Proposed Rule:
Recordkeeping Requirements for Transfer Agents
SECURITIES AND EXCHANGE COMMISSION
Release No. 34-41442; File No. S7-17-99
RIN 3235-AH74
Recordkeeping Requirements for Transfer Agents
AGENCY: Securities and
Exchange Commission
ACTION: Proposed rule
SUMMARY: The Securities
and Exchange Commission (Commission) is publishing for comment a proposal to allow
registered transfer agents to use electronic storage media to produce and preserve the
records that they are required to retain. In addition, the Commission is proposing to
expressly allow registered transfer agents to use microfiche in addition to microfilm for
record retention purposes. The proposed amendments are designed to increase the
flexibility and efficiency of transfer agent recordkeeping.
DATES: Comments should
be received on or before [insert date 30 days after the date of publication in the Federal
Register].
ADDRESSES: Interested
persons should submit three copies of their written data, views, and opinions to Jonathan
G. Katz, Secretary, Mail Stop 0609, Securities and Exchange Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549-0609. Comments also may be submitted electronically at the
following E-mail address: rule-comments@sec.gov. All comment letters should refer to File
No. S7-17-99; this file number should be used on the subject line if E-mail is used.
Comment letters will be available for public inspection and copying at the Commission's
Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549. Electronically
submitted comment letters will be posted on the Commission's Internet site (http://www.sec.gov).
FOR FURTHER INFORMATION
CONTACT: Jerry W. Carpenter, Assistant Director, or Theodore R. Lazo, Attorney, at
202/942-4187, Office of Risk Management and Control, Division of Market Regulation,
Securities and Exchange Commission, 450 Fifth Street, N.W., Mail Stop 1001, Washington,
D.C. 20549-1001.
SUPPLEMENTARY INFORMATION:
I. INTRODUCTION
A. Background
Section 17(a)(1) of the Securities Exchange Act of
1934 (Exchange Act) requires registered transfer agents to make, keep, and disseminate
reports prescribed by the Commission as necessary or appropriate in the public interest,
for the protection of investors, or otherwise in furtherance of the purposes of the
Exchange Act.1 Rules 17Ad-6 and
17Ad-7 under the Exchange Act specify the records that registered transfer agents must
make and keep and the amount of time that the records must be preserved.2 Depending on the type of record, the records covered by these
rules generally must be maintained for two years,3 six years,4
or until one year after the termination of a transfer agency relationship.5
Rule 17Ad-7(f) permits registered transfer agents to
preserve the records listed in Rule 17Ad-6 on microfilm, subject to certain conditions.6 However, Rule 17Ad-7 provides no
other alternative to maintaining records in hard copy. In light of advances in electronic
recordkeeping technology, we believe that Rule 17Ad-7 should be amended to accommodate a
wider range of storage media.
The Securities Transfer Association has requested the
Commission to allow transfer agents to use optical disk storage systems to fulfill their
recordkeeping requirements under Rule 17Ad-7.7
We believe that this request has merit, and so we are proposing to amend Rule 17Ad-7 under
the Exchange Act to permit registered transfer agents to preserve records using electronic
storage media. We also are proposing to amend Rule 17Ad-7 to permit the preservation of
records on micrographic media.8
These proposals incorporate the essential provisions of our rule that permits
broker-dealers to use alternative recordkeeping methods.9
B. Alternative Recordkeeping Methods
1. Electronic Storage Media
There are different types of electronic storage media
available for recordkeeping purposes. The principal focus of the proposed amendments is on
optical storage technology, which allows for digital data recording in a non-rewriteable,
non-erasable format that provides a permanent and unalterable record.10 Optical storage systems record digital information by using a
laser to burn a pattern on a metallic film on a disk surface (known as an optical disk)
that can hold billions of bytes of data. Optical disks are removable from the hardware
that records the information onto the disk. Using optical disk storage, any record,
whether it is computer generated (such as a computer report) or electronically digitized
from another medium (such as paper or micrographics), can be recorded and then accessed
and managed using computers.
2. Micrographic Media
Microfilm and microfiche are types of micrographic
media that photographically reduce the size of document images. However, microfiche images
are stored on a sheet of film while microfilm images are stored on spooled film.
II. PROPOSED AMENDMENTS AND
DISCUSSION
The Commission believes that the use of optical disks
and other electronic storage media for the preservation of records must be conditioned
with safeguards against erasability, provisions for the immediate verification of the
stored information, and mandatory backup facilities. The proposed amendments to Rule
17Ad-7 would contain additional conditions to ensure that the documents stored on the disk
are indexed and may be accessed by Commission examiners or by examiners from another
appropriate regulatory agency.11
Exchange Act Rule 17a-4 contains conditions on
broker-dealers’ use of electronic storage media that are similar to the ones we are
proposing for transfer agents. However, we anticipate that transfer agents (unlike
broker-dealers) would use electronic storage media to store canceled securities
certificates. The storage and destruction of canceled securities certificates present
issues unique to transfer agents’ use of electronic storage media. As a result, we
believe that these conditions are particularly necessary for transfer agents. In addition,
we believe that these conditions are necessary because optical disk storage technology is
relatively new and there does not appear to be an industry standard for its development
and for compatibility among different optical disk storage systems.
The proposed amendments would require transfer agents
that use electronic storage media to store the records in a non-rewriteable, non-erasable
format. This requirement should ensure that the information stored on electronic storage
media cannot be modified or removed without detection. As an additional protection, the
proposed amendments would require that electronic storage media label the storage units
used (e.g., the optical disks) in sequential order and record the date and time
that information is electronically stored. In addition, transfer agents would be required
to keep a duplicate of any records that are stored using electronic storage media. The
duplicates may be kept on any type of medium that is acceptable under Rule 17Ad-7.12
In order to ensure efficient and complete access to
records during examinations, transfer agents using electronic storage media would be
required to create an index of the records that are electronically stored and store the
index with those records. In addition, the proposed amendments would require transfer
agents to maintain a duplicate index along with the duplicates of the indexed records
separately from the originals. Transfer agents would also be required to have the capacity
to download records stored on electronic storage media so that the records could be
promptly transferred to an alternate medium such as paper, microfilm or microfiche.
In addition, the proposed amendments contain
conditions on the use of electronic storage media that are designed to provide access to
information stored on electronic storage media if a transfer agent is no longer operating,
refuses to cooperate with the Commission or another appropriate regulatory agency, or has
not properly or fully indexed electronically stored records. Accordingly, the proposed
amendments to Rule 17Ad-7 would require transfer agents to preserve, keep current, and
surrender upon request the information necessary to download records stored on electronic
storage media. As an alternative, transfer agents that use another party to maintain their
records (such as an outside service bureau) would be permitted to place in escrow and keep
current a copy of the information necessary to access the format of the electronic storage
media and to download records that are electronically stored. Moreover, before a transfer
agent uses electronic storage media, the proposed amendments would require that at least
one party other than the transfer agent (e.g., the transfer agent’s electronic
storage media vendor) file representations with the Commission that it has the ability to
download information from the transfer agent’s electronic storage system and that it
would do so at the request of either the Commission or its appropriate regulatory
authority.
We understand that some broker-dealers now use
electronic storage media and micrographic media to fulfill their recordkeeping
requirements. We believe that the proposed amendments to Rule 17Ad-7 will similarly
increase the flexibility and efficiency of transfer agent recordkeeping.
III. GENERAL REQUEST FOR
COMMENTS
Any interested person wishing to submit comments on
the proposed amendments to Rule 17Ad-7, as well as on other matters that might have an
impact on the proposal, is requested to do so. We seek comment on whether the proposed
requirements regarding the use of electronic storage media will create an undue burden on
transfer agents or others. We seek comment on whether additional or fewer safeguards may
be required in the context of transfer agents’ use of electronic storage media. We
also request comments on whether other new technologies are available for use in retaining
records, and whether the rule should allow use of these technologies. If so, under what
conditions?
We specifically solicit comments as to whether the
proposed amendments to Rule 17Ad-7 present any issues that are unique to transfer agents
that did not arise with respect to the amendments to Rule 17a-4. In particular, we request
commenters to address any issues that may arise from the use of electronic storage media
to store canceled securities certificates. Are there legal issues associated with transfer
agents destroying canceled securities certificates that have been electronically stored?
For example, could the inability to produce an original certificate during a legal
proceeding create evidentiary problems even if a facsimile of the certificate could be
downloaded from the electronic storage media? Should transfer agents that use electronic
storage media to store canceled securities certificates be permitted to destroy canceled
securities certificates as soon as they are electronically stored, or should transfer
agents be required to maintain the original certificates for some period of time after
storing them electronically?
Should Rule 17Ad-7 contain specific standards
regarding image quality for electronic storage media used by transfer agents? Should Rule
17Ad-7 require that any electronic storage media used by transfer agents automatically
verify the resolution quality of the electronically stored records? Should transfer agents
using electronic storage media be required to periodically audit the resolution quality?
IV. COSTS AND BENEFITS OF
THE PROPOSED AMENDMENTS
The Commission is considering the costs and the
benefits of the proposed amendments to Rule 17Ad-7. The Commission has identified certain
costs and benefits relating to the proposed amendments, which are discussed below, and
encourages commenters to discuss any additional costs or benefits. In particular, the
Commission requests comment on the potential costs for any necessary modifications to
information gathering, management, and recordkeeping systems or procedures as well as any
potential benefits resulting from the proposals for issuers, transfer agents, regulators,
or others. Commenters should provide analysis and empirical data to support their views on
the costs and benefits associated with the proposed amendments.
A. Benefits
The proposed amendments to Rule 17Ad-7 should provide
specific benefits to U.S. investors, issuers, transfer agents, and other financial
intermediaries. These benefits are not readily quantifiable in terms of dollar value.
Allowing registered transfer agents to maintain their records using micrographic media and
electronic storage media should increase the efficiency of their recordkeeping operations
by reducing the need to maintain records in hard copy format. In addition, the use of
micrographic media and electronic storage media should reduce storage burdens (e.g.,
the need for storage space) that transfer agents currently face in keeping paper records.
B. Costs
The proposed amendments to Rule 17Ad-7 should not
result in significant costs to any particular person or entity. We have identified costs
associated with the proposed amendments. Transfer agents that use micrographic media or
electronic storage media may incur some costs in transferring hard copy records to
micrographic or electronic storage media. In addition, there could be some cost to
registered transfer agents to fulfill the conditions that would be imposed on the use of
electronic storage media. Specifically, the requirements that transfer agents using
electronic storage media create a duplicate of the records electronically stored, that
they create an index of the electronically stored records, and that they establish an
audit system to account for inputting of and changes to electronically stored records all
could result in costs to those transfer agents. However, any costs related to the use of
micrographic media or electronic storage media should be at least partly offset by the
resulting elimination of the need to maintain and store records in hard copy format. In
addition, we note that transfer agents’ use of micrographic media or electronic
storage media would be voluntary.
We request comment on these costs and invite
commenters to submit their own estimates of the costs and benefits that would result from
the proposed amendments to Rule 17Ad-7. In order to fully evaluate the costs and benefits
associated with the proposed amendments, we request that commenters' estimates of the
costs and benefits of the proposed amendments be accompanied by specific empirical data
supporting the estimates.
V. EFFECT OF THE PROPOSED
AMENDMENTS ON COMPETITION, EFFICIENCY, AND CAPITAL FORMATION
Section 23(a)(2) of the Exchange Act13 requires the Commission, in
adopting rules under the Exchange Act, to consider the impact any such rule would have on
competition, and to not adopt any rule that would impose a burden on competition not
necessary or appropriate in furtherance of the purposes of the Exchange Act. In addition,
Section 3 of the Exchange Act14
as amended by the National Securities Markets Improvement Act of 199615 provides that whenever the Commission is engaged in rulemaking
and is required to consider or determine whether an action is necessary or appropriate in
the public interest, the Commission shall consider, in addition to the protection of
investors, whether the action will promote efficiency, competition, and capital formation.
We are considering the proposed amendments to Rule
17Ad-7 in light of the standards cited in Sections 3 and 23(a)(2) of the Exchange Act. For
the reasons stated herein, the proposed amendments (i) should promote efficiency by
allowing registered transfer agents to benefit from advances in recordkeeping technology,
(ii) should not adversely affect capital formation because they relate solely to
post-issuance activity, and (iii) should not impose any burden on competition because they
will apply equally to all registered transfer agents.
We do not anticipate that the proposed amendments
would have a significant effect on competition or impose any burden on competition that is
not necessary or appropriate in furtherance of the Exchange Act. Under the proposed
amendments, all registered transfer agents would be permitted to use micrographic media
and electronic storage media to fulfill their recordkeeping obligations. In addition, the
proposed conditions with respect to using electronic storage media would apply equally to
all registered transfer agents. However, in order to fully evaluate the effects on
competition of the proposed amendments, the Commission requests commenters to provide
their views and specific empirical data as to any effects on competition that might result
from the Commission's proposed amendments to Rule 17Ad-7.
VI. SUMMARY OF REGULATORY
FLEXIBILITY ANALYSIS
The Commission has prepared an initial regulatory
flexibility analysis (“IRFA”) in accordance with 5 U.S.C. 603(a) regarding the
proposed amendments to Rule 17Ad-7. The IRFA states that the proposed amendments are
intended to allow registered transfer agents to take advantage of advances in electronic
recordkeeping technology. The IRFA sets forth the statutory basis for the proposed
amendments.
The IRFA states that, for purposes of Commission
rulemaking, paragraph (h) of Rule 0-10 under the Exchange Act defines the term “small
business” or “small organization” to include any transfer agent that: (1)
received less than 500 items for transfer and less than 500 items for processing during
the preceding six months (or in the time that it has been in business, if shorter); (2)
transferred items only of issuers that would be deemed “small businesses” or
“small organizations” as defined in Rule 0-10 under the Exchange Act; (3)
maintained master shareholder files that in the aggregate contained less than 1,000
shareholder accounts or was the named transfer agent for less than 1,000 shareholder
accounts at all times during the preceding fiscal year (or in the time that it has been in
business, if shorter); and (4) is not affiliated with any person (other than a natural
person) that is not a small business or small organization under Rule 0-10.16 The IRFA states that we estimate
that 180 registered transfer agents qualify as small entities and would be subject to the
proposed amendments to Rule 17Ad-7.
The IRFA states that the proposed amendments would
impose certain reporting, recordkeeping, and compliance requirements. The proposed
amendments also would require each registered transfer agent that uses electronic storage
media to set up a system to record the inputting of records to electronic storage media
and the inputting of any changes to that are electronically stored.
The proposed amendments would require transfer agents
that use electronic storage media to store the records in a non-rewriteable, non-erasable
format. In addition, the proposed amendments would require that electronic storage media
label the storage units used in sequential order and record the date and time that
information is electronically stored. Transfer agents would be required to keep a
duplicate of any records that are stored using electronic storage media which could be
kept on any type of medium that is acceptable under Rule 17Ad-7.
Transfer agents using electronic storage media would
be required to create an index of the records that are electronically stored and store the
index with those records. In addition, transfer agents would be required to maintain a
duplicate index along with the duplicate records separately from the originals. Transfer
agents would also be required to have the capacity to download records stored on
electronic storage media so that the records could be promptly transferred to an alternate
medium such as paper, microfilm or microfiche.
The proposed amendments would require transfer agents
to preserve, keep current, and surrender upon request the information necessary to
download records stored on electronic storage media. Moreover, before a transfer agent
uses electronic storage media, the proposed amendments would require that at least one
party other than the transfer agent (e.g., the transfer agent’s electronic
storage media vendor) file representations with the Commission that the third party has
the ability to download information from the transfer agent’s electronic storage
system and that it would do so at the Commission’s request.
The IRFA notes that the reporting, recordkeeping, and
compliance requirements contained in the proposed amendments to Rule 17Ad-7 would apply
only to registered transfer agents that specifically choose to use electronic storage
media. The IRFA notes further that some small transfer agents will not be able to afford
the costs involved with storing records electronically and therefore will not choose to
use electronic storage media. The IRFA states that the proposed amendments to Rule 17Ad-7
should not have a significant economic impact on a substantial number of small entities.
The IRFA states that as an alternative to the proposed
amendments we considered proposing different compliance and reporting requirements and
timetables with respect to transfer agents’ use of electronic storage media. However,
the IRFA states that the Commission believes that the compliance and reporting
requirements and timetables as proposed are necessary to ensure the accuracy and integrity
of transfer agent records that are electronically stored and to ensure the access to such
records by the Commission or another appropriate regulatory agency. The IRFA also states
that the timetables contained in the proposed amendments are consistent with the
timetables that are already contained in Rule 17Ad-7.
The IRFA states that we believe that it is not
feasible to further clarify, consolidate, or simplify the proposed amendments for small
entities. The IRFA also states that the Commission believes that the use of performance
standards rather than design standards is not applicable to the proposed amendments.
The IRFA states that we believe that creating an
exemption from the requirements of the proposed amendments would not reduce the impact of
the proposed amendments on small entities. The IRFA notes that Rule 17Ad-4(b) under the
Exchange Act17 already exempts
small transfer agents from many of the recordkeeping requirements of Rules 17Ad-6 and
17Ad-7. In addition, the IRFA notes that any burden imposed by the proposed amendments
would apply only to those transfer agents that choose to use electronic storage media. The
IRFA states that we believe that there are no rules that duplicate, overlap, or conflict
with the proposed alternative versions of the rule.
The IRFA contains information concerning the
solicitation of comments with respect to the IRFA. In particular, the IRFA requests
comment on whether the proposed amendments to Rule 17Ad-7 would have a significant
economic impact on a substantial number of small entities and requests that any such
comments be accompanied by specific empirical data. Cost-benefit information reflected in
the “Cost/Benefit Analysis” section of this Release also is reflected in the
IRFA. A copy of the IRFA may be obtained by contacting Theodore R. Lazo, Securities and
Exchange Commission, 450 Fifth Street, N.W., Mail Stop 1001, Washington, D.C. 20549-1001.
For purposes of the Small Business Regulatory
Enforcement Fairness Act of 1996, the Commission is also requesting information regarding
the potential impact of the proposed amendments on the economy on an annual basis.
Commenters should provide empirical data to support their views.
VII. PAPERWORK REDUCTION
ACT
Certain provisions of the proposed amendments to Rule
17Ad-7 contain “collection of information” requirements within the meaning of
the Paperwork Reduction Act of 1995,18
and the Commission has submitted them to the Office of Management and Budget for review in
accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. The title for the collection of
information is: “Record Retention Requirements for Registered Transfer Agents.”
The OMB control number for the collection of information is 3235-0136. The collection of
information requirements are necessary both to ensure the integrity of transfer
agents’ records that are maintained on electronic storage media and to ensure the
Commission’s ability to access such records.
Proposed Rules 17Ad-7(f)(1)(iii) and 17Ad-7(f)(1)(iv)
contain a collection of information requirements that are intended to ensure that the
Commission would have full and complete access to transfer agents’ records during
examinations. Proposed Rule 17Ad-7(f)(1)(iii) and 17Ad-7(f)(1)(iv) would require transfer
agents that use electronic storage media to create an index of all electronically stored
records and to maintain a duplicate of each index. We do not propose to specify the format
of the index that would be required to be maintained. However, the original and duplicate
indexes would be required to be kept in separate locations in order to protect against
loss or damage. The indexes would be required to be maintained for as long as the transfer
agent was using electronic storage media.
Proposed Rule 17Ad-7(f)(3) contains a collection of
information requirement that is intended to ensure the integrity of transfer agents’
records that are stored on electronic storage media. Proposed Rule 17Ad-7(f)(3) would
require each registered transfer agent that uses electronic storage media to set up a
system to record the inputting of records to electronic storage media and to record the
inputting of any changes to records that are electronically stored. We do not propose to
specify the contents of each audit system, but any data stored regarding inputting of
records and changes to existing records would be part of that system. We anticipate that
the names of the individuals that input and make changes to records and the identities of
documents inputted and changed are the kinds of information that automatically should be
collected pursuant to the audit system requirement. The results of the audit system would
be required to be preserved for the time required for the audited records.
Proposed Rules 17Ad-7(f)(4) and 17Ad-7(f)(5) contain
collection of information requirements that would ensure the Commission’s access to
records of a transfer agent that was no longer operating, refused to cooperate with the
investigative efforts of the Commission or another appropriate regulatory agency, or had
not properly or fully indexed electronically stored records. Proposed Rule 17Ad-7(f)(4)
would require each transfer agent that uses electronic storage media to maintain and
provide upon request or to keep in escrow all information necessary to access records and
indexes that are electronically stored. We do not propose to specify the types of
information that the transfer agent would be required to maintain if such information is
maintained on the transfer agent’s premises. However, if the transfer agent chose to
place such information in escrow, it would have to keep in escrow a copy of the physical
and logical format of the electronic storage media, the field format of all different
information types written on the electronic storage media and the source code, together
with appropriate documentation and information necessary to access records and indexes.
The information required by Proposed Rule 17Ad-7(f)(4) would be required to be maintained
for as long as the transfer agent was using electronic storage media.
Proposed Rule 17Ad-7(f)(5) would require that for each
transfer agent using electronic storage media at least one party other than the transfer
agent would have to file with the Commission written undertakings that it has the ability
to download the transfer agent’s electronically stored records and that it would do
so at the request of either the Commission or its appropriate regulatory authority. This
requirement is intended to assure that examining authorities would be able to access a
transfer agent’s electronically stored records if the transfer agent could not or
would not download the records. We anticipate that this requirement could be fulfilled in
the form of a letter to the Commission staff. This collection of information requirement
does not contain any new recordkeeping requirements.
The collection of information required by the proposed
amendments to Rule 17Ad-7 should not result in any new significant burden to transfer
agents. All information required as a condition of transfer agents’ use of electronic
storage media is specifically tied to a transfer agent’s decision to use electronic
storage media to satisfy its already existing recordkeeping obligations.
The likely respondents to the collection of
information are large registered transfer agents. At this time, we estimate that there are
40 likely respondents to the collection of information requirements contained in the
proposed amendments to Rule 17Ad-7. The proposed frequency of response to the collection
of information requirements varies depending on the specific requirement. The collection
of information requirements contained in Proposed Rules 17Ad-7(f)(3)(vi) and
17Ad-7(f)(3)(vii) would require a one time response. The collection of information
requirements contained in Proposed Rules 17Ad-7(f)(3)(iv) and 17Ad-7(f)(3)(v) would
require continuing responses.
The Commission estimates that the average amount of
time needed to comply with the collection of information requirements of the proposed
amendments to Rule 17Ad-7 would be 125 hours per year. However, this time burden would
apply only to registered transfer agents that choose to use electronic storage media.
Based on the Commission’s estimate of 40 likely respondents, we estimate that the
proposed collection of information requirements would result in 5000 additional burden
hours (40 x 125) and would increase the total number of burden hours for Rule 17Ad-17 from
142,272 to 147,272.19
If a transfer agent chooses to use electronic storage
media, then providing the information will be mandatory. Responses to the collection of
information requirements will not be kept confidential. An agency may not conduct or
sponsor, and a person is not required to respond to, a collection of information unless it
displays a currently valid Office of Management and Budget control number.
Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission
solicits comments to:
- (i) evaluate whether the proposed collection of
information is necessary for the proper performance of the functions of the agency,
including whether the information shall have practical utility;
- (ii) evaluate the accuracy of the Commission's
estimate of the burden of the proposed collection of information;
- (iii) enhance the quality, utility, and clarity of the
information to be collected; and
- (iv) minimize the burden of collection of information
on those who are to respond, including through the use of automated collection techniques
or other forms for information technology.
Persons desiring to submit comments on the collection
of information requirements should direct them to the following persons: Desk Officer for
the Securities and Exchange Commission, Office of Information and Regulatory Affairs,
Office of Management and Budget, Room 3208, New Executive Office Building, Washington,
D.C. 20503; and Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth
Street, N.W., Mail Stop 0609, Washington, D.C. 20549-0609, and refer to File No. S7-17-99.
The Office of Management and Budget (OMB) is required to make a decision concerning the
collection of information between 30 and 60 days after publication of this release in the
Federal Register, so a comment to OMB is best assured of having its full effect if OMB
receives it within 30 days of this publication.
VIII. STATUTORY BASES
The amendments to Rule 17Ad-7 are being proposed
pursuant to Sections 17A(a)(2) and 17A(d) of the Exchange Act [15 U.S.C. 78q-1(a)(2) and
78q-1(d)].
TEXT OF THE AMENDMENTS
List of Subjects in 17 CFR 240
Reports and recordkeeping requirements, Securities,
Transfer agents
In accordance with the foregoing, the Commission
proposes to amend Part 240 of Chapter II of Title 17 of the Code of Federal Regulation as
follows:
PART 240--GENERAL RULES AND REGULATIONS, SECURITIES
EXCHANGE ACT OF 1934.
1. The authority citation for Part 240 continues to
read in part as follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2,
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78f, 78i, 78j, 78j-1, 78k, 78k-1, 78l,
78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 78w, 78x, 78ll(d), 78mm, 79q, 79t, 80a-20,
80-23, 80a-29, 80a-37, 80b-3, 80b-4, and 80b-11, unless otherwise noted.
* * * * *
2. Section 240.17Ad-7 is amended by revising paragraph
(f) to read as follows:
240.17Ad-7 Record Retention
* * * * *
(f) Record retention using micrographic media or
electronic storage media. Registered transfer agents may use micrographic media or
electronic storage media that complies with the conditions in this paragraph to store the
records that they are required to keep under §§ 240.17Ad-6 and 240.17Ad-7.
(1) If you as a registered transfer agent use either
micrographic media or electronic storage media to store your records you must:
- (i) Have available at all times for examination by the
staffs of the Commission and of your appropriate regulatory agency (if the Commission is
not your appropriate regulatory agency) facilities for immediate projection or production
of easily readable images of the records that you store on electronic storage media;
- (ii) Be ready at all times to immediately provide any
facsimile enlargement of the records that you store on electronic storage media that the
staffs of the Commission and of your appropriate regulatory agency (if the Commission is
not your appropriate regulatory agency) or their representatives may request;
- (iii) Create an accurate index of the records that you
store on electronic storage media, store the index with those records, and have the index
available at all times for examination by the staffs of the Commission and of your
appropriate regulatory agency (if the Commission is not your appropriate regulatory
agency); and
- (iv) Maintain a duplicate of the index of the records
that you store on electronic storage along with duplicates of the indexed records
separately from the originals. You may store the duplicates of the indexed records on any
medium permitted by this section. You must preserve the duplicate index and the duplicates
of the indexed records for the same time that is required by this section for the indexed
records, and you must have them available at all times for examination by the staffs of
the Commission and of your appropriate regulatory agency (if the Commission is not your
appropriate regulatory agency).
(2) Any electronic storage media that you use to store
your records must:
- (i) Preserve the records in a format that is not
rewriteable and not erasable;
- (ii) Automatically verify the quality and accuracy of
its recording process;
- (iii) Label all units of storage media used in
sequential order and record the date and time that information is stored on the electronic
storage media; and
- (iv) Have the capacity to readily download indexes and
records preserved on the electronic storage media to any medium acceptable under this
paragraph as required by the staffs of the Commission and of your appropriate regulatory
agency (if the Commission is not your appropriate regulatory agency).
(3) If you use electronic storage media to store your
records, you must set up an audit system that accounts for the inputting of and any
changes to every record that is stored on electronic storage media:
(i) You must be able to have the results of the audit
system available at all times for examination by the staffs of the Commission and of your
appropriate regulatory agency (if the Commission is not your appropriate regulatory
agency); and
- (ii) The audit results must be preserved for the time
required for the audited records.
(4) If you use electronic storage media to store your
records you must either:
- (i) Maintain, keep current, and provide promptly upon
request by the staffs of the Commission and of your appropriate regulatory agency (if the
Commission is not your appropriate regulatory agency) all information necessary to access
records and indexes stored on electronic storage media; or
- (ii) If you use another party to maintain your
records, place in escrow and keep current a copy of the physical and logical format of the
electronic storage media, the field format of all different information types written on
the electronic storage media and source code, and the appropriate documentation and
information necessary to access records and indexes.
(5) Before you begin to use electronic storage media
to preserve some or all of your records under this section, there must be at least one
party other than you who has access to your electronic storage media system and has the
ability to download information from your system and that party must file with the
Commission and with your appropriate regulatory agency (if the Commission is not your
appropriate regulatory agency) the following undertakings with respect to such records:
The undersigned hereby undertakes to furnish promptly
to the U.S. Securities and Exchange Commission (“Commission”), the transfer
agent’s appropriate regulatory agency (“ARA”) (if its ARA is not the
Commission), and their designees or representatives, upon reasonable request, such
information as is deemed necessary by the Commission’s, ARA's, or designee's staff to
download information kept on the registered transfer agent's electronic storage media to
any medium acceptable pursuant to Rule 17Ad-7 under the Securities Exchange Act of 1934.
Furthermore, the undersigned hereby undertakes to take
reasonable steps to provide access to information contained on the registered transfer
agent's electronic storage media, including, as appropriate, arrangements for the
downloading of any record required to be maintained and preserved by the registered
transfer agent pursuant to Rules 17Ad-6 and 17Ad-7 under the Securities Exchange Act of
1934 in a format acceptable to the Commission’s staff and the ARA's staff or their
designees. Such arrangements will provide specifically that in the event of the registered
transfer agent’s failure to download the record into a readable format and, after
reasonable notice to the registered transfer agent, upon being provided with the
appropriate electronic storage medium, the undersigned will undertake to download the
record into a readable format as the Commission’s staff and the ARA's staff or their
designees may request.
(6) For purposes of this section, the following
definitions apply:
- (i) The term micrographic media means microfilm
or microfiche or any similar medium; and
- (ii) The term electronic storage media means
any digital storage medium or system that meets the conditions in this paragraph.
* * * * *
By the Commission.
Jonathan G. Katz
Secretary
Dated: May 25, 1999
FOOTNOTES
| 1 |
15 U.S.C. 78q(a)(1). |
| 2 |
17 CFR 240.17Ad-6 and
240.17Ad-7. |
| 3 |
17 CFR 240.17Ad-7(a)
and (b). |
| 4 |
17 CFR 240.17Ad-7(d). |
| 5 |
17 CFR 240.17Ad-7(c). |
| 6 |
17 CFR 240.17Ad-7(f). |
| 7 |
Letter from Charles
Rossi, President, Securities Transfer Association, to Arthur Levitt, Chairman, Commission
(July 2, 1996). The letter is available for inspection and copying in the
Commission’s Public Reference Room in File No. S7-17-99. |
| 8 |
Under the proposed
amendments, the term “micrographic media” would be defined to mean microfilm or
microfiche, or any similar medium. |
| 9 |
See Securities
Exchange Act Release No. 38245 (February 5, 1997), 62 FR 6469 (Broker-Dealer Release)
(adopting amendments to Rule 17a-4(f) to allow broker-dealers to use electronic storage
media and micrographic media). |
| 10 |
This format is
sometimes referred to as “write once, read many” or “WORM.” |
| 11 |
The term
“appropriate regulatory agency” is defined in Section 3(a)(34) of the Exchange
Act, 15 U.S.C. 78c(a)(34), and includes the Commission, the Board of Governors of the
Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the
Comptroller of the Currency. |
| 12 |
The Commission does
not intend that the proposed amendments to Rule 17Ad-7 would override any state laws or
regulations regarding destruction of canceled securities certificates. |
| 13 |
15 U.S.C. 78w(a)(2). |
| 14 |
15 U.S.C. 78c. |
| 15 |
Pub. L. No. 104-290,
110 Stat. 3416 (1996). |
| 16 |
17 CFR 240.0-10(h). |
| 17 |
17 CFR 240.17Ad-4(b). |
| 18 |
44 U.S.C. 3501 et
seq. |
| 19 |
Based on an
estimated average administrative labor cost of $50.00 per hour, the Commission’s
staff estimates that the total labor cost to the transfer agent industry for complying
with the collection of information requirements contained in the proposed amendments would
be $250,000 annually ($50.00 x 5000). The Commission’s staff developed these
estimates in consultation with representatives of the transfer agent industry. |
http://www.sec.gov/rules/proposed/34-41442.htm
