfer agents to ensure that the contact information they
maintain for registered securityholders includes a physical mailing
address because physical mail may serve as the primary means of
communication for some securityholders and a secondary means of
communication for other securityholders, and ensuring that a physical
mailing address is part of the master securityholder file may help
recordkeeping transfer agents comply with Rule 17ad-17, which requires
recordkeeping transfer agents to exercise reasonable care to ascertain
the correct addresses for lost securityholders.\136\ Even in situations
where a transfer agent is sending correspondence to a securityholder
electronically, when that correspondence is returned as undeliverable,
having a physical mailing address may help the transfer agent to obtain
a correct electronic address for the securityholder.
---------------------------------------------------------------------------
\136\ 17 CFR 240.17Ad-17(a)(1), Exchange Act Rule 17ad-17(a)(1).
---------------------------------------------------------------------------
Finally, item eight would be expanded to include any other
identifying information about securities and securityholders the
transfer agent reasonably deems necessary to its recordkeeping,
operations, or for the efficient and effective research of record
differences.\137\ This would be an expansion of existing item eight,
which only requires identifying information the transfer agent
reasonably deems essential to its recordkeeping system for the
efficient and effective research of record differences. As with the
amendments to items three and four, these amendments would help ensure
that transfer agents have sufficient information to comply with their
obligations under the transfer agent rules, including the proposed
amendments to Rules 17ad-6 and 17ad-7 discussed herein, and the new
operational risk requirements that would be imposed in connection with
the proposed amendments to Rule 17ad-12 discussed below. Requiring that
transfer agents maintain this information also would help ensure that
the information is kept and retained in accordance with the
recordkeeping requirements that apply to transfer agents. Further, as
noted, modern transfer agents' activities go beyond the type of
ministerial recordkeeping and administrative tasks that characterized
their work when these definitions were first adopted. In addition to
identifying information about securities and securityholders the
transfer agent reasonably deems necessary to researching record
differences, modern transfer agents might maintain other information
the transfer agent reasonably deems necessary to its operations. For
example, a transfer agent may maintain information about registered
securityholders that enable the transfer agent to provide
securityholders access to an online portal that allows them to view
their holdings, initiate transactions, or download corporate
communications in lieu of receiving them in paper copy through the mail
and information needed to make payments to securityholders. Provision
of these services may involve collecting and storing specialized
information, such as passwords and other login information, necessary
to ensure the proper functioning of the transfer agent's website,
online portal, or other technology platforms. As another example, a
transfer agent providing paying agent services may need to maintain
information about registered securityholders that enable them to make
payments. It is vital that transfer agents that choose to provide
services in these ways maintain the identifying information necessary
to make them work effectively, accurately, and securely. The proposed
amendments to item eight would help ensure that a transfer agent's
position detail comprises information sufficient to meet the full scope
of its regulatory obligations under the transfer agent rules and
effectively support its provision of transfer agent services.
---------------------------------------------------------------------------
\137\ See proposed Rule 17ad-9(a).
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2. Master Securityholder File
Existing Rule 17ad-9(b) defines ``master securityholder file'' as
``the official list of individual securityholder accounts.'' \138\ The
rule further provides that ``[w]ith respect to uncertificated
securities of companies registered under the Investment Company Act of
1940 (``1940 Act''), the master securityholder file may consist of
multiple, but linked, automated files.'' \139\
---------------------------------------------------------------------------
\138\ 17 CFR 240.17Ad-9(b).
\139\ Id.
---------------------------------------------------------------------------
The Commission proposes to amend the existing definition of
``master securityholder file'' to require that it be maintained in
electronic form and to remove reference to investment company
securities, such that any master securityholder file (not just those
related to uncertificated investment company securities) may consist of
multiple linked files or systems. The amended definition would further
specify that the specific technology, systems, or files that compose
the master securityholder file are within the transfer agent's
discretion, provided the transfer agent maintains at all times
exclusive control over the master securityholder file.\140\
---------------------------------------------------------------------------
\140\ See proposed Rule 17ad-9(b).
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The master securityholder file is the authoritative record of who
owns an issuer's securities. It is the list of individual
securityholder accounts recognized by the issuer as the official list
of record owners of the issuer's securities and is intended to be
synonymous with the record referred to in state corporate law as the
``stockholder ledger'' or ``stockholder register.'' \141\ Ensuring that
it is consistently accurate and reliable is one of the core roles of a
transfer agent and fundamental to the prompt and accurate clearance and
settlement of securities transactions.
---------------------------------------------------------------------------
\141\ See 17ad-9 through 13 Adopting Release, supra note 111, at
28234.
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In adopting the definition of master securityholder file in 1983,
the Commission found that open-end investment companies commonly
maintained master securityholder files as multiple, but linked,
automated files whereas most other transfer agents did not.\142\
Specifically, the Commission noted that common industry practice among
mutual fund transfer agents at the time was to maintain a group of
three or more computer files, commonly linked by the securityholder's
account number and that, taken together, these files contained the
required certificate detail as well as other useful account
information.\143\ At the same time, the Commission noted that this was
not the practice with respect to ``other securities issues;'' rather,
industry practice at that time was to post certificate detail to a
[[Page 56970]]
single master securityholder file.\144\ The Commission stated that
``maintaining a single record containing all critical certificate and
account detail simplifies performance of transfer agent functions,
contributes to efficient transfer agent operations, and promotes the
accuracy of securityholder records.'' \145\ This supported the
Commission's decision to adopt a carve-out for uncertificated
securities of investment companies registered under the 1940 Act, but
not for other securities issues.\146\
---------------------------------------------------------------------------
\142\ See id.
\143\ Id.
\144\ Id.
\145\ Id.
\146\ Id.
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Contemporary securities industry standards and practices, chief
among them information technology standards and the efficiency,
reliability, and recoverability of electronic recordkeeping systems, no
longer warrant such a delineation. While maintaining the master
securityholder file as a single record may have promoted efficiency and
accuracy in 1983, when manual, paper-based processes were the standard,
that is not the case today.
Through its oversight of the transfer agent industry, the
Commission understands that most if not all transfer agents now
maintain their master securityholder files electronically and that
electronic recordkeeping is essential to the efficient operation of
both modern transfer agents and the national clearance and settlement
system. Compared to paper-based recordkeeping, electronic records
provide better accessibility because multiple people can access the
same record at the same time or from different locations; better
searchability using automated keyword searches and other methods not
possible with paper-based records; better security and control through
encryption, password protection, access restrictions, logical controls,
and automated audit trails that are not possible with paper-based
records; and more efficient workflows and enhanced reliability and
backup through automation, digital duplication and distribution, and
other digital tools not possible with paper-based records.\147\ To
ensure that transfer agent records can benefit from these aspects of
electronic recordkeeping compared to paper-based records given the
importance of the master securityholder file to protecting investors,
promoting the prompt and accurate clearance and settlement of
securities transactions, and promoting the safeguarding of funds and
securities, the proposed amended definition of master securityholder
file would explicitly specify that it be maintained in electronic form.
---------------------------------------------------------------------------
\147\ See Recordkeeping Requirement for Transfer Agents,
Exchange Act Release No. 44227 (Apr. 27, 2001), 66 FR 21648, 21656-
57 (May 1, 2021) (discussing the benefits associated with transfer
agents adopting electronic recordkeeping).
---------------------------------------------------------------------------
Further, because the existing definition only permits the master
securityholder file to consist of ``multiple, but linked, automated
files'' with respect to uncertificated securities of companies
registered under the 1940 Act,\148\ the proposed amendments also would
remove the distinction between investment company securities and other
securities to permit transfer agents to maintain their master
securityholder files in multiple, linked files or systems with respect
to all securities, not just investment company securities. This
proposed expansion would make the definition both technology and format
neutral while continuing to facilitate the maintenance of an accurate
master securityholder file which, in turn, supports the prompt and
accurate clearance and settlement of securities transactions and the
safeguarding of funds and securities. The provision that transfer
agents have discretion regarding the specific technology and systems
used, provided the transfer agent maintains at all times exclusive
control over the master securityholder file, would provide flexibility
while ensuring that the transfer agent maintains exclusive control
over, and responsibility for, such a crucial record.
---------------------------------------------------------------------------
\148\ See Exchange Act Rule 17ad-9(b), 17 CFR 240.17Ad-9(b).
---------------------------------------------------------------------------
The amended definition is designed to be flexible and capable of
accommodating future technological developments, provided the standards
as set forth in proposed Rule 17ad-7(f) for electronic recordkeeping
systems are met. The Commission recognizes that developments in
information technology manifest unpredictably and, thus, the proposed
definition would not mandate or otherwise endorse a specific electronic
format in which the master securityholder file would be required to be
maintained. For example, the amended definition would permit a transfer
agent to utilize a blockchain or other distributed ledger technology as
its master securityholder file, or a component thereof, but it would
not mandate it. Rather, the rule's guiding principle is to ensure that
master securityholder files are securely maintained and updated as
promptly as possible, regardless of the technology or platform
utilized.
3. Control Book
The term ``control book'' is defined in existing Rule 17ad-9(d) as
``the record or other document that shows the total number of shares
(in the case of equity securities) or the principal dollar amount (in
the case of debt securities) authorized and issued by the issuer.''
\149\ The term is used in various other of the transfer agent rules.
For example, pursuant to existing Rule 17ad-10(e), recordkeeping
transfer agents must, among other things, maintain and keep current an
accurate control book for each issue of securities (and may not make
changes to the control book except upon written authorization from a
duly authorized agent of the issuer). Similarly, the definition of
``issuer capitalization'' in existing Rule 17ad-11(a)(1) is defined as
the market value of the issuer's authorized and outstanding equity
securities as ``determined by reference to the control book and current
market prices.'' \150\
---------------------------------------------------------------------------
\149\ 17 CFR 240.17Ad-9(d).
\150\ Rule 17ad-11(a)(1), 17 CFR 240.17Ad-11(a)(1).
---------------------------------------------------------------------------
The terms ``authorized,'' ``issued,'' and ``outstanding''
securities are also used throughout the transfer agent rules, but not
always consistently. For example, as noted above, the existing
definition of control book refers only to ``authorized and issued''
securities but does not explicitly reference ``outstanding''
securities. In contrast, existing Rule 17ad-6(b) requires transfer
agents meeting certain conditions to, among other things, retain
documentation showing the total number of shares authorized and ``the
total issued and outstanding pursuant to issuer authorization,'' but
does not use the term ``control book.'' \151\
---------------------------------------------------------------------------
\151\ Rule 17ad-6(b), 17 CFR 240.17Ad-(6)(b).
---------------------------------------------------------------------------
In the Commission's experience, the lack of consistent terminology
can lead to confusion and inconsistent application of the rules, which
in turn may negatively impact a transfer agent's ability to monitor for
overissuance and meet its recordkeeping obligations. Accordingly, to
ensure that defined terms are used in a consistent manner throughout
the transfer agent rules, and therefore are more likely to be applied
accurately and consistently by registered transfer agents, the
Commission is proposing a series of amendments designed to define
certain key terms and use them consistently throughout the rules.
To that end, the Commission proposes to amend the definition of
``control book'' to specify that, in addition to authorized and issued
securities, it also must show outstanding securities. Specifically, the
proposed definition would provide that ``control book'' means ``the
record or other document
[[Page 56971]]
that shows the total number of shares (in the case of equity
securities) or the principal dollar amount (in the case of debt
securities) of an issuer's authorized, issued, and outstanding
securities.'' \152\
---------------------------------------------------------------------------
\152\ See proposed Rule 17ad-9(d). As used here, the term record
captures any type of record used or contemplated for use by transfer
agents (e.g., physical records, digital records, and records
existing on a distributed ledger or blockchain).
---------------------------------------------------------------------------
As discussed in more detail below, the term ``authorized
securities'' will be defined in a new addition to Rule 17ad-9. It would
represent the maximum number of securities that may be issued pursuant
to the issuer's governing documents. The term ``issued securities''
refers to the total number of securities (or principal dollar amount in
the case of debt securities) that have been granted to stockholders or
employees, or that are held in the issuer's treasury (because they have
not been sold or granted yet, or because the issuer repurchased them,
often referred to as treasury shares). Outstanding securities are the
portion of issued securities that have actually been distributed to
investors or employees (i.e., issued securities, less any outstanding
treasury shares). As discussed below in connection with the proposed
amendments to Rule 17ad-10, knowing and tracking the total number of
outstanding securities supports a transfer agent's ability to monitor
for overissuances.\153\ Yet the existing definition of control book
does not reference outstanding securities. The proposed amendment would
specify that the control book must include all three categories--
authorized, issued, and outstanding--as all three are relevant to
transfer agents' efforts to monitor against overissuance and maintain
accurate records that are necessary to protect investors, promote the
prompt and accurate clearance and settlement of securities
transactions, and promote the safeguarding of funds and securities.
---------------------------------------------------------------------------
\153\ The proposed amendments to Rule 17ad-10 would include a
new definition of ``overissuance,'' which would mean an out-of-
balance condition wherein the securities issued and outstanding
exceed the securities authorized and outstanding, as reflected in
the transfer agent's control book.
---------------------------------------------------------------------------
4. Credit and Debit
Existing Rule 17ad-9(e) defines ``credit'' as ``an addition of
appropriate certificate detail to the master securityholder file,'' and
existing Rule 17ad-9(f) defines ``debit'' as ``a cancellation of
appropriate certificate detail from the master securityholder file.''
\154\ Consistent with the proposed amendments to Rule 17ad-9(a) above,
the Commission also proposes to replace references to ``certificate
detail'' in both definitions with ``position detail'' to ensure that
the definitions apply equally to certificated and uncertificated
securities and conform the definitions to the proposed amendments to
Rule 17ad-9(a), as discussed above.\155\
---------------------------------------------------------------------------
\154\ 17 CFR 240.17Ad-9(e) and (f).
\155\ See proposed Rules 17ad-9(e) and (f).
---------------------------------------------------------------------------
5. Record Difference
Existing Rule 17ad-9(g) states that a ``record difference'' occurs
when either: ``(1) The total number of shares or total principal dollar
amount of securities in the master securityholder file does not equal
the number of shares or principal dollar amount in the control book; or
(2) The security transferred or redeemed contains certificate detail
different from the certificate detail currently on the master
securityholder file, which difference cannot be immediately resolved.''
\156\ The Commission is proposing to add a third category of record
difference as paragraph (g)(3): position detail in the master
securityholder file that is inconsistent with the history of
transactions in the transfer journal.\157\ Additionally, consistent
with the proposed amendments to Rule 17ad-9(a) above, the Commission
also proposes to replace references to ``certificate detail'' in
paragraph 17ad-9(g)(2) with ``position detail'' to ensure that the
definition applies equally to certificated and uncertificated
securities and conform the definition to the proposed amendments to
Rule 17ad-9(a), as discussed above.
---------------------------------------------------------------------------
\156\ 17 CFR 240.17Ad-9(g).
\157\ See proposed Rule 17ad-9(g).
---------------------------------------------------------------------------
Discrepancies or inaccuracies in the master securityholder file can
lead to errors in vote counts for corporate actions, missed or
incorrect dividend, interest, or other payments to securityholders,
errors in other corporate action entitlements, unauthorized or
overissuance of securities, improper escheatment, or financial,
regulatory, or reputational harm for investors, issuers, and transfer
agents. Given the importance of maintaining accurate securityholder
records, the term ``record difference'' should encompass any type of
inaccuracy in the securityholder files, regardless of the cause or
source of the inaccuracy. The intention in defining the term ``record
difference'' was to ``include any type of record difference or
inaccuracy in the securityholder files, whether occurring, among other
things, as the result of a physical overissuance of shares or clerical
or other posting errors.'' \158\ Based on the Commission's experience
supervising and monitoring the transfer agent industry, the two
situations captured by the existing definition of record difference are
insufficient to capture other means by which an inaccuracy could be
introduced to the master securityholder file. The proposed amendment to
the definition of ``record difference'' would require transfer agents
to track and resolve any discrepancy or inaccuracy in the master
securityholder file as compared to the control book, transfer journal,
or the physical security itself, which can lead to recordkeeping errors
that, as discussed above, harm investors and compromise the integrity
and efficient functioning of the national clearance and settlement
system. A discrepancy between the transfer journal and the master
securityholder file could mean that transfers of securities are not
recorded in the master securityholder file, potentially leading to some
investors not being recorded as registered owners of securities or not
being credited with the correct amount of securities.
---------------------------------------------------------------------------
\158\ See 17ad-9 through 13 Proposing Release, supra note 9, at
47271.
---------------------------------------------------------------------------
The addition of this third category of record difference also seeks
to resolve inconsistencies between the master securityholder file and
the transfer journal, which would help ensure that transfer agents
identify and resolve discrepancies in their records that could
otherwise lead to inaccurate securityholder records. This addition
would reflect the importance of the transfer journal, which is proposed
to be defined for the first time in Rule 17ad-9(n) as discussed below,
as a key record for tracking changes in position detail.
6. Recordkeeping Transfer Agent
Existing Rule 17ad-9(h) defines ``recordkeeping transfer agent'' as
``the registered transfer agent that maintains and updates the master
securityholder file.'' \159\ As the Commission stated in the 2015
Concept Release, ``[a]ll other transfer agents associated with a given
issue of securities are defined as `co-transfer agents,' which are
registered transfer agents that transfer securities but do not maintain
and update the master securityholder file.'' \160\
---------------------------------------------------------------------------
\159\ Exchange Act Rule 17ad-9(h), 17 CFR 240.17Ad-9(h)
(emphasis added).
\160\ 2015 Concept Release, supra note 4, at Section IV.A.3
(discussing definition of ``recordkeeping transfer agent'').
---------------------------------------------------------------------------
In the Commission's view, a single registered transfer agent should
be responsible for maintaining and updating the master securityholder
file for a given issue. A given issue of
[[Page 56972]]
securities would mean, for purposes of this proposed rule, all of the
securities which an issuer has issued and which are intended to be
fungible, such as all shares of stock of a given class. As discussed in
more detail below, any other requirement would create an unreasonably
high risk of errors in master securityholder files, thereby negatively
impacting investors and the national clearance and settlement system.
Accordingly, the Commission is proposing to amend the definition of
``recordkeeping transfer agent'' to mean ``the registered transfer
agent that maintains and updates the master securityholder file for an
issue of securities,'' and specify that ``[t]here can be only one
recordkeeping transfer agent for a given issue of securities.'' \161\
---------------------------------------------------------------------------
\161\ See proposed Rule 17ad-9(h).
---------------------------------------------------------------------------
This requirement is necessary to ensure that the identity of the
one registered transfer agent responsible for both maintaining and
updating the master securityholder file is clear and unambiguous to
issuers, regulators, and other transfer agents. In the Commission's
experience supervising transfer agents, when multiple entities are
responsible for the constituent actions necessary for maintaining and
updating the master securityholder file, errors increase, effective
communication and clear lines of responsibility decrease, and
efficiency, accuracy, and security suffer. Further, transfer agents
splitting the recordkeeping function into multiple parts and spreading
them among multiple entities can increase the likelihood of
recordkeeping errors, compliance failures, and investor harm. Avoiding
such deleterious outcomes with respect to such a vital record as the
master securityholder file is necessary to ensure the safe and
efficient functioning of the national clearance and settlement system,
protect investors, and advance the public interest. By specifying that
there can be only one recordkeeping transfer agent for a given issue of
securities, the proposed amendment will help avoid ambiguity in
situations where multiple transfer agents are involved in servicing an
issue and ensure that issuers, investors, regulators, and transfer
agents themselves have a clear and unambiguous understanding that a
single transfer agent must be responsible for maintaining and updating
the master securityholder file for a given issue. The proposed
amendment would not, however, prevent a recordkeeping transfer agent
from utilizing a service company or co-transfer agent, or multiple
linked files or systems, or a particular technology, as the
recordkeeping transfer agent nevertheless remains responsible for
maintaining and updating the master securityholder file for a given
issue.
C. New Definitions To Be Added to Rule 17ad-9
1. Authorized Securities
The Commission proposes to add a new definition for ``authorized
securities'' as paragraph (m) of Rule 17ad-9. The proposed definition
would provide that ``authorized securities'' means ``the maximum number
of shares of equity securities or principal amount of debt securities
or number of units if relating to any other kind of security that can
be issued by an issuer as authorized in the issuer's certificate of
incorporation, charter, bond indenture, or similar governing
document.'' \162\ A very similar term is already used (although it has
not been defined) in connection with the definition of control book as
one of the elements that must be tracked as part of a transfer agent's
control book.\163\ As such, adopting a formal definition of this term
would provide clarity and would help ensure consistent interpretation
and application of the term as it is used in the Commission's transfer
agent rules. The definition being proposed herein is consistent with
the definition as it has long been used and understood throughout the
securities industry.
---------------------------------------------------------------------------
\162\ See proposed Rule 17ad-9(m).
\163\ See, e.g., 17 CFR 240.17Ad-9(d) ([T]he total number of
shares . . . authorized by the issuer.) (emphasis added).
---------------------------------------------------------------------------
2. Transfer Journal
The Commission proposes to add a new definition for ``transfer
journal'' in Rule 17ad-9(n). The proposed definition would provide that
``transfer journal'' means ``a record of all issuances, cancellations,
transfers, distributions of cash or securities, additions and
cancellations of position detail, and other information necessary to
enable the transfer agent to track and document changes in security
ownership, the movement of securities, and other changes.'' \164\
---------------------------------------------------------------------------
\164\ See proposed Rule 17ad-9(n).
---------------------------------------------------------------------------
The term ``transfer journal'' is referenced in various transfer
agent rules but has not been previously defined by the Commission. For
example, Rule 17ad-6 requires every registered transfer agent to make
and keep current a copy of any transfer journal prepared by a
registered transfer agent.\165\ Additionally, in Rule 17ad-10, transfer
journals are referenced as a communication mechanism between co-
transfer agents to a recordkeeping transfer agent to post certificate
detail to the master securityholder file.\166\
---------------------------------------------------------------------------
\165\ See CFR 240.17Ad-6(a)(10).
\166\ See CFR 240.17Ad-10(a)(3).
---------------------------------------------------------------------------
Transfer journals are typically maintained by transfer agents to
document all transactions affecting securities ownership, helping them
track changes in ownership, resolve record differences, and ensure
accuracy of the master securityholder file, especially when multiple
transfer agents help service a single issue. For example, as noted
above, a co-transfer agent that transfers a certificated security but
does not maintain and update the master securityholder file would
document the transfer in its transfer journal and then provide the
transfer journal to the recordkeeping transfer agent, who would,
subsequent to receiving the transfer journal, update the master
securityholder file with the credit, debit, and other relevant
information from the co-transfer agent's transfer journal. Transfer
journals are separate and distinct from a master securityholder file.
Whereas a master securityholder file establishes the list of an issue's
current registered owners and can only be maintained by the
recordkeeping transfer agent as discussed above, a transfer journal is
a time-sequenced record of all changes in position detail and can be
maintained by any registered transfer agent as a source of information
to track and document the changes in security ownership, the movement
of securities, and other changes that are processed by that specific
transfer agent.
Based on its oversight of the transfer agent industry, the
Commission understands that the proposed definition is consistent with
most transfer agents' understanding and use of the term transfer
journal. By codifying that common understanding of the term within the
Commission's transfer agent rules, the proposed definition would ensure
consistent application of the term, provide specificity to the industry
regarding the information that forms a transfer journal, and with the
proposed amendments to Rule 17ad-6(a)(10) discussed below, ensure that
all registered transfer agents are maintaining this key record.
3. Presentor
The Commission proposes to add a new definition for ``presentor''
in Rule 17ad-9(o). The proposed definition would provide that
``presentor'' means the registered securityholder, the entitlement
holder, and their authorized agents.\167\
---------------------------------------------------------------------------
\167\ See proposed Rule 17ad-9(o).
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[[Page 56973]]
The term ``presentor'' is used throughout the transfer agent rules
in connection with the person ``presenting'' an item for transfer to a
transfer agent. The presentor for a transfer is typically the
registered owner, a purchaser, or their authorized agent, such as a
broker, who presents a certificated security, a stock power, or, in the
case of uncertificated securities, an instruction, to a transfer agent.
It is a critical component of the definition of the term ``item,''
which as noted above is the basic unit for which the turnaround and
other processing requirements apply and is an essential term used
throughout the transfer agent rules.\168\ For example, Rule 17ad-
1(a)(1)(i) defines an item as ``. . .an instruction to a transfer agent
which holds securities registered in the name of the presentor to
transfer or to make available all or a portion of those securities.''
\169\
---------------------------------------------------------------------------
\168\ See Rule 17ad-1 through 17ad-7 Adopting Release, supra
note 50, at 32404.
\169\ 17 CFR 240.17Ad-1(a)(1)(i) (emphasis added).
---------------------------------------------------------------------------
Despite its importance, the term ``presentor'' is not defined in
the transfer agent rules. The proposed definition would specify and
thereby limit who may present items for transfer and would align the
definition with the Uniform Commercial Code's use of the term
``appropriate person,'' which provides a well-established legal
framework for determining who is responsible for directing the transfer
of securities. For example, under the Uniform Commercial Code, if a
presentment or instruction is made by an ``appropriate person'' \170\
and includes appropriate documentation, the transfer agent has a duty
to register the transfer.\171\ This alignment would promote consistency
between the federal transfer agent rules and general principles of
commercial law and would help ensure that transfer agents have clear
requirements regarding whose instructions they may rely upon when
processing transfer requests.
---------------------------------------------------------------------------
\170\ UCC Sec. 8-401.
\171\ See UCC Sec. Sec. 8-401 and 8-402.
---------------------------------------------------------------------------
4. Request for Comment
The Commission requests comments on all aspects of the proposed
amendments to the definitions in Rules 17ad-1 and 17ad-9. In
particular, the Commission requests comments on the following:
25. Are the proposed amendments to the definitions in Rules 17ad-1
and 17ad-9 appropriate and sufficient to modernize the foundational
terminology governing transfer agent operations? Are there any gaps,
inconsistencies, or unintended consequences that may remain or result
from the proposed amendments, or that the Commission should address?
26. Do the proposed amendments strike the appropriate balance
between providing clear and specific requirements and maintaining
sufficient flexibility to accommodate current and future technological
developments? If not, what modifications would better achieve this
balance?
27. Are there any terms used throughout the transfer agent rules
that are not addressed in these proposed amendments but that should be
defined or clarified? If so, please identify those terms and explain
why definitions or clarifications are needed.
28. Are there any international standards, practices, or regulatory
frameworks that the Commission should consider in connection with the
proposed amendments to the definitions in Rules 17ad-1 and 17ad-9? If
so, please identify those standards, practices, or frameworks and
explain how they should inform the Commission's approach.
29. Are the proposed amendments to the definition of ``item''
appropriate and sufficient to ensure the definition applies to all
forms of securities and all methods by which transfer instructions are
submitted? Should any additional categories be included in or excluded
from the definition? Is the proposed addition of subsection (iv),
covering transfer instructions submitted through DTC's DWAC service or
functionally similar services operated by a central securities
depository, appropriate? Does the phrase ``functionally similar
service'' provide sufficient clarity, or should the Commission provide
additional guidance or examples of what constitutes a functionally
similar service?
30. Does the proposed definition of ``item'' adequately capture
transfer instructions submitted through blockchain-based or other
distributed ledger technology platforms? Are there specific
characteristics of these platforms that the Commission should address
in the definition or in accompanying guidance?
31. Are the proposed amendments to the definition of ``receipt''
appropriate? Would these amendments provide sufficient clarity
regarding when items and other communications are considered to be
received by transfer agents?
32. Should the proposed definition of ``receipt'' address
situations where a transfer agent's electronic systems are unavailable
due to technical failures, cyberattacks, or other disruptions? For
example, should the definition specify how receipt is determined when a
transfer agent's systems are temporarily offline or when an electronic
transmission is delayed due to technical issues outside the transfer
agent's control?
33. Is the proposed amendment to the definition of ``routine''
appropriate? Would replacing the reference to ``certificate'' with
``security'' in paragraph (i)(2) of the definition provide sufficient
clarity regarding its application to both certificated and
uncertificated securities? In light of the proposed rescission of Rule
17ad-4, should paragraph (i)(5) of the definition of ``routine'' be
amended so that redemptions or exchanges of investment company shares
would be considered routine items? Should any other changes be made to
this definition?
34. Are the proposed amendments to replace ``certificate detail''
with ``position detail'' throughout Rules 17ad-1 and 17ad-9
appropriate? Is the proposed expanded list of information to be
included in position detail appropriate?
35. Would the proposed amendment to replace ``certificate detail''
with ``position detail'' materially affect the way transfer agents will
interpret and comply with rules that the Commission proposes to amend
to include the latter term? For example, would the inclusion of
position detail in a particular rule increase the time and cost burden
it may require to comply with an existing or proposed rule?
36. Are the proposed amendments to expand the definition of
``position detail'' to include, among other things, a unique identifier
for securities appropriate? Are CUSIP and FIGI appropriate
identification numbers to refer to as examples for both traditional and
tokenized securities? If not, what alternative identification numbers
or systems should be included, and why? Are there any specific
considerations or challenges associated with using CUSIP or FIGI for
certain types of securities, such as tokenized securities? Is it
possible for a security to have more than one unique identifier and if
so, should the Commission's rules address which unique identifier
registered transfer agents should be required to include in their
records? Should transfer agents be required to record certificate
numbers for certificated securities?
37. In light of advancements in technology and changes in industry
practices, are there any specific items currently required to be
included in the definition of ``position detail'' that are less
relevant or obsolete today? Are there particular technologies or
systems
[[Page 56974]]
used by transfer agents that render certain aspects of the ``position
detail'' definition unnecessary, redundant, or unworkable? Should any
additional information be required or should any of the proposed
requirements be modified to reflect any information that has become
less relevant in light of modernization (e.g., issue/cancellation
date)? Should any additional information be required or should any of
the proposed requirements be modified to reflect any information that
has become more relevant in light of modernization (e.g., wallet
address as the primary identifier of record for tokenized securities)?
38. Is the proposed amendment to Rule 17ad-9(a)(3) regarding
``position detail'' to replace the term ``registration'' with a
description of the specific information that constitutes registration
(i.e., the securityholder's full name and any other relevant
identifying, titling, or formatting information necessary to accurately
identify the specific securityholder to the exclusion of other
securityholders) appropriate and sufficient? Does the proposed
description adequately capture all of the information that should be
included in a securityholder's registration, including for all types of
securityholders and ownership structures? Is the proposed description
sufficiently flexible to enable technological innovation?
39. Would an alternative approach to a securityholder's identifying
information in Rule 17ad-9(a)(3) of the definition of ``position
detail'' be more appropriate? Specifically, should Rule 17ad-9(a)(3)
use a principles-based approach that would require only the information
reasonably necessary to accurately identify the specific
securityholders to the exclusion of other securityholders? If so, is
there any additional information that a transfer agent should collect?
As another alternative, should Rule 17ad-9(a)(3) require that the
transfer agent collect some unique identifying information that can be
tied to an individual's name and address, which could include, for
example, the name and physical mailing address or some other unique
identifier?
40. If a securityholder does not provide a transfer agent with the
securityholder's full name and physical mailing address, would the
securityholder still be considered a registered securityholder pursuant
to applicable law? Does it depend on variations in state law and/or the
types of securities at issue? Is there any information which a
securityholder, seeking to be a direct, registered holder of a security
must provide to a transfer agent to establish the securityholder's
ownership of the security pursuant to applicable law?
41. Would an alternative approach to Rule 17ad-9(a)(4) regarding
the definition of ``position detail'' be more appropriate?
Specifically, should Rule 17ad-9(a)(4) of the definition of ``position
detail'' omit the requirement to collect, at a minimum, a
securityholder's physical mailing address as contact information?
Should Rule 17ad-9(a)(4) be revised to use a principles-based approach
that would require the collection of only the information reasonably
necessary to establish contact with the securityholder? Should Rule
17ad-9(a)(4) include some other minimum requirement for contact
information, such as an email address, phone number, and digital wallet
address? Is there any information in addition to contact information
that a transfer agent should collect?
42. Would a transfer agent's failure to collect a securityholder's
full name and physical mailing address affect the transfer agent's
ability to comply with any other applicable law or regulations? Would a
transfer agent's failure to collect a securityholder's full name and
physical mailing address affect any other person's ability to comply
with any other applicable law or regulations? If so, please specify the
applicable law or regulations and how a transfer agent's failure to
collect a securityholder's full name and physical mailing address would
affect compliance.
43. Are there any other entities or persons that rely on the
securityholder information collected by transfer agents who would be
affected by a transfer agent's failure to collect a securityholder's
full name and physical mailing address? If so, please identify the
entities or persons and explain how they would be affected by a
transfer agent's failure to collect a securityholder's full name and
physical mailing address.
44. Does the collection of full name and physical mailing address
create circumstances that increase the likelihood of unauthorized
disclosure of personally identifying information or present other risks
to investors?
45. Is the proposed amendment to require that master securityholder
files be maintained in electronic form appropriate? Would the proposed
conditions within the definition of ``master securityholder file'' be
sufficient to ensure the integrity and reliability of the master
securityholder file? Should the Commission impose different or
additional conditions on the maintenance of the master securityholder
file? If so, please explain what additional conditions should be
imposed and why, and whether any such conditions should apply uniformly
to all transfer agents or should they vary based on the size,
complexity, or type of securities handled by the transfer agent?
46. Is the proposed amendment to specify that there can be only one
recordkeeping transfer agent for a given issue of securities
appropriate? Are there situations currently where two or more
registered transfer agents effectively serve as the recordkeeping
transfer agent for a given issue of securities? Would this proposed
amendment affect any types of securities or products in particular,
such as exchange-traded funds or tokenized securities?
47. Is the Commission's proposed explanation that an issue of
securities means, for purposes of identifying the recordkeeping
transfer agent, all of the securities which an issuer has issued and
which are intended to be fungible, such as all shares of stock of a
given class, appropriate? Are there other meanings of the term
``issue'' that the Commission should consider? Should the Commission
distinguish securities that are the same class but issued in different
formats, such as uncertificated and tokenized?
48. Could the use of multiple linked files or systems for
maintaining the master securityholder file lead to situations where
more than one registered transfer agent is effectively acting as the
recordkeeping transfer for a given issue of securities?
49. Would an alternative, principles-based approach be more
appropriate for recordkeeping transfer agents? For example, should the
Commission allow more than one transfer agent to serve as the
recordkeeping transfer agent for a given issue of securities so long as
each recordkeeping transfer agent remains equally responsible and
liable for the accuracy of the master securityholder file as a whole
and is able to produce the entire master securityholder file upon
request? Are there any other conditions, limitations, or situations the
Commission should consider if more than one transfer agent were to
serve as a recordkeeping transfer agent for a given issue of
securities? Should the Commission allow a recordkeeping transfer agent
to not serve as a recordkeeping transfer agent for the entire issue of
securities?
50. Are there specific requirements or conditions that should apply
to the use of blockchain or other distributed ledger technology as a
master securityholder file or a component thereof?
51. Are the proposed new definitions for ``authorized securities,''
``transfer
[[Page 56975]]
journal,'' and ``presentor'' appropriate? Should these definitions be
modified in any way?
52. What implementation challenges, if any, would transfer agents
face in complying with the proposed amendments to the definitions? What
transition period would be appropriate, and would phased implementation
of certain amendments be beneficial?
D. Amendments to Rule 17ad-2
Rule 17ad-2 sets processing performance standards for transfer
agents. Under the rule, transfer agents who are not acting as a
registrar must turnaround within three business days of receipt at
least 90% of all ``routine items'' \172\ received by the transfer agent
during any month.\173\ The rule specifies that items received at or
before noon on a business day shall be deemed to have been received at
noon on that day, and items received after noon on a business day or on
a day that is not a business day shall be deemed to have been received
at noon the next business day.\174\ Non-routine items must receive
``diligent and continuous attention'' and must be ``turned around as
soon as possible.'' \175\ Routine items that are not turned around
within three business days nevertheless must be ``turned around
promptly.'' \176\ Registered transfer agents acting as an outside
registrar must ``process'' at least 90% of all items received during
any given month no later than noon of the next business day for any
item received after noon and no later than the opening of business on
the next business day for those items received at or before noon.\177\
If a transfer agent fails to meet the performance standards for
turnaround set forth in Rule 17ad-2 with respect to any month, it must
notify the Commission and the transfer agent's ARA if it is not the
Commission within 10 business days of the end of the month, provide
certain turnaround data regarding specific numbers and percentages of
items, explain the reasons for the failure, identify what steps have
been taken to prevent future failures, and provide certain data
regarding routine items that have not been turned around and have been
in the transfer agent's possession for ``more than four business
days.'' \178\ Similar notification requirements apply where a transfer
agent acting as an outside registrar fails to meet the processing
performance standards.\179\ If a transfer agent receives items at
locations other than the premises at which it performs transfer agent
functions, the transfer agent must have appropriate procedures to
assure, and must assure, that items are forwarded to such premises
promptly.\180\ Rule 17ad-2(g) requires a registered transfer agent that
receives processed items from an outside registrar to have appropriate
procedures to assure, and to assure, that such items are made available
promptly to the presentor.\181\
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\172\ Routine items are defined in Rule 17ad-1(i), 17 CFR
240.17Ad-1(i).
\173\ See 17 CFR 240.17Ad-2(a). However, a transfer agent that
is exempt under Rule 17ad-4(b) and that has received 30 days notice
of depository-eligibility of an issue for which it performs transfer
agent functions must turnaround 90% of all routine items received
each month within five business days of receipt. See Rule 17ad-
2(e)(2), 17 CFR 240.17Ad-2(e)(2).
\174\ See 17 CFR 240.17Ad-2(a).
\175\ See 17 CFR 240.17Ad-2(e).
\176\ See id.
\177\ See 17 CFR 240.17Ad-2(b).
\178\ See 17 CFR 240.17Ad-2(c).
\179\ See 17 CFR 240.17Ad-2(d).
\180\ See 17 CFR 240.17Ad-2(f).
\181\ See 17 CFR 240.17Ad-2(g).
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The Commission is proposing several targeted amendments to the
requirements regarding turnaround and processing, as well as conforming
changes to the related notice requirements. In addition, the Commission
is proposing to eliminate the turnaround provision for certain exempt
transfer agents in light of the proposed rescission of Rule 17ad-4
discussed in Section III.F below. We discuss these proposed changes in
more detail below. The Commission is not proposing any changes to
paragraphs (f) and (g) of Rule 17ad-2.
1. Turnaround and Processing of Routine Items
Existing Rule 17ad-2(a) requires transfer agents who are not acting
as an outside registrar to turnaround within three business days of
receipt at least 90% of all ``routine items'' \182\ received by the
transfer agent during any month.\183\ The rule specifies that items
received at or before noon on a business day shall be deemed to have
been received at noon on that day, and items received after noon on a
business day or on a day that is not a business day shall be deemed to
have been received at noon the next business day.\184\
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\182\ Routine items are defined in Rule 17ad-1(i), 17 CFR
240.17Ad-1(i).
\183\ See 17 CFR 240.17Ad-2(a). However, a transfer agent that
is exempt under Rule 17ad-4(b) and that has received 30 days notice
of depository-eligibility of an issue for which it performs transfer
agent functions must turnaround 90% of all routine items received
each month within five business days of receipt. See Rule 17ad-
2(e)(2), 17 CFR 240.17Ad-2(e)(2).
\184\ See 17 CFR 240.17Ad-2(a).
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The Commission is proposing to amend Rule 17ad-2(a) to require
registered transfer agents (except when acting as an outside registrar)
to establish, maintain, and enforce written policies and procedures
reasonably designed to ensure that the transfer agent turns around all
routine items received for transfer within the shorter of one business
day or the time period specified by Rule 15c6-1(a) under the Exchange
Act.\185\ The proposed rule would eliminate the existing provision that
provides for a noon cutoff in determining when an item is received.
Instead, pursuant to the proposed amended definition of receipt in Rule
17ad-1 discussed above, an item would be considered to be received on
the business day it is received by the transfer agent. Thus, an item
received at any point on a business day would be considered to be
received on that day. In determining whether policies and procedures
are reasonably designed, transfer agents would likely need to consider
various factors, including their size, operational complexity, the
nature and scope of services provided, technological capabilities, and
evolving industry standards and practices, among other things.
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\185\ See proposed Rule 17ad-2(a).
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Similarly, existing Rule 17ad-2(b) requires transfer agents acting
as outside registrars to process at least 90% of all items, other than
certain nonroutine items, received during a month by the open of
business on the next business day or by noon of the next business day,
depending on the time of day an item was received.\186\ As with the
proposed amendments to paragraph (a), the Commission is proposing to
amend Rule 17ad-2(b) to require transfer agents acting as an outside
registrar to establish, maintain, and enforce written policies and
procedures reasonably designed to ensure that the transfer agent
processes all items received within the existing time frames specified
in the rule. The remaining provisions of paragraph (b), including the
exception from the definition of ``items received'' for items
enumerated in Rule 17ad-1(i)(5), (6), (7), or (8), would remain the
same.
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\186\ 17 CFR 240.17Ad-2(b) and (g).
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The Commission recognizes that these proposed amendments would be a
significant change from the existing requirement to turn around within
three business days 90% of all routine items received during a given
month and to process by the next business day 90% of all applicable
items received by an outside registrar. However, the existing rule was
adopted in 1977.\187\ At that
[[Page 56976]]
time, nearly all securities were certificated and turnaround was a
complicated and time-consuming manual process, often involving multiple
parties. The three-day turnaround and 90% threshold requirements in
paragraph (a) were tailored to accommodate this complicated and time-
consuming manual process.\188\ Today, nearly all securities are either
immobilized at DTC or fully uncertificated, and turnaround is a
significantly more streamlined process predominantly effected through
electronic debits and credits to the parties' respective book-entry
securities accounts.\189\ Further, as technology has advanced, so too
have transfer agents' technological and operational capabilities.
Ticket windows and couriers have been replaced with electronic
communications, high fidelity scans, and reliable overnight delivery
services, manual processes have been automated, and efficiency in
general has vastly improved. The Commission understands that, with
these advancements, the vast majority of transfer agents now regularly
turn around and process routine items within one business day or less,
even for certificated securities. Further, the standard securities
settlement cycle for most broker-dealer securities transactions is
currently one day following the trade date, or T+1.\190\ Linking the
turnaround requirement for transfer agents to the existing settlement
cycle for most broker-dealer securities transactions will help ensure
that most investors' securities transactions settle within the same
time frame, regardless of whether the investor holds in street name
(i.e., through a broker-dealer) or in registered form (i.e., with a
transfer agent).
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\187\ See Rule 17ad-1 through 17ad-7 Adopting Release, supra
note 50.
\188\ See generally Rule 17ad-1 through 17ad-7 Adopting Release,
supra note 50; see also Proposal to Adopt Rules 17Ad-1, 17Ad-2,
17Ad-3, 17Ad-4 and 17Ad-5 under the Securities Exchange Act of 1934,
Exchange Act Release No. 12440 (May 12, 1976), 41 FR 22595 (June 4,
1976), pertaining to certificate turnaround time, reporting
requirements related thereto, response time for confirmation
requests and other correspondence and recordkeeping requirements for
registered transfer agents; Regulation of Transfer Agents, Exchange
Act Release No. 13293 (Feb. 24, 1977), 42 FR 12191 (Mar. 3, 1977)
(``Rule 17ad-1 through 17ad-7 Re-Proposing Release'').
\189\ For a description of the clearance and settlement process
for immobilized and uncertificated securities, see 2015 Concept
Release, supra note 4, at Section III.B.
\190\ 17 CFR 240.15c6-1(a).
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Because turnaround and processing times have improved since the
adoption of the rule, it is no longer necessary to require a particular
percentage of compliance by a specified time to accommodate the time
needed for manual turnaround and processing. Instead, the proposed
amendments would require written policies and procedures reasonably
designed to ensure the timely turnaround of all routine items and
processing of all applicable items. Based on the Commission's
experience regulating transfer agents, and as discussed above, most
transfer agents either regularly turn around or process, or are capable
of turning around or processing, nearly all applicable items within a
business day or less. The proposed policies and procedures approach
would promote the prompt and accurate clearance and settlement of
securities transactions by requiring transfer agents to develop written
policies and procedures reasonably designed to accomplish compliance
without imposing a de facto strict liability standard that would result
in a rule violation for a single missed turnaround or processing
deadline.
As discussed in this release, the Commission is proposing to
rescind Rule 17ad-4, which exempts small transfer agents from the
turnaround requirements of existing Rule 17ad-2. In light of this
rescission, the Commission is proposing to delete the turnaround
provision for certain exempt transfer agents in Rule 17ad-2(e)(2). As a
result, all registered transfer agents would be subject to the
turnaround requirement for routine items in proposed Rule 17ad-2(a). As
discussed in more detail below, given the operational capabilities of
modern transfer agents, including small transfer agents, and the
importance of timely turnaround, removal of the exemption for small
transfer agents is appropriate to promote the prompt and accurate
clearance and settlement of securities transactions.
2. Notice Requirements
Existing Rule 17ad-2(c) requires transfer agents that fail to
comply with Rule 17ad-2(a) with respect to any month to notify the
Commission and the transfer agent's ARA if it is not the Commission
within 10 business days of the end of the month, provide certain data
regarding the number and percentages of items that the transfer agent
failed to turn around in accordance with Rule 17ad-2(a), explain the
reasons for the failure, identify what steps have been taken to prevent
future failures, and provide certain data regarding routine items that
have not been turned around and have been in the transfer agent's
possession for ``more than four business days.'' \191\ Existing Rule
17ad-2(d) provides similar notification requirements when a transfer
agent acting as an outside registrar fails to comply with Rule 17ad-
2(b).\192\
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\191\ See 17 CFR 240.17Ad-2(c).
\192\ See 17 CFR 240.17Ad-2(d).
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As discussed above, the Commission is proposing to replace the
metrics-based 90% turnaround and processing requirements in paragraphs
(a) and (b) with a requirement to have written policies and procedures
reasonably designed to ensure 100% compliance. Given these amendments,
it no longer makes sense to tie the notification provisions in
paragraphs (c) and (d) to a ``failure to comply'' with paragraphs (a)
and (b). Accordingly, the Commission is proposing to amend Rules 17ad-
2(c) and (d) to require registered transfer agents to provide the
required notifications when they fail to turn around or process more
than three percent of applicable items within the time frames specified
in proposed Rule 17ad-2(a) and Rule 17ad-2(b), respectively. Based on
our experience supervising transfer agents and monitoring the notices
required under existing Rule 17ad-2, imposing a three percent threshold
for the notification requirements in paragraphs (c) and (d) is
reasonable and appropriate. First, few transfer agents fail to turn
around or process in a timely manner 90% of applicable items received
each month. Rather, as noted above, the vast majority of transfer
agents regularly turn around and process nearly 100% of all applicable
items within one business day or less, even for certificated
securities, or are readily capable of doing so. Second, modern transfer
agents process significantly more items per month than did transfer
agents in 1977, when Rule 17ad-2 was adopted. Given the significant
improvements in processing capabilities and the significant increases
in transaction volume discussed above, establishing a three percent
threshold would ensure the Commission and other ARAs receive the early
warning the rule is designed to provide, but only in situations where
the turnaround failure potentially indicates a serious performance
issue.
3. Conforming Changes and Turnaround of Non-Routine Items
Existing Rule 17ad-2(e)(1) requires that all routine items not
turned around within three business days of receipt as required by
paragraph (a) and all items not processed within the periods required
by paragraph (b) shall be turned around promptly and ``all nonroutine
items shall receive diligent
[[Page 56977]]
and continuous attention and shall be turned around as soon as
possible.'' \193\
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\193\ Exchange Act Rule 17ad-2(e)(1), 17 CFR 240.17Ad-2(e)(1).
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As discussed above, the Commission is proposing to replace the
metrics-based 90% turnaround and processing requirements in paragraphs
(a) and (b) with a requirement to have written policies and procedures
reasonably designed to ensure the turnaround and processing of all
applicable items within the time frames specified in those rules.
Consistent with those proposed amendments, the Commission is proposing
conforming changes to Rule 17ad-2(e)(1) to require that all routine
items not turned around within the time specified in paragraph (a) of
this rule and all items not processed within the periods specified in
paragraph (b) of this rule shall be turned around promptly. The
Commission is not proposing any changes to the provision in paragraph
(e)(1) regarding the turnaround of non-routine items.
4. Written Notice for Rejected Items
Proposed Rule 17ad-2(e)(2) would require every registered transfer
agent to provide a written notification to the presentor for any item
rejected by the transfer agent that identifies the rejected item, the
reasons for rejection, and the specific actions the presentor must
undertake for the item to be accepted by the transfer agent for
processing or turnaround to be completed. This written notification
must be provided (i.e., sent) within one business day of receipt of any
item that is rejected by the transfer agent.\194\
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\194\ See proposed Rule 17ad-2(e)(2).
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Existing Rule 17ad-2 does not require transfer agents to notify a
presentor if an item is rejected by the transfer agent. This means that
an investor, intermediary, or other presentor may not be aware that an
item has been rejected by the transfer agent and therefore will not be
transferred. Based on the Commission's supervisory experience,
individual investors, broker-dealers, and other presentors would
benefit by being both notified that an item has been rejected by the
transfer agent and provided the reasons for the rejection. In many
instances, the missing or additional information or documentation that
would make the item acceptable could be provided by the presentor if
the presentor knew that such information or documentation was required.
In addition, the proposed rule would require transfer agents to provide
the written notification only for items rejected by the transfer agent.
This means that, if the transfer agent is not responsible for the
rejection, then the transfer agent would not be required to provide a
written notification to the presentor. The notification requirements of
proposed Rule 17ad-2(e)(2) described above are designed to address
these issues and ensure that presentors are aware of and have an
opportunity to cure any defects in the items they present so that
turnaround can be accomplished as quickly and efficiently as possible,
and settlement delays can be minimized, thereby promoting the prompt
and accurate clearance and settlement of securities transactions.
5. Instructions for Filing Certain Required Information With ARAs
Rule 17ad-2(h) provides registered transfer agents with
instructions regarding how to file the notices required by Rules 17ad-
2(c) and (d) with the ARAs. Rule 17ad-2(h) is also referenced in Rules
17Ad-11 and 17ad-13, which require registered transfer agents to file
certain reports with the ARAs, and in the proposed changes to Rule
17ad-7, which would require registered transfer agents to file certain
agreements with the ARAs. As a result, the Commission is proposing to
amend Rule 17ad-2(h) to state that any notice required by this section
or any report required by Rules 17Ad-11 or 17ad-13, or any written
agreement required by Rule 17ad-7(h) shall be filed pursuant to the
instructions in Rule 17ad-2(h)(1) through (4).\195\ In light of the
proposed rescission of Rule 17ad-4 discussed below, the Commission is
also proposing to delete the existing reference to notices required
under existing Rule 17ad-4. In addition, the Commission proposes to
replace the word ``notice'' with ``information'' in Rule17ad-2(h)(1)
through (4) to broaden the reference to the types of information that
is required to be filed with the ARAs and to replace the existing
filing instructions for each ARA with email addresses for each ARA to
modernize and simplify the filing instructions.\196\ Specifically,
proposed Rule 17ad-2(h)(1) would require that any information required
to be filed with the Commission shall be filed to the following
dedicated email address, [email protected]. Proposed Rules
17ad-2(h)(2) through (4) would similarly provide that any information
required to be filed with the Office of the Comptroller of the
Currency, the Board of Governors of the Federal Reserve System, and the
Federal Deposit Insurance Corporation shall be filed to dedicated email
addresses. Providing for the electronic filing of this required
information to dedicated ARA email addresses would be in the public
interest as it would remove the burden on transfer agents of preparing
and submitting the required information in paper and submitting
multiple copies to different ARA office locations, depending on the
ARA. In addition, the proposed change from paper filings to email
submissions would increase efficiency and decrease costs for transfer
agents with respect to their filing obligations, as well as facilitate
Commission oversight of the filings by streamlining the process of
tracking, reviewing, storing, and retrieving the email submissions made
by transfer agents.
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\195\ See proposed Rule 17ad-2(h).
\196\ See proposed Rule 17ad-2(h)(1) through (4).
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6. Request for Comment
The Commission requests comments on all aspects of the proposed
amendments to Rule 17ad-2. In particular, the Commission requests
comments on the following:
53. Is a policies and procedures requirement for turnaround and
processing appropriate? Is a policies and procedures requirement
preferable to a prescriptive performance standard that would require
turnaround and processing to be completed within a specific timeframe?
Why or why not?
54. Are there any specific elements that the Commission should
require transfer agents to include in their written policies and
procedures to ensure they are ``reasonably designed'' to achieve timely
turnaround of routine items?
55. Is a one business day turnaround standard for routine items
appropriate? Should a different timeframe be used? Are there categories
of routine items for which a one business day standard would be
impractical or inappropriate? Pursuant to the proposed amended
definition of receipt in Rule 17ad-1, an item would be considered to be
received on the business day it is received by the transfer agent.
Thus, an item received at any point on a business day would be
considered to be received on that day. Is a one business day turnaround
standard for routine items received at any point on a business day
appropriate and operationally feasible?
56. Should the Commission retain a minimum performance threshold
for routine items rather than, or in addition to, a policies and
procedures requirement? If so, what threshold would be appropriate
given current transfer agent capabilities?
57. Should transfer agents acting as outside registrars have
different performance standards for processing items? Is the function
of an ``outside
[[Page 56978]]
register'' obsolete and should the terms and rules around ``outside
registrar'' be rescinded in Rules 17ad-1, 2, and 6?
58. With respect to proposed rule 17ad-2(a), is the elimination of
the noon cutoff rule for registered transfer agents and its replacement
with a business day standard appropriate? Are there operational or
logistical reasons to retain a cutoff time for determining when an item
is received?
59. Is three percent an appropriate threshold for imposing the
notice requirements under Rule 17ad-2(c) and (d)? Why or why not? If
not, what threshold would be appropriate and why?
60. Should the Commission require transfer agents to provide a
written notice to the presentor for items rejected by the transfer
agent? Is one business day an appropriate timeframe for providing such
notice? Is the requirement that the notice identify the rejected item,
the reasons for rejection, and the specific actions the presentor must
undertake for the item to be accepted reasonable, operationally
feasible, and conducive to the use of automated means of handling
routine items promptly? Should the Commission prescribe the format or
content of the required written notification in more detail than
proposed?
61. Should the Commission require transfer agents to provide a
written notification to the presentor for a rejected onchain transfer
even though the transfer agent was not responsible for rejecting the
item? Would the transfer agent have sufficient information to be able
to provide the written notification? If so, should the Commission
exempt rejected onchain transfers from the written notification
requirement?
62. Should the Commission require transfer agents to establish,
maintain, and enforce written policies and procedures reasonably
designed to ensure that written notifications are provided in a timely
manner to the presentor of each rejected item with specific details
regarding the reason for rejection? Would a policies and procedures
approach permit transfer agents to better address circumstances where
the transfer agent might be unaware of a rejected item and thus, unable
to provide a written notification?
63. Should the Commission require transfer agents to track and
retain data on rejected items, including the reasons for rejection and
the time taken to notify presentors? If so, for how long should such
data be retained?
64. Is the existing standard for non-routine items sufficiently
clear and workable? Should the Commission provide additional guidance
on what constitutes ``diligent and continuous attention''?
65. How would these proposed changes to Rule 17ad-2 affect transfer
agents that provide services to investment companies? Are there any
aspects of the proposed changes that do not reflect how shareholder
transactions with certain investment companies work or would not be
feasible for those transfer agents? If so, what are they and should
exemptions or additional changes be provided? Should the rules
separately address certain activities that investment company transfer
agents conduct, such as ensuring that transacting shareholders receive
the correct net asset value or processing shareholder exchange
transactions involving the movement from one investment company to
another?
66. What transition period, if any, would be appropriate for
transfer agents to develop and implement written policies and
procedures compliant with the proposed amendments to Rule 17ad-2?
E. Amendments to Rule 17ad-3
Rule 17ad-3 provides limitations on the expansion of transfer agent
activities if a transfer agent is unable to meet the minimum
performance standards established by Rule 17ad-2. Any transfer agent
that is required pursuant to Rule 17ad-2(c) or (d) to provide notice
for failure to meet the performance standards for three consecutive
months is prohibited from taking on new issues or providing new
services for existing issues.\197\ Further, if a transfer agent fails,
for each of two consecutive months, to timely turnaround or process at
least 75% of all routine items, it is subject to the limitations on
expansion specified in Rule 17ad-3(a) and must notify the chief
executive officer of each issuer for which the transfer agent
acts.\198\ Thus, Rules 17ad-2 and 17ad-3, taken together, are designed
to provide an early warning system to alert issuers, the Commission and
other ARAs of untimely performance and potential problems.\199\
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\197\ 17 CFR 240.17Ad-3(a). Such limitations on the business of
the transfer agent continue until there has been a period of three
successive months in which no notices have been required.
\198\ 17 CFR 240.17Ad-3(b).
\199\ See Rule 17ad-1 through 17ad-7 Adopting Release, supra
note 50 (describing Rules 17ad-1 through 17ad-7 generally to
include, among other things, ``early warning of inadequate transfer
agent performance,'' and, 17ad-3 specifically, as ``designed to
maintain the status quo so that a transfer agent can bring its
performance into compliance with the rules.''
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As discussed above, the proposed amendments to Rule 17ad-2(c) and
(d) would require a registered transfer agent to notify the Commission
or the transfer agent's ARA if it fails to turnaround or process more
than three (3) percent of routine items within the time frames
specified in proposed Rule 17ad-2(a) and Rule 17ad-2(b), respectively.
The Commission is proposing a three percent threshold because, given
the significant improvements in transfer agents' processing
capabilities and increases in transaction volume, it believes a three
percent threshold would ensure the Commission and other ARAs receive
the early warning the rule is designed to provide, but only in
situations where the turnaround failure potentially indicates a serious
performance issue. Under existing Rule 17ad-3(a), a transfer agent that
is required to file a notice pursuant to Rule 17ad-2(c) and (d) for
each of three consecutive months is prohibited from taking on new
issues or providing new services for existing issues. Prohibiting
transfer agents with such operational failures from taking on new
business would have multiple benefits, including incentivizing a higher
success rate, avoiding further failures by preventing such transfer
agents from assuming work they may not be able to adequately complete,
and ensuring that transfer agents first focus on the success rate of
their current volume before expanding their workload.
For similar reasons, the Commission is proposing to amend the
threshold in Rule 17ad-3(b) from 75% to 95% (a failure rate change from
25% to 5%, respectively) so that any registered transfer agent that
fails, for each of two consecutive months, to turn around or process
more than five percent of applicable items within the time specified in
Rule 17ad-2(a) or in Rule 17ad-2(b), respectively, would be subject to
the limitations on expansion in Rule 17ad-3(a) and required to notify
the chief executive officer of each issuer for which the transfer agent
acts. For the same reasons a three percent threshold is appropriate for
Rules 17ad-2(c) and (d), a five percent threshold for Rule 17ad-3(b) is
the appropriate threshold to ensure that Rule 17ad-3 continues to serve
its intended purpose, because it requires a higher failure rate over
two consecutive months to trigger the Rule but implicates more severe
consequences. As explained above, the vast majority of transfer agents
regularly turnaround and process nearly 100% of all routine items
within one business day or less, or are readily capable of doing so,
and modern transfer agents
[[Page 56979]]
process significantly more items per month than did transfer agents in
1977 when Rules 17ad-2 and 17ad-3 were adopted. Thus, a failure to turn
around five percent of routine items within the required timeframe for
two consecutive months would be a significant operational failure.
Requiring registered transfer agents to provide additional notice to
their clients of such significant operational failures would help
ensure that issuers receive the warning the rule is designed to
provide, but only in situations where the turnaround failure
potentially indicates a serious performance issue.
1. Request for Comment
The Commission requests comments on all aspects of the proposed
amendments to Rule 17ad-3. In particular, the Commission requests
comments on the following:
67. Should Rule 17ad-3 be rescinded entirely? Please explain.
68. What threshold, if any, would be appropriate in Rule 17ad-3(b)
to impose limitations on expansion and require notification to issuers?
Is 95% too low or too high?
69. Should the Commission consider using other metrics to determine
whether to limit a transfer agent's activities? Please explain in
detail.
70. Are there other ways for issuers, the Commission, or other ARAs
to be alerted to a transfer agent's untimely performance in turning
around or processing routine items? Would the proposed change to
Question 9 on Form TA-2 provide sufficient information to evaluate a
transfer agent's turnaround and processing of routine items?
71. Are there other alternative approaches that the Commission
should consider? Why or why not? If so, what alternative approaches
should the Commission consider? Please explain in detail.
F. Rescission of Rule 17ad-4
1. Background and Existing Rule
Rule 17ad-4 provides certain exemptions from the turnaround,
processing, and recordkeeping rules.\200\ Rule 17ad-4(a) creates an
exemption from Rules 17ad-2, 17ad-3, and 17ad-6(a)(1)-(7) and (11) for
the processing of interests in limited partnerships, DRIPs, and
redeemable securities issued by investment companies registered under
Section 8 of the 1940 Act, which are also known as open-end funds
(``Fund Shares'').\201\ Rule 17ad-4(b) provides a similar exemption
from Rules 17ad-2(a), (b), (c), (d) and (h), 17ad-3, and 17ad-6(a)(2)-
(7) and (11) for ``exempt transfer agents,'' which are defined as those
that received fewer than 500 items for transfer and fewer than 500
items for processing within a consecutive six month period, provided
that the transfer agent has filed proper notice of its exempt status
with its ARA or has prepared a document certifying that the transfer
agent qualifies as exempt (with respect to those ARAs where filing is
not required).\202\
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\200\ 17 CFR 240.17Ad-4.
\201\ 17 CFR 240.17Ad-4(a).
\202\ 17 CFR 240.17Ad-4(b).
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Rule 17ad-4 was adopted in 1977. The rationale for not requiring
exempt transfer agents to comply with the turnaround and related
recordkeeping requirements at that time was based on the Commission's
assessment that ``the number of transfers performed by many transfer
agents is relatively small and involves issues which are not traded
actively,'' and therefore, it was ``not necessary or appropriate at
this time to require those transfer agents to comply with the minimum
performance standards and certain recordkeeping provisions.'' \203\ It
was for a similar reason--the low volume of transfers--that the
Commission determined that interests in limited partnerships were also
appropriately exempted from the turnaround and processing
requirements.\204\
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\203\ Rule 17ad-1 through 17ad-7 Adopting Release, supra note
50, at 32408.
\204\ Rule 17ad-1 through 17ad-7 Re-Proposing Release, supra
note 188.
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The rationale for exempting Fund Shares and DRIPs was similar but
slightly different. Comments on the original proposed turnaround and
recordkeeping rules noted that ``the activities performed by transfer
agents for [Fund Shares] involve for the most part the redemption of
fund shares which is governed by Section 22(e) of the Investment
Company Act of 1940 . . . and that the steps involved therein are
significantly different from those required to transfer the ownership
of stocks and bonds on an issuer's records.'' \205\ The Commission
believed at the time that ``it would be desirable to study further the
need for, and the nature of, minimum performance standards for the
transfer of [Fund Shares].'' \206\ When adopting the exemption for Fund
Shares a few months later, the Commission also stated that ``[t]he
amount of certificated fund shares is relatively small, and the amount
of transfer agent activity in connection with transferring ownership of
certificated shares represents a very small part of a transfer agent's
activity with regard to an open-end investment company.'' \207\ For
these reasons, the Commission determined that the turnaround and
related recordkeeping requirements would ``not apply to the issuance,
redemption or transfer of [Fund Shares].'' \208\ Similarly, because
``transfers and withdrawals of shares from dividend reinvestment
plans'' also ``require procedures significantly different from the
procedures required to transfer ownership of stocks and bonds,'' the
Commission decided to expand the exemption to include DRIPs as
well.\209\
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\205\ Rule 17ad-1 through 17ad-7 Re-Proposing Release, supra
note 188, at 12195.
\206\ Id.
\207\ Rule 17ad-1 through 17ad-7 Adopting Release, supra note
50, at n. 13.
\208\ Rule 17ad-1 through 17ad-7 Adopting Release, supra note
50, at 32408.
\209\ Id.
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In short, the original rationale for the exemptions provided in
Rule 17ad-4 was that it was not necessary or appropriate to require
smaller transfer agents for thinly-traded issues to comply with the
minimum performance standards and recordkeeping provisions, nor was it
necessary or appropriate to apply those standards and provisions to
processes that, as the Commission understood at that time, were
significantly different from the transfer of ownership of stocks and
bonds on issuers' records. As the Commission noted with respect to Fund
Shares, more study was needed.\210\
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\210\ Rule 17ad-1 through 17ad-7 Re-Proposing Release, supra
note 188, at 12195.
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2. Proposed Rescission
After nearly half a century of further experience, it is no longer
necessary or appropriate to exempt transfer agents from the minimum
performance standards and related recordkeeping provisions, regardless
of the size of the transfer agent, the volume of securities it
processes, or the nature of those securities. The animating principle
of all the proposals herein is the recognition that transfer agents are
a critical component of the national clearance and settlement system
that provides the vital infrastructure for the U.S. securities markets;
a transfer agent's failure to perform its duties promptly, accurately,
and safely--especially its duties with respect to turnaround and the
related recordkeeping requirements--can compromise the accuracy of an
issuer's securityholder records, disrupt the channels of communication
between issuers and securityholders, disenfranchise investors, and
expose issuers, investors, securities intermediaries, and the
securities markets as a whole to significant
[[Page 56980]]
financial loss.\211\ In light of this important role transfer agents
play in a national clearing and settlement system, Rule 17ad-4 was
originally adopted to provide certain exemptions for transfer agents
where the burden of compliance for certain interests in securities or
size of the transfer agent was not justified by the benefit of
adherence. Modern technological capabilities and a dramatic increase in
the risks posed by those activities to an interconnected electronic
national clearance and settlement system have shifted that balance.
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\211\ See 17ad-9 through 13 Proposing Release, supra note 9,
(noting examples of substandard transfer agent performance
presenting significant potential adverse consequences); Processing
Requirements for Cancelled Security Certificates, Exchange Act
Release No. 48931 (Dec. 16, 2003), 68 FR 74390 (Dec. 23, 2003)
(noting examples of substandard transfer agent performance and
significant adverse consequences).
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It is the Commission's understanding that, since Rule 17ad-4 was
adopted in 1977, the laborious manual processes and recordkeeping
systems that may have placed an undue burden on smaller transfer agents
have been replaced with automated processes and electronic
recordkeeping systems that are readily available to even the smallest
transfer agent today.\212\ These same advancements mean that transfer
agents that may have had to specialize in or develop bespoke systems to
process transactions beyond stocks and bonds in 1977 now can and do
process a wide array of even the most complicated transactions
efficiently and effectively. At the same time, the securities markets
and the national clearance and settlement system in which transfer
agents operate have become more automated, efficient, and
interconnected, which has increased the ability of all transfer agents,
regardless of size, to meet the minimum performance and recordkeeping
standards established by the Commission's transfer agent rules.
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\212\ See 2015 Concept Release, supra note 4, Section II.B for a
discussion of the manual process in place at the time Rule 17ad-4
was adopted.
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Finally, as noted above, the Commission understands that the vast
majority of transfer agents now regularly turn around routine items
within one business day or less, even for certificated securities and
beyond stocks and bonds, rendering the exemption from the turnaround
requirements unnecessary. Taken together, the balance of the burdens
and benefits no longer provides a reason or basis to exempt interests
in limited partnerships, DRIPs, Fund Shares, and exempt smaller
transfer agents from the Commission's turnaround and recordkeeping
requirements.
Accordingly, the Commission is proposing to rescind Rule 17ad-4 in
its entirety.\213\
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\213\ Correspondingly, as a conforming change, we are proposing
to delete paragraph (d)(2) from Rule 17ad-13, which provides that a
registered transfer agent is exempt from the requirements of Rule
17ad-13 if it is an exempt transfer agent pursuant to Rule 17ad-4(b)
and, if it performs transfer agent functions for Fund Shares, it
maintains master securityholder files consisting of fewer than 1,000
shareholder accounts, in the aggregate, for each of such issues for
which it performs transfer agent functions. See 17 CFR 240.17Ad-
13(d)(2)(i) and (ii).
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3. Request for Comment
The Commission requests comments on all aspects of the proposed
rescission of Rule 17ad-4. In particular, the Commission requests
comments on the following:
72. Should Rule 17ad-4 instead be modified? If so, why?
73. Should the Commission retain the exemption from the turnaround,
processing, and recordkeeping rules for limited partnership interests,
DRIPs, or Fund Shares? If so, why? Have the operational characteristics
of processing these securities changed sufficiently since 1977 to
justify removing the exemption?
74. Should the Commission retain the exemption from the turnaround,
processing, and recordkeeping rules for ``exempt transfer agents''?
75. Should the Commission revise the criteria for ``exempt transfer
agents'' instead of rescinding the exemption entirely? For example,
should the volume threshold be adjusted to reflect current market
conditions, or should different criteria such as the nature of the
securities processed or the sophistication of the issuer be used to
determine exempt status? Are there any other criteria that the
Commission should consider instead of recission?
76. What are the specific compliance costs, if any, that small
transfer agents or transfer agents specializing in limited
partnerships, DRIPs, or Fund Shares would incur as a result of the
proposed rescission of Rule 17ad-4? Do small transfer agents currently
have access to the automated processing and electronic recordkeeping
systems necessary to comply with the proposed turnaround and
recordkeeping requirements?
77. Would rescission of Rule 17ad-4 cause small transfer agents to
exit the market or consolidate with larger transfer agents? What would
be the impact on competition, issuer choice, and investor protection if
the number of small transfer agents were to decline as a result of the
proposed rescission?
78. What transition period, if any, would be appropriate for
transfer agents currently relying on the exemptions in Rule 17ad-4 to
come into compliance with the proposed turnaround and recordkeeping
requirements?
79. Should the Commission consider alternative approaches to
address compliance costs for smaller transfer agents? Why or why not?
If so, what alternative approaches should the Commission consider?
Please explain in detail.
G. Amendments to Rule 17ad-6
Existing Rule 17ad-6 aims to ensure that transfer agents' records
are sufficient for each transfer agent to monitor its own performance
and to allow the transfer agent's ARA to examine for compliance.\214\
It also helps ensure that transfer agents make and keep records
necessary to enable and support their critical functions within the
national clearance and settlement system. To that end, the rule
enumerates specific categories and types of documents that transfer
agents must make and keep current. Rules 17ad-6(a)(1) through 17ad-
6(a)(5) require transfer agents to make and keep current various
records associated with monitoring turnaround of routine and non-
routine items.\215\ Rules 17ad-6(a)(6) and (7) relate to records
associated with monitoring compliance with written inquiries and
requests. Rule 17ad-6(a)(8) addresses records associated with the
assumption and termination of services on behalf of issuers, and Rules
17ad-6(a)(9), (10), and (11) relate to stop orders and other
restrictions on transfer, transfer journals, and items received in
connection with certain types of corporate actions, respectively.\216\
Finally, Rule 17ad-6(b) requires certain transfer agents to obtain and
retain records that would allow them to maintain an accurate control
book,\217\ and Rule 17ad-6(c) relates to records of cancelled
securities.\218\
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\214\ Rule 17ad-1 through 17ad-7 Adopting Release, supra note
50, at 32409.
\215\ Rule 17Ad-6(a)(1) through (5).
\216\ 17 CFR 240.17Ad-6(a)(6) through (11).
\217\ 17 CFR 240.17Ad-6(b).
\218\ 17 CFR 240.17Ad-6(c).
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Rule 17ad-6 has not, with limited exceptions, been updated to
account for technological changes, the continued dematerialization of
securities, and other market transformations, including the emergence
of tokenized securities and AI that have led to significant changes in
both the types of records maintained by transfer agents and the format
and manner in which they are maintained. To ensure that transfer
[[Page 56981]]
agents continue to make and keep records sufficient to enable and
support their critical functions within the national clearance and
settlement system, monitor their own performance, and be examined for
compliance in light of the expansion of transfer agent activities and
rapid proliferation of new technologies discussed above, the Commission
proposes implementing changes to existing Rule 17ad-6 that will (1)
simplify the rule text, specify what recordkeeping requirements apply
to uncertificated securities, and appropriately capture the records
necessary for modern transfer agents to perform their regulated
functions; (2) conform to other amendments in this proposal as
appropriate; and (3) supplement the existing record maintenance,
retention, and preservation activities by adding recordkeeping
requirements relating to maintaining a master securityholder file,
control book, and transfer journal.
Specifically, the Commission is proposing to amend paragraphs
(a)(1)-(3), (8), (10), and (11) of Rule 17ad-6. The Commission is also
proposing to amend paragraph (b) of Rule 17ad-6. The Commission is not
proposing any amendments to paragraphs (a)(4), (a)(5), (a)(6), (a)(7),
(a)(9) or (c) of Rule 17ad-6. The proposed amendments do not prescribe
a specific category or type of record that must be maintained. For
example, rather than require transfer agents to make and keep ``a log,
tally, journal, schedule, or other record'' showing the number of
routine items received in a month that were turned around within
certain periods, as is required under existing Rule 17ad-6(a)(2), the
proposed amendments would require ``records sufficient to show'' the
required information. A record, in this context, could include both
physical and digital records, including records existing on a
distributed ledger or blockchain network, provided the other
requirements of Rule 17ad-6 and Rule 17ad-7 are met. Records would be
``sufficient to show'' the required information if the information is
apparent from the records themselves without relying on inference or
assumptions. For example, a transfer agent could comply with proposed
Rule 17ad-6(a)(1) by maintaining separate logs for the date of receipt,
the date of turnaround or processing, and the date of rejection for
routine and non-routine items. By itself an individual log or a partial
record showing only routine items or only some days of the month would
not be sufficient to show the business day each routine and non-routine
item is received, made available, and/or rejected as required by the
rule. But taken together they could be. In this way, each transfer
agent would have the flexibility and discretion to determine the
specific method or format of its recordkeeping system or systems and
could make and keep records and information in any media or format
appropriate to the transfer agent's specific business model,
activities, and technological systems.
1. Records Related to Turnaround
As explained above, Rules 17ad-6(a)(1) through 17ad-6(a)(5) require
transfer agents to make and keep current various records associated
with monitoring the turnaround and processing of routine and non-
routine items as required under existing Rule 17ad-2.\219\ Under the
proposed amendments to Rule 17ad-1, the definition of ``item'' would be
expanded to cover additional methods of transmission and types of
instructions received by transfer agents.\220\ The proposed amendments
to Rule 17ad-2 would modify the nature and scope of transfer agents'
turn around and processing requirements.\221\ Accordingly, in addition
to the goals noted above, the proposed amendments to Rules 17ad-6(a)(1)
through (3) are intended to align the recordkeeping requirements for
turnaround and processing with the proposed changes to the nature and
scope of the turn around and processing requirements themselves.
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\219\ Rule 17ad-6(a)(1) through (5).
\220\ See proposed Rule 17ad-1; discussion, supra Section
III.A.1.
\221\ See proposed Rule 17ad-2; discussion, supra Section III.D.
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a. 17ad-6(a)(1)
Existing Rule 17ad-6(a)(1) requires transfer agents to make and
keep current a receipt, ticket, schedule, log, or other record showing
the business day each routine and non-routine item is received from a
presentor or outside registrar and made available to the presentor and/
or outside registrar.\222\
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\222\ 17 CFR 240.17Ad-6(a)(1).
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The amended rule would require a transfer agent to make and keep
``[r]ecords sufficient to show the business day each routine item and
each non-routine item is (i) received by the transfer agent, (ii) made
available or turned around, and (iii) if applicable, rejected by the
transfer agent.'' \223\ Under this proposal, references to specific
types of records (i.e., receipt, ticket, log) would be replaced with
the broader, all-encompassing term ``records'' and existing references
to presentors and outside registrars would be eliminated as unnecessary
in light of the proposed amendments to Rule 17ad-2 discussed above in
Section II.D. Similarly, the Commission is proposing to require
transfer agents to make and keep records showing the business day an
item is rejected to align with the proposed changes to Rule 17ad-2 that
would require registered transfer agents to provide a written
notification to the presentor within one business day of receipt of any
item that is rejected by the transfer agent.\224\
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\223\ See proposed Rule 17ad-6(a)(1).
\224\ See proposed Rule 17ad-2(c).
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b. 17ad-6(a)(2)
Existing Rule 17ad-6(a)(2) requires transfer agents to make and
keep records showing the number of routine and non-routine items
received \225\ and subsequently turned around within the required
timeframes.\226\ The amended rule would replace references to specific
types of records (i.e., log, tally, journal, etc.) with the broader,
all-encompassing term ``records'' to ensure the full scope of records
created and maintained by modern transfer agents is reflected in the
rule.
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\225\ 17 CFR 240.17Ad-6(a)(2)(i) and (iv).
\226\ 17 CFR 240.17Ad-6(a)(2)(ii) and (v).
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The Commission also proposes amending the requirements set forth in
Rules 17ad-6(a)(2)(ii) and (iii) that reference a three-business day
turnaround period for routine items. Instead, the Commission proposes
amending these two rules to include a reference to the turnaround
standard set forth in proposed Rule 17ad-2(a).\227\ In addition, the
Commission proposes to rescind Rule 17ad-6(a)(2)(vi), which requires
transfer agents to make and keep records showing the number of routine
items that, as of the close of business on the last business day of
each month, have been in such registered transfer agents' possession
for more than four business days. This provision would no longer be
necessary in light of the proposed amendment to Rule 17ad-6(a)(2)(iii)
which would require transfer agents to make and keep records showing
the number of routine items received during the month that were not
turned around within the shorter of one business day or the time period
specified by Rule 15c6-1 of the Exchange Act.
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\227\ See proposed Rules 17ad-6(a)(2)(ii) and (iii).
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The Commission proposes to amend existing Rule 17ad-6(a)(2)(v),
which requires transfer agents to make and keep records regarding the
number of non-routine items received during the month that were turned
around, by
[[Page 56982]]
adding a requirement for transfer agents to indicate when non-routine
items were turned around. Specifically, the proposed amendment would
require transfer agents to make and keep records showing the number of
non-routine items received during the month that were turned around
within the following time frames: within five business days, within six
to 10 business days, within 11 to 15 business days, within 16 to 20
business days, and in more than 20 business days.\228\ These records
would assist transfer agents and their ARAs in monitoring the
turnaround of non-routine items to determine whether transfer agents
are meeting their obligation under proposed Rule 17ad-2(e) to
turnaround non-routine items as soon as possible.
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\228\ See proposed Rule 17ad-6(a)(2)(v).
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The Commission is proposing two additional recordkeeping provisions
in Rule 17ad-6(a)(2). Proposed Rule 17ad-6(a)(2)(viii) would require
transfer agents to make and keep records showing the number of items
received during the month that were rejected by the transfer agent,
while proposed Rule 17ad-6(a)(2)(ix) would require transfer agents to
make and keep records showing the number of items received during the
month that were rejected by the transfer agent for which written
notification to the presentor was provided within one business day of
receipt as required by proposed Rule 17ad-2(c).\229\ These records
would assist transfer agents and their ARAs in monitoring turnaround
performance and would conform the recordkeeping requirements with the
proposed changes to Rule 17ad-2.
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\229\ See proposed Rule 17ad-6(a)(2)(viii) and (ix).
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c. 17ad-6(a)(3)
Existing Rule 17ad-6(a)(3) requires a transfer agent to make and
keep records documenting transfer agent activity involving items for
which it acts as an outside registrar.\230\ As with the proposed
amendments discussed above, the amended rule would replace references
to specific types of records (i.e., receipt, ticket, schedule, log,
etc.) in Rule 17ad-6(a)(3)(i) and (ii) with the broader, all-
encompassing term ``records'' to ensure the full scope of records
created and maintained by modern transfer agents is reflected in the
rule. The Commission also is proposing to amend the reference to ``the
time required by Rule 17ad-2(b)'' in Rules 17ad-6(a)(3)(ii)(B) and (C)
to ``the time specified in Rule 17ad-2(b)'' to conform to the proposed
changes in Rule 17ad-2(b) from a metrics-based processing standard to
the proposed policies and procedures requirement.\231\
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\230\ 17 CFR 240.17Ad-6(a)(3).
\231\ See proposed Rule 17ad-6(a)(3).
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2. Records Related to Appointment and Termination
Existing Rule 17ad-6(a)(8) requires transfer agents to make and
keep ``any document, resolution, contract, appointment or other
writing, and any supporting document, concerning the appointment and
termination of such appointment of such registered transfer agent to
act in any capacity for any issue on behalf of the issuer, on behalf of
itself as the issuer or on behalf of any person who was engaged by the
issuer to act on behalf of the issuer.'' \232\ Documenting in writing
the agreement between a transfer agent and its issuer clients (or other
transfer agents) is critical to ensuring that transfer agents perform
their critical functions within the national clearance and settlement
system. Without clear documentation regarding the services a transfer
agent is providing, service could be interrupted, records might not be
made or kept, and issuers, securityholders, and the national clearance
and settlement system could be impacted. Written documentation, such as
an agreement, describing the relationship under which a transfer agent
and an issuer will operate and terminate the relationship also is vital
to avoiding or managing disputes between transfer agents and their
issuer clients and ensuring the timely and appropriate turnover of an
issuer's records upon termination to the successor transfer agent. For
example, existing Rule 17ad-7(h) provides that certain of a transfer
agent's recordkeeping responsibilities only end when the transfer agent
``ceases to perform transfer agent functions'' for the relevant issue
and delivers certain specified records ``to the successor transfer
agent.'' \233\ If there is no written documentation specifying the
conditions under which a transfer agent's services can or will be
terminated, disputes regarding whether or when a transfer agent has
ceased to perform transfer agent functions for a given issue could
arise.
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\232\ 17 CFR 240.17Ad-6(a)(8).
\233\ 17 CFR 240.17Ad-7(h).
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Despite the importance of a written agreement or other
documentation of the relationship between transfer agents and their
issuer clients (or other transfer agents), the Commission is concerned
that existing Rule 17ad-6(a)(8) is ambiguous as to whether documents
concerning the transfer agent's appointment and termination must, in
all circumstances, be made and kept, or whether a transfer agent must
only make and keep ``any'' such documents they happen to have. While it
is the Commission's understanding that many transfer agents enter into
written contracts with their issuer clients, the Commission also is
aware that some transfer agents may not document their arrangements
with issuers in writing.\234\ Based on the Commission staff's
experience administering the Commission's transfer agent rules and
examination program, it appears that such undocumented arrangements may
be more likely than relationships documented in writing to lead to
protracted disputes, especially with respect to: (1) the duration of
the arrangement; (2) the conditions of the arrangement's termination;
(3) the disposition of the securityholder records after termination or
notice of termination; and (4) the fees charged by the transfer agent.
Such disputes may interfere with the operations of the markets and the
protection of investors by disrupting or otherwise hindering transfer
agent processing, recordkeeping, and safeguarding. For example, it is
the Commission staff's understanding that some transfer agents, after
having been terminated by the issuer, have substantially delayed the
handing over of securityholder records to successor transfer agents by
demanding that the issuer pay a substantial ``termination'' fee before
the transfer agent would agree to hand over the securityholder records
it had been maintaining, even though the issuer claimed there was no
written agreement in place or it had otherwise not agreed to such a
fee.\235\ In such cases, the issuer may be unable to retain a new
transfer agent if the old transfer agent will not make the records
available to the new transfer agent. The inability to retain a new
transfer agent could lead to inaccuracies in the master securityholder
file and other records or impede trading in the issuer's securities.
Commission staff is also aware of instances in which a termination
dispute between an issuer and a transfer agent has resulted in two
transfer agents each maintaining separate records, which could be
inconsistent with each other.
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\234\ See 2015 Concept Release, supra note 4, at Section VI.B.
\235\ It is the Commission staff's understanding that typical
termination fees may range from about $1,000 to $5,000, though
disputes like those described herein may involve a transfer agent's
demand for fees as high as $30,000.
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To remove the ambiguity in existing Rule 17ad-6(a)(8) noted above
and prevent the type of disruptions to issuers, securityholders, and
the
[[Page 56983]]
national clearance and settlement system that can arise especially when
there is no written agreement or documentation of the arrangement
between a transfer agent and its clients, the Commission is proposing
to amend paragraph (a)(8) of Rule 17ad-6 to explicitly require transfer
agents to ensure that their agreements with issuers (or other transfer
agents) to provide transfer agent services are documented in writing.
The proposed rule does not, however, require that the written
documentation need necessarily be in the form of a written agreement.
Specifically, Rule 17ad-6(a)(8) would be amended to require transfer
agents to make and keep ``[r]ecords, including but not limited to
documents, resolutions, contracts, appointments or other writings, and
any supporting documents, concerning the appointment and the
termination of such appointment of such registered transfer agent to
act in any capacity for any issue on behalf of the issuer, on behalf of
itself as the issuer or on behalf of any person who was engaged by the
issuer to act on behalf of the issuer.'' \236\
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\236\ See proposed Rule 17ad-6(a)(8).
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3. Transfer Journal, Master Securityholder File, and Control Book
Existing Rule 17ad-6(a)(10) requires transfer agents to make and
keep records of any transfer journal and registrar journal prepared by
the transfer agent.\237\ At the time it was proposed, the Commission
viewed this provision as ``cover[ing] the kinds of information that
transfer agents normally would preserve even in the absence of these
rules.'' \238\
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\237\ 17 CFR 240.17Ad-6(a)(10).
\238\ Rule 17ad-1 through 17ad-7 Re-Proposing Release, supra
note 188, at 12196.
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In the Commission's experience, some transfer agents read existing
Rule 17ad-6(a)(10) as permissive, meaning the transfer journal and
registrar journal must be made and kept only to the extent the transfer
agent has already ``prepared'' them. Further, as discussed throughout
this release, the master securityholder file and control book comprise
some of the most important and foundational records that recordkeeping
transfer agents are required to maintain. Accordingly, to ensure that
the transfer agent rules clearly and explicitly require transfer agents
to make and keep these records, the Commission proposes amending Rule
17ad-6(a)(10) to (i) require transfer agents to make and keep a
transfer journal (or registrar journal if the transfer agent acts as an
outside registrar), not just make and keep them in the event they are
prepared by the transfer agent, and (ii) expand the rule to also cover
the control book and master securityholder file, both of which are
required records for recordkeeping transfer agents pursuant to Rule
17ad-10(e) and (b), respectively. Specifically, the proposed amendment
to Rule 17ad-6(a)(10) would require that a transfer agent maintain a
transfer journal (or registrar journal if the transfer agent acts as an
outside registrar), and a control book and master securityholder file
(if the transfer agent is a recordkeeping transfer agent) for each
securities issue for which the transfer agent is authorized to act on
behalf of the issuer, as well as the constituent records, documents,
and other information that compose such documents.\239\
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\239\ See proposed Rule 17ad-6(a)(10).
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4. Records Related to Non-Routine Items
Existing Rule 17ad-6(a)(11) requires transfer agents to make and
keep any document upon which the transfer agent bases its determination
that an item received for transfer was received in connection with a
special event,\240\ and, accordingly, was not routine under Rules 17ad-
1(i)(5) or (8).\241\ The Commission proposes amending Rule 17ad-
6(a)(11) to require that a transfer agent make and keep any records,
documents, or other information upon which the transfer agent bases its
determination that any item received for transfer was not routine,
rather than just non-routine items received in connection with a
special event.\242\ The existing rule requires only that transfer
agents keep records for non-routine items received in connection with a
reorganization, tender offer, exchange, redemption, liquidation,
conversion, or the sale of securities registered pursuant to the
Securities Act of 1933, which excludes other potential non-routine
items, such as an item that requires requisitioning of certificates or
for which the transfer agent has received notice of a stop order. Such
information is readily available to transfer agents and easily retained
given the technological advances discussed at length herein. Because
routine and non-routine items are subject to different turnaround
standards under existing and proposed Rule 17ad-2, records supporting
the classification of an item as non-routine would support transfer
agent compliance with the turnaround requirements and thereby promote
the prompt and accurate clearance and settlement of securities
transactions and the protection of investors.
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\240\ Rule 17ad-1 through 17ad-7 Adopting Release, supra note
50, at 32410.
\241\ 17 CFR 240.17Ad-6(a)(11).
\242\ See proposed Rule 17ad-6(a)(11).
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5. Records Related to the Control Book
Existing Rule 17ad-6(b) requires transfer agents that maintain
securityholder records or act as a registrar for a given issue to
retain documentation of that issue's authorized, issued, and
outstanding securities. Specifically, existing Rule 17ad-6(b) requires
a transfer agent which, under the terms of its agency, maintains
securityholder records for an issue or which acts as a registrar for an
issue to, with respect to such issue, obtain from the issuer or its
transfer agent and retain documentation setting forth the total number
of shares or principal amount of debt securities or total number of
units of any kind of security authorized by the issuer and the total
issued and outstanding pursuant to issuer authorization.\243\
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\243\ 17 CFR 240.17Ad-6(b).
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As noted above, although the term ``security authorized'' is used
in Rule 17ad-6(b) and Rule 17ad-9 requires ``shares . . . authorized''
to be one of the elements that must be tracked as part of a transfer
agent's control book, neither term is defined under the existing rules.
However, as discussed herein, the Commission is proposing to define the
term ``authorized securities'' in connection with the Commission's
proposed amendments to Rule 17ad-9 as the maximum number (or principal
amount) of securities that can be issued pursuant to the issuer's
governing documents.\244\ To ensure consistent use of the newly-defined
term, the Commission is proposing to amend Rule 17ad-6(b) to reflect
that authorized securities would now be a defined term and otherwise
simplify it without altering the substantive requirement. Specifically,
the Commission is proposing to amend Rule 17ad-6(b) to require every
registered transfer agent that maintains securityholder records or acts
as a registrar for an issue to obtain from the issuer or its transfer
agent and retain documentation setting forth the authorized securities
for that issue and the total securities for that issue that are issued
and outstanding pursuant to issuer authorization.\245\
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\244\ See supra Section III.C.1.
\245\ See proposed Rule 17ad-6(b).
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6. Request for Comment
The Commission requests comments on all aspects of the proposed
amendments to the recordkeeping requirements in Rule 17ad-6. In
[[Page 56984]]
particular, the Commission requests comments on the following:
80. Are the proposed amendments to the recordkeeping requirements
appropriate and sufficient to ensure that they apply to all forms of
records (e.g., both physical and digital records, records that exist
solely on distributed ledgers or blockchain networks) and all types of
records that are utilized by transfer agents to monitor their
performance and to allow ARAs to examine for compliance?
81. Are the proposed amendments to Rule 17ad-6 sufficiently
flexible to accommodate the diverse range of transfer agent business
models, sizes, and technological systems currently in use, while still
ensuring adequate oversight and compliance monitoring? If not, what
modifications would better achieve this balance?
82. The proposed amendments contemplate that records may exist on
distributed ledgers or blockchain networks. Are the proposed
requirements sufficiently clear regarding how transfer agents should
maintain, access, and produce such records for examination purposes?
What specific challenges, if any, do distributed ledger or blockchain-
based records present for compliance with Rule 17ad-6 and Rule 17ad-7?
83. Do the proposed recordkeeping rules, as written, adequately
facilitate the implementation of recordkeeping systems that associate
onchain database records and information (e.g., wallet address,
quantity of security owned, and issue date) with offchain database
records and relevant information (e.g., security holder name and
address) so that the transfer of a tokenized security on a blockchain
results in a corresponding transfer of the security on the master
securityholder file?
84. How should the Commission address situations where records
exist solely on a blockchain or distributed ledger that is not
exclusively controlled by the transfer agent? Should the Commission
establish specific requirements for ensuring the integrity,
accessibility, and immutability of such records for compliance
purposes?
85. Are the proposed amendments to Rules 17ad-6(a)(1) through (3)
sufficient to capture all relevant information needed to monitor
transfer agent turnaround performance? Should the Commission also
require transfer agents to record the time of day, in addition to the
business day, that items are received, turned around, or rejected to
provide more granular performance data?
86. The proposed amendment to Rule 17ad-6(a)(8) would explicitly
require that transfer agent agreements with issuers be documented in
writing. Are there circumstances in which requiring written
documentation could create undue burdens for transfer agents or
issuers, particularly smaller entities? If so, how should the
Commission balance the need for written documentation with the
potential burden on smaller market participants?
87. The proposed amendment to Rule 17ad-6(a)(10) would explicitly
require transfer agents to maintain a transfer journal rather than only
keeping such record if it had already been ``prepared.'' Are there any
circumstances in which this requirement would be unduly burdensome or
impractical for transfer agents, particularly smaller transfer agents
or those serving issuers of tokenized securities?
88. For transfer agents that maintain records on distributed
ledgers or blockchain networks, how should the requirements for
maintaining a master securityholder file, control book, and transfer
journal be applied? Are there technical or operational challenges in
maintaining these records on a blockchain or other distributed ledger
environment that the Commission should address?
89. The proposed amendment to Rule 17ad-6(a)(11) would expand the
recordkeeping requirement for non-routine items to cover all non-
routine items, not just those received in connection with specific
types of corporate actions. Is this expansion appropriate and
sufficient to capture all relevant non-routine items? Are there
specific categories of non-routine items that present unique
recordkeeping challenges the Commission should address?
H. Amendments to Rule 17ad-7
A transfer agent's maintenance, retention, and preservation of
records, including electronic records, is critical to the prompt and
accurate clearance and settlement of securities transactions, including
the transfer of record ownership and the safeguarding of securities and
funds related thereto. Missing, incomplete, or erroneous transfer agent
records can disrupt the clearance and settlement process, lead to
financial loss, and undermine confidence in the securities markets. The
Commission is proposing amendments to Rule 17ad-7 to, among other
things, establish a single, uniform retention period of six years for
most transfer agent records, and streamline and modernize the rule's
provisions governing electronic recordkeeping. A uniform, outcomes-
based approach, a simplified retention schedule, and updated
requirements for electronic records would better reflect how transfer
agents create, manage, and preserve records today, including the
widespread use of digital systems, cloud-based services, and other
technology-enabled controls. By adapting the Rule to incorporate real-
world technological developments currently in use among transfer
agents, these proposed changes would promote more consistent and
accurate recordkeeping among transfer agents, as well as better
oversight and effective examinations by the Commission, which would in
turn support a well-functioning securities market and contribute to
investor protection.
1. Background
Paragraphs (a) through (e) of Rule 17ad-7 specify the particular
lengths of time for which the various records described in Rule 17ad-6
must be maintained.\246\ Paragraph (a) states that the records required
by Rule 17ad-6(a)(1), (3)(i), (6), and (11)--records showing or
documenting: the business day routine and non-routine items were
received and made available; the date and time each item was received
and made available by a registered transfer agent acting as an outside
registrar, and/or notice of refusal to perform the registrar function
was made available to the presenting transfer agent; inquiries and
responses; and the transfer agent's determination that an item is non-
routine--must be maintained for a period of not less than two years,
the first six months in an easily accessible place. Paragraph (b) of
Rule 17ad-7 states that the records required by Rule 17ad-6(a)(2),
(3)(ii), (4), (5) and (7)--records showing the number of routine and
non-routine items received and the timing of their turnaround, and the
number of items in the registered transfer agent's possession; the
number of items received, processed, and not processed within the
relevant time periods; the transfer agents' performance calculations;
copies of Rule 17ad-2 notices; and Rule 17Ad-5 inquiries that were not
responded to within the requisite time periods and the number of such
inquiries pending--must be maintained for a period of not less than two
years, the first year in an easily accessible place. Paragraph (c)
specifies that the records required by Rule 17ad-6(a) (8), (9) and (10)
and (b)--records showing the transfer agent's appointment or
termination; active stop orders, adverse claims, and transfer
restrictions; the transfer agent's
[[Page 56985]]
transfer and registrar journal; and the total number of shares (or
principal amount or number of units) authorized, issued and outstanding
for each issue serviced by the transfer agent--must be maintained in an
easily accessible place during the continuance of the transfer agency
and for one year after termination of the transfer agency. Paragraph
(d) specifies that the records required by Rule 17ad-6(c)--cancelled
certificates, bonds, etc.--must be maintained for a period of not less
than six years, the first six months in an easily accessible place.
Paragraph (e) of Rule 17ad-7 specifies that every registered transfer
agent must maintain all records required under Rule 17f-2(d)--processed
fingerprint cards and other related information--in an easily
accessible place until at least three years after the termination of
employment of persons required to be fingerprinted under Rule 17f-2 and
that all records required under Rule 17f-2(e)--all ``Notices Pursuant
to Rule 17f-2'' regarding claimed exemptions from the fingerprinting
requirements of Rule 17f-2--must be maintained in an easily accessible
place.
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\246\ 17 CFR 240.17Ad-7.
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Paragraph (f) of Rule 17ad-7 was updated in 2001 and 2003 to
authorize the use of electronic recordkeeping, electronic storage
media, and micrographic storage media, such as microfilm records.\247\
It permits transfer agents to maintain and retain records, including
those required under Rule 17ad-6, using electronic storage or
micrographic media, provided certain conditions are met.
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\247\ See Recordkeeping Requirements for Transfer Agents,
Exchange Act Release No. 44227 (Apr. 27, 2001), 66 FR 21648 (May 1,
2001); Recordkeeping Requirements for Registered Transfer Agents,
Exchange Act Release No. 48949 (Dec. 18, 2003), 68 FR 75050 (Dec.
29, 2003).
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Paragraph (g) of existing Rule 17ad-7 pertains to transfer agent
records maintained and preserved by an outside service bureau, other
recordkeeping service, or the issuer. If the records required to be
maintained and preserved by a transfer agent pursuant to Rule 17ad-6 or
Rule 17ad-7 are maintained and preserved on behalf of the transfer
agent by any of those parties, the transfer agent must obtain from that
party an agreement in writing that the records are subject to
reasonable periodic or special examination at any time, and that the
third party will furnish hard copies of the records.\248\
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\248\ 17 CFR 240.17Ad-7(g).
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Paragraph (h) of existing Rule 17ad-7 specifies that the
responsibility under Rule 17ad-7 to retain the records required to be
made and kept pursuant to Rule 17ad-6(a)(1), (6), (9), (10), (11), (b),
and (c) ends when the transfer agent ceases to perform transfer agent
functions for an issue and delivers such records to the successor
transfer agent.\249\ This provision was originally included to clarify
when a transfer agent is relieved of such recordkeeping
responsibilities.\250\
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\249\ 17 CFR 240.17Ad-7(h).
\250\ Rule 17ad-1 through 17ad-7 Adopting Release, supra note
50, at 32411.
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Finally,\251\ paragraph (i) of existing Rule 17ad-7 states that the
records required by Rule 17ad-17(d), written procedures for compliance
with Rule 17ad-17, and Rule 17Ad-19(c), written procedures for the
cancellation, storage, transportation, destruction, or other
disposition of securities certificates, shall be maintained for a
period of not less than three years, the first year in an easily
accessible place.
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\251\ Paragraph (j) of Rule 17ad-7 is held in reserve. Paragraph
(k) of Rule 17ad-7 governs the written policies and procedures and
other records required pursuant to Regulation S-P and was added to
Rule 17ad-7 in 2024 pursuant to certain amendments to Regulation S-
P. See Regulation S-P: Privacy of Consumer Financial Information and
Safeguarding Customer Information, Exchange Act Release No. 100155
(May 16, 2024), 89 FR 47688 (Jun. 3, 2024) (``Regulation S-P
Adopting Release''). The Commission is not proposing any amendments
to paragraphs (j) and (k) at this time.
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Rule 17ad-7 was adopted when transfer agents retained most records
in paper form and relied on micrographic storage (e.g., microfilm and
microfiche) to preserve documentation. Later amendments in 2001 and
2003 allowed the use of electronic storage media, but they did so by
specifying technology-oriented requirements--for example, labeling
removable media, maintaining separate duplicate copies of indexed
records, and prescribing file-level metadata, such as requiring the
labeling of files with a unique file name, date and time of file
creation and last modification, and file sequence number--rather than
setting technology-neutral objectives for security, integrity,
accessibility, and auditability. As the Commission has observed over
time, these prescriptive, media-specific provisions are increasingly
out of step with modern recordkeeping environments, including systems
that provide tamper-evident audit trails, robust authentication, and
resilient backup/restore capabilities without reliance on the specific
media or file conventions contemplated by the existing rule.
2. 17ad-7(a)-(e) and (i)
The Commission is proposing to expand the list of records that must
be maintained pursuant to Rule 17ad-7 to include all records required
to be made or kept by a transfer agent under the Exchange Act and, with
some exceptions, replace the existing patchwork of retention periods
with a single six-year requirement for most records. Specifically,
paragraph (a) of Rule 17ad-7 would provide that, unless otherwise
specified in Rule 17ad-7, all records required to be made or kept under
the Exchange Act shall be maintained for a period of not less than six
years, the first two years of which in an easily accessible place.
Because they would now be subsumed by amended paragraph (a), the
Commission is proposing to delete paragraphs (b), (d), and (i) of Rule
17ad-7.\252\ Expanding the record retention requirements is necessary
and appropriate to ensure the integrity, reliability, and examinability
of modern transfer agent records. The need for a broader retention
requirement is especially acute in light of transfer agents'
increasingly central role in the rapidly evolving technological
landscape of the U.S. securities markets. As transfer agents continue
to explore and expand the use of distributed ledger technology, AI, and
other nascent technologies in connection with their recordkeeping and
operations, a broader retention requirement is essential to the
Commission's oversight and examination capabilities. A six-year
standard will more appropriately balance operational practicality with
the needs of oversight and enforcement, recognizing that modern systems
facilitate the retention of data well beyond the minimum requirements
for transfer agents at minimal cost and can meet ``readily producible''
requirements without reliance on paper or micrographic duplicative
processes. It would also permit Commission staff conducting
examinations to look back further in time for comparative purposes.
This amendment will also reduce compliance complexity and related cost
by eliminating the existing, multi-tiered approach and differing
``easily accessible'' windows tied to specific subsets of records,
thereby simplifying and streamlining the transfer agent's
administrative burden in implementing the rule, including the written
policies and procedures that would be required by new Rule 17ad-
30.\253\ It also will enhance examination efficiency and predictability
by providing a clear and consistent baseline for the availability of
records across transfer agents and record types, and promote parity
with other
[[Page 56986]]
Commission recordkeeping frameworks and modern industry standards that
employ multi-year retention horizons for core business records. For
example, under Commission rules, certain exchange members, brokers and
dealers already incorporate a six-year standard on certain
recordkeeping requirements. Records related to terms and conditions
with respect to the opening and maintenance of closed customer accounts
must be preserved under Rule 17a-4 for six years,\254\ records related
to certain customer identification information must be retained for at
least six years,\255\ and information related to Form CRS (or customer
relationship summary) provided to retail investors must be retained for
six years.\256\ Establishing a single and clear recordkeeping
requirement covering most record types would promote compliance and
adequate record retention for those registered transfer agents who have
affiliates subject to other, typically six year, record retention
requirements, by reducing the administrative burden and inaccuracies
inherent in differing requirements and the need to determine relevant
categories throughout the administrative process.
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\252\ The Commission would also amend the reference to Rule
17ad-7(i) in Rule 17ad-17(d) to conform to this proposed change.
\253\ See proposed Rule 17ad-30.
\254\ 17 CFR 240.17a-4(c).
\255\ 17 CFR 240.17a-4(e)(5).
\256\ 17 CFR 240.17a-4(e)(10).
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The retention periods specified in paragraphs (c) and (e) of Rule
17ad-7 continue to be appropriate, and may extend longer than six years
in some cases, and therefore the Commission is not proposing amendments
to those provisions. Transfer agents will continue to be required to
retain records showing the transfer agent's appointment or termination,
stop orders, adverse claims, and transfer restrictions, and the
transfer agent's transfer journal for the duration of the transfer
agency and an additional year following termination, and to retain
certain fingerprinting-related records required pursuant to Rule 17f-2
for the time periods specified in paragraph (e).
3. 17ad-7(f)
a. Electronic Recordkeeping Systems
As noted above, existing Rule 17ad-7(f) permits transfer agents to
retain and preserve the records required under Rule 17ad-6 using
electronic or micrographic media, provided certain conditions are met.
The rule further states that records stored electronically or
micrographically may serve as a substitute for the hard copy records
required to be maintained pursuant to Rule 17ad-6. Existing Rule 17ad-
7(f)(1) sets forth definitions for the terms ``micrographic media,''
``electronic storage media,'' and ``ARA.''
This rule was adopted in 2001 and was designed to be technology-
neutral but was guided by the electronic storage methods available at
that time, including microfiche and optical disks, such as CD-ROMS and
DVDs.\257\ The Commission is proposing amendments to this rule to
replace the phrase ``electronic storage media'' with the phrase
``electronic recordkeeping system'' throughout the rule to continue its
technology-neutral approach but encompass a broader range of electronic
recordkeeping solutions. In addition, the Commission is proposing to
remove the definition of, and all references to, micrographic media, as
the Commission understands that registered transfer agents have moved
away from using micrographic media to store records. Nonetheless, the
amended rule is designed to be technology neutral, and the amended rule
would not require or prohibit any specific technology, including
micrographic media, so long as the transfer agent otherwise complies
with the provisions of the rule. The Commission is also proposing to
remove the definition of ARA, as the abbreviation for appropriate
regulatory agency would be replaced with the full term for consistency
with other Commission rules applicable to transfer agents.
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\257\ See Recordkeeping Requirement for Transfer Agents,
Exchange Act Release No. 44227 (Apr. 27, 2001), 66 FR 21648, 21651
(May 1, 2021) (where the Commission noted that the amendments to the
Rule are ``technology neutral'').
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Therefore, proposed Rule 17ad-7(f) would state that, subject to the
conditions set forth in this section, the records required to be
maintained pursuant to Rule 17ad-6, may be maintained, retained, or
preserved using an electronic recordkeeping system. In addition, the
rule would state that records stored electronically in accordance with
this paragraph may serve as a substitute for any hard copy
records.\258\ For purposes of the proposed rule, the term ``electronic
recordkeeping system'' would be defined as a system designed to
maintain, retain, or preserve records in a digital format.\259\ The
proposed definition of ``electronic recordkeeping system'' is designed
to refer to the technological means by which records are stored,
without specifying a particular type of technology.
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\258\ See proposed Rule 17ad-7(f). As noted in the discussion of
Rule 17ad-6, the Commission is not requiring that any records be
maintained in hard copy. However, the Commission is proposing a
requirement that the master securityholder file be maintained using
an electronic recordkeeping system. See proposed Rule 17ad-9(b).
\259\ See proposed Rule 17ad-7(f)(1).
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b. Requirements for Transfer Agents Using Electronic Recordkeeping
Systems
Existing Rules 17ad-7(f)(2)-(5) establish the specific requirements
for transfer agents using electronic storage media or micrographic
media to store their records. The proposed amendments discussed below
are not intended to materially change the nature of transfer agents'
obligations with respect to electronic recordkeeping, but rather would
streamline and consolidate the existing outdated requirements and
replace them with updated requirements that align with modern standards
related to electronic records, information security, and audit trails.
Existing Rule 17ad-7(f)(2) requires transfer agents that use
electronic storage media or micrographic media to store their records
to: (i) have available at all times for examination by the staffs of
the Commission and of the transfer agent's ARA facilities to project or
produce immediately easily readable images of such records; (ii) be
ready at all times to provide records requested by the Commission or
the transfer agent's ARA; (iii) create an accurate index of such
records, store it with the records, and make it available to the staffs
of the Commission and the transfer agents' ARA for examination; (iv)
have quality assurance procedures to verify the quality and accuracy of
the records; and (v) maintain separate duplicates of the records and
the index, preserve them for the same time period required for the
originals, and have them available at all times for examination.\260\
Existing Rule 17ad-7(f)(3) requires that any electronic storage media
used by a transfer agent to store records must (i) ensure the security
and integrity of the records through manual and automated controls that
assure the authenticity and quality of the electronic records, detect
attempts to alter or remove the records, and provide a means to recover
altered, damaged, or lost records; (ii) externally label all removable
storage media with a unique identifier; and (iii) uniquely identify and
internally label all files with certain identifying and tracking
information.\261\ If a transfer agent uses electronic storage media for
its records, it also must establish an audit system, maintain and
provide upon request all information necessary to access the records,
and place in escrow with a
[[Page 56987]]
third party and keep current a copy of appropriate documentation and
information necessary to access the records and indexes in the event
the transfer agent is incapable or unwilling to provide such
access.\262\ Existing Rule 17ad-7(f)(4) requires that an audit system
account for inputting of and any changes to every record stored on
electronic storage media or micrographic media, that it be available
for examination at any time by the staffs of the Commission and the
ARA, and that it be preserved for the same time as underlying records.
Finally, existing Rule 17ad-7(f)(5) requires transfer agents that use
electronic storage or micrographic media to store their records to:
maintain, keep current, and provide promptly upon request by the staffs
of the Commission and ARA all information necessary to access the
records and indexes stored on such media and place such access
information and certain other information in escrow with an independent
third party.\263\ Further, the independent escrow agent must file a
signed undertaking with the Commission and the transfer agent's ARA
that undertakes to furnish promptly the information in escrow to the
Commission upon request.\264\
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\260\ Exchange Act Rule 17ad-7(f)(2), 17 CFR 240.17Ad-7(f)(2).
\261\ 17 CFR 240.17Ad-7(f)(3)(i) through (iii).
\262\ 17 CFR 240.17Ad-7(f)(4) and (5); see also Recordkeeping
Requirements for Transfer Agents, Exchange Act Release No. 44227
(Apr. 27, 2001), 66 FR 21648 (May 1, 2001) (the purpose of the
escrow requirement is to assist the Commission or other ARA in
accessing the transfer agent's records).
\263\ Exchange Act Rule 17ad-7(f)(5), 17 CFR 240.17Ad-7(f)(5).
\264\ Id.
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Based on its experience overseeing the transfer agent industry, the
Commission is proposing to modernize the electronic recordkeeping
provisions of Rule 17ad-7(f). As stated, the purpose of the proposed
amendments is not to materially change the nature of transfer agents'
obligations with respect to electronic records and electronic
recordkeeping, but rather to ensure transfer agents would be able to
take advantage of advances in technology, while adhering to modern
standards related to availability, integrity, security, and
reportability. As discussed throughout this release, the records
created and maintained by registered transfer agents--including the
``golden record'' of securities ownership for investors across the
entire securities industry--are critical to protecting investors,
safeguarding their funds and securities, and ensuring the safe and
efficient functioning of the U.S. securities markets and the national
clearance and settlement system. Missing, incomplete, or erroneous
transfer agent records can disrupt the clearance and settlement
process, lead to financial loss, and undermine confidence in the
securities markets. Given the ubiquity of electronic recordkeeping
throughout the securities industry, including among registered transfer
agents, ensuring that transfer agents are subject to modern standards
for electronic recordkeeping, including the controls described below,
is necessary to protect investors, safeguard securities and related
funds, and ensure the safe and efficient functioning of the U.S.
securities markets and the national clearance and settlement
system.\265\ The updated electronic recordkeeping requirements proposed
herein are also designed to, among other things, promote effective
oversight of transfer agents by ensuring that their electronic records
are available to regulators.
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\265\ See 15 U.S.C. 78q-1.
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Proposed Rule 17ad-7(f)(2) would require a registered transfer
agent using an electronic recordkeeping system to implement reasonable
controls to ensure the integrity, accessibility, reproducibility,
redundancy, and continuity of records maintained, retained, or
preserved using the electronic recordkeeping system, including, but not
limited to, controls that (1) protect records from unauthorized changes
or destruction, including safeguards to detect and prevent unauthorized
alteration or loss of records; (2) provide indexing and retrieval
capabilities sufficient to allow immediate production of documents in
both a human-readable format and in a reasonably usable electronic
format; (3) create an audit trail that tracks access, modification, and
deletion of records, including the identity of the user and the date
and time of the action or attempted actions that is maintained,
retained, and preserved using the same controls and for the same time
period required by this section for the underlying record, and (4)
provide means to recover altered, damaged, or lost records resulting
from any cause.\266\
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\266\ See proposed Rule 17ad-7(f)(2).
---------------------------------------------------------------------------
These proposed requirements are designed to remain technology-
neutral and accommodate the types of electronic recordkeeping systems
transfer agents may use as technology evolves beyond the types of
optical storage systems and micrographic media that were common when
Rule 17ad-7 was adopted over two decades ago. The proposed amended
language does not necessitate specific types of recordkeeping systems,
thereby allowing transfer agents to continue using existing systems,
provided they otherwise comply with the requirements of Rule 17ad-7, or
adopt new systems and processes in the face of continued technological
innovation.
The Commission is proposing that transfer agents using electronic
recordkeeping systems implement controls to ensure the integrity,
accessibility, reproducibility, redundancy, and continuity of records
maintained, retained, or preserved using such system. While these
controls are similar to the existing controls required for electronic
and micrographic storage media, they are meant to be more flexible and
encompass a wider range of electronic recordkeeping systems because
they do not include requirements specific to a particular form of
technology, such as the existing requirement to create an accurate
index of the records.
Controls to ensure integrity would ensure that records remain
authentic, reliable, and complete and would include controls and
safeguards to protect records from unauthorized changes. The controls
should not include write-prohibitions that may be incompatible with
ordinary transfer agent functions. Instead, an audit trail system that
tracks access, modification, and deletion of records, including the
identity of the user and the date and time of such action or attempted
action, would be more appropriate, and is in keeping with modern
standards of data integrity.
Controls to ensure accessibility would ensure that records remain
available for use and would include controls that provide indexing and
retrieval capabilities sufficient to allow immediate production of
documents in both a human-readable format and in a reasonably usable
electronic format. A human-readable format is a format that can be
naturally read by an individual, while a reasonably usable electronic
format is a format that is compatible with commonly used systems for
accessing and reading records. The ability to produce records in both
formats is a necessary and important feature of electronic
recordkeeping systems so that Commission and ARA staff may carry out
their oversight responsibilities. These controls would also support the
prompt production of records for examination by Commission or ARA
staff.
Controls to ensure reproducibility would permit records to be
easily viewed, copied, or exported in a way that preserves the record's
integrity, and which can be produced or otherwise made accessible for
examination and regulatory oversight, while controls to ensure
redundancy would ensure
[[Page 56988]]
records remain available in the event of loss of the original record
and would include controls that provide a means to recover altered,
damaged, or lost records resulting from any cause. Controls to ensure
continuity would permit records to remain complete, accessible, and
reliable across their entire lifecycle, without regard to system or
technology upgrades, staff changes, or format changes.
Where third-party agents are employed by registered transfer
agents, those third parties would also need to be held to the same
controls, and may often constitute a control mechanism themselves, such
as with escrow agents who ensure redundant and secure recordkeeping.
The proposed amendments would require transfer agents utilizing
electronic recordkeeping systems to implement reasonable controls to
ensure the integrity, accessibility, reproducibility, redundancy, and
continuity of the transfer agent's records, which would help ensure
that transfer agents ultimately protect investors by promptly and
accurately fulfilling their critical recordkeeping responsibilities
within the national clearance and settlement system.
c. Requirements for Transfer Agents Using Third Parties for
Recordkeeping
Existing paragraph (f)(6) of Rule 17ad-7 states that, if the
transfer agent uses a third party to maintain or preserve some or all
of its electronic records, that third party must file with the
Commission and the transfer agent's ARA an undertaking stating that it
will permit representatives or designees of the Commission to examine
any books and records the third party is maintaining or preserving on
behalf of the transfer agent and promptly furnish hard copies of any
such books and records.\267\
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\267\ 17 CFR 240.17Ad-7(f)(6).
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Existing paragraph (g) of Rule 17ad-7 pertains to transfer agent
records maintained and preserved by an outside service bureau, other
recordkeeping service, or the issuer. If the records required to be
maintained and preserved by a transfer agent pursuant to Rule 17ad-6 or
Rule 17ad-7 are maintained and preserved on behalf of the transfer
agent by any of those parties, the transfer agent must obtain from them
an agreement in writing that the records are subject to examination by
representatives of the Commission and its ARA, if not the Commission,
and that the third party will furnish upon demand complete, correct,
and current hard copies of the records.\268\
---------------------------------------------------------------------------
\268\ 17 CFR 240.17Ad-7(g).
---------------------------------------------------------------------------
The Commission is proposing to combine these requirements into a
single provision in proposed Rule 17ad-7(h)(1) to require that, unless
it has and maintains at all times independent access to such records, a
registered transfer agent that uses a third party, including, but not
limited to, an outside service bureau, another registered transfer
agent, or the issuer to maintain, retain, or preserve records,
including by use of an electronic recordkeeping system or by using
servers or other storage mechanisms that are owned or operated by the
third party, obtain from such third party and file with the Commission
and its ARA, if not the Commission, a legally binding written agreement
signed by a duly authorized person of the third party acknowledging
that the records of the transfer agent are subject at any time to
examination by representatives of the Commission or ARA and agreeing to
promptly, upon request, permit examination of such records during
regular business hours and furnish legible, true, complete, and current
copies of any records so requested.\269\
---------------------------------------------------------------------------
\269\ See proposed Rule 17ad-7(h)(1).
---------------------------------------------------------------------------
Proposed Rule 17ad-7(h)(2) would provide that a registered transfer
agent using a third party to maintain, retain, or preserve records has
independent access to such records if it can regularly access the
records without the need of any intervention by the third party and
through such access (1) permit examination of the records at any time
by representatives of the Commission or its ARA; and (2) promptly
furnish legible, true, complete, and current copies of such
records.\270\ Where a transfer agent is utilizing blockchain-based or
other distributed ledger technology, it would have independent access
where it is able to view the records maintained on the blockchain or
other distributed-ledger, and can through such access permit
examination and promptly furnish copies, as noted immediately above.
---------------------------------------------------------------------------
\270\ See proposed Rule 17ad-7(h)(2).
---------------------------------------------------------------------------
The requirements in proposed Rule 17ad-7(h)(1) are similar to the
requirements of existing Rule 17ad-7(g) in that the transfer agent
would be required to obtain an agreement, in writing, with the third
party stating that the records are subject to examination by
representatives of the Commission and its ARA, if not the Commission,
and that the third party would furnish copies of the records upon
demand. In addition, however, proposed rule 17ad-7(h)(1) would also
require the registered transfer agent to file that written agreement
with the Commission and its ARA, if not the Commission, and require the
third party to promptly furnish copies of any records so requested and
permit examination of such records during regular business hours. These
additional requirements would help to ensure that Commission and ARA
staff have access when needed to transfer agent records being
maintained, retained, or preserved by third parties. In addition,
proposed Rule 17ad-7(h)(1) would provide an exception for registered
transfer agents that have, and maintain at all times, independent
access to any records maintained, retained, or preserved by a third
party. These transfer agents would not be required to obtain an
agreement from the third party.
In the Commission's experience, despite the existing requirement in
Rule 17ad-7(f)(6) for third party recordkeepers maintaining records for
transfer agents to file a written undertaking with the Commission and
ARA, they do not always do so. Under proposed rule 17ad-7(h)(1), the
Commission would place the obligation directly on the registered
transfer agent. Requiring registered transfer agents to have a written
agreement with any third party recordkeepers would foster
accountability by the transfer agent, in that the third party would be
bound to certain commitments to the transfer agent, which the transfer
agent would be able to enforce through contractual remedies. The third
party's acknowledgement in the proposed written agreement that the
records held by the third party for the transfer agent are subject at
any time to examination by representatives of the Commission or ARA
would inform the third party of the importance of maintaining the
records as required and providing them, upon request, for examination.
Proposed Rule 17ad-7(h)(3) would further provide that any agreement
with a third party to maintain, retain, or preserve records will not
relieve a registered transfer agent from the responsibility to
maintain, retain, or preserve records as required under this
chapter.\271\ The requirements of proposed Rule 17ad-7(h)(3) are
substantially similar to the requirements of existing Rule 17ad-
7(f)(6)(ii) which states that agreement with a third party to maintain
records shall not relieve a registered transfer agent from its
responsibility to prepare and maintain records as specified in this
section or in Rule 17ad-6. The changes the
[[Page 56989]]
Commission is proposing would update and conform the language in this
provision with the other proposed changes to Rule 17ad-7(f).
---------------------------------------------------------------------------
\271\ See proposed Rule 17ad-7(h)(3).
---------------------------------------------------------------------------
d. Prompt Production of Records
Existing Rule 17ad-7(f) requires transfer agents that use
electronic storage media or micrographic media to store their records
to have available at all times for examination ``facilities to project
or produce immediately easily readable images of such records'' and to
``[b]e ready at all times to provide such records'' that the Commission
or the transfer agent's ARA requests,\272\ but does not explicitly
require the prompt production (or examination) of such records.
Further, there is no similar provision for records that are not stored
using electronic storage media or micrographic media. At the same time,
if a transfer agent uses a third party to maintain or preserve some or
all of its required records using electronic storage media or
micrographic media, existing Rule 17ad-7(f)(6), requires the third
party to file a written undertaking with the Commission or the transfer
agent's ARA stating that, among other things, the third party ``hereby
undertakes to permit examination of such books and records at any time
. . . and to promptly furnish to said Commission or its designee true,
correct, complete, and current hard copies of any or all or any part of
such books and records.'' \273\
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\272\ See Exchange Act Rule 17ad-7(f)(2)(i) and (ii), 17 CFR
240.17Ad-7(f)(2)(i) and (ii).
\273\ Exchange Act Rule 17ad-7(f)(6)(i), 17 CFR 240.17Ad-
7(6)(i).
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In the Commission's supervisory experience, clear, explicit
requirements to promptly produce and permit examination of records are
necessary and appropriate to help the Commission to fulfill its
statutory mandate to regulate and oversee registered transfer agents
and facilitate examination of transfer agent records by Commission and
ARA staff. Accordingly, proposed Rule 17ad-7(g) would require every
registered transfer agent, with respect to any record required to be
maintained, retained, or preserved under this section, or otherwise
subject to examination under section 17(b) of the Exchange Act, to
provide promptly upon demand from the representatives of the Commission
or the transfer agent's ARA a legible, true, complete, and current copy
of such record in a reasonably usable electronic format.\274\
---------------------------------------------------------------------------
\274\ See proposed Rule 17ad-7(g).
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This proposed requirement is necessary and appropriate to
facilitate examination of transfer agent records by Commission and ARA
representatives. The proposed rule would create a simplified, single
requirement applicable to all records subject to examination under
Section 17(b) of the Exchange Act, regardless of whether the records
are maintained in a paper-based or electronic format. It would require
records to be produced promptly upon request. Promptly, in this
context, means making reasonable efforts to produce records requested
by Commission or ARA representatives without delay. In the Commission's
experience, given the widespread use of electronic recordkeeping,
transfer agents have the technical capability to furnish records within
a few hours of a request, although they may request additional time to
review and prepare them prior to production. Thus, the Commission
expects that only in unusual circumstances would a registered transfer
agent be able to delay furnishing records for more than one business
day and still meet the ``promptly'' standard.
The proposed rule would require records to be produced in a
reasonably usable electronic format. This means that any electronic
recordkeeping system used by a transfer agent would need to be able to
download and transfer a copy of a record in a reasonably usable
electronic format to meet this obligation. A reasonably usable
electronic format would be a format that is compatible with commonly
used systems for accessing and reading electronic records and, as a
result, may change over time as technology evolves. This proposed
requirement is designed to prevent situations where regulators receive
files in proprietary formats they cannot open or review.
The proposed rule would require transfer agents to provide legible,
true, complete, and current copies of records requested by Commission
or ARA representatives. This provision would necessarily require a
transfer agent to have controls in place to verify the quality and
accuracy of its records to ensure that any records provided to
Commission or ARA representatives are legible (capable of being read),
true (accurate and authentic), complete, and current.
4. Delivery of Records to Successor Transfer Agent
Existing Rule 17ad-7(h) provides that when a registered transfer
agent ceases to perform transfer agent functions for an issue, the
responsibility of such transfer agent under Rule 17ad-7 to retain the
records required to be made and kept under Rule 17ad-6(a)(1), (6), (9),
(10), and (11), (b) and (c) shall end upon delivery of such records to
the successor transfer agent.
The Commission proposes to renumber this provision as Rule 17ad-
7(i) and add language specifying that a transfer agent may also deliver
certain required records to the issuer or the issuer's designee to end
its responsibility to retain those records.\275\ In addition, the
Commission proposes to add a requirement for registered transfer agents
to deliver, provide, or otherwise make available, to the issuer or the
issuer's designee all records required to be made and kept current
under Rule 17ad-6(a)(1), (6), (9), (10), and (11), (b) and (c) related
to an issue within 15 calendar days after ceasing to perform transfer
agent functions for that issue.\276\
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\275\ See proposed Rule 17ad-7(i).
\276\ Id.
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The Commission has received issuer complaints noting that two
primary conflicts arise between transfer agents and issuers: (1) fee
disputes and (2) termination/succession issues. Disputes between
issuers and transfer agents can interfere with the transfer agent's
processing, recordkeeping, and safeguarding and therefore cause
disruptions with the clearance and settlement system.\277\ For example,
issuers have noted that some transfer agents, after being terminated by
the issuer, have delayed or have refused to hand over securityholder
records to successor transfer agents unless the issuer pays a
termination fee \278\ that was not previously agreed upon by both
parties. The withholding of securityholder records does not allow the
successor transfer agent to ensure the master securityholder file and
other records are accurate.
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\277\ See 2015 Concept Release, supra note 4, at 81978.
\278\ See id. It is the Commission staff's understanding that
typical termination fees may range from about $1,000 to $5,000,
though disputes like those described herein may involve a transfer
agent's demand for fees as high as $30,000.
---------------------------------------------------------------------------
If the relationship between an issuer and a transfer agent is
terminated, and the issuer engages a new transfer agent, it is
essential to the issuer, its securityholders, and market participants
who may seek to trade the issuer's securities, that the issuer's
records are promptly delivered to the new transfer agent to provide an
orderly continuity of services. To promote the continuous and accurate
recordkeeping of issuer and securityholder records, this provision
would require that all relevant master securityholder files, transfer
journals, control books, records of cancelled securities certificates,
and other key records be delivered, provided, or otherwise made
available
[[Page 56990]]
to the issuer or its designee no later than 15 calendar days of the
transfer agent ceasing to perform transfer agent functions for an
issue.\279\ Based on the Commission's experience supervising transfer
agents, 15 calendar days is sufficient time for a transfer agent to
identify the relevant documents and provide copies of such documents to
the issuer or the issuer's designee, such as a successor transfer
agent.
---------------------------------------------------------------------------
\279\ See proposed Rule 17ad-7(i).
---------------------------------------------------------------------------
The timely transfer of issuer and securityholder records is
essential to maintaining the accuracy and continuity of critical
transfer agent functions that support the national clearance and
settlement system. As discussed above, delays in producing or
transmitting documents and records can create operational gaps that
impede a successor transfer agent's ability to commence servicing the
issuer's securities, potentially affecting issuers, investors, and
downstream market participants who rely on accurate and current records
to process transactions and maintain orderly markets. Requiring
transfer agents to make these critical records available provides
certainty that a successor transfer agent will be able to resume core
functions on behalf of the issuer and its securityholders in a timely
manner, reducing the likelihood and duration of disruptions that could
interfere with recordkeeping, distributions, transfers, and other
essential services. These concerns underscore why a clear and
enforceable requirement to deliver all relevant documents within a
defined period is necessary to support the continuous and accurate
servicing of securityholder accounts, to mitigate the risks of service
interruptions, and to help ensure the safe and efficient functioning of
the national clearance and settlement system.
5. Request for Comment
The Commission requests comments on all aspects of the proposed
amendments to Rule 17ad-7. In particular, the Commission requests
comments on the following:
90. Is the proposed uniform six-year retention period appropriate
for most transfer agent records? Are there categories of records that
should have a shorter or longer retention period? If so, which ones and
why?
91. The proposed rule would extend the retention requirement to
cover all records required to be made or kept under the Exchange Act,
not just those specified in Rule 17ad-6. Are there categories of
records currently created and maintained by transfer agents in the
ordinary course of business that should be explicitly excluded from
this expanded scope? If so, which ones and why? Do commenters believe
that this requirement would conflict with any other Commission
recordkeeping requirement (for example, for transfer agents that are
also registered broker-dealers)?
92. Would the proposed uniform six-year retention period create
disproportionate compliance burdens for smaller or less complex
transfer agents, such as those that perform transfer agent functions
solely for their own or affiliated companies' securities? Should the
Commission consider tiered retention requirements based on transfer
agent size or complexity?
93. With respect to records that would be subject to a retention
requirement under the proposed expansion of Rule 17ad-7(a), do transfer
agents already create and maintain such records in the ordinary course
of their operations, and if so, for how long are such records currently
retained in practice? Are there categories of records that transfer
agents currently create and use operationally but do not retain for any
defined period, such that the proposed rule would require not only a
new retention obligation but also changes to existing systems,
policies, or infrastructure to preserve records that are currently
discarded or overwritten after use? Please identify any such record
categories and describe the operational, technological, and cost
implications of retaining them for six years.
94. The proposed rule would require electronic recordkeeping
systems to maintain an audit trail that tracks access, modification,
and deletion of records, including the identity of the user and the
date and time of the action or attempted action. Are there
circumstances in which maintaining such an audit trail would be
technically infeasible or operationally impractical, such as with
legacy systems or certain cloud-based platforms? How should the rule
address such circumstances?
95. The proposed rule would replace the term ``electronic storage
media'' with ``electronic recordkeeping system.'' Is the proposed
definition for this term sufficiently clear and technology-neutral to
accommodate current and emerging recordkeeping technologies, including
cloud-based platforms, distributed ledger systems, and AI-driven
recordkeeping tools? Are there technologies or systems that might fall
outside this definition that should be covered?
96. The proposed rule would remove all references to micrographic
media, reflecting the Commission's understanding that registered
transfer agents have largely moved away from such technology. Are there
transfer agents that continue to rely on micrographic media for
recordkeeping? If so, what transition period or accommodation, if any,
would be appropriate to allow such transfer agents to come into
compliance with the amended rule?
97. The proposed rule would require transfer agents to implement
controls to ensure the continuity of records across their entire
lifecycle, without regard to system or technology upgrades, staff
changes, or format changes. What specific challenges do transfer agents
face in ensuring record continuity across system migrations, technology
upgrades, or changes in service providers? Are there particular
standards or frameworks such as those developed by the National
Institute of Standards and Technology (NIST) or the International
Organization for Standardization (ISO) that the Commission should
reference or incorporate to provide clearer guidance on continuity
requirements?
98. Would there be situations in which a transfer agent is unable
to obtain the agreement required under proposed Rule 17ad-7(h) from a
third-party service provider? If so, what requirements would be
appropriate?
99. Do commenters agree that a transfer agent utilizing blockchain-
based or other distributed ledger technology would have independent
access to such records consistent with proposed Rule 17ad-7(h)(2) such
that the transfer agent would be able to regularly access and view the
records maintained on the blockchain or other distributed-ledger
without the need of any intervention by a third party, and could
through such access permit examination of the records and promptly
furnish copies of the records?
100. Should the Commission require transfer agents to maintain a
duplicate copy of each required record, separately from the original,
using the same controls and for the same retention period as the
original? Would such a requirement be practical and cost-effective for
transfer agents of all sizes and complexity? Should such a rule specify
minimum standards for the geographic or logical separation of original
and duplicate records, such as requiring that duplicates be maintained
at a different physical location or on a separate network?
101. The proposed rule would require transfer agents to deliver,
provide, or otherwise make available to the issuer or its designee all
specified records within 15 calendar days of ceasing to
[[Page 56991]]
perform transfer agent functions for an issue. Is 15 calendar days a
sufficient and realistic timeframe for all transfer agents, regardless
of the size or complexity of the issue? Should the rule provide for
extensions of this deadline in specified circumstances, such as those
involving disputes between the transfer agent and the issuer, or
operational disruptions? If so, what specified circumstances would
warrant such an extension and what process should govern such
extensions? Should the Commission consider alternative approaches to a
transfer agent's maintenance, retention, and preservation of records?
Why or why not? If so, what alternative approaches should the
Commission consider? Please explain in detail.
I. Amendments to Rule 17ad-10
The Commission adopted Rule 17ad-10 in 1983 to ensure the accuracy
of securityholder records and to address potential harm caused by
inaccurate securityholder records.\280\ It requires each recordkeeping
transfer agent to promptly and accurately post certificate detail to
the master securityholder file after a security is transferred,
purchased, redeemed or issued. The meaning of the term ``promptly''
varies with the relevant transaction but generally means five business
days, although for certain exempt transfer agents under Rule 17ad-4(b)
promptly means 30 calendar days, and for transfer agents functioning
solely for their own or their affiliated companies' securities and
using batch processing promptly means ten business days.\281\ Timely
updating of the master securityholder file is required because delayed
posting or the failure to post would promote the proliferation of
record inaccuracies that could impede the accurate payment of dividends
and the processing of proxy solicitations.\282\
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\280\ See generally, 17ad-9 through 13 Adopting Release, supra
note 111, at 28232.
\281\ 17 CFR 240.17Ad-10(a)(2).
\282\ See infra Section III.J.1 for further discussion of
transfer agents' paying agent activities.
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The Commission proposes amending Rule 17ad-10 to specify that the
rule applies to both certificated and uncertificated securities
equally, align the ``prompt'' posting timeframe to the modern
settlement cycle,\283\ and modernize the rule text by replacing
references to physical processes, hard copy records, and mail with
technology neutral terms and standards. The proposed amendments are
narrowly tailored to these three areas and mirror the standards and
practices the Commission has already observed transfer agents adopt
operationally. Specifically, the Commission proposes replacing the term
``certificate detail'' as used in this rule, with ``position detail''
to conform to the changes to Rule 17ad-9.\284\ Similarly, the
Commission proposes amending its rules to remove references to ``hard
copy'' records, physical processes, and mail and replace them, where
necessary, with technology neutral terms. Lastly, the Commission seeks
to revise the ``buy-in'' rule by removing the term ``physical
overissuance,'' replacing it with ``overissuance,'' as the former term
has led to questions regarding whether it applies to uncertificated
securities. In connection with that change, the Commission is proposing
to add a definition for the term ``overissuance'' to specify that the
rule applies to any overissuance, whether it involves certificated or
uncertificated securities, to avoid any confusion, as more fully
described below.
---------------------------------------------------------------------------
\283\ See 17 CFR 240.15c6-1(a); see also proposed Rule 17ad-2.
\284\ See proposed Rule 17ad-9.
---------------------------------------------------------------------------
1. Global Amendments
Consistent with the amended definitions in Rule 17ad-9 discussed
above,\285\ the Commission is proposing to replace each reference to
``certificate detail'' throughout Rule 17ad-10 with a reference to
``position detail,'' including each instance of the term ``certificate
detail'' in the title of the rule and in paragraphs (a)(1), (a)(3),
(f), and (h) of Rule 17ad-10.\286\ The Commission also is proposing to
replace each reference to ``certificate'' with a reference to
``security,'' including each instance of the term ``certificate'' in
paragraph (g) of Rule 17ad-10. This will help ensure that the prompt
posting and other requirements specified in Rule 17ad-10 clearly and
explicitly apply equally to both certificated and uncertificated
securities. This is especially important with respect to uncertificated
securities because turnaround for uncertificated securities is
accomplished when the transfer agent completes the registration of the
change in ownership,\287\ and registration of uncertificated securities
is accomplished when the appropriate position detail reflecting the
transaction is posted to the transfer agent's master securityholder
file.\288\ In other words, for uncertificated securities, prompt
posting is turnaround.
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\285\ See supra Section III.B.1.
\286\ See proposed Rule 17ad-10.
\287\ See 17 CFR 240.17Ad-1(d), (e) (definitions of transfer and
turnaround).
\288\ Under the UCC, registration of a new owner for
uncertificated securities occurs when the issuer (or the issuer's
agent) registers the purchaser as the new owner on its books. See
U.C.C. Sec. 8-301 (delivery of uncertificated securities occurs
when the issuer registers the purchaser as the registered owner on
its books).
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Finally, the Commission is proposing to replace outdated references
to paper-based modes of communication, such as ``dispatch or mail''
with the term ``provide,'' which is technology-neutral and broad enough
to encompass both the manual, mail-based means of communication
envisioned when the rule was first adopted, and electronic, digital,
and other means of communication that modern transfer agents might
utilize. Specifically, the Commission proposes to replace the terms
``dispatch or mail'' and ``mail'' with the term ``provide'' in
paragraphs (c)(1), (c)(2), and (d) of Rule 17ad-10.
2. Prompt Posting To Master Securityholder File
As discussed in connection with the proposed amendments to Rule
17ad-2, improvements to operational efficiency enabled by advances in
technology, the widespread availability of near-instantaneous
electronic communications, and the prevalence of uncertificated
securities in today's securities markets allow transfer agents to
process transfers, communicate and share information with outside
parties, and update and maintain their critical records significantly
faster than was possible in 1983 when Rule 17ad-10 was first adopted.
The manual, mail-dependent processes associated with the prompt posting
of certificate detail have given way to near-instantaneous electronic
communications and automated processes and workflows. Given these
advancements, and given that most securities processed by transfer
agents are uncertificated, it is appropriate to align the timing for
prompt posting under Rule 17ad-10 with the timing for turnaround under
Rule 17ad-2, regardless of whether the security being transferred,
purchased, redeemed, or issued is certificated or uncertificated.
Indeed, as noted, for uncertificated securities the two processes are
one and the same. Accordingly, the Commission is proposing to amend
Rule 17ad-10(a)(2)(i) to redefine ``promptly'' as meaning the shorter
of one business day or the time period specified by Rule 15c6-1(a)
under the Exchange Act.\289\ This change aligns with the amendments to
Rule 17ad-2 and establishes a uniform standard for turnaround that
matches the requirements for all recordkeeping transfer agents and for
all securities, whether they are certificated or uncertificated. This
would mean that,
[[Page 56992]]
under the existing standard securities settlement cycle, all
recordkeeping transfer agents would be required to promptly and
accurately post to the master securityholder file debits and credits
containing minimum and appropriate position detail representing every
security transferred, purchased, redeemed, or issued within one
business day after the security is transferred, purchased, issued, or
redeemed, regardless of whether the security is certificated or
uncertificated. As discussed above,\290\ linking the prompt posting
requirement for transfer agents to the existing settlement cycle for
most broker-dealer securities transactions will help ensure that most
investors' securities transactions settle within the same time frame,
regardless of whether the investor holds in street name (i.e., through
a broker-dealer) or in registered form (i.e., with a transfer agent).
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\289\ See proposed Rule 17ad-10(a)(2)(i).
\290\ See supra Section III.D.1.
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As a result of this proposed change, the Commission would rescind
all other meanings of the term promptly from Rule 17ad-10(a)(2).
Specifically, the Commission would rescind the meaning of promptly for
(i) recordkeeping transfer agents (other than those that perform
transfer agent functions for redeemable securities issued by investment
companies registered under section 8 of the 1940 Act) that are exempt
transfer agents under Rule 17ad-4(b), (ii) recordkeeping transfer
agents (other than those that perform transfer agent functions for
redeemable securities issued by investment companies registered under
section 8 of the 1940 Act) that perform transfer agent functions solely
for their own or their affiliated companies' securities issues and
employ batch processing systems, and (iii) all other recordkeeping
transfer agents. As noted above, these provisions are no longer
necessary in light of the technological and operational developments
that enable transfer agents to promptly update the master
securityholder file.
3. Communications Between Co-Transfer Agents and Recordkeeping Transfer
Agents
Existing Rule 17ad-10(c) requires co-transfer agents to ``dispatch
or mail promptly'' to the recordkeeping transfer agent a record of
debits and credits for every security transferred or issued.\291\
``Promptly'' in this context means two business days following
transfers (or daily if the transfer is within five days of the record
date).\292\ Consistent with the proposed amendments to Rule 17ad-2
discussed above, the Commission proposes to amend paragraph (c) of Rule
17ad-10 to require co-transfer agents to provide the required
information within one business day rather than two.\293\ As discussed,
advances in technology and other innovations enable co-transfer agents
to provide records of debits and credits for transferred securities
within one business day and often contemporaneous with their
occurrence. This will help support recordkeeping transfer agents'
ability to meet the new turnaround timing requirements and ensure that
all registered transfer agents perform their processing obligations
consistently and timely.
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\291\ 17 CFR 240.17Ad-10(c).
\292\ Id.
\293\ See proposed Rule 17ad-10(c).
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Similarly, existing Rule 17ad-10(d) requires co-transfer agents to
``respond promptly to all inquiries from the recordkeeping transfer
agent regarding records required to be dispatched or mailed by the co-
transfer agent'' pursuant to Rule 17Ad-10(c).\294\ For purposes of
paragraph (d), ``promptly'' means within five business days of receipt
of an inquiry from the recordkeeping transfer agent.\295\ The
Commission is proposing to amend paragraph (d) to require co-transfer
agents to respond within one business day of receipt of an inquiry from
the recordkeeping transfer agent.\296\ Given the shortened turnaround
deadlines in Rule 17ad-2 and the changes to paragraph (c) of Rule 17ad-
10 noted above, it is imperative that co-transfer agents respond to
inquiries from recordkeeping transfer agents in a timely manner. As
with the proposed amendment to Rule 17ad-10(a), this change comports
with the uniform standard set forth in Rule 17ad-2 and will help
support recordkeeping transfer agents' obligations to effect turnaround
in a timely manner.
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\294\ 17 CFR 240.17Ad-10(d).
\295\ Id.
\296\ See proposed Rule 17ad-10(d).
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4. Retention of Certificate Detail
Existing Rule 17ad-10(f) requires every recordkeeping transfer
agent to retain a record of all ``certificate detail'' (or, as
proposed, ``position detail'') deleted from the master securityholder
file for a period of six (6) years from the date of deletion.\297\ The
Commission adopted this requirement to facilitate the resolution of
record differences by recordkeeping transfer agents. The Commission
proposes amending this rule to rescind the language allowing transfer
agents that do not keep or maintain a ``hard copy'' of the information
to comply with the rule by adhering to the electronic storage
requirements set forth in Rules 17ad-7(f) and (g).\298\ This provision
would no longer be necessary, as the Commission's proposed amendments
to the recordkeeping rules do not require transfer agents to keep and
maintain hard copies of records. This proposed amendment would not
require a particular method for transfer agents to retain records of
``position detail'' information deleted from the master securityholder
file, meaning that such information could be maintained, for example,
by onchain records.
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\297\ 17 CFR 240.17Ad-10(f).
\298\ See proposed Rule 17ad-10(f).
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5. Overissuances
Existing Rule 17ad-10(g) requires a registered transfer agent, in
the event of any actual ``physical overissuance,'' that it caused and
of which it has knowledge, to buy-in securities (i.e., purchase them in
the open market) equal to the number of shares (in the case of equity
securities) or principal dollar amount (in the case of debt securities)
of the overissuance.\299\ The buy-in requirement is designed to deter
transfer agents from permitting record differences to accrue and
incentivizes them to maintain complete and accurate records that assure
that securityholders will receive all appropriate corporate
distributions and communications.\300\ The Commission is aware,
however, that the use of the word ``physical'' in referring to an
overissuance could be read to convey that the rule applies only to an
overissuance of certificated securities, because they are represented
by ``physical'' paper certificates. This is not the case. The buy-in
requirement specified in existing Rule 17ad-10(g) applies to any
overissuance, whether the overissuance involves certificated or
uncertificated securities.
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\299\ 17 CFR 240.17Ad-10(g)(1).
\300\ See 17ad-9 through 13 Adopting Release, supra note 111.
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An overissuance is a type of record difference, but not all record
differences are overissuances. Only record differences that result in
an overissuance require a buy-in under existing Rule 17ad-10(g). When
Rule 17ad-10(g) was proposed, the term ``physical overissuance'' was
designed to distinguish between the type of record difference that
results in an overissuance (i.e., where ``the share or dollar totals in
the master securityholder file do not balance with the control book'')
and another type of record difference where ``securities transferred or
redeemed contain
[[Page 56993]]
certificate detail different from the certificate detail currently on
the master securityholder file.'' \301\ The distinction is important
because only the first type of record difference--the type that results
in an overissuance--requires a buy-in under existing Rule 17ad-10.\302\
Importantly, it is possible for the share or dollar totals in the
master securityholder file to be out of balance with the control book
for any type of security, whether it is uncertificated or certificated.
Accordingly, and to avoid future confusion among industry participants,
the Commission is proposing to remove the word ``physical'' in
reference to overissuance in the title and throughout paragraph (g) of
Rule 17ad-10.
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\301\ 17ad-9 through 13 Proposing Release, supra note 9, at
47271.
\302\ See 17ad-9 through 13 Adopting Release, supra note 111, at
28237.
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To provide further clarity regarding the meaning of the term
overissuance, the Commission is proposing to add paragraph (i) to Rule
17ad-10, which will define overissuance as ``an out-of-balance
condition wherein the securities issued and outstanding exceed the
securities authorized and outstanding, as reflected in the transfer
agent's control book.'' \303\ This proposed definition is appropriate
because it is not potentially limited to certificated shares through
use of the term ``physical'' as discussed above, and instead uses
technology-neutral language that is equally applicable with respect to
certificated and uncertificated securities. The proposed definition
would help ensure that transfer agents are accurately and consistently
applying the term and complying with their obligation to monitor
against overissuances generally and conduct buy-ins consistent with
Rule 17ad-10(g).\304\
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\303\ See proposed Rule 17ad-10(i).
\304\ See proposed Rule 17ad-10(g).
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6. Request for Comment
The Commission requests comments on all aspects of the proposed
amendments to the requirements in Rule 17ad-10. In particular, the
Commission requests comments on the following:
102. The proposed rule would redefine ``promptly'' for purposes of
Rule 17ad-10(a) as the shorter of one business day or the time period
specified by Rule 15c6-1(a), aligning the prompt posting requirement
with the current T+1 settlement cycle. Is this standard achievable for
all categories of transfer agents and all types of securities
transactions, including those involving certificated securities,
complex corporate actions, or securities issued by smaller issuers? Are
there transaction types or operational circumstances that would make
one-business-day posting impractical or infeasible?
103. The proposed rule would eliminate the existing differentiated
``promptly'' standards for exempt transfer agents under Rule 17ad-4(b),
transfer agents using batch processing systems, and all other
recordkeeping transfer agents. Would the elimination of these
differentiated standards create disproportionate compliance burdens for
smaller or less technologically sophisticated transfer agents? Should
the Commission consider an exemption or different standards for certain
types of transfer agents, or a phased implementation schedule or
transitional relief for transfer agents that would need to
significantly upgrade their systems to meet the new standard?
104. Should the Commission consider allowing multiple recordkeeping
transfer agents to jointly but separately maintain the master
securityholder file for a particular issue across multiple files and
systems? If so, how would the prompt posting and overissuance
requirements in Rule 17ad-10 apply in such arrangements, and what
additional safeguards or coordination requirements would be necessary
to ensure accuracy and integrity of the master securityholder file?
105. Should transfer agents that maintain the master securityholder
file exclusively on an immutable blockchain network be exempt from the
record deletion and retention requirement set forth in Rule 17ad-10(f),
given that records created on such networks cannot be ``deleted'' in
the traditional sense? If so, what alternative requirements, if any,
should apply to ensure that the purposes of Rule 17ad-10(f) are
achieved?
106. Should the Commission amend Rule 17ad-10(h) to eliminate the
provision stating that recordkeeping transfer agents shall not be
required to add certificate detail (or position detail, as proposed to
be amended) to the master securityholder file for certificates issued
prior to the effective date of this section, which was September 30,
1983?
107. Should the Commission consider alternative approaches to
ensuring that the requirements of Rule 17ad-10 apply equally and
effectively to uncertificated securities, beyond the proposed
replacement of ``certificate detail'' with ``position detail''
throughout the rule? For example, should the Commission consider
adopting separate, tailored provisions for uncertificated securities
that better reflect the operational realities of maintaining and
updating securityholder records in a fully electronic environment?
Please explain.
J. Amendments to Rule 17ad-12
1. Background
A significant number of registered transfer agents provide
administrative, recordkeeping, processing, and custody services
associated with distributing cash and stock dividends, bond principal
and interest, mutual fund redemptions, and other payments to
securityholders, a constellation of services often referred to as
``paying agent'' services.\305\ These activities often require transfer
agents to receive, accept, and hold funds or securities for periods
ranging from less than one day to as long as 30 days before
distributing them to intended recipients.\306\ In some instances,
transfer agents may hold residual or unclaimed funds and securities for
extended durations when the intended recipient is lost or unresponsive
before distribution or escheatment under applicable law.\307\
---------------------------------------------------------------------------
\305\ 2015 Concept Release, supra note 4, at Section VI.C
(internal citations omitted). Exchange Act Rule 17ad-17(c)(2)
defines the term ``paying agent'' to include any issuer, transfer
agent, broker, dealer, investment adviser, indenture trustee,
custodian, or any other person that accepts payments from the issuer
of a security and distributes the payments to the holders of the
security. 17 CFR 240.17Ad-17(c)(2).
\306\ 2015 Concept Release, supra note 4, at Section VI.C
(internal citations omitted).
\307\ Id.; see also Transfer Agent Safeguarding of Funds and
Securities, OCIE Risk Alert (Feb. 13, 2019), available at https://www.sec.gov/files/OCIE%20Risk%20Alert%20-%20Transfer%20Agent%20Safeguarding.pdf (last visited Mar. 23, 2026).
---------------------------------------------------------------------------
The scope and scale of these activities are significant. In 2014,
transfer agents distributed over $2.4 trillion in securityholder
dividends and interest payments.\308\ In 2024, the amount rose to
nearly $4.4 trillion in dividend disbursements and interest
payments.\309\ These figures do not include distributions made by
mutual fund transfer agents.\310\ This data underscores
[[Page 56994]]
the increasing magnitude and systemic importance of the paying agent
functions performed by registered transfer agents. Operational
disruptions have historically demonstrated the potential market impact
of custody and processing failures: the late-1960s Paperwork Crisis
(including widespread physical-certificate backlogs and theft), the
2008 financial crisis, and the 2012 flooding of DTCC's securities vault
during Superstorm Sandy each highlighted the importance of safe,
accurate, and efficient delivery of funds and securities--whether
certificated or uncertificated--for market integrity and investor
protection.\311\
---------------------------------------------------------------------------
\308\ This figure is based on transfer agent annual reports
filed with the Commission on Form TA-2 under the Exchange Act for
the 2014 reporting period, which are publicly available once filed.
See generally, Exchange Act Rule 17Ac2-2(a), 17 CFR 240.17Ac2-2(a);
SEC Form TA-2, 17 CFR 249b.102.
\309\ This figure is based on transfer agent annual reports
filed with the Commission on Form TA-2 under the Exchange Act for
the 2024 reporting period, which are publicly available once filed.
See generally, Exchange Act Rule 17Ac2-2(a), 17 CFR 240.17Ac2-2(a);
SEC Form TA-2, 17 CFR 249b.102.
\310\ For example, based on information received in response to
information requests by Commission staff, we understand that
aggregate gross purchase and redemption activity for some of the
larger mutual fund transfer agents has ranged anywhere from $3.5
trillion to nearly $10 trillion just for a single entity in a single
year. As discussed in Section II.D, we are proposing to amend Form
TA-2 to include this information.
\311\ 2015 Concept Release, supra note 4, at Section VI.C
(internal citations omitted).
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Given transfer agents' custody and paying agent roles, risks
include fraud, theft, misappropriation, recordkeeping errors,
attachment (e.g., judgments against a transfer agent), and insolvency
(e.g., commingling of issuer or securityholder funds with transfer
agent funds, potentially leading to those issuer or securityholder
funds being treated as general assets of the transfer agent in
bankruptcy).\312\ As operations have become increasingly automated and
data-driven, transfer agents also face operational and information-
security risks that can affect ownership interests of securityholders
and disrupt market activity, particularly in light of electronic
linkages to DTC and other market participants.\313\
---------------------------------------------------------------------------
\312\ Id.; see also OCIE Risk Alert, supra note 307.
\313\ 2015 Concept Release, supra note 4, at Section VI.C
(internal citations omitted); see also DTCC During Market Turmoil
(July 2, 2021), available at https://www.dtcc.com/dtcc-connection/articles/2021/july/02/dtcc-during-market-turmoil (last visited Mar.
23, 2026).
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2. Existing Requirements Under Rule 17ad-12
Rule 17ad-12 is the safeguarding rule. It requires registered
transfer agents (1) to assure that all securities in their custody or
possession are held in safekeeping and handled, in light of all facts
and circumstances, in a manner reasonably free from risk of theft, loss
or destruction and (2) to assure that all funds in their custody or
possession are protected, in light of all facts and circumstances,
against misuse.\314\ In evaluating which particular safeguards and
procedures must be employed, Rule 17ad-12 specifies that the cost of
the various safeguards and procedures as well as the nature and degree
of potential financial exposure are two relevant factors.\315\
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\314\ 17 CFR 240.17Ad-12(a)(1) and (2).
\315\ 17 CFR 240.17Ad-12(a)(2).
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When Rule 17ad-12 was first proposed in 1982, the Commission noted
that ``registered transfer agents, in addition to possess[ing]
securities in transfer, may have custody and possession of substantial
amounts of funds and securities for a variety of reasons'' and that it
was proposing Rule 17ad-12 ``to strengthen investor protection.'' \316\
At the time, the Commission was primarily concerned with transfer
agents maintaining physical custody of funds and securities through
their role in maintaining balance certificates, administering DRIPs,
retaining abandoned dividend checks and certificates under state
abandoned property laws, maintaining supplies of unissued certificates,
distributing cash dividends, and processing mutual fund
redemptions.\317\ The examples of ``safekeeping'' measures a transfer
agent might employ were indicative of the focus on physical possession
or control: dual control vaults, sign-in procedures for vault entry,
closed circuit TV cameras, security guards, locked doors to offices
where transfer agent activities are performed, identification badges by
employees, and password procedures or terminal access controls for
system terminals in the transfer agent's office, among others.\318\
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\316\ 17ad-9 through 13 Proposing Release, supra note 9, at
47274.
\317\ Id.
\318\ Id.
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Other rules touch on mitigating risks associated with transfer
agents' activities. For example, Rule 17Ad-13 requires an independent
accountant's annual report concerning internal accounting control and
related procedures for the transfer of record ownership and the
safeguarding of related funds and securities,\319\ and Rule 17ad-17
addresses a narrow aspect of paying agent activity--searches for lost
securityholders and notices to unresponsive payees.\320\ However, these
rules do not prescribe specific minimum standards for the complex
administrative, recordkeeping, and processing activities associated
with transfer agents' paying agent services, nor do they explicitly
address operational and information security risks that arise in
modern, largely electronic environments.
---------------------------------------------------------------------------
\319\ See 17 CFR 240.17Ad-13.
\320\ See 17 CFR 240.17Ad-17.
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3. Modern Transfer Agent Activities and the Expanded Risk Landscape
While many paying agent activities remain similar in kind to those
contemplated in 1982, their scope, volume, and complexity have
dramatically increased. Modern transfer agents routinely:
Receive and hold issuer or securityholder funds and
securities prior to distribution, exposing them to custody and delivery
risks over varied holding periods;
Maintain residual or unclaimed funds and securities for
extended durations due to lost contact or unresponsive payees,
implicating escheatment obligations;
Execute complex distribution workflows--e.g., determining
record-date eligibility; calculating and balancing cash dividends or
stock dividend equivalents; issuing, registering, and delivering
securities in certificated or book-entry form; printing and posting
payments; reconciling checks and disbursements; and providing ancillary
services (e.g., stops on lost/stolen checks or certificates, reissues,
paid-check copies, and IRS tax reporting); \321\ and
---------------------------------------------------------------------------
\321\ 2015 Concept Release, supra note 4, at Section VI.C
(internal citations omitted).
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Administer special distributions (e.g., settlements and
litigations) requiring granular reconciliation of ownership records
across time windows and eligibility criteria, where errors can trigger
investor loss and issuer/agent liability.\322\
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\322\ Id.
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At the same time, the widespread use of uncertificated securities,
including tokenized or book-entry securities, and end-to-end automation
has introduced material operational and information-security risks.
Transfer agents store, access, and manipulate data related to the
securities and funds they hold. Unauthorized or inappropriate access or
failure of those systems can directly lead to loss, misappropriation,
or disruption of market activity--including among street-name owners
via electronic linkages to DTC.\323\ In the Commission's experience,
there is wide variance among transfer agents' practices concerning
information security and operational risk management, and it is not
uncommon for failures in information security or operational risk
management to directly cause or contribute to losses through theft or
misappropriation.\324\ While physical security is vitally important,
cybersecurity and operational threats are equally vital to an effective
safeguarding program.
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\323\ 2015 Concept Release, supra note 4, at Section VI.E
(internal citations omitted).
\324\ See OCIE Risk Alert, supra note 307.
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Yet Rule 17ad-12 focuses on physical custody and does not provide
clear, definitive standards for safeguarding
[[Page 56995]]
uncertificated securities, nor does it mandate a comprehensive risk-
management framework capable of addressing cybersecurity and
operational threats at the scale of modern activities. Further, risks
such as recordkeeping errors, attachment, and insolvency remain salient
and are not fully addressed by the existing safeguarding regime.
4. Proposed Amendments
Given the evolving roles of transfer agents, the magnitude of funds
and securities they process and hold, increasing importance of
cybersecurity and operational risk management in protecting investor
and issuer funds and securities, more specificity and a robust,
comprehensive standard is necessary to better protect investors,
facilitate the prompt and accurate clearance and settlement of
securities transactions, and preserve the resilience of the national
clearance and settlement system.\325\ Reframing Rule 17ad-12 as an
outcomes-based, policies-and-procedures requirement--supplemented by
targeted minimum safeguards--is both necessary and appropriate in the
public interest and for the protection of investors to:
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\325\ See In the Matter of Columbia Management Investment
Services Corp., Exchange Act Release No. 80016 (Feb. 10, 2017)
(settled matter) (finding that the transfer agent's Records
Management Manager ``viewed sensitive personal account information
such as addresses, dates of birth, and identification numbers'' to
misappropriate foreign deceased shareholders' funds and securities);
In The Matter of Equiniti Trust Company, LLC f/k/a American Stock
Transfer & Trust Company, LLC, Exchange Act Release No. 100780 (Aug.
20, 2024) (settled matter) (finding that the transfer agent
``suffered two separate cyber incidents in 2022 and 2023,
respectively, that led to the net loss of approximately $4.08
million total in client funds'').
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Explicitly cover all asset forms, including uncertificated
securities, by extending the safeguarding requirement to
misappropriation, damage, and improper or unauthorized access--terms
that directly encompass electronic records and modern data systems;
Mandate segregation of funds, requiring that issuer,
securityholder, and other third-party funds be maintained in a bank
account designated as a ``for the benefit of'' account, distinct from
any transfer agent operating accounts, which will help ensure that
those funds are not treated as the transfer agent's general assets in
the event of insolvency and reduce risks from commingling, attachment,
and operational confusion;
Require business continuity plans (``BCP'') to address
events posing significant operational disruption risks--ensuring timely
recovery of records and resumption of operations and obligations and
providing a baseline of preparedness to help mitigate local and
systemic risks; and
Establish a comprehensive risk-management framework to
identify, measure, monitor, and mitigate material custody, operational,
cybersecurity, and related risks--calibrated to each transfer agent's
business model and services--providing flexibility while ensuring
consistent, minimum standards across the industry.
Accordingly, the Commission is proposing to reframe Rule 17ad-12 as
a comprehensive risk management rule. Specifically, under proposed
amendments to Rule 17ad-12, a registered transfer agent would be
required to establish, maintain, and enforce written policies and
procedures reasonably designed to (i) ensure that all securities and
funds in the transfer agent's possession, control, or custody are
protected at all times against the risk of theft, loss,
misappropriation, misuse, damage, destruction, and improper or
unauthorized access and (ii) identify, measure, monitor, and mitigate
any material custody, operational, cybersecurity, and other risks posed
by or associated with the transfer agent's business, activities, and
operations.\326\ This approach would help establish clear but flexible
compliance requirements that would permit each transfer agent to
develop policies and procedures tailored to its risks and other
characteristics. The specific policies and procedures would still need
to comply with the minimum requirements specified in the rule but would
otherwise be within the discretion of the transfer agent depending on
the nature and scope of the transfer agent's services and activities.
---------------------------------------------------------------------------
\326\ Proposed Rule 17ad-12(a).
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The rule would also require that all issuer, securityholder, and
other third-party funds held by a registered transfer agent be
maintained in a bank account designated as a ``for the benefit of''
account separate from any other bank account of the registered transfer
agent.\327\ The proposed rule would not, however, require transfer
agents to maintain segregation of third-party funds on a client-by-
client basis. This requirement would help ensure that a transfer
agent's operational funds are not commingled with issuer,
securityholder, or other third-party funds and that those issuer,
securityholder, or third-party funds are kept bankruptcy remote in the
event the transfer agent enters bankruptcy or otherwise goes out of
business, thereby facilitating access of issuers, securityholders, and
other third parties to funds that are rightfully theirs.
---------------------------------------------------------------------------
\327\ Proposed Rule 17ad-12(b).
---------------------------------------------------------------------------
Finally, the amended rule would require transfer agents to
establish, maintain, and enforce a written business continuity plan
that (i) identifies and addresses events that pose a significant risk
of disrupting the transfer agent's operations; (ii) ensures the timely
recovery of the transfer agent's records; (iii) enables the timely
resumption of the transfer agent's operations and fulfillment of its
responsibilities and obligations; and (iv) is tested, reviewed, and
updated no less frequently than annually.\328\ This requirement is
necessary and appropriate to ensure that registered transfer agents
address and mitigate the significant risks that disruptions pose to
investors, issuers, the securities markets, and the national clearance
and settlement system. As discussed above, any interruption to a
transfer agent's functions--whether caused by natural disaster,
operational failure, cyber incident, employee malfeasance, or other
events--can result in significant delays or errors in the delivery of
funds and securities, lead to the loss of physical or electronic
records, funds or securities, or in some cases jeopardize the ownership
interests of securityholders. Based on the Commission's supervisory
experience, historical disruptions, including those triggered by severe
weather events and other operational shocks, have demonstrated that the
continuity of transfer agent operations is essential to maintaining
market stability and protecting investors. The Commission understands
that modern transfer agents rely extensively on electronic systems for
recordkeeping, processing, and communication with issuers,
securityholders, and other market participants. These systems introduce
dependencies and vulnerabilities that did not exist when the transfer
agent rules were first adopted, including the risk that a system
outage, data loss, or cybersecurity incident could impair a transfer
agent's ability to process transactions, access or reconcile records,
or fulfill its obligations as a paying agent or custodian. Because
transfer agents often serve as a critical link between issuers,
registered securityholders, depositories, and other intermediaries, an
operational disruption at a single transfer agent can have broader
effects on trading, clearance and settlement, and investor access to
funds or securities. For these reasons, requiring registered transfer
agents to establish, maintain, and enforce a written business
continuity plan is a key component of
[[Page 56996]]
a modernized safeguarding framework and is necessary to mitigate the
operational and information security risks faced by contemporary
transfer agents. The requirement that the business continuity plan
ensure the timely recovery of the transfer agent's records is designed
to ensure that each transfer agent considers how to address the
recovery of both physical and electronic records. For example,
duplicate copies of records that are kept separate from the originals
may serve as a safeguard against data loss, corruption, or tampering.
As such, duplicate copies of records may be part of a transfer agent's
business continuity plan, enabling the timely recovery of records and
resumption of operations if needed. The requirement that the business
continuity plan be tested, reviewed, and updated no less frequently
than annually is designed to help ensure that each transfer agent's
plan remains current, effective, and appropriately calibrated to the
transfer agent's technology, business model, scale, and risk profile.
---------------------------------------------------------------------------
\328\ Proposed Rule 17ad-12(c).
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The proposed amendments to Rule 17ad-12 will provide an outcomes-
based but measurable standard that enables transfer agents to tailor
their risk management to their particular operations while establishing
a consistent minimum baseline of preparedness across the industry.
Given the volume of assets handled by transfer agents and the
dependence of issuers and investors on their uninterrupted operation,
reframing Rule 17ad-12 as a comprehensive risk management rule is
necessary and appropriate to promote the prompt and accurate clearance
and settlement of securities transactions, the safeguarding of
securities and funds, and to protect investors and the public interest.
5. Request for Comment
The Commission requests comments on all aspects of the proposed
amendments to Rule 17ad-12. In particular, the Commission requests
comments on the following:
108. Is an outcomes-based, policies and procedures approach
appropriate for registered transfer agents' risk management, or should
the rule specify more prescriptive minimum standards for particular
types of risks or activities?
109. Should the Commission provide guidance on what would
constitute a ``material'' custody, operational, cybersecurity, or other
risk that would need to be addressed in a transfer agent's risk
management policies and procedures?
110. Are the proposed requirements for BCPs adequate to ensure
timely recovery and resumption of operations after a disruption?
111. Should transfer agents be required to report cybersecurity
incidents or other significant operational disruptions to the
Commission or their ARA within a specified timeframe? If so, what types
of incidents should trigger a reporting obligation, and what
information should be included in such reports?
112. Should transfer agents be required to obtain independent
assessments of their cybersecurity and operational risk management
practices, such as SOC 2 reports (i.e., the compliance and privacy
standard developed by the AICPA) or similar third-party attestations?
If so, how frequently should such assessments be required, and should
they be filed with the Commission or made available to ARA staff?
113. Is the proposed requirement to maintain issuer or
securityholder funds in segregated bank accounts practical and
effective from a safeguarding perspective? Should the rule address
whether stablecoins and tokenized deposits can be funds (in addition to
cash) and whether the bank account could be a bank's custodial wallet?
Should the rule specify minimum requirements for the banks at which
such accounts must be maintained? Should the rule permit transfer
agents to use trust accounts or other types of intermediaries, such as
registered broker-dealers, to hold issuer or securityholder funds?
K. Amendments to Rule 17ad-17
1. Background
Existing Rule 17ad-17(b)(2) defines a lost securityholder as a
securityholder to whom an item of correspondence that was sent is
returned as undeliverable. Existing Rule 17ad-17(a)(1) requires
recordkeeping transfer agents, brokers, and dealers with accounts of
lost securityholders to exercise reasonable care to ascertain the
correct physical mailing addresses of such securityholders, including
by conducting at least two database searches pursuant to a specific
schedule.\329\ The Commission adopted Rule 17ad-17 in 1997 to address
situations where recordkeeping transfer agents could lose contact with
securityholders, which could prevent securityholders from receiving
corporate communications or interest, dividend, and other payments from
the issuer to which the securityholder may be entitled.\330\ The
Commission also noted that loss of contact could place securityholders'
securities and related interest and dividend payments to which they are
entitled at risk of being deemed abandoned under operation of state
escheatment laws.\331\ Generally, such state escheatment laws require
transfer agents to remit ``abandoned'' securities and funds to a
state's unclaimed property administrator after a certain period of time
has elapsed following a ``dormancy trigger''--historically five years
for securities.
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\329\ See 17 CFR 240.17Ad-17(a).
\330\ See Rule 17ad-17 Adopting Release, supra note 57.
\331\ Id.
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There are two primary dormancy triggers for securities adopted in
most states. First, one dormancy trigger is the return as undeliverable
of one or more items of U.S. mail sent to the owner of the securities,
commonly referred to as the ``Returned Post Office'' or ``RPO''
standard. Second, another dormancy trigger begins after the last owner-
generated contact or activity, regardless of whether physical mail is
successfully delivered.\332\ In general, the property owner can avoid
escheatment following a dormancy trigger by indicating an awareness of
and interest in the security, for example by communicating with the
transfer agent, accessing an account, negotiating a check, or making a
deposit or withdrawal.\333\ Although securityholders who have had their
securities escheated may be able to petition the state to reclaim their
property, states generally indemnify holders only for the value of the
securities at the time of escheatment, not for subsequent market
appreciation, dividend streams, or tax consequences. Thus, ensuring
that transfer agents can identify active and engaged securityholders is
a key factor in preventing escheatment and the attendant harm or
inconvenience it can cause to investors.
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\332\ See Unclaimed Property: Compliance Obligations and
Challenges for Broker Dealers--SIFMA, SIFMA (January 2015),
available at https://www.sifma.org/research/white-papers/unclaimed-property-compliance-obligations-and-challenges-for-broker-dealers
(discussing common dormancy triggers adopted by the states).
\333\ See, e.g., Revised Uniform Unclaimed Property Act, Section
210 (Indication of Apparent Owner Interest in Property).
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The Commission is aware of a recent trend among some states to
reduce the dormancy period for securities from five years to three
years.\334\ The Commission
[[Page 56997]]
is also aware that many states have now replaced or supplemented the
long-standing RPO standard that defines lost securityholders under Rule
17ad-17(a) with an inactivity standard that requires the owner to
actively manage or access their account or it can be deemed dormant
following a requisite period of inactivity.\335\ The argument in favor
of the inactivity standard appears to be that the RPO standard is
outdated, as many owners now access their accounts and receive
statements electronically. However, a risk is that many investors adopt
a ``buy and hold'' or ``set it and forget it'' strategy with their
investment accounts, especially those established as retirement or
educational savings accounts, and may see no need to routinely access
their account, especially if they are receiving periodic statements.
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\334\ For example, New York, Arizona, South Dakota, Maryland,
and New Hampshire have three-year dormancy periods for securities.
See also letter from Senator Elizabeth Warren, Ranking Member,
Committee on Banking, Housing, and Urban Affairs, to Meaghan
Aguirre, National Association of Unclaimed Property Administrators,
dated April 15, 2026, available at https://www.banking.senate.gov/imo/media/doc/20260415vlettertonaupaonescheatment.pdf.
\335\ For example, in 2026, Florida Senate Bill 1457 enacted
several significant changes to Florida's unclaimed property laws.
The new Florida standard incorporates both a returned communication
standard and a 10-year period to show an indication of interest, or
activity, in an account. It also allows investors to demonstrate
continued interest by securely accessing a website, engaging through
a mobile app, or responding to an account notice, among other
actions. See Fla. SB 1452 (2026). See also, 12 Del. C. Sec. 1133;
N.Y. Abandoned Property Law Sec. 50; Michigan Compiled Laws Sec.
567; Texas Property Code Title 6; Iowa Code Chapter 556.
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The net effect of these developments is to increase the likelihood
of escheatment for investors. In the case of inactivity standards
replacing the RPO standard, it is possible that state laws could
vitiate the purpose of Rule 17ad-17 altogether by requiring a transfer
agent, broker, or dealer to escheat funds or securities to the state
even though there is no lost securityholder as defined by the rule.
2. Proposed Amendments Regarding Inactive Securityholders
Accordingly, for the reasons discussed above, the Commission
proposes to add Rule 17ad-17(b)(3) to establish a new defined term for
``inactive securityholder.'' Under the new Rule 17ad-17(b)(3), an
inactive securityholder would include a securityholder for whom the
transfer agent, broker, or dealer has not observed any account activity
for a period of 18 months. For this purpose, the term ``account
activity'' by a securityholder includes any of the following actions
regarding its account: electronically accessing the account, including
account login or email access; any electronic communication with the
transfer agent, broker, or dealer regarding the account; conducting a
transaction in the account where the assets are held, including
deposits or withdrawals of funds; indication of receipt of
communications (such as read receipts); or any other affirmative
indication or action that reasonably demonstrates that the
securityholder is reachable and engaged with its account.
Under this proposal, a securityholder for whom the transfer agent,
broker, or dealer has not observed any account activity for a period of
18 months would be treated as an inactive securityholder. Pursuant to
the new requirement in proposed Rule 17ad-17(a)(3), the transfer agent,
broker, or dealer would be required to exercise reasonable care to
notify such securityholder. In exercising reasonable care to notify
such securityholders, each such recordkeeping transfer agent and broker
or dealer shall provide not less than two written notifications to each
inactive securityholder stating that such inactive securityholder has
not been active in its account, that some jurisdictions may consider
inactive accounts to be unclaimed or abandoned property subject to
escheatment, and describe the steps a securityholder may take to show
activity in the account. Such notifications must be provided no later
than six (6) months after the securityholder became an inactive
securityholder and no later than six (6) months after providing the
first notification. Such notifications need not be provided if the
securityholder ceases to be an inactive securityholder prior to the
notifications being provided. Such notifications may be sent by any
method reasonably expected to reach the inactive securityholder.
Providing the notifications could aid the transfer agent, broker,
or dealer in reestablishing activity in the account, prior to the
transfer agent, broker, or dealer being required to remit funds or
securities to the state escheatment authority pursuant to a potential
dormancy standard, thereby advancing the protection of investors
against escheatment of their assets.
3. Proposed Amendments Regarding Correspondence and Payments
To reflect the use of electronic means for sending correspondence
and payments, the Commission is also proposing to update existing
paragraphs (b)(2), (c)(1), and (c)(3). Paragraph (b)(2) defines the
term ``lost securityholder.'' A securityholder can become a lost
securityholder if, among other things, an item of correspondence that
was sent to the securityholder at the address contained in the transfer
agent's master securityholder file or customer security account records
of the broker or dealer has been returned as undeliverable. The
Commission is proposing to delete from this definition the phrase ``at
the address contained in the transfer agent's master securityholder
file or customer security account records of the broker or dealer.''
Under the revised definition, a securityholder would become a lost
securityholder whenever an item of correspondence that was sent to the
securityholder has been returned as undeliverable, regardless of
whether the address where the item was sent was contained in the
transfer agent's master securityholder file or customer security
account records of the broker or dealer. The Commission is proposing
this update to reflect that some securityholders may correspond using
means and addresses, including electronic methods, that may not always
be contained in the transfer agent's master securityholder file or
customer security account records of the broker or dealer. This
proposal would ensure that all securityholders receive the protections
afforded by the rule, regardless of how they may choose to correspond.
Similarly, the Commission is proposing to update paragraphs (c)(1)
and (c)(3) to reference electronic means for sending payments.
Paragraph (c) requires a paying agent, as defined in Rule17ad-17(c)(2),
to provide not less than one written notification to each unresponsive
payee, in certain circumstances. Paragraph (c) currently refers to
checks not being negotiated, in determining whether a securityholder is
an unresponsive payee and when a paying agent must provide the written
notification. The Commission is proposing to update paragraph (c) to
refer to a rejected electronic payment, in addition to a check that has
not been negotiated. The Commission is proposing this update to reflect
that some securityholders may receive payments through electronic
methods. This proposal would ensure that all securityholders receive
the protections afforded by the rule, regardless of how they may choose
to receive payments.
4. Request for Comment
The Commission requests comments on all aspects of the proposed
amendments to Rule 17ad-17. In particular, the Commission requests
comments on the following:
114. Should the rule specify additional steps that transfer agents,
brokers, or dealers must take before or after completing unsuccessful
database searches before remitting funds or securities to a state
unclaimed property administrator, such as attempting to contact the
securityholder by alternative
[[Page 56998]]
means or notifying the issuer? For example, should the Commission
require that a lost securityholder provide affirmative consent before a
transfer agent, broker, or dealer may remit funds or securities to a
state unclaimed property administrator?
115. Is the Commission's proposed definition of ``inactive
securityholder'' appropriate? Should the Commission amend the
definition of ``inactive securityholder'' to incorporate any other
account dormancy or inactivity component? If so, please describe in
detail the other account dormancy or inactivity components. Is the
Commission's proposed period of inactivity appropriate? What period of
inactivity should trigger lost securityholder status?
116. Is the Commission's proposed description of account activity
appropriate? What types of account activity should be sufficient to
prevent a securityholder from being deemed inactive? Does the
description adequately capture activity in tokenized securities?
117. Should the Commission consider other or additional measures to
protect investors from the consequences of escheatment, such as
requiring transfer agents, brokers, or dealers to provide an additional
written notice to securityholders of the risk of escheatment before
remitting their assets to a state unclaimed property administrator, or
requiring transfer agents to maintain records of escheated assets to
facilitate reclamation by investors?
118. Should the Commission make any other amendments to Rule 17ad-
17 to reflect the use of electronic communications? For example, should
the Commission amend the definition of ``Information data base
service'' to reference electronic contact information and
communications? Should the Commission include in the definition of
``Information data base service'' a data base that contains contact
information reasonably likely to result in reestablishing contact with
the lost securityholder, in the case of any other undeliverable
correspondence? Should the Commission require transfer agents, brokers,
or dealers to search for a correct physical mailing address for a lost
securityholder? Should the Commission allow transfer agents, brokers,
or dealers to satisfy their obligations under Rule 17ad-17 by searching
for a correct electronic mailing address or other means of electronic
communication? Are there commercially available databases which
transfer agents, brokers, or dealers can use to search for a correct
electronic mailing address or other means of electronic communication?
119. Should the Commission make any other amendments to Rule 17ad-
17(c) to reflect paying agents' use of electronic communications and
electronic payments?
120. In situations where a transfer agent, broker, or dealer does
not have a physical mailing address for a securityholder, how does the
transfer agent, broker, or dealer comply with Rule 17ad-17? Are there
alternative means of complying with Rule 17ad-17 that do not require
the use of physical mail?
121. Should the Commission consider any other alternative
approaches to protect investors from the consequences of escheatment?
If so, what alternative approaches should the Commission consider? For
example, should the Commission harmonize with approaches taken by other
regulators, such as the Department of Labor? Should the Commission
consider explicitly preempting state laws related to escheatment?
Please explain in detail.
122. Should the Commission consider providing an alternative to the
database search requirement in circumstances where the transfer agent,
broker, or dealer does not have identifying information for a lost
securityholder? For example, should the Commission consider a lost
securityholder reauthentication requirement whereby the transfer agent,
broker, or dealer must make at least two attempts to reestablish
contact with a lost securityholder using all available contact
information reasonably available to the transfer agent, broker, or
dealer?
IV. Proposed New Rules
It is appropriate to address on-going concerns regarding transfer
agent operations as well as strengthen the industry's approach to new
technology and investor protection. Accordingly, the Commission is
proposing a strengthened compliance framework which would include
requirements for registered transfer agents to develop compliance
policies and procedures and to refrain from improperly removing
restrictive legends. Each of these proposed new rules is discussed in
detail below.
A. Proposed Rule 17ad-30: Compliance
Proposed Rule 17ad-30 would require every registered transfer agent
to establish, maintain, and enforce written policies and procedures
reasonably designed to (i) achieve compliance with the federal
securities laws and the rules and regulations thereunder applicable to
the transfer agent and (ii) identify and remediate instances of non-
compliance with the policies and procedures in a timely manner.\336\
The proposed rule would also require that the policies and procedures
be reviewed and approved by the transfer agent's board of directors or
similar governing body no less frequently than annually or following
material changes to either the transfer agent's operations or the
federal securities laws and rules and regulations described in
paragraph (a)(1) of this section.\337\
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\336\ See proposed Rule 17ad-30(a).
\337\ See proposed Rule 17ad-30(b).
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Based upon its supervisory experience with respect to transfer
agents, the Commission has observed that there is significant variance
among transfer agents in terms of their awareness of and experience
with the federal securities laws, including the Commission's transfer
agent rules. This variance can have significant consequences, including
compromising the accuracy of issuer securityholder records, disrupting
communications between issuers and securityholders, disenfranchising
investors, and potentially exposing issuers, investors, and the broader
securities markets to significant financial loss and undermining the
national system of clearance and settlement.
These requirements would establish a uniform baseline compliance
requirement for all registered transfer agents, regardless of size,
business model, or specific services provided, while at the same time
providing individual transfer agents with the flexibility to develop
and implement written policies and procedures based on their specific
business model, services, risks, and other characteristics. Such
flexibility would help accommodate the various business models transfer
agents may have while at the same time advancing the Commission's
investor protection goals and facilitating the safe and efficient
functioning of the national clearance and settlement system.
1. Policies and Procedures Reasonably Designed To Achieve Compliance
Proposed Rule 17ad-30(a)(1) would require every registered transfer
agent to establish, maintain, and enforce written policies and
procedures reasonably designed to achieve compliance with the
applicable federal securities laws, rules, and regulations.\338\ As
noted, this approach is designed to provide flexibility while promoting
a baseline of compliance across the industry. The policies and
procedures requirement
[[Page 56999]]
would necessitate that registered transfer agents conduct a critical
review and evaluation of the regulatory landscape and identify the
specific statutes, rules, and regulations implicated by the transfer
agent's registration status and specific activities.
---------------------------------------------------------------------------
\338\ See proposed Rule 17ad-30(a).
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The establishment of written policies and procedures for regulated
entities is commonplace in existing securities laws and
regulations.\339\ Beyond simply establishing a compliance framework,
written policies and procedures also facilitate the identification and
remediation of compliance issues in a timely manner. Written policies
and procedures are an essential tool through which transfer agents can
organize, communicate, implement, monitor, and improve their compliance
efforts, and the proposed rule's requirement for such policies and
procedures is therefore complementary to existing legal obligations.
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\339\ See e.g., 17 CFR 275.206(4)-7 (a rule requiring registered
investment advisers to adopt and implement written compliance
policies and procedures reasonably designed to prevent violations of
the Investment Advisers Act and rules adopted thereunder. This rule
also includes requirements to review, no less frequently than
annually, the written compliance policies and procedures and to
designate a chief compliance officer responsible for administering
such policies and procedures); see also 17 CFR 270.38a-1 (a rule
requiring registered investment companies to adopt and implement
written compliance policies and procedures reasonably designed to
prevent violations of the federal securities laws. This rule also
includes requirements to review, no less frequently than annually,
the adequacy of the compliance policies and procedures and to
designate a chief compliance officer responsible for administering
such policies and procedures).
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In establishing and maintaining such written policies and
procedures, a transfer agent may tailor them to its particular
circumstances and the scope of its transfer agent activities. In
establishing, maintaining, and enforcing such written policies and
procedures, a transfer agent generally should ensure that its
directors, officers, employees, contractors, and service providers are
aware of the transfer agent's policies and procedures and both
obligated and capable of complying with them in the performance of
their duties. The Commission understands that there are various ways
for a firm to ensure awareness and compliance among its management and
personnel, including maintaining and distributing employee handbooks,
establishing robust training programs, ensuring that firm policies and
procedures are easily accessible, utilizing technology like compliance
software and online policy management tools, consistent interpretation
and enforcement of the policies and procedures by management, internal
audits and risk assessments, and creating a culture of transparency and
accountability where questions, concerns, and issues can be raised
openly and without fear of retaliation. Regardless of the specific
methods and tools a transfer agent uses to ensure that its management
and staff are aware of and follow relevant policies and procedures,
determining which methods and tools will work best is a key component
of ensuring that the policies and procedures are reasonably designed to
achieve compliance.
Sub-paragraph (2) of Rule 17ad-30(a) would require that the
policies and procedures be reasonably designed to identify and
remediate noncompliance with the transfer agent's policies and
procedures in a timely manner.\340\ While transfer agents would have
flexibility to ensure that compliance failures are remediated in a way
that is tailored to the specific transfer agent, any approach would
need to include policies and procedures reasonably designed to identify
and track instances of non-compliance, as well as an approach to
identify and implement appropriate remedial measures. This system would
help provide the transfer agent with data and other information
necessary to evaluate the overall effectiveness of the compliance
program, including whether the policies and procedures, or any other
part of the compliance program, may need to be updated or amended as
required under paragraph (b) of proposed Rule 17ad-30. By requiring
transfer agents to establish systems for identifying and remediating
violations, the proposed rule would help ensure that compliance issues
are addressed promptly before they can disrupt the prompt and accurate
processing of securities transactions or otherwise harm investors,
issuers, or the broader securities markets, and at the very least
mitigate such disruptions and harm.
---------------------------------------------------------------------------
\340\ See proposed Rule 17ad-30(a)(2).
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2. Board Approval and Annual Review
Proposed Rule 17ad-30(b) would require that the policies and
procedures be reviewed and approved by the transfer agent's board of
directors or similar governing body no less frequently than annually or
following material changes to either the transfer agent's operations or
the federal securities laws and rules and regulations described in
proposed rule 17ad-30(a)(1) \341\
---------------------------------------------------------------------------
\341\ See proposed Rule 17ad-30(b).
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Compliance with applicable securities laws, rules, and regulations
is fundamental to a transfer agent's ability to perform its critical
functions in the national clearance and settlement system, and the
board of directors or similar governing body is ultimately responsible
for the overall direction and oversight of the transfer agent's
business, including compliance. Requiring board approval would
emphasize the importance of compliance and help ensure that adequate
attention is paid at the highest levels of the firm.\342\
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\342\ See generally Clearing Agency Governance and Conflicts of
Interest, Exchange Act Release No. 98959 (Nov. 16, 2023), 88 FR
84454 (Dec. 5, 2023).
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Similarly, the requirement to review the policies and procedures no
less frequently than annually would provide an opportunity for the
governing body responsible for making such determinations to assess the
effectiveness of the compliance program, identify any gaps or
weaknesses, and ensure that the compliance program evolves as needed to
address changes in the transfer agent's business, applicable rules and
regulations, and the broader securities market. The requirement for the
board of directors to review and approve the policies and procedures
following material changes to the transfer agent's operations or the
applicable federal securities laws and rules should also ensure that a
transfer agent keeps its policies and procedures updated following any
relevant developments in the compliance and regulatory landscape.
3. Request for Comment
The Commission requests comments on all aspects of proposed Rule
17ad-30. In particular, the Commission requests comments on the
following:
123. Should the Commission provide more specific guidance or safe
harbors regarding what constitutes policies and procedures ``reasonably
designed'' to achieve compliance? If so, what specific elements or
standards should be included?
124. Should the rule apply uniformly to all registered transfer
agents, or should the Commission adopt a tiered or scaled approach
based on factors such as size, transaction volume, number of issuer
accounts serviced, or complexity of services provided? If so, how
should such tiers be defined and what requirements should apply to
each?
125. Are there particular categories of federal securities laws and
regulations that should be explicitly identified in the rule or
accompanying guidance as requiring coverage in a transfer agent's
compliance policies and procedures?
[[Page 57000]]
Alternatively, would such specificity undermine the flexibility the
Commission intends to provide?
126. Should the rule require transfer agents to designate a
specific compliance officer or maintain a dedicated compliance function
responsible for overseeing the implementation and enforcement of the
compliance program? If so, should there be minimum qualifications for
such a role, and how should any such requirement be scaled for smaller
transfer agents?
127. Should a transfer agent's board of directors or similar
governing body be required to review and approve the transfer agent's
compliance policies and procedures annually? For transfer agents that
lack a traditional board structure, such as sole proprietorships,
partnerships, or certain limited liability companies, what entity or
individual should be responsible for fulfilling the approval and
oversight functions specified by the proposed rule? Should the
Commission provide additional guidance on what constitutes a ``similar
governing body'' for purposes of this requirement?
128. Should the Commission provide guidance on what constitutes a
``material'' change to the transfer agent's operations or the federal
securities laws and rules that would trigger the requirement for the
transfer agent's governing body to review and approve the transfer
agent's compliance policies and procedures?
129. Should the rule require transfer agents to report material
instances of noncompliance to the Commission within a specified
timeframe? If so, how should ``material'' be defined for this purpose?
130. Should the rule require transfer agents to keep any particular
records regarding the development and/or enforcement of the policies
and procedures that would be required by the proposed rule? Should the
rule require transfer agents to keep any particular records regarding
the governing body's annual review and approval of the policies and
procedures required by the proposed rule?
131. Should the Commission consider any alternative approaches to
establishing a compliance framework for transfer agents? If so, what
alternative approaches should the Commission consider? Please explain
in detail.
B. Proposed Rule 17ad-31: Restrictive Legends
As discussed in the 2015 Concept Release, transfer agents play a
particularly important role in the securities industry with respect to
the issuance and transfer of restricted securities. In no case may a
security be resold or transferred legally unless there is an effective
registration statement or an available exemption from registration for
the resale. Restricted securities are, most commonly, among other
things, securities acquired directly or indirectly from the issuer, or
from an affiliate of the issuer, in a transaction or chain of
transactions not involving any public offering.\343\ Typically, these
securities bear restrictive legends indicating that their sale or
transfer may be subject to a restriction or limitation and
intermediaries will not effectuate their transfer until restrictive
legends are removed. Because transfer agents are often the party
responsible for affixing, tracking, and removing restrictive legends,
they help to prevent unregistered securities distributions that violate
Section 5 of the Securities Act of 1933.\344\
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\343\ See Rule 144(a)(3), 17 CFR 230.144(a)(3).
\344\ See Securities Act of 1933 Section 5, 15 U.S.C. 77e.
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Section 5 violations facilitated by the removal of restrictive
legends have remained a perennial issue. Transfer agent failures to
adequately perform this function have, under certain circumstances,
been found to have violated Section 5.\345\ As a result, requirements
specifically applicable to transfer agents to address their unique role
in this process are necessary and appropriate to protect investors and
the public interest by reducing the risk of such violations of the
federal securities laws. Therefore, the Commission is proposing new
Rule 17ad-31 to establish requirements for transfer agents regarding
the placement and removal of restrictive legends and to help prevent
transfer agents from facilitating violations of Section 5 of the
Securities Act of 1933.\346\ The proposed rule would require transfer
agents to: (1) maintain and rely upon a current list of authorized
issuer employees on whose instructions the transfer agent is authorized
to act regarding the placement and removal of restrictive legends; and
(2) refrain from facilitating any unregistered securities transaction
unless the transfer agent has a reasonable basis to believe that the
transaction does not violate, or is not part of a chain of transactions
that would violate, Section 5(a) of the Securities Act of 1933. The
proposed rule would also provide a non-exclusive safe harbor for
transfer agents seeking to establish such a reasonable basis prior to
facilitating an unregistered securities transaction.\347\
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\345\ See e.g., In the Matter of Manhattan Transfer Registrar
Company and John C. Ahearn, Exchange Act Release No. 83267 (May 17,
2018) (settled action against a transfer agent and its former
principal for violations of Sections 5(a) and 5(c) of the Securities
Act of 1933 related to their roles in removing restrictive legends
and effectuating numerous stock transfer requests which led to the
unlawful public sale of the securities of two companies.
\346\ See Securities Act of 1933 Section 5, 15 U.S.C. 77e.
\347\ See proposed Rule 17ad-31.
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1. Requirement To Maintain List of Authorized Issuer Representatives--
Proposed Rule 17ad-31(a)
Proposed Rule 17ad-31(a) would require each transfer agent to, for
each issue of securities it services on behalf of an issuer, (1) obtain
from the issuer and maintain a current list of issuer employees on
whose instructions the transfer agent is authorized to act regarding
the placement and removal of restrictive legends; and (2) refrain from
acting on instructions from any person not included on the list
required pursuant to paragraph (a)(1).\348\
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\348\ See proposed Rule 17ad-31(a).
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The purpose of this provision is to ensure that transfer agents
only perform services based on instructions from employees of the
issuer who are authorized by the issuer to provide such instructions.
This would address situations in which transfer agents receive requests
to perform services such as removing restrictive legends or issuing new
securities from an unauthorized person rather than at the direction of
the issuer. The Commission is aware that some promoters may represent
themselves as agents of the issuer when they are not. The proposed rule
would prevent a transfer agent from acting upon the instructions of an
unauthorized person to issue stock or to remove restrictive legends.
2. Requirements To Establish Reasonable Basis Before Facilitating
Certain Transactions--Proposed Rule 17ad-31(b)
Proposed Rule 17ad-31(b) would require transfer agents to refrain
from facilitating any unregistered securities transaction unless the
transfer agent has a reasonable basis to believe that the transaction
does not violate, or is not part of a chain of transactions that would
violate, Section 5(a) of the Securities Act of 1933.\349\ The proposed
[[Page 57001]]
rule provides three examples of unregistered securities transactions:
processing or recording (1) an original issuance of securities not
registered pursuant to the Securities Act; (2) a request to remove a
restrictive legend or stop order on any security; or (3) the purchase,
sale, or transfer \350\ of a security by an affiliate, officer, or
director of the issuer of the security.
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\349\ See proposed Rule 17ad-31(b). Notwithstanding the
requirements of proposed Rule 17ad-31(b), any seller of a security
in an unregistered transaction would continue to bear the burden of
establishing the availability of an exemption from registration.
See, e.g., In the Matter of the Application of William H. Murphy &
Co., Inc. and William H. Murphy For Review of Disciplinary Action
Taken by FINRA, Exchange Act Release No. 90759 (Dec. 21, 2020)
(stating that ``[u]pon the establishment of a prima facie case of a
Section 5 violation, the burden shifted to WHM to show that the
offers and sales at issue were exempt from the registration
requirements . . . Because `public policy strongly supports
registration,' the burden of proof rests with the party claiming the
exemption.'') (citations omitted).
\350\ For purposes of proposed Rule 17ad-31(b), the term
``transfer'' includes non-sale transfers of securities.
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The purpose of this provision is to help prevent the removal of
restrictive legends or the facilitation of other transactions involving
unregistered securities from being used as a step in a potentially
illegal distribution of securities. By requiring transfer agents to
have a reasonable basis to believe that the transaction will not
violate Section 5, the rule is designed to strengthen transfer agents'
role in this process to help prevent violations of the Securities Act.
Given transfer agents' access to information about the securities and
the parties involved, transfer agents are able and should be required
to take reasonable steps to ensure they are not facilitating a
potentially illegal distribution.
This proposed provision would require transfer agents to ensure
that they have a reasonable basis for believing that a transaction may
proceed legally before facilitating it. Therefore, transfer agents
should ensure that they are not aware of any red flags associated with
such transaction. The term ``red flag'' refers to an aspect of a
transaction or series of transactions that may indicate the transaction
is fraudulent, illegal, or otherwise problematic. Red flags associated
with unregistered securities transactions may include, among other
things, trading suspensions, concentration of ownership of the majority
of freely tradeable securities, large reverse stock splits, companies
whose assets are large but revenue is minimal, a shell company
acquisition of a private company, incomplete or nonexistent issuer
filings with the Commission, a sudden spike in investor demand for a
thinly traded or low priced security, suspicious documents such as
inconsistent financial documents or altered certificates of
incorporation, an issuer with several recent name changes, business
combinations, or recapitalizations, and receipt of similar documents
from different issuers with certain characteristics, such as
involvement of the same attorney. If a transfer agent becomes aware of
a red flag while processing an unregistered securities transaction, the
transfer agent should take reasonable steps to inquire further
regarding the red flag and proceed processing the transaction only when
the transfer agent has a reasonable basis to believe that doing so will
not facilitate a violation of Section 5.
3. Methods for Establishing Reasonable Basis--Proposed Rule 17ad-31(c)
Proposed Rule 17ad-31(c) would create a non-exclusive safe harbor
by providing transfer agents with two methods for developing the
reasonable basis required under paragraph (b): (1) obtaining and
reviewing an opinion of counsel that meets certain specified
requirements; or (2) making their own determination that the
transaction may be conducted pursuant to a specific exemption from
registration.\351\ Under either method, in order to rely on the safe
harbor, the transfer agent also must not be aware of circumstances
indicating that the transaction may violate, or is part of a chain of
transactions that may violate, Section 5(a) of the Securities Act of
1933.
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\351\ See proposed Rule 17ad-31(c).
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a. Opinion of Counsel
Under proposed paragraphs (c)(1) and (c)(2), a transfer agent may
establish the required reasonable basis by obtaining and reviewing an
opinion of counsel that meets certain requirements. Specifically, the
opinion must be from counsel who is not an affiliate, officer,
director, or employee of either the issuer or the individual or entity
seeking to resell shares of the issuer.\352\ This requirement is
designed to help ensure the independence and objectivity of the legal
analysis. The opinion must identify the documents and information the
counsel reviewed and relied upon in providing the required analysis.
This requirement is designed to provide transparency regarding the
factual basis for the legal opinion and to enable the transfer agent to
assess whether the opinion is based on a sufficient factual record. The
opinion must analyze the applicability and validity of a specific
exemption from registration and, based on that analysis, opine that the
specific transaction at issue may be conducted pursuant to the specific
exemption from registration so identified. This requirement is designed
to ensure that the opinion provides a substantive legal analysis of why
a specific exemption applies to the specific transaction, rather than
simply providing a conclusory statement that the transaction is exempt.
---------------------------------------------------------------------------
\352\ See proposed Rule 17ad-31(c)(2).
---------------------------------------------------------------------------
In addition to obtaining an opinion that meets these requirements,
the transfer agent must not be aware of circumstances indicating that
the transaction may violate, or is part of a chain of transactions that
may violate, Section 5(a) of the Securities Act.\353\ This requirement
is designed to ensure that transfer agents do not simply rely blindly
on an opinion of counsel when there are ``red flags'' or other
circumstances that have alerted or should alert the transfer agent to
potential problems with the transaction.\354\
---------------------------------------------------------------------------
\353\ See proposed Rule 17ad-31(c)(1).
\354\ See supra Section IV.B.2 for a discussion of potential red
flags. In addition, a transfer agent should generally consider
whether the opinion of counsel is provided by an attorney who is
licensed to practice law and in good standing in the jurisdiction(s)
where the attorney is so licensed. For example, certain market
centers may provide a list of prohibited service providers that
include attorneys convicted of criminal activity or subject to
regulatory bans or suspensions.
---------------------------------------------------------------------------
b. Transfer Agent's Own Determination
Under proposed paragraph (c)(3), as an alternative to obtaining an
opinion of counsel, a transfer agent may make its own determination
that the transaction may be conducted pursuant to a specific exemption
from registration, provided the transfer agent is not aware of
circumstances indicating that the transaction may violate, or is part
of a chain of transactions that may violate, Section 5(a) of the
Securities Act.\355\ This alternative is designed to provide
flexibility for transfer agents that have the expertise and resources
to conduct their own legal analysis. The Commission recognizes that
some transfer agents, particularly larger transfer agents with
experienced legal and compliance staff, may prefer to conduct their own
analysis rather than rely on opinions from outside counsel. Permitting
transfer agents to make their own determinations, subject to
appropriate documentation and approval requirements as discussed below,
would provide appropriate flexibility while still ensuring adequate
safeguards.
---------------------------------------------------------------------------
\355\ See proposed Rule 17ad-31(c)(2).
---------------------------------------------------------------------------
4. Documentation Requirements for Transfer Agent Determinations--
Proposed Rule 17ad-31(d)
Proposed Rule 17ad-31(d) would establish specific documentation
requirements for any determination made by a transfer agent under
[[Page 57002]]
paragraph (c)(3). These requirements are designed to help ensure that
transfer agents that choose to make their own determinations regarding
the availability of exemptions from registration maintain appropriate
records to support those determinations and subject them to appropriate
management review and approval. Specifically, any determination under
paragraph (c)(3) must be supported by written documentation, reviewed
and approved by management of the transfer agent, that: (1) identifies
the specific exemption from registration pursuant to which the relevant
transaction may be conducted; (2) identifies the documents and
information the transfer agent reviewed and relied upon in making the
determination; and (3) identifies and analyzes the specific facts,
including the documents and information that establish and support such
facts, that support the transfer agent's determination.\356\
---------------------------------------------------------------------------
\356\ See proposed Rule 17ad-31(c)(3).
---------------------------------------------------------------------------
These documentation requirements are designed to help ensure that
transfer agents that make their own exemption determinations engage in
an analysis similar to what would be expected in an opinion of counsel.
By requiring the transfer agent to identify the specific exemption, the
documents and information reviewed, and the specific facts supporting
the determination, the rule is designed to ensure that the
determination is based on a thorough analysis of the relevant legal
requirements and factual circumstances. The requirement that the
determination be reviewed and approved by management is designed to
help ensure appropriate oversight and accountability. Requiring
management review and approval will help ensure that determinations are
made carefully and consistently and that appropriate controls are in
place to prevent errors or misconduct.
5. Request for Comment
The Commission requests comments on all aspects of proposed Rule
17ad-31. In particular, the Commission requests comments on the
following:
132. Should proposed Rule 17ad-31 apply to an original issuance of
securities not registered pursuant to the Securities Act? Are there
categories of original issuances for which the rule's requirements
would be unnecessary or unduly burdensome, and if so, should such
categories be explicitly excluded?
133. Should the Commission provide a specific, non-exhaustive list
of ``red flags'' or circumstances that should alert a transfer agent to
potential Section 5 violations and trigger heightened scrutiny or
additional inquiry before facilitating a transaction? If so, what
specific red flags should be included, and should they be incorporated
into the rule itself?
134. Are the requirements for opinions of counsel under proposed
paragraph (c)(2) appropriate? Should any additional requirements be
included, or should any of the proposed requirements be modified? For
example, should transfer agents be required to request and retain,
subject to the record maintenance and retention rules, copies of
documents the counsel reviewed and relied upon in providing the
opinion?
135. Is the alternative of permitting transfer agents to make their
own determinations under proposed paragraph (c)(3) appropriate? Should
there be any limitations on which transfer agents may use this
alternative (for example, based on size, resources, or expertise)? If
so, how should such limitations be defined?
136. Are the documentation requirements under proposed paragraph
(d) appropriate and sufficient? Should any additional documentation be
required?
137. Should the Commission provide additional guidance regarding
what constitutes ``circumstances indicating'' a potential violation
under paragraphs (c)(1) and (c)(3)? If so, what specific guidance would
be helpful?
138. Are there circumstances under which transfer agents should be
permitted to facilitate transactions covered by proposed paragraph (b)
without meeting the requirements of proposed paragraph (c)? If so, what
circumstances and what alternative requirements, if any, should apply?
139. Should the Commission expand proposed Rule 17ad-31 to require
transfer agents to make information about the issuance, ownership, and
transfer history of securities, including those traded over the
counter, available to broker-dealers or investors? \357\ If so, what
information should the Commission require transfer agents to disclose?
Would this information facilitate liquidity for smaller public
companies? Would this information better allow broker-dealers to
determine whether the securities present heightened risk profiles or
red flags associated with unlawful distributions?
---------------------------------------------------------------------------
\357\ See Final Reports of the SEC Government-Business Forum on
Small Business Capital Formation from 2019, 2020, 2022, 2023, 2024,
2025, and 2026, available at https://www.sec.gov/about/divisions-offices/office-advocate-small-business-capital-formation/final-reports-sec-government-business-forum.
---------------------------------------------------------------------------
140. Should the Commission consider any alternative approaches to
addressing the risks associated with improper removal of restrictive
legends? If so, what alternative approaches should the Commission
consider? Please explain in detail.
V. Economic Analysis
A. Introduction
The Commission is mindful of the economic effects, including the
costs and benefits, of the proposed rules and amendments. Section 3(f)
of the Exchange Act directs the Commission, when engaging in rulemaking
where it is required to consider or determine whether an action is
necessary or appropriate in the public interest, to consider, in
addition to the protection of investors, whether the action will
promote efficiency, competition, and capital formation.\358\ Further,
Section 23(a)(2) of the Exchange Act requires the Commission, when
making rules pursuant to the Exchange Act, to consider the impact that
the rules would have on competition, and prohibits the Commission from
adopting any rule that would impose a burden on competition not
necessary or appropriate in furtherance of the purposes of the Exchange
Act.\359\
---------------------------------------------------------------------------
\358\ See 15 U.S.C. 78(c)(f).
\359\ See 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------
The Commission's consideration of the proposal's economic effects
draws on transfer agents' role in the national clearance and settlement
system, technological and regulatory changes in transfer agent
activities, and market failures within the transfer agent industry.
Transfer agents act as issuers' agents and play a critical role in the
clearance and settlement of securities transactions. Transfer agents'
key functions include: (i) maintaining the official ``golden record''
of ownership of an issuer's securities; (ii) facilitating the issuance,
cancellation, and transfer of those securities and making and retaining
records documenting and relating to such transactions; (iii)
facilitating communications between issuers and registered
securityholders; and (iv) making dividend, principal, interest, and
other payments and distributions to securityholders.\360\
---------------------------------------------------------------------------
\360\ See 2015 Concept Release, supra note 4, at 81949.
---------------------------------------------------------------------------
Between the 1970s and 2026, there have been significant
technological and regulatory changes to securities markets and transfer
agent activities. Transfer agents' operations have transitioned from
manual book-entry and paper records to automated book-entry and
electronic recordkeeping, and transfer
[[Page 57003]]
agents now commonly rely on electronic means of communication with
issuers instead of handwritten inquiries and telephone responses. The
bulk of securities holdings are no longer certificated securities. Many
transfer agents may also be registered as investment companies,
investment advisers, broker-dealers, and banking entities, and have
changed their business and compliance practices to comply with the
evolving set of recordkeeping, compliance, custody, conduct, and other
requirements with respect to their activities that are unrelated to
their transfer agent activities. The above changes notwithstanding, the
Commission's core transfer agent rules were first adopted in the late
1970s and early 1980s. These rules have not been revisited since their
adoption and do not reflect subsequent technological changes or
evolving industry practices. This misalignment between the rules and
modern transfer agent activities has created unnecessary complexity and
potentially inhibited transfer agents' ability to perform their
functions.
The market for transfer agent services is characterized by market
failures: adverse selection and moral hazard arising from asymmetric
information, externalities, and market power exploitation stemming from
holdup problems. Regarding the asymmetric information that gives rise
to adverse selection and moral hazard, issuer clients observe the
outcome of transfer agents' operations rather than their intentions,
information, processes, and methods, which are crucial to the proper
performance of transfer agent activities. These informational
disparities can lead to adverse selection, where issuers are unable to
differentiate among transfer agents based on each transfer agent's
capability to perform transfer agent activities, and moral hazard,
where transfer agents may underinvest in operational quality once a
contract is secured. Regarding externalities, transfer agent services
are negotiated between transfer agents and issuers, but their effects
extend to securityholders, other third-party users of transfer agent
services, and the securities markets as a whole. Transfer agents'
failure to perform their duties promptly, accurately, and safely can,
among other things, expose issuers, investors, and the securities
markets as a whole to significant financial losses; \361\ reduce the
willingness of investors to participate in securities markets; and
impair the ability of issuers to raise capital in those markets.
---------------------------------------------------------------------------
\361\ See 2015 Concept Release, supra note 4, at 81949.
---------------------------------------------------------------------------
The fact that each issuer engages a single transfer agent creates
the potential for market power exploitation and holdup problems. Holdup
problems arise when issuers make relationship-specific investments
(e.g., migrating securityholder records to a particular transfer agent)
that are costly to reverse, which enable the transfer agent to
opportunistically renegotiate terms after the contract is established.
Broadly, the proposal would facilitate the prompt and accurate
clearance and settlement of securities transactions, strengthen
investor protection, increase investor participation in securities
markets, facilitate capital raising, enhance regulatory oversight,
reduce informational asymmetries between transfer agents and issuers,
and address holdup problems.
As discussed in Section V.C, the proposal has benefits and costs,
many of which are difficult to quantify. For example, although the
following analysis discusses specific benefits expected to result from
the proposal, including more prompt and accurate clearance and
settlement of securities transactions, improved investor protection,
and increased capital market participation, the Commission lacks the
data necessary to estimate the magnitudes of these effects separately
or in the aggregate. Similarly, the Commission lacks data to estimate
certain costs associated with the proposal such as the costs incurred
by transfer agents to acquire the operational capability to meet
turnaround requirements under the existing one-day standard settlement
cycle and the costs of complying with the proposed amendments to Rule
17ad-12. Where economic effects cannot be quantified, the Commission
provides a qualitative assessment in lieu of quantification and invites
commenters to provide data and information to support quantification of
the benefits and costs of the proposal and its impacts on efficiency,
competition, and capital formation.
B. Economic Baseline
The baseline against which the costs, benefits, and effects on
efficiency, competition, and capital formation of the proposal are
measured consists of the current state of the transfer agent markets
and the existing regulatory framework governing transfer agents.\362\
Sections V.B.1 and V.B.2 address the regulatory baseline and affected
parties, respectively. As described in Section V.B.3 below, the
Commission's understanding of the baseline is informed by two primary
data sources and its regulatory experience. Subsequent sections address
specific aspects of the baseline, namely the structure of the transfer
agent industry, including trends in market concentration; transfer
agent activities; statistics related to transfer agents' withdrawal
from registration; statistics about issuers that receive transfer agent
services; database searches and account remittances; segregated funds;
and basis for removing restrictive legends.
---------------------------------------------------------------------------
\362\ See, e.g., Nasdaq v. SEC, 34 F.4th 1105, 1111-14 (D.C.
Cir. 2022). This approach also follows SEC staff guidance on
economic analysis for rulemaking. See SEC Staff, Current Guidance on
Economic Analysis in SEC Rulemaking (Mar. 16, 2012), available at
https://www.sec.gov/divisions/riskfin/rsfi_guidance_econ_analy_secrulemaking.pdf (``The economic
consequences of proposed rules (potential costs and benefits
including effects on efficiency, competition, and capital formation)
should be measured against a baseline, which is the best assessment
of how the world would look in the absence of the proposed
action.''); Id. at 7 (``The baseline includes both the economic
attributes of the relevant market and the existing regulatory
structure.'').
---------------------------------------------------------------------------
1. Regulatory Baseline
a. Federal Regulations
A transfer agent must apply for registration by submitting Form TA-
1 to its ARA, and must amend the form as necessary to maintain its
accuracy once its registration becomes effective.\363\ Registered
transfer agents must file an annual report with the Commission using
Form TA-2.\364\ Registered transfer agents may withdraw from
registration by filing Form TA-W.\365\
---------------------------------------------------------------------------
\363\ See supra section II.A.
\364\ See Exchange Act Rule 17ac2-2, 17 CFR 240.17Ac2-2; SEC
Form TA-2, 17 CFR 249b.102 (Form for Reporting Activities of
Transfer Agents Registered Pursuant to Section 17A of the Securities
Exchange Act of 1934).
\365\ See Exchange Act Rule 17ac3-1, 17 CFR 240.17Ac3-1;
Exchange Act Section 7A(c)(3)(a), 15 U.S.C. 78q-1(c)(3)(A); SEC Form
TA-W, 17 CFR 249b.101 (Notice of Withdrawal from Registration as a
Transfer Agent).
---------------------------------------------------------------------------
Rules 17ad-1 and 17ad-9 define terms used throughout the
rules.\366\
---------------------------------------------------------------------------
\366\ See Exchange Act Rule 17ad-1, 17 CFR 240.17Ad-1.
---------------------------------------------------------------------------
Rule 17ad-2 sets performance standards for transfer agents,\367\
principally concerning turnaround and processing time. Transfer agents
failing these performance standards must notify the Commission and
their other ARA. Further, Rule 17ad-3 sets notification requirements
and limits expansion of activities if a transfer agent does not meet
these standards.\368\ Rule
[[Page 57004]]
17ad-4 provides certain exemptions from the turnaround, processing, and
recordkeeping rules.\369\
---------------------------------------------------------------------------
\367\ See Exchange Act Rule 17ad-2, 17 CFR 240.17Ad-2.
\368\ See Exchange Act Rule 17ad-3, 17 CFR 240.17Ad-3.
\369\ See Exchange Act Rule 17ad-4, 17 CFR 240.17Ad-4.
---------------------------------------------------------------------------
Rule 17ad-6 generally details what records transfer agents shall
make and keep; \370\ Rule 17ad-7 principally specifies how long certain
records shall be maintained.\371\
---------------------------------------------------------------------------
\370\ See Exchange Act Rule 17ad-6, 17 CFR 240.17Ad-6.
\371\ See Exchange Act Rule 17ad-7, 17 CFR 240.17Ad-7.
---------------------------------------------------------------------------
Rule 17ad-10 principally requires recordkeeping transfer agents to
promptly post certificate detail to each master securityholder
file.\372\
---------------------------------------------------------------------------
\372\ See Exchange Act Rule 17ad-10, 17 CFR 240.17Ad-10.
---------------------------------------------------------------------------
Rule 17ad-11 requires that recordkeeping transfer agents report to
issuers and their ARA information regarding aged record
differences.\373\
---------------------------------------------------------------------------
\373\ See Exchange Act Rule 17ad-11, 17 CFR 240.17Ad-11.
---------------------------------------------------------------------------
Rule 17ad-12 requires transfer agents to safeguard funds and
securities of which they have custody or possession in a manner
reasonably free from theft, loss, destruction, or misuse.\374\
---------------------------------------------------------------------------
\374\ See Exchange Act Rule 17ad-12, 17 CFR 240.17Ad-12.
---------------------------------------------------------------------------
Rule 17ad-13 generally requires registered transfer agents to file
an annual report concerning certain internal controls and
procedures.\375\
---------------------------------------------------------------------------
\375\ See Exchange Act Rule 17ad-13, 17 CFR 240.17Ad-13.
---------------------------------------------------------------------------
Rule 17ad-17 requires transfer agents, brokers, dealers, and other
financial intermediaries to make efforts to find lost securityholders
and unresponsive payees.\376\
---------------------------------------------------------------------------
\376\ See Exchange Act Rule 17ad-17, 17 CFR 240.17Ad-17.
---------------------------------------------------------------------------
Transfer agents that are also broker-dealers, investment advisers,
or both must comply with applicable federal and other regulations.
b. Bank Regulations and SRO Regulations
Transfer agents that are banks or subsidiaries of banks must comply
with the relevant banking regulations.
There are also SRO rules and requirements applicable to transfer
agents which will apply when transfer agents engage in certain
activities or join programs governed by an SRO. For example, an
exchange may have rules and requirements for transfer agents servicing
securities listed on it; transfer agents for NYSE-listed securities are
subject to NYSE requirements.\377\ By way of example, the NYSE
requirements focus on (i) dual registrars and transfer agents; (ii)
turnaround times; (iii) capitalization; and (iv) insurance
coverage.\378\ These requirements also address transfer agent
personnel, safeguarding, and co-transfer agents.\379\ Similarly,
transfer agents that participate in DRS must comply with DTC rules and
regulations.\380\ DTC requirements of a security issuer may also
indirectly apply to the issuer's transfer agents. A transfer agent that
engages in other business may be subject to SRO rules based on those
other activities, such as a broker-dealer that may be subject to FINRA
regulations.
---------------------------------------------------------------------------
\377\ See generally, Listed Company Manual, Section 601.01,
NYSE, available at https://nyse.wolterskluwer.cloud/listed-company-manual/09013e2c8503fcc2.
\378\ Id.
\379\ Id.
\380\ See generally, Rules, By-Laws and Organization Certificate
of the Depository Trust Company, The Depository Trust Company,
available at https://www.dtcc.com/-/media/Files/Downloads/legal/rules/dtc_rules.pdf.
---------------------------------------------------------------------------
c. Regulation of Transfer Agents Under State Law
Transfer agents are also subject to state laws. States require that
financial institutions including transfer agents report when property
is deemed to be ``unclaimed'' or ``abandoned''; \381\ such property may
be escheated after a period of inactivity.\382\
---------------------------------------------------------------------------
\381\ See supra Section III.K.
\382\ See supra Section III.K.
---------------------------------------------------------------------------
2. Affected Parties
The proposal would principally affect transfer agents; there were
an estimated 327 registered transfer agents as of June 30, 2026.\383\
The proposal would also affect the following parties:
---------------------------------------------------------------------------
\383\ See infra Section V.B.4.
---------------------------------------------------------------------------
Issuers. Issuers are the clients of transfer agents. As of
2025,\384\ there were 7,750 registered issuers filing Forms 10-K, 20-F,
or 40-F or their variants. As of December 2025, there were 14,130
registered investment funds, excluding business development
companies.\385\ As of 2025, there were 171 business development
companies, a type of registered investment company that files Form 10-K
and is included in the 7,750 figure above. Unlike securityholders and
other third parties, issuers negotiate directly with transfer agents
for services and bear primary contractual responsibility for transfer
agent fees.
---------------------------------------------------------------------------
\384\ See infra Section V.B.7.
\385\ See infra Sections V.B.3 and V.B.7.
---------------------------------------------------------------------------
Broker-dealers. Transfer agents process securities
transactions at the instruction of broker-dealers, and in the case of
trades involving certificated securities generally the physical
certificates are received and delivered via brokers. In the fourth
quarter of 2025, there were 3,262 registered broker-dealers, of which
153 carried customer accounts (``carrying broker-dealers'').\386\
---------------------------------------------------------------------------
\386\ These estimates were based on an analysis of Schedule I to
the FOCUS filings and Form BD filings for the quarter. This count
excludes notice-registered broker-dealers. Carrying broker-dealers
hold title to and maintain records of beneficial ownership of
securities held in street name. This is distinct from maintaining a
security issue's master securityholder file. Either carrying or non-
carrying broker-dealers may be cross-registered as transfer agents
or be a business affiliate of a transfer agent or may be
additionally registered as an investment adviser; the vast majority
are not transfer agents. As of June 30, 2026, four entities were
registered as transfer agents and broker-dealers. Three of these
entities were also registered as investment advisers. See infra
Section V.B.4. One entity that was registered as a transfer agent
and broker-dealer (but not as an investment adviser) was a carrying
broker-dealer. Another entity that was registered as a transfer
agent, broker-dealer, and investment adviser was a carrying broker-
dealer.
---------------------------------------------------------------------------
Investors and securityholders. Investors and
securityholders rely on the national clearance and settlement system
and transfer agents to process their securities transactions and,
unlike issuers, generally lack direct contractual relationships with
transfer agents. They may also purchase services such as certificate
replacement from transfer agents.
Other parties. The proposal may also affect banks,
attorneys, and non-attorney third parties that provide services to
transfer agents.
3. Available Data
The Commission's understanding of the transfer agent industry is
informed in part by data from several sources. The first data source is
transfer agents' regulatory filings, comprising registration
information in Form TA-1 and amendments thereto, annual activity data
reported on Form TA-2, and withdrawal information reported on Form TA-
W. These filings are available on the SEC's EDGAR system in a
structured eXtensible Markup Language (``XML'') format.\387\ The second
data source is the Ives Group's Audit Analytics (``AA'') data derived
from the most recent periodic issuer filings since 2024. The AA data
include, among other things, information about the number and
characteristics of issuers served by a subset of transfer agents.\388\
The Commission's understanding of the transfer agent industry is
further
[[Page 57005]]
informed by decades of supervisory and examination experience of
registered transfer agents.
---------------------------------------------------------------------------
\387\ The Commission also makes available quarterly compilations
of transfer agent information filed with the Commission in a tab-
delimited flattened format (starting with Q4 2006). See Transfer
Agent Data Sets, SEC, available at https://www.sec.gov/dera/data/transfer-agent-data-sets. See also Transfer Agent Data, SEC,
available at https://www.sec.gov/files/ta_readme.html.pdf (for a
guide to this data).
\388\ See infra Section V.B.7.
---------------------------------------------------------------------------
Four data limitations may affect the interpretation of the results
based on Forms TA-1, TA-2, and TA-W. First, Commission staff have
observed that certain transfer agents that file Form TA-1 do not engage
in any transfer agent activity. Their inclusion in the Form TA-1 data
set may cause the Commission to overestimate the number of active
transfer agents. Second, although transfer agents are required to file
Form TA-2 by March 31 following each calendar year reporting period,
Commission staff have observed that some transfer agents either fail to
file or file after the reporting deadline. Third, some transfer agents
that exit the industry may not file Form TA-W to withdraw their
registration. To the extent that non-filers of Forms TA-W and late or
non-filers of Form TA-2 are missing from the Commission's data,
transfer agent counts may be overestimated and estimates of transfer
agent activity may be underestimated. Missing data due to late filings
may disproportionately affect data concerning small transfer agents.
Fourth, the Commission's supervisory experience indicates that there is
variability in the way registered transfer agents calculate the number
of individual securityholder accounts reported in response to Question
4(b), which hinders the Commission's ability to gather and analyze
accurate and comparable information. This observed inconsistency is
relevant to the baseline analysis which uses data derived from Form TA-
2 Question 4(b), among other things.
Information concerning the number of issuers that are registered
investment company funds, other than business development companies, is
derived from the December 2025 Annual Registered Investment Company
Update, which uses Form N-CEN data.\389\ This data set begins in
December 2019.
---------------------------------------------------------------------------
\389\ See Annual Registered Investment Company Update, available
at https://www.sec.gov/files/annual-registered-investment-company-update-20260512.pdf. See also Annual Registered Investment Company
Update Supporting Data, available at https://www.sec.gov/files/annual-registered-investment-company-update-202512.xlsx.
---------------------------------------------------------------------------
4. Market Structure and Trends
As of June 30, 2026, there were an estimated 327 registered
transfer agents. As shown in Table 4, the Commission is the ARA for 272
of the 327 transfer agents (or approximately 83%), while the Office of
the Comptroller of the Currency (``OCC''), the Board of Governors of
the Federal Reserve System (``FRB''), and the Federal Deposit Insurance
Corporation (``FDIC'') serve as the ARA for 24, 21, and 10 transfer
agents, respectively. Thus, as many as 55 transfer agents may be
subject to oversight and supervision by banking regulators.
Entities that are registered as transfer agents also may operate as
broker-dealers or investment advisers. As of June 30, 2026, four
entities were registered as transfer agents and broker-dealers \390\
and 14 entities were registered as transfer agents and investment
advisers.\391\ Three entities were registered as transfer agents,
broker-dealers, and investment advisers.\392\
---------------------------------------------------------------------------
\390\ These entities are identified by comparing registered
transfer agents with registered broker-dealers that filed quarterly
FOCUS reports for 2025.
\391\ These entities are identified by comparing registered
transfer agents with registered investment advisers as of the end of
March 2026.
\392\ In other words, of the 14 entities that were registered as
transfer agents and investment advisers, three also were registered
as broker-dealers. Of the four entities that were registered as
transfer agents and broker-dealers, three also were registered as
investment advisers.
---------------------------------------------------------------------------
Table 5 presents the geographical distribution of the 327 transfer
agents. The majority of these transfer agents operate within the U.S.
(301 out of 327, approximately 92%), with a small number of transfer
agents operating outside the U.S. (25 out of 327, approximately
8%).\393\ New York, California, and Massachusetts are the three states
with the most transfer agents.
---------------------------------------------------------------------------
\393\ One transfer agent did not report a country or state.
Table 4--Transfer Agents' Appropriate Regulatory Agencies
------------------------------------------------------------------------
Percent
ARA Number (%)
------------------------------------------------------------------------
FDIC............................................ 10 3.1
FRB............................................. 21 6.4
OCC............................................. 24 7.3
SEC............................................. 272 83.2
-----------------------
Total......................................... 327 100
------------------------------------------------------------------------
Table 5--Geographical Distribution of Transfer Agents
------------------------------------------------------------------------
State Number
------------------------------------------------------------------------
Panel A. U.S. Transfer Agents
------------------------------------------------------------------------
New York.................................................... 46
California.................................................. 34
Massachusetts............................................... 24
Florida..................................................... 17
Texas....................................................... 16
Pennsylvania................................................ 15
Illinois.................................................... 13
Ohio........................................................ 13
New Jersey.................................................. 11
Missouri.................................................... 10
Colorado.................................................... 10
All others.................................................. 92
-----------
All U.S. Transfer Agents.................................. 301
------------------------------------------------------------------------
Panel B. Non-U.S. Transfer Agents
------------------------------------------------------------------------
Country # TAs
------------------------------------------------------------------------
Canada...................................................... 16
India....................................................... 4
Germany..................................................... 1
Hong Kong................................................... 1
China....................................................... 1
Philippines................................................. 1
Colombia.................................................... 1
-----------
All Non-U.S. Transfer Agents.............................. 25
------------------------------------------------------------------------
Table 6 reports the number of Form TA-2 filers for the 10 annual
reporting periods between 2016 and 2025.\394\ For the 2025 reporting
period, the Commission estimates that approximately 253 registered
transfer agents filed Form TA-2.\395\ Using the number of Form TA-2
filers as a proxy for industry size, Table 6 indicates that the
transfer agent industry has been gradually contracting over this
period, with Form TA-2 filers declining from 287 in 2016 to 253 in
2025.\396\ Table 6 also shows that in 2025, there were 143 transfer
agents that received fewer than 1000 items for transfer \397\
(representing approximately 57% of Form TA-2 filers for that reporting
period).
---------------------------------------------------------------------------
\394\ For the analysis of Form TA-2 and TA-W data in this
section, we use submissions received through the end of the second
quarter of 2026.
\395\ As discussed above, these figures underestimate the number
of active transfer agents due to non-filing or filing delays.
\396\ The decrease in the count of Form TA-2 filers from 265
(2024 reporting period) to 253 (2025 reporting period) could be due
in part to filing delays.
\397\ These transfer agents are identified based on their
responses to Question 4(a) on Form TA-2.
Table 6--Number of Form TA-2 Filers
------------------------------------------------------------------------
Number of
form TA-2
Number of filers
Year form TA-2 with
filers <1,000
items
------------------------------------------------------------------------
2016............................................ 287 160
2017............................................ 270 140
2018............................................ 266 137
2019............................................ 266 139
2020............................................ 279 159
[[Page 57006]]
2021............................................ 269 151
2022............................................ 275 157
2023............................................ 267 156
2024............................................ 265 159
2025............................................ 253 143
------------------------------------------------------------------------
The transfer agent industry is highly concentrated, as shown in
Table 7. As of 2025, the 10 largest transfer agents account for
approximately 82% of individual security holder accounts,\398\ 84% of
all items received for transfer,\399\ and 87% of securityholder
accounts for which the transfer agent maintained master securityholder
files.\400\ Based on AA data since 2024 \401\ on issuers, the 10
largest transfer agents service approximately 69% of registered
issuers; those issuers represent approximately 98% of total market
capitalization reported in the sample, which includes both listed and
unlisted issues and both foreign and U.S. issues. These concentration
levels, and their upward trend over the 2016-2025 period shown in Table
7, suggest limited competitive constraints on the largest transfer
agents.
---------------------------------------------------------------------------
\398\ Individual securityholder accounts include accounts in the
Direct Registration System (DRS), dividend reinvestment plans and/or
direct purchase plans as of Dec. 31 of the reporting period. These
are accounts for which the transfer agent maintained master security
holder files. See Form TA-2 Question 5(a).
\399\ See Form TA-2 Item 4(a).
\400\ See Form TA-2 Item 4(b).
\401\ See infra Section V.B.7.
Table 7--Market Share of the Largest Transfer Agents \1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Individual Individual Items received Items received Master Master
accounts % accounts % for transfer % for transfer % security security
Year ---------------------------------------------------------------- holder files % holder files %
-------------------------------
Top 5 Top 10 Top 5 Top 10 Top 5 Top 10
--------------------------------------------------------------------------------------------------------------------------------------------------------
2016.................................................... 49.7 70.4 55.4 77.4 60.1 73.9
2017.................................................... 52.0 72.0 54.5 74.7 62.5 75.5
2018.................................................... 52.3 73.4 59.2 73.3 63.4 77.1
2019.................................................... 53.8 74.8 58.9 75.1 65.4 78.5
2020.................................................... 55.5 77.2 65.4 77.1 66.7 80.4
2021.................................................... 57.8 77.2 61.4 76.5 69.0 81.1
2022.................................................... 57.9 78.5 69.3 82.6 69.4 81.0
2023.................................................... 59.3 80.9 66.8 84.2 72.3 84.7
2024.................................................... 61.3 81.9 70.5 86.9 73.1 85.8
2025.................................................... 62.5 82.2 66.6 84.5 74.2 87.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ These estimates are based on an analysis of Form TA-2 data for 2016 through 2025.
a. Recordkeeping Transfer Agents and Paying Agents
Of the 253 transfer agents filing Form TA-2 for the 2025 reporting
period,\402\ 158 (62% of the total) served as either a recordkeeping
transfer agent or a paying agent,\403\ while the remaining 95 transfer
agents (38% of the total) served in neither capacity. Out of the 253
transfer agents, 120 served in both capacities, 32 served only as a
recordkeeping transfer agent, and six served only as a paying agent. In
total, 152 transfer agents served as a recordkeeping transfer agent
(60%),\404\ while 126 served as a paying agent (50%).\405\
---------------------------------------------------------------------------
\402\ See supra Table 3.
\403\ Recordkeeping transfer agents are identified based on
their responses to Questions 6(a) and 6(c) on Form TA-2. Paying
agents are identified based on their responses to Question 7(c) on
Form TA-2.
\404\ Calculated as 120 transfer agents that served as both a
recordkeeping transfer agent and a paying agent + 32 transfer agents
that served only as a recordkeeping transfer agent = 152 transfer
agents. 152/253 = 0.60 or 60%.
\405\ Calculated as 120 transfer agents that served as both a
recordkeeping transfer agent and a paying agent + 6 transfer agents
that served only as a paying agent = 126 transfer agents. 126/253 =
0.50 or 50%.
---------------------------------------------------------------------------
According to Form TA-2 filings for the 2025 reporting period,
transfer agents distributed approximately $5.0 \406\ trillion in
securityholder dividends and interest payments.
---------------------------------------------------------------------------
\406\ This estimate is based on transfer agents' response to
Question 7(c)(ii) of Form TA-2.
---------------------------------------------------------------------------
b. Service Companies
Transfer agents compete with each other for issuer clients but may
also engage other transfer agents as service companies to perform some
or all of the principal transfer agent's activities. Table 8 reports
statistics on service company use based on Form TA-2 data.\407\
Transfer agents that neither engage service companies nor are so
engaged (Table 8, Column 4) comprise the largest segment of the
industry each year, and this segment has grown moderately over time
from 50% of transfer agents in 2016 to 56% in 2025. In contrast, the
fraction of transfer agents engaging only as principal users of service
companies decreased from 29% in 2016 to 23% in 2025 (Table 8, Column
1). The fraction engaged only as service companies decreased from 14%
to 11% over the same period (Table 8, Column 2). The fraction serving
in both roles increased from 8% in 2016 to 10% in 2025 (Table 8, Column
3). In total during 2025, 44%\408\ of transfer agents either relied on
service companies for at least some functions or acted as service
companies themselves, with 33% engaging service companies \409\ and 21%
engaged as service companies.\410\
---------------------------------------------------------------------------
\407\ These results are based on transfer agents' responses to
Questions 2(a)-2(d) of Form TA-2. Reported calculations and row
totals reflect rounding.
\408\ Calculated as 23% (percentage of transfer agents that only
engaged service companies, Table 8 Column 1) + 11% (percentage of
transfer agents that only were engaged as service companies, Table 8
Column 2) + 10% (percentage of transfer agents that both engaged
service companies and where themselves engaged as service companies,
Table 8 Column 3) = 44%.
\409\ Calculated as 23% (percentage of transfer agents that only
engaged service companies, Table 8 Column 1) + 10% (percentage of
transfer agents that both engaged service companies and where
themselves engaged as service companies, Table 8 Column 3) = 33%.
\410\ Calculated as 11% (percentage of transfer agents that only
were engaged as service companies, Table 8 Column 2) + 10%
(percentage of transfer agents that both engaged service companies
and where themselves engaged as service companies, Table 8 Column 3)
= 21%.
---------------------------------------------------------------------------
Analyses of Form TA-2 data indicate that transfer agents act as
service companies less frequently than they engage service companies.
Between the 2016 and 2025 reporting periods,
[[Page 57007]]
transfer agents reported engaging service companies in 919 filings and
being engaged as service companies in 582 filings. Among transfer
agents that engaged service companies, the average number of service
companies engaged was approximately 1.5, while the median was one.\411\
Among transfer agents that were engaged as service companies, each was
engaged by approximately 3.5 other transfer agents on average, while
the median was two.\412\
---------------------------------------------------------------------------
\411\ The Commission obtained similar results for each
individual reporting period.
\412\ Id.
Table 8--Service Companies
----------------------------------------------------------------------------------------------------------------
Transfer agent
---------------------------------------------------------------------------
(4) Does not
(3) Engages engage service
Year (1) Only engages (2) Only engaged service company company and is
service company as service and is engaged as not engaged as
(%) company (%) service company service company
(%) (%)
----------------------------------------------------------------------------------------------------------------
2016................................ 29 14 8 50
2017................................ 27 14 9 50
2018................................ 29 15 8 48
2019................................ 26 14 9 51
2020................................ 25 13 10 53
2021................................ 24 13 8 54
2022................................ 24 11 9 56
2023................................ 22 10 10 57
2024................................ 23 10 9 58
2025................................ 23 11 10 56
----------------------------------------------------------------------------------------------------------------
c. Internal Transfer Agents
Transfer agents may differ in breadth of services they offer. An
internal transfer agent is a transfer agent that acts or intends to act
as a transfer agent solely for its own securities and/or securities of
affiliates.\413\ Because issuers served by internal transfer agents
would likely not seek transfer agent services from competing transfer
agents (at least for the set of services provided by the internal
transfer agents), they effectively represent a captive market segment
unavailable to outside competitors. Based on supervisory experience,
the Commission estimates that approximately 13% of registered transfer
agents are internal transfer agents--a small fraction of the total. One
interpretation of this low prevalence is that economies of scale (e.g.,
arising from investments in information technology) are sufficiently
large that most issuers find outsourcing more cost-effective than self-
administration. However, other factors, including regulatory exposure,
complexity, and reputational considerations, may also contribute.
---------------------------------------------------------------------------
\413\ Such a transfer agent may also be termed a ``captive,''
``affiliated,'' or ``full internalization'' transfer agent. See 2015
Concept Release, supra note 4, at 81993. (discussing the concept of
internal transfer agent in the context of the mutual fund industry).
---------------------------------------------------------------------------
d. Transfer Agents Covered by Rule 17ad-4
Based on an analysis of Form TA-2 filings for the 2025 reporting
year, the Commission estimates that 51 transfer agents would be covered
by Rule 17ad-4(a) (47 transfer agents process Fund Shares and four
transfer agents process interests in LPs) and 143 transfer agents would
be covered by Rule 17ad-4(b). Of the 143 transfer agents, 57 reported
zeros on all applicable questions in their Form TA-2 filings,
suggesting either that these registrants outsource all transfer agent
activities or are not actively providing transfer agent services to
issuer clients. Thus, the estimate of 143 transfer agents is an upper
bound estimate of the number of transfer agents that would be covered
by Rule 17ad-4(b). All told, up to 194 transfer agents \414\ are
estimated to be covered by Rule 17ad-4. The Commission requests that
commenters provide feedback on the number of transfer agents that are
covered by Rules 17ad-4(a) and 17ad-4(b).
---------------------------------------------------------------------------
\414\ 194 transfer agents = 51 transfer agents covered by Rule
17ad-4(a) + 143 transfer agents covered by Rule 17ad-4(b).
---------------------------------------------------------------------------
5. Transfer Agent Activities
Transfer agent activities can be described by classifying the
different types of securities for which registered transfer agents act
in various capacities (Figures 6 and 7).\415\ In 2025, 164 transfer
agents reported acting in these capacities for at least one securities
issue (65% of the 253 that filed Form TA-2), and corporate equity
securities made up the largest average share of issues served (37%),
followed by open-end investment company securities (31%). On average,
these two types accounted for approximately 68% of all issues served.
The rest of the issues are distributed across corporate debt securities
(7%), municipal debt securities (9%), limited partnerships (6%), and
other securities (10%). In 2025, 98 (60% of the 164) transfer agents
serviced equity securities, 49 (30%) serviced corporate debt
securities, 58 (35%) serviced open-end investment company securities,
33 (20%) serviced limited partnership securities, 25 (15%) serviced
municipal debt securities, and 49 (30%) serviced other securities.
---------------------------------------------------------------------------
\415\ The capacities considered in these figures and related
text are maintaining the master securityholder file or processing
transfers for a security.
---------------------------------------------------------------------------
[[Page 57008]]
Figure 6. Share of Security Issues for Which Transfer Agents Acted in
Various Capacities, 2025 1
[GRAPHIC] [TIFF OMITTED] TN04SE26.019
\1\ This analysis is based on transfer agents' responses to
Question 6 of Form TA-2 filed for the 2025 reporting period.
Question 6 asks transfer agents to report the number of securities
issues for which they (i) receive items for transfer and maintain
the master securityholder files (Question 6(a)); (ii) receive items
for transfer but do not maintain the master securityholder files
(Question 6(b)); or (iii) do not receive items for transfer but
maintain the master securityholder files (Question 6(c)). For each
transfer agent, the Commission calculates the total number of issues
serviced for each type of security and the corresponding percentage
share. The percentages reported in Figure 6 represent averages of
percentage shares calculated across transfer agents for which data
are available. The Commission has also considered the structure of
TA activities based on the reported percentage of individual
securityholder accounts in corporate equity securities, corporate
debt securities, open-end investment company securities, limited
partnership securities, municipal debt securities, and other
securities in 2025 (Question 5(d) of Form TA-2) and obtained results
consistent with Figure 6.
[[Page 57009]]
Figure 7. Number of Transfer Agents Servicing Securities by Security
Type, 2025 1
[GRAPHIC] [TIFF OMITTED] TN04SE26.020
\1\ This analysis is based on transfer agents' responses to
Question 6 of Form TA-2 filed for the 2025 reporting period.
Question 6 asks transfer agents to report the number of securities
issues for which they (i) receive items for transfer and maintain
the master securityholder files (Question 6(a)); (ii) receive items
for transfer but do not maintain the master securityholder files
(Question 6(b)); or (iii) do not receive items for transfer but
maintain the master securityholder files (Question 6(c)).
While Figures 6 and 7 describe the structure of transfer agent
activities at the aggregate level, they do not address whether
individual transfer agents choose to perform services across all types
of securities or whether they choose to perform services for a few
types of securities. Table 9 presents statistics on the degree to which
transfer agents specialize in specific types of securities based on
transfer agents' responses to Question 6 of Form TA-2 filed for the
2025 reporting period. Table 9 indicates a high degree of
specialization among transfer agents. Of the 164 transfer agents that
responded to Question 6 of Form TA-2, 79 (48% of 164) received items
for transfer and/or maintained master securityholder files for one type
of securities. Another 44 transfer agents (27% of 164) received items
for transfer and/or maintained master securityholder files for two
types of securities. Thus, 75% of the transfer agents focused on, at
most, two types of securities. Only five transfer agents (3% of 164)
received items for transfer and/or maintained master securityholder
files for five types of securities, and none did for all six.
Of the 79 transfer agents that specialized in one type of
securities, 37 specialized in corporate equity securities (49% of 79;
38% of 98 transfer agents servicing equity securities); 27 specialized
in open-end investment company securities (34% of 79; 47% of 58
transfer agents servicing open-end investment company securities); four
specialized in limited partnership securities (5% of 79; 12% of 33
transfer agents servicing limited partnership securities); two
specialized in corporate debt securities (3% of 79; 4% of 49 transfer
agents servicing corporate debt securities); one specialized in
municipal debt securities (1% of 79; 4% of 25 transfer agents servicing
municipal debt securities); and eight specialized in other securities
(10% of 79; 16% of 49 transfer agents servicing other securities).
Transfer agents specializing in one type of securities tend to focus on
either corporate equity securities or open-end investment company
securities--the same segments served by the greatest number of transfer
agents overall--yet specialist firms do not constitute a majority of
transfer agents servicing any tracked security type.
Table 9--Specialization Among Transfer Agents
------------------------------------------------------------------------
Number of
Types of securities issues transfer Percent
agents
------------------------------------------------------------------------
1............................................... 79 48
2............................................... 44 27
3............................................... 24 15
4............................................... 12 7
5............................................... 5 3
6............................................... 0 0
164 100
------------------------------------------------------------------------
Figure 8 depicts growth trends in the different types of
securityholder accounts serviced by transfer agents between 2016 and
2025. Over this period, the shares of accounts holding corporate equity
securities and open-end investment company securities have fallen
slightly, the share holding limited partnership securities has fallen
substantially, while the shares of accounts holding corporate debt and
municipal debt securities have increased substantially. The share of
accounts holding other securities has nearly doubled in this period
from 4.8% in 2016 to 9.3% in 2025. Despite the fluctuations noted
above, corporate equity securities and open-end investment company
securities together consistently made up approximately three-quarters
of individual securityholder accounts each year.
[[Page 57010]]
Figure 8. Trends in the Structure of Transfer Agent Activity: Share of
Individual Security Holder Accounts 1
[GRAPHIC] [TIFF OMITTED] TN04SE26.021
\1\ This analysis is based on transfer agents' responses to
Question 5(d) of Form TA-2 for the 2016-2025 reporting periods.
Table 10 provides descriptive statistics on the total number of
individual securityholder accounts (``Individual Accounts''), the
number of individual securityholder dividend reinvestment plan and/or
direct purchase plan (``DRP/DPP'') accounts, and the number of
individual securityholder DRS accounts. Table 10 shows that over time,
the number of Individual Accounts increased from 233 million in 2016 to
281 million in 2025. There has been an increase in the number of DRP/
DPP accounts, which rose from 165 million in 2016 to 186 million in
2025, driven by large increases in 2024 and 2025 following a period of
trending down. The number of DRS accounts decreased from 22 million in
2016 to 13 million in 2025.
Table 10--Number of Securityholder Accounts for Which Transfer Agents Provided Dividend Reinvestment, Direct
Participation, and Direct Registration System Services \1\
----------------------------------------------------------------------------------------------------------------
Individual
Year accounts DRP/DPP DRS (millions)
(millions) (millions)
----------------------------------------------------------------------------------------------------------------
2016................................................... 233 165 22
2017................................................... 236 163 23
2018................................................... 227 152 21
2019................................................... 229 155 18
2020................................................... 228 151 15
2021................................................... 238 159 14
2022................................................... 256 158 14
2023................................................... 263 161 14
2024................................................... 270 172 14
2025................................................... 281 186 13
----------------------------------------------------------------------------------------------------------------
\1\ This analysis is based on transfer agents' responses to Questions 5(a)-(c) of Form TA-2 for the 2016-2025
reporting periods. Individual Accounts is defined as the total number of individual securityholder accounts
(in millions) including DRS accounts and accounts in, dividend reinvestment plans (DRPs) and/or direct
purchase plans (DPPs). See Question 5(a) of Form TA-2. DRP/DPP is the total number of individual
securityholder DRP and/or DPP accounts (in millions). See Question 5(b) of Form TA-2. DRS is the total number
of individual securityholder DRS accounts (in millions). See Question 5(c) of Form TA-2.
6. Withdrawal From Registration
A transfer agent that wishes to withdraw from registration would
file Form TA-W with the Commission or their other ARA. Table 11 reports
the number of transfer agents that filed Form TA-W with the Commission
between 2016 and 2025. The average number of transfer agents filing
Form TA-W each year is 14.4, while the
[[Page 57011]]
median is 13.5. Over this period, a total of 144 transfer agents filed
Form TA-W.
Table 11--Number of Transfer Agents Filing Form TA-W With the Commission
------------------------------------------------------------------------
Number of Form
Year TA-W filers
------------------------------------------------------------------------
2016.................................................... 13
2017.................................................... 21
2018.................................................... 13
2019.................................................... 12
2020.................................................... 14
2021.................................................... 18
2022.................................................... 17
2023.................................................... 14
2024.................................................... 11
2025.................................................... 11
---------------
Total................................................. 144
------------------------------------------------------------------------
An analysis of Form TA-W filings sheds light on the state and
future plans of transfer agents when they withdraw from registration.
According to Table 12, of the 144 transfer agents that withdrew from
registration between 2016 and 2025, 56 (39% of the total) indicated
that they had a successor transfer agent for each issue of securities
for which they performed transfer agent activities. Four transfer
agents that withdrew from registration (3% of the total) indicated an
intention to perform transfer agent activities in the near future. Five
transfer agents that withdrew from registration (3% of the total)
indicated that they were directly or indirectly involved in legal
actions or proceedings or were aware of potential claims against them
in connection with their performance of transfer agent activities. One
transfer agent that withdrew from registration (1% of the total)
reported the existence of unsatisfied judgments or liens against them
arising out of their performance of transfer agent activities.
The stated reasons for withdrawing from registration are submitted
in a free text field and are consequently sometimes ambiguous or
incomplete. Based on available data, approximately 20 withdrawals (14%
of the total) were due to mergers with or sales of all transfer agent
client relationships to non-affiliated firms, of which 16 indicated a
successor for all transfer agent clients. This estimate may overstate
the number of transfer agent acquisitions; for example, some may have
reflected the purchase of a firm that was an internal transfer agent.
Additionally, an estimated 35 withdrawals (24% of the total) were of
firms that never performed transfer agent activities, had erroneously
filed a duplicate registration, or expressed an intention to re-
register with a different ARA.
Table 12--State and Future Plans of Transfer Agents at Time of TA-W
Filing
------------------------------------------------------------------------
Number \1\ Percent \2\
------------------------------------------------------------------------
Future activity \3\..................... 4 3
Legal actions or proceedings \4\........ 5 3
Judgments or liens \5\.................. 1 1
Successor transfer agent \6\............ 56 39
------------------------------------------------------------------------
\1\ Number is the number of transfer agents filing Form TA-W between
2016 and 2025.
\2\ Percent is Number as a percentage of the total number of transfer
agents filing Form TA-W between 2016 and 2025.
\3\ This row reports the number of transfer agents that intend to
perform in the near future a transfer agent function for any security
registered under Section 12 of the Exchange Act or which would be
required to be registered except for the exemption from registration
provided by paragraph (g)(2)(B) or (g)(2)(G) of that section. See
Question 7(a) of Form TA-W.
\4\ This row reports the number of transfer agents that are directly or
indirectly involved in any legal actions or proceedings or are aware
of any potential claims against them in connection with their
performance of transfer agent activities for any security. See
Question 8 of Form TA-W.
\5\ This row reports the number of transfer agents that indicate the
existence of unsatisfied judgments or liens against them arising out
of their performance of transfer agent activities for any security.
See Question 9 of Form TA-W.
\6\ This row reports the number of transfer agents that indicate the
existence of a successor transfer agent. See Question 10(a) of Form TA-
W.
7. Issuers
Table 13 reports the annual number of unique registered issuers
between 2016 and 2025.\416\ In particular, the Commission estimates
that there were 7,750 registered issuers of principally operating
companies and business development companies in 2025. Additionally, the
Commission estimates that there were 14,130 funds issued by registered
investment companies, excluding business development companies, in
December 2025.
---------------------------------------------------------------------------
\416\ The annual number of unique issuers is the number of
unique registrants (as identified by Central Index Keys) that filed
Forms 10-K, 20-F, or 40-F in a given year and excludes most
registered investment companies, which do not file these forms, but
does include, for example, business development companies and face
amount certificate companies. The number of fund issuers is the
number of funds reported in the Annual Registered Investment Company
Update data. See supra Section V.B.3.
Table 13--Total Number of Issuers Between 2016 and 2025
------------------------------------------------------------------------
Number of 10-K/ Number
Year \1\ 20-F/40-F of fund
issuers issuers
------------------------------------------------------------------------
2016........................................ 8,173 ........
2017........................................ 7,859 ........
2018........................................ 7,712 ........
2019........................................ 7,624 13,761
2020........................................ 7,475 13,599
2021........................................ 7,958 13,749
2022........................................ 8,737 13,959
2023........................................ 8,351 14,088
2024........................................ 7,902 14,438
2025........................................ 7,750 14,130
------------------------------------------------------------------------
\1\ 10-K/20-F/40-F reports full-year numbers. Fund reflects the number
of funds in December of each year.
This section complements the above analysis of Form TA-2
submissions with AA data, which covers 165 registered transfer agents
with a most recent periodic filing date from January 2024 to January
2026, for issuers with most recent periodic filing dates during the
same period.\417\ As shown in Panel A of Table 14, the median transfer
agent provides services to five issuers. However, the transfer agent at
the 90th percentile services 114 issuers and the transfer agent at the
99th percentile services 1,087 issuers. In addition, 46 transfer agents
provide services to only 1 issuer each, while 20 transfer agents
provide services to over 100 issuers each to a combined total of 8,250
issuers.
---------------------------------------------------------------------------
\417\ Where percentages are reported, they exclude transfer
agents and issuers with missing data.
---------------------------------------------------------------------------
When considering issuer revenues and the complexity of issuer
shareholder structure, the median transfer agent serves issuers with a
median of 180 shareholders of record and $71.4 million in revenue.
Similar to the distribution in the number of issuers, the distribution
of revenues and shareholders is concentrated in the right tail, with
the 90th percentile of transfer agents serving issuers with a median of
[[Page 57012]]
3,060 shareholders of record and $1.1 billion in revenue, and the 99th
percentile of transfer agents servicing issuers with a median of 56,539
shareholders of record and $37.5 billion in revenue.
In addition, the industry for transfer agents is heavily segmented
with respect to the types of issuers served by different transfer
agents. While the median transfer agent serves no exchange listed
issuers, the top decile of transfer agents overwhelmingly serves
exchange listed firms (over 85% of their issuer business). The
distribution of OTC firms served by transfer agents exhibits similar
characteristics. There is also considerable segmentation among transfer
agents in the provision of services to funds. While the median transfer
agent does not provide services to any investment company issuers, such
firms account for all of the issuers served by transfer agents in the
top quartile. In total, 89 of the 165 transfer agents in this data set
do not serve a single investment company issuer, while 45 transfer
agents serve investment company issuers exclusively. By contrast, many
transfer agents serve at least some small issuers, though the
percentage is highly sensitive to the definition of ``small issuer''
used. Panel B of Table 14 reports the fraction of small issuers served
by transfer agents. Small issuers comprise 0% to 80% of the issuers
served by the median transfer agent, depending on the definition of
``small issuer'' used. Between 18 and 96 transfer agents in the sample
serve no small issuers, depending on the definition of ``small issuer''
used. Regardless of the definition of ``small issuer'' used, more than
25% of transfer agents service primarily securities issued by small
issuers.
Note that each of these analyses is independent of the others: for
example, the firms serving the most issuers do not necessarily have the
highest median number of shareholders or revenues, or the highest
percentage of exchange-listed issues serviced. For example, the median
percentage of exchange listed-issues among the top five transfer agents
by issuers served is 82%, with a range of 67-87%, and the median
percentage of small issuers served is 40%, 70%, or 44%, depending on
the definition of ``small issuer.''
Table 14--Characteristics of Issuers Serviced by Transfer Agents
--------------------------------------------------------------------------------------------------------------------------------------------------------
Investment
Percentile Issuers \1\ Shareholders Revenue US exchange OTC \5\ (%) company \6\
\2\ ($000s) \3\ \4\ (%) (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Panel A. Issuer Counts, OTC Issuers, and Investment Company Issuers
--------------------------------------------------------------------------------------------------------------------------------------------------------
1....................................................... 1 .............. 5.4 0 0 0
10...................................................... 1 13 63.7 0 0 0
25...................................................... 1 90 7,429 0 0 0
50...................................................... 5 180 71,422 0 0 0
75...................................................... 29 1,077 445,990 33 25 100
90...................................................... 114 3,060 1,099,628 85 82 100
99...................................................... 1,087 56,539 37,491,200 100 100 100
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ The number of issuers for which information about company name is available in AA.
\2\ The median number of shareholders of record of a corresponding share class for the issuers that a given transfer agent serves.
\3\ The median most recent year revenue for the issuers that a given transfer agent serves. Where the issuer is a bank or a financial institution,
revenue includes both interest and non-interest income. In addition, for banks and financial institutions total revenue data generally does not
include write downs or losses of any kind.
\4\ Issuers are classified as listed on U.S. Exchange if company or shareholder market information includes NASDAQ, NYSE, Bats, or Amex.
\5\ Issuers are classified as OTC if they are not classified as listed on U.S. Exchange and company or shareholder market information includes OTC or
Grey Market.
\6\ Based on information in the Investment Company Act variable (specifying '34 Act or '40 Act).
Panel B--Small Issuers
----------------------------------------------------------------------------------------------------------------
Small (Alt.) \2\ Small (Alt. 2)
Percentile Small \1\ (%) (%) \3\ (%)
----------------------------------------------------------------------------------------------------------------
Panel B. Small Issuer
----------------------------------------------------------------------------------------------------------------
1...................................................... 0 0 0
10..................................................... 0 0 0
25..................................................... 0 50 0
50..................................................... 23 80 0
75..................................................... 96 100 71
90..................................................... 100 100 100
99..................................................... 100 100 100
----------------------------------------------------------------------------------------------------------------
\1\ Percentage of issuers that are non-accelerated filers or small reporting companies according to filings
since 2024.
\2\ Percentage of issuers that are non-accelerated filers, small reporting companies, or have most recent
reported trailing twelve-month revenues below the emerging growth company threshold according to filings since
2024.
\3\ Percentage of issuers with filings since 2024 and most recent market capitalization under $1 billion
according to AA.
8. Database Searches and Account Remittances
Table 15 reports the percentage of Form TA-2 filers conducting
database searches, the number of accounts searched, the number of lost
securityholder accounts for which a different address has been obtained
as a result of a database search,\418\ and the discovery rate (i.e.,
ratio of the number of lost securityholder accounts for
[[Page 57013]]
which a different address has been obtained as a result of a database
search to the number of accounts searched) averaged across the 10
reporting periods between 2016 and 2025. On average, 80% of
recordkeeping transfer agents \419\ that filed Form TA-2 conducted
database searches for approximately 3.2 million securityholder accounts
and obtained a new address for approximately 2.2 million of these
accounts. Recordkeeping transfer agents obtained a new address for a
lost securityholder account at an average rate of 68%. On average, 25%
of the non-recordkeeping transfer agents that filed Form TA-2 conducted
database searches for approximately 160,000 securityholder accounts and
obtained a new address for approximately 93,000 of these accounts. Non-
recordkeeping transfer agents obtained a new address for a lost
securityholder account at an average rate of 58%. These results suggest
that recordkeeping transfer agents conducted more database searches
than non-recordkeeping transfer agents and obtained a new address for a
higher proportion of lost securityholder accounts searched. Among
transfer agents, recordkeeping transfer agents are principally involved
in complying with Rule 17ad-17's requirement to search for lost
securityholders.
---------------------------------------------------------------------------
\418\ See Questions 11(a)(ii) and 11(a)(iii) of Form TA-2.
\419\ As discussed in Section V.B.4.a, recordkeeping transfer
agents are identified based on their responses to Questions 6(a) and
6(c) on Form TA-2.
Table 15--Database Search by Transfer Agents
----------------------------------------------------------------------------------------------------------------
(3) Number of
(1) Percentage of accounts for (4) Discovery
transfer agents (2) Number of which different rate = (3)/(2)
conducting search accounts searched address was (%)
obtained
----------------------------------------------------------------------------------------------------------------
Recordkeeping Transfer Agent........ 80 3,182,939 2,173,507 68
Non-recordkeeping Transfer Agent.... 25 159,815 92,621 58
----------------------------------------------------------------------------------------------------------------
Table 16 reports the number of lost securityholder accounts
remitted to states each year from 2016 to 2025 by Form TA-2 filers.
During this period, the number of accounts remitted gradually fell from
471,591 in 2016 to 417,270 in 2022, then dropped by more than half to
162,947 in 2023, before settling at 163,204 in 2025.\420\ The
Commission has limited insight into database searches or accounts
remitted to states by carrying broker-dealers, for example from
responses to customer complaints received by the Office of Investor
Education and Assistance and forwarded to broker-dealers; this
information is neither systematic nor complete, and overall search or
remittance numbers for carrying broker-dealers are unavailable. The
Commission requests comment on this matter.
---------------------------------------------------------------------------
\420\ The decline in 2023 was primarily due to the cessation of
operations by the transfer agent which had for several years been by
a considerable margin the largest remitter; it filed Form TA-W with
the Commission that year.
Table 16--Lost Securityholder Accounts Remitted to States by Transfer
Agents
------------------------------------------------------------------------
Number of
Year accounts
remitted
------------------------------------------------------------------------
2016.................................................... 471,591
2017.................................................... 462,622
2018.................................................... 469,688
2019.................................................... 504,455
2020.................................................... 430,890
2021.................................................... 471,400
2022.................................................... 417,270
2023.................................................... 162,947
2024.................................................... 174,312
2025.................................................... 163,204
------------------------------------------------------------------------
9. Segregated Funds
The Commission's regulatory experience indicates that some transfer
agents may maintain issuer, securityholder, and other customer funds in
bank accounts separate from any other bank accounts of the transfer
agents.\421\ However, data regarding the prevalence of this practice is
not available. The Commission requests commenters to provide feedback
on the number of transfer agents that currently adopt this practice.
---------------------------------------------------------------------------
\421\ See Office of Compliance Inspections and Examinations Risk
Alert (February 13, 2019), available at https://www.sec.gov/newsroom/whats-new/transfer-agent-safeguarding-funds-securities.
---------------------------------------------------------------------------
10. Basis for Removing Restrictive Legends
As discussed in Section IV.B, transfer agents are often the party
responsible for affixing, tracking, and removing restrictive legends.
The Commission's regulatory experience indicates that (i) some transfer
agents rely on the advice of counsel in the form of an ``attorney
letter'' or ``opinion letter'' as the basis for removing restrictive
legends and (ii) such opinion letters can come from either the issuer's
in-house counsel or outside counsel. However, data regarding the
prevalence of opinion letters as the basis for removing restrictive
legends is not available, as is data on the extent to which opinion
letters are provided by issuers' in-house counsel or outside counsel.
The Commission requests commenters to provide feedback on these
matters.
Notwithstanding the foregoing, transfer agents may choose to
process a transaction in the absence of an opinion letter. Data
regarding the usage of these non-opinion letter methods--to the extent
they are used by transfer agents--is unavailable, as is data on the
extent to which the use of each method involved transfer agents
providing supporting documentation similar to or satisfying the
requirements set forth in paragraph (d) of proposed Rule 17ad-31. The
Commission requests commenters to provide feedback on these matters.
C. Benefits and Costs
This section discusses the benefits and costs associated with the
proposed rules and amendments. The proposed amendments to Forms TA-1
and TA-2 are likely to increase the amount and usefulness of
information available to market participants about transfer agents. To
the degree that issuers currently face information asymmetries about
transfer agent quality, incentives, and conflicts, enhanced
disclosures--such as those regarding corporate organizational structure
and outsourcing arrangements--may reduce adverse selection in the
market for transfer agent services by improving issuers' ability to
[[Page 57014]]
differentiate among transfer agents based on their capability prior to
contracting. Separately, post-contractual conflicts of interest may be
more directly addressed by other provisions of the proposal, including
the compliance, safeguarding, and restrictive legend rules discussed
below. Additionally, to the degree that the proposed amendments may
reduce the costs of acquiring information about transfer agent quality,
they may also increase market incentives for transfer agents to compete
on quality.
The Commission is also proposing to amend certain definitions as
well as processing, recordkeeping, record retention, prompt posting,
and safeguarding requirements. These proposed amendments would update
and streamline these definitions and requirements to address
technological and market infrastructure changes, industry concerns, and
lessons from the Commission's oversight and monitoring experience. The
proposed amendments would also expand existing safeguarding
requirements to address a wider range of risks, including through new
provisions governing segregation of funds and business continuity
planning. The proposed amendments would provide greater clarity to
transfer agents regarding their regulatory obligations, promote prompt
and accurate clearance and settlement of securities transactions,
enhance the resilience of the national clearance and settlement system,
strengthen investor protection, increase investor participation in
securities markets, and facilitate capital raising.
The proposed amendments to Rule 17ad-3 would ensure that issuers
receive the early warning needed to resolve serious performance issues
affecting their underperforming transfer agents and provide stronger
incentives for transfer agents to expeditiously resolve or avoid
performance failures. These measures in turn would support prompt and
accurate clearance and settlement and strengthen investor protection.
The proposed amendments to Rule 17ad-17 would create a new category
of securityholders called an ``inactive securityholder'' (i.e., a
securityholder without observed account activity for 18 months);
require inactive securityholders to be notified; update the definition
of a lost securityholder to address methods of correspondence other
than physical mail; and update the definition of an unresponsive payee
to address electronic payments. The proposed amendments could help
securityholders retain ownership of their investment property, avoid
incurring costs associated with premature remittance and liquidation of
such property, and receive their entitled payments from issuers.
Besides amending existing rules, the Commission is proposing new
rules addressing compliance and restrictive legends. These proposed
rules would facilitate prompt and accurate clearance and settlement of
securities transactions, strengthen investor protection, increase
investor participation in securities markets and facilitate capital
raising.
The Commission is also proposing to rescind Rule 17ad-4. The
proposed rescission of Rule 17ad-4 may strengthen investor protection
and promote the prompt and accurate settlement of securities
transactions by extending turnaround, processing, and recordkeeping
rules to transfer agents and transactions that were previously exempt
from these rules.
The analysis below addresses the likely economic effects of the
proposed and amended rules, including their anticipated and estimated
benefits and costs and their likely effects on efficiency, competition,
and capital formation. The Commission also discusses the potential
economic effects of certain alternatives to the approaches proposed in
this release.
1. Cost Passthrough and Incidence
Transfer agents would incur costs as a result of the proposed rules
and amendments and form amendments. Transfer agents may pass on these
costs to issuers in the form of higher fees or reduced willingness to
offer services to certain types of issuers--for example, issuers from
which transfer agents generate less revenue. This effect is
particularly relevant given the holdup problem identified in Section
V.A. Transfer agents may also pass costs directly to third parties,
such as broker-dealers and securityholders, through increased fees.
Given the high concentration documented in Section V.B.4. and the
limited substitutability of transfer agents in certain market segments,
the Commission expects that transfer agents may have significant
ability to pass costs to issuers in concentrated segments, while
competitive pressure in less concentrated segments may limit
passthrough. To the extent that transfer agents pass on costs
associated with the proposed amendments to their issuer clients and
third parties, these entities may incur costs as well. Transfer agents'
costs and compliance burdens could in some cases be passed along to
issuers and third parties in the form of reduced access to services
rather than through increased prices.
The Commission does not have data or other information concerning
sensitivities of issuers and third parties to fees, how transfer agents
account for these sensitivities, or the extent to which transfer agents
prefer to keep fees constant. Thus, any potential shift in the supply
of transfer agent services and its impact on fees is unknown. The
Commission requests commenters provide feedback on these matters.
2. Benefits and Costs of Policies and Procedures Approach in Rules
17ad-2, 12, and 30
This section discusses the potential benefits and costs associated
with the proposed policies and procedures approach for Rules 17ad-2,
12, and 30 i.e., framing these rules as principles-based rules.
A policies and procedures approach to Rules 17ad-2, 12, and 30
could benefit registered transfer agents by providing them with
flexibility in how they effect turnaround, safeguard funds and
securities, address cybersecurity and other risks associated with their
activities, and comply with applicable laws and regulations. The
flexibility stems from the proposed approach's requirement that
registered transfer agents establish, maintain, and enforce written
policies and procedures reasonably designed to ensure the performance
of these activities. The policies and procedures approach would allow
each transfer agent to determine the methodologies that work best to
perform these activities in light of current technologies as well as
future technological developments; operational and market developments;
and the transfer agent's specific business model, services, risks, and
other characteristics. The flexibility afforded by a policies and
procedures approach may encourage transfer agents to deploy new
technologies and practices that may reduce their costs, while improving
their performance. To the extent that transfer agents realize cost
savings and pass them on to issuers in the form of lower fees for
performing transfer agent services, issuers also may benefit from the
flexibility afforded by a policies and procedures approach.
In exchange for this additional flexibility, a principles-based
rule may require transfer agents to consider the application of its
provisions to particular situations to a far greater degree than under
a prescriptive rule.\422\
[[Page 57015]]
As a result of framing Rules 17ad-2, 12, and 30 as principles-based
rules, transfer agents may devote greater efforts and incur greater
costs to understand the application of these rules' provisions to
particular situations, relative to the baseline.
---------------------------------------------------------------------------
\422\ See Julia Black, The Rise, Fall and Fate of Principles
Based Regulation (Working Paper Nov. 21, 2010), available at https://ssrn.com/abstract=1712862 (retrieved from SSRN Elsevier database).
---------------------------------------------------------------------------
The benefits and costs of Rules 17ad-2, 17ad-12, and 17ad-30 are
discussed in more detail in Sections V.C.4.b, V.C.4.h, and V.C.5.a,
respectively. The compliance costs of each of these rules are
quantified in these respective sections.
3. Benefits and Costs of the Proposed Amendments to Registration and
Annual Reporting Requirements
a. Proposed Amendments to Rule 17ac2-1
Under the proposal, Form TA-1 filings and amendments would be
effective 45 days after filing, instead of the current 30 days.
A longer effective date may reduce the timeliness of transfer agent
registrations and may delay new entrants into the transfer agent
industry from providing such services to issuers by 15 days. However,
as discussed in section II.A, the proposed amendment may provide the
Commission with additional time to review the information contained in
Form TA-1. Thus, the proposed amendment may enhance Commission
oversight over the transfer agent industry. Moreover, the proposal
would align the timeline of effectiveness of Form TA-1 filing and
amendments with Section 17A(c)(2) of the Exchange Act.\423\
---------------------------------------------------------------------------
\423\ See supra Section II.A.
---------------------------------------------------------------------------
b. Proposed Amendments to Rule 17ac2-2
Under the proposal, filers would be required to file an amended
Form TA-2 within 60 days of discovering any information reported that
was materially inaccurate, misleading, or incomplete at the time of
filing to correct that information. The proposed amendment would result
in better accuracy in data collected and maintained by the Commission.
This amendment would result in costs to transfer agents. Upon
discovering that it had filed information that was inaccurate,
misleading, or incomplete, a transfer agent would face a choice between
(1) incurring costs to determine if the information was materially
inaccurate, misleading, or incomplete in order to decide whether to
file an amended Form TA-2 or (2) incurring any costs of producing and
filing an amended Form TA-2 regardless of materiality. Further,
transfer agents that have determined that the information was
materially inaccurate, misleading, or incomplete would subsequently
incur costs to produce and file an amended Form TA-2.
The compliance costs associated with the proposed amendments to
Rule 17ac2-2 would impose annual costs of $1,500 \424\ per transfer
agent.
---------------------------------------------------------------------------
\424\ The $1,500 annual estimate is based on the following
calculations: $1,393.20 (lawyers at $774 for 1.8 hours) + $154.80
(costs for outside professionals of $154.80) [ap] $1,500.
Occupational rates are calculated as described in infra note 533.
For additional details on estimates of burden hours and occupations
involved, see infra Section VI. Throughout this economic analysis,
we have estimated certain costs based on our analysis of the
collection of information burdens of the proposed rules for purposes
of the Paperwork Reduction Act of 1995 (``PRA''). As discussed in
more detail in section VI.E, our PRA estimates represent an average
burden for all respondents, both large and small, and the burdens
will likely vary among individual respondents based on a number of
factors, including the size and complexity of their business.
---------------------------------------------------------------------------
c. Proposed Amendments to Form TA-1
The Commission is proposing to add a number of questions to Form
TA-1 including, among other things, organizational details such as
affiliates and the transfer agent's other registrations, as well as
revision of instructions to promote clarity regarding the required
information collected in existing questions.\425\
---------------------------------------------------------------------------
\425\ See supra Section II.C.
---------------------------------------------------------------------------
The Commission also proposes to remove two existing questions
concerning registrants' engagement of and engagement as a service
company. The questions being removed from Form TA-1 are duplicative of
information that is included in Form TA-2.
Benefits
There are benefits to both the questions being added to Form TA-1,
which would provide valuable information to market participants doing
business with transfer agents and the Commission, and to the questions
being removed, which may reduce the frequency of filing amendments and
the costs of preparing those filings relative to retaining those
questions.
Information about the geographic scope of the business, the
officers and directors of the registrant, and the registrant's
organizational structure and affiliations may help in identifying
conflict of interest concerns; assessing governance, safeguarding, and
operational risks; assessing the internal division of labor,
specialization, and scope; and relating total firm resources to the
functions they support. This may contribute to improved transfer agent
selection by issuers and increase competition among transfer agents.
Identifying transfer agents' other registrations would better enable
the Commission to cross-reference entities already registered with the
Commission in other capacities and therefore improve its evaluation of
applications and oversight of registered entities.
Furthermore, the structured data language in which transfer agents
file Form TA-1 would enhance these benefits by making the additional
disclosures more efficient to process and analyze. Form TA-1 is
currently structured in a custom XML data language and would continue
to be under the proposal.\426\ The custom XML requirement renders the
disclosures machine-readable, benefiting users of the disclosures (such
as issuers and regulators) by facilitating comparisons across transfer
agents and filing periods. The requirement also allows transfer agents
to complete a fillable web form that the EDGAR converts into a custom
XML document rather than incur the cost of structuring their
disclosures themselves.\427\
---------------------------------------------------------------------------
\426\ See Form TA Technical Specification, SEC, available at
https://www.sec.gov/submit-filings/technical-specifications#form_ta.
\427\ See EDGAR Filer Manual Vol. II (Version 77, Mar. 2026) at
Section 8.2.25, SEC, available at https://www.sec.gov/submit-filings/edgar-filer-manual.
---------------------------------------------------------------------------
The removal of existing Questions 6 and 7 regarding service company
arrangements from Form TA-1 may reduce certain costs related to
preparing such amendments when required and may result in transfer
agents needing to file amendments to Form TA-1 less frequently than if
those Questions were retained, particularly if service company
arrangements change more frequently than other information submitted on
Form TA-1.
The proposed amendments to Form TA-1 instructions are expected to
result in marginal benefits to registrants, the Commission, and
potentially other stakeholders such as issuers. For example, amended
instructions may help to reduce filing errors by specifying that the
full legal name of the registering entity must be used and may ease
Commission oversight by ensuring that registrants are aware that
registration makes them subject to the SEC's examination authority,
including for non-Section 12 issues. Amending the instructions to
Question 8 could result in more consistent and complete responses by
registrants, facilitating the Commission in its oversight and
regulatory roles.
[[Page 57016]]
Costs
The removal of existing Questions 6 and 7 may result in somewhat
delayed visibility into new transfer agents' use of and employment as
service providers, as that information would only be received with the
filing of Form TA-2. Additionally, because the service provider
information in Form TA-2 is retrospective to the calendar year
reporting period, changes in employment of or employment as a service
provider would no longer be updated within 60 days of the change as
required by existing Questions 6 and 7. However, the Commission does
not anticipate that the proposed change in provision of service company
arrangement information from Form TA-1 to Form TA-2 will materially
impact the Commission's oversight of transfer agent operations with
respect to service company arrangements. The other proposed amendments
to Form TA-1 would result in costs to transfer agents primarily related
to potential costs of needing to file amendments more frequently. This
is because these proposed amendments increase the number of reportable
items that could change and in turn increases the likelihood of an
amendment to Form TA-1.
The proposed amendments to form instructions are expected to result
in some costs to registrants. Many of the proposed amendments to
instructions require no substantive work from the registrant, such as
those amendments specifying that the contact person in Question 1(f)
must be authorized to receive compliance correspondence, or actively
facilitate the accurate filing of Form TA-1, such as stating the
meanings of the abbreviations of ``CCC'' and ``CIK.'' The amended
instructions for Question 8, specifying who must be listed as a control
person, may effectively require additional disclosure from some
registrants and consequently additional costs to ascertain and report
the information.
The proposed amendment may result in duplication of reporting
across Forms TA-1 and TA-2, particularly for transfer agents that enter
the industry close to the end of the reporting period for Form TA-2.
The Commission further recognizes that because amendments to Form TA-1
must be filed within 60 calendar days of reported information becoming
inaccurate, incomplete, or misleading, registrants may have to expend
resources to determine on an ongoing basis if changes in internal
organization, external affiliations, or registrations necessitate
filing an amended Form TA-1, and incur costs to potentially file
amendments multiple times per year. We estimate this aspect of the
proposed amendment may impose annual compliance costs per transfer
agent of $1,500.\428\
---------------------------------------------------------------------------
\428\ The $1,500 annual estimate is based on the following
calculations: $1,161 (lawyers at $774 for 1.5 hours) + $387 (costs
for outside professionals of $387) [ap] $1,500. Occupational rates
are calculated as described in infra note 533. For additional
details on estimates of burden hours and occupations involved, see
infra Section VI. The burden and cost estimates for Form TA-1 in
this release do not reflect a separate burden or cost of structuring
disclosures in custom XML, because the forms are fillable web forms
on EDGAR that convert disclosures to custom XML. While transfer
agents have the option of creating and submitting a custom XML
document rather than using the fillable form, the Commission expects
any transfer agents that choose this option have sufficient XML
experience and infrastructure such that the burden and cost of doing
so is de minimis.
---------------------------------------------------------------------------
d. Proposed Amendments to Form TA-2
There are several benefits associated with the proposed additional
disclosures in Form TA-2.\429\ These proposed disclosures may mitigate
information asymmetries and conflicts of interest between transfer
agents and less informed issuers and investors; allow issuers to make
more informed decisions in the selection of transfer agent; and support
Commission oversight over transfer agents.
---------------------------------------------------------------------------
\429\ See supra Section II.D.
---------------------------------------------------------------------------
Benefits
The proposed amendments would require additional disclosures. For
example, the proposed amendments would require transfer agents to
disclose information related to their number of employees, activities
performed, issues serviced, and certain service providers engaged. Such
disclosures are expected to improve the ability of issuers and/or the
Commission to assess the scope and quality of services offered by
transfer agents; operational, outsourcing, and safeguarding risks of
each transfer agent; and resources to cover financial responsibilities
or liabilities the transfer agent may assume through visibility into
transfer agents' operating structure and business affiliates. Improving
visibility into such factors for each transfer agent will also better
enable comparison across transfer agents.
The proposal would also require transfer agents to provide detailed
information about, for example, the number and type of securities
serviced and various means of doing so. The proposed amendments would
require transfer agents to disclose more granular information about
their activities related to already specified types of securities and
the same information for newly identified classes of securities
currently included within ``other securities,'' for example, exchange-
traded funds. Transfer agents would also be required to disclose
amounts paid in various cash and stock distributions and open end
investment company security purchases and redemptions. The disclosure
of additional information may facilitate oversight of transfer agents
and enhance the ability of issuers to understand and compare the
businesses of various transfer agents. Furthermore, as discussed in
further detail in section V.C.3.c, the custom XML requirement for Form
TA-2 will make the added disclosure more readily available for
processing and analysis. However, to the degree that such information
may be duplicative of information in Form TA-1, existing requirements
to file Form TA-1 and update it may reduce the magnitude of the above
benefits of the proposed disclosure of changes in the transfer agent's
business.
The proposed form amendments would result in transfer agents no
longer being required to report some information. To conform with
proposed Rule 17ad-2, which replaces required monthly turnaround
performance with a policies and procedures approach, Question 9 would
be revised and transfer agents would no longer report the number of
months not in compliance or the number of written notices of
noncompliance filed to their ARA. Transfer agents would also no longer
be required to report certain information related to the number and
type of individual securityholder accounts. The removal of these
disclosures may reduce the costs of tracking those metrics and
preparing Form TA-2 filings.
The proposed amendments to Form TA-2 instructions are expected to
result in minor benefits to registrants, the Commission, and
potentially other stakeholders such as issuers. For example, the
proposed clarification of how to count securityholder accounts in
Question 4(b) may result in more accurate and consistent reporting,
which would benefit the Commission in its oversight role and
potentially other stakeholders by improving comparability between
transfer agents' reported data.
Costs
The proposed disclosures in Form TA-2 would impose direct and
indirect costs on transfer agents--costs that may be passed along to
issuers and third parties (e.g., securityholders, broker-dealers, and
other non-issuers) that purchase services from transfer agents. First,
these disclosures may provide
[[Page 57017]]
only noisy signals of transfer agent quality or conflicts of interest
and therefore may provide issuers with only a limited ability to make
more informed choices when selecting transfer agents. Moreover, these
additional disclosure requirements may lead some transfer agents,
particularly smaller and less transparent transfer agents, to exit the
industry. A more detailed discussion of these effects on efficiency,
competition, and capital formation is presented in Section V.D.
Second, transfer agents would incur direct compliance costs.
Compliance with the proposed amendments to Form TA-2, including the
amendments to instructions (principally the calculation of the number
of securityholder accounts in Question 4(b)), would impose annual costs
of $3,900 \430\ per transfer agent. These compliance costs and other
costs, that are less amenable to quantification and discussed below,
may be passed on to issuers and third parties.
---------------------------------------------------------------------------
\430\ The $3,900 annual estimate is based on the following
calculations: $3,483 (lawyers at $774 for 4.5 hours) + $387 (costs
for outside professionals of $387) [ap] $3,900. Occupational rates
are calculated as described in infra note 533. For additional
details on estimates of burden hours and occupations involved, see
infra Section VI. The burden and cost estimates for Form TA-2 in
this release do not reflect a separate burden or cost of structuring
disclosures in custom XML, because the forms are fillable web forms
on EDGAR that convert disclosures to custom XML. While transfer
agents have the option of creating and submitting a custom XML
document rather than using the fillable form, the Commission expects
any transfer agents that choose this option have sufficient XML
experience and infrastructure such that the burden and cost of doing
so is de minimis.
---------------------------------------------------------------------------
4. Benefits and Costs of Proposed Amendments to Definitions,
Processing, Recordkeeping, and Safeguarding Rules
a. Amendments to Rules 17ad-1 and 17ad-9 and New Definitions to Rule
17ad-9
Proposed amendments to Rules 17ad-1 and 17ad-9 would amend and
create definitions used in transfer agent rules and extend the
applicability of definitions in Rule 17ad-1 to additional rules.\431\
The existing definitions generally reflect the transfer agent market as
it was several decades ago when the transfer agent rules were
originally adopted and when most settlement involved the cancellation
and reissuance of security certificates. The intervening years have
brought substantial change to the processing of security transactions,
with most certificated securities being held in centralized
depositories in street name and substantial activity taking place
purely in book entry form. Communications, recordkeeping, and other
categories of technology employed in the performance of transfer agent
activities have likewise developed substantially. The proposed
amendments in large part modernize definitions to reflect the state of
the transfer agent market and technology currently in use, as well as
to provide improved flexibility in definitions to allow for further
developments and innovation.
---------------------------------------------------------------------------
\431\ See supra Sections III.A and III.B.
---------------------------------------------------------------------------
Rule 17ad-1 definitions currently apply to Rules 17ad-2 through
17ad-7. They are proposed to be extended to apply to Rules 17ad-9,
17ad-10, and 17ad-12 and proposed Rules 17ad-30, and 17ad-31. Their
applicability to Rule 17ad-4 is proposed to be rescinded in conjunction
with its proposed rescission. Rule 17ad-9 definitions currently apply
to Rules 17ad-10 through 17ad-13 and are not proposed to be extended to
further rules.
Benefits
The proposed amendments to the definitions in Rules 17ad-1 and
17ad-9 would provide a number of benefits due to their applicability to
existing or proposed rules, or rules with proposed amendments to rule
text. The proposed amendments would provide clarity to transfer agents
in their operations. The amended definitions would contribute to this
by specifying how the tasks which make up most transfer agent
activities, the objects that those tasks operate on, and the records
which evidence them fall within and work in the transfer agent rules.
Notably, this includes specifying that certain rules apply to, for
example, securities, positions, or instructions in general, not only to
certificates, and to instructions submitted to an electronic system
controlled, operated, or enabled by the transfer agent. The proposed
amendments would eliminate outdated definitions, which do not reflect
present business practices and technology, resulting in more clarity
and potentially fewer burdens associated with overcompliance: to the
extent that outdated definitions currently cause transfer agents to
apply rules more broadly than intended, updated definitions may reduce
unnecessary compliance costs. However, the Commission lacks data to
estimate the magnitude of this effect. Greater flexibility in the
definitions of terms, such those concerning security or securityholder
identifying information, would help the rules remain relevant as
markets continue to develop and adjust to technological and other
innovations. Such flexibility in definitions could also provide
transfer agents and service providers flexibility in how to comply with
rules' requirements. Issuers may also benefit from clearer knowledge of
what information transfer agents would collect and maintain as a result
of the proposed amendments, which could enable them to better negotiate
agreements with transfer agents.
The proposed new definitions in Rule 17ad-9--authorized securities,
transfer journal, and presentor--are used extensively in both existing
and proposed amended rules. Defining these terms will benefit market
participants by providing regulatory clarity regarding the rules that
reference these terms.
The proposed amendments to Rules 17ad-1 and 17ad-9 would change the
composition and handling of certain types of records transfer agents
are required, or would be required, to keep, including the master
securityholder file and control book. Expanding the definition of
record difference may result in more timely discovery and resolution of
errors by requiring continuous monitoring and correction, rather than
limiting the definition of a record difference only to instances where
position detail of a security transferred or redeemed does not match
the master securityholder file. Similarly, by providing in the proposed
amended definition of recordkeeping transfer agent that only a single
transfer agent maintains and updates the master securityholder file of
a security issue,\432\ the proposal may reduce the potential for
transactions not being posted to the master securityholder file.
Specifying that transfer agents have discretion in the technologies and
systems used to maintain master securityholder files could contribute
to transfer agents using the most efficient available technology,
thereby promoting prompt and efficient clearance and settlement.
Requiring the tracking of outstanding securities in the control book in
addition to the currently required securities authorized and securities
issued may likewise better enable transfer agents to monitor for
overissuance, particularly by firms that are active in the market for
their own securities such as through the accumulation of treasury
stock.
---------------------------------------------------------------------------
\432\ See proposed Rule 17ad-9(h).
---------------------------------------------------------------------------
The proposed amendments to the definition of position detail
increase the amount of information taken in, not only by adding an
alternative applicable unique identifier to the certificate number if
one exists, but also by adding any other information about
securityholders and securities sufficient to accurately identify a
specific securityholder to the exclusion of other securityholders;
effectively deliver
[[Page 57018]]
dividends and other payments, legal notices, and other necessary
communications; and reasonably enable transfer agent recordkeeping,
operations, or the efficient and effective research of record
differences. This could improve clearance and settlement by ensuring
transfer agents' ability to communicate with securityholders in real
time using contemporary methods to help reduce settlement failures and
timely resolve processing discrepancies. This could also improve
transfer agents' functioning as gatekeepers with respect to financial
transactions and transfers. For example, the proposed amendments would
require sufficient information for lost securityholder searches under
Rule 17ad-17 and contribute to an improved success rate for finding
lost securityholders when performing searches.
Costs
Transfer agents would incur costs as a result of the proposed
amendments to definitions in Rules 17ad-1 and 17ad-9 due to their
applicability to existing or proposed rules, or rules with proposed
amendments to rule text. While some general costs related to proposed
amendments to definitions are discussed in this section, costs
associated with the proposed amended definitions as they pertain to
proposed rules and amendments in this release are mainly considered as
part of the costs of these proposed rules and amendments, as discussed
further in this section and Section V.C.5. Generally, costs related to
proposed amendment definitions will primarily be associated with
complying with the major turnaround, posting, recordkeeping, and record
retention rules. Costs deriving from proposed amendments to definitions
as apply to rules without proposed amendments to rule text are
discussed more explicitly in this section.
The proposed amendments to the Rule 17ad-1 definition of receipt
would contribute to a requirement for faster turnaround time, expanding
the scope of instructions which are subject to turnaround rules with
downstream effects to posting, recordkeeping, and record retention
rules. As discussed in the proposed amendment to Rule 17ad-2 below,
which the definition chiefly affects, requirements for more rapid
processing may contribute to increased costs for some transfer agents,
but the Commission understands that most turnaround is already
accomplished on the timelines required under the new definition and
amended Rule 17ad-2.
Proposed amendments to Rule 17ad-9 definitions, notably presentor,
position detail, credit, and debit, would have the effect of requiring
additional information to be collected, tracked, and stored, and
potentially of requiring additional investigation and processing,
including due to the specification that non-certificated actions are
encompassed in the rules. Requiring more information in position detail
could entail one-time costs associated with directly updating forms and
systems to gather the new information. Because the requisite
information is not specified but instead based on the principle that it
be sufficient to effectively comply with applicable laws and
regulations, transfer agents may incur up-front and ongoing costs to
determine what information is necessary to adequately comply. The
proposed amendments to the definition of record difference may result
in more frequent investigations of record differences, as they would
include a continuously existing state of discrepancy between the master
securityholder file and the transfer journal, which could result in
additional ongoing costs. The addition of outstanding securities to the
control book is expected to impose costs for transfer agents, but these
are expected to be relatively minor as the measure is the arithmetic
difference of securities issued, which is already tracked in the
control book, and treasury stock, which may already be designated
within an issue's master securityholder file.
The proposed amendment to the definition of master securityholder
file may result in costs to transfer agents insofar as they do not
already maintain the master securityholder file in electronic form.
Most transfer agents currently maintain master securityholder files in
electronic form and thus any such costs would be minimal. However,
those transfer agents which do maintain master securityholder files in
paper form would face costs to transfer them to electronic form,
including costs to migrate data, to develop systems for updating the
new electronic master securityholder files, and to train employees in
new processes. These changes could impose significant one-time costs,
with ongoing costs of updating the master securityholder file being
more limited. The Commission lacks data on the number of transfer
agents currently maintaining paper-based master securityholder files
and the associated migration costs. These changes may be particularly
burdensome for smaller transfer agents servicing fewer issues for many
years. Such transfer agents are more likely to have begun master
securityholder files in paper format and may be less able to spread out
the fixed costs of changing over to electronic master securityholder
files over multiple issues.
The proposed amendment to the definition of recordkeeping transfer
agent clarifies that only one transfer agent may maintain and update
the master securityholder file for a security issue. Transfer agents
which maintain master securityholder files along with other transfer
agents for the same security issue may face one-time costs to adjust
contracts and operations, but the Commission expects any ongoing costs
related to consolidation of master securityholder files under a single
recordkeeping transfer agent to be minimal. The Commission lacks data
on the number of transfer agents which maintain master securityholder
files jointly with another transfer agent.
Additionally, there could be additional costs attributed to rules
with rule text that is not proposed to be amended.
The Rule 17ad-1 definitions currently and under proposed amendments
apply primarily to proposed rules or to rules with proposed amendments
to rule text. The exceptions are Rules 17ad-5 and 17ad-8. No Rule 17ad-
1 definitions proposed to be amended apply to Rule 17ad-8. The revised
definition of ``receipt'' is not anticipated to result in material
costs to comply with Rule 17ad-5 as, among other reasons, the extended
time during which receipt may occur on the business day corresponding
to the calendar day of receipt is matched by extended time of the last
business day on which a response may be made. The revised definition of
``item'' is not expected to result in material costs to comply with
Rule 17ad-5 independent of related costs to comply with the amended
turnaround, recordkeeping, and record retention rules.
The proposed Rule 17ad-9 definition amendments apply primarily to
the proposed rules and rules with proposed amendments to rule text,
with the exceptions of Rules 17ad-11 and 17ad-13. The Commission does
not expect the proposed amended definitions to result in significant
costs related to 17ad-13 because the required independent report
concerns transfer agents' systems of accounting control, procedures for
the transfer of record ownership, and safeguarding of securities and
funds, which already encompass the activities contemplated by the
amended definitions if not their exact form. The proposed expansion of
the definition of record difference and the resulting possibility of
finding record differences
[[Page 57019]]
stemming from discrepancies between the transaction journal and master
securityholder file could increase the number of aged record
differences.\433\ This in turn could increase the number of reports
related to aged record differences and the associated costs.
Specifically, Rule 17ad-11 requires transfer agents to submit reports
to issuers and to their ARA following each calendar month or quarter,
respectively, when aged record differences exceed specified thresholds.
The cost of incremental reports issued is expected to be $84 per
filing.\434\ The Commission receives an average of one report per year,
but does not have information regarding reports received by other ARAs
and cannot readily quantify the extent of new record differences that
transfer agents may discover as a result of the amended definition or
whether those record differences would be unresolved after 30 days at a
different rate than existing record differences. The Commission
requests comment on these matters.
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\433\ An aged record difference is a record difference that has
existed for more than thirty calendar days. See Rule 17ad-11(a)(2).
\434\ See 2025 Support Statement for Rule 17ad-11, 90 FR 10983
(February 28, 2025) (``2025 Support Statement for Rule 17ad-11'').
The $84 estimate is based on the following calculation: $83.50
(internal bookkeeping, accounting, and auditing clerks at $167 for
0.5 hours) and no external costs, $83.50 + $0 [ap] $84.
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b. Amendments to Rule 17ad-2
The Commission is proposing amendments to Rules 17ad-2(a)-(e) and
(h). The proposed amendments to Rules 17ad-2(a) and 17ad-2(b) would (1)
raise the performance standard for the turnaround and processing of
routine items from at least 90 percent of all routine items to all
routine items; (2) amend the time frame for accomplishing turnaround of
routine items from the existing three business days to one business day
or the time period specified by Rule 15c6-1(a) under the Exchange Act;
and (3) impose a written policies and procedure requirement for the
turnaround and processing of routine items. The proposed amendments to
Rules 17ad-2(c) and 17ad-2(d) would require registered transfer agents
to provide the required notifications when they fail to turnaround or
process more than three percent of routine items within the time frames
specified in proposed Rule 17ad-2(a) and Rule 17ad-2(b), respectively.
The proposed amendments to Rule 17ad-2(e) would add a written
notification requirement for rejected items and make conforming changes
due to the proposed changes to Rule 17ad-2(a) and 17ad-2(b). The
proposed amendments to Rule 17ad-2(h) would, among other things,
replace the existing filing instructions for each ARA in the rule with
email addresses for each ARA to modernize and simplify the filing
instructions.
In light of the proposed rescission of Rule 17ad-4, the Commission
is proposing to delete (1) the turnaround provision in Rule 17ad-
2(e)(2) that applies to transfer agents that are exempt pursuant to
Rule 17ad-4(b) and (2) the existing reference to 17ad-4 in Rule 17ad-
2(h). Section V.C.4.d discusses the benefits and costs associated with
the proposed rescission of Rule 17ad-4. The proposed amendments to Rule
17ad-2(h) would, among other things, reference Rules 17ad-7, 17ad-11,
and 17ad-13. The proposed insertion of Rules 17ad-11 and 17ad-13 in
Rule 17ad-2(h) is unlikely to result in incremental benefits or costs
because it simply mirrors the reference to Rule 17ad-2(h) in Rules
17ad-11(c) and 17ad-13(a). The benefits and costs associated with the
proposed amendments to Rule 17ad-7 are discussed in Section V.C.4.f.
This section discusses the benefits and costs associated with the
proposed amendments to Rule 17ad-2 other than the proposed deletions in
connection with the proposed rescission of Rule 17ad-4 and the proposed
insertion of Rules 17ad-11 and 17ad-13 in Rule 17ad-2(h).
Benefits
The proposed amendments to Rule 17ad-2 would benefit investors by
facilitating prompt and accurate clearance and settlement of securities
transactions and strengthening investor protection. Transfer agents
would benefit from a less burdensome and costly filing obligation as a
result of the proposed electronic filing requirement in Rule 17ad-2(h).
The proposed amendments to Rule 17ad-2(a) would facilitate prompt
and accurate clearance and settlement by requiring a larger percentage
of routine items to be turned around over a shorter time frame relative
to the baseline.\435\ The proposed amendments to Rule 17ad-2(b) would
also facilitate prompt and accurate clearance and settlement by
requiring all applicable items to be processed within the specified
timeframes compared to the existing standard of at least 90 percent of
all routine items. That said, the beneficial impact on clearance and
settlement may be limited. As discussed in Section III.D, the
Commission understands that the vast majority of transfer agents
regularly turn around and process nearly 100 percent of all applicable
items within one business day or less, even for certificated
securities, or are readily capable of doing so. Further, the standard
securities settlement cycle for most broker-dealer securities
transactions is currently one day following the trade date, or
T+1.\436\ The proposed policies and procedures approach could promote
the prompt and accurate clearance and settlement of securities
transactions by providing transfer agents the flexibility to deploy new
technologies and practices that may reduce their costs, while improving
their turnaround performance.\437\ Additionally, should Rule 15c6-1(a)
be revised in the future to specify a shorter settlement cycle, Rule
17ad-2(a) as amended would help ensure that transfer agents effect the
turnaround of routine items to align with and support any shorter
settlement cycle. In the absence of the proposed amendment, transfer
agents may not turn around routine items expeditiously to keep up with
any such shorter settlement cycle, which could delay the clearance and
settlement of securities transactions. Thus, Rule 17ad-2(a) as amended
would facilitate prompt and accurate clearance and settlement of
securities transactions by ensuring that the turnaround of routine
items would continue to keep up with the settlement cycle, even if it
changes in the future. The proposed amendment would benefit investors
by reducing the risk that their transactions cannot be cleared and
settled accurately and promptly because of a turnaround delay.
---------------------------------------------------------------------------
\435\ Specifically, the rule as amended would require a transfer
agent to turnaround all routine items received for transfer during a
month within the shorter of one business day or the time period
specified by Rule 15c6-1(a) under the Exchange Act. In contrast,
existing Rule 17ad-2(a) requires a transfer agent to turnaround at
least 90% of all routine items received during a month within three
business days.
\436\ 17 CFR 240.15c6-1(a).
\437\ See supra Section V.C.2.
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If a transfer agent fails to meet the turnaround or processing
performance standard, the clearance and settlement of securities
transactions is delayed, which exposes investors to market risk and
potential losses. Existing Rules 17ad-2(c) and 17ad-2(d) are intended
to provide the Commission and other ARAs early warning about turnaround
and processing failures, which could be symptomatic of a serious
performance issue affecting the transfer agent. However, as discussed
in Section III.D, few transfer agents fail to turnaround or process in
a timely manner 90 percent of applicable items received each
[[Page 57020]]
month, rendering the existing rules ineffective in providing early
warning of potential performance issues. Further, significant increases
in the volume of items processed by modern transfer agents raise the
costs of performance failures--such as increased market risk to
investors--stemming from serious performance issues and underscore the
need for effective early warning of such issues. The proposed
amendments to Rules 17ad-2(c) and 17ad-2(d) would ensure the Commission
and other ARAs receive the early warning the rule is designed to
provide, but only in situations where the turnaround or processing
failure potentially indicates a serious performance issue. Enhanced
supervisory oversight by the Commission and other ARAs in such
instances could help ensure speedy resolution of serious performance
issues thereby supporting prompt and accurate clearance and settlement
and protecting investors.
The notification requirement of proposed Rule 17ad-2(e)(2) could
enhance investor protection and promote the accurate clearance and
settlement of securities transactions by ensuring that turnaround can
be accomplished as quickly and efficiently as possible. Absent the
proposed notification requirement, an investor (more generally, a
presentor) may not be able to quickly cure defects (e.g., missing or
incomplete information) that prevent the turnaround of an item, because
the transfer agent did not provide notice of those defects. This in
turn could delay the settlement of the transaction associated with the
item and expose the investor to market risk associated with the delayed
settlement of the transaction. By requiring the transfer agent to
notify the investor of such defects and the necessary remedial actions,
the proposed notification requirement could expedite the curing of
defects, facilitate the prompt and accurate clearance and settlement of
securities transactions, and in turn shorten the period during which
the investor would be exposed to market risk associated with delayed
settlement.
The proposed electronic filing requirement in Rule 17ad-2(h) would
remove transfer agents' burden of preparing and submitting the required
information in paper and submitting multiple copies to different ARA
office locations, depending on the ARA. To the extent that the current
paper-based filing requirement is costlier than electronic filing, the
proposed amendment may reduce transfer agents' costs of fulfilling
their filing obligations and increase their efficiency. The proposed
requirement may also facilitate Commission oversight of the filings by
streamlining the process of tracking, reviewing, storing, and
retrieving the email submissions made by transfer agents. More
effective Commission oversight would strengthen investor protection and
facilitate the prompt and accurate clearance and settlement of
securities transactions.
Costs
The proposed amendments to Rule 17ad-2 would impose costs on
transfer agents. To comply with the proposed amendments to Rules 17ad-
2(a) and 17ad-2(b), transfer agents would incur costs to establish,
maintain, and enforce written policies and procedures reasonably
designed to ensure turnaround and processing of all applicable items
received within the timeframes specified in these amended rules.\438\
To the extent that transfer agents have existing written policies and
procedures, they may choose to modify these existing written policies
and procedures to comply with the proposed amendments--as opposed to
creating these written policies and procedures de novo--which could
reduce the costs associated with the proposed amendments.
---------------------------------------------------------------------------
\438\ See Rules 17ad-2(a) and 17ad-2(b).
---------------------------------------------------------------------------
As discussed in Section III.D, the Commission understands that the
vast majority of transfer agents regularly turn around and process
nearly 100 percent of all applicable items within one business day or
less, even for certificated securities, or are readily capable of doing
so. Accordingly, transfer agents would incur very limited, if any,
costs to comply with the proposed amendments to Rules 17ad-2(a) and
17ad-2(b), with the possible exception of small transfer agents. With
respect to small transfer agents that would be required to comply with
amended Rules 17ad-2(a) and 17ad-2(b) as a result of the proposed
rescission of Rule 17ad-4(b),\439\ the Commission understands that even
the smallest transfer agents today have access to automated processes
and electronic recordkeeping systems. Further, the securities markets
and the national clearance and settlement system in which transfer
agents operate have become more automated, efficient, and
interconnected, which has increased the ability of all transfer agents,
regardless of size, to meet the minimum performance standards set forth
in amended Rules 17ad-2(a) and 17ad-2(b), among other things.\440\
These factors may mitigate in particular small transfer agents' costs
of complying with these rules. A subset of transfer agents, potentially
including small transfer agents, may incur costs to acquire the
operational capability to turnaround and process all routine items
received within the timeframes specified in these amended rules. The
Commission requests commenters provide feedback on the number of
transfer agents that may incur such costs and the magnitude of such
costs.
---------------------------------------------------------------------------
\439\ Rule 17ad-4(b), in part, exempts small transfer agents
from Rules 17ad-2(a) and 17ad-2(b). See Rule 17ad-4(b), 17 CFR
240.17Ad-4(b).
\440\ See supra Section III.F.
---------------------------------------------------------------------------
To comply with the proposed amendments to Rules 17ad-2(c) and 17ad-
2(d), transfer agents may incur costs to build a system that monitors
when their performance triggers the proposed three percent notification
threshold for turnaround and processing, respectively. Transfer agents
likely have such systems in place to comply with existing Rules 17ad-
2(c) and 17ad-2(d) and would choose to update their systems to
incorporate the proposed notification thresholds rather than build de
novo monitoring systems. For these transfer agents, the costs of
updating their systems likely would be minimal. Transfer agents that
would be newly subject to amended Rules 17ad-2(c) and 17ad-2(d) because
of the proposed rescission of Rule 17ad-4 likely do not have such
monitoring systems and may incur costs to build them. The Commission
requests commenters provide feedback on the number of transfer agents
that may incur such costs and the magnitude of such costs.
The proposed amendments to Rules 17ad-2(c) and 17ad-2(d) could
increase the number of notices filed by transfer agents to the extent
that the amended notification thresholds are crossed more often than
the existing thresholds. Transfer agents would incur compliance costs
associated with preparing and filing these additional notices. These
compliance costs would fall primarily on transfer agents lacking the
operational capability to avoid triggering the notification
requirements such as smaller, less well-resourced transfer agents. The
Commission requests commenters provide feedback on the change in the
number of notice filings and the associated costs, as well as the type
and number of likely filers.
To comply with proposed Rule 17ad-2(e)(2), transfer agents may
choose to update their internal policies and procedures to ensure that
they provide written notifications about rejected items to the relevant
presentors within the time specified by the proposed rule.
[[Page 57021]]
Because the proposed rule does not specify a method of providing
written notifications and in light of the widespread availability of
near-instantaneous electronic communications in the transfer agent
industry,\441\ transfer agents will likely use their existing methods
of communicating with presentors (such as email communications) to
provide the written notifications within the time specified in the
proposed rule and not incur costs to establish any new communication
methods. As discussed in Section III.D, the proposed rule would require
transfer agents to provide the written notification only for items
rejected by the transfer agent. This means that, if the transfer agent
is not responsible for the rejection, then the transfer agent would not
be required to provide a written notification to the presentor and
incur any associated costs.
---------------------------------------------------------------------------
\441\ See supra Section III.I.2.
---------------------------------------------------------------------------
Transfer agents would incur very little, if any incremental costs
to comply with the proposed electronic filing requirement in Rule 17ad-
2(h). Given the widespread availability of near-instantaneous
electronic communications in the transfer agent industry,\442\ transfer
agents likely already possess the operational capability to comply with
the proposed requirement. To the extent that the current paper-based
filing requirement is costlier than electronic filing, the proposed
amendment may reduce transfer agents' costs of fulfilling their filing
obligations.
---------------------------------------------------------------------------
\442\ See supra Section III.I.2.
---------------------------------------------------------------------------
The compliance costs related to the proposed amendments would
impose initial costs of $34,000 and annual costs of $8,500 per transfer
agent.\443\
---------------------------------------------------------------------------
\443\ The $34,000 initial estimate is based on the following
calculations: $25,542 (lawyers at $774 for 33 hours) + $8,514 (costs
for outside professionals of $8,514) [ap] $34,000. The $8,500 annual
estimate is based on the following calculations: $6,385.50 (lawyers
at $774 for 8.25 hours) + $2,128.50 (costs for external services of
$2,128.50) [ap] $8,500. Occupational rates are calculated as
described in infra note 533. For additional details on estimates of
burden hours and occupations involved, see infra Section VI.
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c. Amendments to Rule 17ad-3
The Commission is proposing to amend Rule 17ad-3 in light of the
proposed amendments to Rule 17ad-2(c) and (d). The Commission is
proposing to amend the threshold in Rule 17ad-3(b) from 75 percent to
95 percent so that any registered transfer agent that fails, for each
of two consecutive months, to turn around at least 95 percent of
routine items within the time specified in Rule 17ad-2(a) or to process
at least 95 percent of all applicable items within the time specified
in Rule 17ad-2(b) would be subject to the limitations on expansion in
Rule 17ad-3(a) and required to notify the chief executive officer of
each issuer for which the transfer agent acts.
The proposed amendments to Rule 17ad-2(c) and (d) also alter the
operation of Rule 17ad-3(a). Specifically, any transfer agent that
fails to timely turnaround or process more than three percent of all
routine items received during a month for three consecutive months is
prohibited from taking on new issues or providing new services for
existing issues. In contrast, under existing Rule 17ad-2(c) and (d),
the limitations on expansion would apply if the transfer agent fails to
timely turnaround or process at least 90 percent of all routine items
received during a month for three consecutive months.
Benefits
As discussed in Section V.C.4.b, if a transfer agent fails to meet
the turnaround or processing performance standard, the clearance and
settlement of securities transactions is delayed, which exposes
investors to market risk and potential losses. Rule 17ad-3 along with
existing Rules 17ad-2(c) and 17ad-2(d) are intended to provide issuers,
the Commission and other ARAs early warning about turnaround and
processing failures, which could be symptomatic of a serious
performance issue affecting the transfer agent. However, as discussed
in Section III.E, the vast majority of transfer agents regularly
turnaround and process nearly 100 percent of all routine items within
one business day or less, or are readily capable of doing so, and
modern transfer agents process significantly more items per month than
did transfer agents in 1977 when Rules 17ad-2 and 17ad-3 were adopted.
These changes render Rule 17ad-3 ineffective in providing early warning
of potential performance issues and raise the costs of performance
failures--such as increased market risk to investors--stemming from
serious performance issues and underscore the need for effective early
warning of such issues. If a transfer agent's issuer clients do not
receive effective early warning of potential performance issues, they
are unable to expedite the resolution of such issues with the transfer
agent. Further, early warning that is rarely triggered renders largely
inert Rule 17ad-3's limitations on expansion provisions and the
associated prospect of lost revenue and damaged reputation experienced
by an underperforming transfer agent. This weakens the transfer agent's
incentives to expeditiously address performance failures and also
weakens the incentives of all transfer agents to deploy sufficient
resources (e.g., enhanced operational controls, upgraded systems, or
increased staffing) to avoid performance failures.
The proposed amendment to Rule 17ad-3(b) would ensure transfer
agents' issuer clients receive the early warning about significant
operational failures the rule is designed to provide, but only in
situations where the turnaround or processing failure potentially
indicates a serious performance issue. This would enable issuer clients
to use their contractual relationships with underperforming transfer
agents to help ensure speedy resolution of serious performance issues,
return them to compliance with the performance standards thereby
supporting the prompt and accurate clearance and settlement and
protecting investors.
As a result of the proposed amendments to the turnaround failure
thresholds in Rule 17ad-2(c) or (d), the limitations on expansion
provisions of Rule 17ad-3 would trigger more frequently--all things
being equal--and thus provide stronger incentives for underperforming
transfer agents to expeditiously address performance failures and for
all transfer agents to deploy sufficient resources to avoid performance
failures. This in turn would support the prompt and accurate clearance
and settlement and strengthen investor protection.
Costs
To the extent that the limitation on expansion provisions are
triggered more often relative to the baseline, affected transfer agents
would lose revenue as a result of the limitation. They may also suffer
damage to their reputation if current and prospective clients interpret
the limitation as an indication of inferior ability to perform transfer
agent activities. This in turn could result in a further loss of
business and revenue. These costs would fall primarily on transfer
agents lacking the operational capability to avoid triggering the
limitations on expansion provisions such as smaller, less well-
resourced, transfer agents. The Commission requests that commenters
provide feedback on whether the limitations on expansion provisions
would trigger more, less, or remain unchanged in light of the proposed
amendments to Rule 17ad-2(c) and (d) and the proposed amendment to Rule
17ad-3(b). Commenters are also requested to provide feedback on the
type and
[[Page 57022]]
number of transfer agents likely to be affected.
To the extent that the notification requirement of the rule is
triggered more often as a result of the proposed 95 percent threshold,
affected transfer agents would incur compliance costs to notify the
chief executive officers of their issuer clients. These compliance
costs would fall primarily on transfer agents lacking the operational
capability to avoid triggering the notification requirements such as
smaller, less well-resourced transfer agents. The notification
requirement would impose annual costs of $670 per transfer agent.\444\
These costs would be mitigated because the rule requires the transfer
agents to send copies of the written notices filed pursuant to Rule
17ad-2(c) or (d), as applicable, rather than prepare different notices.
---------------------------------------------------------------------------
\444\ The $670 annual estimate is based on the following
calculations: $501 (bookkeeping, accounting, and auditing clerks at
$167 for 3 hours) + $167 (costs for outside professionals of $167)
[ap] $670. Occupational rates are calculated as described in infra
note 533. For additional details on estimates of burden hours and
occupations involved, see infra Section VI.
---------------------------------------------------------------------------
Transfer agents that anticipate triggering the limitations on
expansion provisions given the current state of their operational
capability may choose to deploy sufficient resources (e.g., enhanced
operational controls, upgraded systems, or increased staffing) to avoid
performance failures and incur costs as a result. Transfer agents that
are likely to respond in this way are those for which the costs
associated with deploying sufficient resources are less than the costs
associated with the limitations on expansion, i.e., lost revenue and
damaged reputation. Specifically, larger and fast growing transfer
agents may be more inclined to deploy sufficient resources to prevent
performance failures. Larger transfer agents typically possess the
necessary capacity, while for fast-growing transfer agents,
restrictions on expansion tend to impose relatively higher costs.
d. Rescission of Rule 17ad-4
Rule 17ad-4 provides limited exemptions from certain transfer agent
rules. Specifically, Rule 17ad-4(a) provides an exemption for transfer
agents that process interests in limited partnerships (``LPs''), Fund
Shares, or DRIPs from turnaround, processing, recordkeeping and other
provisions.\445\ Rule 17ad-4(b) provides an exemption for certain small
transfer agents by exempting a registered transfer agent from the
turnaround, processing, recordkeeping, and other provisions.\446\ The
Commission is proposing to rescind Rule 17ad-4 in its entirety. The
original rationale for the rule was that it was not necessary or
appropriate to require smaller transfer agents for thinly-traded issues
to comply with the minimum performance standards and recordkeeping
provisions, nor was it necessary or appropriate to apply those
standards and provisions to processes that, as the Commission
understood at that time, were significantly different from the transfer
of ownership of stocks and bonds on issuers' records.\447\ However,
modern technological capabilities and a dramatic increase in the risks
posed by transfer agents' activities to an interconnected electronic
national clearance and settlement system are such that the rule's
original rationale is no longer justified. Accordingly, the Commission
proposes to rescind Rule 17ad-4. As a result, transfer agents that
previously were subject to the exemption afforded by Rule 17ad-4 would
now have to comply with turnaround, processing, limitations on
expansion, and recordkeeping rules.
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\445\ See CFR 240.17Ad-4(a) (stating that Rule 17ad-2 (regarding
turnaround and processing), Rule 17ad-3 (regarding restrictions on
expansion in certain circumstances of non-compliance), and Rules
17ad-6(a)(1) through (7) and (11) (regarding books and records
requirements) shall not apply to transfer agents that process
interests in LPs, Fund Shares, or DRIPs.)
\446\ See 17 CFR 240.17Ad-4(b). Rule 17ad-4(b) provides an
exemption for certain small transfer agents by exempting a
registered transfer agent from the turnaround, processing,
recordkeeping, and other provisions of Rules 17ad-2(a), (b), (c),
(d) and (h); 17ad-3; and 17ad-6(a)(2) through (7) and (11), provided
the transfer agent has received fewer than 500 items for transfer
and fewer than 500 items for processing within a consecutive six
month period and provided that the transfer agent has filed proper
notice of its exempt status with its ARA or has prepared a document
certifying that the transfer agent qualifies as exempt (with respect
to those ARAs where filing is not required.)
\447\ Regulation of Transfer Agents, Exchange Act Release No.
13293 (Feb. 24, 1977), 42 FR 12191, 12195 (Mar. 3, 1977).
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The Commission is also proposing to remove paragraph (d)(2) from
Rule 17ad-13, which provides that a registered transfer agent is exempt
from the requirements of Rule 17ad-13 if it is an exempt transfer agent
pursuant to Rule 17ad-4(b) and, if it performs transfer agent functions
for Fund Shares, it maintains master securityholder files consisting of
fewer than 1,000 shareholder accounts, in the aggregate, for each of
such issues for which it performs transfer agent functions.\448\ As a
result, small transfer agents that previously were covered by Rule
17ad-4(b) would now have to comply with Rule 17ad-13 and, among other
things, file with the Commission and its ARA an annual report prepared
by an independent accountant concerning the transfer agent's system of
internal controls and related procedures for the transfer of record
ownership and the safeguarding of related securities and funds based on
an annual study and evaluation made in accordance with generally
accepted auditing standards.\449\
---------------------------------------------------------------------------
\448\ See supra note 213.
\449\ See Exchange Act Rule 17ad-13, 17 CFR 240.17Ad-13 and 2015
Concept Release, supra note 4, at 81966.
---------------------------------------------------------------------------
Benefits
The proposed rescission of Rule 17ad-4 is expected to strengthen
investor protection and facilitate the prompt and accurate settlement
of securities transactions by extending Rules 17ad-2, 17ad-3, and 17ad-
6, as proposed to be amended, to transfer agents processing interests
in LPs, DRIPS, and Fund Shares, and certain small transfer agents.
Elsewhere in this release,\450\ the Commission discusses in detail how
the proposed amendments to Rules 17ad-2, 17ad-3, and 17ad-6--as applied
to all transfer agents--would strengthen investor protection and the
prompt and accurate settlement of securities transactions. The
following is a summary of these discussions. First, the processing
performance standards of Rule 17ad-2 would ensure that transfer agents
turn around and process routine and non-routine items promptly and
accurately.\451\ Second, Rule 17ad-2's proposed policies and procedures
approach could promote the prompt and accurate clearance and settlement
of securities transactions by providing transfer agents the flexibility
to deploy new technologies and practices that may reduce their costs,
while improving their turnaround performance.\452\ Third, the proposed
amendments to Rules 17ad-2(c) and 17ad-2(d) would ensure the Commission
and other ARAs receive the early warning the rule is designed to
provide, but only in situations where the turnaround or processing
failure potentially indicates a serious performance issue. Enhanced
supervisory oversight by the Commission and other ARAs in such
instances could help ensure speedy resolution of serious performance
issues thereby supporting prompt and accurate clearance and settlement
and protecting investors. Fourth, the notification requirement of
proposed Rule 17ad-2(e)(2) could expedite the curing of
[[Page 57023]]
defects, facilitate the prompt and accurate clearance and settlement of
securities transactions, and in turn shorten the period during which
the investor would be exposed to market risk associated with delayed
settlement. Fifth, the proposed amendment to Rule 17ad-3(b) would
ensure transfer agents' issuer clients receive the early warning about
significant operational failures the rule is designed to provide, but
only in situations where the turnaround or processing failure
potentially indicates a serious performance issue. This would enable
issuer clients to use their contractual relationships with
underperforming transfer agents to help ensure speedy resolution of
serious performance issues, return them to compliance with the
performance standards thereby supporting the prompt and accurate
clearance and settlement and protecting investors. Sixth, to the extent
that the limitations on expansion provisions of Rule 17ad-3 trigger
more frequently because of the amended turnaround failure thresholds in
Rule 17ad-2(c) or (d), there would be stronger incentives for
underperforming transfer agents to expeditiously address performance
failures and for all transfer agents to deploy sufficient resources to
avoid performance failures. This in turn would support the prompt and
accurate clearance and settlement and strengthen investor protection.
Seventh, the proposed amendments to Rule 17ad-6 may help to promote
safe, efficient, prompt, and accurate settlement transactions to the
extent that the greater availability of information to ARAs helps
improve the detection and curing of transfer agents' deficiencies. This
effect is expected to fall primarily on smaller transfer agents.
Eighth, by simplifying recordkeeping requirements, the proposed
amendments to Rule 17ad-6 may ease transfer agents' administrative
burden, allowing them to focus more on performing their critical
functions. If administrative burden currently constrains transfer
agents' ability to devote resources to their critical functions, this
reallocation may indirectly improve the performance of these functions.
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\450\ See supra Sections V.C.4.b and V.C.4.c and infra Section
V.C.4.e, respectively for a discussion of the benefits associated
with the proposed amendments to Rules 17ad-2, 17ad-3, and 17ad-6.
\451\ See proposed Rule 17ad-2(a), (b), and (e).
\452\ See supra Section V.C.2.
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Extending Rule 17ad-13 to small transfer agents that were
previously covered by Rule 17ad-4(b) would strengthen investor
protection and promote the prompt and accurate settlement of securities
transactions. The annual report requirement of Rule 17ad-13(a) could
help detect and correct material inadequacies in the transfer agent's
internal control system, which in turn would restore the transfer
agent's ability to promptly and accurately transfer record ownership
and safeguard securities and funds. The notification requirement of
Rule 17ad-13(b) would provide early warning to the transfer agent's ARA
about material inadequacies in the transfer agent's internal control
system. Enhanced supervisory oversight by the Commission and other ARAs
in such instances could help ensure speedy correction of such
inadequacies and restore the affected transfer agent's ability to
discharge its transfer and safeguarding obligations. If the discovery
of material inadequacies impairs a transfer agent's reputation and
prospects for future business, the rule may provide incentives for
transfer agents to deploy sufficient resources to avoid material
inadequacies in their internal control systems. This in turn would
support the prompt and accurate clearance and settlement and strengthen
investor protection. That said, this effect may be limited for smaller
transfer agents, which are more likely to lack the resources to bolster
their internal control systems.
Costs
The proposed rescission of Rule 17ad-4 would impose certain costs
on those registered transfer agents that were previously covered by the
rule. Specifically, the Commission estimates that up to 194 registered
transfer agents that process interests in limited partnerships, DRIPs,
and Fund Shares, and certain small transfer agents would be required to
comply with Rules 17ad-2, 17ad-3, and 17ad-6, as proposed to be
amended, and likely would incur compliance costs.\453\ Elsewhere in
this release,\454\ the Commission discusses the compliance costs
incurred by all applicable registered transfer agents in connection
with proposed amendments to Rules 17ad-2, 17ad-3, and 17ad-6. The
following is a summary of these discussions. With respect to the
proposed amendments to Rule 17ad-2, transfer agents would incur the
following compliance costs. First, to comply with the proposed
amendments to Rules 17ad-2(a) and 17ad-2(b), transfer agents would
incur costs to establish, maintain, and enforce written policies and
procedures reasonably designed to ensure turnaround and processing of
all applicable items received within the timeframes specified in these
amended rules.\455\ Transfer agents with existing written policies and
procedures may choose to modify them as opposed to creating written
policies and procedures de novo, which could reduce their compliance
costs. Second, as discussed in Section V.C.4.b, transfer agents would
incur very limited, if any, costs to comply with the proposed
amendments to Rules 17ad-2(a) and 17ad-2(b), with the possible
exception of small transfer agents. With respect to small transfer
agents that would be required to comply with amended Rules 17ad-2(a)
and 17ad-2(b) as a result of the proposed rescission of Rule 17ad-
4(b),\456\ the Commission understands that even the smallest transfer
agents today have access to automated processes and electronic
recordkeeping systems. Further, the securities markets and the national
clearance and settlement system in which transfer agents operate have
become more automated, efficient, and interconnected, which has
increased the ability of all transfer agents, regardless of size, to
meet the minimum performance standards set forth in amended Rules 17ad-
2(a) and 17ad-2(b), among other things.\457\ These factors may mitigate
in particular small transfer agents' costs of complying with these
rules. A subset of transfer agents, potentially including small
transfer agents, may incur costs to acquire the operational capability
to turnaround and process all routine items received within the
timeframes specified in these amended rules. The Commission requests
commenters provide feedback on the number of transfer agents that may
incur such costs and the magnitude of such costs. Third, to comply with
the proposed amendments to Rules 17ad-2(c) and 17ad-2(d), transfer
agents may incur costs to build a system that monitors when their
performance triggers the proposed three percent notification threshold
for turnaround and processing, respectively. Transfer agents likely
have such systems in place to comply with existing Rules 17ad-2(c) and
17ad-2(d) and would choose to update their systems to incorporate the
proposed notification thresholds rather than build de novo monitoring
systems. For these transfer agents, the costs of updating their systems
likely would be
[[Page 57024]]
minimal. Transfer agents that would be newly subject to amended Rules
17ad-2(c) and 17ad-2(d) because of the proposed rescission of Rule
17ad-4 likely do not have such monitoring systems and may incur costs
to build them. The Commission requests commenters provide feedback on
the number of transfer agents that may incur such costs and the
magnitude of such costs. Fourth, the proposed amendments to Rules 17ad-
2(c) and 17ad-2(d) could increase the number of notices filed by
transfer agents to the extent that the amended notification thresholds
are crossed more often than the existing thresholds. Transfer agents
would incur compliance costs associated with preparing and filing these
additional notices. Fifth, to comply with the proposed amendment to
Rule 17ad-2(e)(1) and proposed Rule 17ad-2(e)(2), transfer agents may
choose to update their internal policies and procedures to ensure that
they adhere to the revised requirements when addressing routine items
that failed to be timely turned around or processed and non-routine
items, respectively. Sixth, transfer agents would incur very little, if
any incremental costs to comply with the proposed electronic filing
requirement in Rule 17ad-2(h). Given the widespread availability of
near-instantaneous electronic communications in the transfer agent
industry,\458\ transfer agents likely already possess the operational
capability to comply with the proposed requirement. To the extent that
the current paper-based filing requirement is costlier than electronic
filing, the proposed amendment may reduce transfer agents' costs of
fulfilling their filing obligations.
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\453\ See supra Section V.B.4.d. The aggregate quantifiable
compliance costs for Rules 17ad-2, 17ad-3, and 17ad-6 (see infra
Section V.C.6) include the costs that would be incurred by these 194
transfer agents.
\454\ See supra Sections V.C.4.b and V.C.4.c and infra Section
V.C.4.e, respectively for a discussion of the compliance costs
associated with the proposed amendments to Rules 17ad-2, 17ad-3, and
17ad-6.
\455\ See Rules 17ad-2(a) and 17ad-2(b).
\456\ Rule 17ad-4(b), in part, exempts small transfer agents
from Rules 17ad-2(a) and 17ad-2(b). See Rule 17ad-4(b), 17 CFR
240.17Ad-4(b).
\457\ See supra Section III.F.
\458\ See supra Section III.I.2.
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With respect to the proposed amendments to Rule 17ad-3, transfer
agents would incur the following compliance costs. First, to the extent
that the limitations on expansion provisions are triggered more often
relative to the baseline, affected transfer agents would lose revenue
as a result of the limitation. They may also suffer damage to their
reputation if current and prospective clients interpret the limitation
as an indication of inferior ability to perform transfer agent
activities. This in turn could result in a further loss of business and
revenue. Second, to the extent that the notification requirement of the
rule is triggered more often as a result of the proposed 95 percent
threshold, affected transfer agents would incur compliance costs to
notify the chief executive officers of their issuer clients. These
costs would be mitigated because the rule requires the transfer agents
to send copies of the written notices filed pursuant to Rule 17ad-2(c)
or (d), as applicable, rather than prepare different notices. Third,
transfer agents that anticipate triggering the limitations on expansion
provisions given the current state of their operational capability may
choose to deploy sufficient resources (e.g., enhanced operational
controls, upgraded systems, or increased staffing) to avoid performance
failures and incur costs as a result.
With respect to the proposed amendments to Rule 17ad-6, transfer
agents would incur the following compliance costs. To the extent that
the proposed amendments to Rule 17ad-6 increase the number of documents
and records that transfer agents would be required to make and keep
current relative to the baseline, they would incur costs to do so. The
magnitude of these costs would depend in part on the size and scope of
the transfer agents' business activities. Alternatively, transfer
agents could respond to the proposed amendments by restructuring their
business activities to reduce the additional number of documents and
records that they would be required to make and keep current. Transfer
agents may choose to restructure their business activities if the
associated costs are less than the cost savings associated with the
reduction of documents and records that would have to be made and kept
current.
As a result of the proposed rescission of Rules 17ad-4(b) and 17ad-
13(d)(2), small transfer agents that were previously exempt under Rule
17ad-4(b) would now have to comply with Rule 17ad-13. Each transfer
agent would incur annual compliance costs of $40,000 associated with
retaining an independent accountant to study and report on the transfer
agent's internal accounting control system.\459\ The annual report
requirement of Rule 17ad-13(a) may impose additional costs. A focus on
audited internal controls as a result of this requirement could
adversely affect transfer agents' performance, if it distracts them
from promptly and accurately performing their transfer agent
activities.
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\459\ As the Commission estimated previously, transfer agents
would incur external costs associated with the fees charged by
independent accountants to perform the study, prepare the report,
and retain the required records on an annual basis pursuant to Rule
17Ad-13. On average, an independent accountant is estimated to spend
120 hours to perform these tasks. The annual internal time burden
associated with filing the report with the Commission is estimated
to be minimal. See Securities and Exchange Commission, Supporting
Statement for the Paperwork Reduction Act Information Collection
Submission for Rule 17Ad-13 (July 18, 2024), available at https://www.reginfo.gov/public/do/PRAViewDocument?ref_nbr=202407-3235-016.
The $40,000 annual estimate is based on the following calculations:
$0 + $39,600 (costs for accountants and auditors at $330 for 120
hours) [ap] $40,000. Based on an analysis of Form TA-2 filings for
the 2025 reporting year, the Commission estimates that 16 registered
transfer agents would be covered by Rule 17ad-13(d)(2). These
transfer agents would have to comply with Rule 17ad-13 as a result
of the proposed rescission of Rules 17ad-4(b) and 17ad-13(d)(2).
Occupational rates are calculated as described in infra note 533.
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e. Amendments to Rule 17ad-6
The Commission proposes implementing changes to existing Rule 17ad-
6 that will (1) simplify the rule text, specify what recordkeeping
requirements apply to uncertificated securities, and appropriately
capture the records necessary for modern transfer agents to perform
their regulated functions; (2) conform to other amendments in this
proposal as appropriate; and (3) supplement the existing record
maintenance, retention, and preservation activities by adding
recordkeeping requirements relating to maintaining a master
securityholder file, control book, and transfer journal.
Benefits
The proposed amendments to Rule 17ad-6 may benefit issuers and
investors by helping to promote safe, efficient, prompt, and accurate
settlement transactions and strengthen investor protection.
The proposed amendments to Rule 17ad-6 would require transfer
agents to make and keep current certain new records and information.
For example, proposed Rule 17ad-6(a)(10) would require each transfer
agent to make and keep current a master securityholder file, control
book, and transfer journal (or registrar journal if the transfer agent
acts as an outside registrar) for each securities issue for which the
transfer agent is authorized to act on behalf of the issuer, including
all records, documents, and information that compose such master
securityholder file, control book, or transfer journal (or registrar
journal). The proposed amendments to Rule 17ad-6 would also remove
existing requirements to make and keep current certain other records
and information. For example, the Commission is proposing to remove
paragraph (a)(2)(vi) of Rule 17ad-6, which requires registered transfer
agents to make and keep routine items that have been in their
possession for more than four business days. To the extent that the
proposed amendments result in a net increase in the number of documents
and records that transfer
[[Page 57025]]
agents would be required to make and keep relative to the baseline, the
expanded set of documents and records would provide more information to
the transfer agents' ARAs to examine the transfer agents for compliance
with transfer agent rules. The Commission's supervisory experience
suggests that this effect falls primarily on smaller transfer agents;
the effect on larger transfer agents would likely be minimal because
they already keep and maintain most of the documents and records
contemplated by the proposed amendments. To the extent that greater
information helps ARAs better detect deficiencies in the transfer
agents' activities and transfer agents to remedy such deficiencies, the
proposed amendments may help to promote safe, efficient, prompt, and
accurate settlement transactions, which would benefit issuers and
investors.
The proposed amendments would, among other things, simplify and
streamline recordkeeping requirements. For example, the Commission is
proposing to amend Rule 17ad-6(a)(1) to require every registered
transfer agent to make and keep current ``records'' rather than ``a
receipt, ticket, schedule, log or other record.'' Simpler and more
streamlined recordkeeping requirements could reduce transfer agents'
administrative burden, thereby freeing up time and effort that could be
redirected towards improving the performance of their critical
functions. To the extent that administrative burden currently
constrains transfer agents' ability to devote resources to their
critical functions, this reallocation may indirectly improve the
performance of these functions. However, the Commission lacks data to
assess the materiality of this indirect effect. Enhanced performance of
transfer agents' critical functions would support the prompt and
accurate clearance and settlement of securities transactions and
strengthen investor protection, thereby benefiting issuers and
investors.
Costs
Transfer agents would incur costs as a result of the proposed
amendments to Rule 17ad-6. Section V.C.1 discusses the potential for
transfer agents to pass on such costs to issuers and third parties.
To the extent that the proposed amendments to Rule 17ad-6 increase
the number of documents and records that transfer agents would be
required to make and keep current relative to the baseline, they would
incur costs to do so. The magnitude of these costs would depend in part
on the size and scope of the transfer agents' business activities. A
transfer agent that provides a wide array of services to a large number
of clients would likely be required to make and keep current many more
documents and records than a transfer agent that provides a limited set
of services to a small handful of clients. Thus, the former would
likely incur greater costs than the latter to make and keep current
additional documents and records. Alternatively, transfer agents could
respond to the proposed amendments by restructuring their business
activities to reduce the additional number of documents and records
that they would be required to make and keep current. Transfer agents
may choose to restructure their business activities if the associated
costs are less than the cost savings associated with the reduction of
documents and records that would have to be made and kept current.
The compliance costs related to the proposed amendments to Rule
17ad-6, which are jointly estimated with those associated with the
proposed amendments to Rule 17ad-7, would impose on each transfer agent
initial costs of $1,000 and annual costs of $3,100.\460\
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\460\ The $1,000 initial estimate is based on the following
calculations: $783.23 (bookkeeping, accounting, and auditing clerks
at $167 for 4.69 hours) + $260.94 (costs for outside professionals
of $260.94) [ap] $1,000. The $3,100 annual estimate is based on the
following calculations: $2,348.02 (bookkeeping, accounting, and
auditing clerks at $167 for 14.06 hours) + $782.81 (costs for
outside professionals of $782.81) [ap] $3,100. Occupational rates
are calculated as described in infra note 533. For additional
details on estimates of burden hours and occupations involved, see
infra Section VI. The burden hours associated with the proposed
amendments to Rules 17ad-6 and 17ad-7 are estimated jointly, see
infra Section VI.
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f. Amendments to Rule 17ad-7
The Commission is proposing amendments to Rule 17ad-7 to, among
other things, establish a single, uniform retention period of six years
for most transfer agent records, streamline and modernize the rule's
provisions governing electronic recordkeeping, and require transfer
agents to turn over to the issuer or its designee certain records
related to that issue within fifteen (15) calendar days of ceasing to
perform transfer agent activities for that issue.\461\
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\461\ See proposed Rule 17ad-7.
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Benefits
The proposed amendments to Rule 17ad-7 could benefit issuers and
investors by supporting the prompt and accurate clearance and
settlement of securities transactions and strengthening investor
protections.
A number of the proposed amendments would expand the set of records
that would be available for examination by the transfer agent's ARA.
First, the proposed amendments to Rule 17ad-7(a) would expand the set
of records that must be maintained to include all records required to
be made or kept by a transfer agent under the Exchange Act. In
contrast, existing Rule 17ad-7 requires the retention of a more limited
set of records.\462\ Second, proposed Rule 17ad-7(g) would expand the
set of records that must be promptly provided to Commission or ARA
representatives from records stored on electronic storage media or
micrographic media (as required under Rule 17ad-7(f)(5)) to any record
required to be maintained, retained, or preserved under this section or
otherwise subject to examination under section 17(b) of the Exchange
Act.\463\ Third, proposed Rules 17ad-7(h)(1) and (2) would help ensure
that transfer agent records stored on third-party servers or other
storage mechanisms could be readily examined by Commission or other ARA
representatives and that copies of such records would be promptly
provided to such representatives.\464\ Existing Rule 17ad-7 does not
address transfer agent records stored on third-party servers or other
storage mechanisms. By requiring the retention of a larger set of
records that are available for examination relative to the baseline,
the proposed amendments could increase the amount of information about
a transfer agent's activities over the retention period, which could
increase the likelihood of the Commission or another ARA identifying
and having the transfer agent remedy deficiencies, thereby improving
transfer agents' performance of their activities. Enhanced performance
by transfer agents would support the prompt and accurate clearance and
settlement of securities transactions and strengthen investor
protection, thereby benefiting issuers and investors.
---------------------------------------------------------------------------
\462\ See supra Section III.H.2. The Commission is also
proposing to delete paragraphs (b), (d), and (i) of Rule 17ad-7
because they would now be subsumed by amended paragraph (a).
\463\ See proposed Rule 17ad-7(g).
\464\ See proposed Rule 17ad-7(h)(1) and (2).
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The proposed amendments to Rule 17ad-7(f) would, among other
things, update the rule's electronic recordkeeping requirements to
align with modern standards related to electronic records, information
security, and audit trails. The proposed electronic recordkeeping
requirements could help ensure that transfer agent records--such as
records of securities ownership--are accurate and complete and
maintained securely, which would
[[Page 57026]]
facilitate the prompt and accurate clearance and settlement of
securities transactions and strengthen investor protection. However,
these benefits may be limited because, based on the Commission's
supervisory experience, most transfer agents use electronic
recordkeeping systems that largely comply with the proposed electronic
recordkeeping requirements.\465\
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\465\ As discussed in Section III.H.3, the proposed requirements
are intended to, among other things, accommodate the types of
electronic recordkeeping systems that are used by modern transfer
agents that may have moved beyond the types of optical storage
systems and micrographic media that were common when Rule 17ad-7 was
adopted over two decades ago.
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The proposed amendments to Rule 17ad-7, in part, would simplify and
streamline transfer agents' record retention requirements. First, the
Commission is proposing to eliminate provisions related to micrographic
media because micrographic media are no longer used by transfer agents
today. Second, requirements related to a transfer agent's use of a
third party for maintaining and preserving records (paragraphs (f)(6)
and (g) of Rule 17ad-7) would be consolidated into a new paragraph
(h)(1) of Rule 17ad-7, which would be simpler for transfer agents to
follow. Third, proposed Rule 17ad-7(a) would, in part, eliminate the
existing, multi-tiered approach to retention periods and differing
``easily accessible'' windows tied to specific subsets of records and
replace these requirements with a retention period of not less than six
years, the first two years of which in an easily accessible place.
Also, prescriptive requirements to maintain duplicates and indexes or
keep in escrow a copy of the physical and logical format of electronic
storage (paragraphs (f)(2)(v) and (f)(5)(ii) of Rule 17ad-7) would be
rescinded, allowing transfer agents greater flexibility in meeting the
requirements of retaining readily producible and recoverable records.
Simpler and more streamlined record retention requirements could reduce
transfer agents' administrative burden, thereby freeing up time and
effort that could be redirected towards improving the performance of
their critical functions. Enhanced performance of transfer agents'
critical functions would support the prompt and accurate clearance and
settlement of securities transactions and strengthen investor
protection, thereby benefiting issuers and investors.
Rule 17ad-7(h) provides that when a registered transfer agent
ceases to perform transfer agent activities for an issue, the
responsibility of such transfer agent under Rule 17ad-7 to retain the
records required to be made and kept current under Rule 17ad-6(a)(1),
(6), (9), (10), and (11), (b) and (c) shall end upon delivery of such
records to the successor transfer agent. The Commission proposes
revising this provision to allow these records to be delivered to the
issuer or the issuer's designee.\466\ In addition, the Commission
proposes to add a requirement for registered transfer agents to
provide, or otherwise make available, to the issuer or the issuer's
designee all records required to be made and kept current under Rule
17ad-6(a)(1), (6), (9), (10), and (11), (b) and (c) related to an issue
within 15 calendar days of ceasing to perform transfer agent activities
for that issue.\467\ Finally, the Commission is proposing to renumber
Rule 17ad-7(h) as Rule 17ad-7(i).
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\466\ See proposed Rule 17ad-7(i).
\467\ Id.
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These proposed amendments may have salutary effects on investor
protection and the clearance and settlement of securities transactions.
As a preliminary matter, interruptions to the provision of transfer
agent services can harm investors because such interruptions can, for
example, delay the transfer of ownership, issuance of securities,
processing of shareholder requests, and processing of payments. Such
interruptions can also impede the prompt and accurate clearance and
settlement of securities transactions given transfer agents' role in
supporting these activities. The proposed amendments could help ensure
the uninterrupted provision of transfer agent services because transfer
agents would be required to deliver, provide, or otherwise make
available to the issuer or its designee (such as a successor transfer
agent) all relevant master securityholder files, transfer journals,
control books, records of cancelled securities certificates, and other
key records related to an issue within fifteen (15) calendar days of
ceasing to perform transfer agent activities for that issue. In
particular, the proposed amendments could help to prevent holdup
problems that could arise, for instance, if the departing transfer
agent unilaterally demands a termination fee payment from the issuer in
exchange for the handing over of securityholder records to the
successor transfer agent.\468\ The successor transfer agent could then
commence its work and help ensure the uninterrupted provision of
transfer agent services. Further, by specifying the issuer or the
issuer's designee as the recipient of these records from the departing
transfer agent, the proposed amendments would provide flexibility to
the issuer in who should receive these records. Such flexibility could
be beneficial if the departing transfer agent is ready to deliver these
records, but the successor transfer agent has not been engaged. In such
cases, the proposed amendments would help ensure that these records are
delivered to the issuer or a non-transfer agent designee, who can
subsequently transfer them to the successor transfer agent. The
proposed amendments could help minimize the risk of losing records
during a change in transfer agent, which in turn could help ensure the
uninterrupted provision of transfer agent services.
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\468\ See 2015 Concept Release, supra note 4, at 81978 and supra
Section III.H.4.
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Costs
The Commission recognizes that the proposed amendments to Rule
17ad-7 would impose compliance costs on transfer agents. First,
proposed Rule 17ad-7(a) would increase the retention period for certain
subsets of records and expand the set of records that must be
maintained to include all records required to be made or kept by a
transfer agent under the Exchange Act.\469\ To comply with this rule,
transfer agents would incur costs to retain the subset of records for a
longer period than under the baseline. Transfer agents would also incur
costs to retain records covered by the proposed rule that are not
already retained under the baseline. Each transfer agent would incur
initial costs of $480 and annual costs of $1,500 to comply with this
rule.\470\ The Commission requests that commenters provide feedback on
these costs. Second, transfer agents may have to update their internal
systems or recordkeeping protocols to comply with the proposed
amendments. Such costs
[[Page 57027]]
could be mitigated because proposed Rule 17ad-7(f)(2) is technology
neutral and accommodates the types of electronic recordkeeping systems
that are used by modern transfer agents. Although the Commission
understands that registered transfer agents have moved away from using
micrographic media to store records, a transfer agent may choose to use
micrographic media as long as the usage is in compliance with Rule
17ad-7 as proposed to be amended. Third, to comply with proposed Rule
17ad-7(g), transfer agents would incur costs to promptly provide to
Commission or ARA representatives any records that have to be retained,
but are not stored on electronic storage media or micrographic media.
The magnitude of such costs likely would vary across transfer agents
based on the extent to which a transfer agent uses electronic storage
media, micrographic media, or more generally electronic recordkeeping
systems to store and retrieve records. For example, a transfer agent
that currently uses electronic recordkeeping systems to store and
retrieve all its records likely would incur little or no additional
costs to comply with proposed Rule 17ad-7(g). Fourth, to comply with
the proposed requirement to make available certain records to the
issuer or its designee within 15 calendar days of ceasing transfer
agent activities,\471\ departing transfer agents may incur costs
related to data preparation, staff time, and legal review. If these
costs exceed what transfer agents would incur under voluntary
contractual arrangements, they represent compliance costs, weighed
against the benefit of mitigating holdup problems. Fifth, to the extent
that transfer agents choose to employ the services of third parties to
comply with the proposed amendments to Rule 17ad-7, the costs
associated with the employment of these third parties would be part of
the compliance costs incurred by transfer agents.
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\469\ See supra Section III.H.2.
\470\ As the Commission estimated previously, a transfer agent
spends 500 hours per year to comply with Rules 17ad-6 and 17ad-7,
with the work being done by internal compliance staff. See
Securities and Exchange Commission, ``Supporting Statement for the
Paperwork Reduction Act Information Collection Submission for Rules
17ad-6 and 17ad-7'' (Feb. 29, 2024), available at https://www.reginfo.gov/public/do/PRAViewDocument?ref_nbr=202402-3235-015.
To comply with proposed Rule 17ad-7(a), a transfer agent is
estimated to spend an additional 0.5 percent of the previously
estimated 500 hours, i.e., 0.005 x 500 = 2.5 hours, with the work
being done by internal compliance staff. The Commission estimates
that 25 percent of this internal burden will be incurred initially,
while the remaining 75 percent will be incurred annually. The $480
initial estimate is based on the following calculations: $483.75
(lawyers at $774 for 0.625 hours) + $0 (costs for outside
professionals of $0) [ap] $480. The $1,500 annual estimate is based
on the following calculations: $1,451.25 (lawyers at $774 for 1.875
hours) + $0 (costs for outside professionals of $0) [ap] $1,500.
Occupational rates are calculated as described in infra note 533.
\471\ See proposed Rule 17ad-7(i).
---------------------------------------------------------------------------
The compliance costs associated with the proposed amendments to
Rule 17ad-7, which are jointly estimated with those associated with the
proposed amendments to Rule 17ad-6, would impose on each transfer agent
initial costs of $1,000 and annual costs of $3,100.\472\
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\472\ See supra note 460 and supra Section V.C.4.e.
---------------------------------------------------------------------------
To comply with proposed Rule 17ad-7(h)(1), transfer agents would
obtain from their third-party service providers and file with the
Commission or their other ARA a legally binding written agreement that
covers terms stipulated in the proposed rule. Third-party service
providers likely would incur costs to draft such written agreements.
Each third-party service provider would incur initial costs of $1,000
to draft a legally binding agreement per transfer agent.\473\ Pursuant
to the exception in the proposed rule, third-party service providers
could avoid these costs if they allow their transfer agent clients to
have and maintain independent access to the kept records at all times.
The Commission does not have data on the number of third-party service
providers that provide electronic recordkeeping systems, servers or
other storage mechanisms to transfer agents for record retention nor
does the Commission have data on how many of such third-party service
providers provide their clients with independent access to the kept
records at all times. As such, the aggregate cost associated with the
proposed written agreement requirement cannot currently be estimated.
The Commission requests commenters provide feedback on these matters.
---------------------------------------------------------------------------
\473\ The $1,000 initial estimate is based on the following
calculations: $1,008 (lawyers at $504 for 1 hour) + $504 (costs for
outside professionals of $504) [ap] $1,000. We assume that the
drafting of the written agreement is a one-time burden and the
third-party service provider would not incur any annual recurring
burdens thereafter. We further assume that lawyers (both in-house
and outside) will draft the written agreement at the private sector
hourly rate of $504 to reflect the fact that the third-party service
providers do not operate primarily in the securities industry.
Occupational rates are calculated as described in infra note 533.
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g. Amendments to Rule 17ad-10
The Commission proposes amending Rule 17ad-10 to specify that the
rule applies to both certificated and uncertificated securities
equally, align the ``prompt'' posting timeframe to the modern
settlement cycle,\474\ and modernize the rule text by replacing
references to physical processes, hard copy records, and mail with
technology neutral terms and standards.
---------------------------------------------------------------------------
\474\ See 17 CFR 240.15c6-1(a); see also proposed Rule 17ad-2.
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Benefits
The proposed amendments to Rule 17ad-10 may benefit investors by
strengthening investor protection in the areas of overissuances and
accurate ownership records. They could benefit issuers and investors by
supporting the prompt and accurate clearance and settlement of
securities transactions.
Overissuances reduce the accuracy of ownership records and could
prevent securityholders from receiving all appropriate corporate
distributions and communications. Because overissuances can occur for
both certificated and uncertificated securities, the associated risks
of missed corporate distributions and communications can affect the
holders of either type. However, existing Rule 17ad-10(g) applies to
certificates and does not explicitly address uncertificated securities.
The Commission is proposing Rule 17ad-10, in part, to address this gap.
Specifically, proposed Rule 17ad-10(i) would specify that overissuance
can occur for both certificated and uncertificated securities. Further,
Rule 17ad-10(g) would be amended to provide that a registered transfer
agent's requirement to buy in securities to cure an overissuance
applies to both certificated and uncertificated securities. These
clarifications would enhance investor protection by helping to ensure
that transfer agents exert efforts to cure overissuances of not only
certificated securities, but also uncertificated securities. This in
turn would help reduce the risk that holders of uncertificated
securities fail to receive all appropriate corporate distributions and
communications. To the extent that transfer agents in practice do cure
overissuances of both certificated and uncertificated securities, the
benefit associated with proposed Rule 17ad-10(i) and the proposed
amendments to Rule 17ad-10(g) could be limited.
The Commission also is proposing to shorten the timing requirements
for co-transfer agents to provide records of debits and credits to the
recordkeeping transfer agent \475\ and respond to inquiries regarding
such records from the recordkeeping transfer agent.\476\ Proposed Rule
17ad-10(c)(1) would reduce the amount of time by which co-transfer
agents shall provide a record of debits and credits to the
recordkeeping transfer agent following transfer of each security from
two business days to one business day. Proposed Rule 17ad-10(d), would
reduce the amount of time by which co-transfer agents shall respond to
all inquiries from the recordkeeping transfer agent regarding such
records from within five business days of receipt of an inquiry to
within one business day of receipt of an inquiry. The proposed
shortening of these timing requirements could facilitate the timely
maintenance of accurate ownership records. This in turn would help
reduce the risk that securityholders fail to receive all appropriate
corporate distributions and communication, thereby strengthening
investor protection. The magnitude of this benefit cannot be assessed
because the Commission lacks data on the frequency with which existing
timing
[[Page 57028]]
requirements for co-transfer agents contribute to ownership record
errors. The Commission requests commenters to provide feedback on this
matter.
---------------------------------------------------------------------------
\475\ See proposed Rule 17ad-10(c)(1).
\476\ See proposed Rule 17ad-10(d).
---------------------------------------------------------------------------
The proposed amendments to Rule 17ad-10(a)(2) would simplify and
streamline recordkeeping transfer agents' obligation to post to the
master securityholder file by standardizing posting deadlines.
Specifically, Rule 17ad-10(a)(2), as proposed to be amended, would
require all recordkeeping transfer agents to post position detail to
the master securityholder file within the shorter of one business day
or the time period specified by Rule 15c6-1(a) under the Exchange
Act.\477\ In contrast, existing Rule 17ad-10 \478\ sets forth posting
deadlines that vary from 30 calendar days to five business days
depending on the type of recordkeeping transfer agent. The proposed
amendments could expedite the posting of position details to master
securityholder files, relative to the baseline. Further, a single
posting deadline could simplify recordkeeping transfer agents'
workflows and improve their efficiency, which in turn could further
expedite updates to the master securityholder files. Faster posting to
the master securityholder files by recordkeeping transfer agents would
support the prompt and accurate clearance and settlement of securities
transactions and strengthen investor protection, thereby benefiting
issuers and investors.
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\477\ However, all securities transferred, purchased, redeemed
or issued prior to record date, but posted subsequent thereto, shall
be posted as of the record date. See proposed Rule 17ad-10(a)(2)(i).
\478\ See Rule 17ad-10(a)(2)(i) through (iii).
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Costs
The Commission recognizes that the proposed amendments may impose
compliance costs on transfer agents to the extent that updates to
internal systems or protocols to cure overissuances are necessary to
comply with the proposed amendments. These costs could be limited to
the extent that transfer agents in practice are complying with Rule
17ad-10 to account for both certificated and uncertificated securities.
Other compliance costs could be mitigated by the technology
currently employed by transfer agents. Transfer agents that serve as
co-transfer agents might have to invest in more efficient systems to
comply with the proposed timing requirements in Rules 17ad-10(c) and
17ad-10(d); however, because the Commission is replacing ``dispatch''
or ``mail'' with the technology-neutral term ``provide,'' co-transfer
agents may use existing electronic communication systems to meet the
new standard, limiting incremental costs. Separately, recordkeeping
transfer agents might have to invest in more efficient systems to
comply with the proposed posting deadline. However, because manual,
mail-dependent processes associated with the prompt posting of
certificate detail have given way to near-instantaneous electronic
communications and automated processes and workflows,\479\
recordkeeping transfer agents likely already possess the operational
capability to comply with the proposed posting deadline and would not
need to change their systems. The Commission requests that commenters
identify situations in which co-transfer agents and recordkeeping
transfer agents would be unable to meet the proposed timing
requirements and posting deadline, respectively. If such situations
exist, the Commission further requests that commenters provide feedback
on the number of co-transfer agents and recordkeeping transfer agents
that may incur costs to acquire operational capability to meet their
respective proposed requirements and the magnitude of such costs.
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\479\ See supra Section III.I.2.
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h. Amendments to Rule 17ad-12
The proposed amendments to Rule 17ad-12 would reframe the existing
safeguarding rule as a comprehensive risk management rule.\480\ Under
the proposed amendments, transfer agents would be required to have
written policies and procedures reasonably designed to ensure the
safeguarding of funds and securities in their possession or control and
to identify, measure, monitor, and mitigate any material operational
and other risks associated with the transfer agent's activities. The
proposed amendments also would require transfer agents to establish,
maintain, and enforce a written business continuity plan and to hold
issuer, securityholder, and other third-party funds in segregated bank
accounts.
---------------------------------------------------------------------------
\480\ See supra Section III.J.
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Benefits
The proposed amendments to Rule 17ad-12 would benefit issuers,
investors, and securities markets. Absent the proposed amendments, the
operation of market forces alone may not ensure that all transfer
agents have comprehensive risk management and business continuity
plans. Transfer agents may underinvest in comprehensive risk management
and business continuity planning because the costs of inadequate risk
management and business continuity planning (e.g., operational
failures, investor losses, and systemic disruption) fall
disproportionately on issuers, investors, and the broader market rather
than on the transfer agents themselves. Transfer agents, issuers, and
investors may overlook the benefits of comprehensive risk management
and business continuity planning, as well as the costs of not having
them for three reasons. First, transfer agents' risk management plans
are generally not made public, limiting pressure from issuer clients
and investors to improve these plans. Second, adverse events such as
cybersecurity breaches and business disruptions are relatively rare and
not necessarily made public when they occur. This may discourage
adequate investment in risk management and business continuity planning
by transfer agents. Third, findings from regulatory examinations are
generally not shared publicly, providing limited guidance for improving
business continuity plans across the transfer agent industry. Together,
these conditions reduce market forces that would otherwise incentivize
adequate investment in comprehensive risk management and business
continuity planning. Risks to securities and funds in transfer agents'
possession, control, or custody may stem not only from theft, loss, or
destruction, but also from other sources such as misappropriation,
unauthorized access, operational failures, cybersecurity breaches, and
insolvency. The proposed comprehensive risk management plan and
operational risk requirements may reduce the risk of losses to
investors that may stem from a broad range of risks and may buttress
the resilience of the national clearance and settlement system.
In addition, safeguarding and segregation requirements for
financial intermediaries protect customers' securities and funds,
including from losses related to the intermediary's proprietary
business activities.\481\ If transfer agents (other than those that are
also registered as a broker-dealer or investment adviser) lend funds
belonging to issuers, securityholders, or other third parties, this
practice may inadvertently subject those entities to counterparty risk
if borrowers fail to return the funds. The proposed
[[Page 57029]]
segregation requirements are designed to safeguard these funds,
limiting their accessibility by the transfer agent and thereby reducing
counterparty risk faced by issuers, securityholders, and other third
parties. If the transfer agent fails financially, safeguarding and
segregation requirements may help ensure that the securities and funds
of issuers, securityholders, and other third parties are returned to
them. Thus, the proposed requirements may reduce the risk of
inadvertent financial loss and instability of the market in times of
stress.
---------------------------------------------------------------------------
\481\ See, e.g., Capital, Margin, and Segregation Requirements
for Security-Based Swap Dealers and Major Security-Based Swap
Participants and Capital and Segregation Requirements for Broker-
Dealers, Exchange Act Release No. 86175 (Jun. 21, 2019), 84 FR
43872, 44025 (Aug. 22, 2019) and Financial Responsibility Rules for
Broker-Dealers, Exchange Act Release No. 70072 (July 30, 2013), 78
FR 51824, 51912 (Aug. 21, 2013).
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The proposed business continuity plan requirement \482\ would help
to mitigate the potential adverse effects of business disruptions, thus
benefiting issuers and investors. Absent the proposed requirement,
business disruptions may put issuers' and investors' interests at risk
if, for example, a transfer agent lacks the ability to process dividend
or interest payments, is unable to receive or implement directions from
issuers or investors or is unable to access and secure lists of
registered securityholders or beneficial owners for a single or
multiple issuers.
---------------------------------------------------------------------------
\482\ See proposed Rule 17ad-12(c).
---------------------------------------------------------------------------
The proposed amendments to Rule 17ad-12 could have ancillary
benefits for the broader securities markets. For example, consider a
transfer agent that currently lacks sufficiently robust risk management
and business continuity plans. If this transfer agent were to suffer a
significant cybersecurity breach, operational failure, or a business
disruption event that prevented it from transferring securities and
maintaining the master securityholder file for several days, then the
liquidity of those issuers, as well as the interests of the relevant
securityholders, could be negatively affected. These effects could
ripple across the securities markets if multiple transfer agents with
inadequate risk management and business continuity plans suffer
disruptions simultaneously. While the risk management systems, policies
and procedures, and business continuity plan required under the
proposed amendments would not be able to completely prevent such
disruptions, they may decrease the transfer agent's recovery time and,
hence, the disruption's impact on the market. These proposed
amendments--by buttressing the national clearance and settlement
system's resiliency--may bolster investor confidence and participation
in securities markets thereby indirectly facilitating issuers' capital
raising.
As discussed in Section V.B, the transfer agent industry is
heterogeneous. The larger transfer agents likely already have risk
management-related policies and procedures as well as business
continuity plans in place. For the issuers and investors serviced by
these transfer agents, the benefits of the proposed amendments may be
limited. Issuers and investors serviced by transfer agents that
currently lack or have insufficiently robust risk management-related
policies and procedures and business continuity plans would largely
benefit from the proposed amendments.
In general, the Commission cannot quantify the total benefits of
the proposed amendments to Rule 17ad-12 because the Commission lacks
data on certain factors relevant to such an analysis, such as investor
preferences and the likelihood of operational risks, cybersecurity
breaches, and business disruptions. For example, without knowing how
risk averse issuers and investors are to transactions with transfer
agents without robust policies and procedures and business continuity
plans, the Commission cannot quantify the benefits they might derive
from improvements in those policies, procedures, and business
continuity plans. Similarly, it is difficult to estimate the
probability of the types of risks and business disruptions addressed by
the proposed amendments, which precludes estimating the ex-ante costs
of inadequate plans under the economic baseline.
Costs
As with the benefits, costs of the proposed amendments to Rule
17ad-12 would be shared by transfer agents, issuers, and investors. The
proposed amendments to Rule 17ad-12(b) require segregation of issuer,
securityholder, and other third-party funds, restricting their use by
the transfer agent and potentially raising the overall cost of transfer
agent services. Specifically, in the absence of the proposed
requirements, a transfer agent (other than one that is also registered
as a broker-dealer or investment adviser) may be able to generate
revenue by lending out issuer, securityholder, and other third-party
funds. The proposed requirements would foreclose this revenue source
and the transfer agent may choose to recoup the forgone revenue by
raising the fees on services provided to issuers, securityholders, and
other third parties. In addition, transfer agents would incur the one-
time and ongoing costs associated with establishing, maintaining, and
enforcing written policies and procedures related to safeguarding and
risk management; developing and maintaining the risk management plan,
segregating all issuer, securityholder, and other third-party funds;
and establishing, maintaining, and enforcing a business continuity
plan. However, some of those costs may ultimately be passed through to
issuer clients and investors.\483\
---------------------------------------------------------------------------
\483\ See supra Section V.C.1.
---------------------------------------------------------------------------
As an important caveat, it is difficult to estimate the costs
incurred by transfer agents to comply with the proposed amendments to
Rule 17ad-12 because of the variations in (i) existing risk management
systems, policies and procedures related to safeguarding and risk
management, and business continuity plans, and (ii) the extent to which
such systems, policies and procedures, and plans would need to be
revised to be compliant with the proposed rule. Transfer agents whose
current risk management systems and business continuity plans are
closely aligned with the requirements of the proposed amendments would
likely incur lower initial compliance costs, while all transfer agents
would incur ongoing costs pertaining to the annual testing, review, and
update of their business continuity plan. In addition, the initial and
ongoing costs imposed by the proposed amendments would vary
significantly among firms depending on the complexity of the transfer
agent's operations, such as number of issues and individual accounts,
number of employees, number of offices, number and types of issuers,
types of transfer agent services provided, other business activities or
lines of business which may affect the transfer agent's business, and
the extent of reliance on third-party service providers (e.g., to
provide recordkeeping or processing services).\484\ The policies and
procedures approach under the proposed amendments to Rule 17ad-12(a)
should allow transfer agents flexibility to tailor their safeguarding
arrangements and risk management systems to the specific risks their
businesses face at the minimum possible cost.
---------------------------------------------------------------------------
\484\ See supra Section III.B.7.
---------------------------------------------------------------------------
The compliance costs associated with the proposed amendments to
Rule 17ad-12 would impose on each transfer agent initial costs of
$7,900 and annual costs of $2,000.\485\
---------------------------------------------------------------------------
\485\ The $8,400 initial estimate is based on the following
calculations: $5,940 (accountants and auditors at $330 for 18 hours)
+ $1,980 (costs for outside professionals of $1,980) [ap] $7,900.
The $2,000 annual estimate is based on the following calculations:
$1,485 (accountants and auditors at $330 for 4.5 hours) + $495
(costs for outside professionals of $495) [ap] $2,000. Occupational
rates are calculated as described in infra note 533. For additional
details on estimates of burden hours and occupations involved, see
infra Section VI.
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[[Page 57030]]
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i. Amendments to Rule 17ad-17
The Commission is proposing a number of amendments to Rule 17ad-
17.\486\ First, proposed Rule 17ad-17(b)(3) would establish a new
defined term ``inactive securityholder,'' that would include a
securityholder for whom the transfer agent, broker, or dealer has not
observed any account activity for a period of 18 months. Second,
proposed Rule 17ad-17(a)(3) would require a recordkeeping transfer
agent or carrying broker-dealer to provide no less than two written
notifications to each inactive securityholder, among other things.
Third, the definition of a lost securityholder under Rule 17ad-17(b)(2)
would be amended such that a securityholder could become a lost
securityholder whenever an item of correspondence that was sent to the
securityholder has been returned as undeliverable, regardless of
whether the address where the item was sent was contained in the
transfer agent's master securityholder file or customer security
account records of the broker or dealer. The proposed revision reflects
that some securityholders may correspond using means and addresses,
including electronic methods, that may not always be contained in the
transfer agent's master securityholder file or customer security
account records of the broker or dealer. Fourth, Rules 17ad-17(c)(1)
and (c)(3) that relate to unresponsive payees would be amended to
reference electronic means for sending payments. These proposed
revisions reflect that some securityholders may receive payments
through electronic methods. Fifth, the Commission is proposing to
remove the reference to Rule 17ad-7(i) in Rule 17ad-17(d) and instead
reference Rule 17ad-7(a) as proposed to be amended.\487\ With this
change, records that are required to be maintained pursuant to Rule
17ad-17(d) would be retained for a period of not less than six years,
the first two years of which in an easily accessible place.
---------------------------------------------------------------------------
\486\ See Rule 17ad-17.
\487\ See supra Section III.H and note 252.
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Benefits
The proposed amendments to Rules 17ad-17(a)-(c) would bolster
investor protection by addressing the adoption of inactivity standards
in certain states, the use of methods of correspondence beyond physical
mail and the use of electronic payments.
The definition of an inactive securityholder in proposed Rule 17ad-
17(b)(3) and the associated notification requirement in proposed Rule
17ad-17(a)(3) could benefit securityholders by reducing the risk that
they lose ownership of their investment property through states'
application of their inactivity standards. To the extent that
securityholders are better able to retain ownership of their investment
property as a result of the proposed amendments, they could avoid
incurring costs associated with premature remittance and liquidation of
such property that could occur in the absence of the proposed
amendments. Premature liquidation of securities could eliminate future
market value appreciation and payments (such as dividends), which would
be an opportunity cost for securityholders. Further, premature
liquidation of securities could trigger unexpected tax liabilities and
associated payments for securityholders. Under proposed Rule 17ad-
17(a)(3), such costs could be avoided if an inactive securityholder is
notified by the recordkeeping transfer agent or carrying broker-dealer
and shows activity in the account prior to the remittance of funds or
securities to the state escheatment authority pursuant to a potential
dormancy standard, thereby advancing the protection of investors
against escheatment of their assets.
As discussed in Section III.K, states vary in terms of their
dormancy standards. Some states use the RPO standard--upon which is
based the definition of a lost securityholder under existing Rule 17ad-
17(b)(2)--while others use an inactivity standard. The benefit
discussed above likely will be greater for securityholders in states
with an inactivity standard. For securityholders in states whose
dormancy standards are aligned with the lost securityholder standard of
existing Rule 17ad-17(b)(2), the benefits associated with the proposed
amendment would be limited, if any.
Under existing Rule 17ad-17(b)(2), a securityholder who uses
methods of correspondence other than physical mail and loses contact
with the recordkeeping transfer agent or carrying broker-dealer would
not be considered a lost securityholder if physical mail continues to
be delivered to the address on record. The proposed amendment to Rule
17ad-17(b)(2) would strengthen investor protection by expanding the
definition of a lost securityholder to include securityholders who
correspond using methods other than physical mail. To the extent that
loss of contact via a non-physical mail method of correspondence is
observed more quickly than via physical mail, the securityholder could
be contacted sooner by the recordkeeping transfer agent or carrying
broker-dealer, thereby helping to mitigate the risk of undelivered
physical mail (such as corporate communications and checks) and
potentially triggering escheatment and premature liquidation of
investment property under the RPO standard.
Under existing Rule 17ad-17(c)(3), a securityholder who receives
payments from the issuer electronically would not be considered an
unresponsive payee and would not receive entitled payments if
electronic payments sent to the securityholder were rejected and
returned as undeliverable to the paying agent. The notification
requirement of existing Rule 17ad-17(c)(1) addresses only unnegotiated
checks. The proposed amendments to Rules 17ad-17(c) would strengthen
investor protection by expanding the definition of an unresponsive
payee and the notification requirement for such unresponsive payee to
address electronic payments. Should a securityholder who chooses to
receive electronic payments fail to do so because these payments were
rejected and returned as undeliverable to the paying agent, the
proposed amendments would help ensure that the securityholder receives
these payments, thereby advancing the protection of investors against
lost payments.
The proposed amendment to Rule 17ad-17(d) would increase the
retention period of records required to be maintained pursuant to this
rule from three years (under existing Rule 17ad-7(i)) to six years
(under Rule 17ad-7(a) as proposed to be amended). The proposed
amendment could increase the amount of information about the efforts of
recordkeeping transfer agents and carrying broker-dealers to search for
lost securityholders and paying agents to notify unresponsive payees,
which could increase the likelihood of the Commission or another ARA
identifying and having these registrants remedy deficiencies, thereby
improving these registrants' search and notification activities.
Improvements in these activities could help securityholders retain
ownership of their investment property and receive the checks to which
they are entitled, thereby strengthening investor protection.
[[Page 57031]]
Costs
The proposed amendment to Rule 17ad-17 would impose costs on
transfer agents, broker-dealers, and paying agents. Recordkeeping
transfer agents and carrying broker-dealers would incur costs to comply
with the notification requirement of proposed Rule 17ad-17(a)(3). Each
such entity would incur initial costs of $7,500 and annual costs of
$840.\488\
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\488\ The $7,500 initial estimate is based on the following
calculations: $6,763.50 (bookkeeping, accounting, and auditing
clerks at $167 for 40.5 hours) + $751.50 (costs for outside
professionals of $751.50) [ap] $7,500. The $840 annual estimate is
based on the following calculations: $751.50 (bookkeeping,
accounting, and auditing clerks at $167 for 4.5 hours) + $83.50
(costs for external services of $83.50) [ap] $840. Occupational
rates are calculated as described in infra note 533. For additional
details on estimates of burden hours and occupations involved, see
infra Section VI.
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Paying agents would incur costs under Rule 17ad-17(c)(1) to provide
written notification to securityholders that meet the amended
definition of an unresponsive payee when they otherwise would not under
the baseline (i.e., securityholders who receive payments
electronically). This proposed requirement would impose annual costs of
$670 on each of these entities.\489\
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\489\ The $670 annual estimate is based on the following
calculations: $601.20 (bookkeeping, accounting, and auditing clerks
at $167 for 3.6 hours) + $66.80 (costs for external services of
$66.80) [ap] $670. Occupational rates are calculated as described in
infra note 533. For additional details on estimates of burden hours
and occupations involved, see infra Section VI.
---------------------------------------------------------------------------
To comply with the proposed amendment to Rule 17ad-17(b)(2),
recordkeeping transfer agents and carrying broker-dealers may incur
costs to extend their systems for monitoring undeliverable physical
mail to cover items of correspondence sent using non-physical mail
methods to securityholders and returned as undeliverable (e.g.,
undelivered email). Larger and more sophisticated recordkeeping
transfer agents and carrying broker-dealers may already have systems
that monitor the delivery status of items of correspondence sent via
both physical mail and non-physical mail methods. Such entities may
incur very limited, if any, costs to update their systems to comply
with the proposed amendment. Recordkeeping transfer agents and carrying
broker-dealers that are smaller may operate systems that monitor for
undeliverable physical mail only. These entities may incur costs to
extend their systems to monitor the delivery status of items of
correspondence sent via non-physical mail methods. The Commission
requests commenters provide feedback on the number of transfer agents
that may incur such costs and the magnitude of such costs.
Recordkeeping transfer agents and carrying broker-dealers would
incur costs to conduct the required database searches for
securityholders that meet the amended definition of a lost
securityholder when they otherwise would not under the baseline (i.e.,
securityholders who correspond using non-physical mail methods and have
lost contact with the recordkeeping transfer agent or carrying broker-
dealer). These searches would be in addition to the searches for
securityholders that meet the definition of a lost securityholder under
existing Rule 17ad-17(b)(2). The estimated annual cost associated with
one database search is $17.\490\ Estimating the aggregate annual costs
associated with database searches for these additional securityholders
requires the total number of such searches annually. The Commission is
requesting comment on the cost of database searches, especially data
that would support quantification of (i) the annual costs associated
with one database search; (ii) the annual number of database searches
for securityholders that meet the proposed definition when they
otherwise would not under the baseline; and (iii) aggregate annual
costs associated with these database searches.
---------------------------------------------------------------------------
\490\ As the Commission estimated previously, one database
search creates a burden of 5 minutes (or approximately 0.083 hours)
and an associated recordkeeping burden of 0.002 hours for a total
burden of 0.083 + 0.002 = 0.085 hours. In addition, the Commission
estimated that a transfer agent or broker-dealer would pay third-
party database providers $3 to conduct one search. See SEC,
Supporting Statement for the Paperwork Reduction Act Information
Collection Submission for Rule 17ad-17 (Aug. 29, 2025), available at
https://www.reginfo.gov/public/do/PRAViewDocument?ref_nbr=202506-3235-007. The $17 annual estimate for each database search is based
on the following calculations: $14.20 (bookkeeping, accounting, and
auditing clerks at $167 for 0.085 hours) + $3 (costs for outside
professionals of $3) [ap] $17.
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To comply with Rule 17ad-17(d), recordkeeping transfer agents,
carrying broker-dealers, and paying agents would incur costs to create
written procedures that describe their methodology for complying with
the proposed amendments to the rule. Each such entity would incur
initial costs of $15,000 and annual costs of $3,900.\491\
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\491\ The $15,000 initial estimate is based on the following
calculations: $13,932 (lawyers at $774 for 18 hours) + $1,548 (costs
for outside professionals of $1,548) [ap] $15,000. The $3,900 annual
estimate is based on the following calculations: $3,483 (lawyers at
$774 for 4.5 hours) + $387 (costs for external services of $387)
[ap] $3,900. Occupational rates are calculated as described in infra
note 533. For additional details on estimates of burden hours and
occupations involved, see infra Section VI.
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5. Benefits and Costs of the Proposed New Rules
a. Proposed Rule 17ad-30: Compliance
Proposed Rule 17ad-30 would require every registered transfer agent
to establish, maintain, and enforce written policies and procedures
reasonably designed to (i) achieve compliance with the federal
securities laws and regulations thereunder applicable to the transfer
agent and (ii) identify and remediate instances of non-compliance with
the policies and procedures in a timely manner.\492\ The proposed rule
would also require that the policies and procedures be reviewed and
approved by the transfer agent's board of directors or similar
governing body at least every 12 months or following material changes
to either the transfer agent's operations or the federal securities
laws and rules and regulations described in paragraph (a)(1) of this
section.\493\
---------------------------------------------------------------------------
\492\ See proposed Rule 17ad-30(a).
\493\ See proposed Rule 17ad-30(b).
---------------------------------------------------------------------------
Benefits
The proposed rule would facilitate prompt and accurate clearance
and settlement of securities transactions and strengthen investor
protection. Proposed Rule 17ad-30(a)(1) would establish a uniform
baseline compliance requirement for all registered transfer agents,
while at the same time provide individual transfer agents with the
flexibility to develop and implement written policies and procedures
based on their specific business model, services, risks, and other
characteristics. Such flexibility would help accommodate the various
business models transfer agents may have while at the same time
advancing the Commission's investor protection goals and facilitating
the safe and efficient functioning of the national clearance and
settlement system. By requiring transfer agents to identify and
remediate instances of non-compliance in a timely manner, proposed Rule
17ad-30(a)(2) would help ensure that compliance issues are addressed
promptly before they can disrupt the prompt and accurate processing of
securities transactions or otherwise harm investors, issuers, or the
broader securities markets. Proposed Rule 17ad-30(b) would require
board review and approval of compliance policies and procedures,
thereby helping to ensure that transfer agent governing bodies remain
engaged in and accountable for the transfer agent's compliance efforts.
This in turn could help ensure that the transfer agent's compliance
program evolves as needed to address changes in
[[Page 57032]]
the transfer agent's business, applicable rules and regulations, and
the broader securities market. An adaptive compliance program could
support transfer agents in performing their critical functions within
the national clearance and settlement system. To the extent that the
proposed rule helps ensure that transfer agents adequately perform
their critical functions within the national clearance and settlement
system, securities transactions would be cleared and settled more
promptly and accurately and investors would be better protected.
Costs
The proposed rule would impose initial costs of approximately
$31,000, and annual costs of approximately $7,700 on each transfer
agent.\494\ These costs may be attenuated for four reasons. First, as
discussed in the economic baseline, some transfer agents are also
registered as broker-dealers or investment advisers.\495\ Other
transfer agents may be banking entities, such as insured depository
institutions subject to the Federal Deposit Insurance Act and other
prudential requirements.\496\ These transfer agents would likely
already have written policies and procedures addressing regulatory
compliance in those capacities and would revise them to also cover
their transfer agent business, rather than establish de novo policies
and procedures specifically addressing their transfer agent business.
To the extent that these transfer agents choose to revise their
existing policies and procedures, the compliance costs associated with
the proposed rule likely would be lower than estimated and reported
above. Second, among those entities that operate solely as transfer
agents, there may be entities that already have written policies and
procedures addressing regulatory compliance. For example, larger
transfer agents already may have created such written policies and
procedures to assist in managing their operations. As another example,
those transfer agents that see enhanced regulatory compliance as a
source of improved performance and thus competitive advantage relative
to their peers also may have written policies and procedures addressing
regulatory compliance. These transfer agents would likely make the
necessary revisions to their existing policies and procedures, if any,
to comply with the proposed rule, rather than establish de novo
policies and procedures. To the extent that these transfer agents
choose to revise their existing policies and procedures, the compliance
costs associated with the proposed rule likely would be lower than
estimated and reported above. Third, the compliance costs are scaled to
a transfer agent's activities. For example, transfer agents with
operations that are limited in scale and complexity would establish
written policies and procedures commensurate with the nature of such
operations. For such transfer agents, the compliance costs associated
with the proposed rule could be lower than estimated and reported
above. Fourth, to the extent transfer agents have acted consistent with
existing staff statements that are similar to the proposed amendments,
their individualized costs as realized may be reduced from the overall
estimated costs associated with the proposed amendments.\497\
---------------------------------------------------------------------------
\494\ The $31,000 initial estimate is based on the following
calculations: $23,220 (lawyers at $774 for 30 hours) + $7,740 (costs
for outside professionals of $7,740) [ap] $31,000. The $7,700 annual
estimate is based on the following calculations: $5,805 (lawyers at
$774 for 7.5 hours) + $1,935 (costs for outside professionals of
$1,935) [ap] $7,700. Occupational rates are calculated as described
in infra note 533. These estimates represent the average burden
across transfer agents. For additional details on estimates of
burden hours and occupations involved, see infra Section VI.
\495\ See supra Section V.B.4.
\496\ See, e.g., ICI Letter, Letter from J. Steven Duncan,
President, American Funds Service Company, dated Apr. 15, 2016
(``American Funds Letter''), available at https://www.sec.gov/comments/s7-27-15/s72715-50.pdf, Vanguard Letter, and ABA Letter.
\497\ See SEC Transfer Agents, available at https://www.sec.gov/about/divisions-offices/division-trading-markets/transfer-agents.
---------------------------------------------------------------------------
b. Proposed Rule 17ad-31: Restrictive Legends
The Commission is proposing new Rule 17ad-31 to establish
requirements for transfer agents regarding the placement and removal of
restrictive legends and to help prevent transfer agents from
facilitating violations of Section 5 of the Securities Act of 1933. The
proposed rule would require transfer agents to: (1) maintain and rely
upon a current list of authorized issuer employees on whose
instructions the transfer agent is authorized to act regarding the
placement and removal of restrictive legends; and (2) refrain from
facilitating any unregistered securities transaction unless the
transfer agent has a reasonable basis to believe that the transaction
would not violate, or is not part of a chain of transactions that would
violate, Section 5(a) of the Securities Act of 1933. The proposed rule
would also provide a non-exclusive safe harbor for transfer agents
seeking to establish such a reasonable basis prior to facilitating an
unregistered securities transaction.\498\
---------------------------------------------------------------------------
\498\ See proposed Rule 17ad-31.
---------------------------------------------------------------------------
Benefits
As discussed in Section IV.B, because transfer agents are often the
party responsible for affixing, tracking, and removing restrictive
legends, they help to prevent unregistered securities distributions
that violate Section 5 of the Securities Act of 1933.\499\ The removal
of restrictive legends absent proper authorization facilitates the
illegal distribution of securities. Investors risk losing their funds
if they unknowingly purchase such securities. However, there is no
existing requirement that transfer agents develop a reasonable basis
for removing restrictive legends. Proposed Rule 17ad-31(c) would
benefit investors, issuers, and the securities markets more generally,
by providing transfer agents with two clearly defined methods for
developing a reasonable basis.\500\
---------------------------------------------------------------------------
\499\ See Securities Act of 1933 Section 5, 15 U.S.C. 77e.
\500\ See proposed Rule 17ad-31(c)(2) and proposed Rule 17ad-
31(c)(3).
---------------------------------------------------------------------------
Insofar as transfer agents are not already forming a reasonable
basis for removing restrictive legends consistent with the two methods
defined in the proposed rule, the proposed rule would help to prevent
the illegal transfer or distribution of securities, which in turn would
help reduce the risk of investor and issuer losses, thereby
strengthening investor protection.
To the extent that the proposed rule reduces the risk of investor
losses from purchasing illegally distributed securities, investors may
have greater confidence in and may be more willing to participate in
securities markets. Increased investor participation in securities
markets could bolster demand for legally distributed securities and
facilitate capital raising, thereby benefiting issuers.
---------------------------------------------------------------------------
\501\ Id.
---------------------------------------------------------------------------
In addition, the absence of an existing requirement creates legal
risk and uncertainty for transfer agents--and therefore imposes costs
on transfer agents. Proposed rule 17ad-31(c) would help to mitigate
transfer agents' legal risk and compliance uncertainty, which could
reduce transfer agents' costs. The Commission has designed these
methods to ensure that the reduction in compliance uncertainty does not
weaken the substantive standards transfer agents must meet before
removing restrictive legends. These proposed provisions \501\ would
provide legal clarity to transfer agents as to how they should
establish reasonable basis
[[Page 57033]]
for removing a restrictive legend, which could reduce the need for
legal advice and associated legal costs. The availability of two
methods for developing a reasonable basis required would provide
appropriate flexibility to transfer agents while still ensuring
adequate safeguards.
Costs
Overall, the proposed rule may result in higher costs to transfer
agents seeking to provide transfer agent services to issuers. Transfer
agents would incur direct costs to comply with proposed Rule 17ad-31.
The Commission expects that each transfer agent may bear recordkeeping
cost of $6,600 initially, and $1,300 \502\ on an annual basis.
---------------------------------------------------------------------------
\502\ The $6,600 initial estimate is based on the following
calculations: $4,920 (general and operations managers at $656 for
7.5 hours) + $1,640 (costs for outside professionals of $1,640) [ap]
$6,600. The $1,300 annual estimate is based on the following
calculations: $984 (general and operations managers at $656 for 1.5
hours) + $328 (costs for outside professionals of $328) [ap] $1,300.
Occupational rates are calculated as described in infra note 533.
For additional details on estimates of burden hours and occupations
involved, see infra Section VI.
---------------------------------------------------------------------------
In addition, transfer agents would bear costs associated with
developing a reasonable basis required under proposed Rule 17ad-31(b).
Under proposed Rules 17ad-31(c)(1) and (c)(2), a transfer agent may
establish the required reasonable basis by obtaining and reviewing an
opinion of counsel that meets certain requirements.\503\ A transfer
agent that chooses to obtain an opinion of counsel under these proposed
rules would incur annual costs of $7,000.\504\ Because the cost of
obtaining such an opinion can be affected by market conditions,
including the availability and capacity of qualified attorneys, the
cost of securing an opinion of counsel may fluctuate depending on the
supply of legal professionals able to provide this specialized
analysis. As discussed in Section V.B.10, the Commission's regulatory
experience indicates that (i) transfer agents' reliance on opinion
letters as the basis for removing restrictive legends is considered a
best practice and (ii) such opinion letters can come from either the
issuer's in-house counsel or outside counsel. A transfer agent that has
been relying on opinion letters issued by its issuer clients' outside
counsel and chooses to obtain an opinion of counsel pursuant to these
proposed rules would likely not incur any incremental costs associated
with the proposed rule.
---------------------------------------------------------------------------
\503\ See proposed Rule 17ad-31(c)(2).
\504\ The $7,000 annual estimate is based on the following
calculations: $6,966 (costs for outside professionals of $6,966)
[ap] $7,000. Occupational rates are calculated as described in infra
note 533. The Commission assumed that the transfer agent would
obtain opinion letters from an outside counsel as part of its
regular, day-to-day business operations and thus would not incur
initial costs to establish de novo arrangements for obtaining such
opinion letters. In deriving the estimate for annual costs, the
Commission assumed that a transfer agent would receive an average of
three requests a year to remove restrictive legends and would hire
an outside counsel to provide opinion letters. For each request an
outside counsel would spend 3 hours to perform the work required by
proposed Rule 17ad-31(c)(2). The total time spent by the outside
counsel = 3 hours per request x 3 requests = 9 hours. Thus, the
costs for outside professional = $774 (hourly rate for a lawyer) x 9
hours = $6,966. The estimated number of transfer agents that would
choose to comply with the proposed rule = 327 (total number of
registered transfer agents as of June 30, 2026)--10 (estimated
number of transfer agents that would comply with proposed Rules
17ad-31(c)(3) and (d), see infra note 506) = 317.
---------------------------------------------------------------------------
Alternatively, a transfer agent may establish the required
reasonable basis by making its own determination that the transaction
may be conducted pursuant to a specific exemption from registration
under proposed Rule 17ad-31(c)(3).\505\ A transfer agent that chooses
to comply with proposed Rule 17ad-31(c)(3) would also incur costs to
comply with the documentation requirements of proposed Rule 17ad-31(d).
As discussed in Section IV.B.4.b, some transfer agents, particularly
larger transfer agents with experienced legal and compliance staff, may
prefer to conduct their own analysis rather than rely on opinions from
outside counsel. A transfer agent that chooses to make its own
determination under proposed Rule 17ad-31(c)(3) would incur annual
costs of $7,000.\506\ A transfer agent that chooses to comply with
proposed Rules 17ad-31(c)(3) and (d) could potentially use
documentation provided by their issuer clients, which could mitigate
the transfer agent's costs associated with these proposed rules.
---------------------------------------------------------------------------
\505\ See proposed Rule 17ad-31(c)(3).
\506\ The $7,000 annual estimate is based on the following
calculations: $6,966 (lawyers at $774) for 9 hours) [ap] $7,000.
Occupational rates are calculated as described in infra note 533.
The Commission assumed a transfer agent that chooses to comply with
proposed Rules 17ad-31(c)(3) and (d) would use its existing legal
and compliance staff to perform the work required by these proposed
rules. Thus, such a transfer agent would not incur initial costs to
recruit and train such staff. In deriving the estimate for annual
costs, the Commission assumed that a transfer agent would receive an
average of three requests a year to remove restrictive legends.
Further, for each request, the transfer agent's legal and compliance
staff would spend 3 hours to perform the work required by proposed
Rules 17ad-31(c)(2) and (d). The total time spent by the legal and
compliance staff = 3 hours per request x 3 requests = 9 hours. As
reported in Table 7 ``Market Share of the Largest Transfer Agents''
(see supra Section V.B.4), the 10 largest transfer agents as of 2025
accounted for the vast majority of transfer agent activity measured
in various ways. The Commission assumed that the volume of transfer
agent activity handled by these transfer agents would allow them to
generate sufficient revenue to support the legal and compliance
staff that would perform the work required by proposed Rules 17ad-
31(c)(3) and (d). Accordingly, the estimated number of transfer
agents that would comply with proposed Rules 17ad-31(c)(3) and (d) =
10.
---------------------------------------------------------------------------
A transfer agent that chooses to obtain an opinion of counsel would
incur total quantifiable compliance costs of $6,600 initially, and
$8,300 annually thereafter.\507\ A transfer agent that chooses to make
its own determination would incur total quantifiable compliance costs
of $6,600 initially, and $8,300 annually thereafter.\508\
---------------------------------------------------------------------------
\507\ Initial compliance costs = $6,600 (recordkeeping). Annual
compliance costs = $1,300 (recordkeeping) + $7,000 (opinion of
counsel) = $8,300. See supra notes 502 and 504.
\508\ Initial compliance costs = $6,600 (recordkeeping). Annual
compliance costs = $1,300 (recordkeeping) + $7,000 (own
determination) = $8,300. See supra notes 502 and 506.
---------------------------------------------------------------------------
The Commission is requesting comment on the cost of these
provisions, especially data that would enable quantification of: (i)
the number of transfer agents that would likely choose to comply with
proposed Rules 17ad-31(c)(1) and (c)(2) and (ii) the number of transfer
agents that would likely choose to comply with proposed Rules 17ad-
31(c)(3). Additionally, the Commission is requesting comment,
especially data that would support quantification of: (i) the number of
transfer agents that would use internal staff to comply with proposed
Rule 17ad-31(d) and (ii) the number of transfer agents that would
employ third-party service providers to comply with proposed Rule 17ad-
31(d).
Additionally, the proposed rule may cause transfer agents to spend
more time performing due diligence of issuers and transactions, which
may increase compliance costs, slow down the speed of transactions, and
increase processing time.
[[Page 57034]]
6. Aggregate Monetized Benefits and Costs
Throughout this economic analysis, we have estimated monetized
benefits and costs per affected entity/filing. In this section, we
present aggregate measures of these monetized effects. These totals
include only benefits and costs that are monetized in the economic
analysis and thus do not encompass all of the proposed amendments and
rules' benefits and costs.
a. Initial and Annual Aggregate Monetized Benefits and Costs
Table 17 reports the costs that are monetized in this economic
analysis, aggregated across all affected entities and, where
applicable, instances of filing each year. Because it was not
practicable to monetize the benefits of the proposed amendments and
rules, we do not report aggregate monetized benefits. Benefits are
discussed qualitatively above. To aggregate these monetized effects we
use estimates of the number of affected parties/filings \509\ and
burdens under the Paperwork Reduction Act in Section VI. Proposed Rule
17ad-31(c) would provide transfer agents with two methods for
developing the reasonable basis required under proposed Rule 17ad-
31(b). Under proposed Rules 17ad-31(c)(1) and (c)(2), a transfer agent
may do so by obtaining and reviewing an opinion of counsel that meets
certain requirements.\510\ Alternatively, a transfer agent may
establish the required reasonable basis by making its own determination
that the transaction may be conducted pursuant to a specific exemption
from registration under proposed Rule 17ad-31(c)(3).\511\ A transfer
agent that chooses to comply with proposed Rule 17ad-31(c)(3) would
also incur costs to comply with the documentation requirements of
proposed Rule 17ad-31(d). As discussed in Section IV.B.4.b, some
transfer agents, particularly larger transfer agents with experienced
legal and compliance staff, may prefer to conduct their own analysis
rather than rely on opinions from outside counsel. We assumed that the
10 largest transfer agents would use internal legal and compliance
staff to perform the work required by proposed Rules 17ad-31(c)(3) and
(d). Accordingly, the estimated number of transfer agents that would
comply with proposed Rules 17ad-31(c)(3) and (d) is 10.\512\ We assumed
that all other transfer agents, i.e., 317, would choose to comply with
Proposed Rules 17ad-31(c)(1) and (c)(2).\513\
---------------------------------------------------------------------------
\509\ See supra Section V.B.
\510\ See proposed Rule 17ad-31(c)(2).
\511\ See proposed Rule 17ad-31(c)(3).
\512\ See supra note 506.
\513\ See supra note 504.
---------------------------------------------------------------------------
We estimate that the total aggregate initial monetized cost is
$78,132,960 and the total aggregate annual monetized cost is
$27,776,470.
Table 17--Aggregate Monetized Costs
[2026 dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated
Initial cost Annual cost number of
Requirement per affected per affected affected Aggregate initial Aggregate annual
entity/ filing entity/ filing entities/ cost cost
filings
(A) (B) (C) (D) (E)
[(A) x (C)] [(B) x (C)]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Form TA-1......................................................... n/a \a\ $1,500 \b\ 342 n/a $513,000
Form TA-2......................................................... n/a \c\ 3,900 \b\ 327 n/a 1,275,300
Rule 17ac2-2...................................................... n/a \d\ 1,500 \b\ 2 n/a 3,000
Rule 17ad-2....................................................... \e\ 34,000 \e\ 8,500 \b\ 327 11,118,000 2,779,500
Rule 17ad-3....................................................... n/a \f\ 670 \b\ 5 n/a 3,350
Rules 17ad-6 and 17ad-7........................................... \g\ 1,000 \g\ 3,100 \b\ 327 327,000 1,013,700
Rule 17ad-7 (additional records).................................. \h\ 480 \h\ 1,500 \b\ 327 156,960 490,500
Rule 17ad-12...................................................... \i\ 7,900 \i\ 2,000 \b\ 327 2,583,300 654,000
Rule 17ad-13 (small transfer agents).............................. n/a \j\ 40,000 \j\ 16 n/a 640,000
Rule 17ad-17(a)(3)................................................ \k\ 7,500 \k\ 840 \b\ 305 2,287,500 256,200
Rule 17ad-17 (c)(1)............................................... n/a \l\ 670 \b\ 3,106 n/a 2,081,020
Rules 17ad-17(d).................................................. \m\ 15,000 \m\ 3,900 \b\ 3,291 49,365,000 12,834,900
Rule 17ad-30...................................................... \n\ 31,000 \n\ 7,700 \b\ 327 10,137,000 2,517,900
Rule 17ad-31 (opinion of counsel)................................. \o\ 6,600 \o\ 8,300 \p\ 317 2,092,200 2,631,100
Rule 17ad-31 (own determination).................................. \q\ 6,600 \q\ 8,300 \r\ 10 66,000 83,000
-------------------------------------------------------------------------------------
Total......................................................... .............. .............. .............. 78,132,960 27,776,470
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:
\a\ See supra note 428.
\b\ See infra Section VI.
\c\ See supra note 430.
\d\ See supra note 424.
\e\ See supra note 443.
\f\ See supra note 444.
\g\ See supra note 460.
\h\ See supra note 470.
\i\ See supra note 485.
\j\ See supra note 459.
\k\ See supra note 488
\l\ See supra note 489.
\m\ See supra note 491.
\n\ See supra note 494.
\o\ See supra note 507.
\p\ See supra note 504.
\q\ See supra note 508.
[[Page 57035]]
\r\ See supra note 506.
b. Present Values and Annualized Values of Aggregate Monetized Benefits
and Costs
Consistent with the requirements of Executive Order 12866, the
Commission reports estimated total monetized benefits and costs for all
affected entities in two additional ways specified in OMB Circular A-
4.\514\ The two presentations are intended to address the fact that the
various benefits and costs of the proposed amendments and rules would
not accrue at the same point in time; rather, benefits and costs that
accrue sooner are generally more valuable than those that occur later
in time.\515\
---------------------------------------------------------------------------
\514\ See E.O. No. 12866 (Sept. 30, 1993), 58 FR 51735, 51741
(Oct. 4, 1993) (requiring agencies to provide an analysis of
benefits, costs, and regulatory alternatives to OIRA for significant
regulatory actions); OMB, Circular A-4, at 31-34, 45 (Sept. 17,
2003) (providing guidance to agencies regarding compliance with E.O.
12866); see also E.O. No. 14215 (Feb. 18, 2025), 90 FR 10447, 10448
(Feb. 24, 2025) (requiring independent agencies to comply with E.O.
No. 12866). In addition, E.O. 14192 requires agencies to provide
their best approximation of the total costs or savings associated
with each new regulation or repealed regulation consistent with the
analyses required by E.O. 12866. See E.O. No. 14192 (Jan. 31, 2025),
90 FR 9065, 9066 (Feb. 6, 2025). Although Circular A-4 applies to
only significant regulatory actions under section 3(f) of E.O. 12866
and OIRA has determined this rulemaking is not significant, we are
providing these additional analyses in this release to promote
transparency and comparability of aggregate monetized benefits and
costs across our rulemakings. See infra Section IX. For purposes of
approximating the total cost savings and costs under E.O. 14192, the
Commission uses the annualized monetized benefits and costs using a
real discount rate of 7 percent. See Table 19 and accompanying
discussion.
\515\ See Circular A-4, at 32.
---------------------------------------------------------------------------
We report (1) the present values of expected benefits and costs
that are monetized in our Economic Analysis, aggregated across all
affected entities, over a 10-year time horizon, starting in 2026, as
well as (2) the annualized values over the same time horizon that are
derived from the present values. This time horizon represents the
period over which the principal benefits and costs that are monetized
in the Economic Analysis are expected to accrue.\516\ The present
values and annualized values account for the timing of benefits and
costs through discounting, which is a procedure that accounts for the
time value of money.\517\
---------------------------------------------------------------------------
\516\ See id. at 31 (stating that ``[t]he ending point should be
far enough in the future to encompass all the significant benefits
and costs likely to result from the rule''). For the purposes of
this analysis, we assume the effective date of the proposed
amendments and rules, as well as the start year for the analysis's
time horizon, is the present year. The analysis uses calendar years
and accounts for the compliance periods included in the release (see
note b in Table 18).
\517\ See id. at 32 (``The Rationale for Discounting'') & 45
(``Treatment of Benefits and Costs over Time''); See also OIRA,
Regulatory Impact Analysis: A Primer, at 11 (Aug. 15, 2011),
available at https://www.reginfo.gov/public/jsp/Utilities/circular-a-4_regulatory-impact-analysis-a-primer.pdf (``To provide an
accurate assessment of benefits and costs that occur at different
points in time or over different time horizons, an agency should use
discounting. Agencies should provide benefit and cost estimates
using both 3 percent and 7 percent annual discount rates expressed
as a present value as well as annualized.''); Harvey S. Rosen & Ted
Gayer, Public Finance 151 (8th ed. 2008) (defining present value as
``the value today of a given amount of money to be paid or received
in the future'').
---------------------------------------------------------------------------
Table 18 reports the present values of the aggregate monetized
costs from Table 17, combining one-time and recurring monetized costs.
The analysis uses annual real discount rates of 3 percent and 7 percent
over a 10-year time horizon, starting in 2026.\518\ We estimate that
the present value of total monetized costs is $318,599,704 using a 3
percent discount rate and $279,935,938 using a 7 percent discount rate.
As discussed above, we are not able to monetize benefits, and as a
result we cannot calculate a present value for total monetized
benefits.
---------------------------------------------------------------------------
\518\ This approach is consistent with OMB Circular A-4. See
Circular A-4, at 31-34 (stating that, ``[f]or regulatory analysis,
[agencies] should provide estimates of net benefits using both 3
percent and 7 percent'' discount rates and discussing why those
rates are reasonable default rates). Also, we use a mid-year
discount rate. See OMB, Circular A-94, at 21-22 (Oct. 19, 1992)
(stating that, ``When costs and benefits occur in a steady stream,
applying mid-year discount factors is more appropriate.'').
Table 18--Present Value of Aggregate Monetized Benefits and Costs Over
10 Years From 2026 to 2035
[2026 dollars]
------------------------------------------------------------------------
3% Real 7% Real
Estimated effects \a\ discount rate discount rate
------------------------------------------------------------------------
Benefits................................ n/a n/a
Costs................................... $318,599,704 $279,935,938
------------------------------------------------------------------------
Notes:
\a\ For each discount rate, the present value calculations are based on
these assumptions: benefits of the proposal are not monetizable,
aggregate initial costs are $78,132,960, and aggregate annual costs
are $27,776,470 per year (see Table 17), and that (i) all one-time
monetized implementation costs are incurred immediately and not
discounted; and (ii) recurring annual monetized costs begin to accrue
in the year in which affected entities first comply. In (ii), we
assume that monetized costs occur in a steady stream, and we use a mid-
year discount rate.
Table 19 reports annualized aggregate monetized benefits and costs
using real discount rates of 3 percent and 7 percent over a 10-year
horizon.\519\ The lump sum present values of aggregate monetized
benefits and costs reported in Table 18 are converted in Table 19 into
a constant stream of annualized benefits and costs over a 10-year time
horizon, starting in 2026.\520\ Annualized benefits and costs may
differ from an aggregation of the recurring monetized annual benefits
and costs discussed earlier in the Economic Analysis because they
incorporate the timing of benefits and costs, through discounting, and
combine one-time and recurring benefits and costs.\521\ We estimate
that annualized total monetized costs are $36,801,659 per year using a
3 percent discount rate and $38,530,810 per year using a 7 percent
discount rate. As discussed above, we are not able to monetize
benefits, and as a result we cannot calculate annualized total
monetized benefits. Because the annualized costs are discounted and
include both initial and annual costs, they should not be compared
directly to the aggregate annual monetized costs in Table 17.
---------------------------------------------------------------------------
\519\ This approach is consistent with the recommended treatment
of benefits and costs over time in Circular A-4. See id. at 45
(``You should present annualized benefits and costs using real
discount rates of 3 and 7 percent'').
\520\ For each discount rate, the annualized monetized benefits
(costs, respectively) in Table 19 represent the constant annual
stream of benefits (costs, respectively) whose present value over
the time horizon equates the corresponding present value in Table
18. See note b, Table 19 for additional calculation details.
\521\ The annualized benefits and costs present these values
over the 10-year time horizon, starting in the present year even as
recurring annual benefits and costs begin to accrue at a later date
due to compliance periods.
[[Page 57036]]
Table 19--Annualized Aggregate Monetized Benefits and Costs Over 10
Years From 2026 to 2035
[2026 Dollars]
------------------------------------------------------------------------
3% Real 7% Real
Estimated effects \a\ discount rate discount rate
------------------------------------------------------------------------
Benefits................................ n/a n/a
Costs................................... $36,801,659 $38,530,810
------------------------------------------------------------------------
Notes:
\a\ For each discount rate, the annualized values are calculated by
dividing the corresponding present values in Table 18 by the sum of
discount factors over the time horizon. The discount factor in year t
of the time horizon is equal to 1/(1+discount rate)t-0.5).
D. Efficiency, Competition, and Capital Formation
1. Competition
This section discusses the Commission's consideration of whether
the proposed rulemaking will promote competition, and in particular how
the proposal may have anticompetitive effects, the differential effects
of the proposal on different groups of transfer agents, and the ways in
which elements of the proposal may enhance competition.
a. Anticompetitive Effects of Amendments That Increase Compliance
Burdens
The compliance burden associated with certain proposed rules and
amendments may reduce competition. The proposal likely would impose
compliance burdens on registered transfer agents.\522\ Some registered
transfer agents may be unable to bear the combined burdens of the
proposed rules and rule amendments and may choose to exit the transfer
agent industry. Alternatively, registered transfer agents may choose to
combine with other registered transfer agents through mergers or
acquisitions if they believe that the economies of scale flowing from
such combinations could help offset the compliance burdens. Other
registered transfer agents may choose to restructure their business
activities by scaling back these activities across their entire
clientele or avoiding serving certain clients. The compliance burdens
associated with the proposed rules and rule amendments also might act
as a barrier to potential new entrants into the transfer agent
industry. To the extent that exits and mergers and acquisitions occur,
the provision of transfer agent services is scaled back or withheld
from certain clients, and potential entrants refrain from entering the
transfer agent industry, the number of registered transfer agents may
fall and competition between them could be reduced. A less competitive
transfer agent industry could see incumbent registered transfer agents
increasing fees charged to clients, reducing the quantity and quality
of services provided to clients, or both. Further, a less competitive
transfer agent industry could make it easier for incumbent registered
transfer agents to shift a bigger portion of their costs to their
clients. These anticompetitive effects could be particularly severe in
segments of the market that are served by a limited number of transfer
agents.
---------------------------------------------------------------------------
\522\ See supra section V.C.
---------------------------------------------------------------------------
Similarly, the proposed disclosures might impose a burden on
competition for smaller transfer agents to the extent that they impose
relatively fixed costs, which could represent a higher percentage of
revenue for smaller transfer agents. Beyond the cost of completing and
submitting the proposed disclosures, some transfer agents may be unable
or unwilling to make the disclosures, and those transfer agents could
consider exiting the market for transfer agent services. In addition to
the direct compliance costs quantified above, reputational costs and
direct burdens of disclosures, including those regarding conflicts of
interest, subcontracting relationships, organizational structure and
affiliates, books and records requirements, issues serviced, and others
may impose significant and, possibly, prohibitive costs on some
transfer agents. Such costs could lead to fewer transfer agents
competing for business in the U.S. market.
The deleterious effects on competition that may result from the
proposal might be limited for a number of reasons. For example,
registered transfer agents would establish, maintain, and enforce
written policies and procedures reasonably designed to ensure
compliance with Rules 17ad-2(a) and 17ad-12(a) as proposed to be
amended herein, and Rule 17ad-30. As discussed earlier,\523\ the
flexibility afforded by a policies and procedures approach may
encourage transfer agents to deploy new technologies and practices that
may reduce their costs. Second, as discussed in Section V.C there are
cost mitigation measures that registered transfer agents could use to
reduce compliance costs. Additionally, if a reduction in competition is
driven in part by firms that are, for example, low in transparency,
poor at regulatory compliance, or unable to assure operational
resilience, the overall quality of transfer agent services may improve.
This competitive cost could then be offset by corresponding benefits to
capital formation or efficiency due to improved investor protection,
more effective clearance and settlement, or more efficient matching
between issuers and transfer agents, to the extent the remaining
transfer agents have or increase capacity to accept new clients.
---------------------------------------------------------------------------
\523\ See supra Section V.C.2.
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b. Effects on Competition Among Different Groups of Transfer Agents
Certain proposed rules may affect competition among different
groups of transfer agents. For example, the costs of proposed
disclosure, custody and conduct, and compliance requirements may have a
differential impact on transfer agents already registered with the
Commission as broker-dealers, registered investment advisers, or
registered investment companies, or banking entities already subject to
the supervision of prudential regulators, and those that are not. Such
dually registered transfer agents may already have a compliance
infrastructure with respect to their activities in other markets,
potentially reducing incremental compliance burdens from the proposal
compared to those without. On the other hand, smaller transfer agents
with simpler operations are likely to face lower total compliance
burdens, resulting in lower incremental costs imposed by the proposal
given comparable initial compliance infrastructure, which may
nevertheless be proportionally higher than larger but similarly complex
transfer agents, placing the smaller ones at a competitive
disadvantage. These effects may result in a less favorable competitive
position especially for large or complex transfer agents that are not
dually registered or otherwise currently required to have in place the
particular compliance and safeguarding infrastructure contemplated by
the proposal. However, larger transfer
[[Page 57037]]
agents may be able to partially offset higher absolute compliance costs
through economies of scale, mitigating competitive disadvantages due to
the proposal relative to smaller transfer agents with lower total
compliance costs, but not relative to similarly sized transfer agents
with existing compliance infrastructure.
2. Capital Formation
This section discusses the Commission's consideration of whether
the proposed rulemaking will promote capital formation, and in
particular the effects of some of the proposed amendments on capital
formation through strengthened investor protections as well as the
potential effects of the proposed requirements on access to transfer
agent services and securities markets by small issuers.
a. Strengthened Investor Protections
As discussed earlier, a number of proposed rules and amendments
would strengthen investor protections.\524\ For example, amending Rule
17ad-12 to, among other things, require transfer agents to have
comprehensive risk management plans and business continuity plans in
place would improve the protection of investor funds and data and their
ability to access and trade assets when disruptive events occur. With
greater investor protection, investors may increase their participation
in the U.S. securities markets. Increased participation in the U.S.
securities markets in turn could promote capital formation by helping
issuers raise more capital and encouraging would-be issuers to seek
capital by tapping the U.S. securities markets.
---------------------------------------------------------------------------
\524\ See supra Section V.C.
---------------------------------------------------------------------------
b. Access To Transfer Agent Services and Securities Markets by Small
Issuers
The proposed provisions related to custody and conduct, such as
proposed Rule 17ad-31, are likely to increase the costs to transfer
agents of servicing issuers, particularly issuers with which the
transfer agent has had no prior transactions, more opaque issuers, and
issuers with institutional clientele more likely to rely on private
party litigation to address harm caused by a transfer agent's failure
to satisfy its obligations under the proposed rules. These proposed
provisions may also limit the ability of transfer agents to facilitate
certain transactions, which may decrease the potential range of issuers
and transactions that some transfer agents may intermediate. If these
effects result in transfer agents refraining from servicing certain
issuers, and those issuers are otherwise unable to retain transfer
agent services, the proposed rule may come at a net cost to those
issuers and would place them at a disadvantage relative to larger, more
sophisticated competitors. To the extent that these issuers do not
raise capital in the securities markets as a result of these effects,
adverse effects on market participation and market quality may follow.
Similarly, if the proposed disclosure requirements lead to fewer active
transfer agents in the market facilitating clearance and settlement,
these proposed requirements may result in issuers becoming less able to
find and retain transfer agents or increase the cost of transfer agent
services for issuers.
However, as noted in the economic baseline, many or most transfer
agents serve at least some small issuers, including a majority of the
top five transfer agents by issuers served. If the costs of the
proposed amendments result in reduced competition in the transfer agent
industry and many smaller transfer agents exit the market, small
issuers would nevertheless be likely to be able to receive transfer
agent services, albeit from larger and more sophisticated transfer
agents. Notwithstanding the observation that large, and even the
largest, transfer agents frequently provide services for smaller
issuers, due to an unfavorable risk/reward calculation, they may not
serve the smallest accounts, a pattern seen in other parts of the
financial services industry such as money managers. These smallest
issuers may have difficulty replacing smaller, exiting transfer agents
currently serving them. However, small issuers that would most likely
be unable to obtain transfer agent services as a result of proposed
Rule 17ad-31 are those that engage in transactions that fail to meet a
heightened due diligence standard for transfer agents of issuers.
Finally, the potential reductions in capital formation in some
securities may be accompanied by investor protection benefits discussed
above.
3. Efficiency
This section discusses the Commission's consideration of whether
the proposed rulemaking will promote efficiency, and in particular the
proposal's effects on the efficiency of the clearance and settlement of
securities transactions, the efficiency of the market for transfer
agent services, and potential follow-on effects on the efficiency of
securities markets more broadly.
a. Efficiency of Clearance and Settlement
Certain proposed rules and amendments may improve the efficiency of
the clearance and settlement of securities transactions. For example,
proposed amendments to Rule 17ad-12 may improve clearance and
settlement efficiency by helping to ensure the uninterrupted provision
of transfer agent services.\525\ As another example, the proposed
rescission of Rule 17ad-4 may promote clearance and settlement
efficiency by ensuring that the processing of additional categories of
transactions (i.e., transactions in LPs, DRIPs, Fund Shares, and
transactions handled by small registered transfer agents) meet minimum
performance standards for turnaround as specified in Rule 17ad-2 as
proposed to be amended.\526\ Certain proposed rules and amendments, may
result in additional compliance costs of processing transactions or
increase the processing time, slowing down transactions. For example,
proposed Rule 17ad-31 could result in additional cost and time spent
processing the removal of restrictive legends, delaying potential
transactions involving those securities.\527\ This need not be
inefficient if the resulting expense and slowing of certain
transactions help to prevent unregistered securities distributions.
---------------------------------------------------------------------------
\525\ See supra Sections V.C.4.h and V.C.5.c.
\526\ See supra Section V.C.4.b.
\527\ See supra Section V.C.5.b.
---------------------------------------------------------------------------
b. Efficiency in the Market for Transfer Agent Services
The proposal may also enhance transparency and improve
informational and allocative efficiency in the market for transfer
agent services. The proposed disclosure requirements for transfer
agents may reduce information asymmetries between transfer agents and
issuers, particularly their less sophisticated issuer clients. To the
extent that adverse selection costs are present in the market for
transfer agent services, issuers and investors may become better
informed and higher quality transfer agents may enter the market,
improving market quality. To the extent that issuers consider
disclosures under amended Rules 17ac2-1 and 17ac2-2 informative in
selecting a transfer agent, the proposed amendments to Forms TA-1 and
TA-2 may help market participants make more informed transfer agent
choices. To the degree that the proposed disclosure requirements may
increase information regarding risks and conflicts of interest, they
may improve informational efficiency and quality-
[[Page 57038]]
based competition among transfer agents.
Under the baseline, transfer agents with informational advantages
over issuers may be able to extract information rents from issuers
through, for example, charging higher fees, subcontracting, or price
discrimination. The proposed disclosure requirements are designed to
reduce these pre-existing information rents by improving issuers'
ability to assess transfer agent quality and costs. To the extent that
the proposed disclosure requirements succeed in informing issuers about
the quality of transfer agent services and inform investors and issuers
about the potential conflicts arising out of transfer agents' business
structures, they may reduce the informational advantage of transfer
agents and may decrease the profitability of their operations. As a
result, these proposed disclosure requirements may reduce the
incentives of some transfer agents to remain operational and the
willingness of transfer agents to service certain types of issuers.
This result need not be inefficient, insofar as these issuers can be
serviced by other transfer agents or exits and restrictions reflect
correction of market distortions such as those arising from information
asymmetries.
The proposal's enhanced disclosures may improve access to
information, and may attract new, potentially higher quality, entrants
into the market for transfer agent service providers due to increased
ability to signal relative quality or to fill the gap created by lower
quality transfer agents exiting the market. This effect, however, could
be limited by the costs the enhanced disclosures impose on potential
new entrants to the transfer agent marketplace to the extent these
costs operate as a barrier to entry. Enhanced disclosures may,
therefore, improve the average quality of transfer agents in the market
by deterring low-quality entrants and incentivizing quality-based
competition, which could improve the ability of issuers to retain high-
quality transfer agent services and enhance the efficiency of the
capital allocation.
c. Efficiency in Securities Markets
The proposal's effects on the efficiency of clearance and
settlement and on investor protections may have downstream effects on
efficiency in securities markets. Specifically, more robust transfer
agent operations may reduce the likelihood of settlement disruptions.
For example, Rule 17ad-12 as proposed to be amended may reduce the risk
of disruptions related to the commingling of securities and funds or
cybersecurity or other risks and proposed Rule 17ad-31 may protect
investors from illegal distribution of securities, together protecting
issuers from certain clearance and settlement failures by transfer
agents. As referenced above, less sophisticated investors may value
counterparty protections and smaller issuers may have less bargaining
power in the market for transfer agent services. In such a setting, the
proposal may enhance the quality of transfer agent services provided,
may increase the amount of due diligence that transfer agents perform
on transactions, and may protect investors from settlement disruption,
loss of funds and securities, illegal distribution of securities, and
failures in transfer agent activities generally. As a result, the
proposal may attract less sophisticated investors into securities
markets and have the potential to increase the efficiency of capital
allocation by some investors.
Proposed Rule 17ad-30 may strengthen compliance with federal
securities laws and Commission rules, facilitating prompt and accurate
clearance and settlement of securities transactions and enhancing
investor protections. To that extent, the proposed rule may increase
the willingness of some investors to participate in capital markets.
E. Reasonable Alternatives
1. Alternative to Proposed Form TA-1 Disclosure Requirements
a. Confidential Reporting of Organizational Chart
An alternative to requiring transfer agents to disclose their
organizational structures publicly in Form TA-1 would be to permit
confidential reporting to the Commission. Confidential reporting could
reduce concerns about revealing proprietary information, lessen
potential competitive disadvantages for smaller or less diversified
transfer agents, and mitigate reputational, competitive, or legal risks
associated with such public disclosure. However, confidential reporting
would limit the ability of issuers and investors to identify conflicts
of interest, assess governance and operational risks, and compare
transfer agents on an informed basis, thereby reducing the proposal's
intended benefits of enhanced transparency and improved selection of
transfer agents. In addition, limiting disclosure to the Commission
would not meaningfully reduce compliance burdens, because transfer
agents would still incur the costs of preparing and updating
organizational structure information. In light of these concerns, the
proposed approach is preferable to the alternative.
2. Alternatives to Proposed Form TA-2 Disclosure Requirements
a. Granular Disclosure of Technologies Employed
The Commission considered requiring more detailed disclosure
concerning the use of physical certificates, distributed ledger
technology, and recordkeeping systems used. This could be accomplished
by requiring that the attached list of issues serviced indicates for
each security during the reporting period: whether physical
certificates were used; whether the master securityholder file was
maintained using distributed ledger technology; and the name(s) of any
recordkeeping system or technology used to maintain the security's
master securityholder file. This information would provide the
Commission, other ARAs, issuers, third-party users of transfer agent
services, and other transfer agents better insight into how physical
certificates, distributed ledger technology, and recordkeeping systems
or technologies are being used and their ability to track the
characteristics of securities for which transfer agent services are
provided using physical certificates, distributed ledger technology,
and recordkeeping systems or technologies. However, the alternative
could result in significant initial costs to transfer agents to build
the infrastructure necessary to track and report at the security level.
They could also face significant ongoing costs to implement the
tracking and report the results for each filing of Form TA-2. The
Commission considers that in this case, the balance of costs and the
value of the information that would be disclosed favors the proposed
approach.
b. Limit New Disclosures to Tokenized Securities and Distributed Ledger
Technology
The Commission considered limiting new disclosures to tokenized
securities as a category in Questions 5, 6, and 7; the number of master
securityholder files maintained using distributed ledger technology;
and the names of any blockchains used for maintaining master
securityholder files during the reporting period. This would result in
lower compliance costs imposed on transfer agents relative to the
proposal. These alternative proposed disclosures may enhance the
ability of issuers to understand and compare the businesses of various
transfer agents insofar as they involve tokenized securities,
distributed ledger technology, and blockchains. However, as discussed
in Section II.D,
[[Page 57039]]
the Commission considers disaggregated information concerning service
provision by security type and distributions sufficiently valuable to
its oversight and policymaking processes to justify those disclosures.
Similarly, information concerning employees, contractors, service
providers, and activity types would be sufficiently valuable to
regulators in overseeing the industry, issuer clients, and investors to
justify the associated compliance costs. Accordingly, the proposed
approach is preferable to this alternative.
c. Limited Disclosures by Small Transfer Agents
The Commission considered requiring small transfer agents, i.e.,
those that received fewer than 1,000 items for transfer in the
reporting period and did not maintain master securityholder files for
more than 1,000 individual securityholder accounts as of December 31 of
the reporting period, to report only a subset of the proposed items.
Under this alternative, small transfer agents would be required to
report only aggregate numbers for DRS, DRP, and DPP accounts and the
new tokenized security and distributed ledger technology disclosures,
rather than the proposal's requirement to separately report DRS, DRP,
and DPP account numbers for several security types.\528\ This
alternative could substantially reduce disclosure costs for small
transfer agents. However, the Commission and other ARAs would lack
information that would support regulatory oversight, such as what types
of securities are served by small transfer agents. Issuers, third-party
users of transfer agent services, and other transfer agents might also
be disadvantaged by not having this information. Further, generally
available and affordable recordkeeping technology should help small
transfer agents to comply with the proposed Form TA-2 disclosure
requirements without facing unreasonable costs. Accordingly, the
proposed approach is preferable to this alternative.
---------------------------------------------------------------------------
\528\ See supra Section II.D.
---------------------------------------------------------------------------
3. Alternative To Proposed Amendments to Rule 17ad-9
a. Principles-Based Approach to Data Collected in Position Detail
The Commission considered the alternative of providing principles-
based requirements of components of position detail in Rules 17ad-
9(a)(3)-(4). Specifically, the Commission considered requiring under
Rule 17ad-9(a)(3) only the information reasonably necessary to
accurately identify the specific securityholders to the exclusion of
other securityholders. As another alternative to proposed Rule 17ad-
9(a)(3), the Commission considered requiring that the transfer agent
collect some unique identifying information that can be tied to an
individual's name and address, which could include, for example, the
name and physical mailing address or some other unique identifier. As
an alternative to proposed Rule 17ad-9(a)(4), the Commission considered
omitting the physical mailing address as a minimum requirement and
instead requiring a principles-based approach that would require the
collection of only the information reasonably necessary to establish
contact with the securityholder.
Such principles-based rules would enable transfer agents to fulfill
the requirements using whatever means and information they find most
applicable, convenient, and cost-efficient while enabling the unique
identification of securityholders and establishment and maintenance of
contact with them. Principles-based rules might also enable flexibility
to adapt if changing technology or broader business practices result in
a further shift away from names and mailing addresses as key
information relevant to the performance of transfer agent functions.
Such developments could include, for example, more prevalent use of
pseudonymous wallet addresses as identifying information or email
addresses more fully displacing physical mailing addresses as the
relevant and preferred means to ensure delivery of communications to an
intended recipient.
Establishing a uniform minimum standard of data inclusion in
position detail would better enable a consistent minimum standard
ensuring unique identification and ability to contact securityholders,
while enabling transfer agents to exceed such minimums as best enables
their preferred processes.
The Commission acknowledges that the costs and benefits of this
alternative could vary among transfer agents based on, among other
factors, their size, existing processes and technology, types of
securities and customer accounts served. Additionally, the Commission
acknowledges that the aggregate costs and benefits will vary based on
the number of new entrants. The Commission invites comment on this
alternative.
4. Alternatives to Proposed Amendments to Rule 17ad-2
a. Prescriptive Performance Standards for Turnaround and Processing
Applicable Items
The Commission considered the alternative of providing prescriptive
performance standards for the turnaround and processing of applicable
items in Rules 17ad-2(a) and 17ad-2(b). This alternative would simplify
compliance by providing transfer agents with bright-line benchmarks
with which to comply, reducing any need for, and any associated costs
of, interpretive discretion. Prescriptive performance standards could
reduce interpretive burdens and provide the Commission and other ARAs
with a clearer metric for assessing compliance. Transfer agents,
particularly smaller entities, would not need to devote resources to
drafting, maintaining, and updating written policies and procedures.
This could lower compliance costs, especially for firms with limited
legal or compliance staff.
However, the alternative raises a number of concerns. First, a
prescriptive approach may not accommodate the diversity of transfer
agent business models, operational structures, and technological
capabilities. Without the flexibility to tailor compliance approaches,
some transfer agents may be forced to adopt inefficient or ill-suited
practices simply to meet the performance standards. Second, written
policies and procedures provide transfer agents with a framework for
continuous improvement and adaptation. The alternative may hinder
transfer agents' ability to adapt to evolving technologies and market
practices. Third, written policies and procedures help ensure
consistent, reliable performance and facilitate early identification
and remediation of issues. Absent written policies and procedures,
transfer agents may be more likely to experience operational lapses or
repeated failures. In light of these concerns, the proposed approach is
preferable to this alternative.
b. Three Business Day Deadline for Written Notification
The Commission considered an alternative to proposed Rule 17ad-
2(e)(2) whereby transfer agents would be required to notify presentors
of items rejected by the transfer agents within three business days,
rather than within one business day as proposed. This alternative would
be less burdensome for transfer agents by providing additional time to
determine the reasons for rejection, prepare written
[[Page 57040]]
notifications, and review materials for accuracy. Smaller transfer
agents or those experiencing elevated volumes of transfer requests may
experience reduced operational strain under this approach.
However, extending the notification period may delay presentors'
ability to correct defects and resubmit items, thereby prolonging the
overall turnaround process. These delays could, in turn, increase the
risk of settlement disruptions and lengthen the period during which
investors remain exposed to market risk associated with delayed
settlement. To the extent that delayed notification impedes timely
turnaround or processing of items, this alternative could limit the
proposal's intended benefits regarding efficiency, transparency, and
investor protection.
The proposed one business day requirement better supports prompt
and accurate clearance and settlement of securities transactions,
particularly given current T+1 settlement cycles and is preferable to
this alternative.
5. Alternative to Proposed Amendment to Rule 17ad-3
a. Rescinding Rule 17ad-3
The Commission considered the alternative of rescinding Rule 17ad-3
entirely rather than amending the threshold in paragraph (b) of the
rule. The alternative may generate cost savings for transfer agents
because they would no longer incur costs to comply with the rule's
requirements. In particular, the rescission of Rule 17ad-3(b) would
mean that a transfer agent that fails to meet certain performance
standards for two consecutive months would not be required to notify
the chief executive officers of affected issuers. Further, transfer
agents that fail to meet performance standards set forth in the rule
could continue to take on new issues or provide new services for
existing issuer clients, while they address performance failures. The
ability to simultaneously expand and address performance failures would
be particularly beneficial to smaller transfer agents and new entrants
to the industry. Thus, the alternative could foster competition
provided that transfer agents that would otherwise be affected by Rule
17ad-3 could expeditiously address their performance failures and
return to compliance with the turnaround and processing performance
standards.
However, this alternative has certain costs. First, under this
alternative, issuers may choose to employ other methods to receive
early warning about performance failures by their transfer agents,
which could entail additional costs. Second, the lack of early warning
could hinder issuers' ability to expedite the resolution of such
failures with their transfer agents. Third, the alternative may limit
an underperforming transfer agent's incentive to expeditiously address
performance failures and also limit the incentives of all transfer
agents to deploy sufficient resources to avoid performance failures.
The Commission acknowledges that the costs and benefits of this
alternative could vary based on the size of the transfer agent and the
number of new entrants. The Commission invites comment on this
alternative.
6. Alternatives to Proposed Amendments to Rules 17ad-7 and 17ad-10
a. Provision of Both Paper and Electronic Copies of Records in Rule
17ad-7
Proposed Rule 17ad-7(g) would require transfer agents to provide
promptly upon demand from the representatives of the Commission or
other ARA staff a legible, true, complete, and current copy of any
retained record in a reasonably usable electronic format.\529\ The
Commission considered the alternative of requiring both paper and
electronic copies of records to be provided. This alternative would
offer redundancy and potentially greater assurance of record
accessibility in the event of a technological failure or data
corruption. However, this approach would impose significant operational
burdens and costs on transfer agents, especially when a high volume of
records is requested by the representatives of the Commission or
another ARA. The proposed approach is preferable to the alternative
because it reflects modern business practices (thereby avoiding
additional compliance costs), leverages the reliability and
accessibility of electronic systems, and ensures that records are
readily available for inspection or audit without mandating duplicative
processes.
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\529\ See proposed Rule 17ad-7(g).
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b. Alternative Timing Requirements for Communications Between Co-
Transfer Agents and Recordkeeping Transfer Agents
As an alternative, the Commission considered aligning the timing
requirements in paragraphs (c)(1) and (d) of Rule 17ad-10 with the
proposed timing requirements in Rules 17ad-2(a) and 17ad-10(a)(2)(i) as
amended, rather than proposing just a one business day timing
requirement for paragraphs (c)(1) and (d) of Rule 17ad-10. The
alternative would have the advantage of maintaining alignment of the
timing of communications between co-transfer agents and recordkeeping
transfer agents with the standard securities settlement cycle should it
change as well as with Rules 17ad-2 and 17ad-10, thereby providing
flexibility to accommodate future changes in the settlement period
without further rulemaking. Such an approach could reduce the risk of
regulatory misalignment if the settlement cycle is shortened or
otherwise modified, and might offer operational efficiencies for
transfer agents that already synchronize their processes with the
settlement cycle. However, the alternative may jeopardize the accuracy
of securityholder records and weaken investor protection. Co-transfer
agents may not have sufficient time to accurately provide records of
credits and debits to or address inquiries regarding such records from
the recordkeeping transfer agent. Inaccuracies in such records or
responses could in turn compromise the accuracy of an issuer's
securityholder records and prevent securityholders from receiving all
appropriate corporate distributions and communication. In light of this
concern, the alternative is rejected in favor of the proposed approach,
which strikes an appropriate balance between timeliness and accuracy in
communications between co-transfer agents and recordkeeping transfer
agents.
7. Alternatives to Proposed Amendments to Rule 17ad-12
a. Prescriptive, Minimum-Standards Framework
One alternative considered by the Commission was to propose
prescriptive minimum requirements (instead of the principles-based risk
management standards as proposed)--for example, by mandating specific
cybersecurity controls, fixed oversight processes for vendors, required
redundancies for business continuity, and explicit internal control
checklists. A prescriptive framework may provide greater certainty to
transfer agents and reduce interpretive burdens by offering concrete,
uniform benchmarks for compliance. Such an approach could also
streamline oversight by reducing the need for ARAs to evaluate the
reasonableness of risk management policies and procedures in light of
each transfer agent's individualized operations. Nonetheless, this
alternative would impose substantial inflexibility, possibly requiring
some transfer agents to adopt controls unnecessary for their
[[Page 57041]]
size or risk profile while failing to accommodate operational diversity
across the industry. If transfer agents were to adopt controls
unnecessary for their size or risk profile, they likely would incur
additional compliance costs without realizing any benefits in terms of
improved risk management. Moreover, a prescriptive rule that includes
references to specific technologies may become quickly outdated as
technology and risks evolve. Thus, the proposed principles-based
approach in Rule 17ad-12 is preferable to the alternative.
b. Segregation Requirement Limited to Issuer Funds Only
Under this alternative, Rule 17ad-12(b) would require only
segregation of issuer funds, allowing securityholder and other customer
funds to remain commingled with the transfer agent's operating
accounts. For transfer agents serving a large number of securityholders
and other customers, this alternative could reduce administrative
complexity and lower compliance burdens by reducing the number of
accounts a transfer agent must establish, monitor, and reconcile. In
addition, the alternative may reduce operational complexity for
transfer agents that maintain high volumes of small value transactions
by securityholders and other customers. Despite these advantages, the
disadvantages of this alternative are significant. Securityholder funds
and other customer funds would remain vulnerable to loss, misuse,
operational failure, and delays in recovery should a transfer agent
encounter financial distress, experience internal control failures, or
suffer a cybersecurity event. Because securityholder funds often relate
to dividend payments, redemptions, or other distributions owed directly
to individual investors, failing to segregate these funds may expose
investors to heightened risk of loss or delay. This alternative also
may create inconsistent recovery expectations across categories of
customers, potentially undermining investor confidence and creating
confusion regarding the obligations owed to different types of
customers. In light of the above, the comprehensive segregation
requirement in the proposed rule better aligns with the safeguarding
and resiliency objectives of Rule 17ad-12.
c. Partial Business Continuity Plan Requirements
Under this alternative, the Commission would require transfer
agents to comply with proposed Rule 17ad-12(c)(i)-(iii) but exclude the
requirement that business continuity plans be tested, reviewed, and
updated no less frequently than annually. This alternative would reduce
compliance burdens, particularly for smaller transfer agents that may
lack the resources to undertake regular testing, review, and updating
of their business continuity plans. However, the alternative would
leave transfer agents with weaker preparedness for disruptions because
the business continuity plan would not account for changes in a
transfer agent's business and operating environment, including
technological advancements. This concern may be particularly
significant for those transfer agents that are growing their businesses
and taking on a wider range of risks as a result. Accordingly, the
proposed approach is preferable because it better aligns with the need
for timely recovery and resumption of core transfer agent activities
and provides more robust protection to issuers, investors, and the
broader national clearance and settlement system.
8. Alternatives to Proposed Amendments to Rule 17ad-17
a. Permit Escheatment After Partial Completion of Federal Search
Requirements
As an alternative to the proposed amendment to Rule 17ad-17, the
Commission considered allowing transfer agents and broker-dealers to
remit, release, or otherwise provide funds or securities to the states
after they have completed the first of two database searches required
by Rule 17ad-17(a)(1).\530\ The alternative has a few advantages.
First, it may lower compliance costs and administrative burdens for
transfer agents compared to conducting two database searches as
required by Rule 17ad-17(a)(1). Second, it balances federal and state
interests by requiring some federal search efforts before escheatment,
but not the full process. Third, states could receive unclaimed
property sooner, potentially benefiting state unclaimed property
programs. However, the alternative raises two concerns. Investor
protection would be weakened because securityholders may lose access to
their property before the two database searches required by Rule 17ad-
17(a)(1) are made. The alternative could increase the likelihood of
legal disputes wherein securityholders might challenge states'
escheatment decisions if not all federal requirements are met or
securityholders may take legal actions against transfer agents for not
completing the two database searches. Legal disputes would increase
uncertainty regarding the status of securityholders' property and
impose legal costs for securityholders, states, and transfer agents. In
light of these concerns, the proposed approach is preferable to this
alternative.
---------------------------------------------------------------------------
\530\ Rule 17ad-17(a)(1) requires a transfer agent or broker-
dealer to conduct two database searches to locate a lost
securityholder. See Rule 17ad-17(a)(1).
---------------------------------------------------------------------------
b. Allow for a Waiver
This alternative would retain the proposed amendment to Rule 17ad-
17, but allow transfer agents to apply for a waiver from the Commission
pursuant to which they would comply instead with their relevant state's
escheatment laws (assuming the Commission finds the state law provides
at least equivalent investor protections compared to Rule 17ad-17).
This alternative has three advantages. First, it could help strengthen
investor protection by ensuring that only those transfer agents
operating in states whose escheatment laws provide equivalent (or
stronger) investor protections than Rule 17ad-17 receive a waiver.
Second, the alternative would provide flexibility to the extent that
transfer agents already complying with certain states' laws could
continue their related activities, provided the state law provides
investor protections equivalent to or stronger than those afforded by
Rule 17ad-17. Third, the alternative could encourage innovation because
transfer agents and broker-dealers might develop new approaches to
reunite owners with property, potentially fostering best practices.
However, the alternative has certain costs. First, the waiver process
likely would require significant Commission resources to evaluate and
monitor state escheatment laws. Second, the waiver process might
introduce delays and uncertainty for both transfer agents and
securityholders. During the Commission's review of a waiver request,
there might be inconsistent application of Rule 17ad-17, potentially
weakening investor protection. The Commission acknowledges that the
costs and benefits of this alternative could vary depending on the
nature of the waiver. The Commission invites comment on this
alternative.
c. Using All Available Contact Information
The Commission considered requiring transfer agents and broker-
dealers to make at least two attempts to reestablish contact with a
lost securityholder using all reasonably available contact information,
including phone numbers, email addresses, digital wallet addresses, and
physical mailing addresses in lieu of requiring transfer
[[Page 57042]]
agents and broker-dealers to perform database searches under existing
Rule 17ad-17(a)(1). The alternative has a number of advantages. First,
the alternative could increase the likelihood of successfully reaching
securityholders by requiring at least two attempts to reestablish
contact using multiple communication channels, including via the use of
channels other than physical address, which may be more carefully
monitored by securityholders. Second, the alternative would more
closely align with the amended definition of lost securityholder, under
which a securityholder could become a lost securityholder whenever an
item of correspondence that was sent to the securityholder has been
returned as undeliverable, regardless of whether the address where the
item was sent was contained in the transfer agent's master
securityholder file or customer security account records of the broker
or dealer. Third, the alternative may be more durable if technological
changes render the use of physical mailing addresses and related
database searches less relevant or effective for reestablishing contact
with lost securityholders. Fourth, the alternative could reduce
compliance burdens to the extent that transfer agents and broker-
dealers build systems to comply with the alternative and choose to
extend such systems to also comply with the notification requirement of
proposed Rule 17ad-17(a)(3), rather than build de novo systems solely
for complying with proposed Rule 17ad-17(a)(3). Fifth, the ``reasonably
available'' standard could help ensure that contact with a lost
securityholder is reestablished, while providing transfer agents and
broker-dealers the flexibility to choose the most appropriate
communication channels. This flexibility may also support the
development of new capabilities by transfer agents and broker-dealers,
such as transferring tokenized securities that are transacted on
blockchain networks, without requiring the collection of a physical
address prior to enabling transfer. However, the alternative could pose
certain challenges. First, aspects of the alternative might hamper
consistent compliance among transfer agents and broker-dealers. The
application of the ``reasonably available'' standard may vary across
transfer agents and broker-dealers. Some registrants maintain extensive
digital contact information, while others may not. In addition,
registrants may interpret and comply with the ``at least two attempts''
requirement differently. Some may treat this requirement as
prescriptive and make only two attempts to reestablish contact, while
others may choose to make more than two attempts. Some registrants in
the latter group may choose to seek legal advice as to how many
attempts beyond the two minimum are sufficient to satisfy their
compliance obligations. The lack of uniformity in compliance could lead
to varying degrees of success in contacting lost securityholders across
transfer agents and broker-dealers and consequently, disparate levels
of investor protection. Second, to the extent that messages from a
transfer agent or broker-dealer are inadvertently treated by the lost
securityholder as nuisance messages (e.g., mistaken for junk email or
text messages) and thus ignored, the alternative may not meaningfully
increase the likelihood of reestablishing contact with the lost
securityholder relative to the baseline. The Commission acknowledges
that the costs and benefits of this alternative could vary depending on
the operational capability of transfer agents and broker-dealers, the
contact information collection practices of transfer agents and broker-
dealers, and the response of securityholders to outreach via different
communication channels, among other things. The Commission invites
comment on this alternative.
9. Alternative to Proposed Rule 17ad-30
In formulating proposed Rule 17ad-30, the Commission could have
proposed exempting transfer agents dually registered as registered
investment companies, registered investment advisers, broker-dealers,
and banking entities from the scope of the proposed rule. The
alternative would eliminate the compliance burdens associated with the
proposed rule for such dual registrants. However, the Commission is
concerned that the alternative would create or foster inconsistency
across transfer agents, which in turn may jeopardize investor
protection, impede clearance and settlement, and generate broader
negative effects for the securities markets. The proposed approach is
preferable because it would apply a uniform baseline compliance
requirement for all registered transfer agents and avoid regulatory
inconsistencies. At the same time, the proposed policies and procedures
approach would provide dual registrants the flexibility to determine
the most efficient compliance methodologies given their dual
registration status and help mitigate compliance duplication.
10. Alternative to Proposed Rule 17ad-31
a. Annual Issuer Certification of Authorized Representatives
Under this alternative, a transfer agent could rely on an annual
certification from the issuer identifying authorized representatives,
rather than maintaining a current list of authorized representatives as
proposed. The alternative could lower compliance burdens for issuers
and transfer agents by limiting ongoing verification obligations and
eliminating the need to track incremental changes throughout the year.
However, the disadvantages outweigh these potential reductions in
compliance burdens. Relying on a static annual certification introduces
substantial risk that a transfer agent would act on outdated or revoked
authorizations, increasing the likelihood of prohibited activities such
as improper issuances or unauthorized legend removals. An outdated
certified list may delay the legal distribution of securities if the
instruction to do so comes from a recently authorized issuer
representative who is not found on that list. The alternative is less
preferable to the proposed approach because the alternative would not
provide the timely, transaction-specific safeguards necessary to
prevent misuse of issuer authority, support legal distribution of
securities, and could undermine investor protection, particularly in
fast-moving environments where authorized representatives change
frequently.
F. Request for Comment
The Commission is requesting comment regarding the economic
analysis set forth here. To the extent possible, the Commission
requests that market participants and other commenters provide
supporting data and analysis with respect to the benefits, costs, and
effects on competition, efficiency, and capital formation of adopting
the proposed amendments or any reasonable alternatives. In addition,
the Commission asks commenters to consider the following questions:
141. What additional qualitative or quantitative information should
the Commission consider as part of the baseline for its economic
analysis of the proposal?
142. What additional considerations can the Commission use to
estimate the costs and benefits of implementing the proposal?
143. Is it likely that certain potential benefits associated with
the proposal will not accrue to certain groups of transfer agents
because of the nature of
[[Page 57043]]
their activities or because of new conditions or restrictions the
proposal would impose on these activities? Why or why not? Are there
other benefits or costs associated with the proposal that will impact
certain groups of transfer agents differently than other groups?
144. Has the Commission considered all relevant aspects of the
proposal? Has the Commission accurately described the costs and
benefits of the proposal? Why or why not? Please identify any other
benefits associated with the proposal that the Commission has not
identified. Please identify any other costs associated with the
proposal that the Commission has not identified. If possible, please
provide quantification or data that would support quantification of
such effects.
145. The Commission requests comment on the discussed reasonable
alternatives, including the relative costs and benefits and effects on
efficiency, competition, and capital formation compared to the proposed
rule.
146. Are there any additional reasonable alternatives that the
Commission should consider? If so, please identify such alternatives
and any economic effects associated with such alternatives. If
possible, please provide quantification or data that would support
quantification of such effects.
147. What quantitative or qualitative information is there
concerning sensitivities of issuers and third parties to fees, how
transfer agents take these sensitivities into account when setting
fees, and the extent to which transfer agents prefer to keep fees
constant?
148. In connection with the amended definition of master
securityholder file in proposed Rule 17ad-9, specifying that it must be
maintained in electronic form, how many transfer agents currently
maintain master securityholder files in paper form? What is the
estimated magnitude of migration costs, including data migration,
systems development, and staff training?
149. In connection with the amended definition of recordkeeping
transfer agent in proposed Rule 17ad-9, how many transfer agents
maintain a master securityholder file jointly with another transfer
agent? What is the estimated magnitude of transition costs to
maintenance of such master securityholder file by a single
recordkeeping transfer agent?
150. In connection with the amended definition of record difference
in proposed Rule 17ad-9, how frequently would transfer agents likely
discover record differences stemming from discrepancies between the
transfer journal and the master securityholder file over a one-year
period? Would such record differences be more difficult to resolve than
existing ones, such that transfer agents would be required to file
additional Rule 17ad-11 aged record difference reports? If possible,
please provide quantification or data that would support quantification
of the number of additional Rule 17ad-11 aged record difference reports
and the costs they may incur.
151. In connection with the proposed amendments to Rules 17ad-2(a)
and 17ad-2(b), how many transfer agents may incur costs to acquire the
operational capability to turnaround and process all routine items
received during a month within the timeframes specified in these
amended rules? What would be the magnitude of such costs? If possible,
please provide quantification or data that would support quantification
of the number of transfer agents and the costs they may incur.
152. In connection with the proposed amendments to Rules 17ad-2(c)
and 17ad-2(d), how many transfer agents may incur costs to build a
system that monitors when their performance triggers the proposed three
percent notification threshold for turnaround and processing,
respectively. What would be the magnitude of such costs? If possible,
please provide quantification or data that would support quantification
of the number of transfer agents and the costs they may incur.
153. Would the proposed amendments to Rules 17ad-2(c) and 17ad-2(d)
increase, decrease, or leave unchanged the number of notices that
transfer agents have to prepare and file with the Commission and other
ARAs? What would be the change in compliance costs associated with an
increase or decrease in the number of notice filings? Would smaller
transfer agents be more or less likely to see an increase in notice
filings than larger transfer agents? If possible, please provide
quantification or data that would support quantification of the change
in the number of notice filings and the associated costs, as well as
the type and number of likely filers.
154. In connection with proposed Rule 17ad-2(e)(2), is the one
business day notification deadline operationally achievable for
transfer agents of varying sizes and technological sophistication? If
possible, please provide quantification or data that would support
quantification of the feasibility of the proposed deadline and the
costs of potentially accelerated processing that may arise as a result
of the proposed deadline.
155. Would Rule 17ad-3's limitations on expansion provisions
trigger more, less, or remain unchanged in light of the proposed
amendments to Rule 17ad-2(c) and (d) and the proposed amendment to Rule
17ad-3(b)? Would smaller transfer agents be more or less likely to
trigger these provisions than larger transfer agents? If possible,
please provide quantification or data that would support quantification
of the frequency with which the provisions trigger as a result of the
proposed amendments, as well as the type and number of transfer agents
likely to trigger the provisions.
156. In connection with the proposed rescission of Rule 17ad-4, how
many transfer agents are covered by Rules 17ad-4(a) and 17ad-4(b)? How
many transfer agents are exempt from Rule 17ad-13 pursuant to the
exemption in paragraph (d)(2) of that rule? If possible, please provide
quantification or data that would support quantification of transfer
agents covered by Rules 17ad-4(a), 17ad-4(b), and 17ad-13(d)(2).
157. Would the proposed amendments to Rule 17ad-6 result in a net
increase or decrease in the number of documents and records that
transfer agents would be required to make and keep current? What would
be the magnitude of this change? Is the change in the number of
documents and records more likely to fall on certain types of transfer
agents but not others? Would small and large transfer agents see
different changes in the number of documents and records that have to
be made and kept current? If possible, please provide quantification or
data that would support quantification of the net change in documents
and records and affected transfer agents.
158. What factors currently constrain transfer agents' ability to
perform their critical functions in the national clearance and
settlement system? Would administrative burden associated with existing
Rule 17ad-6 be one such factor? If so, would the proposed amendments to
the rule reduce transfer agents' administrative burden?
159. Would transfer agents incur costs to comply with proposed Rule
17ad-7(a)? If so, would these be initial costs, annual costs, or both?
Are the Commission's estimated initial and annual costs in connection
with this proposed rule accurate? If not, please explain why. If
possible, please provide quantification or data that would support
quantification of these costs.
160. In connection with proposed Rule 17ad-7(h)(1), what is the
number of third-party service providers that provide electronic
recordkeeping systems, servers or other storage
[[Page 57044]]
mechanisms to transfer agents for record retention? How many of these
third-party service providers provide their clients with independent
access to the kept records at all times? What is the aggregate cost
associated with the proposed written agreement requirement? If
possible, please provide quantification or data that would support
quantification of the number of affected third-party service providers,
the number of such providers that provide independent access to kept
records, and the aggregate cost associated with the proposed written
agreement requirement.
161. In connection with the proposed amendments to Rule 17ad-
10(a)(2), are there situations in which recordkeeping transfer agents
would be unable to post position detail to the master securityholder
file within the shorter of one business day or the time period
specified by Rule 15c6-1(a) under the Exchange Act? If such situations
exist, how many recordkeeping transfer agents may incur costs to
acquire the operational capability to comply with the proposed posting
deadline? What would be the magnitude of such costs? If possible,
please provide quantification or data that would support quantification
of the number of recordkeeping transfer agents and the costs they may
incur.
162. In connection with the proposed amendments to Rules 17ad-10(c)
and 17ad-10(d), are there situations in which co-transfer agents would
be unable to comply with the proposed timing requirements? If such
situations exist, how many co-transfer agents may incur costs to
acquire the operational capability to comply with these requirements?
What would be the magnitude of such costs? If possible, please provide
quantification or data that would support quantification of the number
of co-transfer agents and the costs they may incur.
163. What is the frequency with which existing timing requirements
for co-transfer agents contribute to ownership record errors? Would
proposed Rules 17ad-10(c)(1) and 17ad-10(d) help to reduce this
frequency? If so, by how much? If possible, please provide
quantification or data that would support quantification of the
frequency and the reduction in the frequency because of the proposed
rules.
164. In connection with the proposed amendments to Rule 17ad-10,
how many transfer agents currently cure overissuances of certificated
securities only? How many transfer agents currently cure overissuances
of both certificated and uncertificated securities? If possible, please
provide quantification or data that would support quantification of
these two groups of transfer agents.
165. In connection with the proposed amendments to Rule 17ad-12,
how many transfer agents currently lack or have insufficiently robust
risk management-related polices and procedures and business continuity
plans? If possible, please provide quantification or data that would
support quantification of this group of transfer agents.
166. In connection with the proposed amendments to Rule 17ad-12,
please provide quantification or data that would support quantification
of investor preferences for robust safeguarding and risk management
policies and procedures, segregation of funds, and business continuity
planning; the likelihood of operational risks, cybersecurity breaches,
and business disruptions; and any other factors that affect the total
benefits of the proposed amendments to the rule.
167. In connection with the proposed amendments to Rule 17ad-12,
how many transfer agents currently maintain issuer, securityholder, and
other customer funds in bank accounts designated as ``for the benefit
of'' accounts separate from any other bank accounts of the transfer
agents? How many transfer agents currently maintain segregation of
third-party funds on a client-by-client basis? Which approach is
costlier to implement? If possible, please provide quantification or
data that would support quantification of these two sets of transfer
agents and the costs of each segregation approach.
168. In connection with the definition of a lost securityholder as
proposed to be amended, how many transfer agents may incur costs to
extend their systems to monitor the delivery status of items of
correspondence sent via non-physical mail methods? What would be the
magnitude of such costs? If possible, please provide quantification or
data that would support quantification of the number of transfer agents
and the costs they may incur.
169. In connection with the definition of a lost securityholder as
proposed to be amended, what would be the annual costs associated with
one database search? Is the Commission's estimate accurate? If not,
should the estimate be higher or lower? What would be the annual number
of database searches for securityholders that meet the proposed
definition when they otherwise would not under the baseline? What would
be the aggregate annual costs associated with these database searches?
If possible, please provide quantification or data that would support
quantification of these items.
170. In connection with the baseline information concerning Rule
17ad-17, how many database searches are performed and accounts remitted
to states for escheatment by carrying broker-dealers? If not available
in national aggregate, how many might a typical carrying broker-dealer
expect to perform annually in total or in relation to the number of
securities accounts customers hold with them?
171. Will proposed Rule 17ad-31 give rise to potential incremental
liability and litigation costs for transfer agents, notwithstanding the
flexibility to obtain an opinion of counsel under proposed Rules 17ad-
31(c)(1) and (c)(2)? If so, what would be the magnitude of such
litigation costs? If possible, please provide quantification or data
that would support quantification of such costs.
172. In connection with proposed Rule 17ad-31, how many requests to
remove a restrictive legend would a transfer agent receive in a year on
average? If possible, please provide quantification or data that would
support quantification of the average number of legend removal requests
received by a transfer agent in a year.
173. In connection with proposed Rule 17ad-31, how many transfer
agents currently rely on opinion letters as the basis for removing
restrictive legends? Of the opinion letters provided for the removal of
restrictive legends, what percentage of these letters are provided by
(i) transfer agents' in-house counsel and (ii) outside counsel? If
possible, please provide quantification or data that would support
quantification of the transfer agents relying on opinion letters, the
percentage of opinion letters provided by transfer agents' in-house
counsel and the percentage of opinion letters provided by outside
counsel.
174. In connection with proposed Rule 17ad-31, how many transfer
agents currently rely on methods other than opinion letters to
establish the basis for removing restrictive legends? Please describe
these non-opinion letter methods and provide a ranking of their
relative popularity. Is one of these methods similar to the method
described in paragraph (c)(3) of proposed Rule 17ad-31? What percentage
of each method's usage involves transfer agents providing supporting
documentation similar to or satisfying the requirements set forth in
paragraph (d) of proposed Rule 17ad-31? If possible, please provide
quantification or data that would support quantification of the
transfer agents that rely on each of these non-
[[Page 57045]]
opinion letter methods and the percentage of each method's usage that
involved transfer agents providing supporting documentation similar to
or satisfying the requirements set forth in paragraph (d) of proposed
Rule 17ad-31?
175. In connection with proposed Rule 17ad-31(c), how many transfer
agents would likely choose to comply with proposed Rules 17ad-31(c)(1)
and (c)(2) and how many transfer agents would likely choose to comply
with Rule 17ad-31(c)(3)? What characteristics of a transfer agent--such
as its size--would lead it to choose one compliance approach over the
other? If possible, please provide quantification or data that would
support quantification of these two sets of transfer agents. In
connection with proposed Rule 17ad-31(d), how many transfer agents
would use internal staff to comply with this provision and how many
transfer agents would employ third-party service providers to comply
with this provision?
VI. Paperwork Reduction Act
A. Summary of the Collection of Information
Certain provisions of the proposed rules contain ``collection of
information'' requirements within the meaning of the Paperwork
Reduction Act of 1995 (``PRA'').\531\ We are submitting the proposed
collections of information to the Office of Management and Budget
(``OMB'') for review in accordance with the PRA.\532\ The hours and
costs associated with preparing and filing the forms constitute
reporting and cost burdens imposed by each collection of information.
An agency may not conduct or sponsor, and a person is not required to
comply with, a collection of information unless it displays a currently
valid OMB control number. Compliance with the information collections
is mandatory. Responses to the information collections are not kept
confidential and there is no mandatory retention period for information
disclosed. The titles for the affected collections of information are:
---------------------------------------------------------------------------
\531\ 44 U.S.C. 3502.
\532\ 44 U.S.C. 3507.
Rule 17ac2-1 (Form TA-1) (OMB Control No. 3235-0084)
Rule 17ac2-2 (Form TA-2) (OMB Control No. 3235-0037)
Rule 17ad-2(c), (d), and (h) (OMB Control No. 3235-0130)
Rule 17ad-3(b) (OMB Control No. 3235-0473)
Rule 17ad-4(b) and (c) (OMB Control No. 3235-0341)
Rule 17ad-6 (OMB Control No. 3235-0291)
Rule 17ad-7 (OMB Control No. 3235-0291)
Rule 17ad-17 (OMB Control No. 3235-0469)
We adopted the existing forms and rules, pursuant to the Exchange Act.
As discussed further below, Rules 17ac2-1, 17ac2-2, 17ad-2, 17ad-3,
17ad-6 and 17ad-7, 17ad-12, 17ad-17 and proposed Rules 17ad-30 and
17ad-31 each contain collections of information affected by proposed
amendments and rules. The collections in each of these proposed
amendments and rules are mandatory. Respondents under these rules are
registered transfer agents, of which there are 327 as of June 30, 2026.
B. Amendments to Forms TA-1, TA-2 and Rules 17ac2-1, 17ac2-2, 17ad-2,
17ad-3, 17ad-6, 17ad-7, 17ad-12, 17ad-17, 17ad-30, and 17ad-31.
Rule 17ac2-1 and Form TA-1 require transfer agents to register with
the Commission and provide certain information that serves as a basis
for the Commission to determine whether it should accelerate, deny or
postpone such registration. The Commission's proposal to adjust the
effective date of the TA-1 application from 30 to 45 days does not
affect or otherwise change the existing reporting burden.
The information collection required under Rule 17ac2-2 and
submitted via Form TA-2 is required to provide information regarding
the business conducted by a transfer agent, to evaluate compliance, and
to inform Commission transfer agent policymaking. The new requirement
to amend Rule 17ac2-2 may marginally increase the reporting burden for
some limited number of transfer agents, as it would require a transfer
agent to amend its Form TA-2 if it learns that information was
materially inaccurate, misleading, etc. at the time of filing. The
Commission preliminarily believes this would be an uncommon occurrence
and that approximately two transfer agents would need to amend their
Form TA-2 on an annual basis.
Under Rules 17ad-2(c) and (d), a registered transfer agent must
file a notice within ten days after the end of any month in which it
fails to meet the minimum performance standards set forth in Rules
17ad-2(a) and (b). The Commission's proposed amendments change the
threshold for the filing of the notice; however, the proposed
amendments do not materially affect the reporting burden in terms of
time or costs. Under Rule 17ad-3(b), any registered transfer agent
which for each of two consecutive months fails to turnaround or process
at least 75% of all items within the prescribed time specified in the
Rules shall be subject to the limitation set forth in Rule 17ad-3(a).
The Commission's proposed amendment to Rule 17ad-3(b) raises the
turnaround and processing threshold from 75% to 95% of all items. The
proposed threshold increase may modestly affect the reporting burdens.
The rescission of Rule 17ad-4 marginally reduces registered transfer
agents reporting burdens under the PRA--this rule has not historically
created significant time and costs burdens for transfer agents. The
proposed amendments to Rules 17ad-6 and 17ad-7 do not, in practice,
materially change the reporting burden for those rules, which require
registered transfer agents to make and keep current certain records
sufficient to determine the nature of the business conducted by a
transfer agent and to monitor and evaluate transfer agents' compliance
with Commission rules. Most registered transfer agents that are
required to comply with Rules 17ad-6 and 17ad-7 already employ the use
of modern electronic and digital media or systems for their
recordkeeping.
Proposed Rule 17ad-12 would require every transfer agent to adopt
written policies and procedures to ensure that all securities and funds
controlled by a transfer agent are protected against risks and also to
identify and mitigate operational, cybersecurity, and other risks posed
by or associated with the transfer agent's business, activities, and
operations.
The proposed amendments to Rule 17ad-17 would (i) change the
existing recordkeeping requirement to comport with proposed Rule 17ad-
7(a); (ii) require recordkeeping transfer agents and broker-dealers
that maintain securityholder accounts to provide two inactivity notices
to securityholders whose accounts are deemed inactive under Rule 17ad-
17(b)(3); and (iii) require paying agents to provide two notices to
unresponsive payees under Rule 17ad-17(c)(3).
Newly proposed rules 17ad-30 and 17ad-31 would require registered
transfer agents to, respectively, (i) implement and maintain written
policies and procedures that are reasonably designed to achieve
compliance with the federal securities laws; and (ii) implement
controls to ensure only authorized issuer representatives can instruct
a transfer agent to remove a restrictive legend or otherwise execute a
securities transaction.
[[Page 57046]]
C. Summary of the Estimated Burden of the Proposed Amendments on the
Collections of Information
The following table summarizes the estimated Paperwork Burden
Associated with the Proposed New Rules and Amendments:
PRA Table 1--Estimated Paperwork Burden Associated with the Proposed New Rules and Amendments
----------------------------------------------------------------------------------------------------------------
Estimated
burden per Number of affected
Proposed requirements and effects Affected forms response responses
(hours)
----------------------------------------------------------------------------------------------------------------
Form TA-1............................... Form TA-1................. 2 342 (327 existing transfer
agents + 15 new
registrants).
Addition of Question 3(f).
Website Address.
Rescinding Questions 6 and
7 adding proposed Questions 6(a)
and (b) and 7.
Amending Question 8 to
include additional options for
identifying the registrant's
corporate structure.
Proposed Schedule A:
Business Affiliates of the
Registrant.
Technical changes to
headings and amendments to the
instructions.
Amendment of Questions 11
and 12 which concern the TA's
signature and attached documents.
Rule 17ac2-2............................ Form TA-2................. 2 2 Filings.
Form TA-2 must be amended
within 60 days if the transfer
agent discovers that any
information was materially
inaccurate, misleading, or
incomplete at the time of filing.
Form TA-2............................... Form TA-2................. 5 327 Filings.
Form TA-2 updated to
include new requirements to
provide: (1) the number of
employees engaged in transfer agent
functions and activities incidental
thereto during the reporting
period; (2) the number of issues
serviced by the registrant for
which physical certificates were in
use during the reporting period;
(3) the number of issues for which
the registrant maintained the
master securityholder file using
distributed ledger technology
during the reporting period; and
(4) the types of service providers
used by the registrant during the
reporting period using a check-the-
box format along with the name of
the service provider(s) using a
fill-in-the-blank format.
Amendment of Question 5
regarding the number of individual
securityholder accounts by security
type.
Amendment of Question 6,
regarding the number of issues by
service and security type.
Addition of Question 6(b)
regarding number of issues by
tokenization model and security
type.
Amendment of Question 7,
which concerns receipts and
distributions to securityholders.
Amendment of Question 9
concerning turnaround and
processing.
Amendment of Question 13
which concerns the attached
documents.
Rule 17ad-2............................. 55 327 Respondents.
Requires written policies
and procedures concerning
turnaround and processing of
applicable items.
Notice requirement for
rejected items; notice must be
provided within one business day.
17ad-3.................................. 4 5 Respondents.
Requires a transfer agent
to provide notice to issuers if it
fails to turnaround or process 95%
of all applicable items.
Rule 17ad-6 and 7....................... 25 327 Respondents.
[[Page 57047]]
Requires keeping and
maintaining a transfer journal (or
registrar journal if the transfer
agent acts as an outside registrar)
and a control book and master
securityholder file if the transfer
agent is a recordkeeping transfer
agent, and records related to
turnaround, processing,
appointment, termination, and non-
routine items; Requires transfer
agents that use a third party for
recordkeeping to obtain from such
third party and file with the
Commission and its ARA a legally
binding written agreement signed by
as duly authorized representatives
of the third party, unless the
transfer agent has and maintains at
all times independent access to
such records.
Rule 17ad-12............................ 30 327 Respondents.
Requires transfer agents to
adopt written policies and
procedures regarding the
safeguarding of securities and
funds and other risks.
Requires transfer agents to
establish, maintain, and enforce a
written business continuity plan.
Rule 17ad-17(a)(3)...................... 50 305 (152 Record Keeping
Transfer Agents and 153
Broker-Dealers).
Requires recordkeeping
transfer agents and broker-dealers
that maintain accounts that include
accounts of inactive
securityholders to provide not less
than two written notifications to
each inactive securityholder
stating that such inactive
securityholder has not been active
in its account.
Rule 17ad-17(c)(1)...................... 4 3106 (Paying Agents).
Requires paying agents to
provide notice to unresponsive
payees.
Rule 17ad-17(d)......................... 25 3291 Respondents (Transfer
Agents, Broker-Dealers
and Paying Agents).
Requires written procedures
that describe the transfer agent's,
broker's, dealer's, or paying
agent's methodology for complying
with Rule 17ad-17.
Rule 17ad-30............................ 50 327 Respondents.
Requires transfer agents to
adopt written compliance policies
and procedures.
Rule 17ad-31............................ 12 327 Respondents.
Requires transfer agents to
maintain and keep list of issuer
employees authorized to provide
instructions and documents related
to such authorizations.
Requires transfer agents to
refrain from facilitating any
transaction unless it has a
reasonable basis to believe that
doing so will not violate Section 5
of the Securities Act of 1933.
----------------------------------------------------------------------------------------------------------------
D. Initial and Ongoing Burden Estimates
The foregoing burden estimates for the rules, as proposed to be
amended, consist of initial and ongoing or annualized time and cost
burdens. The following table includes estimates for what burden share
will accrue initially, upon the amended and proposed rules becoming
effective as compared with the rules' annualized time and costs
burdens.
PRA Table 2--Estimated Initial and Annual Aggregate Burden Estimates *
----------------------------------------------------------------------------------------------------------------
Initial burden Annual burden Initial burden Annual burden
Collection of information estimates estimates estimates (%) estimates (%)
(hours) (hours) (X) (Y)
----------------------------------------------------------------------------------------------------------------
Form TA-1....................................... 0 684 0 100
Form TA-2....................................... 0 1,640 0 100
Rule 17ac2-2.................................... 0 2 0 100
Rule 17ad-2..................................... 44 11 80 20
Rule 17ad-3..................................... 0 20 0 100
[[Page 57048]]
Rules 17ad-6 and 7.............................. 6 18 25 75
Rule 17ad-12.................................... 24 6 80 20
Rule 17ad-17(a)(3).............................. 45 5 90 10
Rule 17ad-17(c)(1).............................. 0 4 0 100
Rule 17ad-17(d)................................. 20 5 80 20
Rule 17ad-30.................................... 40 10 80 20
Rule 17ad-31.................................... 10 2 83 17
----------------------------------------------------------------------------------------------------------------
* All figures rounded to the nearest whole number.
E. Incremental and Aggregate Burden and Cost Estimate
Below we estimate the incremental and aggregate changes in
paperwork burden because of the proposed amendments. These estimates
represent the average burden for all respondents, both large and small.
In deriving our estimates, we recognize that the burdens will likely
vary among individual respondents based on several factors, including
the nature of their business. For example, large institutional transfer
agents provide services to thousands of issuers and process billions of
dollars of transactions qualifying as payment agent activity.
Conversely, some smaller transfer agents may only service a single,
small issuer.
We calculated the additional burden estimates by multiplying the
estimated additional burden per form by the estimated number of
responses per form. That additional burden is then added to the
existing burden per form. For purposes of the PRA, the burden is to be
allocated between internal burden hours and outside professional costs.
The table below sets forth the percentage estimates we typically use
for the burden allocation for each collection of information and the
estimated burden allocation for the proposed new collection of
information. We also base our estimates of the average cost of
retaining outside professionals using the methodology set forth by the
Occupational Employment and Wage Statistics (OEWS) program of the
Bureau of Labor Statistics (BLS) for Securities, Commodity Contracts,
and Other Financial Investments and Related Activities.\533\
---------------------------------------------------------------------------
\533\ To calculate the occupational hourly rates used in this
release, the Commission uses occupational mean hourly wage data from
the OEWS program of the BLS for ``Securities, Commodity Contracts,
and Other Financial Investments and Related Activities'' (NAICS
523). See Occupational Employment and Wage Statistics, U.S. Bureau
of Labor Statistics, https://www.bls.gov/oes/; see also Standard
Occupational Classification, U.S. Bureau of Labor Statistics,
https://www.bls.gov/soc/ (describing occupational classification
system used by BLS); Exec. Off. of the President, Off. of Mgmt. &
Budget, North American Industry Classification System (2022),
available at https://www.census.gov/naics/reference_files_tools/2022_NAICS_Manual.pdf (describing the industry classification system
used by BLS and other agencies). The mean hourly wage for each
occupation is adjusted for changes in the seasonally adjusted
employment cost index for private wages and salaries between the
data reference period and when the data are released by BLS. See
Employment Cost Index, U.S. Bureau of Labor Statistics, https://www.bls.gov/eci/. The adjusted mean hourly wage is then multiplied
by a factor that accounts for nonwage costs borne by employers, such
as bonuses, benefits, and overhead. This factor is calculated as an
average over the 10 most recently available years of data of the
ratio of the Bureau of Economic Analysis's annual gross output data
for the NAICS 23 to total annual wages across all occupations for
NAICS 23 in the OEWS data. See Gross Output by Industry, U.S. Bureau
of Economic Analysis, https://www.bea.gov/data/industries/gross-output-by-industry; Occupational Employment and Wage Statistics,
U.S. Bureau of Labor Statistics, supra. The final product is the
occupational hourly rate. See generally Updated Methodology for
Calculating Occupational Hourly Rates (Dec. 19, 2025), available at
https://www.sec.gov/files/method-occupational-hourly-rates.pdf.
PRA Table 3--Estimated Burden Allocation for the Affected Collections of
Information
------------------------------------------------------------------------
Outside
Collection of information Internal (%) professionals
(%)
------------------------------------------------------------------------
Rule 17ac2-1 (Form TA-1)................ 75 25
Rule 17ac2-2 (Form TA-2), Rule 17ad-17.. 90 10
Rule 17ad-2, Rule 17ad-3, Rules 17ad-6 75 25
and 17ad-7, Rule 17ad-12, Rule 17ad-30,
and Rule 17ad-31.......................
------------------------------------------------------------------------
The following tables summarize the requested paperwork burden,
including the estimate total reporting burdens and costs, under the
proposed amendments.
PRA Table 4--Calculation of the Incremental Change in Burden Estimates of Current Responses Resulting from the Proposed Amendments *
--------------------------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------------------------------
Collection of information Number of Burden hour increase per Change in Change in Change in Change in
estimated. response burden hours company hours professional professional
affected hours costs
information.
collections,
notices/.
disclosures.......
(A)............... (B) (C) = (A) x (D) = (C) x (E) = (C) x (F) = (E) x
(B) 0.90 or 0.75 0.10 or 0.25 OEWS Estimate
--------------------------------------------------------------------------------------------------------------------------------------------------------
Form TA-1....................... 342 (327 + 15) 2 684 513 171 42.75 $33,089 (Lawyers
Filings. 23-1011).
Form TA-2....................... 327 Filings....... 5 1,635 1,472 164 16.4 $12,697 (Lawyers
23-1011).
[[Page 57049]]
Rule 17ac2-2.................... 2 Filings......... 2 4 3.6 0.4 0 $0 (Lawyers 23-
1011).
--------------------------------
Rule 17ad-2..................... 327 Respondents... 55 17,985 13,489 4,496 $3,480,097.50
(Lawyers 23-
1011).
Rule 17ad-3..................... 5 Respondents..... 4 20 15 5 $825 (Bookkeeping,
Accounting, and
Auditing Clerks
43-3031).
Rules 17ad-6 and 17ad-7......... 327 Respondents... 25 8,175 6,131.25 2,043.75 $341,306.25
(Bookkeeping,
Accounting, and
Auditing Clerks
43-3031).
Rule 17ad-12.................... 327 Respondents... 30 9,810 7,358 1,840 $607,200.00
(Accountants and
Auditors 13-
2011).
Rule 17ad-17(a)(3).............. 305 Respondents... 50 15,100 11,325 1,510 $249,150.00
(Bookkeeping,
Accounting, and
Auditing Clerks
43-3031).
Rule 17ad-17 (c)(1)............. 3106 Respondents.. 4 12,424 9,318 1,242 $204,996.00
(Bookkeeping,
Accounting, and
Auditing Clerks
43-3031).
Rule 17ad-17(d)................. 3291 Respondents.. 25 82,275 61,706 8,228 $6,368,085.00
(Lawyers 23-
1011).
Rule 17ad-30.................... 327 Respondents... 50 16,350 12,262.5 4,087.5 $3,163,725.00
(Lawyers 23-
1011).
--------------------------------
Rule 17ad-31.................... 327 Respondents... 20 6,540 5,886 654 164 $107,584.00
(General and
Operations
Managers 11-
1021).
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Figures reflected in the table rounded to closest whole number.
PRA Table 5--Requested Paperwork Burden Under the Proposed Amendments
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Current burden Program change Requested change in burden
----------------------------------------------------------------------------------------------------------------------------------------------------------
Form or rule Current Number of Change in
Current annual burden Current cost affected company Change in professional Annual Burden hours Cost burden
responses hours burden responses hours costs responses
(A)..................... (B) (C) (D) (E) (F)..................... (G) = (A) (H) = (B) + (I) = (C) + (F)
(E)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Form TA-1............................ 209 (196 Amendments/13 450 $176,040.00 342 513 $33,089.00 (Lawyers 23- 209 42.75 $33,089 (Lawyers 23-
filers). 1011). 1011)
Form TA-2............................ 315..................... 1,359 395,051.80 2 164 $12,697.00 (Lawyers 23- 315 16.4 $12,697 (Lawyers 23-
1011). 1011)
Rule 17ac2-2......................... 0....................... 0 0 327 0.4 $0 (Lawyers 23-1011).... 0 0 $0 (Lawyers 23-1011)
Rule 17ad-2.......................... 3....................... 0.5 0 327 13,489 $3,480,097.50 (Lawyers 3 13,489.5 $3,480,097.50 (Lawyers
23-1011). 23-1011)
Rule 17ad-3.......................... 1....................... 4 0 5 16 $668 (Bookkeeping, 1 20 $668.00 (Bookkeeping,
Accounting, and Accounting, and
Auditing Clerks 43- Auditing Clerks 43-
3031). 3031)
Rules 17ad-6 and 17ad-7.............. 315..................... 500 50,242,500.00 327 6,131 $1,023,918.75 315 6,631 $51,266,418.00
(Bookkeeping, (Bookkeeping,
Accounting, and Accounting, and
Auditing Clerks 43- Auditing Clerks 43-
3031). 3031)
Rule 17ad-12......................... 0....................... 0 0 327 7,358 $2,727,975.00 0 1,840 $607,200.00
(Accountants and (Accountants and
Auditors 13-2011). Auditors 13-2011)
Rule 17ad-17(a)(3)................... 0....................... 0 0 305 11,325 $249,150.00 0 11,325 $249,150.00
(Bookkeeping, (Bookkeeping,
Accounting, and Accounting, and
Auditing Clerks 43- Auditing Clerks 43-
3031). 3031)
Rule 17ad-17(c)(1)................... 0....................... 0 0 3,106 9,318 $204,996.00 0 9,318 $204,996.00
(Bookkeeping, (Bookkeeping,
Accounting, and Accounting, and
Auditing Clerks 43- Auditing Clerks 43-
3031). 3031)
Rule 17ad-17(d)...................... 0....................... 0 0 3,290 61,706 $6,368,085.00 (Lawyers 0 61,706 $6,368,085.00 (Lawyers
23-1011). 23-1011)
Rule 17ad-30......................... 0....................... 0 0 327 4,088 $3,163,725.00 (Lawyers 0 4,088 $3,163,725.00 (Lawyers
23-1011). 23-1011)
Rule 17ad-31......................... 0....................... 0 0 327 654 $107,584.00 (General and 0 164 $107,584.00 (General
Operations Managers 11- and Operations
1021). Managers 11-1021)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 57050]]
PRA Table 6--Requested Initial Paperwork Burden under the Proposed Amendments *
----------------------------------------------------------------------------------------------------------------
Initial monetized
benefits and Initial requested
Form or rule Cost burden costs per change in burden
response (%) ($)
(I)............................ (X) (C) = (I) x (X)
----------------------------------------------------------------------------------------------------------------
Form TA-1................................ $33,089.00 (Lawyers 23-1011)... 100 $33,089.00
Form TA-2................................ $12,697.00 (Lawyers 23-1011)... 0 0
Rule 17ac2-2............................. $0 (Lawyers 23-1011)........... 0 0
Rule 17ad-2.............................. $3,480,097.50 (Lawyers 23-1011) 80 2,784,078.00
Rule 17ad-3.............................. $668.00 (Bookkeeping, 0 0
Accounting, and Auditing
Clerks 43-3031).
Rules 17ad-6 and 17ad-7.................. $50,578,700.00 (Bookkeeping, 25 12,644,675.00
Accounting, and Auditing
Clerks 43-3031).
Rule 17ad-12............................. $607,200.00 (Accountants and 0 0
Auditors 13-2011).
Rule 17ad-17(a)(3)....................... $249,150.00 (Bookkeeping, 90 249,150.00
Accounting, and Auditing
Clerks 43-3031).
Rule 17ad-17(c)(1)....................... $204,996.00 (Bookkeeping, 0 0
Accounting, and Auditing
Clerks 43-3031).
Rule 17ad-17(d).......................... $6,368,085.00 (Lawyers 23-1011) 80 5,094,468.00
Rule 17ad-30............................. $3,050,400.00 (Lawyers 23-1011) 80 2,432,582.00
Rule 17ad-31............................. $107,584.00 (General and 83 89,294.72
Operations Managers 11-1021).
----------------------------------------------------------------------------------------------------------------
* Values in table rounded to whole number.
F. Request for Comment
We request comment on whether these estimates are reasonable.
Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits comments
in order to: (1) evaluate whether the proposed collection of
information is necessary for the proper performance of the functions of
the Commission, including whether the information will have practical
utility; (2) evaluate the accuracy of the Commission's estimate of the
burden of the proposed collection of information; (3) determine whether
there are ways to enhance the quality, utility, and clarity of the
information to be collected; and (4) determine whether there are ways
to minimize the burden of the collection of information on those who
are to respond, including through the use of automated collection
techniques or other forms of information technology.
Persons wishing to submit comments on the collection of information
requirements of the proposed amendments should direct them to the OMB
Desk Officer for the Securities and Exchange Commission,
[email protected], and should send a copy to
Vanessa A. Countryman, Secretary, Securities and Exchange Commission,
using any of the methods in the ADDRESSES section, with reference to
File No. S7-2026-30. OMB is required to make a decision concerning the
collections of information between 30 and 60 days after publication of
this release; therefore, a comment to OMB is best assured of having its
full effect if OMB receives it within 30 days after publication of this
release. Requests for materials submitted to OMB by the Commission with
regard to these collections of information should be in writing, refer
to File No. S7-2026-30, and be submitted to the Securities and Exchange
Commission, Office of FOIA Services, 100 F Street NE, Washington, DC
20549-2736. OMB is required to make a decision concerning the
collections of information between 30 and 60 days after publication of
this release. Consequently, a comment to OMB is best assured of having
its full effect if OMB receives it within 30 days of publication.
VII. Initial Regulatory Flexibility Act Analysis
Section 3(a) of the Regulatory Flexibility Act of 1980 (``RFA'')
requires the Commission to undertake an initial regulatory flexibility
analysis of the impact of the proposed rule amendments on small
entities unless the Commission certifies that the rule, if adopted,
would not have a significant economic impact on a substantial number of
small entities.\534\ This Initial Regulatory Flexibility Act Analysis
(``IRFA'') has been prepared, and been made available for public
comment.
---------------------------------------------------------------------------
\534\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------
1. Reasons for, and Objectives of the Proposed Actions
The Commission is proposing to amend Forms TA-1 and TA-2 to require
transfer agents to disclose additional information regarding the
transfer agent's corporate organizational structure, significant
service providers, recordkeeping, and handling of securities and funds.
The proposed amendments to Forms TA-1 and TA-2 will enhance the
Commission's understanding of transfer agent operations, risk
management, and compliance practices.
The Commission is also proposing to amend Exchange Act Rule 17ac2-1
to align the effective date for registration specified in the rule--30
days after filing of the Form TA-1--with Section 17A(c)(2) of the
Exchange Act, which specifies that registration shall become effective
45 days after filing. The proposed amendment to Exchange Act Rule
17ac2-1 will harmonize the effective date for transfer agent
registration with the statutory requirement.
The Commission is also proposing to amend Exchange Act Rules 17ad-
1, 17ad-2, 17ad-3, 17ad-6, 17ad-7, 17ad-9, 17ad-10, 17ad-12, and 17ad-
17 to modernize and streamline the regulatory framework governing
transfer agents. These amendments will ensure that the rules governing
transfers agents apply equally to both certificated and uncertificated
securities, and that they reflect the technological advancements and
changes in industry practices that have taken place over the years.
These amendments will enhance the efficiency, accuracy, and
transparency of transfer agent operations, while also strengthening
compliance and risk management practices. By updating the rules to
reflect current industry standards and practices, the amendments will
promote a more robust and reliable transfer agent system that supports
the integrity of the securities markets.
The Commission is also proposing to rescind Rule 17ad-4, which
provides exemptions from certain requirements for transfer agents that
service limited partnerships, redeemable securities of investment
companies, and dividend reinvestment plans, as well as small transfer
agents. Rescinding this rule will apply uniform requirements to all
registered transfer agents, regardless of their size or the type of
securities they service.
The Commission is also proposing Exchange Act Rule 17ad-30 to
strengthen a compliance framework which will include requirements to
develop compliance policies and
[[Page 57051]]
procedures and Exchange Act Rule 17ad-31 to refrain from improperly
removing restrictive legends. These proposed rules will strengthen the
compliance framework for registered transfer agents, enhance investor
protection, and facilitate the safe and efficient functioning of the
national clearance and settlement system. The proposed rules aim to
address concerns related to transfer agents' compliance with federal
securities laws and removal of restrictive legends. These new proposed
rules will establish a uniform baseline compliance requirement and help
to prevent transfer agents from facilitating violations of securities
laws, ultimately promoting investor protection and maintaining the
integrity of the securities markets.
2. Legal Basis
The Commission proposes new rules and amendments to existing rules
governing registered transfer agents and transfer agent registration
and annual reporting forms pursuant to authority set forth in the
Exchange Act, particularly Sections 2,\535\ 3,\536\ 17,\537\ 17A,\538\
and 23(a).\539\
---------------------------------------------------------------------------
\535\ 15 U.S.C. 78b.
\536\ 15 U.S.C. 78c.
\537\ 15 U.S.C. 78q(a).
\538\ 15 U.S.C. 78q-1.
\539\ 15 U.S.C. 78w(a).
---------------------------------------------------------------------------
3. Small Entities Subject to the Proposed Rule and Proposed Rule
Amendments
Paragraph (h) of Exchange Act Rule 0-10 provides that, for purposes
of Commission rulemaking and as applicable to the proposed new rules
and amendments to existing rules governing registered transfer agents,
a small entity includes, when used with reference to a transfer agent,
a transfer agent that (i) 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), (ii) transferred
items only of issuers that would be deemed ``small businesses'' or
``small organizations'' as defined in this section, (iii) 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 (iv) is not affiliated with any person (other than a natural
person) that is not a small business or small organization under this
section.\540\ Commission staff estimates that, as of June 30, 2026,
there are 327 registered transfer agents \541\ and 143 transfer agents
that may meet the definition of small entity.\542\
---------------------------------------------------------------------------
\540\ See 17 CFR 240.0-10(h).
\541\ See Table 4, infra Section V.B.4.
\542\ See Table 6, infra Section V.B.4.
---------------------------------------------------------------------------
4. Projected Reporting, Recordkeeping, and Other Compliance
Requirements
If adopted, the proposed amendments would apply to small entities
to the same extent as other entities, irrespective of size. Therefore,
we expect that the nature of any benefits and costs associated with the
proposed amendments to be similar for large and small entities.
Accordingly, we refer to the discussion of the proposed amendments'
economic effects on all affected parties, including small entities, in
Section V. above. Consistent with that discussion, we anticipate that
the economic benefits and costs likely could vary widely among small
entities based on a number of factors, such as the nature and conduct
of their businesses, which makes it difficult to project the economic
impact on small entities with precision. As a general matter, however,
we recognize that the costs of the proposed amendments borne by the
affected entities could have a proportionally greater effect on small
entities, as they may be less able to bear such costs relative to
larger entities. Compliance with the proposed amendments may require
the use of professional skills, including legal skills. We request
comment on how the proposed disclosure amendments would affect small
entities.
5. Duplicative, Overlapping, or Conflicting Federal Rules
The Commission believes that no federal rules supplicate, overlap
or conflict with the proposed new rules and amendments to existing
rules governing registered transfer agents and transfer agent
registration and annual reporting forms.
6. Significant Alternatives
The RFA requires that the Commission include in its regulatory
flexibility analysis a description of any significant alternatives to
the proposed rule which would accomplish the stated objectives of
applicable statutes and which would minimize any significant economic
impact of the proposed rule on small entities.\543\ Pursuant to Section
3(a) of the RFA, the Commission's initial regulatory flexibility
analysis must consider certain types of alternatives, including: (a)
the establishment of differing compliance or reporting requirements or
timetables that take into account the resources available to small
entities; (b) the clarification, consolidation, or simplification of
the compliance and reporting requirements under the rule for small
entities; (c) the use of performance rather than design standards; and
(d) an exemption from coverage of the rule, or any part of thereof, for
such small entities.\544\
---------------------------------------------------------------------------
\543\ 5 U.S.C. 603(c).
\544\ Id.
---------------------------------------------------------------------------
The Commission considered alternatives to the proposed amendments
to Form TA-2 that would accomplish the stated objectives of the
amendment without disproportionately burdening transfer agents that are
small entities, including limiting certain disclosure requirements. For
example, the Commission considered an alternative that transfer agents
would be required to report only aggregate numbers of individual
securityholder accounts, rather than the proposal's requirement to
separately report account numbers for several security types. However,
the Commission determined that while this alternative could reduce
disclosure costs for small transfer agents, the Commission would lose
valuable information provided by this disclosure requirement and
regulatory oversight as to what types of securities are served by small
transfer agents. Further, because all registered transfer agents
regardless of size are required to file an annual report with the
Commission on Form TA-2, generally available and affordable
recordkeeping technology should help small transfer agents comply with
the proposed disclosure requirements on Form TA-2 without unreasonable
costs.
The Commission also considered alternatives to the proposed Rule
17ad-12 that would accomplish the stated objectives of the new rule
without disproportionately burdening transfer agents that are small
entities. For example, the Commission considered exempting small
transfer agents from the requirement in proposed Rule 17ad-12(c)(iv)
that business continuity plans be tested, reviewed, and updated no less
frequently than annually. However, the Commission determined that while
this would reduce compliance burdens for small transfer agents, it
would also leave transfer agents with weaker preparedness for
disruptions. Further, maintaining this requirement for small transfer
agents would better align with the need for timely recovery and
resumption of core transfer agent activities and provide more robust
protection to issuers, investors, and the broader national clearance
and settlement system.
[[Page 57052]]
7. Request for Comment
The Commission encourages written comments on matters discussed in
the IRFA. In particular, the Commission seeks comment on the number of
small entities that would be affected by the proposed new rules and
amendments to existing rules governing registered transfer agents and
transfer agent registration and annual reporting forms, and whether the
effect(s) on small entities would be economically significant.
Commenters are asked to describe the nature of any effect(s) the
proposed new rules and amendments to existing rules governing
registered transfer agents and transfer agent registration and annual
reporting forms may have on small entities, and to provide empirical
data to support their views.
VIII. Congressional Review Act
For purposes of Subtitle E of the Small Business Regulatory
Enforcement Fairness Act of 1996 (also known as the Congressional
Review Act),\545\ the Commission must seek OMB's determination as to
whether a final regulation constitutes a ``major rule.'' Under the
Congressional Review Act, a rule is considered ``major'' where, if
adopted, it results in or is likely to result in:
---------------------------------------------------------------------------
\545\ See 5 U.S.C. chapter 8.
---------------------------------------------------------------------------
An annual effect on the economy of $100 million or more;
A major increase in costs or prices for consumers or
individual industries; or
Significant adverse effects on competition, investment, or
innovation.\546\
---------------------------------------------------------------------------
\546\ See 5 U.S.C. 804(2) (defining ``major rule'').
---------------------------------------------------------------------------
To help inform OMB's determination as to whether any final rule
that results from the proposal would be a ``major rule,'' the
Commission solicits comment and data on:
The potential effect on the U.S. economy on an annual
basis;
Any potential increase in costs or prices for consumers or
individual industries; and
Any potential effect on competition, investment, or
innovation.
Commenters are requested to provide empirical data and other
factual support for their views to the extent possible, to inform OMB's
determination regarding whether any final rule following this proposal
is likely to be a ``major rule'' for the purposes of the Congressional
Review Act.
IX. Other Matters
OMB has determined that this action is not a significant regulatory
action under Executive Order 12866 and therefore it was not subject to
Executive Order 12866 review.
Statutory Authority
The Commission is proposing new rules and amendments to existing
rules governing registered transfer agents and transfer agent
registration and annual reporting forms under the Commission's
rulemaking authority in the Exchange Act, particularly Section 2, 15
U.S.C. 78b, Section 3, 15 U.S.C. 78c, Section 17, 15 U.S.C. 78q,
Section 17A, 15 U.S.C. 78q-1, and Section 23(a), 15 U.S.C. 78w(a).
List of Subjects in 17 CFR Parts 240 and 249b
Reporting and recordkeeping requirements, Securities.
Text of the Amendment
In accordance with the foregoing, title 17, chapter II of the Code
of Federal Regulations is proposed to be amended as follows:
PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934
0
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, 77z-3,
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f,
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4,
78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78dd, 78ll, 78mm,
80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, and 7201 et
seq., and 8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C.
1350; Pub. L. 111-203, 939A, 124 Stat. 1376 (2010); and Pub. L. 112-
106, sec. 503 and 602, 126 Stat. 326 (2012), unless otherwise noted.
* * * * *
0
2. Amend Sec. 240.17Ac2-1 in paragraphs (a) and (b) by removing the
word ``thirtieth'' and adding in its place ``forty-fifth''.
0
3. Amend Sec. 240.17Ac2-2 by revising the sectional numbering and
paragraph (a) to read as follows:
Sec. 240.17ac2-2 Annual reporting requirement for registered
transfer agents.
(a) Every transfer agent registered on December 31 must file a
report covering the reporting period on Form TA-2 (Sec. 249b.102 of
this chapter) by March 31 following the end of the reporting period.
Form TA-2 must be completed in accordance with the instructions
contained in the Form. If a transfer agent discovers that any of the
information reported on Form TA-2 was materially inaccurate,
misleading, or incomplete at the time of filing, the transfer agent
shall correct such information by filing an amendment to Form TA-2
pursuant to the instructions on the form within sixty days following
the date on which the transfer agent discovered that such information
was materially inaccurate, misleading, or incomplete. A transfer agent
may file an amendment at any time; however, in order to be timely
filed, all required portions of the form must be completed and filed in
accordance with this section and the instructions to the form by the
date the form is required to be filed with the Commission.
* * * * *
0
4. Amend Sec. 240.17Ad-1 by:
0
a. Revising the undesignated paragraph;
0
b. Revising the sectional numbering;
0
c. Revising paragraph (a)(1) and paragraph (g); and
0
d. In paragraph (i)(2), removing the word ``certificate'' and add in
its place the word ``security''.
The revisions read as follows:
Sec. 240.17ad-1 Definitions.
As used in this section and Sec. Sec. 240.17ad-2, 240.17ad-3,
240.17Ad-5, 240.17ad-6, 240.17ad-7, 240.17ad-9, 240.17ad-10, 240.17ad-
12, 240.17ad-30, and 240.17ad-31:
(a)
(1) The term item means:
(i) A certificate or certificates of the same issue of securities
covered by one ticket (or, if there is no ticket, presented by one
presentor) presented for transfer, or an instruction to a transfer
agent which holds securities registered in the name of the presentor to
transfer or to make available all or a portion of those securities;
(ii) Each line on a ``deposit shipment control list'' or a
``withdrawal shipment control list'' submitted by a registered clearing
agency;
(iii) In the case of an outside registrar, each certificate to be
countersigned;
(iv) a transfer instruction submitted to the transfer agent through
a deposit or withdrawal at custodian or functionally similar service
operated by a central securities depository; or
(v) any other transfer instruction submitted to the transfer agent,
or to an electronic system controlled, operated, or enabled by the
transfer agent, to be accomplished without the physical issuance of
certificates.
* * * * *
(g) The receipt of an item or a written inquiry or request occurs
on the business day when the item or written inquiry or request arrives
at any premises at which the transfer agent performs transfer agent
functions or, in
[[Page 57053]]
the case of an item or written inquiry or request submitted in
electronic form, the business day when the item or written inquiry or
request is received by the transfer agent. If an item or written
inquiry or request is received on a non-business day, receipt occurs on
the next business day.
* * * * *
0
5. Amend Sec. 240.17Ad-2 by revising the sectional numbering and
paragraphs (a), (b), (c), (d), (e), and (h) to read as follows:
Sec. 240.17ad-2 Turnaround, processing, and forwarding of items.
(a) Every registered transfer agent (except when acting as an
outside registrar) shall establish, maintain, and enforce written
policies and procedures reasonably designed to ensure that the transfer
agent turns around all routine items received for transfer within the
shorter of one business day or the time period specified by Rule 15c6-
1(a) under the Exchange Act.
(b) Every registered transfer agent acting as an outside registrar
shall establish, maintain, and enforce written policies and procedures
reasonably designed to ensure that the transfer agent processes all
items received:
(1) by the opening of business on the next business day, in the
case of items received at or before noon on a business day, and
(2) by noon of the next business day, in the case of items received
after noon on a business day. For the purposes of paragraphs (b) and
(d) of this section, ``items received'' shall not include any item
enumerated in Sec. 240.17Ad-1(i) (5), (6), (7), or (8) or any item
which is not accompanied by a debit or cancelled certificate. For the
purposes of this paragraph, items received on a day not a business day
shall be deemed to have been received before noon on the next business
day.
(c) Any registered transfer agent which fails to turn around more
than three (3) percent of routine items received within the time
specified in paragraph (a) of this section with respect to any month
shall, within ten business days following the end of such month, file
with the Commission and the transfer agent's appropriate regulatory
agency, if it is not the Commission, a written notice in accordance
with paragraph (h) of this section. Such notice shall state the number
of routine items and the number of non-routine items received for
transfer during the month, the number of routine items which the
registered transfer agent failed to turn around within the time
specified in paragraph (a) of this section, the percentage that such
routine items represent of all routine items received during the month,
the reasons for such failure, the steps which have been taken, are
being taken or will be taken to prevent a future failure and the number
of routine items, aged in increments of one business day, which as of
the close of business on the last business day of the month have been
in its possession for more than four business days and have not been
turned around.
(d) Any registered transfer agent which fails to process more than
three (3) percent of items received within the time specified in
paragraph (b) of this section with respect to any month shall, within
ten business days following the end of such month, file with the
Commission and the transfer agent's appropriate regulatory agency, if
it is not the Commission, a written notice in accordance with paragraph
(h) of this section. Such notice shall state the number of items
received for processing during the month, the number of items which the
registered transfer agent failed to process in accordance with the time
specified in paragraph (b) of this section, the percentage that such
items represent of all items received during the month, the reasons for
such failure and the steps which have been taken, are being taken or
will be taken to prevent a future failure and the number of items which
as of the close of business on the last business day of the month have
been in the transfer agent's possession for more than the time allowed
for processing and have not been processed.
(e)
(1) All routine items not turned around within the time specified
in paragraph (a) of this section and all items not processed within the
periods specified in paragraph (b) of this section shall be turned
around promptly, and all nonroutine items shall receive diligent and
continuous attention and shall be turned around as soon as possible.
(2) Within one business day of the day of receipt of any item that
is rejected by the transfer agent, every registered transfer agent
shall provide a written notification to the presentor identifying each
rejected item, the reasons for rejection, and the specific actions the
presentor must undertake for the item to be accepted by the transfer
agent and for processing or turnaround to be completed.
* * * * *
(h) Any notice required by this section or any report required by
Sec. 240.17ad-11 or Sec. 240.17ad-13, or any written agreement
required by Sec. 240.17ad-7(h), shall be filed as follows:
(1) Any information required to be filed with the Commission shall
be filed to the following dedicated email address,
[email protected].
(2) Any information required to be filed with the Office of the
Comptroller of the Currency shall be filed to the following dedicated
email address, [email protected].
(3) Any information required to be filed with the Board of
Governors of the Federal Reserve System shall be filed to the following
dedicated email address, [to be determined].
(4) Any information required to be filed with the Federal Deposit
Insurance Corporation shall be filed to the following dedicated email
address, [to be determined].
* * * * *
0
6. Amend Sec. 240.17Ad-3 by revising the sectional numbering and
paragraph (b) to read as follows:
Sec. 240.17ad-3 Limitations on expansion.
* * * * *
(b) Any registered transfer agent which for each of two consecutive
months fails to turn around at least 95% of all routine items within
the time specified in Sec. 240.17ad-2(a) or to process at least 95% of
all items within the time specified in Sec. 240.17ad-2(b) shall be
subject to the limitations imposed by paragraph (a) of this section and
further shall, within twenty business days after the close of the
second such month, send to the chief executive officer of each issuer
for which such registered transfer agent acts a copy of the written
notice filed pursuant to Sec. 240.17ad-2 (c) or (d) with respect to
the second such month.
* * * * *
0
7. Revise the sectional numbering and remove and reserve Sec.
240.17Ad-4 as follows:
Sec. 240.17ad-4 [Reserved].
* * * * *
0
8. Revise the sectional numbering and Sec. 240.17Ad-6 as follows:
Sec. 240.17ad-6 Recordkeeping.
(a) Every registered transfer agent shall make and keep current the
following:
(1) Records sufficient to show the business day each routine item
and each non-routine item is (i) received by the transfer agent, (ii)
made available or turned around, and (iii) if applicable, rejected by
the transfer agent;
(2) Records sufficient to show for each month:
(i) The number of routine items received;
[[Page 57054]]
(ii) The number of routine items received during the month that
were turned around within the shorter of one business day or the time
period specified by Rule 15c6-1(a);
(iii) The number of routine items received during the month that
were not turned around within the shorter of one business day or the
time period specified by Rule 15c6-1(a);
(iv) The number of non-routine items received during the month;
(v) The number of non-routine items received during the month that
were turned around within the following time periods: within five
business days, within six to 10 business days, within 11 to 15 business
days, within 16 to 20 business days, and in more than 20 business days;
(vi) Reserved.
(vii) The number of non-routine items in such registered transfer
agent's possession as of the close of business on the last business day
of each month;
(viii) The number of items received during the month that were
rejected by the transfer agent; and
(ix) The number of items received during the month that were
rejected by the transfer agent for which written notification to the
presentor was provided within one business day of receipt as required
by Rule 17ad-2(c).
(3) With respect to items for which the registered transfer agent
acts as an outside registrar:
(i) Records sufficient to show the date and time:
(A) Each item is (1) received from the presenting transfer agent
and (2) made available to the presenting transfer agent;
(B) Each written or oral notice of refusal to perform the registrar
function is made available to the presenting transfer agent (and the
substance of the notice); and
(ii) Records sufficient to show for each month:
(A) The number of items received;
(B) The number of items processed within the time specified in
Sec. 240.17ad-2(b); and
(C) The number of items not processed within the time specified in
Sec. 240.17ad-2(b);
(4) A record of calculations demonstrating the registered transfer
agent's monitoring of its performance under Sec. 240.17ad-2 (a) and
(b);
(5) A copy of any written notice filed pursuant to Sec. 240.17ad-
2;
(6) Any written inquiry or request, including those not subject to
the requirements of Sec. 240.17Ad-5, concerning an item, showing the
date received; a copy of any written response to an inquiry or request,
showing the date dispatched or mailed to the presentor; if no response
to an inquiry or request was made, the date the certificate involved
was made available to the presentor; or, in the case of an inquiry or
request under Sec. 240.17Ad-5(a) responded to by telephone, a
telephone log or memorandum showing the date and substance of any
telephone response to the inquiry;
(7) A log, journal, schedule or other record showing the number of
inquiries subject to Sec. 240.17Ad-5 (a), (b), (c) and (d) received
during each month but not responded to within the required time frames
and the number of such inquiries pending as of the close of business on
the last business day of each month;
(8) Records, including but not limited to documents, resolutions,
contracts, appointments, or other writings, and any supporting
documents, concerning the appointment and the termination of such
appointment of such registered transfer agent to act in any capacity
for any issue on behalf of the issuer, on behalf of itself as the
issuer or on behalf of any person who was engaged by the issuer to act
on behalf of the issuer;
(9) Any record of an active (i.e., unreleased) stop order, notice
of adverse claim or any other restriction on transfer;
(10) A transfer journal (or registrar journal if the transfer agent
acts as an outside registrar), and a control book and master
securityholder file (if the transfer agent is a recordkeeping transfer
agent) for each securities issue for which the transfer agent is
authorized to act on behalf of the issuer, including all records,
documents, and information that compose such control book, transfer
journal (or registrar journal), and master securityholder file; and
(11) Any records, documents, or other information upon which the
transfer agent bases its determination that an item received for
transfer was not routine, including any records, documents, or other
information upon which the transfer agent bases its determination that
an item was received in connection with a reorganization, tender offer,
exchange, redemption, liquidation, conversion or the sale of securities
registered pursuant to the Securities Act of 1933 and, accordingly, was
not routine under Sec. 240.17ad-1(i) (5) or (8).
(b) Every registered transfer agent which, under the terms of its
agency, maintains securityholder records for an issue or which acts as
a registrar for an issue shall, with respect to such issue, obtain from
the issuer or its transfer agent and retain documentation setting forth
the authorized securities for that issue and the total securities for
that issue that are issued and outstanding pursuant to issuer
authorization.
(c) Every registered transfer agent which, under the terms of its
agency, maintains securityholder records for an issue shall, with
respect to such issue, retain each cancelled registered bond,
debenture, share, warrant or right, other registered evidence of
indebtedness, or other certificate of ownership and all accompanying
documentation, except legal papers returned to the presentor.
* * * * *
0
9. Revise the sectional numbering and Sec. 240.17Ad-7 as follows:
Sec. 240.17ad-7 Record retention.
(a) Unless otherwise specified in this section, all records
required to be made or kept under this Title, shall be maintained for a
period of not less than six years, the first two years in an easily
accessible place.
(b) Reserved.
(c) The records required by Sec. 240.17ad-6(a) (8), (9) and (10)
and (b) shall be maintained in an easily accessible place during the
continuance of the transfer agency and shall be maintained for one year
after termination of the transfer agency.
(d) Reserved.
(e) Every registered transfer agent shall maintain in an easily
accessible place:
(1) All records required under Sec. 240.17f-2(d) until at least
three years after the termination of employment of those persons
required by Sec. 240.17f-2 to be fingerprinted; and
(2) All records required pursuant to Sec. 240.17f-2(e).
(f) Subject to the conditions set forth in this section, the
records required to be maintained pursuant to Sec. 240.17ad-6, may be
maintained, retained, or preserved using an electronic recordkeeping
system for the time required by Sec. 240.17ad-7. Records stored
electronically in accordance with this paragraph may serve as a
substitute for hard copy records.
(1) For purposes of this section:
(i) The term electronic recordkeeping system means a system
designed to maintain, retain, or preserve records in a digital format.
(ii) Reserved.
(iii) Reserved.
(2) A registered transfer agent using an electronic recordkeeping
system must:
(i) Implement reasonable controls to ensure the integrity,
accessibility, reproducibility, redundancy, and continuity of records
maintained, retained, or preserved using the electronic recordkeeping
system, including, but not limited to, controls that:
[[Page 57055]]
(A) protect records from unauthorized changes or destruction,
including safeguards to detect and prevent unauthorized alteration or
loss of records;
(B) provide indexing and retrieval capabilities sufficient to allow
immediate production of documents in both a human-readable format and
in a reasonably usable electronic format;
(C) create an audit trail that tracks access, modification, and
deletion of records, including the identity of the user and the date
and time of the action or attempted actions, that is maintained,
retained, and preserved using the same controls and for the same time
period required by this section for the underlying records; and
(D) provide means to recover altered, damaged, or lost records
resulting from any cause.
(g) A registered transfer agent, with respect to any record
required to be maintained, retained, or preserved under this section or
otherwise subject to examination under section 17(b) of the Exchange
Act, must provide promptly upon demand from representatives of the
Commission or the transfer agent's appropriate regulatory agency a
legible, true, complete, and current copy of such record in a
reasonably usable electronic format.
(h)
(1) Unless it has and maintains at all times independent access to
such records, a registered transfer agent that uses a third party,
including but not limited to an outside service bureau, another
registered transfer agent, or the issuer, to maintain, retain, or
preserve some or all of the records required to be maintained,
retained, or preserved under this chapter, including by using an
electronic recordkeeping system or by using servers or other storage
mechanisms that are owned or operated by the third party, must obtain
from such third party and file with the Commission and its appropriate
regulatory agency, if not the Commission, a legally binding written
agreement signed by a duly authorized person of the third party stating
that:
``With respect to any records maintained, retained, or preserved on
behalf of [Name of Transfer Agent], [Name of Third Party] hereby
acknowledges that such records are subject at any time, to examination
by representatives of the Commission or the appropriate regulatory
agency for such registered transfer agent if it is not the Commission.
Promptly upon request of representatives of the Commission or the
appropriate regulatory agency, [Name of Third Party] will permit
examination of such records during regular business hours and will
furnish to the Commission or appropriate regulatory agency legible,
true, complete, and current copies of any records so requested.''
(2) A registered transfer agent that uses a third party to
maintain, retain, or preserve some or all of the records required to be
maintained, retained, or preserved under this chapter, has independent
access to such records if it can regularly access the records without
the need of any intervention by the third party and through such access
is able to:
(i) Permit examination of the records at any time by
representatives of the Commission or its appropriate regulatory agency;
and
(ii) Promptly furnish to the Commission or its appropriate
regulatory agency a legible, true, complete, and current copy of such
records.
(3) Agreement with a third party to maintain, retain, or preserve
records shall not relieve a registered transfer agent from the
responsibility to maintain, retain, or preserve records as required
under this chapter.
(i) Within fifteen (15) calendar days of ceasing to perform
transfer agent functions for an issue, a registered transfer agent must
deliver, provide, or otherwise make available to the issuer or the
issuer's designee all records required to be made and kept current
under Sec. 240.17ad-6(a) (1), (6), (9), (10) and (11), (b) and (c)
related to that issue. When a registered transfer agent ceases to
perform transfer agent functions for an issue, the responsibility of
such transfer agent under Sec. 240.17ad-7 to retain the records
required to be made and kept current under Sec. 240.17ad-6(a)(1), (6),
(9), (10) and (11), (b) and (c) shall end upon the delivery of such
records to the issuer or the issuer's designee, such as a successor
transfer agent.
(j) Reserved.
(k) Every registered transfer agent shall maintain in an easily
accessible place:
(1) The written policies and procedures required to be adopted and
implemented pursuant to Sec. 248.30(a)(1) of this chapter for no less
than three years after the termination of the use of the policies and
procedures;
(2) The written documentation of any detected unauthorized access
to or use of customer information, as well as any response to, and
recovery from such unauthorized access to or use of customer
information required by Sec. 248.30(a)(3) of this chapter for no less
than three years from the date when the records were made;
(3) The written documentation of any investigation and
determination made regarding whether notification is required pursuant
to Sec. 248.30(a)(4) of this chapter, including the basis for any
determination made, any written documentation from the United States
Attorney General related to a delay in notice, as well as a copy of any
notice transmitted following such determination, for no less than three
years from the date when the records were made;
(4) The written policies and procedures required to be adopted and
implemented pursuant to Sec. 248.30(a)(5)(i) of this chapter until
three years after the termination of the use of the policies and
procedures;
(5) The written documentation of any contract or agreement entered
into pursuant to Sec. 248.30(a)(5) of this chapter until three years
after the termination of such contract or agreement; and
(6) The written policies and procedures required to be adopted and
implemented pursuant to Sec. 248.30(b)(2) of this chapter for no less
than three years after the termination of the use of the policies and
procedures.
* * * * *
0
10. Amend Sec. 240.17Ad-9 by:
0
a. Revising the sectional numbering;
0
b. Revising introductory undesignated paragraph;
0
c. Revising paragraphs (a), (b), (d), (g), and (h);
0
d. In paragraphs (e) and (f), removing the word ``certificate'' and
adding in its place the word ``position''; and
0
e. Adding new paragraphs (m), (n), and (o).
The revisions and additions read as follows:
Sec. 240.17ad-9 Definitions.
As used in this section and Sec. Sec. 240.17ad-10, 240.17ad-11,
240.17ad-12 and 240.17ad-13:
(a) Position detail includes, at a minimum, all of the following:
(1) The certificate number for certificated securities and, for all
securities, an applicable unique identifier for the security;
(2) The number of shares for equity securities or the principal
dollar amount for debt securities;
(3) The securityholder's full name and any other relevant
identifying, titling, or formatting information necessary to accurately
identify the specific securityholder to the exclusion of other
securityholders;
(4) Contact information for the registered securityholder
sufficient to enable the transfer agent to effectively deliver
securityholder communications, dividends and other payments, legal
[[Page 57056]]
notices, and other communications, including at a minimum a physical
mailing address;
(5) The issue date of the security;
(6) The cancellation date of the security;
(7) In the case of redeemable securities of investment companies,
an appropriate description of each debit and credit (i.e., designation
indicating purchase, redemption, or transfer); and
(8) Any other identifying information about securities and
securityholders the transfer agent reasonably deems necessary to its
recordkeeping, operations, or for the efficient and effective research
of record differences.
(b) Master securityholder file is the official list of individual
securityholder accounts maintained by a registered transfer agent. The
master securityholder file shall be maintained in electronic form and
may consist of multiple linked files or systems. The specific
technology, systems, or files that compose the master securityholder
file are within the transfer agent's discretion, provided the transfer
agent maintains at all times exclusive control over the master
securityholder file.
* * * * *
(d) A control book is the record or other document that shows the
total number of shares (in the case of equity securities) or the
principal dollar amount (in the case of debt securities) of an issuer's
authorized, issued, and outstanding securities.
* * * * *
(g) A record difference occurs when:
(1) The total number of shares or total principal dollar amount of
securities in the master securityholder file does not equal the number
of shares or principal dollar amount in the control book;
(2) The security transferred or redeemed contains position detail
different from the position detail currently on the master
securityholder file, which difference cannot be immediately resolved;
or
(3) Position detail in the master securityholder file is
inconsistent with the history of transactions in the transfer journal.
(h) A recordkeeping transfer agent is the registered transfer agent
that maintains and updates the master securityholder file for an issue
of securities. There can be only one recordkeeping transfer agent for a
given issue of securities.
* * * * *
(m) The term authorized securities means the maximum number of
shares of equity securities or principal amount of debt securities or
number of units if relating to any other type of security that can be
issued by an issuer as authorized in the issuer's certificate of
incorporation, charter, bond indenture, or similar governing document.
(n) A transfer journal is a record of all issuances, cancellations,
transfers, distributions of cash or securities, additions and
cancellations of position detail, and other information necessary to
enable the transfer agent to track and document changes in security
ownership, the movement of securities, and other changes,
(o) Presentor means the registered securityholder, the entitlement
holder, and their authorized agents.
* * * * *
0
11. Amend Sec. 240.17Ad-10 by:
0
a. Revising the sectional numbering;
0
b. In the section heading, removing the word ``certificate'' and adding
in its place the word ``position'' and removing the words ``physical
over-issuance'' and adding in their place the word ``overissuance'';
0
c. In paragraphs (a)(1), (a)(3), (f), and (h), removing the word
``certificate'' and adding in its place the word ``position'';
0
d. Revising paragraph (a)(2);
0
e. Revising paragraph (c)(1);
0
f. In paragraph (c)(2), removing the word ``mail'' and adding in its
place the word ``provide'';
0
g. Revising paragraph (d);
0
h. Revising paragraph (f);
0
i. Revising paragraph (g);
0
j. Adding new paragraph (i).
The revisions and additions read as follows:
Sec. 240.17ad-10 Prompt posting of position detail to master
securityholder files, maintenance of accurate securityholder files,
communications between co-transfer agents and recordkeeping transfer
agents, maintenance of current control book, retention of position
detail and ``buy-in'' of overissuance.
(a) * * *
(2) As used in this paragraph, the term promptly means the
following number of days after issuance, purchase, transfer, or
redemption of a security:
(i) The shorter of one business day or the time period specified by
Rule 15c6-1(a) under the Exchange Act, provided, however, that all
securities transferred, purchased, redeemed or issued prior to record
date, but posted subsequent thereto, shall be posted as of the record
date.
* * * * *
(c)
(1) Within one business day following transfer of each security,
every co-transfer agent shall provide to the recordkeeping transfer
agent a record of debits and credits for every security transferred or
issued.
* * * * *
(d) Every co-transfer agent shall respond within one business day
of receipt to all inquiries from the recordkeeping transfer agent
regarding records required to be provided by the co-transfer agent
pursuant to Sec. 240.17ad-10(c).
* * * * *
(f) Every recordkeeping transfer agent shall retain a record of all
position detail deleted from the master securityholder file for a
period of six years from the date of deletion.
(g)
(1) A registered transfer agent, in the event of any actual
overissuance that such transfer agent caused and of which it has
knowledge, shall, within 60 days of the discovery of such overissuance,
buy in securities equal to the number of shares in the case of equity
securities or the principal dollar amount in the case of debt
securities. During the sixty-day period, the registered transfer agent
shall devote diligent attention to resolving the overissuance and
recovering the securities. This paragraph requires a buy-in only by the
transfer agent that erroneously issued the securities giving rise to
the overissuance, and applies only to those overissuances created by
transfers or issuances subsequent to September 30, 1983.
(2) If a transfer agent obtains a letter from the party holding the
overissued securities that confirms that the overissued securities will
be returned to the transfer agent not later than thirty days after the
expiration of the sixty-day period, the transfer agent need not buy in
securities by the sixtieth day. If, however, the securities are not
returned to the transfer agent within the additional thirty-day period,
the transfer agent immediately must execute the buy-in in accordance
with paragraph (g)(1) of this section.
(3) If the securities involved are covered by a surety bond
indemnifying the transfer agent for all expenses incurred as a result
of actual overissuance, the transfer agent need not buy in the
securities. The transfer agent, however, shall devote diligent
attention to resolving the overissuance and recovering the securities.
(4) For purposes of this paragraph, discovery of the overissuance
occurs when the transfer agent identifies the erroneously issued
securities and the registered securityholder(s).
* * * * *
(i) For purposes of this section, the term ``overissuance'' shall
mean an out-of-balance condition wherein the securities issued and
outstanding exceed the securities authorized and
[[Page 57057]]
outstanding, as reflected in the transfer agent's control book.
* * * * *
0
12. Amend Sec. 240.17Ad-11 sectional heading to read as follows:
Sec. 240.17ad-11 Reports regarding aged record differences, buy-ins
and failure to post position detail to master securityholder and
subsidiary files.
* * * * *
0
13. Revise the sectional numbering and Sec. 240.17Ad-12 to read as
follows:
Sec. 240.17ad-12 Comprehensive risk management.
(a) Every registered transfer agent shall establish, maintain, and
enforce written policies and procedures reasonably designed to:
(1) Ensure that all securities and funds in the transfer agent's
possession, control, or custody are protected at all times against the
risk of theft, loss, misappropriation, misuse, damage, destruction, and
improper or unauthorized access; and
(2) Identify, measure, monitor, and mitigate any material custody,
operational, cybersecurity, and other risks posed by or associated with
the transfer agent's business, activities, and operations.
(b) All issuer, securityholder, and other third-party funds held by
a registered transfer agent shall be maintained in a bank account
designated as a ``for the benefit of'' account which shall be separate
from any other bank account of the registered transfer agent.
(c) Every registered transfer agent shall establish, maintain, and
enforce a written business continuity plan that (i) identifies and
addresses events that pose a significant risk of disrupting the
transfer agent's operations; (ii) ensures the timely recovery of the
transfer agent's records; (iii) enables the timely resumption of the
transfer agent's operations and fulfillment of its responsibilities and
obligations; and (iv) is tested, reviewed, and updated no less
frequently than annually.
* * * * *
0
14. Amend Section 240.17Ad-13 by:
0
(a) Revising the sectional numbering and
0
(b) Removing and reserving paragraph (d)(2).
The revisions read as follows:
Sec. 240.17ad-13 Annual study and evaluation of internal accounting
control.
(d) * * *
(2) Reserved.
* * * * *
0
15. Amend Section 240.17Ad-17 by:
0
(a) Revising the sectional numbering and section heading;
0
(b) Adding paragraph (a)(3);
0
(c) Redesignating existing paragraph (a)(3) as (a)(4) and revising the
paragraph;
0
(d) Revising paragraph (b)(2);
0
(e) Adding paragraph (b)(3);
0
(f) Revising paragraph (c)(1);
0
(g) Revising paragraph (c)(2);
0
(h) Revising paragraph (c)(3); and
0
(i) Revising paragraph (d).
The revisions and additions read as follows:
Sec. 240.17ad-17 Lost securityholders, inactive securityholders, and
unresponsive payees.
(a) * * *
(3) Every recordkeeping transfer agent whose master securityholder
file includes accounts of inactive securityholders and every broker or
dealer that has customer security accounts that include accounts of
inactive securityholders shall exercise reasonable care to notify such
securityholders. In exercising reasonable care to notify such
securityholders, each such recordkeeping transfer agent and broker or
dealer shall provide not less than two written notifications to each
inactive securityholder stating that such inactive securityholder has
not been active in its account. The notifications should further state
that some jurisdictions may consider inactive accounts to be unclaimed
or abandoned property subject to escheatment and describe the steps a
securityholder may take to show activity in the account. Such
notifications must be provided no later than six (6) months after the
securityholder became an inactive securityholder and no later than six
(6) months after providing the first notification. Such notifications
need not be provided if the securityholder ceases to be an inactive
securityholder prior to the notifications being provided. Such
notifications may be sent by any method reasonably expected to reach
the inactive securityholder.
(4) A transfer agent, broker, or dealer need not conduct the
searches set forth in paragraph (a)(1) of this section for a lost
securityholder or provide the written notifications to an inactive
securityholder as set forth in paragraph (a)(3) of this section if:
* * * * *
(b) * * *
(2) Lost securityholder means a securityholder:
(i) To whom an item of correspondence that was sent to the
securityholder has been returned as undeliverable; provided, however,
that if such item is re-sent within one month to the lost
securityholder, the transfer agent, broker, or dealer may deem the
securityholder to be a lost securityholder as of the day the resent
item is returned as undeliverable; and
(ii) For whom the transfer agent, broker, or dealer has not
received information regarding the securityholder's new address.
(3) Inactive securityholder means a securityholder for whom the
transfer agent, broker, or dealer has not observed any account activity
for a period of 18 months. The term ``account activity'' by a
securityholder includes any of the following actions regarding its
account: electronically accessing the account, including account login
or email access; any electronic communication with the transfer agent,
broker, or dealer regarding the account; conducting a transaction in
the account where the assets are held, including deposits or
withdrawals of funds; indication of receipt of communications (such as
read receipts); or any other affirmative indication or action that
reasonably demonstrates that the securityholder is reachable and
engaged with its account.
(c)
(1) The paying agent, as defined in paragraph (c)(2) of this
section, shall provide not less than one written notification to each
unresponsive payee, as defined in paragraph (c)(3) of this section,
stating that such unresponsive payee has been sent a check that has not
yet been negotiated or an electronic payment that was rejected and
returned as undeliverable. Such notification may be sent with a check
or other mailing subsequently sent to the unresponsive payee but must
be provided no later than seven (7) months (or 210 days) after the
sending of the not yet negotiated check or the rejected electronic
payment. The paying agent shall not be required to send a written
notice to an unresponsive payee if such unresponsive payee would be
considered a lost securityholder by a transfer agent, broker, or
dealer.
(2) The term paying agent shall include any issuer, transfer agent,
broker, dealer, investment adviser, indenture trustee, custodian, or
any other person that accepts payments from the issuer of a security
and distributes the payments to the holders of the security.
(3) A securityholder shall be considered an unresponsive payee if a
check is sent to the securityholder by the paying agent and the check
is not negotiated before the earlier of the paying agent's sending the
next regularly scheduled check, or the elapsing of six (6) months (or
180 days) after the sending of the not yet negotiated check, or if an
electronic
[[Page 57058]]
payment sent to the securityholder by the paying agent is rejected and
returned as undeliverable to the paying agent. A securityholder shall
no longer be considered an unresponsive payee when the securityholder
negotiates the check or checks that caused the securityholder to be
considered an unresponsive payee or provides updated electronic payment
instructions that result in a successful electronic transfer of funds.
* * * * *
(d) Every recordkeeping transfer agent, every broker or dealer that
has customer security accounts, and every paying agent shall maintain
records to demonstrate compliance with the requirements set forth in
this section, which records shall include written procedures that
describe the transfer agent's, broker's, dealer's, or paying agent's
methodology for complying with this section, and shall retain such
records in accordance with Rule 17ad-7(a) (Sec. 240.17ad-7(a)).
* * * * *
0
16. Section 240.17ad-30 is added to read as follows:
Sec. 240.17ad-30 Compliance.
(a) Every registered transfer agent shall establish, maintain, and
enforce written policies and procedures reasonably designed to:
(1) Achieve compliance with the federal securities laws and the
rules and regulations thereunder applicable to the transfer agent; and
(2) Identify and remediate in a timely manner instances of non-
compliance with the policies and procedures established under paragraph
(a)(1) of this section.
(b) The policies and procedures established pursuant to paragraph
(a) of this section shall be reviewed and approved by the transfer
agent's board of directors or similar governing body no less frequently
than annually or following material changes to either the transfer
agent's operations or the federal securities laws and rules and
regulations described in paragraph (a)(1) of this section.
0
17. Section 240.17ad-31 is added to read as follows:
Sec. 240.17ad-31 Restrictive legends.
(a) With respect to each issue of securities it services on behalf
of an issuer, every registered transfer agent shall:
(1) Obtain from the issuer and maintain a current list of issuer
employees on whose instructions the transfer agent is authorized to act
regarding the placement and removal of restrictive legends; and
(2) Refrain from acting on instructions from any person not
included on the list required pursuant to paragraph (a)(1) of this
section.
(b) Every registered transfer agent shall refrain from facilitating
any unregistered securities transaction, including but not limited to
processing or recording (i) an original issuance of securities not
registered pursuant to the Securities Act of 1933, (ii) a request to
remove a restrictive legend or stop order on any security, or (iii) a
purchase, sale, or transfer of a security by an affiliate, officer, or
director of the issuer of the security, unless the transfer agent has a
reasonable basis to believe that the transaction does not violate, or
is not part of a chain of transactions that would violate, Section 5(a)
of the Securities Act of 1933.
(c) Non-exclusive safe harbor. A registered transfer agent may
develop the reasonable basis required under paragraph (b) of this
section if it:
(1) is not aware of circumstances indicating that the transaction
may violate, or is part of a chain of transactions that may violate,
Section 5(a) of the Securities Act of 1933; and
(2) obtains and reviews an opinion of counsel who is not an
affiliate, officer, director, or employee of either the issuer or the
individual or entity seeking to resell shares of the issuer that:
(i) identifies the documents and information the counsel reviewed
and relied upon in providing the analysis required under paragraph
(c)(1)(iii) of this section; and
(ii) analyzes the applicability and validity of a specific
exemption from registration and, based on that analysis, opines that
the specific transaction at issue may be conducted pursuant to the
specific exemption from registration so identified; or
(3) otherwise determines that the transaction may be conducted
pursuant to a specific exemption from registration and is not aware of
circumstances indicating that the transaction may violate, or is part
of a chain of transactions that may violate, Section 5(a) of the
Securities Act of 1933.
(d) Any determination under paragraph (c)(3) of this section shall
be supported by written documentation, reviewed and approved by
management of the transfer agent, that:
(1) identifies the specific exemption from registration pursuant to
which the relevant transaction may be conducted;
(2) identifies the documents and information the transfer agent
reviewed and relied upon in making the determination under paragraph
(c)(2) of this section; and
(3) identifies and analyzes the specific facts, including the
documents and information that establish and support such facts, that
support the transfer agent's determination under paragraph (c)(3) of
this section.
PART 249b--FURTHER FORMS, SECURITIES EXCHANGE ACT OF 1934
0
18. The general authority citation for part 249b continues to read as
follows:
Authority: 15 U.S.C. 78a et seq., unless otherwise noted;
* * * * *
0
19. Revise Form TA-1 (referenced in Sec. 249b.100).
Note: Form TA-1 is attached as Appendix A to this document.
Form TA-1 will not appear in the Code of Federal Regulations.
0
20. Revise Form TA-2 (referenced in Sec. 249b.102).
Note: Form TA-2 is attached as Appendix B to this document.
Form TA-2 will not appear in the Code of Federal Regulations.
By the Commission.
Dated: September 1, 2026.
Vanessa A. Countryman,
Secretary.
Note: The following appendices will not appear in the Code of
Federal Regulations.
Appendix A--Form TA-1
Form TA-1
* * * * *
The individual listed as the contact person in Question 1(f)
must be authorized to receive all compliance communications for the
registrant and have responsibility for disseminating them as
appropriate within the registrant's organization.
1(f)(i). Contact Name:-------------------------------------------------
1(f)(ii). Contact Phone Number:----------------------------------------
1(f)(iii). Contact Email Address:--------------------------------------
* * * * *
3(f). Website Address:-------------------------------------------------
* * * * *
6(a). Is registrant registered with the Securities and Exchange
Commission in any other capacity?
[ballot] Yes [ballot] No
If yes, provide registration type and SEC file number: __________
6(b). Does registrant have any other federal, state, or foreign
registrations?
[ballot] Yes [ballot] No
If yes, provide the following information:
Name of Agency Issuing Registration (in English): __________
Registration Number, if any:-------------------------------------------
Provide the jurisdiction (check the appropriate box and provide the
name of the jurisdiction):
[ballot] US Federal----------------------------------------------------
[ballot] US State or other US Jurisdiction __________
[[Page 57059]]
[ballot] Foreign Country Name (in English) __________
7. Does registrant have any control affiliates, as defined in
Question 10?
[ballot] Yes [ballot] No
If yes, provide the names of all such affiliates and any applicable
registrations in Schedule A.
8. Completion of Question 8 on this form is required by all
independent, non-issuer registrants whose appropriate regulatory
authority is the Securities and Exchange Commission. Those
registrants who are not required to complete Question 8 should
select ``Not Applicable.''
Is registrant a:
[ballot] Corporation
[ballot] Partnership
[ballot] Sole Proprietorship
[ballot] Limited Liability Company
[ballot] Trust
[ballot] Other---------------------------------------------------------
[ballot] Not Applicable
Section for Initial Registration and for Amendments Reporting
Owners, Executive Officers, or Other Control Persons
* * * * *
10. Applicant and Control Affiliate Disciplinary History:
The following definitions apply for purposes of answering this
Question 10.
Control Affiliate--An individual or firm that directly or
indirectly controls, is under common control with, or is controlled
by applicant. Included are any employees identified in 8(a) of this
form as exercising control. Excluded are any employees who perform
solely clerical, administrative support or similar functions, or
who, regardless of title, perform no executive duties or have no
senior policy making authority.
* * * * *
Signature: Pursuant to Section 17(b) of the Securities Exchange Act
of 1934, all records of registered transfer agents are subject to
examination by SEC staff. If a registered transfer agent does not
comply with Section 17(b), the Commission may seek all available
relief against that transfer agent in district court and/or an
administrative proceeding. Such relief includes, but is not limited
to, an injunction, denial, suspension, and/or revocation of
registration, and civil penalties. The registrant submitting this
Form, and the person signing the Form, acknowledge that they
understand and will comply with the requirement to make records
available for examination. If, at any point, the firm believes it is
unable to comply with its obligations to provide its records to SEC
staff for examination, the firm should consider whether it needs to
withdraw from registration. The registrant submitting this form, and
as required Schedule A, and the executing official hereby represent
that all information contained herein is true, correct, and
complete.
11(a). Signature of Official Responsible for Form: __________
11(b). Telephone Number:-----------------------------------------------
11(c). Title of Signing Officer: _____
11(d). Date Signed (Month/Day/Year): __________
12. Related Documents/Attachments
12(a). File Name:------------------------------------------------------
12(b). Type of Attachment:
[ballot] Cover
[ballot] Correspondence
[ballot] Graphic
[ballot] Organizational Diagram
* * * * *
Form TA-1--Schedule A
Control Affiliates of the Registrant
Provide the name of any control affiliate of the registrant, and any
federal, state, or foreign registration of such affiliate and the
registration number. A separate response is required for each
affiliate.
Name of affiliate:-----------------------------------------------------
Does the affiliate have an applicable federal, state, or foreign
registration?
[ballot] Yes [ballot] No
If yes, provide the following information:
Name of Agency Issuing Registration (in English): __________
Registration Number, if any: _____
Provide the jurisdiction (check the appropriate box and provide the
name of the jurisdiction):
[ballot] US Federal----------------------------------------------------
[ballot] US State or other US Jurisdiction __________
[ballot] Foreign Country Name (in English) __________
* * * * *
Instructions for Use of Form TA-1
* * * * *
B. Who Must File. Pursuant to Section 17A(c)(1) of the Act, it
is unlawful for a transfer agent to perform any transfer agent
function with respect to any qualifying security unless that
transfer agent is registered with its ARA. A qualifying security is
any security registered under Section 12 of the Act. Thus,
qualifying securities include securities registered on a national
securities exchange pursuant to Section 12(b) of the Act as well as
equity securities registered pursuant to Section 12(g)(1) of the
Act. In addition, qualifying securities include equity securities of
registered investment companies and certain insurance companies that
would be required to be registered under Section 12(g) except for
the exemptions provided by paragraphs (g)(2)(B) and (g)(2)(G),
respectively, of Section 12, i.e., when the asset and shareholder
criteria of Section 12(g)(1)(B) are met.
* * * * *
II. Special Instructions for Filing and Amending Form TA-1
* * * * *
C. Registration. Registrants must provide full and complete
responses in the appropriate format.
1. Information relating to electronic filing. As an EDGAR filer,
a registrant is required to provide the following:
a. Whether the form is a ``live'' or ``test'' filing submission;
b. Whether the registrant would like a Return Copy of the
filing;
c. the registrant's Central Index Key (``CIK'');
d. the registrant's CIK Confirmation Code (``CCC'');
e. the contact email address for the registrant. The contact
provided in response to Question 1(f) must be an individual
authorized to receive all compliance communications for the
registrant with responsibility to disseminate them as appropriate
within the registrant's organization; and
f. the notification email address(es) for the registrant
regarding the status of the submission.
Detailed instructions regarding the above are provided in the
EDGAR Filer Manual, Volume I (General Requirements). A registrant
that is granted a continuing hardship exemption from electronic
filing pursuant to Rule 202 of Regulation S-T, 17 CFR 232.202, need
only to provide its CIK.
2. In answering Question 3.a. of Form TA-1, Full Name of
Registrant, provide the complete and accurate legal name of the
entity that is registering as a transfer agent.
3. In answering Question 3.b. of Form TA-1, the term Financial
Industry Number Standard (FINS number) means a six digit number
assigned by The Depository Trust Company (DTC) upon request to
financial institutions engaged in activities involving securities.
Registrants that do not have a FINS number may obtain one by
requesting it following the steps described on the DTC website
(www.dtcc.com).
4. State in Question 3.c. the full address of the registrant's
principal office where transfer agent activities are, or will be,
performed; a post office box number is not acceptable. State in
response to Question 3.d. the registrant's mailing address if
different from the response to Question 3.c. You may provide a post
office box number in response to Question 3.d.
5. For the purpose of answering Question 5, a transfer agent is
an affiliate of, or affiliated with, a person, if the transfer agent
directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, that
person.
D. Questions 8 through 10. Only independent, non-issuer
registrants are required to complete Questions 8 though 10.
Registrants must provide the full names of the following owners,
executive officers, or other control persons in response to Question
8(a):
Each Chief Executive Officer, Chief Financial Officer,
Chief Operations Officer, Chief Legal Officer, Chief Compliance
Officer, director, and any other individuals with similar status or
functions.
If the registrant is organized as a corporation, each
shareholder that is a direct or indirect beneficial owner of 5% or
more of a class of the registrant's equity securities.
If the registrant is organized as a partnership, all
general partners and each limited and special partner that have
contributed, 5% or more of the registrant's capital.
In the case of a trust, (i) a person that directly owns
5% or more of a class of the
[[Page 57060]]
registrant's voting securities, or that has the right to receive
upon dissolution, or has contributed, 5% or more of the registrant's
capital, (ii) the trust, and (iii) each trustee.
If the transfer agent is organized as a limited
liability company (``LLC''), (i) each member that has the right to
receive upon dissolution, or has contributed, 5% or more of the
registrant's capital, and (ii) if managed by elected managers, all
elected managers.
For purposes of Form TA-1, the term ``person'' would be defined
as an individual, partnership, corporation, trust, or other
organization, while the term ``control'' would be defined as the
power to direct, or cause the direction of, the management or
policies of a person, whether through ownership, by contract, or
otherwise. Any person that is a director, partner, or officer
exercising executive responsibility (or having similar status or
functions) or that directly or indirectly has the right to vote 25%
or more of the voting securities or is entitled to 25% or more of
the profits is presumed to be a control person.
* * * * *
Appendix B--Form TA-2
Form TA-2
* * * * *
The individual listed as the contact person in Question 1(f)
must be authorized to receive all compliance communications for the
registrant and have responsibility for disseminating them as
appropriate within the registrant's organization.
1(f)(i). Contact Name:-------------------------------------------------
1(f)(ii). Contact Phone Number:----------------------------------------
1(f)(iii). Contact Email Address:--------------------------------------
* * * * *
4(c). Total number of individual securityholder accounts, by
security type, as of December 31:
------------------------------------------------------------------------
Total number of individual
Security type securityholder accounts (as of
December 31)
------------------------------------------------------------------------
Corporate Equity Securities (market cap
<=$300 million).
Corporate Equity Securities (market cap
>$300 million).
Corporate Debt Securities..............
Non-Exchange Traded Open End Investment
Company Securities.
Exchange-Traded Funds..................
Closed End Investment Company
Securities.
Limited Partnership Securities.........
Municipal Debt Securities..............
Other Securities.......................
--------------------------------
Total..............................
------------------------------------------------------------------------
4(d). Number of issues serviced by Registrant for which physical
certificates were in use during the reporting period:------------------
4(e). Number of issues for which Registrant maintained the master
securityholder file using distributed ledger technology, in whole or in
part, during the reporting period:-------------------------------------
5(a). Number of employees engaged in transfer agent functions or
activities incidental thereto during the reporting period:-------------
5(b). Registrant used the following Service Providers during the
Reporting Period.
Check all that apply and provide name of service provider(s) that
directly supports the performance of transfer agent functions:
[ballot] Bank(s):------------------------------------------------------
[ballot] Escrow Agent(s):----------------------------------------------
[ballot] Recordkeeping System Provider(s):-----------------------------
[ballot] Lost Securityholder Search Provider(s):-----------------------
[ballot] Printing and Mailing Services: SE2.---------------------------
[ballot] Call Center Provider(s):--------------------------------------
[ballot] Tokenization Agent(s):----------------------------------------
[ballot] Distributed Ledger Technology Platform(s):--------------------
6(a). Number of issues, by security type, for which Registrant
provided the following services as of December 31:
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of issues for which Registrant provided the following services (as of December 31)
-------------------------------------------------------------------------------------------
Provided
Security type Received Maintained Provided direct direct Provided Provided
items for master registration purchase dividend paying agent
transfer securityholder system (DRS) plan (DPP) reinvestment services
file(s) services services services
--------------------------------------------------------------------------------------------------------------------------------------------------------
Corporate Equity Securities (market cap <=$300 million).....
Corporate Equity Securities (market cap >$300 million)......
Corporate Debt Securities...................................
Non-Exchange Traded Open End Investment Company Securities..
Exchange-Traded Funds.......................................
Closed End Investment Company Securities....................
Limited Partnership Securities..............................
Municipal Debt Securities...................................
Other Securities............................................
-------------------------------------------------------------------------------------------
Total...................................................
--------------------------------------------------------------------------------------------------------------------------------------------------------
6(b). Number of issues, by tokenization model, serviced by the
Registrant as of December 31:
[[Page 57061]]
----------------------------------------------------------------------------------------------------------------
Number of issues serviced by the registrant by
tokenized security model (as of December 31)
Security type -------------------------------------------------------
Issuer-sponsored Third party-sponsored
tokenized securities tokenized securities
----------------------------------------------------------------------------------------------------------------
Corporate Equity Securities (market cap <=$300 million).
Corporate Equity Securities (market cap >$300 million)..
Corporate Debt Securities...............................
Non-Exchange Traded Open End Investment Company
Securities.............................................
Exchange-Traded Funds...................................
Closed End Investment Company Securities................
Limited Partnership Securities..........................
Municipal Debt Securities...............................
Other Securities........................................
-------------------------------------------------------
Total...............................................
----------------------------------------------------------------------------------------------------------------
7(a). For the reporting period, amount (in dollars) of:
Dividend disbursements to security holders:-------------------
Interest or coupon payments to security holders:--------------
Principal payments to securityholders:------------------------
Disbursements in connection with corporate actions to
securityholders:-------------------------------------------------------
Open end investment company purchases by securityholders:-----
Open end investment company redemptions by securityholders:---
Stock purchases by securityholders:---------------------------
Other funds received from securityholders:--------------------
Other funds disbursed to securityholders:---------------------
7(b). For the reporting period, amount (in units) of any in-kind
distributions to securityholders:--------------------------------------
* * * * *
9(a). Total number of routine items received during the reporting
period:----------------------------------------------------------------
9(b). Number of routine items that were not turned around or
processed within the shorter of one business day or the time period
specified in Rule 15c6-1(a) of the Act for each month of the
reporting period.
------------------------------------------------------------------------
------------------------------------------------------------------------
January ................. July
February ................. August ...............
March ................. September ...............
April ................. October ...............
May ................. November ...............
June ................. December ...............
------------------------------------------------------------------------
* * * * *
13. Related Documents/Attachments
13(a). File Name:------------------------------------------------------
13(b). Type of Attachment
[ballot] Cover
[ballot] Correspondence
[ballot] Graphic
[ballot] List of Issues Serviced as of December 31
* * * * *
Instructions for Use of Form TA-2
* * * * *
II. Special Instructions for Filing Form TA-2.
* * * * *
C. Report of Transfer Agent Activities. Transfer agents must
provide full and complete responses in the appropriate format.
1. Information related to electronic filing. As an EDGAR filer,
the transfer agent is required to provide the following:
a. Whether the form is a ``live'' or ``test'' filing submission;
b. Whether the transfer agent would like a Return Copy of the
filing;
c. The transfer agent's Central Index Key (``CIK'');
d. The transfer agent's CIK Confirmation Code (``CCC'');
e. The contact email address for the transfer agent. The contact
provided in response to Question 1(f) must be an individual
authorized to receive all compliance communications for the
registrant with responsibility to disseminate them as appropriate
within the registrant's organization; and
f. The notification email address(es) for the transfer agent
regarding the status of the submission.
For more information regarding the above requirements see the
EDGAR Filer Manual, Volume I (General Requirements). A transfer
agent that is granted a continuing hardship exemption pursuant to
Rule 202 of Regulation S-T, 17 CFR 232.202, need only provide its
CIK.
* * * * *
4. In answering Question 4, the number of individual
securityholder accounts should be determined separately for each
issue and then added together to arrive at the total reported in
response to each question. For example, if the transfer agent
maintains the master securityholder file for two securities, and one
security has five individual securityholder accounts, while the
other security has the same five individual securityholder accounts,
the transfer agent should report 10 in response to Question 4.b. Any
identical securityholders for the two securities should be counted
separately for each issue for the purpose of responding to Question
4.
5. In answering Question 6, debt securities are to be counted as
one issue per CUSIP number. Open-end investment company securities
portfolios are to be counted as one issue per CUSIP number.
* * * * *
[FR Doc. 2026-18190 Filed 9-3-26; 8:45 am]
BILLING CODE 8011-01-P