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Statement Regarding the Need to Modernize the Commission’s Transfer Agent Rules

Commissioner Luis A. Aguilar and Commissioner Daniel M. Gallagher

U.S. Securities and Exchange Commission[*]

June 11, 2015

The Commission has not significantly revised its transfer agent rules in almost 30 years, a period that has witnessed sweeping changes in the securities industry, particularly in transfer agents’ activities. As a result, the Commission’s anachronistic transfer agent rules and the services that the nation’s roughly 450 transfer agents provide today are out of sync.[1] Accordingly, improving the transfer agent regime has been a stated Commission goal for some time.[2] Indeed, even members of the transfer agent industry have acknowledged the pressing need to modernize the Commission’s transfer agent rules.[3]

The Division of Trading and Markets has been working on a concept release seeking public comment on possible updates and improvements to the Commission’s regulatory framework for transfer agents.[4] Prior to its work on a concept release, the Division had developed recommendations for proposed transfer agent rules and briefed Commissioners on those rules. While the Division’s desire to issue a concept release is laudable, we believe the Division’s first inclination to propose transfer agent rules was the right one.[5]

A lengthy delay in updating the Commission’s transfer agent rules would be bad for the markets, investors, and issuers. A concept release may be warranted to gather additional information and viewpoints on certain topics, but there are critical reforms requiring immediate action that we can propose now.

Chair White recognized the need to update the rules governing transfer agents last year when she instructed the staff to prepare a concept release addressing the need to modernize these rules. At her invitation, building on that effort, we have presented Chair White with our joint recommendations for proposed updates and improvements to the Commission’s transfer agent rules that we believe need not wait for a concept release.[6] We hope this will catalyze Commission action to improve the transfer agent rules and to enhance Commission monitoring of the transfer agent industry. Our recommendations seek to better protect investors and issuers by updating and, where appropriate, making the Commission’s transfer agent rules more comprehensive. These recommendations also provide transfer agents with much needed guidance as it relates to their important role as gatekeepers. Among other things, our recommendations will help to ensure that transfer agents do the following:

  • Safeguard investor assets, in part by requiring transfer agents to be appropriately insured or bonded;
  • Establish written agreements with their issuer clients, so that both parties fully understand their rights and obligations;
  • Process dividends and other payments in a timely manner, and promptly notify shareholders about the status of their payments;
  • Develop business continuity and disaster recovery procedures;
  • Prevent fraud, particularly with regard to microcap securities;
  • Avoid or properly disclose and manage conflicts of interest;
  • Develop procedures to govern their use of information technology; and
  • Disclose key information in their annual filings with the Commission, including the identities of all issuers and securities for which they perform services.

Taken together, these recommendations are designed to ensure that the Commission’s regulatory regime for transfer agents keeps pace with an ever evolving marketplace. Revising the outdated transfer agent rules would represent a significant step forward for the agency.

We hope and expect that proposals will be published for comment as soon as possible, and we look forward to working with our colleagues on the Commission as we address this important issue.

Commissioner Luis A. Aguilar

Commissioner Daniel M. Gallagher

[*] The views we express are our own, and do not necessarily reflect the views of the U.S. Securities and Exchange Commission (the “SEC” or “Commission”), our fellow Commissioners, or members of the staff.

[1] U.S. Securities and Exchange Commission, FY 2015 Congressional Budget Justification, FY 2015 Annual Performance Plan, FY 2013 Annual Performance Report, available at (noting that the Commission oversees approximately 450 transfer agents).

[2] See Transfer Agent Concept Release, Securities and Exchange Commission Regulatory Flexibility Agenda (Fall 2014), available at

[3] Paul Capozzi, Updating the SEC Transfer Agent Rules, The STA Newsletter (Apr. 2015) (noting that “technological advances and changes to business practices and market structures have created a significant gap between the transfer agent rules and actual transfer agent activities,” and that “the industry would welcome SEC guidance and/or rulemaking related to restricted stock.”), available at Comment Letter from Edward L. Pittman on behalf of the Securities Transfer Association, Inc. (July 15, 2008) (noting that “Commission staff has spoken for almost five years about proposals that exist in draft form which would seek to modernize transfer agent regulation,” and noting that such proposals “are necessary to address the evolution of the securities markets and transfer agents.”), available at Indeed, the industry has even resorted to a degree of self-help in an effort to address the inadequacies of the Commission’s regulation of transfer agents. Specifically, the Depository Trust Company (DTC), a self-regulatory organization, has sought Commission approval over the years for a number of changes to its internal rules that govern how transfer agents interact with DTC. See, e.g., Securities Exchange Act Release Nos. 13342 (Mar. 8, 1977) (SR-DTC-76-3); 14997 (July 26, 1978) (SR-DTC-78-11); 21401 (Oct. 16,1984) (SR DTC-84-8); 31941 (Mar. 3, 1993) (SR-DTC-92-15); 46956 (Dec. 6, 2002) (SR-DTC 2002-15); and 60196 (June 30, 2009) (SR-DTC-2006-16).

[4] See supra note 2.

[5] See, e.g., Commissioner Luis A. Aguilar, The Importance to the Capital Markets of Updating the Rules Regarding Transfer Agents (Dec. 17, 2014), available at; Commissioner Luis A. Aguilar, Addressing Known Risks to Better Protect Investors (Feb. 21, 2014), available at; Commissioner Daniel M. Gallagher, The Importance of the SEC’s Rulemaking Agenda — You Are What You Prioritize: Remarks at the 47th Annual Securities Regulation Seminar of the Los Angeles County Bar Association (Oct. 24, 2014), available at; Commissioner Daniel M. Gallagher, Statement at Open Meeting on Rule 15b9-1 (Mar. 25, 2015), available at

[6] Commissioners Aguilar and Gallagher each met separately with the Chair to discuss this matter, all in full compliance with the Government in the Sunshine Act. See 5 U.S.C. 552b.

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