SEC Adopts New Rules Governing Transfer Agent Responsibilities with Respect to Lost Holders of Securities

December 24, 2012

The SEC adopted new rules requiring transfer agents, as well as broker-dealers, to conduct searches for holders of securities with whom they have lost contact. The new rules also require transfer agents, broker-dealers and certain other market participants to provide notifications to persons who have not processed checks that they have received in connection with their securities holdings.

Specifically, the new rules:

  • require broker-dealers to conduct certain searches for lost holders of securities that transfer agents currently are required to conduct;
  • require “paying agents” – including certain issuers, broker-dealers, transfer agents, and other entities – to notify certain persons – termed “missing securityholders” in the statute and “unresponsive payees” in the adopted rules – in writing that the paying agent has sent the person a check that has not yet been negotiated;
  • excludes paying agents from their notification requirement when the value of the not yet negotiated check is less than $25;
  • add a provision clarifying that the notification requirement for paying agents shall have no effect on a state’s ability to collect funds that it deems abandoned under so-called state escheatment laws; and
  • add a conforming technical rule to help ensure that broker-dealers have notice of their new obligations regarding lost holders of securities and unresponsive payees.

 

Rule 17Ad-17 under the Securities Exchange Act of 1934, previously required only recordkeeping transfer agents to exercise reasonable care to ascertain the correct addresses of “lost securityholders” and conduct certain database searches for them.  The SEC believes that this loss of contact can be harmful to holders of securities because they no longer receive corporate communications or the interest and dividend payments to which they may be entitled.  In addition, the securities and any related interest and dividend payments to which the holders of securities may be entitled are often placed at risk of being deemed abandoned under operation of state escheatment laws. 

The amendments will become effective 60 days after the date of publication of the release in the Federal Register.  The compliance date will be one year after the date of publication of the release in the Federal Register.

Please click here to access the press release about the new rule.

 


Categories

Investment Companies, Regulatory