SEC Rule 17Ad-17 Compliance
Keane is the number one provider of SEC Rule 17Ad-17 compliance services to corporate and mutual fund transfer agents; and in light of the new Dodd-Frank requirements we are now assisting brokerage firms with this function. We have been at the forefront of the industry since the requirement was first created in 1997, providing searches for millions of lost or “missing” shareholders.
The Dodd-Frank Act of 2010 directed the SEC to modify Rule 17Ad-17 governing the treatment of missing security holders. The change will soon require brokers/dealers to search for lost security holders using a process similar to the one that stock and mutual fund transfer agents have been required to follow for more than a decade.
New Search Requirements for Brokers
The SEC proposes to re-title 17Ad-17 “Transfer agents’, brokers’, and dealers’ obligation to search for lost security holders; paying agents’ obligation to search for missing security holders.” The general industry practices for handling lost security holders under 17Ad-17 are:
- Conduct up to two database searches in an attempt to locate missing security holders. The first search must take place between 3 and 12 months of the account being coded as missing. The second search (if necessary) must be conducted between 6 and 12 months of the first.
- Exclude accounts if: a) the value is less than $25.00, b) the owner is deceased, or c) the owner is not a natural person (i.e. a corporation, trust, or partnership).
- Send first class mail to the newly located address to notify the security holder of the situation and to obtain his or her consent to update the account with the correct address.
New Rules for Handling Uncashed Checks
Dodd-Frank also proposed new rules that will change the way all paying agents handle uncashed checks. A “Paying agent” is defined as any issuer, transfer agent, broker, dealer, investment adviser, indenture trustee, custodian, or any other person that accepts payments from an issuer of securities and distributes payments to security holders.
Specific requirements are:
- Security holders must be considered “missing” if a check sent to them remains uncashed for 6 months (or until the next regularly scheduled check is sent).
- Written notification regarding the “missing” status must be provided to the security holder no later than 7 months after the check in question was originally sent. The notification may be sent along with a subsequent check or some other mailing, provided that the notice occurs within the seven month window.
- The notification requirements do not apply if the check is worth less than $25.
For more information on Rule 17Ad-17, visit our Unclaimed Property Blog.