Ms. Katie J. Sevcik
Re: No-Action Request With Respect to SEC Rule 17Ad-7(f)(5)(ii) under the Securities Exchange Act of 1934
Dear Ms. Sevcik:
This letter is in response to your letter dated March 23, 2004, where you request that the Division of Market Regulation ("Division") of the U.S. Securities and Exchange Commission ("Commission") not recommend enforcement action to the Commission against Wells Fargo Bank, N.A. ("Wells Fargo") for violating Rule 17Ad-7(f)(5)(ii) under the Securities Exchange Act of 1934 ("Act")1 if Wells Fargo were to escrow a copy of its vendor's software and related materials under the terms outlined in your letter.2
As you know, Rules 17Ad-6 and 17Ad-7 under the Act3 specify the records that registered transfer agents must make and the amount of time and manner in which they must preserve these records. Under Rule 17Ad-7(f)(5)(ii), transfer agents that choose to use electronic storage media to store such records must:
Place in escrow with an independent third party and keep current a copy of the physical and logical format of the electronic storage or micrographic 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.
As explained in the Commission's release adopting the electronic storage provisions of Rule 17Ad-7, this requirement is designed to assist the Commission or the transfer agent's appropriate regulatory agency's ("ARA") in accessing a transfer agent's records and indexes during, for example, some type of emergency such as a transfer agent's insolvency or refusal to cooperate. The rule also requires the escrow agent to file an undertaking with the Commission or ARA that it will make such records management information available to the Commission or ARA promptly upon request.
Your Representations and Proposal
You state that Wells Fargo is a transfer agent registered with the Commission and that Wells Fargo has purchased records management software to archive its records and indexes.4 However, because the software vendor has not agreed to include the software source code and object code as part of the escrow materials, Wells Fargo believes that it is unable to comply with Rule 17Ad-7(f)(5)(ii).
You propose that Wells Fargo satisfy Rule 17Ad-7(f)(5)(ii) by placing into escrow "Escrow Materials." "Escrow Materials" are defined in your escrow agreement as the following:
"Escrow Materials" shall mean the "as built" programs, physical and logical format of the electronic storage or micrographics media, the field format and all different application executables and appropriate documentation and information necessary, and the appropriate documentation and information necessary to access the records and indexes of Wells Fargo's electronic records management system as required and set forth in Security (sic) Exchange Commission (SEC) rule 17Ad-7. The actual application software for accessing archived electronic records is described as FileNet Panagon Image Service 3.6 SP2 for Windows, as described in Exhibit A hereto. A copy of source code and object code is not to be a part of the Escrow Material or a part of this agreement.
In the Adopting Release, we summarized Rule 17Ad-7(f)(5)(ii) as requiring transfer agents to "[k]eep in escrow an updated copy of the software or other information that is necessary to access and download electronically stored records." Also in the Adopting Release, we used the words "records management software" to broadly describe the materials that are required to be placed in escrow with an independent third party.
Based on the representations contained in your March 23, 2004, letter, as well as related telephone and e-mail communications with Division staff, the Division will not recommend that the Commission take enforcement action against Wells Fargo for violating Rule 17Ad-7(f)(5)(ii) if it places into escrow with an independent third party the "Escrow Materials," as that term is defined in your escrow agreement, as set out above in place of the items set forth in Rule 17Ad-7(f)(5)(ii).
This position is based on the facts and representations described above; any different facts or representations may require a different response. In addition, this position address enforcement action only and should not be understood to express any legal conclusions regarding the applicability of statutory or regulatory provisions of the federal securities laws. This position is subject to changes in current law and regulations governing Wells Fargo; any such changes in the law or regulations may supersede these positions or require the Division to reevaluate these positions. The Division may revoke or modify this position in the future as a result of such reevaluation. Finally, this position is subject to modification or revocation at any time the Commission or the Division determines that such modification or revocation is consistent with the public interest or the protection of investors.
Jerry W. Carpenter
FileNet Panagon Image Services 3.6 SP2 for Windows
Actual application required for restoring and accessing archived data
Microsoft Windows 2000 with Service Pack 3 or 4
Standard Operating System software - Default installation
Microsoft SQL Server 2000 with Service Pack 3
Backend database software used by Panagon Image Services - Default installation
PC or Server with at least 1GB of RAM, 80GB of Hard Drive space and processor speed of 1GHz or higher
Magneto Optical disc drive capable of reading 9.1GB 5.25-inch media
Interface adapter (SCSI) for connecting MO disc drive to computer
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The defined terms utilized throughout this Agreement shall have the following meanings which shall govern and control the interpretation of this Agreement. Capitalized terms not otherwise defined herein shall have the same meaning as set forth in the Agreement:
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B. "Escrow Materials" shall mean a copy of the "as built" programs, physical and logical format of the electronic storage or micrographic media, the field format and all different application executables and appropriate documentation and information necessary, and the appropriate documentation and information necessary to access the records and indexes of WFSS's electronic records management system as required and set forth in Securities Exchange Commission (SEC) rule 17Ad-7. The actual application software for accessing archived electronic records is the FileNet Panagon Image Services 3.6 SP2 for Windows, as described in Exhibit A hereto. A copy of the source code and object code is not part of the Escrow Materials or part of this Agreement.
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