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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 200 and 240
[Release No. 34-35039; File No. S7-1-92]
RIN 3235-AE20
Notice of Assumption or Termination of Transfer Agent Services
AGENCY: Securities and Exchange Commission
ACTION: Final Rulemaking
SUMMARY: The Securities and Exchange Commission today is
adopting new Rule 17Ad-16 under the Securities Exchange Act of
1934 which requires a registered transfer agent to provide
written notice to a registered securities depository when
terminating or assuming transfer agent services on behalf of an
issuer or when changing its name or address. The rule will
address a continuing problem of unannounced transfer agent
changes which affects the prompt transfer of securities
certificates.
EFFECTIVE DATES: Section 200.30-3(a)(56) is effective on
[insert date of publication in the Federal Register]. Section
240.17Ad-16 is effective on [insert date 60 days after
publication in the Federal Register].
FOR FURTHER INFORMATION CONTACT: Ester Saverson, Jr., Special
Counsel, at 202/942-4187, Division of Market Regulation,
Securities and Exchange Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549.
SUPPLEMENTARY INFORMATION: The Securities and Exchange
Commission ("Commission") is adopting new Rule 17Ad-16 (17 CFR
240.17Ad-16) under the Securities Exchange Act of 1934 ("Act").
The rule requires registered transfer agents to notify a
registered securities depository of changes in the transfer
agent's name or address or in the securities for which it
performs transfer agent functions.
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I. Introduction and Summary
On January 10, 1992, the Commission published for comment
proposed Rule 17Ad-16 pursuant to Section 17A(d)(1) of the
Act.-[1]- Section 17A(d)(1) of the Act provides, among other
things, that no registered transfer agent shall engage in any
activity in contravention of any rules and regulations that the
Commission may promulgate "as necessary or appropriate in the
public interest, for the protection of investors, or otherwise in
furtherance of the purposes of [the Act]."-[2]- Pursuant to that
grant of authority, the Commission has adopted rules that
establish minimum performance standards for registered transfer
agents in connection with the timely cancellation and issuance of
securities certificates.-[3]- Those standards are designed to
assure, among other things, that registered transfer agents
expeditiously process items presented for transfer. The
standards presuppose that securityholders will know, based on an
examination of the certificate they intend to present for
cancellation, the name and address of the transfer agent the
issuer has assigned to perform transfer agent functions. As
discussed in greater detail below, that presumption may not be
valid in many cases.
Rule 17Ad-16 is designed to address a current and continuing
problem of transfer delays due to unannounced transfer agent
changes, including the change of a transfer agent for a
particular issue and the change of the name or address of a
transfer agent. The rule requires transfer agents to send a
notice to the appropriate qualified registered securities
depository-[4]- when assuming or terminating transfer agent
services on behalf of an issuer or when changing its name or
-[1]- Securities Exchange Act Release No. 30148 (January 6,
1992), 57 FR 1128 [hereinafter cited as Proposing
Release].
-[2]- Section 17A(c)(1) of the Act requires transfer agents
that perform transfer agent functions with respect to
any security registered under Section 12 of the Act or
that would be required to be registered except for the
exemption from registration provided by subsection
(g)(2)(B) or (g)(2)(G) of that section to be registered
with the Commission. Section 3(a)(25) of the Act
defines 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 [a function commonly performed by
a person called a registrar]; (C) registering the
transfer of such securities; (D) exchanging or
converting such securities; or (E) transferring record
ownership of securities by book-keeping entry without
physical issuance of securities certificates.
-[3]- See, e.g., 17 CFR 240.17Ad-7.
-[4]- The "appropriate qualified registered securities
depository" is defined as the largest holder of record
of all qualified registered securities depositories or
such other qualified registered securities depository
designated by the Commission by order. The Depository
Trust Company, Philadelphia Depository Trust Company,
and the Midwest Securities Trust Company currently are
qualified registered securities depositories.
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address.
The Commission believes that the proposed rule will
facilitate the prompt and accurate clearance and settlement of
securities transactions in shorter time frames.-[5]- With less
time for transfer of securities ownership, it is critical that
securities certificates be sent to the appropriate transfer agent
in order to avoid unnecessary settlement and transfer delays. In
addition, sending stock certificates to the appropriate transfer
agent greatly reduces the expense of transfer of ownership.
Finally, the Commission today issued a release soliciting comment
on the implications of an automated environment for the direct
registration of investors with links to the secondary market
clearance and settlement system. In such an environment, it is
important that changes in transfer agent assignments be
communicated on a timely basis.
Five commenters addressed one or more aspects of the
proposed rule.-[6]- Three commenters favored the proposed rule,
all of whom provided additional comments on specific sections of
the proposed rule. One commenter offered suggestions without
explicitly supporting the proposed rule. One commenter objected
to the proposed rule. The views of the commenters are discussed
in detail below.
The Commission has modified proposed Rule 17Ad-16 to address
certain commenter suggestions and concerns. The Commission has
rejected some suggestions offered by commenters, as discussed
below. Finally, for the reasons discussed in the Proposing
Release and below, the Commission is adopting Rule 17Ad-16 as
revised.
-[5]- On October 6, 1993, the Commission adopted Rule 15c6-1
which establishes three business days after trade date,
rather than five business days, as the standard
settlement cycle for most broker-dealer transactions.
Securities Exchange Act Release No. 33023 (October 6,
1994), 58 FR 52891. The rule becomes effective June 7,
1995. Securities Exchange Act Release No. 34952
(November 9, 1994), 59 FR 59137.
-[6]- See Letters from Richard B. Nesson, General Counsel and
Senior Vice President, The Depository Trust Company
("DTC"), to Jonathan G. Katz, Secretary, Commission
(February 12, 1992); Sarah A. Miller, Senior
Government Relations Counsel, Trust and Securities,
American Bankers Association ("ABA"), to Jonathan G.
Katz, Secretary, Commission (February 10, 1992);
Cecelia M. Widup, President, Corporate Transfer Agents
Association, Inc. ("CTAA"), to Jonathan G. Katz,
Secretary, Commission (February 4, 1992); Fred D.
Ellis, Vice President, Mellon Financial Services
("Mellon"), to Jonathan G. Katz, Secretary, Commission
(June 2, 1992); and Donald R. Hollis, Executive Vice
President, First Chicago Corporation ("First Chicago"),
to Jonathan G. Katz, Secretary, Commission (February 7,
1992). These comment letters are available for
inspection and copying in the Commission's Public
Reference Room, 450 Fifth Street, N.W., Washington,
D.C. 20549. In addition, as required by Section
17A(d)(3)(A)(i) of the Act, the Commission, at least
fifteen days prior to issuance of this release,
consulted with and requested the views of the
Comptroller of the Currency, the Board of Governors of
the Federal Reserve System, and the Federal Deposit
Insurance Corporation.
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II. Basis and Purpose
Transfer delays cause problems for registered securities
depositories, depository participants, and their customers in the
form of increased delays, costs, and risks. Timely securities
transfer is necessary for the efficiency of the national system
for the clearance and settlement of securities transactions.-[7]-
Transfer requests sent to the wrong transfer agent or to the
wrong address must be returned to the party requesting the
transfer, who then must ascertain the correct transfer agent or
address. Even worse, in some instances a transfer request may
not be returned to the requesting party, resulting in the loss of
securities certificates. The rule is designed to reduce the
number of misdirected transfer requests and the resulting delays,
costs, and risks by requiring a transfer agent to provide the
appropriate qualified registered securities depository advance
notice of certain status changes.
Transfer delays cause acute problems for the three
registered securities depositories -- The Depository Trust
Company ("DTC"), Philadelphia Depository Trust Company
("Philadep") and the Midwest Securities Trust Company ("MSTC") -
- that hold a large number of certificates for safekeeping and
have a large daily volume of certificate transfers.-[8]- These
delays also affect depository participants (e.g., banks and
broker-dealers) and their customers (i.e., shareholders) in the
form of increased delays, costs, and risks.
The depositories hold securities certificates in their
nominee name in safekeeping for the benefit of participants and
their customers. When a participant deposits securities into a
depository, the depository usually credits the participant's
account for the deposit and sends the certificates to the
issuer's transfer agent with instructions to transfer the
certificate into the depository's nominee name. Whenever
transfer delays occur, the depository faces an increased risk of
lost certificates. The depository also has increased potential
liability because it credits participants' accounts on the day
certificates are presented for deposit. If deposited
certificates presented for transfer are counterfeit or reported
as stolen, the depository would be subject to credit and market
risk because it could not take corrective action until after the
certificates have been resubmitted to the new transfer agent or
delivered to the transfer agent's new address.
The costs of unannounced transfer agent changes can be
significant for depositories and broker-dealers. DTC estimates
that it incurs costs of at least $200,000 each year directly
-[7]- Rule 17Ad-2 (17 CFR 240.17Ad-2) establishes mandatory
timeframes within which registered transfer agents must
complete most routine transfer requests. Transfer
agents that receive more than 500 items in a six month
period must turnaround within three business days 90%
of the routine items received each month. Routine
items that are not turned around within three business
days and non-routine items must be turned around
promptly. A registered transfer agent for depository-
eligible securities that during the previous six
consecutive months receives fewer than 500 items for
transfer and fewer than 500 items for processing must
turnaround 90% of the routine items within five
business days.
-[8]- DTC, for example, presents an average of 100,000-
120,000 certificates for transfer each business day.
Supra note 1.
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related to unannounced transfer agent changes. Much of that cost
is attributed to locating the correct transfer agent for the
issue or the transfer agent's correct address to send the
certificates for transfer. In addition, DTC surveyed thirteen of
its largest broker-dealer participants that account for 52% of
all DTC processed transfers. During 1990, those firms estimated
cumulative costs of $573,000 for processing transfers delayed
because of unannounced transfer agent changes. Many of the firms
noted that other costs, such as the increased possibility of
certificate losses as well as increased customer dissatisfaction,
were not included in their estimates because those costs were not
easily quantifiable. As indicated by the comments received, the
proposed rule will ameliorate these problems with minimal
financial burden to the transfer agent community.
A substantial majority of the commenters expressed support
for the proposed rule. For example, the ABA noted that the
notification requirement is a particularly good idea in light of
mergers in the banking industry and concluded that the proposed
rule will assist in keeping the capital markets informed of
changes affecting securities transfers. In addition, the CTAA
commented that the notification requirement would be beneficial
to the transfer agent community as a whole.
First Chicago, the sole objecting commenter, believed that
adequate information is available from a private vendor,
Financial Information, Inc., in monthly reports to subscribers
that, in its opinion, are "timely, accurate and adequate." First
Chicago also believed that the information available from this
vendor is superior to that which would be provided pursuant to
Rule 17Ad-16 because under the rule information in the notice
must be handled manually by the transfer agents and recipients
whereas vendor-supplied information is already in machine
readable form. The Commission understands First Chicago to
suggest that the Commission should rely on the private sector to
collect and disseminate timely information regarding transfer
agent assignments and name changes. However, securities
depositories need to receive notice in advance of the change in
assignment. Monthly reports from services based on information
collected voluntarily, in light of other commenter views, do not
appear to solve the need for timely prior notice from all
transfer agents.-[9]-
First Chicago also believed the data required by the rule
will be available from more than one securities depository and
the proposed process does not (1) assure the integrity of the
source data and the data exchanged between the depositories or
(2) resolve data content differences caused by manual errors or
fraudulent entries. The Commission does not believe that the
proposed methodology embodied in proposed Rule 17Ad-16 is
inherently flawed because of its reliance on written notice. The
risk of manual error is roughly equivalent whether the
information is manually entered into an electronic system by the
transfer agent or manually written and delivered to the
securities depositories. By requiring notice from two transfer
agents -- the one assuming the transfer functions for an issue
and the one relinquishing those functions -- the proposed rule
will minimize errors and fraudulent information.
First Chicago also suggested that the Commission reconsider
the notification method set forth in the proposed Rule 17Ad-16
and examine other alternatives such as an Electronic Data
Interchange to permit electronic exchange of information between
-[9]- Indeed, at least one commenter suggested that the
mandatory notice time frame be lengthened. See Mellon
letter, supra note 5.
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all agents and depositories. The Commission believes that the
need for timely and accurate information by securities
depositories, depository participants, and their customers is a
sufficient incentive for securities depositories to develop a
secure and cost effective method to assure data integrity and
timely communication of transfer agent changes. Moreover, the
securities depositories already have held discussions about the
development of a centralized data base and have agreed that DTC
should be the central repository for transfer agent
information.-[10]- Nevertheless, if experience indicates a
significant volume of notices is received on a regular basis, the
Commission would encourage the depositories to consider
establishing an electronic notification system through existing
depository communications systems.
III. Section by Section Analysis
A. Rule 17Ad-16(a): Notice of Termination of Transfer
Agent Services
Proposed Rule 17Ad-16(a) would have required a registered
transfer agent that ceases to perform services on behalf of an
issuer to provide written notification of such change to all
qualified registered securities depositories or to the
appropriate qualified registered securities depository. As
proposed, the rule required that notice be sent by "secure
communication" no later than two business days after the
effective date of such termination. As discussed below, the
Commission is modifying the proposal to require more timely
notice and to require that the notice be sent to the appropriate
qualified registered securities depository.
A number of commenters addressed this requirement, urging
various changes or clarifications. The CTAA stated that
notification by a terminating transfer agent is unnecessary
because it is duplicative of the notification provided by
assuming transfer agents under proposed Rule 17Ad-16(b). The
CTAA favors placing the requirement solely on the assuming
transfer agent because it is the party with the greatest interest
in ensuring that the change in status is recognized by the
industry.
As discussed above, the Commission believes that requiring
notice from the terminating transfer agent is essential. This
notice will serve to validate the notice sent by the assuming
transfer agent and will serve as the only notice in those rare
cases when a new transfer agent has not yet been selected.
Mellon suggests, as an alternative to the proposed two
business day notification period, that a transfer agent be
required to provide this notification, and the notification
required under proposed Rule 17Ad-16(b), the later of (a) ten
calendar days prior to the effective date of the change or (b) as
soon as the transfer agent is aware of the change.-[11]- Mellon
believes that the two business day notification period is
inadequate to permit the securities depositories to react to the
change so as to preclude the improper forwarding of transfer
items to a transfer agent.
The Commission agrees with Mellon that the notice by a
transfer agent ceasing to perform transfer services for a
particular issue should be sent to depositories in sufficient
time to preclude the improper forwarding of transfer items to the
transfer agent. Thus, the Commission is modifying proposed Rule
17Ad-16(a) to require a transfer agent to send the required
notification on or before the later of ten calendar days prior to
-[10]- DTC letter, supra note 5.
-[11]- Mellon letter, supra note 5.
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the termination date or the day the transfer agent is notified of
the termination date. These modifications should minimize the
risk of improperly forwarded transfer items without creating an
undue burden on the transfer agent.
The Commission also is revising the proposed rule to require
that a transfer agent submitting the notice of termination
include in such notice its full name, address, telephone number,
and Financial Industry Number Standard ("FINS") number.-[12]-
The rule as proposed did not specifically require the transfer
agent submitting a termination notice to provide this
identification. The reporting of a FINS number will minimize
possible confusion between transfer agents that have similar
names. This change should not result in any additional burden
because all transfer agents are required to obtain a FINS number
in order to participate in the Commission's Lost and Stolen
Securities Program.-[13]-
The Commission also is revising the proposed rule to require
the transfer agent to send the notice to the appropriate
qualified registered securities depository rather than to all
qualified registered securities depositories. The Commission
believes that it will be simpler for transfer agents to send the
notice to the appropriate qualified registered securities
depository because the transfer agent generally will be aware of
the identity of the appropriate qualified registered securities
depository. The Commission expects that DTC will seek
designation as the appropriate qualified registered securities
depository and that the Commission will act on that request
before the effective date of the rule.
One commenter sought clarification regarding whether the
proposed rule applies to a registered transfer agent with respect
to services provided for securities exempt from registration
under Section 12 of the Act. Section 17A(d)(1) of the Act grants
the Commission rulemaking authority over all of the transfer
activities of a transfer agent registered under Section 17A(c)(1)
of the Act, including securities exempt from Section 12 of the
Act. Accordingly, the Commission will interpret Rule 17Ad-16 to
require registered transfer agents to provide notice of changes
to securities depositories with regard to any "security," as
defined in Section 3(a)(10) of the Act.-[14]- Thus, for example,
-[12]- A FINS number is a unique five digit number used by the
securities industry as a means of identifying financial
institutions in automated data processing systems.
Currently all registered clearing agencies, including
DTC, the National Securities Clearing Corporation, and
the Commission's Lost and Stolen Securities Program use
the FINS number.
-[13]- The Lost and Stolen Securities Program was established
in 1977 to deter trafficking in lost, stolen, missing,
and counterfeit securities and to assist institutions
and the public in tracking missing securities.
Reporting institutions, including transfer agents,
broker-dealers, and banks, are required to report lost,
stolen, missing, or counterfeit securities and to
inquire whether certain securities certificates in
their possession have been reported as lost, stolen,
missing, or counterfeit.
-[14]- The Commission notes that the scope of Rule 17Ad-16 is
not limited to securities that are eligible for deposit
at a registered securities depository. This
(continued...)
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a registered transfer agent assuming or ceasing responsibility
for municipal securities or government securities would be
required to comply with Rule 17Ad-16.-[15]-
B. Rule 17Ad-16(b): Notice of Assumption of Transfer Agent
Services
Proposed Rule 17Ad-16(b) would have required a registered
transfer agent to provide written notification of any assumption
of duties on behalf of an issuer or any change of its name or
address no later than two business days after the effective date
of the change. The Commission is modifying proposed Rule 17Ad-
16(b) to reflect commenter suggestions that the two business day
notification period under this section and under proposed Rule
17Ad-16(a) is inadequate to permit the securities depositories to
react to the change. Thus, the Commission is modifying proposed
Rule 17Ad-16(b) to require a transfer agent to send the required
notification on or before the later of ten calendar days prior to
the effective date of the change in status or the day the
transfer agent is notified of the effective date. This
modification, along with the similar modification in paragraph
(a) of this proposal, should minimize the risk of improperly
forwarded transfer items without creating an undue burden on the
transfer agent.
In the Proposing Release, the Commission invited comment as
to whether, in the case of notification of a name or address
change, the transfer agent should be required to include in the
notice all issues handled and their CUSIP numbers.-[16]- Of the
three commenters addressing this issue, one did not object to the
requirement,-[17]- one suggested it might not be necessary for
its operations,-[18]- and one commenter specifically objected to
the requirement.-[19]- In response to these comments, the
Commission is deleting the requirement that a transfer agent
include in a notice of a name or an address change the issuer's
-[14]-(...continued)
information will help assist the securities industry as
a whole (including broker-dealers and banks) to locate
the appropriate transfer agent. In addition, as a
result of the move to a three business day settlement
time frame for most securities transactions, the vast
majority of securities will be depository eligible.
-[15]- See Securities Exchange Act Release No. 17111
(September 2, 1980), 45 FR 59840.
-[16]- CUSIP is an acronym for the Committee on Uniform
Securities Identification Procedures.
-[17]- The ABA did not oppose the requirement, stating that
supplying CUSIP numbers would not add significantly to
the transfer agent's burden.
-[18]- DTC stated that the inclusion of CUSIP numbers was not
necessary because of the method DTC uses to maintain
transfer agent data.
-[19]- First Chicago opposed the requirement of supplying
CUSIP numbers because it would add to the data capture,
communication, and storage requirements. First Chicago
also believed that the integrity of the data would be
suspect because of the extensive manual handling
involved. Finally, First Chicago stated that extensive
processes would be required to reconcile differences
between redundant data repositories.
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name, the issue or issues handled, and their CUSIP number(s).
The Commission agrees with the commenters that the reporting of
each issue and the corresponding CUSIP numbers handled by a
transfer agent is not necessary when the transfer agent is
reporting a name or an address change. The Commission, however,
is concerned that one of the parties to a merger or acquisition -
- the transfer agent terminating its services or the one assuming
services as a result of the merger or acquisition -- may view the
event as a name or an address change and may not file the
appropriate information, including the CUSIP number for each
issue. Thus, the Commission is revising paragraphs (a) and (b)
to clarify the need for both transfer agents in the case of a
merger or an acquisition to include in the notice the issuer's
name, issues or issues handled, and the CUSIP number for each
issue.
The Commission is adding a requirement, corresponding to the
modification to proposed Rule 17Ad-16(a), that the FINS number of
the transfer agent be included in the notice. As discussed
above, this requirement will act as a confirmation of identity
without adding substantially to the burden of the transfer agent.
The Commission also is modifying proposed Rule 17Ad-16(b),
corresponding to the modification to proposed Rule 17Ad-16(a), to
eliminate the option that the notice be sent to all qualified
registered securities depositories.
C. Rule 17Ad-16(c): Delivery of Notices
Proposed Rule 17Ad-16(c) would have provided that the notice
required by paragraph (a) or paragraph (b) of the proposal must
be delivered by means of a secure communication and state to
which registered securities depositories notice is sent.
Proposed Rule 17Ad-16(c) also defined "secure
communication."-[20]- No commenter specifically addressed
proposed Rule 17Ad-16(c). The Commission defined the term
"secure communication" broadly so as to allow the Commission, by
an interpretation or through the no-action process, to determine
whether a form of communication not specifically enumerated in
the rule is a form of "secure communication." The Commission is
modifying Rule 17Ad-16(c) to delete the requirement that the
notice state to which registered securities depositories notice
is sent. This requirement is no longer necessary because the
notice will be sent only to the appropriate qualified registered
securities depository.
D. Rule 17Ad-16(d): Forwarding of Notices
Proposed Rule 17Ad-16(d) requires a qualified registered
securities depository that receives notices under paragraph (a)
or paragraph (b) to forward copies by means of a secure
communication to each registered securities depository and to its
own participants. One commenter addressed this provision seeking
clarification of how it might comply with the rule.-[21]- The
Commission is modifying proposed Rule 17Ad-16(d) in several
respects. DTC, the only commenter to address proposed
Rule 17Ad-16(d), requested that it be permitted to make the
information contained in the notice available to its participants
upon inquiry over DTC's Participant Terminal System rather than
forwarding copies of the notice by means of "secure
communication." The Commission in using the term "secure
communication" did not intend to preclude the forwarding of
notices in an electronic format. Although the Proposing Release
-[20]- "Secure communication" includes telegraph, overnight
mail, facsimile, or any other form of secure
communication.
-[21]- See DTC letter, supra note 5.
-------------------- BEGINNING OF PAGE #10 -------------------
suggested that all notices must be forwarded by the securities
depository within 24 hours, proposed Rule 17Ad-16(d) did not
contain a specific time period for forwarding notices. The
Commission is revising proposed Rule 17Ad-16(d)(2) to allow a
registered securities depository to make available the notice, or
all material information from the notice, within 24 hours in a
manner set forth in a rule of the depository.-[22]- Because
changes to depository rules must be filed with the Commission and
published for comment, the Commission believes it is appropriate
to determine in that context whether the method proposed to
forward such notices is consistent with the purposes of this rule
and the Act.
The reference to the recipients of notice in Rule 17Ad-
16(d) has been revised to read "qualified registered securities
depositories" rather than "registered securities depositories."
This revision is to clarify that Rule 17Ad-16 only requires
notice to be sent to securities depositories that meet the
definition of "qualified registered securities depositories"
under Rule 17Ad-16(e). Finally, the Commission is modifying
proposed Rule 17Ad-16(d) to clarify that a qualified registered
securities depository must forward all notices received to its
participants, rather than just notices received under paragraphs
(a) and (b). This change is to ensure that a qualified
registered securities depository that is not the appropriate
qualified registered securities depository, which receives
notices under paragraph (d), will provide its participants with
copies of the notices. Those revisions have been incorporated in
new subparagraph (1) of Rule 17Ad-16(d).
Proposed Rule 17Ad-16(d) also would have imposed certain
record keeping requirements on the qualified registered
securities depository and on the notifying transfer agent. The
substance of those requirements, as adopted, has not changed but
the requirements are contained in two new subparagraphs of Rule
17Ad-16(d). The record keeping requirement for a qualified
registered securities depository is contained in new subparagraph
(3) of Rule 17Ad-16(d) and the record keeping requirement for a
transfer agent is contained in new subparagraph (4) of Rule 17Ad-
16(d).
E. Rule 17Ad-16(e): Qualified Securities Registered
Depository
Proposed Rule 17Ad-16(e) defined the term "qualified
registered securities depository" as a clearing agency registered
under Section 17A of the Act that performs clearing agency
functions as described in Section 3(a)(23)(A)(i) of the Act and
that has rules and procedures concerning its responsibility for
maintaining, updating, and providing appropriate access to the
information it receives pursuant to paragraphs (a) and (b) of
Rule 17Ad-16. No commenters addressed proposed Rule 17Ad-16(e).
The Commission is modifying proposed Rule 17Ad-16(e) to clarify
that a qualified registered securities depository may receive
information pursuant to paragraph (d) of Rule 17Ad-16.
-[22]- Rules of a registered clearing agency are required to
be filed with the Commission under Section 19(b) of the
Act. See 15 U.S.C. 78s(b) (1988).
-------------------- BEGINNING OF PAGE #11 -------------------
F. Rule 17Ad-16(f): Appropriate Qualified Registered
Securities Depository
Proposed Rule 17Ad-16(f) defines the term "appropriate
qualified registered securities depository" as a qualified
registered securities depository that, as of the most recent
record date, is the largest holder of record of all qualified
registered securities depositories or such other qualified
registered securities depository designated by the Commission by
order. The purpose of this section is to identify the
appropriate recipient of the transfer agent's notice under Rule
17Ad-16(a) and Rule 17Ad-16(b). As proposed, Rule 17Ad-16(f)
would not have permitted the Commission to designate the
"appropriate qualified registered securities depository." The
Commission, in the Proposing Release, invited comments regarding
the designation by the Commission of the appropriate qualified
registered securities depository.
Three commenters addressed proposed Rule 17Ad-16(f). First
Chicago believed that the proposed rule presents no problem as
drafted since the proper depository is generally known and, when
doubt exists, the notice could be sent to all securities
depositories. DTC and the CTAA recommended that DTC be
designated as the appropriate qualified registered securities
depository. DTC argued that its designation as the appropriate
qualified registered securities depository would eliminate
uncertainty about where notices must be sent and reduce
unnecessary costs and administrative burdens resulting from that
uncertainty. In addition, DTC noted that it has consulted with
MSTC and Philadep, and both organizations have authorized DTC to
advise the Commission of their support for this approach.
DTC is the largest holder of record among qualified
registered securities depositories for the vast majority of
issues. At year-end 1993, DTC held securities on behalf of its
participants that equaled $7.5 trillion, more than 98.8% of the
total market value of securities held by the three registered
securities depositories that handle corporate securities.-[23]-
The Commission is modifying proposed Rule 17Ad-16(f) to
authorize the Commission to designate by order the appropriate
qualified registered securities depository.-[24]- In the absence
of such designation, the appropriate qualified registered
securities depository will be the qualified registered securities
depository with the largest position as of the last record date.
In addition, Rule 17Ad-16(e) requires a qualified registered
securities depository to file a proposed rule change under
Section 19 of the Act detailing how it intends to maintain,
update, and provide appropriate access to the information it
receives. As part of the rule filing, the Commission believes it
is appropriate for a qualified registered securities depository
to seek Commission approval to designate another to carry out its
primary responsibilities provided that the other qualified
registered securities depository agrees.-[25]-
-[23]- DTC, Annual Report 1993 at 5.
-[24]- Concurrent with the adoption of the Rule, the
Commission is delegating to the Director of the
Division of Market Regulation authority to designate by
order the appropriate qualified registered securities
depository.
-[25]- DTC included in its comment letter the forms that DTC
will suggest transfer agents use to comply with the
Rule. The Commission believes mandating such a form is
(continued...)
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IV. Regulatory Flexibility Act Certification
In the Proposing Release, the Commission noted that former
Chairman Richard C. Breeden certified, pursuant to Section 605(b)
of the Regulatory Flexibility Act, that proposed rules, if
adopted, will not have a significant economic impact on a
substantial number of small entities. No comments concerning
regulatory flexibility matters were received.
V. Burden on Competition
As required by Section 23(a) of the Act, the Commission has
specifically considered the impact that these rules would have on
competition. The Commission believes that the rule will not have
a significant impact on transfer agent competition. Transfer
agents only have to send a notice when there is a change of
transfer agent providing services on behalf of an issuer or a
name or address change. Even when a transfer agent is required
to send notice of a change, the cost of compliance is
insignificant. Moreover, the burden of sending such notices
should fall mainly on larger transfer agents that have more
issues because these agents are more likely to have changes that
would require them to send notices under the rule. Thus, the
Commission finds that the rules would not impose a burden on
competition not necessary or appropriate in furtherance of the
purposes of the Act and, in particular, Section 17A of the Act.
VI. Paperwork Reduction Act Submission
An authorization request (SF 83) for the reporting
requirement was prepared and submitted to the Office of
Management and Budget which approved the request without
comments.
VII. Effective Date
The Commission has determined that Section 200.30-3(a)(56)
is a procedural rule related solely to the agency's organization,
procedure, or practice. Therefore, the provisions of the
Administrative Procedure Act ("APA") regarding notice of proposed
rulemaking, opportunities for public participation, and prior
publication-[26]- are not applicable.
VIII. Statutory Basis
Pursuant to the Securities Exchange Act of 1934 and
particularly Sections 3, 17, 17A, and 23(a) thereof, 15 U.S.C.
78c, 78q, 78q-1, and 78w(a), the Commission proposes to add
240.17Ad-16 in Chapter II of Title 17 of the Code of Federal
Regulations in the manner set forth below.
List of Subjects
17 CFR Part 200
Administrative practice and procedure, Authority delegations
(Government agencies), Organizations and functions (Government
organizations).
17 CFR Part 240
Reporting and recordkeeping, Securities.
Text of the Amendments
In accordance with the foregoing, Title 17, Chapter II of
the Code of Federal Regulations is amended as follows:
PART 200 -- ORGANIZATION; CONDUCT AND ETHICS; AND
INFORMATION AND REQUESTS
1. The authority citation for part 200, subpart A
continues to read in part as follows:
Authority: 15 U.S.C. 77s, 78d-1, 78d-2, 78w, 78ll(d), 79t,
77sss, 80a-37, 80b-11, unless otherwise noted.
-[25]-(...continued)
unnecessary at this time.
-[26]- 5 U.S.C. 553.
-------------------- BEGINNING OF PAGE #13 -------------------
* * * * *
2. Section 200.30-3 is amended by adding paragraph (a)(56)
to read as follows:
200.30-3 Delegation of authority to Director of Division of
Market Regulation
* * * * *
(a) * * *
(56) Pursuant to 240.17Ad-16 of this chapter, to designate
by order the appropriate qualified registered securities
depository.
* * * * *
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, 77eee, 77ggg,
77nnn, 77sss, 77ttt, 78c, 78d, 78i, 78j, 78l, 78m, 78n, 78o, 78p,
78q, 78s, 78w, 78x, 78ll(d), 79q, 79t, 80a-20, 80a-23, 80a-29,
80a-37, 80b-3, 80b-4 and 80b-11, unless otherwise noted.
* * * * *
2. Section 240.17Ad-16 is added to read as follows:
240.17Ad-16 - Notice of Assumption or Termination of Transfer
Agent Services.
(a) A registered transfer agent that ceases to perform
transfer agent services on behalf of an issuer of securities,
including a registered transfer agent that ceases to perform
transfer agent services on behalf of an issuer of securities
because of a merger or acquisition by another transfer agent,
shall send written notice of such termination to the appropriate
qualified registered securities depository on or before the later
of ten calendar days prior to the effective date of such
termination or the day the transfer agent is notified of the
effective date of such termination. Such notice shall include
the full name, address, telephone number, and Financial Industry
Number Standard ("FINS") number of the transfer agent ceasing to
perform the transfer agent services for the issuer; the issuer's
name; the issue or issues handled and their CUSIP number(s); and
if known, the name, address, and telephone number of the transfer
agent that thereafter will provide transfer services for the
issuer. If no successor transfer agent is known, the notice
shall include the name and address of a contact person at the
issuer.
(b) A registered transfer agent that changes its name or
address or that assumes transfer agent services on behalf of an
issuer of securities, including a transfer agent that assumes
transfer agent services on behalf of an issuer of securities
because of a merger or acquisition of another transfer agent,
shall send written notice of such to the appropriate qualified
registered securities depository on or before the later of ten
calendar days prior to the effective date of such change in
status or the day the transfer agent is notified of the effective
date of such change in status. A notice regarding a change of
name or address shall include the full name, address, telephone
number, and FINS number of the transfer agent and the location
where certificates are received for transfer. A notice regarding
the assumption of transfer agent services on behalf of an issuer
of securities, including assumption of transfer agent services
resulting from the merger or acquisition of another transfer
agent, shall include the full name, address, telephone number,
and FINS number of the transfer agent assuming the transfer agent
services for the issuer; the issuer's name; and the issue or
issues handled and their CUSIP number(s).
(c) The notice described in paragraphs (a) and (b) of this
section shall be delivered by means of secure communication. For
-------------------- BEGINNING OF PAGE #14 -------------------
purposes of this section, secure communication shall include
telegraph, overnight mail, facsimile, or any other form of secure
communication.
(d)(1) The appropriate qualified registered securities
depository that receives notices pursuant to paragraphs (a) and
(b) of this section shall deliver within 24 hours a copy of such
notices to each qualified registered securities depository. A
qualified registered securities depository that receives notices
pursuant to this section shall deliver a copy of such notices to
its own participants within 24 hours.
(2) A qualified registered securities depository may comply
with its notice requirements under paragraph (d)(1) of this
section by making available the notice or all material
information from the notice within 24 hours in a manner set forth
in the rules of the qualified registered securities depository.
(3) A qualified registered securities depository shall
maintain such notices for a period of not less than two years,
the first six months in an easily accessible place. Such notice
shall be made available to the Commission or other persons as the
Commission may designate by order.
(4) A registered transfer agent that provides notice
pursuant to paragraphs (a) and (b) of this section shall maintain
such notice for a period of not less than two years, the first
six months in an easily accessible place.
(e) For purposes of this section, a qualified registered
securities depository shall mean a clearing agency registered
under Section 17A of the Act (15 U.S.C. 78q-1) that performs
clearing agency functions as described in Section 3(a)(23)(A)(i)
of the Act (15 U.S.C. 78c(a)(23)(A)(i)) and that has rules and
procedures concerning its responsibility for maintaining,
updating, and providing appropriate access to the information it
receives pursuant to this section.
(f) For purposes of this section, an appropriate qualified
registered securities depository shall mean the qualified
registered securities depository that the Commission so
designates by order or, in the absence of such designation, the
qualified registered securities depository that is the largest
holder of record of all qualified registered securities
depositories as of the most recent record date.
By the Commission.
Jonathan G. Katz
Secretary
Dated: December 1, 1994