Signed into law in July 2010, the Dodd-Frank Act directed the SEC to publicize rules implementing its measures. The following is the summary of the SEC’s proposed rules which were published in the Federal Register on March 18, 2011, regarding required changes to Regulation 17Ad-17:
A. Proposed Changes
1. Brokers and dealers will now be subject to the same requirements as transfer agents. However, the Commission clarifies that "[a]s a practical matter, however, the Commission preliminarily believes that the only brokers and dealers that would have obligations under the amended rule would be those that carry securities for the accounts of "customers" within the meaning of Exchange Act Rule 15c3-3. Such brokers and dealers generally are referred to as "clearing firms" (as opposed to "introducing firms") and tend to be the larger brokerage firms."
NOTE: This statement bears some clarification from the Commission as it is causing some confusion among those in the industry.
2. A "paying agent" will be required to provide written notification no later than 7 months after the sending of any uncashed check to each "missing security holder" to inform the missing security holder that they have been sent an uncashed check. The notification may be sent with a check or other mailing subsequently sent to the missing security holder but must be provided no later than seven months after the sending of the not yet negotiated check.
- "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.
- A person would be considered a "missing security holder" if a check is sent to the security holder and the check is not cashed before the earlier of the paying agent’s next regularly scheduled check, or 6 months.
- Paying agents are excluded from the notification requirements if the check is worth less than $25.
NOTE: Paying agents issuing monthly checks are challenged by this requirement and should question their available options in comments to the Commission.
3. Paying agents will be required to keep records to demonstrate compliance with the rule. Records must be kept for at least 3 years. The previous year’s records are to be kept in an easily accessible place. The Commission believes that the collection of information is necessary to enable transfer agents, brokers, and dealers and paying agents, as custodians of records that determine the ownership of securities and the entitlement to corporate distributions, to reduce the number of lost and missing security holders.
4. Regulation 17Ad-17 will be re-titled to demonstrate it applies to personnel other than transfer agents. Specifically, the Commission proposes to re-title the rule "Transfer agents’, brokers’, and dealers’ obligation to search for lost security holders; paying agents’ obligation to search for missing security holders".
5. The SEC has preliminarily chosen one year from final action on the rule as an effective date.
B. The proposed rules include the following requests for Public Comment:
1. The Commission has been directed to avoid requiring multiple paying agents to send written notification to a missing security holder regarding the same not yet negotiated check. The Commission states that it does not believe that multiple notifications by different paying agents for a given check is a likely scenario under the proposed rule amendments because an issuer would not use two paying agents for the same distribution. However, the Commission requests comment on the likelihood of such an occurrence and, if such an occurrence is probable with any frequency, on ways to avoid it from happening.
2. Comment on how brokers and dealers anticipate complying with the proposed rule’s requirement to search for lost security holders.
3. Comment on whether the new term "missing security holder," and its related requirements and timeframes will be confused with the rule’s existing term "lost security holder" and its related requirements and timeframes. The Commission requests particular comment regarding whether brokers, dealers, and transfer agents, which are also included in the definition of "paying agent," foresee issues that may result from the use of the two terms.
4. The Commission requests cost data for implementation of the proposed revisions by industry participants.
5. Comments on any burdens to commerce that might result from the proposed rule amendments. Commentators should provide empirical data to support their views.
6. With respect to Section 17A(g)(2)’s requirement that in preparing these amendments to Rule 17Ad-17 the Commission shall seek to "minimize disruptions to current systems," the Commission requests comment on any potential disruptions that may result from the proposed revisions and how to minimize any such potential disruptions.
7. Comments on the proposal to establish a compliance date for the amendments of one year following final action by the Commission.
Comments are Due 45 days after publication of the proposed rules in the Federal Register.
Rules were published on 3/18/11 – Comments are due on 5/2/2011.
Comments may be submitted electronically or by paper – see instructions below:
Use the Commission’s Internet comment form – (http://www.sec.gov/rules/proposed.shtml);
- Send an e-mail to firstname.lastname@example.org and include File Number S7-11-11 on the subject line; or
- Use the Federal eRulemaking Portal (http://www.regulations.gov) and follow the instructions for submitting comments.
Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090.
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